AECOM (ACM) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by, and welcome to the AECOM first quarter 2009 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) This conference is being recorded today, Tuesday, February 10th, 2009.

I now like to turn the conference over to Mr.

Paul Cyril, Vice President of Investor Relations.

Go ahead, sir.

Thank you, Joe, and welcome to AECOM's first quarter 2009 earnings conference call.

On slide two, as we begin, let me remind you 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.

As you know, our actual results might differ materially from those projected in these forward-looking statements.

Please refer to our press release or slide two of the earnings presentation, and to our reports filed with the Securities and Exchange Commission, 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 have posted our earnings release and updated financial statements on the site for anyone who still needs access.

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

Please go to slide three.

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

Presenting today will be John M.

Dionisio, President and Chief Executive Officer, and Michael S.

Burke, Executive Vice President and Chief Financial Officer.

John, please go ahead.

Thank you, Paul.

Good morning, and welcome everyone.

On our call today I will begin with a few opening remarks, and then Mike will discuss our financial performance.

Following Mike, I will provide additional details about important business trends and our outlook.

Let me begin by saying that the infrastructure market remains robust.

Our end markets, including transportation water, wastewater, government facilities and program management, continued to perform well during the first quarter.

An important indicator of our future performance is the fact that we recorded a significant number of new wins and increased our backlog, despite the global economic environment.

That said, we are fully aware that we are competing in a very tough global economy, and we are closely monitoring all aspects of our business.

Although the downturn has affected the privately-financed facilities market, which is a relatively small segment of our overall business, our outlook remains strong and we are confident of continued growth in 2009 and beyond.

Now I would like to turn the call over to Mike, who will present our financial performance.

Mike, please go ahead.

Thank you, John.

Please turn to slide five.

First of all, we are pleased with our first quarter results, and our continuing momentum.

Net income from continuing operations was $40.5 million, up 37% year-over-year.

EPS from continuing operations was $0.38 per share, up 31% year-over-year.

Backlog increased 32% to $9 billion, and we closed the quarter with $243 million in cash and cash equivalents.

Turn to the next slide.

During the first quarter, we generated strong top line growth and increased our gross revenue by 35% over last year's first quarter to $1.5 billion.

Our net service revenue was up 32% to $889 million.

On an organic basis gross revenue was up 9% over last year, and net service revenue was up 4%.

We did discuss on our last conference call that our actual results might be affected by volatility in foreign exchange rates.

Indeed that has been the case, as the dollar has significantly appreciated relative to foreign currencies over the last year.

Adjusting for the changes in foreign currency rates, our underlying gross revenue organic growth rate would have been 15%, and our net service revenue would have been 13%.

Revenue growth and continued margin improvements, both in and outside of the US, drove our operating income from continuing operations to $70 million, a 57% increase over last year's first quarter.

Net income from continuing operations increased 37% over last year.

Earnings per share from continuing operations increased 31% over last year to $0.38.

Please turn to the next slide.

The PTS segment accounted for 85% of our first quarter gross revenue.

We continued to generate strong growth in this segment during the quarter, with gross revenues increasing 38% over last year's first quarter to $1.2 billion, and net service revenues increasing 30% to $846 million.

Operating income for our PTS segment increased 44% over the first quarter of last year to $77 million.

This significant increase in our operating income was due to improved leveraging of our overhead costs across the organization.

Our PTS net service revenue reflects an 11% organic growth rate after adjusting for foreign currency.

This growth was fueled by large multi-year projects across diverse business lines, with strong wins around the globe.

Please continue to the next slide.

We are also pleased with the first quarter performance of our Management Support Services segment, which represented 15% of our gross revenue during the quarter.

MSS revenue for the quarter was $223 million, up 19% over last year, and entirely due to organic growth.

MSS operating income increased 194% to $10 million.

This favorable year-over-year comparison is partially due to a one-time reserve we took in Q1 of last year, which was not in this year's results.

Eliminating the FY08 reserve, we still had an 85% increase in operating income on a pro forma basis.

Looking to the future, the MSS segment looks healthy due to several recent wins which John will discuss later.

Please turn to the next slide.

Our EBITDA margin improved 107 basis points year-over-year, due to our ongoing cost containment efforts and operating leverage resulting from our increased scale.

As our growth has continued, we have gained operating leverage in several areas such as marketing and shared services.

During fiscal year 2009, we will continue to focus on controlling costs and driving operating efficiencies.

Please turn to the next slide.

We closed the quarter with $243 million in cash and cash equivalents, and debt of $392 million.

In the current economic environment, we understand that a strong balance sheet is one of our most valuable assets.

Our cash position is healthy, and we have sufficient access to credit.

As of December 31st, we had $600 million in committed bank facilities, led by large, highly-rated and well capitalized banks, and over $250 million in unused capacity.

Our net debt to EBITDA ratio was 0.5 at the end of the quarter, which is well below our target range of 1.5 to 2 times EBITDA.

We closely managed our working capital, which resulted in a 6% year-over-year increase, while our revenue grew by 35%.

Our collections were also strong, which improved our cash flow by more than $20 million over last year, even though the first quarter is generally our slowest quarter for cash collections.

Our strong financial position and liquidity will allow us to opportunistically invest in future growth initiatives.

We plan to continue to manage our business carefully during this period of economic uncertainty, but at the same time we do intend to use our resources to capitalize on attractive M&A opportunities that will position AECOM for future growth.

Please turn to slide 11.

Before I provide the backlog numbers, let me reiterate our definition of backlog.

We have two categories of backlog, awarded backlog and contracted backlog.

Contracted 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.

Awarded backlog is 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 contract dollars, option years or add-ons.

The strong momentum of our win rate continued during the first quarter, pushing our total backlog up to $9 billion, a 32% increase over last year and a 4.4% increase over backlog of $8.6 billion in the fourth quarter of FY08.

Backlog growth in the first quarter is entirely organic.

During the quarter we reduced backlog by about $50 million to account for several projects in Dubai that have been indefinitely delayed.

We have reviewed our remaining backlog carefully, and we are confident that a high percentage of awarded backlog will translate into contracted backlog.

Please turn to the next slide.

Now I would like to reaffirm our outlook for fiscal 2009.

We expect diluted earnings per share to be within the range of $1.60 to $1.70 for the full fiscal year.

Please note that this guidance does not include any benefit from the various proposed global stimulus packages, which we expect will begin to impact our results later in 2009.

This guidance assumes $29 million in total amortization expense, related to acquired intangible assets; a modest level of M&A for '09; a tax rate of 30%, which has decreased due to our global business mix and tax planning efforts; a diluted share count of 108 million shares for fiscal year 2009; and a steady foreign currency exchange rate.

With that, I would now like to turn the call over to John, who will discuss our strategic priorities.

John, please go ahead.

Thank you, Mike.

I will begin with an overview of the key business trends we are seeing.

As I said, the infrastructure market remains strong.

Our backlog is $9 billion, up 32% since last year, and we continue to win new work across our end markets, and geographies at a good pace.

While the publicly funded facilities market remains strong, we have seen some slowdown in the private sector facilities market, particularly in the UK and Dubai.

The private sector facilities market makes up only a small percentage of AECOM's business.

During the first quarter, the slowdown in our private sector facilities business was more than offset by the significant growth in our other end markets.

We do not expect the trend in the private sector facilities market to change this year.

However, we expect the continued growth in our other end markets will make up for any shortfalls in this area.

Longer term, we are particularly positive about the opportunities that various global stimulus packages present to AECOM.

We believe that AECOM's diversified capabilities, which focus on end markets that will benefit from stimulus spending, and our strong customer relationships will enable us to play an important role in the implementation of these packages worldwide.

We are already working with various governments and state agencies to formulate their stimulus funding plans, and to position AECOM to win the related work.

We believe that the strong spending trends tied to traditional infrastructure projects, and stimulus projects, will provide AECOM long-term market visibility and sustainable growth opportunities during the next several years.

Looking ahead, we will continue to focus on our core business strategies that have served us well for many years, namely market expansion, strategic M&As, diversification, and performance optimization.

As you know, M&A has played an important role in AECOM's growth strategy over the past 19 years, and it will continue to do so going forward.

In today's environment, M&A multiples have been declining, and our strong balance sheet allows us to pursue strategic M&A opportunities at attractive valuations.

Our target geographies for M&A are Europe, including Eastern Europe and Russia, India and China.

Some of our near-term business line acquisition targets are power and energy, and government services companies.

Please go to slide 14.

During the first quarter, we recorded $1.9 billion of new wins.

You can see on this slide our recent wins include a wide variety of work in both the United States and abroad.

I would like to highlight just a few of these wins.

In the MSS segment, we won five task orders valued at $269 million for contract field teams.

This is an IDIQ contract with the United States Air Force for operations and maintenance services, with a maximum value of $10 billion between now and 2015.

We continue to win major projects in our PTS segment, including a $143 million joint venture program management for the Toronto Transit Commission, and $28 million design services contract for Zayed University's new campus in Abu Dhabi.

Here in the United States, as part of a joint venture we were awarded a $600 million IDIQ to help FEMA implement the Risk Map Program for flood hazardous mapping.

We were also awarded a $147 program contract for the San Francisco Central Subway.

Collectively, these wins demonstrate that even in this recessionary environment our diversification, strategy and business model is enabling AECOM to win new work in key markets around the world.

Our continued momentum gives us confidence that the market remains strong, and AECOM is well positioned to continue to win high-profile, long-term assignments.

Looking ahead, we will continue to pursue key mega prospects across multiple end markets and geographies.

Please turn to slide 15.

As I mentioned earlier, AECOM is particularly well positioned to benefit from the implementation of stimulus programs around the world.

Infrastructure projects, which include transportation, schools, water, environment and energy are key components of the proposed programs.

These are all key markets for AECOM.

The global stimulus packages announced thus far could worth as much as $2.3 trillion, approximately 3.5% of the world's GDP, and the construction portion could total up to $700 billion.

Remember that a key discriminator for AECOM is that in each of our geographic markets, we have a strong local presence and long-term client relationships, coupled with the ability to deliver global expertise.

We are closely aligned and already working with government agencies to help them accelerate stimulus-related program.

In the United States, AECOM has a particularly strong presence in those states on this map that are expected to receive a significant share of this stimulus spending.

In addition, we have over $3 billion in existing contract capacity with the US Federal Government.

This is important because these contracts could be used to fast track procurement, and position AECOM to quickly secure new work as stimulus-related programs get started.

Please turn to slide 16.

As you can see on the slide, in the first quarter we continued to advance a nice balance of diversification across end markets, funding sources and geographies.

As I have said previously, our diversification strategy has served us well for many years.

It has enabled AECOM to continue to win work, in spite of current economic conditions.

Today, I want to spend a few minutes on the breakdown of our funding sources, and the changes we have recently seen in the Public-Private Partnership funding.

As you can see in the middle pie chart, in the first quarter 32% of our revenues came from the private sector, and 68% came from government clients.

Looking ahead, in addition to increased funding from proposed stimulus packages around the world, we are expecting to see a real breakthrough in the PPP funding for such -- for much-needed infrastructure projects in the United States.

Here in the US, we have seen a steady increase in private funding.

In fact, during the first quarter we secured a $70 million design contract for a Public-Private Partnership project in Florida, and we have identified a number of additional PPP opportunities in other states like Texas, Utah and Virginia.

The industry estimates that there is approximately $180 billion of private capital available for global infrastructure projects.

Given the growing state deficits, and stimulus measures, we expect that PPPs will play a bigger role in funding infrastructure projects in the coming years.

Please turn to slide 17.

In conclusion, I would like to reassure you that our core markets remain strong.

Our diversified business model continues to drive growth and strong results.

The outlook for continued spending on infrastructure projects is intact, and will only be bolstered by the proposed stimulus measures around the globe.

Here in the United States, irrespective of the final details of the stimulus package, the funding is expected in each of AECOM's key end markets.

We will continue to closely monitor all our businesses to assess our potential impact as -- the potential impact from the economic slowdown.

As we look to the future, we have every reason to believe that our strategies are working well, and that they offer AECOM strong growth opportunities.

We are reaffirming our earnings guidance today for 2009, and we look forward to updating you on our progress.

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

Thank you very much.

Thank you, sir.

We will begin the question-and-answer session.

(Operator Instructions)

It comes from the line of Joseph Foresi with Janney, Montgomery Scott.

Go ahead, sir.

Hi guys, I know you talked a little bit about this in the presentation, you talked about $3 billion in fast-track US Government-ready projects.

I wonder if you can kind of talk about and help us sort of connect the dots between what we are hearing on the stimulus side, you know, the timeframes for the spending going through the highway formula, and sort of how you are prepping on your end?

Okay, the $3 billion I referred to, those -- it was the Federal Government, where we have IDIQ contracts, which -- and the reason I mentioned it, to jump start the spending the Federal Government could use those vehicles to allow us to do work in certain markets.

So, that is -- it was presented just indicate that we are very well positioned to hit the ground running in terms of some of the federal spending.

In terms of the stimulus packages, here in the United States we are taking a special focus to work with various state agencies to help our clients prepare packages and prioritize projects.

We are also advising on how they could accelerate some of their procurement.

I mean, this is going to be a big chuck of money that is going to come into various states, and we are in a position to help them program manage that type of preparation.

Also, what the stimulus package will do, Joe, is as you see from our backlog, we have grown.

The infrastructure market remains strong here in the United States, especially in transportation.

But some of the projects, there are some shortfalls in funding, and what we're identifying for some of our clients, those projects which we have -- which they have ready to go, or they're in the ground and waiting for some additional funding, we're identifying ways that the stimulus package could be used to fill in the gap to give them the total funding, so there will be no disruption with their construction.

I mean as you know, probably the construction industry has taken one of the biggest hits in unemployment, with about I think 1.6 million laborers out of work.

So it is important that with the moneys that come out of the stimulus package, we get it into the ground as soon as we can.

In prior guidance, I think you talked about the range that you've put out there for earnings at $1.60, the lower end, not including some of the stimulus package in the upper end, I guess taking it into account.

Based on the figures that you see out there now, is that still the proper way to look at guidance?

Yes, Joe.

We still feel very comfortable with our guidance.

You know, it is early in the year.

We have very good visibility throughout the year, both from our backlog growth -- as you saw, we had very strong backlog growth of 32% year-over-year, about 4.4% sequential growth over Q4 of FY08.

So we like the backlog growth, it's given us good visibility for this year, but it is still a volatile market out there.

We have not taken into account any of the stimulus spending in our guidance, and depending on how fast that stimulus package gets into the marketplace will cause us maybe to think differently about our guidance.

But right now we are firming our guidance, and next quarter when we know a little more about the stimulus package we'll be prepared to update you at that point in time.

Just so we are clear, the $1.70 does not -- I mean, the upper end does not include any potential spending from infrastructure?

That's correct.

Okay.

Then just looking on the risk side of things, I wonder if you could talk about the slowdown maybe in the Middle East, and what your exposure is there?

And I know you talked about private spending, and maybe you could break down into percentages for us?

Okay, if you recall the pie charts that I showed, that the private market is a relatively small piece of our business.

It is 24% -- or excuse me, 32% of our total business.

That's the -- of that in the facilities market, we are speaking about 24%.

So 24% of the facilities market.

Of that, less than half is in the private side.

What we have seen is that the slowdowns have occurred with private funding from -- in the facilities and the land development side.

And in the UK, over the past six months, a market in which we have not only facilities but we have transportation, environmental, our facilities side has slowed down a little.

And in the Middle East, primarily in Dubai, which as you read in the papers, just the over spending, we have -- a piece of our business in the private facility side, and that has been impacted.

The good news, though, in the Middle East is our infrastructure business is very strong, our transportation business is very strong, and in Dubai, Abu Dhabi, Qatar, as well as our developing opportunities in Saudi Arabia.

Just one last question.

You've talked about the debt load in the past, you know, being 1.5 to 2 times EBITDA.

I was just curious, it sounded like last call you were a little more cautious, and then this call it sounds like you are going forward with the M&A activity.

Maybe you could just tell us about what sort of changed that tone, and what you are comfortable with on the debt load side?

Joe, I didn't intend to change our tone on that, so let me be as clear as I can on our strategy there.

First of all, we are comfortable with our cash position right now.

We have about a $250 million in cash, we have about another $250 million of capacity under our revolving line of credit, which still has quite a few years to go before it is up for renewal.

So we certainly have plenty of dry powder to look at the right strategic acquisitions.

We have been saying for quite some time that we feel very comfortable with a debt load in the 1.5 to 2 times EBITDA.

If you asked me three, four months ago, maybe I would have been more towards the lower side of that, but we are still within that range, and to the extent we find the right strategic M&A opportunity, the capital markets are available to us, either on the debt side or the equity side, and depending on the size of the deal we would access those either debt or equity markets as necessary to maintain our debt ratios south of that 2 time ratio that we have previously mentioned.

Okay.

Thanks, guys.

You're welcome.

Our next question comes from the line of Mr.

Steven Fisher of UBS.

Go ahead, sir.

Good morning, everybody.

First, can you tell us what the gross revenues were that were added from acquisitions in the quarter?

It sounded like it may have been around $275 million?

The gross revenues added from acquisitions.

I would have to pull that out.

We will get right back to you.

Okay.

And then in terms of the MSS segment, was there anything non-recurring or unusual in the margins this quarter?

It was pretty solid.

I'm just wondering if the result in this quarter is sort of a normalized quarterly run rate to use going forward?

There were no abnormal either, you know, reserves one way or another in the quarter beyond normal course.

Okay.

And your head count looks like it was unchanged from last quarter.

Just wondering with the backlog you have and the business prospects for the rest of the year, wondering where you think it could be at the end of fiscal '09?

You're talking about backlog?

No, you're head count.

Are you adding people this year, or just kind of maintaining, cutting back?

We are adding people in several places.

We are adding people in Hong Kong, here in the United States as well as Canada, and in Northern Africa on some of the projects we are working on.

And also we won two projects in India, which is a new area for us, and we will be adding staff in India.

Steve, just to your question on revenue, gross revenue added in the quarter from acquisitions was $277 million.

Okay.

Pretty close to what I was calculating.

So then just going back to the head count, do you think net/net you are going to be up for the year?

Definitely.

Okay.

I guess, just maybe a little early to comment so far, but can you just comment on what you have seen in terms of business trends in January and February to date?

It is interesting, we just came off a strong first quarter.

And you know, during that first quarter we recorded record-breaking wins, and we haven't seen that activity slow down in the month of January.

February, the numbers are, you know, just being formulated, but the numbers for January remained strong in terms of wins and bookings, and that's what makes us really feel confident.

Even before the stimulus package, we are looking at wins across the enterprise in each one of our geographies, both here in North America as well as in the Middle East.

Australia, and Hong Kong, China.

And also in the environmental and transportation markets in the UK.

As I mentioned on -- in my comments, the UK private facilities business is soft.

Okay, great.

Thanks a lot.

Our next question comes from the line of Andy Kaplowitz with Barclays Capital.

Go ahead, sir.

Good morning, guys.

If you could go into more detail about the geographic regions that you haven't talked about too much yet, like Asia, Canada and Australia.

Obviously, you're growing still pretty well, you know, globally.

I'm just wondering, in these regions how much is market share gains, how much is the market still growing pretty robustly?

Okay.

In Asia, our primary locations in Asia are Hong Kong and China.

Overall, we have about 3,500 people between Hong Kong and China.

China, we have advanced through some M&As last year, we have advanced in the -- interesting, in the facilities market there, as well as in the water and environmental markets, which are very strong.

Hong Kong, which had some slowdowns, slow periods a couple of years ago, has now grown very significantly.

And we are seeing -- in '09, we are probably seeing a 25% growth in the activity.

Their stimulus package is moving into effect, with a significant increase in transportation, highways, as well as transit.

Australia is remaining strong, and it has been a strong market over the years, and it maintains a modest growth.

Here in the United States, we are looking at growth in our transportation markets as well as our environmental markets.

Also, in our Federal market, our Federal facilities market remains strong.

In Canada, Canada continues to grow, and we see a nice increase in our markets in Canada, in transportation as well as the environmental

Okay, thanks.

Maybe this question is for Mike.

SG&A as a percent of the sales, or G&A as a percent of sales, was pretty low in the quarter.

I know that you have Earth Tech in there, too, and it is still pretty low.

So I guess I am wondering, can you keep up that rate for the year?

You know, 1.2% of sales, that's a good run rate.

You know, as you've heard us talk about this issue in the last several earnings calls, we have been very focused on improving our efficiencies on the SG&A side.

We have made very good progress over the past year and-a-half on that, and we expect to be able to maintain that and continue to focus on reducing our expense load, and achieving more synergies.

As we continue to more tightly integrate some of the M&As that we have done in the past, we see continued upside from that.

So it is something we are very focused on, and we don't anticipate losing our focus on that item.

Okay, great.

Maybe if you could help us with one thing.

I think there is some confusion out there, as we had this election period in November where all these bonds were approved.

You know, the question that we have is, when do they find their way into the system, do you think?

Because people, I think, follow the municipal bond market, you know, as it pertains to infrastructure, and we have seen it come off a little bit in the last few months.

How do you guys look at that, and how do you look at that versus what we saw in November?

So what do you expect for the market going forward?

You follow the same statistics, I'm sure, we follow on muni bond issues, and you know, the first step is getting the voter approval, which happened in November, and then the next step is getting it to market.

And I have stopped trying to predict the muni bond markets, and when liquidity comes back to those markets, and how soon that will happen.

But it is a matter of time.

I cannot predict when, though.

Andy, just one bond issue which was passed in November was in California, Resolution R -- Measure R, which is a $30 billion program, which already the moneys are being appropriated to get work into the system.

So some of the bond issues that were passed during the November elections are starting to take hold.

Great.

I will get back in queue, thank you.

Our next question comes from the line of Vance Edelson with Morgan Stanley.

Go ahead, sir.

Hi, thanks a lot.

You mentioned the promise of PPPs in coming years.

How would you characterize the political support for any type of privatization?

Do you think the appetite exists right now, or is that going to be something that has to be worked through kind of a hurdle in the coming years, even if the private money is available?

Thanks.

That's a very good question, because that was always the bump in the road with the Public-Private Partnerships was the political support.

It is interesting that just recently there were a couple of break-throughs in the Public-Private Partnership market, and one of them was the project, as I said, we won in Florida.

And there are others that are going to -- we will see coming to pass in Texas, Utah, and Virginia.

So it seems like there is less resistance now, because of the state of the economy.

And if we can get private financing to work with the state governments in terms of getting these projects started, it is a win-win for everyone.

It's a win-win for the investors, a win-win for the states, as well as for the job market.

Okay.

That is helpful.

And you also referred a couple of times to international stimulus programs.

Could you just give us a quick snapshot of what is being done around the world from a stimulus perspective?

Is there anything that rivals what is being contemplated in the US?

Thanks.

Clearly, the United States, just from the numbers is ahead of the pack.

But also on a more modest scale, and ones which are focused maybe more on just the infrastructure, we've seen -- you know, we see In Canada, we believe it is about a $25 billion program.

The UK, to get out of their recession, is going to spend, as the United States, is they are going to try to spend their way to some type of economic stability, a $250 billion range.

Hong Kong, as I mentioned, they have a stimulus-type package where they are funding major transit work to the tune of about $30 billion.

So -- and we have heard about the stimulus package in China, which is around $600 billion.

So, in each of the areas that -- and in Australia, with about $42 billion.

In each of the areas where AECOM is strongly located, in all our key geographic areas, there is some type of stimulus package which is being proposed to prime the pump and get the economies moving, or not just moving, to advance them.

Okay.

Finally, in the US, as far as the stimulus goes, I think -- you know, you said you expect it to hit later in the year is the way you phrased it.

Can you provide any more granularity, just your best estimation, as to when the stimulus-related funding starts adding to the backlog, when it hits revenues and so forth?

It is third, fourth calendar quarter?

You know, I guess we are sharing time with the new Secretary of the Treasury today.

It will be interesting to see what he has to say.

But clearly, hopefully Congress will pass the bill, the bill will get signed by the President, and I believe that it will take a certain period of time, maybe three months, to see this --before we start seeing things happening.

We are hoping that we will see signs of the stimulus funding getting into the marketplace by the fourth quarter of '09 or the first quarter -- and we are on a fiscal year that ends September 30th -- or in the first quarter of '10.

To plan on anything more aggressive than that I think might be a little bit reckless at this point in time, considering the political environment that we see going on.

That's helpful, thanks.

Our next question comes from the line of Mr.

John Rogers with D.A.

Davidson.

Go ahead, sir.

Hi, good morning.

I was wondering, you talked about the strength in the transportation market, but you get various reports on weakness of state budgets, and yet you are seeing also strength in the environmental markets, and I was trying to compare those two thoughts, and just wanted to hear what you are seeing.

In other words, are you seeing a real slowdown at state budget levels, and is that having an impact on demand for your services?

John, we are not seeing a slowdown.

Our transportation business is doing very well, our backlog is growing well, John mentioned some of the Public-Private Partnership projects that are helping.

But generally, we are not seeing that kind of resistance in the transportation market, and if this stimulus -- or when the stimulus package passes, they are talking about $44 billion of stimulus money focused on transportation, which will significantly boost that business.

Yes, and John, I mean, part of it -- to add on to what Mike just said, is being the transportation market in the United States, and again, it is not across-the-board, it is in the key areas that we are in and the states that we are in, we are seeing that some of the toll increases have gone to advancing the transportation programs.

Here in the Northeast, we look at what the Port Authority of New York and New Jersey is doing, what New Jersey did in terms of their toll increases; Illinois, the increase in tolls.

And as I mentioned -- I misspoke about the bond issue for Proposition R, it was a tax increase, where there is $30 billion that the City of Los Angeles is generating through a $0.05 sales tax, which is going to transit and highway improvements.

I mentioned it -- from the presentation, we won the job in Fort Lauderdale, the new airport, the Florida PPP market.

So yes, if you look at it from a -- maybe from a very, very macro perspective and you take it on average, it might look like the market is not robust.

But when you do a little bit more granularity, and look at the specific markets and the specific states, and some of the things that are happening, you can see there is significant activity and a significant amount of work going on.

And the growth that you're seeing in the environmental markets, is that State work or Federal work?

It is a combination of State, Federal, as well as some private, the private being some of the multinational clients.

Okay.

And then it sound as if though, I mean the real benefits from the stimulus package, especially given your fiscal year, are more likely in '10?

Mm-hmm.

I mean, we believe that we will see some activity in '09.

We are not counting on that to deliver the numbers that we have for '09.

But we are -- we do feel that the stimulus package gives us the visibility into '10 and '11, and I think that's what is good about the programs that are being proposed.

They are not one-shot deals, they are programs that will be put in place which will give the longevity to the market.

Okay.

And lastly, I think in Mike's or your comments you mentioned sort of a normal level of M&A activity this year, and I can't remember what the numbers are, but historically that has been about 5% of your growth?

Is that a good way to think about it this year?

No, historically -- it depends on how far you are going back.

Going back over the last 10 years, our compound growth rate and revenue has been just a hair over 20%, and half of that has been organic and half of that has been acquisitive.

Okay.

So a normal rate would then suggest 10% from acquisitions this year?

We have not given guidance on that, and that number would be -- if you are talking about -- it depends on what you are talking about, new acquisitions or --

Well, I guess with Earth Tech, you are going to get there anyway?

Oh yes, if you are looking at acquisitions that were done last year that will produce revenue this year, absolutely.

But we shouldn't be counting on adding another 10% just from --

No, no, okay.

-- It hasn't been announced yet.

Okay.

And in terms of activity that you are seeing out there, is it a lot more opportunities or --

The opportunities are -- they are somewhat the same, John.

There's -- it has been a fairly consolidating industry for a long period of time, and we continue to look at some very good strategic opportunities in Europe, in Russia, in India, China, the energy markets, as well as Federal Government services.

So we are still looking at the same end markets that we've talked about for awhile.

Okay, great.

Thanks for taking all my questions.

Thank you.

Our next question comes from Andrea Wirth with Robert Baird.

Go ahead, please.

Good morning, gentlemen.

I was wondering if you could just circle back to the guidance for a minute.

You know, you held the EPS range at a $1.60 to $1.70, but your underlying assumptions are benefiting you a bit.

You have a lower tax rate in there, and it looks like lower amortization, expenses -- well, that may actually imply to me that your underlying assumptions may actually be lower at this point, and you're making up for it on a couple of other items.

I was just wondering if you could talk through, you know, are your underlying assumptions actually a little bit lower than they were last quarter, and where would that be stemming from?

Andrea, we still feel very good about our guidance.

We still have -- as I mentioned earlier, we have good visibility based on our backlog, and our backlog would point towards continuing the momentum.

It's early in the year.

We are only through the first quarter.

We had a great first quarter, and we just believe that in today's volatile markets, it wouldn't be prudent to start raising our guidance after only the first quarter, so we are comfortable with sticking with the same guidance range that we previously provided.

Sure, I understand you are not raising the rates.

But are your underlying assumptions actually lower, just given that you are going to get more benefit from the tax rate and lower intangible expense?

Our assumptions are consistent with the assumptions that we used to arrive at that range at the last quarter.

Okay, fair enough.

Then just wanted to clarify again, so you mentioned that you have a couple of projects in Dubai that are indefinitely delayed.

Did you actually remove that from the contracted backlog?

Yes, we did.

As we do every quarter, we very tightly scrub our backlog to make sure that whatever is in there is still -- are still valid projects.

We did take out about $50 million of backlog from Dubai -- or I should say from the Middle East as a whole.

So the 4.4% sequential increasing backlog from 9/30 to 12/31 is net of items that we took out of the backlog.

So obviously then, that $50 million project cancellation total is more than offset by the other new project wins for the quarter.

Great.

And do you think there are any more projects in the Middle East, I guess specifically that are, you know, vulnerable right now to the same type of delays?

There no projects that we are currently aware of that are vulnerable.

The projects that are in our backlog we feel good about, and if they were subject to delay or cancellation we would have taken them out of backlog already.

Okay, got it.

And just a quick comment.

Just wondering, are you seeing anything -- just in terms of how the projects are rolling out, are you seeing them actually being stretched out over a longer period of time, or are they still generally kind of sticking with the original plans.

For the most part, they are remaining on schedule.

Again, with so many projects we have in the mix, there is always some variation.

But we are seeing some projects staying on schedule and some being drawn out, but there are others where our clients want us to accelerate the work so we get the work out on the street, because they realize there is going to be a lot of work coming out via the stimulus package, and they want to get their projects into construction so they can take advantage of the preferable pricing that exists today.

Got it.

Andrea, can I circle back just to your comment on Dubai.

I want to underscore the Dubai market, because we seem to get a lot of questions about it, and Dubai, obviously that market has slowed quite a bit.

But it is important to point out that within the Dubai market itself, 85% of our revenue in Dubai is for public infrastructure, the more horizontal infrastructure versus the flashy vertical structure.

So it's the vertical-type projects that have slowed, but the horizontal projects that we are involved with, environmental, water, sewer-type projects, as well as road and transit-type projects, are still moving ahead at a very good pace.

Great.

Thank you.

That's fantastic color.

Nice quarter, guys.

Our next question comes from the line of Avi Fisher with BMO Capital Markets.

Good morning.

Could you give us what amortization of acquired intangibles was in the quarter?

I had that number here, I believe it was 29 -- I'm not sure I have the exact number.

I just have another accounting number, while you're shuffling through the papers, the acquired NSR and profits also, if you have that?

Hold on, one question at a time.

You want amortization for the last quarter?

For this past quarter, for 1Q.

Oh.

Hold on.

Why don't I get back to you on that, I don't have that number on my fingertips here.

Okay.

So we can circle back also on the acquired NSR also?

We will be issuing a Q later today.

Oh, okay, it will all be in there.

I want to drill down into Andrea's question a little bit more, because I have the same one.

When you take out -- you are getting a $9 million -- you have lowered your amortization number by $9 million, you've lowered your tax rate by about 30 basis points for guidance, and that is roughly $0.12 by my calculation.

It seems like something must be changing, either a lower burn rate -- and plus you did have a lower burn rate, although a higher backlog.

It seems like something must be changing besides just a few private projects.

Is there anything -- are people stretching out projects?

I know you've said they haven't, but I am trying to foot the difference, this $0.12?

Avi, you see that -- obviously, we gave a wide range, a $0.10 range, and the calculation you just threw out at $0.12 is, for us within the margin of error within the range that we have previously given.

It is not an exact science, as you can imagine.

Of course.

We're trying to give you as good of a range as we can for the next three quarters.

But we are only a quarter into this year, and like I said, you know, the important thing that gives you that visibility is backlog.

Look at the wins and look at the backlog, and it gives you a good sense for where the business is heading for the rest of the year, and to me that's the best bit of color commentary on the guidance that you can get.

Have you -- have any clients opened discussions with you in a material way on renegotiating contracts?

No, not in a material way.

And we have 10,000 contracts, but there is no big material ones that would fall in that category.

Okay.

And can you give some color on capacity utilization, or more specifically on pricing the wages?

And if you look -- I know US is less than 50% of your business, but if you look at US PPI data, it shows decelerating pricing in the AE markets, it shows -- and the BLS numbers show accelerating wage growth or wage inflation.

Are you seeing any squeeze on the margins?

It doesn't show up in the numbers, but --

No, we are not.

Both our gross margins are improving, as well as our net EBITDA margins.

So if you were seeing a squeeze, you would see it in the gross margin.

So that has not been our experience.

And capacity utilization, is that -- how has that been trending?

It depends on the market, of course.

In some markets, we're seeing a significant increase in utilization, the Hong Kong/China market would be a good example of that, and then other markets like the UK you would see utilization slipping a little bit due to the softness in the private sector facilities market that we mentioned.

Overall, utilization is good.

On the program management side, I mean, you included a contract on your presentation, I'm trying to pull it up, the program management for the San Francisco subway, can you just remind us, is that -- does that flow through your P&L as backlog that is earning, or is there just a fee associate with that?

The $147 million San Francisco Central subway win.

Yes, that would show up in our backlog as revenue that we are starting to burn off.

Then it just burns off -- it is not like a fee-based contract, even though it is a joint venture?

That is the fee.

Oh, that is the fee associated with it?

Got you, so not the total size of the contract.

In New York City, and I don't know that you are a big player in this market, but at least in the -- what is it, the School Construction Authority, they just finished their five-year capital program, and it renews in fiscal year 2010 at a much lower rate than the prior five years.

Are you on -- just across the country, or just across your major markets, are there any major five-year capital programs that are renewing in the upcoming year, and could therefore do so at lower levels?

Throughout the markets we're in or just in schools?

Throughout the markets you're in.

I don't think you were a big player here in CSA, although --

No, here in New York, the school construction we haven't been a big player, but we've been a big player in Chicago, L.A., Texas schools.

They are -- I'm trying to think of --

I mean a lot of them are seeing their past five-year programs expiring.

The MTA is going to have another five-year program.

It might not be of the numbers that were in the previous program, but there are still five-year programs -- capital programs that are being renewed.

The market that we are in, in terms of capital improvements, is a significant one.

I mean, our infrastructure is in dire need of repair, and these State agencies and Governmental agencies realize that.

So I don't have off the top of my head the various agencies which are renewing their programs, but they are being -- there is money being spent, as I mentioned to a previous caller, in very specific areas, to advance transportation and infrastructure in general.

And in these programs, can you just talk about how the labor multiplier -- maybe I'm getting too granular, but the labor multiplier works?

I mean is there a set or fixed labor multiplier for the --

We work -- in the United States, we primarily work on a costs reimbursable basis.

Basically, we -- you get paid for the labor, you get overhead, and on top of that you get a multiple, okay, your margin.

And so, in -- what was wonderful about the public market is irrespective of good times or bad, the margins remain constant, so you don't see some margin deterioration as it would in the private side.

So, that that's how it works.

And the multiple, it depends on the specific client and the margins that we negotiate.

Outside of the United States, primarily we do work on a fixed-price basis.

Now in this environment, we've found that the salaries are now decreasing.

So we don't get the pressure on the projects as we had in the past, so we are seeing some relief in terms of reduced salaries.

I don't know if that helps you in terms of understanding how we cost our jobs, and how we get reimbursed for the work that we do.

That helps a little bit, I appreciate it.

Avi, just a follow up on the question you asked earlier.

The amortization expense for acquired intangible assets in the first quarter was $5 million.

And then I think you had asked what our increase in revenue from M&A was?

Yes.

Or acquired NSR, yes.

Acquired NSR was $183 million.

And I will wait for the queue.

I will get the rest of the numbers right out of the queue.

I appreciate you taking my questions.

Thank you.

(Operator Instructions)

It appears there are no further questions at this time.

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

I like to thank everyone for your continued interest in AECOM.

As we have said in the past, please feel free to call us if you have any further questions.

And to reiterate what I said, we remain very confident in our market, and on the outlook that we have projected.

With that, I look forward to speaking to you all in three months.

Take care.

Have a good quarter.

Ladies and gentlemen, that does conclude your conference for today.

Thank you for using ACT.

Have a good day, and you may now disconnect.