Will J. Gabrielski - Vice President, Investor Relations Michael S. Burke - Chairman & Chief Executive Officer Stephen M. Kadenacy - President & Chief Financial Officer.

Steven Michael Fisher - UBS Securities LLC Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker) Michael S. Dudas - Sterne Agee CRT Brian Konigsberg - Vertical Research Partners LLC Tahira Afzal - KeyBanc Capital Markets, Inc. Jeffrey Y. Volshteyn - JPMorgan Securities LLC Adam Robert Thalhimer - BB&T Capital Markets John Bergstrom Rogers - D. A.

Davidson & Co. Nicholas K. Chen - Alembic Global Advisors LLC Andrew J. Wittmann - Robert W. Baird & Co., Inc. (Broker).

Good morning. Welcome to AECOM's Third Quarter 2015 Earnings Conference Call. I would like to inform all participants, this call is being recorded at the request of AECOM. This broadcast is the copyrighted property of AECOM. Any rebroadcast of this information in whole or in 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 Will Gabrielski, Vice President of Investor Relations..

Thank you, operator. Before reviewing our fiscal 2015 third quarter results, I would like to direct you to the Safe Harbor statement on page two of today's presentation. Today's discussion contains forward-looking statements that may include projections of growth and future profitability as well as risks and uncertainties.

Actual risks may differ significantly from those projected in today's forward-looking statements. Please refer to our press release, page two of our earnings presentation, and our reports filed with the SEC for more information on the risk factors that could cause actual results to differ materially from projections.

Except to the extent required by applicable law, we take no obligation to update any of our forward-looking statements. We are using certain non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our press release, which is posted on our website.

Please also note that all percentages refer to year-over-year progress, except where otherwise noted. Additionally, we may refer to certain metrics on a constant currency basis.

Our discussion of financial results and our outlook exclude the impact of acquisition and integration-related expenses, financing charges in interest expense, and the amortization of intangible assets unless otherwise noted. Please turn to slide 3. Beginning today's presentation is Mike Burke, AECOM's Chairman and Chief Executive Officer.

Mike?.

Thank you, Will. Welcome, everyone, to our fiscal third quarter earnings call. Joining me today is Steve Kadenacy, President and Chief Financial Officer. I will begin with an overview of AECOM's results and discuss the trends across our diverse business. Then, Steve will review our financial performance and outlook in greater detail.

We will conclude with a question-and-answer session. Please turn to slide 4. We had a successful quarter on several fronts. We delivered strong organic growth, driven by the 54% growth in our Construction Services segment. We completed several key integration milestones.

We converted pursuits into wins on projects that leverage our expanded skill sets and broad geographic presence. And with $427 million of free cash flow through the first three quarters, we are on track to meet our cash flow and debt reduction targets. Our adjusted EPS for the quarter was $0.74, which was in line with our expectations.

The accounting treatment of normal profit was $0.09 less than we anticipated. We delivered $4.8 billion of wins, which resulted in our seventh consecutive quarter with book to burn ratio greater than one. Before turning to our business segment discussion, I want to highlight the efforts of our talented employees.

Our employees have been asked to continue to provide extraordinary service to our clients, while simultaneously executing on the largest integration ever in our industry and it is because of their dedication that we are positioned for success. Please turn to slide 5.

Beginning with the DCS segment, despite the very trends across public and private markets in the Americas, the Americas Design business delivered a 1.5 book-to-burn ratio with contributions across all of our business lines. Importantly, our contracted backlog increased, which is a key revenue predictor.

We see the outlook improving for our water markets, where we are well suited to meet demand related to the drought in California, and to benefit from the planned $40 billion of annual spending following years of underinvestment in domestic water infrastructure. We are also benefiting from new environmental regulations.

In the power sector, new rules governing coal ash are expected to create a $6 billion to $7 billion opportunity. We have grown our exposure to the coal ash market from a very small base just six years ago into a sizable business today.

And based on our pursuits and key client relationships, we anticipate double-digit growth in this market will continue for several more years. Moving to transportation, our largest domestic market, trends are mixed.

We benefit most when our resources are deployed on larger projects that require the visibility from a multiyear surface transportation bill. However, large project activity remains limited by a lack of funding certainty.

We are encouraged that the Senate has put forth an ambitious plan and that both chambers of Congress have recently agreed to a three-month extension of current funding to hash out the details of a longer-term solution. Now let's turn to our international design markets. In the UK, our largest European market, backlog grew by double digits.

Rail and highway spending remains strong, and because of our sizable local presence and our ability to drop from our global workforce, we have grown our transportation market share and are positioned for further gains. In the Middle East, which accounts for less than 5% of our total revenue, we delivered double-digit revenue growth.

We remained focused on differentiating ourselves through our experience, local skills and integrated capabilities, and we are focused on growing in markets including defense, ports, and environmental as we diversify our end market and client mix. Now let's turn to our Asia-Pacific markets.

I want to highlight the improving infrastructure outlook in Australia. We won one of the large transportation project pursuits we highlighted on our last call. Our commitment to the Australia market during the downturn has us positioned to fully participate in the recovery.

In Asia, there are signs that the overall markets we serve will continue to create growth opportunities. However, the People's Republic of China is sharply slowing. Hong Kong, which is our largest market in Asia, is stable and growing.

The government continues to plan and execute a large portfolio of projects, and we maintain our strong market share position. We're also positioning for long term growth across Southeast Asia.

Japan has pledged more than $110 billion for infrastructure investment in the region, which is in addition to the $100 billion commitment from the Asian Infrastructure Investment Bank. We're well placed to benefit from this growth through our investments in people, and our strong relationships with clients and partners.

Turning to our Construction Services segment. Our building construction business delivered another strong quarter. We're benefiting from growing foreign direct investment in the U.S., as well as growth in Europe and Asia. Last quarter, we spoke of our focused geographic expansion.

I'm pleased to report that today, we have an increasingly healthy geographic mix outside of our core New York metro market. For instance, we won our first construction contracts in London this quarter and we are pursuing additional work in new markets around the globe. In other construction markets, results are more mixed.

Trends in our oil and gas business remains subdued with clients reducing CapEx forecast in the face of lower cash flows. We cannot control all the market forces that drive our client spending, but our focus on rightsizing the business has limited the impact to our results.

We are not anticipating a sharp recovery in this market, but the cost that we have taken out of the business have allowed us to manage to breakeven profitability this year. And while it is too soon to guide to 2016, we expect to fully benefit from our improved cost position.

Helping to offset the weakness in oil and gas is the recovery in the industrial and power construction market, where our backlog grew sequentially. Power and chemical clients are committing to larger investments that capitalize on the changing landscape for energy prices.

In these markets, we can leverage the capabilities of both our design and construction business. We can do this on a standalone basis or at an integrated package of services that drive savings for our clients and efficiencies in our execution. Finishing with the Management Services.

We delivered another strong quarter with a number of our key programs performing ahead of expectations. The wind down of our overseas contingency work remains a headwind. But the decline has been more than offset by the improved margin profile of our backlog. During the quarter, our MS and DCS segments combined to win a prime position on the U.S.

Air Force Civil Augmentation Program or AFCAP for IDIQ contract. While IDIQs are not counted in backlog until task orders are won, this contract showcases our ability to draw on our strength to differentiate ourselves in the marketplace.

Across our entire company, our pipeline is evolving to include larger projects that leverage several of our disciplines. We're excited as we move beyond this year's heavy integration efforts as we capitalize on the significant opportunities in front of us. I will now turn the call over to Steve to provide a greater detail on our financial results..

Thanks, Mike. Please turn to slide 6. I want to remind everyone that my comments today speak to our adjusted results unless otherwise noted. Before beginning, I'd like to provide an update on the EPS impacts of the accounting adjustments for normal profit. We expect the full-year EPS impact of $0.19, which is $0.11 below our prior estimate of $0.30.

This reduction is due to updates to our purchase accounting estimates and is not indicative of the fundamental performance of our business. Our third quarter EPS was $0.74. This result includes $0.02 of normal profit, which was $0.09 below the accounting adjustments that we expected. We estimated an $0.08 benefit for the fourth quarter.

I would note that these normal profit adjustments are non-cash and are not material to GAAP EPS. Please turn to slide 7. We ended the quarter with $40.4 billion of backlog. We had wins of $4.8 billion for a book-to-burn ratio of 1.1.

We also won projects with nearly $2 billion of construction value in building construction that are not in our backlog due to contract type. Overall, we had a very strong quarter of wins across the company. Please turn to slide 8. Revenue in our DCS segment was $2 billion. FX was a negative headwind of 500 basis points.

While our Americas business weighed on DCS growth, we did see an uptick in the quarter in both wins and contracted backlog. The operating margin of 7.3% increased from 5.3% in the second quarter. Please turn to slide 9. We delivered 54% organic revenue growth in our Construction Services segment.

The operating margin was 0.6%, which was down sequentially, largely due to market factors impacting oil and gas, and the effect of delayed awards in energy and industrial construction in the first half of the year. Our backlog position in energy and industrial construction markets did improve in the third quarter.

We have line of sight on potentially significant wins which, when taken together with our improved backlog, should contribute to a stronger operating result in 2016. Please turn to slide 10. In the Management Services segment revenue was $852 million.

As expected, the better overall mix of work in our backlog more than offset the anticipated reduction in lower margin overseas contingency activities. This resulted in a 10.9% margin for the quarter, which was up meaningfully from the prior year and reflects the strong diversity of our business.

The sequential decline in our margin is from the benefit we had last quarter from the release of a tax reserve. Please turn to slide 11. Turning to the balance sheet and capital allocation, we continued to make progress across our cash flow and capital allocation commitments.

We generated $150 million of free cash flow, bringing in our year-to-date free cash flow to $427 million. We remain on track to achieve our $600 million to $800 million free cash flow annual target. We repaid $95 million in debt, bringing our total debt reduction to $550 million since closing the combination last October.

We expect to further reduce our debt this quarter based on the strong cash collection trends we have already experienced. Please turn to slide 12 for our financial outlook. We are modifying our full year adjusted EPS guidance to $3.05 to $3.45. The change in outlook is from the reduced non-cash accounting adjustments for normal profit.

Details of our guidance are available in our press release and supporting materials. The most significant change is the reduction in our capital spending, which we expect to approximate $110 million for the full year versus the $160 million previously, driven by lower oil and gas spending.

Before turning the call back to Mike, I will provide an update on our integration activities. We completed the Americas design, MS and corporate ERP integrations on schedule.

We're on track to have nearly every project onto a common business intelligence platform this year, which will provide greater insight into real-time performance and trends across the company. Moving to real estate, we have completed 153 office consolidations, resulting in over 2 million square feet of reduced space.

Our efforts to drive consolidations have brought together thousands of employees. We occupy very efficient layouts that we believe add both productivity and cost benefits. I will now turn the call back over to Mike..

Thank you, Steve. Despite the political and economic uncertainties around the globe, our diversified business has enabled us to deliver consistent performance. We're excited about the progress we have made on the integration and about the momentum building across the company. Now, I will turn the call over for Q&A.

Operator, we are now ready for questions..

Thank you. Our first question comes from Steven Fisher with UBS. Please go ahead..

Thanks, good morning..

Good morning, Steve..

Good morning. I think you attributed the low Construction Services margin to ongoing oil and gas challenges. I was just trying to get a sense of how to think about that going forward.

I mean, I know it's a low margin business to begin with, but are there certain mix elements that can help out going forward and since you have the oil and gas stuff sort of under control now?.

Yeah. I mean, Steve, first of all, the quarter is a bit of an anomaly, I should say the year is a bit of an anomaly in that we had, as you know, a precipitous drop-off in revenue side. We have undertaken a very significant restructuring of that business and have taken out significant costs.

So trying to extrapolate anything from this year is probably not going to be helpful. But once we get through the cost take-out this year, next year we'll return to much greater profitability in the overall Construction Services segment..

Okay. And I know you cited the 1.5 times book to bill on Americas design, but your overall design book to bill was much lower than that. Can you talk about what are the particularly weaker areas? And then within that 1.5 times, I know in the past, there's been challenges in getting those awarded projects moving forward into revenues.

How do you feel about that today?.

Yeah. Steve, the overall book to bill is 1.1 times, but that did include a significant re-class of all the URS backlog into IDIQs that they had classified as actual backlog according to our definitions. We put it often IDIQs, it's not a change in value of our overall backlog.

So that's why you see some somewhat of a disconnect in the significant book-to-burn that we have within our individual groups there. So if you back that out, our Americas DCS business inflected in the quarter and had over $1.6 billion in wins for a 1.5 times book-to-burn..

Okay. I'll turn over. Thanks..

Our next question comes from Jamie Cook with Credit Suisse. Please go ahead..

Hi, I guess a couple of questions. One, Steve, just if I look at your guidance for the year, the fourth quarter implies, I think $0.93 to $1.33, that's a pretty wide range for one quarter. I recognize the incremental benefit the $0.08 you're getting from the non-cash normal profit. But still that just seems like a wide range.

So, and quite frankly, I think it's hard for me to under whatever circumstance for you to get to the mid to the high range based on where we are for the -- what we've seen in the first three quarters.

So can you just sort of help me understand that? And then, I guess my question relates to the free cash flow, I recognize that you did lower your CapEx.

Why did you lower your CapEx and given the lower CapEx and assuming the collections in the fourth quarter are pretty good, why isn't it the mid to high end of the range more likely in terms of your $600 million to $800 million free cash flow estimate or is there something or things moving in wrong direction? Thanks..

Sure, Jamie. On the EPS outlook, I think you can put a bell curve around our range there. We didn't adjust the breadth of the range largely because we can see – to the upside, we can see to the down side given the volatility in the marketplace. But I would put your bell curve around the midpoint of that range.

On the cash side, listen we're burning $4.5 billion of revenue that means we got to collect $4.5 billion of cash in any given quarter. So, there is a large movement within any given quarter.

And as I've said, it's not an accrual for cash as – if you collect a receivable on the last day versus the first day of the next fiscal year, you can have a significant impact.

As it did in our current quarter where we expected some large payments in Q3 that came in the first week of Q4 and we still generated pretty good cash flow in the third quarter. So we're happy about that. But again that could happen to us again just given the magnitude of the receivables that we're chasing at any given time.

But we feel very strongly about the overall cash flow and the three-year target relative to what we've communicated in the past..

But I guess, can you quantify the payments that you received in the beginning of the fourth quarter and why did you lower your CapEx $60 million or whatever the number was?.

We lowered the CapEx largely because of divestitures of yellow iron in the LNG business is why we lowered our CapEx. And we didn't change our overall guidance – the $200 million range again because of the volatility. What was the – there was a piece of that question I missed though..

How big was the collection? You said, like the timing you announced.

I'm just trying to figure out how much that helped you in the fourth quarter already?.

I mean, we had pretty significant collections to the tune of $80 million that we expected in Q3 that came in in the first week of Q4 – first couple of weeks..

Okay. Sorry. One last question.

The $10 million in other income, which was a benefit to the quarter, what was that related to?.

Jamie, that was related to the sale of some of our Meridian Funds. As you know, we've been an investor both at the GP and LP level in Meridian Funds. And during the quarter, we sold off a small piece of that. It's only about $0.01 pickup to EPS in the quarter.

We are going to sell – or let's say, we have an agreement to sell in the fourth quarter about another $38 million of our LP interest in Meridian and the objective there is take some of that capital and redeploy it to AECOM capital to generate more service revenue in the process..

All righty. Thanks. That was very helpful. I'll get back in queue..

Sure..

Thank you. And our next question comes from Michael Dudas from Sterne Agee. Your line is open. Please go ahead..

Good morning, gentlemen. First question, Mike, you mentioned in your prepared remarks, I think it was you, Mike, about some significant visibility in potential wins for 2016 in the energy industrial area.

Could you maybe elaborate a little bit more on what you're seeing and are some of those targets better positioned because of the combined URS AECOM versus what it'd have been before?.

Yeah, John (sic) [Mike], absolutely. We saw in the E&C business year-over-year, we had a 7% pickup in growth in our backlog in that space. And a lot of it is due to the reciprocal side of the oil and gas downturn. So where we're seeing businesses that benefit from lower oil and gas prices, we're seeing some great opportunities there.

So it's either in combined cycle plants that are gasification type projects, nitrogen fertilizer, urea type fertilizer plants that benefit from low gas feedstock. And so we're seeing some pretty good opportunity there.

And I also mentioned the coal ash opportunities that we're a market leader in that place and companies are having to deal with their coal ash issues. We're also seeing new regulations dealing with carbon issues that will be helpful to us as we were a real dominant force in that arena back when all the air quality scrubber regulation came out.

So we see an uptick in that business also..

I appreciate that. Second, my follow-up is you mentioned in your remarks about a significant slowdown or pretty sharp slowdown in China. Is that a recent phenomenon or can you maybe elaborate more on that.

And do you see any impact of Chinese wealth and some of the investments in some of the major projects in the Western Hemisphere start to show up a little bit because of that or do we anticipate that as you're trailing into 2016?.

Yeah. So a great question, John (sic) [Mike]. Let me put that in context. So, first of all, oftentimes when we talk about China, we talk about Greater China, which includes both PRC, Hong Kong and Taiwan. So I was specifically referring to the PRC, Mainland China. And just to be clear, it represents less than 2% of our operating income.

Our much greater business is in Hong Kong where we have 5,000 people. That business continues to grow and continues to perform extremely well. But Mainland China has slowed down quite a bit. Most of our work there is in the private sector. It has slowed down. But when I look at the Asia reason as a whole, Hong Kong and Taiwan are still doing well.

We are very bullish on Southeast Asia that is growing significantly, as well as India with the new relationship with the United States. So I just want to make sure I put that in context. But Mainland China itself is slowing sharply as you're seeing across many other companies reporting very, very similar issues.

Secondly, the second part of your question, Mike, is that when you look at the foreign direct investment coming out of China into the major markets of the world, we are seeing a very significant uptick there.

So whether it'd be we were hired by Oceanwide, the Chinese company to build the second tallest tower in San Francisco, the work that we are doing with the Chinese developers like Greenland out of Shanghai, we're working for them in New York, Toronto, London. Now here in L.A. the Metropolis project.

It is a big momentum right now coming out of China into the major markets of the world. And we are better positioned than anybody to do that work because of our construction capabilities in these markets and our strong Chinese relationships on the Mainland.

So we're getting well more than our fair share of that business, which is one of the drivers of our 50-plus% organic growth in our Construction Services sector..

I appreciate your answers. Thank you very much..

Sure. Thanks, Mike..

Our next question comes from Brian Konigsberg with Vertical Partners. Please go ahead..

Yes, hi. Good afternoon. Good morning. Wanted just to maybe hit a little bit more on the Q4 guidance. I understand, Steve, that you are saying that the midpoint is – you feel comfortable with that being the center of the bell curve.

But can you just maybe talk about what actually is going to be the drivers to get to the midpoint? I mean, are we looking for accelerated top line? Do you think margin actually starts to improve meaningfully? I understand, like you said before, the fair margin value contribution, but what else is in there that gets you to the midpoint, if you could build that up for us?.

Well, normal margin for us is really just kind of a pass-through accounting adjustment. So we've been clear on what we expect relative to normal profit. But we tend to accelerate into Q4. Our historical averages are in the – between 30% and 35% of our earnings for the year come in Q4 and the midpoint of the range is in line with that.

So we're relying on continued acceleration of the business in the construction season and executing on the projects that we have in the flow and hopefully continuing to execute on our cost reduction efforts within the oil and gas business, which to-date we've taken out over $80 million in that business of costs.

We have line of sight to exceeding our target of $100 million and that execution will help us as we transition from Q3 to Q4 in that business as well..

Great. And if I could, just a little bit more on restructuring. So you still plan on having a run rate of – your synergy of $180 million, you're saying oil and gas over $100 million.

How much of that are you realizing for the bottom line? Is the business itself absorbing a lot of that? Or are you able to realize most of the savings?.

Well, we're definitely getting the synergies. We have clear visibility into the cost that we've taken out. On synergies alone, we exited the quarter at $144 million. Those costs range from back office, finance, HR, IT, procurement, corporate expenses that have come down, the real estate is a really big driver.

But there's no question that some of those synergies have gotten absorbed in the downturn in the oil and gas market. It's impacted our year significantly. But we've been able to absorb that with our execution around the business and not having to change our core fundamental guidance through three quarters..

Just to be clear, though, the $100 million in cost take-out in oil and gas is separate and apart from the $180 million?.

That's right..

In synergies. Okay..

That's right. Having said that, that hasn't fallen to the bottom line there where that business has not been accretive to our earnings in the year. And we don't expect it to.

We've been clear that our forecast of oil and gas for the full year was that even though overall that business is somewhere around 15% if you include our environmental services segment of our top line that it wasn't contributing to the bottom line, and that cost take-out has enabled it not to be dilutive to our earnings..

Understood. Thanks very much..

You're welcome..

Our next question comes from Tahira Afzal with KeyBanc. Please go ahead..

Good morning, folks..

Good morning..

First question is, I know there's a lot of skepticism around the transportation bill but hypothetically, if it goes through, would love to get a sense of what it would mean to AECOM.

What it will have meant as a stand-alone company, but now with also URS in the mix?.

Tahira, it would very important to us. We have had years and years of short-term fixes to the transportation bill and what we really need is a long-term fix.

And the reason why a long-term fix is more meaningful to us than others is that for the largest scale projects, the kind of projects where we excel, where we are known for the largest projects and our capabilities on those large projects, those projects require long-term visibility to funding.

And so, those projects get stalled when you only have short-term fixes because nobody wants to commit to a long-term project without long-term funding.

And so a six-year type transportation bill, which we would consider very long-term based on recent history, would be very appealing to us and very beneficial to us both historically as well as a combined company.

So I feel moderately bullish on something happening not in the very near future but moderately bullish that something will happen before the elections next year and quite bullish that something will happen after the election.

There seems to be bipartisan support for tying a longer-term transportation bill together with some type of international tax reform, in particular the tax on repatriated earnings which seems to have bipartisan support. And there's not many things that have bipartisan support right now in Washington, but that's one of them..

Right, right. And we're hearing something pretty similar given all the Senate changes in terms of votes that have happened there, so let's all hope it goes through. Second question is your top line has been improving progressively over the last three quarters. Your scrub G&A numbers have actually been going down, which is commendable.

So can you kind of give us an idea. Obviously, we've started to see some of this integration helping out there.

What should we consider your run rate for G&A to be going forward into the fourth quarter and onwards?.

Tahira, this – G&A is an interesting number from a GAAP perspective, because we reclassed so much of our SG&A up into cost of sales. So what do you see left there is not a real number and somewhat volatile, because it's a low base.

But what you do see in there, if you look at it on a year-over-year basis and if you went back to URS' G&A and combined it with AECOM's, is a significant reduction. And that's largely due to the duplicative nature of corporate G&A between the two companies that we've been successful at taking out.

On a go-forward basis, I think that although because it's such a low base it could be volatile, but your – the $24 million is probably in the range..

Our next question comes from Jeff Volshteyn with JPMorgan. Please go ahead..

Thank you for taking my question.

And just following up on the previous question, what do you see as far as availability of government funding for major infrastructure projects outside of the United States in your key international markets, perhaps Europe and Asia Pacific?.

So we continue to see support for those type of projects in those regions. Although in Europe there seems to be more private money public/private partnership concept is decade ahead of our market in terms of development. So, there is more private money in those markets than you see otherwise.

But I mentioned in my comments earlier about the Asian Development Bank and the investments that Japan is making across Southeast Asia on infrastructure, we continue to see very robust markets in Southeast Asia. The European market – we're experiencing very good organic growth in the European markets.

You heard us talk about that earlier, and overall, the government support seems to be there..

And then domestically you spoke about the water infrastructure opportunity.

Is there a way to quantify it at this point?.

I don't know that I can give you a specific quantification other than that it was projected to be $40 billion of overall investment in that period, a year. But I think that's the best quantification, I can give you. It's a pretty big market. The demand is there as evidenced by the drought in California, there is something needs to be done..

Okay. Thank you very much..

Sure..

Our next question comes from Adam Thalhimer with BB&T. Please go ahead..

Thanks. Good morning, guys..

Good morning..

The organic backlog growth continues to decelerate still growing but at a lesser rate.

What's the primary cause of that?.

The backlog fundamentally and actually increased pretty significantly as I mentioned it earlier in one of the questions, we had a re-class to IDIQ. So if you add that back into a pretty significant increase sequentially.

And as we mentioned, we have a 1.1 times book-to-burn, which would indicate the fundamental backlog is growing and building construction even though it's brining significantly continues to have a book-to-burn greater than one..

So organic backlog is up 2% year-over-year in the quarter, but it would have been higher than that under the old way you treated IDIQ?.

Correct..

Okay.

And then digging on one of your end markets, the Federal/Support Services, what – how are you in general – what's your feeling about the government spending trends?.

So the government spending continues to increase. When people talk about sequestration and talk about slowing it's slowing the rate of growth, it's never shrinking the actual spend. If you look at our pipeline today, we have a pipeline of $32 billion of projects that we're pursuing in that space.

And why we're so bullish on it now is that the combined capabilities of legacy AECOM and legacy URS together, give us a set of capabilities that's unequal in the marketplace. And so, that business continues to be very exciting to us.

We did have to reposition that business after the draw down in Iraq and Afghanistan but we have repositioned it very well, into very profitable business. And we're now taking that capability that we have performed for the U.S. government so well and delivering it to non-U.S. governments.

And so, we are now delivering that type of service to the UK government. We are now delivering it to the Australian government. I just returned from a trip to both India and Saudi where we're in deep discussions with those two governments about bringing that type of federal government service to those governments.

So, we are really encouraged about not only the growth in U.S. federal services, but taking that same expertise and delivering it to non-U.S. governments..

And, Adam, if I can go back to your first question on backlog, I mentioned in my prepared comments but I want to emphasis it again given your question that within building construction we had $2 billion of wins that are not in backlog. And I mentioned on the prepared comments that it's because of their contract type.

One was an agent – we're the agent construction management which means we don't have the revenue coming through our P&L and other is a JV. But to us the value of the gross margin that we'll receive from those projects is worth $2 billion in gross revenue..

Okay. Thanks for that. And then, Mike, in the Middle East, you complained about that a little bit last quarter. You said you're having trouble retailing backlog.

Is that changed at all or what's an update there?.

I mean, first of all, the Middle East is less than 5% of our consolidated AECOM revenue. It's still a good market for us but it shouldn't be a surprise that countries that rely on the petro dollars for funding have paused a little bit. So it's – that market is still growing for us.

We did have, in the quarter, we had high single-digit organic growth to date. But we're just cautiously watching the backlog and what the impact might be from lower oil prices on a long-term basis..

Great. Thanks, guys..

Sure..

Our next question comes from John Rogers with D.A. Davidson. Please go ahead..

Hi, good morning..

Good morning..

Just a couple of the follow up things. Mike, you talked about the Meridian sales in the fourth quarter and give – a little bit in third quarter $38 million.

What's the gain on that?.

So without getting into too much specific the – it was $0.01 impact or $9 million overall in the Q3..

Right. Right..

The LP interest that we've entered into a contract to sell – so it's a contract, so it hasn't closed, I want to be careful, but suffice to say, they are mid-teen returns on those LP interest..

Okay.

And is there – as you sell those interest off, is there revenue associated with that that you have because of that?.

Yes, we have – not because of the sale obviously, but....

No, no, but because of the relationship....

...our relationship with Meridian over the years, we have worked on many of the projects that they have invested in. I don't know the number off the top of my head of how much revenue came from Meridian-specific projects. But obviously, Meridian was created by the management team of AECOM.

So we have a very good relationship with that and we've worked on many if not most of their projects around the world. So, it's been a good relationship with us, but we're not in the business of just holding onto LP interests.

We want to take that cash and recycle it towards AECOM capital that has been very successful for us in redeploying that – those funds into higher growth markets that will generate new service revenue for us. It will be highly likely that we would continue to work on Meridian projects as a service provider, yeah..

Okay. So there is no direct relationship there that would automatically change with the....

No, not all. No..

Okay. And then, I appreciate the comments about organic growth that you gave us earlier and various markets. What about the URS business as you look at it and track it, how is that going, I mean is it same as the AECOM in terms of the organic growth and the end markets, the exposure is sort of little different.

But, I'm just trying to think about momentum then as you go into 2016 and move....

Yeah..

... and move beyond the anniversary..

John, I'll try and break it out at a high level....

Yeah..

You know look at how they used to view their business. So, their oil and gas business, as we all know the market conditions are very difficult in that space. And so, that business has performed consistent with other companies that are in that similar end market. Their energy business, I talked about earlier is doing quite well.

That backlog is up 7% year-over-year up 2% quarter-on-quarter and all the opportunities that are being created due to low gas – oil and gas prices for those industries that rely on gas feedstock, it's encouraging. So that's doing well. Their Management Services business is a very strong business. That business is ahead of plan for us for the year.

The combination of their services with our services puts us at a totally different level with the federal government both size, scale and capability, so that's doing very well. And their design or their old I&E business or our DCS business is performing very comparable to our business.

And the good news overall the backlog in that legacy business has stabilized. So I'd say it's consistent with the end markets in which they participate and maybe slightly better on EC and slightly better on Management Services..

Okay. I appreciate that. And Mike, you talked about some of the cost cutting relative to the overall oil and gas business as you complete the integration.

Any other changes, especially thinking out over the next couple of years when you laid out your plans there either to accelerate or possibly skip some of the consolidation cost?.

We'll – accelerating those costs – we think we've accelerated the reduction of those costs pretty significantly in this year. Our position as we get it to where we think the market will be in FY 2016 and not kind of banking on an uptick in oil prices.

We are looking at – the core of that business is actually a fairly strong and the decent margin business for the work that they do in the oil sands and the relationships that they have with companies like Imperial Oil, which is 60% owned by Exxon, where we can leverage those relationships with our legacy business and environmental to provide services across those global clients in our footprint.

So we like that business overall. There may be some pieces that we think are non-core that we spoke about in the past that we would hive off that aren't significantly material to the business, but the core of it we like..

Okay.

But, Steve, no adjustments to the rest of the integration plan cost cutting there, especially out into 2016 at this point?.

No..

Okay. Great. Thank you..

Thanks..

Thank you. Our next question comes from Rob Norfleet with Alembic Global Advisors. Please go ahead..

Hey, this is actually Nick Chen for Rob Norfleet this afternoon. Thank you so much for taking our call..

Sure, Nick..

No problem..

Great. So I had two questions. The first one is, I was hoping you could just give us an update on what the competitive environments are like right now across all three segments.

Specifically with competitive nature of the business in just pricing, are you seeing any of the non-traditional players competing for work in markets that they wouldn't have before given the depressed price in the energy markets?.

Not really. There is – of course, pricing always gets a little tighter when you have such a precipitous drop in oil and gas. But you're really not seeing non-traditional players moving into the spaces that we're in. So not much of a change there, just there's less revenue to go around.

The competition on the federal government side has not changed at all, the margins have not changed. And similarly, in our designs business..

That's really helpful. Thanks so much. And then just finally, looking at burn rates going forward, it sounds like you're going to be bidding on some larger work, specifically in DCS and CS.

Should we expect to see less revenue recognition from backlog in 2016 and beyond?.

No. I don't think so. We would expect, given where our backlog has been going and the fact that even though we've been burning a fair amount, we've been successful in keeping our backlog increasing during that time that that is the best indicator of our future revenue. And we're seeing organic growth, as you know..

That's very helpful. Thanks so much, guys. I'll hop back into the queue..

Great. Thanks, Nick..

Thank you. Our next question comes from Andy Wittmann with Robert W. Baird. Please go ahead..

Hi, guys. Thanks for taking my questions. I wanted to dig into the DCS segment a little bit and understand a little bit both about kind of the top line and understand kind of the pieces that added up to the negative organic growth rate in the quarter, geographies or end markets.

And then also given the backlog there, at least the contracted backlog, down a little bit – should we expect that backlog to burn faster or slower specifically? I don't know if it's kind of a dovetail to the last question, but that backlog in particular, how do you expect the burn rate in that compared to history?.

Well, DCS business definitely declined in the quarter. That was largely driven by the Americas design contracting in the quarter by about 10%. So that's still weighing on us. I think we take solace in the fact that, again, we had 1.5 times book-to-burn in the Americas design business.

So our view is that that is a positive sign for future FY 2016 and we don't have any indication that the pace of bookings and revenue burn would fundamentally change from where we are today. The quality of the bookings are good. So we're not viewing anything as fundamentally changing in that sector..

Okay. That's helpful. Mike, your earlier comments on expectations for the construction management segment, particularly relates to oil and gas, was that this is not a good year to look at because of all the restructuring that's going on.

Does that suggest that there are restructuring costs that were run through the P&L? Or were those all added back as part of the integration?.

No. The restructuring costs where we were specifically taking out the cost structure of the oil and gas business came out of the oil and gas P&L..

Okay. Got it. All right. Then, I guess, just on CapEx. Steve, you mentioned that you sold a little bit of yellow iron and that kind of helped your net CapEx to be a lot lighter than expected, and that helps your guidance for the year.

Were there any gains associated with that? Was that somewhere on the P&L that we should be aware of – or losses, for that matter?.

No. We marked all those assets to market in purchase accounting. So when we sold them, we sold them at book value..

Okay. All right. I think I'll leave it there for now. Thank you very much..

Thanks, Andy..

And our final question comes from Tahira Afzal with KeyBanc. Please go ahead..

Sorry, folks. One last question for you. And it's really on end markets again. I know China is going through a sharp downturn, but there is a chance that they might announce a restructuring plan. And it seems it's pretty much aimed at policy bonds aimed on developing cities, some of the smaller cities there.

Would you venture there if that was the case? Or you want to stick to the safe areas that you are comfortable with?.

It depends on what type of city work it is, Tahira. The city – the master planning development work that was the core heart of our business in China. We were not doing traditional transportation infrastructure, for instance, in Mainland China. Obviously, we're a very strong force in Hong Kong in that arena.

But in Mainland China, that is exactly the work we are doing. So if they are going to put together some type of stimulus restructuring plan that would focus on new city development, that's our sweet spot, and we would benefit from that..

Got it. Thank you very much..

Thank you..

Thank you. At this time, we have no further questions. I would like to turn the call back to Mike Burke for final remarks..

Thank you, operator. I think the bottom line is we're really pleased that we are through the most critical stages of our integration. The real hard work of the past 10 months or so on integration is behind us.

And while we have a number of uneven global markets and trends in front of us that are creating some volatility, we're beginning to see some of the wins and opportunities resulting from the new enhanced capabilities of the combined organization. So we are encouraged by what we see in front of us. The hard work of the integration is behind us.

The enhanced revenue opportunities are in front of us. And the future certainly looks a lot brighter from here. So hopefully you share our enthusiasm, and we'll look forward to talking to you on our next earnings call. Thank you..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..