Jacobs Solutions Inc. (J) Q2 2015 Earnings Report, Transcript and Summary

Good day and welcome to the Jacobs Engineering Group Inc.’s Q2 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over Ms. Michelle Jones - Vice President of Corporate Communications. Please go ahead.

Thank you very much, Andrew, and welcome to Jacob’s second quarter 2015 conference call. With us today in the room is EVP and CFO Kevin Berryman who will present our financial highlights for the quarter; Chairman Noel Watson who will present our growth strategy; offsite in Oman, Gary Mandel, our Executive Vice President of Operations; and onsite, George Kunberger our Executive Vice President of Global Sales and Marketing will provide a business overview and then market outlook. Noel will wrap up the call before we open the lines for questions. As you are aware, we issued our press release this morning and it can be found on jacobs.com along with the presentation we plan to review this morning. As a reminder, statements made in this webcast that are not based on historical fact are forward-looking statements. Although such statements are based on management’s current estimates and expectations, which we believe to be reasonable and currently available competitive, financial and economic data, forward-looking statements are inherently uncertain and you should not place undue reliance on such statements as actual results may differ materially. There are a variety of risks, uncertainties and other factors that could cause actual results to differ materially from what is contained, projected or implied by our forward-looking statements. For a description of some of the factors that may occur that could cause actual results to differ from our forward-looking statements, see our annual report on Form 10-K for the period ended September 26, 2014. And in particular the discussions contained under Item 1 - Business; Item 1A - Risk Factors; Item 3 - Legal Proceedings; and Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations; as well as the company’s other filings with the SEC. The company undertakes no obligation to release publicly any revisions or updates to any forward-looking statements that are discussed on this webcast. The safe harbor statement is found on Slide 2 of our webcast presentation. With that, we’re on Slide 5. I’d like to turn the call over to Kevin Berryman.

Good morning everyone. I’m pleased to be with you for my second earnings call with Jacob’s. We have a lot to cover this morning so I will dispense with any introductory commentary as it relates to the quarter and jump right in as it relates to our review of results for second quarter of 2015. And as Michelle noted we’re on Slide 5. And to start, I would like to take a few quick moments to discuss our GAAP-related results. As noted on the slide, we certainly were able to deliver increases in our operating profit and earnings per share figures for the quarter 2015, second quarter 2015 versus the prior-year period. In addition, our balance sheet remains strong at the end of the quarter as evidenced by the fact that we were able to have $465 million in cash at the end of the quarter and $290 million in net debt by the end of the quarter. These figures were able to be delivered even though we had a significant wrap up in our share buyback program and we had a record buyback of roughly 140 million in the quarter to ultimately realize a 7.3 million program to date reduction in our shares as it relates to the program through the second quarter of 2015. I will not plan to spend a lot of time discussing variances versus year ago on a GAAP-related basis given that a lot of the variation year-over-year is driven by large discrete items between the two years. I will have or plan to spend a little bit more time talking about the results in our adjusted figures and I believe that will give you greater clarity on the underlying trends and dynamics regarding our business for the second quarter. But before turning to Slide 6 to do that, I thought some commentary on our revenue changes versus year-over-year is important given that our revenue is actually decreased 8.6% versus the year-ago period. Certainly, foreign exchange, as noted on the slide, represented the single largest drag on our sales on the quarter accounting for 5% points of the full year-over-year change. In addition, we also had pass-through revenues that were also down year-over-year and they represented an additional 3% points of the drop in revenues. As you already know, pass-through revenues tend to have lower margin levels than the rest of our business and as a result of this, this fall in sales [ph] did not have a material impact on our profitability in the quarter. So as a result, our net underlying organic growth ex [ph] foreign exchange and the pass-through revenues was effectively flat versus the year-ago period. This quiet [ph] growth was supported by the diversity of our portfolio with stronger certain end-markets offsetting weaker ones, our gross was still less than we would have expected for the quarter. In short, inspected improvements on our revenues associated with our strong backlog transitioning to an effective higher-level of burn did not yet materialize and gained a longer-term momentum that we do ultimately expect. As a result, we have taken additional actions to mitigate the impact of this shortfall, by instituting a formal restructuring program that is meant to further align and simplify our business, resulting in reduced cost and increases in our simplicity and alignment in the organization. This program reduced our GAAP-reported results by 0.08 in the quarter, resulting in our adjusted EPS figure of 0.72 for the quarter. A quick few comments on the restructuring initiative. This program is expected to continue into Q3 and Q4 and we would expect to provide you a more robust update on this initiative at our Q3 earnings call. I would also like to clarify a revised guidance for the year. Our guidance as noted in the press release has been provided on an adjusted basis, which excludes any impact of our restructuring efforts and the cost associated with those efforts. Of course, any benefits associated with our restructuring initiative will be included in the results. Although the vast majority of the expected savings our restructuring initiative ultimately will be realized in the full-year 2016 versus 2015. So turning to Slide 6 and using the adjusted Q2 2015 figure of 0.72 to discuss results versus year-ago, you will recall that we had several discrete items that impacted the year-ago quarter, including SKM profitability, weather and holiday-related costs, European project issues, all of which were partially offset by a gain associated with the sale of certain intellectual property. When adding the net impact of all of these items back to the profit of year ago, adjusted earnings per share was identified as being 0.19 higher than the actual GAAP figure reported of 0.63 a year ago. So I would like to compare the two figures of adjusted EPS of year ago, the 0.82 versus the 0.72 and that translates ultimately into a 15% reduction in the operating profit levels for the year Q2 2015, for the period 2015 second quarter of 2014. Let’s talk a little bit about that variance. First, you will note on the slide that we have not adjusted this quarter for any impact or current quarter results for weather and/or holidays. Even though, in our analysis, we have estimated the impact of these issues to be similar in 2015 Q2 to the results of Q2 2014. The fact that the impact year-over-year is somewhat similar is not surprising given the challenging weather that you all recall that we’ve had especially for you on the East Coast. This represents a 7 percentage point differential on OP growth year-over-year simply because we have not adjusted for the impact of these issues this year while we did last year. Our plan going forward would be not to adjust for these types of items in the future. In addition, included in the second quarter 2015 are higher-than-normal employee benefit related cost and cost associated with our executive transitions. While these are real costs that we incurred in Q2, the majority of the increase are unique to Q2 and expected to be lower going forward. These people-related cost account for another 7 percentage point of the variance year-over-year. Finally, our operating profit in Q2 2015 was also impacted by the strong dollar, which contributed another 2 percentage point as a fall on OP versus the prior year period. So given the nature of these items, the impact, the comparability of the adjusted figures versus year ago, we believe that our Q2 results are indicative of a stronger level of profitability demonstrated comparative with suggest [ph]. It supports the view that our underlying profit levels are relatively year-over-year after recognizing that many of these specific items are expected not to be continued over the balance of the year 2015. So before turning the call back to Noel, a final word on our backlog, which is exhibited on Slide 7. As noted, backlog grew 2.4% year-over-year and remains near record levels. This backlog represents a book-to-bill over the trailing 12-month period of 1.05 as shown on the slide. Importantly, our success in selling [ph] work is resulting in our backlog remaining at this near record level and gives us continued confidence that our longer-term growth prospects are robust. Our diversity in our portfolio enables us to manage through certain end-market headwinds. The strength in our backlog this quarter is certainly indicative of this as our continued record level, near record levels was delivered even though we continued to see cancellations in our backlog specifically in the Canadian region. On a positive note, we would expect the cancellations related to the price disruptions in the oil market are now largely behind at this particular point in time. So while shorter-term pressure remains, given the certain disruptions in certain of our end markets, longer-term, we continue to remain optimistic given our strong backlog positions and continued robust level of prospects. So that concludes my remarks on the quarter and I’ll turn it back over to Noel.

Hey, thank you, Kevin. Let’s go on to Slide #9, the Growth Strategy. We talked about this a lot and I’ll just summarize it again. The relationship-based model is still the model for the company. It works very well for us. And a lot of these record sales that you see going on right now were near record backlog are partly because this model is working very well when put together with our sales model. So it is the strategy that keeps us close our clients, trying to deliver superior value to these clients and make it work. And so that model remains intact and we believe it’s working well. One thing we are doing and we do have a lot of diversity in the markets as you’ll see in a few minutes when we go through that, the sphere on the next page. But we do have a lot of in-market diversity which gives us a lot of strength when some of our markets aren’t as robust as they once were or certainly as we thought they were going to be even 90 days ago. And I’m talking about the oil and gas on that and we’ll have Gary Mandel discuss that in a little more detail. We still have good cash. We have not been in an acquisition mode here in the last few months as we try to deal with the headwinds in the market and certain other things, but certainly long-term, as we go back to double-digit growth, we will be back in the acquisition market. But what Kevin said was when we discovered what was happening in the oil price and the other commodity prices, we had realigned our cost with the environment. To put it kind of simply, we’ve taken this opportunity to make some changes. If you go on to Page 10, what we have here is our end-market diversity. We’ll talk in a little more detail. The backlog is good. You’ll notice we got it split in three different parts there, downstream, upstream, chemicals, industrial and public institution. It is a nice split. It hasn’t changed a lot over the past couple of three years, but it does give us the diversity we need. And I think we’ve said many time to you folks in the phone, we’ll never have all these markets singing together. If we get five or six of them singing, we’re going to be doing just fine. Now, first up, I want to talk about the heavy process business which includes chemical, industrial, public and institution, we got Gary Mandel sitting in a construction trailer in Oman. And, Gary, I’m going to give it to you for a few minutes. Okay.

Thank you, Noel, and good morning. And as Noel said I’m calling in from Oman. Hopefully, you can hear me okay. I’m visiting one of our oil and gas upstream projects. It’s a multibillion gas project here in Oman. We’re in the middle of the construction phase. It’s one of several we have in the Middle East. The Middle East continues to offer robust opportunities for us in the upstream sector. And as you know, we’ve been reporting that we’re growing our Middle East operations year over year. So we’re well-positioned for that. Overall, our process business is mixed primarily due to oil prices causing our owners and clients to reevaluate their cash flow, their ongoing projects. It’s causing a little bit of recycle and some delayed decisions. And in some cases some delayed investments. However, as we mentioned, our strong client relationships help us take advantage of these cyclical swings in the energy prices. And we have a unique ability to power through these cycles with our focus on brownfield sustaining capital and maintenance. While the dropping price of oil is causing a slowdown in some CapEx projects in one part of our business, the cheap feed stock translates into opportunities in other parts of our business such as chemicals which is really robust and I’ll come back to it. We continue to see a lot of good prospects in this market as evidenced by our continued sales progress. And our portfolio is balanced and positioned for growth. When we look at refining, on the CapEx side, we’re seeing some mixed signals here as our clients are evaluating their cash flow. However, on the OpEx side, on servicing the installed base, the maintenance, the turnarounds, that is still stable. The maintenance in brownfield provides sustaining work. We see that increasing both in the number of sites that we have been awarded as well as the number of proposals that we are pursuing. When the cash flow is affecting our owners, one of the benefits we obtain from that is they start to reduce their supply chain. They start to leverage suppliers who can service more than one facility. We picked up several sites this year and hope to pick up more because we’re better leveraged with our big footprint and our capabilities to service multiple sites for a single client. The number of sites in the US and Canada is increasing. We’ve seen an increase of over 15% of the sites we’ve been awarded year-to-date, as well as the operation and maintenance spend is still estimated at about 30 billion in the Gulf Coast region alone. And I’ll come back to a similar span in Canada where we’re well-positioned. In short, we continue to see investment in North America, Europe and the Middle East. Although certain projects are being delayed, there still remains investment in plant conversions and expansions to optimize feedstocks and to enhance plant performance and profitability. In the Middle East we’re seeing opportunities for reconfigurations and compliance programs. Our ability to leverage these opportunities with our global footprint and our heavy process capability is a key discriminator for us. Through our core client relationships, our alliances, our framework agreements, we continue to participate in much of the refined product activity across the globe. Lastly on refining, we are focusing and helping our clients focus on upgrades, operating efficiency, safety regulations and energy savings. With reduced cash flow, they’re trying to get more out of their assets. While we’re seeing pricing pressure, we’re still winning both EPC and EPCM contracts, especially for the refinery upgrades and improvements. Our cost past [ph] year, our strong safety performance, our ability to leverage our global resource base is helping us to continue to win work. We have participated in our Value Plus savings program. We’ve able to document and save our clients with our innovative solutions, project delivery models, global sourcing, $5.8 billion to date. This helps us continue to get in front of our clients and offer lower-cost deliveries in this time of low prices. In North America, we have several billion dollars of TIC under contract today along these upgrades and operating efficiencies. So the work is continuing. When we move on to oil gas, again, the CapEx is mixed mainly due to the cash flow from the lower oil price. However, OpEx is stable. Oil prices are starting to stabilize a little bit. However, we’re focusing more of our energy and resources in sales efforts on the brownfield and enhanced-recovery projects. As I mentioned in the Gulf Coast, we’re seeing 35 billion of spend on operating and maintenance in Canada. As you know, we are the dominant player in Canada in maintenance and turnarounds. And that activity continues. Long-term growth of oil production is possible, albeit at different cost levels. Our unique position is helping in working with our clients through innovative project execution models, modernization, global sourcing to enable them to continue to focus on their operations and enhance their production. One of the things that I’d like to share with you is we have many global EPCM agreements in place for this installed base. It allows us to leverage the sustaining capital opportunities that are out there. We’re still winning work. We expect the industry to continue to spend albeit concentrating more on the lower margin operating expenditure side of the equation than the capital expenditure. Even when prices go below the marginal cost of operating oil fields, many producers opt to keep them going and store oil as long as they can when they expect prices to increase. Because it’s more costly to shut these facilities down and restart them later. Jacobs, with these agreements in place, with most of the major oil companies including the national oil companies, continue provide EPC and maintenance opportunities to this installed base. We’re heavily involved with these plans. We’re constantly reevaluating and estimating the cost of these additional revamps and debottlenecking. And so again, we’re well positioned for that When we look at chemicals, you see that chemicals is 23% of our process segment. It is the strongest segment in our process business. It’s primarily driven by the cheap feedstocks today. We’ve had several awards in the quarter and we hope to announce several more that our in the pipeline. Broadly, chemical investments remain strong globally. Pure chemical companies seem to be benefiting more and outpacing the integrated companies. We continue to be enthusiastic with the chemicals in-markets and our pipeline continues to be robust. The oil prices and cheap feedstocks are driving more investment with these clients. Some global energy companies are reevaluating their next phases. These investments are in competition with other parts of their business. So we got to continue to help them find lower cost to deliver these projects. As I’ve said, with innovative project delivery solutions, modularization, global sourcing and the like. Jacobs has a strong chemical resume plus a global delivery. These are our key strengths. For many of our clients, this is an area that is growing and they are looking direct more of their limited capital spend into this segment of their business. So that in turn means more opportunities for Jacobs to help our clients grow their chemical businesses. We have relationships with over 25 global chemical companies with standing master services agreements representing a significant portion of this global chemical spend. I am bullish on that. George will talk about the robustness of our pipelines and our prospects, our activity is strong. We continue to win work. We continue to position for work. We have a very good footprint on our sustaining services, our maintenance, our turnaround business. And I think this will allow us to continue to grow that backlog as we move forward. With that, I’ll turn it back over.

Okay, thanks, Gary. George Kunberger, our EVP of Sales. You’re on, George.

Okay, thanks, Noel. Good morning everybody. I would like to take just a few moments to talk about two important sectors; one, the industrial sector and then I want to talk a little bit longer about our public and institutional business. So on the industrial which is Slide 12, let me just make a couple of points and then we’ll move on to the public sector part of the business. As you well know, those who have been following us for a long time, the industrial sector is an important - not necessarily a large robust part of our business but still nonetheless a very important business. Represents about - if you look at the number rights now about 10%, a little over 10% of our backlog and about 12% or 13% of our graining 12 month’s revenue. But we’re going in to the couple of sectors, let me just make a couple of points. On the biopharma, those of you who have been maybe watching shows [ph] like 15 minutes, having been following some of the tremendous development in immunotherapy that have been going on in medicine around the world, that is now starting to cascade into significant capital spending plans in the part of all the big pharma businesses around the world. I mean, I’ve heard quotes and I wouldn’t under a lot of [indiscernible] swear to this, but certainly our clients talk about those numbers being in terms of four to five times the capital spending plans on big biotech project plans over the next 10 year than we saw in the 1990s and early 2000s. And, of course, as you well know, Jacobs has been a longstanding, strong player in the pharma business. We remain that way today. We’ve expanded our presence to be more than just U.S. and Western European base. It’s now being truly global. So we’re well positioned and indeed while we’re not in a position to announce specifics because the press releases our out, but we have been successful in winning several nice large projects on a global basis that hopefully we’ll be able to talk more specifically about that in the coming weeks. So pretty bullish on pharma. It’s only 4% of our backlog but it is a growing business and we could be in a very strong position. I won’t say a lot about mining. It really hasn’t change in the last three months. I don’t anticipate that the situation in mining is going to change dramatically. Our position remains as it’s been, good, strong percentage [ph] cap development. We are participating in the various studies that are ongoing. And a couple of big capital projects and there are a couple still out there that are being considered, we are positioned well to compete. So I don’t think there’s going to be a big change in that business over the next year, for sure. But it is an important part of our business and it will be certainly in three or four years when commodity prices turnaround. Pulp and paper, high-tech consumer products, you all know, we’ve been a big alliance player which feeds [ph] well under our consumer products business and our high-tech business around the world. And we have a little bit and Noel is going to get mad at me for saying this but we’re not really - no one has a power player and I’m not really saying we are but there is a lot of money being spent around the world and we’re positioned in some niche market that really are going to be important part of our sales for the next 6 to 9 months. Those are specifically some of the new builds that are going on in the UK. We’re not necessarily in the power hour island part of that but certainly in the OSDL part of that. And then in areas like the Middle East where there’s lots of nation building going on. There’s a lot of what you could call broader utility work in support of some of those facilities, new cities, new industrial manufacturing facilities that are actively engaged in. So power is the broadest sense of the work is not a small piece of our business and we are going to be making some sales going forward. So that’s really all I wanted to say about the industrial sector. But I obviously want to spend a little bit more time about our public and institutional business. It’s a big part of our business. It’s a growing part of our businesses and I think it’s an area that I think we’re looking to stabilize our finances and our growth as a company certainly over the next six months and as the process areas Gary just talked about start to recover and we grow again in that area. First of all, in the national government side, this business today - well, first of all, it constitutes a couple of governments. It’s U.S. government as you all well know. It’s certainly as U.K. government and Australia and a couple of other governments, but primarily, those three. The spending forecast in the U.S. and the U.K. and also in Australia. From an MOD [ph] Department of Defense areas is actually forecasted to grow in 2015 and even further in 2016 by about 8% each year. So it’s sort of bottomed out and it’s starting to grow again. The pattern of spending in the federal government specifically in the U.S. has become very backend from a fiscal year perspective than it has been in recent years. And the case in point, if you note that, actually, our backlog is down a little bit quarter-over-quarter. But if you look at our federal bids of today, we are at an all-time record high as far as the number of opportunities that we have submitted specific proposals on and are awaiting decisions that will happen between now and the end of our fiscal year. That actually represents about $5 billion to $6 billion of revenue just on pending opportunities in that particular business which are our technology business. And of course, as you well know, we generally do pretty well there. So our conversion rate is high and so we anticipate that’s a big part of our sales in the second half. But it’s not going to end at the end of this year. There is another $4 billion to $5 billion worth of prospects that are near term, in other words, we’ll be submitting proposals on those between now and the end of this fiscal year. So those will cascade into FY ’16 as far as opportunities for us. So our federal government business is robust and growing and we anticipate it to be very strong at the second half of this year and into ’16. On the infrastructure business, as you well know, that’s a pretty broad global business for us. I mean, we have big business in U.K., we have big business in U.S., we have a growing business in the Middle East, and of course, a very large business in Australia and New Zealand and then supplemental businesses in some of the developing areas on an opportunity by opportunity basis. That overall business, I wouldn’t - it’s certainly not as robust as our federal business but it is continuing to grow, as I’ve shared with you on some of the conferences that we’ve had in the last two or three months. I’ll look at that at a 3% to 5% growth ongoing basis, nice, steady state. It ebbs and flows a little bit. U.K. right now is particularly strong, as an example, as we go through the new AMP6 programs and the new programs on transportation spending. The U.S. continues to be a little challenged but not as challenged as it was two or three years ago. But certainly the federal government spending in the support of transportation projects is a little soft, and so it’s more about taking market share in the U.S. than it is about just riding a strong market. The Middle East, because of the things we’ve talked about several times, the spinoff of their big oil projects to fund a lot of development of cities and - I’m looking at their the - industrial facilities - thank you, always need a little help from your friends. And spinning off a lot of projects. And because of our cross-selling across our various lines of businesses, we’ve been able to bring a lot of that work there in the Middle East. And of course, is - the government in Australia is using funding on infrastructure really to sort of fund the growth of the overall economy there. So that business continues to be strong and growing since we bought SKM a little while ago. So I feel strongly about the infrastructure business going forward and so continue to stay, like I said, 3% to 5%. Buildings business is pretty similar to the infrastructure business. It’s a steady growth business. It is also global in nature for us. We have continued to do a lot of work in the U.S. for the federal government and various municipal governments and state governments, as well as hospitals and schools and things like that around the country. But as you well know, as a result of the acquisition of KlingStubbins a few years ago, we have opened ourselves up into the private sector part of that business. And so the opportunities continue to grow there. And then we’ve been able to take that capability and spread it again into the Middle East, into the U.K., supporting their buildings business over there, and very definitely into Australia to support buildings business associated with things like airports and schools and hospitals there. So that business is a global business for us. And it is also continuing to grow, again, at a pace of about 3% to 4%, I’d say, year in and year out for right now. So overall, it’s a good day-to-day [ph] business and really highlighted by the federal spending, both in U.S., U.K. and Australia. And I would anticipate, although I won’t promise, that our backlog will continue if what I said about the federal spending on those big projects beholds [ph] and the government doesn’t delay their decision-making in the last part of this year which is always possible, then we should be seeing continued growth in our backlog going into ’16 and in that sector. That’s pretty much, Noel.

Okay, thanks, George. If we can go to Slide 14 and we’ll wrap up so we can open up for questions. The portfolio diversity that both Gary and George talked about does remain a strength. And even though we’re facing headwinds on oil and gas and some of our big plants have cut back some of their spending, the opportunities out there are strong, strongest I’ve seen in a long time. And the backlog is strong. We’re doing a lot of effort today realigning the cost structure with what we see the business look like over the next 12 to 24 months. I’m a big believer in don’t let an opportunity like this go by, so we’re working hard in dropping our real estate cost and we’ve already done several internal reorganizations that cut cost and make the company more efficient as Kevin was talking about earlier. We have adjusted the outlook for the headwinds we see. And we are positioning ourselves for a better second half and a good ’16. And that’s the game plan we have. As most of you know, I’m not the long term solution of Jacobs and we are heavily involved in a CEO search. That has gained a lot of momentum. I spend most weekends interviewing somebody. I would say we’re in the downhill run in that and we’ll be coming to close on that probably over the next couple of months. If you turn to Slide 15, it summarizes mainly what I said. And I’ll quit on that note and turn it back over for questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Andrew Kaplowitz of Barclays. Please go ahead.

Hey, guys, good morning.

Good morning, Andrew.

Good morning. Kevin, can you talk a little more about the decrease in the overall guidance that you had? Obviously you talked about the low end of the range last quarter which was 335 to - and the midpoint of this range is 305. How much would you say is currency versus slow burn rates and versus lower margin? I don’t know if I need exact EPS but just thought process on that $0.30 lower at the midpoint.

Well, look, Andrew, I probably won’t go to the level of detail that you would like but let me give you some kind of perspective as it relates to that. Certainly as communicated in our comments, we did see continued cancelations in certain parts of our business certain end-markets. And that is putting pressure on us again as it did in Q1 relative to our revenues. And while our underlying revenue stream was effectively flat, it certainly wasn’t what we wanted to see in Q2. So we’ll face some pressures as it relates to that backlog and when it starts to burn versus kind of the near term issues again associated with some of the restructuring - excuse me, associated with some of the cancelations. So believe that at the end of the day, we’re looking at a situation where our medium and longer term views remain quite positive, certainly as it relates to the ability to win the work, as George and Gary were outlining. But also in addition to that, the prospects continue to be pretty robust and we’re thinking that that translates well into our backlog in the back half of the year. And as you recall in Q1, we talked about that. So the diversity of our portfolio we believe allows us to exit some of these challenges in certain end-markets in a stronger position because of that. So I think if you look at our range, it’s effectively - Q2 certainly was a little bit lower than what we would have originally anticipated. I’ve talked about some of the drivers there. It is what it is. And so that’s certainly part of it. But I think the other piece of it is really that we’re not going to necessarily see the burn get to a level where it’s able to offset some of the short term mitigating pressures that we see. And I think that that’s the rationale for us to really be cautious in terms of our guidance. And I do want to ensure that you guys got the commentary as it relates to that guidance and that it does not include the costs associated with the restructuring. I know there were some questions relative to that but it does not. And while we hope to see some benefit on our restructuring this year, the bulk of that will occur next year.

Okay, that’s helpful, Kevin. And then maybe this is for Noel. Do you still expect - in the last quarter we asked you about overall backlog growth for the year and you said you can - you still thought that we could see overall backlog growth. Where are we today sort of with that question? And I guess the conviction level around public and institutional in particular sounds pretty high. Do you think that that can get you over the hump to have backlog growth this year?

Well, what I’d say to you is that the sales process is working well. And so we are selling work almost at record level. The prospect list is long. These numbers on the technology group in particular, George, highlighted the 6 billion of proposal outstanding in your win rate is almost always been above 50% on those kinds of things. It goes well for a continuing backlog. And certainly, even with the headwinds coming out of oil and gas, I don’t think it’s going to damage that up, okay? I think we’re going to continue to see backlog [indiscernible]. If we continue to sell like we’re selling, it should be pretty soft.

Got it. And we just have a clarification. How much were cancellations in the quarter? It was 400 million last quarter.

It was at similar levels last quarter and those are primarily in Canada.

Okay. Thank you.

The next question comes from Jamie Cook of Credit Suisse. Please go ahead.

Hi, good morning.

Good morning, Jamie.

How are you? I guess a couple of questions. And no, I don’t know if it would be more fair for you to answer this rather than Kevin. But I just sort of sit here from covering you guys for a long period of time, we’re going on a second sort of sounds like significant restructuring again with little color on the cost and little color on the benefits. I mean we just haven’t seen this ever from Jacobs. So can you, while you don’t want to give numbers and hopefully you’ll give that next quarter, can you talk about what the issues are outside of the macro because you’ve been through macro headwinds before? Is it related to the acquisitions that you’ve done? Is it related to the org structure within Jacobs? Should we think about some changes to your business model relative to how Jacobs performed before? I’m just trying to get some color because it just strikes me as - we haven’t seen this from E&C companies nor have we ever seen this from you. So I guess that’s my first question. And then my second question is related to the CEO search that’s been going on for some period of time. You talked about interviewing people on the weekends. So does that imply it’s probably there’s a higher probability it’s an external candidate relative to an internal candidate?

Well, right now, we’re doing both. We actually interview both internal and external on the weekends. And we’re moving forward on that. And right now, we just need to get closure on it. And what George would say, we are in end game. We’re getting close to end game. We’ve got the candidates we’ve been interviewing. And we’re moving forward with it. As I think we told you before, as fast as we can but we’re being deliberate and we’re going to do it right. But go back to the instructions from there. What we tend to look at, first thing we said is for these headwinds, we know we got - can we get some cost out? The answer is, yeah, we get some cost now. The real stamp is one place [indiscernible] a bunch of cost is going to come out there. And that’s probably because we didn’t get in the restructuring charge. But as far as consolidating divisions, we’ve consolidated four divisions. And by the way, some of the costs were in this corner. Some are going to be in Q3. But those benefits probably aren’t going to manifest themselves to ’16. But I was taking a look at the business climate, looking at where we are, yes, some of the acquisitions played into this conversation. But I wouldn’t say it was acquisition-driven. It was just taking advantage of a situation and saying, okay, what can we do now to make this company meaner and meaner and more cost effective going forward? And like I said, the business is there. Every big customer we got, the oil business is doing that and maybe they followed us, maybe we followed them. I don’t know. But it seemed like the right thing to do and sitting here, I’m absolutely convinced. And by the way, we started this right after the call phone call. We waited nine days to do this. A whole bunch of [indiscernible] is behind, that’s all right. But the [indiscernible] will be all while coming.

Are you at the point where you’re questioning Jacobs’ business model? Whether it’s still the right business model? I mean the bear cases that the lull of large numbers are starting to work against Jacobs, she need more basis to grow, you need bigger acquisitions to grow, which every company goes through, right? I mean, is there anything you’re contemplating within the business model like material changes or portfolio rationalizations, even though you don’t want to communicate it today?

No. Simple answer to that is no. We’re going to move in here one day. Maybe that person would want to make some changes, I don’t know. But sitting here today, no.

All right. I’ll get back --

This is Kevin and just let me make some commentary that relates to the initiatives that you are asking the question about, oh, we haven’t provided a lot of color. We will provide additional color. As we’re going through the process and gain clarity, we believe that the efforts that we’re embarking upon are going to be percussive, that we’ll get a very good return against it and we will provide that update as it relates to the Q3 earnings call. So there is more to come. And certainly, not ready to talk about the specificity of the full program because we’re still working to it as Noel suggested. But it will provide a good return without a doubt.

All righty, I tried. I’ll get back in queue. Thanks.

The next question comes from Brian Konigsberg from Vertical Research Partners. Please go ahead.

Yes. Hi, good morning. Maybe just first starting - I believe, Noel, you made the comment that you believe the cancellations in the process businesses are actually behind you. Maybe you could expand on that why do you have confidence that we won’t support the later [ph] cancellation. Sir?

I would like Kevin to answer that because he made the comment.

Oh, okay. There you go, Kevin.

Look, I think if you look at the Q1 and the Q2 cancellations that we’ve had, and Gary certainly feel free to jump in if you have any additional color commentary. But we saw some fairly large, primarily U.S. process related in Q1 and in Q2 and other chunk and it was primarily Canadian-related obviously, which is as you guys well know is largely upstream-related activities. So as we’ve been talking with our customers, ultimately we understand those cancellations. And while there certainly all these adjustments relative to backlog relative to the economics projects and whether they change over time or increase in capital and things are fluid always within the construct of that, I would say that we think the material impact relative to the change in oil prices is largely behind us. That doesn’t mean there won’t be further cancellations just because of normal course process of people working through their projects. But the adjustments as it relates to the oil price situation is largely behind us.

Yes, I’d just add in that. And I think the shelf chart and the oil price or some of these things to go on and some of these things that we’ve taken out of backlog already being reevaluated by a customer. So I think those projects are there. It’s only a question of when and timing.

Got it. And just secondly, just on this commentary in regards to OpEx versus CapEx. So I think in your experience in the recent quarters, OpEx is actually health and wealth. I mean we’ve been hearing some kind of contrary commentary maybe from some of the equipment providers saying, some of the project owners, where they can make quick cuts that’s really on the OpEx side where the CapEx actually takes a little bit longer. I was just curious. So are you not seeing any of those type of trends impacting your business? And in regards to the backlog burn in the quarter, it slowed down. Was that OpEx or is that CapEx driven?

Gary, do you want to try that one?

Yes, I would say with respect to OpEx, we look at that in several ways. One is we’re inside the facilities providing day-to-day operation and maintenance and running the plant and repairing and replacing materials and equipment as needed. There’s also OpEx associated with scheduled turnarounds. And some of our customers have deferred turnarounds from spring to fall, et cetera but they cannot defer them in perpetuity. We help plan their turnarounds. And so we’re seeing the turnaround season coming up and we have identified the turnarounds, we’re seeing that. What we’re looking at on brownfield. And that may be where your equipment suppliers are commenting. On the brownfield, we’re doing some refurbishment of equipment. We’re sending it out, getting refurbished turning in, not necessarily replacement in kind with new equipment, new models. And maybe that maybe part of the difference of the different feedback you’re getting. But we have boots on the ground in these facilities, doing the sustaining services, the maintenance, the turnarounds.

Okay. And just one the slow back of oil during the quarter, that was CapEx oriented rather that OpEx?

Well, to the earlier question as well, when the shock of the oil price and the cash flow became evident, we sat down like many of our competitors with our clients where we have these frame agreements. We reevaluated their portfolio of projects, they couldn’t all go forward. While they have good ROI, they just didn’t have the cash for all of them to go forward. So we helped them make decisions and jointly come up with which ones would go forward based on economics and which ones would not. Now, the ones that are going forward are continuing to go through all the phases EPC. So I think it was the recycle and the reset of taking 30, 60, 90 days to evaluate their portfolio of projects.

Understood, thank you.

The next question comes from Jerry Revich of Goldman Sachs. Please go ahead.

Good morning.

Good morning.

I’m wondering if you could talk about based on contract timing when you expect revenue burn to accelerate in the chemicals business. It looks like this was the second consecutive quarter of modest sales decline. Should we think about tough comps over the balance of the year or I guess based on a contract structure, when shall we expect that business to accelerate?

You’re talking about our revenue burnout? George, why don’t you take that here?

Yes, so if I look at what we have, it’s going to be near the end of this calendar year, I would say, where the projects that we have will start to move into the field in a substantial way.

Okay, thank you.

And that probably goes for both chemical and some of the biopharm work.

Well, yes, it’s across the wires [ph] mostly. But that would be to across even to biopharm. But that was - mostly thinking about the process, that would be to across the biopharm as well.

Okay. And then on the infrastructure business you’re seeing a nice pick-up there. Can you just orient us how does the contract structure look like over the balance of the year? It looks like you’re up about 14% revenue burn in the quarter. Are you seeing similar levels of strength heading for the back half of the year?

Yes. As I said, our infrastructure is a global business and so it ebbs and flows. When the U.S. gets a little softer - the U.K. is quite strong right now and it’s really what’s driving that - and that and Australia is driving a lot of our infrastructure spend. So, yes, I see it continue to grow incrementally over the rest of the year, maybe a little bit more in the U.K., a little bit less in the U.S., vice versa. But yes, I see that continuing to strengthen. It’s a sort of a short burn business to a large - and maybe for us, there are some big large products buried in there. But for the most part, it’s continuing spending from a processional service basis. So it’s a book and burn business to a large degree.

Okay, thank you. And lastly on this type of environment where your customers slow down their pace of awards, you typically have higher bid costs. Can you quantify how much of a drag that was to the margins in the quarter or maybe touch on it qualitatively?

I don’t think we had any significant effects from higher bid costs in the quarter. We run that B&P which we call a bid and puzzle [ph] comp very tightly. And none of - we personalize [ph] that money very carefully. So the bidding cost did not go up.

Okay, thank you.

The next question comes from Tahira Afzal of KeyBanc. Please go ahead.

Good morning, folks.

Good morning, Tahira.

First question is really for Kevin. Kevin, can you comment on the free cash flow outlook? Any color there would be helpful from a 12 to 18-month perspective.

Sure. I think as we probably talked in the past, we believe that the underlying business proves us the ability to open the way to have [ph] a conversion factor versus net income of at least 1. And we do expect that to be the long term dynamic. We haven’t provided any context as it relates to the near term but I would suggest to you that certainly the trailing 12 months is a pretty positive number where we’ve had a conversion factor of net income to free cash flow of 1.4x. So certainly that’s not going to be the number we end up for the full year but certainly we have the ability to do that. And that will be our expectation to drive towards longer term.

Got it, okay. And Noel, if you look at what you talked about and we heard this from your clients on their goals about the supply chain, better managing costs, the big cost out of a project, how do you place yourself? I know you guys have saved your customers a lot of money. But some of your peers who have been doing larger projects clearly have a lot of experience from firsthand experience of building large projects. So when you go out to bid on some of those project management roles and design roles, are you kind of seeing the same amount of enthusiasm from your clients or are you seeing a little more competition there?

I would say that probably there’s not a lot of change in my mind because of the model. One of the strengths of the model is that certainly with the core clients and the key clients is we define them. We are ahead of the game and know what’s coming and what’s happening and we do have a lot of long range contracts in place. It doesn’t mean we get this work without competition because there is always competition. But I don’t see that the work we’re chasing changing dramatically. And I guess I don’t see the competitive landscape changing significantly. George, will you comment on that?

No, I would agree. And as a matter of fact, we, over the last three or four years, have moved into a larger project space on an average spend than maybe we have traditionally been, to be quite frank with you. So almost the opposite of what you’re saying. I don’t want to over characterize that but we certainly have been moving into the larger project space on occasion where it makes sense for our ability to deliver.

And our clients.

Got it. Thank you, folks.

Yes, and thank you.

The next question comes from Steven Fisher of UBS. Please go ahead.

Thanks, good morning.

Good morning, Steve.

Your professional services bookings seem pretty low and I calculated a 42% year-over-year decline. But not sure of how the cancelations and net FX plays to that, so I guess, what do you guys have as the booking numbers in professional services and what’s really driving that because I think professional services historically tended to be more stable during these volatile commodity price times?

Steve, this is Kevin. I’ll take a quick crack at that. Look, the calculations, we’re primarily, in the professional services, east of our backlog. So that certainly had a role as it relates to some of the numbers that you’re alluding to.

Okay. But, I mean, even if you add back $400 million, you’d still be down pretty significantly and lower 1 on book-to-bill, so - I mean, are you not - is there a share issue going on? I think you just said you don’t see a change in the competitive environment, but it just seems a little surprising that the professional services is kind of trending a little more weakly at this point.

Well, the sales side, Steve, is trending fine. But we have made these backlog adjustments. And I think if I had the data here in front of me, I could dice that, too [ph]. But on the big work we’ve been selling recently with the exception of one big add where we got a big program going in the backlog, pro service new sales has remained quite strong. So this has got to be harbored in the cancelations and maybe even some backlog adjustments to go beyond the cancelations.

Okay. I mean, can you give us what the actual new award number was in professional services?

I don’t have that here. We’ll have to get back to you on that.

Okay. And just shifting gears, so in terms of the guidance for the rest of the year, what would you say are the most critical things that have to happen if they hit those numbers that you have now? And is it mostly those federal awards? Is it some of the chemical steps that you talked about sort of converting into - as revenues in the latter part of the year? What are the most critical things --

Well, the federal awards will go to backlog. They probably won’t have much effect on the business this year. They’re next year’s profits, but we’re going to sell them this year. The thing that we have to do to perform the way we’re talking right now, we just got to continue to sell well, find more of the book and burn work in the infrastructure. We need to continue to gather these maintenance contractors next year with these turnarounds as well and make a good solid profit there. A lot of what goes on toward the end of the year, to be honest with you, is already in hand. We just need to get it done.

Okay. Thanks, guys.

The next question comes from Vishal Shah of Deutsche Bank. Please go ahead.

Hi, this is Chad Dillard on the line for Vishal. I just wanted to go back to the comment about OpEx versus CapEx and the opportunities you see there. Just given that it seems like OpEx is holding up a little bit better. Are you seeing any increase in competition and seeing any pricing pressure on more of the maintenance side?

Hey, Gary, try it. Are there more competition on the maintenance side?

I’ll take that. There is competition. I do see where our customers are cutting back on their cost. As you’ve seen, they’re cutting back on the resources. They’re looking to shrink their supply chain where we have a tender outstanding now for nine sites. There’s actually five incumbents to be replaced by one contractor. And so the incumbents while they’re competition, they don’t have the wherewith or the breadth or depth to move into nine sites. We a proven methodology to take over new sites through a Friday to a Monday and transition the people in the work, et cetera. So while there’s competition out there, I think if you’re too narrow and too limited geographically or regionally, it may play against you as they’re trying to consolidated these contracts to fewer people. We’ve had a good win rate as I’ve mentioned. We’re continuing to win. I think our breadth and depth as well our safety performance is enabling us to move well in that.

Okay. So in that same van [ph], I mean how are you bidding in terms of pricing? Are you seeing that you need to go a bit lower? Or are you able to hold and then maintain price?

I think they leverage their spend. And you come up with some targets. The labor is the labor. We’re able to leverage our tools, our equipment, our insurances, those types of things. We’re able to arrange some transition cost and put some incentives in place. So it’s a basket of things. If I share anymore, I’m giving away our secret sauce.

Got it. Okay, thank you. I’ll get back in queue.

No, we’re not cutting our price dramatically to win the work, is that right, Gary?

That is correct.

Thank you. That was good. That’s the answer.

Next question comes from Andrew Whitman of Robert W. Baird. Please go ahead.

Hey, maybe one for Kevin here. I was just - we talked to the customer [ph] earlier and I think since you’ve come in as CFO, Kevin, you’ve talked about the potential maybe the desire to take working capital out of the business. As I look at working capital balance here and forgive me, we don’t have the full balance sheet so I’ll say at some of these. But cash is down quarter-over-quarter pretty materially, but your working capital balance is not. Should we assume that you AR and [indiscernible] AR are up in this? Maybe you can give us some flavor on that. And is there any problem contracts or anything that we should be watching for in those AR if they are up?

A couple of comments. The first thing is second quarter of every year tends to be the low water markets that relates to the cash flow dynamics of the company. So if you go back and you look at history, second quarter tends to be a little bit less positive relative to the dynamic versus the full year. So we saw that again in Q2 so the figures for the cash flow on second quarter were somewhat similar to the Q2 results that we’ve seen in the past on average. However, you have to take into account that we had the $140 million on top of that in terms of the share buyback and combination of those two things resulted in the cash flow dynamics you see and the ending cash and net debt that we saw at the end of the quarter. We do believe that there are opportunities for us to be more diligent in terms of the working capital. That is not easy to do. That’s a lot of things that we’ve talked about in the past as it relates to pick and shovel work and why being efficiencies and productivity in the enhancement have tool sets to support our teams in their ability to get reductions and receivables and get paid quicker. We’ll look at the other side as well as it relates to accounts payable. And those initiatives are in the process of certainly beginning to be formulated and rolled out into the organization over the back half of the year. So not a lot in terms of the implications for our year-to-date results or the results in Q2, but I think collectively the teams around the globe think we can do better there. And to the extent that we have a small change in our working capital levels, that ultimately provide us a great opportunity and increase our free cash flow from our operation. So not alike yet. But we expect that we’ll continue to develop that pick and shovel plan and be able to deliver and command the benefits longer-term.

Okay. Well, the question was on the margin percentages as we look out for the balance of the year. The margins have been I guess kind of holding up so far. It sounds like your pricing view is that it’s - you’re not cutting wildly price. You mentioned a little bit on the [indiscernible] and refining I think in the prepared comments. But just given kind of the guidance level, should we expect that margins are maybe down for the rest of the year? I guess they’ll be doing by utilization until you can get the restructuring cost more where you want them. Is that a fair way to think that margins are probably down here for the balance of the year?

No, I don’t think so. First of all, utilization is running almost record levels. I mean we’ve dealt with those businesses already. So the utilization is doing just fine. As with pricing pressure, there always is. You certainly see what’s happening in some of the oil field services company where they’ve gotten [indiscernible] from the owners. And what we do in a situation like this is we try to find a way to deliver real value without cutting our price. Those negotiations are ongoing. And I think we’re probably being reasonably successful getting that done. So I don’t think we’re going to be looking at significant drop in the margins this year. I mean I’m not going to sit here and tell you, it’s a wildly optimistic business. But as you’re sitting here watching what’s happening, and I - we are getting better at getting more profitability into these jobs. I hope no customers are listening to that. But we’re doing a little better in that way. And we are doing more full service jobs which contain a [indiscernible] even on the past sense [ph]. So I think all those tend to counterbalance each other. And we are going into maintenance season which one of those wall marks in business against the pro service base, the margin to be up.

Thanks. If you’ll afford me one more, Noel, I wanted to get your thought - and this actually is kind of strategic as it relates to the CEO search. But just given that the end markets certainly in the near-term aren’t giving whole lot of opportunities for organic growth, maybe they do over the long-term kind of dovetail into Jamie’s question, is a 15% EPS growth target a free requisite for that CEO to buy into? Or it’s a thoughtful CEO approach that maybe folks is more on higher return, slower growth. Is that a viable alternatives as you’re looking for the right candidate [indiscernible].

Well, I don’t think - and I didn’t mean to cut Jamie off. I apologize. What I would say that the relationship model issue, right now, we’re not making any changes. New team comes in, reevaluates who knows. But it doesn’t seem like anybody we’ve been talking to think that’s a bad idea. How you approach this, how to get a little more money out of the exercise? Here’s a 15% passé. You noticed we didn’t talk about that today. We have to reevaluate that when we get this thing and the market stable up a little bit. Certainly double-digit growth with an acquisition program, it makes sense. It’s in the cards [ph]. I don’t have any doubt about that. But what is 15% which we’ve hung on to for over two decades is a magic number. [Indiscernible] that question.

Thank you for your thoughts.

The next question comes from Anna Kaminskaya from Bank of America Merrill Lynch. Please go ahead.

Hi, guys. I just wanted to quickly touch on just your cash flow deployment. Can you remind us how much is left in your buyback and how do you think about given where our multiple are now for some of the energy assets you were previously interested in those. How do you way from your stock valuation versus going more maybe actively on acquisitions in the next year?

This is Kevin. So several quick comments. First, we are focused really in the near-term as it relates to the initiatives that we’ve already discussed over the course of this call which is about driving alignment and simplicity into our organization which we think translates into our ability to have a stronger foundation which once we do do acquisitions and we believe that that fundamentally is part of our strategy longer term. We’re going to be even stronger as it relates to delivering the benefits associated with those acquisitions. But in the near term, as we’ve talked, we’re continuing to, I would say, hit the pause button on the acquisition front so that we can focus on those other initiatives relative to restructuring. Having said all of that, we continue to be a nice cash flow business and consequently combining that with the fact that our share prices have been under pressure as of - versus historical levels. We will continue to be proactive in terms of the execution of our share buyback program. I think through the end of the second quarter, we had utilized, I want to say, $330 million-plus of our share buyback authorization, which is 500. So that eclipse that we were in - in the second quarter, certainly, we’re going to be done relatively soon. And we’ll certainly look to have other discussions with our board as it relates to next steps regarding that.

And just as a quick follow-up, what are your general thoughts on just introducing dividend, given you have diversified business model, pretty stable cash flow and I think one of very few NC [ph] companies that is not being dividend at this point?

Okay, this is my question. We, at the board, have alternately looked at dividend policy maybe every few years. And I think once we get a new chief executive onboard and we do look at the strong cash, we will probably do a total reevaluation. In fact, if I’m still around, we will do a total reevaluation of what this means in terms of dividend policy versus stock buyback versus acquisitions and figure out how we handle that. So I think we need to get the new chief executive onboard. We certainly aren’t going to do anything before that person shows up. And then I think a total reevaluation of what we’re doing on that would be in place.

Thank you very much.

That’s not a promise of anything, except we won’t [ph].

Great. Thank you very much for your time.

The next question comes from Michael Dudas from Sterne Agee. Please go ahead.

I’ll let you guys off here, it’s been a long call, but I appreciate all the added color in the conference call from Kevin. And Noel, you said if you were around in the answer to that last question, what did you mean by that?

I will be involved. Let me rephrase it, okay?

Thank you. I’d figure as such. Good luck, gentlemen. Thank you.

Oh, you’re done asking?

Yes, that was it. No, no, you’re exhausted. We’re done. Get it going.

The next question comes from John Rogers of D.A. Davidson. Please go ahead.

Hi, good morning.

Good morning, John.

A couple of follow-up things. First of all, maybe for either of you, in terms of the restructuring that you’ve talked about, I know you’re going to give us cost details in the quarters ahead, but are you anticipating any revenue impact?

Very marginal. It will barely be visible.

Okay. And then secondly, I guess Noel, I mean, you talked about the strength and the opportunities is as good as I think you’ve said in the past, but what are the customer - what’s your sense of what are the customers waiting for? Is it the stabilization of energy prices, higher prices, better economic outlook?

Well, I think - by the way, it’s anybody’s guess. And I got a 45-pag report sitting in front of me, eating my consulting group on exactly that issue. And the bottom line is I think they want stability. Whether the oil price is stable - and the oil price will stabilize somewhere. In fact, if anything comes out of this report I’ve been reading, it’s oil prices are going to stabilize. Nobody is quite sure where. We’ve got a supply-demand imbalance now. We’ve got excess oil coming out of the ground versus what’s being consumed. Part of that is driven by slow economies, including China. Everybody blames China for this. And I guess I’ll blame China but - so we’ve got that imbalance. But we have had a very fundamental change in the dynamics of the energy market in the last five or six years. And I think what we’re seeing now is there’s going to be a rationalization of this and I think out of that will come stability. But that goes to both natural gas and oil. And we’ve had - as a big oil company said a couple of years ago in one of the - he said - he thought the natural price for crude oil in a pure market driven economy was $70 a barrel. Is it still $70 a barrel now that fracking costs are now approaching $50? And so I don’t think we know. I think the one thing I’m pretty sure of personally is we won’t see $100 oil borrowing ore [ph] ore or something. So I think we’re going to see oil settle somewhere, probably above $50 and certainly below $100 but I don’t know. I’m not any smarter than anybody else. But I think the owners need stability. Anything moving from $100 to $40 to - or what was the low price? Thirty - I don’t know. $100 to $40 back to $55 and our stocks track it every day, it’s kind of embarrassing. But that’s what happens with - I think they need stability. And so even though we’ve been awarded projects, the startup phases are slow.

Okay. Thank you. Oh, and Kevin, if I could real quick, what was the FX impact on backlog?

I don’t have the number in front of me but ultimately, certainly given the impact, it certainly was - of the FX for the quarter, it certainly was an impact. I can get back to you on that number.

Okay, appreciate it. Thank you very much.

My guess is that wouldn’t be too far off of the kind of the revenue --

I understand.

-- perspective. But the mix is not too dissimilar.

Okay, thank you.

The next question comes from Robert Norfleet of Alembic Global Advisors. Please go ahead.

Hi, guys. This is actually Nick Chen for Rob this afternoon. Thanks for taking our question. I was wondering, as it relates to the SKM acquisition, could you just say if there’s any details around additional cost savings there? And also, I know that you guys are hitting the pause button on acquisitions, but looking longer term, what are some of the potential opportunities you might see to expand in that market which sounds pretty robust right now?

Well, let me - you deal with the - I’ll do the long term, you do the SKM.

Sure. As it relates to SKM, as you know, the SKM operations are fully embedded into the organization right now. And so we’re stepping back as it relates to the pause button that we talked about relative to acquisition. And that is allowing us to drive alignment benefits and efficiency benefits into our organization through the simplicity and realignment initiatives that we talked about. So certainly SKM is part of that. It’s not the driver behind it but certainly it is part of it. And so believe that that will translate into our ability to continue to have some benefits relative to the pieces of the business that as we can fit the same benefits from the rest of our total portfolio. So we’re going to characterize it as SKM-specific. But certainly, it will be involved in the process.

Yes. And on the longer term, we’ve sat here for years and said, if we want to be in the upstream energy business, would be a strange time to say that. But we actually have been quite successful and becoming fairly dominant. We have three energy business, first of all, Canada which obviously isn’t doing great right now. But more importantly, where Gary said, [indiscernible] over $1 billion job for one of the majors. That’s upstream as of yet. And we’ve got a lot upstream energy work [indiscernible]. So we’ll hope price stabilize, we’re still going to need more energy, still going to [indiscernible]. My guess is sometime in the future, we’ll be looking to that again. We’ve been very successful more recently in acquisition in the government arena which have done extremely well. And so we’ll probably be looking at things like that. And I would guess, we will always be looking at things geographically. After years of working, we finally bought a license in China and that’s the only acquisition we’ve done in the last three or four months. And we did buy that classic lights in China so we can actually be better able to serve our clients in China. I think that’s where we’ll be going.

Okay, great. And this is my last question and then I’ll jump back into the queue if there still is one. But just in terms of the Tier 3 standards. It seems like there hasn’t been as much activity in that area as we might have expected. Do you have any sort of updates there?

Well, I think we’ve talked now for a few calls, the Tier 3 lost a little bit of its theme because the individual owners had an opportunity to buy credits and extend the deadlines for incorporation. So while that work is still going on, it’s certainly not at the pace and at the peak that we anticipated it was going to be when we first started talking about that about a year and a half ago.

That’s great. Thanks so much, guys.

So we’re getting near the end of our time. I want George to go on and sell some more business here, shortly. So we’ll take two more calls.

Okay. So that first question will come from Robert Connors from Stifel. Please go ahead.

Good morning, gentlemen. Can you hear me fine?

Yes, we hear you fine.

Okay, great. In order to be brief here, it sounded like the chemicals, the process backlog was up quarter-over-quarter [indiscernible] from 8% to 12% and largely [indiscernible] by chemicals. And I’m just wondering if you can talk qualitatively about these projects if they were in fact chemicals other than just the fact that they benefit from lower feed stock prices. Were they ethylene based? Were they polyethylene and derivative-based? And commentary on that?

Well, I’m not becoming [ph] smarter. George, you go ahead and take here.

Yes. They were certainly chemical-based to a large degree. And they were not necessarily directly ethylene and polyethylene based. They were secondary chemical marketplace. It’s also a very robust marketplace driven by little cost of energy and general demands of products around the world. So they neither are those we were talking about were ethylene or polyethylene based.

Any breakdown as far as North America versus international?

Probably not. But that marketplace that I just described stays - well, the secondary marketplace stayed pretty robust in the U.S. and over in Asia Pacific

Okay. And then I don’t know if you have this number in front of you or you just talked to it, but I’m just wondering how much of your - when you look at your prospect list of chemical exposure, how much of it is for integrated companies, the IOCs of the world, where they’re seeing CapEx pressures outside of just what’s going on in the chemical space versus just pure chemical companies?

The answer to that question is a little hard to give you. There are as I’m sure you’re aware, some very large petrochemical-based opportunity that some of the big innovative energy companies are talking about. And those are in the $20 billion kind of numbers. So that skews just on, just to answer question, that would skew everything towards pretty much the petrochemical-based. But that aside, I’d say it’s pretty evenly based. It’s been petrochemical and [indiscernible].

Well, certainly some of these bigger oils we’ve gotten are outside integrated oil structure.

There is one as I said, but a couple are based on our prospect perspective.

Oh yes.

There are some big projects being talked about. I’m sure you’re well aware of it.

You put that into the mix, it skews everything dramatically. But that aside, I think they’re more evenly balanced.

Okay, great. Thank you, gentlemen.

And the last question today will come from Justin Ward from Wells Fargo. Please go ahead.

Hey, guys, thanks for taking my question. Just a quick one, just a quick add-on to the CEO search question line, is it important to find a candidate with a proven track record of successful acquisition, timing and integration? Is that high on the priority list or is it still primarily about prioritizing the customer relationship skills?

Well, certainly any - it would be nice to have a proven acquisition record. But we’ve got a [indiscernible] who knows how to do that. We probably are focusing more on other things. We still would like to get a person that’s been on the job before. That’s still one of our criteria. We’re looking at people who’ve got really good people skills, both down because we’re a pure services business. So yes, whomever we bring in have got to have good people skills both within the organization itself and with the customers. We’re not necessarily looking for a chief salesman. That’s not what I’ve got in mind. But we do have - sorry, George. But what we are looking for is somebody who’s got good people skills, good leadership skills, a proven acquisition record probably draft down the list. Okay.

All right. Thanks a lot, guys.

Hey, guys [indiscernible] up. We do appreciate your interest. We do believe is solid. The sales are strong. The diversity is good. And we’re looking forward to delivering on the products. And thanks to all who attended.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.