AECOM, the world’s trusted infrastructure consulting firm, reported fourth quarter and full year fiscal 2023 results.
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Fourth Quarter Fiscal 2023 |
Full Year Fiscal 2023 |
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(from Continuing Operations; $ in millions, except EPS) |
As Reported |
Adjusted1 (Non-GAAP) |
As Reported YoY % Change |
Adjusted YoY % Change |
As Reported |
Adjusted1 (Non-GAAP) |
As Reported YoY % Change |
Adjusted YoY % Change |
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Revenue |
$3,842 |
-- |
12% |
-- |
$14,378 |
-- |
9% |
-- |
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Net Service Revenue (NSR)2 |
-- |
$1,727 |
-- |
8% |
-- |
$6,703 |
-- |
8% |
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Operating Income |
$80 |
$225 |
(56%) |
15% |
$324 |
$847 |
(50%) |
12% |
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Segment Operating Margin3 (NSR) |
-- |
15.2% |
-- |
+60 bps |
-- |
14.7% |
-- |
+60 bps |
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Net Income |
$34 |
$141 |
(71%) |
21% |
$114 |
$520 |
(71%) |
7% |
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EPS (Fully Diluted) |
$0.24 |
$1.01 |
(71%) |
22% |
$0.81 |
$3.71 |
(70%) |
9% |
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EBITDA4 |
-- |
$252 |
-- |
10% |
-- |
$964 |
-- |
9% |
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Operating Cash Flow |
$285 |
-- |
(10%) |
-- |
$696 |
-- |
(2%) |
-- |
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Free Cash Flow5 |
-- |
$263 |
-- |
2% |
-- |
$591 |
-- |
1% |
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Design Backlog |
$21,435 |
-- |
12%6 |
-- |
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Fourth Quarter and Full Year Fiscal 2023 Highlights
- Fourth quarter revenue increased 12% to $3.8 billion, operating income decreased by 56% to $80 million, the operating margin decreased by 330 basis points to 2.1%, net income decreased 71% to $34 million and diluted earnings per share decreased 71% to $0.24.
- Reported results for the fourth quarter included approximately $138 million of costs primarily related to accelerated margin expansion initiatives, including the optimization of office real estate, with a benefit beginning in fiscal 2024 and beyond.
- Fourth quarter organic NSR2 in the design business increased by 10% for a second consecutive quarter and increased by 9% for the full year.
- Growth was led by the transportation and water markets, which account for approximately 60% of the Company’s NSR2.
- The segment adjusted1 operating margin3 was 15.2% in the fourth quarter, an increase of 60 basis points from the prior year.
- The full year segment adjusted1 operating margin3 of 14.7% exceeded guidance and increased 60 basis points from the prior year to an all-time high.
- Full year adjusted1 EBITDA4 and adjusted1 EPS of $964 million and $3.71, respectively, exceeded both the Company’s original and increased guidance mid-points.
- Adjusted1 EPS increased by 12% compared to the prior year on a constant-currency basis, which outperformed prior guidance for a 10% year-over-year increase.
- Backlog in the design business increased by 12%6 to a record high, driven by strength in the Company’s global water, transportation and environment businesses, which are benefitting from increased investment in infrastructure, sustainability and resilience, and the energy transition.
Fiscal 2024 Financial Guidance
- Building on the successes of fiscal 2023, AECOM expects to deliver another year of strong organic NSR2 growth, record segment adjusted1 operating margins3, and double-digit adjusted1 earnings per share growth, including:
- Organic NSR2 growth of approximately 8% to 10%.
- A segment adjusted1 operating margin3 of approximately 15.6%, a 90 basis point increase from fiscal 2023, which includes:
- Approximately two-thirds of the margin expansion from high-returning organic growth, which alone puts the Company ahead of its 15% target for fiscal 2024.
- Approximately one-third of the margin expansion from the acceleration of the Company’s continuous improvement initiatives, primarily related to real estate efficiencies.
- Adjusted1 EBITDA4 of between $1,065 million and $1,105 million, representing a 13% increase at the mid-point over fiscal 2023.
- Adjusted1 EPS of between $4.35 and $4.55, reflecting a 20% increase at the mid-point over fiscal 2023.
- Other assumptions incorporated into guidance:
- Reflecting the highly cash generative nature of its Professional Services business, the Company expects 100%+ adjusted1 net income to free cash flow5 conversion.
- An average fully diluted share count of 138 million, which reflects only shares repurchased to-date, though the Company intends to continue repurchasing stock that would provide a benefit to per share earnings.
- An effective tax rate of between 24% and 26%.
- The Company expects a return on invested capital7 (ROIC) of approximately 20% in fiscal 2024, reflecting its achievement in fiscal 2023 of its previously increased 17% target.
Cash Flow, Balance Sheet and Capital Allocation Update
- Full year operating cash flow was $696 million and free cash flow5 was $591 million, reflecting the achievement of the Company’s cash flow guidance for a ninth consecutive year.
- The Company also affirmed its returns-focused capital allocation policy, including:
- The Board of Directors approved an increase to its share repurchase authorization to $1 billion, reflecting the Company’s commitment to returning substantially all available cash flow to investors after investments in accelerating organic growth.
- Increased the quarterly dividend by 22% to $0.22 per share, marking a second consecutive year of 20%+ increases and fulfilling the Company’s ongoing commitment to raise the dividend per share by double-digits annually.
- Allocated approximately $475 million to stockholders in fiscal 2023 through share repurchases and dividends.
- In total, shares outstanding has declined by 19% since the initiation of the repurchase program in September 2020.
- The Company continues to operate with a strong balance sheet that provides a competitive advantage, with approximately 80% of its debt fixed, swapped to fixed, or capped over the next several years and no near-term bond maturities.
“I am proud of our performance in fiscal 2023, including exceeding our initial and increased earnings guidance mid-points and enhancing our long-term visibility through a record design backlog and 20% pipeline growth,” said Troy Rudd, AECOM’s chief executive officer. “We have focused our capital and technical expertise on the fastest-growing markets around the globe, which has resulted in a record win rate on the highest-returning opportunities. As reflected in our strong fiscal 2024 guidance, which includes 20% expected adjusted EPS growth, we have built an enviable leadership position and competitive advantage to fully capitalize on robust end market growth ahead.”
“Our unrivaled technical expertise and culture of collaboration is evident in the many transformational wins of the past year that reaffirm our leadership position in key markets including water, transportation, and environment,” said Lara Poloni, AECOM’s president. “The secular megatrends of global investments in infrastructure, sustainability, resilience and the energy transition are converging to create an undeniable growth cycle and we are well positioned to lead. Through our Think and Act Globally strategy, we are magnifying our competitive advantages by collaborating to bring the best technical resources to our clients for their most complex and challenging projects.”
“Our consistently strong financial performance is a testament to the inherent attributes of our Professional Services business, including high-returning, lower risk consulting activities for well-funded clients, that result in consistently strong cash flow,” said Gaurav Kapoor, AECOM’s chief financial officer. “Through our returns-focused capital allocation policy, we have returned $2 billion to stockholders since 2020. We are furthering this focus with our increased repurchase authorization and increased quarterly dividend, which reflects our confidence in continued earnings and cash flow growth.”
Business Segments
Americas
Revenue in the fourth quarter was $2.9 billion, a 12% increase from the prior year. Full year revenue was $11.0 billion, a 10% increase from the prior year.
NSR2 in the fourth quarter was $1.0 billion. This included 9% growth in the design business, which was led by the Company’s water, transportation, and environment markets. Full year NSR was $3.9 billion, a 6% increase from the prior year, highlighted by 8% growth in the design business.
Fourth quarter operating income increased by 10% over the prior year to $186 million and increased by 9% for the full year to $715 million. On an adjusted1 basis, fourth quarter operating income increased by 10% to $190 million and increased by 9% to $732 million for the full year. The fourth quarter adjusted operating margin on NSR2 was 19.0% and reflected a 60 basis point increase over the prior year, which contributed to a full year adjusted operating margin of 18.7%, which marked a 60 basis point increase over the prior year and included increased investments to capitalize on organic growth opportunities.
International
Revenue in the fourth quarter was $905 million, a 12% increase from the prior year. Full year revenue was $3.4 billion, a 6% increase from the prior year.
NSR2 in the fourth quarter was $722 million, an 11% increase from the prior year. Full year NSR was $2.8 billion, an 11% increase from the prior year.
Fourth quarter operating income increased by 25% over the prior year to $72 million and increased by 15% to $255 million for the full year. On an adjusted basis1, operating income increased by 25% to $72 million in the fourth quarter and increased by 15% to $256 million for the full year. The fourth quarter adjusted operating margin on NSR2 increased by 100 basis points to 10.0%, which marked the achievement of the Company’s target to deliver a double-digit margin in the International business. The full year adjusted operating margin increased by 60 basis points over the prior year to 9.2%.
Backlog
Total backlog in the design business increased by 12%6 over the prior year to $21.4 billion, which set a new record, and included strong growth in both the Americas and International regions. This performance contributed to a full year book-to-burn ratio of 1.3 in the design business. Design backlog also included a record level of contracted backlog that provides for significant visibility into growth in the coming year. Total backlog of $41.2 billion marked a 2% increase over the prior year.
Balance Sheet
As of September 30, 2023, AECOM had $1.3 billion of total cash and cash equivalents, $2.2 billion of total debt and $957 million of net debt (total debt less cash and cash equivalents). Net leverage8 was 0.9x.
Tax Rate
The effective tax rate was 16.2% in the fourth quarter and 26.3% in the full year. On an adjusted1 basis, the effective tax rate was 25.2% and 25.5% in the full year. The adjusted tax rate was derived by re-computing the quarterly effective tax rate on adjusted net income9. 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.
Conference Call
AECOM is hosting a conference call tomorrow at 8 a.m. Eastern Time, during which management will make a brief presentation focusing on the Company's results, strategy and operating trends, and outlook. Interested parties can listen to the conference call and view accompanying slides via webcast at https://investors.aecom.com. The webcast will be available for replay following the call.
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1 Excludes the impact of certain items, such as restructuring costs, amortization of intangible assets, non-core AECOM Capital and other items. See Regulation G Information for a reconciliation of non-GAAP measures to the comparable GAAP measures. |
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2 Revenue, less pass-through revenue; growth rates are presented on a constant-currency basis. |
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3 Reflects segment operating performance, excluding AECOM Capital and G&A. |
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4 Net income before interest expense, tax expense, depreciation and amortization. |
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5 Free cash flow is defined as cash flow from operations less capital expenditures, net of proceeds from disposals of property and equipment. |
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6 On a constant-currency basis. |
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7 Return on invested capital, or ROIC, reflects continuing operations and is calculated as the sum of adjusted net income as presented in the Company’s Regulation G Information and adjusted interest expense, net of interest income, divided by average quarterly invested capital as defined as the sum of attributable shareholder’s equity and total debt, less cash and cash equivalents. |
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8 Net leverage is comprised of EBITDA as defined in the Company’s credit agreement dated October 17, 2014, as amended, and total debt on the Company’s financial statements, net of total cash and cash equivalents. |
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9 Inclusive of non-controlling interest deduction and adjusted for financing charges in interest expense, the amortization of intangible assets and is based on continuing operations. |
