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

Jamie Anderson - Credit Suisse Securities (USA) LLC (Broker) Michael S. Dudas - Sterne Agee CRT Jeffrey Y. Volshteyn - JPMorgan Securities LLC Eric Crawford - UBS Securities LLC Anna Kaminskaya - Bank of America Merrill Lynch Adam Robert Thalhimer - BB&T Capital Markets Tahira Afzal - KeyBanc Capital Markets, Inc. Chase A. Jacobson - William Blair & Co.

LLC Sameer Rathod - Macquarie Capital (USA), Inc. Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker).

Good morning and welcome to AECOM's fourth 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 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'd now turn the call over to Will Gabrielski, Vice President, Investor Relations. Please go ahead..

Thank you, operator. Before reviewing our 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 about growth and profitability as well as risks and uncertainties.

Actual results 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 our results to differ materially from projections.

Except as required by law, we take no obligation to update 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 excludes the impact of acquisition and integration-related expenses and the amortization of intangible assets unless otherwise noted.

Please turn to slide three. Beginning today's presentation is Mike Burke, AECOM's Chairman and Chief Executive Officer.

Mike?.

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

Steve will conclude with financial guidance before turning the call over for a question-and-answer session. Before we begin, I want to comment on the appointment of Troy Rudd as our Chief Financial Officer.

Troy joined AECOM in 2009 and has led a number of key finance and operating functions throughout the years, which will serve him well in his new role. Steve Kadenacy will continue in his role as President and will take on much broader operational responsibility.

Steve and Troy have built a very capable finance group, which allowed for a seamless transition period for them and their respective organizations. Please turn to slide four. 2015 was a remarkable year for AECOM, with several notable accomplishments. We closed the largest combination in our industry's history.

We executed an enormous integration that called on all of our employees to contribute beyond their normal activities, and we delivered on the commitments we made to our shareholders one year ago. Let me begin with a few financial highlights. Organic revenue increased 5% on a constant currency basis, driven by the strength in Construction Services.

Free cash flow of $695 million was at the midpoint of our annual $600 million to $800 million target. This strong cash performance supported $720 million of debt reduction. We also executed well on our synergy program, and today we are increasing our estimated synergy savings to $325 million from $275 million. However, 2015 was not without challenges.

We confronted several external forces from low oil prices, a stronger U.S. dollar, and slower economic growth in Asia, which impacted our operating performance and resulted in earnings per share at the lower end of our guidance range. However, we are energized by the momentum we have built for 2016.

We expect better revenue performance in our Americas Design business, where we delivered a 1.4 times book-to-burn ratio in the second half of 2015. We also expect our building Construction and Management Services backlog to produce strong results.

We continue to take costs out of our oil and gas business, which will contribute to better operating performance going forward, and we expect to begin realizing gains in our AECOM Capital real estate fund during the year. Please turn to slide five for a discussion of the segments.

Beginning with the DCS segment, we haven't been this confident in the momentum of our Americas Design business in several years. We delivered strong wins for the year, and our contracted backlog increased in the fourth quarter.

Our wins were broad-based, but the two times book-to-burn ratio in our environmental business in the second half of the year stands out with two large wins in the oil and gas sector.

These wins are for multinational integrated oil companies who are turning to AECOM because of our leadership position in environmental services and because we can now provide our services throughout our global platform. We are also seeing better trends in the transportation market.

Last week the House passed the multiyear highway bill and will now negotiate with the Senate to prepare a final bill for the President to sign into law. Transportation is our largest business in the Americas, and the lack of a long-term bill has been a significant headwind to our performance for several years.

A multiyear bill would drive large projects that play to our strength. We are also pursuing an increased amount of alternative delivery opportunities that fully leverage our design, build, finance, and operate capabilities.

In addition to improving domestic trends, the recently elected Canadian Prime Minister is pledging to spend $46 billion on infrastructure projects over the next decade, with an emphasis on transportation. We are well-positioned in this market. We are extremely focused on driving growth in the Americas in fiscal 2016.

Our improving wins and backlog and the potential for a federal funding resolution are key leading indicators that we are on the right track. Now let's turn to our international design markets. In the UK, which is our largest market in Europe, backlog improved.

The recent election results have created stability and continuity in our core rail, highway and water markets. The Middle East is being impacted by low oil prices. However, our backlog and revenue performance has been stable. The civil markets that we serve are proving to be more resilient to lower energy prices that many had anticipated.

In addition, we're focused on leveraging our capabilities in defense and construction, which is resulting in a growing list of integrated delivery opportunities. Across EMEA, we have a strong pipeline that includes nearly $10 billion of bids where we have been shortlisted and are waiting for a client decision.

Many of these opportunities are a reflection of our integrated capabilities, especially in the defense market. Now let's turn to our Asia-Pacific markets. The economic slowdown in Mainland China has impacted our growth. However, our direct exposure to this market remains limited. Activity in Hong Kong, our largest market in Asia, remained strong.

Backlog was up and major infrastructure programs continue to move forward. As we look at the growth prospects of the region, Southeast Asia and India are two markets that are small contributors today that we expect will become larger over time.

An estimated 270 million people are expected to move to cities over the next two decade and demands for modern infrastructure is growing. Turning to our Construction Services segment, we delivered 34% organic growth in fiscal 2015, reflecting continued strength in the domestic construction market.

In addition, our contracted backlog increased by 13% in the fourth quarter and 76% for the year. We are benefiting from our geographic diversification strategy. We won three construction projects in the UK in the second half of 2015 and more than 60% of our wins over the past year were outside of the New York Metro market.

In addition, construction spending in our core New York market is expected to reach another record in 2016 and we have several large pursuits and negotiations taking place. Let's shift to our energy and industrial construction markets. As was the case throughout the year, lower commodity prices are creating both risks and opportunities.

Oil and gas CapEx declined further in the fourth quarter, a trend expected to continue in 2016, due to unprecedented CapEx declines. We have addressed the slowdown in two ways. First, we have already announced and delivered significant cost reductions. These actions have meaningfully improved our cost structure.

Second, we expect to execute noncore divestitures to lower our fixed cost. As a result, we expect improved profitability in 2016. Contracted backlog improved in our power, civil and industrial markets increasing 20% in the quarter, due to the signing of a contract to build a large air quality control project in Arizona.

We continue to pursue sizable programs in coal ash and nuclear decommissioning. Both markets represent significant long-term growth opportunities. Finishing with Management Services, we performed ahead of our plan in Management Services in 2015. Despite the anticipated wind down of major chem.

demil programs last year, we are confident that 2016 is set for another strong year. Contracted backlog increased 10% sequentially and we added several key programs during the year.

This performance is even more impressive against the backdrop of the budget uncertainty, but it's not a coincidence that our business can perform well even in less certain times. We have a stable base of long-term contracts in markets where we are competitively differentiated. We are also diversifying our client and geographic mix.

Our high-end cyber, intelligence and surveillance capabilities are growing into new markets and are adding to our differentiation across the company. We are pursuing sizable growth opportunity from the commercial sector and friendly foreign governments across the globe are increasing their procurement of U.S.

Military hardware, providing the opportunity for to supply our services in new market. I will now turn the call over to Troy to provide greater detail on our financial results..

Thanks, Mike. Please turn to slide six. I want to remind everyone that my comments today speak to our adjusted results unless otherwise noted. As a reminder, our fiscal 2014 period had 53 weeks. I will speak to growth rates excluding the impact of the extra week to provide the most comparable metrics.

Actual results are available in our press release and our SEC filings. We delivered adjusted EPS of $0.95 and $3.08 in the fourth quarter and full year respectively. Please turn to slide seven. We ended the quarter with $40.2 billion of backlog.

We had a 1.0 time book to burn in the fourth quarter highlighted by a 1.4 times book-to-burn in the Americas design market. For the full year, our book to burn was 1.04 times. Our contracted backlog increased 8%, which we view as the best leading indicator for our future revenue.

Based on the current mix in constitution, we view the quality and margin profile of our backlog today as significantly improved from the beginning of the year. Please turn to slide eight. DCS revenue was $2 billion for the fourth quarter and $8 billion for the year. Organic revenue declined 3.5% in the fourth quarter and 2.4% for the year.

The rate of decline in the Americas improved in the fourth quarter. As Mike already mentioned, we are confident in 2016, driven by the strong wins during the year. Fourth quarter operating margin was 7.5%. This was a 20 basis point increase from the third quarter.

Better volumes contributed to improved performance across the Americas, Asia Pacific and EMEA regions. Please turn to slide nine, we had a great year with 34% organic revenue growth in Construction Services and we entered 2016 in a very strong position. The operating margin improved to 2.3% in the fourth quarter, up from 0.6% in the third quarter.

A combination of strong organic performance and better contribution from our industrial construction businesses more than offset the weakness in our oil and gas construction business. Please turn to slide 10. In the Management Services segment, fourth quarter and full year revenue were $885 million and $3.4 billion respectively.

Margins increased 200 basis points in the fourth quarter to 12.9%, which resulted in a full year operating margin of 12.4%. This performance is indicative of our strong execution across the vast portfolio of projects. Please turn to slide 11. We delivered free cash flow of $268 million in the quarter and $695 million for the year.

We reduced our total debt by $720 million for the year, including a $166 million in the fourth quarter. Our diverse geographic end market and client mix has helped to produce $1.7 billion of free cash flow over the past four years. We are reiterating our $600 million to $800 million annual free cash flow guidance for fiscal 2016 and fiscal 2017.

Going forward, our capital allocation priorities are unchanged. We always evaluate the returns associated with debt reduction, share repurchases, and M&A. In the near-term, we're prioritizing debt reduction. But we will continue to evaluate our options keeping shareholder value creation as our top priority.

I also want to comment on divesture and asset disposal activity. During the fourth quarter we sold our interest in Meridian's European Funds. We're also evaluating sales and disposals of non-core oil and gas businesses and assets. The potential P&L impact associated with assets being disposed of are excluded from our adjusted EPS guidance.

I will now turn the call over to Steve to discuss our guidance for fiscal 2016..

Thanks, Troy. Please turn to slide 12 for a discussion of our financial guidance. I couldn't be more excited about the opportunities in front of us. Today, we're a company of nearly 100,000 people. We have operations in over 150 countries and we have clients in nearly 50 market sectors.

The consistency and predictability afforded by our broadly diversified model has resulted in strong cash flow over the past four years and underpins our fiscal 2016 financial expectations. With that, we are initiating fiscal 2016 adjusted EPS guidance of $3 to $3.40. We expect to deliver free cash flow within our $600 million to $800 million range.

We expect to incur approximately $200 million in acquisition and integration related cost this year and we are increasing the total synergy target to $325 million accordingly. The additional savings primarily from real estate will benefit our 2017 results.

In total, the payback on our synergy program is under two years and the improved efficiency of our operations will drive long-term benefit into the organization. Now I'll turn the call over to Q&A. Operator, we're now ready for questions..

Thank you. We'll now begin the question-and-answer session. And we have Jamie Cook from Credit Suisse online with the question. Please go ahead..

Hi, good afternoon. This is Jamie Anderson on for Jamie Cook. So, we were curious on the guide.

Are you guys assuming any revenue synergies from URS deal included in the 2016 forecast and if so how much? And then just kind of looking at the pro forma company, where are you guys seeing the biggest areas of opportunity as you kind of lookout at your prospect list?.

So, Jamie, thanks for that question. It's Mike. We have spent the first year as we have talked about in the past, the first year focused on the integration. And now with the hard work of integration behind us, we are now focused on extracting the revenue synergies, which was a fundamental strategic rationale for our transaction.

And so we do have modest organic revenue growth in our FY 2016 numbers. And we haven't carved that out, how much is synergy, revenue synergy and how much is legacy because it gets a little muddy from here.

But we really believe that coming into FY 2016, we are now going to focus our energies on the external markets to take advantage of the strategic rationale. We have about two-thirds of our business that is growing, and we have about one-third that is either slightly down or flat.

And the slightly down or flat portion is the energy, power, and oil and gas business. The rest of our business is growing. And then the second part of your question was where do we see the big opportunities.

The big opportunities in front of us, putting aside all the great value that we've created from the cost saving synergies, the strategic rationale of this transaction was how do we bring together all of the expertise of the combined organization to be able to deliver the full suite of services of design, build, finance, and operate, and we are doing that around the globe now.

So it's taking our construction capabilities that we now have here in the U.S. We have already started over the past year delivering those services into Europe and Middle East. It's our fastest growing segment in the Middle East, and Europe is our Construction Services group.

We're now focused on taking that combined construction capability and delivering it into the Asia-Pacific market in FY 2016. So it's an example of where we're taking the combined capabilities of the new organization and driving it through our global platform.

We're also doing that for our Management Services business, which was historically a primarily U.S. government business. We are now either delivering that service or have major proposals in front of a wide range of countries from the UK, to Saudi, to Australia, to Singapore and India, taking that U.S.

government capability and delivering it across the platform. So we're excited about getting the integration behind us and now starting to focus on extracting those revenue synergies..

Okay, great. Thanks so much. I'll hop back in queue..

Thank you, Jamie..

And the next comes from Michael Dudas from Sterne Agee. Please go ahead..

Good morning, gentlemen, a lot of accomplishments this year, of course.

First, surrounding, Mike, maybe a little bit more insight on the Highway Bill, how you're positioned? Has the company had to position differently as this has started to move forward through Congress? Has it maybe taken some people by surprise, the potential positive news that comes out of Washington? And in your plan, are we going to see any of the benefit? Is it too early for 2016, or is it much more 2017 or 2018 opportunity for the array of AECOM Services?.

So, Jeff (sic) [Mike], obviously we're excited about the recent developments of that bill having moved through the Senate and the House, and now we've got to reconcile it. But in our DCS business, 20% of our DCS business is transportation. It's our largest single segment within DCS. And so obviously, any highway bill would serve us very well.

But whether that is something that comes across in FY 2016 is going to depend upon how quickly, first of all, it gets through reconciliation and gets signed by the President. But it will likely add to our backlog in FY 2016, but more likely to our earnings in FY 2017..

I appreciate it. And my follow-up is, maybe when you're talking about the pursuits here in New York City, as someone who works and commutes in the city, it's pretty crazy getting around all the construction.

Maybe you can talk a little bit about some milestones or timing, and maybe the size of what is upcoming for extended or new projects for you guys here in the city the next 12 months..

We typically don't comment on the existing pursuits, Mike, but the transportation business domestically has been robust in terms of wins for us in the last two quarters. I think we mentioned last quarter our book-to-burn was 1.5 times, and in second half we're at 1.4 times.

So that's for all of Americas design, but transportation is a big part of that..

Okay. That's fair enough, Steve. Thank you..

Thanks..

And your next question comes from Jeff Volshteyn from JPMorgan. Please go ahead..

Hey, good morning, and thank you for taking my question. You mentioned the win in oil and gas industry.

Can you give us a little bit of color? What segment of oil and gas industry did you benefit from, and then really the general tone of what you're hearing from your customers as far as capital investment in oil and gas and related industries?.

So we don't want to disclose a specific name on that, but I'll tell you that we did win a $700 million contract for one of the top five oil and gas companies. And the work is – that project alone is entirely environmental engineering work.

And so one of the things that's helpful to understand about our oil and gas business is that historically the Flint business that we acquired through URS was half and half special projects or new CapEx projects, and the other maintenance type projects.

So now when we look at that business, the capital expenditure, the new CapEx projects have come off a bit, and now 80% of it is operations and maintenance sustaining works programs and only 20% of its capital.

The environmental business, the environment engineering, which is our other very large business that we won in the contract I just referred to that work is about 80% of it is dealing with operations maintenance and regulatory type work. So, it's not dependent on CapEx.

So where we see our oil and gas business today, we believe it's at a sustainable level right now, but it's primarily due to the fact that the work we're performing is not new CapEx. It's existing O&M and regulatory work and decommissioning work. And so, we also believe that we're well prepared for a potential rebound.

If there is a rebound in the CapEx cycle, we'll be prepared to realize the upside from that..

That's helpful. Last quarter, you mentioned relatively weaker performance related to oil and gas.

Does that stabilize for you guys?.

This is Steve. Oil and gas is still turning down. We've been focused largely on restructuring that business taking out over a $100 million of cost from that Canadian and U.S. kind of the oilfield services business, the former Flint.

So we're continuing to see a decline on the revenue side, but we were still able to structure so that it contributed on the margin side. But it's clearly a disappointment because we expected much more at the beginning of the year from that business.

However in FY 2016, we expect that it will contribute and be a tailwind from the bottom line, even though we'll continue to decrease on the top line because of our cost reduction efforts..

That's helpful. And last sort of a maintenance question for me.

What is the organic revenue decline for DCS on a same week basis?.

This is Troy. The organic decline in DCS adjusting for the 52-week period in fiscal 2014 was 2.4% for the year..

Okay, thank you very much..

And your next question comes from Steven Fisher from UBS. Please go ahead..

Hi, good morning. It's actually Eric Crawford on for Steve this morning. So I appreciate the color on the Highway Bill and the opportunity there for the fiscal 2017.

But just a follow-up on Mike's earlier question, it's early but I'm curious if you've had any preliminary discussions with your state agency customers to what extent they have a list of pent-up projects ready to go?.

We have regular continuous systematic dialogue with hundreds and hundreds of state agencies on this – on a regular basis. They are all waiting and have been waiting for the long-term visibility of a long-term transportation bill.

So that the – to the extent we get a long-term bill and allow them to engage in some larger project planning that they have not had the opportunity to do in the past because they didn't have that long-term visibility. That plays right into our sweet spot.

If you look at the type of transportation work we do, we are generally at the higher end of that food chain with the large complex projects and those large complex projects typically demand long-term funding. If you're doing curb and gutter work, you could fund that on a quarter-by-quarter basis.

So the dialogue that we've been having with these various agencies is going to only increase as we get that long-term visibility and we are very well positioned for that..

Okay, great. Thanks for that. And then switching over to Europe, we've been hearing some mixed data points, some positive and some less positive. How are you seeing end market activity there? Any color you have would be helpful..

Europe for us, we operate that as a combined business of Europe, Middle East, Africa and India. And the Europe business is very tightly coordinated with our Middle East practice because the Middle East larger infrastructure projects are still drawing on expertise from the West.

But our overall EMEA practice has grown from a backlog standpoint year-over-year. We're gaining market share in the UK in transportation, particularly – significant market share gains, the best we can tell. Continental Europe is stable and strong. We're starting to win Construction Services business and the expansion of our CS business in Europe.

And the Middle East is stable. We're not hiding our head in the sand in terms of the effect of large infrastructure projects in the Middle East are fueled by petro dollars, but we're not seeing a dramatic change in what we're seeing in the pipeline.

In fact, we're seeing opportunity in the Middle East to expand our business on the Management Services side as friendly Middle Eastern governments are starting to invest in their own military and protection..

Excellent, thanks for the color..

You're welcome..

And the next question comes from the Anna Kaminskaya from Bank of America. Please go ahead..

Good morning, guys. First I just wanted to touch quickly on synergies. If you could provide us an update on your savings run rate coming out of 2015, how much have been realized, and also $50 million seems like a pretty sizable amount.

Was that just because your initial forecast was conservative or may be volumes are coming a little bit lighter than expected so you can have more costs out. So any color about – I mean, obviously we want to get more synergies down the line than even $50 million upside.

So, any color around where you've managed to realize more synergies by 2017?.

Sure. I don't know if we were conservatives on the outset, Anna, but certainly as we went through our integration process, we learned a lot more and we're able to find more synergies. So we realized a $110 million in the year. We're exiting at a run rate of $180 million.

We expect to exit 2016 at a run rate of $275 million and what we found that the increase is largely real estate. We were able to consolidate 166 locations this year, 2.2 million square feet of space.

And during that process, you're going city by city, we found significantly increased opportunities in that space and a few other spaces that real estate is a big one. So we're adding that A&I spend for 2016 of $200 million. Less than half of that is cash A&I, and we're increasing our synergy target by $50 million, so it's a two-year payback..

Great. You employees must have pretty tight cubes. But I just wanted to quickly switch to cash deployment. I think you said that, near term, you are still focused on debt repayments. But I'm just a little bit surprised that your overall interest expense is not really moving down materially with all the debt pay down.

Like how are you thinking at which point of leverage you'll be more comfortable rethinking maybe some initial buyback over debt pay-off?.

Interest expense is coming down. I think the few things to realize is that within our FY 2015 interest expense, we were reducing debt costs all along the way. So the fair amount of that $750 million in debt paydown that we benefited from in 2015. In 2016, we also carry two extra weeks of debt, which is a fair sum given the debt load.

And then there is certain expectations within our interest rate stack in terms of what the interest rates will be. But overall, we are managing that down..

And is there a leverage target of which you would rethink the balance of the pay-down versus maybe initiating some of the incremental buyback?.

Anna, we think about all of those things on a regular basis here. The team is always looking at all of the options that we have in front of us from debt pay-down to buybacks to strategic acquisitions and I can't say that there's a perfect target, but right now we're focused on debt pay-down..

Great.

And can I sneak one quickly on just quarterly cadence of EPS next year, anything unusual about 1Q as a percentage of total year that you can provide?.

Our historical average is around 20% for the first quarter. I would expect it to be a bit less than that in Q1 this year largely because of the significant ramp in our wins in the second half of FY 2015, but nothing other that would be significantly unusual, just the cadence of our wins in the back half of 2015..

Thank you very much, good quarter..

You're welcome. Thank you..

Your next question comes from Adam Thalhimer from BB&T Capital Markets..

Hi, guys. Congrats on a good quarter..

Thank you..

The headwinds that you said you're facing this year and one of the reasons that you trended towards the low end of guidance, lower oil prices, slower Asian growth, and strong dollar.

I mean, if those stay headwinds, does that push you a little bit more towards the low end of the range for 2016 as well?.

Only if those headwinds change, the velocity, right. I mean, right now, we are assuming the oil stays where it is, so we're not expecting more headwinds. We're expecting a steady state with oil right now. We're expecting that foreign currency is where it is today. If the dollar gets stronger from here, that's a headwind.

So, right now, we're not assuming a further headwind. We built into our plans on oil and gas business that is already lower than it was last year. So from here, we feel like we've got visibility within that range..

Okay. And you made a comment that the margin within backlog and the quality of backlog has significantly improved from beginning of the year. It seems like a significant statement. I'm just curious if you can comment additionally on that..

I think we are seeing the wins trending from a mix standpoint in projects where we tend to – or sectors and services where we tend to earn a higher margin. So not only are we seeing an increase in our book-to-burn well above one, but we're seeing margin within there as better.

Having said that, there are a lot of puts and takes in our margins in any given year within the segments. So I don't know that you can necessarily drive that straight to the bottom line in any given quarter, and we're also highly seasonal within quarters..

Okay. And lastly, you gave some color on what you expect in New York next year in terms of activity. For U.S.

non-res outside of New York, how does the environment feel today?.

We talked about the transportation bill. That's the single biggest boost that we need in the non-resi space. But it depends on what you're talking about and which component of non-resi..

Commercial construction..

So commercial construction, if it's high-rise vertical office type space, the inbound investment from China continues to be a big mover in that space for us, so that market looks good. We talked about oil and gas being down. The power sector seems to be flattish. Industrial, petrochemical seems to be doing well, so we feel good about that.

But overall, civil construction is going to depend on that transportation bill..

Okay, thank you..

Sure..

And the next question comes from Tahira Afzal from KeyBanc. Please go ahead..

Thank you. Hi, folks..

Hello..

Hello..

First question is, Mike, you talked a bit about the opportunity in India.

As I look at China and how much leverage you had there on Mainland China, why is India different for yourselves?.

I'm not sure what you mean by why is it different.

Different in what respect?.

China has seen a huge build-out in terms of urbanization over the last 10 years. I'm wondering why India is a bigger opportunity for yourselves given how small China is a part of your revenue mix..

So the big difference is, in China, the state-owned enterprises do much of the heavy civil infrastructure work. So when I talk about China, I would think about it in three different pieces. We think about Hong Kong, Taiwan, and PRC. In Hong Kong, we have a very, very strong position in Hong Kong. We always have. We have a nice position in Taiwan.

But in the PRC, we do not participate in civil infrastructure build-out because the state-owned enterprises commanded that market. The work that we did in Mainland China was heavily private sector commercial development, and that's been the fastest slowing segment of PRC.

The big difference is you go to India, they don't have state-owned enterprises in the civil infrastructure business.

And so when you start to look at the build-out required of the infrastructure in India, whether it'd be the Delhi to Mumbai industrial rail corridor that we're working on or the six different metro subway systems that we're working on across India, we don't have to compete with the state-owned enterprise.

And so that's why we're more bullish on India with regard to civil infrastructure than we ever were in Mainland China.

Is that helpful?.

Got it. Yes, it definitely is. And, Mike, in that regard, I assume you can do a lot of this organically..

In India?.

Yes..

Yes, yes. We have done a few small acquisitions in the past in India, but we believe we can do that organically. We have the capabilities in Hong Kong to service the transportation market, and we have extensive capabilities in the Middle East that's servicing that market also.

So we can get the expertise and talent there, and there are plenty of very well educated engineers in India to hire..

Got it, okay. And the second question is really in regards to gross margin. In the past, you've talked about 6% type of range. And if I look at your fourth quarter, we're hitting that type of a range.

I know that your year is back-end loaded, but is there any update on the outlook there given your pretty upbeat commentary on what's in the backlog?.

The outlook for Q1, was that your question?.

Gross margin..

Oh, for margin?.

No, just generally on the margin side.

And it's not in regard to a quarter, but just qualitatively directionally, are we at a point when we can be looking beyond the 6% range?.

I think it's different by segment, but I would look in the low 7% for DCS. CS probably in the low 2%, both of those with upside into future years. And MS, MS is a tough one to forecast given the lumpiness of extraordinary gains that they tend to have when they close out projects, and we do not forecast for that.

Without those, you can put them in the low 8%..

Got it, okay. Thank you, that was very helpful..

You're welcome..

And the next question comes from the Chase Jacobson from William Blair. Please go ahead..

Hi, good afternoon. I guess good morning to you guys. First question, can you give any more color as it relates to the monetization of the AECOM Capital Investments? I know you're probably not going to give us a size.

But how is that recorded? And as we go forward, are those going to be regular like every quarter, or is it going to be once or twice a year? Is there any color you can give there?.

Sure. We don't want to give guidance on a sub-segment level, but we – in those transactions, it will be difficult to project by quarter or even by year, but we fully expect that we will have a couple of monetizations per year for the foreseeable future. We have 14 individual investments that we are in process with right now within AECOM Capital.

We have a much longer pipeline of potential investments beyond that. And so we will have monetizations this year. But given that we are in the midst of negotiating some of those monetizations, we don't want to get too specific on it, but it will be a regular part of our business going forward.

The objective is to invest in these projects, deliver the design service and construction revenue along with it. And then when the project is complete, we want to recycle the capital and do it all over again. So it will be a regular part of business and it will be a part of our core earnings..

Okay. And then I guess when I take into consideration some of the metrics that you provided for guidance in fiscal 2016 and you kind of take into consideration where you are on the synergies and where you are going to, why isn't there more margin expansion next year with some revenue growth and from what it sounds like better mix? Thanks..

I think that the margins – well, we've had margin improvement during the year. We're also facing a few headwinds in our overall margins if you're looking on a consolidated basis. Remember normal margin is coming down year-over-year by $0.12. Chem. demil is rolling off. As you know, we had significant Q1 profits from chem.

demil, we had some one-time gains in the quarter. But underlying the segment results, there is margin improvement from a fundamental standpoint..

Okay. And, I guess, just last. Can you give us any detail about the moving parts of working capital this quarter? I didn't see anything in the presentation..

Working capital came down in the quarter, but the cash flow was $695 million, as Troy mentioned.

The DSOs – Troy, what did DSO do?.

DSOs were at 82 days for the year. So we had five days of improvement over the full course of the year..

Okay. Thank you..

You're welcome..

And your next question comes from Sameer Rathod from Macquarie. Please go ahead..

Hi. Good morning. It sounds like you have several factors going in your favor into next year, synergies, both cost and revenue, organic growth declines and interest expense, highway bill. But then I look at your guidance – and I guess this expands on Chase's question. You guys did $3.08 this year and the midpoint next year is $3.20.

Is this all Sellafield and chem-demil, or are there other moving pieces we should consider?.

The same ones that affect margin will affect the growth. So if you adjust for the things that I mentioned on margin, normal margin, chem-demil, the one-time gains in EC. FX is another headwind for us. You add back in the synergies and you're looking at a 10% improvement from a base EPS this year, if you adjust for those one-time things..

Okay, got it. Thanks..

You're welcome..

And you're next question comes from Andy Wittmann from Robert Baird. Please go ahead..

Hi. Thanks for taking my questions. So, I guess, I would ask Chase's question a little bit different way because I know gains are hard to predict.

But can you give us a sense of what the guidance for next year looks like just on operations of the business excluding the gains?.

We really don't want to give sub-segment guidance. I mean, that's just one component of DCS. And so that's why we have a range, right. We have a wide range of our guidance and we're in negotiations now, as I said earlier, on what that might look like.

And so I don't want in any way influence those negotiations that we're in the midst of right now and literally right now. And so we have given a range of guidance and depending on how those profits come out, it could put us in one end or the other of that guidance..

Okay. So, Steve, in your comments you said that the P&L impacts from possible dispositions are excluded.

I guess, that's referring to the business dispositions rather than these like private equity stakes, which are, I guess, a different bucket?.

Yeah. Steve was referring to the disposition of the non-core assets in the oil and gas business, fluid hauling business, things of that sort.

But the AECOM Capital gains, we have 14 investments today, we'll continue to be making investments and regularly designing them, building them, financing them, and then completing them and selling them to recycle that cash all over again.

So it'd be a regular part of our business going forward and we'll see a few of these transactions a year every year..

Yeah, okay. But the dispositions then, there was no mark on them at the year-end.

But those are probably – is it fair to assume that those are more likely to be a loss than a gain? Or how should we be thinking about what to expect when those are monetized?.

Which assets you're talking about now?.

The fluid hauling and the stuff in Flint that you are looking at that are nonstrategic..

That's right. For the real kind of small non-core Flint assets, there would more likely be a non-cash loss with those, not a gain..

And the reason for that is we marked those to market when we did our purchase accounting at the acquisition a year ago. And so the overall oil and gas world is depressed in that one year period of time. And so naturally there would be a slight decline there..

Non-cash..

Non-cash, yes..

Yes, yes, totally. So then just on – last quarter you guys commented on the URS business kind of separately. You said they were not that dissimilar from the trends you had seen in the organic trends. Is that still the case here in fourth quarter? Or just your updated thoughts on that would be helpful..

The organic trends in the URS business that were similar to the AECOM businesses were very, very similar. In the businesses that we're not in, of course, they're different, oil and gas, we didn't have that business, and of course it was disappointing to say the least..

And then just maybe final question here on the cash flow expectations. Thank you for updating your view on that one. I guess, when you think about the 2 times leverage bogey by the end of 2017, I guess, that basically means that you're probably working toward the high end of that $600 million to $800 million range.

I guess, maybe the question is, are there any other things in the cash flow in terms of maybe taking working capital out of the business or otherwise that are going to help you get to the 2.0 times level. Your thoughts on that, I think, Steve, would be helpful..

So, Andy, this is Troy. Just in terms of our guidance for 2016 and 2017, we are not anticipating or in building up that guidance any working capital improvements. That's just based on our build-up from a business-by-business to get to a cash flow range.

And in terms of the 2.0 times guidance, if we just simply deliver on our cash flow over the coming two years, we will push ourselves down into the mid to low three times in that period of time..

The 2.0 times is not necessarily a bogey, Andy. We just said, if we deployed all of our cash towards that, we would have start approaching 2 times by the end of 2017..

Yes..

But we're constantly looking at capital allocation priorities..

Yes, that makes sense. Sorry, final question then. On the cash flow, it looks – if $600 million to $800 million – I mean, it looks like the net income, we always think of E&P companies, in particular engineering heavy companies like yourselves, cash flows pretty close to net income.

I guess, after these next couple of years, should we expect the net income – the free cash flow range being more applicable to your business than what looks like it was a little bit elevated over the near-term?.

Yes..

Yeah, Andy, that makes sense..

Okay, I just wanted to make sure nothing has changed on that. Thank you..

Sure..

Thank you..

We have no further questions at this time. I'll now turn the call back over for final comments..

Okay. Thank you, operator. So, listen, just a few closing comments here. We entered fiscal 2015 as an $8 billion company, about to embark on a real transformational combination, the biggest in our industry's history and today here we are as an $18 billion company with integrated delivery capabilities across just about every major market and geography.

And we have – the real hard work is behind us, the hard work of integration. Anybody that's been through this knows that the real heavy lift has occurred over the past 12 months and I couldn't be more proud of our leadership team and all of our employees that had to work two jobs over the course of this year getting that integration behind us.

But now we stand on the cusp of really realizing the full potential of our vision to become the world's leading fully integrated infrastructure services firm and we feel very good about the future that lies in front of us and very good about realizing our full potential.

So thank you all for your continued interest in AECOM and we hope that you'll join us in December at our Annual Investor Day meeting where we'll discuss in more detail about all these milestones and, most importantly, our vision for the future. So thank you and have a great day..

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