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.

Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker) Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker) Jeffrey Y. Volshteyn - JPMorgan Securities LLC Michael S. Dudas - Sterne Agee CRT Anna Kaminskaya - Bank of America Merrill Lynch Cleveland D. Rueckert - UBS Securities LLC Chad Dillard - Deutsche Bank Securities, Inc.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker) Sean D. Eastman - KeyBanc Capital Markets, Inc. Chase A. Jacobson - William Blair & Co. LLC John Bergstrom Rogers - D. A. Davidson & Co..

Good morning and welcome to the AECOM's Second Quarter 2016 Earnings Conference Call. I would like to inform all participants this call is being recorded at the request of AECOM. This broadcast is a copyrighted property of AECOM. Any rebroadcast of this information in whole or part without the prior written permission of AECOM is prohibited.

As a reminder, AECOM is also simulcasting this presentation with slides at the Investors section at www.aecom.com. Later, we will conduct a question-and-answer session. I would now like to turn the call over to Will Gabrielski, Vice President of Investor Relations..

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 our risk factors. 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.

Our discussion of financial results excludes the impact of acquisition and integration-related expenses, financing charges, the amortization of intangible assets and financial impacts associated with expected and actual dispositions of non-core businesses and assets unless otherwise noted.

Today's discussion of organic growth represents the year-on-year change for the entire company on a constant currency basis. 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. 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 question-and-answer session. But before we start, I'd like to offer our heartfelt sympathies to our clients, the community and over 2,000 employees affected by the fires at Fort McMurray, Canada and surrounding areas.

We're happy to report that all of our employees in the region were safely evacuated and are ready to start the rebuilding effort, when it's safe to do so. Please turn to slide four. Our second quarter performance included several significant accomplishments.

The Americas Design business returned to positive organic growth, which is a significant turning point for our largest profit driver and reflects growing momentum across our end markets. In Building Construction, we delivered 25% organic growth and we won projects worth $1.2 billion, which adds to our already strong visibility.

We also delivered strong free cash flow and paid down $76 million of term debt. We have reduced our debt by $854 million, since we closed the URS acquisition. And with our strong cash generation in the first half of the year, we are firmly on track with our annual $600 million to $800 million free cash flow guidance.

As we look across our markets, several positive trends are becoming apparent. First, public sector funding in our Americas Design markets is improving.

Our backlog increased by 8% in the second quarter, and with the anticipated benefits from the federal transportation bill and growing spending in Canada, we are confident growth will continue to improve.

Second, in Management Services, our qualified pipeline is now nearly $40 billion and positions us to gain market share, expand our client base and capitalize on the growing demand in the commercial sector. Finally, trends in our power and civil construction markets are turning the corner.

In the second quarter, we were selected for a large design build highway project, and just in the past two weeks, we were selected for power projects valued at over $1 billion that will be included in our third quarter backlog. Please turn to slide five for a discussion of the segments.

Beginning with DCS, we began the year with confidence that the Americas Design business was on a path to deliver growth. In the second quarter, we delivered on this commitment with improvements in nearly all of our end markets becoming more evident.

In transportation, which is our largest end market, our backlog has increased by nearly 10% since the beginning of the fiscal year, and the outlook in both the U.S. and Canada is increasingly strong.

Domestically, the five-year, $305 billion, FAST Act has resulted in a growing pipeline of pursuits, especially for larger programs that leverage our full capabilities. In addition, more than 25 states and metros have enacted new infrastructure funding measures over the past three years.

And we are tracking several infrastructure ballot measures that will be voted on this fall, including large proposals in Denver, Los Angeles and Seattle.

In Canada, Prime Minister Trudeau's commitment to increase infrastructure investment is contributing to new momentum, as evidenced by the recently passed budget that included strong support for transportation investment. Trends are also improving in the water and environment markets.

We've been selected for several large design build water projects over the past few months, demonstrating our ability to provide integrated services for our clients. And in the environment business, activity is accelerating, which is contributing to an improved growth outlook.

Across our markets in the Americas, we are also encouraged by an increasing pipeline of projects utilizing alternative delivery models. For example, the overhaul of Penn Station in New York, and the planned $5 billion modernization of LAX will be executed as P3s.

Client recognition of the benefits of alternative delivery is a significant step towards realizing our vision to design, build, finance and operate infrastructure assets. Now, let's turn to our international design markets.

Beginning in EMEA, we had strong wins across the region, and while the Middle East is experiencing a slowdown, we delivered profitability in line with our expectations. Importantly though, our largest market in EMEA, the UK, continued to perform well with revenue increasing by 5%.

We are positioned to benefit from growth related to Northern Powerhouse initiative, which requires substantial investments in transportation infrastructure. And significant opportunities are emerging in the nuclear power sector, where our expertise in client relationships, position us to benefit.

Moving to our Asia-Pacific markets, activity in Hong Kong remains consistent with our expectations. Our history of delivering large iconic projects for our clients contributes to a high win rate. And we're pursuing large opportunities in the aviation and healthcare sectors, which we anticipate will add to our visibility as the year progresses.

Despite the recent economic volatility in Southeast Asia, we are very optimistic about the long-term growth potential, resulting from rapid urbanization and substantial multilateral funding in the region.

The transportation market in particular holds significant potential due to the emphasis on greater regional connectivity with several light rail and high-speed rail projects, continuing to progress forward. Let's turn to our Construction Services segment.

We had another strong quarter in Building Construction with 25% organic revenue growth, reflecting our high market share in the New York metro market, and our successful expansion into new markets, including Los Angeles and London.

While we have continued to deliver strong growth in the New York area, nearly half of this year's Building Construction profits are expected to come from outside of New York. This compares to only 10% in 2013 and is a testament to our ability to expand strong businesses into new markets and geographies.

Let's move to our energy and industrial construction business. Last quarter, I spoke about a growing pipeline of pursuits, which included several large power opportunities.

I'm pleased to report that we have been selected for more than a $1 billion of power work over the past two weeks, that will be included in our third quarter backlog and that our pipeline remains robust.

In Management Services, we delivered strong results led by our leading capabilities in the markets with high barriers to entry and our diverse portfolio of projects. The passage of the $1.2 trillion omnibus spending bill last December has resulted in an increase in bidding activity.

We currently have $12 billion of bids under client evaluation, which is an increase of $7 billion from last quarter, and our qualified pipeline of pursuits is nearly $40 billion compared to $35 billion last quarter.

Importantly our pipeline reflects our leading position in existing markets, as well as our ability to extend our capabilities into new markets. For instance, in the intelligence market, we're pursuing a $4 billion pipeline.

We have nearly $5 billion of international pursuits, many of which are in the Middle East where events such as the World Cup require significant security investments. These factors give us tremendous confidence in the outlook for the business.

Finally, I want to highlight AECOM Capital, which is the financing arm of our fully integrated design build finance and operate strategy. We launched AECOM Capital in 2013 to meet the growing demand for alternative infrastructure financing in the U.S.

and to provide our clients with the project delivery solution that can improve time-to-market and lower costs. To-date, we have committed nearly all of the $200 million from our first fund.

This investment has resulted in over $3.5 billion of total development value, including nearly $1.5 billion of construction backlog executed by our Construction Services segment. Our initial investments centered on commercial, residential and mixed-use properties in major U.S. metros led by New York and Los Angeles.

We also recently made an investment in the Muskingum River hydroelectric project, which is our first private-to-private infrastructure investment. Many of our investments are maturing and as we go forward, earnings and cash flow from our portfolio of projects will be a more significant contributor to our financial results.

We're also pursuing several options to expand our capacity, which we hope to report on in the coming quarters. I will now turn the call over to Troy to provide greater detail on our financial results..

Thanks, Mike. Please turn to slide six. Our second quarter results were consistent with our expectations with the exception of our oil and gas business where market conditions remain challenging. For the quarter, revenue declined 1%; excluding the decline in the oil and gas business, our revenue was up 3%.

80% of our revenue base grew during the quarter, highlighted by growth in the Americas Design and Building Construction businesses. These results demonstrate the improving fundamentals in our markets and our ability to capture a growing market share, the opportunity in front of us.

Another highlight of our strong performance is that our operating margin increased from 4.7% to 6.1%. Please turn to slide seven. We ended the quarter with nearly $39 billion of backlog.

Additionally, we had $1.1 billion of wins in the Construction Services segment that are not included in our backlog due to the accounting for agency work and unconsolidated joint ventures. Even though we don't report these wins in backlog, we'll benefit from the profitability of this work.

As a reminder, our backlog does not yet reflect the greater than $1 billion of power wins that Mike highlighted earlier. Please turn to slide eight. DCS revenue was $2 billion. Organic revenue declined by 0.6% with growth in the Americas and the UK, offset by decline in Asia-Pacific and the Middle East.

Our contracted backlog in the Americas increased 2% from the last quarter, and we're confident that we'll deliver continued growth in the second half of the year. The second quarter operating margin was 7.1%, a 180-basis-point improvement from the prior year. This improvement is primarily from our synergy savings and strong project performance.

Please turn to slide nine, revenue in our Construction Services segment declined by 1%. However, growth rates were quite varied across our end markets. In Building Construction, we delivered 25% growth. But this was offset by a 51% decline in oil and gas, where the pace of activity continues to be impacted by low prices.

Absent the weakness in oil and gas, the operating margin was solid and reflects steady execution across the business. In the second half of the year, the diversity and strength of our Building Construction backlog will continue to drive revenue growth. We also expect growth in the energy and industrial construction business.

However we expect oil and gas revenue will decline in the second half of the year, albeit at a slower rate than in the first half. Please turn to slide 10.

In Management Services, revenue increased by 5%, which includes a significant positive impact from the acceleration of a cost recovery on federal contract pension entitlement that have resulted from harmonizing our benefits programs.

The operating margin increased 320 basis points to 15.9%, which again reflects the impact of the accelerated cost recovery. I should note that in addition to the P&L impact of the accelerated cost recovery, we also anticipate being able to accelerate the associated cash flow into 2017. Please turn to slide 12.

Our second quarter cash flow and capital allocation priorities were consistent with the commitments we made at the time of the URS acquisition. We delivered free cash flow of $83 million; this is a significant increase from the prior year. Our first half free cash flow accounted for 23% of our full year $600 million to $800 million target.

This phasing is consistent with our prior years, and gives us confidence that we will achieve our guidance. We continue to deploy cash flow to reduce our debt. We paid down $76 million of our term debt during the quarter. Going forward, our capital allocation priorities remain unchanged.

We continue to evaluate the returns associated with debt reduction, share repurchases and M&A. In the near-term, we will continue to prioritize debt reduction, but we always consider all options keeping shareholder value creation as our top priority. I'll now turn the call to Steve to discuss our financial guidance..

Thanks, Troy. Please turn to slide 13. We are pleased with the progress of our business, particularly the swing to organic growth in the Americas DCS business, the strong margin improvement in overall DCS and in MS, and the enhanced pipeline of opportunities across our diverse end markets.

These positives are enough to offset the weakness in oil and gas and the short-term negative impact of the Fort McMurray fires. As a result, we are reiterating our fiscal 2016 guidance of $3 to $3.40. Our confidence in the range remains high and is supported by the underlying improvements across our end markets.

We anticipate our third quarter EPS will be similar to the first quarter, due mostly to the ongoing weakness in the oil and gas market and our anticipated AECOM Capital realization in the fourth quarter.

Finally, we are progressing well in capturing synergies and on track to achieve $325 million run rate synergies during 2017 and to exit 2016 at a run rate of $275 million. Now we'll turn the call over to Q&A. Operator, we're now ready for questions..

Thank you. Our first question is from Andrew Kaplowitz with Citigroup..

Hey, good morning, guys..

Good morning..

Steve, can you give us a little more color on this oil and gas weakness? When we're thinking about your guidance, I'm not sure if you had this sort of $0.14 benefit in your guidance. You've lowered your tax rate a few pennies.

Presumably, you're still – we know you're getting gains, you said in the fourth quarter on AECOM Capital, so if you can give us a little more color on sort of what the oil and gas impact is, that would be helpful..

Thanks, Andy. No. Oil and gas is definitely a headwind. We were predicting that it would be off about 30% for the year through the first half or down about 50% on the topside. So, we're just fighting a very difficult market, but I think we're holding our own.

We haven't cut to the bone and we think that once the prices rebound a bit, we're well-positioned both in Canada in the heavy oil sands and the U.S. to recover. And we're actually making some investments in that arena. And quite frankly, our downturn has not been quite as bad as some of our competitors that we're seeing.

So, I think it's still something that we view as upside that's just a challenge in the future, and we're fortunate enough to have (18:23) rest of the business to offset what we view – what we know, is going to be a hole for us for the full year relative to our original guidance.

So, for the second half, we're forecasting relative to our overall guidance to be in the $0.15 to $0.20 headwind from that, which we've been able to make up to still get back within our guidance range – actually, well within our guidance range because our confidence is still quite high..

The Fort McMurray fires are really just a temporary thing, Andy. Our folks have moved out, but they'll move back in and they'll be part of the recovery and the rebuild of what's gone up there.

They haven't lost too much in terms of oil output, but there will be repairs and maintenance that we will help with and in the long-term hopefully, will be a tailwind for us..

Got it. So, Steve, if I remember correctly, I think you said oil and gas would be at least break even for the year.

What is it now?.

I think that from a contribution standpoint, probably still true from relative to where we thought it was going to be. We thought it would swing to a profit in the year. It was breakeven last year if you recall. So, it's a headwind relative to what we thought it was going to do, but on a contribution margin line, it's not going to be a negative..

Okay, got it. And then you talked about backlog, and DCS Americas up I think 8%, transportation up 10%.

DCS Americas' revenue, as you said, marginally improved, but is it reasonable to expect organic revenue growth to come closer to matching backlog growth maybe by the end of this fiscal year? And how much if any acceleration have you seen in revenue burn from some of these infrastructure projects that you booked over the last six months to 12 months?.

Well, Andy, it's Mike. Listen, we had been talking about this since the beginning of the year that we felt fairly confident that organic growth would come back to the business in the latter half of the year based on what we're seeing in the market, based on wins, based on backlog.

And for this quarter, it came back to a positive growth in the quarter, even though we weren't expecting that to come till the second half of the year. But the bottom line is, we do feel that the second half of the year is going to be much stronger on organic line.

I'm not prepared to predict the organic growth exactly, by quarter, but everything that we were predicting in the first half of the year is starting to pan out. We're seeing a robust market, we're seeing robust wins.

And your question about, whether the organic growth, whether it will match the backlog growth, inevitably it does over time, but trying to predict which quarter that happens in is a little difficult, but we feel really good about the U.S. business.

It's taken a while to get us through the integration efforts, we're through that now, and we're focused on growth, again. The market has given us a little tailwind, and we should expect to see that both in the second half of the year organic growth numbers as well as even more so in 2017..

Great. And Mike, I just wanted to ask you one question about the MS business, like the backlog was still down a little bit, but the pipeline has gone up. And you had talked about several opportunities last quarter that were close to materializing. I assume that they are still right at in front of you.

Is it just you just got to get these over the finish line and you're close or how is the market there?.

The market is very strong. I think you heard us talk about the pipeline moving from $35 billion to $40 billion of projects in the pipeline that we're pursuing.

The bids under evaluation which are bids that we're not just pursuing but we've actually submitted our bids and we're in client evaluation, jumped from $5 billion last quarter to $12 billion this quarter. So real needle moving numbers there.

And I think when you look at this business, the size of the contracts are so significant that you can't look at just backlog on a quarter-to-quarter basis because of the size of the numbers.

So, it's helpful to look at what we're pursuing, what we're qualified to pursue because of the capabilities that we brought together from URS and AECOM legacy government services. We have more capabilities to pursue more projects.

We have the size and scale that allows us to pursue bigger projects that we historically may have partnered with someone on. So, the dynamics for us in the marketplace have changed quite a bit. And we're very confident. You're going to see that as these bids that are in evaluation get decided upon in the coming year..

Thanks, Mike..

Sure..

The next question is from Jamie Cook with Credit Suisse..

Hi, excuse me, a couple of follow-up questions on Andy's question.

Mike, the $12 billion in Management Services that's up for – that's with the client right now for evaluation, is that all incremental new work to the AECOM/URS company or is some of that work that you guys had done for the client and is up for renewal? I just want to make sure that's incremental when I think about it.

And then I guess my follow-up question has to do with the guidance. I think in response to Andy's question, you said oil and gas is going to be a $0.15, $0.20 headwind. I don't think the $0.14 in pension was in your guide before.

So again, I'm just trying – and with the wins you've had, I'm just trying to understand why at least the mid-to-high end isn't more likely or is it just timing of when some of this work you win will kick in..

Okay. So, let me take the first part of the question. I'll let Steve take the second part of the question. The pipeline as well as the business that are in evaluation are combination of re-competes and new business. So, I can tell you, just off the top of my head, I know two of those projects are comprised of – $8 billion is two projects.

Of that $8 billion, $5 billion of it is a re-compete and $3 billion of it is new business.

But the important differentiator, which is a great segue from the comment I made earlier is the $5 billion that is a re-compete, Jamie, is a business where we were a sub previously and we're going at this one as a prime because of new capabilities in size and scale of our organization, we can compete as a prime instead of going at it for a sub.

So, just $8 billion of those $12 billion under evaluation of $8 billion of the $12 billion, $5 billion of the $8 billion is a re-compete, but we're going as a prime instead of a sub, and $3 billion is entirely new business..

And sorry, just one follow-up question, before you answer the guidance question, just because the other markets are so weak is the competitive environment when you're bidding for these projects is a lot more fierce relative to say 12 months ago, because when I think about you winning all this work in management services and what your margins have been in management services that has pretty positive implications assuming the environment is okay for what earnings could be in 2017?.

Yeah. Jamie.....

And I know every contract is different, but just broadly....

Yeah. Listen, it's a competitive market, and it has been for a while, but our win rates in that market are as good as they've ever been. We think our capabilities, given our new size and scale are differentiated in the market. And there's a high barrier to entry in the markets that we're talking about here.

This isn't old style LOGCAP work, where just about anybody could do it, we're talking about work that is very, very highly qualified work with technical capabilities, for intelligence community or defense, that has enormous barriers to entry.

So, you're not going to see people moving over from the low level price competitive work to move into our space, if they're not already there..

Okay. Thanks.

And then, just the follow-up on the guidance?.

On the guidance, Jamie, I think, it's a good question. The – obviously the $0.14 was not – well, there was a piece of it, probably that we would have collected during the year, but that $0.14 would have come over a long period of time, which we're now going to accelerate into FY 2016, and FY 2017.

And then, we've got the headwind from oil and gas, and if you just do the math, you kind of get to something, if you are starting from the midpoint of the range, something higher than the midpoint of the range, but when you're trying to land a company of this size, at the end of year, having some contingency in there for other unexpected items, some of which are known to us now, some of which are not known is prudent from our perspective..

Okay. Thanks, I'll get back in queue..

Thanks, Jamie..

The next question is from Jeff Volshteyn with JPMorgan..

Thank you for taking my question. I wanted to ask on free cash flow side of things. So, year-to-date, you're probably at around $160 million, which leaves if I use the midpoint of your guidance about $540 million for the second half of the year.

Can you help us think through what might be coming through AECOM Capital, what might be coming through operating free cash flow, and how does it work with CapEx, which seems to be kind of ramping up towards the year-end as well?.

Hey, Jeff, this is Troy Rudd. I guess, first of all, we're right on track with where we expected to be in the first half of the year. If you look historically the business produces about 20% of its cash flow in the first half of the year and 80% in the back half of the year. This is a couple of data points.

In the first half of the year, we spend a little more than $100 million on variable comp and some tax related to our equity programs that we don't have in the second half of the year. So that's the sort of the most significant item that influences the timing of the cash flow beyond what we see in just the normal run rate and earnings in our business.

Our business does ramp up in the second half of the year and that also influences cash flow. So, where we sit today, we have great confidence in our ability to hit that full year guidance number..

Okay.

And when you look at CapEx, what are some of the larger buckets of the increased spend in the second half?.

Our CapEx in the second half is ramped up a little bit because of our real estate consolidation. You recall, we're still going through the program of consolidating real estate related to the acquisition. So we do see that ramping up a little bit in the second half of the year..

And then one last follow-up on Jamie's question, the $0.14 pension item.

It's sounded from your comments Troy that there was a revenue impact in the second quarter as well as earnings impact?.

Yeah. That $0.14 item not only reflects the bottom line, but it also reflects the revenue in the MS business. So, it comes through both P&L – both elements of the P&L..

And what was the impact in the second quarter?.

In the second quarter, again, it's on the bottom line, it's about $45 million of revenue at the top line in the Q..

Okay. Thank you..

The next question is from Michael Dudas with Sterne Agee..

Good morning, gentlemen..

Good morning..

Good morning..

Two questions first, Mike, maybe on the upcoming power bookings that you're going to show us next quarter, was it a confluence of just timing or is this more of a trend that you guys are seeing in the marketplace that you guys are going to benefit from maybe rolling into 2017 given all the environmental and nat gas power opportunities that should be coming about? That's my first part..

Yeah, I think, there's a number of contributors there.

First of all, the overall power business in the United States is fairly strong and we know there is a whole host of conversions that are being considered across the country, but I think the biggest influencer here is that, the business that we acquired from URS has been in the power business, from the Washington Group, Morrison Knudsen has a legacy of some of the most iconic power projects here in the United States and around the world, so it's an incredibly strong franchise.

But under the URS leadership, they were underinvested and they weren't focused on growth, when we acquired that company, we quickly identified the talent that exist in that group that has really put together some great projects over the years, and we invested in them to grow that business and they went out and really took charge of the market, added $1 billion of backlog to that business in the quarter alone.

In Q3, they'll have a 3x book-to-burn ratio in Q3 alone. So it's a combination of a strong market, it's a combination of bringing together a great franchise with great expertise and a great team, and investing in them to grow that's producing this.

And so we feel pretty good about our capabilities in the market coming together and continued growth in that end market..

And my second question would be Mike on your comment in your prepared remarks about the non-New York City construction business that seems to have grown quite nicely, is that something that you anticipate will continue with some of the bonding measures that you mentioned and other type of larger city-oriented either bonding or funding occur – allow (32:47) that to continue?.

Absolutely. That's been part of our strategy. We – over the years, we acquire companies that have a great expertise and great resume weight. And we take them on to our platform and mesh them together with our political contacts or market contacts in various cities around the world.

And as I mentioned earlier in my prepared remarks, when we bought Tishman Construction, it was a New York focused business, 90% of its business was in New York, and now that has dramatically changed. And we're taking that expertise with – we've taken it into the London market, you've heard us talk about our new two high-rise wins in London.

We're proposing another $1 billion of projects that are in evaluation in London alone in the high-rise market. We have nine building construction projects in the State of California alone, when we had zero two years ago, just taking that expertise and capability and meshing it together with our presence in these other markets.

So that has been a part of our strategy for the past few years. It's working well. Our leadership – our Construction Services leadership team in the past year has set up a presence in Hong Kong, Singapore and Australia, and we're growing that business with our capabilities and our resume weight from the U.S. business also.

And so it's part of our strategy, we're doing in building construction, we're doing it in energy and power as I just talked about, we're doing it in management services where we've taken those capabilities that we have performed to the U.S.

government and bringing it to the UK government, to the Australian government, the Middle East, and Singapore and India right now. So, it's part of our strategy..

And just quickly, Mike, if you can – maybe looking early on handicapping some of these big bond initiatives from November, what you guys are seeing early on, on those probable success or failure of such?.

So, there is a whole host of markets that are very active right now.

We're tracking at least a dozen ballot measures this fall, a few of them, that I'm really familiar with, the biggest one is right here in our hometown in Los Angeles, Measure R2, you will remember that Measure R1 produced a $40 billion fund entirely dedicated to transportation and infrastructure, Measure R2 that will be on the ballot in the fall of this year will produce $120 billion program, will be the largest public works program in the United States.

And right now the initial polling that I've seen is showing that that will pass. And so what we're seeing is many states and cities that from Seattle to Denver to San Francisco where you've got the tax payers in those cities are very comfortable with increasing tax measures if they are wholly dedicated to transportation.

There is not a lot of people voting for tax increases when they're going to general fund, that they think will be misspent. But when they are coming into wholly dedicated transportation infrastructure funds, overwhelmingly the tax payers are voting for it.

And we think that'll be a big boom for our business coupled with the $305 billion FAST Act that was passed in December. And then you add on top of that, the private sector money that's coming into the market in public-private partnerships.

We're seeing it with Penn Station in New York, we're seeing it with the $5 billion LAX Airport modernization program. So, you couple all of it together with private money with federal money and with state and local ballot measures, gives us a lot of optimism for civil infrastructure markets..

Excellent Michael. Thank you..

You're welcome..

The next question is from Anna Kaminskaya with Bank of America..

Good morning, guys.

First, I just wanted to follow-up on the vertical construction end market, just what are you seeing in New York market in particular; I know, it's 50%, so you've been able to diversify, but are you seeing a slowdown and if you're seeing slowdown how quickly would it kind of impact your EPS numbers?.

Great question, Anna. First of all, we keep reading the same press that you're reading, that New York is going to slow down at some point. But, last quarter we had the One Vanderbilt project we won in New York, a $1.4 billion project in New York. So, every time we hear news that it may start to slowdown, we win another project.

So, we had a 25% organic growth in that building construction end market this past quarter. But your question is if it slows because – you know, so we don't – real estate moves in cycles, but one of the things that we have seen is, we have a backlog in building construction that we can see out a few years.

And we have built up such a robust backlog in that space. It will carry us through the next few years. So you don't see building, especially the kind of buildings that we're building, they don't stop halfway through construction and shut them down. That doesn't happen here in the U.S. and in any major market.

So we don't see that having an impact on our EPS. Even if there were a slowdown in building construction, it wouldn't happen for years, and we could look back to the last few cycles. This isn't our first cycle we've been through, we've seen it before, and we've got a lot of visibility out for the next three years in that cycle..

That's great. And then just a follow-up to oil and gas, I mean, second year in a row we're still hearing about below expectation results.

Is there any impact of risk to your goodwill and potential impairment from the oil and gas running below expectations, and is it something that would impact your bank terms or covenants that you would have to go back and talk to the banks about?.

Anna, this is Troy. I'll take that question. First of all, when we evaluate the goodwill, we don't have a concern at this point that testing, if you remember, is based on the long-term view, and what we think we're experiencing now in Q2 and Q3 is really the short-term impact of lower oil and gas price.

With respect to our covenants, there is no impact on our covenants if there ever was to be a goodwill impairment..

Okay. Thank you very much. Good quarter..

Thank you..

Thank you..

The next question is from Steven Fisher from UBM (sic) [UBS] (39:31)..

Hi, Cleve Rueckert on for Steven, UBS.

Just looking broadly at the plan for the next two quarters into 2017, are there any milestones or key things that need to happen in the next two quarters of 2016 to keep you on track for your 2017 plan?.

So, there's – we're tracking numerous milestones, but the increase in backlog, that we've been experiencing and the pipeline of projects that we have underway, we continue to monitor that, when we have every expectation that backlog will continue to grow based on the pipeline of activity, we have now, but we feel very good about the other milestone on cash flow and debt pay down, that as Troy mentioned, we feel very confident on that throughout the year.

So, we feel like we're on track for, everything that – all the milestones that we've set out for us, returning to organic growth in the Americas, continuing that growth in the second half of the year would be a great milestone; hitting our cash flow numbers, which we expect to do, will be a great milestone, continuing to add to the backlog, continuing to diversify our business.

We're through our synergy program for the most part, we are 90% plus executed on that, we've exceeded all expectations on that. And our margins continue to improve as we said they would. And we expect that to continue to be a milestone that we watch also.

So, there is a wide variety of milestones, we're watching every day and they all look pretty darn good..

Thanks. I appreciate the color.

And then Troy just to clarify one thing, I think you said 3% revenue growth excluding oil and gas, is that organic growth or could you give the organic growth number for the company?.

That would be an organic growth number, yes..

Okay. Great. Thanks. Thanks for all the color, guys. I appreciate it..

You're welcome..

The next question is from Chad Dillard with Deutsche Bank..

Hi, good morning..

Good morning..

Good morning..

So I'm just trying to think about oil and gas headwinds exiting second half of 2016 because that sets up 2017. So you mentioned that you are breakeven in 2Q if I heard correctly, but more declines in revenue will be coming for the rest of the year.

So my question is can you stay profitable in the second half; and if not, I mean how should we think about the impact in the second half of the year then into 2017?.

Chad, what I believe I said was that we thought it would be breakeven from a contribution standpoint or contribute on the margin, but the headwind is really against what we expected oil and gas to do for us for the full year. So listen that piece of business now is fairly inconsequential to our earnings.

In fact, it's pretty much adjusted out of our forecast for the year. So we don't have a lot of exposure on it and I would feel confident in saying that we don't believe that the size of that business and the overhead associated with it is significant enough to be a headwind where it would create a loss for us..

Okay. That's helpful. And then just going back to the DCS business, I think, in the last call, you called out $60 billion of transportation pipeline.

I was just wondering if you had an update on where you stand now and then also just on the margin side can you just talk about where your margins and backlog or new bookings are compared to what you did this past quarter?.

So, let me take a part of that, and then I'll hand it over to Troy and Steve for the other part of it. But, I think, the important point is that our overall backlog is up 8% in Americas DCS, transportation backlog where we're the most significant player in that space is up 9%. So we're seeing all of the results of what we've been talking about.

In the first half – first quarter, we talked about what we were seeing in terms of activity in the marketplace where clients were starting to think about spending some decent amounts (43:59) of money. So that's the first clue that we gave to you about what we were seeing. Then, we started realizing it in terms of an increase in backlog.

Then we started seeing in the quarter we had a big Colorado Department of Transportation win I470 which is a big joint venture design build win for us with our partner. And so we're seeing all of the results of what we expected. Oh and then, by the way, we had a return to positive organic growth in the quarter.

So you start – start walking this down the path we talked about the opportunities we were seeing, then we started winning it, and we showed you that, then we showed you the positive organic growth. So it's moving exactly in the direction that we had expected..

From a margin standpoint, listen, our margins are – continue to be strong in DCS, they're probably getting better in CS, because of the headwind from oil and gas kind of alleviating as time goes on.

MS, we have very significant margins in that sector, but our second half will probably exceed our expectations relative to what we had thought about MS in the second half, because we viewed their margin over the long term returning to the 8% to 10% range, and we think we'll exceed that.

So we're in a competitive market, price is very important, but we're getting better continuously on execution to drive the project margins and you can tell from the bottom line margins that we're bringing those synergies through the P&L, which helps us be more competitive, but also is flowing through our bottom line as predicted..

Great. That's helpful. Thank you..

Okay..

The next question is from Andy Wittmann with Robert W. Baird & Co..

Great. So, guys, I want to just dig into the organizational restructuring integration. And Mike, you just mentioned the comment that 90% of its kind of done and behind you, maybe just if you could give us a little bit more detail about what that entails? I mean, clearly you're still anticipating some more cost savings next year.

So, if you could just talk about how much of the organizational chart is in place, how much of the real estate is now in place? And any other initiatives that are going to help get you that next, I guess, $50 million as you are – that you're committing to after the $275 million is done?.

From a pure cost standpoint in terms of driving those synergies, there is still more to come. We exited the quarter $230 million of run rate synergies, the year will be $275 million and FY 2017 will be at least $325 million.

What Mike mentioned, so there's still more synergies to come what Mike mentioned in terms of being mostly done is the emotional and kind of inward facing restructuring from a organizational standpoint, which we're basically done like we'll always be tweaking our teams and our leadership teams, but the actual integration is over from that perspective.

So we've got execution to do on the real estate, and we have a track record of executing quite well. We've taken out 205 locations and consolidated them to get our people together, we've removed 3 million square feet of space and brought our people together. And ultimately, the run rate for real estate alone will be almost $85 million in savings.

So, there's more of that to come, there are some big, big consolidations we just did a big one in Denver which is one of our largest offices that are now operating about 1,400 people in one location.

But to us that's not so much integration related to an acquisition because we were, if you recall before the acquisition we were taking out about $40 million of real estate. So, we had a pretty good program in place anyway.

But from our leadership team, and I think it really trickles down to our folks is the integration with URS is over and we're turning our attention towards the external markets..

That's helpful, Steve. Thank you. I guess, maybe one more for you with the AECOM Capital, there was a comment in the script there, about evaluating the next steps now that you're fully deployed. Just given the balance sheet and the cash flows being pretty good here.

Should we think about the next fund being similar in size, just kind of trying to feel out order of magnitude and what that could mean for your cash flows in the next couple years?.

So, as we said all along that, we expect this is to be a big part of our business, but not a big part of our balance sheet. The first $200 million that we deployed to this was entirely off of our balance sheet and our next two funds that we're focused on raising will be a combination of our capital and outside capital.

But almost entirely outside capital, very small amount of our capital dedicated to it, because to produce the size and scale of the projects we want to get involved in, we don't think that's going to entirely come off of our balance sheet.

So we're in the process right now, we've got a number of discussions with outside funders that will contribute to those – the second and third funds..

Okay. That's helpful.

Then if I could just ask one final question, I wanted to just look – kind of take a view as to growth into 2017 and just noting that first quarter had legal and pension items that were $15 million, $20 million, you had $45 million of pre-tax pension help here, so I feel, I think you can confirm, but I think that one rolls off, and then you have the gain, what you – as you look into 2017, do you see the potential for EPS and EBITDA growth or are these kind of headwinds that are going to be insurmountable with, I mean there's clearly the (49:49) restructuring benefits you've got, potentially other gains, but I just wanted to get your sense on how you're thinking about earnings growth in the 2017?.

Yeah, I don't think we're prepared to start giving guidance on 2017 at this point, but we certainly we talked about how we feel about the end markets that we're in and how bullish we are on all those end markets around the world, but we're not prepared to start giving guidance on 2017 just yet..

Good. Thanks..

The next question is from Sean Eastman with KeyBanc Capital Markets..

Hi, guys, so we've talked about this quite a bit already, but I just wanted to look at your transportation backlog, you said it's up almost 10% since the start of the year.

Just looking at the federal funding legislation and with more state level measures in the pipeline, do you think this ramp in transportation backlog is kind of what we'll continue to see or do you see that kind of trajectory picking up as these measures take hold?.

We absolutely see a picking up and we've been saying that for a while. And now we're starting to see that momentum. We're seeing our pipeline of activity, now we're seeing it in the backlog, now we're seeing it in organic growth. And I mentioned earlier, there is dozen programs that we are tracking that are very significant.

Toronto has got a $50 billion program they are pursuing; Florida has got $9 billion program, they are very, very focused on transportation; the $120 billion in Los Angeles.

There is big numbers from Atlanta to Seattle, Denver, Phoenix, New York City, San Francisco, one after another where the country is finally turning their attention to closing this enormous deficit that we have in infrastructure spending over the past 20 years.

So when I bring together the significant broad based grassroots support at the municipality level for tax increases, the federal transportation bill the first time in 10 years that we've had a long-term bill and then the private sector that is very anxiously looking to deploy more money into the P3 market.

You bring all those together, I think we're about to move into a period of prosperity for civil infrastructure. And I don't think there is a firm in United States or in the world that's better positioned than us to take advantage of that updraft in the market..

Thanks. That's helpful. And then, secondly, I just kind of like to get a bit more color on the MS segment prospects.

Great to see the pipeline continuing to expand there, but maybe you could help describe exactly where the strength is being, maybe in terms of agency? I'd be really interested to hear what you're seeing on the DoD side in particular?.

The biggest growth is in the intelligence community, frankly, and it's the area that has the highest barriers to entry. And so it's a market that we feel very good about. DoD is still a big market for us, so we have a number of very significant bids and proposal at DoD.

They're all in the Continental United States, which is different than where we were four years ago, five years ago, where most of our business was O-CONUS or outside the Continental U.S., and we know that that market deteriorated quickly.

So, what we feel good about is that the markets that we're pursuing have high barriers to entry, they are in the Continental United States, so not as much driven by the war theater. But we're also seeing that MS business expanding significantly outside the U.S. We've taken our capabilities that we've delivered historically for the U.S. government.

And as I mentioned earlier, we now have a very significant presence in the UK, doing work for the nuclear end markets there, doing it for the defense department there. We won our first project for the Qatari Navy. We have significant projects now in Australia, the large naval port on the eastern seaboard of India.

So, we're seeing the governments outside the U.S. being very receptive to the capabilities that we have in the U.S. Everybody looks to the U.S. for expertise in global defense and so it gives us a real leg-up in those markets..

Okay, thanks. And then just last quick one from me, kind of higher level. We've kind of started to read more and more about kind of technological advancements and some of these bigger schemes, particularly in the Middle East and stuff where they're developing these smart cities.

And I was just wondering, I know you guys like to talk about technologies and stuff, are there any big opportunities or threats you've seen on the technology side and some of these bigger global developments?.

Yeah, sure. We spend a lot of time thinking about new technology disruptors to traditional infrastructure.

Just last week I moderated a panel at the Milken Global Conference, where we brought together, we had the Mayor of Los Angeles who is thinking about how these new disruptive technologies affect his city, but we also had on the panel representatives from Uber, from Hyperloop Technologies, from WeWorks talking about how do we embed the thinking into infrastructure of cities as it's influenced by the shared economy or new technologies like Hyperloop, which is a client of ours, we're designing their test track right now to move passengers and freight at 800 miles an hour at a magnetic levitation vacuum tube.

We're in discussions with them on how to do that, both here in the U.S. as well as in other parts of the world like the Middle East. Relative to smart cities, we're working with the U.S. Commerce Department to bring smart cities to other parts of the world.

We were awarded two projects in India, as you know; Prime Minister Modi has a plan to design 50 smart cities across India.

We won the master planning work for City of Dholera, which is Prime Minister Modi's home state, as well as, for the new smart city of Vizag, which is the short name; I can't say the long name for it, but some really exciting stuff around the world and we're participating in all of that, bringing together new technologies and traditional infrastructure and I think it's a real competitive advantage that we have..

Thanks so much. All very helpful responses..

Thank you..

The next question is from Chase Jacobson with William Blair..

Hi. Thanks for taking my questions.

So Steve, I think you said that the third quarter will look similar to the first quarter, is that correct?.

That's right..

Okay.

So, excluding AECOM Capital in the fourth quarter, when we go looking at the third quarter to fourth quarter, is there anything abnormal in terms of seasonality in the different businesses other than oil and gas which you already touched on?.

No, I don't think so, other than AECOM Capital, we do think that MS is probably a little bit better than we had anticipated, but they've been exceeding our expectations every quarter for the last two years.

And Q3 is really just impacted by some of the short-term slowness in oil and gas and some of the impact that we have, because of the recent natural disaster..

Okay. And then just one last question on P3s, it's pretty clear that the P3 structures help in some of these projects go forward.

When you talk to your clients, how are you helping them get comfortable with an understanding for longer-term kind of risks associated with the P3 model, just given the track record of some projects historically?.

So, when you say the problems historically, there's a couple of problems historically, one has been where people bought greenfield, I'm sorry bought brownfield, the existing assets and overpaid for them.

So, put that aside, because those projects are, people overpaid the market, we're not involved with those, we're involved with only greenfield development. The second piece of the puzzle is the ones that haven't been successful, have been revenue based structures.

So, toll roads that were entirely based on revenue, whereas the kind of P3s that we're generally dealing with here, are non-revenue based, they are a fixed stream of what we call availability payment.

So, if you look at the automatic people mover system at LAX that's going to be put in place, it's an approximately $2 billion program where somebody will design, build, finance and operate it for a period of 30 years in exchange for a revenue stream or the equivalent of a lease payment from the LAX world – the LA World Airports Authority.

So they're very comfortable, once they understand the details of how it will be operated and what the performance requirements are going to be, they don't have to worry about the revenue side of it. It's just a fixed payment.

So, those are the types of projects in the P3 market that we think will be most popular going forward and the type of projects we're pursuing now..

Okay. Thank you..

The next question is from John Rogers with D.A. Davidson..

Hi. Congratulations on the quarter. Couple of follow-ups. First of all, in terms of the power projects that you referenced, are those all gas for some of that hydro work and are these fixed price contracts and any other color to there would be helpful..

Yeah. So, those two are not hydro. They're gas-fired combined cycle plants, and they are in the process of finalizing the EPC contract right now..

Okay. And Mike, relative to your comments on AECOM Capital, I just want to go back to that for a second.

The $200 million in the original fund, I know you've got some this year, especially in the fourth quarter, but the rest of the schedule for harvesting that fund is that over the next – is that 2017, 2018 or thoughts there? And then the new funds that would be using outside Capital, what's your thoughts on the size of that? I mean, could that be $1 billion fund opportunity and then you'd just be collecting fees on it?.

So, let me answer a couple of your questions. The harvesting of gains will be an ongoing process over the next three years, let's say. Some of those projects are completed, now.

One is set to be completed later this year, some are breaking grounds right now, so you've got a three-year cycle yet in front of us, so it's over the next, I'd say three – I said three years, I probably should say more like three years to four years, but we'll have continuous harvesting over that period of time.

With regard to the size of the next two funds, I don't have a predetermined size yet, we're in various discussions, but I could easily see three different funds that we've talked about, one is the continued real estate development that we have underway. Second is what I'll call private infrastructure.

It is like the investment we already talked about that we made in the Ohio River hydroelectric project, with more energy focused projects and we could see a few hundred million dollar fund there easily. And then the third fund would be for private P3 type projects like LAX that we're bidding on right now.

We're partnered with someone else on that on the Capital side. But I could see easily three funds totaling over $1 billion in aggregate. We would participate in that through providing design and construction services.

We'll participate in that through management fees under a traditional private equity P3 model and we'll participate in a carried interest by sharing in the profitability of those projects over a certain threshold return..

Okay. That's helpful.

And you're expecting to give us more color on that over the next couple of quarters, is that what you said?.

Yeah. We'll give you updates as we evolve. We've just started our discussions with investors that want to participate in that based on the success of our first fund. We have a number of people that are very interested in participating in future funds with us..

Okay. Right. Thank you..

Sure..

We have no further questions at this time. I'd like to turn the call back to Mike Burke for final remarks..

Great. Thank you, operator. I hope that what you heard today was a sense of increased confidence in what the future holds for AECOM, and hopefully it's quite evident to you that we have turned the corner, and we are participating in some markets that are very interesting to us.

We had significant wins in the power business, you're starting to see momentum in the DCS Americas.

Our UK business is stronger than ever, and I'd say we've never been as confident about our ability now to grow as a business to generate cash and drive shareholder value and execute against our vision, bringing together a fully integrated firm that has the ability to design, build, finance and operate infrastructure assets around the world.

So thank you for listening today. Thank you for your confidence in AECOM and we look forward to talking to you on our future calls about our progress and our continued success. Thank you..

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