- The sale of the Management Services business at an 11.6x multiple of EBITDA represents a material premium to AECOM’s valuation and provides substantial capital for debt reduction and stock repurchases.
- The ongoing transformation of AECOM’s portfolio maintains its position as the world’s premier infrastructure firm and furthers its focus on higher-returning, lower-risk professional services.
Strategic and Financial Benefits
The sale of the MS business at a premium valuation unlocks significant value sooner than was anticipated through the previously-announced planned spin-off and creates certainty for all stakeholders.
- Expected transaction proceeds and record fourth quarter fiscal 2019 free cash flow2 equate to approximately 50% of the Company’s market capitalization based on the closing price of AECOM’s stock on
- The Company expects to substantially reduce its debt and to execute stock repurchases and maintains its long-term net leverage3 target of 2.0x - 2.5x.
- With this transaction and the ongoing execution of strategic actions to de-risk the business and increase margins,
AECOMwill be a lower-risk, higher-returning professional services firm focused on its industry-leading design, planning, architecture, engineering, program management and construction management capabilities.
- The resulting professional services business is expected to generate high returns on capital and consistently strong free cash flow, which the Company intends to deploy towards stock repurchases under its existing
$1 billionrepurchase authorization.
Preliminary Fiscal 2019 Results and Fiscal 2020 Outlook
- The Company expects record fiscal fourth quarter free cash flow2 and to achieve its fiscal 2019 guidance for free cash flow of at least
$600 million, which resulted in substantial debt reduction in the fourth quarter.
- The Company also is announcing fiscal 2020 adjusted EBITDA1 guidance of between
$1,040 million and $1,080 million, reflecting 13% year-over-year growth at the mid-point.
- On a pro-forma4 adjusted1 basis, which comprises the Design & Consulting Service,
Construction Managementand AECOM Capitalbusinesses, the Company expects fiscal 2020 EBITDA of between $720 million and $760 million, which represents industry-leading 17% year-over-year growth at the mid-point of the range.
- In addition, the Company reiterated its expectation for an at least 8% adjusted operating margin1 in the DCS segment in fiscal 2020, which translates to an approximately 11.5% adjusted operating margin on a net service revenue (NSR) basis.
AECOMexpects to report fourth quarter and full year fiscal 2019 earnings results on November 12, 2019, at which time the Company will provide additional information on its financial results and outlook.
“We are extremely pleased with today’s transformative and value-enhancing announcement, which significantly accelerates our planned debt reduction and commitment to repurchase stock,” said
“With this transaction and expected record fourth quarter free cash flow, our balance sheet will be strengthened and we will have greater flexibility to deploy capital in the future,” added
Proceeds from the MS divestiture and expected record fourth quarter fiscal 2019 free cash flow2 are planned to be used to reduce debt and to repurchase stock while maintaining a long-term net leverage3 of between 2.0x and 2.5x. Reflecting confidence in the value created by its strategic actions and the growth opportunities apparent in its professional services businesses, the Company will continue to prioritize stock repurchases upon achieving its leverage targets, and has approximately
Transaction Details, Approvals and Time to Close
The sale of the MS business has been unanimously approved by the Company’s Board of Directors and is subject to customary closing conditions and regulatory approvals. The definitive purchase agreement includes customary cash, debt and working capital adjustments. The transaction is expected to close in the first half of fiscal 2020.
1 Excluding acquisition and integration related items, transaction-related expenses, financing charges in interest expense, foreign exchange gains, the amortization of intangible assets, financial impacts associated with expected and actual dispositions of non-core businesses and assets, restructuring costs and the revaluation of deferred taxes and the one-time tax repatriation charge associated with U.S. tax reform.
2 Free cash flow is defined as cash flow from operations less capital expenditures net of proceeds from disposals.
3 Net debt-to-EBITDA, or net leverage, is comprised of EBITDA as defined in the Company’s credit agreement, which excludes stock-based compensation, and net debt as defined as total debt on the Company’s financial statements, net of cash and cash equivalents.
4 Comprised of the Company’s Design & Consulting Services,
All statements in this communication other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenue, cost savings, profitability, cash flows, tax rates, interest expense, or other financial items, any statements of the plans, strategies and objectives for future operations, profitability, strategic value creation, risk profile and investment strategies, any statements regarding future economic conditions or performance and any statements with respect to the proposed sale of the Management Services segment, the expected financial and operational results of
Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, but are not limited to, the following: our business is cyclical and vulnerable to economic downturns and client spending reductions; long-term government contracts and subject to uncertainties related to government contract appropriations; government shutdowns; governmental agencies may modify, curtail or terminate our contracts; government contracts are subject to audits and adjustments of contractual terms; losses under fixed-price contracts; limited control over operations run through our joint venture entities; liability for misconduct by our employees or consultants; failure to comply with laws or regulations applicable to our business; maintaining adequate surety and financial capacity; high leverage and potential inability to service our debt and guarantees; exposure to Brexit; exposure to political and economic risks in different countries; currency exchange rate fluctuations; retaining and recruiting key technical and management personnel; legal claims; inadequate insurance coverage; environmental law compliance and adequate nuclear indemnification; unexpected adjustments and cancellations related to our backlog; partners and third parties who may fail to satisfy their legal obligations;
This document contains financial information calculated other than in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that non-GAAP financial measures such as adjusted EPS, adjusted EBITDA, adjusted operating income and free cash flow provide a meaningful perspective on its business results as the Company utilizes this information to evaluate and manage the business. We use adjusted EBITDA, adjusted EPS, adjusted net/operating income, adjusted tax rate and adjusted interest expense to exclude the impact of non-operating items, such as amortization expense, taxes, acquisition and integration expenses, and non-core operating losses to aid investors in better understanding our core performance results. We use free cash flow to represent the cash generated after capital expenditures to maintain our business. We present constant currency information, such as organic revenue, to help assess how our underlying businesses performed excluding the effect of foreign currency rate fluctuations to aid investors in better understanding our international operational performance.
Our non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
When we provide our long term projections for organic revenue growth, adjusted EBITDA, adjusted operating margin and free cash flow on a forward-looking basis, the closest corresponding GAAP measure and a reconciliation of the differences between the non-GAAP expectation and the corresponding GAAP measure generally is not available without unreasonable effort due to the length, high variability, complexity and low visibility associated with the non-GAAP expectation projected against the multi-year forecast which could significantly impact the GAAP measure.
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Vice President, Global Communications & Corporate Responsibility