AECOM (ACM) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter fiscal 2008 [editorial correction] AECOM Earnings Conference Call.

My name is Val and I'll be your coordinator for today.

At this time, all participants are on a listen-only mode.

If you are listening to this call via telephone and also via on today's live online, you may want to mute or lower the volume on your computer.

We will conduct a question-and-answer session at the end of this conference.

(OPERATOR INSTRUCTIONS)

As a reminder, this call is being recorded for replay purposes.

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

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

Please proceed, sir.

Thank you, Val, and welcome, everyone, to AECOM's first quarter fiscal 2008 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 are posted on the investor Web site www.investors.aecom.com.

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

Second, a replay of today's call will be posted there at around noon Eastern Time and it 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 reconciliation are posted on our Web site as well.

Now, I would like to turn it over to AECOM President and Chief Executive Officer, John M.

Dionisio.

Thank you, Paul.

Good morning and welcome to AECOM's first quarter fiscal year 2008 earnings call.

We have a lot to present today.

During this call, I will provide you with our first quarter performance highlights as well as some in-depth information about our end markets and key wins.

In addition, we will also discuss the three acquisitions we recently announced and how those advance AECOM's growth strategy.

Then Mike will take us through the financial results and revised guidance, followed by a question and answer session.

Please go to slide five.

We delivered a very strong first quarter.

All of our key performance indicators, revenue, earnings and backlog, were up.

Our backlog for example was $6.8 billion, up 25% over last year and 14% over the last quarter.

Our cost containment initiatives are allowing us to achieve operating leverage and improve our operating margins.

In addition, we announced a number of significant wins and strategic acquisitions during the quarter.

Yesterday, we announced two acquisitions, Tecsult and Boyle Engineering, and just today, we announced the acquisition of Earth Tech, a business unit of Tyco International.

As you know, one of the primary reasons for the IPO last year was to capitalize on the consolidation opportunities in our industry.

We are delighted with the success we have had in acquiring a number of great companies that fit so well with our strategic goals and objectives.

Mike and I will talk more about these transactions later in the call.

We continue to see solid demand and our industry and business remain strong.

Turning to slide six, I would like to remind you of AECOM's long history of consistent growth.

Our diversification by market, geography and customer type has fuelled solid growth for many years now.

As you can see, AECOM has grown at a compounded annual growth rate of nearly 20% over the past 11 years.

Half of this was organic growth and half was from acquisitions.

We expect to benefit from our balanced and diversified growth strategy as we capitalize on continued strong demand in each of our market sectors.

Please go to slide number seven.

I would like to discuss each of our end markets in our Professional Technical Services segment.

The PTS segment constitutes 80% of our revenue and is well diversified across our core end markets, facilities, transportation, environmental and energy, a business which we are building.

Starting on the right side of our pie chart are facilities market which comprises 34% of our PTS revenue grew by 32% year-over-year.

In the United States, approximately 40% of our facilities work is performed for government clients on projects for schools such as the Los Angeles Unified School District, correctional facilities, court houses and other government buildings such as the Pentagon and the new PATH terminal at Ground Zero in New York.

Early this year, we announced a major win with the Libyan Housing and Infrastructure Board for a five year $574 million program management assignment, where AECOM will serve as the overall program manager for the Libyan government's $50 billion capital improvement program.

This is a job that cuts across each of our end markets and is a great example of how we are successfully leveraging our world class program management capabilities and our global expertise to win large notable assignments.

Moving onto transportation, this end market comprises 34% of our PTS revenue and has grown 33% over the past year.

Our position as the number one transportation consultant allows us to win large multi-year projects.

Last week, we were awarded three significant multi-year programs from the New Jersey Department of Transportation, totaling approximately $45 million in revenue.

About 85% of our business comes from repeat customers and our continuous 40 year relationship with the New Jersey Department of Transportation is a good example of that.

Our environmental business comprises 28% of our revenue and grew 57% year-over-year.

The key components of our environmental end markets are environmental management, drinking water and waste water treatments and water resources projects.

We have consistently stated in our goals -- it is our goal to grow our business to 30% of our revenue and we are well on our way to achieving that goal.

About half of our work in this sector is with private multinational clients like Shell and British Petroleum.

New wins in the quarter include a $60 million three year master service agreement with Chevron of North America.

Our growing energy and power end market is comprised of transmission and distribution services, energy savings programs and renewable energies which include solar wind and hydroelectric.

This is a high growth sector we will continue to invest in.

One of the acquisitions we announced yesterday, Tecsult, is a major player in the global hydropower dam field.

We will talk more about this when we discuss our recent acquisitions.

If you look at the next slide, you can see that 52% of our total revenues are derived from work performed outside of the United States.

The variety, scope and caliber of the projects we are seeing both here in the United States and abroad provides us a strong foundation for our future growth prospects.

During the first quarter, as measured by net service revenue, our U.S.

business grew at a rate of 26% while our non-U.S.

business continues to exceed that at 43%.

Slide nine portrays the diversified mix of our client base and resources of funding.

This diversification allows us to focus our attention on the best source of funding in any market condition.

41% of our revenue is derived from the private sector.

22% is derived from non-U.S.

governments which are experiencing high GDP growth rates.

20% is from the U.S.

federal government, which has just announced an 11% increase in the DoD budget.

17% of our revenue is derived from state and local governments, of which a quarter is typically supported by federal funding.

Some investors have expressed a concern regarding municipal funding.

This applies to 13% of our revenue base.

We are mindful of this issue and believe our diversification will mitigate any possible shortfalls.

In addition, a significant portion of the 13% is funded by municipal bonds.

We have seen an increase in the amount of municipal bonds issued for infrastructure projects.

On a year-over-year basis, municipal bonds issued are up 33%.

Going forward, we also see a shift in funding for more user-fee-based funding source especially in transportation.

That being said, from our perspective, the state and local market in the United States remains active as evidenced by the recent wins we have had in the state and local markets such as Texas, New Jersey and California.

I would now like to provide an update on our recent acquisitions.

We have consistently said that we would focus on opportunities in the growing environmental and energy and power end markets.

We have also said that we would focus on opportunities that provide us with new capabilities and reinforce our current geographies or provide access to new geographies.

The acquisitions we have announced year to date fit well within our stated criteria.

Specifically, we advance our position in the environmental management, drinking water, waste water and renewable energy markets as well as bolstering our transportation and facilities markets.

The acquisitions also expanded our geographic footprints in Canada, Eastern Europe, UK, Mexico and Australia as well as the emerging markets in Africa and China.

Since we have so much ground to cover today, I will focus my remarks on our most recent acquisitions, Boyle Engineering, Tecsult and Earth Tech.

Boyle Engineering is a California based firm specializing in water, waste water, storm water and transportation projects.

This acquisition will further strengthen AECOM's growing environmental and transportation practices.

Boyle has a very strong presence in Western and Southeast Coast parts of the United States.

Tecsult is a Canada based engineering firm with significant expertise in hydroelectric.

Our combination with Tecsult will bolster AECOM's growing energy practice by broadening the portfolio of expert services we can deliver to clients around the world, while further strengthening our presence in the growing infrastructure markets in the Quebec province of Canada.

We expect that you are most interested in Earth Tech due to the size of the acquisition.

As you saw in our recent press release, we have signed a definitive agreement to purchase Earth Tech from Tyco for $510 million in cash.

This transaction positions AECOM well to capture additional growth in a number of key end markets including water, waste water, environmental, transportation and facilities.

It also positions us to continue to broaden our global footprint, particularly in the Americas, the UK, Europe, Australia and Asia.

Earth Tech has revenues of $1.3 billion in 2007 and employs 7,000 people around the world.

This slide provides a snapshot of Earth Tech's business.

Earth Tech has three major business lines.

The largest piece is the global consulting and engineering business.

It is comprised of approximately 4000 staff primary located in Canada and the United States.

This business is highly complementary and additive to AECOM's operations.

The second piece is Earth Tech's design build operations business.

It is an engineering led design built and plan operations practice largely non-America based.

It will be complementary to our consulting business in the UK, Europe and China, as well as providing AECOM an entry into Mexico.

The last piece is the water assets facility business, which consists of design build finance and operate projects and product businesses.

This is largely a non North America business and a contract operations business in North America.

AECOM plans to divest the water facilities assets acquired from Tyco since these assets do not align with AECOM's core businesses.

We expect the majority of these asset sales will be completed by the time this transaction closes.

AECOM is in the process of finalizing the Earth Tech business lines through divest.

Our preliminary estimate is that we will divest approximately $175 million to $200 million of assets.

Slide 12 provides a closer look at Earth Tech's consulting and engineering business.

This business mirrors AECOM's market sectors in an environment, which represent 60% of the business transportation, which represents 19 end facilities, which represents 21% of the business.

We expect this transaction to close during our fiscal 2008 third quarter.

The transaction is subject to customary closing conditions and regulatory approvals.

We have a long track record of successfully integrating acquisitions and we anticipate a smooth successful process of integrating the recent acquisitions into the AECOM family.

We believe these transactions position AECOM well with talents and capabilities to continue to meet demand of our services.

Now, I would like to turn the presentation over to Mike Burke.

Mike, it's all yours.

Thank you, John.

Let me start with our financial highlights for the first quarter.

Our first quarter revenue was $1.1 billion, an increase of 15% compared to last year.

Our operating income was up 48% over last year to $44.5 million.

We achieved first quarter earnings per share of $0.29 and net earnings of $29.5 million.

Excluding a gain on the sale of a minority stake last year, net earnings were up 63% over the prior year.

Backlog in selected not booked, a key indicator for our business, increased over $800 million in the quarter and was up 25% over last year.

These results point to the fact that our business remained strong and that we are well positioned for continued growth.

Please go to slide 14.

As you know, we report our financial results in two segments, management support services and professional technical services.

During the first quarter, revenue in our MSS business was essentially flat with last year due to a number of past quarter timing delays.

Operating income in the MSS segment was also weak due to increases in reserves related to pending federal government contract resolutions.

We believe both of these items will be quickly offset by the significant new project wins in the quarter.

These wins contributed to year-over-year increase of $282 million in our combined backlog in selected not booked.

Our MSS segment continues to operate in an opportunity rich marketplace and we have a high degree of confidence that this segment will perform as expected for the full year.

Please go to slide 15.

During the first quarter, our Professional Technical Services segment performed very well.

Revenues increase by 19% and net service revenue increase 34%.

Net service revenue is an important measure in this business segment due to the fact that we incur many pass-through costs which generate minimal margin.

Operating income for our PTS segment increased 43% versus last year clearly outpacing our revenue growth.

Our PTS backlog in selected not booked increased 25% to $5.5 billion in the first quarter.

As a reminder, our backlog is defined as revenue under contract whereas our SNB is revenue related to projects where we have been awarded the projects by the client and we are in the midst of finalizing the contract.

Please go to the next slide.

Slide 16 reflects our consolidated revenue and operating income.

Total revenues increased 15% and net service revenue increased 34% versus last year.

18% of the growth in NSR was organic and 16% was related to acquisitions.

We continued to focus on achieving a healthy balance of organic and acquisitive growth.

Our operating income grew 48% significantly outpacing the growth in our revenue.

Slide 17 shows that our net income for the first quarter increased 16% year-over-year to $29.5 million.

Excluding a gain on the sale of a minority equity stake in FY '07, net income increased 63% year-over-year.

Please go to slide 18.

During the first quarter, our EBITDA margins improved by 107 basis points compared to last year and 77 basis points versus last quarter.

Our gross margins declined 103 basis points compared to last year and improved 98 basis points versus last quarter.

As we discussed in our last earnings call, our gross margins were temporarily impacted by increased labor cost in our non-U.S.

markets.

Gross margins improved on a sequential quarter basis as we have taken steps to pass on our higher labor cost as we enter into new contracts.

What's important here is the significant improvement in our EBITDA margins.

We are very focused on cost reduction initiatives as we continue to scale our business and we expect to see continued strong EBITDA margins.

On slide 19, you can see a snapshot of our balance sheet at December 30.

We ended the quarter with cash and cash equivalents of $327 million and debt of $48 million.

As we told you throughout our IPO process and over the past year, we believe the optimal capital structure for this business carries a debt load of about one to two times EBITDA.

After we close and fund the acquisitions we have discussed today, we expect to have net debt of approximately $400 million.

This would represent net debt of approximately 1.5 times pro forma EBITDA.

As John mentioned earlier, we plan to sell a portion of the assets acquired from Earth Tech on or shortly after the closing date of the transaction.

We expect the proceeds from these asset sales to allow us to reduce our net debt to less than one times our pro forma EBITDA.

We are pleased to have found some very good opportunities to put to work the proceeds from our IPO and we still have plenty of flexibility to capitalize on additional strategic acquisitions.

This flexibility is allowed by our $600 million credit facility which also has an additional $150 million accordion feature.

In the near term, we will be very focused on integrating our recent acquisitions.

Please go to side 20.

We closed the first quarter with $6.8 billion in backlog in selected not booked, a record for the Company and a 25% increase over last year.

This also represents an $800 million increase in the first quarter alone or a 14% increase in the past three months.

This significant increase coupled with our strong performance in Q1 has allowed us to increase our FY '08 full year earnings guidance.

Now turning to our outlook on slide 21, we have revised our outlook for the full year 2008 and now expect to report earnings per share in the range of $1.23 and $1.29 excluding the Earth Tech acquisition.

This guidance takes into account our strong growth during the first quarter across service lines and geographies, our strong backlog and the momentum contributed by our recently acquired companies.

Our year-over-year EPS growth is distorted by the midyear IPO and the associated dilution.

Treating the IPO as occurring at the beginning of the fiscal year creates a pro forma EPS growth of 18% in FY '08 at the midpoint of our guidance range.

Adjusting for intangible amortization expense, our revised guidance implies 22% year-over-year growth in pro forma cash EPS.

As you know, M&A deals in our space carry significant amortization expense in the first year due to the purchase accounting value ascribed to backlog.

The assumptions underlying our guidance include the following -- $28 million of EBITDA from deals closed in FY '08 excluding Earth Tech, $22 million in total amortization expense related to acquired intangibles including $13 million from FY '08 acquisitions.

It includes a diluted share count of 103.9 million shares and a structural tax rate of 34%.

As I just mentioned, we excluded the impact of Earth Tech in this guidance.

We expect Earth Tech to be immediately accretive to cash EPS in FY '08 and slightly dilutive to GAAP EPS in FY '08.

We expect it to be accretive in FY '09 on both a cash and GAAP basis.

With that, I would now like to open the call up to your questions.

Thank you sir.

We would now begin the question-and-answer session.

(OPERATOR INSTRUCTIONS)

One moment please for the first question.

Our first question comes from the line of Steven Fisher with UBS.

Please go ahead.

Hi, good morning and congratulations on the various acquisitions in the quarter.

Just starting off on Earth Tech, what are the revenues going to be for the business that you are going to be left with I guess after the sale of -- Tyco is going to sell a Brazilian piece and then you sell off the non-core businesses?

Steven, we obviously have three and a half months or so to go, hopefully less than that, to close this transaction.

We would expect to provide much more detailed guidance at our next quarterly earnings call.

So we are not prepared to issue revenue guidance at this time for the Earth Tech transaction.

I think you can get a sense for the size of Earth Tech and the size of the assets that we are prepared to sell off, just to give you a ballpark range.

Okay.

And then, you mentioned that the consulting and engineering piece is going to be complementary to AECOM's business.

Can you just elaborate on that a little bit?

Is it a matter of customers or projects, regions, just a little more color there?

Okay, it's really incredible how similar in terms of organization that Earth Tech is to AECOM and that's a plus.

If we look at North America, their operations in Canada and then in the United States mirrors geographies which AECOM are in and they are very complementary in terms of clients as well as services, but Earth Tech is very strong in the federal facilities market which AECOM is not a major player.

They also have a very strong position in the environmental management business on the public side where AECOM is more focused on the private side.

In addition, some of the expertise they have in transit are complementary to AECOM's transit capabilities.

And as we spoke during our last earnings call, I mean, there is a war on talent and everyone needs more people and Earth Tech as well as Boyle and Tecsult give us a significant resource of additional talent.

And as I said, because of the locations they are in, they match very nicely with AECOM's organization.

Okay, great.

That's helpful.

And at this point, do you have any more acquisitions planned for fiscal '08?

Were there more acquisitions in the pipeline you would have done if you didn't do Earth Tech?

Right now, we have a few other acquisitions that we are looking at that are in the pipeline, but we are not in any position to make any announcements today.

Okay.

And then lastly, I will get back in queue.

In terms of the MSS business, given that a couple of contracts you have announced recently, is it fair to assume that some of the gross revenues are going to show growth in 2008 over 2007 despite I guess some of the timing delays you have seen on some of the projects?

Yes, Steve.

I think as I mentioned in my prepared comments that we had a very significant increase in our wins in the quarter.

We had almost $300 million of new wins in the first quarter that will be delivered in the remaining quarters of the year.

Just in the past few weeks, we won another $60 million contract with the federal government.

So the wins are coming in very nicely in that business and really the past quarter delays were just simply that delays in getting the notice to proceed from the federal government and we have received those and we would expect that revenue to grow nicely in the rest of the year and as well into '09.

Okay, great.

I'll get back to you, thanks.

Thank you.

Thank you.

Our next question comes from the line of Andrew Obin with Merrill Lynch.

Please go ahead.

Yes, good morning.

Good morning, Andrew.

Just a question on Earth Tech acquisition.

It seems like you have a lot of -- you are getting a lot of exposure to water waste, water environmental management.

And I was just wondering if you could comment on the outlook for these end markets particularly given concerns about the levels of state and local funding for these projects going forward.

Okay.

That's been a concern that we have heard and we read about.

But again let me go back to AECOM's model which is that of diversification.

We are not just a U.S.

based company nor a North American based company.

As we showed, 50% of our work is generated outside the United States.

So our market is global.

What we see here though in the North America, Canada and in the United States is that the environmental management markets, the water, waste water and water resources markets do remain strong and what we also see with the capabilities we'll have now with the addition of Earth Tech and Boyle, it will give us a critical mass that'll leverage us in a global platform to provide services in places where we were hoping to be able to provide them but we didn't have the resources and that is in the Middle East, Europe and in Asia or in China.

Again, looking at the -- if you look at the charts that we showed of AECOM's and this is excluding Earth Tech and Boyle, of AECOM's revenue, 13% of it is with U.S.

state and local governments where most of the funding is municipal.

Of that, a significant piece is bond issues, so that the funding is in place.

When we add Earth Tech and Boyle, that 13% will go up to about 16%.

So our exposure as a total enterprise is not that significant and we will diversify it as well as that we can capture now the opportunities where we think it is going to be a very strong global water and waste water market.

But are you guys seeing anything specific that is different specifically for water and waste water in North America or is acquisition more you get the international exposure and you are willing to tolerate temporary bump in North America because of the international exposure or are you seeing something more positive in North American funding over the next several years that outsiders perhaps are not aware of?

First of all, the demand and the need in North America is there.

The funding is the question.

Now why we wanted to expand our capability is because we believed that we had more room in that marketplace.

I mean the position that we had previously was one which we felt that we could grow and also grow here in the United States because we could get a larger share of the market and compete with some of the other major players and also as I mentioned to leverage our expertise outside the United States.

But we don't look -- we don't feel that that we are going to get a bump in terms of our performance here in the United States.

We are going be -- really we are confident that we are going to see our market grow both organically through these as well as through acquisitions.

And so this applies for Earth Tech's both domestic and international business?

Excuse me, I am sorry.

This applies to Earth Tech's both domestic and international business?

Correct.

Thank you very much.

Thank you.

Our next question comes from the line of John Rogers with D.A.

Davidson & Co.

Please go ahead.

Hi, good morning.

Good morning.

Mike or John, the acquisitions that you have completed so far fiscal year to date excluding Earth Tech obviously, how much revenue is associated with those?

Can you give us an aggregate?

John, as you know, we typically do not give guidance as to revenue especially gross revenue because of the large pass-through cost.

I think as I stated earlier the -- our guidance outlook for FY' 08 includes about $28 million of EBITA for deals that were completed during the year.

Right.

Most of those deals are -- all of those deals are signed and ready to either have closed or ready to close and so you can apply our general margins to get a sense for the revenue, but we have made a decision not to give specific revenue guidance.

Okay, all right, that's fair enough.

But then on Earth Tech, can you give us, I don't know if you can, but send some multiples or anything that you are looking at on, based on the $500 million price?

I think, John, it's safe to say, we think it was a very fair value deal for us.

For competitive reasons, we would not be prepared to disclose the exact multiple of the transaction.

Okay.

And I guess lastly then, in terms of the assets that you are looking at selling off, is it something where you have already in discussions or have pretty good ideas on where those assets are going to end up or is it a marketing process that you will have to undertake once the deal is closed?

Now we had discussions with some potential buyers.

There is a significant interest.

I mean these are businesses which are profitable and doing well.

They just happen to not fit into our core business but we don't -- we feel very positive about being able to invest in these.

Okay, okay, fair enough.

Thank you and congratulations.

Thank you very much.

Thank you, John.

Thank you.

Our next question comes from line Avie Fisher with [IMO Capital Markets].

Please go ahead.

Hi, good morning.

That's BMO Capital Markets.

Good morning.

Good morning.

I guess the biggest thing that jumped out of me in the PTS segment was the -- your net revenues as a percent of gross is now almost 73% and it's been trending up.

I don't know if you look at that number.

Is that a trend that's going to continue, is that going to stabilize here, are you in sourcing more of your work?

I'm trying to figure out what caused that.

There is a couple of things driving that, Avie, the one is that to the extent we have grown our business outside the U.S., we tend to have less pass-through costs outside the U.S.

So as our U.S.

business, I am sorry non-U.S.

continues to grow at the percentage of the total pie, they are just their contracting methodologies typically have less pass-through costs, so therefore your net service revenue as a percentage of gross revenue tends to be higher.

An additional fact and a very positive fact is that as we continue to broaden the array of services that we deliver through these strategic acquisitions, we now can deliver more of the services that are required by our client and therefore we are -- it's not as necessary to sub contract that work.

So to the extent we keep adding to our -- adding arrows to our quiver, we will continue to provide a greater share of the work that our clients require.

Got you, okay.

So it's a mixture of more in sourcing and more fixed price contract, your contract methods overseas.

That's correct.

Got you.

And just one final question on Earth Tech.

How much of their work is BRAC related, you talked about their federal and environmental.

Do they have exposure to BRAC?

Yes they do, I just -- Avie, I am sorry I just don't have that in my fingers right now.

Okay, I could follow up with you on that later.

Yes, we'll be more than happy to.

All right, thanks very much.

Thank you, Avie.

Thank you.

Our next question comes from the line of Sam Snyder with Renaissance Capital.

Please go ahead.

Good morning.

Just two questions.

Could you guys quantify or give some color on the non-GAAP EPS contribution you expect to more trend in 2008?

And the second question is could you just give an idea of why net cash flow from operating activities was negative in the quarter?

I am sorry the first question, Sam, I didn't catch the first question.

Just, if you could speak to the contribution, I guess non-GAAP contribution from Earth Tech acquisition you could see in 2008.

Yes.

As we stated in our press release, we expect this to be accretive on a cash basis in FY' 08, but we are not prepared at this time to give specific guidance on that.

We will be prepared in our next earnings call which will be closer to the closing date.

We will have a better sense for the exact assets that we plan on disposing of and the contribution from the assets that we expect to keep.

So we will have a lot more information for you at that time.

Okay, fair enough.

What was your second question?

Second question, just some color on what was affecting the CFFO in the quarter.

It was negative $36 million and it was positive $42 million last year.

What was dragging that down?

Sure.

A couple of things driving that.

First of all, our first quarter is always our slowest quarter on cash flow and it's also always our slowest quarter on general performance just because of the cyclicality of our business.

However, there's a couple of things driving that.

First of all, in our federal government practice we did have one large $15 million payment from the federal government that was delayed in the payment process that did come through in January, so that was just an item that floats over into the next quarter.

Another big item is that we pay our year, our fiscal year end bonuses in December, so we have a large cash out flow for our annual bonuses to go out in the first quarter.

And then the third item is in our European operations, we implemented Oracle and we brought them on to our company wide Oracle platform late in the first quarter and in connection with the implementation of Oracle, we had a slight delay in getting some of our invoices out in Europe, but those invoices are now getting out and we have no reason to believe that that will have any long-term impact on our receivables, so just a timing delay for that quarter.

Okay, great, thanks.

Well, if I may, I like to follow up with Avie.

I just -- just to give you an idea of -- I don't know what all the BRAC numbers are but to give you an idea, a third of Earth Tech's consulting business -- consulting and engineering business is in the federal sector, if that helps, Avie.

Thank you.

Our next question comes from the line of [Chad Winston] with Paradigm Capital.

Please go ahead.

Hi.

Could you comment on the relative size of your Middle East business?

I guess that's out of that 40% that's non-U.S.

and what you are seeing there in the help of those markets.

I can you give you a sense for relative size on an earnings basis.

On an EBITDA basis, it would be approximately 8% of our total business in the Middle East exclusive -- that historical number.

That number will change significantly depending on where you include the Libya contract.

We tend to think of that region together although Libya is in Northern Africa, obviously, but we tend to think of that region together.

But right now, the Middle East business runs about 8%.

Okay.

And what are you guys see there in terms of helping that business and backlog going over the next couple of years?

Just as a point of clarification, the Middle East business, the numbers that I was giving you where our traditional engineering consulting business in the Middle East.

We have a very significant presence there through our MSS segment, the federal government O&M business.

So I was giving you the traditional consulting engineering work done in the Middle East.

Obviously, we have another several $100 million of revenue derived through the Middle East from the U.S.

federal government.

I am sorry, Chad, if there was a follow-up question there, that I cut you off.

Thank you.

Our next question comes from the line of Steven Fisher at UBS.

Please go ahead.

I just have a couple follow-ups.

If the local government have to cut their spending, which it seems like at this point, they may have to, what types of projects do you think will be likely to get cut first?

My sense is that some of the discretionary and non-essential projects will need to be postponed in terms of maybe the construction.

But as we had found -- I've been in this business 37 years and there has been several cycles over that time, several things happen when the state and municipalities cut back on their spending that's in the constructing side.

They usually increase their planning side because they want to ready for when they come out of the cycle.

And again because of the type of work that we do, we do financial analysis, upfront planning and preliminary engineering, that's why we have not been impacted as, say, as hard as if we were contractors.

Would you say it's construction and transportation, is it water, is it transit system across the board?

I think the -- it's a combination again, but we haven't -- as I said, up until now we have not seen any impact on our business.

With all, all our numbers are strong and as Mike mentioned, we have set significant wins in various states and here in the North East, West, the South.

The funding is in place for the transportation through '09.

And again, we have to go though another reauthorization.

On the water side, depending upon what happens with revenues there could be some softness, but we are not anticipating a significant downturn at all.

I believe we are just going to continue to move along maybe at a constant rate rather than a growing rate.

Okay.

And then the other question is, just wondering what your expectations are for the LOGCAP program at this point, any expectations for timing of next response from the army or participation?

Now, your guess is as good as mine.

It's a long process.

Okay.

Great, thanks.

Thank you.

(OPERATOR INSTRUCTION)

I am sorry, there is no questions in the queue.

I will turn it back over to management for any closing remarks.

Well, I want to thank everyone for tuning in this morning and listening to our first quarter earnings call for FY' 08.

As we said, it was a -- it's been a positive first quarter for us and we feel very strong about the future as well as we feel very excited about the mergers and acquisitions that we have announced in this first quarter.

I believe there is someone else on the screen if they want to ask a question.

Okay.

The question comes from the line of [Tare Usaf] with [Rockbay Capital].

Please go ahead.

Thank you very much for taking my question.

There seems to be a tremendous amount of concern on the part of investors when it comes to state and local budget and the resulting impact not just on your company, but some of your competitors.

And I was hoping that you guys could elaborate a little bit more on that and perhaps provide a little bit more reassurance or what your personal views are on that issue, especially considering that it's a very, very pertinent subject that constantly comes up.

I think I have spoken as frankly as I could about that subject and each -- every one looks at it a little bit differently.

We feel that our strategy and the model that we have put together, our business model we have put together and what in our experience over the past cycle, we feel as a result of what we have, we don't anticipate any blip in terms of our future growth.

Now again, I can't say more than that.

We are constantly looking at it, we are constantly managing our business.

Our strategy, when our strategy has it been in seeing the development the economy as we had was to target large multi-year projects almost annuity projects that would last for five to ten years and many of the projects we have are like that.

So with funding that's in place and so we feel with that model and that strategy we are able to straddle any of the cyclical changes that may occur in the economy.

Okay.

I mean I was just at an industrial conference down in Florida hosted by one of the investment banks and the key theme that was emphasized was that there is something that you read in the press which suggests that perhaps there is a slowdown but when you look at the underlying fundamentals and the businesses and the orders that are coming in and the backlog, in fact you have not seen any evidence of a slowdown.

And that's what you seem to be reiterating as well, is that correct?

That's exactly right.

What we're seeing and we scrub our performance on a regular basis and review the performance with all our key managers around the U.S.

as well as the world.

And we're still seeing a very strong market and we see they are based upon the need, there is funding in place.

So it's almost, I tell you it's almost -- when you listen to some of the reports, both in the print and in the media it's almost as if it's a self-fulfilling prophecy that something bad is going to happen, but we're not seeing that right now.

But again, we're not just sitting back not taking actions.

We have a strategy in place to defend ourselves against any type of shortfalls which may occur.

And then the last comment I would make is I mean the other thing that's been emphasized, is this is a [circular] trend and perhaps you might see a period, three, six months of slowdown but ultimately the demand is there and it's a question of getting the work done.

And I'm sure that in terms of business planning you guys take a very long-term view on your investment decisions as opposed to saying, we are not going to make this particular investment because the next three to six months might potentially be slow, when you look at a longer-term picture and you see the tremendous amount of demand on the infrastructure side in North America.

That is exactly correct.

Okay.

Thank you very much.

Thank you.

Thank you.

There are no further questions.

I'll turn it back to you management.

Okay.

I want to again, thanks to everyone for attending this earnings call and look forward to speaking with you in about 90 days.

Thank you.

Thank you.

Ladies and gentlemen, this concludes the first quarter of fiscal 2008 [editorial correction] AECOM conference call.

(OPERATOR INSTRUCTIONS)

Thank you for your participation, you may now disconnect.