AECOM (ACM) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter Fiscal 2011 AECOM Earnings Conference Call.

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

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

(Operator instructions)

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

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

Paul Cyril, the Senior Vice President of Investor Relations.

Please proceed, sir.

Thank you, and welcome, everyone, to AECOM's Second Quarter 2011 Earnings Conference Call.

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 those projected in these forward-looking statements.

Please refer to our press release or slide two of our earnings presentation and to the 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 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.

We posted our earnings release and updated financial statements on the site for anyone who still needs access.

A replay of today's call will be posted there around 11 AM Eastern Time and will remain there for approximately one month.

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

Presenting today will be John M.

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

Burke, Chief Financial Officer and Executive Vice President.

John, please go ahead.

Thank you, Paul.

Good morning, everyone, and thank you for joining our call today.

Before I begin, I would like to introduce Jane Chmielinski and Steve Kadenacy to you.

Effective October 1, Jane will become AECOM's Chief Operating Officer, and Steve will succeed Mike Burke as AECOM's Chief Financial Officer as Mike becomes President.

In the future, you'll be hearing from both Jane and Steve, as well as Mike and me on our earnings call.

So now let's begin the discussion of the quarter.

As we typically do, I will discuss our recent highlights and then turn the call over to our CFO, Mike Burke, who will discuss our second quarter financial performance and our outlook for fiscal year 2011.

Following Mike's comments, I will provide an update on our markets and business trends.

We had a good second quarter.

We delivered improved cash flow and organic revenue and backlog growth despite a number of events beyond our control, including geopolitical turmoil in the Middle East and Africa and natural disasters in Australia and New Zealand.

Fortunately, we encountered strength in other areas of the business and recorded approximately $2.2 billion in wins.

Our ability to achieve these results speaks to the resiliency of our diversified business model, our exposure to emerging markets, and demonstrates the quality and agility of our team around the world.

With that said, Mike, please go ahead.

Thank you, John.

Please turn to slide five.

Our second quarter gross revenue increased 21% over last year's second quarter to $1.9 billion.

Our net service revenue was up 23% to $1.3 billion.

As John mentioned, our financial results were negatively impacted by $0.08 due to our withdrawal from Libya.

Therefore, we present many of our key metrics excluding the impact of Libya.

Organic net service revenue grew 2% in the quarter.

Excluding Libya, our net service revenue increased 4% organically.

Our second quarter's growth was driven by continued strength in Asia Pacific, the Middle East, our environmental management business, and the MSS segment.

That growth was offset by weaker performance in Western Europe and a flat U.S.

market.

Operating income was $87 million, up 5% year over year.

Net income was $58 million, up 15% year over year, excluding the impact from Libya.

Diluted earnings per share were $0.49, up 12% year over year, excluding the impact from Libya.

In addition, we removed $300 million from backlog related to the Libyan project and fully reserved our $28 million receivables exposure.

Our backlog grew by a healthy 10% organically year over year excluding Libya.

Please turn to slide six.

Our PTS segment accounted for 85% of our second quarter revenue.

Net service revenue in our PTS segment increased 19% from last year to $1.1 billion.

Organic net service revenue in this segment increased by 3%, excluding the impact of Libya.

Operating income in the PTS segment declined 6% year over year to $92 million as our withdrawal from Libya negatively impacted the PTS segment results.

The performance of our Management Support Services segment, which accounted for 15% of revenue in the second quarter, was strong.

Revenue for the quarter was $291 million, up 2% over last year.

Net service revenue for the quarter was $149 million, up 73% over last year, driven by 15% organic growth and contributions from our latest acquisition.

Segment operating income increased 39% over last year to $19 million, and operating margins improved by 176 basis points year over year and by 59 basis points sequentially.

This quarter's significant margin performance underscores our strategy of moving into higher value-added government services through our security and intelligence acquisitions over the past 18 months.

Going forward, we are well positioned to capitalize on numerous opportunities in the MSS segment, both domestically and abroad.

Please turn to the next slide.

In the second quarter, our EBITDA margin was 9.65%, excluding the realized net operating loss from the Libya project.

This is the best indicator of the margins in our ongoing business.

As we have previously stated, over the next four years, we aim to further improve our EBITDA margin to at least 12% as a percentage of net service revenue.

Please turn to the next slide.

At the end of the second quarter, our balance sheet remained strong with $403 million in cash and cash equivalents and $1.2 billion of debt.

As of March 31, we had $338 million in unused capacity under our $600 million credit facility.

In the second quarter, we started to see good progress in our cash collection efforts as our overall DSOs improved by two days year over year and our cash flow from operations improved by $85 million year over year.

We experienced a more marked improvement in our PTS segment, where DSOs improved by six days quarter over quarter and year over year.

In our North American PTS business, we have seen a sequential decrease in our DSO, and in the Middle East, we have received increased payments on some of our oldest receivables.

Our biggest challenge, however, is the slow payment of the U.S.

government, which fortunately, has a very low credit risk.

Over the next few quarters, we expect to recapture several DSOs, which will help drive fiscal 2011 free cash flow in excess of net income when excluding items related to our first quarter deferred compensation plan termination.

As we continue to drive our DSOs to pre-recession levels, we will free up $250 million in cash.

This is important as we continue to evaluate strategic acquisitions.

Our current leverage ratio is 1.7 times net debt to EBITDA, and we continue to target a range of 1.5 to 2 times EBITDA.

Please turn to the next slide.

New business wins in the second quarter totaled $2.2 billion, equating to a 1.2 book-to-burn ratio, which provides us with increased confidence about the future.

We closed the quarter with backlog of $15.4 billion, a 56% increase over last year.

Our organic backlog increased by 10% year over year and by 1% sequentially, excluding the impact of Libya.

As we have previously stated, our backlog does not include IDIQ or minority joint venture contracts.

For instance, during the second quarter, we announced a $1.6-billion win for the Asset Forfeiture Program for the Department of Justice, more than double our previous contract.

None of this $1.6-billion win is included in our backlog, but we receive a pro rata share of the profits from this project.

The significance of the impact of these types of contracts can be seen in our 228% increase in our minority joint venture earnings, which rose from $3.4 million to $11.3 million year over year.

In our MSS segment alone, there was approximately $3 billion in backlog equivalent and option years, which we ultimately recognize as minority equity earnings.

Please turn to the next slide.

Now, I'd like to update you on our outlook for fiscal 2011.

Based on our Q2 results and our outlook for the remainder of the fiscal year, we are increasing our guidance for earnings per share to a range of $2.35 to $2.40 for fiscal 2011.

The midpoint of this guidance implies 16% year-over-year growth in earnings per share on a GAAP basis.

This performance continues our track record of exceeding 15% EPS growth in each year as a public company, the top of our peer performance group.

In addition, after adjusting for intangible amortization expense, the midpoint of our FY '11's guidance implies a 20% increase in pro forma cash EPS.

Due to the seasonality in the business, the company expects that Q3 earnings will contribute approximately one-quarter of the full-year results.

We expect Q4 to ramp up at a greater pace than Q3 as our new wins and backlog convert to revenue.

This guidance assumes $38 million in amortization expense related to acquired intangible assets, depreciation of $73 million, interest expense of $43 million, a diluted share count of 119 million shares, and a tax rate of 28%.

Looking forward, we are confident in our long-term annual EPS growth projections of 15%.

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 11.

First, I will provide a high-level geographic overview of our business, followed by a more detailed look at our end markets.

Now, I will begin with an update of AECOM's businesses around the world.

I'll start with our international markets, which represent 55% of our net service revenue.

First, Asia Pacific.

This market has grown rapidly over the past two years and reported organic growths of over 25% in the second quarter.

It now accounts for roughly one quarter of our business.

In Hong Kong, the infrastructure market continues to grow as the government implements a number of major infrastructure programs.

China recently approved its latest five-year plan.

This plan includes significant spending on transport and social infrastructure projects, which are needed to address continued urbanization.

AECOM's Hong Kong and China business is well positioned to take advantage of these new programs as a result of our base business and recent acquisitions.

In India, we continue to win work, aided by the rapidly growing economy.

We believe India is a very good long-term growth market for us and one of our key M&A priority areas.

Australia and New Zealand remained strong due to continued demand for coal and natural resources, and they appear to be recovering quickly from the recent natural disasters.

Our pipeline of opportunities in transportation, mining-related infrastructure work, and energy in this region is solid, and we also expect to play a key role in some of the reconstruction programs.

Moving on to EMEA, which is Europe, Middle East, and Africa.

This market accounted for 23% of our net service revenue in the second quarter.

Market conditions in Western Europe remain extremely challenging, while Eastern Europe continues to offer significant opportunities on the horizon.

We are seeing signs of tentative recovery in the private sector, but we still think the overall European market is at least 12 months away from a genuine rebound, and we have continued to adjust our resources accordingly.

Turning to the Middle East and Africa, this region has been mired in political instability over the past few months.

During the period, we temporarily evacuated our workforce in Egypt and Bahrain and stopped work in Libya.

The Libya project alone had an $0.08 earnings-per-share impact on AECOM in this second quarter.

Nevertheless, our solid execution enabled 6% organic growth in the second quarter, excluding Libya.

Governments in the region are investing in infrastructure to expedite job creation and improve the quality of life for their citizens.

In addition, higher oil prices are bolstering the region's ability to fund infrastructure improvements.

For example, Bahrain is set to announce a multi-billion-dollar stimulus program this month, and Saudi Arabia in March announced a $67-billion housing infrastructure plan.

Beyond Libya, we haven't seen much fallout from the political unrest in our other markets.

Building upon our Libyan program management experience, AECOM is well positioned to help implement these programs in the region.

Today, we are delighted to announce that we were selected to support Saudi Arabia's Jeddah Water Infrastructure Improvement Program.

AECOM will provide a variety of services related to urban stormwater management, flood control, and wastewater systems for the entire city.

In summary, our outlook for growth in the region remains strong.

Turning to the Americas --

In Canada, we are seeing a strong recovery as domestic spending and export demand improves.

Mining and commodities are leading a robust private sector recovery on which AECOM is capitalizing.

In Latin America, while only a small part of our business today, offers significant growth opportunities and remains a key M&A focus area.

Now, let me conclude with the U.S.

market.

For the first half of this fiscal year, our U.S.

business has been flat organically.

The budget decisions in Washington slowed the progress of some awards during the quarter.

The outlook, however, is quite positive.

In our PTS segment, our year-to-date book-to-burn ratio is 1.5.

This is comprised of strong wins in both the public and private sectors.

Overall, AECOM's U.S.

wins in the first half totaled over $2 billion, and currently, we are tracking over $4 billion in federal pursuits alone, which are expected to be awarded by September.

Please turn to slide 12, Facilities.

Our facilities business, which accounts for about 32% of our revenue, delivered modest organic growth during the second quarter.

60% of this end market is funded by the private sector, which is showing early signs of recovery.

We are seeing liquidity come back to the market, as evidenced by over $900 million in wins in the first half.

We are seeing increased activity in the leisure and sports markets, as evidenced by our recent project win for the Shanghai Disney Resort and the demand for large-scale sports facilities, such as the World Cup and Olympics.

On the public sector side, a key growth factor is the increasing trend of using the P3 model.

As an example, just last month, Travis County officials in Texas began soliciting ideas for a new courthouse under the P3 model.

This is similar to the Long Beach Courthouse project, which AECOM is involved in both the design, as well as the funding.

Please turn to slide 13, Transportation.

Our transportation business, which roughly is 26% of our revenue, was relatively flat in the second quarter.

Our international markets remained strong, with recent key wins in China, Qatar, Singapore, India, and Thailand, and the overall outlook is very promising, supported by a book-to-burn ratio of 1.2, or $1.3 billion in wins year to date.

In the United States, there appears to be support for long-term highway funding solution.

However, we don't expect to see a new reauthorization bill until at least 2012.

Despite general funding questions, several states are moving forward with major transportation projects.

For instance, the governor of New Jersey recently announced details for a $3.5-billion capital plan for rehabilitating or replacing bridges and roads.

The $3.5 billion represents the first year of a five-year plan.

We are also encouraged by the number of states that are increasingly looking to the private sector to fund transportation projects and by the uptick we are seeing in dedicated funding sources in P3.

Ohio recently approved P3-enabling legislation, and Texas just announced that 14 highway projects would be developed as P3 programs.

AECOM is currently working on two other P3 projects in Texas.

Private capital is eager to get involved, and there are currently over 130 funds targeting $92 billion of infrastructure investments.

This all bodes well for AECOM's business.

Please turn to slide 14, Environment.

Our environmental end market, which accounts for about 21% of our revenue, generated solid organic growth during the second quarter.

This business is evenly distributed between our water business and our environmental management practice.

The water market remains challenged.

However, we have continued to win new work in this sector with a year-to-date book-to-burn ratio of 1.2.

The North America public market remains constrained due to funding issues.

However, on the private side, we are seeing growing demand for our water services from mining and industrial clients.

As an example, we were recently engaged by Tata Steel to support their iron ore business in Canada.

Outside of North America, water infrastructure projects are particularly strong in Asia and the Middle East.

Our environmental management business, which is 65% private sector, has rebounded over the past year, driven by increased capital expenditures in the oil and gas and mining sectors.

Please turn to the next slide, Power and Energy.

Our power and energy business, which accounts for approximately 6% of our revenue, also reported strong organic growth this quarter, which we expect to continue.

As we have said, we are expecting to grow this business, focusing in on hydroelectric and other renewables, mining, and the oil and gas sectors.

Though through our recent acquisitions we have recorded significant hydroelectric project wins in the emerging markets, the key component of our growth strategy in this market will be through acquisitions over the next 12 to 18 months.

Slide 16 -- MSS Segment Profile.

During the second quarter, our MSS business performed well, with organic net service revenue up 15% year over year, and we've recorded key wins in Afghanistan and with the Department of Justice, which positions us well for the next few years.

Today, almost half our business was outside the traditional Department of the Defense work that characterized MSS just a few years ago.

We are currently working for a host of agencies from Homeland Security to Energy and Justice.

This strategic shift has enabled AECOM to gain market share and steadily improve our margins.

Looking ahead, we see continued strong opportunities for MSS, driven by the military mission in Afghanistan, the halt to insourcing, the redeployment of spending from military hardware to services, and support for both cyber and intelligence-related programs.

Please turn to slide 17, Evolving our Geographic Profile.

Diversification is a core element of our business model.

Our non-U.S.

business has increased from 46% of our revenue in 2006 to 55% at the end of the second quarter of 2011.

We have done this through a combination of organic growth and strategic acquisitions.

Looking out over the next few years, we expect that our international business could be 65% of our net service revenue.

Please turn to slide 18, Our Growth Strategy.

Over the next few years, our growth strategy will be driven primarily by expansion in emerging geographies and end markets that are linked to commodities.

We will continue to expand our construction management business and our alternative delivery capabilities that position us for evolving client procurement.

We will implement this strategy through both organic investments and acquisitions that are critical to our long-term objectives and capable of driving increased shareholder returns.

Based on these growth drivers, we remain committed to meeting our 15% long-term earnings growth target.

In summary, I'd like to say we are optimistic about the future and pleased with the trends in the business.

The second quarter marks the sixth consecutive quarter of organic growth, and the 10% backlog growth supports our forecast for continued positive momentum in our business.

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

Operator, please open the call to the questions.

(Operator instructions)

Andy Kaplowitz, Barclays Capital.

Hi, guys.

It's actually [Alan Fleming] standing in for Andy this morning.

Just a quick question on your outlook.

I think if we do the math correctly, kind of using the midpoint of your guidance, it implies a 3Q earnings of around $0.59 versus $0.49 this quarter.

Can you talk a little bit about what is driving that strong ramp-up into the back half of the year?

Great question, Alan.

As you know, our business has a fair degree of seasonality, and we have always had a much stronger second half of the year than the first half of the year.

And, in particular, the fourth quarter is much stronger than the third quarter.

So that's the first point.

Second point is that as you've seen the strong wins in the quarter, a book-to-burn ratio of 1.2, where we're building up the backlog, the backlog is up 10% year over year or organically, exclusive of Libya.

So we are building up that backlog, and we'll start to generate the revenue from that backlog and from those wins in the second half of the year.

Okay, great.

That's helpful.

And then on the tax rate, it was a little low in the quarter.

Could you give us some color on that?

Was it anything related to acquisition integration or...?

Well, first of all, as we mentioned, our tax rate for the full year remains unchanged from the last quarter.

The small downtick in the tax rate in Q2 was entirely related to Libya.

Okay, great.

Thank you.

The full tax -- the tax rate for the full year remains unchanged, though.

Okay.

And then one more from me.

You look at awarded backlog.

It was down sequentially for the second quarter in a row.

How should we think about that given the strong growth we are seeing in the contracted backlog?

Well, the first point there is about $300 million of awarded backlog related to Libya that came out of there.

That sequential decline was in large part due to Libya.

We tend to focus on the overall backlog being up because the awarded moves into contract, of course, in due course.

So I think the right way to think about that is exclusive of Libya and focus on the 10% year-over-year organic backlog growth.

Okay, great.

Thanks, guys.

Okay.

Thank you.

Steven Fisher, UBS.

Hi, this is Brendon Verblow for Steven.

I had a question about the U.S.

market.

You mentioned that some awards were being slowed by Washington and that was contributing to the flat market there.

Can you talk a little more about which areas you're seeing the slowdown in awards?

Well, as you've observed over the past several months, there have been significant discussions in Washington about the budget and the level of spending that would occur in infrastructure.

And as a result, there's been delays, continued delays, in addressing the reauthorization of the highway transit bill.

So what we've found is because of the uncertainty, many of our clients didn't have the visibility going forward in terms of what their funding sources would be, and projects that were on the drawing board ready to go just were being delayed in terms of execution.

That being said, overall, when you look at the spending on the federal side -- first of all, we don't see the new bill.

As I mentioned in my statements initially, we don't see a transportation bill being approved until 2012.

With that being said, there still will be about a $50 billion spend annually in terms of transportation, and as we look going forward at some of the budgets, we see that in FY '10, for instance, there might've been a -- total federal spending was about $76 billion.

Look at '11, they're talking about a maybe 9% decrease, so we've got $70 billion.

And then with some of the proposals of the Tea Party cutting back, we could see maybe another 5% to 6% decrease.

That all being said, there's still going to be a significant amount of federal spending that's occurring in terms of transportation.

Over the next two quarters in terms of just federal spending, we're looking at $4 billion of opportunities in the pipeline.

So when you look at the federal market, there's the uncertainty we had in the end of the FY '10 and the first half of FY '11.

We're starting to get now with the new budgets being identified, there's more clarification and visibility, and so clients are now opening up and proceeding with some of the projects.

And in addition to that, there are other states that are stepping up.

When you look at, as I mentioned, in New Jersey what's happening, you look at Los Angeles where they have Measure R, which is a $30-billion program, if you look at states like Illinois and Ohio, which are putting forth their own programs based upon some user fees, we see that United States going forward in the next half of this fiscal year and into '12, there is going to be a significant amount of spending occurring.

And what we see for AECOM is we're capitalizing on where that spending is occurring, and when we look at niche markets where there is some significant opportunity, we look at those markets to take advantage of them.

So the market that we're in historically where we have strength, we see significant spending occurring, and in areas where we might not be but we have the expertise, we're looking in those areas to take advantage of the opportunities.

So, in general, when you look at AECOM, the bottom line is we've been taking market share in the United States in the infrastructure market over the past six, seven months.

And you're looking at the wins.

I mean we have -- in North America -- in the United States, the wins in the first six months were around $2.2 billion.

Okay.

Maybe just a quick follow-up to that.

It seems like in your infrastructure, Mike, you mentioned that you can grow that by -- or by taking share and there'll be benefits from other sorts of fees.

Do you think that'll be enough to grow the business next year in the absence of a highway authorization if that doesn't come in 2012?

Well, I think the thing that we have to be mindful of is AECOM's business right now is 45% in the United States.

As we stated in our opening comments, we've had a relatively flat market in our infrastructure in the United States.

But overall, we've grown our infrastructure market because of the opportunities we've seen in emerging markets, as well as the growth we've seen in Asia, as well as Australia, and parts of the Middle East.

And what we're also seeing around the globe but also in the United States, which is going to add to the funding that's coming out of the public side, is that the private sector has really stepped up to the plate and is starting to make some significant investments.

And within the United States where one time it was about a third of our business, now we're seeing that it's gone to about 40% of our business.

So all these factors, when you add in -- when you add all these factors in, the fact that there is going to be continued spending in infrastructure, it might not be at the same levels on the federal side as it was last year, but it's still going to be significant, we're taking market share, states and local governments are seeing increases in their revenue, and they're going to have funds that they can go and advance programs, and then when you look at the growth opportunities we have in places like the Middle East, Asia, and Australia, we're confident that our business is going to continue to grow globally.

Okay, that's helpful.

Thank you.

Okay.

Vance Edelson, Morgan Stanley.

Good job on the quarter, and thanks for taking the questions.

Just a follow-up on a recent question.

When you talk about some clients being more willing to move forward with some projects given the recent budget accord, is there a real distinction there between ordinary-sized projects and the multi-year mega projects?

Is there more hesitancy to break ground on the big stuff with clients maybe looking ahead to the next budget shortfall and being a bit worried about that?

Yes, I mean that's been the history for the last couple of years as a result of the reauthorization of the transportation bill not occurring.

What I think now, as our clients are beginning to get more visibility and the fact that we're seeing the private side stepping up in terms of opportunities in P3 projects, there seems to be more willingness to move ahead, and there's more confidence in our clients in that they will have the funding sources to proceed on these mega projects.

I'm not speaking about the small projects.

I mean AECOM, when we look at the marketplace, we're focusing on some of the mega projects, which differentiate -- the ability for us to undertake these types of projects differentiate us from most of our -- or most of the companies that do transportation work in the United States.

Okay, that's helpful.

And on the G&A line, good job keeping that at impressively low levels.

How should we think about that line item going forward?

Is it likely to go up a commensurate amount with revenues, or do you think you can get even more leverage there?

As we've stated time and time again, we are intensely focused on our G&A all across the organization, and the G&A that you see on the GAAP financial statements is just a small piece of the overall G&A.

And so we are attacking it at that line item that you see in the GAAP financials but also the amounts that are embedded in operations.

And that is what is contributing to our continuous improvement in the EBITDA margins.

To us, that's the biggest -- that's the bottom line.

When you get to the EBITDA margins, you saw by earlier comments that we moved up 11 basis points year over year.

We are still very committed to our EBITDA margin objective of 12% over the next few years, and our track record in moving in that direction has been pretty solid.

Okay, that's great.

And just one last question from me.

Could you give a little bit of an update on the outlook for Tishman's specific end markets and projects and maybe the outlook for commercial construction, in general?

Is that brightening somewhat?

Yes, it is.

The New York market, which was hurt slightly, wasn't hurt as bad as other markets throughout the United States, and New York seems to be bouncing back up.

We announced, I think it was, last quarter the Revel casino job, which was a project that was put on hold about a year-and-a-half, two years ago.

It's a casino in Atlantic City which has gotten a restart.

We're looking at what Tishman is doing at Ground Zero.

We're basically working on all the towers, and they're moving ahead -- tower one, tower four.

They have gotten the award on some new high-rise buildings in New York.

So, overall, their business is looking better today than it did six months ago.

And, also, the opportunities -- and that's the New York market, United States, the U.S.

market.

We're also looking at opportunities for them in California, working with -- on the AECOM base, and looking at opportunities in China and the Middle East.

Okay, that's good to hear.

Thanks a lot, guys.

Thank you.

John Rogers, DA Davidson.

A couple of things.

First of all, Mike, I apologize if I didn't get these numbers right, but the impact on Libya on backlog, contracted backlog versus awarded backlog?

It was $300 million, all of it being awarded.

Okay.

We were just in the process of negotiating that new contract, so it was sitting and awarded and hadn't moved into contract yet.

Okay.

And then, secondly, in terms of your comments on guidance, you talked about third quarter being roughly a quarter of earnings or, I don't know, $0.58, $0.60 a share and then implying a pretty big uptick in the fourth quarter.

And I'm wondering is that specific projects that's causing that, or with the recent acquisitions, should we be thinking about that's just more normal seasonality for you now?

Or maybe just a little more color on that, kind of that progression.

Yes, there's always been seasonality, but the seasonality is a little more ramped up this year than our normal seasonality.

And the reason for that, it's all project specific, but it's a lot of projects.

So I can't point to one project that's driving that, John.

But further to John's comments earlier about some of the delays that we've seen on some of the bigger projects, we see those picking up and now we've got a better line of sight to what our third and fourth quarter will look like.

The wins that we're just announcing in the past 60 days or so and the $2.2 billion of wins in this past quarter, those wins will start converting to revenue in the fourth quarter, but I wouldn't project that our seasonality this year will be identical for future years.

Okay, but it --

Back loaded.

Okay, but it is more project specific.

I also want to...

Yes.

I know it's early, but I mean that's not kind of a sustainable run rate for going into 2012.

No, well, I wouldn't take...

Don't take the fourth quarter and multiply it by four.

No, yeah, I wouldn't do that.

Okay, okay.

Thank you.

But those are all projects you have in hand?

Yes.

Okay.

Great, thanks.

Appreciate the color.

Thank you.

Avi Fisher, BMO Capital Markets.

If I'm doing the math right, it sounds like Libya was contributing about $20 million in revenues per quarter, in net service revenues per quarter?

Does that sound about right?

Give or take.

I think we said we typically don't want to give client-specific numbers to a great extent just for competitive reasons, but you're in the ballpark.

Okay.

I mean when you talk about organic growth excluding Libya, you're taking it out of last year's number, I presume, right?

Yes.

Yes.

Okay, so that kind of helps.

And I like -- you mentioned to John the $300 million came all out of awarded?

That's correct.

Okay.

And in the acquired contracted backlog, it looks like, if I'm doing the math right, $2.5 billion acquired backlog in the quarter.

Could you break that out between PTS and MSS?

Yes.

PTS was $2.4 billion, and MSS was $120 million.

$120 million.

Thank you.

And were there -- this was all from the acquisitions you did, the Davis Langdon, the McNeil, and the Tishman primarily, right?

Yes.

There's one more in there, though.

RSW.

RSW, also.

RSW.

Okay, appreciate it.

And what were receivables in the quarter?

The receivables...

Not sure if you mentioned it, but I...

I didn't, but I had that here in front of me.

The accounts receivable net, $2.3 billion --

2.3 billion net.

You mentioned that --

-- which was the same number as December.

Flat sequentially?

That's correct.

You mentioned that free cash flow would exceed net income for the full year excluding that first quarter comp true-up.

What drives that?

Is that just a function of timing?

Are you doing anything differently with your collections?

I'm trying to get some color around that.

Yes, sure.

As you know, we have always had a cash flow backloaded.

It's the nature of our contracts, the nature of our clients, governmental fiscal years that are out at September 30 fiscal year where the cash is coming in late in the year.

So we've always had a push to the back half of the year.

In fact, out of the last six years, we've only ever had positive cash flow in Q1 once out of six years, and last year, we didn't turn positive cash flow until the beginning of Q3.

We're, of course, positive cash flow now, so cash flow has improved relative to last year.

So that's the first bit of color.

The second point is that as the economy starts to pick back up, we expect to see our DSOs move back to pre-recession levels.

It's been a cycle that we've seen for many, many years where our DSOs increase during a recession and then come back down after a recession.

So part of it is seasonality, and part of it is as the economy starts to improve, clients start to pay a little more quickly, and then, third, we are pushing on it much more internally on the execution side than we did in the past.

And following up -- thanks for the color there.

Following up on John's question on 4Q, it sounded like seasonality was a big issue.

Does that imply I mean that the backlog burn rates should start to ramp in the 4Q significantly?

Yes.

Yes.

You've got -- at least in this hemisphere, you've got the summer season.

Let's see, you've got longer construction days.

You've got more construction in the warm months.

All those things are natural upticks for at least in this hemisphere.

And does that imply that either 1Q or 2Q there's a big fall-off in the backlog burn rate?

No, it goes to the amount of days we're working.

The first quarter and the second quarter we have a bunch of holidays that -- one, we have less workdays.

Then we have a bunch of holidays.

And the overtime that we would be seeing in the field work in the northern hemisphere that comes to a screeching halt during the fall and winter months.

And if you go back the last four years that we've been a public company, you can track the variants in the first, second, third, and fourth quarters.

We start off -- we always end very strong, and because of the things I just mentioned, the first quarter is usually slower.

Then we pick up in the second and the third and the fourth.

It just seems like that's getting a little bit more dramatic than historically.

Yes, this fourth quarter is a little more dramatic, as I mentioned earlier, and that's project-specific, as John Rogers pointed out.

Okay.

And, just finally, I wonder if you could talk about pricing, competitive pricing pressure on projects, what you're seeing there, both for projects and also for talent?

Thank you.

Well, right now, the talent, it hasn't heated up.

Now, let me first say that it depends on where we are.

In the United States and Canada, the talent market is not where it was pre-recession, so there are still companies that are out there that are soft and not necessarily hiring.

We think that will change maybe over the next 12 to 18 months.

Now, it's a whole different story when you look at Asia and you look at Australia and you look at places in the Middle East.

It's very, very competitive from a staffing perspective in those places.

It's just as hot there today as it was here in the United States in 2007 and 2008.

Pricing -- with the recession in North America -- since the recession, pricing has been a consideration in the North American markets.

In places like Australia and China, it's not.

We're seeing that pricing is not an issue there at all.

It's clearly best value and it's prices, and part of the -- it's part of the criteria, but it's not the controlling piece of the criteria.

So it all depends on the market, and we need to be flexible.

And the advantage that we have is that each of these markets we have local staff, so we're not importing people from the United States or the U.K., where we might have higher salaries.

We're able to compete and effectively compete because many of our competitors do not have that opportunity.

They need to bring in people from other parts of the globe.

All right.

Thanks for your time.

Okay.

Thank you.

Andrew Whitman, Baird.

I just wanted to clarify a couple of things here.

Mike, did you say that you reserved but you didn't take a charge on the Libyan receivables?

Did I hear that correctly?

And if that's the case, what's the difference between reserving it, and what does it take to actually expense that?

We reserved and expensed the entire amount of the Libyan receivables.

Just to be clear, we have no balance sheet exposure and no P&L exposure for any receivables to Libya at all.

WE have written them all down.

Okay.

And that was in addition then to the $0.08 charge which was originally announced?

That was factored into the $0.08 charge that we initially announced.

Okay, great.

And then on the federal DSOs, can you just give us a sense about what your federal DSOs are relative to your other customers to gauge that order of magnitude?

Yes, it's significantly higher.

Hold on.

I have it here in front of me.

So our net -- our PTS DSOs are 89 days net, and our MSS DSOs are net 111.

Wow, okay.

Then I guess, finally, just wanted to talk a little bit about the deal environment out there.

You guys are always pretty active in that.

Can you just talk about how the pipeline today compares with maybe six months ago?

Maybe, I guess, that would be ahead of the major acquisitions you've done recently.

And then about how the balance sheet is positioned to capitalize on that, how much capacity you feel like you have today.

Let me just speak about the pipeline.

The pipeline today is just as robust as it was a year ago, two years ago.

There are several, several very strong opportunities that we're seeing out there in the markets that we want to advance, and so it's not a matter of opportunities.

And with respect to the capacity, we have plenty of balance sheet capacity.

As I mentioned earlier, our net debt-to-EBITDA ratio is 1.7 times, and recognizing that it's 1.7 times today, which is the low point of our cash collections -- our cash collections come back strong in the second half of the year, so by the time we get to the end of the fiscal year, that net debt-to-EBITDA ratio will be much lower.

I'm guessing it's going to be about 1.3, 1.4.

Since we have previously stated that we think the right capital structure for the organization is a net debt-to-EBITDA ratio of 1.5 to 2, there's clearly capacity on the balance sheet for that, as well as there's plenty of capacity in the marketplace for us with lenders.

Okay.

And just in terms of pricing on those deals in the pipeline, has anything changed?

Are we a little better or worse?

Is the bid/ask spread narrower today than maybe it was a few months ago?

No, for good quality targets, it's the same as it was a year ago.

I don't think there's much change at all in the type of pricing we've been seeing.

It's market specific, and it's geography specific.

So certain geographies drive higher multiples than others, and certain end markets drive higher multiples than others, but fairly consistent over the past couple years.

Great.

I'll leave it there.

Thanks, guys.

Thank you.

Tahira Afzal, Keybanc Capital Markets.

Hi.

This is Saagar Parikh for Tahira.

I can't hear you.

Hi.

This is Saagar Parikh for Tahira.

Can you hear me?

Yes, now we can.

Thank you.

All right.

Sorry about that.

A lot of my questions have been answered, but looking at the end markets, I know you mentioned and touched on the slide Related Power and Energy but just wanted to see what you guys are seeing there with mining -- prospects on the mining side and up in Canada where you guys have a good presence.

Yes, mining is one of the markets that we're focused on to grow, and as I mentioned, we're looking at some acquisitions -- mergers and acquisitions.

We're looking at Latin America as a marketplace for us, Canada, as well as Africa as markets for us where we see that there's significant opportunities in the mining sector, as well as Australia, where we are doing some.

Up in Canada, we've just won a job with Tata Steel to work with them on their new facilities in Canada.

Perfect.

And then looking at the MSS segment and your McNeil acquisition, you know, URS just mentioned or just announced an acquisition a couple weeks ago of a security/cloud computing sort of firm.

As soon as the -- what (inaudible) with McNeil, how the competitive environment is out there, with the end, with the fiscal year '11 budget being resolved, if you're seeing any uptick related to the security aspect?

Yes, I mean I think that looking at what AECOM has done with McNeil and SSI previous to that and seeing what Marty Koffel and URS is doing, it's an indication that we're moving from -- in the federal defense space, we're moving from hardware into cyber security, and that market is going to grow significantly over the next several years.

Yes, I mean just to point out, our organic net service revenue growth in that MSS segment is up 15% year over year, so the numbers are really -- are proving out that strategy.

Well, that's great.

Well, that's all I had.

Thank you very much.

Thank you.

[Nick Coppola], Thompson Research.

Most of my questions have already been answered, as well, but I was wondering if you could talk a little bit about the traction of P3s.

I heard you talking about enabling legislation and the Travis County P3 inquiry.

But how big do you see that getting?

And how fast?

Do you think that can be a nice piece of your business going forward?

Well, we've been speaking about P3 for quite some time.

I mean I think as we look at the United States, we've been a little bit behind the curve when you look at the P3 market compared to Europe and Australia.

As you look at project funding, I think the thing that we realize in the United States with the shortfalls we've seen in state and local revenues and the federal side, budget cuts are occurring, that the way we finance transportation projects, it's broken.

We have to come up with some other means.

And over the past several months, you've heard the talk about an infrastructure bank and how we can finance some public, as well as private, projects.

P3 is something that has really taken hold.

We've seen it in Texas, where a couple of highway projects have been done through a P3 model, looking at Florida, Miami tunnel, another P3 opportunity.

We're seeing in some of the social infrastructure projects.

AECOM won the Long Beach courthouse, which is a P3 project.

It's a $500-million program that would never have gone ahead if it wasn't done with public/private financing.

So the market -- we're getting -- people's attention are now moving towards P3.

We're looking at enabling legislation.

We're looking at places that didn't have it before.

We're looking at it in California, looking at it in New York, and what we see, it's going to take a while for it to gain the traction that would put it into midseason form.

But this is an opportunity for us to supplement the money that would normally have come out of the federal side in terms of providing the resources to meet the demand to improve the infrastructure here in the United States.

Yes, that's helpful.

Thank you.

Okay.

Well, I guess that's the end of this quarter's earning call, and I want to thank everyone for dialing in and for everyone who asked some very, very great good questions And so I hope to see everyone again three months from now, and I'd say thank you very much, and everyone have a great day.

Bye now.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a wonderful day.