AECOM (ACM) 2016 Q1 法說會逐字稿

Good morning and welcome to the AECOM first-quarter 2016 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.

Any rebroadcast of this information in whole or part without 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.

(Operator Instructions).

I would now like to turn the call over to Will Gabrielski, Vice President of Investor Relations.

Thank you operator.

Before reviewing our results, I would like to direct you to the Safe Harbor statement on Page 2 of today's presentation.

Today's discussion contains forward-looking statements about growth and profitability as well as risks and uncertainties.

Actual results may differ significantly from those projected in today's forward-looking statements.

Please refer to our press release, Page 2 of our earnings presentation, and our reports filed with the SEC for more information on the risk factors that could cause our results to differ materially from projections.

Except as required by law, we take no obligation to update our forward-looking statements.

We are using certain non-GAAP financial measures in our presentation.

The appropriate GAAP financial reconciliations are incorporated into our press release, which is posted on our website.

Please also note that all percentages refer to year-over-year progress except where otherwise noted.

Our discussion of financial results excludes the impact of acquisition and integration related expenses, the amortization of intangible assets, and financial impacts associated with expected and actual dispositions of non-core businesses and assets unless otherwise noted.

Today's discussion of organic growth represents the year-on-year change for the entire Company on a constant currency basis.

Please turn to Slide 3. Beginning today's presentation is Mike Burke, AECOM's Chairman and Chief Executive Officer.

Mike?

Thank you Will.

Welcome everyone.

Joining me today is Steve Kadenacy, our President, and Troy Rudd, our Chief Financial Officer.

I will begin with an overview of AECOM's results and discuss the trends across our diverse business.

Then Troy will review our financial performance in greater detail.

Steve will conclude with financial guidance before turning the call over for a question-and-answer session.

Please turn to Slide 4. We're off to a strong start in 2016 with most of our businesses performing as we anticipated.

Our EPS of $0.68 reflects solid execution and underscores the value of our diverse portfolio of end markets, clients and geographies.

We had a book to burn ratio in excess of 1 in the first quarter and our backlog held steady at $40.2 billion.

We have now delivered a book to burn ratio in excess of 1 in every quarter since closing the URS transaction.

Importantly, contracted backlog, a key revenue growth indicator, increased by 12%, led by 43% growth in building construction and 6% growth in management services.

We also delivered on our cash flow and debt reduction commitments.

We have reduced our debt by over $800 million since closing the URS acquisition last year and we remain committed to our capital allocation priorities.

Please turn to Slide 5 for a discussion of the segments.

Beginning with the DCS segment, recent milestones in the domestic transportation market provide us with additional confidence in the recovery of our Americas design business.

At the federal level, the passage of a five-year transportation bill, known as the FAST Act, provides critical visibility to our clients.

We are tracking more than $60 billion of projects that we expect will proceed in part because of this added funding visibility.

And this list is heavily weighted to large-scale transit projects, which is an area where we excel.

Additionally, trends within a number of states are improving.

Lower fuel costs and the resulting increase in vehicle miles traveled is leading to higher gas tax revenues in many states, which is a key funding source for transportation investment.

We are also encouraged by trends in our water and environment markets, which account for 45% of our Americas revenue.

Clients in both of these markets are increasingly looking to alternative delivery solutions to address challenges related to climate change, resiliency, and regulatory requirements.

Our integrated design, build, finance, and operate capabilities position us to benefit from this trend.

The path to recovery in the Americas hasn't been smooth or as fast as we would have wanted.

However, we are energized by the momentum in our pipeline.

We have built the most complete portfolio of infrastructure services in our industry which positions us to drive performance as our markets recover.

Now let's turn to our international design markets.

We delivered solid performance in the UK, our largest market in the EMEA region.

Following last year's election and a review of fiscal priorities, we remain confident in trends across the rail, highway and water markets that we serve.

In the Middle East, we continue to grow and our clients are committed to delivering important infrastructure improvements.

Despite the price of oil, we are pursuing new revenue streams across the region, including a growing list of defense pursuits, to fully leverage our entire suite of capabilities.

Now let's turn to our Asia-Pacific markets.

The economic slowdown in mainland China has become more pronounced over the past three months.

However, this represents only a small segment of our exposure in the region.

In Hong Kong, our largest market in Asia, our leadership position has resulted in a high win rate over the past year consistent with our track record in this market.

Going forward, we are confident that we will maintain our leading role on the iconic projects that define the region.

Finally, we are leveraging our large regional presence to diversify into new markets.

This is especially true in Southeast Asia, where demographic and urbanization trends are creating strong demand for our services.

While still a small contributor to our results today, the region is attracting substantial funding to support long-term growth.

Turning to our construction services segment, in building construction, organic revenue growth accelerated to 42% and our contracted backlog has increased 85% over the past five quarters.

Office and residential vacancy rates are low and our clients are investing to meet demand.

Our backlog is defined by a portfolio of high profile projects in core metro markets, including New York and Los Angeles.

We are also benefiting from our strong relationships with key project developers and foreign direct investment partners, which has opened up opportunities in new markets, including London and San Francisco.

As a result, we expect strong growth to continue.

Let's shift to our energy and industrial construction business.

We delivered positive organic growth in the quarter, which is a significant achievement following several years of declines.

In addition, we are off to a strong start in the second quarter with substantial wins on the horizon, which adds confidence to our outlook.

Shifting to oil and gas, clients remain under significant pressure to reduce spending.

However, we accomplished our goal of maintaining profitability, which is due to the tremendous effort put forth over the past year to lower our costs and exit non-core businesses.

Today, over 80% of our oil and gas construction revenue is from short-cycle operations and maintenance and sustaining capital work where client spending has fared much better.

We have also diversified our exposure to oil and gas clients by winning large environmental projects in our DCS segment.

In some of our cyclical markets, it is incumbent upon us to capitalize on upside and to manage the business through downturns.

We accomplished this through the resources cycle of Australia and through the reduction of military support activity in Afghanistan years ago, and we have successfully employed this discipline to the oil and gas business over the past year.

Finishing with management services, our leading position in markets with high barriers to entry, such as environmental remediation, nuclear decommissioning and cyber security, competitively differentiate AECOM and contributed to a strong quarter.

In the US, the passage of the $1.2 trillion omnibus spending bill has two positive impacts on our business.

First, it removes a risk from our larger Defense and Energy Department programs which are now funded for the remainder of the fiscal year.

Second, our clients are beginning to make awards at a faster pace.

Our win rate is high and we are pursuing a sizable pipeline, including over $9 billion of opportunities where we anticipate submitting bids in the coming months.

We are also making progress on our international growth strategy, which is a core objective of our MS business.

We believe the international defense market will be a key long-term growth driver.

I will now turn the call over to Troy to provide greater detail on our financial results.

Thanks Mike.

Please turn to Slide 6. Overall, we are very pleased with our performance this quarter.

Total revenue grew by 2% from the prior year to $4.3 billion, and we are on track with our financial objectives for the year.

It is noteworthy that, after adjusting for the declines in oil and gas and chem demil, our organic revenue increased by 3% at constant currency.

Please turn to Slide 7. We ended the quarter with $40.2 billion in backlog.

Excluding currency impacts, our backlog is unchanged.

Our book to burn in the quarter was over 1, led by 1.7 in our building construction business.

The MS segment book to burn was below 1. However, based on a healthy pipeline of pursuits Mike discussed, we are highly confident that our backlog will grow in the coming months.

Importantly, the quality and margin profile of our backlog remain strong and is representative of our broadly diversified services and clients.

Please turn to Slide 8. DCS revenue was $1.9 billion in the first quarter.

Organic revenue declined 5%.

The Americas declined by 6%, which was a little bit lower than we had anticipated and is due to slower project ramps on the wins that we drove in backlog in the second half of the last year.

However, the activity on these programs is now increasing and the FAST Act is a positive development that we anticipate will drive additional activity later this year and into 2017.

The first-quarter operating margin was 6.5%.

This is a 130 basis point improvement from the prior year and is primarily due to our synergy savings.

Please turn to Slide 9. Organic growth in construction services was 6%, and was highlighted by the continued strong performance in building construction, which grew 42%, and by positive growth in our energy and industrial construction business.

The operating margin was 1.9% and was consistent with our expectations.

Recall that our prior-year margin included a benefit from project closeouts, and we didn't expect that to repeat this year.

Please turn to Slide 10.

In management services, first-quarter organic revenue declined 19% due primarily to lower overseas contingency activities and reduced chem demil revenue.

Both of these drivers were contemplated in our guidance.

The operating margin increased 20 basis points to 13.2%, which reflects strong execution across our vast portfolio and the positive resolution of acquisition related project and legal matters.

We still anticipate a full-year margin in the low 8% range.

Please turn to Slide 11.

Our first-quarter cash flow and capital allocation was consistent with the commitments we've made to our shareholders.

We delivered free cash flow of $77 million.

Since closing the URS acquisition last year, we have generated total free cash flow of $772 million, which underscores the predictability of our diverse portfolio.

We continue to deploy cash to reduce our debt.

We paid down $84 million of debt in the quarter, which brings our total debt reduction to over $800 million since last October.

In addition to our free cash flow, noncore business divestitures generated $38 million of cash during the first quarter.

Our planned divestitures are now substantially complete.

Going forward, our capital allocation priorities are unchanged.

We will evaluate the returns associated with debt reduction, share repurchases and M&A.

In the near term, we will continue to prioritize debt reduction.

But we always consider all options, keeping shareholder value creation as our top priority.

I will now turn this call over to Steve to discuss our guidance for fiscal 2016.

Thanks Troy.

Please turn to Slide 12.

Our start to the year is a testament to our diversification and our emphasis on execution.

Delivering on our financial and capital allocation commitments to our shareholders is our top priority.

And we are confident that we are on track for another year of strong and consistent performance against our targets.

With that, we are reiterating our fiscal 2016 adjusted EPS guidance of $3.00 to $3.40.

Our strong first-quarter EPS performance provides us with additional confidence in our guidance range.

We are also on track to deliver free cash flow within our $600 million to $800 million range.

Unlike last year, we expect our cash flow to follow historical phasing.

Recall that last year's first-quarter cash flow benefited from a number of items, including the final chem demil incentive payment.

Finally, we are progressing well in our pursuit of synergies.

We are on track to achieve $325 million of runrate savings in 2017 and exit 2016 at a $275 million run rate.

Now I will turn the call over to Q&A.

Operator, we are now ready for questions.

(Operator Instructions).

Andrew Kaplowitz, Citigroup.

Good morning guys.

So, solid quarter in a tough environment.

I did want to ask you about DCS organic revenue.

It was down 5% in 4Q.

It was down 5%, but it was better than 4Q's down 11% and still a little worse than last year's 4% organic decline.

So what I'm getting at is I know we ask you this question every quarter and we understand that total backlog is up, but given contracted backlog is still down high-single digits, what conviction can we have that DCS organic revenue can turn more positive in 2016?

Have you seen any change in the US infrastructure markets after the passage of the US transportation bill, or is it just too early for that?

Hey Andy, it's Steve.

No, we are absolutely seeing a change.

Our pipeline is looking good, and obviously our wins are quite good and our book to burn has been positive for the last three quarters.

So, overall, we are seeing increased optimism in the business, particularly in the Americas.

But the pudding obviously comes when you convert that into revenue, and where the FAST Act comes in for larger infrastructure projects, those don't convert right away.

So we are in a process right now of booking those into contracted and they will start to convert for the remaining of the year.

The FAST Act is a positive for us because it unleashes those larger projects, but the larger the project, the slower the booking.

But we are positive for the full year, we are seeing a lot of good things in the business and we think, hopefully by the end of the year, we'll start to turn towards positive organic growth.

Okay.

That's helpful, Steve.

Then just shifting to international markets, I think Mike mentioned Middle East, Hong Kong obviously is a question that comes up too.

And given the oil volatility and the volatility in China and Hong Kong, have you seen - you mentioned good wins, good market share in Hong Kong.

But as you guys know, Hong Kong and Southeast Asia have been good growth markets for you over time.

Do you still think these businesses can be growth businesses for you in the current environment?

Yea Andy, it's Mike.

We absolutely do.

I think the concerns that you've seen in that region have been primarily focused on the PRC.

And the PRC is less than 1% of our revenue, less than 2% of our EBITA, but 88% of our headcount across the Asia-Pacific region are outside of the PRC.

So, when we look at Hong Kong and Southeast Asia, we still feel pretty good about those markets.

They are still significant markets for us.

They are still significant infrastructure investments.

And we are positive on those markets.

As it relates to the Middle East, I just got back from the Middle East last week.

And those markets are still doing quite well.

Those markets grew in the quarter, and there is still a lot of infrastructure money being spent in that region.

As you know, our business in that region is not in the oil sector.

Now, we recognize that those governments are petro-dollar funded governments.

But those governments, at least the countries in which we are operating, have significant national reserves that are funding current budget deficits due to the price of oil.

So, those markets are still positive for us.

Okay.

That's helpful.

And just to clean up, Steve or Troy, I might have missed this, but did you disclose how much AECOM capital gains you had in the first quarter?

And can you talk about the cadence, if possible, for the rest of the year?

I know you've said you will have some, but any more clarity on that?

Andy, it's Mike.

We did not have any capital gains in the quarter from AECOM Capital.

But as we said last quarter, due to the investments that we've made over the past three years there, we have significant gains - built-in gains - in that portfolio.

And we expect to trigger those gains over the coming years and we expect to have at least a portion of those gains realized during this year, but we have not pinpointed a specific quarter in which we will trigger those gains.

Okay.

Thanks guys.

Jamie Cook, Credit Suisse.

Hi, good morning.

A couple of questions.

One, within the management services division, you noted $35 billion of pursuits, which I think $9 billion you said could be coming over in the next couple of months.

So can you give a little more color on what you would think your expected win rate is, how quickly these can contribute to earnings, just the profile of these contracts?

And then my second question, I think, during your prepared remarks within construction, you talked about, within the Americas specifically, that some wins that you had last year had been - you'd been slower to recognize revenues, or there's projects that are taking longer to start.

Can you just give more color on the types of projects, and what was causing the delays and when you expect that to recover?

Thanks.

Sure Jamie, let me take the first half of that question, I'll let Steve take the second half of it.

The MS pipeline is more robust right now for us than we've seen in a long, long time.

I mentioned $35 billion in qualified pipeline.

Our win rates generally in that segment are in the 35% range, so generally we are winning one in three projects that we go after.

Now, of course, those projects are fairly lumpy.

In fact, there's two projects that we are currently bidding on, one for $5 billion and one for $3 billion.

So a win or loss on those heavily influences the dollar, the total dollars on the win rate.

But generally that's the kind of win rate we expect.

Our win rate, frankly, over the past 12 months has been significantly higher than that 35% that I just mentioned.

But we believe that's a bit of an anomaly.

The win rate over the past year has been closer to 50%.

That is abnormal.

Generally a 33%, 35% rate is what we target.

And many of those projects, especially when you start talking about the $5 billion or a $3 billion project, those are five-year contracts.

And so you tend to see that revenue spread over a longer period of time.

And as far as when does that start hitting revenue, if you win them in the next quarter or so, you start picking up a little bit late in this fiscal year, but you really don't get up to full speed until FY 2017 on those.

Okay.

Just in terms of my second question, I just want to make sure.

The one thing you didn't include in that comment was I think, while you talked about delays in some of the projects in the US starting, I think last quarter, when you gave guidance, you did talk about larger awards that were booked in 2015.

We wouldn't see that revenue recognition until the second half of 2016.

So I guess just to preface it, that's why I'm asking the question does that create concern, or less confidence in maybe hitting the high end of your guidance because of the slowdown in some of these projects that you booked last year?

Thanks.

So Jamie, the punchline to that question is that we have stronger confidence in our overall guidance range for the year.

So one of the moving pieces among many obviously is Americas DCS.

And so your question particularly on that was we did have some very significant wins in the second half.

We had 1.5 book to burn in the last two quarters of FY 2015, and some of those are very large projects.

They are very tangible.

They are so tangible that we can track them on a task order basis to track exactly how it's converting.

And it started to convert in the quarter, but it didn't convert at a level to impact our revenue growth.

But we have confidence that it will going forward.

And overall, we still grew our backlog year-over-year by 11% in the Americas and sequentially we grew it as well.

So our confidence remains strong and our confidence on the macro range, our overall earnings range, is stronger, just given our performance in the quarter.

Okay.

So would that imply the mid to high end is more likely as you sit here today, just given your confidence level?

We are not prepared to give guidance within the range, but our overall confidence is stronger.

All right, thanks.

I'll get back in queue.

Steven Fisher, UBS.

Thanks.

Good morning.

I wonder if you could talk about where do you think we are in the cycle in North American building construction, and then how might you manage a transition broadly for the Company from an organic growth perspective if that overall building construction growth turns to decline?

Let me try and answer that, where are we in that cycle.

It's difficult to predict exactly where we are in the cycle, but I'll tell you we still see continued growth in that sector.

We had wins in Q1 of $1.9 billion.

We've got $13.6 billion of wins in backlog in that sector.

So we are continuing to win new work in that sector broadly across all of our metro markets.

So we are still seeing momentum in that sector.

Will we see continued growth like we did this quarter?

42% growth is not something we're going to continue to repeat quarter in, quarter out.

But we do have a lot of visibility out through 2020 in that sector.

So the good thing about that sector is there are long lead time projects, so we've got good visibility for a while.

But right now, if you look across our entire business, 2/3 of our business is growing and 1/3 of it is not.

So overall that's still a positive trend for us.

Do you anticipate that, given the tough comps that are coming up, that you will still be able to achieve organic growth in overall building construction in 2016 as the year progresses?

And I guess maybe I'll tie this to my second question, which is sort of asking Andy's question a little more broadly.

I think last quarter you said you expect modest organic growth in 2016.

I think you called out 3% growth for the first quarter ex-chem demil.

I'm not sure if that is on the same basis.

So I guess I'm curious how Q1 played out relative to your expectation for growth for the whole year.

So those two parts of those questions if I could, thanks.

So you are talking about both building construction and the overall business, correct?

Yes.

The first part was building construction, second part was overall Company.

Let me start with the building construction piece.

We feel very confident that we will have double-digit growth throughout the entirety of FY 2016 because of the recent big wins that will now start ramping up.

So, we feel good about organic growth in building construction.

And overall, I think it's important to carve up the business just a little bit.

So we know what happens, chem mil, we understand that contract and we've created a lot of transparency on that over the past year.

Put the chem demil to the side, and we know what's happening in oil and gas.

Put that to the side.

So you take out those two components of the business and organically our business grew 3% in the quarter.

Right.

So I think, last quarter, you said modest organic growth overall in 2016.

Is that the same basis, and does the first quarter at plus 3% put you on track for the modest growth for the full year?

I think, for the full year, we expect the business to trend to organic growth.

And so relative to our expectations is we would've liked to do a little bit better given how much we have in the backlog in DCS and the slowness of it converting, which we believe it will.

So, we think organic growth will ramp during the year, particularly ex-chem demil.

Okay, thanks a lot.

Chase Jacobson, William Blair.

Hi, good afternoon.

I wanted to ask about the construction services margin there.

I know you're coming up with tough comp from last year, and oil and gas is still a headwind.

But that business is growing, and you've talked about -- I think just to Steve's question, you said that you expect continued double-digit growth in building.

So how low is the building construction margin in that business?

And with that growing, are you going to be able to break out of this kind of 1% to 2% adjusted range?

I believe overall for kind of a macro forecast for construction services would be about 2%.

The building construction margin is extremely low.

But it also requires almost no working capital associated with it, so the return on invested capital is extremely high.

And that is because we put up the buildings and our subcontractors are on a pay when paid basis, so we don't deploy a lot of working capital associated with it.

So, we are happy for that margin to be low as long as that business model is the same.

But there's upside obviously in my 2% forecast for that business, and that's because the rest of our construction business tends to run a bit higher margin and our pipeline in the rest of the construction business is quite strong.

In fact, we would expect to post significant growth in non-building construction, construction services backlog in Q2.

Okay.

That's helpful.

And then just a couple housekeeping items.

Did you say exactly what the non-core assets were in the quarter, and what are the recognized synergies to date out of the $325 million?

The non-core assets in the quarter related to our oil and gas business, so there were some businesses that didn't meet with the overall design build/operate/finance and with the core competencies of the business.

So those were the assets and the businesses that were disposed of during the first quarter.

Are there more of those?

There are some assets that will be disposed of in the second quarter.

They have been reflected in that number.

But we have them going to auction in the second quarter, and so we will see the impact of that.

Okay.

And then just what's the progress on the synergies out of the total?

We are right on track for synergies.

Our run rate is now around $200 million.

And the real estate program continues to drive a significant portion of that, and that's on track.

And the increase that we added to at the end of our Q4 to take our synergies up from $275 million to $325 million is still well within sight.

Great, thank you.

Tahira Afzal, KeyBanc.

Congrats on the good quarter.

First question is as the transportation bill gets projects circulating again, can you talk a bit about how your joint proposition now that you have URS in the mix has been really received by the DOD and customers out there, and how that's really going to influence your market share off the cycle hopefully as it unfolds?

We are certainly seeing an increase in alternative delivery methodologies coming out from the Department of Transportation and other agencies.

So, we are quite optimistic that, over time, our strategy of being fully integrated will pay off.

I think it's early days for that.

I will say that the FAST Act, however, is starting to move large projects into the forefront in terms of our bidding pipeline now.

Some in your neighborhood there in New York are being discussed and coming out to bid as high as $16 billion in value.

And without the FAST Act and the visibility for a five-year funding from the federal government and 15% growth during that five years, I don't think that you would have as many of these significant projects that we are now tracking in the pipeline.

And then more and more we are seeing those come out from traditional agencies that were always in the design methodology coming out and looking for fully integrated deliveries.

So I think it's early days, but we are very confident that our strategy is the right one to be able to capitalize that when it's required, and when they are coming out in more traditional bidding methodologies to also be able to satisfy client demand on that end.

Got it, okay.

And your diversified model, as you said, has helped you weather all of the volatilities so far.

As you look forward, it seems like maybe defense spending and transportation pick up.

You've had a nice run on the private commercial side.

And at some point, the momentum will at least fade to some degree.

Do you feel you have enough length of growth from a two- to three-year time frame right now?, given all the businesses that are yet to really pick up?

We certainly do.

And we see it in a number of ways.

We've talked about the growth in the construction business earlier.

We've talked about the infrastructure momentum in the US due to the FAST Act.

But you also mentioned defense.

And defense here in the US due to the passage of the Omnibus bill gives us a lot more clarity to defense spending here in the US.

And I talked about the bidding that we have in our pipeline, which if we hit just our normal win rate on those bids, we will have very significant growth in that market.

But more importantly, we are taking these areas of expertise that we have now put together in this combined organization and taking them to other markets.

So defense spending is one we've long been a big player in the defense market here in the US, but we have now taken those capabilities and we have expanded it into the UK where we have a significant business there now on the defense side and significant pipeline there.

I mentioned I just returned from the Middle East where we just won our first defense contract in the Middle East.

And we are bidding on a number of other complex design build opportunities for the defense sector there.

We are performing defense sector work now in Australia.

We've stood up a both defense business as well as a construction services business across Asia-Pacific.

So we see a lot of growth coming just from taking the expertise that we have acquired through the URS acquisition and pushing it out to our global platform.

And all of that we believe will contribute to growth over the coming years within this organization.

But this diversification that we've undertaken is also driving significant cash.

Especially when we look at our business today, and look at where our current stock price is, we are still looking at a current almost 20% cash ROE in this business.

And this diversification is going to continue to drive that kind of cash flow.

Got it.

That is actually pretty helpful.

And the last question is I know you just pared down your energy exposure.

You know, at some point, energy is going to come back.

Oil and gas is what I mean.

Is there a point at which you start to look at that again because there are a lot of valuations that might be looking more attractive now from an M&A standpoint?

Listen.

Today oil and gas, we have about 9% of our exposures in the oil and gas sector today.

And the good part about that is, as Steve mentioned earlier, we had a profitable quarter in the oil and gas sector, and today 80% of our exposure is OpEx and sustaining capital work and O&M type work in that sector.

And very little of it is applicable to new capital works projects.

But should capital expenditures come back to that sector, we have the expertise, we have the track record, and we see that as entirely upside to that sector from here.

But whether we would look at M&A opportunities in that space, we are always looking at opportunities that are priced right to fit our strategic direction.

And I think your observation is correct, that the prices are beaten down in that sector right now, and energy is here for the long-term.

And there could be opportunities there, but nothing that we are prepared to talk about today.

Thanks Mike.

Justin Hauke, Robert W. Baird.

Good morning guys.

I guess maybe let me start with a quick housekeeping and then I'll ask a broader question.

But I believe this is the last quarter that you were going to have the significant chem demil headwind.

So just, I don't know, for posterity's sake, maybe just can you help us quantify what the year-over-year impact was and then also confirm that we shouldn't have that magnitude of year-over-year hit going forward?

Justin, you're correct.

This is the last quarter that we will have the significant chem demil headwind.

And the impact in the prior quarter was about $0.15 or $33 million.

Great, thank you.

And then I guess the second question, just on the guidance, I'm trying to understand maybe the magnitude of the weakening in the Americas business, because it seems like the Americas and then a little bit in Asia-Pacific, those are the only two areas that kind of deviated from plan.

So, is it fair to think of the flow-through from the gains on the legal settlements, the $0.07, is that approximately offsetting what would have otherwise been your view for those other business lines, that it keeps it flat, or would that be too far of an extension?

I'm not sure I understand the question, Justin.

I guess I'm just trying to understand that the $0.07 gain that you had this quarter is in the guidance, correct?

There's lots of moving pieces in the guidance.

But that $0.07 was an outperformance against our balance sheet, correct.

Right.

So I guess I'm trying to understand -- the reason for keeping the guidance unchanged, is that offsetting what would have otherwise been slightly weaker versus expectation in the Americas?

No.

We are still -- we don't really -- we feel that the quarter for Americas is weaker than we expected, but we don't think that business has weakened.

In fact, we think that the outlook for that business is still improved quarter-over-quarter just based on our wins.

So, overall, there's a lot of moving pieces.

The $0.07 obviously helps in the year, and we will -- we have a stronger view on our outlook, but at this point we weren't ready to take it up.

Got it.

Then maybe my last question.

Just historically in an election year, how does that impact the pace of awards and how quickly some of the task orders get issued there?

Does that have any impact?

Is it a positive or how do we think about that?

It has no impact.

I don't think you should think about it in terms of awards.

Now, it may have longer-term impacts depending on who wins the election on whether there's more defense spending or more infrastructure spending.

You could take different points of view on that depending on if it's a Republican or Democratic win.

But we tend to benefit on either side of that equation.

But I don't think you should think about any impact on awards during FY 2016.

Thank you very much, appreciate it.

Adam Thalhimer, BB&T Capital Markets.

Hey, good morning guys.

I wanted to ask about just kind of a general level of competition out there.

There are some very large oil and gas players who also play in infrastructure.

I'm just curious if those -- are you seeing those companies be more aggressive going after infrastructure projects?

Not necessarily.

The competition set is similar to the competition set that we always dealt with.

So we don't see any different levels of competition.

It's a tough marketplace to compete in, as it always has been and always will be, but we don't see the competitors set changing at all during these times.

Okay.

And then I wanted to ask about, on the capital allocation side, I felt -- and maybe I read you wrong, but I felt like you were maybe opening up a little bit more to share repurchases, which given what the stock is doing might make sense.

I just wanted to get some additional color on that.

Listen, we constantly analyze our capital allocation strategies, and stock buybacks is one of those triggers that we look at.

But we are analyzing all of those options on a regular basis, and we haven't made any firm decisions that we are prepared to disclose at this point in time.

But clearly stock buybacks are something that do become more attractive at certain price points of our stock.

Okay, thank you.

Sameer Rathod, Macquarie.

Good morning.

Just a couple of quick housekeeping questions.

Maybe I missed this, but Sellafield I think was supposed to be a headwind for the next three quarters since I think they have a contract with us then this quarter.

Did you guys quantify that or was that the correct understanding or what kind of impact, what's going to happen for the rest of the year?

We didn't quantify it.

We've quantified it in the past where it was approximately $20 million of EBITDA for the full year.

And that is going down obviously as the structure of that project has changed.

But we will still be competing on a go-forward basis for work on there, and we will have ongoing work there for people that are already there that we anticipate to stay on, but we haven't quantified exactly how much that ongoing revenue will be.

Right.

My next question is on goodwill impairment.

I know, obviously, you tested in the fourth quarter, but given the decline in share price, I think one of the triggers is the market cap is below book value.

Is that an accurate understanding, or how should we think about that here in the second quarter?

That is an accurate understanding.

We go through and do an evaluation each of the quarters and during the year to understand whether there's an impact on goodwill.

But we typically do that in the fourth quarter.

Again, we evaluate that throughout the year and where we sit today, we don't see ourselves being impacted.

But nevertheless, as we look forward, given the long range, the long-term price of oil, there is always a possibility that something can happen.

But where we sit today, it's not a concern.

Okay.

So you are not necessarily forced to take any type of impairment despite the share prices, just you have to go back and relook at your assumptions?

There's some complicated triggers in there, but a sustained decrease in your market cap might have one, but that something that would need to be proved over time.

And there's arguments that can go both ways.

But you always test in the fourth quarter, or we do.

Okay.

Perfect.

I guess my last question is how do you guys feel about the US private non-residential markets?

I'm not sure if I heard specific comments on that inside of what you've already said.

That's my last question.

Thank you.

It depends on what you mean by private nonresidential.

If you're talking about commercial high-rise construction or industrial construction.

I was more related to commercial construction and high-rises.

As we mentioned, we feel pretty good about it having just had $1.9 billion of wins in the last quarter, and had 43% organic growth in that sector.

Most of that work is non-resi construction.

So we feel pretty good about that.

It's been a hot market for us, and this quarter was another indicator of a very strong quarter and strong growth in that sector.

Okay, thanks.

Have a great day.

Michael Dudas, Sterne Agee.

Good morning.

Thanks for taking the question.

Mike, just maybe following on the private side, thoughts on power and where you guys stand relative to when you were planning out 2016 and how the outlook looks today for new business?

So the power sector has been a real positive for us.

That's been a challenged market for a number of years, but we returned organic growth in the quarter in the power and industrial sector, and we see a lot of opportunities in front of us right now.

And we are expecting this Q2 to be a real good quarter for us in wins, because we handicap the bids that we have outstanding, and there's a few decisions that are going to be made this quarter that are very encouraging to us.

So power is attractive to us.

The coal ash opportunities due to regulatory environments is attractive to us.

And so overall, we returned to growth and there's more opportunities in front of us currently than we've seen in the past.

Thanks.

I'll leave it at that.

Thanks gentlemen.

Thank you.

I will now turn the call back over to Mike Burke for closing remarks.

Thank you operator.

Thank you, everyone, for participating today.

And as hopefully you gathered from this call, we feel pretty good about this past quarter with our margins increasing, which is evidence that the synergies that we've been talking about are currently being realized.

We feel good about the pipeline of opportunities and the wins in the quarter, and we are continuing to deliver on the commitments that we've made to all of you over the past year.

And now that we are delivering on those commitments, it's increasing our flexibility to consider our capital allocation strategies that we've talked about.

So all of this leads us to a position where, given today's current stock price, we have a 20% cash return on equity.

And so we're going to continue to execute against our strategy, continue to collect our cash, continue to extract our synergies, and continue to produce the high returns on our equity that we expect over time will translate into an improved stock price.

So thank you again for participating today, and we look forward to updating you again at the end of next quarter.

Have a great day.

Thank you ladies and gentlemen.

This concludes today's Quarter 1 2016 AECOM earnings conference call.

Thank you for participating.

You may now disconnect.