What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 150 added, 148 removed, 281 unchanged (51% of the section changed)

67 unchanged sentences

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

At March 31, 2024, we have approximately $928.9 million remaining of the Board’s repurchase authorization.

At June 30, 2024, we have approximately $878.6 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.

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

Consistent with our focus on our professional services business, we previously announced that we initiated a process to explore strategic options for the AECOM Capital business.

Following the end of the second quarter of fiscal year 2024, we completed a transaction that transitioned the AECOM Capital team to a new platform.

Consistent with our focus on our professional services business, we completed a transaction that transitioned the AECOM Capital team to a new platform in the third quarter of fiscal year 2024.

The team will continue to support AECOM Capital’s investment vehicles in a manner consistent with their current obligations.

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Results of Operations

Three and six months ended March 31, 2024 compared to the three and six months ended March 31, 2023

Three and nine months ended June 30, 2024 compared to the three and nine months ended June 30, 2023

Consolidated Results

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

3 unchanged sentences

Restructuring costs

Income from operations

Income (loss) from operations

Interest income

Interest expense

Income from continuing operations before taxes

Income tax expense for continuing operations

Net income from continuing operations

Net loss from discontinued operations

Income (loss) from continuing operations before taxes

Income tax expense (benefit) for continuing operations

Net income (loss) from continuing operations

Net income (loss) from discontinued operations

Net income (loss)

Net income attributable to noncontrolling interests from continuing operations

Net (income) loss attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net loss attributable to AECOM from discontinued operations

Net income attributable to AECOM

Net income (loss) attributable to AECOM from continuing operations

Net income (loss) attributable to AECOM from discontinued operations

Net income (loss) attributable to AECOM

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

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenue

2 unchanged sentences

Restructuring costs

Income from operations

Income (loss) from operations

Interest income

Interest expense

Income from continuing operations before taxes

Income tax expense for continuing operations

Net income from continuing operations

Net loss from discontinued operations

Income (loss) from continuing operations before taxes

Income tax expense (benefit) for continuing operations

Net income (loss) from continuing operations

Net income (loss) from discontinued operations

Net income (loss)

Net income attributable to noncontrolling interests from continuing operations

Net (income) loss attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests from discontinued operations

Net income attributable to noncontrolling interests

Net income attributable to AECOM from continuing operations

Net loss attributable to AECOM from discontinued operations

Net income attributable to AECOM

Our revenue for the three months ended March 31, 2024 increased $453.8 million, or 13.0%, to $3,943.9 million as compared to $3,490.1 million for the corresponding period last year.

Our revenue for the six months ended March 31, 2024 increased $971.3 million, or 14.1%, to $7,843.8 million as compared to $6,872.5 million for the corresponding period last year.

Net income (loss) attributable to AECOM from continuing operations

Net income (loss) attributable to AECOM from discontinued operations

Net income (loss) attributable to AECOM

Our revenue for the three months ended June 30, 2024 increased $487.6 million, or 13.3%, to $4,151.2 million as compared to $3,663.6 million for the corresponding period last year.

Our revenue for the nine months ended June 30, 2024 increased $1,458.9 million, or 13.8%, to $11,995.0 million as compared to $10,536.1 million for the corresponding period last year.

Revenue increased across most of our end markets as a result of increased investment in infrastructure, sustainability and resilience, and energy transition driven by large, publicly financed, global infrastructure programs including the Infrastructure Investment and Jobs Act in the U.S.

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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 quarters ended March 31, 2024 and 2023 were $2.1 billion and $1.8 billion, respectively.

Pass-through revenues for the six months ended March 31, 2024 and 2023 were $4.3 billion and $3.6 billion, respectively.

Pass-through revenue as a percentage of revenue was 54% and 52% during the three months ended March 31, 2024 and 2023, respectively.

Pass-through revenue as a percentage of revenue was 55% and 52% during the six months ended March 31, 2024 and 2023, respectively.

Pass-through revenues for the quarters ended June 30, 2024 and 2023 were $2.3 billion and $2.0 billion, respectively.

Pass-through revenues for the nine months ended June 30, 2024 and 2023 were $6.6 billion and $5.6 billion, respectively.

Pass-through revenue as a percentage of revenue was 56% and 54% during the three months ended June 30, 2024 and 2023, respectively.

Pass-through revenue as a percentage of revenue was 55% and 53% during the nine months ended June 30, 2024 and 2023, respectively.

Cost of Revenue

Our cost of revenue increased to $3,682.8 million for the three months ended March 31, 2024 compared to $3,262.0 million for the corresponding period last year, an increase of $420.8 million, or 12.9%.

Our cost of revenue increased to $7,338.7 million for the six months ended March 31, 2024 compared to $6,429.4 million in for the corresponding period last year, an increase of $909.3 million, or 14.1%.

Substantially all of the change in our cost of revenue for the three and six months ended March 31, 2024 occurred in our Americas and International reportable segments, which is discussed in more detail below.

Our gross profit for the three months ended March 31, 2024 increased $33.0 million, or 14.5%, to $261.1 million as compared to $228.1 million for the corresponding period last year.

For the three months ended March 31, 2024, gross profit, as a percentage of revenue, increased to 6.6% from 6.5% in the corresponding period last year.

Our gross profit for the six months ended March 31, 2024 increased $62.0 million, or 14.0%, to $505.1 million as compared to $443.1 million for the corresponding period last year.

For the six months ended March 31, 2024, gross profit, as a percentage of revenue, remained unchanged 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.

Our cost of revenue increased to $3,866.1 million for the three months ended June 30, 2024 compared to $3,413.5 million for the corresponding period last year, an increase of $452.6 million, or 13.3%.

Our cost of revenue increased to $11,204.8 million for the nine months ended June 30, 2024 compared to $9,842.9 million in for the corresponding period last year, an increase of $1,361.9 million, or 13.8%.

Substantially all of the change in our cost of revenue for the three and nine months ended June 30, 2024 occurred in our Americas and International reportable segments, which is discussed in more detail below.

Our gross profit for the three months ended June 30, 2024 increased $35.0 million, or 14.0%, to $285.1 million as compared to $250.1 million for the corresponding period last year.

For the three months ended June 30, 2024, gross profit, as a percentage of revenue, increased to 6.9% from 6.8% in the corresponding period last year.

Our gross profit for the nine months ended June 30, 2024 increased $97.0 million, or 14.0%, to $790.2 million as compared to $693.2 million for the corresponding period last year.

For the nine months ended June 30, 2024 and 2023, gross profit, as a percentage of revenue, remained unchanged at 6.6%.

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

Equity in Earnings of Joint Ventures

Our equity in earnings of joint ventures for the three months ended March 31, 2024 was $19.5 million as compared to $7.5 million in the corresponding period last year.

The increase in equity earnings was primarily due to a favorable close out of an AECOM Capital investment.

Our equity in losses of joint ventures for the six months ended March 31, 2024 was $9.5 million as compared to equity in earnings of $17.3 million in the corresponding period last year.

The increase in equity losses of joint ventures was primarily due to impairment losses recorded by our AECOM Capital segment in fiscal year 2024 as a result of continued volatility in the commercial real estate market caused by higher interest rates and lack of liquidity.

Our equity in earnings of joint ventures for the three months ended June 30, 2024 was $7.7 million as compared to equity in losses of $303.5 million in the corresponding period last year.

The increase in equity earnings was primarily due to impairment losses recorded in our AECOM Capital segment during the third quarter of fiscal 2023 that did not repeat in 2024.

Our equity in losses of joint ventures for the nine months ended June 30, 2024 was $1.8 million as compared to $286.2 million in the corresponding period last year.

The decrease in equity losses of joint ventures was primarily due to impairment losses recorded by our AECOM Capital segment in fiscal year 2023 that did not repeat to the same extent in fiscal year 2024.

General and Administrative Expenses

Our general and administrative expenses for the three months ended March 31, 2024 increased $10.5 million, or 30.7%, to $44.7 million as compared to $34.2 million for the corresponding period last year.

For the three months ended March 31, 2024, general and administrative expenses, as a percentage of revenue, was 1.1% as compared to 0.9% in the corresponding period last year.

Our general and administrative expenses for the six months ended March 31, 2024 increased $10.6 million, or 15.2%, to $80.4 million as compared to $69.8 million for the corresponding period last year.

For the six months ended March 31, 2024, general and administrative expenses, as a percentage of revenue, remain unchanged at 1.0% from the corresponding period last year.

The increase in general and administrative expenses for the three and six months ended March 31, 2024 compared to the comparable period in the prior year was primarily due to nonrecurring expenses in the AECOM Capital reportable segment.

Our general and administrative expenses for the three months ended June 30, 2024 decreased $6.7 million, or 15.6%, to $36.2 million as compared to $42.9 million for the corresponding period last year.

For the three months ended June 30, 2024, general and administrative expenses, as a percentage of revenue, was 0.9% as compared to 1.2% in the corresponding period last year.

Our general and administrative expenses for the nine months ended June 30, 2024 increased $3.9 million, or 3.5%, to $116.6 million as compared to $112.7 million for the corresponding period last year.

For the nine months ended June 30, 2024, general and administrative expenses, as a percentage of revenue, was 1.0% as compared to 1.1% from the corresponding period last year.

The decrease in general and administrative expenses for the three months ended June 30, 2024 compared to the comparable period in the prior year was primarily due to lower expenses in the AECOM Capital reportable segment.

Restructuring Costs

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

During the three and six months ended March 31, 2024, we incurred total restructuring expenses of $35.4 million and $51.6 million, respectively, primarily related to costs incurred to align our real estate portfolio with our employee flexibility initiatives, continue our exit of certain countries in Southeast Asia, drive support function efficiency, and reduce our risk profile.

During the three and six months ended March 31, 2023, we incurred total restructuring expenses of $3.9 million and $41.4 million, respectively, primarily related to costs incurred in preparation for the exit of specific countries in Southeast Asia.

Our other income for the three months ended March 31, 2024 increased to $2.6 million from $2.5 million for the corresponding period last year.

Our other income for the six months ended March 31, 2024 increased to $5.2 million from $4.6 million for the corresponding period last year.

During the three and nine months ended June 30, 2024, we incurred total restructuring expenses of $29.1 million and $80.7 million, respectively, primarily related to costs incurred to align our real estate portfolio with our employee flexibility initiatives, continue our exit of certain countries in Southeast Asia, drive support function efficiency, and reduce our risk profile.

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.

Our other income for the three months ended June 30, 2024 decreased to $1.0 million from $1.7 million for the corresponding period last year.

Our other income for the nine months ended June 30, 2024 decreased to $6.2 million from $6.3 million for the corresponding period last year.

Interest Income

Our interest income for the three months ended March 31, 2024 increased to $15.4 million from $9.8 million for the corresponding period last year.

Our interest income for the six months ended March 31, 2024 increased to $27.5 million from $15.6 million for the corresponding period last year.

The increases in interest income for the three and six months ended March 31, 2024 were primarily due to an increase in interest rates on our interest-bearing assets.

Our interest income for the three months ended June 30, 2024 increased to $15.8 million from $8.8 million for the corresponding period last year.

Our interest income for the nine months ended June 30, 2024 increased to $43.3 million from $24.4 million for the corresponding period last year.

The increases in interest income for the three and nine months ended June 30, 2024 were primarily due to an increase in interest rates on our interest-bearing assets.

Interest Expense

Our interest expense for the three months ended March 31, 2024 was $47.7 million as compared to $42.4 million for the corresponding period last year.

Our interest expense for the six months ended March 31, 2024 was $89.0 million as compared to $79.1 million for the corresponding period last year.

The increases in interest expense for the three and six months ended March 31, 2024 were primarily due to an increase in interest rates on the variable component of our debt.

Our interest expense for the three months ended June 30, 2024 was $51.4 million as compared to $38.8 million for the corresponding period last year.

Our interest expense for the nine months ended June 30, 2024 was $140.4 million as compared to $117.9 million for the corresponding period last year.

The increases in interest expense for the three and nine months ended June 30, 2024 were primarily due to an increase in interest rates on the variable component of our debt as well as $5.8 million in financing charges recorded in the three months ended June 30, 2024 related to the New Credit Facilities, defined below.

Income Tax Expense

Our income tax expense for the three months ended March 31, 2024 was $45.4 million as compared to $41.1 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 an increase in tax expense of $4.4 million related to foreign residual income, an increase in tax expense of $2.0 million related to state income taxes, and an increase in tax benefit of $1.4 million related to income tax credits and incentives.

Our income tax expense for the six months ended March 31, 2024 was $72.0 million as compared to $66.9 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 $17.0 million, a tax benefit of $6.9 million related to an audit settlement, an increase in tax expense of $7.2 million related to foreign residual income, an increase in tax benefit of $5.8 million related to income tax credits and incentives, an increase in tax expense of $3.3 million related to state income taxes, and an increase in tax expense of $2.9 million related to excess tax benefits.

Our income tax expense for the three months ended June 30, 2024 was $46.1 million as compared to a tax benefit of $20.0 million in the corresponding period last year.

Our income tax expense for the nine months ended June 30, 2024 was $118.1 million as compared to $46.9 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 a tax benefit recorded in the third quarter of fiscal 2023 of $65.0 million related to the AECOM Capital impairment charge, an increase in tax benefit of $10.4 million related to income tax credits and incentives, an increase in tax expense of $7.5 million related to foreign residual income, a tax benefit of $6.9 million related to an audit settlement, and an increase in tax expense of $3.6 million related to foreign tax rate differential.

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

Net Income (Loss) From Discontinued Operations

During the first quarter of fiscal 2020, management approved a plan to dispose of via sale our self-perform at-risk construction businesses.

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

Net loss from discontinued operations was $109.4 million for the three months ended March 31, 2024 and was $41.8 million for the three months ended March 31, 2023, an increase of $67.6 million.

Net loss from discontinued operations was $110.7 million for the six months ended March 31, 2024 and was $42.2 million for the six months ended March 31, 2023, an increase of $68.5 million.

Net income from discontinued operations was $5.7 million for the three months ended June 30, 2024 compared to a net loss of $7.6 million for the three months ended June 30, 2023, an increase of $13.3 million.

The increase in net income from discontinued operations was primarily due to the settlement of contingent consideration related to the sale of our civil infrastructure construction business, which results in a $12.7 million gain.

Net loss from discontinued operations was $105.0 million for the nine months ended June 30, 2024 and was $49.8 million for the nine months ended June 30, 2023, an increase of $55.2 million.

The increase in net loss from discontinued operations was primarily due to revisions of estimated contingent consideration related to the sale of our civil infrastructure construction business.

Net Income Attributable to AECOM

The factors described above resulted in net income attributable to AECOM of $1.0 million and $95.4 million for the three and six months ended March 31, 2024 as compared to net income attributable to AECOM of $76.7 million and $164.6 million for the three and six months ended March 31, 2023.

Net Income (Loss) Attributable to AECOM

The factors described above resulted in net income attributable to AECOM of $134.3 million and $229.7 million for the three and nine months ended June 30, 2024 as compared to net (loss) income attributable to AECOM of $(134.7) million and $29.9 million for the three and nine months ended June 30, 2023.

Results of Operations by Reportable Segment

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenue

Revenue for our Americas segment for the three months ended March 31, 2024 increased $408.4 million, or 15.5%, to $3,038.6 million as compared to $2,630.2 million for the corresponding period last year.

The increase in revenue for the three months ended March 31, 2024 was driven by organic growth and an increase in pass-through revenues of $310.8 million due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients and revenue from increased project activity in the Americas, including growth in our Water end market of $21.8 million, growth in our Transportation end market of $75.8 million, and growth in our Environment end market of $51.4 million compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Revenue for our Americas segment for the six months ended March 31, 2024 increased $867.8 million, or 16.7%, to $6,077.3 million as compared to $5,209.5 million for the corresponding period last year.

The increase in revenue for the six months ended March 31, 2024 was driven by organic growth and an increase in pass-through revenues of $716.2 million due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients and revenue from increased project activity in the Americas, including growth in our Water end market of $57.5 million, growth in our Transportation end market of $124.5 million, and growth in our Environment end market of $62.7 million compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Revenue for our Americas segment for the three months ended June 30, 2024 increased $417.4 million, or 14.8%, to $3,246.9 million as compared to $2,829.5 million for the corresponding period last year.

The increase in revenue for the three months ended June 30, 2024 was driven by organic growth and an increase in pass-through revenues of $336.1 million due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients and revenue from growth in the Americas, including growth in our Transportation end market of $64.1 million, or 12.6%, and growth in our Water and Environment end markets of $33.4 million, or 6.7%, compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Revenue for our Americas segment for the nine months ended June 30, 2024 increased $1,285.2 million, or 16.0%, to $9,324.2 million as compared to $8,039.0 million for the corresponding period last year.

The increase in revenue for the nine months ended June 30, 2024 was driven by organic growth and an increase in pass-through revenues of $1,052.4 million due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients and revenue from increased project activity in the Americas, including growth in our Water and Environment end markets of $154.9 million, or 10.9%, and growth in our Transportation end market of $189.0 million, or 12.9%, compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Cost of Revenue

Cost of revenue for the three months ended March 31, 2024 increased by $397.3 million, or 16.2%, to $2,854.2 million compared to $2,456.9 million for the corresponding period last year.

Cost of revenue for the six months ended March 31, 2024 increased by $848.6 million, or 17.4%, to $5,721.9 million compared to $4,873.3 million for the corresponding period last year.

The increases in cost of revenue for the three and six months ended March 31, 2024 were consistent with the increases in revenue.

The increases in cost of revenue for the three and six months ended March 31, 2024 were due to an increase in subcontractor and other direct costs of $310.8 million and $716.2 million, respectively, due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients, with the balance of the increases due to higher labor costs compared to the same periods in the prior year.

Gross profit for our Americas segment for the three months ended March 31, 2024 increased $11.1 million, or 6.4%, to $184.4 million as compared to $173.3 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 6.1% of revenue for the three months ended March 31, 2024 from 6.6% in the corresponding period last year.

Gross profit for our Americas segment for the six months ended March 31, 2024 increased $19.2 million, or 5.7%, to $355.4 million as compared to $336.2 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 5.8% of revenue for the six months ended March 31, 2024 from 6.5% in the corresponding period last year.

The increases in gross profit for the three and six months ended March 31, 2024 were primarily due to revenue growth and execution efficiencies realized from restructuring actions.

Cost of revenue for the three months ended June 30, 2024 increased by $396.4 million, or 15.0%, to $3,043.0 million compared to $2,646.6 million for the corresponding period last year.

Cost of revenue for the nine months ended June 30, 2024 increased by $1,245.0 million, or 16.6%, to $8,764.9 million compared to $7,519.9 million for the corresponding period last year.

The increases in cost of revenue for the three and nine months ended June 30, 2024 were consistent with the increases in revenue.

The increases in cost of revenue for the three and nine months ended June 30, 2024 were due to an increase in subcontractor and other direct costs of $336.1 million and $1,052.4 million, respectively, due to a higher proportion of contracts requiring us to subcontract work on behalf of our clients, with the balance of the increases due to higher labor costs compared to the same periods in the prior year.

Gross profit for our Americas segment for the three months ended June 30, 2024 increased $21.0 million, or 11.5%, to $203.9 million as compared to $182.9 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 6.3% of revenue for the three months ended June 30, 2024 from 6.5% in the corresponding period last year.

Gross profit for our Americas segment for the nine months ended June 30, 2024 increased $40.2 million, or 7.7%, to $559.3 million as compared to $519.1 million for the corresponding period last year.

As a percentage of revenue, gross profit decreased to 6.0% of revenue for the nine months ended June 30, 2024 from 6.5% in the corresponding period last year.

The increases in gross profit for the three and nine months ended June 30, 2024 were primarily due to revenue growth and execution efficiencies realized from restructuring actions.

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

The decrease in gross profit as a percentage of revenue was due to an increase in pass-through revenues for the three and six months ended March 31, 2024 as compared to last year.

The decrease in gross profit as a percentage of revenue was due to an increase in pass-through revenues for the three and nine months ended June 30, 2024 as compared to last year.

International

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

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Three Months Ended

Six Months Ended

Nine Months Ended

Cost of revenue

Revenue for our International segment for the three months ended March 31, 2024 increased $45.0 million, or 5.2%, to $904.8 million as compared to $859.8 million for the corresponding period last year.

The increase in revenue for the three months ended March 31, 2024 was primarily due to increased growth in Middle East of $46.9 million, partially offset by a decrease in Asia of $3.8 million compared to the corresponding period last year.

Growth was led by our Transportation, Facilities, and Environment end markets, which increased $8.5 million, $25.8 million, and $7.4 million, respectively, compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Revenue for our International segment for the six months ended March 31, 2024 increased $103.2 million, or 6.2%, to $1,765.8 million as compared to $1,662.6 million for the corresponding period last year.

The increase in revenue for the six months ended March 31, 2024 was primarily due to increased growth in Europe of $61.8 million and Middle East of $43.1 million compared to the corresponding period last year.

Growth was led by our Transportation, Facilities, and Environment end markets, which increased $19.7 million, $49.7 million, and $21.1 million, respectively, compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Revenue for our International segment for the three months ended June 30, 2024 increased $69.9 million, or 8.4%, to $904.2 million as compared to $834.3 million for the corresponding period last year.

The increase in revenue for the three months ended June 30, 2024 was primarily due to growth in the Middle East of $30.9 million and Europe of $24.9 million compared to the corresponding period last year.

Growth was led by our Facilities, Water and Environment, and Transportation end markets, which increased $27.9 million, or 8.6%, $21.2 million, or 12.1%, and $15.9 million, or 5.1%, respectively, compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Revenue for our International segment for the nine months ended June 30, 2024 increased $173.1 million, or 6.9%, to $2,670.0 million as compared to $2,496.9 million for the corresponding period last year.

The increase in revenue for the nine months ended June 30, 2024 was primarily due to increased growth in Europe of $86.7 million and the Middle East of $74.0 million compared to the corresponding period last year.

Growth was led by our Facilities, Water and Environment, and Transportation end markets, which increased $87.2 million, or 9.0%, $41.7 million, or 8.0%, and $33.9 million, or 3.7%, respectively, compared to the corresponding period last year, which have benefited from the end market trends discussed in the consolidated revenue section above.

Cost of Revenue

Cost of revenue for the three months ended March 31, 2024 increased $23.5 million, or 2.9%, to $828.6 million as compared to $805.1 million for the corresponding period last year.

The increase in cost of revenue for the three months ended March 31, 2024 was due to an increase in labor expenses of $21.3 million.

Headcount growth in other regions was offset by a 40% headcount decrease in Mainland China compared with the corresponding period last year.

Cost of revenue for the six months ended March 31, 2024 increased $60.7 million, or 3.9%, to $1,616.8 million as compared to $1,556.1 million for the corresponding period last year.

The increase in cost of revenue for the six months ended March 31, 2024 was due to an increase in labor expenses of $61.3 million.

Headcount growth in other regions was offset by a 40% headcount decrease in Mainland China compared to the corresponding period last year.

Cost of revenue for the three and six months ended March 31, 2024 decreased as a percentage of revenue compared to the same periods in the prior year.

Gross profit for our International segment for the three months ended March 31, 2024 increased $21.5 million, or 39.3%, to $76.2 million as compared to $54.7 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 8.4% of revenue for the three months ended March 31, 2024 from 6.4% in the corresponding period last year.

Gross profit for our International segment for the six months ended March 31, 2024 increased $42.5 million, or 39.9%, to $149.0 million as compared to $106.5 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 8.4% of revenue for the six months ended March 31, 2024 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 six months ended March 31, 2024 were primarily due to an increase in revenue and reduced costs resulting from ongoing exiting of lower margin countries, ongoing investments in enterprise capability centers, shared service centers, and delivery efficiencies.

Cost of revenue for the three months ended June 30, 2024 increased $56.2 million, or 7.3%, to $823.1 million as compared to $766.9 million for the corresponding period last year.

The increase in cost of revenue for the three months ended June 30, 2024 was due to increases in subcontractor and other direct costs of $29.7 million and labor expenses of $26.6 million.

Cost of revenue for the nine months ended June 30, 2024 increased $116.9 million, or 5.0%, to $2,439.9 million as compared to $2,323.0 million for the corresponding period last year.

The increase in cost of revenue for the nine months ended June 30, 2024 was due to an increase in labor expenses of $87.9 million.

Cost of revenue for the three and nine months ended June 30, 2024 decreased as a percentage of revenue compared to the same periods in the prior year.

Gross profit for our International segment for the three months ended June 30, 2024 increased $13.7 million, or 20.3%, to $81.1 million as compared to $67.4 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 9.0% of revenue for the three months ended June 30, 2024 from 8.1% in the corresponding period last year.

Gross profit for our International segment for the nine months ended June 30, 2024 increased $56.2 million, or 32.3%, to $230.1 million as compared to $173.9 million for the corresponding period last year.

As a percentage of revenue, gross profit increased to 8.6% of revenue for the nine months ended June 30, 2024 from 7.0% 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, 2024 were primarily due to an increase in revenue and reduced costs resulting from ongoing exiting of lower margin countries, ongoing investments in enterprise capability centers, shared service centers, and delivery efficiencies.

AECOM Capital

Three Months Ended

Six Months Ended

Nine Months Ended

($ in millions)

Equity in earnings of joint ventures

Equity in earnings (losses) of joint ventures

General and administrative expenses

* Not Meaningful

Equity in earnings of joint ventures for the three months ended March 31, 2024 increased $12.5 million, or 446.4%, to $9.7 million compared to a loss of $2.8 million for the corresponding period last year.

The increase in equity earnings was primarily due to a favorable close out of an investment.

Equity in earnings of joint ventures for the six months ended March 31, 2024 decreased $30.0 million, or 1,071.4%, to a loss of $27.2 million compared to earnings of $2.8 million for the corresponding period last year.

The change in equity of earnings in joint ventures for the six months ended March 31, 2024 was primarily due to impairment losses recognized in the first quarter of fiscal 2024.

The increases of $6.8 million and $6.5 million in general and administrative expenses for the three and six months ended March 31, 2024, respectively, compared to the corresponding period last year was due to nonrecurring expenses related to the transition of the AECOM Capital team and realization of strategic options around the AECOM Capital business.

Equity in earnings of joint ventures for the three months ended June 30, 2024 increased $307.9 million, or 100.2%, to $0.7 million compared to a loss of $307.2 million for the corresponding period last year.

The increase in equity in earnings of joint ventures was primarily due to an impairment loss recorded in fiscal year 2023 that did not repeat.

Equity in losses of joint ventures for the nine months ended June 30, 2024 decreased $277.9 million, or 91.3%, to a loss of $26.5 million compared to a loss of $304.4 million for the corresponding period last year.

The change in equity in earnings of joint ventures for the nine months ended June 30, 2024 was primarily due to impairment losses recognized in the fiscal 2023 that did not repeat to the same extent in fiscal 2024.

The decrease of $3.4 million in general and administrative expenses for the three months ended June 30, 2024 compared to the corresponding period last year was due to lower continuing expenses related to the transition of the AECOM Capital team.

The increase of $3.1 million in general and administrative expenses for the nine months ended June 30, 2024 compared to the corresponding period last year was due to nonrecurring expenses related to the transition and realization of strategic options around the AECOM Capital business.

We experience seasonal trends in our business.

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

At March 31, 2024, 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 June 30, 2024, 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 March 31, 2024, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,189.1 million, a decrease of $73.1 million, or 5.8%, from $1,262.2 million at September 30, 2023.

The decrease in cash and cash equivalents was primarily attributable to $113.1 million of cash used to repurchase common stock, of which $90.8 million was related to repurchases under the existing Board repurchase authorization.

Net cash provided by operating activities was $237.4 million for the six months ended March 31, 2024 as compared to $131.5 million for the six months ended March 31, 2023.

The change was primarily attributable to an increase in cash provided by working capital of approximately $81.2 million and an increase in adjustments for non-cash items of approximately $81.3 million, offset by a decrease in net income of approximately $56.6 million.

The sale of trade receivables to financial institutions included in operating cash flows increased $49.2 million during the six months ended March 31, 2024 compared to the six months ended March 31, 2023.

At June 30, 2024, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,648.2 million, an increase of $386.0 million, or 30.6%, from $1,262.2 million at September 30, 2023.

The increase in cash and cash equivalents was primarily attributable to $320.1 million in net cash proceeds pursuant to Amendment No.

14 of the Credit Agreement.

Net cash provided by operating activities was $528.7 million for the nine months ended June 30, 2024 as compared to $410.8 million for the nine months ended June 30, 2023.

The change was primarily attributable to an increase in cash provided by working capital of approximately $146.7 million and an increase in net income of approximately $217.2 million, offset by a decrease in adjustments for non-cash items of approximately $246.0 million.

The sale of trade receivables to financial institutions included in operating cash flows increased $39.0 million during the nine months ended June 30, 2024 compared to the nine months ended June 30, 2023.

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 $121.9 million for the six months ended March 31, 2024, as compared to $83.6 million for the six months ended March 31, 2023.

The change was primarily attributable to an increase in cash payments for capital expenditures of approximately $7.9 million and cash paid for a business acquisition, net of cash acquired of $18.7 million.

Net cash used in financing activities was $188.4 million for the six months ended March 31, 2024 as compared to $147.4 million for the six months ended March 31, 2023.

The change from prior year was primarily attributable to a $15.8 million increase in stock repurchases under our stock repurchase program and a $9.2 million increase in dividends paid.

Net cash used in investing activities was $185.9 million for the nine months ended June 30, 2024, as compared to $106.5 million for the nine months ended June 30, 2023.

The change was primarily attributable to an increase in cash payments for capital expenditures of approximately $12.0 million, cash paid for a business acquisition, net of cash acquired of $18.7 million, and $27.1 million cash funded pursuant to the revolving credit facility with the counterparty to our sale of the civil infrastructure construction business.

Net cash provided by financing activities was $44.4 million for the nine months ended June 30, 2024 as compared to $204.0 million net cash used by financing activities for the nine months ended June 30, 2023.

The change from prior year was primarily attributable to a $15.8 million increase in stock repurchases under our stock repurchase program, a $14.1 million increase in dividends paid, offset by $320.1 million in net cash proceeds pursuant to Amendment No.

14 of the Credit Agreement.

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 $42.5 million, or 13.3%, to $361.7 million at March 31, 2024 from $319.2 million at September 30, 2023.

Net accounts receivable and contract assets, net of contract liabilities, increased to $3,185.3 million at March 31, 2024 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 71 days at March 31, 2024 compared to 65 days at September 30, 2023.

Working capital, or current assets less current liabilities, increased $509.8 million, or 159.7%, to $829.0 million at June 30, 2024 from $319.2 million at September 30, 2023.

Net accounts receivable and contract assets, net of contract liabilities, increased to $3,283.3 million at June 30, 2024 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 69 days at June 30, 2024 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 our debt as of March 31, 2024:

2024 (six months remaining)

The following table presents, in millions, scheduled maturities of our debt as of June 30, 2024:

2024 (three months remaining)

Credit Agreement

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Borrowings under (a) the New Revolving Credit Facility (in U.S.

dollars) and the New Term A Facility will bear interest at a rate per annum equal to, at our option, (i) a Term SOFR rate (with a 0% floor and SOFR adjustment of 0.10%) or (ii) a base rate (with a 0% floor), in each case, plus an applicable margin of 1.25% in the case of the Term SOFR rate and 0.25% in the case of the base rate, and (b) the New Revolving Credit Facility in currencies other U.S.

dollars will bear interest at a rate per annum equal to the applicable reference rate for such currency (including any related adjustments), plus an applicable margin of 1.25%.

dollars) and the New Term A Facility bear interest at a rate per annum equal to, at our option, (i) a Term SOFR rate (with a 0% floor and SOFR adjustment of 0.10%) or (ii) a base rate (with a 0% floor), in each case, plus an applicable margin of 1.225% in the case of the Term SOFR rate and 0.25% in the case of the base rate, and (b) the New Revolving Credit Facility in currencies other than U.S.

dollars bear interest at a rate per annum equal to the applicable reference rate for such currency (including any related adjustments), plus an applicable margin of 1.225%.

The applicable margin is subject, in each case, to adjustment based on our consolidated leverage ratio from time to time.

Borrowings under the New Term B Facility will bear interest at a rate per annum equal to, at our option, (a) a Term SOFR rate (with a 0% floor and a SOFR adjustment of 0%) or (b) a base rate (with a 0% floor), in each case, plus an applicable margin of 1.875% in the case of the Term SOFR rate and 0.875% in the case of the base rate.

Borrowings under the New Term B Facility bear interest at a rate per annum equal to, at our option, (a) a Term SOFR rate (with a 0% floor and a SOFR adjustment of 0%) or (b) a base rate (with a 0% floor), in each case, plus an applicable margin of 1.875% in the case of the Term SOFR rate and 0.875% in the case of the base rate.

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

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

We are also required to maintain 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”).

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

As of March 31, 2024, we were in compliance with the covenants of the Credit Agreement.

The Financial Covenant does not apply to the New Term B Facility.

As of June 30, 2024, 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 March 31, 2024 and September 30, 2023, letters of credit totaled $4.4 million and $4.4 million, respectively, under the our Original Revolving Credit Facility.

As of March 31, 2024 and September 30, 2023, we had $1,145.6 million and $1,145.6 million, respectively, available under our Original Revolving Credit Facility.

At June 30, 2024 and September 30, 2023, letters of credit totaled $4.4 million and $4.4 million, respectively, under our New Revolving Credit Facility and Original Revolving Credit Facility, respectively.

As of June 30, 2024 and September 30, 2023, we had $1,495.6 million and $1,145.6 million, respectively, available under our New Revolving Credit Facility and Original Revolving Credit Facility, respectively.

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 March 31, 2024, the estimated fair value of the 2027 Senior Notes was approximately $977.3 million.

The fair value of the 2027 Senior Notes as of March 31, 2024 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 June 30, 2024, the estimated fair value of the 2027 Senior Notes was approximately $974.9 million.

The fair value of the 2027 Senior Notes as of June 30, 2024 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 March 31, 2024.

We were in compliance with the covenants relating to the 2027 Senior Notes as of June 30, 2024.

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 March 31, 2024 and September 30, 2023, these outstanding standby letters of credit totaled $895.3 million and $878.9 million, respectively.

As of March 31, 2024, we had $418.9 million available under these unsecured credit facilities.

At June 30, 2024 and September 30, 2023, these outstanding standby letters of credit totaled $909.4 million and $878.9 million, respectively.

As of June 30, 2024, we had $407.1 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 agreements and interest rate cap agreements during the six months ended March 31, 2024 and 2023 was 5.5% and 5.2%, respectively.

Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three and six months ended March 31, 2024 and 2022 of $1.2 million and $2.4 million, respectively, and for the three and six months ended March 31, 2023 of $1.2 million and $2.4 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 nine months ended June 30, 2024 and 2023 was 5.5% and 5.3%, 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, 2024 of $4.0 million and $6.4 million, respectively, and for the three and nine months ended June 30, 2023 of $1.2 million and $3.7 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 March 31, 2024, there was approximately $899.7 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 June 30, 2024, there was approximately $913.8 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 March 31, 2024, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $146.1 million.

The total amounts of employer contributions paid for the six months ended March 31, 2024 were $4.4 million for U.S.

At June 30, 2024, our defined benefit pension plans had an aggregate deficit (the excess of projected benefit obligations over the fair value of plan assets) of approximately $133.8 million.

The total amounts of employer contributions paid for the nine months ended June 30, 2024 were $8.6 million for U.S.

plans and $19.0 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 six months ended March 31, 2024.

There have been no changes, outside of the ordinary course of business, to these contractual obligations during the nine months ended June 30, 2024.

Condensed Combined Financial Information

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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 March 31, 2024 and September 30, 2023, and for the six months ended March 31, 2024.

Amounts provided do not represent our total consolidated amounts as of June 30, 2024 and September 30, 2023, and for the nine months ended June 30, 2024.

Condensed Combined Balance Sheets

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(unaudited - in millions)

March 31, 2024

June 30, 2024

September 30, 2023

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(unaudited - in millions)

For the six months ended

March 31, 2024

For the nine months ended

June 30, 2024

Cost of revenue

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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