雅各布工程 (J) 2013 Q3 法說會逐字稿

Good morning and welcome to the Jacobs Engineering earnings conference call.

All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions)

Please note, this event is being recorded.

I would now like to turn the conference over to Michele Jones, Vice President of Corporate Communications.

Please, go ahead.

Thank you, Amy.

Any statements that we make today that are not based on historical facts are forward-looking statements.

Although such statements are based on Management's current estimates and expectations and currently available competitive financial and economic data, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause actual results of the Company to differ materially from what may be inferred from the forward-looking statements.

For a description of some of the factors which may occur that could cause or contribute to such differences, we request that you read the Company's most current earnings release and its annual report on Form 10-K for the period ended September 28, 2012, including item 1-A, risk factors; item 3, legal proceedings and item 7, Management's discussion and analysis of financial conditions and results of operations contained therein, and the most recent Form 10-Q for the period ended March 29, 2013.

The Company undertakes no obligation to release publicly any revisions or updates to any forward-looking statements, whether as a result of new information, future events, or otherwise.

With that, I'd like to turn the call over to John Prosser, EVP and Chief Financial Officer.

Thank you, Michelle.

Good morning, everyone.

Welcome to our third quarter conference call.

I will go through a brief overview of our financial highlights for the quarter and then I will turn it over to Greg Martin, our CEO, to go through a business overview and outlook.

If you go to slide 4, our third quarter financial highlights, we did report that we had earnings-per-share of $0.83 on net earnings of $108.9 million.

These were very good earnings.

They were a couple of key factors for the quarter.

We did see a pickup in revenues, primarily related to activity in our field services markets, which did have a little bit of an impact on our margins, but we also had a very good quarter in controlling our G&A costs.

We were actually down slightly from the prior quarter, and that was including about a $5 million amount for due-diligence costs that were incurred during the quarter.

That had an impact of about $0.02 per share.

With those activities, we think that the quarter overall was very good and the due-diligence activities we expect to continue certainly into the fourth quarter and possibly beyond.

Looking at our backlog, it increased nicely up to $17.2 billion.

The book-to-bill ratio for the trailing 12 months was 1.14, which continues to be on the nice growth track.

Balance sheet continues to be strong with a cash position of $1.3 billion.

Our net cash was $850 million, which was up about $135 million from the prior quarter.

With the results, we did continue our guidance at the $3 to $3.50 range.

With that, I point to the midpoint of that range as the point where we always see as the most profitable, which would be $3.25.

If you turn onto the next slide, slide 5, just the track of our earnings history.

While we didn't quite get back up to our peak on the net earnings, we are within $1 million of that, so we look forward to possibly getting that, because of continued share, our EPS it has not recovered quite as much, but still had a bit on a very nice growth track since we hit the bottom of the effects of the recession in 2010.

While we are quite at the 15% long-term compounded growth rate that we focus on, we are hovering very close to it and expect to get back onto that track as we go through '14 and beyond.

Looking at the slide 6, which is the consolidated backlog.

Again, nice growth over last year and over last quarter.

Both good growth and both field services and professional services, so it continues growth across the whole business spectrum, not just the field services, which had really been sustaining us for a number of years prior to just this last four or five quarters that we started to see the field services start to pick back up.

With that, I will now turn it over to Craig Martin to go through growth strategies and give the business overview.

Good morning, everyone.

I am on slide 7 now, where we discuss our growth strategy.

This slide hasn't changed in a while and won't change in the future, I don't believe.

I'm going to cover the first four bullets on this list in a little more detail in a few minutes, but I wanted to take a minute to talk about driving out costs.

As John pointed out, we had very good continuing cost control in the third quarter.

G&As were, with the exception of a little bit of headwinds from due diligence, just exactly what we would have expected.

That means that we're continue to maintain a solid positive advantage in some of these businesses where cost is becoming an increasing issue.

I'll talk about that a little bit more as a move on.

Going on now to slide 8, this is our relationship-based business model.

It's all about the virtuous circle of doing good work, getting the customer to choose us again, and allowing us then to reinvest as we grow to provide, again, more benefits to our clients and therefore, more good work and therefore more repeat business.

Our year-to-date repeat business number for the third quarter is 94%.

I think our team's justifiably proud of that level of repeat business.

Moving on now briefly to the market diversity slide, number 9, you can see how the market stacked up this year from a revenues perspective.

This is the trailing 12.

You can see the process businesses are up a little bit.

Industrial businesses are up a little bit.

Public and institutional business is down a little bit as a percentage, but I think the news in all of these categories is relatively good.

Let me turn now to each of categories individually and talk about them.

I am on slide 10.

This is our public and institutional sector, about 36% of our business.

You can see that from a backlog perspective, we continue to maintain a strong backlog.

It's as good as the backlog's ever been in this business.

In fact, it is right at the top of our experience.

That's really good news for us.

If you look at the national governments business, by far the biggest part of this group.

We are doing pretty well, I think, as a company in dealing with sequestration and managing what that means to us.

We continue to take share.

The May talk discussion that we had last quarter and before continues to be a positive for us.

We had a very strong quarter in terms of awards.

The US marketplace, we had four major announcements, and those are -- the aggregate capacity of those is more than $12 billion.

It really means that our team is doing a good job of positioning to take market share and continue to grow.

The nuclear market in the UK continues to be strong.

We had a nice award for Magnox on PMCM for those de-commissioning opportunities.

Overall, the national governments business is no worse than stable for us.

I think we will continue to eke out some growth in that business as we go forward.

Infrastructure business for us is strong.

There's lots of work out there.

There is such a tremendous backlog of work that needed to have been done already, it isn't that I think that market is going to be strong for many years to come.

It's always a matter of finding money, and that's why we see user funded projects, the fees and user fee based things, as being the strongest aspect of the market right now, and it's a place where we are doing very well.

You may have seen an announcement earlier this quarter about our acquisition of Compass.

We see the telecom business, in particular, as an area of strength and a real opportunity.

We are expecting pretty rapid growth there.

Of course, things like rail, water, utilities businesses are also strong because they don't rely on taxes for funding.

We've also seen a lot of activity in the utility pipeline business.

There is a multi billion-dollar future for utilities in the US in terms of pipeline upgrades, inspections, repairs, that sort of thing.

We've won the biggest program out there at the moment, with Sempra.

We continue to believe that's going to be another great growth opportunity for us as a company moving forward.

Then buildings, that business continue to improve for us.

That is a technical buildings business, as I explained in the past.

We do a lot of work in what we think of as mission-critical markets, so that's like data centers and operation centers.

That market is growing rapidly.

We expect a 60% growth in that market between now and the end of the decade.

We are also seeing lots of activity in health care, corporate, aviation.

All those businesses are good, and that's where we have real strength.

Then the K-12 and higher education funding is another big positive for us.

We've already won eight major programs and we have nine others that we are working.

Moving on now to the industrial segment or sector of the business.

Three businesses here, we like to talk about as well, pharma-bio, mining and minerals, pulp and paper, and the balance of that business.

Let me talk about each one individually.

Pharma-bio continues to improve.

We are seeing some new products in the pipeline driving some significant capital investment.

That's really good news for us.

We are seeing a lot of activity in biotech and in the secondary manufacturing.

Our core clients are the ones are the ones who are spending money with some geographic diversity.

I think the fact that we are able to serve those companies geographically is another big positive for us because that geographic reach results in us being able to take work that some our competitors can't.

Remember, we are the last global major with anything significance still in this business, so this is a positive for us as we see what our customers are planning to do.

Mining and minerals, we put this little note here says it is strong.

I guess that would be not true of the industry.

In fact, it if anything, mining and minerals is pretty weak right now industry wide.

We happen to be particularly well-positioned for the business that is out there, so we see this one as one that is very strong for us, an opportunities growth area for us for some time to come.

While the environment tepid, it's a market-share game.

Where the market share is, is in sustaining capital and cost reduction kinds of activities, in plant optimization.

These are all areas of great strength for Jacobs.

Where the market isn't, is in the big green-field projects.

We expect that will be a positive for us as we go forward.

We can couple this with our capability in buildings and infrastructure and provide a full-service offering to these customers in this area.

Then, there are some new opportunities, green field and brown field both, in uranium, pot ash, phosphates.

Those last, two in particular, phosphates and pot ash are real strengths to Jacobs.

Then, sort of the other market, pulp and paper, high tech, food, power, consumer products, is a mixed bag.

There's a number of places where there's good investment going on and others were there is not so much.

We are doing very well in terms of building alliances with these customers and growing our business for them as they invest largely in outside the developed world, so largely outside of the US and Europe.

Much more strong than in places like Brazil, China, India where we are positioned or expect to be positioned to support those clients going forward.

On the power side, we continue to slowly build our share of the power market and our ability to be identified as a player in the power market, particularly in the UK and Europe.

We think that's going to be an area of some growth for us as well.

You will see the backlog is down a little bit quarter over quarter and year over year.

The major projects that would really drive backlog are very slow to book.

I don't think the outlook is consistent with the trend as we see it so far, but it's going to take time for those brown-field projects to turn into booking.

Moving on now to process, slide 12.

You can see that we think the refining business is very strong.

There's plenty going on in terms of shale, gas and tight oil production and what that means for the refiners.

They are making money in refining now.

That tends to be a reason to spend money in that industry.

They continue to be focused like the miners on cost efficiency issues.

Then, of course, our EPA continues to help Jacobs' business by driving projects, in this case ultra-low sulfur gasoline.

We see 85 refineries as being affected by the ultra-low sulfur gasoline requirements.

Project sizes, just one customer has two projects that we are negotiating on today.

One is $400 million, the other is $200 million.

That's just two refineries.

This gives you a sense of how big this ultra-low sulfur gasoline program could turned out to be.

Then, of course, you have these changing feed stocks striven by the shale oil, tight oil and the crudes coming down from Canada.

That's also going to continue to drive investment in refining.

Oil and gas in other markets is very strong at $104 per barrel on NYMEX today.

The oil price is very sustainable.

We see capital expenditures continue to increase in the E&P globally and what we call the amenable spend, the part of it that we can access, looks like $160 billion or so.

So, I think the opportunities for Jacobs remains very significant in terms of opportunities for growth.

Oils ands continues to be a good business, particularly in terms of the SAGD part of the business, and an increasing drive to find capital efficiency in SAGD projects, we have some specific offerings there based on our long and very strong history in SAGD that offer customers a unique opportunity to drive their capital costs down significantly.

We think that will be a major opportunity for us as we go forward.

Of course, unconventional gas continues to be an important market.

While the number of drill rigs are down, that just takes us from insane to strong.

We think that's going to continue for some time.

We see that as a $200 billion potential market over the next few years.

Finally, cheap gas means cheap chemicals, and the US chemicals business is booming at an unprecedented rate, certainly in my experience in the industry.

We think that's going to continue along with other investment all around the world in the chemicals business.

It's going to be a very strong market through at least '17.

What that says to backlog, you can see, we've bumped the backlog up over 14% year over year.

It's grown 33% in the last two years.

Right now, our sales team says that the number of prospects to us in these businesses, these process businesses, they use words like tsunami of projects.

I'm not sure that is fair, but certainly there is a lot of prospects out there and the opportunity for future growth in this particular segment of the business is very high.

Moving on now to geographic diversity, that is slide 13.

Just some quick comments on the markets.

I have already talked about North America in the context of things like chemicals and oil and gas.

It remains very strong.

I think we will see a lot of activity as we go forward.

There's been something like $35 billion of announced investment in the chemicals market, for example.

South America will remain strong for us, largely because the projects that we see that are going forward in the mining and minerals arena are largely in South America.

We think that oil and gas and upstream will also increase.

Of course, we are exploring opportunities in Brazil, as I mentioned.

Europe, it will be stable.

I don't think we will see a lot of growth in Europe in the next little bit.

The demographics and economics of Europe aren't that good for investment, but I think we are very well positioned there and we should be able to continue to grow our business.

Turning to the Middle East and Africa.

This is another strong market for us, largely Middle East and north Africa.

We continue to be gaining momentum in upstream, winning refining projects.

Our relationship with OCP and Morocco remains very strong.

We have built a very solid business there in the pot ash business.

Lots of activity in sustaining capital and plenty of buildings and infrastructure opportunity that we are just beginning to capitalize on.

We think the Middle East and Africa will be good for us.

India, very strong market for the reasons I outlined earlier.

Lots of investments in India in the consumer product food arenas, pharmaceuticals, as well as another big boom in the fertilizer business, where we are particularly well positioned.

We have done a significant fraction of all the fertilizer projects in India, and we expect that will continue as we go forward.

India looks very strong in its own right as a market, as well as a continuing opportunity for us to do work share in a high-value engineering center point of view.

China and southeast Asia are strong.

There's a lot of refinery growth opportunities in southeast Asia and China.

We are looking forward to those.

We are also very well-positioned now to take care of these four clients as they invest in southeast Asia and provide them with both a local capability and a global capability.

We see that as a positive.

Probably the weakest market right now is Australia.

It is a very mixed market.

If you are mining and minerals focused, it's a real struggle.

Again, as the big miners reposition, I actually think that will work to our advantage.

On top of that, there's a strong business in infrastructure, particularly water infrastructure.

Of course, the oil and gas market in Australia remains very strong.

We also have a good position in the defense business there, so while I have characterized the market as mixed, I think Jacobs will be able to do a pretty good job continuing to grow in Australia as we go forward.

Moving now to slide 14.

This is our acquisition slide.

Nothing much to mention here that is different.

While we continue to be focused on China, Australia, South America as markets, oil and gas, mining and infrastructure are the areas of customer base that we really are excited about.

Of course, we want to add some new clients and expand our relationship with existing core clients as best we can.

A lot of opportunity out there right now, so as John mentioned, due-diligence costs are going to continue to be a headwind into the fourth quarter and probably beyond that.

Turning now to slide 15, this is our commercial that we think this Company is a good investment.

I think these four bullets really help say why.

Our relationship-based business model is relatively unique in the industry and it's working.

That 94% repeat business tells us that.

Our diversification is also working for us.

We've got the second highest backlog at this moment than we've had in the history of the Company.

We got a great balance sheet, $850 million in net cash, so we've got the money to support our expansion and our acquisitions.

Of course, our cost position, as far as I can see, is the industry's best.

All in all, I think we are in a wonderful position to continue to grow at that 15% compound or better.

With that, I will turn it to Amy for questions.

Amy?

(Operator Instructions)

Michael Dudas, Sterne Agee.

Craig, I can't recall if you used the word tsunami in describing markets in the many years of conference calls.

How well is Jacobs set up to take advantage of such increase work?

How do you see the industry geared up to manage what most people believe is going to be a very strong North American process chemical market place?

Do the clients starting to recognize that they need to secure the better players and better teams right away?

Is that going to help drive a better contract terms and better margin opportunities for you guys going forward?

Well, you remember I was careful not to use the word tsunami for myself.

I attributed it to our sales team.

That's right.

Blame it on the sales.

(laughter) Yes, always blame it on the sales team.

It is a really remarkable prospect list.

It is as strong probably as I have seen in my career in these industries in the specific geographies that I've talked about.

That is driving recognition slowly, that the customers need to do something, our clients need to do something to secure capacity because the industry does not have the capacity to support all of the investment that is out there.

So, you are hearing customers talk about going back to alliances and exclusive relationships like we saw in the 2006 to 2008 timeframe or other strategies that have a similar effect.

We are also starting to see, very faintly, but we are starting to see improvement in margins as a result, because we are starting to see that carousel of people jumping from one company to another for modest increases in pay and therefore the need to get some wages up and keep getting them up on a continuing basis.

That's also a positive book for margins, and an indication of where the industry is headed.

I think this bodes very well for all of the big players in the industry.

There is more than enough work to go around.

I think it also bodes well for companies like Jacobs specifically, because we are so strong in North America come in the Middle East, in Singapore, relative to some of our competitors.

I think our opportunity to get more than our share is pretty high.

It's pretty much a good news story before the industry and for Jacobs specifically.

The challenge for our customers has been figuring out what to do first.

We've got a couple of customers who have come to us and said, look, we need a bunch of process engineers to come in and help us do our pre-feasibility work because we don't have enough people to get the work out.

So, we can't release projects to you, Jacobs, until we can finish our part of this project and so we need your people to help us to that.

That's a real indication of just how big the backlog of opportunity could be.

Does that answer your question, Mike?

It sure does, Craig.

Just wanted to follow up.

Could you remind us what the revenue or backlog split would be North America versus international?

Are both going to grow similarly, or are there pockets of opportunity internationally that might allow you to enhance your revenue flows from that part of the world?

Over the last few years, our revenue has been about 60/40.

60% US, 40% outside of US.

So Canada would be out there.

The revenue is a little misleading because if you look at the head count, the head count is more in-line with about 50/50 because of the services that we certainly do a lot more construction here in the US and maintenance activities here in the US.

I think we are not going to see, over the short term, big changes in those mixes unless we continue to have impact from acquisitions and such, but because of the strong activities in the chemicals market, particularly in the refining here in North America, the revenue balance will probably stay somewhere about the same.

Although, I think you will see maybe the headcount moving a little bit more international just because it will be more of a service oriented kind of business than certainly in the field services that we do outside the US.

More of that is PM driven, so we have not a lot of revenue content but a high-value of individual content in driving larger projects and managing those larger projects.

I think that's a long-winded answer to a short question, but I think from acquisition activity and such, right now those are more likely to have a more international flavor, except for something of these little niche acquisitions like in the telecom and things like that.

I think the mix will be driven more -- if there's a change in the mix, it will be driven more by acquisition activity than just overall organic business activity.

That was excellent, John.

Thank you very much.

Andrew Wittmann, Robert W Baird.

I wanted to dig just a little bit into the SG&A.

I think coming out of last quarter, I walked away with a sense that the sequential increase that we had seen last quarter was kind of driven by some of the investigation you are doing in M&A.

This quarter you cited that again as a $5 million headwind.

Is that a $5 million sequential change in due-diligence costs, or is that $5 million year-over-year change in due-diligence costs?

That wasn't a change.

That's the dollars spent, total dollars spent.

Got it.

So, as you look forward here and you move, it looks like into the more the field services work, John, do you feel like the SG&A level here, in an absolute dollars term can be stable ex the due-diligence costs, or should we be thinking about that more as stable in a percentage of revenue term?

Certainly, we believe that it's going to be fairly stable, other than what the influence these due-diligence costs may be.

I think that part of that is driven by field services.

Part of it is just driven by our strong focus on cost control over all.

Got you.

So, as we move into the later portions of the cycle, can you at least talk about your view on construction and when that happens?

In other words, do you expect this ramp that we are seeing the field services backlog to really start turning into revenue, or is it going to be sitting idle for a while and the ramp is expected to come maybe as we move into fiscal '14?

Just curious for an update on your view there?

I think we are already starting to see a little of that because this quarter our field services revenue was up $200 million over last quarter.

In fact, most of the revenue increase this quarter came from field services.

I think what we are seeing, and I think we've said this before, is that our clients are tending to release things more in phases, so where historically if you go back maybe during the last boom, the clients would award us an entire project and we would still be going through the fees and on detailed design, so it might be 6 to 12 months before you saw the construction revenue move from backlog to booking it as actual revenue.

Now, as they really are doing it more in phases, so once we get a phase released, we are pretty much, for the most part, ready to go to work on those.

There is a much quicker book-to-burn cycle even in the field services than might have been evident historically.

Great.

Thank you.

Leave it there.

John Rogers, D.A. Davidson.

A couple of things.

One, I know you have stuck with your wide guidance for the fourth quarter, but beyond the due diligence, are there other projects that are hanging out there that can explain that wide range?

I know, John, your comments about targeting middle of it, but it's still a pretty big delta.

We have moved to a wider range.

We have pretty much stuck to that, as you get out to the wide range, particularly with this late in the year, the profitabilities of doing anything at the outer edges of that range become fairly low probabilities and they move higher as you get to the middle of that range.

One of the reasons we are reluctant to narrow it has just been past reactions when we've narrowed it both at the top and the bottom and everybody emphasizes the movement on the top.

We just figure that the outlook hasn't changed that much from last quarter.

Our outlook and our performance is still in line with that, so there was really no reason to change.

Okay.

And then, Craig, you made a comment just about pricing getting a little better, it sounds like primarily in the North American market.

Is that in terms of the work that you are signing up now?

I assume you still are working through lower-priced work at this point.

When do you expect to see -- or we might see some of the impact of that?

It won't ever come, John, as like a noticeable sudden shift or uptick.

Sure.

It's just going to bleed in, but what we are seeing is that we are starting to see some of the work that we sold a few years back move completely through backlog and get completely worked off.

We are starting to see little bit better margins on the work that we are doing today.

When I say a little bit, we are talking about pennies an hour kind of improvements, so it will take a while.

If that trend continues and we get pennies an hour this quarter and pennies an hour in the next quarter, pretty soon it's real money, but you are looking at that being three or four quarters out before it starts to add up to $0.50.

I think you have to project, and I think we believe, that we will see a fairly slow, steady growth in margins now, unit margins I'm talking about, for the next 6, 8, 10 quarters.

Then, they will probably hit as much is we can get from where the pushback gets just really strong and they will tend to stabilize, then, at that level.

I think it's a very slow process.

Like I say, it's 1% or 2% on a unit-margin basis per quarter.

Okay, I appreciate that, and it's helpful.

How is that offset by just the mix of -- as you do more field services work, I assume you are talking about an on an apples-to-apples basis?

Yes.

As field services comes in, unit margins -- well, unit margins aren't even really relevant, but what we will see is margins as a percent of revenue will be lower.

As field services increases as a percentage, the average unit margin will actually come down.

That's the wrong word.

The average percentage margin as a percentage of revenue will actually come down.

So, while unit margins will be improving all through that time, the percentage margins will appear to be going the other way as the field services portion increases.

Even at the net operating margin line, we don't make quite as much money per dollar of revenue off field services as we do off of engineering services.

At this point, the field services has still the greater growth prospects just because of the mix of projects, is that fair?

Yes.

Let me temper that yes in a minute.

We are in businesses today, I think John referred to this earlier, like the Middle East, where the contracting terms tend to be EPCM.

While we were involved there in fairly big projects and the aggregate margins, the absolute margins are quite good, there is an increasing fraction of our EPC/EPCM work that's EPCM or PMC.

Those things don't have that pass-through aspect of the field services margins.

So, I think the mix is going to affect our historic position just a little bit.

If you think about 2006, '07, and '08, almost all of our field services margin was in North America.

Almost all of our field services activity, I should say, was in North America.

A lot of that was EPC.

I think the balance in this next cycle will be still probably favor EPC over EPCM, but I think we will have a significant fraction of EPCM, and in many of those EPCM contracts the actual construction contracts will be on the customer's book.

So, we won't see that revenue.

Okay.

That helps.

I appreciate it.

Thanks for the color.

Tahira Afzal, KeyBanc.

First question is really in regards to the oil sands, any kind of update there in terms of projects?

I know, Craig, you provided a bit of an update, but any kind of new instances in the prior quarter because of flooding?

And really, how we would view the trajectory going forward in terms of space?

Really alongside that, as we see this spectric end-cycle unfolding, have you reached a point, and it seems we might have, where the risk elements are doing EPC/EPCM are turning in your favor and really could increase score-book opportunity for yourselves?

Sure.

Let me take the oil sands situation first.

The investment in oil sands is more measured than it was say in the 2006/2008 timeframe, so I don't expect any kind of a steep ramp in oil sands work.

On the other hand, we are seeing steady growth there and continue to see steady growth as the outlook.

Our new offerings in things like gen 10 modularization I think are going to put us in a position to take additional share in the oil sands as well.

While I don't think we will see the runaway spending that we might have seen a few years ago, I think the oil sands prospects remain very good.

I think we will continue to see double-digit growth as a company up in the oil sands, maybe even in high double-digit growth as this gen 10 offering catches on.

With respect to petrochemicals, absolutely.

At times when there are insufficient resources, customers move rapidly away from lump-sum kinds of delivery schemes and they moved to cost-reimbursable schemes.

Jacobs has a very significant craft base in North America that really can't be accessed unless you contract with us -- I mean you can, but it's difficult to access it unless you contract with us.

I think that actually does significantly increase our opportunities as customers move their buying into our sweet spot.

We are actually very, very excited about the opportunities in the construction side, the field services side of our business.

We have just put some additional executives in that business for no other reason than to deal with what we think the ramp looks like as we go forward.

Okay.

Just to follow up to that.

On the oil sands side, we are seeing some incremental pipeline delays, some common treaties and commentary from the administration mixed on Keystone again.

Any talks around that?

Then, the final question is, in terms of the UK defense ministry, clearly a pretty exciting opportunity.

I have tried to read through documents and it's really difficult to size up the actual scope.

So, I would like to get an idea that as the defense budget here peaks and potential tapers off, how much of a replacement opportunity could this UK opportunity present for yourselves?

Let me go to the pipeline capacity issue first.

The industry executives that I have talked to have taken the president's comments to actually be favorable to Keystone, as opposed to unfavorable.

It goes to the lack of specificity, and so the pundits that I've talked to as well as the key executives, all seem to think that the likelihood of Keystone going forward is higher, not lower.

Most everybody that we talk to says a 2017 completion of the pipeline as the sort of critical timeframe, so we still have, from their perspective, adequate time to get the pipeline approved and built to meet what they see as the export demands of the oil sands.

There are also some all-Canadian alternatives that would also help the oil sands, the bitumen producers, to find outlet for their product and a couple BC pipelines could be particularly important.

One of them looks like it's in trouble, the other, frankly, looks like it might go.

So, those things I think are actually positives at the moment.

If it starts to become clear that there isn't going to be new capacity by 2017, I think that could result in a curtailment of some activity in the industry.

Another point that has been made, and one that I agree with, is that there is very little oil in the world -- or for lack of a better word, yes, we will call it oil -- in the world that is available now to the majors.

If you think about an awful lot of the world's oil is actually national government owned.

The majors can only access that through joint ventures, so there is clearly some advantage in this huge resource that is in Canada in that the Exxon's and Shell's and Chevron's and Conoco's of the world can own that resource.

I think that means that the investment attractiveness of Canadian oil sands is a little higher than its straight economic attractiveness.

Now, I am parroting a really good study that I read just recently, but it resonates with me and I think it's true.

So, that was your first question.

The second question was about the defense business.

We really can't share any more about what we have won already, because we don't have the customer's permission to do so.

I think the plans of the MOD in the UK, in terms of outsourcing, remain pretty significant.

I think we as a company remain well positioned to take advantage of that, but these things are slow processes.

I don't know that I would suggest that it will or won't replace anything in the US.

I will go back to my position about our position in the US.

I believe we have significant ongoing opportunities to continue to grow, not a double-digit rates but single-digit rates, in our federal, national governments aspect of our business in North America, in the US.

What happens in the UK will be either slightly incremental or hugely incremental depending on how that all unfolds.

Thank you very much.

Jerry Revich, Goldman Sachs.

I'm wondering if you could talk about your views on the TIFIA program ramping up and when do you think it will be at a point where it will meaningfully impact the US infrastructure market as you see it?

I'm not convinced that it will have a significant impact on the US infrastructure market.

The numbers relative to the market itself are maybe incrementally significant, but it is such a huge business in the United States and in North America that very little our government does moves the needle very far.

So, while it is a positive and we are excited about it I guess, maybe that's an exaggeration, but we are positive about it, I don't think that's going to make the infrastructure investment in the United States zoom in any way.

Does that make sense?

Sure.

In terms of, for your chemicals business, can you just talk about how much of the backlog growth that you saw in the quarter for process was driven specifically by chemicals?

If you could, just give us a sense for whether there is any meaningful change in the type of mix of work that you are doing?

Any changes in this environment versus a year ago and the type of work that you are getting within the chemicals business?

Well, to answer your first question, we don't break down the backlog any further than we have given it.

Obviously, if you look at when you see the queue, which will be out later this week, which you'll see that the revenues in the chemical marketplace for the quarter did improve both quarter over quarter and trailing 12 over trailing 12, so I think it clearly is a part of that increased backlog.

It's a good part of the increased backlog in the process industries, and we think that it is, as Craig said, this has got a cycle that will got at least through '17 and maybe beyond.

One thing I think you can look at is, if you go back just a few years, chemicals was 11%, 12%, 13% of revenue when the revenues numbers were a bit smaller, and today it's running 20% of revenue.

I think there is a -- you clearly see that chemicals are starting to move the needle in an important way even today.

Okay.

And what about the type of work that you are getting?

Any longer lead-time projects that are starting to come through, is the average job size increasing?

Any differences at all in the type of quotes that you are providing today versus a year ago?

There's no question that the average job size is a bit bigger.

There are more of them.

There are more, what I characterize as major projects, as well.

In our activity levels, are up in the ad forget.

There's still a lot of small stuff.

Don't misunderstand me.

Small stuff all still needs to get done, but we are seeing a lot more activity.

I'd say the average project size is certainly moving up.

Thank you.

Robert Norfleet, BB&T Capital Markets.

This is actually Basil Jones on for Rob today.

Thanks for taking my questions.

First, you have mentioned over the course of this call and on recent calls Jacobs success in taking market share.

Can you maybe add a little more color as to what end markets you have been most successful in this respect?

Are you having to lower prices at all and seen margins trimmed a little bit as a result?

Sure.

Probably the place where we have been most successful in recent months in taking market share has been in the public market places.

The bad news about those markets, as we all know, is there's less money going into them, whether it's infrastructure or the national government side of the business, but particularly in national governments.

We have been hugely successful, in my opinion, in taking market share in that arena because while the market is shrinking pretty significantly, our business is actually growing.

So, that combination suggests we are doing very well at taking share.

If you look around the rest of the business, we are starting to see share growth in the mining and minerals industry.

Again, the market is moving to investing where we have the greatest strength, and that continues to be a positive for us.

Then, our traditional markets like refining, we have always had strong share position, but the project heights and the scale in the refining industry probably are more to our liking than most of our competitions as compared to the refining estimates, the refining projects in 2005 to 2009 timeframe.

That's also probably giving us opportunities to grow share.

In businesses like chemicals, there's so much work out there it's almost impossible to figure out what is happening in share.

The market is just really good for everybody.

Okay, that's great.

Thank you all.

Secondly, with the frac spreads down over the last six months, and some regions and country's are being a little more cautious with the fall turn-around season, are you seeing this impact your business as it relates to CapEx?

Do you see this being more of a short-term issue or something a little more systemic?

Our business really concentrate on turn-around aspects of North America, and there the outlook that we are seeing is not reduced activity.

If anything, it's a little bit of an increased activity.

I think there's maybe a difference or a shift in turnaround activity in places like Singapore, where frac spreads are really, really low, but that's really not a business where we have a strength, the turn-around industry in Singapore.

In the geographies where we work, we are not seeing any negative impact in the area of turn-arounds or the small-cap investment.

In the areas where we don't do a lot of that field services activity, there's still a fair amount of investment in small-cap work and turn-arounds in some cases are being delayed, but that really isn't affecting our business.

Okay.

Great.

Thank you all.

Brian Konigsberg, Vertical Research.

Just want to touch on margin a little bit more.

I know you don't want to provide guidance for 2014, but just putting the pieces together, you are saying that pricing getting modestly better and hopefully that will gain a little momentum, doing a bit more EPCM work than you would historically have done on the previous cycle.

The top-line profile, obviously, is improving.

You're going to get better cost absorption.

Should we anticipate you could still see gradual improvement in the operating margin profile from here, or does the mix really just -- is it just too heavy of a burden to offset those other items?

It won't be a nice, smooth transition, to say the least, but we would expect to see, because of improvement in margins, be able to see a fairly stable margin around the levels we have been seeing this quarter and last quarter, with the margin improvement, pricing improvement offsetting over, on average, the mix shift.

Now, in any given quarter depending on the shift, like this quarter's margins and operating margins might be down a little bit or up a little bit just depending on where we are on bigger projects, faster costs and a lot of other factors that have more impact quarter to quarter than have say over a longer period like the fiscal year.

I would say that our anticipation is not for let's say growing margins over the next year, but a fairly stable margins in spite of the fact that we will see a big mix shift.

Got you.

Maybe just moving onto the SG&A costs, actually the due-diligent costs that you have been referencing, maybe talk about the assets that you are seeing in the market?

Are there certain markets that look more attractive versus others in regards to pricing and maybe just fundamentals?

Some color on that would be great.

Yes.

We are pretty focused on end markets that are outside of North America and Europe, so things like South America, Asia Pacific, Australia, Brazil in particular.

Those are areas where we think there is significant opportunity and where we think that pricing is attractive for our shareholders.

There's a lot of push there from our perspective.

There are some attractive companies out there that we think represent important opportunities if we can make those happen.

But as I always remind everybody here, you have to have a willing buyer and a willing seller.

The motives for making the deal have to make sense for both, so sometimes these things happen like we'd like them to and sometimes they don't.

Sometimes we spend a lot of money on due diligence and we don't have a deal at the end of it, sometimes we do.

It's one of those things you have to remember it is just plain when the opportunity presents itself and does it all work out.

I do feel good about the kinds of opportunities that are out there and the potential fit between the companies that we've looked at and Jacobs, so we will see what happens.

Great.

Thank you very much.

Abhisek Shaw, Deutsche Bank

Just wanted to follow up on the M&A question.

Outside of M&A I know you have historically not looked at other forms of capital return, but any thoughts on any potential for dividend or buyback going forward as you explore these options over the next couple of years?

I will let John comment in detail, but I see so many good opportunities from an acquisition perspective that I think represent substantial opportunities for return to our shareholders that I am not an advocate or a fan of alternative ways of using our cash.

I think we have great uses for our cash going forward doing what we do.

That being said, we look at those issues with some frequency with our Board and go through that analysis of what those potential returns are and what makes sense to be sure we think we're on the right course.

If the acquisition opportunities were to dry up or the pricing were to get to the point where you can't make them make sense, we would have to look at alternatives.

John?

I think you just answered that.

(laughter) We continue to see a lot of opportunities on the acquisition side.

As we have always focused on, about two-thirds of our growth, that 15% growth at the bottom line, we expect to come from acquisitions and so given our decent cash position and availability of resources to our existing credit lines and just our market resource availability, we feel that the cash and all that we have is better focused on acquisitions than alternative capital deployment.

As Craig said, if we go a period of time and can't find those acquisitions and the cash continues to grow, certainly periodically, we do look at the alternatives, both as a management level and all the way up to the Board and consider those.

That's helpful.

Thank you.

Just one other question.

On the margin side, you mentioned that as the mix shifts more towards the field services, what other factors or what are the things that can you do to control costs and improve margins besides improving utilizations and controlling G&A?

Anything else that you can talk about that would help margins in the near term?

Well, as the revenues grow on the field services side, field services generates very little need for G&A expansion because most of the costs related to a field service project are in the field are directly reimbursed by the client, even space and such like that.

You don't get the incremental adds so the margin or the G&A as a percent of revenues tends to go down as our field services grow.

Having said that, we are always looking at the absolute dollars in our G&A so that as we even grow our professional services, which does generate the need for more space and such, we look at how we can be more efficient in that space utilization and more efficient in utilization of people through overtime and such like that so that we keep the G&A growth in absolute dollars below what we are generating as far as margin growth on the professional services side.

It is a lot of little things.

There are any great big magic bullets, because I think we have already pretty well focused on those, but it's just a constant focus on controlling the costs from everything from the amount of people you have go on a sales call or a job lock to how we utilize our information systems to pull together proposals and just how we can focus on getting better utilization of space and people within the system.

Thank you.

Robert Connors, Stifel Nicolaus.

I guess I'm going to ask the margin question a little bit different way.

It was about a year, year and a half ago, I guess you would characterize the public sector market as being higher gross profit margins but offset by less opportunity to leverage your G&As.

Just wondering if that is still applicable, or are you starting to see where the private sector is starting to yield a little bit higher margins, gross profit margins versus public?

The public sector unit margins, we are talking about now, remain higher than the private sector unit margins.

The cost to serve the public sector customer remains higher than the cost to serve the private sector customer, so the relationships haven't fundamentally changed.

What we are seeing in the public sector is more price competition, which I think we've mentioned several times on this call over the years, has been a factor in public sector competitions historically.

Price competition is starting to move the public sector margins down relative to the private sector margins, and hasn't changed the cost to serve much.

All of that, of course, is an advantage to us as we see it because we maintain the same approach on cost to serve in both industries, for both aspects of the business.

On the private sector side, as I mentioned, we are seeing faint improvement in margins and we expect that to continue.

The cost to serve in those cases is also going to increase, but not quite as much, we think.

So, unit margins in that market will improve a little.

Unit margins in the public sector will be poorer by a bit, but the differential will still favor the public sector markets.

Does that answer your question?

Yes, that's very helpful.

I think it was a couple quarters ago you guys had given us a rough timeline on when you expect the TPS/FS mix to go back to a traditional 50/50 split.

Just wondering if you could provide us an update on that?

Sure.

We're going to continue to see, I believe, over the next few quarters, a relative increase in field services versus the technical professional services aspect of our business.

I am not as optimistic that we are going to get to 50/50 as I might have been a few quarters ago, not because we are not doing as well in field services as I expect.

As I mentioned earlier, we are expecting to do maybe even a little better, but because I think the mix of field services will tend to have less pass-through revenue than what I thought three or four quarters ago.

I thought it would be largely EPC and now I think it will be still the majority EPC, but I think it will be a fairly significant PMC/EPCM component.

So, I am not sure we will get back to 50/50, but I think that wherever we are going to end up directionally, whether that's 45 /55 or 48/52, I think that you will see that happening over the next say 8 quarters, and pretty steadily, just as you are seeing in this quarter, what has happened to the backlog and revenue as well.

Okay, great.

Thanks for the help.

Will Gabrielski, Lazard.

Following up on a question about mix.

I'm just wondering which end market drove the incremental growth in field services?

Was there one particular end market contributing to a majority of the growth you saw this quarter in your revenue burn?

Well, it was heavily in the heavy process industries and probably the most -- well, I think it was probably evenly, maybe the chemicals a little bit stronger, but there was a mix across all three.

I think on the construction site, probably is starting to see some of the chemical stuff getting into the market.

When you see the revenue breakdowns, chemicals was one of the biggest, had the biggest surge quarter over quarter.

Okay.

Was that work that was a backlog for a while that took a while to get going, or is that new work you are booking and starting to burn pretty quickly from contract award?

It's a mix.

Some of it is work that has been in backlog for some time and just started moving into the field in a significant way.

Also, the turn-around season is bigger in the spring, summer, fall than it is in the winter.

So, those were both factors in what drove those numbers up.

Okay.

In your particular segment of North America downstream, are you seeing any additional foreign competition versus what you might have expected a year ago?

None.

We just don't see, outside of what I will characterize as traditional competitors who you might characterize as foreign, CB&I, Oscar Weiler, Techni, who've been in the markets forever, we are not seeing the Japanese or the Koreans in any significant way.

Okay.

That's helpful.

Then lastly, as you look into government fiscal year '14, what type of indications are you getting or what are you expecting around potential impacts of just whatever type of budget they pass and then the sequester on top of that and whether or not that goes forward?

Right now the outlook in the businesses we serve, so test engineering being the biggest single part of the governments business for us, the outlook there is for spending to be slightly up to flat.

I would lean toward slightly up, based on what we know right now.

In the environmental cleanup side of the business, which is a much smaller fraction of what we do in North America in the US, I think that's probably going to be down a bit.

The projects that we are working on and the ones we are chasing all represent pretty good, steady work going forward and probably the scope of those projects won't be affected as much as new projects will be affected.

I don't think the outlook for '14, in the public sector, is particularly negative.

I will go back to my original view that we are going to get single-digit growth.

Okay.

Has there been any change in the cash conversion cycle within the federal component of your business?

No.

Not really.

We have seen more pressure in our private sectors on payment terms and receivables than in the public perspective.

All right.

Thank you very much.

Jamie Cook, Credit Suisse.

Most of my questions have been answered, just one.

John, can you remind me how much the due-diligence costs, what they will be?

How much will that be in your fiscal year 2013?

Because, I'm just trying to -- and does that -- do we expect those costs to continue at high levels in 2014?

I'm just trying to figure out potential tailwind that you could have in 2014.

Also, whether or not the due-diligent costs are trending higher than you originally had anticipated to when you originally gave guidance?

They were in the range of guidance because we expected we just didn't know exactly how active things would be.

Probably for the year this year, it will be somewhere in the range of $0.05, so that would be probably the fourth quarter would be similar to the third quarter just as what we're looking at right now.

It's hard to anticipate what might happen in '14.

Certainly, we will look at that as we see -- when we come up with guidance next quarter, but we continue to see a lot of opportunities.

I wouldn't be surprised to see that impact, but it depends on what -- there's a lot of variables in that.

Jamie, we really don't forecast major due-diligence events in our fiscal plan.

It's just not that predictable when they are going to fall.

In '12, there was a deal I was just sure we were going to get to do.

If I had put any money in the plan for that, we would've looked like heros, because we didn't spend any of it.

It's not one of those things where we can sit back and say, okay, this year due-diligence costs are going to be $0.07 or $0.08 and we will build that into our guidance.

There is a background level of due diligence that is in our -- it's always there because it is just basic overhead for the M&A functions, but the individual due diligence for these companies can vary from nominal amounts of money for a little deal like a Compass to much more significant amounts of money like John's talking about today.

Yes.

Just because if you add the $0.05 back or so, you are getting closer, much closer to your 15% historical targeted goal -- or not your targeted goal, I'm trying to think about that with regards to 2014.

I hope the $0.05 will prove to be a really brilliant investment on our part, but only time will tell.

Just last on that, you mentioned people jumping ship and going to competition and that you need to pay your employees more.

Are you passing those costs through to your customer?

Yes.

We continue to be almost entirely cost reimbursable.

As we raise wages, the customer is very aware that we are doing it.

They are supportive of it, so they pay the multiplier on the higher cost, which provides some expansion of our margins, actually.

We also end up doing that with our G&A staff, so some of that goes back in the form of higher G&As.

If there's anything I think that would post G&As up over and above just normal consumer price index related increases in G&A, this wage push will both improve margins and push G&As.

A year from now we may be looking at a higher G&A number by a chunk and a lot of it will come from staying competitive with salaries in the market place.

Alrighty.

Thanks.

I will get back in queue.

Andy Kaplowitz, Barclays.

Craig, your comments and really your consistent backlog growth over time is so different than one of your competitors, who recently reported -- who was talking about projects moving to the right.

We know you are not large project focused, so especially to the extent we see that most of your competitors are, so maybe that's what that is.

But, can you talk about your visibility for continued backlog growth over the next two quarters and whether you are seeing any of these delays in your business?

It sounds like you are not, but at the same time I feel like I need to ask a question.

It's a great question.

Our backlog is lumpy, but it isn't lumpy compared to most of our competitors for the reasons you just described.

There's a very large component of our backlog that is this steady repeat business that we worked so hard to get and keep in the small cap and alliances and all those things that we talk about.

That adds a stabilizing factor to our backlog that many of our competitors don't have.

Our backlog tends to be -- of the moment, as John pointed out earlier, things come into backlog these days at just about the time you start working on them, so that tends also to smooth the backlog.

We are seeing projects move more slowly than we wanted or expected, so I think we agree with the industry that things are moving to the right.

The nature of the way we approach this stuff and the way our backlog grows, it doesn't show up, I think, as significantly in our numbers because the big events are what swing our backlog.

Does that make sense?

It does.

Does that mean that we should still expect, again, some lumpiness but over the next few quarters you are still pretty confident about sequential backlog growth?

Fair?

I continue to expect good, steady growth, but one quarter to the next it might not be very good at all.

I think over the next, say, four quarters we should continue to see good, steady growth.

Clearly, as Craig mentioned earlier, the prospects in places like the chemical business and such are really significant in both quantity as well as size of individual projects.

So, those things we still have a very high level of confidence that we will get our share at least and that will be a positive factor to our backlog and to revenue.

Okay.

That's helpful, guys.

Can you talk about the UK economy?

It has picked up pretty significantly over the last couple quarters.

You have, in terms of Europe, the UK is your largest exposure, I think, and pretty big exposure for the Company.

Have you seen a decent pickup in infrastructure, oil and gas activity in that particular market?

Oil and gas activity there has been strong for a long time.

It continues to be strong.

We are starting to get increasing share of that with a couple of key majors whose investments are significant.

I think that's a positive, has been a positive for a little while, will continue to be a positive.

On the infrastructure side, we've done pretty well in terms of growth in the downturn.

As things are starting to look up a little bit, I think that's a positive for us.

We are particularly positive about what appears to be happening in highways.

That is a business that has been not very good for the last couple, three years.

We think the improving economy means some increasing investment in infrastructure, and I think all of those things are positive for us.

We are also right at the beginning of what's called the amp cycle.

That is really in the water business there where we have a pretty solid presence.

Almost every water company in the UK is going to re-bid it's relationships, which they do on a five-year cycle.

Each five years is an amp cycle.

We are about to start amp six.

We look at our positioning for winning a big share of amp six, and it looks very good.

So, you are right that the UK is the biggest part of our Europe business and a significant part of the Company overall, but I think it is also a brighter light for us than it has been over the last few years.

Thanks.

Appreciate it.

Nathaniel Pulsifer, Pulsifer Associates.

A couple of questions.

Dep has gone down but during the period, your contracts signed and backlog have gone up, so I am wondering about the payables that are associated with these new contracts.

How do you handle those relative to your debt, prepayments, things like that?

First of all, our debt that continues on the balance sheet is primarily related to acquisitions.

It actually has been -- it's local debt in a number of different currencies because we've done, related to the acquisitions we've done outside the US, our payables -- right now with the majority of our business being on the professional services side, they don't generate a lot of payables.

They generate a lot of payroll and those we have to pay every couple of weeks.

As we do get back into the field and start seeing more construction activity and pass-through costs and such like that increasing, we've managed this in some cases for either zero balance accounts or advanced funds, in other cases where we can't get those, we will get contract terms that we pay ourselves when we get paid by the owner.

So, we match the cash flow, which can tend to increase both sides of the equation.

Our Business, from an operating standpoint, tends to have a pretty good cash flow, so we are able to fund goes through our cash flows rather than through increasing debt.

Our debt, as I said, is really more for acquisitions and growth outside of the organic growth that we generate.

John, thank you very much.

Is the cash-to-sales ratio, does that represent a new normal for Jacobs?

It has gone up recently, and I wonder if you have an objective here?

Or, is this just a happy consequence of better times?

Well, our business tends to generate cash.

We have historically used that cash for acquisitions in growth, so when we haven't done any significant acquisitions for a couple years, the cash tends to grow.

As we, hopefully, are successful on a few of these that we are looking at, then the cash, or the net cash will come down as we use those resources for growth.

The cash we need for operations is relatively low.

Certainly, the balance of $100 million to $200 million is probably all we would need to sustain an operation cash flow, so the balance above that would be available for either debt reduction, if it is in the right currencies, or acquisitions going forward.

Thank you very much.

That is extremely helpful.

Shares outstanding, diluted shares went up by nearly 2.5 million over the 12 months.

What principally accounts for that increase?

Well, a little bit of it has to do with issuing some shares for options or our stock purchase plan, but because of the way you have to calculate those, the fact that our stock prices got up nicely over the last year actually increases the amount of dilution from outstanding stock options.

Thank you.

Final question, we have spent a good time on the growth of the chemicals business, and one of the attributes that I think Craig gave us was that feed stock costs have come down and that stimulates growth in the business.

Are there other significant reasons that attribute to the growth of the chemicals business?

I think if you think about growth in chemicals on a global basis, you are dealing with GDP growth in the market coupled with people with low-cost feed stocks moving into markets and displacing people with high cost feed stock.

So, naphtha-based chemicals being replaced by natural gas based.

It's certainly a factor in lots of places in the world.

I think specifically the boom in North America, let me more specifically, that the boom in the Gulf Coast of the United States is not just low-cost feed stocks that long-term view that they are going to stay low cost, but also the US Gulf Coast is probably the place in the world where costs of construction and, therefore, capital investment are most predictable and lowest in terms of the productivity, labor, the cost of materials and equipment delivered to the site.

Much more predictable in the Gulf Coast than almost anywhere else in the world.

You have some cost certainty for the customer, if they make an investment in the Gulf Coast.

You have what most people believe is an assured long-term supply of low-cost natural gas, and those things are clearly drivers for world-scale investments in the US versus potentially other places.

I think chemicals investment for the next cycle, this cycle that we're just seeing the beginning, are really US Gulf Coast, Middle East, (inaudible) mostly, and a few locations like Singapore where the logistics advantage outweighs a little bit of the cost drip.

Thank you very much.

Thank you for taking my questions.

Stewart Sharp, S&P Capital.

Speaking of the gas and the Gulf Coast, there is a plant that is being built in Russia for exporting through some of the areas where there a flowing in the Arctic and that's supposed to be ready by 2016, I believe.

Could you comment on that, any involvement with that?

And, any effect that might have on natural gas plants being built in the Gulf?

We have no involvement in the Russian project whatsoever.

Russia's really not even on our target geography list, at least in my career.

I don't think that it will have a significant impact on US gas projects for a couple reasons.

There's going to be a fair amount of gas go into the chemicals industry, but I think the largest consumer of gas in North America will be power.

If you look at the permitting challenges with either cold-fired power or nuclear, I expect that natural gas-fired power will be a major factor in gas consumption.

I think export gas for the US is not as robust a market as a lot of people think.

Deloitte did a really good study on that subject maybe a year ago, and that was their conclusion and I haven't seen any evidence that they were wrong in reaching that conclusion.

think the US market for gas is more self-contained than perhaps the common thinking is at the moment.

I don't think that, at the availability of Russian gas either to Asia or Europe, will have a material impact on investment in the US.

Okay.

Thank you very much.

I could be wrong, of course.

Steven Fisher, UBS.

Great.

Thanks.

I'll just keep it real quick here.

Craig, you mentioned $600 million of specific refining projects.

Can you just clarify the timing you are thinking about there?

Then, have you booked anything particularly chunky yet in fiscal Q4?

I know you guys had that North West Rail Link project press release, but it seemed like that could be somewhat sizable.

We have not had anything that I would characterize as chunky in the backlog in the last couple quarters.

The projects that I mentioned are in the, what I'll characterize as a discussion phase right now, in terms of trying to get a negotiated award.

They will be the first, then detail design, then construction.

The construction part of that probably won't be awarded for several months, so even those two programs, which will probably be combined as one release, even those two programs are probably incremental increases in backlog for the first two awards, the fee and the detailed design.

Does that make sense?

Yes, perfect sense.

Thank you very much.

At this time, we show no further questions.

Would you like to make any closing comments?

Just thank everybody for the attention to the call and the participation.

A lot of good questions, and we appreciate that.

I think we have a great story going forward.

I think we continue to do what we promised.

I think there will be a lot of positives out there in our future.

I look forward to talking to you again in about 90 days or there about.

Have a great day.

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