"We have never been better positioned to capitalize on the improving trends across our markets” said Stephen M. Kadenacy, AECOM’s president and chief operating officer. “Our strong wins and growing pipeline reflect increased investments in business development and a focus on driving collaboration across the company.”
“Our earnings result met our expectations and included a $0.12 benefit from legal proceedings, primarily related to the legal settlement we disclosed in November 23, 2016 and included as part of updated financial guidance,” said W. Troy Rudd, AECOM’s chief financial officer. “Importantly, we delivered operating cash flow that is consistent with normal phasing and our plan for the year.”
Wins and Backlog
Wins in the quarter of $5.9 billion resulted in a book-to-burn ratio5 of 1.3. Wins were broad based and included the selection of our joint venture for the SONGS decommissioning project, a record $1.7 billion of wins in Management Services, and a large gas power plant in the U.S. Total backlog increased 2% year-over-year to $43.8 billion, the highest ever reported by the Company.
Business Segments
In addition to providing consolidated financial results, AECOM reports separate financial information for its three segments: Design & Consulting Services, Construction Services and Management Services.
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 $1.8 billion. Constant-currency organic6 revenue increased by 1%, highlighted by 2% growth in the Americas, 8% growth in the U.K., and 7% growth in Australia, partially offset by a decline in markets impacted by lower oil and gas prices.
Operating income was $99 million compared to $82 million in the year ago period. On an adjusted basis, operating income3 was $108 million compared to $121 million in the year ago period. The first quarter performance reflects strong underlying execution offset by increased business development investments to capitalize on improved market trends and lower contribution from normal margin.
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 $1.8 billion. Constant-currency organic6 revenue increased by 2%, highlighted by 3% growth in the Building Construction business and 9% growth in the Energy and Industrial Construction business, which more than offset continued Oil & Gas market weakness.
Operating income was $18 million compared to an operating loss of $27 million in the year ago period. On an adjusted basis, operating income3 was $25 million compared to $30 million in the year ago period.
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 $767 million. Constant-currency organic6 increased by 1%.
Operating income was $74 million compared to $70 million in the year ago period. On an adjusted basis, operating income7 was $87 million compared to $97 million in the year ago period. First quarter operating income benefitted by approximately $35 million from legal proceedings.
Tax Rate
The effective tax rate in the first quarter was 27.4%. On an adjusted basis, the effective tax rate was 28.7%. Our adjusted tax rate was derived by re-computing the annual effective tax rate on earnings from adjusted net income (loss).8 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 first quarter was $78 million, which was materially unchanged last year and consistent with the Company’s plan for the year.
Free cash flow4 for the first quarter was $56 million and is on track with annual free cash flow guidance of $600 million to $800 million for fiscal 2017.
Balance Sheet
AECOM had $698 million of total cash and cash equivalents, $3.5 billion of net debt and $862 million in unused capacity under its $1.05 billion revolving credit facility. Total debt has declined by $1.2 billion since closing the URS acquisition in October, 2014.
Financial Outlook
AECOM is reiterating fiscal year 2017 adjusted EPS2 guidance of $2.80 to $3.20, which includes approximately $0.20 of anticipated gains related to AECOM Capital realizations.
The Company expects fiscal 2017 full year interest expense, excluding amortization of deferred financing fees, of approximately $190 million and a full-year share count of 159 million.
The Company expects an effective tax rate8 for adjusted earnings of approximately 20%, which is similar to fiscal 2016.
The Company expects $30 million of acquisition and integration expenses during the fiscal year.
Fiscal year 2017 capital expenditures9 are expected to be approximately $115 million. The Company expects depreciation expense of approximately $165 million and the amortization of intangible assets10 to be approximately $95 million.
Conference Call
AECOM is hosting a conference call today at 12 p.m. EDT, during which management will make a brief presentation focusing on the Company's results, strategies and operating trends. Interested parties can listen to the conference call and view accompanying slides via webcast at www.aecom.com. The webcast will be available for replay following the call.
| 1 | Defined as attributable to AECOM. | ||
| 2 | Defined as attributable to AECOM, excluding acquisition and integration related expenses, financing charges in interest expense, the amortization of intangible assets, and financial impacts associated with expected and actual dispositions of non-core businesses and assets. | ||
| 3 | Excluding intangible amortization and financial impacts associated with expected and actual dispositions of non-core businesses and assets. | ||
| 4 | Free cash flow is defined as cash flow from operations less capital expenditures net of proceeds from disposals, and is a non-GAAP measure. | ||
| 5 | Book-to-burn ratio is defined as the amount of wins divided by revenue recognized during the period, including revenue related to work performed in unconsolidated joint ventures. | ||
| 6 | Organic growth is at constant currency and excludes revenue associated with actual and planned non-core asset and business dispositions. Results expressed in constant currency are presented excluding the impact from changes in currency exchange rates. | ||
| 7 | Excluding intangible amortization. | ||
| 8 | Inclusive of non-controlling interest deduction and adjusted for acquisition and integration expenses, financing charges in interest expense, the amortization of intangible assets and financial impacts associated with actual and planned dispositions of non-core businesses and assets | . | |
| 9 | Capital expenditures, net of proceeds from disposals. | ||
| 10 | Amortization of intangible assets expense includes the impact of amortization included in equity in earnings of joint ventures and non-controlling interests. | ||
