AECOM 10-Q

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations Forward-Looking Statements This Quarterly Report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that are not limited to historical facts, but reflect the Company’s current beliefs, expectations or intentions regarding future events. These statements include forward-looking statements with respect to the Company, including the Company’s business, operations and strategy, and infrastructure consulting industry. Statements that are not historical facts, without limitation, including statements that use terms such as “anticipates,” “believes,” “expects,” “estimates,” “intends,” “may,” “plans,” “potential,” “projects,” and “will” and that relate to our future revenues, expenditures and business trends; future reduction of our self-perform at-risk construction exposure; future accounting estimates; future contractual performance obligations; future conversions of backlog; future capital allocation priorities, including common stock repurchases, future trade receivables, future debt pay downs; future post-retirement expenses; future tax benefits and expenses, and the impact of future tax laws; future compliance with regulations; future legal claims and insurance coverage; future effectiveness of our disclosure and internal controls over financial reporting; future costs savings; and other future economic and industry conditions, are forward-looking statements. In light of the risks and uncertainties inherent in all forward-looking statements, the inclusion of such statements in this Quarterly Report should not be considered as a representation by us or any other person that our objectives or plans will be achieved. Although management believes that the assumptions underlying the forward-looking statements are reasonable, these assumptions and the forward-looking statements are subject to various factors, risks and uncertainties, many of which are beyond our control, including, but not limited to, our business is cyclical and vulnerable to economic downturns and client spending reductions; potential government shutdowns; changes in administration or other funding directives and circumstances may cause governmental agencies to modify, curtail or terminate our contracts; government contracts are subject to audits and adjustments of contractual terms; long-term government contracts and subject to uncertainties related to government contract appropriations; losses under fixed-price contracts; limited control over operations run through our joint venture entities; liability for misconduct by our employees or consultants; changes in government laws, regulations and policies, including failure to comply with laws or regulations applicable to our business; maintaining adequate surety and financial capacity; potential high leverage and inability to service our debt and guarantees; ability to continue payment of dividends; exposure to political and economic risks in different countries, including tariffs and trade policies, geopolitical events, and conflicts; inflation, currency exchange rates and interest rate fluctuations; changes in capital markets and stock market volatility; retaining and recruiting key technical and management personnel; legal claims and litigation; inadequate insurance coverage; environmental law compliance and inadequate nuclear indemnification; unexpected adjustments and cancellations related to our backlog; partners and third parties who may fail to satisfy their legal obligations; managing pension costs; AECOM Capital’s real estate development; 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; 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. Accordingly, actual results could differ materially from those contemplated by any forward-looking statement. All subsequent written and oral forward-looking statements concerning the Company or other matters attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. You are cautioned not to place undue reliance on these forward-looking statements, which speak only to the date they are made. The Company is under no obligation (and expressly disclaims any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise. Please review “Part II, Item 1A—Risk Factors” in this Quarterly Report for a discussion of the factors, risks and uncertainties that could affect our future results. Overview We are a leading global provider of professional infrastructure consulting and advisory 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 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. We primarily derive income from our ability to generate revenue and collect cash from our clients through the billing of our employees’ time spent on client projects and our ability to manage our costs. AECOM Capital primarily derives its income from real estate development sales and management fees. 27 Table of Contents We report our continuing business through three segments, each of which is described in further detail below: Americas, International, and AECOM Capital (ACAP). Such segments are organized by the differing specialized needs of the respective clients and how we manage the business. We have aggregated various operating segments into our reportable segments based on their similar characteristics, including similar long-term financial performance, the nature of services provided, internal processes for delivering those services, and types of customers. • Americas : Planning, advisory, 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, advisory, 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 (ACAP) : 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. Demand for our services may be vulnerable to sudden economic downturns and reductions in government and private industry spending, which may result in clients delaying, curtailing or canceling proposed and existing projects. Moreover, as a professional services company, maintaining the high quality of the work generated by our employees is integral to our revenue generation and profitability. Given the global nature of our business, our revenue is exposed to currency rate fluctuations that could change from period to period and year to year. 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. At December 31, 2024, we had approximately $974.8 million remaining of the Board’s stock repurchase authorization. On November 13, 2024, the Board approved an increase in our stock repurchase authorization to $1.0 billion. We intend to deploy future available cash towards dividends and stock repurchases consistent with our returns driven capital allocation policy. We have exited substantially all of our former 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. We completed a transaction that transitioned the AECOM Capital team to a new third-party platform in the third quarter of fiscal 2024. The team will continue to support AECOM Capital’s investment vehicles pursuant to certain advisory agreements in a manner consistent with their current obligations. 28 Table of Contents Results of Operations Three months ended December 31, 2024 compared to the three months ended December 31, 2023 Consolidated Results Three Months Ended December 31, 2024 December 31, 2023 Changes $ % ($ in millions) Revenue $ 4,014.2 $ 3,899.9 $ 114.3 2.9 % Cost of revenue 3,745.8 3,655.9 89.9 2.5 Gross profit 268.4 244.0 24.4 10.0 Equity in earnings (losses) of joint ventures 9.6 (29.0) 38.6 (133.1) General and administrative expenses (40.5) (35.7) (4.8) 13.4 Restructuring costs — (16.2) 16.2 (100.0) Income from operations 237.5 163.1 74.4 45.6 Other income 6.9 2.6 4.3 165.4 Interest income 16.6 12.1 4.5 37.2 Interest expense (43.0) (41.3) (1.7) 4.1 Income from continuing operations before taxes 218.0 136.5 81.5 59.7 Income tax expense for continuing operations 29.3 26.6 2.7 10.2 Net income from continuing operations 188.7 109.9 78.8 71.7 Net loss from discontinued operations (9.6) (1.3) (8.3) 638.5 Net income 179.1 108.6 70.5 64.9 Net income attributable to noncontrolling interests from continuing operations (11.3) (13.1) 1.8 (13.7) Net income attributable to noncontrolling interests from discontinued operations (0.8) (1.1) 0.3 (27.3) Net income attributable to noncontrolling interests (12.1) (14.2) 2.1 (14.8) Net income attributable to AECOM from continuing operations 177.4 96.8 80.6 83.3 Net loss attributable to AECOM from discontinued operations (10.4) (2.4) (8.0) 333.3 Net income attributable to AECOM $ 167.0 $ 94.4 $ 72.6 76.9 % 29 Table of Contents The following table presents the percentage relationship of statement of operations items to revenue: Three Months Ended December 31, 2024 December 31, 2023 Revenue 100.0 % 100.0 % Cost of revenue 93.3 93.7 Gross profit 6.7 6.3 Equity in earnings (losses) of joint ventures 0.2 (0.7) General and administrative expenses (1.0) (1.0) Restructuring costs 0.0 (0.4) Income from operations 5.9 4.2 Other income 0.2 0.1 Interest income 0.4 0.3 Interest expense (1.1) (1.1) Income from continuing operations before taxes 5.4 3.5 Income tax expense for continuing operations 0.7 0.7 Net income from continuing operations 4.7 2.8 Net loss from discontinued operations (0.2) 0.0 Net income 4.5 2.8 Net income attributable to noncontrolling interests from continuing operations (0.3) (0.3) Net income attributable to noncontrolling interests from discontinued operations 0.0 (0.1) Net income attributable to noncontrolling interests (0.3) (0.4) Net income attributable to AECOM from continuing operations 4.4 2.5 Net loss attributable to AECOM from discontinued operations (0.2) (0.1) Net income attributable to AECOM 4.2 % 2.4 % Revenue Our revenue for the three months ended December 31, 2024 increased $114.3 million, or 2.9%, to $4,014.2 million as compared to $3,899.9 million for the corresponding period last year. Revenue increased across most of our end markets as a result of increased investment by large, publicly financed, global infrastructure programs including the Infrastructure Investment and Jobs Act in the U.S. and similar large programs in our largest end markets globally. Our Water end market has been benefiting from increased investment to address drought, flooding, emerging contaminant remediation, water storage,and clean and safe drinking water. Our Transportation end market has been benefiting from incremental investments across the globe to modernize transportation infrastructure and address growth and urbanization trends, while our Environment end market has been benefiting from infrastructure that requires permitting, compliance, and remediation as well as investments in energy. Our Facilities end market has been benefiting from positive trends in asset maintenance repositioning and demand for modern, efficient facilities. The quantification of the impact of these trends by end market is noted within our Americas and International reportable segments discussion below, where applicable, and represents substantially all of our revenue change. In the course of providing our services, we routinely subcontract for services and incur other direct costs on behalf of our clients. These costs are passed through to clients and, in accordance with industry practice and GAAP, are included in our revenue and cost of revenue. 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 December 31, 2024 and 2023 were $2.2 billion for both periods. Pass-through revenue as a percentage of total revenue was 55% and 56% during the three months ended December 31, 2024 and 2023, respectively. 30 Table of Contents Cost of Revenue Our cost of revenue increased to $3,745.8 million for the three months ended December 31, 2024 compared to $3,655.9 million for the corresponding period last year, an increase of $89.9 million, or 2.5%. Substantially all of the change in our cost of revenue for the three months ended December 31, 2024 occurred in our Americas and International reportable segments, which is discussed in more detail below. Gross Profit Our gross profit for the three months ended December 31 , 2024 increased $24.4 million, or 10.0%, to $268.4 million as compared to $244.0 million for the corresponding period last year. For the three months ended December 31, 2024, gross profit, as a percentage of revenue, increased to 6.7% from 6.3% in the corresponding period last year. 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 December 31, 2024 was $9.6 million as compared to equity in losses of $29.0 million in the corresponding period last year. The increase in equity in earnings of joint ventures for the three months ended December 31, 2024 compared to the same period in the prior year was primarily due to impairment losses of $35.9 million recorded by our AECOM Capital segment in fiscal 2024 that did not repeat in fiscal 2025. General and Administrative Expenses Our general and administrative expenses for the three months ended December 31, 2024 increased $4.8 million, or 13.4%, to $40.5 million as compared to $35.7 million for the corresponding period last year. For the three months ended December 31, 2024, general and administrative expenses, as a percentage of revenue, was 1.0% which was consistent with the corresponding period last year. The increase in general and administrative expenses was primarily due to increased costs related to investments to drive organic growth. Restructuring Costs Restructuring costs are comprised of personnel costs, real estate costs, and costs associated with business exits. No new transformative restructuring actions were initiated during the three months ended December 31, 2024. During the three months ended December 31, 2023, we incurred restructuring costs of $16.2 million, primarily related to costs incurred to continue to align our real estate portfolio with our employee flexibility initiatives, and continue our exit of certain countries in Southeast Asia. Other Income Our other income for the three months ended December 31, 2024 increased to $6.9 million from $2.6 million for the corresponding period last year. The increase in other income for the three months ended December 31, 2024 was primarily due to the increase in fair value of our investments measured at fair value. Interest Income Our interest income for the three months ended December 31, 2024 increased to $16.6 million from $12.1 million for the corresponding period last year. The increase in interest income for the three months ended December 31, 2024 was primarily due to an increase in our interest-bearing assets. 31 Table of Contents Interest Expense Our interest expense for the three months ended December 31, 2024 was $43.0 million as compared to $41.3 million for the corresponding period last year. The increase in interest expense for the three months ended December 31, 2024 was primarily due to an increase in our debt as compared to the prior year. Income Tax Expense Our income tax expense for the three months ended December 31, 2024 was $29.3 million as compared to $26.6 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 $81.5 million, partially offset by a tax benefit of $20.1 million related to deferred tax assets recognized due to legal entity restructuring implemented in the first quarter of fiscal 2025, and a tax benefit of $6.9 million related to an audit settlement in the first quarter of fiscal 2024 that did not repeat if fiscal 2025. During the first quarter of fiscal 2025, we recognized deferred tax assets of $20.1 million related to legal entity restructuring. The restructuring resulted in the recognition of deferred tax assets related to tax attributes that are expected to be utilized against future taxable income. During the first quarter of fiscal 2024, we settled our 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 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 $9.6 million for the three months ended December 31, 2024 and was $1.3 million for the three months ended December 31, 2023, an increase of $8.3 million. The increase was primarily due to a change in our expected recovery on a project completed prior to the sale of our at-risk power construction business. Net Income Attributable to AECOM The factors described above resulted in net income attributable to AECOM of $167.0 million for the three months ended December 31, 2024 as compared to net income attributable to AECOM of $94.4 million for the three months ended December 31, 2023. Results of Operations by Reportable Segment Americas Three Months Ended December 31, 2024 December 31, 2023 Change $ % ($ in millions) Revenue $ 3,112.0 $ 3,038.7 $ 73.3 2.4 % Cost of revenue 2,921.8 2,867.7 54.1 1.9 Gross profit $ 190.2 $ 171.0 $ 19.2 11.2 % 32 Table of Contents The following table presents the percentage relationship of statement of operations items to revenue: Three Months Ended December 31, 2024 December 31, 2023 Revenue 100.0 % 100.0 % Cost of revenue 93.9 94.4 Gross profit 6.1 % 5.6 % Revenue Revenue for our Americas segment for the three months ended December 31, 2024 increased $73.3 million, or 2.4%, to $3,112.0 million as compared to $3,038.7 million for the corresponding period last year. The increase in revenue for the three months ended December 31, 2024 was primarily driven by organic growth. Pass-through revenues on contracts for which we subcontract work on behalf of our clients was flat compared to the corresponding period last year. Revenue from increased project activity in the Americas included growth in our Transportation end market of $58.7 million, or 11.3%, Water and Environment end markets of $35.7 million, or 7.1%, and Energy end market of $19.6 million, or 58.5%, partially offset by a decrease in our Facilities end market of $39.8 million, or 2.0%, 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 our Americas segment for the three months ended December 31, 2024 increased by $54.1 million, or 1.9%, to $2,921.8 million compared to $2,867.7 million for the corresponding period last year. The increase in cost of revenue for the three months ended December 31, 2024 was consistent with the increases in revenue. The increase in cost of revenue for the three months ended December 31, 2024 was due to higher labor volume compared to the same period in the prior year. Gross Profit Gross profit for our Americas segment for the three months ended December 31, 2024 increased $19.2 million, or 11.2%, to $190.2 million as compared to $171.0 million for the corresponding period last year. As a percentage of revenue, gross profit increased to 6.1% of revenue for the three months ended December 31, 2024 from 5.6% 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, 2024 was primarily due to revenue growth and delivery efficiencies realized from cost reductions. In addition, underlying revenue, excluding pass-through revenues, increased as noted above. International Three Months Ended December 31, 2024 December 31, 2023 Change $ % ($ in millions) Revenue $ 902.0 $ 861.0 $ 41.0 4.8% Cost of revenue 824.0 788.2 35.8 4.5 Gross profit $ 78.0 $ 72.8 $ 5.2 7.1% 33 Table of Contents The following table presents the percentage relationship of statement of operations items to revenue: Three Months Ended December 31, 2024 December 31, 2023 Revenue 100.0 % 100.0 % Cost of revenue 91.4 91.5 Gross profit 8.6 % 8.5 % Revenue Revenue for our International segment for the three months ended December 31, 2024 increased $41.0 million, or 4.8%, to $902.0 million as compared to $861.0 million for the corresponding period last year. The increase in revenue for the three months ended December 31, 2024 was primarily due to growth in the Middle East of $34.7 million and the U.K. of $4.1 million, partially offset by a decrease in Australia of $7.9 million, compared to the corresponding period last year. Growth was led by our Facilities end market, which increased $51.4 million, or 15.6%, partially offset by a decrease in our Transportation end market of $13.3 million, or 4.2%, 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 our International segment for the three months ended December 31, 2024 increased $35.8 million, or 4.5%, to $824.0 million as compared to $788.2 million for the corresponding period last year. The increase in cost of revenue for the three months ended December 31, 2024 was consistent with the increase in revenue and was due to increases in subcontractor and other direct costs of $20.7 million and labor expenses of $15.1 million. Gross Profit Gross profit for our International segment for the three months ended December 31, 2024 increased $5.2 million, or 7.1%, to $78.0 million as compared to $72.8 million for the corresponding period last year. As a percentage of revenue, gross profit increased to 8.6% of revenue for the three months ended December 31, 2024 from 8.5% 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, 2024 were primarily due to an increase in revenue and reduced costs resulting from ongoing exiting of lower margin countries, ongoing investments to expand enterprise capability centers, shared service centers, and delivery efficiencies. AECOM Capital Three Months Ended December 31, 2024 December 31, 2023 Change $ % ($ in millions) Revenue $ 0.2 $ 0.2 $ — — % Equity in earnings (losses) of joint ventures $ 1.2 $ (36.9) $ 38.1 (103.3) % General and administrative expenses $ (2.4) $ (2.4) $ — — % Equity in earnings of joint ventures for the three months ended December 31, 2024 increased $38.1 million, or 103.3%, to $1.2 million compared to a loss of $36.9 million for the corresponding period last year. The change in equity in earnings of joint ventures for the three months ended December 31, 2024 was primarily due to impairment losses of $35.9 million recognized in the fiscal 2024 that did not repeat in fiscal 2025. Seasonality We experience seasonal trends in our business. Our revenue is typically higher in the last half of the fiscal year. The fourth quarter of our fiscal year (July 1 to September 30) is typically our strongest quarter. We find that the U.S. 34 Table of Contents 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 summer months when weather and daylight hours are more conducive to outdoor activities. 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 summer months when weather and daylight hours are more conducive to outdoor activities. 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 Cash Flows Our principal sources of liquidity are cash flows from operations, borrowings under our credit facilities, and access to financial markets. Our principal uses of cash are operating expenses, capital expenditures, working capital requirements, acquisitions, repurchases of common stock, dividend payments, and refinancing or repayment of debt. 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 $45 million for restructuring costs in fiscal 2025 associated with restructuring actions taken in prior periods that are expected to deliver continued margin improvement and efficiencies. Generally, we do not provide for U.S. taxes or foreign withholding taxes on gross book-tax basis differences in our non-U.S. subsidiaries because such basis differences are able to and intended to be reinvested indefinitely. At December 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. 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 December 31, 2024, cash and cash equivalents, including cash and cash equivalents included in current assets held for sale, were $1,584.7 million, a decrease of $0.2 million from $1,584.9 million at September 30, 2024. Net cash provided by operating activities was $151.1 million for the three months ended December 31, 2024 as compared to $143.1 million for the three months ended December 31, 2023. The change was primarily attributable to an increase in net income of approximately $70.6 million and cash provided by changes in working capital of $30.5 million, partially offset by a decrease in adjustments for non-cash items of approximately $93.1 million. The sale of trade receivables to financial institutions included in operating cash flows increased $66.2 million during the three months ended December 31, 2024 compared to the three months ended December 31, 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 $24.7 million for the three months ended December 31, 2024, as compared to $86.8 million for the three months ended December 31, 2023. The change was primarily attributable to cash repayments of $16.3 million on the revolving credit facility from the counterparty to our sale of our civil infrastructure construction business and a decrease in cash payments for capital expenditures of approximately $16.0 million. Net cash used in financing activities was $121.3 million for the three months ended December 31, 2024 as compared to $126.3 million for the three months ended December 31, 2023. The decrease from prior year was primarily attributable to a $33.2 million decrease in stock repurchases under our stock repurchase program partially offset by higher distributions to noncontrolling interests of $24.8 million. 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 $57.8 million, or 7.2%, to $859.8 million at December 31, 2024 from $802.0 million at September 30, 2024. Net accounts receivable and contract assets, net of contract liabilities, decreased to $3,144.0 million at December 31, 2024 from $3,301.4 million at September 30, 2024. 35 Table of Contents Days Sales Outstanding (DSO), which includes net accounts receivable and contract assets, net of contract liabilities, was 69 days at December 31, 2024 compared to 70 days at September 30, 2024. 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. Except for claims, substantially all contract assets are expected to be billed and collected within twelve months. Contract assets related to claims are recorded only if it is probable that the claim will result in additional contract revenue and if the amount can be reliably estimated. In such cases, revenue is recorded only to the extent that contract costs relating to the claim have been incurred. Award fees in contract assets are accrued only when there is sufficient information to assess contract performance. On contracts that represent higher than normal risk or technical difficulty, award fees are generally deferred until an award fee letter is received. Because our revenue depends to a great extent on billable labor hours, most of our charges are invoiced following the end of the month in which the hours were worked, the majority usually within 15 days. Other direct costs are normally billed along with labor hours. However, as opposed to salary costs, which are generally paid on either a bi-weekly or monthly basis, other direct costs are generally not paid until payment is received (in some cases in the form of advances) from the customers. Debt Debt consisted of the following: December 31, 2024 September 30, 2024 (in millions) Credit Agreement $ 1,444.9 $ 1,446.6 2027 Senior Notes 997.3 997.3 Other debt 104.9 95.9 Total debt 2,547.1 2,539.8 Less: Current portion of debt and short-term borrowings (69.4) (66.9) Less: Unamortized debt issuance costs (21.7) (22.6) Long-term debt $ 2,456.0 $ 2,450.3 The following table presents, in millions, scheduled maturities of our debt as of December 31, 2024: Fiscal Year 2025 (nine months remaining) $ 61.3 2026 31.0 2027 1,020.7 2028 14.4 2029 756.8 Thereafter 662.9 Total $ 2,547.1 Credit Agreement On April 19, 2024, we entered into Amendment No. 14 to Syndicated Facility Agreement (as amended, modified or otherwise supplemented, the "Credit Agreement"), pursuant to which we obtained a new $1,500,000,000 revolving credit facility (the “New Revolving Credit Facility”), a new $$750,000,000 term loan A facility (the “New Term A Facility” and, together with the New Revolving Credit Facility, the “New Pro Rata Facilities”) and a new $700,000,000 term loan B facility (the “New Term B Facility” and, together with the New Pro Rata Facilities, the “New Credit Facilities”). The New Revolving Credit Facility and the New Term A Facility mature on April 19, 2029. The New Term B Facility matures on April 19, 2031. The New Term A Facility and the New Term B Facility were borrowed in full on April 19, 2024 in U.S. dollars. Loans under the New Revolving Credit Facility may be borrowed, and letters of credit thereunder may be issued, in U.S. dollars or in certain foreign currencies. The New Credit Facilities replace in full our existing revolving credit facility, term loan A facility and term loan B facility, and borrowings under the New Credit Facilities were 36 Table of Contents used to refinance in full our existing credit facilities and for general corporate purposes. The Credit Agreement permits us to designate certain of our subsidiaries as additional co-borrowers from time to time. Currently, there are no co-borrowers under the New Credit Facilities. On October 29, 2024, we entered into Amendment No. 15 to Syndicated Facility Agreement, pursuant to which we reduced the interest rate spread applicable to our New Term B Facility. Borrowings under (a) the New Revolving Credit Facility (in U.S. 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 0.225% 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, after giving effect to Amendment No. 15 to Syndicated Facility Agreement, 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 1.75% in the case of the Term SOFR rate and 0.75% 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. 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 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 our 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 Covenant”). The Financial Covenant does not apply to the New Term B Facility. As of December 31, 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 December 31, 2024 and September 30, 2024, letters of credit totaled $4.4 million and $4.4 million, respectively, under our New Revolving Credit Facility. As of December 31, 2024 and September 30, 2024, we had $1,495.6 million and $1,495.6 million, respectively, available under our New Revolving Credit Facility. 2027 Senior Notes On February 21, 2017, we completed a private placement offering of $1,000,000,000 aggregate principal amount of our unsecured 5.125% Senior Notes due 2027 (the “2027 Senior Notes”). 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 December 31, 2024, 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, 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. Interest on the 2027 Senior Notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2017. The 2027 Senior Notes will mature on March 15, 2027. At any time and from time to time prior to December 15, 2026, we may redeem all or part of the 2027 Senior Notes, at a redemption price equal to 100% of their principal amount, plus a “make whole” premium as of the redemption date, and accrued and unpaid interest to the redemption date. On or after December 15, 2026, we may redeem all or part of the 2027 Senior Notes at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest on the redemption date. 37 Table of Contents The indenture pursuant to which the 2027 Senior Notes were issued contains customary events of default, including, among other things, payment default, exchange default, failure to provide notices thereunder and provisions related to bankruptcy events. The indenture also contains customary negative covenants. We were in compliance with the covenants relating to the 2027 Senior Notes as of December 31, 2024. Other Debt and Other Items Other debt consists primarily of obligations under capital leases and loans, and unsecured credit facilities. 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 December 31, 2024 and September 30, 2024, these outstanding standby letters of credit totaled $930.2 million and $934.5 million, respectively. As of December 31, 2024, we had $390.9 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 three months ended December 31, 2024 and 2023 was 5.2% and 5.4%, respectively. Interest expense in the consolidated statements of operations included amortization of deferred debt issuance costs for the three months ended December 31, 2024 and 2023 of $1.4 million and $1.2 million, respectively. Other Commitments We enter into various joint venture arrangements to provide architectural, engineering, program management, construction management and operations and maintenance services. The ownership percentage of these joint ventures is typically representative of the work to be performed or the amount of risk assumed by each joint venture partner. Some of these joint ventures are considered variable interest entities. We have consolidated all joint ventures for which we have control. For all others, our portion of the earnings is recorded in equity in earnings of joint ventures. See Note 5, Joint Ventures and Variable Interest Entities, in the notes to our consolidated financial statements. Other than normal property and equipment additions and replacements, expenditures to further the implementation of our various information technology systems, commitments under our incentive compensation programs, amounts we may expend to repurchase stock under our stock repurchase program and acquisitions from time to time and disposition costs, we currently do not have any significant capital expenditures or outlays planned except as described below. 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 December 31, 2024, there was approximately $934.6 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 December 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 $119.9 million. The total amounts of employer contributions paid for the three months ended December 31, 2024 were $2.9 million for U.S. plans and $6.1 million for non-U.S. plans. Funding requirements for each plan are determined based on the local laws of the country where such plan resides. In some countries, the funding requirements are mandatory while in other countries, they are discretionary. There is a required minimum contribution for one of our domestic plans; however, we may make additional discretionary contributions. In the future, such pension funding may increase or decrease depending on changes in the levels of interest rates, pension plan performance and other factors. In addition, we have collective bargaining agreements with unions that require us to contribute to various third-party multiemployer plans that we do not control or manage. For the year ended September 30, 2024, we contributed $2.5 million to multiemployer pension plans. 38 Table of Contents Contractual Obligations Refer to our Annual Report on Form 10-K for the year ended September 30, 2024 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 three months ended December 31, 2024. Condensed Combined Financial Information The 2027 Senior Notes are fully and unconditionally guaranteed on a joint and several basis by some of AECOM’s directly and indirectly 100% owned subsidiaries (the Subsidiary Guarantors). Accordingly, AECOM became subject to the requirements of Rule 3-10 of Regulation S-X, as amended, regarding financial statements of guarantors and issuers of guaranteed securities. Other than customary restrictions imposed by applicable statutes, there are no restrictions on the ability of the Subsidiary Guarantors to transfer funds to AECOM in the form of cash dividends, loans or advances. The following tables present condensed combined summarized financial information for AECOM and the Subsidiary Guarantors. 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 December 31, 2024 and September 30, 2024, and for the three months ended December 31, 2024. Condensed Combined Balance Sheets Parent and Subsidiary Guarantors (unaudited - in millions) December 31, 2024 September 30, 2024 Current assets $ 3,390.2 $ 3,405.2 Non-current assets 3,001.5 3,033.6 Total assets $ 6,391.7 $ 6,438.8 Current liabilities $ 2,807.0 $ 2,918.1 Non-current liabilities 2,906.6 2,913.0 Total liabilities 5,713.6 5,831.1 Total stockholders’ equity 678.1 607.7 Total liabilities and stockholders’ equity $ 6,391.7 $ 6,438.8 Condensed Combined Statement of Operations Parent and Subsidiary Guarantors (unaudited - in millions) For the three months ended December 31, 2024 Revenue $ 2,319.4 Cost of revenue 2,134.6 Gross profit 184.8 Net income from continuing operations 122.5 Net loss from discontinued operations — Net income $ 122.5 Net income attributable to AECOM $ 122.5 39 Table of Contents New Accounting Pronouncements and Changes in Accounting For information regarding recent accounting pronouncements, see Notes to Consolidated Financial Statements included in Part I, Item 1. Critical Accounting Estimates Our accounting policies often require management to make significant estimates and assumptions using information available at the time the estimates are made. Such estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenues and expenses. If future experience differs significantly from these estimates and assumptions, our results of operations and financial condition could be affected. The Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2024 (the “2024 Form 10-K”), and “Critical Accounting Estimates” in Part II, Item 7 of the 2024 Form 10-K describe the significant accounting policies and estimates used in the preparation of our consolidated financial statements. We have not materially changed our estimation methodology since the 2024 Form 10-K.