Aecom (ACM) Q1 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the AECOM First Quarter 2013 Earnings Conference Call. I would like to inform all participants this call is being recorded at the request of AECOM. This broadcast is the copyrighted property of AECOM. Any rebroadcast of this information in whole or part without the prior written permission of AECOM is prohibited. As a reminder, AECOM is also simulcasting this presentation with slides at the Investors section at www.aecom.com. Later, we will conduct a question-and-answer session. I would now like to turn the call over to Lynn Antipas Tyson, Senior Vice President, Investor Relations.

Thank you, John. Good morning, everyone. I’d like to remind you that today’s discussion contains forward-looking statements based on the environment as we see it today and, as such, does include risks and uncertainties. As you know, our actual results might differ materially from those projected in those forward-looking statements. Please refer to our press release or Slide 2 of our earnings presentation and to our reports filed with the SEC for more information on the specific risk factors that could cause the actual results to differ materially. Note that we are using some non-GAAP financial measures as references in the presentation. The appropriate GAAP financial reconciliations are posted on our website. Please also note that unless otherwise mentioned, all growth percentages refer to year-over-year progress. Beginning today’s presentation is John Dionisio, Chairman and Chief Executive Officer. John?

Thank you, Lynn. Good morning, everyone, and thank you for calling in on today’s earnings call. Joining me for our presentation today are Mike Burke, President; and Steve Kadenacy, Chief Financial Officer; and for the Q&A portion of the call Jane Chmielinski, Chief Operating Officer will also be available. I want to start off by saying we enjoyed hosting those who attended our Analyst Meeting last December. Hopefully, you walked away with a better understanding of how we are investing to expand and enhance our capabilities and execute our strategic priorities. Our results this quarter support the three pillars we shared with you at that meeting. First, we are well-positioned to take advantage of the strong fundamentals we see in our global markets. In our first quarter, we achieved record backlog of $17.1 billion, up 8% driven by $2.7 billion in new wins in the quarter, which is an acceleration over the fourth quarter. Second, consistent with our disciplined and balanced capital allocation strategy, we believe one of the highest returning investments we can make is in our own company. As a result, our Board has authorized an additional $500 million in share repurchases, which brings the total amount of capital committed to repurchases to $1 billion over the last 18 months. And third, we are focused on improving profitability through cost containment, high productivity and enhanced execution. Despite the global macroeconomic headwinds, we started 2013 stronger than in the last few years and we are well-positioned to take advantage of the growth opportunities that exist. Now, I’ll turn it over to Steve.

Thanks, John. Last quarter we delivered strong growth in Asia, and Europe posted net service revenue growths for the first time in over two years aided by its renewed focus on large pursuits. Our energy, management support services and transportation markets also delivered solid growth. Operating margins increased in the Americas, Asia, Europe and the Middle East, supported by our global margin improvement initiatives. As expected in the quarter, we absorbed the effects of the industry-wide slowdown in mining in Australia, which I’ll detail for you in a few minutes. Other highlights for the quarter are as follows. Net service revenue was up 1% to $1.2 billion, while organic net service revenue, on a constant currency basis, was down 1.4%. Operating margins were down 126 basis points, however, excluding Australia, operating margins were flat. We delivered earnings per share of $0.36. In what is typically a seasonal low for us, we generated $54 million in free cash flow, which positions us well to generate free cash flow at least equal to net income this year, and we invested $173 million to repurchase 8 million shares. Before I turn to our segment results, let me spend a minute on Australia. As most of you know, in late 2012, there was an industry-wide slowdown in mining in Australia, which led to the deferral of major projects. And as we discussed when we reported our fourth-quarter earnings in November, we anticipated absorbing costs in our first quarter to swiftly right-size our business to adjust to these new realities. Our teams took aggressive action during the quarter and executed remediation plans, including reducing head count and consolidating office space. Due to these costs, PTS margins were down 112 basis points to 6.8%, which reflects the negative impact of $8 million of restructuring costs and…

Thanks, Steve. I’d like to discuss how we plan to deploy capital this year to drive profitable growth, enhance our competitiveness and improve returns over time. Our priorities are straightforward, first, organic investments, particularly those with our multinational clients and emerging geographies; second, share repurchase; and third, niche acquisitions. Starting with organic investments. As we shared with you at our Analyst Meeting last December, a key focus for us is to increase our penetration in 100 major private and multinational clients. These clients are increasingly looking for preferred multi-service global relationships with companies that can deliver integrated, standardized offerings, no matter the location. Corporate CapEx among these firms is expected to exceed $1.5 trillion annually. And through our diverse range of services, our addressable market is about 10% of this spend, which gives us plenty of headroom. No other pure design firm has our geographic footprint and service offerings, both of which position us well to capitalize on these opportunities. From an end market perspective, we’re focused on three markets where our multinational clients are making significant long-term investments; oil and gas, mining and industrial. We have distinct competitive advantages in these markets as we already provide services such as enabling infrastructure and core civil infrastructure, such as ports and roads, environmental services and construction services. To broaden our relationship with our multinational clients, we’ve invested in strategic key account leadership teams and technical thought leadership who are charged with driving incremental sales across all business lines and geographies. A prime example is that we’ve been selected to be the largest environmental remediation supplier globally for a super major in the oil and gas sector. By leveraging our key account team, we’re able to displace an incumbent, provide an industry leading solution and increase our global penetration. Next, we continue…

Thank you, Mike. Let me take you through a quick overview of how our three super geographies, namely the Americas, EMEA and APAC performed this quarter. Based on net service revenue, the Americas accounted for 49% of our business this quarter. We saw particular strength in our transportation, environment, power, energy and mining end markets. During the quarter, our wins increased 80%, the second consecutive quarter of a 50% or better increase in wins. In transportation, where we have invested in light rail expertise, we were appointed design engineer for Boston’s Green Line light rail service, the largest infrastructure project in Massachusetts. And we were recently awarded a $16 million contract for engineering design work for the Minneapolis Southwest Rail Transit line, which builds upon our existing client relationships on the Central Corridor Light Rail Project. In our facilities end market, for the second consecutive quarter, we saw an increase in new U.S. commercial construction, multi-residential high-rise and healthcare projects. In healthcare for example where we have invested in technical expertise, we were awarded three high profile projects in the New York Metropolitan area. Within power, energy and mining, we leveraged our strong Canadian and U.S. presence for the assignment as owner’s engineer on the $2.2 billion Champlain Hudson Power Express project. At completion, this project will bring 1,000 megawatts of clean power from Canada to New York City through underground and underwater transmission lines. Within the federal market, we continue to broaden our agency relationships, evidenced by our recent award of a $350 million IDIQ contract by United States AID to provide clean, energy technical assistance globally. As our PTS segment expands its footprint in relationships with non-U.S. governments, we are positioning MSS to provide additional services and support directly to emerging nations. Many of you have asked about…

Thank you. (Operator Instructions) And we have a question from Tahira Afzal from KeyBanc. Please go ahead. Tahira Afzal – KeyBanc Capital Markets: Good morning, gentlemen, and congratulations on a very strong quarter.

Great. Thank you very much. Tahira Afzal – KeyBanc Capital Markets: It seems that on the free cash flow outlook longer term, you seem to be incrementally a little more positive versus your earlier commentary at the Analyst Day. So, I guess, my only question really right now is if you could give us some more color on whether that is the case and really what the drivers are for that? Thanks.

Tahira, this is Steve, and thanks for the question. I don’t think we’re any more bullish on our cash flow than we were in December. We said in December that that $1 billion was a floor for what we expected from free cash flow over the five-year period. But if you model it out, and I did take you through some scenarios in December that varied our growth – varied our gross margin, varied our utilization and played with the cost savings initiatives that we have going on, and if you do run those scenarios, you find that you have increasing profit. And since we intend to convert net income to profit and we have confidence in that, you can get to numbers as high as $1.8 billion. So this clarification was just meant to be a little more specific on that. Tahira Afzal – KeyBanc Capital Markets: Got it. Okay. And could you give a little more color maybe on the U.S. construction market in general? It seems that even if I look at a front leading indicator such as the AB&I index and all, things do seem to be getting better. Any sort of other indicators that you have that you can talk about, that would be helpful? Thank you.

Yeah. This is John Dionisio, Tahira. We are cautiously optimistic about the construction industry in the United States. One key indicator is over the past two quarters, we’ve won approximately $2.1 billion worth of new work. Clearly, it’s long-term work, I mean it’s a little bit different than our PTS business, but it’s a really good indicator of where we are this year as compared to last year. Take an example. The New York construction spending is expected to reach, in 2013, $30 billion; that’s up 20% from the post-recession trough in 2010. In December of this past year, the industry private non-residential construction was up 6% year-over-year, and the 19th consecutive month of year-over-year growth. And looking at some of the successes we’ve had, I mentioned the $2 billion in wins, but also it’s in residential housing, commercial, it’s in healthcare, as well as education. So from where we stand, compared to where we were last year, we see it to be a significant improvement. Tahira Afzal – KeyBanc Capital Markets: Got it. Thank you very much and congratulations again.

Great. Thanks for calling in.

Our next question comes from John Mirshekari from Fidelity Investments. Please go ahead. John Mirshekari – Fidelity Investments: Good morning.

Morning, John. John Mirshekari – Fidelity Investments: Thank you for authorizing the additional $500 million of share repurchases, and thank you for your clarifying your five-year free cash flow target in a range of $1.3 billion to $1.8 billion, 55% higher than the target provided at your Analyst Day. I’m still trying to understand though why the range isn’t 100% higher, or $2 billion at the midpoint, with the range actually being $1.7 billion to $2.2 billion or $400 million higher than the revised target. The math is pretty straightforward. Your current cash net income of about $295 million, backing out the amortization on your income statement, multiplied by five years, in addition to the approximate $240 million of excess working capital that you expect to collect this year, produces just over $1.7 billion of free cash flow over the next five years, assuming no growth in the business. The balance scenario of 1% to 2% revenue growth should produce $2 billion of free cash flow over five years and the higher growth scenario of 5% revenue growth should produce $2.2 billion. You’ve stated that 12% EBITDA margins under the no-growth scenario through cost reductions are possible and through revenue growth under the high-growth scenario. Could you clarify which of these assumptions are incorrect?

Well, John, hard to follow every number that you threw out there. But without giving net income guidance, we do get on flat growth something far less than the $1.7 billion that you threw out. But when we run higher growth scenarios, we deploy cash for that growth. So, if you get into significantly higher growth, you won’t convert 100% of net income, but in moderate growth scenarios, we believe we will. And then, we look at every 1% of gross margin gets us $50 million of income; every 100 basis points of utilization gets us $50 million; our savings just real estate and procurement could get us $50 million. You run different scenarios plus you add some DSO reduction, gets you into the higher end of that range. I think we can probably some time trying to reconcile your low end to get you to $1.7 billion, but our math gets us something lower there. John Mirshekari – Fidelity Investments: Well, under no-growth scenario, there shouldn’t be any growth CapEx required. If anything, it should be below D&A since you’re consolidating some operations. And the math is sort of $300 million or just shy of that, plus $240 million of working capital, that gets you to $1.7 billion under no growth?

Yeah, and then – and we model getting – you’re modeling getting some of these upsides on margin that we’re working towards and that gets us up into the ranges you’re talking about. John Mirshekari – Fidelity Investments: Right, and so your $1.3 billion would not include margin expansion, which you expect?

That would be correct. John Mirshekari – Fidelity Investments: Okay. And as a follow-up, you said that at least 50% of free cash flow over the next two years will be directed towards share repurchases. We calculate that $840 million of free cash flow should be generated over the next two years, assuming no growth, which is 30% of your market cap even after today’s move. My question is how much more than 50% of your free cash flow could be directed towards share repurchases?

John, it’s Mike, I’ll take that question. Listen, it’s difficult for us to commit specifically to a buyback number with specificity that you’re looking for over the next two-year period. And the reason for that is there’s other variables that we take into account, to deploy our cash. We have strategic acquisitions that we look at from time to time; we have organic investments that we continue to make every day. And so we weigh all of those options. As you heard me say earlier, every decision we make, we’re weighing it between organic investments, M&A and stock buybacks. And so if we’re weighing those opportunities and stock buybacks continue to represent a better opportunity than anything else available to us, then we would exceed that 50% number that I mentioned. So it’s going to depend on the opportunities that are put in front of us or that we identify over that two year period of time that will have the greatest influence on whether we hit that 50% target or we exceed it significantly. John Mirshekari – Fidelity Investments: Makes perfect sense. I guess I was asking, in theory, if the stock buyback remained more attractive than other options. If the stock remains as well as it is, in theory, what would be the upper limit of the buybacks as a percentage of your free cash flow?

John, I’m not comfortable responding in theory, but if there are no other available options for us and our stock remains low, in theory, it would be significantly more than that. John Mirshekari – Fidelity Investments: Okay.

I think the theory is, if it is the best opportunity of everything in front of us, there’s no reason why we wouldn’t invest all of our capital in that, if it’s the best opportunity. I just can’t hypothecate on the opportunities two years down the road. John Mirshekari – Fidelity Investments: That’s an interesting idea, because if you do direct all of it towards share repurchases, the earnings accretion generates cash earnings close to $5 and your stock is probably around $60 in that scenario.

Yeah, I think that math works, John. We’ve done probably the same models that you’ve done to plug in assumptions that achieve that. John Mirshekari – Fidelity Investments: Thank you very much.

Thank you, John.

Our next question comes from Steven Fisher from UBS. Please go ahead. Steven Fisher – UBS: Hi, good morning.

Morning, Steve.

Morning.

Morning. Steven Fisher – UBS: So, just on the factoring in the quarter, should we think about this as the highest you were due in the year, because it should seasonally be your weakest quarter for cash flow? And so I just want to smooth things out, you might have less reason for factoring as the year goes on. Is that the way to think about it?

Well, I would say that we are going to sell more receivables in the first half of the year. We tend to burn cash in the first quarter. As you can see, we actually generated cash, and we would prefer to smooth our cash flow throughout the year. So I think that’s probably right, but I wouldn’t rule out in strategic situations where we want to take on a project that has significant milestone payments where we might still sell receivables in later quarters. Steven Fisher – UBS: Okay. And then, Steve, how are you thinking about that 80-day DSO target now? I think earlier in the – a quarter ago, it was characterized as more of a stretched goal, but a little tougher. How are you thinking about that now?

It’s an aggressive goal, but DSOs are a tough thing to forecast on a quarter-by-quarter basis. But the underlying fundamentals of our DSOs are quite strong. MSS came down 48 days. PTS had a few anomalies in it because of the Australian slowdown. Our revenue was down, which impacts the days in the wrong way. But if you look at the underlying DSO in PTS, there was a significant decline there, although it won’t look that way on the financial statements. But overall, we picked up a day year-over-year, even though we had a slowdown in Australia that impacted us. So I’m very – I think we are very, very positive on that 80-day target. And we still think it’s aggressive, but we think we can achieve it by the end of the year. Steven Fisher – UBS: Okay. And then, it seemed like one of things that’s sort of weighing on growth is the progress of awarded backlog being converted. And so I guess, can you talk about what’s really holding up that progress? Where in the business is it? What types of end markets and what would be the most likely factor to change that or improve that situation?

Well, we – this is something that we’ve been experiencing now, probably for the last 12 months, 18 months. We see a continued sluggishness in the conversion of our awarded backlog to contracted backlog, especially here in the United States, on some of the major transit programs that we have. Also, one of the things that I mentioned previously regarding the construction business is that the conversion of wins into backlog takes longer, and the projects are of longer duration. So the combination of the sluggishness on the transportation business, as well as the longer tail on our construction services business is a fact that we must consider in terms of how we forecast the future. We’re not seeing that – I mean we’re seeing a more robust conversion in say the Middle East. We’re optimistic about the improvements in Europe. I mean it’s the first time that we can say anything optimistic about Europe over the past 24 to 36 months. And in Asia, it is moving along as they had, but the one thing, which we pointed out in the discussion is Australia. Australia, we saw a slowdown coming. We mentioned that in our last earnings call, with the mining business really softening up. And the mining business, when they slow up, they don’t gradually slow up; it’s like turning a light off. But the good news is we’ve taken most of the cost out and the costs are represented in the first quarter’s result. So going forward, the Australian utilization will increase and they will return to profitability as they had in the past. I hope that answers your question regarding the backlog, as well as how we see the other areas (inaudible) coming through. Steven Fisher – UBS: Yeah, that’s helpful. Thank you.

Okay.

Our next question comes from John Rogers from D. A. Davidson. Please go ahead. John Rogers – DA Davidson: Hi, good morning.

Hi, John. John Rogers – DA Davidson: I guess maybe for John or anybody. The margins that you’re seeing in the backlog right now, are they notably different than what’s flowing through the income statement? In other words, is pricing getting better? And how are you set up relative to some of the concerns we hear about higher engineering costs or labor costs and your multipliers and things like that as we think about this cycle?

John, I’ll take that question. The margins are slightly up when you’re looking at the big picture. But as far as labor costs, we are not seeing a dramatic increase in labor costs. I think some of those stories that you’re hearing are more related to the oil and gas sector than they are to the markets in which we participate. So our labor costs are moving at normal cost of living rates and we’re not seeing a real cost constraint there. So, as a result, our margins are moving up, primarily due to all the cost saving opportunities that Steve identified earlier. John Rogers – DA Davidson: Okay. And, Mike, in terms of how you’re hedged or I mean if we do see changes in cost structure, is that a significant risk? Specially, I’m thinking more as we get into late this calendar year in 2013.

So, look, obviously, the single biggest cost on our P&L is labor although we do not expect to see any dramatic increases there. Remember that the majority of our revenue is earned through cost-plus contracts. And so, generally, we’re pushing the costs through with a markup. And so increased labor costs generally over time works to our favor. Now, of course, if there were some precipitous increase in labor costs and you couldn’t push it through the contracts fast enough, that would be an issue, but we have not experienced that in the past. So, generally, we would welcome increased labor costs because of the cost-plus nature of our contracts, but, more importantly, if there’s an increase in labor cost, it’s probably due to the market heating up and growing faster than it is today. So we would actually welcome that issue.

And, John, if I just may add to what... John Rogers – DA Davidson: Sure.

Mike said and I think he described it perfectly. The other area is those places where we have fixed price contracts, okay, what we’ve done to protect ourselves against increased cost where maybe the project total value might not increase is the fact that we’ve created design centers in Spain and in India where we do transportation work in Spain and facilities work in India. And we’re able to by shifting work to those two design centers maintain our margins and support our profitability. So the combination of the design reimbursable and fixed price, we’ve tried to take it – we try to organize ourselves so we could be very competitive in both. John Rogers – DA Davidson: Okay. And if I could just go back to the buyback question one more time. As we think about the rest of fiscal 2013 and given the stepped up activity in the first quarter, is it reasonable to think about it as sort of the midpoint of possibilities as you spend half your remaining cash flow on buybacks, assuming the stock stays in this range and there’s no great acquisition opportunities?

John, I don’t think we would want to give too much specific guidance on how much we’re going to buy by quarter on that so. John Rogers – DA Davidson: No, I know, but over the next 12 months, is 50%, I mean you’ve said it over the next two years, but...

Yeah, I’m not prepared to give that degree of specificity just yet. John Rogers – DA Davidson: Okay.

But we will be updating you every quarter on the amount of shares that we buy back. John Rogers – DA Davidson: Okay and how many shares are outstanding right now? I mean I know we’re going to get the Q later, but...

102 million at the end of the quarter. John Rogers – DA Davidson: Okay, great. Thank you very much.

Our next question comes from Andrew Wittmann from Robert W Baird. Please go ahead. Andy Wittmann – Robert W Baird: Hey, guys.

Hi, Andy. Andy Wittmann – Robert W Baird: Maybe a question starting out for Steve or Mike. Just kind of on the quarter a little bit. I think previously you talked about the first quarter representing about 12% of the year’s earnings, came in, clearly above that. Can you just talk about how to think about maybe the second quarter or the seasonality now that you’re looking at, particularly as it relates to some of the costs that you experienced in the first and maybe even in the second quarter in Australia?

Sure. The real, the largest impact on Q1 was our overall yearly look or profit forecast for Australia, which is about what we had expected when we updated you in Q4. But the spread of that was a little bit different; a little more profitable than we expected in Q1, and a little less profitable in Q2, but we still see a significant ramp up in Q2. We’re not giving quarterly guidance, but we do expect that uptick significantly. The other thing, there was some tailwind on the tax rate, it was more of a shift of income to our foreign where we have lower tax rate. Those were the two biggest line items. Andy Wittmann – Robert W Baird: Okay. So as we look kind of at the balance between the two segments for the year, I think previously you’re suggesting that the MSS business would be sharply up. Now you’ve kind of quantified that to be double. Certainly, that was a little bit above where we were thinking about things, given the guidance is kind of unchanged. Is it fair to say that maybe today versus when you gave guidance originally, that MSS was maybe a little bit stronger and maybe PTS is a little bit softer?

Well, certainly MSS is very healthy. We have a more accurate view of what that full year looks like, barring anything significantly changing on the political environment. And we said that we expect that to at least double. And PTS is, I think, about where we expected it.

Yeah, but that – PTS going forward is stronger, much stronger than it was this time last year, just by the amount of wins we have and if we look at the pipeline. And the fact that last year at this time, we still had ahead of us some issues that we had in the Americas as well as in the Middle East, which we’re not facing this year. Again, we have Australia, but I think we’ve taken out, if not all, most of the cost associated with the shortfall in terms of severance pay, in terms of consolidating offices. Andy Wittmann – Robert W Baird: Got it. So then, just kind of building on that, as you kind of look forward, obviously, good wins in this quarter, but is the level of activity that you’ve got bids outstanding for, is it your view that there’s more to come on the backlog or are burn rates going to maybe accelerate a little bit that could make sequential backlog growth a little bit more challenging as you thought for this year?

I mean, we’ve already – I mean, we’re one month into the second quarter, okay. And the activity hasn’t slowed down. There’s significant amount of opportunities out there, which we’re focusing in on, and one of the things we haven’t mentioned in this call, because we’re just really starting to put forth the significant organic investment in that is on the oil and gas side of the business where we see significant opportunities for us in a market, which has not been one of our stronger markets. Historically, it’s been transportation, environment and facilities, but now utilizing the expertise we have on the infrastructural side, working with the oil and gas companies, we see a very, very significant market for us going forward. Andy Wittmann – Robert W Baird: Got it, thanks. And if you’ll, for me, one last question, one to just kind of dig in on the utilization rates. This was you guys talked about on the Analyst Day, about the improvement that you’ve seen over the last three years. Can you just talk about kind of how the year-over-year utilization rates in the quarter compared, and maybe how they’re trending sequentially and what your kind of view is here as we go throughout the year?

Yeah. We’re trending upwards. I think we had 90 basis point increase in utilization in the quarter, something we’re very focused on. Much of that had to do with the downsizing that we went through last year to match the operation to the revenue opportunities that we’re seeing in the market. So it continues to be something we’re focused on. Of course, we were weighed down a bit by what was happening in Australia as we downsized that business significantly. But overall, we see the trends going in the right direction, and I would expect them to continue to improve when that downsizing is complete in Australia. Andy Wittmann – Robert W Baird: Thanks.

Our next question comes from Andy Kaplowitz from Barclays. Please go ahead. Mark Mihallo – Barclays: Good morning, guys. It’s actually Mark Mihallo on for Andy this morning. Thanks for taking my questions.

Morning, Mark. Mark Mihallo – Barclays: Just a follow-up on the discussion of margin. So you’re talking about how JV income impacted MSS margin in the quarter, but you still expect MSS op income to double in 2013 versus 2012. So when should we expect the op income or the margin in that segment to improve in the year? Should we think may be a light pickup in 2Q or do you think it’s more significantly backend loaded?

We are expecting it to pick up significantly in Q2 through Q4. Mark Mihallo – Barclays: Okay.

That business has, as you know, obviously, a number of significant large contracts. And so you get a little lumpy sometimes as you’re closing the contract out from quarter-to-quarter, but we’ve got pretty good visibility on that business and as I mentioned, as Steve mentioned, we expect our income to double in that sector in FY 2013 over FY 2012. Mark Mihallo – Barclays: Okay, that’s helpful. And a more general question then. So, now that you’re through your first quarter, what do you think has been the biggest positive surprise in terms of end market or geography versus I guess what you expected at the Analyst Day or at the end of fiscal 2012? Is it Europe or any other type of geography or end market?

The biggest surprise, positive or negative? Mark Mihallo – Barclays: Positive. And negative as well if you’d like.

Look, we already talked about Australia. No, a positive surprise, you’re seeing growth coming back to Europe. So Europe and Middle East are starting to grow again. And we were cautious on Europe, as you know, we incurred a lot of cost to restructure and right-size that business. And we’re delighted to see growth coming back to not just Europe, but the EMEA region as a whole. So that’s been a positive surprise for us.

Yeah. And also, I think, us folks living here in the United States, we read about the U.S. economy and the sluggishness of it and we just went through the election cycle, but we were surprised that the pipeline and how robust it was and the fact that the wins for us in the first quarter exceeded last year’s wins at this time. So, despite what some of the things you read in the papers and the macroeconomics that you hear about, when you look at individual areas where people are investing, there is a good story to be told. Mark Mihallo – Barclays: All right. Helpful, guys. Thanks very much for the color.

Your next question comes from Adam Thalhimer from BB&T Capital Markets. Please go ahead. Adam Thalhimer – BB&T Capital Markets: Hey, good morning, guys.

Morning, Adam. Adam Thalhimer – BB&T Capital Markets: I wanted to ask one more question on the MSS segment. So, thinking about operating income doubling, is the right way to think about it revenue up a little bit, equity and earnings of JVs comes back, but then the real earnings power is in the operating margin?

First of all, we do not expect the jump to be in the equity earnings JV line, not just to – nothing to read into that other than it’s the structure of our contracts, either we’re fully performing as the prime or we’re partnered with somebody else. So I wouldn’t read anything into that, but you shouldn’t be building a model that increases or sees the numbers coming back on the equity in JV line, but what you will see is the gross profit line coming back significantly with a dramatic improvement in the operating income margins. Adam Thalhimer – BB&T Capital Markets: Okay, because the revenue line, I guess – I mean back – well, contracted backlog or both awarded and contracted backlog are down, so I just wonder at some point do you see revenue declines year-over-year in that segment?

No. I’m glad you raised that question because it’s a good point and one thing that you need to be mindful of on the revenue side there is that you have IDIQ contracts in that space. And so, if you look at the quarter, you would see the wins were not as significant in the MSS as that would support a doubling of profit. But we did win the participation in a $23 billion IDIQ contract, the Army EAGLE logistics program, and the way that works, as we’ve said in the past, when we win the participation or qualify to participate in an IDIQ contract, we do not book that backlog until we win the specific task order. So, by virtue of winning the participation in that, we have some pretty good estimates on what our share will be of that IDIQ contract that you don’t see in the backlog yet. Adam Thalhimer – BB&T Capital Markets: Got it, okay, very helpful. And then lastly, I just wanted to ask about the outlook for acquisitions and a lot of focus has been on the share repurchases, but I mean why not more acquisitions? Is it more of an issue of where the multiples are, because you do have certain end markets where you want to grow, so I’m kind of curious why not a little bit more on the acquisition front?

Yeah, well, we did complete three acquisitions last quarter. As you know, we completed the BKS acquisition that I mentioned earlier in South Africa, giving us a real nice platform to take advantage of that emerging market. We did the KPK acquisition in Southeast Asia where we already have a strong presence, but this rounds out our service offering in that fast-growing region. And then, we bought the construction capabilities in Eastern Europe from Lend Lease, giving us more resources in the fast-growing Eastern European construction market. So we continue to look at acquisitions that meet our strategic objectives of either giving us a platform and a geography that’s important to us that we want to build off of, or giving us a niche expertise that we can drive through the rest of our platforms. So we continue to focus on that, but as I said earlier, we look at three different investment opportunities every day of the week; it’s either organic investments, niche acquisitions or buybacks. And we have been more focused on buybacks recently because the ROI was really good for us. And if there’s ever a crossover point where acquisitions look much better than that, then we would consider them, but we continue to focus on strategic acquisitions as we always have. Adam Thalhimer – BB&T Capital Markets: Got it, okay. Thanks very much.

Okay, thank you.

Our last question comes from Chase Jacobson from William Blair. Please go ahead. Chase Jacobson – William Blair: Yeah. Thanks for taking my call. So you’ve been talking about a little bit slower backlog conversion in the public markets, I think for the last few quarters, and now, you’re seeing it in some of the construction markets, given the nature of the projects, but at the end the day, the backlog is still growing. And it sounds like you expect it to continue to grow. So when do we get to a point where there’s enough work in the backlog, where we can see organic revenue growth turn positive again?

Well, let me just clarify one thing. I said in the public markets, the backlog, it takes longer to convert from awarded to contracted. What I wanted to say in terms of the construction, with the wins we have in the construction services business, it’s just a longer tail, it’s not the conversion, it’s how the projects develop. You start with a small piece of work to get – and then it takes maybe 12 months before you get into ramping up on your new services. So it’s two different things, Chase. But we feel that by the end of – in this fiscal year, we will be seeing the organic growth being positive. Chase Jacobson – William Blair: Okay. And then I think in the past, you’ve talked about targeting acquisitions in the five to seven times EBITDA range. Is that still the target and maybe just comment on what you’re seeing in terms of valuations for acquisitions out there? And I apologize if I missed that.

Yeah, sure. Yeah, that’s still a good range to think about, and the boundaries of that range are really driven by the growth prospects. In core infrastructure markets, it’s on the lower end of that. In emerging markets and oil and gas sector, it might be on the higher end of that. And that’s generally what we’re seeing in the marketplace. Chase Jacobson – William Blair: All right. Thanks a lot.

Okay. Thank you.

We have no further questions at this time.

Okay, operator. Thank you. Before we end the call, I wanted to leave you all with a few thoughts. One, we ended this first quarter of 2013 as a stronger company, evidenced by our improvement in growth, profitability and liquidity. I have to say, this could not have been done without the commitment and dedication of all of our team members around the world. Second, we’re prepared to be successful in a challenging global macroeconomic environment. We are focused on cost, productivity and providing our clients with the best possible solutions. And third, we have a clear long-term roadmap for driving improved returns, and we look forward to updating you on our progress in the next quarter. So, with that, I would like to end the call. Again, thank everyone for taking the time to dial in and ask questions you have. And so, I look forward to seeing you in three months, or listening to you in three months. Take care.

Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.