AECOM reports first quarter fiscal year 2018 results

Los Angeles — AECOM reported first quarter revenue of $4.9 billion. Net income and diluted earnings per share were $111 million and $0.69 in the first quarter, respectively. On an adjusted basis, diluted earnings per share was $0.57.

First Quarter 2018 Accomplishments:

• Organic revenue increased by 8% to a new all-time high and included growth in each of the Design & Consulting Services (DCS), Construction Services (CS), and Management Services (MS) segments.
• Wins of $6.1 billion included book-to-burn ratios greater than 1.0 in all three segments, led by 1.5 and 1.2 in the higher-margin MS and DCS segments, respectively.
• Total backlog reached a new record of $49 billion, which is an 11% year-over-year increase.
• Adjusted EBITDA as reported would have increased by 18% after also excluding $22 million of restructuring costs in the quarter and a $35 million benefit from a legal settlement in the year-ago period.
• Reiterating fiscal 2018 adjusted EBITDA guidance of $910 million and adjusted EPS guidance of between $2.50 and $2.90.
• The company remains on track to achieve 2.5x net debt-to-EBITDA by the end of fiscal year 2018 and thereafter intends to return substantially all free cash flow to investors under a $1 billion stock repurchase authorization.

“We are capitalizing on market momentum and the benefits of our investments in growth, as evidenced by continued strong organic revenue performance, more than $6 billion of wins for the third time in our history, and 11% backlog growth to a new record of $49 billion, led by our higher-margin MS and DCS segments,” said Michael S. Burke, AECOM’s chairman and chief executive officer. “Confidence across our markets is increasing and has been bolstered by the anticipated positive benefits of U.S. tax reform and improving economic growth expectations. As a result, we are reaffirming our industry-leading five-year financial targets through fiscal 2022, including a 5%+ organic revenue CAGR, a 7%+ adjusted EBITDA CAGR, a 12-15% adjusted EPS CAGR and at least $3.5 billion of free cash flow.”

“Our strong first quarter results have us on track with our full-year financial goals, and we remain confident in creating substantial value for our investors through the execution of our strategy and capital allocation policy,” said W. Troy Rudd, AECOM’s chief financial officer. “Importantly, free cash flow was consistent with normal seasonality, highlighting the benefits of our diverse business model and our culture focused on risk management and driving cash flow. Accordingly, we are on track with our full year guidance for between $600 million and $800 million of free cash flow.”

Wins and backlog

Wins were $6.1 billion, and resulted in a book-to-burn ratio of 1.2. Wins were highlighted by strength across the business, including greater than 1 book-to-burn ratios in the DCS, CS and MS segments. Total backlog increased 11% over the prior-year period to nearly $49 billion, and continued to reflect a favorable mix shift to the higher-margin DCS and MS segments.

Business segments

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 first quarter was $1.9 billion. Constant-currency organic revenue increased by 5% and included strong performance in the company’s transportation and water markets in the Americas, which are benefiting from improved funding and continued growth across international markets.

Operating income was $85 million compared to $99 million in the year-ago period. On an adjusted basis, operating income was $92 million compared to $108 million in the year-ago period. Results included $21 million for previously-disclosed restructuring costs. Excluding these costs, adjusted operating income was consistent with the company’s expectation and would have increased by 4% from the prior year.

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

Revenue in the first quarter was $2.1 billion. Constant-currency organic revenue increased by 11%, led by continued strong growth in the Building Construction and Power businesses.

Operating income was $40 million compared to $18 million in the year-ago period. On an adjusted basis, operating income was $51 million compared to $25 million in the year-ago period, and was driven by the Power and Building Construction businesses and the recently-acquired Shimmick Construction business.

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 first quarter was $843 million. Organic revenue increased by 10%, reflecting strong business momentum and the successful conversion of the company’s record backlog into revenue.

Operating income was $40 million compared to $74 million in the year-ago period. On an adjusted basis, operating income was $50 million compared to $87 million in the year-ago period. After excluding a $35 million benefit from a legal settlement disclosed in the year-ago period, adjusted operating income would have been effectively unchanged from the prior year.

Tax rate

The effective tax rate in the first quarter was (61%). On an adjusted basis, the effective tax rate was (0.05%). 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, and excluded the discrete items related to U.S. tax reform, as noted below.

Financial impacts of tax reform

AECOM’s first quarter GAAP financial results included the following impacts from discrete tax items resulting from the U.S. tax reform, which was signed into law on December 22:

• The revaluation of deferred tax assets and liabilities resulted in a $113 million benefit.
• A one-time tax repatriation toll charge of $71 million was accrued.

The impact from these discrete tax items was excluded from AECOM’s fiscal first quarter adjusted earnings per share and fiscal 2018 adjusted earnings per share guidance.

For the full year, the company now expects an effective tax rate for adjusted earnings of approximately 20% compared to prior guidance of 21%. The reduction in the tax rate guidance reflects the benefit from a lower corporate tax rate on U.S. earnings for 9 months of the fiscal year, which will contribute to adjusted earnings per share.

Cash flow

Operating cash flow for the first quarter was $52 million and free cash flow was $34 million. The company remains on track with its annual free cash flow guidance of $600 million to $800 million for fiscal 2018.

Balance sheet

As of December 31, 2017, AECOM had $813 million of total cash and cash equivalents, $3.1 billion of net debt and $915 million in unused capacity under its $1.05 billion revolving credit facility.

AECOM’s fiscal year 2018 financial outlook is as follows:

• Adjusted EBITDA — $910 million
• Adjusted EPS — $2.50 – $2.90
• Free Cash Flow — $600 million – $800 million
• Interest Expense (excluding amortization of deferred financing fees) — $210 million
• Amortization — $90 million
• Full-Year Share Count — 162 million
• Effective Tax Rate for Adjusted Earnings — ~20%
• Capital Expenditures — $110 million