雅各布工程 (J) 2017 Q1 法說會逐字稿

Good morning, and welcome to the JEC First Quarter 2017 Earnings Call.

(Operator Instructions)

I would now like to turn the conference over to Kevin Berryman, Executive Vice President and CFO.

Please go ahead.

Thank you, Anita, and good morning and afternoon to all. We welcome everyone to Jacobs' 2017 first quarter earnings call. I will be joined on the call today by Steve Demetriou, our Chairman and CEO.

As you know, our earnings announcement in form 10-Q were released this morning, and we have posted a copy of the slide presentation to our website, which we will reference in our prepared remarks. Before starting, I would like to refer you to our forward-looking statements disclaimer, which is summarized on slide 2.

Any statements that we make today that are not based on historical fact are forward-looking statements. Although such statements are based on our current estimates and expectations and currently available competitive financial and economic data, forward-looking statements are inherently uncertain and you should not place undue reliance on such statements as actual results may differ materially.

There are a variety of risks, uncertainties, and other factors that could cause Jacobs' actual results to differ materially from what may be contained, projected, or inside by are forward-looking statements. For a description of some of the risks, uncertainties, and other factors that may occur that could cause actual results to differ from our forward-looking statements, see our annual report on form 10-K for the period ended September 30, 2016.

Including item 1, business; item 1A, risk factors; item 3, legal proceedings; and item 7, management's discussion and analysis of financial conditions and results of operations as well as other filings with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements.

During today's discussion, we will make a number of references to non-GAAP financial measures. You'll find additional disclosures regarding these non-GAAP measures including reconciliations of these measures with comparable GAAP measures in the presentation that accompanies our prepared remarks which can be found on our investors relations website located at www.jacobs.com.

So, now please turn to slide 3 for a quick review of the agenda for today's call. As in past quarters, Steve will begin our first quarter earnings presentation with some comments on the business and our results for the quarter, followed by a summary of backlog in market conditions for each of our four lines of business.

I will then provide some more in-depth discussion on our financial metrics and results for each LOB. I will continue with some comments on our restructuring and capital allocation initiatives, after which, Steve will finish with some closing remarks. After, we will open it up for some questions. With that, I will now pass it over to Steve Demetriou, our Chairman and CEO.

Thank you, Kevin. Welcome to our FY17 first quarter earnings call. Before I begin, I'd like to recap the recently announced changes to our Board of Directors.

Noel Watson, a true legend within our company and our industry, decided to retire from the Board last month. As many of you know, for more than 50 years, Noel all has been wholly dedicated to driving our Company's industry-leading growth and success. He epitomizes inspirational leadership and has been a clear role model for me and everyone at Jacobs.

And at the same time, John Coyne, who served on our Board since 2008 and who was an outstanding mentor to all of us on the leadership team also announced his retirement. We wish both Noel and John success in their future endeavors.

To replace the Independent Director position vacated by John Coyne, I'm pleased to welcome Robert McNamara to the Jacobs Board. Rob brings a wealth of P&C industry experience in many of the markets we serve, and all of us on the Board are excited to have him as a new director.

Moving to slide 5, I'd like to summarize our first quarter FY17 results. As projected in last quarter's earnings call, the challenging global economic environment that we experienced the last few years extended into our first quarter, although with evidence that certain target markets are starting to show signs of life.

As a result of these prolonged market pressures, revenue burn in the first quarter was light at $2.6 billion. However, our focus on growth, and specifically winning new business, is clearly gaining momentum.

First-quarter sales bookings were up 35% versus last year, and the higher value professional service component of our $18.1 billion backlog increased by more than $200 million sequentially. Equally important, unit gross margin improved to an overall company level of 16.4% of revenue as compared to 15.5% in last year's first quarter.

And on the cost efficiency side of the equation, we continue to make great progress as we approach the final stages of the Companywide restructuring initiative that began nearly two years ago. Total first quarter SG&A cost was down 13% versus the same period a year ago.

So putting all this together, our strong margin focus, our rigorous internal cost discipline, and improved operational performance, contributed to first quarter EPS coming in modestly better than expected. On a GAAP basis, first-quarter earnings of $0.50 per share was up versus the $0.38 per share achieved in the last year's first quarter. And on an adjusted basis and excluding the discrete tax benefits of a year ago, we were pleased that our adjusted earnings of $0.68 per share stabilized versus last year's first quarter.

I'm also pleased with the strong performance across the company in driving working capital efficiencies which led to a further increase in our net cash position by the end of the first quarter. Consequently, we announced an enhancement to our capital deployment strategy with the initiation of a quarterly dividend while also continuing our share repurchasing program and increasing activity on exploring value-creating M&A opportunities.

In early December, we hosted our investor day and presented our three-year growth strategy for the Company and individual lines of business. As our current fiscal year progresses, we're beginning to see growth momentum build across the Company while we continue our transformation to a new stronger Jacobs. And of course, in late December, we successfully concluded the Motiva arbitration, which was a very positive outcome for Jacobs with the arbitration panel issuing a unanimous decision rejecting all of Motiva's claims and assigning no liability to Jacobs or our JV partner.

So, moving to slide 6, as I previously mentioned, our total revenue and backlog finished at $18.15 billion for the quarter relatively flat versus a year ago, but down by approximately $600 million sequentially. The strengthening US dollar was responsible for close to $200 million in negative foreign currency movements, and the decision by one of our clients to cancel a large pharmaceutical investment accounted for most of the remaining sequential decline in backlog.

However, the underlying story on our backlog is much more positive. The higher value professional services component of our backlog, which at $12.2 billion represents more than 2/3 of our total backlog, increased for the fourth straight quarter and ended up at the highest level reported since March 2015.

And compared to a year ago, our professional services backlog is up by over $800 million, despite more than $300 million of negative foreign exchange impact. So as a result the earnings potential in our backlog, as measured by gross margin, is trending positively.

As compared to last year's first quarter, gross margin in our backlog is up more than 10%, and is almost modestly higher on a sequential basis. And when looking at the unit gross margin of our backlog as a percent of revenue, each of our four lines of business show both year-over-year and sequential increases.

So we believe the increase in quality and overall positive backlog momentum is benefiting by our more disciplined approach and stronger focus on leveraging synergies across the Company to win higher-value work. Over the next four slides, I'll provide more specifics for each of our lines of business.

Progressing to slide 7, our aerospace and technology line of business backlog remains steady at $5.1 billion versus last year and is up by more than $260 million year-over-year. It is also noteworthy that embedded in the A&T backlog is a year-over-year increase of $300 million of higher margin professional services work.

The shift in mix to higher value business is offsetting a reduction in revenues associated with two contract re-bid losses back in the second half of 2015. Although we will continue to see pressure on our A&T backlog in the second quarter due to these prior-year losses. We are optimistic that the strengthening pipeline of new business opportunities estimated to now be at a record high level for our Aerospace and Technology business will result in a growing backlog during the second half of this year.

Across our markets, program funding continues to be stable, and we are targeting significant market share growth opportunities. Defense spending expectations are building momentum under the new US federal government. Consistent with our strategy, we see significant opportunities in weapon systems sustainment services.

In the first quarter, the US Marine Special Operations Command logistics support contract win was a nice step towards organic growth in the sector. Also positively, during the recent quarter, we made good progress in resolving previously protested wins, a prime example being our award of the US Air Force 53rd wing IT support services contract which had been mired in protest for an extended period of time. The value of our awarded contracts remaining under competitive protest has significantly decreased to what we now consider to be the new norm of approximately $100 million of protested project awards.

Homeland Security, cyber, and intelligence-related markets remain strong as areas of national priorities spend. Specific to our growing Jacobs connected enterprise service offering, the recently announced investment in Ion Software enhances Jacobs' ability to deliver and manage [internet-faced] capability for our global customer base across all four of our lines of business.

The Jacobs Connected Enterprise Suite provides clients the capability to connect, protect, and analyze operational systems and data, and spans several core functional categories including information technology and network infrastructure, cloud solutions, data analytics and cyber security. The diversity of our aerospace and technology business is a strength.

The profitability of our US telephone business continued to improve as unit margins increased while we expand backlog with existing customers. In the UK, our position in the nuclear, new build market continues to expand.

In addition to the ramp up of work at EDF at Hinkley Point C, we've been appointed by NuGen as a strategic partner to assist them with overall program delivery. And we were also successful in winning an extension to an engineering support services contract we have with NASA and a technical support services contract with Ford Motor Company.

Moving to slide 8, our buildings and infrastructure line of business is experiencing the best sales momentum in the Company. Sales were up significantly versus the year ago quarter and have continued to positively trend over the past several years.

Our fiscal year first quarter backlog for building an infrastructure is now at $5.2 billion, which is up $120 million versus last quarter and more than $400 million versus the prior-year period. Political dynamics are, for the most part, favorably impacting this business globally and seem to have unleashed some of the previous delays in opportunities.

Specifically in the US, there was a flurry of activity late in the quarter of RFPs coming out across the federal, state, and local levels, some fairly significant in size. Of particular strength for Jacobs in terms of recent wins and building pipeline opportunities are in highways, rail, aviation, and federal buildings. Specifically in buildings during the quarter, we were awarded critical framework agreements for the US Army Corps of Engineers, the US Air Force in Japan, and the renewal of our position on the defense infrastructure panel for the Australian Defense Force.

Also on the buildings front, healthcare is strong with $15 billion in current projects under management across the US, and we're experiencing excellent momentum in Australia where we won an architectural services contract for the South New Wales Health Blacktown Hospital and a principal consultant contract for Queensland Health Roma Hospital. There are also exciting growth opportunities in educational facilities in the US, UK, and Australia driven in part by the expansion of students from Asia seeking higher education in these markets.

And also on the buildings front, we're actively targeting a select group of corporate clients and are seeing significant interest for fully integrated service delivery. Jacobs is particularly well-equipped to respond to these needs due to our long-term client relationships across a number of industries such as oil and gas, pharma, and chemicals.

The global infrastructure market, specifically transportation, is providing growth opportunities in a sector where we have excellent market positions. We're seeing the UK government invest in infrastructure. Rail and transit [spend] globally continues to be positive especially in California, the US Northeast, the Middle East, Australia, and Asia. Some recent wins include the Victoria Government Cranbourne Backpack and Hand Transit Depot, the Transport for London Camden Station Upgrade, and a detailed design services contract for network enhancements for Sydney Freights.

US federal highway spending remains steady, and we're focused on those states and counties which have recently funded revenue packages. Opportunities also exist in the UK, Australia, and New Zealand and we experienced several wins in the quarter including the Florida Department of Transportation Turnpike, the Texas Department of Transportation High 30s Design Project, and the Bruce Highway Upgrade in Australia.

Investment in new and existing aviation facilities continues to grow across the globe. We've added top international aviation talent and developed innovative best practices to support our clients. This has led to a string of recent successes. After program wins toward the end of our FY16 at LaGuardia and LAX, we had further significant wins in the most recent quarter including at Heathrow and Melbourne airports and are pursuing several other major airport programs around the world.

Global water and environmental services markets continue to grow, and we're having success in expanding our service offerings by leveraging our Tier 1 expertise in Europe and top quartile capabilities in Australia. We're pursuing a number of opportunities globally, and we're pleased with recent wins, including a four year extension to our Bear Creek Georgia Reservoir O&M contract, Miami Dade Water and Sewer Department, Melbourne Water Treatment Plant Expansion, and the ConocoPhillips Australia Environmental Services Panel. And we're also excited about the recently announced acquisition of Aquenta Consulting, which strengthens our leadership in integrated product delivery services in Australia and across Asia specific.

And now on slide 9 and the summary of our industrial line of business. In the first quarter, we experienced a significant burn in our life sciences backlog, especially in the field services component. We also had the cancellation of a significant biotech project associated with our client's decision to cancel the expansion.

As a result, our quarter end backlog was reduced to $2.5 billion. However, the market impact of this decline and backlog was minimal as the first quarter professional service portion of our industrial backlog remains solid and, in fact, is up nearly $100 million versus the year ago quarter.

In life sciences, despite the one single large project cancellation, the pharma market continues to be strong particularly in the biotech space. The sector continues to look positive with a strong pipeline of new drug developments. We anticipate the third wave of expansions to include filling capacity for drug substances and supply chain optimization.

During the quarter, we captured a significant biotech manufacturing project award for a confidential client and are actively performing site selection services for their new facility. Our geographic market share continues to grow as we capture opportunities in Switzerland, Northern Europe, and Hungary, and we're seeing [great shoots] of recovery in China and Singapore.

We've had success in expanding our construction management, commissioning, and qualification capabilities to provide end-to-end solutions for our pharma clients. And we also had several recent wins this quarter in the sustaining services space, a strategic growth opportunity for our business.

Consumer goods and manufacturing spend is steady. This is an area of opportunity for us as we expect increased activity from increased existing clients looking to appeal to consumers who expect high quality, convenient, personal care and wellness products that are environmentally friendly.

This quarter, we secured two front-end project development opportunities demonstrating the pulp and paper sectors continued growth, an area of particular strength for us. We are also seeing growth as top brand and Tier 2 manufacturers look at how to provide consumers direct ship and e-commerce options. We are being rewarded with extensions from sustaining services contracts resulting from our relationships, capabilities, and our ability to deliver value as the upward trend continues in the sector.

Our field services business continues to create opportunities for us particularly as the US and UK industrial sector shows signs of recovery. We're seeing increased interest in construction and maintenance prospects from clients we did not traditionally serve, such as within the nuclear and automotive industries.

Capturing this type of work and leveraging the adjacencies within our overall corporate portfolio, is a real growth opportunity for us. Overall, we're seeing positive growth in fuel services in multiple geographies and industries with increased sustained services prospects.

In the specialty chemical sector, positive trends continued for our technology business as our clients addressed new environmental regulations for sulphur emissions. Additionally, several early-stage opportunities emerged this quarter for bleach and chemical plant prospects in Finland, Russia, Uruguay, and the US. During the quarter, we were awarded a major sulphuric acid plant contract in Canada.

And in the mining sector, we're seeing increased activity in preliminary studies in value improvement programs. Positively, we secured three significant wins in our first quarter: two for front-end engineering and design investments in Canada, and a third for a five-year sustaining capital program. These awards, along with a recent rise in copper and other base metal prices, are indications the mining and metal sector is beginning to slowly recover.

Turning to slide 10, our petroleum and chemicals revenue in backlog continued to stabilize in the first quarter of $5.4 billion. I'm very pleased with the quality of recent wins in our petroleum and chemicals business as evidenced by the unit gross margin in backlog increasing versus both last year and last quarter.

The upstream oil and gas market had a positive boost during the quarter by the OPEC agreement to cut production. Oil prices reacted positively moving up to a $50 to $55 per barrel range by the end of our first quarter. While this is a positive, there still remains a relatively high level of caution and uncertainty on crude prices over the near term.

Looking further out, the crude market is expected to continue its slow recovery as demand for oil is forecast to modestly grow over the next several years. We do, however, expect market forces will continue to cause price volatility and that current high inventory levels coupled with a gradual recovery in non-OPEC crude productions will moderate any runway in prices.

LNG prices experienced similar upward movement. US LNG exports have been gradually increasing and moving to Asian markets due to a combination of higher demand, higher prices, and LNG plant outages in Australia.

We expect continued interest in new-market creation schemes, such as gas-to-power, small scale distribution, marine fuel and transportation fuel substitution, which create opportunities for smaller scale LNG plants and logistics investments, which is an area where we are more competitive.

Refining markets are generally steady with continued focus on efficiency improvements, regulatory compliance, and maintenance that was deferred over the last couple of years. We expect larger capital expenditure projects to remain centered in the Middle East and Asia.

Prospects that we are engaged in are driven by the relative demand for diesel versus gasoline, which require reconfiguration of some of the new, higher conversion refineries, increased octane requirements, increased COPRA capacity requirements due the MARPOL regulations on high sulfur bunker fuels, and the continued trend to bring transport fuel quality in developing countries up to world specifications.

The chemicals sector remains our strongest growth trend. The numerous ethane crackers in the US coming online this year adding 7 million tons of capacity, is promoting significant downstream investments creating significant opportunity as our initiatives, such as oil to chemicals and other chemical derivative opportunities benefiting from chief feedstocks. Small and mid-cap spending is increasing on projects where we historically have our strongest share.

It is positive to see the increasing pipeline of opportunities and as a result of several recent project wins, petrochemical's is forecasted to represent more than 2/3 of our petroleum chemicals business for FY17. Turning it now over back to Kevin.

Thanks, Steve. Now turning to slide 11, you will see a more detailed summary of our financial performance for the quarter. At this market condition, as Steve noted, in certain end markets, continued to impact top line revenue during the quarter and resulted in revenues of $2.6 billion down approximately 10% which is the quarter -- first quarter of 2016.

More positively, GAAP EPS was $0.50, up $0.12 versus the year ago quarter as costs associated with our restructuring efforts begin to slow as expected. On an adjusted basis and when noting the $0.09 benefit in our EPS in Q1 a year ago associated with the discrete tax item, the Company was effectively flat versus year ago on an operational basis at $0.68, versus the calculated figure of $0.69 in the year ago quarter.

As Steve mentioned, backlog was $18.1 billion at quarter end, and book to bill on the trailing 12-month basis remains above the weaker level seen in early FY16 and finishing at 99.99, compared to 0.92 for the first quarter of 2016. Q1 gross margin percentage finished up 90 basis points versus the year ago quarter, further indications of our improved execution, our focus on profitable growth, and cost discipline. Importantly, our gross margin percentage for our professional services business was also up and improved to a level that the Company has not seen since 2014.

For Q1, GAAP SG&A was reduced a significant $50 million versus the year ago period as restructuring costs begin to evade as expected. On an adjusted basis, SG&A fell $14 million versus the year ago period, continuing the positive signs of our success to drive greater cost efficiencies.

Operating profit for the quarter was $89 million or $120 million on an adjusted basis. And on an adjusted basis, the OP margin improved 20 basis points versus the year ago period as our unit margin improvements have mitigated some of the challenged end market dynamics that we have faced.

Finally, our efforts to improve cash flows have seen working capital decrease of 41% versus the year ago quarter with receivables down 14% over the same period. DSOs were lower than the year ago quarter by three days and Q1 free cash flow was $84 million, a $70 million improvement versus the year ago period.

At quarter end, the Company's net cash position now stands at $347 million, an improvement of $79 million over last quarter, and a strong improvement of $528 million from the year ago period. Before moving on to the next slide, I wanted to also note that we have made a one-time accounting adjustment during the quarter to update our foreign goodwill balances in connection with certain exchange rate differences.

These required adjustments were made during the quarter, and were identified given the additional transparency provided by and our transition to the company's enhanced ERP system implemented in Q1. These adjustments were offset in the shareholders equity of our balance sheet with zero impact to our P&L and/or our cash flow and only were related to the translation of our goodwill and intangible balances to our US dollar functional currency.

The adjustments were also [gains] in material and as such we have made the correcting adjustments during the quarter. For further information, I refer you to our latest 10-Q that was released earlier this morning.

So turning to slide 12, you will see the Q1 segment financials for our four lines of businesses. Regarding our aerospace and technology line of business, we saw a positive 6.4% increase in adjusted operating profit versus the first quarter of last year and an increase of 170 basis points in operating profit margin versus the same period.

The improvement in the margin profile for the year were supported by a continued improvement in the margin mix of this line of business. The overall (inaudible)profit improvement occurred despite a drop in revenues.

The reduction in revenue was driven primarily by certain unsuccessful re-bids in 2015 associated with generally lower margin businesses. The margin in the quarter was further supported by additional project reserve releases given strong project delivery performance on several large projects.

Meanwhile, the B&I business saw revenue improve by 3.1% versus the year ago quarter. But due to the mix of work being burned, adjusted operating profit declined by 4.1% over the same period and margins were actually down a bit, 50 basis points.

The margin in the quarter was impacted by certain project startup delays which resulted in staff build-up costs being less billable than originally expected. Margins, however, are expected to rebound over the course of the year.

The industrial line of business also saw an increase in revenues for the quarter of 11.8% versus the year ago quarter. However, adjusted operating profit was down 8.1% versus the same period and margins were also off 70 basis points. The primary driver of revenue growth was from our life science business, although much of the incremental growth in this revenue was at lower margins, due to field services work building on several major projects.

In addition, our mining and minerals business also contributed to some of the margin weakness given the impact of our project settlement in Q1 of the current year. Sequentially, our industrial business rebounded well versus Q4, almost doubling from the Q4 figure of $13 million.

Lastly, petroleum and chemicals business line of business saw a 32% decline of revenue for Q1 versus the year ago period and a more positive 30 basis point increase in operating profit margins as we increased our higher margin professional services workload in petroleum and chemicals. The following revenue was driven by the challenging end market dynamics that Steve has previously mentioned, but the margin improvement is a clear indication of the strong focus on cost efficiencies and more profitable work.

So moving to slide 13, you'll see the split of segment operating profit by each line of business on a trailing 12-month basis for fiscal years, first quarter, 2017 versus the year ago period. As we have previously highlighted, our revenues and segment operating profit mix continues to evolve towards higher growth and higher margin businesses consistent with our strategy.

Two-thirds of our segment profit now comes from our two highest margin businesses, in which those two combined have increased their percentage of total segment operating profit by 9 percentage points versus the year ago trailing 12-month period. In addition, revenues and corresponding segment operating profits from those portions of our portfolio, most impacted by challenged commodity prices, continue to represent smaller portions of our overall mix respectively. However, if these markets begin to rebound, we believe we are well positioned to leverage our global talent and skill set to see strong improvements in these businesses as well.

In summary, the profit mix of our portfolio continues to underscore the industry leading diversity and stability of our portfolio. The diversity positions us well for profitable growth. As, one, we continue to drive growth in our higher-margin businesses; and, two, we position ourselves to drive growth in those businesses currently impacted by weaker commodities as these markets begin to recover.

Moving to slide 14, over the quarter we continued our efforts to improve our financial discipline and performance while further enhancing our business structure and operations. The 2015 formal restructuring program is nearing completion and has significantly enhanced our cost effectiveness as evidenced by the reduction in adjusted selling general administrative costs of $62 million in the first quarter of 2017, versus the first quarter of 2015, the last reported quarter prior to the initiation of our restructuring program.

Our lines of business realignment has further supported the restructuring effort enhancing leadership focus and accountability. We will continue to take the rigorous approach to attracting business expenditures and then return expectations associated with them.

To that end, we previously announced during our fourth quarter 2016 call and 2016 Investor Day, that we are forecasting strategic investments to support various initiatives and our pivot to growth. We have taken a very disciplined return on investment approach to these expenses; and much of the focus, as you know, is on upgrading our systems and tools.

Our spend on the strategic investments started later than originally expected, as plans were vetted and ultimately finalized. We now expect the spend to occur over the first three quarters of the year as we continue to evaluate the mix of investments and returns associated with them. In Q2, we expect investments to approach approximately $0.05 Earnings per Share.

Finally, slide 15 provides a short update on our capital allocation program activities for the first quarter. During the quarter we continued to execute our share buyback program in a balanced and measured approach purchasing 600,000 shares for a total of $30 million.

We have now spent $183 million of our approved $500 million share buyback program, purchasing 4 million shares in the process. We plan to continue to execute the remaining $317 million of this program in a balanced manner over the remainder of the three-year turn of the program.

In addition, we were excited to announce at our 2016 Investor Day that our Board approved the implementation of the dividend program in FY17. We were also pleased to follow up on this news by declaring in January, a dividend of $0.15, a quarterly dividend payable on March 17 to shareholders of record at the close of business on February 17. Given the significant improvements we have implemented at Jacobs and our continuing belief in being able to drive strong cash flows, we believe returning excess capital to our shareholders in this manner is an appropriate use of cash and will continue to support shareholder (inaudible).

Of course, we also believe that the strength of our cash flow not only supports these returns of capital to our shareholders but still provides ample, and needed cash, to support the important, most important use of cash, investments to drive our profitable growth strategy. To that end, after the close of the quarter, we have made two key growth investments.

The first was our recently announced acquisition of Aquenta Consulting in Australia which will support our integrated project service delivery in the Asia-Pacific Region. And then of course, Steve also mentioned the investment at our new Ion Software program which will aid our Jacobs Connected Enterprise Suite of Services and enhance our ability to deliver, extend, and manage this key growth initiative. With that, let me hand it back over to Steve.

Thank you, Kevin. Moving to the last line, we're pleased with the progress of enhancements we've made at Jacobs over the past 18 months and the transformation that's now underway.

We remain [diligent] in our pursuit of increased operational efficiencies and are driving a number of significant improvement initiatives. The key over the next several quarters will be a continued strong discipline and focus on improving margins and cash flows.

Overall, we continue to project a stable fiscal year with strong underlying operational performance. Our adjusted EPS guidance remains at $3 to $3.30 range. This includes certain strategic investments associated with our strategy implementation, which we will continue to make in the second quarter.

However, the key change occurring in the Company is our shift from a total focus on cost restructuring over the last two years, to now a relentless focus on winning new business that provides profitable growth. From a market standpoint, we're more positive. Partly because certain hard hit markets such as oil and gas and mining are showing signs of life.

But also due to the more robust dynamics of buildings infrastructure, aerospace technology, and pharmaceuticals markets. All of this is giving us more confidence that we will see an increase in Jacobs backlog in the second half of our fiscal year positioning us for a stronger 2018 bottom line performance.

The key is staying focused on executing the growth strategy we presented in December. This includes focusing and investing in the priority target of markets and geographies where we see the best growth and margin profile where we have differentiated capabilities that fit, while continuing to execute on a series of transformational initiative that will ultimately drive a higher growth, higher margin, higher return business, all with the ultimate objective of increasing shareholder value. With that, I'd like to thank you for listening, and we'll now open it up for questions. Anita?

(Operator Instructions)

Jamie Cook, Credit Suisse.

Good morning. I guess a couple questions. One for Kevin and then one for Steve.

Kevin, how much -- on the strategic investment, how much hit the first quarter? I know you said $0.05 will hit the second quarter, and there'll be some in the third quarter.

We estimate it about that same level.

So $0.05 in the first quarter?

Yes.

Okay. Because I guess, as I sit here, and if I just take the fourth quarter and then we're going to have incremental headwinds from the investment $0.10 over the next two quarters, if you take the first quarter, you multiply by four, it implies you're at 270-something with $0.10 more in incremental headwinds. I'm just trying to understand what are the drivers behind the EPS ramping? The main drivers to get to even the midpoint of your guidance? I understand the margin profile within the backlog is better. But, you know, we're still seeing significant sales decline. So is it lower end, low to mid point more likely? Or am I missing something?

And then I guess my second question, Steve, obviously, on the A&T side, the profitability was good. It sounds like there's a lot of potential, the bid opportunity looks pretty good. So could you just help me with, one, in terms of the bids outstanding, when you expect those to hit? And does that help more 2018 versus 2017? And then, I think, last quarter you said you expect revenues to be under pressure for the full year. Is that still the right way to think about it, just because it matters with -- just because that's your more profitable business? Thanks.

Jamie, let me take a stab at a couple of the comments; then if Steve wants to add some color commentary.

First thing is, and you mentioned it, actually, in your question, is the gross margin in our backlog is improving; and ultimately, we believe that, that gains additional momentum over the course of the year. And we do believe that as the incremental focus that's being placed on the growth initiatives, which Steve alluded to in his closing comments, is real; and so the portfolio, both the near-term and the balance of the year, growth opportunities are positive. So we see those things improving over the balance of the year. We still feel the $3 to $3.30 is an appropriate number, and that's what our forecast and expectations will be at this point in time. I will tell you, and you heard me say it in Q1, that it is going to be important for us to develop some growth momentum over the course of the year. So we're seeing that happen already with the gross margin in backlog, and we expect that, that will continue to happen over the course of the year.

So, Jamie, building on that and addressing your questions, let me start with the last part of it when we look at the top line. As I mentioned, we see on a backlog basis, building momentum through the year, and we see the same thing from revenue that will hit our P&L. So it's the same second half stronger than the first half, which bodes well with regards to starting to see some year-over-year growth on the revenue side as we get into the second half. And when we look at that, it's pretty much across the Company, aerospace and technology, which we talked about; I can't emphasize enough our excitement around the pipeline. It's very robust. We are very excited about it. Take time and probably more time in A&T than any of our businesses to see it play through because of some of the protest issues that go on in that industry. But we are bullish as we get into the second half. But I would say, of all the businesses, that probably bodes well more for 2018 than 2017 because of the cycle time that I mentioned.

Buildings and infrastructure, clearly a business that's building momentum, as we've seen quarter over quarter over quarter growth. That will contribute to our second-half strength versus the first half that Kevin talked about in this year's P&L, as well as a growing backlog. Industrial, we had some one-time issues in the first quarter, as we mentioned, in the mining business, a project completion writedown that we took that we'll see some momentum with that, and some of the other factors in that business. And then, petroleum and chemicals, we also see building momentum as we get through the year on -- worked every one late last year, and also some good book-and-burn business in the second half.

Just to be more clear, Steve or Kevin, to make the low end of your guidance, can you get there just on the margin improvement that you're seeing in your backlog? Or do we need incremental wins as well to hit the low end? I'm just trying to figure out how I think about the low end versus the high end.

Well, there's a couple things, Jamie, to think about. The other piece we didn't allude to, which I think is at least part of the equation, is the incremental savings we're getting relative to the topping off of the restructuring. So it's not the huge amount of money, but there is incremental savings that we will see in the back half. So that will be a tailwind for us. As it relates to margin profile that we have now, we're going to need additional margin wins to hopefully get to, certainly, the top end of our range. So I think the bottom end of the range would probably be more associated with, we're not seeing some of those incremental improvements that we expect to.

Okay. That's helpful. Thank you. I'll get back in queue.

Jerry Revich, Goldman Sachs.

Jerry, you there?

Good morning, everyone.

In aerospace and technology, you folks had excellent margin performance in the quarter. In the Q, you spoke about some project closeout benefits and better progress on fixed-price work. Can you just maybe parse that out for us? What was the project benefit? What do you expect the run rate margin of the portfolio to look like over the balance of the year?

Let me start just from a commercial and a mix standpoint that, clearly the business that we mentioned, subcontract re-bid losses in late 2015, they're being replaced by new wins. The new wins are clearly higher-value, higher-margin business than the business that we were burning off on the contract re-bids, the contracts that we had previously. So there's been a very nice mix upgrade on the markets that Terry Hagen and his team have been going after, and it's consistent with the strategic focus that we talked about on Investor Day.

Kevin, do want to take the financial piece of the question?

Yes. I think the pop-up in the margins, for the quarter specifically, you can pretty much attribute it to some of the projects that we alluded to in our prepared remarks. I won't go into the details as it relates to that, but the margin you see in Q1 is not necessarily sustainable until we see that building momentum as Steve has outlined as it relates to the margin profile longer term.

Okay. And then regarding the two contracts that are rolling off, when will we have annualized the revenue run rate of those contracts completely off the books? Can you calibrate us there?

I think it's probably around third quarter, I believe, is where we'll -- third, fourth quarter is when we'll be past it.

Okay. And then, you folks have been looking to build backlog in your chemicals business, exiting 2017. I'm wondering if you could just provide an update on those prospects, on the derivatives work, and any color you can share since Analyst Day.

Yes. I'd say everything we talked about on Investor Day is continuing to play through. Very robust pipeline on the chemical side. As we talked about, we did a lot of front-end engineering design work last year; and what's happening now is, we're converting many of those to fully PC and PCN projects. A lot of activity around the world, a lot of foreign investment coming into the US to take advantage of some of the energy dynamics, chief [feed] stocks, and joining forces in joint ventures, and we're participating in several of those in the US and Europe. The major German chemical players, a lot of activity there; and we're a leader in that market with our geographic presence and our capability. Asia-Pacific especially; we're seeing Singapore, Indonesia, other markets, strong prospects. And of course, I'm sorry, Middle East. That seems to be a lot of focused investment there, a lot of integrated refining chemical projects, new creative initiatives. So we're very excited about that, and it's clearly the richest part of our pipeline.

Okay. Thank you very much.

Steven Fisher, UBS.

Thanks. Good morning.

Hello, Stephen.

Could you just give a little more color as to why the revenue burn just sounds like it was a little lighter than you expected in the quarter? And it sounded like your answer to Jamie was maybe that the second half of the year we start to see the revenue start growing year over year. Is that the right way to think about it?

Well, one comment specifically: look, we're still comparing to Q1 a year ago in our petroleum and chemicals business, where we were still following as it relates to that. We think were getting to a point where we're going to become more stabilized, so that's going to end up improving the year-over-year comparison going forward.

Okay. And wide --

Let me just add to that.

I think we've been pretty clear over the last year and a half that we are shifting to a more disciplined approach of not growing for the sake of growing, but growing profitably. And a lot of that has been shifting away from low-margin business to high-margin; less focus on projects where we end up putting on the books some low-value field services work to where we only want to do those projects if they're going to create value. And then, so, as we mentioned earlier, even though we have sequential backlog decline because of some of the dynamics of that large Pharma project, et cetera, the gross margin in our backlog is increasing. Our P&L gross margin is increasing. I think there's evidence that the quality of earnings are increasing and we're seeing underlying growth in that, and we believe that will start to play out in the actual P&L revenue in [about] the second half year-over-year.

So we've been less focused, when you say below our expectations, that's not a number we've been focused on over the near term, because it really, to us, is meaningless. What's more important is the gross margin improvement, the unit gross margin, and ultimately the profit. So actually pretty pleased with the progress there, and I think it will play out as the rest of the year goes on.

Okay. And it sounds like, despite (inaudible) with the new stable oil prices, customers are still a bit tentative. What are they asking you for at this point on the projects that have been pending for a while? Are they still looking for more ways to take cost out of the budget? Is it different scopes? Or is it really just waiting for something to give them the confidence to really pull the trigger?

So if you look, based on the clients we've talk to plus public information, it's almost a 50/50 CapEx story. Half the companies are stabilizing an increase in CapEx, and the other half are still shaping CapEx for cash flow. I think all of them are focused on prioritizing now maintenance and turnaround that they had deferred over the last couple of years. And that's the sweet spot for us, and that's what we're focused on with our clients.

The other is any growth CapEx that has a short cycle return. So very short-term payback type projects, productivity, very much productivity-oriented. And that's a big focus for us for a majority of our clients. Yes, we're involved in some of the Middle East and larger projects that will have a longer payback, but those are really focused few and far between. But I think the majority of it is really around regulatory maintenance, sustaining capital, and quick-return projects.

Got it. Thanks a lot.

Andrew Kaplowitz, Citi. Please go ahead.

It's Donald Fleming sitting in for Andy today.

Kevin, maybe I can start with a question on cash. It looks like you converted about 100% of your adjusted net income to free cash this quarter, and I think 1Q tends to be a seasonally weekly quarter for you guys in terms of cash generation; and I know you had talked about reducing DSOs at the Analyst Day, and it looks like you did that. But I guess the question is, did you maybe make a little bit more progress this quarter than you had expected? And is that progress sustainable? And then what does that mean for the rest of the year, given the target you put out there, one-time net income over the next few years?

Thanks for the question.

Look, I think the reality of Q1, (inaudible) certainly last year was a little bit lower in terms of the results and cash flow versus the balance of the year. But there can be some fluctuation in the quarter; and if you look back over time, you will note that. I will say, with the fall of the revenue, that there is some incremental benefits that's occurring in our cash flow, because of the working capital benefit. And so that is certainly help support the Q1 cash flow. I don't think it has any implications differently than what I would have suggested relative to what we're going to try to do on a cash flow conversion perspective; but certainly, you need to take that into account as you're evaluating the analysis on cash flow. Because there was some benefit just because the business was down in revenue. So obviously, working capital will go down relative to that. But we also saw some efficiency gains, and those efficiency gains are the things that we will need to continue to focus on to get the kind of targets that I've outlined as it led to our future cash flows.

Thanks. I appreciate that, Kevin, and then maybe a follow-up for you, Steve.

You talked about mining in your prepared remarks. And I know mining is still a relatively small part of the business today, but you have the capabilities and resume for doing more mining work than maybe some of your peers do. So I'm wondering, how do you see your mining footprint evolving over the next 12 to 18 months? And is it worth getting excited about mining today for Jacobs, or is it just too early?

Well, we're not going to get ahead of ourselves, but we're clearly more optimistic today than we were 6 to 12 months ago. We've maintained, as you said, a very strong presence, strong team, talent-based; and where we think the money is going to be spent, places like South America, both Chile and Peru, Australia, and other capabilities around the world. And we're involved in some of the key projects that are starting to get put back on the table.

And so I think the other big factor there is, the productivity of the whole mining sector has eroded if you measure productivity in the mines over the last decade. So I think between the clients wanting new innovative ways of improving, the expansions or grassroot projects, would be much more productive, as well as the fact that copper prices are now up 25% versus where they were six 6 to 9 months ago, and other metal prices are improving. There's more optimism building around CapEx spend and projects for us going forward.

Steve, do you think you can grow mining backlog in 2017?

You know, I think the answer is yes, but it will be fairly immaterial based on the starting point, because our backlog just got destroyed a little last two or three years. But we're pretty, we're now getting more excited about what that backlog would look like going into 2018 and beyond, so we'll just leave it at that.

Okay. Thanks, guys, I'll pass it along.

Tahira Afzal, KeyBanc.

Thank you. Hello, folks.

Hello, Tahira.

First question: if I look at your longer-term margin ranges that you gave at the Analyst Day, the two segments I noticed is still a little flat is building infrastructure and structural and mechanical. Should we be seeing some looks for improvement (inaudible) as we head into the second half of the year? Is that where we should see that margin commentary you made really materialize?

Well, I think building and infrastructure, the more we grow the better that margin can play out, because we are pre-investing now in resources to go after the rich pipeline that's emerging. So I think a lot of that will be building the backlog and continuing to drive some of the efficiencies across the Company and then getting some of these pre-investment resources built on the these rogue projects will help build the margin over the course of the next couple of years consistent with our strategy.

Petroleum and chemicals, I think clearly that margin has been under pressure because of the excess capacity in the industry, and as that business starts to recover, we should see a bit more discipline and margins across the market. But I would also say that P&C, of all four of our lines of business had the most robust productivity, internal productivity, efficiency improvement in the Company when we look at transforming the core, and that should play out with margin improvement through the three-year strategy period that we talked about.

Got it. Okay.

And then, I don't know if this question is more for Kevin, but the investments that you have made in the first quarter, [I was] concentrated in any one segment? Are they on the [scopper] side? Just to get an idea of how to think about them.

It's spread across both the [LOBs] and the corporate business; and of course our corporate investments, ultimately much of them get allocated back to the LOBs anyway; so there is some investments that are hitting the LOB operating profit. But it's spread across them. They're all investing behind strategic initiatives.

Got it. Okay. And then my last question is more macro.

As you try to grapple with all the implications of what the new administration is proposing; clearly some positives on the infrastructure and perhaps defense side. But would love to get your thoughts on how your customers are thinking about some of the (Inaudible) and some of the new (Inaudible) regulations that might come up. So you guys out (inaudible) outside of the US with a pretty effective and competitive. So would love to get your initial thoughts on that.

So, look, I think it's way too early to try to figure out all of this. There's a lot of things that have been thrown around, thrown about as it relates to the potential tax-related activities. I guess the way I would characterize it, Tahira, is that I do believe, if anything, it's a net positive. If you look at one of the items in isolation, perhaps it goes one direction. But I think collectively, the all-in view that we have at this point in time is that it's going to be incrementally positive. How much that is the case, who knows? But that would be our view at this particular point in time.

Got it. Okay, thanks, Kevin.

Yes.

Andy Whitman, Robert W. Baird & Company.

Great. Thanks. I guess my first one is for Kevin.

We just noticed that the [unbilleds] are up, pretty materially, quarter over quarter. Is there anything there that we should be aware of in terms of projects that are notable that are driving that?

No, I don't think so, Andy. Look, as we track our receivables and whatnot, we are continuing to do a really good job in reducing our overdues and our aging of receivables improving over time as opposed to not. And we do include the non-billeds in that calculation, so we're actually feeling -- we're not perfect. There are some things that we always need to be focusing on, but overall we're pleased with the progress we continue to make.

All right. And then I guess my second question is on M&A. You talked about some of the characteristics and even some of the markets that you'd be prioritizing at the Analysts Day. As you stand here today cannot can you just talk about the robustness of the pipeline? Maybe if you could give us some context about some of the size of the deals that you're looking at? Do you feel like the environment is conducive, in other words, to do some larger scale M&A, especially considering the evaluations that we see run in the sector? I'd like to get your perspective on that.

So we set down our M&A process during the restructuring period as we focused on the things we need to do to improve the Company and develop our transform the core strategy. But over the last several months we've rebuilt our internal M&A process and we have our full-time leader, Jeff Goldfarb, who runs the M&A process, and a team in place both corporately and across the lines of business. And so there's been an increased activity in the Company around the following the strategy development starting to look at what's consistent with that strategy we presented in December, and there's a lot of interesting assets out there. Both thematic, small bolt-on opportunities, I'd say especially in aerospace and technology, and buildings and infrastructure. But of course there's some things that we are starting to look at that could be larger in size. But of course what we really need to understand how they fit with both our strategy, margin return expectations.

And so a lot going on in the Company. And really not much more to talk about other than that at this stage.

All right. Thank you.

Michael Dudas, Vertical Research. Please go ahead.

Good morning, gentlemen.

Kevin, can you share your thoughts on bidding expense? And it sounds like you're making investments to take advantage of this year to show the growth over the next handful of years. Do you see in the year-over-year increase the amount spending on winning new work? And has the restructuring into the lines of business helped with that process and maybe make that process more efficient from an expanse standpoint? Thank you.

Thanks for the question, Mike. Two things: One, there are some instances where we're suggesting that we want to increase our bid cost, but what's really happening more so than that is, we're focusing more on where we believe the margin and the opportunities are that allow us to profitably go forward. So we're thinking much more effective in terms of how we're spending our bid dollars in the belief that we're going to be able to have a greater return basis the same numbers. So there is a significant increase due to that fact and the preliminary successes that we're seeing is certainly indicating that, that can happen.

Excellent, Kevin. Thank you.

Anna Kaminskaya, Bank of America Merrill Lynch.

Good morning, guys.

My first question is just on guidance; more of a cleanup question. What are your assumptions on corporate expense tax and maybe cash redeployment?

We've talked about the tax being approaching the low 30%s for the full year. That's been our number. We're not changing that expectation. So our plan is still in place as it relates to that. Corporate expenses are relatively stable.

Okay. And do you assume much of buyback? Or just more similar to what we've been seeing recently?

I would say that in Q1 it was a little bit lower than normal because we have a process whereby we posted depending on current trends of the share price. And as you recall, in Q1 we have a few periods of time where we were over $60 and we weren't in the market at that point in time. So probably a little lighter in Q1 than where we would expect to be going forward.

Okay. And my question is more on just backlog versus looking, focusing on maximizing margin. I guess looking at your statement of Analyst Days, at the last conference call you sounded pretty positive on growing your work, markets seem to have stabilized on the commodity size. Do you find it difficult to grow backlog while making sure that your gross margin is going up? So is there a dynamic of you maybe not losing market share, but [edging] certain contracts that will continue to be a drag into 2017? I know you provided positive guidance for the second half, but how do you see that trade-off impacting your backlog going forward?

Yes. I think with all those things are items that we're very focused on and want to make sure we manage correctly. Clearly, when you shift from a multi-year cost restructuring culture in the Company to one that is now the strong message of growth and the focus in priority, that doesn't happen with a snap of the fingers. It takes a few months, a few quarters, to build that momentum. But that started around the Investor Day. I feel it every day at Jacobs that people are focusing, prioritizing profitable growth; and the word profitable is always in front of the word growth, and I think that's a big change from the past, recent past. And so I'm not, we don't have concerns about market share because the key markets that we talk about in our strategy, we feel very capable today of protecting and growing with the teams that we have, where I think we're doing an excellent job in building talents.

I'd say aviation is a prime example, where in a very push short period of time, as our teams projected, and that being one of the highest priority markets that provide good growth dynamics, we've significantly added world-class talent. We're winning, it feels like all the programs that we should win, knock on wood. It's been a string of successes and we have several more in front of us.

So, Anna, I think the major challenge is just to make sure culturally all 54,000 of our resources understand that it's not all about profitable growth while maintaining the success that we had in building efficiency and driving those specific, transform the core initiatives that are underway, and strengthening the foundation. So I'd say that's the way I summarize it.

Okay. And then maybe just a quick follow-up on your announcement on connected enterprise. What's the payoff on the investment? Is it a new end market, where you look to grow your backlog? Or is it just more of your being able to, as you get projects better, and being able to move some of the work around your different regional offices?

Yes, what the Jacobs Connected Enterprise is really building off of a lot of what our aerospace and technology business is all about. And benefiting from the [Adalon] investments that were made over the last couple of years, the VanDyke acquisition that brought cybersecurity and strength to us; the [ION] investment, and several other initiatives, as well as talent that's been brought in but aerospace and technology group, it is now being extended across the other three lines of business, and that's something we haven't done in the past.

And all of our clients, whether it's oil and gas, Pharma, mining, they're looking for state-of-the-art digitization techniques: Internet of Things, and really driving productivity and innovation into their projects. And we bring that suite of offerings via the Jacobs Connected Enterprise in a very unique and differentiated way that is building momentum rapidly. And so it really was all about taking that into the other three lines of business and there's great momentum being built, and so it's really not about creating a separate business line, but more around gaining more share of the market as a result of this added offering.

Great. Thank you so much.

Anita, perhaps we can take two more.

Okay. Chad Dillard, Deutsche Bank.

Good afternoon.

You have been pulling down the depreciation expenses previously over the last several quarters and that's definitely helped your margins. So can you speak to how sustainable that continued reduction can be going forward? And how should we think about that line item after restructuring is all done?

Chad, I think it's clear that what's going on there is part and parcel to our restructuring and streamlining of our [stakes] asset-based, specifically as it relates to our office configuration. So we're not planning, once we kind of do this restructuring and finalize it, we're going to start adding back opposites all over the place. So I think ultimately we believe that we're going to be able to have a disciplined approach to our incremental investments after the restructuring such that we are better able to leverage our existing infrastructure without significant additional CapEx. Could there be CapEx now and again associated with key initiatives? Absolutely; but that's not our intent.

Got it. Can you also provide a little more color on what you're seeing during the UK business? How did it fare in the first quarter? And what's the visibility you have over these next 9 to 12 months? And maybe you can break it out between what you're seeing on the private side versus the public side?

Yes; our UK business, which a big part of it is our building and infrastructure business, as well as the nuclear business that cuts across both P&I and A&T, has been pretty steady. You know the whole Brexit, post-Brexit issues and concerns are there. There's been a few delays caused by that, but generally projects are moving forward, especially the areas that we're involved in around rail and highway nuclear, et cetera. And we're pleased to hear that there some projections for some steady growth on GDP being projected coming out of the latest estimates. So all in all, it's been steady for us. And we don't see any material issue so far associated with some of the turmoil going on with what's going on between the UK and Europe.

That's all for me. Thank you.

Brent Thielman, D.A. Davidson.

Thank you.

The bump in professional services backlog specifically, is that spread across the platform, or focused in any segment? Particularly, I was thinking about some of the businesses where the margins you see more pressure?

Yes it's really across the board. When I look at the backlog sequentially, P&C professional services was up in the first quarter versus fourth quarter, building an infrastructure was up. Our life sciences business, for example, which we told you was hard hit with a cancellation, the engineering services or professional services is actually up in the first quarter versus fourth quarter in spite of that. The rest of our industrial business is up, and our aerospace and technology business, very modestly up. So it's across the board when you look at the professional services, engineering service side.

What's also interesting to note is that, as it relates to the foreign exchange changes on the professional service, we talked about the consolidated and professional service. I think about 80% or 90% of the foreign exchange is sequentially -- versus year ago was because of the professional services piece. So if you take that into account, the professional services versus a year ago was even stronger, and its broad-based.

Okay. That's very helpful.

And then as a follow-up, in industrial and the project cancellation you seem fairly optimistic about life sciences, so I assume this is more of a customer-specific issue. But I was more curious if this could actually provide you the opportunity to fill the void with higher-margin work versus what you might recognize with this project.

Well, I wouldn't necessarily conclude that the project that canceled was not high-margin work. It did have a bit bigger field services component; that's why the backlog impact was big. But we were excited about the engineering service side of it. As you said, unfortunately it was the client's strategic decision not to move forward with their expansion, associated with some drug trials, et cetera. But the work that we're going after, where it meets our margin criteria, where there's a good pipeline, as I talked about; whether some of those are going to hit by the end of this second quarter or well into to the third quarter, of course is the question. But we're pretty positive about both the backlog impact and margin impact for our life sciences business.

Okay. Thank you.

Perhaps I think there's just one more in the queue. Let's go ahead and take that call.

Samir Rathod, Macquarie.

Thanks for squeezing me in.

Just a couple of quick questions: how do you think about the focus on drug prices? And do you think drug prices, do you think this will adversely or negatively affect your life sciences (Inaudible)?

We heard you toward the end, but could you repeat the question, please?

I'm sorry. I said, do you think the increased focus on drug prices or reducing drug prices will adversely or negatively impact Jacobs' life science business?

Again, it's hard for us to say, because we don't want to portray that we understand our clients' decisions and the way they look at it to the way they do. But I would say that we haven't seen that concern too much. I mean, there is some near-term concern going on around the whole Trump administration and what's going on with regard to a lot of the production that comes from these overseas plants moving into the US and will that cause any issues or delays. But at the end of the day, our clients, we're in the tail end of some very important bids. Our clients indicate they're moving forward. What happens over some of these other dynamics, we just really can't offer much more than that.

I think the only other comment to make, Samir, on this issue is that, if you think about their mix of spend to try and get things to market, the CapEx is not necessarily the biggest percentage of spend. So ultimately there's the driver of getting the returns they want, is really trying to figure out how to get it through the regulatory process. Not necessarily the CapEx.

Okay. Thank you. I'll leave it there.

Okay. All right. Well, thank you for calling in, and appreciate your interest and will look forward to talking to you next quarter.

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