Zweig Group believes that tracking and reporting on the financial standing of some of the industry’s leading firms, publicly traded firms, will allow our readers to have another digestible form of information that will equip them with a greater understanding of the state of the industry. This monthly report, the Zweig Index, will examine 11 of the AEC industry’s leading firms on a monthly basis. This month we're focusing on AECOM as of the firm's FYE 2022 filing on September 30, 2022.
*Share prices as of 2.24.23.
Financial highlights as of 2022 fiscal year end:
- Gross revenue decreased from $13.3 billion to $13.1 billion (-1.4 percent).
- Net service revenue increased from $6.1 billion to $6.3 billion, growing 3.3 percent.
- Adjusted EBITDA from continuing operations increased from $830 million to $900 million, which is 14.3 percent of NSR.
- Of the firm’s FYE 2022 gross revenues, 59 percent were derived from private clientele. The remaining 41 percent is split amongst the U.S. Federal Government (6 percent), U.S. State and Municipal Governments (21 percent), and International Governments (14 percent).
- Of AECOM’s FYE 2022 revenues, 76 percent were earned in the United States, with the remaining 24 percent stemming from international clients.
- AECOM has a total backlog of $40.2 billion, which equates to 36.7 months of work. Eighty-seven percent of this backlog is related to projects in the United States, with the remaining 13 percent relating to international projects. According to Zweig Group’s 2022 Financial Performance Survey of AEC Firms, the industry mean level of backlog for private firms is 8.2 months.
- Backlog increased from $38.6 billion to $40.2 billion, showing a 4.1 percent increase.
Balance sheet:
- The firm’s cash and cash equivalents accounts decreased 4.6 percent, from $1.23 billion to $1.17 billion.
- There is a total of $2.2 billion in long-term (and current portion of long-term) debt.
- Current ratio decreased from 1.12 in 2021 to 1.08 in 2022.
- Quick ratio (cash + receivables / current liabilities) decreased from .70 to .65.
- Debt to equity ratio increased from .82 in 2021 to .89 in 2022.
Valuation metrics:
Enterprise value measures a company's total value, often used as a more comprehensive alternative to equity market capitalization. EV includes in its calculation the market capitalization of a company but also short-term and long-term debt and any cash or cash equivalents on the company's balance sheet.
(Note that all estimated enterprise values are as of September 30, 2022)
- AECOM’s EV increased from $10.14 billion to $10.66 billion.
- EV/NSR increased from 1.66x to 1.69x.
- EV/Adjusted EBITDA decreased from 12.22x to 11.85x.
- EV/backlog increased slightly from .26x to .27x.
Risks and opportunities:
- Key demand drivers supporting long-term growth:
- Global population growth, urbanization and need for modernization:
- Global population is expected to grow to nearly 10 billion by 2050, more than 70 percent of which will be in cities.
- Sustainability and infrastructure resilience:
- Increasingly severe climate events underpin the urgency of achieving resilience for cities.
- Key to adapt and strengthen infrastructure to promote resiliency and grow with a focus on sustainability.
- Carbon emissions and social outcomes:
- Increased focus on carbon emissions and social outcomes: regulations, commitments, stakeholders.
- Federal requirements for funding stipulating benefit for underserved communities (e.g., Infrastructure Investment and Jobs Act and Justice40).
- Substantial Infrastructure Investment and Jobs Act funding:
- The IIJA committed more than $90 billion of incremental funding specifically to address drinking water, wastewater, water resources, and water related resiliency programs.
- Global population growth, urbanization and need for modernization:
- Risks:
- Our business, results of operations and financial condition have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic.
- There is strong competition for qualified technical and management personnel in the sectors in which we compete.
- Demand for our services is cyclical and vulnerable to sudden economic downturns and reductions in government and private industry spending. If economic conditions remain uncertain and/or weaken, our revenue and profitability could be adversely affected.
- Climate-related events, such as an increase in frequency and severity of storms, floods, wildfires, droughts, hurricanes, freezing conditions, and other natural disasters, may have a long-term impact on our business, financial condition, and results of operation.
- There is a rapidly evolving awareness and focus from stakeholders with respect to environmental, social, and governance practices, which could affect our business.
Thoughts/conclusion:
As of September 30, 2022, AECOM has the third largest market capitalization and enterprise value of the 11 firms on the Zweig Index (behind WSP and Jacobs). The firm’s financial health is strong, with a low debt to equity ratio of .89 and a net service revenue figure that has increased 3.3 percent year-over-year. Backlog has also increased by 4.1 percent to $40.2 billion, which reflects roughly 37 months’ worth of work for their current labor force. The firm reported an optimistic outlook for the coming years as the need for public and private infrastructure solutions grows, though they have noted potential headwinds relating to a tightening labor market that could drive their labor costs upward, and they recognized the potential of a decrease in government and private industry spending in the near future should “economic conditions remain uncertain and/or weaken.” The firm is in a good position to capitalize on the anticipated growth of their target markets with $1.17 billion in cash and cash equivalents that they can deploy in pursuit of acquisitions or strategic growth, though they’re recognizing the potential difficulties of a turbulent economy in the coming years and likely welcome a bit of cushioning on their balance sheet in the event that this occurs. This same approach may be wise to adopt for some of the industry’s private firms as well.
Please feel free to reach out with any thoughts, comments, or questions at achavez@zweiggroup.com. I welcome and encourage open dialogue that will help Zweig Group’s team of M&A advisors elevate the industry.