AECOM Announces Q4 & FY 2020 Results

LOS ANGELES (Nov. 16, 2020)—AECOM reported fourth quarter and full year fiscal 2020 results.

Full Year Fiscal 2020 Accomplishments

• Revenue was $13.2 billion, and net service revenue² of $6.2 billion declined by 2% compared to the prior year on an organic basis³.
• Operating income was $381 million and net income decreased by 19% to $170 million; diluted earnings per share was $1.06 and adjusted¹ diluted earnings per share was $2.15.
• Adjusted¹ EBITDA⁵ exceeded the company’s guidance, increasing by 14% to $746 million, marking a new high for the professional services business;

• The operating income margin decreased by 190 basis points to 1.8% in the fourth quarter and was unchanged with the prior year at 2.9% for the full year.
• The segment adjusted¹ operating margin⁴ on NSR² increased by 160 basis points to 12.3%, also a new high for the professional services business and 60 basis points above the Company’s prior guidance.
• Operating cash flow was $330 million and free cash flow⁶ was $341 million, which exceeded the company’s guidance range and included $619 million of free cash flow in fourth quarter.
• The company expects to a deliver 9% adjusted EBITDA¹ growth and 23% adjusted EPS¹ growth in fiscal 2021 at the mid-point of its respective guidance ranges.
• The company has executed $455 million of stock repurchases since the beginning of September 2020, which reduced the diluted share count by approximately 6.5% to date.
• Consistent with its plan to return substantially all available cash and free cash flow to shareholders, the company announced an increase to the existing remaining board repurchase authorization from $305 million to $1 billion, positioning the company to continue repurchase substantial stock in fiscal 2021.
• In October 2020, the company continued its transformation to a higher-margin and lower-risk professional services business with the completed disposition of the power construction business and in January 2020 the completed sale of the management services business.
• The company also announced today its Think and Act Globally strategy aimed at setting a new standard of excellence for the professional services industry by extending its global expertise to each of its projects and clients around the world through enhanced collaboration, transforming the way it delivers work through technology and digital platforms, and enhancing its position as a leading ESG company.

Fiscal 2021 Financial Guidance

• The company expects in fiscal 2021 adjusted net income¹ of between $390 million and $420 million, adjusted EPS¹ of between $2.55 and $2.75, and adjusted¹ EBITDA⁵ of between $790 million and $830 million.
  – At the mid-point of its respective ranges, the Company is forecasting 9% adjusted EBITDA growth and 23% adjusted EPS growth over fiscal 2020.
  – This guidance includes an expected additional 90 basis point improvement in the segment adjusted¹ operating margin⁴ to 13.2%, reflecting the benefits from restructuring actions taken in FY’20 that are expected to contribute to improved margins in both the company’s Americas and International segments.
  – The company’s adjusted EPS guidance assumes an average diluted share count of 153 million, which is inclusive of shares repurchased through November 13, 2020.

• The company also provided guidance for fiscal 2021 free cash flow⁶ of between $425 million and $625 million, which is consistent with the highly cash generative nature of the Professional Services business. The guidance is based on anticipated cash flow from operations of $535 million to $735 million less capital expenditures, net of proceeds from equipment disposals, of approximately $110 million.
• Underlying the company’s confidence in fiscal 2021 and beyond are several favorable attributes inherent in its professional services business that allow for consistent performance through periods of uncertainty, including an agile workforce with a proven ability to remain productive while working remotely, a consolidated design business under one global organization, a highly variable cost structure, a substantial backlog with several years of visibility and a highly cash generative business profile.

“I am incredibly proud of how our teams responded to the unprecedented challenges of the past year to deliver for our clients and communities and to position the business for continued success in 2021 and beyond,” said Troy Rudd, AECOM’s chief executive officer. “I am grateful to our professionals for their focus on the health safety of their families and clients, and on the health of our business. We are committed to setting a new standard of excellence in the Professional Services industry.”

“Our teams are energized by our achievements in fiscal 2020 and in the opportunities that lay ahead,” said Lara Poloni, AECOM’s president. “We are focusing on the best market opportunities and removing barriers that hindered our ability to deliver our global expertise to each of our local projects. Our efforts on ESG are just one example of where we have assembled global teams to both advance ESG within AECOM and also shape how our clients achieve their sustainability and social visions.”

“We delivered strong EBITDA growth and free cash flow, which, along with the sale of the Management Services, contributed to a substantial debt reduction and the commencement of share repurchases,” said Gaurav Kapoor, AECOM’s chief financial officer. “We remain focused on the health of our people and continuing to build the strength of our business. We are committed to promoting a culture of continuous margin improvement as we march towards our 15% long-term target, and returning substantially all available cash and free cash flow to investors through share repurchases. The Board has authorized an increase to the existing share repurchase program to $1 billion, creating the authority to continue to repurchase stock with substantially all available cash and free cash flow.”

Wins and Backlog

Full year wins of $18.2 billion resulted in a book-to-burn ratio⁸ of 1.3, which was highlighted by a 1.4 book-to-burn ratio in the Americas segment. Total backlog remains at near-record levels and increased by 13%⁷ over the prior year to $41.2 billion. In addition, contracted backlog increased by 12% over the prior year, providing for solid levels of visibility.

Business Segments

AECOM reports its financial results based on three segments: Americas, which consists of the company’s business in the United States, Canada and Latin America; International, which consists of the company’s business in Europe, the Middle East, Africa and the Asia-Pacific regions; and AECOM capital.

In addition, the management services (MS) business, which was sold in January 2020, and the at-risk, self-perform construction businesses that the company has either exited or intends to exit are reported as discontinued operations.

Americas

Revenue in the fourth quarter was $2.7 billion, a 2% increase from the prior year. Full year revenue was $10.1 billion, a 2% decrease from the prior year.

Net service revenue² was $929 million in the fourth quarter, a 6% decrease from the prior year on a constant-currency organic basis³. Full year net service revenue was $3.7 billion, which declined by 1% on a constant-currency organic basis and included a slight decline in the Americas design business, which was partially offset by growth in the construction management business.

Fourth quarter operating income was $153 million compared to $149 million in the year-ago period. On an adjusted basis¹, operating income was $157 million compared to $163 million in the year-ago period. For the full year, operating income was $600 million compared to $518 million in the prior year. On an adjusted basis, full year operating income was $619 million compared to $555 million in the prior year. The full year adjusted operating margin on an NSR² basis of 16.8% was a 160 basis point increase over the prior year, which reflects the benefits of the many strategic actions taken to enhance margins and is a new high for the Company on both a GAAP and adjusted basis.

International

Revenue in the fourth quarter was $831 million, which was unchanged over the prior year. Full year revenue was $3.1 billion, a 5% decrease from the prior year.

Net service revenue² was $630 million in the fourth quarter, a 11% decrease from the prior year on a constant-currency organic³ basis. Full year net service revenue was $2.5 billion, a 4% decrease from the prior year on a constant-currency organic basis, which included single-digit declines in both the EMEA and Asia-Pacific regions.

Fourth quarter operating income was $40 million compared to $35 million in the year-ago period. On an adjusted basis¹, operating income was $41 million compared to $37 million in the year-ago period. Full year operating income was $137 million compared to $105 million in the prior year. On an adjusted basis, full year operating income was $142 million compared to $110 million in the prior year. The full year adjusted operating margin on an NSR² basis increased by 150 basis points over the prior year to 5.7%. The benefits of real estate restructuring, a streamlined G&A structure and ongoing exit from more than 30 countries enabled the Company to deliver margin improvement despite a decline in revenue. Continued improvement in the company’s International margins towards a long-term target of double-digit margins remains a key priority.

AECOM Capital

The AECOM capital segment invests in and develops real estate projects. Revenue in the fourth quarter was $5.6 million and operating income was $11.0 million, which benefitted from the sale of property investments that generated a greater than 20% IRR. Full year operating income was $13.0 million. The company expects between $5 million and $10 million of AECOM capital earnings in fiscal 2021.

Discontinued Operations

Following the close of the fourth quarter, AECOM closed on the sale of the Power construction business. Results for discontinued operations included a $247 million impairment to assets held for sale as part of the Company’s continued progress to exit its self-perform, at-risk construction businesses.

Cash Flow

Operating cash flow for the fourth quarter was $649 million and free cash flow⁶ was $619 million. Full year operating cash flow was $330 million and free cash flow was $341 million, which exceeded the high end of the company’s guidance range. The company’s full year free cash flow included the receipt of $122 million in connection with a previously announced favorable net working capital purchase price adjustment collected in May 2020 in connection with the sale of the management services business, which is included in the investing section of the cash flow statement in accordance with GAAP.

Balance Sheet & Capital Allocation

As of September 30, 2020, inclusive of discontinued operations, AECOM had $1.8 billion of total cash and cash equivalents, $2.1 billion of total debt, $250 million of net debt and was undrawn under its $1.35 billion revolving credit facility. Gross leverage⁹ declined to 2.7x and net leverage⁹ declined to 0.3x.

With the expected continued strong cash generation in the business and substantial access to liquidity, the company has executed $455 million of stock repurchases since the beginning of September, which reduced its diluted share count by approximately 6.5%. The company remains committed to returning substantially all available cash and free cash flow to shareholders through stock repurchases. In November, the Board approved an increase to the existing repurchase authorization to $1 billion.

Tax Rate

The effective tax rate was 79.8% in the fourth quarter and 19.7% in the full year. The fourth quarter effective tax rate was influenced by non-deductible expenses and foreign earnings taxed in the United States. On an adjusted basis, the effective tax rate was 30.0% in the fourth quarter and 28.5% in the full year. The adjusted tax rate was derived by re-computing the annual effective tax rate on earnings from adjusted net income.¹⁰ 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.

Restructuring Update

AECOM continues to advance its previously announced restructuring actions that are expected to deliver continued substantial margin improvement and efficiencies that result in a more agile organization. As a result, the company expects to incur restructuring expenses in fiscal 2021 of between $30 million and $50 million, which will be excluded from the company’s adjusted results.