Jacobs Solutions Inc. (J) Q3 2011 Earnings Report, Transcript and Summary

Good day, and welcome to the Jacobs Engineering Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Patty Bruner. Please go ahead.

Good morning. The company requests that we point out that any statements that the company makes today that are not based on historical fact are forward-looking statements. Although such statements are based on management's current estimates and expectations and currently available competitive financial and economic data, forward-looking statements are inherently uncertain and involve risks and uncertainties that could cause actual results of the company to differ materially from what may be inferred from the forward-looking statements. For a description of some of the factors which may occur that could cause or contribute to such differences, the company requests that you read its most recent earnings release and its annual report on Form 10-K for the period ended October 1, 2010, including Item 1A, Risk Factors; Item 3, Legal Proceedings; and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations contained therein, and the most recent Form 10-Q for the period ended April 1, 2011, for a description of our business, legal proceedings and other information that describes the factors that could cause actual results to differ from such forward-looking statements. The company undertakes no obligation to release publicly any revisions or updates to any forward-looking statements, whether as a result of new information, future events or otherwise. And now let's turn the call over to John Prosser, CFO, who will begin the discussion of results.

Thank you, Patty, and good morning, everyone. I'll briefly go over the financial highlights for the quarter, and then, I'll turn it over to Craig Martin to do the business overview. If we turn to Slide 4, that's the highlights for the quarter. We did report earnings per share of $0.71 for the third quarter. That was on earnings of $90.7 million for the year-to-date. Diluted EPS was $1.86 on earnings of $236.7 million. Backlog was right at $14 million. That was flat with the prior quarter and up from a year ago. We continue to show -- we have a very strong balance sheet. Our cash position continues to be very positive at $773 million. If you're looking on a net cash basis, we have about $222.6 million. A couple of big uses of cash this quarter were the -- or more significant uses of cash were the acquisition of the building that we -- one of the buildings we occupy in Houston as we bought out the end of the lease there and the closing and purchase of CES in India. And also, as was contained in the earnings release, we have continued our guidance for the balance of -- or for the fiscal year at $2.40 to $2.80 per share. Turning to Slide 5. This is just a track of the history of our earnings, and I think a very good sign is that for the first time for a few years we've actually turned up and the trailing 12 is above the results for last fiscal year. I think more importantly, as you look at the bars that are underneath the graph, which gives our 10-year compounded annual growth rate, it shows that we still are exceeding that 15% target EBITDA over the 10 years even with the downturn of the business that we've experienced over the last couple of years. So I think it's a positive sign that we are starting to grow out of that bottom. Turning to Slide 6, backlog. Backlog, as I said, was flat quarter-over-quarter, but up by about $500 million when you look at it year-over-year. I think with the increasing revenues we had this quarter, the sales rates at $2.7 billion was a positive sales result even though the resulting backlog still is flat. I think in a growing period like this, we do have projects that tend to be lumpy at times and I think it was a good sales quarter even with the backlog being flat. And with that, I will turn it over to Craig to review the business overview comments.

Thank you, John, and good morning, everyone. I'm going to start with Slide 7, our strategies for growth. They're the same 5 strategies we've always had. And I'm going to spend a little more time on the top 3 and the bottom ones, so let me just comment here on the fourth bullet, drive down costs continuously. As we sit here today, competition in many of our businesses remains pretty intense. Many of our competitors are not full and there's -- price is still a factor in many competitions. And price is more of a factor today in the public sector markets that they have been, but there is a bit of good news. It appears that unit margins are starting to improve particularly in the private sector. We'll see if that really reconstitutes a trend, but at least you can say with some comfort they're not getting worse, at least they don't appear to be. So that is a positive, and it's a positive for our position in terms of having a good solid cost position and being able to be competitive. Turning now to Slide 8. I want to talk about our relationship-based business model, and I'll talk first about the industry model on the right. This continues to be sort of our idealized view of our competitors who are largely focused on big events in faraway places on lump-sum turnkey competitions and they compete globally. So their competition not only includes U.S. and European companies but the French, the Chinese, the Japanese, a broad slate of competitors on these transactional projects. That results in pretty aggressive pricing and some other challenges, and it's a business that we think is fraught with risk and doesn't represent the reward that we would like to see for it. Everybody in the business has a set of customers that are relationship-based and they do a bunch of discrete projects as well. But if you look at our model on the left, you'll see that our model is almost the reverse of what we think most of our competitors focus on. Our focus is on preferred relationships and repeat business. In quarter 3, 92.5% of our business was repeat business, work for customers that we've worked for in the past year. 80% roughly of that business came from these preferred relationships, and slightly less than 50% of our business came from a very limited set of core clients. We think that is a strong business model going forward. The big spend will come from these preferred relationships and these core clients as they move ahead, and we'll be able to work with those clients on an alliance and relationship basis that very significantly reduces our risk as we go ahead. We think the model has a lot of strengths compared to the industry model in the long run. Turning now to Slide 9, I'll just kind of go around the wheel here and talk about a little bit about what's going on in each of our markets. Let me start at the top right with the Chemicals business. Chemicals is a very robust business right now. It seems to be driven by a low and budgeted feedstock and by a desire of a lot of our customers to convert lower-value products into higher-value ones. Activities are very high in the Gulf Coast, in the Middle East and in Asia, and the focus seems to be on what I'll characterize as high-value chemicals. That plays directly to our Jacobs' strengths in the Chemicals business both from a know-how and a technology point of view. Alliances continue to be key and we continue to find opportunities to enter into large long-term alliances with our customers. As you can see, the business is up quarter-over-quarter by a nice amount. I happen to run across a statistic that I was proud of, and I thus thought I'd mentioned. Out of the last 49 competitions in the chemicals industry, Jacobs won 35 of those. So we had a 71% win rate of the jobs we chase, and I think that's a nice kudo to our sales team. Moving on around to oil and gas, the Upstream business. It's a very robust business. It continues to be very robust. The oil sands are very strong. What I like about what we see in the oil sands is 2 things. We continue to see more FEED work coming from our customers as they look at new projects, but we're also starting to see projects moving toward the execution phase, lots of discussions about detail engineering, construction at this stage. And it looks to me like those things will be moving ahead pretty much on the timeline that we've discussed. So we ought to start to see some pickup in detail design and construction as we go into the next couple of 3 quarters. Gas projects are also big. That's a strength for Jacobs. Onshore gas is something we know a lot about and have a lot of experience with. Now that continues to be an area where we think we'll be doing -- going well going forward. The weakness we have in this market still remains on the oil production side. We'll talk a little bit about what we're trying to do in that regard as we move ahead in the acquisition discussion. Moving on now to the Refining business. Major investments in the Middle East and we're right in the middle of those. Lots of small-cap activity everywhere. In addition, of course, the GES plus contract, which covers both oil and gas, refining -- and refining is just getting started. It looks like the scope for Jacobs will be an investment cost in the multibillion-dollar range. So we see that as a very positive thing for us going forward. Refining Gulf Coast margins in refining are quite good. Now that's also a plus for us and will support a small-cap, sort of the minus $200 million project range as we go forward. So we see refining as coming back at least for us as a positive not only in the Middle East but around the world. Moving on now to the other category. It's really unfair to call it other, but we got to group it somehow. That's power, pulp and paper, the high-tech business, food and consumer products. A lot of strength in these markets individually. Pulp and paper is quite strong. There's been a fair amount of consolidation in the industry. It makes for stronger customers who are now making investments, and it's driving projects pretty significantly. Aker broadens our base of delivery for the pulp and paper industry, which I think is another positive. Food and consumer products is also very good. We continue to see opportunities for major alliances with customers in that industry on a global basis, and we see that as a long-term opportunity as we go forward. You saw our Unilever alliance announcement here about -- actually Unilever made the announcement themselves maybe about 4 months ago. That's typical of the kind of thing we're seeing and the opportunity that it represents. And then we're seeing a lot of activity in the high-tech industry as well for a few key customers. We're pretty positive about what that means in terms of business, and we'll see how that goes going forward. But again, investment seems to be coming back in that regard. Moving now to the bottom of the pie, Mining and Minerals. This represents 5 months of the Aker acquisition coupled with Jacobs' historic Mining and Minerals business. So it's a growing business as we add a full year worth of data to the number, very, very strong markets. Investment levels are $60-plus billion a year, and we still have a very small share, relatively speaking, of that market, so there's tremendous opportunity for us to grow. We think we're going to see a terrific position there, particularly in some of the geographies that are new to Jacobs through the Aker acquisition. Moving now to PharmaBio. We tended to be the sort of the last man standing in the domestic market in North America. That's a positive for us. There really isn't the level of competition that there once was in that industry. And so we're benefiting from that quite clearly. We're also benefiting from the consolidation that's taking place in the industry. There's been a fair amount of rationalization going on, and customers are spending money to get the best possible effect of their product portfolio. Still a lot of activity in vaccines along with some activity in things like insulin and oncology drugs; in some cases, drugs that our big customers are acquiring from smaller companies and then implementing very fairly quickly. So we think the pharma business is going to be good. And again, it's a market where we have a greater ability now to serve our customers in some new geographies. That pretty much deals with the private sector. Let's switch now to the public sector markets and we'll start with infrastructure. The infrastructure market is a huge market globally and one where Jacobs still has an insignificant market share, so there's a lot of opportunity for growth. We look at that market right now, things like rail, airports, air transportation, water and wastewater, all very good. Now the Highway business is a little weaker in the developed countries, but still there's a lot of opportunity in the developing world on that side. User fees seem to be driving a lot of projects, so where -- but the money for projects comes from user fees rather than taxes. We're seeing lots of good project flow. There's also a lot of money now starting to show up from private sources like private public partnerships and private finance initiatives. We're also seeing a fair amount of design build work. All of that's good for Jacobs in the context that it is not only a business we're good at, but it's one that has some price sensitivity in it. And obviously, Jacobs is able to compete in those markets at a very, very attractive price ratio compared to some of our established competitors. The international opportunities infrastructure also very exciting. The CES acquisition is driving a lot of opportunity, and we see tremendous opportunity in the Middle East. Moving on now to the Buildings business. Remember that for Jacobs, this is technical buildings so it's things where the complexities of what's inside the building are what drives the project. Several of those markets remained quite strong. Mission-critical facilities, that's things like data centers and security centers, healthcare facilities, hospitals and related facilities, are both quite strong and those are particular strengths of Jacobs, so this is a pretty positive market for us in that regard. The Education business is also strong surprisingly, and we're taking advantage of that in a number of different ways. The weak markets in the Buildings business tend not to be the ones that we focus in. This is another area where we're seeing a lot of international opportunity in particular, in the Middle East, and we think we'll be able to capitalize on some of that opportunity as we go forward. Now turning finally to our National Government business. You'll recall that business really has 2 parts. The first part is the environmental remediation and cleanup, that sort of thing. It's a good market in the U.S. but flat. There are a fair number of recompetes going on out there, and also, there's a fair number of contracts that are what's called MATOC, that means Multiple Award Task Order Contract. The good news for Multiple Award Task Order Contracts is that they tend to again allow a little more price competition in the scheme of things, and they let us penetrate customers and locations where we might otherwise not be able to compete on a historic basis. So I think it creates some opportunities for us that we haven't had before in that market. In addition, the U.K. investment in nuclear cleanup, in particular, continues to be very strong and we continue to benefit from that business very nicely. So that's -- all in all, that's a positive. On the other side of the market, this is our RDT&E, research, development, test, engineering; SETS, scientific engineering and technical services and IT business. Again, what's interesting about that market is an increasing opportunity set as a result of converting a lot of contracts to these MATOCs, and that means we have the opportunity to compete for more work in more locations. We think we'll be able to leverage that into a bigger share and that would help sustain our growth in what's otherwise not going to be a very growing market. Now I set aside IT from that. I think IT business will see continuing growth and that will be an opportunity both to take share and expand as a result of the growth in the market. NASA continues to be a little bit of a cloudy spot. It's certainly not clear what's going to happen there. However, directionally, it seems to be going positively for us. I think I'm certainly more optimistic today than I was last quarter about what's going to happen in NASA. So I think we're going to see some improvements for us, but it will be a challenge. And then we think defense spending is going to be relatively flat. But again, because of this move to the MATOC style contract, I think we can benefit by taking share. So that's pretty much how we see the markets around the world. Flipping now to Slide 10. In terms of geographic diversity, you can see that we have managed to diversify the company geographically pretty broadly, and there are fair activity in all these markets that I think is interesting for us. Certainly, in North America, we see a lot of activity in oil and gas, chemicals, pharma, selected infrastructure markets and the IT world. We also see a fair amount of activity in what we've characterized as others, so that's that pulp and paper, food and consumer products, all of that. South America is pretty much a mining opportunity for us. In Europe, we see a lot of activity in pharma, chemicals, nuclear and defense are all good businesses for us as we go forward. Moving on across now to the Middle East, that's pretty much everything except aerospace and defense. I mean it's just a robust market for almost anything you can think of. In India, we see infrastructure, chemicals, refining and oil and gas as fairly strong markets. In China, it's buildings, chemicals and pharmaceutical. And in Australia, it's largely a mining play today. But as we go across the globe, there's a tremendous amount of activity and opportunity in our geographic markets. Turning now to Slide 11, growth through acquisition. We just looked at the last few years, last couple of years worth of acquisitions and kind of gave you a sense of what they were and what they were about. You can see clearly that our focus has been to grow outside the U.S. for the most part and to target sort of key markets, key places where we can expand the business in the U.S. As we go forward, we're looking at geographies like China, Australia, Brazil, the Asian countries and then of course, we'll continue to look at niche opportunities in our established markets. In terms of the kinds of geographic or customer markets we mean, oil and gas, mining, IT services and power are all areas of interest to us. So when you sum it all up, turning to the commercial on Slide 12, we think we've got a great business model. We've got great and increasing diversification in every regard, markets, geographies, services. The balance sheet's solid. We continue to believe that we can grow 15% on a compound basis forevermore, so that's a positive. We had a good set of sales quarters, 4 in a row now. They are sort of record levels for the last 2 or 3 years, and we're feeling pretty positive about what's going forward, but with the obvious cautions that it's not all roses out there just yet. And with that, I'll turn it over to Sue for questions.

[Operator Instructions] Our first question comes from Tahira Afzal of KeyBanc.

I had -- my first question is in regards to your implied fiscal fourth quarter guidance. You've been very positive in your commentary and it sort of reflected in your results. Your end market segment contributions all seem pretty solid in the fiscal third quarter. So can you help me reconcile all these positives, sort of results and commentary with a fairly wide guidance that you've offered for the fourth quarter?

Well, we've had a policy now for at least a few years of keeping our guidance fairly broad and -- but within the range of probabilities and such. Clearly, as you get out to either end of the guidance, the probabilities fade if you look at it as a bell curve, and we just felt that things were on a positive outlook. They were in line with what we've kind of been expecting, and so there really was no reason to change the overall guidance. It seems like every time we fiddle with the guidance, even if we think it's positive, you guys take it as a bad sign. So we just left the things the way they were.

Second question is in regards to -- you've been hearing about and probably following everything on the debt ceiling and limits and potential cards. How should we look at that right now? What are your initial thoughts on that? And as you see your private sector markets nicely pick up, do you at the moment at least see this as more than offsetting some potential pressure on the public sector side?

Well, I think that what's going on with the U.S. Federal Government will have some negative impacts on the business. And I think it will make it more challenging to grow than would otherwise. But with a few exceptions, our market share of the federal government business is still relatively small, and so I think our focus will have to be on taking market share from some of our competitors on some of these key businesses. That probably implies some pricing challenges in terms of more aggressive pricing but certainly that's something we're in a position to do. I think as we've said for many years now, when we can get 2/3 of our markets, 5 out of 8, 6 out of 9, relatively positive, we should do okay. And I think that's the position we're in today. We've got good strength in some markets, not so strong in some other markets. But on a net basis, I think we probably got a net positive working for us, absent some sort of severe breakdown in government spending.

The next question comes from Yuri Lynk of Canaccord Genuity.

You mentioned early in the call that the unit margins had ticked up. Which markets specifically are you referring to there? And is it possible to quantify it at all?

It isn't really possible to quantify it, and I'm looking at the numbers on an aggregate basis. I really haven't made any attempt to break it down. I always look at unit margins on a Jacobs-wide basis, and that's what the basis of my comment.

Okay. But did you just mention something about it was on the private side versus the public markets?

If I did, I didn't intend to.

Okay. Okay. And last quarter, you had an interesting stat about headcount additions. I think at the time you said 15 out of the last 16 weeks. How have the headcount additions evolved into your fiscal third quarter?

Increasing headcount in 28 of the last 30 weeks. And more than -- the 2 weeks where headcount was down. It was down very, very slightly. But these aren't giant increases in headcount on a week-over-week basis, but they're just indicative of the overall positive trend in our business.

And last one for me. On the GES plus, any further color on when exactly you expect to see some results from the program? And will these be awards that -- are they going to be big enough that you'll be press releasing them or is it going to be smaller type of impactful work?

Well, I have both of our Middle East experts here in the room with me. Let me turn that one over to Noel Watson. Noel?

Well, some of the work coming out of GES plus, we will have the press release and it will be big. I think that's about the answer I can give you right now. I think if you folks follow the literature, we still are the only GES plus contractor registered in the Kingdom to do the work. That will change the time obviously. So we've had a very nice head start. So we expect some of the material coming into GES plus to be significant. I probably shouldn't say any more than that right now.

That's helpful. But how do we think about the program in the context of one of your major U.S. competitors being rumored to be the frontrunner on a large Saudi Aramco award and they're not a GES signatory yet?

Well, I think what we'll have is that GES plus is set up for a wide variety of programs, trying to drive the work in country and they will still continue to spend money outside the country with other engineering firms, including Jacobs Engineering, I might add, since we have numerous projects around the circuit that are not through the GES plus system. But the GES plus is designated to support some very real work as the Kingdom tries to drive work in country and get more and more of the work done in country. And so GES plus from the Jacobs' perspective and from the Kingdom's perspective is a very long game.

The next question is from Richard Paget of WJB Capital.

Craig, on the last call, you've characterized some of your tempered optimism due to -- you weren't sure if the strong markets were going to get stronger or the weak markets were going to get weaker. And I wondered if you could kind of help put some of the end markets in that context, whether mining is stronger than you thought from 3 months ago or chemicals is a little bit better. And then the flip side, it seems like maybe some of your commentary on the public sectors isn't necessarily as uncertain as it was 3 months ago.

I think you've characterized my remarks correctly. Let me just kind of comment on some of the individual markets. The chemicals market is, as I think I said, very robust. It's every bit as good as we thought it was going to be, maybe even a little better. The oil and gas market is also very robust, and so I would also give it sort of the double plus. Refining's better but it's not robust by any means yet. The other markets are pretty robust, but about where we thought they would be. I wouldn't get too carried away about those. We've always said Mining and Mineral is a huge opportunity. Nothing about that has changed in our mind. And PharmaBio is good but not great. So as you go through the private sector markets, there are probably 4 that are truly upbeat and 3 that are just doing better. In the public sector markets, I think there is the uncertainty about our federal government. You'd have to put a concern there that's maybe I'm not quite as concerned as I was a quarter ago, but it's not -- there's still a lot of reasons to be concerned. The Buildings business is actually okay, probably not a plus, but not a minus either. And the Infrastructure business I view the same way, probably not a plus, but not a minus either. So the biggest uncertainty still is the federal government. Like I say I'm a little less concerned about the NASA part of that than I was, but we don't seem to have clear leadership in Washington, and so it's difficult to predict where they're going to go. And so you just have to -- I'm not smart enough to guess where those guys are going to end up. So I'd have to put a question mark on that business still.

Okay. But if I net everything out, it does sound like you're relatively more optimistic than you were 3 months ago. Is that fair?

More, yes, maybe it's -- I think this is one of those things where I get incrementally more optimistic. So I was a little bit positive last quarter. I'm a little more positive this quarter, but I'm not running around declaring victory just yet.

All right. And then with your work for the FAA, with the work stoppage, now I realized your contract with them is over several years. But is there any material impact there? Does that contract have any provisions for reimbursing you guys?

There is no material impact of any kind. I mean it's -- the part of the work that they have suspended is work where we had a very, very modest involvement sort of as a monitor and observer of the work being done by others. So while the capital numbers were large, I think there was $370 million reported. The impact on our company is not material.

Our next question is from Andrew Kaplowitz of Barclays Capital.

Craig, I just want to follow up on one item about the markets. Last quarter, you had told us that refining was sort of a 2 on a 1 to 10 scale. Is it better than that now, would you say? How would you rate it?

It's probably moving up to 3.

I had a feeling you'd say that. Okay. So moving on to the Middle East, maybe this is for Noel, again. Obviously, this is a very large project, Jubail or Saudera [ph], whatever you want to call it. How do you feel about the total contractor market in the Middle East? Could this actually help to tighten the market and what has been probably the most aggressive oil and gas market? And then there's been rumors of Jacobs winning a big piece of that project. You probably can't comment on it, but I'll throw it out there anyway.

Well, I think what I'd say to you on that is certainly, the Kingdom through Aramco is spending a lot of money and the continued spending seems to be there as far as the eye can see, particularly when you consider, it seems like oil permanently launched itself away from the $20 levels at the early part of the decade and some number that's -- who knows where it is but $70, $80, $90, $100, maybe a lot more than it, who knows. So there's a lot of money being spent. There's a lot of activity going on, not only going on with what's going on with Aramco per se, but going on through a bunch of the joint ventures that Aramco has with other companies, and we're involved in several of those. So there's going to be a big kind of spending up there. Yes, Jacobs is rumored to going to have a nice big piece of it, and we're not going to comment on it. As you say, but those are all rumors. They're prevalent in the market. But through the GES plus contracts plus the other work that we have with Aramco, there will be a lot of Middle East work in the Jacobs house as we look out here towards the end of the year.

Okay, that's fair. I mean, so I guess, the characterization is it's been a very difficult market for Western contractors. I know you've come up quite quickly off the small base, but now you're competing for the larger projects. So you would say that maybe it's a little easier to win work now than it was maybe 6 months ago. Is that fair?

I don't think it's ever easy to win work, when you're in with the kind of competitors we face. But we do have some advantages in being in Kingdom on the grounds and recognized by the Aramco folks as being the folks stimulated always, have given us a leg up in certain areas. I think that's just factual.

Okay, that's fair. If I could shift gears just to mining for a second, Craig. As you get your sort of feet wet with the Aker business, you see some of your primary competitors still winning very large jobs, and it's hard for us to get visibility on whether Jacobs will win large jobs. So how should we look at that over the next 6 to 12 months? Is there a possibility that you'll announce very large jobs? Or is it still sort of small mid-sized type work?

Well, as you know, we're going to continue to focus on our base business of the small-cap, mid-cap, medium-sized projects. So that's always going to be our priority because there's always more of that work and it's steadier than big events. But we are very well positioned in the mining and minerals markets to win big events as well. I have with me today Gary Mandel, who's our EVP, who has most of the mining business reporting to him. Gary, do you want to comment?

As Craig mentioned earlier, there is over $60-plus billion in investments on the horizon with our top clients. As you may know, most of this spend gets started with studies and there's a project life cycle from studies to EPCM execution, and these take 3, 4, 5 years. And we see a large pipeline of studies. We're involved in a number of studies. So there's a solid pipeline of capital projects, and we are now starting to even focus on the sustaining capital opportunities where we hadn't in the past. We're leveraging Jacobs know-how and approach to sustaining capital opportunities. So we see solid opportunities in North and South America and Australia and we're resourcing up for them.

That's great. And then is it fair to say that you're growing backlog pretty significantly even sequentially in the business? Because we can't break it out anymore, so we don't know what's going on in that business.

The problem with -- particularly, these studies don't really do much to grow backlog, if you know what I mean. So the growth in backlog in this business, if anything, will be more lumpy than some of our other businesses. And of course, because of our policies about press releases, you may not see it in the backlog any sooner than you see it in the press release or vice versa. But I do think -- we gave you a long-winded answer to a question that says yes, I think you'll see some significant additions to backlog for major projects as we go forward. We may or may not be able to press release those. If we are able, we will; and if we aren't able, you'll see it in the numbers.

The next question is from Scott Levine of JPMorgan. Scott Levine - JP Morgan Chase & Co: Question on margins here. So the last couple of quarters, you've been running 15% -- low 15% range on gross versus more like the low 14% a year ago, and my guess is that's consistent with the greater growth in the PPS business. I was wondering if you can agree with that and maybe comment on price trends within the business so we can think about what to model in the out years there.

Yes, at this point, a lot of the changes in both the gross margin and the operating margins are being driven by mix. A little bit, as Craig said, is starting to creep in some -- a little bit of price improvement, but that's still creeping in. It's not a major contributor. I think going forward, certainly over the next few quarters, we can expect the strength in the professional services side to continue. But as some of these things, particularly up, say in the oil sands and other opportunities move from the study phase and the detail engineering phase into the field, you'll start seeing a trend in backlog pickup on the field services side as we've been talking about now for a few quarters. And that will have a dampening effect on margins, particularly gross margins, because the gross margins from the field activities tend to be significantly lower than they are from the professional services. So I think you'll see some of the benefits of price improvements as a positive. But in the mix shift, as you go through '12, you'll see that as kind of a dampening effect on the price increases just in the relative mix. But of course, with the construction revenues, as that improves, those tend to be a lot bigger dollars. And so you'll see the revenues growing a little bit faster as those construction revenues start coming in. Scott Levine - JP Morgan Chase & Co: It makes sense. And then, you highlighted the SG&A controls in the press release as well. How should we think about the dollars there going forward? Can you hold these levels? Or as you see growth in the top line, does that need to pick up on an absolute basis?

We have a strong history of controlling our G&As. And certainly, since a lot of our professional services is driven by people, and that does have some impact on it, the G&A growth tends to lag the revenue or the activities. So as we put people and put them to work, the G&A part of it doesn't grow as fast, particularly in the early part of this where we have some -- a little bit of excess capacity as far as office space and workspace and such. And some markets like up in Canada, there's -- where we're growing a little faster than others. We might see some -- a little more pressure on G&As just as we have to incrementally maybe add some space and such. But even with that, you'll tend to see the G&As growing a lot slower than the revenue or the margin growth. And that's part of the leverage strength that we get so -- to get that bottom line 15% growth. Scott Levine - JP Morgan Chase & Co: And I don't know if I missed this, John. Did you mention the -- you had $3.2 million in miscellaneous income during the quarter? Did you indicate what that was or could you comment?

That results from an accounting adjustment with the acquisition of CES, since we owned a piece of CES before we bought this. We owned 15%. We added 55%. Accounting literature requires you to go back and revalue the piece that we own before for the price that we paid, and so that is what's in that other income.

The next question is from Jamie Cook of Crédit Suisse. Jamie Cook - Crédit Suisse AG: A couple of questions. Craig, back on the -- what you mentioned earlier, the uptick that you guys saw in sort of unit pricing. It sounds like you said it, and then you wanted to take it back when I asked the question. I mean, is this the first quarter you've seen this because I feel like you've been talking about this for a quarter or so. And I'm just trying to get a sense of whether or not I would guess on a very small basis whether the ramp is accelerating or not or whether it just stayed steady. And then I guess my second question is to you, John, it sounds like more markets in general are going up versus not. And I'm just trying to get a feel for -- we've done the acquisitions on a run rate basis, should we -- should Jacobs now be back on its targeted traditional 15% EPS range?

Let me take the first question, Jamie. What we saw in this quarter is that unit margins improved very, very slightly. It's the first time in several quarters where that was true, and my optimism comes from coupling that with my comments earlier about steady increase in staffing, unit margins up very slightly for the first time in many quarters and a billable hour trend, which I haven't mentioned, is also positive. So I add all those things together and I hope, I guess, maybe is a good way to describe this that we're starting to see the bottom from -- we've seen the bottom from a unit margin's point of view that we'll start to see margins improve. That will be a very slow process because it still involves our competition starting to load up the work and the pricing pressure coming off. So it's not to say that we aren't still challenged from a margin point of view. I just think it's a little bit of good news that we haven't seen for a long time. Jamie Cook - Crédit Suisse AG: Have you gotten the benefit yet on the utilization, just because you've been hiring people, too, right, so sometimes it takes a while for that to work itself out? Have you gotten that benefit yet or no? Is that being reflected in the margins?

We're getting some, yes, and it is being reflected, but it's not so much -- what I'm talking about here is not so much utilization-driven as it is pricing. Jamie Cook - Crédit Suisse AG: Okay. But the utilization should come as well, I guess. So we're getting unit price but as you see projects come, you're going to get the double benefit with utilization as well, is I guess what I'm trying to point out.

Yes, I don't know if it'd be quite double, but yes, that's right. Jamie Cook - Crédit Suisse AG: Well, not double, but extra.

No, it's 2 different aspects.

Yes, 2 different aspects and they both account. Jamie Cook - Crédit Suisse AG: Yes. And then, John, we're not going to let you get off the hook on the -- from the 15% EPS.

Well, at this point, we're not giving any guidance for 2012. Our guidance is for '11, but I will confirm that we still have the 15% growth as our target. And I'm just not going to confirm when we're going to get back to that exactly. But obviously, next quarter, when we finish the year, we'll be giving guidance for next year and you'll -- we'll see where that is. Jamie Cook - Crédit Suisse AG: Okay. And then just, sorry, last follow-up. I don't think I missed this, but did you give how much Aker's contributed in the quarter on a revenue EPS or operating, whatever you're willing to share in the quarter?

We did not and we're not. As our past policy is, once we get them in, we're just going to stop talking about them as a separate unit because they've already or starting to be put into the various units. I mean, obviously, the big part of Aker went -- the majority of Aker went into Mining and Minerals but they also affect the other and pulp and paper and power. And they affect chemicals and some of the projects that we've been talking about and you guys have heard about or joint wins that were contributed to by not just Aker folks or Jacobs folks, the ability to build those teams. But having said all that, they're right on target to what we expected and in line with where we've expected them to be coming out of the last quarter where we had 2 months and into this quarter where we have the full operation. Jamie Cook - Crédit Suisse AG: All right. And then just, sorry, last question back to Tahira's question on your guide. Last quarter, you sort of alluded on the call that the midpoint was more likely, right, and it sounds like the midpoint is more likely. But what miracle has to happen for us to hit the higher end? Or is that -- or do we not need a miracle? Am I missing something?

I would say that your characterization of a bell curve that the midpoint is the most likely -- is very good. And beyond that, we're not going to go to all the pluses and minus that could happen to get anywhere to the outside. Just it has -- after extremes, the probabilities are pretty low.

The next question comes from Steven Fisher of UBS.

Can you just discuss how the quarter unfolded in terms of bookings and billings on a month-by-month basis? And just going back again with the guidance unchanged here, I'm just wondering if there was some particular deterioration that occurred with the macro environment as the quarter went along. And maybe you could just comment on the pace of bookings and billings in July to date?

Well, let's see. I really don't have -- I'm really not in a position to respond on a month-by-month basis but there is nothing about our guidance that was based on some sort of trend that developed during the quarter. And in terms of July so far, we're very happy with what's happening.

Okay. So there was no particular deterioration as the quarter went on in June that makes you cautious about narrowing or anything?

And Steve, looking at the guidance, it's the same as what it was so we're basically on track with where we were and so it kind of met where we expected.

Okay. Now in terms of, I guess, how would you compare the potential margins and risk in the upcoming Middle East work versus what you had in oil and gas in the last few years? I mean, the Middle East has been the strategy that you guys have been working on for a long time now and it's finally coming to fruition. But in a sense, it's still sort of a first of a kind as you do these really big projects that are up and coming. So how should we think about sort of the margin and risk potential there?

Noel?

Well, you got to look at what we're doing in the Middle East, okay. We're doing FEED. We're going to do P&C. We're going to do EPCM. We're going to do all of the above. We're not taking big lump-sum risk and the customers there understand that. So the risk probably will not be a lot different from the normal slate of Jacobs' work, probably the best answer I can give you.

And from a potential profitability or from a margin perspective, any color there?

Well, I think what we have to look at is you got to remember, the Middle East is a global market, and the idea that the project is going to be wildly profitable does not exist, okay? It's very competitive out there, as I said earlier. It's going to stay very competitive. So the margin flow from individual projects will be comparable probably to what you're getting on other global projects around the world. Remember, we're not taking big lump-sum risk. So there's no wild-eyed profits coming at us, but there's not a lot of risk coming at us either. The risk will be on the performance side. If we do good work out there, all these projects would be nice and profitable.

Great. And then just last one, I guess just maybe for Craig. Can you just talk about Europe overall? You have an exposure in a variety of markets and regions. When you aggregate it, what impact is it having on your business?

I think Europe will be at best slightly positive and more likely to be neutral. It's a pretty much a complete mini-Jacobs in the sense that we serve almost every market that Jacobs serves globally we serve in Europe. So we have the same sort of situation vis-a-vis the markets, but we just don't have the intensity of investment in Europe that we do in some other parts of the world, even in the Gulf Coast of the U.S. if you get into the process business. So it's not going to be a strong geographic market for us. I don't think it will be a drag, but I don't think it will be a strong market.

The next question comes from Will Gabrielle of Gleacher & Company. Will Gabrielski - Gleacher & Company, Inc.: Just a couple of follow-ups on G&A. You guys highlighted here your cost controls. Is this a fair number? Or how can we think about cost savings coming out of that going forward?

I think we'll continue to achieve some cost savings from the integration of our recent acquisitions. I think there's some money to be saved there. But because we are on a growth track, we're going to start to see investments to support our growth, office space, computers, desks, all that stuff is part of our business going forward. I'm pretty happy with where we are. If you start taking out acquisitions, we've held the line on G&A really well for quite a long time now. So I also expect to see some pressure on things like wages as we go forward. Once we start to see -- it'll be -- it'll come with the pricing. So we're in the zone, but I think you should expect some incremental growth going forward. Will Gabrielski - Gleacher & Company, Inc.: Okay. Oil sands, there's been a few announcements of contractors winning some bigger construction projects. Have you guys lost any bigger construction contracts that you bid on yet?

I'm not aware of any. Will Gabrielski - Gleacher & Company, Inc.: Okay. On GES plus, you made a good point. You guys are the only company that's ready to go on that. From what I've read though, every company needs to be in a position to bid on that work before they can officially award GES plus contracts. Is that true? And if so, how has that affected the GES plus ramp?

I don't believe that's true. I'll ask Greg Landry to respond. Greg?

No, that's not -- at this point in time, they have the GES plus awarded to Jacobs, but the historical GES contractors are still getting some work from the old program. So at this point in time, that's would be -- no, at this point.

Yes, there's no -- we've already been awarded work under GES.

Yes. That's the program we are working under. Will Gabrielski - Gleacher & Company, Inc.: Okay. Then lastly, pass-through revenue came down pretty sharply quarter-to-quarter, and that's a good thing, I guess. But I was a little surprised maybe that margins wouldn't have picked up a little more. And if you x out the pass-through revenue, actually margins declined on an operating basis quarter-to-quarter. Is that just a timing issue or is there anything more we should know about that?

Are you talking about year-over-year or quarter? Will Gabrielski - Gleacher & Company, Inc.: Well, quarter-to-quarter it dropped.

It dropped a little bit, but it dropped, but it has -- a lot of that is the continued ramp down of Motiva as we go through that and also the completion of a couple of other larger projects that we'd continue to work on. That goes in line with the construction revenue continuing to drop a little bit. But we don't look at margins x pass-throughs because that does involve volumes and such -- I really can't comment on margins x pass-throughs because that's not a metric that we really follow.

The next question is from Brian Konigsberg of Vertical Research.

Most of my questions had been answered already. Just quickly on M&A, you talked about the markets and the regions that you'd be interested in. How can we think about the capital you're willing to deploy at this point? You said you had about $230 million of cash on the books. How much more leverage are you willing to take on?

I think we'd be comfortable with taking substantially more leverage. I don't think we'd be bothered if we had $1 billion of debt on the books given the size of the company today and our ability to leverage these acquisitions. So we've got a lot of runway out in front of us. Also remember that the company generates lots of cash. And so as we look at acquisitions and look out into the next 4 or 5 years, in fact, I've been looking at a new cash flow analysis just recently. We don't see any limitation on our ability to make acquisitions as part of our growth strategy.

Got it. And separately, you had talked about some environmental remediation projects slow to come to market last quarter particularly both in the U.S. and the U.K. You said it was about flattish, but still a decent market. Have things changed there? What would you say the incremental move has been since Q2?

There's hasn't been a lot of incremental improvement. I think we're getting better at how we approach these MATOC contracts that I mentioned earlier, and that's a positive going forward. But the market is still not what I would characterize as robust.

The next question is from John Rogers of D.A. Davidson. John Rogers - D.A. Davidson & Co.: Just one follow-up. In terms of the acquisitions that you've completed, and I know, John, you said that you wouldn't comment on their actual contribution. But can you tell us, are they generally hitting your targets and your expectations? Because I was under the impression that really the incremental significant financial benefits then come in the subsequent years, but as long as things are tracking.

Now I would say that the ones we've done, particularly the ones that came over the last 2 to 3 years have pretty much tracked where we expected them to and they have made the contributions that they expect. And Aker is the biggest one and it's -- from even looking at last quarter, it's positive, but it will get more positive as we go forward. I think both because of as you work off some of the amortization intangibles, those kinds of things, but also just because that market and the market contributions that they have will be good adders. But I think the other acquisitions that we talked about were a lot smaller, so they're a little harder to see incrementally by themselves. But as we look at follow-up, they seem to be on track and doing what we expect them to do.

The next question is from Andrew Wittmann of Baird. Andrew Wittmann - Robert W. Baird & Co. Incorporated: I just wanted to dig into the backlog just a little bit more. Since the quarter end, I guess you announced Aramco and the North West Redwater project. Just to be clear, are those not in the backlog that you've reported and would be in next quarter's backlog?

The Aramco was awarded after the quarter end, so it wasn't. Redwater, as we said -- I think right now what we're doing is mainly owners engineering support. So there is some in the backlog, but it's just those earlier pro-services. And also, if there is additional awards or different expansion of the scope, it will get added when they get awarded. Andrew Wittmann - Robert W. Baird & Co. Incorporated: Got it. And one of the things I guess, I think last quarter, Craig, you may have said was you didn't expect a whole lot of projects over $2 billion in places like Canada or Middle East. I think this is maybe referring to refineries. The Redwater project looks like, I guess according to their own website is suggesting it's a $5 billion project. Was the fact that you're participating in this project a bit of a surprise to you or are we [indiscernible] now a little bit front?

Well, I'm cautious about these projects when they're announced until they're fully funded and we're fully engaged. Redwater wasn't a surprise in terms of our engagement in it whether we're going to see $5 billion worth of revenue out of Redwater remains a very open issue. So it's not to say there aren't bigger projects, but our view continues to be that our focus is sort of on the medium-sized projects and down. And when bigger projects come up, that's great, but things north of $2 billion really aren't our focus. Doing good work for clients and applying our know-how, that's the focus. And the Redwater really comes out of our strong capabilities in the kinds of technologies that are involved in the project. Andrew Wittmann - Robert W. Baird & Co. Incorporated: Yes. That makes a lot of sense. Just to -- I'm just kind of curious as to getting that first phase of Redwater funded. What's your view on the necessity or the need for the Keystone XL Pipeline as, I guess, a catalyst to drive further investment? Do you feel like the stuff that you're bidding on now or looking at doing now is contingent on that pipeline getting approved? And it might be delayed and/or canceled if the pipeline doesn't go through.

I have Tom Hammond with us. Tom's got the responsibility for Canada. I'll let him comment and then I might add some comments as well. Tom?

Well, I think the necessity is that something needs to be done with the pipeline and how fast that happens and exactly what form it takes, I'm sure you guys know as much from the literature as I do. But certainly, we're looking -- we're seeing that there is interest in the bitumen being produced in Canada by other parties like China. And I'm sure that if, for some reason, delivery to the United States was mixed totally, that others would step in and some kind of delivery mechanism would be found to ship the bitumen to Asia. We don't see it affecting anything on any kind of short-term basis at all. I mean this is not a 6- or 9- or 12-month conversation. Andrew Wittmann - Robert W. Baird & Co. Incorporated: Okay. I guess my final one is then for John. I think last quarter, you mentioned that you kind of expected that in 2012 that you feel a bit more construction activity. I guess I've heard you kind of allude to that a little bit today. Is that still your sense of the cycle progressing into next year seeing more meaningful construction activity?

I think that would be our outlook now just because of the projects we're doing. The engineering, the front end with -- on scale that would, as they go through their phases in such that you'll start in '12 seeing some of that moving into the field or getting ready for the field, and you'll see those phases being awarded. So we'll probably show up in the backlog first and then we'll show up in the field service revenue.

The next question is from Alex Rygiel of FBR Capital Markets. Alexander Rygiel - FBR Capital Markets & Co.: Pass-through was about 17% of its gross revenue in the current quarter. About 2 years ago, it peaked out at 39%. What portion of your backlog is pass-through?

We don't break that out. It's just all in our contract revenue. And most of it's in field services, I would guess because our field services backlog is coming down like the pass-throughs working through revenues are coming down. The pass-throughs that are in the backlog have probably come down proportionately. But again, we track our contracts as what's going to go through our books and backlog and what's going to go through our books and we don't spend a lot of time breaking it down between pass-throughs and our others, and so we just don't monitor those numbers.

So the other thing to recognize, Alex, and we said this before, is it that the composition of backlog doesn't change rapidly from quarter-to-quarter, so what's in backlog tends to be reflective of what's in revenue, and they move together relatively speaking. So I think you can take some insight from that. Alexander Rygiel - FBR Capital Markets & Co.: Definitely. And do you see a pickup in field services backlog in the fourth quarter? Is that going to be more of a 2012 event?

I think it's more of a 2012 event. Alexander Rygiel - FBR Capital Markets & Co.: And lastly, just to circle back to guidance. Any thoughts or suggestions as to what the variables are between the low end and the high end for the fourth quarter?

You keep wanting me to give guidance within the guidance. So I think that -- I mean, we've talked about a lot of them everything from governments, the economy to world markets and such like that. I think beyond that, we just go back to it's a bell curve and the most likely scenario is somewhere in the middle of that bell curve. And as it goes out, it gets lower probabilities, and those probabilities are affected by a lot of different variables and we can spend another 2 hours just talking about all those different variables, and we're not just going to do that.

The next question is from Joe Ritchie of Goldman Sachs.

The quick question I had regarding, and I'm not going to try to have you focus on guidance but just thinking about your 15% EPS growth over the next couple of years, I just want to make sure that I'm summarizing everything correctly. If I think about your private sector markets, I guess I would expect to see maybe high single-digit revenue growth. Your public market's probably flat. You obtained some type of SG&A leverage as revenue starts to accelerate, and you have some inorganic growth as well through your acquisition. Is that how -- is that the right way to think about 15% EPS growth over the next couple of years?

Well, certainly, we are able to get 15% EPS growth without getting 15% revenue growth, and for exactly the reasons you've outlined because we're able to leverage the revenue line and the gross margin line against the SG&A line. So that's the model and it's a combination of revenue growth organically plus what we can do inorganically through acquisitions that's going to drive that 15%.

Okay, fair enough. And one of the things that you mentioned earlier, Craig, is you were talking about how the MATOC contracts could potentially benefit you going forward. Help me understand how -- it's going to allow you to bid for potentially more work but the pricing could be a little bit more competitive. So help me understand the puts and takes of that type of work?

Just quickly, what's happening here is that -- there are a lot of contracts, including some of ours that were single awards, single-company contracts. And it was very, very -- if the incumbent was performing well, there was just no chance of winning that work when recompetes came up. Now that they've changed the number of those contracts into Multiple Award Task Order Contracts, we're able to win a seat at the table relatively easy, and it ain't easy, but it's relatively easy. Once you get a seat at the table taking a 20% or 30% share of the business of that contract, it's something we're very good at doing. So on the one hand, we're exposed on our own contracts where they get converted to MATOCs, but we've been pretty good at defending our share. But we get the opportunity in a much larger base of contracts to try to take share of what was other people's fiefdoms. And that's actually where the positives of the MATOC thing fall for us. And I got George Kunberger here, who's Head of Sales for Jacobs. Do you want to comment, George?

No, Craig, I think you characterized it perfectly. I mean, in another way of looking at what Craig said, you can view that as an opportunity to take a broader market share in a period of time why these MATOC contracts are in place, because basically we're expanding our base of customers that we before maybe were or were not, at least, segments of customers that before we were not working at. So not only it's an opportunity to grow our baseline business, but it's an opportunity to grow our customer base broader than it is today as well. So it actually has 2 benefits right now.

It's a good point.

Okay. Fair enough, and I guess -- and that's very helpful color. I guess then, if you're thinking about the next 12 months, would it then surprise you, given this dynamic, if your revenue from the Federal segment and backlog from that segment today declines?

Absent some big federal problem, I think we'll be able to maintain a steady backlog in the federal business. It may be up and down from quarter-to-quarter, but I have a lot of confidence on our ability to win work in that marketplace. Now I can't predict what our government's going to do as we said earlier, so that could -- that all bets could be off in that regard.

Okay, fair enough. And I guess one last question is you mentioned earlier your win rate on the chemicals side of your business being north of 70%. Are there any specific projects or targets that you see over the next 12 months that could be sizable wins to your backlog?

Well, there's always projects like that. I could probably think off the top of my head of a half dozen potentials that would have some significant impact on backlog. But remember, for the most part, we're not trying to chase the multibillion-dollar kinds of events. So when I say all those could be good additions to backlog, I'm not talking about adding $1 billion to backlog in any case.

Okay. And then one follow-up, I guess. Are you focused specifically in North America or are we talking globally?

Globally.

The next question is from Robert Connors of Stifel, Nicolaus. Robert Connors - Stifel, Nicolaus & Co., Inc.: In the past, you guys have talked about how field service had some better cash flow characteristics versus TPS. Can you just compare some of the cash flow characteristics by end markets, i.e., like public versus private?

Go ahead, John.

Generally, the public market tends to be a little bit longer paying. Their terms and conditions tend to be a little bit longer on payment terms. And in the construction field services, we tend to have less of that in the public market. So you don't get even the benefits of some of the better payment terms in that market on when you do it because we just -- we don't do as much of that construction. What we're seeing as the professional services increase, then those tend to have a little bit longer payment terms even in steady markets. And right now, we are seeing customers that are pushing back a little bit on the terms and where 3 or 4 years ago, we were getting -- being able to negotiate better payment terms on -- particularly in the private sector. Now that's turning around and they're pushing them out, but we're talking about from 30 days to 45 or from 45 days to 90, those kinds of things. And the effect as -- the construction, we, more often than not, we get some kind of 0-based funding or favorable funding on that. So -- and because it is a lot of cash flow or pass-through to contractors and such, we hold the payables and pay when paid type of the things. So you do get positive better cash flow out of the construction. Robert Connors - Stifel, Nicolaus & Co., Inc.: And then you had already addressed the miscellaneous income/expense line. But even before that, for a few quarters, it was running in the slightly positive versus usually running in a few $100 million negative range. Just wondering if structurally something is different on that line. And then also, regarding tax rate, it looks like you'll probably be more so international-focused. So could we see just going forward the tax rate come down from like the 36% sort of traditional Jacobs' rate?

Well, I think we'll answer both of those questions. First on the miscellaneous income, other than this one impact this quarter, I don't think there's any structural change in that. It's plus or minus every quarter depending on just a lot of different things, but it's miscellaneous income. But on the tax rate, we are seeing some benefit of some of the mix in revenue particularly with Aker coming in, majority of their business comes from South America, Australia. They have a little bit better tax rates than here in the U.S. So that really -- we expect to see the rate improving, the improvement we saw this quarter to be structurally there going forward as well.

The next question is from Stewart Scharf of Standard & Poor's Equity group. Stewart Scharf - S&P Equity Research: I was wondering if you talk a little bit about the opportunities in shale gas?

Sure. Not exactly sure how to say that. What we see is tremendous investments sort of starting at the wellhead and then going through gas gathering and collection, gas treatment, liquids removal, transmission. It's not -- I guess it's not different than any other gas business except when you get down the hole, and there the technology issues are different. But for us, this is from above the ground sort of from the wellhead up business, and it really involves understanding how to design and deliver the wellhead and everything that connects to it. So with the investment levels that people are talking about, there's going to be a tremendous amount of opportunity in that business, and we are capitalizing on it and we expect it. And there's even -- it's interesting, there's even a whole infrastructure of the development that we also are able to capture because of the nature of our business and the diversity of it. I don't know if that answers your question, Stewart, but I'm... Stewart Scharf - S&P Equity Research: Yes, that's fine. And looking out, say, 4 or 5 years, how do you envision your pie -- your market pie chart? Is there any area where you could see a significant shift?

Well, I think mining will be a lot bigger than it is on the current pie chart, partly because we'll have a full year's revenue in there, but also because the growth we expect to get. So it'll be a significant factor. I think refining will probably be not any bigger as a percentage of revenue because we don't expect to see that much growth there. Oil and gas will get bigger clearly. But I think the proportions around most of the rest of the curve will vary as the markets go up and down without any long-term shifts. Those 2 I think will be more long-term shifts in the share. And some time, we'll add a slice of power to that wheel as well? Stewart Scharf - S&P Equity Research: Okay. And regarding the cost centers, in the past, you spoke a little bit about India and I was just wondering if you're expanding anywhere else or what's the status of that.

No. The high-value engineering center in India is still more than adequate for our needs. We see lots of opportunity to grow. India both as a market for us and as a resource for the rest of our business is one of the real bright spots as we go forward. We're now the largest engineering company in India by quite a little bit, and we expect to grow aggressively on that base. The challenge with India obviously is it takes a lot of rupees to make $1. And so you got to have a lot going on in India to contribute meaningfully to the bottom line.

The next question is from Sameer Rathod of Macquarie.

Just going back to your pie chart graph, it seems like a lot of your end markets are moving in the right direction. How do we reconcile this with the fact that backlog was flat and new awards seemed like they ticked down in the quarter?

As I think we have said many, many times, backlog is lumpy and some quarters are flat, some quarters are strong. If you look at the trailing 12 on backlog, our trailing 12 sales are the best we've had since the second quarter of '09. So while flat sounds bad, we don't see it as bad at all. And we continue to feel like that our business is improving and expect to see continuing improvement in that trailing 12 sales number.

This concludes our question-and-answer session. I would now like to turn the conference back over to Craig Martin, CEO for any closing remarks.

Well, I just want to thank you all for your participation and your interest in the stock. I think things are clearly getting better for us and that the outlook is more positive. I still think we need to put a little caution on that positiveness, but overall, it's a business that's improving every day. Thank you all.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.