The top brass at AECOM has received plenty of positive feedback since announcing June 17 that it would spin off the business segment that contracts with the Department of Energy and other federal agencies.
“We are moving ahead of schedule” toward separating the Management Services line into its own publicly traded company, Chairman and CEO Michael Burke said Tuesday during the Los Angeles-based engineering company’s quarterly earnings call. But the company is still in the early stage and sticking with its announced schedule to spin off the business in the latter half of 2020.
While Burke declined to discuss specifics, he said market reaction confirms the business is “a highly valued asset.”
Once it becomes a stand-alone venture, the as-yet-unnamed government services company will have more than 25,000 employees and $4 billion in annual revenue, AECOM said.
“We have seen revenue at double-digit growth in the last four quarters” at Management Services, AECOM Chief Operating Officer Randall Wotring said during the call. The business line has a high “win rate” on government contracts, he added.
During the call, analyst Michael Dudas of Vertical Research Partners seemed to inquire whether AECOM might consider simply selling the business line to another entity, rather than pursuing a spinoff. “Have you received interest from other parties about different structures?”
Burke then stressed the positive reaction to the planned spinoff. The CEO later added , as a public company, AECOM would consider all avenues to “unlock the value” of the Management Services business, but the spinoff appears to be the best option.
Earlier in the call, Wotring said AECOM’s success record with the DOE nuclear cleanup office gives the Management Services business an edge over most other players in securing new contracts in the weapons complex. “We’ve been in this market for over 50 years and have consistently been a top performer,” he said, pointing to a recent 94% performance evaluation that AECOM-led Savannah River Remediation received for liquid waste management at the Savannah River Site in South Carolina.
AECOM also remains one of the industry partners on Lawrence Livermore National Laboratory, which manages the National Nuclear Security Administration’s Lawrence Livermore National Laboratory in California. The younger of the two nuclear-weapons design labs is leading the W80-4 life-extension program that will refurbish the W80 warhead for use on the next-generation, nuclear-tipped cruise missile, the planned long-range standoff weapon.
The roughly $2-billion-a-year Livermore contract runs through 2026, with options.
AECOM’s Management Services segment posted a gross profit of about $59 million in the second quarter, down about 18.5% compared with $60 million a year ago. Segment revenue rose about 9.5% to just over $1 billion from around $935 million a year ago.
A Pentagon project injected more revenue in the quarter, while gross profits did not quite match a good quarter last year, in which AECOM recognized some $15 million it anticipated it would recover from DOE in a dispute resolution related to cleanup of the Separations Process Research Unit in upstate New York. The year-ago quarter also included about $10 million in milestone payments from a different, unidentified DOE contract.
Nuclear Security & Deterrence Monitor staff reporter Dan Leone contributed to this story from Washington.
