What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-07 compared with 2023-08-09 · 126 added, 155 removed, 246 unchanged (53% of the section changed)

29 unchanged sentences

ability to continue payment of dividends;

exposure to political and economic risks in different countries, including tariffs;

exposure to political and economic risks in different countries, including tariffs, geopolitical events, and conflicts;

currency exchange rate and interest fluctuations;

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cybersecurity issues, IT outages and data privacy;

risks associated with the benefits and costs of the sale of our Management Services and self-perform at-risk civil infrastructure, power construction, and oil and gas construction businesses, including the risk that any purchase adjustments from those transactions could be unfavorable and any future proceeds owed to us as part of the transactions could be lower than we expect;

risks associated with the benefits and costs of the sale of our Management Services and self-perform at-risk civil infrastructure, power construction, and oil and gas businesses, including the risk that any purchase adjustments from those transactions could be unfavorable and any future proceeds owed to us as part of the transactions could be lower than we expect;

as well as other additional risks and factors discussed in this Quarterly Report on Form 10-Q and any subsequent reports we file with the SEC.

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We are a leading global provider of professional infrastructure consulting services for governments, businesses and organizations throughout the world.

We provide advisory, planning, consulting, architectural and engineering design, construction and program management services, and investment and development services to commercial and government clients worldwide in major end markets such as transportation, facilities, water, environmental, and energy.

We provide advisory, planning, consulting, architectural and engineering design, construction and program management services, and investment and development services to public and private clients worldwide in major end markets such as transportation, facilities, water, environmental, and energy.

Our business focuses primarily on providing fee-based knowledge-based services.

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We report our continuing business through three segments, each of which is described in further detail below:

Americas, International, and AECOM Capital (ACAP).

Americas, International, and AECOM Capital.

Such segments are organized by the differing specialized needs of the respective clients and how we manage the business.

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characteristics, including similar long-term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers.

Planning, consulting, architectural and engineering design, construction management and program management services to commercial and government clients in the United States, Canada, and Latin America in major end markets such as transportation, water, government, facilities, environmental, and energy.

Planning, consulting, architectural and engineering design, construction management and program management services to public and private clients in the United States, Canada, and Latin America in major end markets such as transportation, water, government, facilities, environmental, and energy.

● International :

Planning, consulting, architectural and engineering design services and program management to commercial and government clients in Europe, the Middle East, India, Africa and the Asia-Australia-Pacific regions in major end markets such as transportation, water, government, facilities, environmental, and energy.

● AECOM Capital (ACAP) :

Invests primarily in and develops real estate projects.

Planning, consulting, architectural and engineering design services and program management to public and private clients in Europe, the Middle East, India, Africa and the Asia-Australia-Pacific regions in major end markets such as transportation, water, government, facilities, environmental, and energy.

● AECOM Capital :

Primarily invests in and develops real estate projects.

Our revenue is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, allocate our labor resources and capital to profitable and high growth markets, secure new contracts, and renew existing client agreements.

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Our costs consist primarily of the compensation we pay to our employees, including salaries, fringe benefits, the costs of hiring subcontractors, other project-related expenses and sales, general and administrative costs.

In September 2021, the Board approved an increase in our stock repurchase authorization to $1.0 billion.

At June 30, 2023, we have approximately $452 million remaining of the Board’s repurchase authorization.

In November 2023, the Board approved an increase in our stock repurchase authorization to $1.0 billion.

At December 31, 2023, we have approximately $950.0 million remaining of the Board’s repurchase authorization.

We intend to deploy future available cash towards dividends and stock repurchases consistent with our return driven capital allocation policy.

We have exited substantially all of our self-perform at-risk construction businesses and divested our remaining non-core oil and gas businesses in January 2022.

We have exited substantially all of our self-perform at-risk construction businesses.

As part of our ongoing plan to improve profitability and maintain a reduced risk profile, we continuously evaluate our geographic exposure.

In March 2022, we substantially completed our exit of all business operations in Russia consistent with our announcement on March 7, 2022.

In the fourth quarter of fiscal 2023, we entered into a term sheet with respect to the AECOM Capital team to transition the AECOM Capital business.

The impacts of this agreement are expected to facilitate the transition of the AECOM Capital team to a new platform, while allowing the team to continue to support AECOM’s existing investment vehicles and investments in a manner consistent with their current obligations, and reduce expected general and administrative costs associated with the transition.

We initiated a project-by-project review of the existing investment portfolio, including an analysis of the incremental cash requirements that might be required to carry the investments on our balance sheet if current market conditions persist.

In fiscal year 2023, we announced that we had initiated a process to explore strategic options for the AECOM Capital business.

This process is consistent with our focus on our professional services business.

AECOM Capital will continue to support existing investment vehicles and investments in a manner consistent with their current obligations.

We have conducted a project-by-project review of the existing investment portfolio, including an analysis of the incremental cash requirements that might be required to carry the investments on our balance sheet if the current market conditions persist.

We determined that the incremental investments to these assets did not meet the objectives of our capital allocation policy.

We reflected this change in strategy and the expected acceleration of these investment exits as an impairment charge of $307.0 million in the third quarter of fiscal 2023.

We reflected this change in strategy and the expected acceleration of these investment exits as an impairment charge of $307.0 million in the third quarter of fiscal 2023 and $35.9 million in the first quarter of fiscal 2024.

This impairment did not relate to investments in respect of which affiliates of AECOM Capital provide advisory services or manage third party capital.

We expect to incur restructuring costs of approximately $55 million in fiscal 2023, primarily related to ongoing actions that are expected to deliver continued margin improvement and efficiencies.

Our estimated restructuring costs include the ongoing exit of certain countries in Southeast Asia, subject to applicable laws, as part of our ongoing plan to evaluate our geographic exposure and reduce our risk profile.

We expect to incur restructuring costs of approximately $50 million to $70 million in fiscal 2024, primarily related to ongoing actions that are expected to deliver continued margin improvement and efficiencies.

Our estimated restructuring costs include the ongoing optimization of our office real estate portfolio and exit of certain countries in Southeast Asia, subject to applicable laws, as part of our ongoing plan to evaluate our geographic exposure and reduce our risk profile.

Results of Operations

Three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022

Three months ended December 31, 2023 compared to the three months ended December 31, 2022

Consolidated Results

Three Months Ended

Nine Months Ended

( in millions)

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Restructuring costs

(Loss) income from operations

Income from operations

Interest income

Interest expense

(Loss) income from continuing operations before taxes

Income tax (benefit) expense for continuing operations

Net (loss) income from continuing operations

Income from continuing operations before taxes

Income tax expense for continuing operations

Net income from continuing operations

Net loss from discontinued operations

Net (loss) income

Net income attributable to noncontrolling interests from continuing operations

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Net income attributable to noncontrolling interests

Net (loss) income attributable to AECOM from continuing operations

Net loss attributable to AECOM from discontinued operations

Net (loss) income attributable to AECOM

Net income attributable to AECOM from continuing operations

Net (loss) income attributable to AECOM from discontinued operations

Net income attributable to AECOM

The following table presents the percentage relationship of statement of operations items to revenue:

Three Months Ended

Nine Months Ended

Cost of revenue

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Restructuring costs

(Loss) income from operations

Income from operations

Interest income

Interest expense

(Loss) income from continuing operations before taxes

Income tax (benefit) expense for continuing operations

Net (loss) income from continuing operations

Income from continuing operations before taxes

Income tax expense for continuing operations

Net income from continuing operations

Net loss from discontinued operations

Net (loss) income

Net income attributable to noncontrolling interests from continuing operations

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Net income attributable to noncontrolling interests

Net (loss) income attributable to AECOM from continuing operations

Net loss attributable to AECOM from discontinued operations

Net (loss) income attributable to AECOM

Our revenue for the three months ended June 30, 2023 increased $421.9 million, or 13.0%, to $3,663.6 million as compared to $3,241.7 million for the corresponding period last year.

Our revenue for the nine months ended June 30, 2023 increased $814.0 million, or 8.4%, to $10,536.1 million as compared to $9,722.1 million for the corresponding period last year.

The increase in revenue for the three months ended June 30, 2023 was primarily attributable to an increase in our Americas segment of $372.5 million and an increase in our International segment of $50.1 million, as discussed further below.

The increase in revenue for the nine months ended June 30, 2023 was primarily attributable to an increase in our Americas segment of $718.6 million and an increase in our International segment of $97.0 million, as discussed further below.

Net income attributable to AECOM from continuing operations

Net (loss) income attributable to AECOM from discontinued operations

Net income attributable to AECOM

Our revenue for the three months ended December 31, 2023 increased $517.5 million, or 15.3%, to $3,899.9 million as compared to $3,382.4 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2023 was primarily attributable to increases in revenues in both our Americas and International segments of $459.4 million and $58.2 million, respectively, as discussed further below.

In the course of providing our services, we routinely subcontract for services and incur other direct costs on behalf of our clients.

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Because these pass-through revenues can change significantly from project to project and period to period, changes in revenue may not be indicative of business trends.

Pass-through revenues for the three months ended June 30, 2023 and 2022 were $2.0 billion and $1.7 billion, respectively.

Pass-through revenues for the nine months ended June 30, 2023 and 2022 were $5.6 billion and $5.0 billion, respectively.

Pass-through revenue as a percentage of revenue was 54% and 52% during the three months ended June 30, 2023 and 2022, respectively.

Pass-through revenue as a percentage of revenue, was 53% and 51% during the nine months ended June 30, 2023 and 2022, respectively.

Our gross profit for the three months ended June 30, 2023 increased $29.6 million, or 13.4%, to $250.1 million as compared to $220.5 million for the corresponding period last year.

For the three months ended June 30, 2023 and 2022, gross profit, as a percentage of revenue, remained unchanged at 6.8%.

Our gross profit for the nine months ended June 30, 2023 increased $62.5 million, or 9.9%, to $693.2 million as compared to $630.7 million for the corresponding period last year.

For the nine months ended June 30, 2023, gross profit, as a percentage of revenue, increased to 6.6% from 6.5% in the corresponding period last year.

Pass-through revenues for the quarters ended December 31, 2023 and 2022 were $2.2 billion and $1.8 billion, respectively.

Pass-through revenue as a percentage of revenue was 56% and 53% during the three months ended December 31, 2023 and 2022, respectively.

Our gross profit for the three months ended December 31, 2023 increased $29.0 million, or 13.5%, to $244.0 million as compared to $215.0 million for the corresponding period last year.

For the three months ended December 31, 2023, gross profit, as a percentage of revenue, decreased to 6.3% from 6.4% in the corresponding period last year.

Gross profit changes were due to the reasons noted in Americas and International reportable segments below.

Equity in (Losses) Earnings of Joint Ventures

Our equity in earnings of joint ventures for the three months ended June 30, 2023 was $(303.5) million as compared to $7.5 million in the corresponding period last year.

Our equity in earnings of joint ventures for the nine months ended June 30, 2023 was $(286.2) million as compared to $27.4 million in the corresponding period last year.

The decreases in earnings of joint ventures for the three and nine months ended June 30, 2023 compared to the same period in the prior year were primarily due to impairment losses recorded in our AECOM Capital segment during the third quarter of fiscal 2023.

These impairments were primarily as a result of a project-by-project review of the existing investment portfolio, the expected acceleration of exits from certain investments caused by a change in strategy, and volatility in the commercial real estate market caused by higher interest rates and lack of liquidity.

Our equity in losses of joint ventures for the three months ended December 31, 2023 was $29.0 million as compared to equity in earnings of $9.8 million in the corresponding period last year.

The decrease in earnings of joint ventures for the three months ended December 31, 2023 compared to the same period in the prior year was primarily due to losses recorded by our AECOM Capital segment in fiscal 2024 compared to earnings in fiscal 2023.

These impairments were primarily as a result of continued volatility in the commercial real estate market caused by higher interest rates and lack of liquidity.

General and Administrative Expenses

Our general and administrative expenses for the three months ended June 30, 2023 increased $10.1 million, or 30.8%, to $42.9 million as compared to $32.8 million for the corresponding period last year.

For the three months ended June 30, 2023, general and administrative expenses, as a percentage of revenue, increased to 1.2% from 1.0% in the corresponding period last year.

Our general and administrative expenses for the nine months ended June 30, 2023 increased $6.3 million, or 5.9%, to $112.7 million as compared to $106.4 million for the corresponding period last year.

For the nine months ended June 30, 2023 and 2022, general and administrative expenses, as a percentage of revenue, remained unchanged at 1.1%.

Our general and administrative expenses for the three months ended December 31, 2023 increased $0.1 million, or 0.3%, to $35.7 million as compared to $35.6 million for the corresponding period last year.

For the three months ended December 31, 2023, general and administrative expenses, as a percentage of revenue, was 1.0% as compared to 1.1% in the corresponding period last year.

Restructuring Costs

Restructuring expenses are comprised of personnel costs, real estate costs, and costs associated with business exits.

During the three and nine months ended June 30, 2023, we incurred total restructuring expenses of $9.1 million and $50.5 million, respectively, primarily related to costs incurred in preparation for the exit of specific countries in Southeast Asia.

During the three and nine months ended June 30, 2022, we incurred restructuring expenses of $12.2 million and $88.9 million, respectively, primarily related to costs associated with exit of Russia-related businesses, management actions to deliver margin improvement and efficiencies that result in a more agile organization.

During the three months ended December 31, 2023, we incurred total restructuring expenses of $16.2 million, primarily related to actions taken to align our real estate portfolio with our employee flexibility initiatives and costs incurred associated with the ongoing exit of certain countries in Southeast Asia.

During the three months ended December 31, 2022, we incurred restructuring expenses of $37.5 million, primarily related to costs incurred in preparation for the exit of specific countries in Southeast Asia.

Our other income for the three months ended December 31, 2023 increased to $2.6 million from $2.1 million for the corresponding period last year.

Interest Income

Our interest income for the three months ended June 30, 2023 increased to $8.8 million from $2.8 million for the corresponding period last year.

Our interest income for the nine months ended June 30, 2023 increased to $24.4 million from $5.9 million for the corresponding period last year.

Our interest income for the three months ended December 31, 2023 increased to $12.1 million from $5.8 million for the corresponding period last year.

The increase in interest income for the three months ended December 31, 2023 was primarily due to an increase in interest rates on our interest-bearing assets.

Interest Expense

Our interest expense for the three months ended June 30, 2023 was $38.8 million as compared to $27.4 million for the corresponding period last year.

Our interest expense for the nine months ended June 30, 2023 was $117.9 million as compared to $77.0 million for the corresponding period last year.

The increases in interest expense for the three and nine months ended June 30, 2023 were primarily due to an increase in interest rates on the variable component of our debt.

Income Tax (Benefit) Expense

Our income tax benefit for the three months ended June 30, 2023 was $20.0 million as compared to tax expense of $44.5 million in the corresponding period last year.

The increase in tax benefit for the current period compared to the corresponding period last year was due primarily to a tax benefit of $65.0 million related to the AECOM Capital impairment charge, including an increase in valuation allowances of $21.0 million for the portion of the charge that is not expected to be realized.

Our income tax expense for the nine months ended June 30, 2023 was $46.9 million as compared to $103.1 million in the corresponding period last year.

The decrease in tax expense for the current period compared to the corresponding period last year was due primarily to a tax benefit of $65.0 million related to the AECOM Capital impairment charge, including an increase in valuation allowances of $21.0 million for the portion of the charge that is not expected to be realized, and a net tax benefit recorded in the first quarter of fiscal 2022 related to changes in valuation allowances providing a tax benefit of $21.9 million and foreign uncertain tax provisions generating a tax expense of $16.1 million.

During the first quarter of fiscal 2022, valuation allowances in the amount of $21.9 million primarily related to net operating losses in certain foreign entities were released due to sufficient positive evidence.

The positive evidence included a realignment of our global transfer pricing methodology which resulted in forecasting the utilization of the net operating losses within the foreseeable future.

We regularly integrate and consolidate our business operations and legal entity structure, and such internal initiatives could impact the assessment of uncertain tax positions, indefinite reinvestment assertions and the realizability of deferred tax assets.

Our interest expense for the three months ended December 31, 2023 was $41.3 million as compared to $36.7 million for the corresponding period last year.

The increase in interest expense for the three months ended December 31, 2023 was primarily due to an increase in interest rates on the variable component of our debt.

Income Tax Expense

Our income tax expense for the three months ended December 31, 2023 was $26.6 million as compared to $25.8 million in the corresponding period last year.

The increase in tax expense for the current period compared to the corresponding period last year was due primarily to the tax impact of an increase in pre-tax income of $13.6 million, a tax benefit of $6.9 million related to an audit settlement, an increase in tax benefit of $4.4 million related to income tax credits and incentives, an increase in tax expense of $3.4 million related to changes in valuation allowances, an increase in tax expense of $2.8 million related to foreign residual income, and an increase in tax expense of $2.8 million related to excess tax benefits.

During the three months ended December 31, 2023, the Company settled its tax audit in Hong Kong for fiscal year 2011 through fiscal year 2021 and recorded a tax benefit of $6.9 million due primarily to changes in uncertain tax positions.

Net Loss From Discontinued Operations

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As a result of these strategic actions, the self-perform at-risk construction businesses were classified as discontinued operations.

That classification was applied for all periods presented.

Net loss from discontinued operations was $7.6 million for the three months ended June 30, 2023 and net loss was $3.5 million for the three months ended June 30, 2022, an increase of $4.1 million.

The increase in net loss from discontinued operations for the three months ended June 30, 2023 was primarily due to losses from operations and an increase in transaction expenses during the period.

Net loss from discontinued operations was $49.8 million for the nine months ended June 30, 2023 and net loss was $71.5 million for the nine months ended June 30, 2022, a decrease of $21.7 million.

The decrease in net loss from discontinued operations for the nine months ended June 30, 2023 was primarily due to losses related to revisions of estimates for our working capital obligations to be paid and contingent consideration receivable related to the civil infrastructure business recorded in the first half of fiscal 2022 that did not recur to the same extent in fiscal 2023.

Net (Loss) Income Attributable to AECOM

The factors described above resulted in net (loss) income attributable to AECOM of $(134.7) million and $29.9 million for the three and nine months ended June 30, 2023 as compared to net income attributable to AECOM of $101.9 million and $205.0 million for the three and nine months ended June 30, 2022.

Net loss from discontinued operations was $1.3 million for the three months ended December 31, 2023 and was $0.4 million for the three months ended December 31, 2022, an increase of $0.9 million.

Net Income Attributable to AECOM

The factors described above resulted in net income attributable to AECOM of $94.4 million for the three months ended December 31, 2023 as compared to net income attributable to AECOM of $87.9 million for the three months ended December 31, 2022.

Results of Operations by Reportable Segment:

Three Months Ended

Nine Months Ended

( in millions)

2 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of revenue

Revenue for our Americas segment for the three months ended June 30, 2023 increased $372.5 million, or 15.2%, to $2,829.5 million as compared to $2,457.0 million for the corresponding period last year.

Revenue for our Americas segment for the nine months ended June 30, 2023 increased $718.6 million, or 9.8%, to $8,039.0 million as compared to $7,320.4 million for the corresponding period last year.

The increases in revenue for the three and nine months ended June 30, 2023 were primarily driven by increased project activity in the Americas design business and the construction management business.

Gross profit for our Americas segment for the three months ended June 30, 2023 increased $18.2 million, or 11.1%, to $182.9 million as compared to $164.7 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 6.5% for the three months ended June 30, 2023 from 6.7% in the corresponding period last year.

Gross profit for our Americas segment for the nine months ended June 30, 2023 increased $44.0 million, or 9.3%, to $519.1 million as compared to $475.1 million for the corresponding period last year.

As a percentage of revenue, gross profit remained unchanged at 6.5% for the nine months ended June 30, 2023.

The increases in gross profit for the three and nine months ended June 30, 2023 were primarily due to revenue growth and execution efficiency.

In addition, underlying revenue excluding pass-through revenues increased.

Revenue for our Americas segment for the three months ended December 31, 2023 increased $459.4 million, or 17.8%, to $3,038.7 million as compared to $2,579.3 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2023 was primarily driven by increased project activity in the Americas design business including growth in the Water, Transportation, and Program Management businesses .

Gross profit for our Americas segment for the three months ended December 31, 2023 increased $8.1 million, or 5.0%, to $171.0 million as compared to $162.9 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 5.6% of revenue for the three months ended December 31, 2023 from 6.3% in the corresponding period last year due to an increase in pass - through revenues of $405.4 million.

The increase in gross profit for the three months ended December 31, 2023 was primarily due to revenue growth, particularly underlying revenue excluding pass - through revenue, strength across the Company’s Water, Transportation, and Program Management end markets and the benefits of actions taken to accelerate the realization of the Company’s long-term margin potential.

International

Three Months Ended

Nine Months Ended

( in millions)

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Three Months Ended

Nine Months Ended

Cost of revenue

Revenue for our International segment for the three months ended June 30, 2023 increased $50.1 million, or 6.4%, to $834.3 million as compared to $784.2 million for the corresponding period last year.

Revenue for our International segment for the nine months ended June 30, 2023 increased $97.0 million, or 4.0%, to $2,496.9 million as compared to $2,399.9 million for the corresponding period last year.

The increases in revenue for the three and nine months ended June 30, 2023 were primarily due to increased growth in the United Kingdom, Middle East and Australia compared to the prior year partially offset by the strengthening of the U.S.

dollar as compared to the functional currencies of our foreign operations.

Gross profit for our International segment for the three months ended June 30, 2023 increased $12.1 million, or 21.9%, to $67.4 million as compared to $55.3 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 8.1% of revenue for the three months ended June 30, 2023 from 7.1% in the corresponding period last year.

Gross profit for our International segment for the nine months ended June 30, 2023 increased $20.1 million, or 13.1%, to $173.9 million as compared to $153.8 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 7.0% of revenue for the nine months ended June 30, 2023 from 6.4% in the corresponding period last year.

The increases in gross profit and gross profit as a percentage of revenue for the three and nine months ended June 30, 2023 were primarily due to an increase in revenue and reduced costs resulting from country exits, ongoing investments in enterprise capability centers, shared service centers, and delivery efficiency.

Revenue for our International segment for the three months ended December 31, 2023 increased $58.2 million, or 7.2%, to $861.0 million as compared to $802.8 million for the corresponding period last year.

The increase in revenue for the three months ended December 31, 2023 was primarily due to growth in the United Kingdom, Middle East and Australia compared to the prior year.

Growth was led by the Transportation, Facilities, and Water markets.

Gross profit for our International segment for the three months ended December 31, 2023 increased $21.0 million, or 40.5%, to $72.8 million as compared to $51.8 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 8.5% of revenue for the three months ended December 31, 2023 from 6.5% in the corresponding period last year.

The increase in gross profit and gross profit as a percentage of revenue for the three months ended December 31, 2023 was primarily due to an increase in revenue and reduced costs resulting from ongoing country exits, growing usage of enterprise capability centers and shared service centers, and delivery efficiency.

AECOM Capital

Three Months Ended

Nine Months Ended

( in millions)

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General and administrative expenses

Equity in earnings of joint ventures for the three months ended June 30, 2023 decreased $311.4 million, or 7414.3%, to $(307.2) million as compared to $4.2 million for the corresponding period last year.

Equity in earnings of joint ventures for the nine months ended June 30, 2023 decreased $312.8 million, or 3723.8%, to $(304.4) million as compared to $8.4 million for the corresponding period last year.

The decreases in equity of earnings in joint ventures for the three and nine months ended June 30, 2023 were primarily due to impairment losses recognized in the third quarter of fiscal 2023.

Equity in earnings of joint ventures for the three months ended December 31, 2023 decreased $42.5 million, or 758.9%, to $(36.9) million compared to $5.6 million for the corresponding period last year.

The decrease was primarily due to impairment losses recognized in the first quarter of fiscal 2024.

We experience seasonal trends in our business.

The first quarter of our fiscal year (October 1 to December 31) is typically our weakest quarter.

The harsher weather conditions impact our ability to complete work in parts of North America and the holiday season schedule affects our productivity during this period.

Our revenue is typically higher in the last half of the fiscal year.

state governments with fiscal years ending on June 30 tend to accelerate spending during their first quarter, when new funding becomes available.

In addition, we find that the U.S.

The fourth quarter of our fiscal year (July 1 to September 30) is typically our strongest quarter.

We find that the U.S.

federal government tends to authorize more work during the period preceding the end of our fiscal year, September 30.

In addition, many U.S.

state governments with fiscal years ending on June 30 tend to accelerate spending during their first quarter, when new funding becomes available.

Further, our construction management revenue typically increases during the high construction season of the summer months.

Within the United States, as well as other parts of the world, our business generally benefits from milder weather conditions in our fiscal fourth quarter, which allows for more productivity from our on-site civil services.

For these reasons, coupled with the number and significance of client contracts commenced and completed during a period, as well as the time of expenses incurred for corporate initiatives, it is not unusual for us to experience seasonal changes or fluctuations in our quarterly operating results.

Within the United States, as well as other parts of the world, our business generally benefits from milder weather conditions in our fiscal fourth quarter.

Our construction and project management services also typically expand during the high construction season of the summer months.

The first quarter of our fiscal year (October 1 to December 31) is typically our lowest revenue quarter.

The harsher weather conditions impact our ability to complete work in parts of North America and the holiday season schedule affects our productivity during this period.

For these reasons, coupled with the number and significance of client contracts commenced and completed during a particular period, as well as the timing of expenses incurred for corporate initiatives, it is not unusual for us to experience seasonal changes or fluctuations in our quarterly operating results.

Liquidity and Capital Resources

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We believe our anticipated sources of liquidity including operating cash flows, existing cash and cash equivalents, borrowing capacity under our revolving credit facility and our ability to issue debt or equity, if required, will be sufficient to meet our projected cash requirements for at least the next twelve months.

We expect to spend approximately $30 million to $40 million in restructuring costs in fiscal 2023 associated with ongoing restructuring actions that are expected to deliver continued margin improvement and efficiencies.

We expect to spend approximately $110 million in restructuring costs in fiscal 2024 associated with ongoing restructuring actions that are expected to deliver continued margin improvement and efficiencies.

Generally, we do not provide for U.S.

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subsidiaries because such basis differences are able to and intended to be reinvested indefinitely.

At June 30, 2023, we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and, therefore, we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax.

At December 31, 2023, we have determined that we will continue to indefinitely reinvest the earnings of some foreign subsidiaries and, therefore, we will continue to account for these undistributed earnings based on our existing accounting under ASC 740 and not accrue additional tax.

Determination of the amount of any unrecognized deferred income tax liability on this temporary difference is not practicable because of the complexities of the hypothetical calculation.

Based on the available sources of cash flows discussed above, we anticipate we will continue to have the ability to permanently reinvest these remaining amounts.

At June 30, 2023, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,280.1 million, an increase of $103.3 million, or 8.8%, from $1,176.8 million at September 30, 2022.

The increase in cash and cash equivalents was primarily attributable to cash provided by operating activities offset by $145.2 million of cash used to repurchase common stock of which $125.0 million was under the existing Board repurchase authorization.

Net cash provided by operating activities was $410.8 million for the nine months ended June 30, 2023, as compared to $398.1 million for the nine months ended June 30, 2022.

The change was primarily attributable to a decrease in cash provided by working capital of approximately $186.7 million, offset by an increase in adjustments for non-cash items of approximately $361.2 million and a decrease in net income of approximately $161.8 million.

The sale of trade receivables to financial institutions included in operating cash flows increased $63.1 million during the nine months ended June 30, 2023, compared to the nine months ended June 30, 2022.

At December 31, 2023, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,193.3 million, a decrease of $68.9 million, or 5.5%, from $1,262.2 million at September 30, 2023.

The decrease in cash and cash equivalents was primarily attributable to $92.1 million of cash used to repurchase common stock, of which $70.0 million was related to repurchases under the existing Board repurchase authorization.

Net cash provided by operating activities was $143.1 million for the three months ended December 31, 2023 as compared to $120.0 million for the three months ended December 31, 2022.

The change was primarily attributable to an increase in net income of approximately $11.8 million and an increase in adjustments for non-cash items of approximately $31.9 million, offset by a decrease in cash provided by working capital of approximately $20.7 million.

The sale of trade receivables to financial institutions included in

operating cash flows increased $50.6 million during the three months ended December 31, 2023 compared to the three months ended December 31, 2022.

We expect to continue to sell trade receivables in the future as long as the terms continue to remain favorable to us.

Net cash used in investing activities was $106.5 million for the nine months ended June 30, 2023, as compared to $121.6 million for the nine months ended June 30, 2022.

Net cash used in financing activities was $204.0 million for the nine months ended June 30, 2023, as compared to $495.9 million for the nine months ended June 30, 2022.

The decrease was primarily attributable to decreased stock repurchases under the Stock Repurchase Program.

Net cash used in investing activities was $86.8 million for the three months ended December 31, 2023, as compared to $45.2 million for the three months ended December 31, 2022.

The change was primarily attributable to an increase in cash payments for capital expenditures of approximately $19.9 million and cash paid for a business acquisition, net of cash acquired of $18.7 million.

Net cash used in financing activities was $126.3 million for the three months ended December 31, 2023 as compared to $91.4 million for the three months ended December 31, 2022.

The change from prior year was primarily attributable to a $20.0 million increase in stock repurchases under our stock repurchase program and a $3.7 million increase in dividends paid.

Total borrowings under our Credit Agreement may vary during the period as we regularly draw and repay amounts to fund working capital.

Working Capital

Working capital, or current assets less current liabilities, increased $138.4 million, or 33.1%, to $557.0 million at June 30, 2023 from $418.6 million at September 30, 2022.

Net accounts receivable and contract assets, net of contract liabilities, increased to $2,903.7 million at June 30, 2023 from $2,671.9 million at September 30, 2022.

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 69 days at June 30, 2023 compared to 68 days at September 30, 2022.

Working capital, or current assets less current liabilities, decreased $39.7 million, or 12.4%, to $279.5 million at December 31, 2023 from $319.2 million at September 30, 2023.

Net accounts receivable and contract assets, net of contract liabilities, increased to $2,986.3 million at December 31, 2023 from $2,880.8 million at September 30, 2023.

Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 67 days at December 31, 2023 compared to 65 days at September 30, 2023.

In Note 4, Revenue Recognition, in the notes to our consolidated financial statements, a comparative analysis of the various components of accounts receivable is provided.

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Long-term debt

The following table presents, in millions, scheduled maturities of the Company’s debt as of June 30, 2023:

2023 (three months remaining)

The following table presents, in millions, scheduled maturities of our debt as of December 31, 2023:

2024 (nine months remaining)

Credit Agreement

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The Term B Facility matures on April 13, 2028.

The proceeds of the Term B Facility were used to fund the purchase price, fees and

expenses in connection with our cash tender offer to purchase up to $700,000,000 aggregate purchase price (not including any accrued and unpaid interest) of our outstanding 5.875% Senior Notes due 2024.

The Term B Facility is subject to the same affirmative and negative covenants and events of default as the Term A Facility previously incurred pursuant to the existing Credit Agreement (except that the Financial Covenants in the Credit Agreement do not apply to the Term B Facility).

The applicable interest rate for the Term B Facility is calculated at a per annum rate equal to, at our option, (a) the Eurocurrency Rate (as defined in the Credit Agreement) plus 1.75% or (b) the Base Rate (as defined in the Credit Agreement) plus 0.75%.

The proceeds of the Term B Facility were used to fund the purchase price, fees and expenses in connection with our cash tender offer to purchase up to $700,000,000 aggregate purchase price (not including any accrued and unpaid interest) of our outstanding 5.875% Senior Notes due 2024.

On June 25, 2021, we entered into Amendment No.

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We used the net proceeds from the increase in the Term A Facility (together with cash on hand), to (i) redeem all of our remaining 5.875% Senior Notes due 2024 and (ii) pay fees and expenses related to such redemption.

At June 30, 2023 and September 30, 2022, letters of credit totaled $4.4 million and $4.4 million, respectively, under our Revolving Credit Facility.

As of June 30, 2023 and September 30, 2022, we had $1,145.6 million and $1,145.6 million, respectively, available under our revolving credit facility.

On May 23, 2023, the Company entered into Amendment No.

12 to the Credit Agreement, pursuant to which LIBOR as a benchmark rate of interest was replaced by a secured overnight financing rate subject to a spread adjustment.

12 to the Credit Agreement, pursuant to which LIBOR as a benchmark rate of interest was replaced by, in the case of US Dollar-denominated loans, a secured overnight financing rate subject to a spread adjustment, and, in the case of loans denominated in other currencies, other customary successor rates, subject in certain cases to a spread adjustment.

On May 23, 2023, the Company entered into Amendment No.

13 to the Credit Agreement, pursuant to which the spread adjustment with respect to the Revolving Credit Facility and the Term A Facility was amended.

The applicable interest rate under the Credit Agreement is calculated at a per annum rate equal to, at our option, (a) Term SOFR (as defined in the Credit Agreement) plus an applicable margin (the “SOFR Applicable Margin”), which is currently at 1.2250% or (b) the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the “Base Rate Applicable Margin”), which is currently at 0.2250%.

The Credit Agreement includes certain environmental, social and governance (ESG) metrics relating to our CO 2 emissions and the percentage of our employees who identify as women (each, a “Sustainability Metric”).

13 to the Credit Agreement, pursuant to which the spread adjustments with respect to the Revolving Credit Facility and the Term A Facility were amended.

The applicable interest rate for loans under the Term B Facility is calculated at a per annum rate equal to, at our option, (a) the Term SOFR (as defined in the Credit Agreement) plus 1.75% or (b) the Base Rate (as defined in the Credit Agreement) plus 0.75%.

The applicable interest rate for U.S.

Dollar-denominated loans under the Revolving Credit Facility and the Term A Facility is calculated at a per annum rate equal to, at our option, (a) the Term SOFR (as defined in the Credit Agreement) plus an applicable margin (the “SOFR Applicable Margin”), which is currently at 1.2250% or (b) the Base Rate (as defined in the Credit Agreement) plus an applicable margin (the “Base Rate Applicable Margin,” and together with the SOFR Applicable Margin, the “Applicable Margins”), which is currently at 0.2250%.

The applicable interest rate for loans under the Revolving Credit Facility denominated in other currencies is calculated at a per annum rate equal to a customary floating reference rate for such currency specified in the Credit Agreement plus the SOFR Applicable Margin.

The Credit Agreement includes certain environmental, social and governance (ESG) metrics relating to our CO 2 emissions and the percentage of employees who identify as women (each, a “Sustainability Metric”).

The Applicable Margins for the Term A Facility and the Revolving Credit Facility and the commitment fees for the Revolving Credit Facility will be adjusted on an annual basis based on our achievement of preset thresholds for each Sustainability Metric.

Some of our material subsidiaries (the “Guarantors”) have guaranteed the obligations of the borrowers under the Credit Agreement, subject to certain exceptions.

The borrowers’ obligations under the Credit Agreement are secured by a lien on substantially all of our assets and our Guarantors’ assets, subject to certain exceptions.

The borrowers’ obligations under the Credit Agreement are secured by a lien on substantially all of our assets and the Guarantors’ assets, subject to certain exceptions.

The Credit Agreement contains customary negative covenants that include, among other things, limitations on our and certain of our subsidiaries’ ability, subject to certain exceptions, to incur liens and debt, make investments, dispositions, and restricted payments, change the nature of our business, consummate mergers, consolidations and the sale of all or substantially all of our respective assets, taken as a whole, and transact with affiliates.

We are also required to maintain a consolidated interest coverage ratio of at least 3.00 to 1.00 and a consolidated leverage ratio of less than or equal to 4.00 to 1.00 (subject to certain adjustments in connection with permitted acquisitions), tested on a quarterly basis (the “Financial Covenants”).

Our consolidated leverage ratio was 2.10 to 1.00 at June 30, 2023.

As of June 30, 2023, we were in compliance with the covenants of the Credit Agreement.

The Financial Covenants do not apply to the Term B Facility.

Our consolidated leverage ratio was 2.00 to 1.00 at December 31, 2023.

As of December 31, 2023, we were in compliance with the covenants of the Credit Agreement.

The Credit Agreement contains customary affirmative covenants, including, among other things, compliance with applicable law, preservation of existence, maintenance of properties and of insurance, and keeping proper books and records.

The Credit Agreement contains customary events of default, including, among other things, nonpayment of principal, interest or fees, cross-defaults to other debt, inaccuracies of representations and warranties, failure to perform covenants, events of bankruptcy and insolvency, change of control and unsatisfied judgments, subject in certain cases to notice and cure periods and other exceptions.

At December 31, 2023 and September 30, 2023, letters of credit totaled $4.4 million and $4.4 million, respectively, under our Revolving Credit Facility.

As of December 31, 2023 and September 30, 2023, we had $1,145.6 million and $1,145.6 million, respectively, available under our revolving credit facility.

2027 Senior Notes

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On June 30, 2017, we completed an exchange offer to exchange the unregistered 2027 Senior Notes for registered notes, as well as related guarantees.

As of June 30, 2023, the estimated fair value of the 2027 Senior Notes was approximately $958.6 million.

The fair value of the 2027 Senior Notes as of June 30, 2023 was derived by taking the mid-point of the trading prices from an observable market input

(Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes.

As of December 31, 2023, the estimated fair value of the 2027 Senior Notes was approximately $979.8 million.

The fair value of the 2027 Senior Notes as of December 31, 2023 was derived by taking the mid-point of the trading prices from an observable market input (Level 2) in the secondary bond market and multiplying it by the outstanding balance of the 2027 Senior Notes.

Interest is payable on the 2027 Senior Notes at a rate of 5.125% per annum.

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The indenture also contains customary negative covenants.

We were in compliance with the covenants relating to the 2027 Senior Notes as of June 30, 2023.

We were in compliance with the covenants relating to the 2027 Senior Notes as of December 31, 2023.

Other Debt and Other Items

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The unsecured credit facilities are primarily used for standby letters of credit issued in connection with general and professional liability insurance programs and for contract performance guarantees.

At June 30, 2023 and September 30, 2022, these outstanding standby letters of credit totaled $883.3 million and $640.3 million, respectively.

As of June 30, 2023, we had $415.9 million available under these unsecured credit facilities.

At December 31, 2023 and September 30, 2023, these outstanding standby letters of credit totaled $887.6 million and $878.9 million, respectively.

As of December 31, 2023, we had $406.1 million available under these unsecured credit facilities.

Effective Interest Rate

Our average effective interest rate on our total debt, including the effects of the interest rate swap and interest rate cap agreements, during the nine months ended June 30, 2023 and 2022 was 5.3% and 3.4%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three and nine months ended June 30, 2023 of $1.2 million and $3.7 million, respectively, and for the three and nine months ended June 30, 2022 of $1.2 million and $3.7 million, respectively.

Our average effective interest rate on our total debt, including the effects of the interest rate swap agreements and interest rate cap agreements during the three months ended December 31, 2023 and 2022 was 5.4% and 5.1%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three months ended December 31, 2023 and 2022 of $1.2 million and $1.2 million, respectively.

Other Commitments

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However, if we acquire additional businesses in the future or if we embark on other capital-intensive initiatives, additional working capital may be required.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of June 30, 2023, there was approximately $887.7 million, including both continuing and discontinued operations, outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees.

Under our secured revolving credit facility and other facilities discussed in Other Debt and Other Items above, as of December 31, 2023, there was approximately $891.9 million, including both continuing and discontinued operations, outstanding under standby letters of credit primarily issued in connection with general and professional liability insurance programs and for contract performance guarantees.

For those projects for which we have issued a performance guarantee, if the project subsequently fails to meet guaranteed performance standards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to achieve the required performance standards.

We recognized on our balance sheet the funded status of our pension benefit plans, measured as the difference between the fair value of plan assets and the projected benefit obligation.

At June 30, 2023, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $187.0 million.

amounts of employer contributions paid for the nine months ended June 30, 2023 were $5.9 million for U.S.

At December 31, 2023, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $157.9 million.

The total amounts of employer contributions paid for the three months ended December 31, 2023 were $2.3 million for U.S.

plans and $6.2 million for non-U.S.

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Refer to our Annual Report on Form 10-K for the year ended September 30, 2023 for a discussion of our contractual obligations.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the nine months ended June 30, 2023.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the three months ended December 31, 2023.

Condensed Combined Financial Information

4 unchanged sentences

All intercompany balances and transactions are eliminated in the presentation of the combined financial statements.

Amounts provided do not represent our total consolidated amounts as of June 30, 2023 and September 30, 2022, and for the nine months ended June 30, 2023.

Amounts provided do not represent our total consolidated amounts as of December 31, 2023 and September 30, 2023, and for the three months ended December 31, 2023.

Condensed Combined Balance Sheets

1 unchanged sentence

(unaudited - in millions)

June 30, 2023

December 31, 2023

September 30, 2023

9 unchanged sentences

(unaudited - in millions)

For the nine months ended

June 30, 2023

For the three months ended

December 31, 2023

Cost of revenue

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis