AECOM (ACM) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2010 AECOM earnings conference call. My name is Tawanda, and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Paul Cyril, Senior Vice President Investor Relations. You may proceed, sir.

Thank you, Tawanda, and welcome, everyone, to AECOM's second quarter 2010 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. As you know, our actual results might differ materially from these projected in these forward-looking statements. Please refer to our press release or slide two of our earnings presentation and to our reports filed with the Securities and Exchange Commission for more information on specific risk factors that could cause actual results to differ materially.

As we begin the call, let me remind you of some of the important information about our earnings that are posted on the investor website, investors.aecom.com. First, we posted our earnings 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 time and will remain there for approximately two weeks.

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

Presenting today will be John M. Dionisio, President and Chief Executive Officer, and Michael S. Burke, Executive Vice President and Chief Financial Officer. John will begin on slide five. John, please go ahead.

Thank you, Paul. Good morning, everyone, and thank you for joining our call today. I will begin with a few introductory remarks, and then I will turn the call over to Mike Burke, who will discuss our second quarter financial performance and our updated outlook for fiscal year 2010. Following Mike's comments, I will provide an update on our markets and business trends.

AECOM had a strong second quarter. We executed well and we are on track for accelerated growth in the second half of the year. We saw a steady flow of new wins and opportunities across our global end markets during the second quarter. We saw particular strength in our US Federal Government and global transportation businesses and in many of our high-growth and emerging markets such as Asia and Eastern Europe.

Importantly, we saw a distinct pickup in activity, as many of our projects, which had been slow to get started, began to accelerate. We have not yet, however, seen any real rebound in our private facilities market, but the rest of our markets are performing nicely.

Looking to the remainder of 2010, we expect to benefit from continued improvements in many of our end markets, increased stimulus funding and a growing contribution from recent wins and the acquisitions we completed in late 2009. We are continuing to execute on our long-term growth strategy, and two recently announced external benchmarks indicate that we are doing so effectively.

In the current issue of Engineering News-Record, AECOM is ranked as the number one design firm, up from number two last year. Also, Fortune Magazine recently announced the new Fortune 500 list. In addition to moving up 106 places to number 352, AECOM was featured in an article highlighting firms that delivered double-digit revenue and profit growth in 2009.

With that, I will now turn the call over the Mike Burke. Mike, please go ahead.

Thank you, John. Please turn to slide six. Our second quarter gross revenue increased 7% over last year's second quarter to $1.6 billion. Our net service revenue was up 9% to a record $1.1 billion. Our second quarter's growth was driven by continuing strength in transportation, the U.S. Federal Government sector, China, and Hong Kong. That growth was partially offset by continued slow performance in our private sector business and in the UK.

Organic net service revenue was up 3% for the quarter. Foreign currency once again positively impacted our second quarter results, producing an approximate 6% foreign exchange tailwind.

Net income was $59 million, up 39% year-over-year. Diluted earnings per share were $0.51, up 31% year-over-year, despite a 6% increase in our diluted share account.

Please turn to slide seven. Our PTS segment accounted for 82% of our second quarter gross revenue. Net service revenue in our PTS segment increased 7% from last year to $966 million. The single largest driver of our year-over-year increase in PTS net revenue was Asia, which again grew 25% organically. Operating income in the PTS segment increased 25% over last year to $97 million, driven by strong operating margin improvement of 146 basis points over last year. We are gaining significant efficiencies from integrating our acquisitions and expect to continue to see margin improvement in the future.

The performance of our management support services segment, which accounted for 18% of our revenue in the second quarter, continued to be quite strong. Revenue for the quarter was $284 million, up 10% over last year. This growth reflects higher levels of activity in the Middle East and Afghanistan. Operating income of $14 million decreased 8% over last year due to an award fee received in Q2 of the prior year. In the second half of FY '10 and over the long term, we expect MSS margins to be constant or improve. Going forward, we are well positioned to capitalize on numerous growth opportunities in this segment organically, as well as through M&A.

Please turn to the next slide. In the second quarter, our EBITDA margin decreased 99 basis points over last year. Our margin improvement initiatives continue to be successful as we consolidate platforms across the organization. We have taken advantage of the softness in the real estate market to extract better pricing on our real estate portfolio across the globe, which represents our second largest overhead expense after labor.

Additionally, the integrations of our three strategic acquisitions completed last year are going smoothly, and we are experiencing synergy benefits earlier than we anticipated.

During the first quarter, we experienced a decline in our margins due to one-time charges, and, as expected in the current quarter, we delivered strong margins and are back on track to deliver consistent margin improvement. Looking forward, we expect to continue to expand our EBITDA margin and achieve our goal of generating EBITDA margin improvement of 20 basis points annually.

Please turn to the next slide. At the end of the second quarter, our balance sheet remains strong with $207 million in cash and cash equivalents and $201 million of debt. As of December 31st, we had $439 million in unused capacity under our $600 million credit facility. In the first half of the year, our cash flow from operations was negative. The largest factor driving this shortfall was slow payments on some specific invoices with the US Government. We recently received $46 million of payments against those invoices, and we expect cash flow to be positive in the second half of the year.

As we noted last quarter, we have seen a continuing rebound in M&A activity, and our pipeline of opportunities remains full. We expect to issue $250 million of debt in the current quarter to fund the acquisitions in our pipeline. After the debt raise and expected acquisitions, the company will still be under levered. This capital raise is the first phase of fund raising driving toward our target debt ratio of 1.5 to two times EBITDA.

Please turn to the next slide. New business wins in the second quarter totaled $1.5 billion. We closed the quarter with backlog of $9.9 billion, a 7% increase over last year. We are expecting decisions on some programs soon, which should add significantly to our wins in the second half of the year.

I should also note that our backlog figures do not include numerous IDIQ contracts that we have been awarded by the US Federal Government. A large pipeline of prospects and our solid backlog give us good visibility and confidence in our outlook.

Please turn to the next slide. Now I'd like to update you on our outlook for fiscal 2010. Based on our strong Q2 results and our outlook for accelerating growth, we are raising our guidance range for earnings per share to $1.97 to $2.05 for fiscal 2010. The midpoint of this guidance implies an 18% year-over-year growth in earnings per share. This guidance assumes $23 million in amortization expense related to acquired intangible assets, a diluted share count of 116.5 million shares, and a tax rate of 27%.

With that, I would now like to turn the call back over to John who will provide additional detail on our second quarter performance and outlook. John, please go ahead.

Thank you, Mike. Please turn to slide 12. I am going to begin with a high-level overview of the business trends we are seeing and an update on AECOM's M&A activity. I think it's fair to say that the global economic picture is improving. The pace of recovery across our markets, however, has been uneven. For example, in the United States GDP is showing signs of improvement, but some parts of the country have recovered more quickly than others.

In our global markets, some regions such as Asia Pacific, parts of the Middle East, Eastern Europe are growing nicely. Others, such as the UK, which is dependent on a rebound in the private sector, have not yet turned the corner. We expect that until the global economy is on a more solid footing, governments around the world will continue to invest in infrastructure in an effort to accelerate economic growth and create jobs.

Since the United States stimulus bill was passed last February, AECOM has won approximately $600 million in stimulus-related projects. As scheduled, we continue to expect stimulus spending to increase in the second half of 2010 and into 2011. Many of our global markets such as Hong Kong, Australia, and Canada are also poised to benefit from the multi-billion-dollar stimulus packages that were put in place last year. These global stimulus programs target infrastructure investments that fall directly in AECOM's key end markets.

Now for an update on M&A. The acquisitions we closed in the first quarter are doing well and are benefiting from strong markets in the healthcare and government services markets. M&A multiples remain an attractive -- at attractive levels and our pipeline is robust. In the coming week, we expect to complete the acquisition of a 500-person Spanish-based civil engineering firm with global expertise in high-speed rail. We believe the high-speed rail market is a significant growth opportunity with over $500 billion being invested globally in the coming years.

This firm is already generating one-third of its revenue outside of Spain, and we will further leverage this global high-speed rail capability throughout our markets.

Looking ahead, we are targeting additional M&A opportunities in program and construction management, power and energy, and in the US federal services business. We are also looking at geographic expansion in our existing markets, as well as in new and emerging markets such as Latin America, India, Asia, the Middle East, and Africa.

Please turn to slide 13. In the second quarter, 48% of our work was performed in the United States and the remaining 52% was performed outside the United States. In this quarter 75% of our revenue was generated from public sector work.

I would now like to provide you with more color on what we are seeing in some of our key markets. I'll begin first with North America. North America grew modestly in the second quarter, driven by strong performance in our US Federal Government and transportation businesses. We expect our North American operations will continue to benefit from a combination of increased stimulus spending and other recent developments such as the extension of the Transportation Bill, the passage of the HIRE Act, and the expansion of the Build America Bond Program. In addition, the public facilities market in North America continues to be strong.

In our US Federal Government business, AECOM recently won a $380 million contract from the US Army for logistical support in Afghanistan. Our pipeline of proposals for US Federal Government projects is at a record level.

While our private facilities sector remains relatively soft, capital expenditure budgets in the industrial sector are beginning to come back. After a long pause due to the economic slowdown, we are seeing signs of improvement in our private environmental sector.

In Canada, AECOM is benefiting from the growing global demand for natural resources, which is driving opportunities in infrastructure, mining, gas, and oil sands.

In the Asia Pacific region, which represents about 19% of our revenue, AECOM is capitalizing on strong and long-term infrastructure spending across key markets such as Hong Kong, China, and Southeast Asia. Hong Kong and China continue to invest heavily in infrastructure to drive economic growth. The Hong Kong government is expected to release several new transportation packages totaling $11 billion over the next two years. In China, we continue to see excellent opportunities in the infrastructure and environmental markets. We are well positioned in Asia and we expect it will continue to be a strong market for AECOM.

The economy in Australia continues to perform well and is benefiting from strong economies in China and India. Given AECOM's extensive mining capabilities, we are well positioned to take advantage of the expected strong growth in the Australian natural resources market.

In the Middle East and North Africa, which represents 12% of AECOM's revenue, we have seen continuing strength in Libya. We are also beginning to see substantial opportunities in Saudi Arabia. In Libya, AECOM continues to work on the $50 billion Libya Housing and Infrastructure Board Program. We now have over 300 people on the ground in Libya, and that program is going well.

The opportunities in Saudi Arabia have increased dramatically with significant public spending across all infrastructure and facilities markets. Looking ahead, we expect that the Middle East and North Africa will remain very strong.

India is a relatively new market for AECOM and one of our top target growth markets. In spite of the country's massive population and growing economy, its highways, bridges, airports, reliable power, and clean water remain in critically short supply. To put this all in perspective, India has the second largest network of roads in the world and one million miles remain unpaved. India's plan calls for a major investment in infrastructure projects, including transportation, energy, water, and utilities.

AECOM is pursuing several M&A opportunities and is building strong momentum in India. In the UK, we continue to see limited opportunities in the private facilities market. The level of customer engagement has picked up slightly, but that has not yet translated into any new work. The pending elections are unlikely to provide an immediate boost to public spending. And so far we have not seen any tangible catalyst for near-term upside in the UK.

In contrast to the UK, our Eastern Europe operations are doing well as a result of strong growth in some of our emerging markets such as Russia, Azerbaijan, Kazakhstan, Turkey, and the Balkans. The acquisitions have made -- the acquisitions we have made in these rapidly growing markets are yielding solid results.

Please turn to slide 14. We have had a strong start to the year. Our client focus and broad capabilities are continuing to drive new opportunities for AECOM. New wins in the first half of 2010 totaled over $3 billion and included strategic wins across our end markets. We closed the second quarter with a strong backlog of $9.9 billion. This backlog includes work on some of the world's largest projects and long-term mega programs.

We are also well positioned in key high-growth markets such as global infrastructure, United States Federal Government, environment, Asia Pacific, Eastern Europe, North Africa, and the Middle East. AECOM is on track to achieve its plan of accelerated growth in the second half of 2010. AECOM stands to benefit from increased stimulus spending in the United States and abroad in the continued economic recovery.

AECOM's team has successfully navigated through what has been a challenging economic period. At the same time, we have continued to grow our book of business, increase our margins, penetrate new markets, and expand our geographic footprint. We believe these factors position AECOM to continue to achieve our long-term annual earnings growth target of 15%.

With that, let's go ahead and open the call for your questions. Thank you very much.

(Operator Instructions) Please standby for your first question. Your first question comes from the line of Vance Edelson with Morgan Stanley. Please proceed, sir.

Hi. Thanks a lot for taking the questions.

Hi, Vance. How are you doing?

Doing all right. First, regarding the backlog, you mentioned accelerating growth for revenues. Is the backlog also expected to expand as we push through the year? Do you have any insight on that?

Yes. What I'd like to do is have Mike go into some detail on that, because clearly there seems to be a concern on -- regarding backlog. But the short answer to your question is, yes, we see a continuing growth in backlog as we see a continuing growth in revenue.

But, Mike, why don't you go into some detail?

Yes. Vance, a couple things. First of all, backlog's up 7% year-over-year. And as you know and you've seen in the past, it can vary from quarter-to-quarter, backlog always does. But while the backlog is down 2% sequentially, we feel very good about the backlog and the underlying commentary on that backlog.

I think there's a couple important things to point out. First of all, if you look at organic NSR, net service revenue growth, Q-over-Q, it's up 8%. So this acceleration in revenue for us is a very positive sign that we're moving projects from backlog to revenue. And, obviously, the backlog will go down as revenue accelerates. But as we previously noted, we increased our guidance for the year, and we did this because we are very confident in the backlog, and, more importantly, the increase in the proposal activities and the opportunities in the market. It's this opportunity pipeline, Vance, that gives us the greatest visibility for the future. Obviously, the backlog that you see is only one component of it. A bigger component of it is the number of proposals that we have in the market and the requests for proposals that are coming to us.

And so this visibility that we have beyond the backlog gives us a great deal of confidence in the continued growth of that backlog, which led us to increase our guidance. And these opportunities really span the spectrum from our recent wins like the Abu Dhabi Metro, the high-speed rail projects here in the US that are now moving forward much more quickly than anticipated. We're started to see significant pickup, as you heard from John, in the oil and gas and mining sector, as those capital budgets are improving. And then even the federal government facilities market, the proposal opportunities there are increasing dramatically, such as our recent win on the Department of Homeland Security Headquarters.

So the short line -- short answer is, we feel very confident in the backlog and the opportunities in front of us.

And, Vance, if I just would follow up. You folks get a visibility of the company once a quarter, and we live with it every day. But I can assure you that when we look at our business, two quarters ago we were concerned about -- everyone was concerned about organic growth, and we're seeing that now improving. So when that happens, of course, you're going to be burning more backlog. But the key here is the pipeline of opportunities. And as Mike mentioned, we have several opportunities that will flow over the line, now they'll go into the third quarter. I mean, we don't -- we have two major renewals of our government services contracts that are not in these numbers and they'll be in next quarter's numbers.

So overall, the business today and the opportunities that we have around the globe are much stronger than they were a year ago or even six months ago.

Okay. That's terrific. Thanks for all the detail there. And then shifting gears just a bit to the expense side. Given the growth you expect, could you just provide some color on your potential hiring needs as we move through the year?

Yes. We are -- we're actively in a recruitment mode throughout the enterprise. Over the past quarter, we've added about 500 people. And going forward, we'll probably be adding another 500 in the third quarter and maybe even more into the fourth quarter.

Okay. That's a good sign. And this is all baked into your expectation of improving margins going forward?

Correct. As well as a reason why we've increased our guidance.

Yes. Great. Okay. And then just a quick follow-up on that regarding margins. Does the shifting mix of government work have any potential positive margin implications going forward as it becomes more white collar and so forth?

The increase in the gross margin we see increasing as a result of a shift in going from design work into our program management and construction management work. So we see it more on that end versus the US Government. I believe you meant US Government work. So it's -- and when the private -- when the private sector comes back, and we're not -- we're not take -- we're not anticipating that to occur, we're not counting on that to occur in this fiscal year, that will also be an increase in the gross margins, and we're looking at that as an opportunity in FY '11.

Got it. Okay. I'll leave it there. Thanks, guys.

Thanks, Vance.

Thanks.

Your next question comes from the line of Steven Fisher with UBS. Please proceed, sir.

Good morning.

Hi, Steven. How you doing?

Good, thanks. Could you just give us what the organic growth [ex-]currency in PTS was on net service revenues?

Negative 3.6%. You're saying with -- in constant currency? Is that the question?

Constant currency, yes.

It's three -- negative 3.6. It's about -- in actual currency, it's a 3.1% increase. And we mentioned that we had a 6% approximate tailwind. So that would be about negative three.

Okay. And last quarter you said that was --

Which is better than it was last quarter.

I think last quarter you said it was a minus one.

That was in real currency, I believe. That was total for both MSS and PTS. I think you just asked for PTS alone just now.

Right. So PTS, back half of the year, this core number, net service revenues, do you expect that, basically, to turn positive?

Oh, yes.

Okay. And any kind of order of magnitude? Are we talking kind of low single digits?

We haven't, as you know, we don't typically give quarterly revenue guidance in advance here. So we'd prefer not to try to guess on that at this point. But suffice to say, as we've been predicting all along, and as the opportunities would support and the backlog would support, we are expecting a significant uptick in organic growth in the second half of this fiscal year.

Okay. And then on the gross margin in PTS, they were pretty solid this quarter. Can you just clarify what exactly were the factors there that led to it? I couldn't tell if it was the acquisition integration and cost cutting or if it was the mix shift to more PMC.

Well, when you say solid, are you comparing it to a year ago or comparing it to last quarter?

Sequentially, last quarter.

Yes. So sequentially last quarter you'll remember that we had pointed out last quarter that we had two one-time charges in there. We had a charge for the implementation of our global brand and we also had a significant charge for a downsizing of our European business. I should say our UK business. And so X those items, it tells a different story.

But the important thing is, looking at year-over-year with a 99 basis point improvement year-over-year that we've been trending on for a while, and we continue to be confident that we will continue to improve our EBITDA margins by 20 basis points annually. Obviously, we've been outperforming that over the past couple years. But we still think there's room for continued improvement in there.

Okay. So we should continue to, it sounds like, expect this to grow from here --

Yes.

-- the balance of the year?

Yes.

Okay. Now, the -- if I remember correctly, you mentioned $750 million of awards in January.

Correct.

And so it looks like the award flow in February and March slowed down a fair bit.

Right.

And I'm wondering what you experienced in those months. And it sounds like there's quite a bit of opportunities in your pipeline now. But maybe -- what happened in the rest of the quarter?

Well, maybe you should think of the first month as being exceptional, and it balances out for the quarter. I mean, we don't -- wins are not a straight-line projection. When we estimate it, we assume certain numbers and we target what the year number's going to be. And during the course of the quarters it changes. I mean, if we happen to get a win that comes in in the last part of the month, you put it in at that month, where maybe we're expecting it to come into the following month.

So I think a good way to look at it is where we are on a quarterly basis and then what are -- what's our cumulative backlog and what we're anticipating long term. When you look at the backlog that we have now, $9.9 billion, and think about our projected revenue for this year, it's a very healthy amount of backlog, okay, which bodes well for our visibility going forward, say for the next 12 months to 18 months.

Yes. No, I think that's certainly fair. Any comments on how April looked?

Yes, April has been very positive and it's going to be a strong month with key wins in North America as well as in Asia, the Middle East. We're looking for a win in -- additional wins in Africa. We've recorded two nice wins in India. So that's a market that we're -- we have been focusing on.

So April is very strong and the opportunities that are out there are probably more than we could -- we can handle.

Yes. Just to underscore that, April is clearly a much stronger month in wins than March, for all that's worth.

Yes.

Okay. Yes, that's helpful. All right. I'll get back in queue. Thanks.

Okay.

Your next question comes from the line of Andrew Kaplowitz with Barclays Capital. Please proceed.

Good morning, guys.

Hi, Andy.

Hi, Andy.

So you mentioned that you were going to issue debt of $250 million, right. Obviously, you're doing -- hopefully closing on the Spanish acquisition. Are there other bigger things that you're tracking that are making you do this? Or can you talk about this decision to issue debt here?

Yes. There are many other acquisitions that are of significant size, larger than this acquisition.

And, I mean, you have the equity DRIP program out there. But, obviously your stock is still kind of low. So is this just it's prudent to issue debt here? Is that kind of the rationale?

Yes. I mean, clearly, we don't have any intention of issuing equity at these low prices for our equity. And then moreover, the debt markets right now are very available to us at very attractive rates. And you've seen a downward pressure on treasuries lately. And so we think it's the right time to draw this down, as well as it matches up with the acquisitions that John mentioned. We would expect to issue this debt at the end of this quarter.

And, Mike, the extra interest expense from this debt would obviously be -- it would be in your guidance for this year?

Oh, yes, of course.

Okay. Just one more question about the backlog, if I could. Just are there any regions of the world which you would say are still going the opposite way on you, still sort of slowing versus improving right now?

UK. The UK market is still not rebounding as we would like it to. We see some signs of it in terms of they have a $20 billion -- a billion -- a 20 billion pound water program in place, which we have been successful on a few opportunities. But the driver of the UK market, as I'd mentioned in my comments, is really the private sector, and we're not seeing any movement there at all. But we've announced that to you folks a couple quarters ago, and we've normalized it. I mean we stabilized it. We've reached bottom, I believe, and we're gradually moving up the mountain step-by-step. So it's not a negative for us, it's just not a real positive.

Got you. And, Mike, Asian growth has continued to be robust. What are you seeing particularly in that market? Do you think that can last for months? years? What should we take from that market?

Yes, I tell you, without question, that's our strongest market. It has been -- it grew at 30-plus percent last year. This year it's growing at 25-plus percent. But more importantly, you asked the question of John of where are we seeing weaknesses in the backlog. Clearly, the biggest strength in the backlog is in Asia. And you look at our Asian business right now, not only is it growing, but we have in excess of 200% of trailing 12 months revenue in backlog in Asia, and the wins just in the month of April are very solid in all of Asia -- in Asia Pacific, not just Asia, which includes Australia. The Australia mining and mineral sector is very hot for us. Our -- we just won some very interesting projects in India. So that part of the world is not only doing well on the growth curve, but backlog is very healthy.

Okay, Mike. And just a quick one on currency. Obviously, currency's starting to move around quite a bit. So what's baked into your guidance? Is it the end of last quarter's euro exchange rate, things like that, or?

We -- whenever we give guidance, we do it at the spot rate. So we calculated this guidance a couple days ago, and so it would have been the spot rate a couple days ago. But just for maybe the people that are not as familiar with foreign currency, our foreign currency position, even though half of our revenues are outside the US, half of those revenues, or 25% of the total, are in US dollar denominated currency. So we only have 25% of our earnings that are truly subject to fluctuations. And the currencies that make up almost all of that would be the UK pound, the Canadian dollar, and the Aussie dollar.

Got you. Okay. That's helpful. Thank you.

Sure.

You're welcome.

Your next question comes from the line of Avi Fisher with BMO Capital Markets. Please proceed.

Hi. Good afternoon, or good morning. Your corporate rates -- corporate rates -- your corporate costs -- I'm sorry -- seemed to sort of grow a bit in the quarter. Is that tied to the debt issuance cost? Is that -- or just the work doing that? I'm looking at G&A.

Yes. First of all, I think that's significantly misleading. The way that GAAP requires us to present those costs on the P&L just seems a little odd to me, frankly. We -- the way we run the business here is we look at EBITDA margins because there are certain costs, corporate costs, the number you're looking at is not our total corporate cost. Some of those corporate costs are required to be directly allocated into the segments. And so you're not looking at the whole picture. And so the best way to understand corporate G&A cost is really to look at EBITDA margins, and those are moving in the right direction. You see that our gross margins are not moving up dramatically, and so [since] having such a big impact on EBITDA margins, it's obviously coming from a shrinking overall corporate G&A cost, whether it be truly on that corporate line that you're seeing or whether it be a corporate cost that's allocated directly into operations.

Well, have you changed any cost allocation on the G&A line?

No. No.

So I'm just trying to understand. I mean, if you're -- if the costs are being allocated the same as it was last quarter and last year, there's a big swing, and I'm just trying to understand what the swing was.

Yes. I mean, there's 101 components into that. Our G&A for the total organization is close to a billion dollars a year, and you're looking at a $26 million component of it.

All right.

So there's literally hundreds of items in there, nothing that stands out. And the way we look at it, whether the cost is at corporate or corporate at a divisional level, we're somewhat indifferent, as long as our overall margins are improving.

Okay. Fair enough. You mentioned M&A activity in the MSS segment, which would kind of be -- I think you've talked about it once or twice before, but you haven't really --

Right.

-- made any acquisitions there. So that will be kind of new. What areas are you looking in? And on the same page, do you think you capture more of the Nevada test site under the new -- some of the new rules regarding defense contractors?

Yes. First of all, I -- in the first quarter, we actually bought a company that was called SSI. That's in the intelligence community which is in our MSS group. We are looking at several. The issue has been one of price as we looked at the -- at that market. We're looking currently at two. There is a -- there is significant opportunity going forward in a growing market in the MSS business with the government, the US Government, the US Federal Government. But -- and it goes not only with Department of Defense, but also the Department of Energy.

And are the multiples that you target in the MSS the same as what you would in PTS? I think it's the 7% range. Seven times range.

On the multiples?

Yes.

Well, I don't know if I should tell you what our multiples are. Nice try.

Okay. Fair enough.

I almost fell into that trap, gee.

Okay. And sticking to MSS. How long can we expect the MSS awarded to roll into contracted? Because there was a big jump in the awarded backlog in MSS?

Boy, that's a difficult question to answer. There's no rule of thumb that I can give you. But generally, something that's awarded will move into backlog within a quarter. It's not -- it's very rare that you have something go in that is sitting in there for a long period of time. But it's difficult to answer. But a general rule of thumb because especially in MSS, there's a smaller number of contracts relative to the PTS segment, and it's really -- and it's going to depend on a couple things, the length of the contract, as well as the particulars of that given project.

All right. What --

First, there's the two projects that we're waiting for the wins, which are an -- really an extension on our existing contract. So as soon as we get the win, it goes right into -- it goes right into a book of backlog, not into the contract.

If I could just ask a simple question, maybe you can answer in terms of, could you tell us what your backlog is as of today?

No.

Could you tell us if it's higher than it was at the end of March?

Well, I could tell you anecdotally it is. But we didn't -- we still don't have our closed books for the month of April yet. So we see all the big wins, we see them as they're coming in because they rise up to our level. So the wins that come in in the $25, $50 million range, we've got great visibility and it's a much stronger month than March. But I can't give you definitive data just because we don't have our books closed around the globe yet for the month of April.

Okay, fair enough. But just to clarify something you said earlier. It sounded like I heard you say that revenues could grow faster than backlog. And that my assumption would be your -- maybe this second half of the year is a backlog burn period where you may have book-to-bill rates below one.

No, that's not my expectation. What I said earlier, I think it was in response to the very first question, that revenue accelerated from Q1 to Q2 organically, and it grew faster than the backlog for that quarter. But that would not be my expectation going forward. I would not be expecting book-to-burn less than one.

Okay. That's helpful. And then finally a lot of previous questions on the gross profit margin at the PTS level, it looks like it was 9.9%, I think, in the segment, but JV income was down. Does JV income, does it stay around these levels? Should we expect a rebound there? Or are we just looking at kind of a, are we breaking through the double-digit threshold on gross profit margins on a sustainable level?

It's very difficult to answer the JV question, and I know everybody likes to build something into their models for the JVs, the minority interest both the ins and the outs. But that's difficult to predict because from an economic perspective, we could be a 49% owner and it goes on one line or a 51% owner and it goes on a totally different line of the P&L.

Right.

So perhaps it's only a 2% swing in the real economics of the deal, but it's either all in or all out on the P&L. So I -- frankly, we don't try to predict JV. What we're predicting is the EBIT contribution from the projects that we're pursuing and the projects we win.

Okay. But then just to, on the second leg of that, are we -- have we broken through a new threshold on the margins?

Have we broken through a new threshold?

I mean, we're looking at double digit margins on the PTS segment. It sounds like you said it's sustainable and it could grow.

Yes, absolutely.

Okay.

Yes. Yes.

Thank you for taking my questions.

Sure.

Thank you.

Your next question comes from the line of John Rogers with D.A. Davidson. Please proceed.

Hi. Good morning.

Good morning.

Hey, in terms of organic growth, you gave us the PTS. Just, out of curiosity, what was it overall?

Overall, 3.1 organic growth.

Okay.

And then on constant currency, negative 3.1. That's the 6% currency tailwind I mentioned.

Okay.

That's overall.

And then -- I'm sorry?

That's overall.

Right. Right. Thank you. And then in terms of acquisitions, I mean, it sounds as if, I mean, given you're paying down the debt in what -- in your comments that you're getting at least closer or expect to, how -- is your primary targets outside of the US now?

No. It -- we're looking at --

Or I should say, or/and opportunities as well.

They're out there, probably equal opportunities both outside the United States, as well as inside the United States. I mean, inside the United States we're looking at growing in certain market areas, end markets, as well as in geographies. Outside the United States, looking at new emerging markets, for instance, Latin America, Africa, Eastern Europe, Europe, and Asia, as well as overall looking for expanding our capabilities in the program management and construction management. So it's a balance. And what we always say is we follow the money, where the -- where we see the opportunities in terms of growth.

Okay. Thank you.

You're welcome.

Your next question comes from the line of Andrea Wirth with Robert Baird. Please proceed.

Good morning.

Morning.

Just got a quick question on China. It sounds like things are still going very well there. But just curious if you're seeing any impacts from the Chinese government trying to curb lending and tightening money. Is that having any impact on the business there?

No, not at all. It's still going very, very strong. I mean, they're going to cut back so they don't overheat. But there's still a very, very large market with a very significant amount of spending.

I think, Andrea, it's important to note that most of our work is public sector there.

Yes.

So the issue that you're mentioning is impacting more so the private sector.

Got it. Got it. That's very helpful. And then in California, I think there's a proposal to replace Proposition 42 with more of an increase in gas tax. How do we think about how that could potentially impact transportation projects in California?

California has been a very strong market. Most of the funding is coming from so many different sources there. We're seeing an increase in federal moneys, like the high-speed rail moneys that are coming out of the federal stimulus budget that are being allocated to California. Obviously, the Transportation Bill provides a lot of money for California. We've got the -- an increasing level of activity in the public private sector in the state of California. And then Measure R in Los Angeles, which is increasing the sales tax by 0.5% to fund that. So the activity that we're seeing in California is very strong and we don't see any significant risk due to the proposition that you're talking about.

And let me also add this week we'll have been a public company for three years. And for the last three years on all these earnings calls we've said the same thing, that we see going forward that there is going to be an increase in the amount of public-private partnerships here in the United States. It's taking a -- it's been a slow path, had to get over some political issues with change in administration. But going forward, I mean, on the table there are about $40 billion of projects which are going to -- transportation projects, I think maybe 20 of them, totaling about $40 billion that are being proposed. So in many of the states, which have had some issues in terms of funding, the work is being done, is going to be done and financed through public-private partnerships. So that's an added -- that's something that hasn't been mentioned on this call, but it's something I think you might want to be thinking about as we look forward in this marketplace and looking at the funding sources.

Great. Thank you. Great quarter.

Thank you.

Thank you.

And your next question comes from the line of Joseph Foresi with Janney Montgomery Scott. Please proceed.

Good morning, guys.

Morning.

I wonder if we could talk first about stimulus, and maybe you could just give us some color. Obviously, it's probably at the heart of the spending, at least on the transportation side this year. Is your tracking inline with your expectations? maybe ahead of your expectations? And how are you viewing the pipeline? Are we getting a good conversion rate?

I'm glad you asked, because I, in my statement, I misspoke. I said since the stimulus package was passed, we won $600 million worth of work. We won $800 million. So that's just a clarification.

Good think you clarified it up.

Well, of course we do. It's total transparency here.

There you go. Right. Exactly.

And about 85% of the infrastructure moneys have been obligated and roughly 20% have been outlaid by the states. This -- I mean, what we see is the stimulus money is driving the infrastructure market here in the United States. And many of the states who wouldn't have moneys through revenues, state revenues, are advancing programs through the stimulus packages.

And that's why we see in our marketplace, if you look at -- look at just the infrastructure, that it is still a healthy market, despite what you hear about the various states having financial or budgetary issues.

So just as a data point, because of the stimulus money and the work that's being done, the construction activity in March increased 2% -- 0.2%. I mean, this reflects the first increase in the market since last October. And it's a sign that the stimulus package, which started out last year slow like it was expected, and, as we had mentioned, it was going to accelerate in '10, and keep accelerating into '11, the stimulus program is taking hold and we're seeing signs of improvement.

I guess maybe just for clarification. I mean, based on what you saw in spending, let's go back to maybe before the downturn. Is there -- is the stimulus incrementally positive? Is there a new normal out there on infrastructure spending that's maybe lower? higher? I'm just trying to get a feel for it versus what you've seen in the past now that stimulus is sort of laid on top.

If I didn't know better, and if I landed here from Mars and I wasn't keeping track of the recession, I would say, regarding the market for us and the opportunities that we've seen and our success, there is no difference from pre-recession to stimulus program in terms of the opportunities that we see.

Okay. And I know you guys talked a lot about geographies. But maybe you could talk about service offerings and maybe what general areas -- I know going into the downturn we talked a lot about energy and wind farms and water. And now coming out, I was wondering what particular service lines you're seeing activity in and maybe why that's taking place.

In any one particular geography or do you want --

No, just on the whole I think is probably good.

First of all, our energy market, which is a small piece of our business, we've put a lot of attention to that and making investments and we're seeing results here in the United States as well as outside the United States. So that's a good market for us.

The other market that we're seeing and we're capitalizing on the opportunity is the mining market. We haven't really necessarily spoke much about it. It was primarily out of Australia, and we're looking to advance that into Africa.

In terms of the -- the transportation market remains, globally remains very strong, major opportunities in each of our geographic areas, North America -- North America, Middle East, Africa, India, Eastern Europe, Asia Pacific. The water markets that we're seeing are signs of improvement. That is there's funding coming through stimulus as well as increased user rates which are providing some opportunity, but it's not as strong as the transportation market.

The environmental management market remains strong. I mean, we're working closely with BP on providing them some assistance for work in the Gulf. There's a significant amount of work now that's being done and we're seeing a growth in our environmental management market on a global basis.

The facilities market, public facilities, is strong. Where we haven't seen or we had -- where we had -- where we saw a decrease has been clearly on the private side. But on the public side, the US Federal Government in terms of their public facilities, the work remains strong.

So overall -- and the other area that we're seeing an opportunity is in the PMCM, and as I mentioned on a previous call, the opportunities in public-private partnerships and in transportation, by the way, going back, it's this high-speed rail, and that was the reason why we acquired this firm, which has the expertise, which, matter of fact, we've been working with for the last several months on opportunities in high-speed rail, California, Florida, and Texas.

That's -- I hope that helps to give you an idea.

Yes. No, it's very helpful. And just one last one sort of building on that prior question. Maybe you could talk a little bit more about the Middle East, what projects are getting done. And also any work that you have ongoing in Iraq or Afghanistan or for any of the bases out there and where we stand with those projects. Thanks.

We haven't -- I mean, the way we look at the Middle East, we look at it in two segments, of course. It's the -- our management support services where we're working for the Department of Defense, and we have a total of about 9,000 people spread out between Iraq, Afghanistan, and Kuwait. And that's where we provide critical support services for the military.

The other piece of our business is our PTS, Professional Technical Services. And the key areas are in Qatar, where we're working on infrastructure projects in Qatar ports as well as airport. The other major area is in the United Arab Emirates, Dubai and Abu Dhabi. We had, before the downturn, we had about 600 people in Dubai and we had to right-size that to about 300. But that was then compensated by the increase in activity in Abu Dhabi, significant opportunities there, major programs. One of them that we're working on is a major cultural center where we're providing the program management construction management. And the cultural center is going to consist of several museums, two of them with the Guggenheim, which is about an $800 million facility, and the Louvre, which is about $600 or $500 million. So these are major, long-term capital programs. And we're looking at opportunities on the metro system. We're looking at opportunities at the airport.

And just last week, two weeks ago, I was in Saudi, Saudi Arabia, and I have to tell you, I was in Riyadh, and we were doing a project in Riyadh for the King Abdullah Financial District, basically doing the planning and design of a major financial city. And I was very impressed in what I'd seen in Riyadh, as well as in Jeddah. And overall in Saudi Arabia, the attitude of the King and the ruling -- rulers of Audi Arabia is different. They realize the significant need they have for roads, water, waste water facilities, hospitals, schools. And I don't know, I don't know if it's 3,000 schools they're going to build or -- and 2,000 hospitals or it's 3,000 hospitals and 2,000 schools. But, I mean, it's a fantastic number. 60% of their cities don't have adequate water, waste water facilities.

And the changes now, they want to bring in, at one time it was a closed shop where they wanted to do the work from within. Now they're going outside to get US, Western technology to come in and contractors to come in and to get this -- these projects off the ground and completed. So I have to say, the -- where we see it, and, you know, that's just three, three markets. And we're doing some work in other places. But those three markets, Qatar, UAE, and Saudi, will be the backbone of our Middle East business going forward for the next five years and maybe more.

Okay. Thank you.

(Operator Instructions) Your next question comes from the line of Chase Jacobson with Sterne, Agee. Please proceed.

Hi. First going back to the acquisitions. I was just wondering if in terms on the -- of the acquisitions in the newer geographies like South America or India, if you could just provide some color as to what we should expect for size of those acquisitions, maybe relative to the 500-person high-speed rail acquisition you were talking about.

In India we're looking at different opportunities. But they're -- it's not that easy to find some major large -- large firms, multi-thousand-person firms. So it's -- we have a few that we're looking at which is probably in the range of 1,000 or less.

There are some significant opportunities in Latin America, looking at places like Brazil and Peru. And it's a mixed bag. Going forward, we're looking at acquisitions that are in the 500-person range to several thousand-person range. So it's a mix.

Okay. And then just looking out into 2011 with regards to the US transportation market, there are some thoughts that we'll get an increase in the gas tax later this year after the mid-term election, and then there's some thoughts that we won't get anything done until early 2011. Just assuming that no multi-year highway bill gets done at the end of this year, what does that mean for your US transportation business next year, maybe compared to what we were seeing when we were having one-month extensions? If you could just give any color on that.

Well, what we believe, and based upon discussions we've had with people in Capitol Hill and how we read the tea leaves, nothing's going to happen until the elections, okay. And then once the elections come, we believe that there will be -- the reauthorization will proceed. I think now with the mention of SAFETLU (inaudible - technical difficulty) December 31st, 2010. So with 2011, the worst thing that'll happen is that there'll be another extension. And we're looking forward that once the election's past, they will (inaudible - technical difficulty) a new highway or transportation bill.

And with -- and also we see in 2011 that the stimulus package will be in full tilt. And, as I mentioned on an earlier call, right now we're tracking 20 public-private partnership deals here in the United States. So when you put all that together and then you think of the Build America Bonds that we have, as well as the HIRE Act, there is money being placed to put in -- putting into the economy, into the transportation program, the highway program. So we see transportation in the United States to be growing next year, at or about -- at the pace we have grown this past year, maybe a little bit better.

Great. Thanks.

(Operator Instructions) Your next question comes from the line of Sameer Rathod with Macquarie. Please proceed.

Hi. How are you?

Hey, Sameer. How you doing?

Good. Just one quick question. If I look at your backlog starting 2008, it's going quite nicely, until even this quarter, but if I kind of overlay that with the new awards, the new awards kind of seem like range bound between $1.4 to $2 billion. Does that mean organically your new awards have declined?

No. I don't know if that last number -- the awards are not 1.2. What'd we --

1.5.

Yes, 1.5. The (inaudible - technical difficulty) So I don't know -- let me just say -- maybe I'll say what I think is that --

Well, so if I look at your new awards, I compute it every quarter, it's kind of been range bound between $1.4 and $2 billion for the last eight quarters, but your backlog has grown. So does that mean organically your new awards of acquisitions you have done aren't contributing meaningfully to your new awards?

I wouldn't -- I think you're misreading it. First of all, for us, backlog is backlog. We don't focus as much on where it's coming from. But clearly, for the most part, except for maybe the past couple quarters, we've been booking more revenue than we've been -- sorry -- been booking more backlog than we're burning revenue. So we've been on the positive side. And, obviously, when you go through a couple quarters with flat to growth, as we have, you're in a tight, as you call it a tight range bound there. But that's -- I wouldn't -- I wouldn't jump to that conclusion.

I guess you can analyze it any way you'd like. But this is how I look at the business, and maybe this will be helpful. We -- our organic growth's flattened off in the third and fourth quarters of last year, but we still kept winning work. First quarter of '10, our -- we were flat as well in terms of our organic growth. Second quarter of '10, is the first quarter in three quarters that we've had some organic growth.

Sequentially.

Sequentially. Sequentially. Okay. So even if we kept winning work at the same pace that we were in the previous months, the fact that this month we increased our revenue is going to have an impact on the backlog.

But, again, as I mentioned, I think in a first call and you could see it in -- you could see how people get concerned, you can't look at it month-over-month or quarter-over-quarter. You need to look at what the total projection is. What will $10 billion of backlog give us? $10 billion of backlog will give us a significant growth of our revenue over the next 12 months, and which continue to -- and we continue to see opportunities. And as I said on a previous call in April, we've had some significant wins.

So I remain very -- I remain bullish about our industry and about AECOM and the fact of our -- that we have this diversified footprint, global footprint, and the fact that we're diversified in terms of strong market, end markets, I think bodes very, very well for what the visibility will be, is, for AECOM going forward over the next 12 to 18 months.

Okay, that --

I hope that helps.

Yes, that's helpful. I'll ask offline about the exact numbers. My second question is pretty basic. Could you see a scenario or how do you assess the risk of a situation where the world continues to improve, so stimulus kind of funding goes away, but the growth isn't there to kind of support or grow the new awards or the backlogs in the public infrastructure market. So you kind of get a soft pocket in terms of infrastructure activity as stimulus rolls off and then the general world's quite not there yet for additional infrastructure.

Mike, maybe --

Yes. I don't see that. Infrastructure follows GDP growth. There isn't a, either a developed economy or an emerging economy that doesn't want more infrastructure, and it's a matter if they can afford it. And in good economic times, if you think GDP growth is going to come back, as we do, and it is coming back, there will be a demand and there will be -- as well as the funds to purchase our services. And when things slow up a little bit, you see a soft bottom because stimulus dollars come in to hold up the bottom. And that's what we've seen in the past year or so around the globe.

So I don't see it as soft pocket, as you call it. I see it as GDP growth coming back, revenues coming back to the governments that are important to us, and the demand that has always been there will be matched by the available revenue to purchase our services.

Yes. And also, we've said this on previous calls, that our strategy was that we would position ourselves to come out of this recession stronger than we went in. And what that really means for us is every day we think about scenarios that you just proposed because that could happen. But there is such a need, and this is not just a US centric thing, but a global need for improvement in infrastructure. And in places that we are in, that we think of different ways of the way projects are going to be procured. There are states here in the United States, there are entities which never before would consider public-private partnerships. Right now, they're saying to get some of this work done, we need to get this bridge repaired or we need a bridge replacement, let's look, and there is a lot of money pent up looking to be invested.

Right.

Let's invest in public-private partnerships. So what I'm saying is, there's going to be stimulus money. That's going to slow down. There's going to be the -- it's going to slow down only if the economy is improving, and with the economy improving, the traditional funding will come back. But if there is any soft spot, I believe we have to overlay the opportunity that investors can see in investing in public-private partnerships, which will make up the difference.

Okay. Great. Thanks for your time.

Okay. I think that's it for the call. I want to thank everyone for their continued interest in AECOM and participating on today's call. And if you have any other questions, please feel free to give us a call, and we'd be more than happy to discuss our outlook and if you want to drill deeper into the issue of backlog, be more than happy to do that.

With that, I'm going to say, thank you very much and we'll speak to you in three months. Bye now.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect and have a great day.