Paul Cyril - Senior Vice President of Financial Planning & Analysis Michael S. Burke - Chief Executive Officer, President and Director Stephen M. Kadenacy - Chief Financial Officer and Executive Vice President.

Steven Fisher - UBS Investment Bank, Research Division Andrew Kaplowitz - Barclays Capital, Research Division Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division Adam R. Thalhimer - BB&T Capital Markets, Research Division John B. Rogers - D.A.

Davidson & Co., Research Division Tahira Afzal - KeyBanc Capital Markets Inc., Research Division.

Good morning, and welcome to the AECOM Third Quarter 2014 Earnings 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 www.aecom.com. Later, we will conduct a question-and-answer session. I would now like to turn the call over to Paul Cyril, Senior Vice President, Investor Relations..

Thank you, operator. Good morning. I would like to remind everyone that today's discussion contains forward-looking statements based on the environment as we see today, and as such, does include risks and uncertainties. Our actual results might differ significantly from those projected in these forward-looking statements.

Please refer to our press release or Page 2 of our earnings presentation and to our reports filed with the SEC for more information on the risk factors that could cause actual results to differ materially. Note that we are using certain non-GAAP financial measures as references in the presentation.

The appropriate GAAP financial reconciliations are posted on our website. Please also note that percentages refer to year-over-year progress except where otherwise noted. Beginning today's presentation is Mike Burke, President and Chief Executive Officer.

Mike?.

Thank you, Paul. Welcome, everyone, to our third quarter 2014 earnings call. I also want to extend a special welcome to our URS stakeholders who may be on the line with us today. Joining me today is Steve Kadenacy, our Chief Financial Officer. On today's call, I will provide a brief overview of our third quarter highlights.

Steve will then provide details on our third quarter financial results, an update on our combination with URS and our fiscal year 2014 guidance. Following Steve's remarks, I will provide some additional details on the URS transaction and a review of our key markets. Then we will open up the line to your questions.

While the big news since our last earnings call is our combination with URS, I'm pleased to report that our third quarter earnings were in line with our expectations. We reported a strong increase in new wins and record backlog. Now I will turn the call over to Steve to review our financial results. Steve, please go ahead..

Europe, the Middle East, Africa and Asia. In addition, our EBITDA margin increased more than 200 basis points from the second quarter, reflecting our margin expansion efforts. Finally, our free cash flow of $63 million keeps us on track to achieving our full year target of free cash flow at least equal to net income.

This quarter, our reported EPS of $0.70 includes $8 million in acquisition and internal due diligence costs, which impacted EPS by $0.05. Additionally, we benefited from a lower tax rate versus our guidance, which positively impacted EPS by $0.10. Net of these 2 items, our EPS was $0.65. Please turn to Slide 6.

We posted another quarter of strong wins, with $2.2 billion of new awards, up 16% year-over-year, resulting in record backlog of $20.5 billion, up 22% from last year's third quarter. We believe these wins are a positive indication of the progress we are making on our growth initiatives.

We continue to see signs of recovery in our Americas design business. Third quarter wins were up 2% year-over-year, driven by strength in transportation and water. Our Americas design backlog has now been stable for the last 3 quarters.

In Australia, we are very pleased to report that year-to-date backlog, which includes wins subsequent to the end of the quarter, is up 4% from the second quarter. Among the recent wins are awards in the mining sector which, as you know, has struggled over the last 2 years.

We continue to generate strong wins in Asia and Europe across a number of end markets. Additionally, backlog in our global construction services business continues to increase in the U.S., Europe and the Middle East with over $800 million of new wins in the quarter. This is more than double last year's level.

Overall, our book-to-burn ratio remains in positive territory for the third quarter in a row and stands at 1.1x. Our backlog now represents 2.6x our last 12 months' revenue, which gives us confidence in our longer-term growth prospects. Please turn to Slide 7. Now turning to our segment results.

Looking at PTS on a constant-currency basis, net service revenue in PTS was up 2%. Similarly to last quarter, PTS experienced growth in Europe, in the Middle East, Africa and Asia and in global construction. Our Americas design and Australia business saw a decrease in net service revenue, yet backlog and wins have begun to improve in these businesses.

Australia reported second quarter of positive operating income despite a decline in revenue. This improvement reflects the steps we have taken to rightsize the business in a challenging market environment.

This result, coupled with the improvement in wins and backlog, gives us confidence that the business is poised to rebound as the market conditions improve. Please turn to Slide 8.

Moving to MSS, our results reflect the transformation of our MS business -- MSS business to a more diversified revenue base that includes new higher-margin businesses with non-DoD agencies. As expected, gross revenue and NSR declined in the quarter by 21% and 31%, respectively. On a year-to-date basis however, margins are up nearly 600 basis points.

MSS backlog is $2.3 billion, up 50% year-over-year. Only 20% of the backlog is derived from overseas contingency operations budget, down from nearly 85% a year ago. We believe this performance indicates that our strategy to drive profitability by pursuing higher-margin non-DoD work is yielding results. Please turn to Slide 9.

Turning to EBITDA margin, cash flow and the balance sheet, we generated an EBITDA margin of 9.6% in the quarter, up sequentially from 7.5% in the second quarter but down from 10.9% in the third quarter of last year.

We are making progress on improving our EBITDA margins by focusing on reducing hard costs, improving utilization of our people and managing project margins.

I am pleased to report that our cost savings initiatives are on track to achieve run rate savings of $20 million by the end of this fiscal year excluding the synergies we expect to achieve as we integrate URS.

Looking to the future, after the expected closing with URS, we anticipate realizing both scale efficiencies of a larger enterprise and significant cost savings through the elimination of redundancies across both organizations. Please turn to Slide 10.

During the quarter, we generated $63 million of free cash flow, and our year-to-date cash flow of $136 million is 81% of net income. We remain on target to generate free cash flow at least equal to net income for the full year, excluding costs related to the URS transaction.

As a reminder, the fourth quarter has traditionally been our strongest cash flow quarter. In the last 3 years, we have consistently generated free cash flow significantly in excess of net income in the fourth quarter. Net-debt-to-EBITDA was 1.2x, down from 1.3x for the prior year.

Our liquidity is strong with $510 million of cash, and this is further supported by $1 billion in undrawn borrowing capacity under our revolving credit facility. At closing of the URS transaction, we expect pro forma leverage to be 4.4x.

Our goal over the next 3 years is to aggressively pay down debt with our free cash flow and to reduce leverage to approximately 2x by the end of the fiscal year 2017. Please turn to Slide 11. Before turning to our outlook and guidance for the remainder of the year, I would like to review the highlights of our pending combination with URS.

Closing is subject to the approval of URS and AECOM stockholders and certain other regulatory bodies. We currently expect to close in October and receive all necessary approvals by then. We are pleased to report that yesterday, we received word that the U.S.

antitrust agencies have reviewed and approved the transaction, and the Hart-Scott-Rodino process is now complete. We have a financing commitment in place for the full cash portion of the transaction that consists of a new senior secured credit facility, which we intend to partially replace with long-term senior unsecured notes.

The financing is on track. Finally, we incurred $8 million of acquisition-related and internal due diligence costs in the third quarter. Please turn to Slide 12. This brings me to guidance for the remainder of fiscal 2014.

Based on our results to date and our outlook for the fourth quarter, we expect our fiscal year 2014 EPS to be in the range of $2.50 to $2.60. These estimates exclude costs associated with the recent acquisitions. For the full year, we expect a tax rate of 27% and a diluted share count of 99 million, which reflects no further share repurchases.

As we indicated, our top capital allocation priority going forward will be reducing long-term debt. And now I'd like to turn the call back over to Mike, who will provide more insight on the URS combination and a review of our key markets.

Mike?.

Thanks, Steve. For several months now, you've heard us talk about our vision to become the world's premier fully integrated infrastructure firm. You have also heard us say that our vision would need to be supported by a powerful integrated delivery model, capable of providing single-source solutions to our clients across our global platform.

For the past several years, we have made significant progress in building our integrated delivery platform. However, when we looked at our capabilities in the area of design, build, finance and operate, we saw a significant potential to scale our business across a greater number of end markets and geographies.

When the opportunity to combine with URS emerged, we saw a clear path to strategically expand and enhance our capabilities with less risk and time than what would be required to achieve these goals organically.

With this transaction, we are more rapidly moving in the direction that will leverage our fully integrated model and global footprint to generate long-term sustainable growth. Since we made the announcement, I have been meeting with clients, investors and employees to talk about the possibilities ahead.

And I'm pleased to report that the response to the transaction had been overwhelmingly positive. Some AECOM clients are telling us that they like the expanded capabilities we will be bringing to them, and URS clients are telling us that they're excited about the expanded geographic footprint.

This feedback is entirely consistent with what our strategy has always been. With the highly complementary nature of our businesses, we anticipate a successful integration process. AECOM has a proven track record of acquiring companies, with a core expertise that can be delivered through our global platform.

While the $250 million of expected synergies will enhance the accretion of the URS transaction, what we're especially excited about is the opportunity to deliver URS's capabilities around the world. This is what will really drive new opportunities and position AECOM for sustained growth.

Now let us turn to a review of AECOM's business in key geographies. Please turn to Slide 14. I'll begin with our largest market, the Americas. This quarter, our Americas design business delivered a year-over-year increase in wins, and we believe that we have reached an inflection point in this business.

Our transportation business is gaining traction with new wins for projects in light rail, airports, bridges and highways. We're also seeing good momentum in our water business, with recent wins in water and wastewater treatment facilities.

Our environmental business is also benefiting from the increased environmental permitting and planning for pipelines in the oil and gas market in Canada and the U.S. In the Americas construction services business, our third quarter wins doubled from a year ago.

High-rise construction is very strong in many urban markets, and we are working on commercial and residential projects in several cities across the country. The addition of Hunt Construction Group is a compelling strategic fit for our business.

This transaction builds upon AECOM's strong foundation in construction management and aligns with our vision to become a fully integrated service provider. Hunt is one of the country's leading commercial construction firms, with expertise in sports, health care and aviation markets.

Hunt delivers services in a low-risk construction management model, similar to our existing construction services business. In our U.S. federal government business, we continue to identify new opportunities, including environmental, cyber and IT-related work.

Our MSS backlog is up nearly $1 billion year-to-date, which validates our strategy to migrate to higher-margin work in the government sector. Turning to Europe, the Middle East and Africa. Our business remains strong as we experienced double-digit growth in all 3 regions in the quarter.

In the U.K., both the government and the private sector have announced significant infrastructure spending plans. We have also had a number of recent project wins in this important region. The Middle East region continues to ramp up resources for large infrastructure programs, especially in Saudi Arabia.

One of our large scale projects in the region is the creation of Jazan Economic City, an entirely new city on the shores of the Red Sea in Saudi Arabia that will serve a population of 150,000 people. For this project, we are providing planning, design and construction management services.

In Africa, we are seeing an increased level of infrastructure activity, particularly on transportation projects for new ports, railways and roads. We are winning large projects including EPCM projects for major private clients.

Net service revenue in Africa was up 31% in the third quarter, and we are well-positioned to compete for several new projects in this region. Turning to Asia. This region remains strong and generate 12% net service revenue growth and a nearly 60% sequential increase in wins for the third quarter.

The Hong Kong government plans to spend $9 billion a year on infrastructure projects through 2018, and we're excited about the opportunities based on our strong reputation and track record. In Australia, we continue to navigate a challenging environment. However, we are encouraged by recent wins, particularly in the mining sector.

And while revenue is still down, operating income is up sequentially. Now turning to AECOM Capital. In the third quarter, we closed our sixth transaction since AECOM Capital was formed 24 months ago. With this acquisition, we now have project commitments representing over $1 billion in AECOM construction revenue.

URS will expand our ability to leverage AECOM Capital, and we anticipate launching a second fund, which will include capital from third parties as we continue to grow our business and expand our reputation as the leading integrated delivery firm. This rounds out the discussion of AECOM's business.

Now let me review some of the other anticipated benefits of the URS transaction. On a combined basis, we'll have a stronger position in the energy, power and industrial sectors. We also have broader and deeper capabilities in the government service business, including nuclear decommissioning, cyber security and IT.

Globally, we will be very well positioned in growth markets such as Asia, Africa and the Middle East. As we bring together our 2 organizations, we will be a more complete provider of integrated services with many new opportunities to drive growth. In closing, we are very enthusiastic about our future.

Our core operating strategy is on track as we continue to win business across all of our end markets and geographies, which drove another quarter of record backlog. We remain focused on translating backlog into organic revenue growth while, at the same time, improving our profitability.

Our combination with URS will significantly accelerate our vision to become the world's premier fully integrated infrastructure firm. We look forward to sharing additional details on the integration of URS as we move through the process. With that, I'd like to open the line to questions..

[Operator Instructions] And from UBS, we have Steven Fisher online..

The awarded backlog was very good, but the PTS new contract awards was a bit light, compared to where you've been over the last several quarters.

What do you think caused that and how quickly can that pick back up again?.

Well, backlog quarter-to-quarter, Steve, is always a bit lumpy. And we've had some significant construction services wins flowing through. But overall, we've increased, despite the burn on contracted, our overall awarded more than made up for the burn. So I think you got to look more long term with respect to backlog than quarter-to-quarter..

Okay. And then good to see that you turned the corner on the PTS organic growth in the quarter.

How should we think about where that 1.8% goes from here? Do you think you have the visibility to that staying positive over the next few quarters, and can that accelerate?.

Well, Steve, it's very difficult to predict how it's going to move quarter-to-quarter, but the best predictor of that is the backlog. As Steve said, the backlog continues to grow, and that's the first indicator of organic growth. And now that we've got a quarter of organic growth, it seems to be heading in the right direction.

But I don't know that we're prepared to predict how quickly that accelerates from here. But the backlog gives us some pretty good confidence that it's all heading in the right direction..

Okay. Just last, quickly, can you give us some sense yet of sort of the overall integration costs you might incur related to URS? I'm not sure if that $8 million in the quarter was indicative of what the run rate might be..

So we're not prepared to give that number just yet, Steve. But listen, these costs are significant and they're material. We're refining all of our costs -- our estimates on these costs and -- but we're not prepared to give guidance -- detailed guidance on that yet. We've launched our integration planning effort.

We had 50 people from the URS side, 50 people from our side together here in Los Angeles last week, beginning that planning process. And so we'll have much more information to share with you on our next earnings call that will be around the time -- a little after the expected closing.

So -- but they are significant and they are material, and we'll give you more guidance as it plays out..

From Barclays, we have Andrew Kaplowitz online..

Mike, so when you look at organic growth turning positive in the quarter, maybe you can help us with the biggest factors that are contributing to the turn here.

Is it easier comparisons in the difficult markets such as Australia or Americas design? Is it private construction accelerating? What do you think is the biggest contributor to sort of the change here?.

So I -- as we mentioned earlier, if you look at EMEA, for instance, we had double-digit organic growth in Europe, Middle East and Africa. Our construction services group is -- organic growth is at 8%. So almost double digit, if not double digit and -- yes, I'm getting confirmation. 8% in the construction services group.

Asia continues to grow at double digit. So when you have double-digit growth in Asia, Europe, Middle East, Africa, and 8% in construction services, it's pointing all in the right direction. Now we still have challenges in the Americas design business and Australia, and we were talking about that for a while.

But just stronger growth in the emerging market growth regions..

And I think if you look at the backlog, just to add on that, within the Americas business, the design Americas business and Australia, we see a leveling off of the backlog, so a stabilization within that backlog. And if you exclude Australia and the Americas from the growth calculations, you were growing 22%.

So if those 2 businesses stabilize and have better comps, we're going to expect an overall growth rate that looks much better, particularly in PTS..

Okay, that's helpful, guys. And, Steve, I'm still having a little bit of trouble modeling your MSS business. I mean, we know revenue should be lower and margins should be higher, given the transition away from Afghanistan, but your contracted backlog went way up in 2Q and then it went down in 3Q, but we didn't really see any flow-through into revenue.

So can you give us a little more color as to how we forecast this going forward? Should revenue pick up from here? I'm talking net service revenue. With margins staying relatively high, is that -- I'm just trying to figure out how to do this..

Andy, let me take a stab at that. The challenge in building a model the way you build the model is always the split between JVs and direct revenue. And so I could tell you the way we look at the business is on an operating income basis, because we have award fees that are coming in quarter-to-quarter, so you get some lumpiness.

And we could be a 49% JV owner versus a 51% JV owner, but would -- which gives us almost the same economics but has very different revenue flowing through. So I would encourage you to try to model it based on operating income. And the message that we have there is that this business has changed dramatically.

We have repositioned this business into higher-margin, more steady line items in the federal budget as we've turned away from the business that we were doing in the overseas contingency operations and war theater. So we are repositioning that business, we are attracting much higher margins.

And as we've said in the past, we expect our operating income to be greater than it was last year for the full year. And then on top of that, the backlog, you see the backlog growing significantly over the past year. We've won some very nice sizable projects with new agencies and in new areas that we hadn't previously participated in.

So that's the -- I think that's the message, as you start to try to model it out, splitting between NSR, gross revenue and JV income, it's just a little bit difficult in this space..

Okay, that's helpful, Mike. And then I think I know the answer to this question. I'm going to ask you before I ask it, but I'm going ask it anyway because I get it -- I got asked it a lot yesterday. And that is with the S-4 coming out, the EBITDA projections that you gave for URS were quite low versus the Street.

I guess maybe were you surprised that the growth profile of the company as you did your due diligence? Any color you can give us would be helpful, but you tell me..

So yes, Andy. I mean, look, we want to be careful of -- they're still a separate standalone company today and they've given earnings guidance. So I really don't want to comment on their earnings guidance. But what I will say is you have the S-4. You have our forecast that we produced through our due diligence effort.

We did a fairly thorough due diligence effort. We, of course, through our due diligence efforts, are not going to know the business as well as the URS management team knows it themselves. But we used all the information we have -- had and arrived at what we thought was a good forecast.

We are now just starting all of our integration planning, as I mentioned earlier, and through that planning, we will start doing a much more thorough analysis, and then we'll come back to you in November with a much better sense of those numbers and if we need to update them from the numbers we have in the S-4..

Okay, Mike, that's helpful. Steve, just a cleanup item.

The $8 million of acquisition costs, how did it allocate over those segments? Was it -- is it in PTS? Is it -- where is it?.

It's in G&A, Andy. And we've got a lot of noise in G&A because we've got some FX benefit in there. We trued up some BC and equity compensation, and then we have some ongoing corporate cost initiatives that have saved us money in the quarter. But we're -- so far, we have not allocated those in the future.

I think most of those will be reported separately on a transaction related cost line.

They were fairly immaterial this quarter so we will start to do that in the fourth quarter, and we'll give you more guidance as we refine that overall calculation of what the transaction related costs are going to be, which obviously are going to be far greater than you're seeing now..

Got it. Because their G&A looked pretty low as a percent of sales fees, so those other pieces that you mentioned, I assume they were pretty sizable then..

Yes, there's a fair amount of offset in there, and we've been driving the corporate cost savings pretty significantly. But again, it's a small base that you're calc-ing off there, so it tends to be a little bit lumpy from a percentage change standpoint.

But it's down 1.7 year-over-year, but you got the incremental costs in there and then the tailwinds that I mentioned..

From Robert W. Baird, we have Andy Wittmann online..

Wanted to dig a little bit into some of the offsets. Looks like the tax rate is now forecasted, obviously because of the quarter, to be a little bit lower than you previous expected, yet guidance didn't go up -- didn't go higher.

What -- is there an area that's the offset to that, Mike, Steve? And particularly maybe I'm curious about the margin profile being down year-over-year, is that maybe what it could be?.

I'm not sure I completely understand the question. So the tax rate in the quarter contributed $0.10, 16.5% versus our guidance of 29%. And then we expect 200 basis points less for the full year, which is about $0.07..

Right. But the guidance didn't go up $0.10 from the benefit from the tax for the quarter..

Well, the tax rate settled down for the full year. So we took the guidance -- or the qualifier on the guidance up -- or away in the quarter. And we're not specifying a particular number in the range because we're still managing a lot of moving pieces. But we think it'll be off the bottom..

Okay. So just as it relates to the EBITDA margins, sounds like the SG&A had a lot of moving pieces in that.

How should we think about the 9.6% versus last year's levels? Is there absorption of utilization of people that could be higher still there? Were there other one-time items? Was that tough comp last year? Maybe just some color on the year-over-year margin change would be helpful..

No, it's on the PTS segment, and it's virtually all in the Americas in terms of the drag on our margins. If you exclude the Americas for the quarter, our EBITDA margin would be almost 12%.

And so it's just the lower revenue in Americas design business and our investing to build that backlog back up and start to grow that business, which is starting to pay off in terms of the backlog build. So that's really what's impacting it.

We did improve quarter-to-quarter, but until that business starts to grow, which we do expect it to, it'll continue to drag our margins a bit..

Yes. Andy, just if I could add one additional point to Steve's point, which I agree with, is that we significantly increased our business development expenditures in the Americas this year over last year. And so when you're looking at the margins, I just want to make sure that you don't misinterpret it as a project execution issue.

It's -- we spent considerably more on business development because we are seeing a recovery in the U.S. market, and that's when you want to increase your investment in business development, which we have done..

Got it, okay. Maybe just one final question. Can you talk maybe about the scope backlog, if you will, that's in there? It seems like construction services is a bigger part of your backlog gains today.

How should investors think about the earnings that could ultimately come from that, vis-à-vis the history of the company?.

I'm not sure -- you used the term scope backlog. I'm not sure what that....

Well, the idea of kind of the NSR revenue content of the earnings potential off of the backlog. Given that it's got more construction services and it's probably got a little bit more pass-through content, I was just wondering if you could give us some thoughts around how that plays out over time versus the history of the company..

Yes, I can give you just another data point that might be helpful, if this is the way you're looking at it, is that the NSR backlog, and what you're seeing is gross revenue backlog, the NSR backlog is up 13% year-over-year, if that gives you an indication. Part of that is just the change in mix.

So you've got -- and that change in mix can be lumpy from quarter to quarter. But if that's what you mean by scope, then 13% -- the 13% number is helpful for you if you're trying to model NSR..

From BB&T Capital Markets, we have Adam Thalhimer online..

You sounded bullish on Australia, and I'm just curious, do you think you can continue to grow backlog there? And then what is pricing like in that market in terms of the awards you've gotten? Are the margins in line with expectations? Or you had to be a little bit aggressive just because it is still a tough market?.

Yes, I wouldn't use the word bullish because maybe -- let's be careful of the choice of words here. Australia is a very challenged market for us. And if I'm optimistic about anything, it's I'm optimistic that it stopped falling. So -- but when you say bullish, I don't think we said that. If we chose words to communicate that, we didn't intend to.

It is a very difficult market. We have seen it stabilize now, which is encouraging that it's -- the fall has stopped. But it's a difficult market. We're seeing some signs of hope there, but we don't expect it to come roaring back, so I wouldn't describe it as bullish.

And so in a market that is challenged, where you have oversupply, you tend to see some pricing pressure. So it's a difficult market to be competitive in right now..

Okay, that's helpful. And then I wanted to ask about the Hunt acquisition.

How much should we be adding into our models for revenue? And then do you see it as accretive to EPS?.

So first of all, we disclosed their historical revenue the last 12 months or in '13, it was $1.2 billion. So we didn't -- we haven't given any guidance on the new revenue, but it was $1.2 billion in 2013. They have -- they are bringing with them in excess of $4 billion of backlog, so that gives you a sense for what they have in front of them.

And from an accretion perspective, it is definitely accretive to cash earnings per share in the first year..

And what traditionally are the EBITDA margins of that business, Mike?.

What are the EBITDA margins? Traditionally, they'd be very slim margins, similar to -- if you're applying it off of gross revenue, very good margins off of NSR. So similar to our current construction services business..

From D.A. Davidson, we have John Rogers online..

Mike, just in terms of AECOM Capital, and I know you haven't got the URS deal closed, but are you going to look at more than just commercial projects, commercial building projects now?.

Yes, we are looking at them. We have a few bids already in play. We're shortlisted on projects, we haven't won them yet, that are outside of the commercial sector. So for instance, we have been pursuing projects in the transportation infrastructure space. We are on the short list for the Pennsylvania Bridges project that you may be familiar with.

It's an $800 million bridge package for the State of Pennsylvania, where we would be involved in design, build, financing of that. We are pursuing courthouse projects. As you know, we participated through Meridiam and did the design for the Long Beach Courthouse.

So we have every expectation that, that financing arm will move strategically into civil infrastructure. The early start, though, and the fast start for 6 projects have been in the commercial construction..

Okay. And then just following up on the SG&A levels. The decline, excluding the URS expense that you saw on the third quarter, is it your thought that, that continues into the fourth quarter? Steve said that there were some puts and takes there, but just a little more specificity..

Yes. I think that the run rate that we're at now, it's just a small line, John, so it tends to be a bit lumpy. I would expect that line, if we don't pull out the URS expenses, to be much, much higher. But we still have a few months to go here. And because it's such a small number, I hate to give guidance on that line..

From KeyBanc, we have Tahira Afzal on the line..

First question is now that the antitrust stuff is out of the way, I'm not going to hold Steve to his word that he'll talk a little more about revenue synergies. And I know it's only been a day, but would love to get a qualitative sense when we are thinking of revenue synergies for all of -- yourself and the 2 acquisitions you have announced.

Can you talk a bit about what we should see earlier on, where you have a little more confidence in terms of end markets and regions?.

So, Tahira, I want to be careful, we're not trying to give too much long-term guidance on revenue synergies. First of all, our immediate focus is on successfully closing the transaction in October and successfully integrating it. We also need to focus on the cost synergies.

But we can't help ourselves in getting excited about the future of revenue synergies here. And that was the strategic rationale for doing this transaction. It was not to pull out costs. Although that produces a nice benefit, what we're most excited about is the revenue synergies.

And what get us excited there is this is a strategy that we have deployed for many years by acquiring companies that have a particular expertise. And that expertise has historically been deployed in the U.S.

here, and we have been able to deploy that expertise globally through our broader global platform and achieved those very significant double-digit revenue growth numbers that we talked about in Europe, Middle East, Africa and Asia.

So to give you an example of why we're so confident in that ability in the future is, a few years ago, we purchased the -- we purchased Tishman Construction and we purchased some assets from Bovis Lend Lease in the construction management arena.

We took that expertise and deployed it across Europe and the Middle East and now in Africa, and that is far and away the biggest growth sector for us in that region. So we acquired the expertise, we coupled it with our geographic platform that produced double-digit organic growth in that region.

It's that reason that we have every confidence that we are going to be able to rely on the expertise that we're acquiring in the energy and construction space, in the oil and gas space, in the industrial construction space, all of those areas of expertise that we are acquiring through the URS transaction, we believe we'll be able to deploy those through our global platform.

But first and foremost, we're focused on closing the transaction, extracting the cost synergies, and then we'll get on to the exciting area of growth revenue..

Got it, okay. And I guess a follow-up on that question exactly. You talked earlier on in your prepared commentary about the cost savings you have sort of realized within the company on an internal basis. Could you just refresh us on what your lessons have been there in terms of what's really been the more neutral pieces of the cost savings for you.

And just to make us a little more comfortable around maybe perhaps as you take on the cost saving initiatives from URS, how we should be looking at where you've been able to get notable synergies..

Sure. Tahira, this is Steve. Those are almost all real estate costs. We're realizing procurement costs as well from the implementation of our Koopa tool, but they're much more difficult to quantify and we're going to do a better job at refining that over time as we roll out that tool.

And the real estate, as we've mentioned, will end next year on a run rate of $38 million. So the point of that comment in the script was just to let you know that we're well on our way through that.

And how that relates to URS is we've got a fairly significant and well-developed cost savings infrastructure already built at AECOM from a systems standpoint, from a centralized travel standpoint, from a procurement standpoint, and most importantly, from a real estate standpoint because there's a significant portion of our overall synergy number that's coming from real estate as we consolidate offices, which not only saves money but brings our people together with URS's employees, much faster and starts to generate that synergy at the top line as well.

So we're excited by that. I think that we're in a unique position to integrate the company and realize those synergies on the track that we've already laid out..

We will now turn it back to Mike Burke for final remarks..

Okay. Well, thank you, everyone, for participating in our call this quarter. I appreciate your continued interest in the organization, and you'll see more information coming out for us -- from us over the coming months as we continue to focus on this URS transaction, as well as focus on executing against our standalone financial plan.

As you heard us mentioned earlier, we did get the clearance from the U.S. government on the Hart-Scott-Rodino, so that was probably the single biggest obstacle that would delay the close so that's out of the way now.

We're very focused on the integration planning for the transaction, so we've got a few months here to plan for it, to ensure a smooth kickoff. We are in the midst of the SEC review. We submitted our Form S-4 last week so that's all going well.

But the most important thing is that we continue to get a very positive response from all of our important constituencies, including our employees, our clients and our shareholders, they continue to be very positive on this transaction and the benefits that we will have for each one of them.

So the next step in our process is, this afternoon, we're launching our debt syndicate so we're out raising the money to close the transaction. The debt markets continue to be very positive for us and provide us with a very good capital structure advantage to close this transaction.

So you'll be hearing more about us -- more from us in the coming months, and thank you for participating today, and we'll look forward to seeing all of you shortly. Have a great day..

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