AECOM reports third quarter FY 2017 results

Los Angeles — AECOM reported third quarter revenue of $4.6 billion. Net income and diluted earnings per share were $101 million and $0.64 in the third quarter, respectively. On an adjusted basis, diluted earnings per share was $0.78.

AECOM reported the following highlights:

• Third consecutive quarter of positive organic revenue growth.
• Record $9.0 billion of wins and $46.4 billion backlog, led by a $3.6 billion Management Services win for the U.S. Air Force and contributions across the business.
• Generated all-time high free cash flow of $394 million, enabling continued debt reduction.
• Addition of Shimmick Construction greatly expands the Company’s integrated civil infrastructure capabilities in strong Western U.S. markets.

“Our third quarter results demonstrate the benefits of our fully integrated business model, which produced positive organic growth for the third consecutive quarter, record wins and backlog, and strong execution on our key priorities,” said Michael S. Burke, AECOM’s chairman and chief executive officer. “We continue to make deliberate investments to strengthen our foundation for future growth, such as the recent addition of Shimmick Construction’s leading heavy civil infrastructure construction capabilities. As a result, we are better positioned than ever to capitalize on the growth opportunities across our markets and to best serve our clients’ growing preference for alternative delivery solutions.”

“We are pleased to have delivered another strong quarter of cash flow and debt reduction, reflecting the benefits of our diverse business and commitment to achieving our cash flow targets,” said W. Troy Rudd, AECOM’s chief financial officer. “We remain confident in our cash flow outlook and are focused on delivering stockholder value through balanced capital allocation and continued emphasis on deleveraging.”

Wins and backlog

Wins were $9.0 billion, an increase of 164% from last quarter, and resulted in a book-to-burn ratio of 1.8. Wins were highlighted by a $3.6 billion win in the Management Services segment, and strong performance across the company. Total backlog increased 13% over the prior-year period to $46.4 billion.

Business segments

In addition to providing consolidated financial results, AECOM reports separate financial information for its four segments: Design & Consulting Services, Construction Services, Management Services, and AECOM Capital.

Design & Consulting Services (DCS) — The DCS segment delivers planning, consulting, architectural and engineering design services to commercial and government clients worldwide in markets such as transportation, facilities, environmental, energy, water and government.

Revenue in the third quarter was $1.9 billion. Constant-currency organic revenue decreased by 1%. Performance in the Asia-Pacific region remains strong, however, low oil prices continue to negatively impact the Company’s markets. The pace of activity in the Americas is slower than previously contemplated earlier in the year, but substantial funding initiatives and continued investments in business development have resulted in a new high for backlog and positions the Company to deliver future growth.

Operating income was $94 million compared to $124 million in the year-ago period. On an adjusted basis, operating income was $104 million compared to $150 million in the year-ago period. Third quarter adjusted operating income reflects solid underlying execution offset by the impact of lower revenue in the EMEA region and increased investment in business development to capitalize on growth opportunities.

Construction Services (CS) — The CS segment provides construction services for energy, sports, commercial, industrial, and public and private infrastructure clients.

Revenue in the third quarter was $1.8 billion. Constant-currency organic revenue increased by 8%, highlighted by double-digit growth in the Building Construction and Power businesses.

Operating income was $33 million compared to $11 million in the year-ago period. On an adjusted basis, operating income was $42 million compared to $22 million in the year-ago period, and was driven by strong performance in the Building Construction and Power businesses.

Management Services (MS) — The MS segment provides program and facilities management and maintenance, training, logistics, consulting, technical assistance and systems-integration services and information technology services, primarily for agencies of the U.S. government, national governments around the world and commercial customers.

Revenue in the third quarter was $856 million. Organic revenue increased by 2%, reflecting strong business momentum and the successful conversion of the Company’s pipeline to wins.

Operating income was $66 million compared to $55 million in the year-ago period. On an adjusted basis, operating income was $79 million compared to $76 million in the year-ago period, reflecting strong execution across the Company’s vast and diverse portfolio of projects.

AECOM Capital (ACAP) — The ACAP segment invests in private-sector real estate, public-private partnerships (P3), and infrastructure. Operating income in the third quarter was $46 million and included the Company’s first investment monetization, which closed during the quarter for an approximately 30% IRR, and also resulted in fees earned by the CS segment. ACAP continues to manage a diverse portfolio that includes numerous active investments and $220 million of committed capital.

Tax rate

The effective tax rate in the third quarter was 8.2%. On an adjusted basis, the effective tax rate was 15.5%. Both rates reflect the benefit from the Company’s decision in the third quarter to indefinitely reinvest a portion of its non-U.S. undistributed earnings for which U.S. tax had previously been provided. The net impact to full-year earnings per share resulting from tax variances incorporated in the Company’s updated tax guidance is a $0.07 benefit. The adjusted tax rate was derived by re-computing the expected annual effective tax rate on earnings from adjusted net income. The adjusted tax expense differs from the GAAP tax expense based on the taxability or deductibility and tax rate applied to each of the adjustments.

Cash flow

Operating cash flow for the third quarter was $414 million and free cash flow was $394 million, both of which set new quarterly highs. The Company remains on track with its annual free cash flow guidance of $600 million to $800 million for fiscal 2017.

Balance sheet

As of June 30, 2017, AECOM had $812 million of total cash and cash equivalents, $3.2 billion of net debt and $992 million in unused capacity under its $1.05 billion revolving credit facility. Total debt has declined by $1.4 billion since closing the URS acquisition in October 2014.

Financial outlook

AECOM is reiterating fiscal year 2017 adjusted EPS guidance of $2.80 to $3.20, which includes approximately $0.20 of anticipated gains related to AECOM Capital realizations at the mid-point of the range.

The Company expects fiscal 2017 full-year interest expense, excluding amortization of deferred financing fees, of approximately $215 million as compared to $210 million previously, which now reflects the Shimmick transaction. The Company expects an effective tax rate10 for adjusted earnings of approximately 16% compared to 18% previously, reflecting a lower than anticipated fiscal third quarter effective tax rate and a higher than previously anticipated fiscal fourth quarter effective tax rate.

The Company continues to expect a full-year share count of 159 million, and also expects $36 million of acquisition and integration expenses during the fiscal year. Fiscal year 2017 capital expenditures are expected to be approximately $115 million. The Company expects depreciation expense of approximately $165 million and the amortization of intangible assets to be approximately $100 million compared to $95 million previously.