Jacobs Solutions Inc. (J) Q1 2012 Earnings Report, Transcript and Summary

Gary Mandel - Former Executive Vice President of Process and Construction Craig L. Martin - Chief Executive Officer, President and Director Gregory J. Landry - Executive Vice President of Operations George A. Kunberger - Executive Vice President of Global Sales Patricia Bruner - Thomas R. Hammond - Executive Vice President of Operations John W. Prosser - Principal Financial Officer, Executive Vice President of Finance, Treasurer and Executive Vice President of Administration

Andrew Buscaglia Brian Konigsberg - Vertical Research Partners Inc. Joseph Ritchie - Goldman Sachs Group Inc., Research Division Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division Steven Fisher - UBS Investment Bank, Research Division Scott J. Levine - JP Morgan Chase & Co, Research Division Alan Fleming - Barclays Capital, Research Division Casey S. Deak - Stifel, Nicolaus & Co., Inc., Research Division Michael S. Dudas - Sterne Agee & Leach Inc., Research Division Min Tang-Varner - Morningstar Inc., Research Division John Rogers - D.A. Davidson & Co., Research Division Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Good morning, and welcome to the Jacobs Engineering 2012 First Quarter Conference Call. [Operator Instructions] Please also note, this event is being recorded. I would now like to turn the conference over to Ms. Patty Bruner. Please go ahead, ma'am.

Thank you, Roque. The company requests that we point out that any statements that the company makes today that are not based on historical fact are forward-looking statements. Although such statements are based on management's current estimates and expectations and currently available competitive, financial and economic data, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause actual results of the company to differ materially from what may be inferred from the forward-looking statements. For a description of some of the factors which may occur that could cause or contribute to such differences, the company requests that you read its most recent annual report on Form 10-K for the period ended September 30, 2011, including item 1A, Risk Factors; Item 3, Legal Proceedings; and item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations contained therein, for a description of our business, legal proceedings and other information that describe the factors that could cause actual results to differ from such forward-looking statements. The company undertakes no obligation to release publicly any revisions or updates to any forward-looking statements, whether as a result of new information, future events or otherwise. And now I'll turn the call over to John Prosser, Jacobs CFO, to begin today's discussion.

Thank you, Patty. And good morning, everyone. Thank you for joining us this morning. I'll go briefly over the financial highlights for the quarter and then I'll turn it over to Craig Martin, our CEO to go through our business strategy and results of the quarter. Turning to Slide 4. First quarter financial highlights. We did report the diluted earnings per share of $0.70, which was pretty much in line with expectations, and up nicely from a year ago's first quarter. The earnings for the quarter were just under $90 million and backlog showed a nice growth to $14.5 billion, up not only from last quarter, but also nicely from last year. We've had a good trend in the backlog increases over the last year. So if you look at the book-to-bill, we were about 1.14, if you look at the trailing 12. So it hasn't been just a onetime event. It's been a nice progression as we've gone through last 4 or 5 quarters. So we continue to have a very strong balance sheet. Net cash increased up to $423 million, and as we reported in the earnings release, we are maintaining our -- the fiscal year '12 guidance at the range of $2.80 to $3.20. So I think that's a good solid quarter in line with expectations, and with that we felt that it there was really no reason to change the guidance for the year. Moving to Slide 5, this just looks at our history of trailing earnings. We have continued to show the nice uptick that we started last year and more importantly, if you look at the bars, the 10-year compounded growth rate at the bottom of the chart, we continue to track at a rate above that 15% that we always talked about as being our long-term target. Moving on to Slide 6. Looking at the backlog, again breaks down between pro services and other. The total backlog as I said was up nicely. Field services backlog was flat, but we had a very nice growth in the professional services. We may have -- those who follow us saw that we did do a couple of small acquisitions during the quarter, and while those are nice little niche acquisitions and has some nice potential to -- they collectively brought less than $50 million of backlog into the company. So it really didn't have a material impact on this. And so most of this was just related to our existing book of business. But with a nice growth in backlog, as we said before, the professional services backlog, that does speak well because that is the precursor to the field services, other activity that we get on projects. So we think this is really a good sign as we move forward for the rest of the year and into 2013. So with that, I will turn it over to Craig Martin, who will make some comments on the business.

Thank you, John. Good morning, everyone. I'm on Slide 7 now. Just quickly reminding all of you about sort of our approach to the business, we are nothing if not constant about this. We continue to be committed to our relationship-based business model. We continue to believe that market and geographic diversity are important, and being local to our customers will be a critical factor going forward. We continue to have a strong cash position based on our belief that acquisitions will represent growth opportunities as well. Now I'll talk about all 4 of those things in a little more detail later on. And of course we continue to be focused on keeping our costs down. The market remains pretty competitive. We are seeing some improvements here and there in the market from a cost point of view. The public sector probably has more pressure on it than it's had in the past. The private sector seems to be stable and in fact, pricing may be improving just a little bit there. But our focus on keeping our costs down will remain unchanged. Turning now to Slide #8, I want to talk just a little bit about our business model and how it fuels our growth. Let me remind you a little -- of the difference between our approach and what we see in most of our competitors. Most of our competitors follow what we characterize as a transactional business model. They focus on big events, global competition, a lot of lump sum turnkey, they're out there with the French and the Chinese and the Koreans, and in a very competitive market for very large projects. And you can -- you hear that quite often in their calls like this one as they talk about the MIG prospects they're going to make or break a quarter or a year. Our model, however, is quite a bit different. We focus on high repeat business with our customers and a strong relationship-based business model. Something on the order of 70% to 80% of our business comes from long-term relationships and about North of 90% of our business, I think that number was 92.7% this last quarter of our business comes from repeat customers. Our business is dominated by a few core clients with whom we have very strong relationships, and our strategy is generally to grow our share of that customers' wallet or those customers' wallet, in order to enhance our business and increase our profitability, scale and growth. The chart that we've shown you here kind of gives you a sense of how all that works. So if you start at the bottom in the section named employees and you look at the key factors there, our systems and processes, our people themselves, our knowledge and understanding of our clients and our commitment to continuous improvement. All of that drives better performance by us and therefore better outcomes for our clients. As they get better outcomes, they trust us more, they're more willing to have long-term relationships with us, they're more willing to expand their share of wallet. And we get that repurchase loyalty that's so valuable to us. That drives good, steady profit growth. And we hope that drives then investor loyalty and a strong belief in our company, supports the financial strength that we need, and allows us then to reinvest in that area at the bottom of the chart there. And we get what we think of as kind of a virtuous circle in our business that let's us continuously grow that business with our customers. And in the long run, we think that's going to prove to be a very good model, one that will produce some very good results, including that compound 15% growth that we talk about. Moving on to Slide 9, you can see the market diversity. This represents the revenues for the trailing 12, pretty good spread. I'm not going to spend a lot of time on this chart because I'm going to break this down into individual charts coming up, but you kind of see how our business divided across the spectrum of markets this last quarter -- sorry, for the last 12 months. So now moving on to Slide 10. And we talk a little more specifically about that part of our business that we characterize as public and institutional. That's National Governments, Infrastructure and Buildings. But let me start with the National Government's business. We see that business right now as pretty stable, actually. There's a lot going on there, there's lots of room for uncertainty, but what seems to be happening in overall terms is generally okay for us, not great. We're not suggesting this market is growing rapidly or strong, but we see every reason to think our position will remain good. There's lots of work in the information, communication technology area. Things like cyber security are quite strong, it's an area where Jacobs has developing strengths and an increasingly strong position. We see some pressure on the RDT&E market, which is a big part of our business, however there is an awful big focus, if you listen to Secretary Panetta's remarks or read them, there's a big focus in supporting technology in the Air Force and Navy. Those things will probably drive RDT&E investment and that may be very good for us. Now there's also this shift to sustainment. We think that requires quite a bit of work that we're very good at doing, end-of-life extension kinds of evaluations, testing and scientific technical analysis is a strength of our company, and there's every reason to think that business will be strong as well. We talked past about these MATOCS, that's multiple award task order contracts and the opportunity that, that represents us to grow our share. We're seeing that opportunity work for us and that we're able to penetrate markets and geographies in the U.S. for our federal customer that might have been closed to us in the past and to take share in those markets. We're being attacked in the same way but at least so far, we are be able to hang on to more work in our existing, incumbent situations, and take significant chunks of the other incumbents where the net seems to be a positive, and we think it's going to continue to be a positive. I don't want to ignore our environmental business here, it's still a strong part of our National Government's business and that market has a lot of activity in it. Certainly in the U.K., the nuclear decommissioning agency, $140 billion worth of work to come, spending about EUR 3 billion -- or $3 billion a year. The DOE spend in this market is also up, it's up about 9% since fiscal '10. Based on what we're hearing from government, it looks to me like environmental cleanup will continue to be an area where there's good opportunity and Jacobs is well-positioned. So overall, the National Government business is stable and I think our position's pretty good. Moving on to infrastructure. We characterize that market as improving. Highways remain soft. We think they'll be a transportation bill here fairly soon, that may help a bit. But overall that market -- the highways business is getting better, little by little. The strong markets are aviation, transit, rail -- all the things, water, wastewater, telecom that are fueled by user fees. It's a strength for us as a company and we see a lot of activity there. We're well-positioned to take advantage of those businesses. So we think infrastructure in those areas will represent a growth opportunity for us. And of course, alternative methods of funding, design, build, public-private partnerships are also growing in significance. Jacobs' very low-cost position relative to our competition in the infrastructure arena is a real advantage to us in those things. We're quite good at doing low-cost engineering work that results in lower cost projects, and we expect that to continue to be a positive for us as a company going forward. Moving on now to buildings, that's another business that we see as improving. Particularly the nonfederal arena. So things like education and healthcare that have very strong demographic drivers, quite good for us. In addition, the whole area of what we call mission-critical facilities: data centers, cybersecurity facilities, command-and-control facilities for the government, are all very strong. The KlingStubbins acquisition which seems like it's ancient history, but frankly it was only a couple of months ago, is hugely positive for us in that area, tremendous strength in supporting that area of our business. So in addition to just being a straight-up accretive acquisition like most of our acquisitions are, they've really put us in a preeminent position in these high-tech design and construction management markets. And then the federal climate, as it goes forward, is offering new opportunities as well. There's significant opportunities in things like the sustainment of existing facilities, dealing with lowering the energy cost of federal facilities, and the company's very well-positioned to take advantage of those things as well. So the public and institutional markets certainly aren't as strong as some of our other sectors but it is a very, very solid business for us and we expect it to continue to be solid going forward. Moving on now to Slide 11. The markets we characterize as industrial. I'll start with the PharmaBio. Now the story here, we see continuing investment by our pharma clients in emerging markets. They clearly have lots of products that are needed in places like China and India, and they're investing to manufacture there. Jacobs has the good fortune to have both a presence in the countries of choice from an investment perspective, as well as strong relationships with these customers corporately, and a strong know-how based in the PharmaBio market. All of that's leading to a significant business for us. Steady might be a little understatement, I think it's probably a little better than that. And we really continue to be the last major player in the Pharma industry with significant capability, and I think that also bodes well for us. So I'm a little more upbeat about PharmaBio than I might have been even 90 days ago. Mining and Minerals remains very, very strong. The demand for raw materials, particularly in the emerging markets, is driving new investments, particularly strong in Australia where we're well-positioned. I'll talk about that in a minute. Copper and gold are particularly strong and those happen to be our strengths as a company in the Mining and Minerals area. So that's a positive. We see about $85 billion, $86 billion of investment in the next year from the top 10 players in the mining industry. So it's a huge market. And there are segments of that market that are relatively untested by the majors. Things like continuous presence, opportunities, the ability to not only do the Mining and Minerals processing work, but to the support infrastructure that goes with that. Fairly unique to Jacobs because of our market diversity. We think those are also going to drive significant growth opportunities for us. Obviously Aker now has a much larger resource base. And so we're able to present a more capable combination of resources to our customers. That also is driving growth. And this set of customers resonates well with our relationship-based business model. We really like what we see so far, and the sense of loyalty that we see in those customers, and we think that's going to be a positive for us as well. So very bullish on the Mining and Minerals business. Moving on now to the other category, which is a mix of a bunch of important markets for us. Now let's try to work through each of those in turn. Pulp and Paper is, as I think I've mentioned in the past, very active in higher-value products, it's very active for us in particular. Again there are few players left in the industry. So while the aggregate CapEx is not large, our share of it is getting larger and we're pretty happy about that. The Power business -- and I don't really think of Jacobs yet as a power player, is starting to generate a fair amount of work for us. We get a lot of what I'll characterize as supporting cast work. All sites and utilities, substations, the sort of things outside the power island that drive the Power business. And we are increasingly developing a position in nuclear new build, particularly in Europe and most specifically in the U.K., that I think is going to be a positive for us as well going forward. High-tech spending, mostly that means semiconductor, is up with selected clients that are particularly important clients to Jacobs. We expect that market will be good for us for the next few years based on their forecast spending. And then consumer products market is another area where we're seeing a lot of activity in emerging markets. Now that customer set is very prone to the alliance model, they like the way Jacobs approaches things. And we think that's going to be a good business for us across the emerging markets as we go forward. So overall, the industrial sector of our business is a positive. We're doing pretty well in that arena. Moving on now to Slide 12, that's the process area made up of chemicals in the oil and gas business, both upstream and downstream. Let me start with the downstream part of the business, refining. We're seeing increased spending in North America, a lot of that's for environmental and efficiency reasons, but also we're seeing activity that's related to reconfiguration as the crack spread on distillates is quite a bit better than the crack spread on gasoline. We're continuing to see work related to changing crude sites. All across the world, crude is getting sour-er and more viscous, and so many, many refineries are going to have to be reconfigured. There've been a bunch of closures of minor refineries, smaller refineries which actually is good for our customers. Where we work, we're in a bigger refineries where we expect long-term, our relationships will continue to produce lots of good, small project work, as well as a few bigger projects. And then of course in places like the Middle East and India, we're seeing a tremendous amount of activity, and I'll talk more about that when I get to the geographic discussion. The Oil and Gas businesses is very strong. For us that's onshore gas and the oil sands. Oil sands are just huge. The numbers are so big and people can't seem to get their hands on them. I've seen estimates from sort of a low $18 billion of CapEx next year -- this year '12, to as high as $22 billion. And I've seen forecasts that are up anywhere from 10% to 25% in '13. Certainly, we see a lot of CapEx activity out in the '13 timeframe as these projects go into construction. We're still pretty solidly in the earlier phases of most projects. Although we expect a few of those to go into the construction phase in '12. Our onshore presence with our core clients continues to be a area of strength for us. This is mostly related to the Gas business and shale gas specifically, shale oil to a lesser extent. We have tremendous strengths in those areas and we have the geographic diversity that onshore gas requires. So overall, we think that's also going to be another plus for us. So we see that market as a very strong market going forward. And in the chemicals markets, it's also very strong, probably the strongest it's been in more than a decade, and you can start to see that in the revenue growth that the chemicals represents in our totals. The shale gas activity is driving a big supply of natural gas liquids and a low-cost feedstock for chemicals investment in North America. Jacobs' strengths tend to be in high-value chemicals, another area where we're seeing a lot of activity. Those strengths were improved with Aker. And so the whole area of high-value and specialty chemicals are strong, we have a global presence to support that, and we're going to see we take a lot of investment in that area. I'll talk again about that a little bit when I talk about the geographies. So the Process business is another area that we're really very positive about. If you kind of summarize the 3 sets of markets or groups of markets, public and institutional is steady, maybe slightly improving, industrial is clearly a strong market and the process side is very strong. So overall, as you think about our historic 5 cylinders out of 8 conversation, we're certainly in that position today. Let's move on now to the slide, Geographic Diversity. I think that's Slide 13. And let me just start by talking about North America, we've already talked about the oil sands, tremendous growth. We think that in North America as well, we're going to see a lot of activity. And I think we heard that in the president's remarks in the area of cybersecurity, and the whole sort of technology area related to where our government will invest. Jacobs is extremely well positioned in that area. Infrastructure is showing signs of improvement in North America, particularly things like utilities work. We're seeing a nice uptick there. There's going to be a tremendous boom in chemicals in North America as well. There've been $10 billion worth of ethylene projects that have been announced for the Gulf coast. That will drive huge investment over the next few years, and CapEx forecast for U.S. chemicals is expected to be somewhere between $25 billion this year and $35 billion, 3 to 4 years out. So that's a stronger Chemicals market in North America and we've seen in a very, very long time. Moving on now to South America. We are a major player in the Mining and Minerals market there and we're seeing lots of growth. Interesting enough, we think South America represents a very significant refining opportunity. There is something on the order of $80 billion worth of refinery projects that have been announced in Latin America. Our increasing geographic presence and our historic strength in refining, I think, gives us a tremendous position to take advantage of that expansion. So I think you'll see more of Jacobs in Latin America, and I think you'll see some really positive things to come in there. There are clearly emerging markets in places like Brazil, for PharmaBio and Food and Consumer products. That's where most of the population is, that's where a lot of interest for those companies goes. And we're working to be positioned to help those customers be successful in that area. Moving on now to Europe and Africa, kind of an odd combination I know, but it's the easiest way to talk about them. The infrastructure spending is under pressure but we've done, I think, as a company, a particularly good job of positioning in the right places. And we are doing well in terms of our relative share in the U.K, in the Infrastructure business. There are some bright spots in Europe in terms of energy, nuclear and defense, and we're taking advantage of those. On the Oil and Gas side, it's largely sustaining capital kinds of work, which again, as we know, plays to Jacobs' strength. And then we have our relationship with OCP in Morocco and that relationship remains very, very strong with very solid investment as we go forward in developing that business. And then we do see some emerging opportunities in the mining industry in Africa, particularly South Africa, we'll see how those develop as we go forward. Moving on now to the Middle East, just a huge opportunity for Jacobs in terms of the process end of the business. The Kingdom of Saudi Arabia and the United Arab Emirates, just between the 2 of them, have a $220 billion program over the next 5 years. Whether all that gets spent or not is always the question, but we are very well-positioned in particular, in part, because of our localness and our ability to execute work In-Kingdom, that's becoming a very key differentiator. GES plus remains a strength for us. We're still one of the only 2 contractors. We see that as an ongoing opportunity. There's a lot of activity there and then of course, our traditional buildings and infrastructures business are also significant growth opportunities in the Middle East. So we think the Middle East is a really positive engine for growth for Jacobs going forward. Moving over to India, we've been very successful with the CES acquisition. Lots of activity around wastewater, ports, airports, the entire business of infrastructure in India. India has announced a $1 trillion 5-year plan for infrastructure. It's highly unlikely they'll actually spend all that, but it does mean there'll be lots of project activity in India. We continue to grow nicely in our historic markets in India: chemicals, oil and gas, refining. We have big, big programs coming from customers like Reliance, where we think we'll be successful as well as Indian Oil, who's committed to spend something like $75 billion to expand their refining capacity by 2.5 million barrels over the next decade. Our position in India helps our business overall as well as it continues to be an excellent resource for low-cost engineering services, or what we would call high-value engineering to support our expansions in Asia as well as our customers in the developed world. Moving now to China and Southeast Asia. We have the scale and leadership today in place, in those places to address our core clients as they invest. We think that will represent real growth opportunities. I've talked about Pharma, but also the Chemicals business in China in particular, as well as consumer products. All represent opportunities for us to see significant growth, and we have a strong position now in the key investment areas in Southeast Asia. I think there's opportunities for additional growth there from acquisition as well, and I'll talk about that in a minute. And then finally, finishing with Australia. Australia continues to be a huge Mining and Minerals market for Jacobs, and we're doing extremely well there in terms of taking market share and positioning. I think we'll have really good growth out of that business in Mining and Minerals. There's also significant heavy process activity and we, right now have a very small share of that. So I think there's another area of seeing good growth for us in that regard. And of course our National Government, Defense, Project Management business in Australia also seems to have some pretty good legs and we think we'll see some additional growth there as well. So that's kind of where we are from a geographic diversity point of view. Moving on now to Slide 14. Just a little history on our acquisitions, as you can see, we've done a lot of those. We continue to believe we do them pretty well. As we look forward, the areas that are getting a lot of focus for us are China, Australia, Brazil. The markets are oil and gas and mining. IT particularly things in the tech higher cyber side of IT. We continue to be interested in power, but we won't ignore niche market additions when they augment our business significantly. And of course, we're always interested in adding a new key in core clients. The acquisition pipeline remains very strong. We see lots of potentials out there and it's -- sometimes there's so many good things it's hard to choose which ones to focus on. And frankly, the other piece of good news in that regard is the pricing for acquisitions seems to be a little better than it's been in the recent past. So that's a positive as well. So let me finally go to Slide 15 in our commercial. Why Jacobs? We think we have a unique business model that drives client loyalty, opportunity and drives results. We have a diversification that we think will be important today and will be even more important going forward, whether it's markets, geographies or services. A great balance sheet which let's us take advantage of all those acquisitions and fund expansion. Our cost position is also quite good. We continue to be in a very competitive market overall, but we're in a position to take advantage of that and make money when money's there to be made. So with all of that, I'll turn it back to Roque for questions and answers.

[Operator Instructions] Our first question comes from Andy Kaplowitz of Barclays Capital.

It's Alan Fleming standing in for Andy this morning. My first question is on -- is around revenue, which ticked down sequentially a little bit in the quarter. So seasonally, 4Q doesn't look all that much different than 1Q. So I was wondering if you can talk a little bit about what's driving that modest sequential decline? Was it less oil sands work due to some seasonality or is it Motiva winding down? If you can just give some color there.

Well first, as we caution people, revenues is not necessarily a good measure in our business because the variability of things like pass-through costs and construction and such like that. Also the fourth quarter, on the professional services side, has a lot of holidays around the end of the year between New Year's, Christmas, other seasonal holidays. So the way the holidays fell this year, there were a lot of vacations taken in that week as well. So that has some impact on just the hours through the books, which drives some of the professional services revenues. While the mix didn't change that much, you did see a little bit of a down tick on the professional services revenue, and a little bit also on the construction. So we don't think that's any kind of a trend, it's just the quarter and the effects of some of those things. But there's always going to be some variability from quarter-to-quarter.

And then second, around margins, you had another strong quarter of margins, and even with bit of an uptick in SG&A. So I just wondering if you could comment on what kind of conviction you have about -- you're seeing some good operating leverage as you go through the year, especially if you are expecting backlog to continue to ramp.

Certainly. We did see a small dollar uptick in backlog and a small item in the G&A, and I emphasize small, but it kind of went in line with the margins. We are in a growing mode. We are hiring people, and that adds a little bit to G&A. And after a number of years where we had very modest salary pressure, we're starting to see a little bit more salary pressure in some geographies. So that adds both to the revenue and to the margin, but it also adds to the G&A. So I think that when you look at the operating margins, what we've said is that through the first part of this year, we're probably going to be fairly steady around where we've seen in the last couple of quarters. Then as we move into '13 and see that construction start picking up a little bit, you'll see a little bit of downward pressure because of the mix, but you'll still see growth on the professional services side. And certainly you'll see growth on the total revenues side from the construction. So probably all in all, we'll see some fairly steady margins as we go forward over the next 12 months and beyond.

I actually would argue that for the most part, while we didn't quite achieve our goals in SG&A, the SG&A performance, G&A control for the quarter was really quite good. And so I think it actually bodes quite well for the out quarters as we go forward.

Another -- the 2 acquisitions while they're not big in total, they bring in some G&A that it takes us a while to kind of absorb and get back on our model. So there's usually a little bit of an uptick. So that had a small impact on the first quarter as well.

Our next question comes from Michael Dudas of Sterne Agee. Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: Three questions. One following up on the growth in professional and field service employees. Maybe you can characterize when Jacobs' total employment for professional services bottomed in this cycle? Where you are now? And do you re-anticipate steady or significant growth in body count as your utilization rates, your offices bump up towards optimal levels?

Mike, I can't be absolutely sure without going back and looking at the data. I would say that the headcount bottom is something on the order of 4 or 5 quarters ago, maybe a little earlier than that. Certainly, since this time last year, we've had steady upward growth in headcount, and that continues today. When I look at -- when I model headcount, when I look at where we're going, I continue to see that the headcount and the billable hours will increase pretty steadily, at least the market doesn't go somewhere south on us. So we're certainly on a positive trend. We have been now for a full year. And I think that represents a pretty good trend going forward. So I think that answers your question, if it doesn't, tell me what else... Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: No. That's terrific and I'm assuming again the salaries are like -- the compensation's moving up because a little bit more demand, a little bit less supply as you move into process.

It is. It's nowhere near the kind of salary momentum we saw, say, in '07 and '08. But it is the point now where -- we had salary freezes in place 2 years ago, 3 years ago because of where the market was. Today, we're getting what I would characterize is slightly above historic averages in terms of increases, but we don't yet see the silliness that we saw let's say in '07, '08. Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: We can only hope. Second question is looking at the oil sands -- some thoughts on Keystone, no-Keystone, what can -- just this thinking about from that angle and the mix of investment opportunities SAGD versus non-SAGD, how that's playing into your visibility over the next 6 to 8 quarters.

Sure, and I'll ask Tom Hammond who's the guy responsible to comment as well. Let me just start. Keystone is one of those things where I think the actual impact on the business is going to be pretty neutral. The presence of Keystone might actually have been a positive. The absence of it's not a negative, if that makes any sense. And we don't see that, at least to my knowledge, affecting the customers to some strong degree. As to business of SAGD versus the mining aspect, Tom, you want to comment?

I don't think we've seen a shift, a long-term shift in the mix between SAGD and say open pit mining. There's activity and we're involved in projects and have prospects in both areas. So we're quite upbeat about the opportunities in Canada. I think going back to Keystone, I think both the press releases in Canada and the President's announcements, all but implied if there's a modest shift in the routing on the pipeline, it's going to be approved and go forward. And it wasn't going to be built and operational for years, anyways. So the impact of the 6-month delay is really going to be quite negligible.

Just to support that. We're seeing increasingly, in our customers in Canada, a little longer view of the business. And I think that's a positive for one, steadier work and maybe a little less lumpy, than it has been in the past. And I think it makes things like Keystone less important, relatively speaking. At least the immediacy of Keystone. Does that answer your question, Mike? Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: Yes. Certainly a fewer customers up there, I'm sure that's the case. Final question is Mining business. So maybe, guys, you've had the business for about a year now. Is the plan to grow the business through O&M and work your way that way? Is it really the focus on processing versus dirt moving? And when do you think we could see -- because typically the orders can be pretty lumpy and visible into the metal mining space, and will we see some of that in Jacobs numbers as we accelerate through the cycle in the next maybe 4 to 6 quarters?

Yes, let me -- again I'll comment and I'll ask Gary Mandel who's really got responsibility for most of that business to comment as well. There is, particularly in construction phase activity, some pretty significant lumpiness in the market and you may well see that, and we always caution you the backlog is not a quarter-over-quarter conversation. As we see that, and we expect that we will see that, we'll try to let you know the good and the bad of that lumpiness. Our focus continues to be on both project execution and big projects, which Aker brought a lot of strength and we're not going to walk away from that. But we do bring a sustaining capital focus to the business that our competitors don't have, and that our customers seem to need in that area. So we're going to work sort of both ends of that spectrum, but I think for the most part you'll see Jacobs apply its standard model, which is to get very well-ingrained in a location and do bigger and bigger projects in that location forevermore. Gary, you want to comment?

Mike, I think our growth can be fueled in a variety of ways. One, being part of the larger Jacobs, we have access to a lot more resources that was kind of limiting in Aker. While we have excellent skill sets on the minerals processing side, and being part of Jacobs augments that, I think some of our growth is going to come from the sustaining capital, which is Jacobs' bread-and-butter. We're starting to see signs where we've won some prime agreements in that area. So I think you'll see the mix, both on the capital projects side as well as the sustaining capital. In terms of the lumpiness. These projects take away to get off the ground, from the feasibility study to EPCM, can be up to 3 to 4 years cycle. So there's a constant pipeline of studies in action currently. And you'll see those go to EPCM and they'll just be phasing in quarter-by-quarter.

The other observation I'll make that we bring to the party that, frankly, a number of our major competitors in the mining industry don't bring to the same degree, is our ability to support the infrastructure side of the Mining business. A lot of these big open pit mines in particular require tremendous investment in the infrastructure to support the whole process of excavating the overburden and recovering the materials, and then big investments in infrastructure to get the product to the port or wherever it has to go. A lot of rail work in particular, as you start talking about iron ore, for example. So Jacobs not only picked up the capability that Aker represented in a big way, but we now bring a lot of our own capability in infrastructure or even in buildings to the Mining and Minerals business that they've traditionally haven't been able to get from a Tier 1 supplier. And so we're pretty upbeat about that as well.

Our next question comes from Tahira Afzal of KeyBanc.

I had a couple of questions. Number one, you talked a bit about the nuclear opportunity in the U.K., and it seems you're getting incrementally more excited about it. I would love to hear a little more on that. The second question is again on Mining. We did a few channel checks and it seems like underground engineers on the mining side are now sort of running into some bottlenecks and some capacity available. I would love to get your comments on utilization at these -- in terms of what you see in the market, and whether these bottlenecks could lead to any construction issues later on. And number three, you talked about infrastructure, and the U.S. getting a bit bigger, we heard that from a couple of your peers, even on the private side recently. And it seems that's being driven by maybe states taking things into their own hands. Would love to get a little more detail into why you're more comfortable about the infrastructure outlook.

Let's start with the nuclear U.K. market and Tom, Tom Hammond also has that responsibility. Let me let him talk to you about that.

Yes, I think we're relatively certain, certain as you can be, in an industry like nuclear new build, that the U.K. is continuing to go forward. The tsunami has probably delayed the whole process by 6 months to a year as there's a lot of reevaluation of some of the safety aspects of it. But if you look at a nuclear reactor in the U.K. -- and just for talking purposes, say it's a GBP 5 billion investment, somewhere between 10% to 20% of that investment is related to things that are outside of the Power Island and outside of the conventional power generation part. Everything from roads, civil works, site works, jetties, ports, water treatment, industrial facilities like warehouses and the like. And we're seeing a lot of success in aligning with the owners and developers of these projects. In particular, right now it's mostly in the study phase, but it will be moving into the detailed design phase and in the project management phase. This aspect of the power projects, which represents GBP 500 million to GBP 1 billion pounds of investment per facility. And we believe that we can leverage that relationship, and have seen some incidences of leveraging the relationship and doing good work in that part of the project, that the owners are inviting us to participate in further parts of their development because, quite frankly, resources in this area are quite limited.

Yes, I think it's another good example of where the Jacobs business model is working to our advantage. I think the second part of your comment went to underground mining specifically, and I'll defer to Gary on that, but before I do, overall, I think I said this earlier, but I'll say it again. One of the real pluses of the Aker acquisition has been our ability to bring a lot of new resources to the Mining and Minerals business that really weren't available. We didn't have the credentials to supply those resources in the past. Aker didn't have the resources to supply. The combination has proven to be a real positive. But Gary you might comment about the underground side.

As you may have gathered, the underground mining, as a percentage of the total mining production, is quite small. There are a few of our owners who do use underground mining techniques. We are starting to see some of our customers who have large open pit mining, that the production is starting to decline and are considering looking at some underground activities there to try to boost the production. Historically Aker, we have focused on the mineral processing on the surface side. We have done some study work on the underground side. It's not a large portion of our business today, but we are looking at opportunities to grow our business. Historically, the underground has been led by the clients in some of their own technical resources, with the use of some specialty engineering firms. And we are looking at various ways to increase our portfolio with possibly some acquisitions down the road. But right now we're focusing primarily on the surface facilities of these mines.

If I can amplify on that, I think that's the key point that Gary made at the end. We see that there's tremendous opportunity in the surface facilities and supporting mine development on the open pit side. The underground mining business is a challenging one. We don't have a lot of historic capability there, and what we're really trying to do is respond to clients who have needs by finding ways to help them out. That might evolve into a bigger business down the road, but I don't think we have that expectation in the near term. Turning to your question about why we feel better about U.S. infrastructure. I'll ask George Kunberger, the Head of Sales for Jacobs, to comment why we're feeling a bit better. George?

Well, I think overall the Infrastructure business, as I think I've commented a couple of times before on this phone, on this call, we're getting more positioned around the company. We focused on the big centers -- the big cities around the world -- around the country where the major infrastructure is being developed and the money being spent, and that feeds a lot to our strength. The move towards P3 is somewhat mixed, quite frankly. But there is -- because the various states are having some difficulty in various areas in figuring out how best to do that, but they are slowly getting their arms around that and that's going to be a source for further and further investment of course. And that's an area that Jacobs, quite frankly, has a lot of experience in, mostly on the professional service side of that in support of our customers' projects. I think that's probably the biggest reason I'd say.

The other comment I would add to that is I don't think so much to your specific questions here, about what are the states doing. The states still suffer from budget shortfalls and we still have the problem of not being able to get a transportation bill out of the Feds, although we think we might this year. But a lot of the local communities really are taking this into their own hands. Sales tax, bond issue kinds of activities are up and a lot of user fee funding is driving projects as well. So in the aggregate, I think those things add to what George has already explained in terms of why we're a little more upbeat about the infrastructure marketplace. Does that answer your question?

Yes, it does.

Our next question comes from Joe Ritchie from Goldman Sachs.

And so my first question, Craig you do a great job of going through each one of your end markets during the call. But the one I want to focus on a little bit is on the National Government piece of your business. Obviously, it's about a quarter of your business, and there's been a tremendous amount of scrutiny on the federal budget from Panetta's commentary to an IT services company last week announcing the revenue is going to be down 30%. So it's kind of hard, I guess, just sitting where we're sitting, to square away that, that business is going to remain stable when we're hearing all -- a lot of negative things in the marketplace. So if you can give us a little bit more detail that will be helpful.

Sure. And I can understand why you might feel that way. When we looked at Secretary Panetta's remarks in some detail -- and you have to realize that trying to speculate on what the secretary had to say is just exactly what it sounds like, it's speculation. But if we look at the likelihood that, that 35 will continue, we look at the focus on technology-based warfare capability as opposed to a sort of lots of bodies out there on the front lines. As we look at more emphasis on the Air Force, those things are all positives for Jacobs because of where we're positioned. We certainly do a chunk of business for the Army and we think that's going to be more problematic. But even there, the kinds of activities that it appears the government's going continue to support, are the kind of activities that we are good at supporting and do support today. So whether it's the RDT&E space in terms of sustainment or supporting the technology investments, or it's the scientific, technical engineering space, the Set space in terms of helping to define the technology that the Air Force and the Navy are intending to use going forward. I think those things are positives for us. Remember that the Services business, which is pretty much where we're positioned, for the federal government is about $300 billion. And so our $2 billion or so, I'm not -- that's not all U.S. obviously. But our 25% or so of our total is still a miniscule amount of the total budget. And if the budget goes down 10%, $30 billion, it's still a miniscule part of $2.7 billion. And we're doing, I think, really well at taking share in that marketplace. If you look at this, the stuff we were able to press release in this last quarter, we took on $775 billion -- $775 million, I wish it were billion dollars, $775 million worth of new work in the first quarter of the year. That's certainly sort of the track that will sustain our business going forward, maybe even cause it to grow. I'm not predicting it will grow, but I don't think we're going to see much in the way of shrinkage because I think we're well-positioned to leverage what's going on in the marketplace. Add to that what's happening in things like cyber security, the IT space, and again our ability to take what we've traditionally done for the government, add what we're capable of doing in the buildings and infrastructure space, that whole world of what are we going to do to prevent electronic terrorism, so to speak, it's going to be a very strong area for Jacobs, and I'm pretty optimistic about that going forward. I hope that gives you some comfort. I understand how difficult it is to get your arms around what's going on. Did that help?

Yes, that's helpful. And I guess just to square it, it sounds like your commentary really hasn't changed from the last time we met in November. Despite all the news that's been out there, and if you were expecting -- and I know you guys typically don't give guidance within guidance, you're still expecting this business to be flat to maybe just down slightly in 2012.

Yes.

Okay. I guess moving on to my second question, which is really about the timing and the pace of acceleration in the contracts that you're seeing, particularly in your process business. It looks like those markets are heating up, but is it fair to say that 2012 is going to be more another year of feed before we start to see EPC contracts in '13?

I think we'll continue to see feeds throughout the year. But I think we'll start to see EPC, EPCM delivery, also some EP work, all of which will add to our field services backlog. So I'm expecting to start to see movement in the backlog and even some activity directly in the field during fiscal '12. So it isn't like we think these things have moved away from us a year. It's right out there in front of us. It's just that we're just not ripe yet to go into backlog and prosecute in the field.

And that's the -- that's kind of the trajectory that we've been talking about the last couple of quarters. So this is not necessarily -- not really a change, it really is just we're going to continue to look at it, but it's kind of on track with what we've expected over the last couple of quarters.

Okay, that's fair enough and I guess just really my last question is on the the refinery opportunity in South America. Some of your competitors are already doing some work in the region. Can you just talk about your capabilities to potentially seize some of that opportunity, and what's your timing in terms of when some of these big refinery projects get led out?

Our focus, like always, will not be on big grassroots refinery projects. Although we may have some opportunities to participate in some cases. Our focus is going to continue to be on sustaining capital, small project, sort of developing the relationships with the refiners in Latin America. And then the investment, all these big refinery investment, really represents for us much more of a long-term relationships and the small project aspects, instead of the idea that we're going to go out and win some big refinery. We don't expect that at all. So the outlook in Latin America for us is longer term, it's certainly not going to have any big impact on '12.

Our next question comes from Scott Levine of JP Morgan. Scott J. Levine - JP Morgan Chase & Co, Research Division: So your gross margins here were higher than we were expecting. And are, frankly, high relative to recent history. And I'm wondering whether that was in line with your expectations and I'm guessing, obviously, the strength in TPS is driving part of that. And if maybe a follow-on thought, it sounds like, naturally, as you book more field work that will dampen the effect here in '13 perhaps. But is it conceivable that your margins kind of -- assuming pricing continues its recent trends in the marketplace that '14 is maybe up from '13? We're getting ahead of ourselves, but I'm just really trying to get a sense at how surprising this strength in gross margin is to you guys, what we might expect over the next few years there.

When we start talking about the conversion and the pickup in field services as we get into later in '12 and into '13, that will have a much bigger impact on the gross margins than it has on these operating margins. You'll see that we would not expect to see to be able to maintain that level of gross margin when we're seeing a mixed shift that closer to say 50/50 mix between professional services and field services. Then it will come back down to where we were, say, when that mix was closer back in '05, '06, '07. But I think we will see the pieces improve, but the mix will drive it down. And I think that will have a little impact on operating margin, but not nearly the same impact on operating margin that it has on the gross margins. Scott J. Levine - JP Morgan Chase & Co, Research Division: Got it. So focusing on the EBIT margin, stability really with those changes and mixes, what you guys are talking to for the balance of '12 and into '13?

Yes. Scott J. Levine - JP Morgan Chase & Co, Research Division: And then not to nitpick here. You cited that Chemicals, Upstream and Mining are all characterized as very strong. Is there any notable difference, and how do you rank order the 3 in terms of strength or is that nitpicking, really?

Look, I'd have to tell you I think it's in the nitpicking category. But certainly Mining and Minerals and Chemicals are both very strong. Mining and Minerals probably a little more exciting for us because it's like the new toy. But both of those businesses are pretty strong and I think they're going to both going to contribute significantly going forward. And certainly oil sands is a traditional area for us, and I think its contribution will be particularly significant on the field services side. Scott J. Levine - JP Morgan Chase & Co, Research Division: Maybe one last one on gas, you talked about onshore gas' strength. Obviously I think Chesapeake has made some headlines here this week. And how much sensitivity do you really see in terms of investment in infrastructure to drilling activity? And is that something that should be closely monitored or do you see that as not being much of a game changer in all likelihood going forward for you guys there?

Well, I think the gas prices and how many holes are getting punched is going to have an impact on the overall size of the market. But again, I think I mentioned last time, the overall expectation for investment, 90 days ago at least, was something on the order of $30 billion. And if that pulls back by half, it's $15 billion. We still have an insignificant share of that from a market share point of view. So I'm still pretty positive about our ability to leverage that business for additional growth for us as a company.

Our next question comes from Steven Fisher of UBS.

Just thinking about how backlog might develop, I mean back in the last cycle, you had some billion dollar-plus type bookings. I know your customers are doing more phasing of work now, and you're generally focused on small to midsize projects anyway. But can you comment on the potential for larger individual bookings. And when we hear you talk about EPC and EPCM and EP, what kind of ranges should we be thinking about as we see these press releases. And in terms of the bigger ones, what areas might we see them?

Well, I think you'll see some bippings [ph] over the next few quarters that are big enough to be considered lumpy, but I don't think you're going to see us booking plus-billion dollar numbers. If anything, I think we were a little too aggressive in our booking practices on some of those really big jobs in the past. I think our customers, as you described, are already a little more conservative about how they're going to release these projects. So I think the projects are going to be what is it, 8, 9 figures maybe but not 10. So $100 million to $500 million, $700 million or will be those sort of those big bookings that happen. And I don't really expect to see $1.1 billion or $2 billion or $5 billion or any big numbers like that. Does that answer your question, Steve?

That's exactly what I was looking for. And I guess somewhat related to that, can you remind us what your approach to booking IDIQ-type contracts is, and whether you've recently changed that at all to the extent the maximum potential you put into that, I know you mentioned $775 million. Can you just talk about how you approach that in terms of bookings?

Our booking rule for those kinds of contracts are, that we book what we think the activity within that contract, if it has a finite life and a finite kind of scope of what services are, what we believe will be the outcome of that contract. And then we monitor that and adjust it. Basically, we look at it every quarter as to how that's trending against the actual IDIQ or the multiple award kinds of activities that are going on. And for the most part, those seem to work out pretty well. In the past, we've had some that have grown over the life and others that have not met their expectations [indiscernible] pretty well be able to track it over the life of the contract.

I guess the fundamental thing, we really are not changing our booking practices with what we've been doing for the last decade, we're going to continue to do. As you know, there aren't any rules about how backlog gets booked, and so what we think is important is to be consistent and we're trying to do that.

Our next question comes from Brian Konigsberg of Vertical Research.

I'm just curious. You talked about GES plus contract in the Middle East, it still only remains 2 of you, I know there had been an extension for applications for others to get in the mix. But it doesn't seem to have happened. I'm just curious, is there going to be kind of a pause and awards associated with that project as they try to get other contractors in place or do you think that you'll still see projects worth coming from there?

Let me comment on that quickly and then I'll pass it on to Greg Landry, who is our EVP, with that responsibility. I generally don't think that we'll see much of a pause, simply because the work that gets done under GES, for the most part, is work that has to be done to keep the asset base running. It's that kind of work that we like a lot. There's also some bigger project work, but let me ask Greg Landry to comment. Greg?

Yes. In fact, there is another organization that's -- we were expecting to be approved here by the end of the year but it hadn't. So it may occur this quarter and there'll be 3 of us in the GES plus game. But the work we have now is a big clean field program, but now we're beginning to see a lot of small, medium capital type project that's coming out of the facilities. So we're pretty -- in fact, we're very optimistic on the work that's going to be funneled through GES plus. And as more companies qualify, we determine whether it's going to be 3 or 5, that's going to put a baseline of work but -- what we've done in the last 6 months is that there's been a learning curve for the owner on how to manage this work, they're getting better at it, so we're seeing more work coming out of it.

Yes, I think the pause question, we don't expect to see a pause. We expect to see GES plus to continue to drive the business. The work that was traditionally done under the old GES contract was work that sort of had to be done on an ongoing basis, and that's what we're really seeing now. So to Greg's point, I don't expect that we'll see anything but steady flow of work. And as additional competitors come in, and there may ultimately be only 3, that's kind of where we think we are, there'll be plenty of work for all of us. Does that answer your question, Brian?

Yes, exactly. And just more housekeeping, so your share count has continued just to kind of tick up modestly from here. How should we be thinking about that going forward? Are you planning to keep that steady or should we anticipate it to kind of -- we see some creep there?

There's 2 things that affect that. One is we do have modest stock purchase plan. So we've -- the shares go out there. We have options and such that exercise in all. But it also is impacted by the stock prices. As you do the calculation for the fully diluted earnings, the value of the options outstanding or the dilution effect of the options outstanding go up a little bit and as the stock price goes up. So the good news is that when the stock price goes up, there will be a little bit of bad news with the share, denominator goes up a little bit. But the actual shares going out, tend to be fairly modest. There is a little bit of a flow, but it's through the stock purchase plan and options. And some of our activity in acquisitions, we do put a piece of the purchase price in stock, particularly where the sellers are, the ongoing management and we want to keep them tied to the company and interested in the overall outcome of Jacobs. So if we're buying from an independent owner like with acquisition from Aker, there wasn't the opportunity or the real desire to put stock into the purchase price, but when we're buying individual company where the shareholders that we're selling are also the management that we want to keep in place, we want to put some stock in their hand so that they keep a long-term focus on Jacobs.

Brian, to address sort of a hidden question there. We still think we have plenty uses for our cash in the world of acquisitions. So we don't have any plans to use it otherwise.

Our next question comes from Jamie Cook of Credit Suisse.

This is Andrew Buscaglia on behalf of Jamie Cook. So you guys touched a little bit on your competition, your Mining segment earlier. I was just wondering with -- in terms of some of the other markets that are improving such as infrastructure, are you inside the buildings? And also just relative strength in oil and gas and chemicals. I'm just curious what else you're seeing in terms of competition heating up, and what's the environment right now and kind of how you see that trending throughout the year?

Well okay, let me see if I can tackle that one. In the Heavy Process business. So chemicals, refining, upstream, oil and gas, pretty much the same competitor set globally. Again, most of our competitors in that arena tend to focus on bigger projects. So our competition with those bigger players tends to start as the projects get bigger, say $200 million and more. And then on the smaller stuff, competition continues to be, for the most part, the smaller and local players or regional players. So it's a mixed bag of competition there. The bigger players are starting to get more business and so we're seeing a little bit of a softening in competition. Not a lot, but a little tiny bit. The smaller local guys are still pretty fierce. And so that arena is not quite as strong, although even it's improving a little bit. So overall, the competitive slate in the Heavy Process business is one that's -- it's the majors, it's the folks that most of you follow. And while the market and the competition levels are a little better, it's still pretty competitive. Now if you move around to the industrial markets, we've already talked about Mining and Minerals in that context. When you think about the other businesses that we're in, frankly the competition in those businesses are relatively unique, and almost none of it is in the public space. So the folks that you know best is our competitors we really don't see in those markets. On the infrastructure, public and institutional works side, not just specifically infrastructure but the whole public and institutional work, it's a mixed bag. The national government's programs business, it's major competitors, it's the URSs of the world from Bechtel and those folks around there. We see all those folks in those big national government programs. When you move into infrastructure and buildings, those markets are hugely fragmented, way more fragmented, frankly, than any of the rest of the industries we're in. So while we see folks like E-com [ph], and URS as competitors, we see literally dozens of other competitors who are local or regional in nature. And its -- that business is not particularly price-competitive. Although as I mentioned, I think, in my prepared remarks, it's becoming a little more price competitive as governments realize they don't have the money to do all the things they need to do and they start looking for ways to leverage their dollar. We're actually pretty excited about that. We think in the long run, price competition in the public sector will be a big bene [benefit] for Jacobs, because we've built our business to be cost-competitive in that area and some of our competitors are not yet there. Does that answer your question?

Yes, that's great color.

Our next question comes from Andrew Wittmann of Robert W. Baird. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: Craig, I just want to get your view a little bit. It sounds like your outlook for the construction opportunities has been pushed out maybe a little bit, maybe a quarter or 2. I'm kind of curious as to what you think needs to happen for the construction aspect of this cycle to come through. Is it just time, is it -- is there some skittishness on the part of the project sponsors that they're a little gun shy here, what needs to happen to get to the construction cycle?

I'm not sure that my outlook about the construction cycle has actually changed that much. I think I said as early as 2 quarters ago, that was a sort of second half of '12 conversation. I still think the second half of '12 will start to show some good strong movement. But certainly, our customers are being, in general -- and this is globally so, a little more conservative about when they commit the big dollars than they were in that 2005 to 2008 cycle. I mean you're looking at a time when people couldn't get on the bandwagon fast enough, now you're at a time when people want to be sure before they commit. But I really don't think it's changed the tenor of where we see the business going forward. It may shift a project or 2, from quarter-to-quarter, or there may be 1 or 2 big events that get shifted more than that. But overall, I don't think it's changed our outlook very much. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: That makes sense. I guess for John, the guidance range -- totally understand not adjusting it this early in the fiscal year, but I guess John, can you give us maybe a picture of what it looks like for the company to maybe achieve the higher end of that range? Is that margin as well as a material uptick in the booking rate or what's it take to get us to that level?

Well, again, I'll caution that we don't really give guidance within guidance. But we talked about a number of things. Craig has commented about construction. If that move forward, came closer, that would now be actually be an upside. But I think it's just timing in markets, and we're still in a very volatile and uncertain economic market that could impact timing of events and activities and certain regions and such. It's just a whole lot of things that would be both on the plus and minus side. And I'm not going to go through and itemize, item by item, what will get us to the 320 and what would take us down to the 280.

Maybe just the way I think about it. When we look at our customers and their CapEx plans, there is a good, steady growth future out there. And if they get a little aggressive about that, we'll have the better outcome than, say, the midpoint of the guidance. And if they get less aggressive about that, we'll have a poorer outcome. But we are -- not withstanding our customers view of their CapEx cycle, if you look at the overall economic climate, there is an awful lot of uncertainty. I mean, what does this all mean, what's going to happen to China, what's the federal government going to do, how are the states going to deal with their tax shortfalls, what's going to happen in Europe, what are the capital market? If you pick up any magazine and you'll get 10 pages worth of uncertainty. And so I think that's the bigger issue that you have to think about in terms of the guidance range, is there's a lot going on that's really external to the CapEx cycle that could affect it either very positively or very negatively. And 3 quarters out is a long way to predict. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: Just one kind of technical question here. John, is the run rate for G&A you think here in the first quarter, is that about right for the balance of the year? Or how do you see the G&A unfolding?

Obviously, if we're going to move up, outside even at the midpoint of the range, there's some growth involved in that and with salary pressures, with that growth comes a little bit of an uptick in G&A. But it certainly should grow at a much lower rate than what we would see in our professional services, our margin line growing at. So there probably -- the pressure on G&A is increasing slightly, but certainly not above the trend line of our margins.

Our next question comes from John Rogers of D.A. Davidson. John Rogers - D.A. Davidson & Co., Research Division: Just a couple of follow-ups. First of all, Craig, could you go back to Europe for just a second. A lot of headlines about -- obviously the problems over there and kind of what you're seeing in terms of customer reaction?

Sure. I think first of all, you have to think a little bit about our business is positioned. In mainland Europe, the vast majority of our business is related to the process industries. And there, the customers are very focused on sort of continuing CapEx and keeping their assets functional and safe, and driving the projects that will improve the profitability of those assets. That's where the majority of our business is, where the assets are onshore and offshore. And so I don't expect to see big project activity, it'll be a few big projects but I don't expect to see big project activity in Europe. I think the segment of the business we're in and the customers that we're working for are not particularly sensitive to the uncertainty in Europe. When you move over to the U.K, it's a little different sense. Our U.K. customers are insulated a bit from the continent, not being on the euro and all has had some impact. I think the U.K. government has responded well to the economic crisis, and it has taken and stepped up and done a lot of the things that it needed to do, to address the economic challenges of the country. And our guys, I think have been pretty adroit in positioning us for the places where the money will go. And so absent some sort of bank contagion that just drives across global banking, I think our U.K. position is really pretty solid. And I think we'll continue to battle with the other big players in the U.K. for market share. But we've positioned ourselves well, and I think we're in a position to take that share. So I'm not feeling terribly sensitive to the economic situation in Europe, unless it involves into more of a global crisis than I think most people expect. Our businesses in Southern Europe are going to struggle and that's going to be a challenge for us, but it's not a -- from an impact on the overall business, those are not big numbers. John Rogers - D.A. Davidson & Co., Research Division: Can you give us an indication of the size of the market for Jacobs in Europe? Not total people, but maybe people that are focused on European projects?

Wow, that's hard to do, John. We have a substantial complement of people in Europe, probably in terms of aggregate heads, we're pushing close to 10,000 people. I'm counting both the U.K., Ireland and mainland Europe. The vast majority of those people are focused on the projects of the type I just described, either the Buildings and Infrastructure business in the U.K. or the Process business in U.K., Ireland and northern Europe. As a percentage of the total, we still don't have something -- we don't have like a 25% market share or anything silly like that. I think in the U.K, we're maybe #5 and in Europe, we're probably #7 or #8 or #9, I don't know, something in that range. And so there are still plenty of market share to be had. The other aspect of that, that you can't ignore is that we're moving a fair amount of work when we do Out-of-Kingdom work in Saudi Arabia or in the Middle East. We're able to move a chunk of that work to places like Leiden and Manchester and Redding, and so those businesses are not entirely dependent on the local marketplace. Even though we are emphasizing always the local presence, we do have a good ability to move work around the system and leverage capabilities in places like Europe, where there's a lot of capability for these bigger projects that are going in the Middle East and other places. So long-winded answer to say, we have a strong position, we're not dominant. We should be able to sustain those businesses by continuing to take share in the local marketplaces and we have the ability to drive work into those countries from outside those countries, keeps us pretty comfortable with our European business. Does that answer your question, John? John Rogers - D.A. Davidson & Co., Research Division: I appreciate the color, it would help. One other thing, if I could. I mean you talked about acquisitions and maybe a little bit better pricing out there. Is this the kind of market where we're likely to see larger deals, I mean more along the lines of Aker versus what you've done most recently?

I think there are both kinds of deals out there, the relatively smaller niche deals, midsize deals, but I think there's also a few deals that would be in the $250 million north kinds of prices, and it wouldn't surprise me at all if we find 1 or 2 of those deals to do in the next 18 months. I don't see some sort of giant mergers of equals or any of those kinds of things. Certainly, that's not something that Jacobs has any interest in.

Our next question comes from Robert Connors of Stifel Nicolaus. Casey S. Deak - Stifel, Nicolaus & Co., Inc., Research Division: This is Casey Deak in for Rob. I have a couple of quick questions. Within the oil sands, has it been more of a return of old projects from pre-financial crisis that have been driving the awards or is it more new projects? And if it is old projects, is it just updating of old feeds and that might carry a somewhat lower margin?

It's both. We're seeing projects that were shelved when we -- when the crisis broke that are coming back. Most of those are coming back in a different form. And so you're seeing some differences in -- Petro-Canada had some big projects they're going to do prior to their acquisition by Suncor. Some those projects may come back. But if they do, they'll come back with a Suncor spin on them, not a Petro-Canada spin. And that'll change the nature of those jobs and they will change the approach to some of the feeds. But I would tell you that there's lots of ore body yet to be developed, lots of exploration going on in Canada in the ore bodies or reservoirs, whatever word you want to use for them. And so there's -- you wouldn't say that the preponderance of business was old projects coming back. If anything, the preponderance of business is new projects.

Well, even in some of those older projects, the clients out there are really looking for better ways to do the projects. In the last cycle, there was maybe a propensity to just throw money at it to get it done and get it going, where today they're much more conscious of what does it cost to process a barrel of bitumen to actually get the economics of the crude better. So there's a lot more focus on doing things better, doing things more efficiently, and that drives reengineering and relooking at even if engineering was done in the past, before it goes out in the field and figure out a better way to build it. Casey S. Deak - Stifel, Nicolaus & Co., Inc., Research Division: That's great. And one last question, going back to the gross profit margins. They were highest this quarter since fiscal 2Q '08. And the way I remember you guys talking about is that at the gross line, public sector end markets carry a higher margin than the private. But it seems to me that private sector has been a stronger market, over the past year. So I'm just wondering if you could comment on that trend.

The public sector market still has a pretty good share of the professional services and I think, on the professional services side, we are seeing improvement in some margins with salary increases. We're seeing a pickup in the -- the multipliers may stay the same at the lower level. But the salary -- the short-term salary increases do improve that gross margin activity. Some of it is offset by higher salaries in the G&A and you get a little bit of a kick up at the gross margin. So there's a number of things that are adding to it, and while the traditional government sector has more -- higher multiples but less items that are directly billable, they do tend to have a higher gross margin. We are seeing a pickup in the salaries and multipliers that are improving the professional services. And we are just seeing a little bit better pricing. I say a focus a little bit, but it is stabilizing and in some areas moving up because of some of these markets where the salary increases are a little stronger. Australia, Canada, in regions like that.

Our next question comes from Min Tang-Varner of MorningStar.

I actually have a quick question about what Aker's do to your project mix that you're going after. I remember we talked about it before that Jacobs likes small to medium-sized projects, and they're very good at doing projects that are more in the sustaining capital category. And today you talked about, because of the Aker acquisition, you actually can have the capability of going after large capital projects in the gold and copper field. So I'm curious if Aker's materially changing, at least in the metals and mining space, your project mix going forward?

Aker has certainly contributed more to the big project aspects of our business at the time of the acquisition than it did to the small projects business. But we expect to continue to grow that existing Aker business, the big projects business, but we expect to supplement that fairly rapidly with more of our traditional small cap alliance relationships that we think provide better long-term continuity of customers. Remember that our business model is always to do the small project work as a base for also doing the large project work. So I don't expect that the Aker acquisition will have any meaningful impact on the amount of big project work that Jacobs does globally, but I do think that, in particularly Mining and Minerals space, we'll be in the big project work sooner perhaps, than we worked into those things, say, in the refining business, where we kind of ate our way up from underneath. Did that make sense?

Yes, most definitely. I'm just curious because you also mentioned before that Metals and Mining projects tend to carry a smaller margin compared to oil and gas projects. So is that still the case or do you actually think because of the industry is enjoying a reasonable pricing environment, they're actually getting more aggressive in terms of handing out additional projects?

My original comments, if you remember, when I suggested that Mining and Minerals was probably going to be softer than our historic business is, a lot of that is based on comments from our competitors who, in public forums like this one, have said that their Mining and Minerals business was less profitable. I think today, what we're finding is that in places where there is a lot of activity, like Australia, the margins on these projects are at least as good as our Process businesses generally. And so there isn't a particular deficit in that area. And of course, obviously, in markets where it's truly white-hot like maybe around Perth in Australia, you may even see higher margins than our traditional thrust of business, a bit like what we saw in Canada in the big boom there.

Okay. So in essence, you're probably thinking that the margins that you had originally anticipated is actually going to be a little better than your peers had indicated before?

That's exactly right.

Okay, that's a good news. And I think you had alluded to it before. You said that the competition is actually getting -- environment is actually getting a little better. So I'm curious if you could elaborate a little more about the Middle East, which is you consider to be your growth engine in the future?

The Middle East is still very competitive. There's no question about that. When you're -- the source of an awful lot of this big project work in particular. There's a lot of attention on that. But I would say, even in the Middle East, the pricing pressures have come off just a little bit. Now, I remind people on calls like this all the time, that the people with whom we do business, whether it's Saudi Aramco or Exxon or BP or Shell or BHP Billiton are very sophisticated buyers. And they're really good at getting the best possible price out of their suppliers. So we're talking about nuances when we talk about better pricing or worse pricing. We're certainly not talking about order of magnitude kinds of better or worse.

And if I may, I just want to ask the last question because I remember you guys talked about last year or even the last quarter, you were talking about you're still looking at a recovery in that similar to the back half. Do you actually think 2012 is going to be similar to 2011 in terms of the recovery, a slow steady recovery, or do you actually think towards the second half of the year, you're actually are going to be able to see some bigger bumps because the EPC and EPCM contracts are going to start -- you're going to start working on those ones more?

I think we're still in the slow steady. I think the slope of the curve might be a little better today than it was 12 months ago. In fact, I'm convinced it's a little better today. But I don't think we're at the point where we would expect to see any sort of dramatic improvement.

This concludes today's question-and-answer session. I'd like to turn the conference back over to Craig Martin and the management team for any final remarks they may have.

Well, thank you all for your interest in the company. We appreciate it very much. We're pretty pleased actually with the way that the first quarter went. And we continue to have a pretty positive outlook as we go forward. So we'll be back together to have this conversation here in about 90 days and we'll see how it's going, but the markets and the company's position in those markets, I think, is pretty good. And we look forward to continuing to demonstrate that. Thank you all very much.

The conference has now concluded. And we thank you for attending today's presentation. You may now disconnect your lines.