AECOM (ACM) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by.

Welcome to the Third Quarter Fiscal 2007 AECOM Earnings Conference Call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation the conference will be open for questions.

(OPERATOR INSTRUCTIONS)

I would now like to turn the conference over to Mr.

Paul Gennaro, Senior Vice President of Corporate Communications and Investor Relations.

Please go ahead, sir.

Welcome to AECOM's third quarter fiscal 2007 earnings conference call.

Please go to slide two.

As we begin let me remind everyone that today's discussion contains forward-looking statements based on the environment as we see it today and, as such, does include risks and uncertainties.

Please refer to our press release or slide two of our earnings presentation for more information on the specific risk factors that could cause actual results to differ materially.

As we begin our call, let me remind you of some of the important information about our earnings that are posted on the Investor website, investors.aecom.com.

First, we posted our earnings and updated financial statements on the site for anyone who still needs access.

And second, a replay of today's call will be posted there around noon Eastern time and will remain there for approximately two weeks.

Please go to slide three.

And lastly, since we are using some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted on our website as well.

With that now I'd like to turn it over to AECOM President and Chief Executive Officer, John M.

Dionisio.

Thank you, Paul.

Hello everyone and welcome to AECOM's first earnings call.

On this call we will be discussing our first quarter fiscal 2007 results and performance.

Joining me on today's call is Mike Burke, AECOM's Chief Corporate and Financial Officer.

As this is our first earnings conference call as a publicly traded company and some of you may not be that familiar with AECOM, I'd like to take a few moments to give you a quick overview of AECOM.

Mike will then take us through the financial highlights of our third quarter, I'll follow with a brief discussion of our strategic direction and markets and our business outlook.

Afterwards we will open the floor to questions.

If you turn to slide five, AECOM is a global leader in the fields of Professional Technical and Management Support Services and our key markets are facilities, infrastructure which we include as transportation and environmental markets, and energy.

We offer a broad range of services that include architectural planning and consulting, engineering design, programming construction management as well as asset and facility management.

Globally we have more than 31,000 employees operating in over 60 countries around the world and we have recorded more than $4 billion in revenue this past 12 months.

We are ranked by Engineering News-Record as the number one pure design firm.

With that gives you an overview of AECOM and the markets we're in.

With that I'd like to turn it over to Mike who will discuss our financial performance for the third quarter.

Thank you, John.

Let me start with our financial highlights for the third quarter of our fiscal year.

This morning we reported net earnings of $0.26 per share on a fully diluted basis, our EPS increased 44% over last year, we experienced record third quarter net income of $24.2 million, an increase of 82% over the third quarter of 2006.

Our third quarter revenue was a record $1.1 billion, an increase of 21% compared to last year.

Our third quarter results indicate that we're continuing to make progress on executing our strategy.

On slide seven we report our financial results in two segments, our Professional Technical Services segment and our Management Support Services.

We recorded a 25% revenue growth in our Professional Technical Services segment and a 3% increase in our Management Support Services segment on a year-over-year basis.

In total the consolidated growth was 21% over the previous year.

Please note that our growth rate for our MSS segment is a bit misleading.

This segment has large pass through costs because of the high level of pass through costs.

A more appropriate metric is revenue net of other direct costs, which increased 18% year over year in the MSS segment.

I should point out that approximately half of our growth is due to acquisitions and half is due to organic growth.

Our organic growth is 10.7% in Q3 on a year-over-year basis and 16% on a nine month year-over-year basis.

We are experiencing exceptional growth outside the U.S.

with non-U.S.

revenue growth rates significantly greater than our U.S.

growth rates.

Almost half of our revenue comes from non-U.S.

operations currently.

Next slide.

Moving on to operating income, overall our operating income from operations increased 82% over last year to $45.7 million.

Within our segments we saw strong results in both the PTS and MSS segment.

In PTS our operating income increased by 47% year over year to $50.7 million for the third quarter.

Our MSS operating income also grew at a strong pace year over year, increasing 43% to $9.3 million for the third quarter.

Moving to slide nine -- looking at our net income we had a strong third quarter.

Net income increased 82% year over year to $24.2 million.

As we had planned, we utilized some of the proceeds from the IPO to pay down our debt and one of the debt instruments carried an early payment provision, resulting in a one-time expense of $3.2 million.

This payment had the effect of lowering our EPS by about $0.02 for the quarter.

Our net income for the first nine months of the fiscal year 2007 totaled $70.9 million, an increase of 86% year over year.

Moving on to slide 10, we also experienced margin improvement during the quarter.

Most of this improvement is a result of better contract performance.

As of June 30 our year-to-date gross profit margin, net of other direct costs, was 48.62%, an improvement of 113 basis points compared to the same period last year.

And you will note that we use revenue net of other direct costs because it's a more accurate reflection of our business and, frankly, how we manage the business given that gross revenues include a significant amount of pass through costs.

Additionally, our pro forma EBITDA margin, pro forma after eliminating a one-time gain on the sale of an equity investment during the year, the EBITDA margin was 7.81%, a 99 basis point improvement compared to last year.

And our outlook is that we expect to see these margins continue to improve over the next few years.

Moving on to slide 11, we have continued to strengthen our balance sheet, our cash balance has increased over $200 million, mainly attributable to the proceeds from our IPO.

At June 30, 2007 we had cash and cash equivalents of $343 million, reflecting the proceeds of the IPO as well as a pay down of a significant portion of our debt, leaving only $63.5 million of debt on our balance sheet after the pay down.

Slide 12, we also continued to win, work and grow our backlog during the fiscal quarter.

But before I provide the backlog numbers, let me reiterate our definition of backlog and selected not booked.

Our backlog represents the amount of work for which we have a signed contract and in the case of a public client where the project has been funded.

Selected not booked represents the amount of work for which we have been awarded but where the contractual agreement has not been completed.

Neither of these measures include any IDIQ dollars or option years.

As of June 30 our PTS backlog increased 21% and our MSS backlog increased 49%.

Projects for which we were selected but have not booked grew at 24%.

This gives us a combined backlog and selected not booked total of $6.2 billion, up from $5 billion last year.

Slide 13.

And now I'd like to discuss our outlook.

We expect fully diluted earnings per share to be within the range of $1.09 to $1.11 for the full fiscal year 2007.

This guidance takes into account our strong growth during the third quarter across service lines and geographies, our record backlog and win levels and the momentum contributed by some of our recent acquisitions.

This guidance assumes our fully diluted share count for Q4 to be 103.6 million shares.

Due to our IPO in May, our fully diluted share count for the third quarter was 92 million and we expected our weighted average fully diluted share count to be 89.2 million for all of fiscal 2007.

And now I'd like to turn the presentation back to John who will walk through our diversification and market sector strategy.

Thank you, Mike.

Please go to slide 14.

As Mike indicated from the financial results, AECOM is having a strong fiscal year as well as a strong third quarter.

Throughout this fiscal year we continued to advance our strategic plan, focusing on advancing AECOM's key enterprise objectives which include strengthening our financial position, you heard from Mike about our financial results, a balanced strategy of acquisitive and organic profitable growth, continuing to advance our leadership in each of our key end markets, services and geographies, and continuing to strengthen and support our human capital, our employees.

We have added more than 4,000 employees globally in the first nine months of this fiscal year.

Today however I'd like to focus in on our acquisitive and organic growth as well as the leadership and advancement of our market sectors, geographies and services.

In FY '07 we advanced our market position through strong organic and acquisitive growth.

In the first nine months and one day, we closed on one acquisition the last day of FY '06, we completed five acquisitions, two of which were in the third quarter.

These acquisitions advanced our market positions in Midwest and Southeast portions of the United States, Australia and the Middle East and in our Environmental Management section.

I'd like you to turn to slide 15.

A key success factor and integral part of our overall market growth strategy is diversification.

We look at diversifying by clients, markets, services and geographies.

Throughout FY '07 and the third quarter of this year, AECOM advanced its diversification model.

Our mix of public and private clients remained relatively well balanced, 55% of our clients in the public sector and 45% in the private sector.

However, in the third quarter our mix of U.S.

to non-U.S.

work has changed and our non-U.S.

market is now 40% of our revenue and our U.S.

portion of our revenue is 53% as compared to, at the beginning of the year, 40% non-U.S.

and 60% U.S.

As we grow our non-U.S.

revenue at almost double the pace of our U.S.

revenue, we see the composition shifting to a 50%-50% balance over time.

The implication here is that we are capitalizing on a very robust non-U.S.

market which produced higher margins and greater staff resources.

The key growth markets this fiscal year have been Australia, Canada and the Middle East.

This diversification allows us to take advantage of cyclical strengths, wherever they may be, and provide us with a strategic advantage to capitalize on global opportunities and win mega projects.

As we like to say, we have the opportunity to win any project we pursue around the world.

Please turn to slide 16.

I would like to spend a few minutes discussing some of the specific highlights of each of our end markets to give you a more comprehensive picture of AECOM's focus, implementation plans, targets, and successes.

As Mike mentioned, AECOM reports its business in two segments, our Management Support Services and our Professional Technical Services.

As you can see from the graphic, our Management Support Services practice constitutes 20% of our revenue, which translates about 10% of our earnings.

Of this revenue approximately 50% is generated outside the United States and 50% at facilities inside the United States.

AECOM provides in the Management Support Services segment outreach and logistical support to the U.S.

federal government through its various agencies and facilities around the world.

We see this as a long-term growth market.

The market opportunities for this segment is driven by strong U.S.

Federal market funding sources including the Department of Defense, Department of Energy and the Department of Homeland Security.

It is a solid low-risk business which we continue to make investments in and to grow.

Let me turn your attention to the Professional Technical Services side of our business, which accounts for 80% of our and more than 90% of our earnings.

In the PTS segment AECOM provides planning, consulting, architectural engineering design and program and construction management services in each of its key markets which, as I mentioned, are facilities, infrastructure, which is transportation and environmental, as well as energy and power.

AECOM is ranked, again according to Engineering News-Record, as the leader in its facilities and transportation worldwide and we are ranked amongst the top five environmental design firms.

If you look at the pie chart and the facilities and building section, which constitutes 46% of our revenue, this is where we do public and private commercial buildings such as schools, office facilities, correctional facilities, healthcare facilities.

And for the past several years this has been a strong and growing market in the United States as well as the Middle East, the UK and China.

Non-residential construction is up about 15.5% year over year.

As we look forward, the U.S.

facilities market is also expected to grow by about 10% in the United States alone and is forecasted to be higher outside of the United States, as I mentioned, in places like the UK, China as well as the Middle East.

Private investment, when you combine it with the public infrastructure market, will be investing about $60 billion just in the United States in this area.

In the past quarter we recorded two significant wins in the facilities market, one being we were appointed the Program Manager for the Libyan Housing and Infrastructure Board, which is undertaking a multi-billion dollar housing renewal and improvement program in Libya, and we were appointed to design the redevelopment for the relocation for the Walter Reed Army Medical Facility.

In addition, during the third quarter we closed on the acquisitions of two facility design firms in the United States and received approval on an acquisition of 100% ownership of an architectural firm in China which, with our building engineering capabilities, will be a significant market opportunity to expand to our China practice and position.

Next let's look at the infrastructure market.

We define the infrastructure market as the combination of our environmental and transportation markets.

The total infrastructure market accounts for about 50% of our Professional Technical Services revenue.

This is a very robust global market.

It is evident from what you've been reading in the papers in terms of the needs and the demand far exceed the funding sources.

This past week it was stated by the American Society of Civil Engineers that $1.6 trillion of infrastructure investments will be made over the next five years.

A key component of our infrastructure practice is our Transportation business which comprises 30% of our total Professional Technical Services revenue.

And in this market we undertake the planning, design program management of highways, bridges, transit and rail facilities, tunnels, airports and marine facilities.

This market in the United States alone is forecasted to grow at approximately 75 compounded annually over the next five years.

We are also seeing similar types of expenditure in transportation programs in Europe, Canada, the Middle East and in China.

In the third quarter we won the preliminary engineering and final design and construction support services for the Minneapolis-St.

Paul Central Corridor Light Rail project, an estimate $930 million construction program.

The next major section of our market is the environmental market and this is where we do water and wastewater facilities, environmental management and permitting and some hazardous waste cleanup.

The environmental market, as you see from the pie chart, comprises about 21% of our revenue today and we are targeting to grow the market globally over the next three to five years to comprise 30% of our revenue.

The U.S.

environmental market is forecasted to grow over the next five years at a compounded annual rate of about 8.5%.

The market opportunities outside the United States are just as robust.

Key developments are occurring in the UK, Europe, Canada, China and throughout the Middle East as the need for water and resources need to be worked upon.

During this fiscal year we completed two acquisitions in the environmental segment, one in the United States and one in Australia.

The fourth market we have is our energy market where we do transmission and distribution improvements, renewable energy design, energy efficiency and sustainable design and thermal power generation.

The market comprises about 4% of our revenue.

This is an area that we'll have to grow through acquire to be a serious player, and we're looking at potential acquisitions going forward.

This diversified portfolio of services and customers, along with our global geographic diversification, serves AECOM and our growth strategy very well.

If you turn to slide 17, just to recap, we've posted very strong third quarter results.

Looking forward we are well positioned to success in growing our global end markets.

We continue to record wins at a record pace and build our global backlog and we continue to pursue acquisitions as a key component of our growth strategy.

We have a healthy pipeline of acquisition candidates in the environmental and energy sectors, as well as in expanding our geographic positions in Canada, China, Australia, the Middle East and Europe.

This ends our formal remarks.

I'd like to thank you for being so attentive and like to open it up to the floor for questions.

Thank you very much.

Thank you, sir.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Steven Fisher with UBS.

Please go ahead.

Good morning.

As you move towards this 50%-50% balance of geographic revenue mix, which of the nine U.S.

markets do you think are going to drive the growth?

Or is it going to be pretty well balanced around the world?

I didn't here.

I'm sorry, can you repeat the question, Steve?

The last part of the question?

Sure.

As you move towards this balance of 50%-50% mix of U.S.

and non-U.S.

in your revenues, which of the non-U.S.

markets do you think are really going to drive that?

Or is it going to be pretty well balanced around the world?

What we said was we're going to look at growing our environmental market and where we're going to be expanding in terms of our market sectors in the environment is the environmental markets, environmental management, water.

And we see that growing and growing at a faster pace than our U.S.

market.

And which region do you have the most presence outside of the U.S.

in the water business?

Okay I'm sorry, in the water business our largest presence is in the UK and in China, Hong Kong, China.

Okay.

And then Mike, you mentioned that you expect margins to grow from here.

If you had to rank the factors of what you think could drive that margin improvement, what would those factors be?

Well, the single biggest impact, Steve, is contract performance.

So gross margins are the single biggest contributor and we see those margins, especially outside the U.S.

in our faster growth markets, we see those margins moving up simply because our services are in greater demand in those markets.

So that would be number one.

Number two is operating leverage.

As we continue to grow we are continuing to extract operating leverage out of the organization and we expect that to continue.

Our sense is that there's probably 20 basis points of margin improvement annually for the next few years to come from that side of the fence.

Okay great.

And you had mentioned in the past about applying for a Class A construction license in China, I'm wondering where you stand in that process and what that could mean for you?

Yes the acquisition I was speaking about is an architectural planning firm that will give us a Class A license.

And we've gotten the first approval and we're expecting the second approval of a license renewal to occur within this next quarter.

And does that just free you up to work on any possible project in China?

Or how does that compare to the restrictions you've had in the past?

What it will enable us to do is to work on structural engineering, architectural engineering, mechanical and electrical engineering projects and architectural design throughout China, because we will own this company 100%.

Great.

Thanks very much.

Okay thank you.

Okay thanks, Steve.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from the line of Chris Gutek with Morgan Stanley.

Please go ahead.

Thanks, good morning guys, nice quarter.

Thank you.

Thank you.

John, I'd like to follow up with the tail end of your prepared comments there about the different market segments and three particular areas, if you would just elaborate a bit more about what you're seeing and, in particular, if there were any changes in the last few months since the IPO.

The first area would be with all the increased attention recently on deficiencies with U.S.

infrastructure, certainly including bridges, whether you think that could drive actual increases in spending about the baseline you previously expected.

Secondly with the concerns, at least in the Wall Street perspective, concerns about the outlook for the economy, are you seeing anything in your U.S.

private sector side of the business to suggest hesitation with the private sector customers?

And then third with the MSS segment and the military outsourcing in the Middle East, with troop levels in Iraq hitting highs, do you think this is sort of the peak of demand there?

And how concerned are you about the outlook going forward?

Okay well let me start with the first one is the infrastructure market, I think what we saw with the tragic events of this past week with the bridge in Minnesota that collapsed, a few weeks ago the steam line in New York exploding, it just goes to the fact that what we've been saying for quite some time, that the infrastructure in our cities is aging.

I mean some of these power line was 100 years, the bridge is 60 years old.

I mean these facilities are reaching a point that they need to be upgraded and clearly the demand is outpacing the capital that's available.

But I see going forward these tragic events are only going to just stimulate the resolve of people to apply more investment into it and to make these repairs.

So I think it's going to spur the investments, I think we'll need to come up with ways of getting alternative investments in place.

It might be a way of utilizing some private capital that has been in the queue here in the United States.

As I mentioned on the road show, we have $100 billion that's waiting to be invested in some type of infrastructure improvements which is, because of legislation and the inertial, it's not happening.

So I think it will be driving the bridge market, the highway market and the total infrastructure market.

On the second question regarding the impact of the mortgage situation and what we see in the papers, and it seems to be impacting the stock market, it hasn't had a negative impact on our business.

We haven't seen any slow down in any of our key market areas.

Infrastructure, transportation, environmental as well as facilities, there's still a very robust market ahead and there still seems to be a going forward with the same resolve that we have been going forward over the past six months to 24 months.

On the MSS side regarding our troops in Iraq, as I mentioned, our MSS segment, 50% of that business we're working on facilities here in the United States, Department of Energy, Department of Justice as well as Homeland Security and the Department of Defense.

Another 50% the United States, places like Iraq, Afghanistan and Kuwait.

What we see happening is, irrespective of what the troop levels will be in Iraq, there is going to be a need for American presence in the region.

And so it will be a shifting of the resources say from one place to another, so we don't see that market diminishing over the next say five years.

So that would either stay status quo or possibly increase, depending upon our disposition in Iraq.

Thanks, that's helpful.

The next area I wanted to ask about, and I apologize this is again going to be a three-part question about the acquisition strategy.

The first would be, especially in the context of the URS/Washington Group pending merger, do you guys feel any need to add any construction capability, or potentially any more industrial exposure, oil and gas, petrochemicals?

Secondly, given how well the stock has performed since the IPO, is there any consideration to maybe being a big more aggressive with the pace or size of deals?

And then third, with the deals you've done recently, how is the integration going?

And are you having any particular problems that are worth talking about?

Okay the URS/Washington deal, it was a great opportunity for URS, I applaud them.

We don't see anything that's going to change our strategy going forward based upon what happened there.

We're looking at the energy market and, if we go into that energy market, we would need to change our risk profile and probably take on some more construction management at risk, or construction with some fixed price contracting, which we're not at this point in time -- we don't think there is a need to do that at this point in time so we feel very secure in the markets we're in.

And as I mentioned, each of our key markets, the three markets, are robust both here in the United States as well as outside the United States.

And as Mike indicated, our non-U.S.

market is growing at double the U.S.

market.

So we don't feel there is a need to change our risk profile at this time.

In terms of now being a publicly traded company, it is very interesting that we seem to have more opportunities in terms of on the acquisition side.

And as we mentioned, our pipeline is quite full in terms of potential acquisitions in each of our key markets as well as in targeted geographies we want to go into.

We see that we're looking at some larger deals, not that we hadn't looked at some larger deals in the past, but we're looking at some larger potential acquisitions going forward.

And we're very comfortable in that, we don't think there's any difference from what we've done in the past to what we see going forward.

The five acquisitions that we did this year, they went like clock work.

They're integrated within the AECOM family.

Again, AECOM, we operate as one company, one strategic plan, one set of corporate values and mission.

We're organized according to market sectors as well as geographies so we have strong regional companies with global business lines.

And all these recent acquisitions have done very well and, as a matter of fact, they're performing a little better than we had anticipated.

So we're very pleased at the results.

Okay thanks, John.

My last is a quick question for Mike, it's a model updating type question.

Mike, do you have handy the further breakdown of your two reportable segments, including net service revenue, gross profit and JV income for modeling purposes?

I do and we will be releasing our 10-Q later tonight or tomorrow morning, which will have all of that in detail.

If you can wait until then, Chris, it will be out tonight.

Unless there's a specific question that you have related to those, I'd prefer to wait instead of reading off the entire P&L on the call here.

That's fine, I'll wait.

Thanks.

Okay.

Thank you.

Our next question comes from the line of [Sam Schneider] with Renaissance Capital.

Please go ahead.

My question also has to do with the breakdown of the different segment sales, but maybe you could comment on -- I guess this is a question for John, on organic growth in each segment.

And if that 10% number you gave, was that net sales organic growth?

Or was that just overall revenue organic growth?

The revenue growth number that I was giving you was on gross revenue, but I can give it to you on net service revenue also.

Our net service revenue increased 24% year over year and, again, almost exactly half of that was through acquisitions and half of it through organic.

Do you have that by segment?

Or will that be in the 10-Q?

It'll be in the 10-Q.

Okay great.

Thanks a lot.

Thank you.

Thank you.

We have no further questions in the queue, I'll turn it back to management for any closing remarks.

Are there any more questions?

We have one question coming from the line of Andrew Obin with Merrill Lynch.

Please go ahead.

Sorry about that, it took me a while to get through.

No problem, Andrew.

Just a question on PTS margin expansion.

I was just wondering, you did highlight geographic mix as one of the drivers, I was wondering if you could also comment on what you're seeing on pricing, both in the U.S.

and internationally.

I don't have those numbers in front of me, splitting them out domestically and internationally.

But consistent to what we've said in the past is that the margins outside the U.S.

are higher than they are in the U.S., in some cases almost 200 basis points higher margins.

I guess what I meant, I'm sorry, just to make it clearer, I meant pricing trends, given just how much work is out there, if you are also benefiting from improved pricing versus just geography mix.

We are but the point there, Andrew, is that inside the U.S.

our predominant method of contracting is on a cost reimbursable basis.

So even though you have much greater demand, it's difficult to achieve a higher price.

Outside the U.S.

where you have a much higher proportion of fixed price contracts, we are able to exercise pricing leverage and of course earn much higher margins.

So it's really a combination of those two aspects, it just happens that more of the fixed price contracting is outside the U.S., which is why we're having more of a non-U.S.

versus U.S.

margin expansion.

So just to confirm, the margin expansion in the U.S.

or just overall, whatever I'm seeing is from operating leverage rather than being able to charge more per hour for an engineer.

It's a little bit of both.

Okay.

Yes it's definitely both.

We're getting operational leverage as well as gross margin expansion.

Got you.

And just a short question on taxes, in fourth quarter and '08 I guess taxes were a little bit different than what we were expecting.

Could you just give a little bit of color on fourth quarter and what we should be modeling for '08?

For '08 we're expecting a 34% tax rate.

We did have some things jump around here a little bit, we did have a favorable settlement with the IRS during this fiscal year that allowed us to release a reserve that we had.

But we do expect the structural rate to be closer to 34% going forward.

So is that what I should model for the fourth quarter?

If you hold on I may have -- that would be a safe bet, Andrew.

Okay.

Thank you very much.

I don't have that number in front of me.

Thanks a lot guys.

Thank you.

Thank you.

Andrew, just let me follow up.

I did find the number here in front of me, 33.5% is the number we're expecting in Q4, moving up to 34% in '08.

Thank you.

We have a follow-up question coming from the line of Chris Gutek with Morgan Stanley.

Please go ahead.

Thanks guys, just one quick follow up.

The profit from the MSS segment was quite a bit higher than we were thinking in the quarter and I'm curious if there was anything particularly lumpy in the quarter or if there was some explanation for that?

Or maybe you guys weren't surprised but it was higher than we were looking for.

No it was consistent with what we were looking for, Chris, and it depends on how you modeled out your margins.

As you know, there is a very high level of pass through cost in that segment so, depending on the margins you use, it can really throw off your modeling.

But it was in line with what we expected for the quarter.

Yes, great.

Thanks.

Thank you.

Our next question comes from the line of [Richard Paris] with HSBC New York.

Please go ahead.

Good morning gentlemen, congratulations on the earnings numbers.

Thank you.

My question for you concerns the revenue trend, we see an increase of 24% year over year for the full nine months period, but 21% year over year for the third quarter.

I wonder what you attribute this to, is there a slowdown in business?

That's a good question, Richard.

One of the things that just distorts those numbers is, again, looking at gross revenue because of the pass through costs.

We tend to look at the business year and how we manage the business is on the revenue after other direct costs.

So if you look at it on a net service revenue or revenue after other direct costs, you would see for the nine-month period year over year it's up 24.6%.

But for the quarter on a year-over-year basis it's up 30.8%.

And so what you would see there is the opposite of what you were concluding by looking at gross revenue.

So I would direct you to net service revenue to get a better sense for the direction of the business.

Excellent.

Thank you very much.

You're welcome.

There are no further questions in the queue.

I'll turn it back to management for closing remarks.

Well if there are no other questions --.

Do we have another one there we see on the screen?

Ma'am?

We have one question coming from the line of Sam Schneider with Renaissance Capital.

Please go ahead.

Sorry, one last quick question.

Since there's I guess all this confusion with net sales and gross sales, do you think going forward you might include in the press release the net sales per segment?

You know we would be prefer to be looking just at net service revenue.

The SEC considers it a non-GAAP measure so we tend to report on a revenue basis.

And net service revenue will be in our 10-Q that we file tonight or tomorrow morning, so all that information will be available.

And we just think that's a better way to look at the business but the SEC requires the gross revenue inclusion.

Okay.

All right thanks.

You're welcome.

Thank you.

Thank you.

There are no further questions in the queue.

I'll turn it back to management for any closing remarks.

Well I want to thank everyone for taking the time to listen to our first earnings call and we look forward to having you on the call on the next quarter at the end of this fiscal year.

So unless anyone has any other questions, I'd say thank you very much and have a good day.

Thank you.

Ladies and gentlemen, that does conclude today's third quarter fiscal 2007 AECOM earnings conference call.

If you would like to hear a replay of today's call, please dial 303-590-3000 or 800-405-2236, enter the pass code 11094270 followed by the pound sign.

Once again, that is 303-590-3000 or 800-405-2236, enter the pass code 11094270 followed by the pound sign.

Thank you for your participation and for using ACT teleconferencing.

Have a good day, you may now disconnect.