AECOM Technology (ACM)
Q3 2011 Earnings Call
August 04, 2011 11:00 am ET
Paul Cyril - Senior Vice President of Financial Planning & Analysis
John Dionisio - Chief Executive Officer, President and Director
Michael Burke - Chief Financial Officer and Executive Vice President
David Wells - Thompson Research Group, LLC.
Tahira Afzal - KeyBanc Capital Markets Inc.
Andy Kaplowitz - Barclays Capital
Andrew Obin - BofA Merrill Lynch
Avram Fisher - BMO Capital Markets U.S.
Steven Fisher - UBS Investment Bank
Previous Statements by ACM
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Thank you. Please turn to Slide 2. As we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we see it today and, as such, does include risks and uncertainties. As you know, our actual results might differ materially from those projected in these forward-looking statements. Please refer to our press release or Slide 2 of the earnings presentation and to our reports filed with the Securities and Exchange Commission for more information on risk -- specific risk factors that could cause actual results to differ materially.
As we begin our call, let me remind you of some of the important information about our earnings that are posted on the investor website, investors.aecom.com. We posted our earnings release and updated financial statements on the site for anyone who still needs access. A replay of today's call will be posted there at about 1 p.m. Eastern Time and will remain there for approximately one month.
Lastly, since are using some non-GAAP financial measures as references, the appropriate GAAP financial reconciliations are posted on our website as well.
Presenting today will be John M. Dionisio, Chief Executive Officer and President; and Michael S. Burke, Chief Financial Officer and Executive Vice President.
John, please go ahead.
Thank you, Paul. Good morning, everyone, and thank you for joining our call today. I will begin with a brief recap of our recent highlights. And then, our CFO, Mike Burke, will discuss our third quarter financial performance and our outlook for the remainder of fiscal year 2011. Following Mike's comments, I will provide an update on our markets and business strategies. Joining us on the call today are Steve Kadenacy who becomes CFO and Jane Chmielinski who becomes our Chief Operating Officer both on October 1. As a reminder, Mike Burke transitions from CFO to President on October 1 as well.
As we get started, I would like to provide some perspective on AECOM's historical strategy and our future objectives. 10 years ago, we embark on a geographic and end-market expansion program that has transformed AECOM into a global professional technical services firm. Further dimension of our growth has been an expansion in our service offerings into the commercial and public sectors. We had grown through a combination of organic investments and strategic acquisitions. As a result, AECOM now operates in over 125 countries including many high-growth emerging and natural resource-rich economies.
These strategic actions are producing meaningful investments today, especially in light of recent economic developments across the globe. Our solid third quarter results are prime examples of this. We posted 11% earnings growth, won a record $2.7 billion in new work and grew our backlog organically by 18% year-over-year, the largest increase in over 2 years. Most recently, AECOM was named the #1 international design firm in Asia as well as the #1 design firm in the United States by Engineering News-Record.
In addition, we completed a strategic acquisition in India, Spectral Services, which significantly expands our platform in a rapidly growing market. The strong diversified base we have created supports our vision to grow our international business to 65% of our mix over the next 5 years.
To further discuss our performance in the third quarter, I'd like to turn the call over to our CFO, Mike Burke. Mike, please go ahead.
Thank you, John. Let's first discuss several key performance indicators in the quarter. Our third quarter gross revenue increased 25% over last year's third quarter to $2 billion and net service revenue was up 24% to $1.3 billion. More importantly, organic net service revenue increased by 4.5% year-over-year in the quarter. Our third quarter's growth is driven by continued strength in Asia, Australia, the Middle East, environmental management and energy and power. That growth was partially offset by continued weaker performance in Western Europe, particularly in the U.K. Operating income rose 19% year-over-year to $110 million, while net income increased 14% to $74 million. This resulted in a diluted earnings per share of $0.62, which is up 11% year-over-year. During the quarter, we strengthened our book of business as organic backlog grew by 18% year-over-year and rose 4% sequentially. Please turn to Slide 6.
Our PTS segment accounted for 87% of our third quarter revenue. Net service revenue in our PTS segment increased 21% from last year to $1.2 billion. Organic net service revenue in this segment increased by 4% year-over-year. Operating income in the PTS segment increased 6% year-over-year to $115 million.
Our Management Support Services segment accounted for 13% of our third quarter revenue. This segment is undergoing a transition from contracts with significant subcontractor and pass-through costs to projects with more self-performed work and a higher net service revenue content. As a result, gross revenue for the quarter was down 8% year-over-year, while net service revenue increased 48%.