AECOM (ACM) 2013 Q4 法說會逐字稿

Good morning and welcome to the AECOM fourth-quarter 2013 earnings conference call.

I would like to inform all participants this call is being recorded at the request of AECOM.

This broadcast is the copyrighted property of AECOM and any rebroadcast of this information in whole or part without the prior written permission of AECOM is prohibited.

As a reminder, AECOM is also simulcasting this presentation with slides at the Investor section at www.AECOM.com.

Later, we will conduct a question-and-answer session.

Now I would like to turn the call over to Lynn Antipas Tyson, Senior Vice President, Investor Relations.

Thank you, operator.

Good morning.

I would like to remind everyone that today's discussion contains forward-looking statements based on the environment as we see it today, and as such, does include risk and uncertainties.

Our actual results might differ materially from those projected in those forward-looking statements.

Please refer to our press release or page 2 of our earnings presentation and to our reports filed with the SEC for more information on the specific risk factors that could cause actual results to differ materially.

Note that we are using certain non-GAAP financial measures as references in the presentation.

The appropriate GAAP financial reconciliations are posted on our website.

Please also note that all year-over-year references to progress are versus adjusted numbers for fiscal 2012, and unless otherwise mentioned, all percentages refer to year-over-year progress.

Before we get started, I wanted to note that as part of our investor relations outreach, we will hold our annual analyst meeting here in New York City on Tuesday, December 17, starting at 5:30 P.M. Similar to last year, prior to the meeting, we will offer a tour of an iconic AECOM project.

Details will be sent out shortly.

The meeting will be webcast and a copy of the presentation and transcript will be posted on the Investor Relations portion of our website.

Beginning today's presentation is John Dionisio, Chairman and Chief Executive Officer.

John?

Thank you, Lynn.

Good morning, everyone, and thank you for joining us today.

With me are Mike Burke, our President, and Steve Kadenacy, our Chief Financial Officer.

Please turn to slide four.

Our quarter and full-year results demonstrate the progress we have made to advance toward our long-term financial and operational goals while strengthening our competitive position.

We achieved this despite macroeconomic challenges in certain areas of our business.

Our unique operating model of diverse business lines and broad geographic reach is a critical factor in our success.

We ended the year with $16.6 billion in backlog, up 3%, with gains in all of our PTS end markets.

Our niche acquisitions in Southeast Asia, Eastern Europe and Africa contributed positively to our results and support our goal to increase our mix of revenue and profit from key emerging geographies.

We made organic investments to enhance our technical and leadership capabilities in high-growth end markets and sectors, consistent with our target to increase our mix of higher-margin technical and construction services.

And we enhanced our key account management program to support our goal to grow our business with top private and multinational clients.

Our careful management of our operations allowed us to deliver healthy margins in spite of lower net service revenue and a decline in profit contribution from Australia.

Our margin performance underscores the resiliency of our business model, supported by the broad span of our global footprint and portfolio of services.

Lastly, we delivered on our commitment to improve cash conversion and deploy capital through high return investments.

During the year, we generated $356 million in free cash flow, or 147% of net income, which yielded $3.50 per share in free cash flow.

We also invested $373 million to repurchase our stock.

Turning to guidance, for fiscal 2014, we have set an earnings per share range of $2.35 to $2.45.

This forecast reflects strong gains in our growth markets, which we expect to be offset by continued challenges in Australia, as well as expectations for relatively flat growth in our Americas region.

During our prepared comments, Steve, Mike and I will focus on how the actions we took in fiscal 2013 to advance toward our long-term goals, including organic growth, strengthening our competitive position as we head into fiscal 2014.

Now let me turn the call over to Steve.

Steve?

Thanks, John.

Please turn to slide five.

In the quarter, we continued to execute on our productivity initiatives, which allowed us to deliver improved operating margins in both our segments.

In addition, our free cash flow conversion remained strong.

Gross revenue was flat, while net service revenue was down 7.2% to $1.2 billion.

These declines were primarily driven by Australia, the Americas and our MSS segment.

New wins in backlog remain healthy.

As we have mentioned throughout the year, the time to convert backlog to NSR has lengthened.

Part of this is driven by the favorable mix shift to our higher-margin construction services business and the increased number of design-build and alternative delivery projects, which have an average longer life cycle.

Part of the lengthening is driven by a more cautious approach by our clients to project starts in the Americas.

Backlog of $16.6 billion was up 3% year-over-year and down 1.4% sequentially.

Operating margin of 9.9% was down 35 basis points year-over-year and up 81 basis points sequentially.

Our tax rate for the quarter was 31.8% and EPS was $0.77.

Our earnings and cash flow improved consistently as we progressed throughout the year.

Given the economic conditions we face, the resiliency of our diversified business model enabled improving margins and strong cash flow.

Please turn to slide seven.

Looking at PTS, gross revenue was up 2% while net service revenue was down 5.8%.

Net service revenue was up double digits in the Middle East and Asia, and we also delivered solid growth in Europe and in construction services.

This growth was offset by declines in the Americas and Australia.

Excluding Australia, NSR was up 2%.

Operating profit was down; however, margins increased on both a sequential and a year-over-year basis, aided by improved costs and efficiencies.

In particular, in Australia, we continued to right-size our cost structure to align with the realities of the demand environment, including further headcount reductions and redeployment of technical expertise to other regions.

These actions contributed to a 570-basis-point increase in utilization in Australia versus the first quarter.

On a full-year basis, operating profit contribution from Australia was down 76%, which included $18 million of severance and other costs.

In spite of this significant drag on profitability, on a full-year basis, PTS operating margins were up, reflecting the benefits of our diverse footprint and the resiliency of our business model.

Please turn to slide eight.

Moving to MSS, on a full-year basis, operating income was up 50%, with margins up 284 basis points.

As expected, gross revenue and NSR declined in the quarter, down 15.6% and 17.1%, respectively.

These results reflect our actions to reposition away from lower-margin projects to new higher-margin services.

Please turn to slide nine.

Turning to EBITDA margin, cash flow and capital structure.

In the quarter, we posted EBITDA margin of 11.6%, up 68 basis points sequentially.

On a full-year basis, EBITDA margin was 9.4%.

Our ability to deliver this level of profitability despite the decline in NSR and lower profit contribution from Australia highlights the effectiveness of our cost and efficiency initiatives.

Margins also benefited from a 50-basis-point increase in utilization, excluding Australia.

Please turn to slide 10.

Also in Q4, we generated $145 million in free cash flow, bringing our full-year total to $356 million or 147% of our net income.

In the quarter, we invested $61.6 million to repurchase 2 million shares.

For the year, we invested $373 million, or 105% of our free cash flow, to repurchase 14.4 million shares.

We have exceeded our target to return at least 50% of our free cash flow to investors during fiscal 2013 and 2014, and we have $365 million remaining on our current repurchase authorization.

We are also on track to deliver between $1.3 billion and $1.8 billion in cumulative free cash flow from fiscal 2013 through fiscal 2017.

Please turn to slide 11.

Our balance sheet remains strong, with $900 million in undrawn borrowing capacity and net debt to EBITDA of 1.2 times.

This strength ensures we remain nimble and preserve our financial flexibility to take advantage of the additional high-return investment opportunities which Mike will talk about in a moment.

Please turn to slide 12.

This brings me to guidance for fiscal 2014.

For the year, we are targeting EPS in the range of $2.35 to $2.45.

The midpoint of this range assumes flat NSR growth and stable EBITDA margins.

However, if growth improves, we could meet or exceed the high end of the range.

We are assuming no improvement in profitability in Australia versus fiscal 2013 due to the protracted broad-based slowdown in the region.

With respect to seasonality, we expect our normal quarterly progression, with the first quarter to be similar to last year as a percentage of our full-year earnings.

For the year, we expect a tax rate of 29%, approximately 100 basis points higher than fiscal 2013.

We are assuming a diluted share count of 99 million, which reflects no share repurchases after the end of this past fourth quarter.

And we are targeting free cash flow to approximate net income.

Now I would like to turn the call over to Mike, who will talk about how our investments we made in fiscal 2013 are already driving improved returns for AECOM.

Mike?

Thank you, Steve.

Please turn to slide 13.

Heading into fiscal 2014, it is appropriate to revisit the key trends that are shaping our industry and how, against this backdrop, we are making investments to strengthen our competitive position.

A pivotal trend is the shift in how our clients are buying services.

Increasingly, clients want to partner with firms that can deliver end-to-end, integrated service solutions anywhere in the world.

Clients are looking for multiple service line offerings, from design and engineering to project and construction management.

In some cases, they are also looking for financial partners.

As a result, integrated delivery capabilities such as design-build and EPCM are critical, and the ability to deliver these capabilities globally is a competitive advantage.

There are few companies poised to deliver diverse services across so many end markets, and even fewer with the global reach to perform seamlessly around the world.

Our diversification strategy has positioned us in over 140 countries, and our investments have given us one of the most diversified service portfolios in the industry.

Our current investments are designed to continue this success.

Every organic investment and acquisition we make is targeted to strengthen our competitive advantage by either adding to the portfolio of services we offer or expanding our geographic reach.

In some cases, an investment can accomplish both.

Let me share with you a few investment highlights from this year.

Please turn to page 14.

First, our acquisitions have enhanced our ability to deliver construction projects in both the program management and construction management space.

The demand we are seeing for delivery skills is quite strong, and we are taking steps to meet the demand.

Over the last year, we have won over $2 billion in construction management work, which we would not have been in a position to deliver had we not continuously added construction management assets over the last few years, including Tishman Construction in 2010 and additional assets in Eastern Europe and the Middle East this past fiscal year.

Our ability to do both design and construction management has allowed us to win large-scale projects around the world, such as the $800 million Crescent Project in Baku, Azerbaijan, as well as EPC design-build projects for super major oil and global industrial companies.

Additionally, our focus on niche acquisitions over the last year has improved our ability to deliver in more geographies and increased our exposure to rapidly growing emerging markets.

Last year, we invested $82 million in three strategic acquisitions that increased our local expertise in Africa, Eastern Europe and Southeast Asia.

It is important to note as well that these latest acquisitions are performing above our initial expectations on a profit and cash flow basis.

Another key investment that enhances our ability to provide end-to-end services is AECOM Capital.

We can now play an important role in projects as our clients pursue alternative delivery options and look for partners who can provide financing along with our wide array of traditional services.

This puts AECOM in a more strategic role on projects and creates greater demand for our delivery capabilities.

In time, we anticipate the extension of AECOM Capital to third-party investors, which will allow us to bring even greater amounts of project capital to our clients.

Lastly, we are investing to enable seamless delivery across our global footprint through our Key Account Management program.

This program is designed to bring a coordinated global approach to the largest multinational clients that require a broad portfolio of services and a wide geographic footprint.

This offering has resonated well with our clients and differentiated us from their other providers.

For example, last year, this program drove a 24% increase in net service revenue with one of our top 50 global industrial clients.

Please turn to page 15.

Let me end with a few comments about our overall capital allocation strategy.

We continue to believe our stock is one of the best long-term investments we can make, and it is the benchmark by which we measure all other potential investments.

Since the inception of our program in August 2011, we repurchased 27 million shares, reducing our share count by 23% and returning 66% of our free cash flow to shareholders.

Our share repurchase program and improvements in cash conversion and operating performance supported free cash flow of $3.50 per share in fiscal 2013.

An effective capital allocation strategy should maximize cash flow per share over time.

Our share repurchase program has clearly helped us to achieve this, and the organic investments and acquisitions we made in fiscal 2013 have also achieved this by strengthening our competitive position and enhancing our ability to drive profitable growth well into the future.

In fiscal 2014, we will apply the same rigor to evaluating our investment opportunities as we did this past year, always with a goal of improving returns over the long term.

Now let me turn the call back over to John.

John?

Thank you, Mike.

Our technical expertise, commitment to our clients and global reach enable AECOM to conceive, manage and support some of the most complex projects in the world.

As I review our performance by geography, I want to highlight projects that are emblematic of our end market strength and expertise, particularly those where we harnessed our capabilities across geographies and business lines.

Please turn to slide 16.

Let's start in the Americas.

During the year, the region accounted for 60% of gross revenue and 49% of net service revenue.

The region delivered $5.7 billion in gross revenue wins, up 3%, aided by a 9% increase in construction services.

Net service revenue wins in our design business were up 6% for the year, supported by growth in our facilities and civil infrastructure end markets, especially energy and also transportation, where we captured $1 billion in new wins.

Our strategy in our largest developed market is to continue to focus on our core strength in civil infrastructure, as well as capitalize on new growth opportunities.

In energy, for instance, wins were up 23%, a prime example of our sharpened focus in our core end markets in a recent win to provide a broad range of services, including overall project management, engineering design, construction oversight and environmental assessments for a new $1 billion transmission line project in Northwest Ontario.

Turning to Europe, the Middle East and Africa, this region was a real success story for us this year, with a 12% increase in net service revenue, a 19% increase in backlog and a 24% increase in wins, supported by growth in every major end market and geography.

We expect this type of performance to continue in fiscal 2014, supported by a strong management team, abundant market opportunities and solid client relationships.

In addition, as Mike mentioned, our acquisitions in the region outperformed our expectations and drove significant wins for us in fiscal 2013.

EMEA has done an excellent job leveraging its full regional capabilities to win large projects.

A prime example is our recent win in South Africa, where we were awarded a three-year contract from Transnet to provide EPCM and project closeout services for up to 15 separate infrastructure projects with a total construction value of $2.2 billion.

These projects could include rail infrastructure, expansion of port facilities and iron-ore loading facilities.

This significant win could not have happened without our acquisition of BKS in South Africa.

In the Middle East, the opportunities are both significant in scale and span all of our addressable markets.

For example, Qatar has embarked on a $150 billion infrastructure investment program that includes a new airport, highways, rail lines, hotel and lodging and sports stadiums.

Recently, we won a $148 million contract to provide construction supervision and design review services for a portion of the Doha Expressway Program.

This was the largest award given to an engineering firm for this phase of Qatar's $20 billion program to construct 28 highways.

Neighboring Saudi Arabia is investing roughly $400 billion in infrastructure over the next few years, directed towards key AECOM end markets, including social and civil infrastructure.

As a part of this investment, we recently were appointed designer as part of a consortium that will construct the largest portion of the $23 billion Riyadh Metro System, one of the largest urban infrastructure projects in the world.

Our contribution to this project will leverage our global expertise across all our regions.

And in Europe, our wins in transportation were up 100%, aided by projects such as design-build for almost 50% of Romania's trans-European network, which will connect the Black Sea area to central Europe.

Again, EMEA was a real success story in fiscal 2013, highlighted by a return to profitability in Europe following our restructuring efforts in fiscal 2012.

And we expect continued growth in this region during fiscal 2014.

Please turn to slide 18, Asia-Pacific.

Asia-Pacific represented 18% of our gross revenue and 26% of our net service revenue this year.

Momentum in this region excluding Australia was strong for the year, with net service revenue up 20% and backlog up 15%.

China in particular was strong, with net service revenue up 16% and backlog up 64% for the year.

In Australia, net service revenue was down 21% for the year.

We continue to manage the downturn, which has affected each of our end markets, by carefully focusing our resources on large projects where we can utilize our resources more effectively.

In Southeast Asia, where we continue to expand our civil infrastructure capabilities, net service revenue was up 21% for the year.

In the quarter, we were awarded a contract to provide a portfolio of integrated services, including mechanical, structural and environmental planning for Singapore's new $6 billion North-South Expressway.

In our strongest Asian market, Hong Kong, our strength in health care has allowed us to capture a portion of the $50 billion in annual health care spend directed at facilities.

Recently, we were appointed project managers for the demolition and reconstruction of a major hospital complex in Hong Kong Hospital Authority's West Kowloon cluster.

This $1 billion project will span our services offering, including building, engineering, design, planning and economics.

Overall, we expect continued growth in our strong Asian markets in fiscal 2014, offset by continued challenges in Australia.

We view Asia as a key market for our global expansion, as urbanization continues to drive demand for our core services.

Putting our fiscal year 2000 (sic; 2013 - see slides) results in perspective, we improved profitability in our segments, delivered strong cash conversion and returned 105% of our free cash flow to shareholders.

We achieved this while strengthening our competitive position via investments that enhance our ability to deliver end-to-end services solutions to our clients anywhere in the world.

With that, I would like to open the line for questions.

Operator, please open the line.

(Operator Instructions) Tahira Afzal, KeyBanc Capital Markets.

Good morning, everyone.

I guess my first question is, in Australia, you really started around a year back in terms of resizing.

And I just wanted to get a sense -- has it gotten progressively worse as you have gone through the year to resize, and hence, 2014 looks challenging?

And really has there been an outlook change in Australia for the worse from the beginning of this year to where we are now?

As we mentioned to you a few quarters ago, the market in Australia had a major impact of the shutdown of their mining business.

And with that, that affected all our end markets.

The government didn't have the money to spend on some of their capital programs, private investors were uncomfortable with the marketplace, and also they were in the middle of a major administrative change with their new government.

We took out about 1,500 people.

We incurred about $20 million in restructuring costs.

And we right-sized the company in terms of the workload they have.

We maintained some of the staff to complete projects which ended at the end of fiscal 2013, which will now have to be excessed as we go into 2014.

But with that -- with this next round of reductions, we feel we have the right structure.

Now looking at 2014, what we see is the capitalization or the capitalizing on the infrastructure stimulus program, which the new government is putting in place.

They realize that they need to do something to spur the economy, and they are going to have a stimulus program not too much different than we had here in the United States several years back, which will focus on infrastructure spending.

We are also seeing an increase in alternative delivery and private investments in the country.

And we feel that we will, by the end of 2014, have totally right-sized the company.

We are hoping to be profitable in 2014.

And this is not too much different than what we encountered when we restructured our European operation.

Now this year, Europe was significantly profitable.

So there are significant opportunities ahead.

That doesn't mean there is not some headwinds that we have to continue to focus on.

But overall, we believe we have taken the right steps to restructure the organization to ensure that it is profitable.

Got it.

Okay.

And then I guess your 2014 guidance seems a little more backend-loaded.

And I know beginning of last year, fiscal year -- or rather this outgoing fiscal year, you did have some restructuring costs that were frontend-loaded.

So I am a little surprised on why it is a little more backend-loaded.

And then you do have your rent expense and global procurement consolidation contributing positively to 2015 margins.

So as you look out directionally, do you see progressively margin profile in general improving just on the backlog of large projects you have, that I assume are on deferred recognition or slow recognition in the early phases?

And so, you don't really need much revenue growth as you exit 2014?

I'll have Steve answer that question.

Many questions there.

But the first part -- I think the answer to all those questions involves Australia.

So the first part of FY14, we are going to see continued restructuring in Australia.

We progressed in Australia throughout FY13; it became more profitable all year long and it was profitable in FY13.

We expect the same in FY14.

But because we burned off some of our contracted backlog in Australia in FY13 and didn't replace it as fast as we needed to, we still have some restructuring to do, and we are going to take those steps.

So John mentioned the $18 million to $20 million in FY13.

FY14 will bring another $12 million to $15 million in restructuring costs, mostly in the first quarter, Tahira.

So that is kind of the reason for our initial lower percentage of full-year earnings in Q1.

So the second part of your question is what is going on with our margins, are we still comfortable.

We are -- underlying all of this is we are comfortable with our margins.

If you take out Australia, we improved on an operating income margin basis in both our segments, and that is really a reflection of underlying utilization improvements, the real estate savings that we have talked about for quite some time, the introduction of our E-procurement system and other activities that we are taking action on.

And your conclusion then, if revenue comes back and our earnings guidance at the midpoint assumes no growth, if that growth comes back, it falls to the bottom line much faster than in years past.

So we are optimistic in that regard as well.

Thank you very much.

Andrew Kaplowitz, Barclays Capital.

Nice cash generation this quarter.

Steve, can I follow up on Tahira's question, in the sense that you said you're going to do $12 million to $15 million of restructuring versus the $18 million to $20 million you did this year.

That still assumes that margins are not going anywhere in 2014 versus 2013.

Is it pricing that is becoming more difficult?

Do you have a mix issue where North America is not growing and that is a higher-margin business?

I'm just trying to understand why you are -- at the middle of your range your margin guidance wouldn't be up a little bit.

We are forecasting flat, Andy, and really, we are looking at some of the same challenges that we had in FY13 in FY14, and hoping that during the year, that growth will come back and bring our margins.

But going into the year, we see Australia being flat, we see the Americas being flat, but with some promise of upside in the back half, and we see GSG flat.

So you kind of combine those things and overall, I think at this point in the year, we are comfortable with flat margins.

If growth comes back, our margins are going to be better.

But your cost basis, Steve, in 2014, should be less than your cost basis in 2013, correct -- in terms of what you have been able to do so far in cost-cutting?

Well, I think the cost-cutting is in there, but we are not getting the revenue growth that we need to let it drop to the bottom line.

Okay, that is fine.

Let me ask you about MSS margins in the quarter.

You had a goal for the year of doubling MSS operating profits, and this quarter was a little bit of a setback.

So you have had some execution issues in the past, but we know that there is obviously uncertainty with the federal government, it was a tough quarter for all of the guys that we follow in terms of federal exposure.

So maybe you can talk to us about what happened in MSS this quarter and what you see going forward.

Andy, let me take that one.

First of all, we had a dramatic recovery in the MSS segment in FY13 over FY12.

Our operating income was up 50%, our margins were up 284 basis points year-over-year, and we are continuing to expect those higher margins in FY14.

However, in the fourth quarter, we had two government contracting issues that were unrelated to project performance.

Our project performance continues to perform according to expectations.

But we had two government contracting issues in Q4 where the government raised questions on those contracts.

And as we have always done, we took the conservative position and established a reserve for those two contracts.

Now as you know, Andy, because you have been following us for a while, historically, we have had very positive outcomes to government contracting disputes.

And any favorable outcome to that dispute is an upside in 2014, if it is resolved in 2014.

And to give you an example, you will remember the CSA contract, going back a little over a year ago, we told you we had 100+ -- we had almost $120 million that CSA was holding back from us as a disputed item.

It took us years to get through that.

We received another $48 million on the CSA contract in Q4.

So out of that $120 million they owed us, we still have about $8 million left to collect.

But working through these government contracting disputes, it is laborious, it is painful, but we have a pretty good track record of it.

But it is those two contracts that contributed to the Q4 performance; but again, that shortfall is not related to project performance.

We are performing well.

We are significantly shifting our mix away from the higher-volume, low-margin work in MSS, much more towards the higher-margin work that is turning away from the war effort.

And so, all in all, we are very pleased with the progress of the business.

And Mike, you think with that reserve, you have sort of solved the disagreement with the government customer, correct?

No, we have not solved the disagreement; that is why we have put up a reserve.

No, I understand.

But like that takes care of -- that is what you think your liability is there, correct?

As I said, we always take a very conservative position when we are notified of the government -- of a dispute.

And we would rather be surprising to the upside than the downside.

I appreciate that.

Can you quantify that for us, the reserve, or no?

No, as you can see, we had a shortfall according to our expectation, what we had previously said we were going to have in operating income for the quarter in that segment.

And the entirety of that shortfall is due to the establishment of reserves.

I appreciate it.

Thank you.

Steven Fisher, UBS.

Good morning.

Just a housekeeping to start off.

Can you just give us what the professional services organic NSR growth was year-over-year?

I think it was 8% decline in the fiscal third quarter.

Wondering what that was in the fourth quarter.

PTS at constant currency was down 6.7%.

Okay.

And then maybe this is for John, I guess.

What do you think at this point is standing in the way of growth in the Americas?

Is it mainly the federal business, or is it more broad than that?

I know you mentioned some of the better-growing areas in your comments.

But just really curious what is standing in the way of North American growth at this point.

I think what we are finding -- we look at the wins and the backlog, which is strong.

And throughout 2013, we have had just a sluggishness in getting projects started.

That -- as I used to say -- things that would take six months from the time you win to when you could start booking it, they're taking a year.

Clients are telling us they even take longer.

It is really -- what we see in the Americas, and this goes through I guess all our end markets, is these scaling back of public financing while the private side is increasing.

So that has caused some uneasiness in the marketplace.

The good news is that there are certain markets that are really starting to gel.

Here in New York, I mean, the construction industry in New York is at the same levels it was when it was at an all-time high in 2008.

Their increase in residential and nonresidential and private investments, that is balancing -- that is counteracting the reduction on the public side.

The other thing is Congress, the Senate and the House, passed a Water Resources Development Act, which is a $10 billion financing program, which could provide some public-private partnership work.

That has made some major advancements since we have been looking for that for quite some time.

They are starting to think about the reauthorization of the Highway Bill; that is a plus.

And then after they do that, they have on the table about a $63 billion FAA bill.

And all of that now, they are looking at some tax reforms which will provide -- which will encourage state and local governments to initiate -- to get involved with more private financing of the infrastructure.

So what we have seen in the past is sluggishness on the public side.

But on a positive note, the increase in the private side.

And with that is driving some of the construction markets around the United States and the big cities -- L.A., New York, Chicago, Miami.

So, looking forward, I think here in the United States -- and then also, let's not forget the energy side of the business, which transit and freight rail, which is being driven by the shale market in Canada and the West.

So there are a lot of good things that are occurring, and I believe when we look at our business, we are more bullish about FY14 at this time than we were in FY13 at this time.

That is very helpful.

And then Steve, in terms of cost reductions, should we see that more in your segment margins or in the overall G&A number?

It looks like the G&A is running around $24 million a quarter.

Just wondering should that go down in fiscal 2014?

You should see it in our OI margins, because we reclassed our SG&A almost entirely to our cost of sales.

So you see most of our real estate savings, our procurement savings within the segments.

Our G&A, you can roughly model as flat to FY13.

Okay, thank you.

Before we go on to the next question, I want to make a correction to something I said earlier.

I said that we received that last payment from CSA of $48 million in Q4.

Actually it came in after the cut-off, it came in last month.

So that will be reflected in our Q1 of 2014.

Andrew Wittmann, Baird.

Good segue, Mike, into my questions.

I wanted to dig into those cash flows a little bit more.

First of all, just kind of an update -- was there any factoring positively or negatively in the quarter, Steve?

We did factor in the quarter on a net basis, it was only $100,000; on a gross basis, it was about $70 million.

Got it.

And did you find -- it sounds like there was some greater scrutiny on this MSS contract.

Is it fair to say kind of more broadly that the government collections are more difficult?

And have you scrubbed the portfolio of government work for other potential challenges that might come, and also might have to be written down later?

Just want to understand where we were and if this is going to be a lingering problem as we move into next year.

Let me take that question as it relates to the government contracts, and then Steve could take it more broadly.

We, for some time now, have seen the government slowing down payments and putting up more obstacles to payments.

But the fact is that in our MSS segment, our DSOs are down 10 days year-over-year.

So we are making improvements in our collections in MSS, but against a difficult backdrop.

But you have two challenges.

One is that the government is more closely reviewing contracts before they make final payment, so that slows it down a bit.

But our outcomes have ultimately been successful in collecting the money from the government.

And then when you have work stoppages and furloughs on the government side, the people that they lay off first are the people that pay the bills.

So that has slowed down a bit.

But the bottom line is our DSOs are down 10 days in MSS year-over-year.

Got it.

Actually, just building on MSS there, Mike, this year, it was pretty helpful, given the lumpiness of that segment from where we sit, the fact that you were able to say we're going to double it this year, that gave us pretty good visibility as to what to expect.

As we move into 2014, I am kind of curious as to how you think we should be thinking about that business specifically.

Are the JV contributions higher or lower in the fourth quarter here with the write-down?

I'm trying to establish really just kind of a run rate of operating income as we should be thinking about it as we move here into 2014.

Any help would be appreciated here.

Sure.

I think starting off from a macro perspective, the way to think about that business is the bottom line, EBIT line, it is relatively flat year-over-year.

However, the mix shift will continue to head in the same direction it has been heading.

We are repositioning that business away from the high-volume, low-margin work that has primarily been Department of Defense related work overseas.

And we are repositioning that into lower-volume, higher-margin work here in the U.S. So our margins, operating income margins, have continued to improve in that segment.

They will continue to improve in FY14, but you will see the revenue coming down as we move away from the higher-volume, low-margin work.

So if you are trying to get a better vision on MSS in 2014, you should think about it as a flattish business on the EBIT line, lower on the revenue line, higher on the margin line -- or on the margin percent.

Great, that is really helpful.

And then maybe just one final question to John.

The return of capital program has been clearly, I think, successful, especially when you are buying stock in the low $20s.

Stock clearly moved past that.

Stock has been in the $30 range here.

I'm just kind of curious, when you think about your return of capital commitments, is the potential for a special dividend being contemplated?

And how is that reconciled versus your incentive compensation plan, which really incentivizes earnings-per-share and free cash flow per-share metrics?

In other words, now that the stock has moved a little bit, is the special dividend more in the consideration sample set from the Board's perspective?

You are asking me, right?

You know, our incentive compensation plan, both the short-term and long-term for all our senior executives, we compensate people on an earnings per share and also on a cash earnings per share.

So it is tied into very specific KPIs.

We have spoken about dividends, M&As and repurchasing over the past 24 months.

When the stock was down in the range of $20 a share and coming to a certain point, and that point could be in the $30s, that if it -- is in our best interest.

Because the value of our stock versus an acquisition that we focus on repurchasing our shares.

And we've done that over the past year and a half.

As we look forward, and depending on the stock price, we are going to get into a range where it might be breakeven to either buy your stocks back or to make investments for the future through M&As, both niche acquisitions and some significant acquisitions.

And then we thought of in a range of maybe the upper 30s that that would make sense then to provide a special dividend for our shareholders.

That is how we are thinking about it.

Right now, we are not in that range that we would think about the dividend and we are looking at share repurchases and M&As.

Over the past, we have articulated that at our various meetings of what our game plan would be.

Great, thank you very much.

(Operator Instructions) Sameer Rathod, Macquarie.

Hi.

Perhaps you already answered this.

But I know that previously you have commented on receivables and selling receivables to generate cash.

How much was that in the quarter?

As I mentioned on the last question, on a net basis, it was $100,000.

Okay, perfect.

Second, I guess, looking at your definition of free cash flow, is there a reason why you are not including net distributions to non-controlling interest as part of the definition?

It seems like if you have joint ventures, the drag on cash would be an ongoing basis.

We have been with just operating cash minus CapEx for quite some time now; it's how we look at it.

I mean analytically, wouldn't distributions to non-controlling interest also be an ongoing thing core to your business, if you have joint ventures?

If we make distributions to minority interest holders, yes, that would be a drain on cash.

Okay.

I guess that is it for me.

Thanks.

John Rogers, D.A. Davidson.

Good morning.

A couple of things.

First of all, just I guess for Mike, on AECOM Capital, you are talking about a $150 million investment.

Can you give us a sense -- and I guess it's over the next couple of years -- what scale of projects that can support or the revenue opportunities that sort of an investment could provide?

Sure.

I can give you a better snapshot of the first two investments we have made.

The first investment we have made, we deployed $30 million of equity against a $200 million project, where we are currently building it and coming up out of the ground right now.

So generally --.

Sorry, Mike.

When you say a $200 million project -- just so I'm clear -- that is $200 million opportunity for AECOM or total value of the project?

That is the total cost of the project and we are building it.

So of that, you have -- not to get into too many details -- but of the $200 million, let's just say you have $50 million ascribed to land and $150 million is the construction revenue that we would earn the revenue on, approximately.

Okay, that is what I was looking for.

Is that a rough sort of way to think about the gearing on that?

Yes, generally, we are going to put up half the equity with a developer, and then you are going to leverage that equity 2-to-1, and you can get to the rough math on that.

So $150 million of equity paired up with $150 million of someone else's equity, lever that up 2-to-1, and you are talking about $1 billion plus of projects.

That would be on the low end.

We would hope to generate revenue well in excess of that by bringing limited partners into the capital and debt structure.

Okay.

Thank you.

That is very helpful.

And then my second question was just as you do more construction-oriented work, project management, what is the margin profile of that kind of work versus your traditional business, as well as the risk profile?

On construction management and program management, our project margins are higher than the margins we would earn on traditional design services.

And we have been talking about that, John, for years, as we tried to build out our program management services and our CM services.

We have done a nice job of that here in the U.S. We are doing a very nice job of it in the Middle East.

And those margins are definitely higher than our historical design services.

And that is one of the components -- when you hear Steve talk about our longer-term EBIT margins, that mix shift is one of those components.

Okay, and you are seeing that now, I guess is what I am just trying to (multiple speakers).

Yes.

Okay.

Okay.

And the risk associated with that work?

Program management is no different risk than design.

And the CM work that we are taking on at risk, John, we are not taking on lump-sum, fixed, firm price delivery on a broad scale.

Most of the CM work that we are taking on is our -- we are performing under a guaranteed maximum price structure, with a structure that causes us to share the savings and give back some of our profits should we not hit the maximum price target.

And that is the way we have been delivering those services for years, John.

And knock on wood, it has been very successful.

Okay, great.

Thank you.

Appreciate it.

Sure.

Andrew Wittmann, Baird.

Great.

Thanks for taking my follow-up.

I just wanted to touch base on a couple other of the long-term goals.

I think using the initial guidance for 2014 to step back and kind of look at the future.

The prior commitments of margin, I think, was one of the interesting ones from a long-term perspective regarding your company, regarding your stock.

Can you just talk about the feasibility of the 12% EBITDA margin in 2015, and how you think you might get there, or if that is now more of a stretch goal rather than something that was more of a primary path?

We think the 12% is still doable.

We took the timeline off last year just because of the situation with the top line.

So I think it is 100% contingent on our returning to organic NSR growth, and we believe that will happen in the future.

So it is still our target, it's still our goal and we think it is achievable, but we haven't put a timeline on it as of now.

Got you.

And, Steve, what about on the DSOs here?

We have MSS DSOs coming in -- you have reiterated the comment to be at net income.

But can we do better than net income in 2014, do you think?

I think we are feeling comfortable with net income right now.

DSO is -- at a consolidated level is a difficult target to forecast, mainly because your mix of your business is shifting.

And for us, that was extremely true in FY 2013, where our rapidly growing markets are higher DSO, like the Middle East, like Southeast Asia.

And because where our DSOs are typically lower, like Australia, we were declining -- we kind of had a headwind on our DSO.

So if you adjust for that mix, you get -- our DSOs would have had about another four-day improvement year-over-year.

And if, as Mike mentioned, we got that CSA payment, it would have been another two days.

If we got that just a few days earlier, we would have been at 82.

So we think 80 days is still an achievable target, but as we mix shift more towards these emerging markets where DSOs tend to run higher, it will be a tougher target.

But underlying all of that were significant improvements, even in those high-DSO markets like the Middle East, which improved significantly year-over-year, which is why we were able to do 147% of net income in FY13.

So we will continue to target.

I think it is much easier because cash is cash; it either comes in on a day or a quarter or it doesn't, and it may come a few days later.

It is easier to target on a long-term basis, which is why we have the $1.3 billion to $1.8 billion target out there.

And we are coming off two years in excess of 140.

Our conservative estimate at this point is to get to 100%.

Okay, that is helpful.

Maybe just one more.

On utilization, you make the comment in the presentation here that kind of exclusive of Australia, utilization was up 50 basis points.

So as you look forward here, how much more of an opportunity is utilization for 2014?

Are some of these systems that you have been putting in place are going to help you get better utilization?

Just kind of always like to take the temperature on where you think utilization is versus where it maybe could be or should be and the opportunity set there.

Again, utilization is a tough one to do on an enterprise level just because we have so many different businesses that run at different utilization levels.

But my answer is that we do believe there is opportunity in utilization for a few reasons.

One is that we continue to shift our mix of business into higher utilized businesses, like construction services, program management services, and bigger projects in general, and larger projects like the Middle East, where we have higher utilization.

So that mix shift will help our utilization.

And then we are out of the gates taking active action in Australia, which will hopefully improve Australian utilization year-over-year as well.

So we feel there is still some opportunity there.

That algorithm between 100 basis points of utilization and $50 million of EBITDA, does that still hold?

The last I've done that math it did, yes.

Okay, great.

Thanks.

I will now turn the call over to John Dionisio for final remarks.

Thank you, operator.

Before we end, I would like to reinforce three points.

One, our results in fiscal 2013 demonstrate the progress we have made to advance some of our long-term goals, financial and operating goals.

Second, our global footprint and diverse business model enable us to be competitive on any major project we pursue around the world, and our organic investments and acquisitions strengthen this competitive advantage.

And the third thing I would like you to remember is our balanced capital allocation strategy has driven, and will continue to drive, improved returns over time.

I want to thank you all for joining the call and for your interest in AECOM, and I look forward to seeing you in February -- or hearing you in February.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.