Good morning and welcome to the AECOM Third Quarter 2020 Conference Call. I would like to inform all participants, this call is being recorded at the request of AECOM. This broadcast is a 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 ww.aecom.com. Later, we will conduct a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Will Gabrielski, Senior Vice President, Investor Relations. Please go ahead.

Thank you, operator. I would like to direct your attention to the Safe Harbor statement on page 1 of today’s presentation. Today’s discussion contains Forward-looking statements about future business and financial expectations including expected and potential impact for the COVID-19 pandemic. Actual results may differ significantly from those projected in today’s forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law we undertake no obligation to update our forward-looking statements. We are using non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation where available, which is posted on our website. As a reminder, we sold the Management Services business earlier this year and intend to exit our remaining at-risk, self-perform construction businesses. As a result, these businesses are classified as discontinued operations in our financial statements. Today’s comments will focus on continuing operations unless otherwise noted. Today’s references to adjusted operating margin reflect segment level performance for the Americas and International segments. We will also refer to net service revenue or NSR, which is defined as revenue excluding subcontractor and other direct costs. Our discussion of margins will be on an NSR basis unless otherwise noted. Beginning today’s call is Mike Burke. Mike?

Thank you, Will. And thanks to all of you for joining us today. I’m joined by Troy Rudd, our Chief Financial Officer, and as we announced in June, our incoming CEO; Lara Poloni, Chief Executive of our EMEA business and incoming President; and Randy Wotring, our Chief Operating Officer. I’ll begin today’s discussion with a high-level summary of our results. Troy and Lara will then review our performance and outlook in greater detail before turning the call over for a question-and-answer session. I’m proud of our people and very pleased with our Q3 FY 2020 results. For seventh consecutive quarter, we delivered double-digit growth in EBITDA, while hitting our free cash flow targets, continuing to win great new work, growing backlog and advancing our transformation into our industry’s premier professional services firm. For the third quarter, we delivered adjusted EBITDA of $187 million, which is an increase of 18% over the prior year and above our expectations for the quarter. The benefits of our ongoing initiatives to expand margins contributed to this outcome. The segment adjusted operating margin was 13.2%, an increase of 250 basis points over the prior year, setting a new quarterly record for the Professional Services business. With $3.1 billion in new project wins during the quarter, our backlog increased by 16% over the prior year and remains near a record. We have more than three years of revenue in backlog and record contracted backlog. This visibility provides us with many strengths to outperform, including the ability to maintain a strong workforce and provide more certainty for our teams, which includes the best and brightest minds in our industry. Troy, Lara, Randy and I all share pride in incredible efforts our employees are making each day to address our clients’ needs. Their efforts continue to make the…

Thanks, Mike. I plan to get into additional detail about our financial performance and discuss our strategy. But before I begin, I want to offer a huge thank you to Mike. Under Mike’s leadership, AECOM has experienced phenomenal growth and transformed the company into a market leader whose innovation, technology and infrastructure solutions are unrivaled in our industry. He’s inspired countless professionals, including me with his vision and strategic focus. He’s been unwavering in his commitment to shareholders, as well as to our employees and our clients around the world who rely on our counsel, ideas and infrastructure. Personally, Mike has been a strong thought partner, someone I have always been able to count on for whom that I’ll be a much better CEO for having the honor of working with Mike these past six years. We’ve been asked, what defines a great professional services business? My answer is always the same. It’s the strength of the people within the organization enabled and empowered by leadership to succeed in the marketplace that defines a great professional services business, my viewpoint of the firm of my more than 11 years of experience at AECOM and having spent my entire career at professional services organizations. AECOM is a great Professional Services business with a limitless future. As my role in the organization expands, including Lara Poloni in the role of President and the rest of the executive team, we will continue to enable and empower the most talented workforce in the industry to reach our full potential. Today, AECOM is a critical partner to the world’s largest governments, companies and organizations who are leading change in urbanization networks, and transforming our environment and water infrastructure and keeping it safe. It bears emphasizing, we’re consistently ranked the number one transportation and facility design…

Thank you, Troy. Please turn to the next slide. For the quarter, organic NSR declined by 3%. Declines in the UK and Middle East along with stable trends in Hong Kong were partially offset by continued growth in Australia. The turnaround of our International margins continued to progress. Our adjusted operating margin in the third quarter was 5.7%, a 50 basis-point increase over the prior year. Year-to-date, the adjusted operating margin has increased by 170 basis points, which is a particularly strong achievement considering the 2% decline in organic NSR over the same period. When I assumed responsibility for the EMEA region, the opportunity to improve margins was apparent. As a result, we conducted a comprehensive analysis of our overhead cost structure and the return profile of the business in each of our markets. This analysis resulted in actions to consolidate our real estate portfolio in the regions reductions to our G&A to eliminate unnecessary costs and increase efficiencies, and our ongoing exits of more than 30 countries. To that end, our performance this year inspired confidence in our trajectory. We have driven $16 million of year-to-date G&A savings in the International segment, and we have focused the business on our best growth opportunities. Our actions position us well to benefit as markets recover. And our recent large wins across the region have resulted in market share gains. Backlog is highlighted by 6% growth in the EMEA region. We have made investments over the past several years to ensure we are well-positioned on engineering work in the Middle East and we have reestablished our leadership position in the UK where we have successfully won positions on more than 250 frameworks, positioning us well for future growth, including most recently securing a leading position on the £500 million four-year services framework…

Thanks, Lara. Please turn to the next slide. Turning to cash flow, liquidity and capital allocation. Our financial position is strong with a low-risk business model, strong balance sheet and a highly cash-generative business. Operating cash flow in the quarter was $186 million and free cash flow was $272 million. This performance was consistent with our expectations and was highlighted by strong collections across the enterprise. We also successfully collected $122 million as a result of the previously announced favorable net working capital true-up related to the sale of the Management Services business. As a reminder, the MS cash flow during the first four months of the fiscal year was well-below the contribution we expected in our initial guidance. This was a timing-only difference. Accordingly, we collected the working capital in the third quarter with no material impact to our results for the full year. Debt declined compared to the second quarter, and our gross leverage ratio declined from 3.1 times to 2.8 times, further improving our financial flexibility. I’m also pleased to report that we are continuing to take actions that strengthen our balance sheet and liquidity. On July 31st, we issued a notice of redemption to our holders of our 5% 2022 notes. The redemption will be funded by the proceeds under our existing lower cost, delayed draw term loan facility that we put in place last quarter. Importantly, as a result of this transaction, the annual cash interest expense will be approximately $6 million lower. Going forward, we will target gross leverage of below 3 times, which we believe will provide us with the best capital structure to operate the business and to execute on our capital allocation priorities. After investing in our people and innovation, our priority remains deploying substantially all available free cash flow to…

[Operator Instructions] Your first question comes from Sean Eastman with KeyBanc Capital Markets. Your line is open.

Hi, team. Lara, Troy, congratulations on the promotions. And Mike, all the best on your next endeavors, leaving on a high note here this quarter. I just wanted to start on the state and local budget element, and you called it out in your prepared remarks. Troy, could you just level set with us on just how we should be thinking about the magnitude of the potential swing there to the extent global stimulus measures are delayed, whether in the U.S. or internationally? I mean, where is the exposure, where is the concern and how big of a swing could that be on AECOM’s fiscal ‘21 revenue trajectory in your view?

Yes. Sean, first of all, thank you for the well wishes. With respect to our state and local budgets, it does represent about a quarter of the work that we do, or a quarter of the revenue that we have in our overall Professional Services portfolio. There certainly is an element of that has been impacted by the shortfalls as a result of COVID. But, on the other hand, we are seeing again user fees starting to increase as people return to work and return to traveling. We also have a significant amount of optimism around what the Federal government will do to support transportation expenditures and in particular state and local governments. In particular, FAST Act, it will expire in September. But, I think it’s been decades before that transportation funding has gone without being replaced. So, we certainly have confidence that something will be done to support those transportation budgets and transportation expenditures in ‘21. And in terms of state and local budgets, again, we have some optimism around what will get done, from either political party. But then more importantly, from our perspective, there are things that we can control. And I think, the things that are within our control that we’ve proven over the last number of quarters, we can manage our way through turbulent times, times when perhaps there is funding shortfalls within certain budgets. So, well, we certainly don’t have a line of sight to what the outcome will look like, but we certainly do have confidence in our ability to manage through it. And then, the other important part is we have a great platform and great professionals that allow us to win work. And from based on what we’ve seen in the third quarter, we believe we’ve taken market share in the area of transportation and water. So, we’ve got great professionals in the marketplace. We are winning work and replacing the work that we’ve been delivering. And even though there is uncertainty in state and local budgets, we have confidence in our ability to manage our way through it, based on our most recent experiences.

Great. That’s helpful. And maybe just from a strategic direction perspective for you, Troy, as you take the big seat, a lot of sort of announcements on digital innovation, new tools, is that the primary focus for you here in the immediate term? And maybe you could just detail for us, some of the early wins on digital that you can build on here. That would be helpful.

Yes, certainly. Again, I think, if you sort of step back and look at the impact of pandemic, while it’s been a lot of work and difficult to manage through the environment that we’re in, it’s accelerated a lot of things that we’ve done to work together and to work with our clients. And a number of those things are based around what we’re referring to as digital. So, we have been investing in allowing ourselves to have the tools to work together and with our clients in a digital environment. At the same time, we’ve been investing in some of the tools that allow us to work with our clients and to continue with our clients to do the work. So, a great example of that is, we’ve developed software, so we have virtual consultation with our clients. We’ve put that in place, and we’ve been using that for a number of our clients. The most recent experience that I can talk about is work we’ve done with Roche in Ireland, and it’s been entirely successful. We also have been working on a digital environmental impact assessment tool. And at the moment, we’re piloting that. It’s the first ever IAS process that we’re working with on the Corps of Engineers. It is certainly light years ahead of anything else that’s in the marketplace. And it’s available internally. So, we’re starting to use that with clients to accelerate the permitting process. And we will be bringing that to public and we expect it to be used as a tool by government agencies in the future. Those are some of the things that we’re working on. But maybe just in terms of our overall thesis as we continue, I’ll let Lara contribute some of that, as well. So, Lara, if you have something you want to add?

Yes. Thank you, Troy. And thank you for the good wishes also, Sean. So, I think, we’re very strongly positioned with the development of our digital tools. And just to further expand on Troy’s point, particularly in our transportation markets, where we have a lot of optimism about a an infrastructural web recovery, our teams around the world have done some great work. And a recent example of that would be the launch of the TRIPS tool, which is Transportation Resilient Integrated Passenger Solution. Obviously, a lot of uncertainty of commuters’ return to public transit in particular. So, this is a new technology platform that gives real time information to commuters and other alerts. So, it’s very timely that we’re bringing that to market and we’ve brought that to bear on one of our projects in the Greater New York region. And as Troy said, very strongly positioned in the environment business. So, we’re clave market leader. And also, we have just ongoing development of our digital libraries in our Buildings & Places segment, which is the other big part of our business around the world. So, I think all these tools will provide continued sort of separation and differentiation for us. And it’s an area that we’re going to continue to develop with main business, as well as scaling up even in our global design centers as a key priority for building up that knowhow throughout our business. So, I think, it’s a very important element of our strategy.

Your next question comes from Michael Dudas with Vertical Research. Your line is open.

Given your perspective, as you’re involved with major cities, state, local, port authority, transit, San Francisco, LA, a lot of stuff going on, obviously COVID related. How are you seeing business in activity to date? It seems like you’ve managed it very well. But certainly, the funding pressures, which may or may not come from Washington, and some of the caution that might be put forth amongst the governments running these cities, do you sense that there’s a normalization that will occur here through this or there will be some changes where it might -- maybe need to adjust a little bit, adapt to certain different areas to attack your services on the government side here in the states?

Yes. So, Mike, I think -- again, I think, it’s difficult for us to provide those kinds of prognostications. I think, what we can say is that our people are constantly working with our clients in metropolitan areas globally. And we’re working with them to adapt to the environment, which is ever-changing. And as you look around the world -- and we don’t want to point out that -- there certainly are some areas around the world where maybe there are some funding shortfalls, and there’s some uncertainty in that respect, but there are a lot of places where we’re seeing government support the infrastructure investment with stimulus. So, we are seeing that in places like Canada and Australia and Hong Kong. We’re seeing a discussion of an investment and stimulus being made in the UK, which would support that market. And then again, in the long run, I think, we have optimism around not just short term stimulus, but some long-term stimulus here in the United States to ultimately help support the required investment infrastructure, but also to help just getting people back to work in the medium term. So again, I couldn’t comment on the changes in cities other than to say that we’re working with our clients and reacting to that. And our professionals and leaders are out doing that and that when you kind of look at the overall portfolio, we do have a lot of optimism about continued long-term investment in infrastructure. And, in our private sector markets, while we’ve certainly seen an environment as some of the awards and bookings being delayed, we see that just being delayed. So, effectively pushing network out to the right. And in our construction management business again, our backlog gives us good long-term visibility into the future. And we still are seeing a pipeline of opportunities in that business. So, overall, I have a sense of optimism. The short term, it’s difficult for us to make any concrete predictions.

Sure. Those are very fair remarks and I appreciate those. My follow-up would be, maybe terrific progress on the margin front, especially in the Americas, and your international and American and U.S. design business. May you could remind us some of the ways that -- some of the methods you’ve had to increase that business? And, I’m assuming you’ve increased your global design center. You said, it’s been helpful to contribute some of the margin improvement. And again, your long-term goals appeared from your remarks in the press releases, those are achievable, maybe a little more comfort level on that front.

Sure. Yes, absolutely. The headline there is we are absolutely confident in our continued ability to improve margins beyond where they are, again, certainly, as we move forward to short term and the longer term. I’ll make a comment just about the North American markets. And then, I’ll turn it over to Lara to make some comments about the international markets. But, here in North America, again, it’s been a combination of things, continued improved use of design centers, focus on streamlining the operating structure and using our global business service center. Even though, we’ve had a lot of that work move to and continue to be moved to Manila, we’ve been able to operate even in a remote environment and to continue to move those opportunities overseas. And then, the last point is obviously our real estate footprint. And as we’ve changed the organization, we set out at the beginning of the year to undertake an important real estate restructuring, which we’ve been proceeding with and we will complete that by the end of the year. So, Lara, I’ll turn it over to you.

Yes. And thanks for the question, Mike. So, we are absolutely focused on international margin improvement. And I think, we’re making good progress there. So, as we said earlier, year-to-date margins have increased by 170 basis points. We reduced SG&A by $16 million year-to-date, which is ahead of our plan for SG&A. And I think it’s important to note and we’ve achieved that in spite -- or despite the substantial revenue headwinds that we’ve experienced, particularly in the larger parts of our international business, like the UK and the Middle East. And we also see opportunity to get to double-digit margin performance over the next few years. So, just to add a bit more color to your question about how are we going to do it, what are some of the specifics there. So, I think first, continuing to focus on the simplification and focus within our portfolio, so focusing on those parts of the international business that continue to offer us the highest return on investment, and amplifying that focus. So I think testament to that in recent times has certainly been the execution of -- the exit of -- from 30 countries in our European portfolio, very important to have achieved that. Second, I think, we will continue to look in a very-focused manner at means of reducing our overhead or redundant or unproductive costs within our business. And I think, we can’t look ahead at the workplace of the future offers us potential to do that in terms of our real estate portfolio in particular. And then, I think -- and you touched on this, Mike, obviously the GBS continues to be a central element of our margin improvement strategy. So, just this year, we stepped up the volume by 30% and we have even more ambitious…

Your next question comes from Andy Kaplowitz with Citi. Your line is open.

Troy, you mentioned -- just following up on a couple of those questions -- Troy, you mentioned that your pace of orders slowed in June in the Americas. Maybe you could quantify for us the pace of that slowdown. And then, you do come into this slower order pace with contracted backlog up 13% year-over-year. So, can you give us some initial thoughts into your revenue growth visibility over the next few quarters? I’m not asking necessarily for a guide for next year, but how much visibility does current contracted backlog growth give you, and then how difficult would it be to grow your revenue in FY21, if there isn’t a help from state and local stimulus?

So, the best way I can answer that is just starting with our backlog. Our visibility, certainly an immediate -- as you said, immediate term visibility comes from our backlog. So, our backlog is up, I believe, 16% year-over-year from where we were last year. So, that bodes well for the future and gives us that visibility. When you look at construction management, construction management, gives very-clear visibility to what the future will look like. In our design business, our book to burn has been over one times for the year. So, again, that provides visibility into the near term. When you start looking at the impact of sort of how state governments will be funded and how money will be spent in the short term, it certainly will have an impact on us. But again, the most important point I can make here is that we’ve shown ourselves to kind of being resilient to manage our ways through those short term fluctuations. But again, as we move forward long term, we have very good visibility into what the future looks like for the next few quarters. But, that obviously, around the edges, whether it’s growth or whether it’s flat, so it has been this past quarter or perhaps maybe down a few points, that will become clear as we work our way through the fourth quarter and we start to see some more certainty around funding in particular markets.

And I want to ask a follow-up on the margin question, you guys gave very good color on the respective segments. But, you do have that long term guide out there of 15% EBITDA margin. When we think about the Americas, margin has been trending up, into the high teens this quarter. So, maybe the sustainability of that, if we do see a little bit more muted growth here, and then learn international, again, you gave good color around double digit margins over time, but let’s say the markets stay weak in ‘21, can you still grow that international margin, even if you have some headwinds on the business?

So, Andy, maybe the best way I can answer that is, we absolutely have confidence that we can continue to grow margins into 2021. Just remember, just from the actions that we’ve taken over this past year, there’s a run rate benefit that carries into the subsequent year. And then, when you look at margins, a good example is EMEA. We actually have seen a contraction in the third quarter, in our international business, but we have seen margins continue to improve. So, again, as we look forward, with double digit margins that we would expect to be able to accomplish, over the next few years in our international business and with the combination of the success we’ve had in our Americas business, we believe our long-term targets are entirely achievable.

And then, just one quick follow-up. Troy, you talked about basically increasing the focus on exiting your at-risk self-perform construction business that’s intensified. What does that mean, in terms of a process?

Well, maybe just a few moments, just kind of a history here. But, when we were in the second quarter, we were involved in a process that was fairly advanced expecting transaction to close in some of those businesses early in the third quarter. Obviously, with the impact of the pandemic, all of those processes stopped. And those deals were no longer available. So, as we started to see some more certainty in terms of how the world is going to progress over the next few quarters, as we’ve seen financing kind of become more certain in the marketplace, we’ve seen the opportunity to now take up that those dialogues with groups of buyers and take all of those businesses to market together. And so, that’s really what we’re getting at is, we’ve kind of gotten to a point where there is enough interest and perhaps enough certainty in the market where some deals can get done. And we are out in the marketplace with those businesses and in discussions with multiple parties.

Your next question comes from Jamie Cook with Credit Suisse. Your line is open.

Hi. Congrats, Troy and Lara, and best wishes to you, Mike. I have a couple of questions. I guess, my first one, Troy, in the press release you said you’re committed to EBITDA growth in 2021. I’m assuming we’re not committing to the to the numbers we put out at the Analyst Day. I mean, the Street, the consensus is in there. I don’t think it’s in your stock, but if you could just confirm that. My second question, unless I missed it, I don’t think you guys addressed sort of what’s going on with the CFO role, whether we’re looking externally, internally and sort of like a timeframe there. And then, my last question, Troy, again, just because you are taking over. I’m assuming your strategy will be the same as M&A is sort of off the table and how you’re thinking about share repurchase? Thanks.

That was a lot, Jamie. So, let me take that…

There always is a lot, Troy.

I’m trying to keep it under half an hour. So, first of all, absolutely, we are committed to growing our earnings in 2021. But, as you can appreciate, with the uncertainty in the world, we’re not at this point restating and/or giving guidance, and we will do that when we get to November. But again, there’s some softness in some of our markets, there’s strength in some markets, and we expect some more certainty or clarity to be around some of our some of our transportation infrastructure markets as we get through this quarter. And again, as I said, what gives us confidence is our continued ability to improve margins and achieve that improvement in profitability, even where there might be softness or slowing in terms of revenue opportunities. In terms of the CFO timing, again, as Mike said, with the accelerated transition, we would expect to have something to announce before August 15th in terms of CFO.

And, are we looking externally as well or should we view it as an internal candidate?

I won’t make any comments on that.

Okay.

And in terms of strategy, again, as you described, there are no real significant changes in the strategy for the business. We are continuing to process to transform the company into a higher margin, lower risk Professional Services business that is a highly cash-generative business. We, again, expect to continue to grow that business and take some of the margin improvements and continue to invest in margin improvement and in organic growth opportunities, and frankly, create a virtuous cycle as we move forward. Our commitment still remains to return our free cash flow to our shareholders over time. That remains unchanged. And ultimately, what might be different is that as a result of the pandemic, we have invested a lot of time and energy thinking about how the workplace of the future is going to change, how we work and might change and how it will change our industry? And so, that’s going to be not just simply removing some real estate, that’s going to be changing the way that we think about and how we deliver work for our customers and our clients, and we think that it will ultimately accelerate a lot of the digital transformation that is going on in our business, and will change the way that we ultimately deliver work, causing greater opportunities for us to continue to improve margins and drive up returning capital in the business.

Your next question comes from Michael Feniger with Bank of America. Your line is now open. Michael Feniger, your line is open.

Yes. Sorry. I was on mute. Sorry about that, guys. Just to kind of follow-up on Jamie’s question, I’m just curious, Troy, like, what are the guideposts that you’re looking for in terms of the strategy on capital return? So, I remember last quarter you mentioned capital markets, hopefully capital markets have stabilized. Just in terms of executing that strategy, is it a FAST Act that expires in September? Is it November elections? You’ll have a CFO in place in a few weeks, it sounds like. Would you want gross leverage to come down to a certain point? I guess, just point us to the signs that you might be looking for in terms of executing that capital return strategy?

Sure. So, maybe just a few points. So, just starting with leverage. Our gross leverage for the quarter was 2.8 times or under 3. I expect us to keep our gross leverage under 3 times, the right leverage for us to continue to operate the business and enables us to return capital to shareholders. Again, as I said, as we saw more certainty over the course of the second half of this year in terms of our performance against our targets and our ability to drive cash flow that it would create more certainty towards an outcome of returning capital. And again, we’re committed to over time deploying that capital to buying back stock. But, I will say, at this time, I certainly don’t have any intention of front running any of our repurchase activity, because it just simply increases the price at which we repurchase stock.

Okay. Fair enough. If I could just level set on bigger picture here, Troy. As you are aware, there is a massive valuation discount to you and the premium design peers. Last quarter, you guys provided guidance when those premium players pulled out and you guys just raised your guidance today. As you’re aware, there was a voice that felt an external candidate is necessary. So, Troy, as you take over in the coming weeks, I know it’s kind of executing a plan, but do you see anything structural with those peers, as you guys transform your portfolio that makes you feel that discount is warranted or can’t be closed. Just commentary around that would be really helpful as you take over in two weeks and maybe evolve with the plan that’s been going forward.

I don’t see a reason why there’s a discount to our peers, to be very just blunt about it. It’s simple. We’ve been able, in this business, to prove that we have fantastic professionals and employees in the marketplace serving our clients. We’re number one in transportation facilities and environment globally. And we’ve proven our ability to operate and to drive margin improvement. There are things that we can focus on that we’ve proven we can focus on that will drive the profitability of the business. Again, as I sort of think about what we’ve been working our way through is we’ve had a workforce that has been focused on keeping our people safe, their families safe and our clients safe and delivering for our clients. We’ve been focused on maintaining a workforce, so that when the pandemic is over, we emerge stronger than ever during the phenomenal franchises that we have. And we’ve been maintaining the business health and achieving our targets. So, I frankly, don’t see why there would be a discount. And ultimately, if there remains a discount, we’ll be in the market again buying our stock cheaper.

Fair enough, Troy. Just lastly, like I know there’s a lot of scenario going on with 25% of your business at state and local. Just if we do just a level set and have a base case, if we wake up and the FAST Act is just like you get a CR, a one year kind of punt to post elections. I’m curious, how you feel like you can manage through that. Is that steady as you go? Is that a negative outcome, just anything you can kind of drill down on, if that scenario plays out just a one year extension with a little bit of to munies and states. Is that still a positive scenario? Is that base case for you that you can muddle through? And that’d be great. Thanks, Troy.

Sure. I think, maybe just to try and highlight what the headline is, we obviously think about a number of different scenarios. And we do a lot of different scenario planning as we have done throughout the entire pandemic. And even under all of those scenarios, we have confidence in our ability to grow earnings in 2021. I couldn’t pick on one single item and say this is a plus and this is a minus. We manage the entire business and there is funding available in some of the places in our business that is improved and there’s some places where there’s some uncertainty, but through all of this, we’re confident of what we can control. We’re confident in the franchises of people that are here, and that we are confident growing earnings next year.

Your next question comes from Steven Fisher with UBS. Your line is open.

Thanks. And Mike, best wishes. Congratulations to Troy and Lara. How are you thinking about the trajectory of the building construction business over the next couple of years? Are you anticipating or preparing for this to have some softness? And what are some of the things you can do to mitigate cyclical downturn? And then, does it kind of hold the same strategic importance [Technical Difficulty] framework as it has held in the last two years?

Yes. Even as we look forward from where we are today, we see that business growing next year, and we think that it grows at a double digit rate. And again, that’s built on the strength of the backlog that we’ve built up over the course of the last two years. It does give great visibility into the future. As we look out beyond that, certainly, there’s going to be a change in the nature of the opportunities that we pursue. But, what we’ve experienced over the last two years is we’ve moved into different elements of the business and focused on where our clients are investing in infrastructure. So, we’ll continue to do that. And so, I think it’s difficult at this point to say, here’s a long term view, other than we know that it’s a great franchise. We know that we have ability to continue to serve those clients as they are investing in certain sectors of the market and we have a lot of visibility to the backlog in that business.

Okay. And certainly, the size of the backlog is one of the strengths of the Company at the moment. We are hearing from some of the -- kind of some of the peers about a slowing burn rate at the existing backlog. So, I was just wondering, to what extent are you seeing that and any elements of your business, be it airports or any of the building business and kind of how you would be -- how you would manage that from here?

Yes. The answer is across elements of the business, we are seeing deferrals of work. The place that I mentioned earlier was just in our environment business where we’re seeing the largest and most obvious deferral of work. But, it is happening. I believe, it is a short term phenomenon, certainly in the areas of transportation and water. But, what we are experiencing is again, in those marketplaces, so far in the third quarter, we believe we’ve been taking some market share. So, our capture rate has been improving, even as opportunities or award opportunities have been deferred to move to the right. So, again, we have a lot of confidence based on the underlying capabilities in the business. And then, through that -- through active management, we believe that we can continue to improve the trajectory in the business, health of the business.

[Operator Instructions] Your next question comes from Adam Thalhimer with Thompson Davis. Your line is open.

Thanks. Hey, guys. Congrats on the good Q3.

Thank you.

In the largest cities, like a place like New York, what are you guys seeing on the front? And, I mean, on the one hand, you have kind of a lot of talk about deurbanization from places like New York, but on the other, rates are super low. So, how do those two factors kind of play out?

That becomes a difficult question to answer. It depends. There’s a lot of -- again, there are a lot of -- within a city like New York, obviously we do a lot of different types of work in a lot of different markets. If you’re referring to our construction management markets. Again, we really see the benefit in those markets just coming from change. What you described is certainly uncertain conditions, but it’s not going to be discontinued investment. There’s going to be investment that we put forward over time. And our business is well-positioned to take advantage of that. But, in terms of again, construction management, we are seeing opportunities in some of the major cities here in North America. But, we certainly are seeing our clients thinking or rethinking some of the decisions that they might be making for the future.

So, you would say, if you’ve seen any weaknesses, they are more on the design side, more so than construction management?

Again, I’d say -- again, as I said, in our private markets, we see it on the design side of private markets, we’re seeing the weakness.

Okay. And then, just kind of a modeling question, corporate SG&A, what was a good run rate to use for that?

It is $40 million to $45 million per quarter.

Okay. And then, last one just on federal spending in fiscal ‘21. I know, the Fed -- it’s still a good client for you, not as big as it was when you had MS. But, what are you seeing in the budgets for federal spending next year?

We’re not anticipating any significant declines in the clients that we typically do our work for.

Okay.

Think about that, just -- a large client, we like the Corps of Engineers.

And you just see them stable next year?

Yes.

Okay, great. Thanks for the color.

There are no further questions. At this time, I will turn the call over to Chief Financial Officer, Troy Rudd for closing remarks.

Good. Well, thank you everyone for joining today. I’d just make a quick concluding statement. I want to say that in this unprecedented time, I’m incredibly proud of the teams and our people here have pulled together and worked through this environment. It certainly instills confidence in the leaders in the organization and to our professionals in our ability to achieve the goals that we’ve talked about today. We finished with a strong balance sheet, strong cash flows, record backlog and it does give us confidence as we move forward and expect growth in fiscal ‘21. So, again, I thank everyone for joining our call today.

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