AECOM Technology's CEO Discusses Q2 2012 Results - Earnings Call Transcript

AECOM Technology (ACM)

Q2 2012 Earnings Call

May 03, 2012 10:00 am ET

Executives

Paul Cyril - Senior Vice President of Financial Planning & Analysis

John M. Dionisio - Chairman and Chief Executive Officer

Stephen M. Kadenacy - Chief Financial Officer and Executive Vice President

Michael S. Burke - President

Analysts

John Rogers - D.A. Davidson & Co., Research Division

Saagar Parikh - KeyBanc Capital Markets Inc., Research Division

Steven Fisher - UBS Investment Bank, Research Division

Avram Fisher - BMO Capital Markets U.S.

Andy Kaplowitz - Barclays Capital, Research Division

Chase Jacobson - William Blair & Company L.L.C., Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Presentation

Operator

The Second Quarter 2012 AECOM Earnings Conference Call. [Operator Instructions] As a reminder, today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Paul Cyril, Senior Vice President of Investor Relations. Please go ahead, sir.

Paul Cyril

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 our earnings presentation and to our reports filed with the SEC for more information on the specific risk factors that could cause actual results to differ materially.

Important information about our earnings is also posted on our investor website, investors.aecom.com. We have posted our earnings release and updated financial statements on the site for anyone who still needs access.

Note that we are using some non-GAAP financial measures as referenced in the presentation. The appropriate GAAP financial reconciliations are posted on our website as well.

Finally, a replay of today's call will be posted to the website at around noon Eastern and will remain there for approximately 2 weeks.

Beginning today's presentation is John M. Dionisio, Chairman and Chief Executive Officer. John, please go ahead.

John M. Dionisio

Well, thank you, Paul. Good morning, everyone, and thank you for joining our call. With me today are Mike Burke, President; and Steve Kadenacy, our Chief Financial Officer; and Jane Chmielinski, our Chief Operating Officer. As you know, we announced our second quarter results in our press release today. Although we achieved our second quarter guidance, we lowered our full year guidance to $2.30 to $2.45 due to setbacks in our MSS segment, which we will discuss later in the call.

Our objective for today's call is to highlight 3 key aspects of our performance in the quarter and our future outlook. First is to highlight the measurable and sustainable progress we've made against our strategic initiatives. Second is to examine the underlying health of our business trajectory. And lastly is to illustrate how our results reaffirm that our strategy is on track, positioning us well for future growth and enhanced profitability.

After Steve takes you through the financials, Mike will discuss our MSS segment, our full year outlook and our M&A strategy. I will review the strategies that drive our operating performance. Collectively, these initiatives support our overarching goals to drive improved shareholder returns all the time. I will discuss this matter later in the call.

With that, I'll turn the call over to Steve. Please go ahead, Steve.

Stephen M. Kadenacy

Thanks, John. Please turn to the next slide. Consistent with our comments on the last call, we delivered $0.43 in earnings per share for the quarter. Our results were driven by organic growth in several key end markets and regions, better leverage in our cost structure and improved returns on strategic investments offset by underperformance in Management Support Services.

At a high level, gross revenue was up 4% year-over-year with net service revenue roughly flat, thus showing a sequential increase of 5%. The sequential improvement was largely driven by our PTS segment, which makes up 90% of our net service revenue.

In the quarter, emerging and natural resource-rich markets accounted for over 40% of our net service revenue and posted 8% percent year-over-year growth. Operating and net income were down 16% and 15%, respectively, driven by the MSS segment, which we will discuss in greater detail later in the call.

Please turn to the next slide. Looking at the segments, PTS delivered a 9% increase in gross revenue and 2% increase in net service revenue. Organic net service revenue grew by 1%, an improvement over the previous quarter.

Operating income declined 1% and operating margins were down 20 basis points. Sequentially, operating income was up 4%. U.S. backlog conversion remains slow despite a healthy new award environment. This was partially offset by an improvement in European performance as the business benefits from the restructuring actions taken on the fourth quarter of 2011.

We also saw an acceleration in key high growth markets of Latin America, Asia and Australia, which all posted double-digit gains. Looking by sector, we have strong growth in the private arena led by power, energy, mining and environmental management.

MSS posted a 28% decline in gross revenue with a 15% decline in net service revenue. Operating income was down 90%. Because of the significance of the shortfall in MSS, Mike will elaborate on this segment's performance a bit later.

Please turn to the next slide. Moving on to the rest of our financial performance, EBITDA margin for the quarter was 7.9%, down 96 basis points year-over-year. The setback in our margin was due almost entirely to the MSS segment. PTS gross margin and operating margins were essentially flat to the prior year end quarter. Better cost controls across the organization helped offset some of the impacts of the MSS issues.

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