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 organic4 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 income1 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 organic4 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 income1 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. Organic4 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 income1 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.7 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 flow2 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.
Financial Outlook
AECOM’s fiscal year 2018 financial guidance is as follows:
| Fiscal Year 2018 Outlook | |||
| Adjusted EBITDA1 | $910 million | ||
| Adjusted EPS1 | $2.50 – $2.90 | ||
| Free Cash Flow2 | $600 million – $800 million | ||
| Interest Expense
(excluding amortization of deferred financing fees) |
$210 million | ||
| Amortization8 | $90 million | ||
| Full-Year Share Count | 162 million | ||
| Effective Tax Rate for Adjusted Earnings7 | ~20% | ||
| Capital Expenditures9 | $110 million | ||
Conference Call
AECOM is hosting a conference call today at 12 p.m. Eastern Time, 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 http://investors.aecom.com. The webcast will be available for replay following the call.
1 Excluding acquisition and integration related expenses, financing charges in interest expense, the amortization of intangible assets, financial impacts associated with expected and actual dispositions of non-core businesses and assets, and the revaluation of deferred taxes and one-time tax repatriation charge associated with U.S. tax reform. If an individual adjustment has no financial impact then the individual adjustment is not reflected in the Regulation G Information tables. See Regulation G Information for a reconciliation of Non-GAAP measures.
2 Free cash flow is defined as cash flow from operations less capital expenditures net of proceeds from disposals.
3 On a constant-currency basis.
4 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.
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 Net debt-to-EBITDA is comprised of EBITDA as defined in the Company’s credit agreement, which excludes stock-based compensation, and net debt as defined as total debt on the Company’s financial statements, net of cash and cash equivalents.
