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URS (NYSE:URS)

Q1 2013 Earnings Call

May 07, 2013 5:00 pm ET

Executives

H. Thomas Hicks - Chief Financial Officer and Vice President

Martin M. Koffel - Chairman of the Board, Chief Executive Officer and President

William J. Lingard - Vice President and President Oil & Gas Division

Randall A. Wotring - President of the Federal Services Business and Vice President

Robert W. Zaist - President of Energy & Construction Business and Vice President

Gary V. Jandegian - President of the Infrastructure & Environment Business and Vice President

Analysts

John D. Ellison - BB&T Capital Markets, Research Division

John B. Rogers - D.A. Davidson & Co., Research Division

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division

Jamie L. Cook - Crédit Suisse AG, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Sameer Rathod - Macquarie Research

Operator

Good afternoon, and welcome to the URS Corporation Earnings Conference Call for the First Quarter of 2013. To begin, I'll turn the call over to Mr. Thomas Hicks, Chief Financial Officer of URS. Mr. Hicks?

H. Thomas Hicks

Good afternoon, everyone. Before we get started, let me remind you that today's call will contain forward-looking statements, including statements about our future revenues, business prospects, book of business, earnings and financial conditions, intangible asset amortization, federal budget cuts, economic conditions and other statements that are not historic facts. These statements represent our expectations as to future events, which we believe are based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those in the forward-looking statements, including those in our recently filed Form 10-Q. We assume no obligation to revise or update any forward-looking statements.

A webcast of this call is available on the Investor Relations portion of our website and will be archived in audio form on the website for a limited period.

With that, I'll turn the call over to Martin Koffel, our Chairman and Chief Executive Officer.

Martin M. Koffel

Good afternoon, and thank you for joining us. In addition to Tom Hicks, the team with me here in San Francisco includes Gary Jandegian, President of Infrastructure & Environment; Bill Lingard, President of Oil & Gas; Randy Wotring, President of Federal Services; Bob Zaist, President of Energy & Construction; Martin Tanzer, Executive Vice President of Marketing; Reed Brimhall, Corporate Controller, Chief Accounting Officer; and Sam Ramraj, Vice President of Investor Relations.

You would have seen our press release issued this afternoon, but to begin, let me summarize the results for the quarter. Revenues were $2.8 billion, up 19% from the first quarter of 2012. Net income was $71.9 million compared with $79.7 million last year, and EPS was $0.96 compared to $1.07 in the same period last year.

In the past, we've noted and discussed with you the uneven nature of our quarterly results, and this quarter's a case in point. With more of our revenues now coming from large-scale projects, our results were inherently more variable from quarter-to-quarter than they used to be in early years. Our results also show the benefit of our strategic business mix, including the leading position that we have in 5 global markets. The positive trends that we see in our markets, and which we've discussed earlier, have not changed. In fact, revenues, income and cash flow performance for the quarter were in line with our own internal projections.

We continue to see the favorable conditions that we expected when we began the year, and we do remain on track to meet our outlook for 2013. One important trend is the continued strength of the energy sector. The prospects for oil and gas are nothing short of robust. The U.S.'s bidding activity has increased significantly in recent weeks, and conditions remained strong across the upstream, the midstream and the downstream segments, all of which, of course, we now cover. In addition, our industrial business continues to generate good backlog growth. And lower energy costs, amongst several other factors, are supporting increased manufacturing activity, and that's helping us. This has resulted in heightened demand for our facilities management, O&M and EPC services.

Our infrastructure is showing strength, both in the United States and in the United Kingdom. And we believe the start of the recovery cycle in the infrastructure is under way. State tax revenues have shown positive year-on-year growth rates for 13 consecutive quarters, and many states are expected to have budget surpluses by the end of their current fiscal year, which ends of course in June. Most importantly, we're seeing increased procurement activity for new projects, and we believe we're well positioned competitively for this work.

We believe these trends will more than offset conditions in the federal sector, where revenues decreased this quarter. And this result also is in line with our expectations and has been factored into our outlook for the year. Notwithstanding the effects of sequestration, during the quarter, we enjoyed strong margins on DoD contracts due to disciplined execution on the programs that we operate.

And as you know, our management team remains committed to vigorous cash management. It's a hallmark of URS. We generated $50 million in operating cash flow during the first quarter, and that's particularly strong for first quarter. Typically, our first quarter operating cash flow is negative due to the timing of bonuses and employee benefit programs and other activities. We'll continue to use cash flow to support organic growth opportunities as a priority and to return value to stockholders, and always a high priority with us. We repurchased 1 million shares during the first quarter, and we declared a dividend of $0.21 per share. That's a 5% increase in the quarterly dividend from last year.

And with that, I'm now going to move to give you some details on each quarter, starting with the Oil & Gas business. Oil and gas sector revenues were $803 million in the first quarter, a significant increase from the first quarter 2012 results of $163 million. Our results included $573 million in revenues from the Flint operations that we acquired last year and $230 million from URS's legacy Oil & Gas business. In fact, our legacy operations increased by 41% year-over-year, demonstrating both the strength of the market itself and the strategic benefits of the Flint acquisition as we move to integrate our operations. And we ended the quarter with an Oil & Gas backlog of $1.5 billion which held steady from the end of last year. That's a healthy ratio of backlog to revenue for the oil and gas sector, and it really supports our expectations for the remainder of the year.

The pace of bidding activity has accelerated significantly. And in particular, we're benefiting from a shift to more cost-plus contracts, which we like. You know our risk project posture and with improved margins that come with it. We're active in every major oil and gas basin in the U.S. and Canada, providing full life cycle capabilities in, again, the upstream, the midstream and the downstream segments.

In the upstream market, demand for facilities construction and maintenance services remains robust. In 2013, energy companies plan to deploy $22 billion in construction projects in the Canadian oil sands alone. During the quarter, we were awarded a $50 million contract to provide engineering and procurement services for major oil sands producer on the mine development in Northern Alberta. Several clients also increased the scope of construction assignments that we're performing on steam-assisted gravity drainage or SAGD projects. Investments in shale oil developments are also strong with an estimated $130 billion expected to be spent in this sector this year. On the other hand, activity on dry natural gas projects was very slow in the quarter, but we expect the recent rise in natural gas prices to generate increased work.

In the midstream market, we have begun work on a number of new pipeline and facility EPC projects. These projects are the result of increased production and the need to transport the liquid-rich resources to refining facilities. During the quarter, slower-than-anticipated staffing on facility and pipeline projects in Canada, as well as the slowdown in natural gas-related activities, had some impact on our operations. Additionally, weather-related delays and unseasonal weather affected our overall performance and also margins in the U.S. as a result. And the staffing issues have been resolved at this point, and we expect to accelerate activity in the second half of the year, the staffing issues related to the rate at which we could add trade skills to our workforce.

While conditions in the upstream and midstream market are robust, we'd expect even more opportunities if the Keystone Pipeline were to be approved. Producers in Canada and the Midwest have been affected by distribution constraints, and elimination of this bottleneck would spur increased investment in production to meet strong demand for the oil, particularly among refiners in the Gulf Coast. And I haven't mentioned even the construction of the pipeline and all the laterals and everything else connected with it, which would be good for us.

In the downstream market, we continue to benefit from the successful expansion of our Master Service Agreements or MSAs. In the past quarter, we were awarded $161 million of MSA work to support several major oil and gas companies around the world. And the MSAs, by definition, are global contracts.

In summary, we expect that our Oil & Gas business will deliver strong growth for the full year and that our margins for 2013 will be in line with historical levels. I should note that activity is typically slower in the second quarter due to wet spring conditions in Canada, where much of our activity exists. But we expect significantly increased activity in the second half of this year.

Our next key market is the power sector. Revenues for the quarter were $213 million. It's a 27% decrease from the same quarter last year. Year-over-year comparisons were affected by the completion last year of several quite large projects, including a major emissions control retrofit program and the construction of a new combined cycle gas plant. So you got these sort of lumpy quarters where you got big projects being completed and you don't necessarily have exactly the same match in the subsequent 12-month quarter.

In addition, our performance in the first quarter of 2013 reflected decisions by several clients to delay or cancel new capital projects. We remain confident in the long-term outlook for the power business. The optimism is supported by our backlog, which is $1.4 billion. And this includes a strong pipeline of mandated and nondiscretionary projects, work that's just must be done by a court order or stipulation, that are expected to begin in the second half of this year. And this work, as I said, is subject to court orders and the deadlines are quite real.

We're also seeing increased demand for our nuclear maintenance and modification services across existing fleet. And much of our work is to help clients meet the Nuclear Regulatory Commission's December 2016 deadline to complete the finalized post Fukushima safety requirements. We currently are providing preliminary front-end engineering services for seismic safety, flood control, spent fuel instrumentation and other types of projects at 8 nuclear plants around the United States. Depending on need, we expect these projects will lead to full-service assignments as they move into implementation.

Finally, demand for engineering procurement and program management work on transmission and distribution system -- systems remains strong. Utilities are expanding transmission systems to support the increase in alternative energy generation as well as upgrading their existing T&D infrastructure. In 2013, transmission-related expenditures are expected to exceed $15 billion. That's a 16% increase from last year, so it's a real growth market.

Turning to the industrial sector. First quarter revenues were $282 million compared to $295 million a year ago, and we ended the quarter with backlog of $977 million. That's up 9% since the beginning of the year, and it's a 40% increase in industrial sector backlog since the end of 2011. We remain encouraged about the recovery of this sector. Low-cost energy and gas-related feedstock, along with the growing demand for a select group of minerals, are driving new opportunity for URS's business. We've recently won new work across a range of industries, including the construction of a new vaccine production facility in Florida and EPC work for clients in the automotive and chemical sectors. Once these facilities are completed, we should be positioned to provide our facilities management and O&M services to these clients.

In addition, revenues from our mining business remained strong. Because of its dependence on China, among other factors, the Australian mining industry is cyclical. But the nature of our contracts has enabled us to avoid the effects of the market fluctuations. Our mining activities include providing EPCM services on a large iron ore mine expansion project in Western Australia. There's been a lot of press about that in the last few days. In North America, we recently were awarded an EPC contract with Chevron Questa in New Mexico. We're providing mine mortar management and on-site infrastructure services on this project. In addition, we're bidding on a number of similar projects across the southwest, which is seeing the benefits of the mining recovery.

We also continue to benefit from our MSAs with multinational companies in the automotive, chemical and pharmaceutical and technology sectors, amongst others. We've successfully expanded the scope of some of these contracts beyond our legacy environmental and engineering work to now include construction and technical services.

Turning back to the -- turning now to the infrastructure sector. First quarter revenues were $436 million, essentially flat compared to the same quarter last year. We continue to see positive signs of the infrastructure markets. The next growth cycle may be under way. Clients are using funding from federal programs from dedicated tax measures, bond initiatives and public-private partnerships to finance new programs. The pipeline of opportunities for our international infrastructure business is also steadily increasing, particularly in the United Kingdom. These positive trends are reflected in our infrastructure backlog of $3 billion, which is up slightly from the end of last year.

In late March, Congress approved the continuing resolution for fiscal 2013. The resolution included $41 billion in highway funding and $10 billion in transit funding under MAP-21. Importantly, the legislation also provides $750 million in credit assistance under the Transportation Infrastructure Finance and Innovation Act or TIFIA. TIFIA is a really important piece of legislation. TIFIA loans can be leveraged by a factor of 10, so this funding can support up to $7.5 billion of new projects. And I'm told the next round is going to be something like $1 billion, again, leverage-able by a factor of 10. URS is engaged on a number of TIFIA-funded projects, including the Tappan Zee Bridge in New York and the Transbay Terminal Project in San Francisco. Both MAP-21 and the TIFIA program are largely protected from the effects of sequestration.

An increasing number of state and local budgets are either in balance or in surplus, further buttressing the infrastructure market. The year-over-year tax revenues were up 3.8% overall in 2012, and this is a big swing if you think about 2008, 2009, 2010. In addition, many states and municipalities have either increased the gas tax or instituted new alternative funding mechanisms, such as user fees and dedicated tax measures to support infrastructure programs.

As I noted to you last quarter, clients are increasing the use of design-build contracting structures. Initially developed for bridges, these contract forms are now used for large transit water and wastewater and other public infrastructure projects. And with URS's scale and our full range of engineering, design and construction capabilities, we are well suited for these programs. Just one example, in the first quarter, we were awarded the design work under a design-build contract for the SR-91 highway project in Southern California.

During the second half of the year, reconstruction work on roadways, transit systems and water infrastructure damaged by Hurricane Sandy is expected to begin in earnest. There's been a delay while the money was lined up, but it looks like we're under way here. We currently are assisting a number of federal and state agencies with their damage assessments, which positions us well to support the rebuilding and repair work itself.

Moving to the United Kingdom. We began work in April on a really innovative contract with an entity called Transport for London to provide design construction and maintenance services for roads in 11 Central London boroughs. This contracting structure is the first of its kind in the United Kingdom, we're a pioneer in this, and introduces a new way of providing infrastructure services.

Moving from infrastructure to the federal sector. For the first quarter, revenues were $1.1 billion, down 9% from the same period last year. Our revenues reflect the ongoing uncertainty with the federal budget as well as the mandatory effects of sequestration. Federal sector backlog at the end of the quarter was $6 billion. As I noted, the impact of sequestration has been in line with our own expectations. The more basic operations that we perform and the maintenance fieldwork we provide to the DoD is being affected. We've been reducing our workforce as a result of funding cuts as well as the normal completion of contracts.

Our Department of Energy work also has been affected by the reduction in federal spending. Clients have curtailed spending on existing projects, and funding for new assignments has been delayed. As expected, funding for the national security and the mandated programs we support has been less affected by sequestration. We have discussed this with you in previous quarters. This includes technologically based work like cybersecurity, IT and classified programs. And in recent years, we have significantly expanded this portion of our federal business.

We remain confident in the long-term outlook for our federal business. The federal sector remains a profitable part of our company and requires minimal capital expenditures and, of course, it generates significant cash flow. The services that we provide to the DoD, the DoE other federal agencies are of strategic importance to the country, and they'll continue to be in high demand.

In the meantime, we continue to benefit from our success in expanding our services outside the United States. In March, the U.K. Nuclear Decommissioning Authority awarded a 5-year extension to a URS-led team managing the national Low Level Waste Repository in West Cumbria. Additionally, we recently won on IDC contract to support NATO in this transition to its new headquarters facility in Brussels, NATO being a new client for us.

And with that, Tom Hicks will now discuss our financial results in more detail.

H. Thomas Hicks

Well, thanks, Martin. Our first quarter results are available in the press release we issued this afternoon. Revenues were $2.8 billion, net income was $79.9 million -- $71.9 million, and fully diluted earnings per share were $0.96. Interest expense for the quarter was $21 million. We generated $50 million of operating cash compared to the use of $21 million in the first quarter of 2012.

Our strong cash flow has enabled us to return additional value to our stockholders. First, on January 4, we paid a quarterly cash dividend of $0.20 per common share to stockholders of record as of December 14. Second, we continue to repurchase shares. Under our current stock repurchase program, we are authorized to repurchase up to 5 million shares this year, and we repurchased 1 million shares during the quarter. In total, we returned approximately $60 million to shareholders, $15 million in dividends plus $45 million in share repurchases.

Our operating income margin was 5.4%, our tax rate was 32.7%, and diluted weighted average shares outstanding were 74.9 million. CapEx, excluding the equipment purchased through capital leases, was $25 million.

Now focusing on operating margin may not fully reveal a critical attribute of our financial strength. Given our capital structure, history of acquisitions and the characteristics of our new Oil & Gas division, we have a significant amount of depreciation and amortization embedded in our income statement. For example in the first quarter, our operating income of $152.6 million included a charge for depreciation and amortization of $67.5 million.

Now we report separate financial information for our 4 business segments: Infrastructure & Environment, Federal Services, Energy & Construction and Oil & Gas. For the first quarter, Infrastructure & Environment reported revenues of $933 million and operating income of $41.3 million, Federal Services reported revenues of $678 million and operating income of $99.1 million, Energy & Construction reported revenues of $665 million and operating income of $27.1 million, and Oil & Gas reported revenues of $584 million and operating income of $7.8 million.

Our press release contained a detailed description of our book of business, including backlog, option years and indefinite delivery contracts or IDCs. And we ended the quarter with a book of business of $24.2 billion compared to $24.9 billion at the end of 2012. Backlog was $12.8 billion at the end of the quarter compared to $13.3 billion at the end of 2012. The value of option years at the end of the quarter was $4.9 billion, down from $5 billion at the end of 2012. And for the first quarter, IDCs were $6.5 billion, down from $6.7 billion at the end of 2012.

With that, I'll turn the call back to Martin to discuss our guidance for 2013.

Martin M. Koffel

Allow me to discuss guidance and then make a few comments about the direction we're heading. We've built a business focused on 5 key market sectors. And each of those sectors has a distinct business cycle and is shaped by unique trends and market fundamentals, which are discussed in today's call. Our objective in building and managing the company, as it is today, is to deliver consistent growth and strong cash flow regardless of trends that may be affecting any individual sector. As always, we're keeping a close watch on our markets and on the broader macroeconomic conditions. But we believe our diversified business mix will enable us to achieve another year of growth and profitability.

So specifically for 2013, we continue to expect that consolidated revenues will be between $11.8 billion and $12.2 billion and that diluted earnings per share will be between $4.25 and $4.75. Our outlook is based on the expectation that growth in the third and fourth quarters will be robust. And we expect that activity in the oil and gas sector will be stronger than in the second half -- will be stronger in the second half of the year, in part due to the typical seasonality of that business. And we also expect to benefit from the continued recovery of the infrastructure and the industrial sectors.

So to conclude, we believe that URS remains well positioned for growth. Our Oil & Gas business continues to benefit from robust bidding activity in the Canadian oil sands and the Marcellus, Bakken and Eagle Ford regions in the United States. In the infrastructure market, we're beginning to see movement on the type of large-scale construction projects that will support stronger growth. And demand in the industrial sector also continues to increase, as we showed you the 9% increase in our backlog for the quarter.

Importantly, we delivered strong cash flow, which has always been a well-established discipline of this management team. Our proven ability to generate cash has allowed us to increase our dividend, to repurchase shares and pay down debt despite quarterly earnings variability. Our business is generating larger organic growth opportunities than ever before, and executing on these organic opportunities is now our primary focus. And we'll use excess cash to further delever our balance sheet and return value to our stockholders.

And that's the end of our prepared remarks. And with that, we'll open the call up for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Robert Norfleet with BB&T Capital Markets.

John D. Ellison - BB&T Capital Markets, Research Division

This is John Ellison on for Rob. My first question is in regards to Flint's operating margin being negatively impacted by the acquisition-related amortization expense in the quarter. If we assume roughly 6% margins in this type of business going forward, it looks like amortization comes out to around $27 million in the quarter and a little over $100 million for the full year. How should we look at this amortization, I guess, for the remainder of '13? And what kind of schedule can we expect in out years?

H. Thomas Hicks

This is Tom Hicks. Let me take a shot at that. The amortization is front-end loaded in that some of the elements of that intangible have value that diminishes more quickly over time than others. And for the rest of this year, it's not -- you wouldn't be far off taking the first quarter and just extending it. But in future years, it will start to come down. It's not a straight-line item, if that helps you, John.

John D. Ellison - BB&T Capital Markets, Research Division

Okay, great. And in general, just looking at projects that are being booked going forward, are margins on this work being booked at, I guess, higher rates? Or are you seeing some pressure? I guess, I would assume so in the federal segment.

Martin M. Koffel

Sir, were you asking about margins generally or Oil & Gas?

John D. Ellison - BB&T Capital Markets, Research Division

Well, I guess Oil & Gas but, in general, as well.

Martin M. Koffel

Bill Lingard, who, of course, is President of the Oil & Gas division, will answer your question about Oil & Gas margins.

William J. Lingard

So what we're seeing in Oil & Gas and certainly, maybe to add to your first question on margins, we weren't happy and our margins should have been better in the first quarter. And we had some onetime events that happened in the first quarter. But when we look at the current opportunities and the current things we're winning on the bid side, we like the trends we're seeing. We are able to get -- because there are so many opportunities, we're picky and choosy over which ones we're taking on. And we're taking on more cost-plus work, sometimes target price with some type of fee on top of the costs. And we're able to get those at a little bit better margins now than we were previously. So lots of activities out there, and we have an ability to deliver for the client. And the client is looking obviously for the safety, the quality, all of the other things that we deliver, so we're able to get a little bit better on our margins. So I'm seeing a general trend towards the margins moving up.

H. Thomas Hicks

John, on the -- across the board for the rest of the company, we are seeing pressure in various parts of the business, the federal and defense business in particular, because of budget and slowdowns, et cetera. But we fully expect their operating margins will be back to the level they were last year, and we expect to get back there over the rest of the year.

Operator

Your next question comes from John Rogers with D.A. Davidson.

John B. Rogers - D.A. Davidson & Co., Research Division

A couple of things. I was trying to take a look at the Q real quickly. And maybe for Bill, there is a reference to 2 projects that -- in the northeast -- or excuse me, where there was some cost increases. How significant were those? And were there any other unusual project charges in the quarter?

William J. Lingard

Yes. Really in the quarter, John, we had 3 things that affected margins. And the first one was on some pretty big projects, primarily in Canada. We could not get enough construction management and craft on the projects, so we had some delays. And we actually delayed project and pushed some revenue out into the rest of the year. So definitely we had some movement, and we were unable to recognize some margins on those as a result of some of those changes. So -- and we haven't recognized those yet. But certainly, as the projects move forward, we will be able to recognize some of those margins. In the U.S...

John B. Rogers - D.A. Davidson & Co., Research Division

They were those oil sands projects or what were they?

William J. Lingard

Primarily oil sands, yes, but also some shale oil projects, but primarily oil sands projects. And in the U.S. primarily and some in Canada, we saw a continued slowdown in dry natural gas activities, and you saw the rig count drop below 400. If you look back a year ago, that would have been over 600 rigs drilling for gas. And that continued to hurt us, and we had some process equipment and some gas pipeline work that we had planned got delayed or canceled. So we did lose some business, and we've had to make some reductions in costs in some of those operating centers that serve those dry gas areas. So we've made those reductions, we've done some satellite things, and we've got our cost bases down to where it's going to be better going forward. And then the third thing that really got us, and this was primarily in the U.S., was the heavy snowfalls that we had and the very wet conditions. We had some challenges on some pipeline projects in the U.S. And we -- as a result, we had poor margins on those projects. And so that hit us in the first quarter. All 3 of those things combined affected our margins. When we look forward, though, we have good visibility on the work we have. We have the usual Q2 of spring break up in Canada. But Q3 and Q4, we have tremendous amount of work. And we're fully staffed and continue to ramp up on projects that we're doing now. So we're in very good shape going forward.

Martin M. Koffel

A lot of the dynamics that Bill discussed were not a surprise to him, and he's been at this a long time. He was CEO of Flint for several years. And we look back at previous quarters to see the recurrence of this type of thing, the new dynamics for URS and doing that total mix, and we're getting used to that. But work gets put out in the future, and they have several quarters of the year where life's much more active. The other thing I'd comment on is -- comment further on is the labor ramp-up. When we acquired Flint in May of last year, the total headcount was about 10,000 people. And right now, it's about...

William J. Lingard

Over 13.

Martin M. Koffel

Over 13,000. So we've added 3,000 people in 12 months. And there are approximately 1,300 or 1,400 open jobs at this point, which we're closing. One of the great advantages that Bill has now is that he's got the other 3 divisions in the whole integrated URS behind him. And we're able to tap and find project managers and technical people and tradecraft pretty quickly. So Bill is -- and his first-class problem, Bill's got a labor gap in order to mobilize on projects he's been awarded, and we're hoping to close that out.

John B. Rogers - D.A. Davidson & Co., Research Division

Okay. And if I could just follow up just on the Federal Services side, you had a $10 million bonus on chemical demilitarization or incentive fee. Does that -- I mean, I assume, like, last year, that probably starts to run off pretty substantially for the rest of the year. Or you don't expect those sorts of incentive fees to come in, is that fair?

Martin M. Koffel

Here's Randy Wotring.

Randall A. Wotring

Yes, we'll continue to earn incentive fees across the rest of the year. We will start to see a ramp-down in that business, both in terms of revenue and fees, over the next 2 years as we close 3 more of those facilities. But looking at the year, historically, we've said the federal business is a 5% to 7% margin business. I think you can expect that we'll continue to exceed that level for this year based on the incentive fees we expect, really, across the rest of the year.

Operator

Your next question comes from Tahira Afzal with KeyBanc Capital Markets.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

The amount [ph] outlook does look really good. But if you look at the delays on the power side, some productivity setbacks, [indiscernible] on the Oil & Gas side. As you look at your earnings guidance range today, how comfortable are you with the top end of that range? And what would really have to happen from this point onward to really deliver on that?

H. Thomas Hicks

It's Tom, Tahira. Well, at this point of the year, I think it's -- as we said earlier, we fully expect a very strong back end of the year. And we don't have any information that would tell us that we'll be outside of that range. We -- it's hard to give you directional input today even, given that we have 3 quarters of the year to run and we have such a strong outlook for the rest of the year. So as we said in the call, we're still confident that we're going to deliver within the ranges we've given you, and we still expect that. And you'll be the first to know if anything changes.

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

And the second question I have is really in regards to the petro-chem cycle. We've been hearing from your peers more positive feedback on the visibility of some of that work in North America. Could you talk a bit more about how yourself and maybe if you can also give some feedback here, how you'll able to [ph] do that going forward, if you are sort of positioning Flint a little more towards taking a piece of that pie.

William J. Lingard

Yes. Tahira, it's Bill. So on the petro-chem side, certainly, for the downstream refining side of oil and gas, we today have a pretty good market share for doing a lot of the O&M and maintenance turnaround-type services in Canada, as well as up in the Northeast U.S. We have not really expanded into the Gulf Coast refineries, and it's about half of the refining capacity. And we are, right now, currently doing that organically. And if you remember, we have about 2,000 employees along the Gulf Coast in other URS divisions. So we're partnering up using the capabilities of E&C, I&E and as well as our expertise from Oil & Gas. And we are, right now, doing organic expansion and bidding on various pieces of [indiscernible]. So we're bullish on that. We think it's -- it may take a year for us to build it out to a substantial size. But the relationships we have with our clients and our reputation for execution has been very good. We've got a lot of MSAs with some of the key clients in that area on the environmental side, et cetera. And we know from conversations and meetings that we've had with those clients that there's good possibility. On some other things like LNG and pipeline expansions, we're well positioned doing process -- midstream process equipment as well as pipelines, the design of pipelines is something that has been growing for us tremendously. So we think that the whole petro-chem side will be -- as domestic production goes up of petroleum, we think that, that's a big growth market for us and one that we're pursuing wholeheartedly so...

Operator

Your next question comes from Alex Rygiel with FBR.

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division

Martin, you've done a number of acquisitions through the years. And over the last decade, you've gone through a couple different processes of de-risking the business and, in some instances, transforming a lot of relationships to the MSA model or the cost-plus model. I suspect you are aggressively doing that inside Flint. Is that the case? And could you comment on how far along you are in your process of de-risking the backlog and the business strategy of Flint?

Martin M. Koffel

I'll be happy to. It's something we obviously spend time on. One of the appeals of Flint, which was our vehicle for expanding in Oil & Gas, and we talked -- we had talked on these calls for several years about expanding in Oil & Gas. And some of you were, in fact, teasing me in calls, saying "Do you ever really intend to do it?" And we looked at a lot of opportunities. And one of the matching criteria was getting a risk profile we're comfortable with. And we looked some terrific companies but the whole fixed price, cost-plus ratio didn't suit us. Flint's risk exposure is a sort of quantitative ratio, pretty much matched URS. And we like that about it. That said, Bill is driving the risk exposure away from fixed price. I mean, there's a certain amount of fixed price in there. As a proportion, I don't think any more than URS as a whole. I think it's about almost a perfect match. But nevertheless, Bill's seeing -- obviously, Bill's been able to add 3,000 people, and he's trying to hire another 1,400. What's that telling you? well, it's telling the market is warming up. And while you always been in service business, you can't be too heavy-handed with clients. There are opportunities to get the terms on a more comfortable basis. And there are situations where getting the terms, which means risk exposure, sometimes is just as important, if not more important than price. And Bill has been nudging towards cost-plus or target price. And Bill, do you want to make a few more comments?

William J. Lingard

Yes. I think the best way I can answer your question is to give you some examples of the synergies and projects that we're out on together now with legacy URS divisions. And in the United States, we're out on projects for 2 major clients with the E&C division, where they have done the engineering for the projects and the Oil & Gas division is doing the construction. And there's a whole bunch more for those 2 clients. It's 2 of our biggest MSA clients, and those relationships URS brought to the table. In oil sands, we've -- we're already executing jointly, and I'm taking on additional oil sands projects. And Bob Zaist and I are doing it on a 50-50 basis, where we're both dividing the expertise to the client because we both have it, and it's going extremely well. And we're doing that on a couple of projects now, and we're also pursuing several other big projects. There's over $4.5 billion of new projects that we're pursuing together in oil sands. And in Alaska, through some of the legacy relationships that URS had with the Alaska producers on the design side, Oil & Gas division has now qualified to bid on pipeline and facilities work to do the construction of Alaska. And there are real live opportunities that we're pursuing right now and are likely to be executing on next year. So really good synergies there.

Martin M. Koffel

Alex, it's a -- you asked a very good question, something that we live with here. Fixed-price risk exposure or price-risk exposure generally in what used to be Flint would not be at the top of my list of things that could keep me awake at night. There are other areas. And as competition has increased, for example, in the infrastructure market, there's a lot more price pressure as you can imagine. And we've been able to hold the line in infrastructure, for example, on margins, that you get a lot of pressure on the softer features of the contract, which means the terms, which means the sort of risk that you will assume. And we -- I don't want to get off sideways too much here. But we, as a management team, see risk exposure or the capability of absorbing risk exposure as a kind of finite resource like cash. And we don't like our risk exposure to be set at the margins, in other words, people out in the field. We like to think about risk as a central resource like cash that we can kind of allocate or dole out. So this is part of daily life, and the reason I took off is that you touched on something that we all live with here.

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division

And one follow-up, Martin or Tom. I think, Martin, you suggested that the Oil & Gas segment had staffing issues that have been corrected. But it sounded like you put 2Q would be softer than 1Q due to some of the seasonality and the wet weather sort of that occurred over the last 30 to 60 days. First, is that correct? And if 2Q is going to be softer, should we expect profitability to be softer as well as you carry excess labor since you've corrected the staffing issue?

Martin M. Koffel

I'll ask Bill to further explain why it's soft, which is the spring breakup. And then we'll come back to you on the profitability question.

William J. Lingard

So the staffing issues had more to do with the ramp-up on some big major projects that we're doing in oil sands and not so much on some of the projects that we're doing throughout the rest of North America. So -- but -- and the 1,400 positions, primarily are for oil sands. Where we see the slowdown is in our -- not so much in facility construction and the big projects we're doing at Fort McMurray area, but the slowdown will be on some of the pipeline work, midstream process equipment that we're doing across Western Canada, into Saskatchewan, in the Bakken and in the Duvernay play, some of the shale plays in Canada where you can't get out to those remote locations. So work continues on the big project, and we continue to ramp up on the big project. But we do manage our costs down during breakup in some of those other more remote areas, where you can't get equipment or people out to. So you actually do send people away and keep your cost down. So we would expect some slowdown in, certainly, revenues for the quarter overall. But our profitability should be better than it was in the first quarter because of some of those other things.

H. Thomas Hicks

Yes, we -- Alex, we expect the profitability in that division to be higher in Q2 than it was in Q1. But there is some softness in revenue coming due to what Bill described.

Operator

Your next question comes from Jamie Cook with Crédit Suisse.

Jamie L. Cook - Crédit Suisse AG, Research Division

A couple of questions. First, just on the power side of the business. One of your peers reported earnings tonight and the margins on their power gen business and, specifically, like the emissions stuff were weaker than we had thought and probably they would have thought. And they said it's some competitive pressure. So I was just wondering if you could speak to what you're seeing in the market in terms of pricing pressure in that business. But then, I guess, my second question relates to the guidance. I mean, the quarter was a little weaker, I think, than most would have thought. It sounds like a little weaker than what you would have thought. And it sounds like you still feel like you can make your numbers. But the difference, relative to last time, is Oil & Gas will be strong and that hasn't changed. It sounds like power is a little weaker than what you thought. But Industrial and Infrastructure should, I guess, make up the difference. And I guess I'm just wondering if you can elaborate on what you're seeing in Industrial and Infrastructure that gives you confidence, because you're not really seeing the improvement in your backlog at this point. I'll get back in queue after that.

Martin M. Koffel

So I'm going to invite Bob Zaist to comment on power and the industrial market, which comes into our EC division, and then Gary Jandegian will comment on infrastructure. Gary and I are both infrastructure bulls, so I'm going to fight him for the opportunity to speak. But first of all, Bob Zaist is here.

Robert W. Zaist

Jamie, I would say on the clean air side that there was a little bit of a pause in the markets simply because the last tranche of projects from a compliance stage standpoint have generally been finished up. There was some pause in market where the industry got their head around the regulations. And now, we have some clarity on regulations, particularly, as it relates to the Mercury and Air Toxics EPA Standards. We have seen decision starting to move again in commitments for capital expenditure. We're seeing about $12 billion projected in the clean air retrofits, which will peak around the 2014-2015 time frame and continue through 2020 with a total expenditure of about $30 billion. We've got some good opportunities in front of us. We have some projects that are contracted. We did have one project that shifted out in time from the start -- at the beginning of this year, which caused us to be a little softer in Q1, towards -- shifted out to the end of this 2013. But I would tell you that the margins generally look like they are reasonably holding in that marketplace, as we see it right now. As it relates to what's driving us to be bullish on the industrial side, I would tell you that opportunities for our facilities management and O&M services in the industrial side continue to be good. We see that -- we're seeing opportunities such as fertilizer plants. We're seeing opportunities on the automotive side. So that gives us encouragement. On the mining side of industrial, we have 2 areas of focus as Martin mentioned. And in Western Australia, there was press in the last couple of days that several of the majors, including Rio Tinto and Fortescue and BHP are all increasing their activities as -- because they are a cost-effective provider to the Chinese market. And even though there's been some softening on the minerals pricing side, these customers are making significant commitments. Rio announced an additional commitment of something like $5 billion or $6 billion to increase their production in Western Australia by about 20%. We're engaged with that customer on part of this expansion. So we're -- we feel good about that. And on the stateside in Western United States, Martin mentioned several opportunities that we're engaged with, both in mine water management, tailings dams and general infrastructure supporting the operations of the mines. So from that standpoint, we feel pretty good about the industrial sector. And I'll turn it over to Gary.

Gary V. Jandegian

Jamie, let me address the infrastructure side of the business. Right now, we're seeing a lot of target-rich opportunities. For example, in the design-build arena, we are teamed up on over $15 billion of capital improvement projects in the U.S., and we expect to win some of those. We're particularly running strong right now in our key straight -- states: New York, California and Florida. So that gives us strong indication that the second half is going to be strong in infrastructure. Internationally, we have the right cost structure. We are hiring in the U.K. and we're a top designer in the U.K. And outside the U.K., we have the right organization to address China and India. And as Bob said in Australia, the mining sector is holding up strong. And EPC in that sector has held up through the mining downturn that have affected other companies. So overall, infrastructure should be strong for us, particularly in the second half.

H. Thomas Hicks

Jamie, it's Tom. On the margin question and guidance question, we're still -- as I said earlier, we're still confident we're going to be within the ranges we've given. And we expect, as I said earlier, our margins -- overall operating margins to get back to the level they were at last year. And a lot of that is in the second half. But we're -- we have detailed plans for the rest of the year, and we feel like those plans are sufficient to get us back to those numbers we mentioned so...

Jamie L. Cook - Crédit Suisse AG, Research Division

But is there anything to them? Just looking at your margins, I mean, are there -- what's driving the margin improvement in the back half of the year, given we keep hearing -- I mean, we're hearing more about competitive pressures, et cetera, across some of your businesses. Is it just -- I mean, have they closed [ph] that opportunities? I'm just trying to figure out why the margins improved.

H. Thomas Hicks

Well, we had some performance that we didn't like tremendously in the first quarter in some of the business, which we think we'll get better. I think Bill mentioned some of the project issues that he thinks are going to recover. In the IE division, Gary's division, we're pretty confident that their margins are going to come up in the second half. And we have in the industrial side of the business, as Bob mentioned, we -- it's a relatively quick-turn, quick-start business. So when you win, you can get started right away and we can start generating margin there. So we have an opportunity-rich environment right now. We have a significant number of opportunities in front of us, very large opportunities that if we're successful on a normal percentage as we usually are, we should see pickup in the second half of the year. We have some incentive fees, that project completion fees also in the second half of the year. I don't want to pick anyone out in particular, but there are -- those are always in our plan, and some of those are going to hit in the second half to help us as well.

Operator

Our next question comes from Andrew Kaplowitz with Barclays.

Andy Kaplowitz - Barclays Capital, Research Division

Maybe a follow-up question for you, if I could, on power. Your sales in the quarter were the lowest that we've seen in a while. And I know you talked about sort of this lull. But is part of your guidance that you should see power pick up a little bit? Or is power going to stay kind of muted at these levels as you go forward?

Robert W. Zaist

Andy, it's -- the thing that impacts us most in the first quarter was we had a shift in timing on one major retrofit as I indicated, as well as a cancellation of a fairly large program. We think that it will be probably a little bit muted from last year but generally steady through the year, if we look at the timing of the opportunities that we see right now. We've had some good success on major fossil and nuclear alliance, which we'll talk about fairly soon and, again, several major retrofits. I would tell you that the new generation is pretty muted right now. In fact, the demand for new generation, I think, is projected to be down about 0.75% from where it is in 2013. Once the economy starts to kick in, we will see new generation opportunities, where right now are fairly soft. We are seeing good opportunities on the T&D side. And particularly on the nuclear services side, about 40% of our business is associated with the nuclear business of one form or another. The regulatory requirements to implement Fukushima -- post-Fukushima regulations is driving part of our business along with the upgrades that Martin talked about earlier.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, Bob, that's helpful. Bill, maybe a follow-up for you. If I could step back and think about the overall Oil & Gas business, and you talk about hirings basically focused on the oil sands and then maybe some weakness in some other businesses, the backlog's been pretty stable over the last couple of quarters, but you did mention an uptick in the pace of Oil & Gas prospects. So do we think that, that's going to equate into higher Oil & Gas backlog as we go in the next few quarters?

William J. Lingard

Yes. Andy, a lot of the backlog in Oil & Gas comes fairly quickly because our MSA clients award us the work, and we burn it within the 90-day period. So a lot of it gets just burned in the quarter that it's awarded in. But the -- on the bigger projects, certainly, the opportunity pipeline right now is very large and we could add some large amounts of backlog fairly quickly. And what we've been careful to do is not take on backlog just for the sake of adding to our backlog. We're looking for the best quality backlog, and we certainly could have jumped on to some projects that we didn't like all of the terms or didn't like all of the fees. And so we've gotten more than we need in the hopper. And I think, over the coming next couple of quarters, you could see some adds to the big project backlog, which will -- the other backlog, you don't really get to see it, will just get busier. But the big projects, you will get to see the backlog and you will -- my -- based on what we see is coming at us, my projection is that you will see additions.

Andy Kaplowitz - Barclays Capital, Research Division

Okay, that's very helpful, Bill. Just Tom, very quick sort of catch-up question. You talked about sequestration in the past. Now that we're sort of into it to some extent, you said it's in line with your expectations, does that mean a relatively small EPS headwind on the business this year? I mean, I know you've been sort of loathe to quantify it, but is it relatively small, sort of medium size $0.10, $0.20, that kind of range that we should be thinking?

H. Thomas Hicks

I don't want to give you a hard number. You've tried to get me to tell you this number every time we talk, so I was prepared on the question. But I'll tell you, there's a whole range of things going on in the federal business. We've had, as we reported to you, a shift from long-term projects to shorter-term, IDC-based, indefinite delivery contracts. We've had a lot of confusion in the government as to how much money they have to spend, so they've shortened or they've delayed awards. We're seeing all major things protested these days and then, on top of that, throw sequestration on it. So it's a whole combination of things in a market that's really in turmoil. We feel we're well positioned, as Martin said, in certain segments of this market that when it settles down, we're -- we'll be in good shape. And we haven't talked about it, but we have in previous calls. There are significant major procurements under way that we are at the table trying to win our share of those. And if we're successful and things get awarded as we expect, we could stabilize that business and do just fine. So I -- really, we don't keep track of sequestration dollar for dollar, so I couldn't answer that question specifically anyway, even if I wanted to. So I hope that's helpful.

Operator

Your next question comes from Steven Fisher with UBS.

Steven Fisher - UBS Investment Bank, Research Division

I guess for Bill and Tom, I mean the Flint business is seasonally weak in Q1. But I guess at this point, it's still kind of hard to do a comparison year-over-year. So I'm wondering if you can just kind of give us a sense of the apples-to-apples, year-over-year trend in both the legacy URS and Flint businesses in Q1. I know you're adding headcount into the Flint side. And I'm just wondering, is that growing? Is the business growing in terms of revenues along with the headcount? If you can just comment on those types of things, that'd be great.

H. Thomas Hicks

Yes. Steve, the -- our Oil & Gas business are traditional, if you will, before the gas business that we're doing in other parts of the company, before we acquired Flint, has shown nice growth. Bill has actually shown some growth year-over-year if you can go back and compare, which is not a fair comparison to when he was an independent company. So in general, the business is growing. And the prospects, as Bill reported and, I think, Bob Zaist has reported, working together have added a significant number of prospects to our list. And so we're very, very bullish on that business, and we think it's really got some great second-half opportunities to be -- to grow. As Bill said, we're preparing for the growth boom. We're staffing up. And one of the big question marks that customers have for us is, "We have all this work to do. Can you deliver the people? Can you actually deliver and perform?" So part of the ability or part of the reason we're being successful is Bill's ability to reach back into other parts of the company and to other relationships that we have to staff up and get ready and be credible when the bids come available. So I don't know if Bill wants to add any comments to Oil & Gas in general, but we -- but we're generally very positive on that business.

John B. Rogers - D.A. Davidson & Co., Research Division

I guess I'm maybe some -- reading into your comments too much but is it -- am I concluding correctly then that it sounds like the legacy URS business is growing a bit faster than the Flint business at this point, given kind of the perhaps longer time frame of the Flint-related projects coming to market?

H. Thomas Hicks

Just one comment is that our legacy business is relatively small compared to Bill's. So on a percentage basis, yes, it's growing faster. But absolute dollars, Bill's business has much higher prospects.

William J. Lingard

So the legacy operations are up 41% year-over-year, so that will give you an idea. A lot of -- some of that's coming because of the focus on Oil & Gas and some of the synergies that we're getting between divisions and some of it because of the expansion of the MSAs with some of the legacy businesses. The -- what's interesting, when I look at just Flint, yes, the first quarter of this year, the top line is bigger than the first quarter of '12. And if we had been fully staffed, it would have been substantially bigger. So when I look at the year and kind of look at my internal targets for the year, my top line and my operating income year-over-year, it would be a new record year for Flint if we were a standalone. So we see tremendous growth in our top line and growth in our bottom line performance.

Steven Fisher - UBS Investment Bank, Research Division

That's very helpful. And then, Tom, I guess on the I&E margins, I'm surprised there's such volatility in those, given the engineering nature of the business. I'm just wondering, was there something this quarter? Was it more pass-throughs of some type? I know you said it was going to pick up later in the year. I'm kind of wondering why. And then, should the range be narrower this year rather than the kind of 250 basis points range it had last year?

H. Thomas Hicks

I'll let Gary Jandegian comment on the margins for the division and their prospects for the rest of the year.

Gary V. Jandegian

Steve, IE margins between quarters fluctuate as a result of our business mix, seasonal differences and, as I mentioned, the heavy bid and proposal activity along with other factors. We've always said we feel we can run between 6% and 8% annual range on operating margins for the IE business. And in Q1, our margins were lower because of the revenue mix and some investments, including those higher bid and proposal activities, especially in the transportation and transit and other design-build programs. And these are becoming common in the infrastructure sector, and then also some EPC proposals in the industrial sector. Now for the year, we expect operating margins of the business will approach 6%, very similar to last year. Our pricing is holding up, and we're seeing some pricing improvements in new contracts.

Martin M. Koffel

We ourselves derive no conclusion about margin trends from IE in the first quarter.

H. Thomas Hicks

Yes. I'll put something else out too. We have a bigger proportion of international business flowing through IE's numbers now than we used to with the acquisition of Scott Wilson a few years ago. And international is performing quite well, but its margins are not as high as the U.S., so it moderates a little bit.

Operator

The next question comes from Andrew Wittmann, Robert W. Baird.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

So I just want to be clear on the Federal Services segment this quarter. The 10-Q mentioned $10 million, but is that $10 million incremental incentive fees over last year's levels of $63 million? Or 6 -- or $10 million total incentive fees for the quarter?

H. Thomas Hicks

Incremental.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Incremental, okay. And as that flows through to the noncontrolling interest line, is that the reason why -- I'm sorry, yes, is the weakness that we're seeing in the E&C in the quarter the reason why the NCI level was down sequentially? And should we expect the noncontrolling interest -- or what should we expect from the noncontrolling interest line as we look to the balance of the year?

H. Thomas Hicks

I think the -- you hit the nail on the head. It is down because of the work we do to -- through consolidated joint ventures is down relative. And I think as we performed in the first quarter as far as NCI levels go, it's probably reasonably predictable for the rest of the year. I mean, it could be different. But I don't have any basis to say it's going to be much bigger or much smaller.

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Yes. And is that mostly -- Tom, is that mostly driven by the E&C division? And is the operating income that you saw out of the E&C segment this quarter fairly representative? Or would you expect some level of pick-up as the year progresses there as well?

H. Thomas Hicks

Yes. Most of our NCI comes out of E&C because of the nature of all the joint ventures they do and the consolidated JVs they have. So it's almost entirely there. We have some in other parts of the company, but the overwhelming amount is there. And I think Bob would tell you, I'll let him speak up, but I think he believes that the margins are going to come up in the second half of the year. Bob, would you like to comment on that?

Robert W. Zaist

Yes. Andy, we do expect that the margins will go up as we look forward. We see swings driven by timing of onetime events such as settlements, harvesting of performance-based incentives. And as we start large projects, we have a booking protocol that is pretty conservative, where we don't book margin in the first 20% completion of a project until we can get a little bit of a foresight as to how the program's going to run. So all of those things, at any one time, can affect the level of margins. And when we look ahead, as I said, we expect that we'll do better than we did in the first quarter.

H. Thomas Hicks

We traditionally told you that 400 to 600 basis points, 4% to 6% is kind of the right thing to think about for operating income margins there, and we still feel that, that's reasonable.

Operator

Your next question comes from Sameer Rathod with Macquarie.

Sameer Rathod - Macquarie Research

Just a couple of quick questions. First, I know you've already talked about sequestration a bit. But maybe you can give us a little bit of color on what's happening day to day on the ground. What kind of discussions are you having with the government when your existing contracts are in terms of procuring new contracts?

H. Thomas Hicks

Okay. Randy Wotring will comment on that. He's doing day-to-day armed combat in that area. So let him speak up.

Randall A. Wotring

So what's happened to date is that we've seen fewer furloughs than anticipated, but customers are still advising they may be necessary in the second half of the year. We have had some reductions at some of the operations and maintenance sites. These are usually at that depots, and it's -- what happens if budgets cut there, we -- you cut a lot of people. So it gets a political bang that maybe some are looking for. So we've had some of that go on, and we've had some indication that we may be required to have future reductions also. But on the other hand, we've seen the government getting more flexibility in how they take the cut. So they're still hope -- you're starting to see the Department of Defense talk about averting any need for furloughs in the second half of the year. The biggest impact for us has been the continuing delay in procurements. The dwell time that we've seen after a proposal has been submitted until time of award is nearly doubled. It's up over a couple of hundred days for us on our proposals that have been submitted. Now it's also impacted the E&C division that handles the Department of Energy work, and I'll let Bob talk about that.

Robert W. Zaist

Yes. Sameer, in our part of the work, we've had about 1,000 furloughs and layoffs cutting across our DoE enterprise. We've managed that so far with the customer. And as Randy said, I think there are anticipations that the back end of the year will be a little more promising. We have seen some of the funding cuts slow down the pace at which we will be able to earn some selected performance-based incentives. But beyond that, the only other material impact we've seen is the fact that the several solicitations, not unlike what Randy's experiencing, are taking longer to come to a final conclusion.

Sameer Rathod - Macquarie Research

How do we think about the sequester in terms of cash flow? I mean, is the government still paying their bills on time?

H. Thomas Hicks

Yes. We haven't seen any across-the-board or directed reduction in cash or payment of bills. And we certainly were prepared and hopeful that wouldn't happen, and it has not happened to date. We haven't seen any slowdown. We have, on a programmatic basis, certain programs that are slower to pay than others. But that tends to be more about billing issues and those kinds of things than it is any across-the-board activity as far as we can tell.

Sameer Rathod - Macquarie Research

Okay, great. Just one more question. How do we think about URS's drill rig moving business in the context of the divergence of well counts and rig counts due to efficiency gains? Does it seem like people are moving rigs around less? How do I think about that?

H. Thomas Hicks

I think Bill Lingard will be the right guy to answer that.

Martin M. Koffel

Very well said.

William J. Lingard

So with the proliferation of directional drilling and multi-stage frac-ing, what we're seeing now is typically the clients are going to do less drill sites. And they'll drill from the pads, so you might do 10 or 12 wellheads from one pad, and then they'll have a large amount of equipment moved to the next site. And a lot of the shale plays are developed that way. So you actually see less rig moves. But then when you have one, it's a bigger rig move between pads. And there's -- some of the rigs can skid. Sometimes there's smaller rig moves between wellheads on pads. But generally, we've seen that part of the business. What's driven our activities, and we've had good activities in rig moving, is a lot of clients will take rigs from the Fayetteville and move them to Eagle Ford or from the Haynesville and move them up to the Marcellus. So we've done some long moves as well, so that drives some of the business activity. And combined with the rig moving with a fleet of trucks, we also do a lot of fluid hauling. And with all of the liquids-rich plays and the amount of drilling that's been done for fluids, we're finding we're quite busy hauling produced oil and, in some cases, we haul it right from the wellhead to the refinery because there are no pipelines and we'll build the pipelines as well. So overall, our business has remained fairly stable. Some because of the additional fluid activities we're doing, and some because we were only in certain plays in Canada and we've expanded our rig movement. We'll move some of our equipment down to the U.S. Bakken and the Marcellus from Canada, because we had too much equipment in Canada. And we're moving to the places where it's busier, where the clients are getting more active. So overall, it's been a pretty stable business and it's been pretty profitable.

Operator

That concludes the Q&A session. I'd now like to turn the call back to Mr. Martin Koffel for closing remark.

Martin M. Koffel

Well, thank you all for spending time with us. We look forward to updating you a quarter from now. In the meantime, in fact, in the next several weeks, we'll be participating in several quite important investor conferences. We'll see some of you then and, of course, all of them are webcast so you'll get more information from those venues. Thank you very much.

Operator

Thank you for participating. This concludes today's program. You may now disconnect.

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