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URS (NYSE:URS)

Q2 2011 Earnings Call

August 09, 2011 5:00 pm ET

Executives

Robert Zaist - President of Energy & Construction Business

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

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

H. Hicks - Chief Financial Officer and Vice President

Martin Tanzer - Executive Vice President of Marketing

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

Analysts

Scott Levine - JP Morgan Chase & Co

Alexander Rygiel - FBR Capital Markets & Co.

Tahira Afzal - KeyBanc Capital Markets Inc.

Richard Paget - WJB Capital Group, Inc.

John Rogers - D.A. Davidson & Co.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Andy Kaplowitz - Barclays Capital

Andrew Obin - BofA Merrill Lynch

Jamie Cook - Crédit Suisse AG

Will Gabrielski - Gleacher & Company, Inc.

Avram Fisher - BMO Capital Markets U.S.

Operator

Good afternoon and welcome to the URS Corp. Earnings Conference Call for the Second Quarter of Fiscal 2011. To begin, I'll turn the call over to Mr. Thomas Hicks, Chief Financial Officer for URS. Mr. Hicks, please go ahead.

H. Hicks

Well thank you, and good afternoon, everyone. Before we get started, let me remind you that today's call will contain forward-looking statements, including statements about our revenues, business prospects, book of business, earnings and financial condition, outstanding shares, economic and industry conditions, and other statements that are not historic facts.

These statements represent our predictions and expectations as to future events, which we believe are reasonable or based on reasonable assumptions. However, numerous risks and uncertainties could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Information about some of these risks and uncertainties can be found in our earnings release and our Form 10-Q for the quarterly period ended July 1, 2011, as well as in other SEC filings. And 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. And with that, I'll turn the call over to Martin Koffel, our Chairman and Chief Executive Officer.

Martin Koffel

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

I should also like to welcome Bob Zaist, our new President of Energy and Construction. Bob previously served as Senior Executive Vice President of the E&C division, and has more than 40 years of experience with the company. Many of you already know him from his participation in prior earnings calls, and through personal meetings at investor gatherings.

As usual, we'll begin with some prepared remarks and then open your call up for questions. Now I'll begin by reviewing the results for the quarter. Revenues were $2.36 billion, an increase of 5% from the second quarter of last year and net income was $66.8 million, up 8% from the second quarter of 2010, and earnings per share was $0.86, an increase of 13% from last year.

We generated $152 million in cash flow from operations. And at the end of the quarter, our net debt was approximately $324 million. So we are pleased with our second quarter results, which reflect the success of our strategy to build a balanced portfolio in 4 key market sectors.

At the end of the second quarter, our book of business remains strong at $28.7 billion. The Industrial and Commercial sector recovery continues to gain momentum. Second quarter revenues grew by 22% compared with last year. This follows a similar revenue increase in the first quarter this year.

Industrial and commercial backlog is up 19% from the end of 2010, reflecting favorable trends across this sector. As strong commodity prices are supporting mining expansions as well as increased capital expenditures in the oil and gas market.

Concurrent increases in manufacturing and process-related production in the U.S. and abroad have boosting demand for our full life cycle, engineering, environmental, construction, and facilities management services.

Obviously, the economic and political turbulence in recent weeks is cause for concern. Nonetheless, the fundamentals on which our business is built remains strong, and these fundamentals will be the focus of our discussion with you today.

Firstly, trends in the federal market are positive with Congress moving forward on the 2012 DoD and DoE budgets, procurement activity by these agencies has begun to accelerate and we're bidding on an increasing number of new assignments. And whilst it will take time for agencies to complete the procurement process, we anticipate the pace of awards will increase later this year and early next year.

Honestly, there's been a great deal of discussion about the federal budget in recent weeks. However, much of our federal work involves the provision of essential services that are unlikely to face significant cuts. These include critical threat reduction programs, military preparedness initiatives and Nuclear Decommissioning and operations management programs.

In addition, our recent acquisition of Apptis provides us with access to the growing federal IT market. Apptis is a leader in complex IT services, including cloud computing, which federal agencies increasingly are utilizing to reduce their operating costs. And secondly, the state budget picture is now clearer. 47 states have now approved budgets in place for fiscal 2012.

State tax revenues grew about 10% in the first quarter of 2011 compared with last year. And preliminary figures for April and May showed that tax revenues have actually continued to increase. In addition, many states have made discretionary cuts to certain programs to balance their budgets. And after a long delay, Congress is now starting to address the reauthorization of SAFETEA-LU, the Federal Highway Bill. Once a new multiyear federal funding program is enacted, it should give state transportation agencies the confidence to move forward on large long-term infrastructure projects.

And finally, there have been several positive developments in the power market. Last month, the U.S. Environmental Protection Agency issued long-awaited changes to Federal Emissions Control Regulations. The implementation of these regulations should enhance growth in the emissions control market.

In the aftermath of the crisis at the Fukushima power plant in Japan, the Nuclear Regulatory Commission staff has proposed new regulations to improve safety at U.S. plants. The NRC's proposals should create both short- and long-term opportunities for URS to provide engineering, design and construction services, as plant retrofits are implemented.

We should now address each sector in detail, and I'll start with the Federal business. Our federal sector revenues were $1.16 billion in the second quarter, a 5% increase from last year. And for the first six months of the year, federal sector revenues were $2.2 billion, a 2% increase from the same period in 2010. Our Federal business remains strong as we continue to benefit from our diverse client base, and our ability to provide full life cycle services. We've generated consistent revenue growth. Our pipeline of opportunities remains robust, both in the number of projects and the dollar value.

In addition, we continue to see a steady flow of new task orders under our Indefinite Delivery contracts. As you know, IDC contracts support a number of long-term federal initiatives. And the majority of our work in the defense market is funded through relatively secure areas of the budget. In fact, the House of Representatives recently approved a $649 billion DoD spending bill for fiscal 2012. The bill contains more than $169 billion for operations and maintenance programs, a 3% increase over fiscal 2011. Now this key budget area supports much of our work.

We're also benefiting from our acquisition of Apptis. This acquisition provides us with access to a $40 billion market for high-end IT services such as cybersecurity and cloud computing. This further diversifies URS in a new and growing portion of the federal market. Just last month, the DoD released its cyberspace security strategy.

The strategy includes a number of new initiatives to create a secure network environment and enhance cyberthreat defense capabilities. As the DoD implements this new plan, our enhanced IT capabilities and long-term relationships with the agency should enable us to win new assignments. In addition, Apptis' relationship with several civilian agencies has further diversified our Federal business.

And the outlook for the other major portion of our Federal business, our work for the Department of Energy and the United Kingdom's Nuclear Decommissioning Authority, the NDA, also is positive. Funding for our long-term DoE contracts remain steady, and much of our nuclear decommissioning and operations management work is required under law and considered a high national priority. And this environmental management work is the largest part of our DoE business, and the budget line items that supports these assignments are less susceptible to reductions.

We continue to expand our DoE franchise, for example, in May, a URS-led team was awarded a remediation in clean-up services contracted at the East Tennessee Technology park site. We recently completed the transition to full operations, where we're managing a site budget of $3.2 billion.

In addition, a URS joint venture was recently awarded a full year $417 million contract to operate and manage the DoE's Advanced Mix Waste Treatment Program in Idaho. This is the agency's most advanced waste treatment facility. Currently, we are pursuing several national nuclear security administration programs, which will be recompeted over the next year. These are large multibillion dollar opportunities to support the DoE's defense-related programs.

And finally, we are bidding on several new opportunities to expand our business with the United Kingdom's Nuclear Decommissioning Authority. The U.K. government recently released its long-term plans to manage and dispose of radioactive waste from the country's defense programs and nuclear facilities. The U.K. expects to spend approximately GBP 3 billion annually in decommissioning and clean-up costs over the next 4 years.

In summary, given the stable funding for our programs, the significant number of new bidding opportunities, and the increased diversity of our business, we expect to deliver solid growth this year. Specifically, we continue to expect that our federal sector revenues for the year will be approximately $4.8 billion, and this represents a 7% increase over 2010.

Our positive outlook is underpinned by our federal sector backlog of $10.2 billion. Turning now to our Infrastructure sector. For the second quarter, Infrastructure revenues were $479 million, essentially flat with last year. In the first half of 2011, Infrastructure revenues were $979 million, a 3% increase over the comparable period last year.

As I noted earlier, the outlook for our infrastructure market has become clearer, and the budgetary concerns facing many states have eased. In addition, Congress is beginning to address the reauthorization of SAFETEA-LU. Recently, separate legislation was introduced both in the House of Representatives and the U.S. Senate towards this goal. And the passage of a Federal Highway Bill, will provide our clients with increased confidence to move forward on large longer-term projects that require federal funding.

The federal support for high-speed rail projects continues. In May, the U.S. Department of Transportation awarded $2 billion in grants to expand intercity passenger rail systems and to upgrade existing rail infrastructure in 15 states. URS is supporting several states that receive this funding including California, Connecticut, and Illinois.

Additionally, we expect to benefit from the expansion of the Federal Government's target ground program. And during the quarter, an additional $527 million was designated to support surface transportation projects. This should result in new bidding opportunities later this year.

The outlook for our international Infrastructure business also is positive. We successfully expanded our relationship with Network Rail, the agency that owns and operates the U.K.'s rail infrastructure. For example, we've been selected as a Tier 1 supplier for rail upgrade projects in Southeast England and Scotland. We recently received our first set of engineering and design assignments and expect the pace of additional awards will accelerate during the second half of the year.

In China and India, which markets were added to us with the acquisition of Scott Wilson, we are benefiting from the increased infrastructure spending particularly for highways, water and rail. We continue to expect that our infrastructure revenues will be approximately $2.1 billion in 2011, an 11% increase over last year. And this growth is supported by a backlog of $3 billion, an 18% increase since the beginning of the year. Our infrastructure backlog has increased now for 2 consecutive quarters, and it's now at the highest level since the beginning of 2008.

Our next market is the Power sector, where second quarter revenues were $256 million, an 8% decrease from the same quarter last year. During the first half of the year, Power sector revenues were $557 million, a decrease of 2% over 2010. These results reflect a comparison with last year when we completed several large air quality control projects that didn't continue beyond the year. Current demand in the Power sector remains strong reaffirming our belief that we're in the early stages of the next growth cycle.

Over the past several months, we've been selected for major flue gas desulfurization and Selective Catalytic Reduction projects by Detroit Edison, [indiscernible], and Hoosier Energy. As I noted earlier, last month, the EPA issued new emissions reduction guidelines under the Cross State Air Pollution Rule, which will replace the Clean Air Interstate Rule. The new regulations shorten the timeline for power plants to comply with federal emissions guidelines.

Utilities in 27 states now have until 2012 to meet the first phase of sulfur dioxide and nitrogen oxide reduction mandates, and until 2014 for Phase II reduction targets. The new rule will provide additional EPC opportunities for our air quality and emissions control businesses. And some utilities that had planned to retrofit their facilities, already have accelerated their efforts to meet these new requirements.

In addition, utilities are continuing to plan for the next generation of power facilities to meet capacity needs. This includes new natural-fired power plants. And during the quarter, we were selected for front-end engineering and design work on several projects. We anticipate opportunities to bid on larger procurement and construction programs as these projects themselves move forward.

In the nuclear market, we expect that the NRC staff recommendations to improve plant safety will lead to seismic safety and flood control studies, backup power system improvements, and enhanced emergency response guidelines. These assignments should result in larger opportunities to provide design and construction services in 2012.

So based on the opportunities I've described, we continue to expect that our 2011 Power sector revenues will be approximately $1.2 billion, a 9% increase from 2010. This is supported by our Power sector backlog, which was $1.3 billion at the end of the second quarter. It is also reinforced by several new projects that are actually in the final negotiation stage.

Our next key market is the Industrial and Commercial sector. And this sector includes our work for oil and gas, industrial and manufacturing, and the mining industries. Our results were very strong as you would have seen. Our revenues for the second quarter were $466 million, a 22% increase over last year. For the first half of the year, revenues were $920 million, also an increase of 22%. And we ended the second quarter with backlog of $1.6 billion, which is an increase of $255 million or 19% since the beginning of the year.

Our performance reflects increased capital spending by Fortune 500 companies. This has created robust demand for our front-end environmental and engineering services. The continued strength of commodity prices, which is driving investment in mining and oil and gas projects. And our success in expanding our international operations, which has enabled us to support clients on major projects, not just in the U.S. but around the world.

During the quarter, we also saw strong revenue growth from our master service agreements or MSAs, with large multinational clients. We won a number of new MSAs, including a contract with an Australian-based global energy company, and a new MSA with a major entertainment company, to support its operations in Asia. These wins reflect the geographic reach and technical depth that we gained through the Scott Wilson acquisition.

In North America, capital expenditure programs are creating new opportunities for our oil and gas business. In particular, we are seeing increased activity in the unconventional shale gas market as companies increase their investment level. The Wall Street Journal has estimated that by 2015, the production of shale gas and other natural gas liquids will increase by 25%.

Our work on several oil and gas contracts outside the U.S. also accelerated during the quarter. This includes the pre-front-end engineering and design work we are performing for new facilities in British Colombia and in Alberta, Canada. In addition, we are seeing renewed activity in the Canadian oil sands, where several clients are planning to expand their operations. We've performed concept studies for several projects, which could lead to engineering and construction opportunities in the future.

In the industrial and manufacturing market, our facilities management and O&M work continues to grow as Fortune 500 clients expand production capabilities, non-core functions are being outsourced. And during the first half of the year, we expanded our work with several multinational corporations, including Caterpillar and Pfizer. In addition, we recently were awarded an EPCM alliance contract with a major domestic brewing company.

At the same time, we're enjoying growth in our Mining business. For example, in Australia, several of our mining clients are planning large expansion projects. We are currently are performing feasibility studies at iron ore processing plants in Western Australia and at a coal processing facility in Queensland. This work should position us to capture larger EPC assignments as these projects move forward. Additionally, we recently completed a new tailing stem for mining clients in Australia. This work has led to additional assignments at the site.

In summary, given our strong performance during the first half of the year and the growth in our backlog, we are increasingly optimistic about our outlook for the sector. We now expect that our 2011 industrial and commercial sector revenues will be higher than our original estimate of $1.8 billion. And with that, I'll turn it over to Tom Hicks.

H. Hicks

Well, thanks, Martin. To summarize our second quarter results, revenues were $2.36 billion. URS' net income was $66.8 million and earnings per share were $0.86. Our cash flow results were one of the highlights for the quarter. Cash flow from operations continued to be exceptionally strong at $152 million for the quarter, and we ended the quarter with $434 million in cash and short-term investments. Days sales outstanding, or DSOs, were 72 days at the end of the quarter, and that's down from 74 days at the end of 2010.

Interest expense for the quarter was $5.1 million and in the second quarter, our tax rate was 37.7%. Diluted weighted average shares outstanding for the quarter were $77.7 million. The operating margin for the quarter was 6.4% and that's up from 6% during the same period last year.

Our G&A expenditures increased during the quarter. But for the year are expected to be in line with historical levels, which is approximately 0.8% of revenues. As you know, we report separate financial information for our 3 business segments, Infrastructure & Environment, Federal Services, and Energy & Construction.

For the second quarter, Infrastructure & Environment reported revenues of $929.5 million and operating income of $54.3 million. Federal Services reported revenues of $668.6 million and operating income of $45.8 million. Energy & Construction reported revenues of $810.5 million and operating income of $69.5 million. And finally, CapEx, excluding equipment purchased through capital leases was $20.3 million for the quarter.

Our press release contained a detailed description of our book of business including backlog, option years, and indefinite delivery contracts or IDCs. We ended the second quarter with a total book of business of $28.7 billion, which is up from $28.5 billion at the end of the first quarter and down from $29.1 billion at the end of 2010. And backlog, the largest component, was $16.1 billion at the end of the second quarter compared with $16.3 billion at the end of the first quarter, and $16.6 billion at the end of last year.

The value of option years was $5.1 billion compared to $4.7 billion at the end of the first quarter and $4.8 billion at the end of 2010. IDCs were $7.5 billion at the end of the second quarter, unchanged from our first quarter and down from $7.7 million at the end of 2010.

And the relationship between our backlog and revenue, which we've discussed previously, continued this quarter, the change in the relationship continued this quarter particularly in our federal sector. Our federal sector business is generating a greater portion of its revenue from task orders issued under IDC contracts. And due to typically shorter periods of performance, and consequently, a faster revenue burn rate, task orders have less backlog relative to current revenue. And also as procurement awards have been delayed, we have seen an increase in stopgap measures, including the extensions of our current work, which also have a shorter period of performance.

Now therefore, even though our federal sector background has decreased this year, our federal revenue has grown year-to-date and we expect continued growth the rest of this year. And with that, I'll turn it back to Martin.

Martin Koffel

Well we are pleased with these second quarter results, and we remain confident about our performance for the full fiscal year. We continue to expect that our consolidated revenues for 2011 will be between $9.8 billion and $10 billion. However, the mix between our 4 sectors will change due to the rapid growth in the industrial and commercial sector. Finally, we continue to expect that earnings per share will be between $3.60 and $3.70 on a fully diluted basis.

Now looking to the second half of the year, we're confident in our diversified business strategy. It's repeatedly demonstrated its resiliency in difficult economic times over the last 2 years particularly. We continue to see positive developments across our markets. These include increasing procurement activity among our private sector clients as I reported, and continued strength in funding for our public sector work.

These trends, coupled with our strong competitive position in each of our 4 market sectors, gives us confidence that we'll continue to deliver consistent growth, profitability, and exceptional cash flow. And with that, we'll open the call up for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Alex Rygiel with FBR.

Alexander Rygiel - FBR Capital Markets & Co.

First, I noticed there were no share repurchases in the quarter. Could you comment or give us an update on your strategy with regards to buying back stock?

H. Hicks

Yes, Alex, we -- as we've said in the past, we -- you hear me okay? There were some interference. As we said in the past, we're generating a lot of cash and our uses of that cash are in descending order. First of all, support the working capital needs of the business. And then secondly, take advantage of strategic opportunities we see to increase the value of the firm through acquisitions. And then the last 2 items on the list are share repurchases and debt repayment. And given the opportunities we see and expect to see the rest of the year, we are holding on to our cash right now and our capacity. And hopefully, we'll be able to report something exciting to you later in the year.

Alexander Rygiel - FBR Capital Markets & Co.

Secondly, you referenced a number of feed projects you were awarded in the quarter. Is there any chance you could gross up the value of those possible EPC awards if you were to be a winner in the EPC?

Martin Koffel

You know what, I wouldn't even let my colleagues do that for my benefit. It's a bit of a challenge and I feel I'd get over excited if I did it. So I'd rather not do that for you.

Alexander Rygiel - FBR Capital Markets & Co.

Then I hope I get one follow up, as it relates to air emissions, your air emissions business, can you quantify the revenue contribution from that segment right now? And possibly the growth rate over the next 2 to 3 years?

Martin Koffel

Yes, Bob Zaist will address that.

Robert Zaist

Alex, about 70% of our revenues come from the Air Quality business at this point in our Power business. That mix obviously can change over time as the market changes. But with the historical run that we've had over last few years coupled with the anticipated business that we see out in front of us for between now and the 2015 timeframe, I think that's a reasonable expectation in the future.

H. Hicks

Our run rate in the business is about 300 a quarter as you know, Alex. So you can do the math pretty easily.

Operator

Your next question comes from Tahira Afzal with KeyBanc.

Tahira Afzal - KeyBanc Capital Markets Inc.

I guess my first question is in regards to a couple of the problem projects. You saw some incremental losses on the DoE project and the Qatargas project in the quarter. Could you give us any color on where the Qatargas project losses could be, I mean completion is? And on the DoE side, it seems like the language in the 10-Q has actually something is ongoing. Should we assume that to have a drag on margins, at least for the rest of the year?

Martin Koffel

Here's Bob Zaist again.

Robert Zaist

As I advised last quarter on Qatargas, we've been in the system completion and punchless mode for the last several months. In a period, we met all the mechanical completion milestones, and we've reestimated on a bottoms-up basis all the remaining punch list work. We also have experienced several warranty issues due to the duration of the construction of that program, which are backed up either by specific vendors or by our venture. And we've allocated dollars for both the punch list and the warranty in our reestimate. We expect the completion of all the work in the next 2 months, except for a long lead item of delivery which will be installed upon its receipt late in the year. And that outline is consistent with what I reported to you last time, but for the fact that we have reestimated and looked at the warranty issues along with the punch list, which resulted in the adjustment we took this quarter. Relative to the DoE business program in upstate New York, in February of this year, a task order modification change in the commercial relationship was entered into with the DoE at a demolition and removal project in upstate New York due to a performance issue. Since that agreement, there have been a number of changes in the conditions around that work and the regulatory oversight that comes with it. And those changes have resulted in some increased costs, which are currently in the discussion phase with the customer. We believe these changes are compensable, and those costs -- I mean those discussions are ongoing.

Tahira Afzal - KeyBanc Capital Markets Inc.

I guess my follow-up question is, if you look at 2011, obviously, you've had some moving parts that has worked in your favor. And expect -- you don't have come in better than expected as outlook looks right now. And so a diversified model is sort of offsetting the outlook with the federal markets being probably a little softer. And you've been able to use your free cash flow very effectively. As you look out into 2012, and you know you see the opportunities from the cyclical businesses, which now seem to be performing fairly well, and barring any outlook of global recession, can you at least, for right now, see these as providing more growth into 2012? And really offsetting your federal business even if it is stable to slightly soft?

Martin Koffel

Tahira, as I mentioned, the Industrial & Commercial businesses had a very good start on its recovery. That we think will rub well into 2012. I think similarly, we'll see growth in Power next year. Bob referred to the air quality projects that are ongoing but we're doing some front-end work on projects that could, in performance of time, turn into large E&PC projects. So I would see growth in both Power and I&C next year. But let's not assume lack of growth in infrastructure. I mean despite the complications of federal funding and everything else, we've got quite a backlog there. And we're forecasting high single-digit growth this year. And our Federal business is so well diversified. And the line items that fund our federal programs are so relatively well projected. I mean if there are CapEx in the DoD budget, and I think everyone believes it's too early to be precise, but everyone believes it could be in full strength and certainly in the procurement of new platforms, workings platforms, like aircraft and so on. But I think the fundamental economic advantage of the government outsourcing. The government saves 30% when it outsources to the private sector. I think that comes into sharp play as the top line income or topline revenue for the DoD budgets is reduced. The other factor, which I mean to be honest, we're quite excited about is Apptis. We, for some years, and we've been sharing it with you, have wanted to move into this high-end federal IT market, particularly the cyber protection, cyber security. And Apptis has got us very well positioned in a $40 billion market. And so I think we'll see growth in that area. So I think all our businesses will grow next year, but we'll see, I think, particularly significant growth in I&C. No accident at all. We built this portfolio, so that when one path softened another strengthened, and that's exactly -- you've seen that dynamic right now. And frankly, I'm thrilled to see it work once again.

Operator

Your next question comes from Andrew Kaplowitz with Barclays Capital.

Andy Kaplowitz - Barclays Capital

If I look at the high I&E margins, they've been down closer to 6% over the last few quarters after a long stint to date, you mentioned in your Q maybe a little bit more subcontractor working there. I guess that means more pass-throughs. Is this something structurally different that's happening in the business? Is there anything else going on in that business?

Martin Koffel

Gary Jandegian is with us, and he's right here.

Gary Jandegian

The structural changes -- we bought Scott Wilson and we're going through a systems conversion right now, as you know going into the second quarter. We had only owned Scott Wilson for just over 6 months. So the margins are a bit depressed as a result of that systems conversion. A bit of a difficult U.K. economy right now but we are winning some serious work. The topline in Scott Wilson is very strong and growing. And we see no reason why we can't return to that 7% to 8% margin range that we've always felt comfortable operating within. So I would just look at it as maybe the mix has changed a bit to a bit of a lower margin U.K. market and a bit so in the Middle East as well. But overall, once we get through this systems conversion, we should be back in business

Andy Kaplowitz - Barclays Capital

If I could just a follow-up on Scott Wilson for a second. I mean, you mentioned $115 million in sales in 2Q. I mean it seems pretty depressed to me to be honest with you. Can you talk about Scott Wilson and your satisfaction with the business and what you see going forward?

Gary Jandegian

Sure. Well that business also -- we have our legacy URS business in Europe and parts of the U.K. and Australia and so forth. That business has some very strong parts to it. China, we've added employees in China. We now have 1,200 employees in China, when we started we had about 1,000. We have over 800 employees, I think 880 now in India and that's up. Our business in Germany and France are both going well, and our business in Australia is going very well. So those parts are going extremely well. The areas where we're a bit slow right now as far as utilization is in the U.K. and in the Middle East. And we're working on rightsizing those areas. Overall, we're seeing growth in certain markets, the rail market, and also ports and harbors. And believe it or not, education. We've improved our education facilities portfolio in the past quarter. Areas where we're a bit slower are in the highways area, although we've won some contracts in the U.K., in the highways arena. But it's slower in highways, and in some of the lighter rail programs, and slower in water right now. So kind of a mixed bag. It's not all great news, but we feel that it's just temporary and that we'll pick up. And we're certainly one of the market leaders in rail, and we're seeing improvement in that area.

Martin Koffel

When we bought Scott Wilson as it closed, I was in the U.K. at that time along with my colleagues, and I was asked by the U.K. press and some U.K. investors and analysts why we would buy a prominent U.K. firm just as the Cameron government austerity measures were taking hold. And that clearly, they're going to cut national programs. And the U.K. transportation infrastructure is funded by the national government, not by any regional government. And they say, why would we buy right then? And I said we're making this move for strategic reasons. We have an abiding belief in the strength of some of the Western European markets, Germany, France, and the United Kingdom. And we're buying this for strategic position, and to give ourselves an international management base, and to acquire India, which came with it, and to acquire China. And I'm well satisfied with what we got with Scott Wilson. We got an outstanding management, organization and infrastructure. Some businesses in its portfolio are doing well, even a little better than we thought at the time. And the U.K. business, as a result of the austerity measures, is slower. But absolutely nothing that we're going to wear off at the time. Scott Wilson will turn out to be one of our very strong strategic moves in the future.

Operator

Your next question comes from Will Gabrielski, Gleacher.

Will Gabrielski - Gleacher & Company, Inc.

It sounded like to me that you were suggesting there's something big on the M&A horizon again. Can you just remind us what your priorities are in M&A that you're looking at?

H. Hicks

Well first let me clarify, what I said was we're hopeful we can find something. As you know, those of you who follow the company, that we have built the company through acquisitions. And we continue to have a very active program in that area, and have some strong strategic goals looking forward. We've talked about them before. In addition to regional geographic issues in the U.S. which we, despite having over 200 offices, we still have cities where we could be stronger. That always continues to be a part of our program. We're very interested in oil and gas all around the world. We're interested in mining all around the world. We're interested in Australia and Canada in particular right now, and we do want to build on our India base and our China base. There are other objectives but those are the key ones.

Will Gabrielski - Gleacher & Company, Inc.

I know you sort of didn't want to quantify the amount of feed work you're doing, but can you give us a sense when you think there's an inflection point and backlog driven by the feed you're looking at right now? Are these things that could mature over the next few months? Or are we talking about feeds that roll into 2012?

Robert Zaist

Well, I would suggest that the feed work would roll into more material work starting very late this year, but more likely rolling into the first half of 2012. There are several large procurements, which we were involved in some early work that are scheduled to rollout early in the fall. If they stay on schedule, that would result in awards in the first half of next year and then revenue thereafter.

Will Gabrielski - Gleacher & Company, Inc.

When you look at the environmental retrofit market for air quality control systems in the power sector, any sense on when we can start to see the bigger utilities, finalize decisions, and do you think that's necessary before you start booking some gas plants? Or can those come first?

Robert Zaist

So your question is...

Will Gabrielski - Gleacher & Company, Inc.

I guess they're all going through these fleet-wide assessments, which I assume you're assisting in many cases, to figure out an action plan heading into '12 to execute by end of 2014 and beginning of '15 to comply with new EPA rules. And I'm just wondering gas conversion and new gas plants are obviously a big part of that, and you should be a big player in that. Can those begin to roll out sooner than AEP decides what they're going to do with their entire fleet will it happen at the same time? Do you expect to book these awards in big lump sums or will they be multiple, small, one-off plant awards?

Martin Koffel

Well, I think what we will see is, as you suggested, an evaluation of the fleet. Do you make your capital investment in retrofit in existing plant to be compliant? Or do you decide that, that capital is better placed in new generation? We're already seeing decisions starting to form up. I think there was a little bit of a pause as utilities were waiting for some clear direction in the regulations, which now have been put on the table. And we are very active in not only the pursuit of gas fired generation but we're also very active in the AQCS side of the business. So I think those decisions are actually being made as we speak. For the most part, they are being made against key resources other than the complete fleet assessment. But there are -- I think we will see the backlog growth will start to tick up at the end of this year, and will continue on into '12.

Will Gabrielski - Gleacher & Company, Inc.

And then lastly, there's a comment in the Q about the late contract awards and lower revenues from military support activities in the Middle East. How much of an impact was that in the quarter, and do you see that picking back up here in the short term?

Robert Zaist

I'll let Randy Wotring comment on that, but we have been seeing a long-term wind down in the Middle East, obviously. But I'll let Randy give you a comment.

Randall Wotring

We do expect -- there's a strong budget for operational and maintenance activities and even with the wind down, we expect the 2-year tail as we've reported in the past. We are not heavily exposed at this point in time to activities in the Middle East. We have less than 500 employees there at the current time, and less than $100 million of revenue for our Federal business occurs in the Middle East. So we don't see that as an exposure. But again, the operation tempo remains high, and there'll be a significant readiness issue at the end of -- as the drawdown begins.

Operator

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

John Rogers - D.A. Davidson & Co.

I guess, Martin, your enthusiasm for the business, I appreciate it. But I guess I'm just trying to map that up with what looks like slightly negative organic revenue growth for so far this year. And I know the right way to look at your business is to look at what the profits are associated with all that backlog. Do you see margins? Is that why you're seeing margins improving and the profit potential associated with all this work?

Martin Koffel

Yes...

H. Hicks

Yes, John, it's Tom. We're seeing -- putting aside for a minute the issues that Gary commented on as we integrate the Scott Wilson coming up on our system. If you look at our margins, they're up, and the other 2 businesses quite dramatically. And we're anticipating we can keep good healthy margins through the rest of this year. And that's part of our optimism. The other thing, I know it's hard to explain, I try to do a little bit on the call. We're seeing a much higher velocity of turn in our backlog. So that if you could integrate with the period of performance on average in our backlog with the volume of the backlog, you could, obviously, see that we can generate the same amount of revenue without the same amount of backlog, which is what's happening. We are actually growing our revenue base as backlog has been shrinking. And our federal business, our headcount is up by a couple of thousand people. So we're optimistic that we can continue to see good margins powered a lot by larger work fees on projects. We've had good performances year-to-date and no reason to think we shouldn't continue that.

Martin Koffel

The award fees are a measure of our execution quality, and we're having a very good year on execution. We pride ourselves on it, as you know. The other thing about revenue, when I look at monthly or quarterly results, I ask immediately for margins, and profit, and backlog, and cash flow then I get the revenue last. And the reason is that revenue in the classic sort of manufacturing sense where you ship product off the dock and you count it and you multiply it by the unit price and that's your revenue. It's only part of the story here. An increasing portion of our work is executed through joint ventures, and it relates to the scale of our projects, the international aspect to them. And often, that's just reported on an equity basis. And then we have this so-called agency accounting which is a feature of some of the federal contracting where we record the fee but not the revenue. So there is a significant piece of what I would call revenue equivalent that it relates to fees that doesn't show through the revenue line. And that mix of agency accounting, traditional revenue, and joint venture accounting can vary quarter-by-quarter. So I never look at the quarterly trends too closely because I am more interested with what the mix and what the story is behind it. I'm much more interested in profit margins. And as you know we're highly cash conscious, and always watching cash, always watching DSOs, which actually improved in the quarter despite the recession.

John Rogers - D.A. Davidson & Co.

I mean is it fair to say that, I mean, all of your segments, as you report them will show higher operating profits this year?

H. Hicks

As a percentage?

John Rogers - D.A. Davidson & Co.

Or on an absolute basis.

H. Hicks

No, I don't -- I would think that's a pretty safe statement, John. I couldn't say definitively without doing some work. But IE is the one place given the integration of Scott Wilson where we might not -- we may not see, although I think we will...

Martin Koffel

I think we will but...

H. Hicks

Gary signaling me, he is going to deliver increase profit. I'm very happy about that. I'll get them to sign right now. I think that's a good point. And Martin makes a critical point in that if you look at as a percentage of our operating income that's coming from other than, if you will, classic revenue recognition. It's a big number and it's getting bigger.

John Rogers - D.A. Davidson & Co.

And lastly, if I could, Tom, in terms of the tax rate and share count you're assuming this year now.

H. Hicks

We said we're going to try this year to keep the tax rate under 40 and we've had good success so far. The wild card, John, is the third quarter I think you've followed us for a while. You know the third quarter is when we threw up the state tax rates, and because of the varying tax rates we have in different states and because we're very big in high-tech states like New York and California, we can get a surprise. So I'm a little cautious to predict that we're going to keep our tax rate right where it is, although I think we're going to do better than the 40%. And the other one, on the share count, I think it depends on allocation of capital the rest of the year. If we don't see a use of the generous cash flow that we're generating, and we do see opportunities for acquisitions, or we don't see opportunities for good acquisitions, then we could always go in and buy some shares back, which could affect that. But I think it's a reasonable projection. I think we told you 78 roughly for the year and that's fine to stay with our bank.

Operator

Your next question comes from Scott Levine with JPMorgan.

Scott Levine - JP Morgan Chase & Co

So with regard to the way that your seasonality has been in the past, sometimes your Q3, just looking at last few year, and Scott Wilson obviously closed last September. But Q3 has been strong, Q4 has been a bit weak, and I guess some holidays in there. Can you provide a little bit more color regarding specific guidance, how Q3 relative to Q4 plays out or whether the typical seasonality is what we can expect in the back half of this year.

H. Hicks

If you're looking at just what we do is look at earnings and EPS, we have approximately 46% or so of our full year EPS accrued through the first two quarters. And our third quarter is -- you're right, third quarter is typically our best quarter because of weather issues in many cases. So that will be probably larger than Q4, but you can do the math. I mean we will -- we still -- we reaffirmed our 360 to 370 range on EPS and we just talked about the share count. So you can kind of figure out what we expect to earn in the last two quarters and I would say that you'd probably see Q3 being higher than Q4. And we're very confident that we can deliver the EPS we've told you.

Scott Levine - JP Morgan Chase & Co

And then maybe a follow-up on nuclear. Any maybe deeper thoughts regarding the lasting implications of what's transpired here this year after Fukushima on the new build market in the U.S.? And can you comment on your appetite and interest in participating in the new build market overseas? How are your thoughts regarding new build in general changed from March to today?

Martin Koffel

Here's Bob Zaist.

Robert Zaist

Yes, Scott. I would tell you that clearly, the industry has slowed a bit. The industry wants to understand the issues behind Fukushima. I think the NRC staff recommendations assuming that they are adopted in some general fashion as they've been presented will clearly give us a bridge, if you will, to the new build. That bridge will address flooding issues. It will address blackout issues. It will address back-up power issues. It will address fuel storage, security issues. So all of those things will result in near-term engineering studies, which then as Martin indicated in his comments earlier should roll into some capital investment to address those modifications. That's going to act as a bridge for our business from a revenue standpoint. We still are supporting and are enthused about the opportunities that we are involved with that we've reported on previously, on the U.S. new build. We are also focused on some of the offshore new build particularly in the U.K. and Continental Europe. And we also, as we advised earlier, are involved with the uranium enrichment program here in the United States. So when you roll all that together, continued with some power upgrade business that we're active in, we like our Nuclear business.

Scott Levine - JP Morgan Chase & Co

One last quick one, if I may. Some of your competitors have mentioned on the federal side about some changes in the government's contracting behavior, either movements of multiple task awards under individual contracts or different terms. Are there any notable trends that you would site within the federal contracting business from a terms perspective, or would you say that's overdoing it?

Martin Koffel

I'll ask Randy Wotring to comment.

Randall Wotring

Well I would say that there is no noticeable trends as far as the changes in terms. I mean we've seen additional fixed price level of effort type of contracting, and we've seen more task order business. We expect the tax task order business to continue to be the primary source of government acquisition strategy over the next 12 to 18 months. We have a great inventory of those contracts in place. And again, we continue to see opportunities to bid on IDIQ contracts but we have a strong pipeline. I think what’s probably been reported by a lot of our competitors is that the government has been very slow to award contracts in the first half of the year. It was probably due to the budget uncertainties around the continuing resolution and federal -- pressure on federal spending. But we are in 2 conflicts, the demand for our type of work is still at a high rate, and we have a lot of protected budgets as Martin said. So we expect the demand for our business to stay at a high rate. And as we approach the end of the fiscal year, the government will as we expect, to make a lot of awards of some of the money that will expire. So they have a lot of work to do over the next 6 to 8 weeks.

Operator

Your next question comes from Avi Fisher from BMO Capital Markets.

Avram Fisher - BMO Capital Markets U.S.

Infrastructure backlog, in a pretty tight environment, is pretty good. Where does that incremental infrastructure backlog come from? I mean are there -- can I get a sense of kind of what type of projects they are?

Martin Koffel

I'll invite Gary to make some comments.

Gary Jandegian

Right. We're seeing some growth in 3 main areas: Our high-speed rail work; our light rail work, which we call transit; and our water work. So those are the main areas where we're not seeing as much growth as in airports. And of course, slowness due to the lack of FAA funding reauthorization, but we do expect to get over that and it picks up. And I might let Bob talk to the construction side of the house as to the backlog and infrastructure.

Robert Zaist

Avi, what I would add to that is we're involved with a very large program in the Ohio, Kentucky -- near Paducah, Kentucky, which is basically a modular dam program, $1 billion program. There were some scope additions and adjustments that helped that out. And also our light rail program similar to what Gary mentioned added to this increase.

Avram Fisher - BMO Capital Markets U.S.

So it sounds like based on what you're saying that you have HSR transit and water in the I&E segment, that modular dam, and the transit in the construction segment that there's some overlap at least on the transit site, where there's work moving from the I&E to the E&C book of business?

Martin Koffel

The way we work, and I think we've done very well with acquisitions in integrating them initially and the way we face the market. But then we did particularly well after acquiring Washington in integrating a design-build capability. So on the larger projects, we sell as a single company. And then we execute components of that according to where the skill sets reside, and it's just a very easy handoff between the 2. It could be that Bob takes lead on one project, or Gary and his people takes lead on other. I think one of our competitive strengths frankly is we've [indiscernible] just get out there as one company and get on with it. I agree with your comment that when you read about everything that's going on with the States and so on, the infrastructure performance here has been very solid. But remember, it's one of the sort of core derivative business of URS. This was how we started business decades ago. And since we've built this national network, we're in every state but we're doing the same thing overseas. And it's diversify, diversify, diversify. We're strong in imports and it's as how busy we are imports as we are in bridges, as we are in highways. And there are literally thousands of jobs at any one time, and it just doesn't stop. And it's just delightful to see how well it's kept up.

Avram Fisher - BMO Capital Markets U.S.

Switching gears a little bit. On Scott Wilson Group, you talked about the system conversions cost. I mean it looks like from the Q that's about $70 million. Does that continue over the next few quarters? Is that -- how should we expect that to flow through?

H. Hicks

Just to correct something, it's not anywhere near $70 million. This is bringing them onto our ERP system and that's always a daunting task when you have thousands of projects, which they do and which we do. But the cost is -- I don't think we disclosed the cost anywhere in the Q for sure because -- and then also it's a very small number. It just disrupts the business because you have people focused on administrative things, just getting projects set up properly rather than going out, working with the client, or selling new business. That's -- I think you hear that story from everyone that's done a conversion like this. It just kind of slows you down for a while. And we're also dealing with a U.K.-based business versus a U.S. business, which has different closing cycles, twice a year instead of 4x a year. So there's a lot of things we're adapting to that are causing the issues.

Avram Fisher - BMO Capital Markets U.S.

I apologize for the inflated number. I was trying to do the math from the Q. But can you disclose what the systems conversion costs are?

H. Hicks

No, we don't -- actually, we don't accumulate those. So I mean we keep track of them obviously but it's not something we report.

Martin Koffel

The actual out-of-pocket internal labor cost is fairly modest. It's the mental angst of doing it. But you know it's always -- we've done, when you're talking about earlier this morning, we've done are approaching 20 consistent migrations with the acquisitions we've made over the year, and they always feel the same. They're challenging, but it is better to get on with them quickly, because you'll never tap the potential of the combination of assets of the acquirer and the potential the company we've acquired until we're operating and measuring the same metrics. And people have the same access to the same historic database. So we're getting on with it and Scott Wilson wants to get on with it. And it will just take a while. It's not a big impact on the whole company. It's a $10 billion company and Scott Wilson is a piece of that. But it does occupy a priority while we're doing it.

H. Hicks

I don't think we want to focus too much on that as the cause of the margin issues. I mean we also have a relatively slow economy in the U.K. right now. And as Martin said, we bought this company for the longer-term benefit, not for the next 6 months. So we're dealing with it and moving on.

Martin Koffel

There's nothing in the softness in certain aspects of the U.K. domestic market that surprises me in the least. We're all aware of the austerity program. We're all aware of the national expenditures that would be reduced, and went in with our eyes open. On the other hand the rail activity in the U.K. and other activities have kept up quite well.

Avram Fisher - BMO Capital Markets U.S.

I mean it looks like your International business, excluding Scott Wilson, was up almost 32%. So...

Martin Koffel

When you say international business, that is Scott Wilson other than the U.K. because -- other than Australia, Scott Wilson, is running the International business. And the Scott Wilson team are builders, and they're very entrepreneurial and that's what they're doing.

H. Hicks

Yes, we're doing quite well in operating Canada and Australia, which are not part of the Scott Wilson.

Martin Koffel

Canada we see as North America. We don't think of that as international. And Australia is outside of Scott Wilson. It's a well -- long-standing, well established business.

Avram Fisher - BMO Capital Markets U.S.

Speaking of construction, the backlog in the Washington group segment seems to be up sequentially and year-over-year. How long will it take that to start to flow into revenues where we start to see that same trend in revenues?

Robert Zaist

Avi, this is Bob Zaist. Similar to what I answered before, it should start rolling out as we approach the new year. It will be primarily be a 2012 and beyond flow. And that's simply a function of particularly the contribution that's coming out of the new work that we're booking in the power side of the business, either that we have or as Martin mentioned in his comments, are under negotiation at this point, where we've been selected for finalizing contract. And we will roll that into projects being initiated as we approach the end of the year. As you would expect on these large projects, the flow of the revenues is modest at the beginning of the year. You're doing some detailed engineering work then you start your procurement process. Once the procurement process starts and then the field work then the revenues really pick up.

Operator

Your next question comes from Jamie Cook with Crédit Suisse.

Jamie Cook - Crédit Suisse AG

A couple of quick questions. One, can you talk about what you're seeing sort of competitively whether you're seeing any improvement in pricing in the market? Some of the other players like a Jacobs tends to be more conservative sort of like yourself as saying on the private sector anyway, they're starting to see some improvement there. And then, Martin, a question on you. I know you talked about acquisitions again, which is you're still getting it more into oil and gas, and mining. Can you just sort of talk about the multiples you're seeing out there, and just given the uncertainty does it make sense -- I mean do you still feel -- I guess how big of an acquisition that you do would you do given the uncertainty out there? Or would it make sense to wait assuming multiples come in a little.

Martin Koffel

Well, just to be a little bit cute and to start backwards on your questions, the multiples did drop yesterday. On you're -- you ask an interesting question about pricing. And our answer is a little bit different from what you've been hearing, because we didn't let our pricing slip. And I think you've heard us say that in previous calls. We were prepared to -- realizing that once you let pricing slip, you're stuck with that for a long time. We're prepared to walk away from business or not pursue business if the pricing wasn't within the range that we felt was reasonable. And you mentioned -- I can't really comment on the other company you mentioned because I don't know their business. But we really try to keep out of what I call the commodity priced sector of our business. Our pricing and margins have held pretty well. I mean there may have been some pricing pressure but the margins have held because we've watch cost and we watched productivity, and that kind of thing. So it's probably hard for us to comment. I'm interested that someone said the same pricing coming back. It's an interesting piece of information for us. The profit margins is not only about price, but about executions. I mean not getting things wrong, and getting things done on time. I mean not everyone is perfect, and you can have bad luck on a project on occasion but we really do focus on execution. On the acquisition side, if the multiples have come down, then I think the basket of opportunities that we'll be looking at does become larger. There are things we'd be interested in, but that just don't make sense on a return basis, and make a lot of sense strategically. But the pricing has been -- the effect of the 3% debt money and Wall Street M&A people swarming all over this industry, which is what's been going on. Things are a little bit -- I think some of the prices got a little bit overheated. And we bided our time a little bit, but we're as interested as ever. Remember, this thing started with $100 million of revenue. And it's $10 billion and the organic growth has been 10%. So acquisitions are a part of life. But for the first time, we've got the strongest cash flow, and we're not out of debt. But the net debt is only $320 million. So I think we're, for the first time, potentially an all-cash buyer for somewhat larger properties than we looked at previously.

Jamie Cook - Crédit Suisse AG

And just one last, I guess you made a comment everything got cheaper yesterday. So I'm assuming public companies aren't off the table?

Martin Koffel

They've never been off the table. I mean, in some ways, they're very easy to execute because they have many of the disciplines that we have already in place.

Jamie Cook - Crédit Suisse AG

Okay, I was just trying to get a sense of size. I appreciate the color.

Operator

You're next question comes from Andrew Obin with Bank of America Merrill Lynch.

Andrew Obin - BofA Merrill Lynch

Just a question on infrastructure pipeline and how should we be thinking about this business going into '12 and 2013, particularly with the expiration of the stimulus, and the fact that we don't have a Highway Bill yet. What's your longer-term thinking on this end market?

H. Hicks

Martin Tanzer is here with us, he could give you some comments.

Martin Koffel

Well, he's just joining us. I'll make the point that I'm very optimistic that we're going to get a Highway Bill, whether it's a 2-year Highway Bill or 4. The Bill really depends on whether it's Senate or House. But I think we'll get a Highway Bill. Martin?

Martin Tanzer

Yes, we're pretty positive looking forward. We had several good years. One of the reasons is that we're taking market share from others. And state receipts are up, they're about 14 states that have increased their transportation budgets by about $600 million. And of course, many of the activities that we were involved in didn't involve the stimulus dollars at all. And congestion is still a major issue, maintenance and operation of highways, our highways continue to deteriorate. The market is very large. We perceive that there'll be a 6-month continuing resolution as of September 30 probably at the same rate as 2011. And if you look at both bills, both Mica’s and Boxer so they both have a positive impact even though Mica’s bill, who's Chairman of the House, is much smaller there's some interesting aspects to his bill, including raising the TIFIA funds from $122 million to $1 billion a year. That's quite a large increase, and that will provide federal funding guarantees for infrastructure. In addition to that, he had a very innovative approach and he will allow the state to toll interstate highways that are existing highway structures. So looking at it from a positive standpoint, several states have already asked us to look at that impact that we could see the infrastructure market improving in 2012 and 2013.

Martin Koffel

The Governor of Florida, I think has indicated the toll revenue of Florida...

Martin Tanzer

Yes, the government of Florida is requesting the legislature approval of a $1.4 billion bill, which allow him allow to use money generated in the Florida Turnpike to support several very large highway projects in California. Also Los Angeles has Measure R, which provides a lot of dollars for projects.

Andrew Obin - BofA Merrill Lynch

So just to understand, is your underlying assumption for 2012 that overall funds available for highway spending will be flat or up?

Martin Tanzer

I think at the worst case, they'll be flat. I think you'll see several large PPP projects. As you may know, we have teamed on the two largest PPPs in the country right now. The Louisville bridges, which is a project between Indiana and Kentucky. Its bridges has opened a Mississippi River, that project is a PPP project. It's $3 billion. We're on a large team for that project as the lead designer also leading the effort on the Knik Arm Bridge in Alaska. That's $1 billion PPP project where we're the lead designer. So hopefully that these projects will continue at with the same pace they are now, and we could see the benefit in the third or fourth quarter of 2012.

Andrew Obin - BofA Merrill Lynch

And just a follow-up on Jamie's question. In terms of acquisition, I'm just wondering, and maybe I just didn't hear it. Given all the uncertainty in the market, do you find people are more willing sellers right now? And what exactly does the pipeline -- I mean I understand that bankers are swarming all over you, but bankers have been swarming all over this sector for a while, and we haven't seen a lot of very large deals. But what's the actual pipeline of deals that are executable looks like right now versus 6 months ago?

H. Hicks

Andrew, it's Tom. I think I've talked to you before about this. We have an inventory of, oh I don't know, a dozen to 2 dozen targets, we're always looking at. And that inventory has not gotten any shorter lately. We -- just to remind folks, we were able to consummate about $800 million or $900 million of topline revenue acquisitions in the last 12 months between after Scott Wilson and BP Barber. And that's a pretty good pace and we think we can maintain a pace like that going forward at least, a big -- given the inventory of targets we have. As you know, what happens with a lot of these targets is the timing has to be right. There has to be some catalyst of some sort, a retirement, a problem in the market, a cash flow issue, a growth incentive that they can't reach on their own. So all of these things have a different story. But I would tell you that we're optimistic. We are seeing opportunities at the same level we have in the past. It's not been a reduction in opportunities especially the mid- to larger-sized ones.

Operator

You're next question comes from Richard Paget with WJB Capital.

Richard Paget - WJB Capital Group, Inc.

Tom, you mentioned the velocity of the backlog has changed a little bit. Is that reflective of the federal business with the contracting mechanisms changing? Or are some of your other businesses perhaps on the commercial side with bigger proportion of MSAs coming into play? Is that impacting it as well?

H. Hicks

I think a little bit from the commercial side but it's on this entirely a federal phenomena right now, Richard.

Operator

You're final question comes from Andrew Wittmann of Robert W. Baird.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

First off, a technical question here. Did you disclose or can you disclose how much Apptis contributed to the backlog in this quarter?

H. Hicks

Yes, we can. It was about $128 million. $158 million? I'm sorry, my controller corrected me. $158 million.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

And then just kind of a third bite at this question but in a little it different way. It's sounds like with all the feed work that seems to be kind of a focus or a lot of what you're doing today, can you just talk about the level of contingencies that might be required for that step to move further along in the [indiscernible] cycle, if any. And then maybe these are phase that are directly correlated to work again. But can you just talk about that? And maybe in the context of the increased uncertainty that we've seen the last couple of weeks?

H. Hicks

Just to clarify, you're asking how sure are we that these feed projects will continue to full-scale development, is that your question?

Andrew Wittmann - Robert W. Baird & Co. Incorporated

Yes, that's a fair question.

H. Hicks

I'll let Bob Zaist respond to that. He's...

Robert Zaist

Yes, Andrew, I guess there's 2 -- actually there's 3 primary areas where we are focused on pre-feeds needs that affect larger projects further down the pipeline. One is in the power side particularly on the AQCS business as well as to a lesser degree, but nevertheless a level of participation on the gas-fired cogeneration plants. Second area is in the -- in an increasing area is on the mineral side. And the third area is on the oil and gas-related side. Now all of those clearly have pre-feeds and feeds that were involved with them. And I would say that a fairly high percentage of those crossover into a larger project. I don't know what the exact percentages off the top of my head, but nevertheless, the ones that we have been involved with, we've had a fairly high percentage that have rolled over into a major project.

Andrew Wittmann - Robert W. Baird & Co. Incorporated

But just in terms of, I guess funding for the size of these projects, can you give us a sense of the...

Robert Zaist

I mean, on the power side, many of those are driven by a consent decree or an EPA regulation that we talked about earlier. They have a high propensity to move towards completion. As you get on to the pure commercial side whether it be on the oil and gas side, or whether it be on the mineral side, they're a little bit more gated by the ultimate owner looking at what is the likelihood of that capital investment making the appropriate return hurdles. And so they have a little lower rate of success towards the end project.

Operator

Ladies and gentlemen, we have no further questions at this time. I would now like to turn the call back to Mr. Martin Koffel for any closing remarks.

Martin Koffel

Thanks, everyone for dialing in today. We're pleased with our results as you would have gathered and feeling good about the balance of this year and the future. The strategy is working well, the flexibility in the portfolio, picking up one market as another softens is excellent. It was a pleasure to be able to report at what I think is the start of the recovery in the industrial and commercial business. I think of it as a golden bear that has been hibernating, and it's coming out of -- and that golden bear is coming out of hibernation. I hope very much that he's very hungry. I thank you, and we look forward to reporting to you in November.

Operator

This concludes today's conference call. You may now disconnect.

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