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AECOM Technology (ACM)

F4Q 2011 Earnings Call

November 10, 2011 10:00 AM ET


Paul Cyril – SVP, IR

John Dionisio – Chairman and CEO

Mike Burke – President, Enterprise Management Team

Stephen Kadenacy – SVP and CFO


Steven Fisher – UBS

Tahira Afzal – KeyBanc

Avram Fisher – BMO Capital Markets

Alan Fleming – Barclays Capital

John Rogers – D. A. Davidson

Chase Jacobson – William Blair

Andrew Wittmann – Robert W. Baird

Sameer Rathod – Macquarie

Adam Thalhimer – BB&T Capital Market



Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 AECOM Earnings Conference Call. My name is Katie and I’ll be your coordinator for today. At this time all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of the conference. (Operator Instructions) I would like to now hand the call over to your host for today Paul Cyril, Senior Vice President of Investor Relations. Please proceed.

Paul Cyril

Thank you. 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 the specific risk factors that could cause actual results to differ materially.

As we begin our call, let me remind you of some important information about our earnings that are posted on the investor website, 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 around 11:00 a.m. Eastern and will remain there for approximately two weeks.

Lastly, since we 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, Chairman and Chief Executive Officer; and Michael S. Burke, President. John, please go ahead.

John Dionisio

Thank you, Paul. Good morning, everyone, and thank you for joining our call. Joining Mike and me on the call today are Steve Kadenacy, our CFO; and Jane Chmielinski, our Chief Operating Officer. As we’ve done in the past Mike will begin with an overview of our fourth quarter financial performance and discuss our outlook for fiscal year 2012.

Following Mike’s comments, I’m going to spend a few minutes speaking about our business and the trends we are seeing in our different markets, business lines, and geographies. In the current environment where the headlines are all about government spending issues, I also want to provide you some detail about AECOM’s diversified mix of strong funding sources that support our projects around the world and our future growth. After that I will talk about our plans for fiscal 2012 including a review of our most significant operating initiatives. Then we’ll open the call to your questions. However, before I turn the call over to Mike I’m pleased to say that despite numerous headwinds 2011 was a good year for AECOM. We executed well and enhanced our platform and market position around the world. We entered fiscal 2012 in a stronger position than 2011. Now I would like to turn the call over to Mike. Mike, please go ahead.

Mike Burke

Thank you, John. Please turn to slide four. As John mentioned our FY11 performance was solid and we finished the year in a strong position. Now, let’s review our financial highlights for the fourth quarter. Our fourth quarter gross revenue increased 16% over last year to $2.1 billion and net service revenue increased 20% to $1.4 billion, more importantly fourth quarter organic net service revenue increased by 7% year-over-year.

Organic growth was driven by strength in Asia, Australia, Canada and Latin America and in our power, energy, and mining sectors. Conversely we continue to experience weakness in Western Europe. On a constant currently basis organic net service revenue increased by 3% in the fourth quarter. We are pleased with the positive trend we are seeing in organic growth and believe it is a direct outcome of our strategic focus on high growth emerging markets and natural resource rich regions, strong growth in our MSS business and solid execution.

Operating income increased 35% year-over-year to $134 million while net income increased 29% to $87 million. This resulted in a diluted earnings per share of $0.75, which was up 29% year-over-year. Cash flow from operations improved by a 128% year-over-year to $262 million in the quarter.

Please turn to slide 5. Our PTS segment accounted for 89% of our fourth quarter revenue. Net service revenue increased 18% from last year to $1.2 billion. Organic net service revenue in this segment increased by 6% year-over-year. Operating income in the PTS segment increased 22% over last year to a $147 million and operating margins improved by 39 basis points year-over-year. This margin improvement is a reflection of our efforts to enhance our mix of higher margin services such as PM/CM, cross-selling efforts and strong project delivery. The margin improvement was achieved despite the European restructuring expenses incurred in Q4.

Our management support services segment accounted for 11% of our fourth quarter revenue. As we mentioned in the last quarter, this segment is undergoing a change in project mix. It is moving from contracts with significant pass-through costs to projects with more self-performed work and a higher component of net service revenue. As a result, gross revenue for the quarter was down 20% year-over-year while net service revenue increased 40%. Organic net service revenue in the MSS segment grew 16% year-over-year. MSS segment operating income increased 56% over last year to $18 million and operating margins on gross revenue improved by 383 basis points year-over-year. This quarter’s strong margin performance underscores the success of our strategy of moving into high value added government services through our security and intelligence acquisitions over the past two years.

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