AECOM Technology F1Q09 (Qtr End 12/31/08) Earnings Call Transcript

Feb.10.09 | About: AECOM Technology (ACM)

AECOM Technology Corporation (NYSE:ACM)

F1Q09 (Qtr End 12/31/08) Earnings Call

February 10, 2009 11:00 AM ET

Executives

Paul J. Gennaro, Jr. - Senior Vice President Investor Relations and Corporate Communications, Chief Communications Officer

John M. Dionisio - President and Chief Executive Officer

Michael S. Burke - Executive Vice President and Chief Financial Officer

Analysts

Joseph Foresi - Janney Montgomery Scott

Steven Fisher - UBS Securities

Andy Kaplowitz - Barclays Capital

Vance Edelson - Morgan Stanley

John Rogers - D.A. Davidson & Co.

Andrea Wirth - Robert W. Baird & Co.

Avram Fisher - BMO Capital Markets

Operator

Good morning, ladies and gentlemen. Thank you for standing by. And welcome to the AECOM First Quarter 2009 Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Tuesday, February 10, 2009.

And I would now like to turn the conference over to Mr. Paul Gennaro, Vice President of Investor Relations. Go ahead, sir.

Paul J. Gennaro, Jr.

Thank you, Joe. And welcome everyone to AECOM's first quarter 2009 earnings conference call.

On slide two. As we begin let me remind you that today's discussion contains forward-looking statements based on the environment as we see it today and as such does include risks and uncertainties. As you know our actual results might differ materially from those projected in these forward-looking statements.

Please refer to our press release or slide two of the earnings presentation and to our reports filed with the Securities and Exchange Commission for more information on the specific risk factors that could cause actual results to differ materially. As we begin our call, let me remind you of some of the important information about our earnings that are posted on the investor website, investors.aecom.com.

First, we posted our earnings release and updated financial statements on the site for anyone who still needs to access. Second, a replay of today's call will be posted there at around noon Eastern and will remain there for approximately two weeks.

Please go to slide three. And lastly, since we are using some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted on our website as well.

Presenting today will be John M. Dionisio, President and Chief Executive Officer; and Michael S. Burke, Executive Vice President and Chief Financial Officer.

John, please go ahead.

John M. Dionisio

Thank you, Paul. Good morning and welcome everyone. On our call today I will begin with a few opening remarks and then Mike will discuss our financial performance. Following Mike I will provide additional details about important business trends and our outlook.

Let me begin by saying that the infrastructure market remains robust. Our end markets including transportation, waste water, government facilities, and program management continue to perform well during the first quarter. An important indicator about future performance is a fact that we recorded a significant number of new wins and increased our backlog despite a global economic environment.

That said we are fully aware that we are competing in a very tough global economy and we are closely monitoring all aspects of our business. Although that downturn has affected the privately financed facilities market which is a relatively small segment of our overall business. Our outlook remain strong and we are confident of continued growth in 2009 and beyond.

Now, I would like to turn the call over to Mike, who will present our financial performance. Mike, please go ahead.

Michael S. Burke

Thank you, John.

Please turn to slide five.

First of all we are pleased with our first quarter results and our continuing momentum. Net income from continuing operations was $40.5 million up 37% year-over-year, EPS from continuing operations was $0.38 per share up 31% year-over-year. Backlog increased 32% to $9 billion and we closed the quarter with $243 million in cash and cash equivalents.

Please turn to the next slide.

During the first quarter, we generated strong top-line growth and we increased our gross revenue by 35% over last year's first quarter to $1.5 billion. Our net service revenue was up 32% to $889 million. On a organic basis, gross revenue was up 9% over last year and net service revenue was up 4%.

We did discuss on our last conference call that our actual results might be affected by volatility and foreign exchange rates and that has been the case as the dollar has significantly appreciated relative to foreign currencies over the last year.

Adjusting for the changes in foreign currency rates are underlying gross revenue organic growth rate would have been 15% and our net service revenue would have been 13%. Revenue growth in continued margin improvements both in and outside of the U.S. drove our operating income from continuing operations to $70 million, a 57% increase over last year's first quarter.

Net income from continuing operations increased 37% over last year. Earnings per share from continuing operations increased 31% over the last year to $0.38.

Please turn to the next slide.

The PTS segment accounted for 85% of our first quarter gross revenue. We continued to generate strong growth in this segment during the quarter with gross revenues increasing 38% over last year's first quarter to $1.2 billion and net service revenues increasing 30% to $846 million.

Operating income for our PTS segment increased 44% over the first quarter of last year to $77 million. This significant increase in our operating income was due to improved leveraging of our overhead cost across the organization. Our PTS net service revenue reflects 11% organic growth rate after adjusting for foreign currency. This growth was fueled by large multi-year projects across diverse business lines with strong wins around the globe.

Please continue to the next slide.

We are also pleased with the first quarter performance of our Management Support Services segment which represented 15% of our gross revenue during the quarter. MSS revenue for the quarter was $223 million, up 19% over last year and entirely due to organic growth.

MSS operating income increased to 194% to $10 million. This favorable year-over-year comparison is partially due to a one-time reserve we took in Q1 of last year which was not in this year's results. Eliminating the FY 08 reserve we still had an 85% increase in operating income on a pro forma basis. Looking to the future, the MSS segment looks healthy due to several recent wins which John will discuss later.

Please turn to the next slide.

Out EBITDA margin improved to 107 basis points year-over-year due to our ongoing cost containment efforts and operating leverage resulting from our increased scale. As our growth has continued we have gained operating leverage in several areas such as marketing and shared services. During fiscal year 2009, we will continue to focus on controlling cost and driving operating efficiencies.

Please turn to the next slide.

We closed the quarter with $243 million in cash and cash equivalents and debt of $392 million. In the current economic environment we understand that a strong balance sheet is one of our most valuable assets. Our cash position is healthy and we have sufficient access to credit.

As of December 31st, we had $600 million in committed bank facilities led by large, highly rated and well capitalized banks, and over $250 million in unused capacity. Our net debt to EBITDA ratio was 0.5 at the end of the quarter which is well below our target range of 1.5 to 2 times EBITDA.

We closely managed our working capital which resulted in a 6% year-over-year increase, while our revenue grew by 35%. Our collections were also strong which improved our cash flow by more than $20 million over last year even though the first quarter is generally our slowest quarter for cash collections.

Our strong financial position and liquidity will allow us to opportunistically invest in future growth initiatives. We plan to continue to manage our business carefully during this period of economic uncertainty but at the same time we do intend to use our resources to capitalize on attractive M&A opportunities that will position AECOM for future growth.

Please turn to slide 11.

Before I provide the backlog numbers, let me reiterate our definition of backlog. We have two categories of backlog; awarded backlog and contracted backlog.

Contracted backlog represents the amount of work for which we have a signed contact and in a case of a public client where the project has been funded.

Awarded backlog is the amount of work for which we have been awarded but where the contractual agreement has not been completed.

Neither of these measures include any IDIQ contract dollars, option years or add-ons. The strong momentum of our win rate continued during the first quarter pushing our total backlog up to $9 billion, a 32% increase over last year and a 4.4% increase over backlog of 8.6 billion in the fourth quarter of FY 08. Backlog growth in the first quarter is entirely organic.

During the quarter we reduced backlog by about $50 million to account for several projects in Dubai that have been indefinitely delayed. We have reviewed our remaining backlog carefully and we are confident that a high percentage of awarded backlog will translate into contracted backlog.

Please turn to the next slide.

Now, I'd like to reaffirm our outlook for fiscal 2009. We expect diluted earnings per share to be within the range of $1.60 to $1.70 for the full fiscal year. Please note that this guidance does not include any benefit from the various proposed global stimulus packages which we expect will begin to impact the results later in 2009.

This guidance assumes $29 million in total amortization expense related to acquired intangible assets, a modest level of M&A for '09, a tax rate of 30% which has decreased due to our global business mix and tax planning efforts, a diluted share count of 108 million shares for fiscal year 2009 and a steady foreign currency exchange rate.

And with that I would now like to turn the call over to John who will discuss our strategic priorities. John, please go ahead.

John M. Dionisio

Thank you, Mike. I'll begin with an overview of the key business trends we are seeing. As I said, the infrastructure market remain strong. Our backlog is $9 billion, up 32% since last year, and we continue to win new work across our end markets and geographies at a good pace.

While the publicly funded facilities market remained strong, we have seen some slow down in the private sector facilities market, particularly, in the U.K. and Dubai. The private sector facilities market makes up only a small percentage of AECOM's business.

During the first quarter, the slowdown in our private sector facilities business was more than offset by the significant growth in our other end markets. We do not expect the trend in the private sector facilities market to change this year. However, we expect a continued growth in our other end market will make up for any shortfalls in this area.

For longer term, we are particularly positive about the opportunities the various global stimulus packages present to AECOM. We believe that AECOM's diversified capabilities which focus on end markets that will benefit from stimulus spending and our strong customer relationships will enable us to play an important role in the implementation of these packages worldwide.

We are already working with various governments and state agencies to formulate this stimulus funding plan and to position AECOM to win the related work. We believe that the strong spending trends tied to traditional infrastructure projects and stimulus projects will provide AECOM long-term market visibility, and sustainable growth opportunities during the next several years.

Looking ahead, we'll continue to focus on our core business strategies that have served us well for many years, namely, market expansion, strategic M&As, diversification and performance optimization.

As you know, M&A has played an important role in AECOM's growth strategy over the past 19 years. And it will continue to do so, going forward. In today's environment, M&A multiples have been declining and our strong balance sheet allows us to pursue strategic M&A opportunities at attractive valuations.

Now our target geographies for M&A are Europe, including Eastern Europe and Russia, India and China. Some of our near-term business line acquisition targets are power and energy and government services companies.

Please go to slide 14.

During the first quarter we recorded $1.9 billion of new wins. You can see on this slide our recent wins included a wide variety of work in both the United States and abroad. I would like to highlight just a few of these wins.

In the MSS segment, we won five task orders valued at $269 million for contract field teams. This is an IDIQ contract with the United States Air Force for operations and maintenance services with a maximum value of $10 billion between now and 2015.

We continue to win major projects in our PTS segment, including a $143 million joint venture program management for the Toronto Transit Commission and a $28 million design services contract for Zayed University's new campus in Abu Dhabi.

Here in the United States, as part of a joint venture, we were awarded a $600 million IDIQ to help FEMA implement the risk map program for flood hazardous mapping. We were also awarded a $147 million program contract for the San Francisco Central Subway.

Collectively these wins demonstrate that even in this recessionary environment, our diversification strategy and business model is enabling AECOM to win new work in key markets around the world. Our continued momentum gives us confidence that the market remain strong and AECOM is well positioned to continue to win high profile long-term assignments.

Looking ahead, we will continue to pursue key major prospects across multiple end markets and geographies.

Please turn to slide 15.

As I mentioned earlier, AECOM is particularly well positioned to benefit from the implementation of stimulus programs around the world. Infrastructure projects which include transportation, schools, water, environment and energy are a key component of the proposed programs. These are all key markets for AECOM.

The global stimulus packages announced thus far could be worth as much as $2.3 trillion; approximately 3.5% of the world's GDP, and a construction portion could total up to $700 billion.

Remember, that a key discriminator for AECOM is that in each of our geographic markets, we have a strong local presence and long-term client relationships coupled with the ability to deliver global expertise. We are closely aligned and already working with government agencies to help them accelerate stimulus related programs.

In the United States, AECOM has a particularly strong presence in those states on this map that are expected to receive a significant share of the stimulus suspending. In addition, we have over $3 billion in existing contract capacity with the U.S. federal government. This is important because these contracts could be used to fast track procurement and position AECOM to quickly secure new work as stimulus related programs get started.

Please turn to slide 16.

As you can see on this slide, in the first quarter we continued to advance a nice balance of diversification across end markets, funding sources and geographies. As I have said previously, our diversification strategy has served us well for many years. It has enabled AECOM to continue to win work in spite of current economic conditions.

Today, I want to spend a few minutes on the breakdown of our funding sources and the changes we have recently seen in the public-private partnership funding.

As you can see in the middle pie chart in the first quarter, 32% of our revenues came from the private sector and 68% came from government clients. Looking ahead, in addition to increase funding from proposed stimulus packages around the world, we are expecting to see a real breakthrough in the PPP funding for such... for much needed infrastructure projects in the United States.

Here in the U.S., we have seen a steady increase in private funding. In fact, during the first quarter, we secured a $70 million design contract for our public-private partnership project in Florida and we have identified a number of additional PPP opportunities in other states like Texas, Utah and Virginia.

The industry estimates that there is approximately $180 billion of private capital available for global infrastructure projects. Given growing state deficits and stimulus measures, we expect that PPPs will play a bigger role in funding infrastructure projects in the coming years.

Please turn to slide 17.

In conclusion, I would like to reassure you that our core markets remain strong. Our diversified business model continues to drive growth and strong results. The outlook for continued spending on infrastructure projects is intact and will only be bolstered by the proposed stimulus measures around the globe.

Here in the United States, irrespective of the final details of the stimulus package the funding is expected in each of AECOM's key end markets.

We will continue to closely monitor all our businesses to assess our potential impact as the potential impact from the economic slowdown. As we look to the future, we have every reason to believe that our strategies are working well and that they offer AECOM strong growth opportunities. We are reaffirming our earnings guidance today for 2009 and we look forward to updating you on our progress.

With that I would now like to open the call up to your questions. Thank you very much.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions). And our first question comes from the line of Joseph Foresi with Janney Montgomery Scott. Go ahead, sir.

Joseph Foresi - Janney Montgomery Scott

Hi, guys. I wonder if you could, I know you talked a little bit about this in the presentation. You talked about $3 billion in fast track, U.S. government ready projects. I wonder if you could kind of talk about and help us sort of connect the doubts between what we are hearing on the stimulus side, the timeframes for the spending going through the highway formula and sort of how you are propping on year-end?

John Dionisio

Okay, the $3 billion I referred to are those with the federal government where we have IDIQ contracts which... and the reason I mentioned it to jump start the spending the federal government could use those vehicles to allow us to do work in certain markets. So that is... it was presented just to indicate that we are very well positioned to hit the ground running in terms of some of the federal spending.

In terms of the stimulus packages here in United States we are taking special focus to work with various state agencies to help our clients prepare packages and prioritize projects. We are also advising on how they could accelerate some of their procurement. I mean this is going to be a big chunk of money that's going to come into various states and we are in a position to help them program manage that type of preparation.

Also what the stimulus package will do Joe is, as you see from our backlog, we've grown. I think infrastructure market remain strong here in the United States, especially in transportation. But some of the projects, there are some short falls in funding and while we are identifying for some of our clients, those projects which we have... which they have ready to go or they are in the ground now and waiting for some additional funding.

We are identifying ways that the stimulus package could be used to fill in the gap to give them a total funding so there will be no disruption with their construction. I mean as you know probably the construction industry has taken one of the biggest hits and the unemployment with about I think 1.6 million labors out of work. So it's important that with the money that come out of this stimulus package we get it into the ground as soon as we can.

Joseph Foresi - Janney Montgomery Scott

In prior guidance, I think you have talked about the range that you have put out there for earnings at 160 low end, not including some of the stimulus package in the upper end, I guess taking it into account. Based on the figures that you see out there now is that still the proper way to look at guidance?

Michael Burke

Yes, Joe, we still feel very comfortable with our guidance. It's early in the year we have a very good visibility throughout the year, both from our backlog growth as you saw we had very strong backlog growth of 32% year-over-year, about 4.4% sequential growth over Q4 of FY 08.

So we like the backlog growth its given us good visibility for this year. But as you see it's still all over the market out there. We have not taken into account any of the stimulus spending in our guidance. And depending on how fast that stimulus package gets into the marketplace will cause us may be to think differently about our guidance. But right now we are firming our guidance and next quarter when we know a little more about the stimulus package we will be prepared to update you at that point in time.

Joseph Foresi - Janney Montgomery Scott

Okay. So just to clear the 170 does not I mean the upper end does not include any potential spending from your perspective?

Michael Burke

That's correct.

Joseph Foresi - Janney Montgomery Scott

Okay. And then just, looking sort of on the risk side of things. Wondered if you could talk about the slowdown may be in the Middle East and what your exposure is there. I know you talked about private spending and may be you can break that down into percentages for us.

John Dionisio

Okay, if you recall the pie charts that I showed, that the private market is a relatively small piece of our business. Its about 24% or 32% of our total business. That's the... of that in the facilities market we're speaking about 24%. So 24% of the facilities market, of that less than half is in the private side. And what we have seen is that the slowdowns have occurred with private funding from in the facilities in the land development side.

And in the U.K., over the past six months, the market which we have not only facilities but we have transportation, environmental, our facility side has slowed down a little. And in the Middle East, primarily in Dubai, which as you read in the papers just the over spending we have a piece of our businesses in the private facility side and that has been impacted.

The good news though in the Middle East is our infrastructure business is very strong, our transportation business is very strong. And in Dubai, Abu Dhabi, Qatar as well as our developing opportunities in Saudi Arabia.

Joseph Foresi - Janney Montgomery Scott

And just one last question, if I could, you talked about the debt load in the past, being away 1.5 to 2 times EBITDA I was just curious, it sounded like last call you are a little more cautious and then this call sounds like you are going forward with the M&A activity, may be you could just tell us about what sort of changed that tone and what you are comfortable with on debt load side?

John Dionisio

Joe, I didn't intended to change our tone on that, so let me be as clear as I can on our strategy there. First of all we're very comfortable with our cash position right now. We have about a quarter billion dollars in cash. We have about another quarter billion dollars of capacity under our revolving line of credit which still has quite a few years to go before it is up for renewal so we certainly have plenty of dry powder to look at the right strategic acquisitions.

We have been saying for a quite some time that we feel very comfortable with a debt load in the 1.5 to 2 times EBITDA. If you ask me three, four months ago may be I would have been more towards the lower side of that.

But we are still within that range and to the extent we find the right strategic M&A opportunity, the capital markets are available to us either on the debt side or the equity side. And depending on the size of the deal we would access those either debt or equity markets as necessary to maintain our debt ratios south of that two time ratio that we've previously mentioned.

Joseph Foresi - Janney Montgomery Scott

Okay, thanks guys.

Michael Burke

You're welcome.

John Dionisio

Thank you.

Operator

And our next question comes from the line of Mr. Steven Fisher with UBS. Go ahead, sir.

Steven Fisher - UBS Securities

Hi, good morning, everybody.

John Dionisio

Good morning.

Michael Burke

Good morning, Steve.

Steven Fisher - UBS Securities

First, can you tell us what the gross revenues were that were added from acquisitions in the quarter and it sounded like it may have been around $275 million?

Michael Burke

The gross revenues added from acquisitions, I will have to pull that out... yeah, I'll will have to pull that out.

John Dionisio

And we'll get back to you.

Steven Fisher - UBS Securities

Okay. And then in terms of the MSS segment, was there anything non-recurring or unusual in the margins this quarter and was pretty solid, I am just wondering if the results in this quarter is sort of a normalized quarterly run-rate to years going forward?

Michael Burke

Yes, there were no abnormal either reserves one way or another in this quarter beyond normal course.

Steven Fisher - UBS Securities

Okay. And your head count looked like it was unchanged from last quarter; just wondering with the backlog you have in the business prospects for the rest of the year I am wondering where you think it could be at the end of fiscal '09?

Michael Burke

You are talking about backlog?

Steven Fisher - UBS Securities

No, your head count; adding people this year or kind of maintaining, cutting back?

Michael Burke

Well, we are adding people in several places. We are adding people in Hong Kong, here in the United States as well as Canada and in Northern Africa in some of the projects that we are working on. As also we have won two projects in India which is a new area for us and we will adding staff in India.

And Steve, just to your question on revenue, gross revenue added in the quarter from acquisitions was $277 million.

Steven Fisher - UBS Securities

Okay, pretty close for what I was calculating. So then just going back to the head count I mean do you think net, net you are going to be up for the year?

Michael Burke

Yes.

John Dionisio

Definitely.

Steven Fisher - UBS Securities

Okay. I guess just may be a little early to comment so far but can you just comment on what you've seen in terms of business trends in January and February to-date?

John Dionisio

It's interesting we just came off of a strong first quarter and during that first quarter we recorded a record breaking wins and we haven't seen that activity slowdown in the month of January. February, the numbers are just being formulated but the numbers for January remains strong in terms of wins and bookings and that's what makes us really feel confident even before the stimulus package. We are looking at wins across the enterprise in each one of our geographies both Europe and North America as well as in Middle East, Australia and Hong Kong, China.

And also in the environmental and the transportation markets in U.K., as I mentioned in my comments, the U.K. private facilities business is soft.

Steven Fisher - UBS Securities

Okay, great. Thanks a lot.

Operator

And our next question comes from the line of Andy Kaplowitz with Barclays Capital. Go ahead, sir.

Andy Kaplowitz - Barclays Capital

Good morning, guys.

Michael Burke

Good morning.

Andy Kaplowitz - Barclays Capital

If you could go into a little bit more detail about the geographic regions that you haven't talked about too much yet like Asia, Canada, Australia. Obviously, you are growing still pretty well globally, I am just wondering in these regions how much is market share gain, how much is some market still growing pretty robustly?

John Dionisio

Okay. In Asia, our primary locations in Asia are Hong Kong and in China. Overall, we have about 3,500 people between Hong Kong and China. China, we've advanced though through some M&As last year, we're advancing in the... interesting in the facilities market there as well as in the water and environmental markets which are very strong.

Hong Kong which had some slowdowns or slow periods a couple of years ago has now grown very significantly. And we are seeing in '09, we've probably seen a 25% growth in the activity. Their stimulus package is moving into effect with significant increase in transportation of high wages as well as transits.

Australia is remaining strong and has been a strong market over the years and it maintains a modest growth. Here in the United States we are looking at growth in our transportation markets as well our environmental markets and also in our federal market. Our federal facilities market remains strong. And in Canada, Canada continues to grow when we see a nice increase in our markets in Canada in transportation as well as the environmental sectors.

Andy Kaplowitz - Barclays Capital

Okay, thanks. May be this question is for Mike, SG&A as a percent of sales or G&A as a percent of sales was pretty well in the quarter and I know that you have work tag in there 2.1 is still pretty low and so I guess I am wondering can you keep up that rate for the year; 1.2% of sales that's a good run-rate.

Michael Burke

Well, as you heard us talk about this issue in the last several earnings calls, we've been very focused on improving our efficiencies on the SG&A side. We have made very good progress over the past year and half on that. And we expect to be able to maintain that and continue to focus on reducing our expense load and achieving more synergies as we continue to more tightly integrate some of the M&As that we have done in the past. We see continued upside from that. So it is something we're very focused on and we don't anticipate losing our focus on that item.

Andy Kaplowitz - Barclays Capital

Okay, great. And may be if you could help us with one thing, I think there is some confusion out there as we had this election period in November where all these bonds were approved. The question that we have is, when do they find their way into the system you think. Because people I think filed the municipal bond Mike as you know as it pertains to infrastructure and we have seen it come off a little bit in the last few months. How do you guys look at that and how do you look at that versus what we saw in November. So what do you expect for that market going forward?

Michael Burke

Well, you follow the same statistics, I'm sure we follow on muni bond issues and the first step is getting the trader (ph) approval which happened in November. Now the next step is getting it to market. I have stopped trying to predict the muni bond markets and when the liquidity comes back to those markets and how soon that will happen. But it is a matter of time, I can't predict when though.

John Dionisio

Andy, just one bond issue which was past November was in California. A Resolution R.

Andy Kaplowitz - Barclays Capital

Major r?

John Dionisio

Major r which is a $30 billion program which already the monies have been appropriated to get work into the system. So still some of the bond issues that were passed during the November elections are starting to take hold.

Andy Kaplowitz - Barclays Capital

Great. And I'll get back into queue. Thank you.

John Dionisio

Okay.

Operator

And our next question comes from the line of Vance Edelson with Morgan Stanley. Go ahead, sir.

Vance Edelson - Morgan Stanley

Hi, and thanks a lot. You mentioned the promise of PPPs in coming years. How would you characterize the political support for any type of privatization? Do you think the appetite exists right now or is that going to be something that has to be worked through, kind of a hurdle in the coming years, even if the private money is available? Thanks.

John Dionisio

Yes, that's a very good question because that was always the bump in a road with the public-private partnerships need the political support. It's interesting that just recently there was a couple of breakthroughs in the public-private partnership market. And one of them was the project that I said we won in Florida and there are others that are going to... we'll see coming to pass in Texas, Utah and Virginia.

So it seems like there is less resistance now because of the state of the economy and if we can get private financing to work with the state governments in terms of getting these projects started, it's a win-win for everyone. It's a win-win for the investors, a win-win for the states as well as for the job market.

Vance Edelson - Morgan Stanley

Okay, that's helpful. And you also referred a couple of times to international stimulus programs. Could you just give us a quick snapshot of what's been done around the world from a stimulus perspective? Is there anything that rivals what's being contemplated in the U.S.? Thanks.

Michael Burke

Well, clearly the United States just from the numbers is ahead of the pack. But also on a more modest scale and ones which are focused may be more on just the infrastructure, we've seen, we see in Canada, we believe it's about a $25 billion program.

The U.K. to get out of their recession is going to spend and as the United States they're going to try to spend their way to some type of economic stability and we are looking at something again in the $250 billion range.

Hong Kong as I mentioned, they have a stimulus type package where they have funding major transit work to the tune of about $30 billion. So and we've heard about the stimulus package in China which is around the $600 billion. So, in each of the areas... and in Australia with about $42 billion. In each of the areas where e-commerce is strongly located in all our key geographic areas, there is some type of stimulus package which has been proposed to prime the pump and get the economies moving or up it's not just moving to advancement.

Andy Kaplowitz - Barclays Capital

Okay. And finally in the U.S. as far as the stimulus goes, I think you said you are expected to hit later in the year, is the way you phrased it. Can you provide any more granularity just as to your best estimation as to when the stimulus related funding starts adding to the backlog, when it hits revenues and so forth is it third or fourth calendar quarter?

John Dionisio

I guess we are sharing time with the new Secretary of the Treasury today. It'll be interesting to see what he has to say. But clearly, hopefully Congress will pass the Bill. Bill get signed by the President and I believe that it will take a certain period of time may be three months to see this before we start seeing things happening.

We are hoping that we will see some signs of the stimulus funding getting into them, getting into the marketplace by the fourth quarter of '09 or the first quarter and we're on a fiscal year that ends at September 30, or in the first quarter of '10. To plan on anything more aggressive than that, I think it might be a little bit reckless at this point in time considering the political environment that we see going on.

Vance Edelson - Morgan Stanley

Okay that's helpful. Thanks.

Operator

And our next question comes from the line from Mr. John Rogers with D.A. Davidson. Go ahead, sir.

John Rogers - D.A. Davidson & Co.

Hi, good morning.

John Dionisio

Hi, John.

John Rogers - D.A. Davidson & Co.

I was wondering, you talked about the strength in the transportation market but you had various reports on weakness in the state budgets and yet you are seeing also strengthen in the environmental markets and I was just trying to compare those two thoughts and one in here with what you are seeing? In other words, I mean, are you seeing a real slowdown at state budget levels and is that having an impact on demand for your services?

Michael Burke

John, we are not seeing a slowdown. Our transportation business is doing very well, our backlog is growing well. John mentioned some of the public-private partnerships projects that are helping. But generally we are not seeing that kind of resistance in the transportation market. And if this stimulus or when this stimulus package passes, they are talking about $44 billion of stimulus money focused on transportation which will significantly boost that business. So--

John Dionisio

John, I mean part of it to add on to what Mike that just said, is being the transportation market in United States. And again it's not across the border it's in the key areas that we are in, and the states that we are in. We are seeing that some of the total increases have gone to advancing the transportation programs.

Here in the Northeast we look at what the Port Authority of New York and New Jersey is doing. What New Jersey did in terms of their toll increases, Illinois the increase in tolls. As I mentioned I misspoke about the bond issue for Proposition R, it was a tax increase. Which is $30 million that the City of Los Angeles is generating through sales tax which is going to transit and highway improvements.

I mentioned it, if you... from the presentation we won the job in Ft. Lauderdale, new airport, the Florida PPP market. So if you look at it from a may be from a very, very macro perspective and you take it on average it might look like the market is not robust. But when you do a little bit more granularity and look at the specific markets and the specific states and some of the things that are happening. You can see that there is significant activity in it, significant amount of work going on.

John Rogers - D.A. Davidson & Co.

And the growth that you are seeing in the environmental market, is that state work or federal work?

John Dionisio

It's a combination of state, federal as well as some private. The private being some of the multinational clients.

John Rogers - D.A. Davidson & Co.

Okay. And then it sounds if though, the real benefits from the stimulus package especially given your fiscal year more likely in the '10. Okay?

John Dionisio

Yes, I mean we would like to... we believe that we'll see some activity in '09. We are not counting on that to deliver the numbers that we have for '09. While we do feel that the stimulus package gives us the visibility into '10 and '11 and I think that's what's good about the programs that have been proposed. And that's one shot deals, they are programs that will be put in place which will give the longevity to the market.

John Rogers - D.A. Davidson & Co.

Okay. And lastly, I think in... Mike's your comments, you mentioned sort of a normal level of M&A activity this year and I can't remember what the numbers are but historically that's been about 5% of your growth. Is that a good way to think about it this year?

Michael Burke

No, historically it depends on how far you are going back?

John Rogers - D.A. Davidson & Co.

Yes.

Michael Burke

We are going back over the last 10 years our compound growth rate in revenue has been just a hair over 20% but half of that has been organic and half of that has been acquisitive.

John Rogers - D.A. Davidson & Co.

Okay, okay. So a normal rate would then cut 10% from acquisition this year?

Michael Burke

We are not giving guidance on that and that number would be... if you are talking about new... depends on you are talking about new acquisitions or--?

John Rogers - D.A. Davidson & Co.

I guess with the Earth Tech you are going to get there anyway?

Michael Burke

Yes, if you are looking at acquisitions that we've done last year then it would produce revenue this year absolutely. But we shouldn't be counting on adding another 10% just from... announced yet.

John Rogers - D.A. Davidson & Co.

No, no, okay. And in terms of activity that you are seeing out there is lot more opportunities or--?

Michael Burke

The opportunities are somewhat the same John.

John Rogers - D.A. Davidson & Co.

Okay.

Michael Burke

There is it's been a fairly consolidating industry for a long period of time and we continue to look at some very good strategic opportunities in Europe, in Russia, India, China the energy markets as well as the federal government services. So we are still looking at the same end markets that we have talked about for a while.

John Rogers - D.A. Davidson & Co.

Okay great. Thanks for taking all the questions.

Michael Burke

Sure.

John Dionisio

Thank you.

Operator

And our next question comes from the line of Andrea Wirth with Robert Baird. Go ahead, please.

Andrea Wirth - Robert W. Baird & Co.

Good morning, gentlemen.

John Dionisio

Good morning.

Andrea Wirth - Robert W. Baird & Co.

Wondering if you could just circle back to the guidance for a minute. You held the EPS range at a $0.62, $0.70 but your underlying assumptions are benefiting you a bit you have got a lower tax rate and there it looks like lower amortization expense as well such that may actually imply to me your underlying assumptions may actually be lower at this point and you are making up for it on a couple other items. Just wondering if you could kind of kind talk through are your underlying assumptions actually a little bit lower than they were at last quarter. And where would that be coming from?

Michael Burke

Yes, Andrea, we still just done feel very good about our guidance. We still had as I mentioned earlier we have good visibility based on our backlog and our backlog would point towards continuing momentum. It's certainly going to the year, we're only through the first quarter, we had a great first quarter and we just believe it into today's volatile markets it wouldn't be prudent to start raising our guidance after only the first quarter. So we are comfortable sticking with the same guidance range that we previously provided.

Andrea Wirth - Robert W. Baird & Co.

Sure, sir I may understand you're not raising the range. But are your underlying assumptions actually lower just given that you are getting to get more benefit from a tax rate and lower intangible expense?

Michael Burke

Our assumptions are consistent with the assumptions that we used to arrive at that range at the last quarter.

Andrea Wirth - Robert W. Baird & Co.

Okay, okay, fair enough. And then just wanted to clarify again, so you mentioned that you have a couple of projects in Dubai but are indefinitely delayed. Did you actually remove that from the contracted backlogs?

Michael Burke

Yes, we did. As we do every quarter, we very tightly scrub our backlog to make sure that whatever is in there is still valid project. We did take out about $50 million of backlog from Dubai. I should say from the Middle East as a whole. So the 4.4% sequential increase in backlog from 930 to 1231 is net of items that we took out of the backlogs. So obviously then that $50 million project cancellation total is more than offset by the other new project wins for the quarter.

Andrea Wirth - Robert W. Baird & Co.

Got it, great. And do you think there is any more projects in the Middle East, I guess specifically that are vulnerable right now to the same type of delays?

Michael Burke

There is no projects that we are currently aware of that are vulnerable. The projects that are in our backlog we feel good about and if they were subject to delay or cancellation we would have taken the amount of backlog already.

Andrea Wirth - Robert W. Baird & Co.

Okay, got it. And then just quick comment just wondering are you seeing anything just in recent terms of how the projects are rolling out, are you seeing them actually being stretched out over a longer period of time or they still generate kind of sticking with the kind of original plan?

John Dionisio

For the most part they remain on schedule. Again it's with so many projects that we have in the mix there is always some variation. But we are seeing some projects staying large scale, some being drawn out but there are others where our clients want us to accelerate the work, so we get the work out on the street because they realize there is going to be a lot of work coming out be the stimulus package and they want to get that projects into construction, so they can take advantage of the preferable pricing that exist today.

Andrea Wirth - Robert W. Baird & Co.

Got it.

Michael Burke

Andrea, can I circle back just to your comment on Dubai, just want to underscore the Dubai market, because we seem to get a questions about it and Dubai obviously that market has slowed quite a bit. But it's important to point out that within the Dubai market itself, 85% of our revenue in Dubai is for public infrastructure, the more horizontal infrastructure versus the flashy vertical infrastructure. So it's the vertical type projects that have slowed, but the horizontal projects that we are involved with environmental, water, sewer type projects as well as road and transit type projects are still moving ahead at a very good pace.

Andrea Wirth - Robert W. Baird & Co.

All right, great thank you that's just fantastic color. Nice quarter guys.

Michael Burke

Thank you.

John Dionisio

Thank you very much.

Operator

And our next question comes from the line of Avi Fisher with BMO Capital Markets. Go ahead please.

Avram Fisher - BMO Capital Markets

Hi, good morning. Can you just give us, what was amortization of acquired intangible was in the quarter?

Michael Burke

I had that number here I believe it is 20, not really, let me make sure I have the exact number.

Avram Fisher - BMO Capital Markets

I just have another, other accounting question was while you are shuffling through the papers today acquired NSR and profits also if you have that?

Michael Burke

Hold on, one question at a time. You want amortization for the last quarter?

Avram Fisher - BMO Capital Markets

For this fiscal, for the 1Q.

Michael Burke

Hold on. Avi, I'll get back to you on that, I don't have that number at my fingertips here.

Avram Fisher - BMO Capital Markets

Okay. So we can circle back also in the acquired NSR also?

Michael Burke

We'll be issuing a Q later today.

Avram Fisher - BMO Capital Markets

Okay, it will all be in there.

Michael Burke

Detail in it.

Avram Fisher - BMO Capital Markets

Can you talk, I want to drill down into Andrea's question little more, because I have the same one, when you take out the I mean you are getting a $9 million, you've lowered your amortization number by $9 million. You've lowered your tax rate by about 30 basis points for guidance and that's roughly $0.12 by my calculation.

It seems like something must be exchanging either a lower burn rates and plus you did have a lower burn rate although higher backlog. I mean is, its seems like something must be changing besides just a few private projects. I wonder if just, is there anything, are people stretching up projects. I know you said they have it, but I am trying to put the difference, this $0.12?

Michael Burke

Yes, Avi you see that, obviously we gave a wide range of $0.10 range and the calculus you just threw at it, the $0.12 for us within the margin there within that range that we previously given its not an exact science as you can imagine--

Avram Fisher - BMO Capital Markets

Of course.

Michael Burke

As good of a range as we can for the next three quarters. But we are only a quarter into this year and like I said the important thing that gives you that visibility is backlog. And we look at the wins and look at the backlog and it gives you a good sense for where the business is heading for the rest of the year and to me that's the best bit of color commentary on the guidance that you can get.

Avram Fisher - BMO Capital Markets

Okay. Have any clients opened discussions with you in a material way on renegotiating contracts?

Michael Burke

No, not in a material way. And we have 10,000 contracts but there is no big material ones that would fall in that category.

Avram Fisher - BMO Capital Markets

Okay. And can you give some color on capacity utilization or on pricing the wages if you look at kind of I know U.S. has less effected your business but if you look at U.S. PPI data it shows decelerating pricing in the AE markets. It shows and BLS number show accelerating wage growth or wage inflation. Are you seeing any squeeze on the margins, I mean it doesn't stop for the numbers but--?

Michael Burke

No, we are not. Both our gross margins are improving as well as our net EBITDA margins. So if you were seeing a squeeze you would see it in a gross margin. So that is not been our experience.

Avram Fisher - BMO Capital Markets

And capacity utilization, is that... how has that been trending?

Michael Burke

It depends on the market of course. In some markets we're seeing a significant increase in utilization, the Hong Kong, China market would be a good example of that. And then other markets like the U.K. you would see utilization slipping a little bit due to the softness in the private sector facilities market that we mentioned. But overall utilization is good.

Avram Fisher - BMO Capital Markets

On the program management side, I mean you included a contract on your presentation, I'll try to pull it up the program management for the San Francisco Subway. Can you just remind us does that flow through your P&L as backlog that's early in or is there just a fee associated with that? We have a $147 million San Francisco Central Subway vein?

Michael Burke

Yes, that would show up in our backlog as revenue that we're starting to burn off.

Avram Fisher - BMO Capital Markets

And then it just burns on, it sound like a fee-based contract even though it's a joint venture?

Michael Burke

That is the fee.

John Dionisio

There is it--

Avram Fisher - BMO Capital Markets

That's the fee associated with it. Got you. So that's the total size of the contact it. In New York City I don't think I don't know that you are a big player in this market but at least in the... what is in the school. The school construction authority they just finished their five-year capital program and it renews in fiscal year 2010 at a much lower rate in the prior five years. Are you on just across the country or just across your major markets are there any major sort of five-year capital programs that are renewing in the upcoming year and could therefore do so at lower levels?

John Dionisio

In throughout the markets we're in or just in school?

Avram Fisher - BMO Capital Markets

Throughout the markets you are in. I don't think you were a big player in the CSA although?

John Dionisio

No, here in New York the school construction we have, we have been a big player but we have been a big player in Chicago, L.A., Texas schools. There I'm trying to think of--

Andrea Wirth - Robert W. Baird & Co.

I mean a lot of them have seen their five, the past five year programs expiring.

John Dionisio

The FDA is going to have another five-year program and might not be the numbers that were in the previous program. But there are still five-year programs that have capital programs that are being renewed.

The market that we are in terms of capital improvements is a significant one. I mean our infrastructure is in dire need of repair and these state agencies and governmental agencies realize that. So I don't have what the tough might, had that the various agencies which are renewing their programs. But they are being there is money being spent, as I mentioned in a previous call, in very specific areas to advance transportation and infrastructure in general.

Avram Fisher - BMO Capital Markets

And in these programs could you just talk about how the labor multiplier or may be I'm getting to granular but the labor multiplier works, I mean is there a said or fixed labor multiplier for the--

John Dionisio

We work in the United States, we primarily work on a cost reimbursable basis and basically we get... you get paid for the labor, you get overhead and on top of that you get a multiple, your margin. So and what's wonderful about the public market is irrespective of good times or bad, the margins remain constant. So you don't see the margin deterioration as it was in the private side.

So that's how it works, in the multiple it depends on the specific client and the margins that we negotiate. Outside of the United States primarily we do work on a fixed price basis. Now, in this environment, we found that the salaries are now decreasing. So we don't get the pressure on the projects as we had in the past. So we are seeing some relief in terms of reduced salaries. I don't know if that helps you in terms of understanding how we cost our jobs and how we get reimbursed for the work that we do.

Avram Fisher - BMO Capital Markets

It helps a little bit. I appreciate it.

Michael Burke

Avi just a follow-up on the question you asked earlier the amortization expense for acquiring intangible assets, in the first quarter it was $5 million.

Avram Fisher - BMO Capital Markets

It's $5 million.

Michael Burke

I think, you had asked what our increase in revenue from M&A was?

Avram Fisher - BMO Capital Markets

Yes, on acquired NSR.

Michael Burke

Acquired NSR was $183 million.

Avram Fisher - BMO Capital Markets

$183 million and do you have...I'll wait for the Q. I'll get the rest of the numbers right out of the Q. I appreciate you taking my questions, thank you.

John Dionisio

Thank you.

Operator

(Operator Instructions). And it appears there are no further questions at this time. I will turn it back over to management for closing remarks.

John Dionisio

Well, I'd like to thank everyone for your continued interest in AECOM. And as we have said in the past please feel free to call us if you have any further questions. And to reiterate what I said we remain very confident in our market and in the outlook that we've projected. With that I look forward to speaking to you in three months. Take care and have a good quarter.

Operator

And ladies and gentlemen, that does conclude your conference for today. Thank you for using ACT. Have a good day and you may now disconnect.

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