AECOM Reports 2nd Quarter Fiscal 2022 Results

Source: 5/9/2022, Location: North America

- Delivered a fifth consecutive quarter of NSR growth, which contributed to continued strong earnings growth
- Total backlog reached $40.8 billion, including a 1.6 book-to-burn ratio, reflecting a continued high win rate and strengthening market conditions
- Achieved a new fiscal second quarter high for profitability and adjusted operating margins
- Generated strong first half cash flow; returned nearly $300 million to investors in the first half of the year through share repurchases and dividends
- Reiterated all financial guidance metrics for fiscal 2022 and all long-term fiscal 2024 financial targets

AECOM, the world’s trusted infrastructure consulting firm, reported second quarter fiscal 2022 results.

Second Quarter Fiscal 2022 Highlights
- Revenue decreased 2% to $3.2 billion, operating income decreased 29% to $111 million, the operating margin decreased 140 basis points to 3.5%, net income decreased 44% to $49 million and diluted earnings per share decreased 42% to $0.34. Earnings included an approximately $69 million pre-tax expense from the previously announced decision to immediately exit the Company’s Russia operations; the cash impact related to the exit is expected to approximate $10 million.
- Net service revenue2 increased by 5% in the design business.
- Growth accelerated in March as elevated levels of absenteeism in January and February due to Omicron subsided; the passage of the U.S. fiscal 2022 federal budget in March added visibility for our government clients in the U.S.
- The segment adjusted 1 operating margin 4 increased 70 basis points to 13.8%, which marked a new high for a fiscal second quarter.
- Adjusted 1 EBITDA 5 increased by 10% and adjusted 1 EPS increased by 24%, reflecting continued NSR growth and higher margins; EPS growth also benefited from stock repurchases under the Company’s capital allocation policy.
- Total backlog of $40.8 billion increased by 4% 3 driven by a 1.6 book-to-burn 7 ratio, which included 1.6 and 1.5 book-to-burn ratios in the Americas and International segments, respectively.

Cash Flow, Balance Sheet and Capital Allocation Update
- Operating cash flow in the first half of the year was $193 million and free cash flow was $145 million, reflecting one of the strongest first half cash flow performances in the Company’s history.
- The Company’s capital allocation policy is built on the continued intent to return substantially all available cash flow to stockholders through share repurchases and dividends.
- Returned nearly $300 million to stockholders in the first half of the fiscal year through share repurchases and dividends. Repurchased nearly 15% of shares outstanding since September 2020.

Fiscal 2022 Financial Guidance and Long-Term Fiscal 2024 Financial Targets
- AECOM reiterated its fiscal 2022 diluted adjusted1 EPS guidance of between $3.30 and $3.50 and adjusted EBITDA5 guidance of between $880 and $920 million, which reflect 21% and 8% growth at the mid-point of the respective ranges.

Assumptions incorporated into full year guidance include:
- Approximately 6% organic NSR 2 growth, underpinned by robust pipeline and backlog momentum and strengthening market conditions across the Company’s largest markets.
- A segment adjusted1 operating margin4 of at least 14.1%, which would reflect an increase of at least 30 basis points as compared to fiscal 2021 and includes ongoing investments in the Company’s professionals, Digital AECOM, and expanding the Company’s addressable market with advisory and program management services.
- An average fully diluted share count of 144 million, reflecting only shares repurchased to date, even as the Company intends to continue to repurchase stock in fiscal 2022 consistent with its capital allocation policy.
- An effective tax rate of approximately 25%.
- AECOM Capital earnings in the mid-single digit millions.
- The Company continues to expect free cash flow6 of between $450 million and $650 million in fiscal 2022, which is consistent with the highly cash generative nature of its Professional Services business and incorporates strong year-to-date cash flow.
- The Company also reiterated its long-term financial targets for fiscal 2024, which include an expectation for adjusted EPS of $4.75+ and a 15% segment adjusted operating margin, as well as a long-term segment adjusted operating margin goal of 17%.

“Our performance in both the second quarter and the first half of the year is a testament to our commitment to deliver on our financial and strategic priorities and create value for our stakeholders,” said Troy Rudd, AECOM’s chief executive officer.

“We are uniquely well suited to lead as three mega trends take hold, including a global infrastructure investment renaissance, our clients’ increasingly ambitious ESG priorities, and infrastructure adaptation to a post-COVID new normal.

As we look ahead, our strong backlog and pipeline, top rankings in key market sectors, and the expansion of our addressable market with advisory, program management, and digital capabilities support our expectation for accelerating NSR growth and for an at least 19% adjusted EPS CAGR through fiscal 2024 from fiscal 2021. Importantly, as our results of the past few years have demonstrated, our organization is built to perform through numerous market uncertainties and challenges, and these attributes will be critical to our success as we look ahead.”

“I am proud of how our professionals have delivered against our strategic priorities with continued record high win rates, strong client satisfaction scores, high employee engagement and satisfaction, and a continued focus on pursuing and winning the key pursuits that fortify our leadership position,” said Lara Poloni, AECOM’s president. “We are operating from an enviable position of strength, with our unrivaled technical expertise, complemented by our program management and advisory capabilities, which position us well to lead our industry as funding across our markets accelerates.”

“The inherent attributes of our Professional Services business, including a focus on high returning and lower risk services, strong cash flow, and a high degree of visibility from our growing backlog, combined with the success of our Think and Act Globally strategy, are contributing to consistently strong performance across all key financial metrics,” said Gaurav Kapoor, AECOM’s chief financial officer. “We delivered strong cash flow in the first half of the year, and we remain committed to our capital allocation policy, as evidenced by the nearly $300 million of capital returned to stockholders year to date and in having repurchased nearly 15% of our shares outstanding over the past 18 months.”

Business Segments

Revenue in the second quarter was $2.4 billion. Net service revenue2 was $950 million, a 3% increase from the prior year, highlighted by 4% growth in the design business, reflecting a high win rate, strengthening market conditions and client budgets, and the successful execution of a strong backlog and pipeline of pursuits.

Operating income increased by 6% over the prior year to $164 million. On an adjusted1 basis, operating income increased by 6% to $168 million. The adjusted operating margin on NSR2 of 17.7% is a 50 basis point increase over the prior year. Margins and profitability reflect strong execution that is enabling ongoing reinvestment in growth and innovation.

Revenue in the second quarter was $813 million. Net service revenue2 was $664 million, a 6% increase from the prior year, which included growth in the Company’s largest and most profitable geographies.

Operating income increased by 19% over the prior year to $55 million. On an adjusted basis1, operating income increased by 18% to $55 million. The adjusted operating margin on NSR2 increased by 100 basis points over the prior year to 8.3%, which marked the seventh consecutive quarter of sequential margin improvement and reflects continued progress towards achieving a double-digit margin in the International segment.

Balance Sheet
As of March 31, 2022, AECOM had $1.0 billion of total cash and cash equivalents, $2.2 billion of total debt and $1.3 billion of net debt (total debt less cash and cash equivalents). Net leverage8 was 1.3x.

Tax Rate
The effective tax rate was 39.7% in the second quarter. On an adjusted basis, the effective tax rate was 27.8%. The adjusted tax rate was derived by re-computing the quarterly effective tax rate on earnings from adjusted net income.9 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.

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