Good morning. My name is Krista, and I'll be your operator today. At this time, I would like to welcome everyone, to the Jacobs to hold its fiscal Third Quarter 2018 Earnings Conference Call. [Operator Instructions]. I will now turn the call over to your host, Jonathan Doros from Investor Relations. You may begin.

Thank you. Good morning and afternoon to all. Our earnings announcement and Form 10-Q were filed this morning, and we have posted a copy of the slide presentation to our website, which we'll reference in our prepared remarks. I would like to refer you to our forward-looking statement disclaimer, which is summarized on Slide 2. Certain statements contained in this presentation constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. Statements made in this presentation, 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 you should not place undue reliance on such statements as actual results may differ materially. We caution the reader that 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 risks, uncertainties and other 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 29, 2017 as well as other filings with the Securities and Exchange Commission. We are under no duty to update any forward-looking statements after the date of this presentation to conform to actual results, except as required by applicable law. Please now turn to Slide 3 for a review of the agenda for today's call. I would like to note a few items in regards to our…

Thank you, and welcome to our fiscal year 2018 third quarter earnings call. I'm pleased to report that we're on track to deliver fiscal year 2018 adjusted earnings per share results at the high-end of our previous outlook and well above the guidance we shared last November shortly after announcing the CH2M acquisition. Our year-to-date performance reflects strong execution against our major strategic priorities, to further strengthen our winning culture, including an increased focus on inclusion and diversity; to transform our core by executing our work with rigor and discipline; and to profitably grow by capturing higher-margin opportunities in growing end markets and delivering differentiated client-centric solutions. And with regard to the recent CH2M acquisition, we are exceeding the major cultural and financial integration commitments we made a year ago when we announced this transformative acquisition. I will discuss the Jacobs and CH2M combination in more detail later in my remarks. On a pro forma basis, third quarter revenue grew 14% versus prior year with each line of business posting growth. Adjusted SG&A cost decreased sequentially and was also lower versus the pro forma year-ago quarter, demonstrating significant progress on achieving cost synergies associated with the CH2M acquisition. Our third quarter adjusted earnings were $1.35 per share, an increase of 71% year-over-year. Kevin will cover the components of EPS, including a bridge to GAAP EPS in his remarks. Free cash flow generation was strong in the third quarter, and we demonstrated our ability to delever with gross debt down from the second quarter. I'm also very pleased to report that the third quarter backlog increased sequentially to $27.2 billion and is up 8% on a pro forma basis from last year's third quarter, with all 3 of our lines of business contributing to the backlog growth. Looking forward, we continue…

Thank you, Steve. And moving to Slide 11, you will see a more detailed summary of our financial performance for the third quarter of our fiscal 2018 year. Please note that during my remarks today, I will sometimes discuss comparisons of current quarter results to Jacobs and CH2M's performance in 2017, calculated on a pro forma basis. We believe this information will help provide additional insight into the underlying trends of our business when comparing current performance against prior periods. Third quarter pro forma revenue grew 14% year-over-year, in line with our strong second quarter growth of 16%. We had organic revenue growth across all of our business, with an increase of 17% and 8% year-over-year, for Jacobs' and CH2M's legacy businesses, respectively. This growth was supported by a greater than $175 million increase in pass-through revenues versus the second quarter of 2018. Gross margins of 18.7% are in line with our strong margin performance year-to-date, as we continue to benefit from the higher gross margin mix from CH2M. I will discuss underlying trends in gross margin later in my remarks. Regarding G&A, we realized a good growth leverage on our G&A spend as pro forma G&A was down on an absolute basis both year-over-year and sequentially versus the second quarter, driven by increased momentum in the delivery of our expected cost synergies. As a percentage of sales, adjusted G&A was down approximately 200 basis points year-over-year on a pro forma basis and 160 basis points sequentially. As a result, while GAAP operating profit margin was 5.1%, due to CH2M-related acquisition and integration costs, our adjusted operating profit margin was 6.4%, a year-over-year increase of 80 basis points on a reported basis and up 60 basis points on a pro forma basis. OP as a percent of revenue was also…

All right. Thank you, Kevin. We believe our third quarter performance is strong evidence that we are delivering upon our 3-year strategy. We're excited about the profitable growth opportunities for the company across all lines of business as well as the trajectory of obtaining the remaining CH2M cost synergies. As such, we now expect our fiscal 2018 adjusted earnings per share outlook to be at the high-end of our previous range of $4 to $4.40. We're also providing an initial outlook on fiscal 2019 earlier than its normal cadence, given the lack of historical pro forma results and seasonality of the newly combined organization. At this time, we expect fiscal 2019 adjusted EPS to be in the range of $5 to $5.40. Operator, we'll now open up the call for questions.

[Operator Instructions]. Your first question comes from the line of Jamie Cook from Credit Suisse.

One, Kevin, I was surprised obviously that you guys provided guidance already for 2019. If you could just walk us through your assumptions by segment and just the level of visibility you have for 2019, so we know how much you have to actually book? I mean, to get to that number. I guess, that's my first question. And then my second question, obviously, some nice progress on the cash flow side. How do we think about the opportunity to lower the DSOs at CH2 in 2019?

Jamie, I'm not going to provide a lot of incremental details, as it relates to the 2019 preliminary guidance we gave. We decided to do that just given the fact that we got these two large organizations coming together and the seasonality of the business and the fact that we're not yet fully performing out. We thought it was a good idea to just give you a preliminary perspective. We feel good about that. We're actually in the midst of our planning process right now. So we got some more work to do before we provide some incremental guidance on 2019. As it relates to the cash flow, as you recall, we discussed in the call on second quarter that we were a little disappointed in the lack of traction that we had been seeing on our DSO performance. And we had a real full-court press in the organization and got the business leaders focused, and they've been doing a great job on starting to get some traction on that. We saw that kind of negative trend reverse in Q3, that was great to see. We still think that there's opportunities to continue to deliver improvements in our DSA -- DSO going forward and that would be into 2019 as well. So more to come on that, but clearly, we continue to believe, there's opportunities to improve on that metric going forward.

Okay. So because you wouldn't answer my first question, let me just ask a follow-up. On ATEN, you talked about 7% -- margins improving from the 7% level, but you didn't say the 7% to 8% level. Am I splitting hairs here or is the higher end less achievable? I guess, I'm just trying to understand the commentary there.

No, we still have the general range of 7% to 8% for that.

Your next question comes from the line of Tahira Afzal from KeyBanc Capital Markets.

This is Sean on for Tahira today. So I understand it's preliminary and you guys don't want to provide too much further guidance around fiscal '19 assumptions, but just hoping to get a little bit more color, maybe just around how you guys are thinking about the top-end, maybe just qualitatively, particularly around how you guys are thinking about the commodity-oriented end markets, for example, the meaningful upside potential in mining you guys are sighting? Any kind of added color on the real key swing factors to get to that top-end would be helpful.

I think the good news is that -- as evidenced by our backlog performance over the last couple of quarters, is that we're expecting profit growth across all three lines of business. And again, we're not prepared to go into detail, but ATEN is benefiting -- will benefit next year from the full ramp-up of all the major wins that they've begun to ramp up in the second half of this year. So the two that I mentioned in the earnings call, SOCOM and the missile defense, but also the [indiscernible] and the Nevada nuclear win that we had announced earlier this year. So that coupled with additional expected bookings, ATEN is positioned well for profitable growth next year. BIAF, as I mentioned, very strong backlog growth recently and the margin's improving in the backlog, and a very robust global demand profile gives us confidence that we should see profit growth there in 2019. And on the ECR business, as you mentioned, commodities are strengthening, but where we're focused, first and foremost, is continue to drive margin improvement with performance excellence and some of the process improvements and new tools that we've implemented that are specifically going to benefit the ECR business and gain higher margins with existing business and continue to focus on sustaining capital growth. But clearly, we're seeing demand growth in certain markets more than others. I'd say the Middle East for us is starting to show some good prospects for 2019 on some of the major projects. And so we should benefit there as well.

Okay. And secondly for me, I think you guys mentioned in the prepared remarks that the U.K. has remained stable for Jacobs thus far. I was just hoping you guys could provide a little bit of color on the size of the U.K. business right now, and what we should expect over the next 12 months, say, as the Brexit impact starts to flow through, anything you guys are planning around there?

The comments I made about uncertainty are sort of -- are statements of caution, just because it is uncertain, and we don't -- we have a lot of political negativity going on now in the U.K. But from a Jacobs' standpoint, things are pretty solid. I mean, we have excellent prospects. We have a good pipeline of opportunities. It's across all the major sectors that we talked about, water and transportation and climate change and even the energy side on some transmission opportunities. And so we're just trying to be careful not to get ahead of ourselves and claim that as equally exciting as everywhere else, just because of the Brexit and political uncertainty. But as we sit here today, we believe, that's potentially just short term, and we're extremely excited about the prospects. U.K. is our -- what Kevin, our second largest market for the company, specifically in BIAF. And so it's extremely important. We mentioned that the U.S. is more than half, but clearly, U.K. makes an important part of the other remaining size of the business along with a few other key regions.

Your next question comes from the line of Steven Fisher from UBS.

I wonder if you could talk about the pro forma revenue growth trend here. It was feeling strong at 14%, but ticked down just a couple of points. And I know, again, you don't want to provide a lot of color into 2019, but just really wondering about the trajectory here, if we should be thinking that this is going to start to trend into these single digits sooner than later? Or if that going to be still pushed off a while, because I'm just looking at the differential between the, let's say, ECR backlog growth at 3% and I think last quarter, it was 2% versus the revenues at '19. So just kind of wondering how all this converges and the trajectory of pro forma revenue growth?

So let me just start and then I'll turn it over to Kevin. As I've said, for the three years that I've been at Jacobs, revenue is important, but it's -- but overly focus on it becomes very difficult to really predict and project this business, because of pass-through revenues, especially in the area of some of the businesses you mentioned like ECR. And so I think for me, it's the bottom line guidance we gave you is really a combination of our revenue growth, our gross margin and our revenue backlog that we're gaining, the synergies and cost efficiencies that we're driving across the company, our tools that are giving us the opportunity to preserve higher margins for wins that we get going forward compared to the past. And you really just got to look at it across all of those. And I think from an ECR-specific standpoint that you've mentioned, I think equally important to revenue is the whole strategy execution of driving a higher quality of earnings business that we've been proving over the last 18 to 24 months.

So Steve, just some additional commentary. In the Q3 figures, I noted $175 million incremental pass-through for the third quarter. That's 5% of growth effectively. So just note that. And pass-through revenues kind of fluctuate, and they were a little bit higher than they normally are in the -- so I'll just make that comment and you interpret as you wish. I do believe, especially given the mix of the profile of ECR, for example, since you pointed that out, when you win these contracts and you do the turnaround, it's pretty quick-burn stuff. So you win it and it happens pretty quickly. And so you can get some of this disconnect as it relates to the -- how the backlog is trending versus how the revenues kind of come together. So I think, look, what's important is that our gross margin and backlog continues to be positive, and we think that, that is leading us to be able to ensure that we have that kind of lower risk profile in our total portfolio with an ability to continue to expand our margins longer term. And there will be some fluctuation around the top line just because of the things that Steve said as well.

Okay, that's very helpful. And then maybe could you just give us a little more color on the specific project that you called out in ECR that I think is going to have an adjustment in your fourth quarter? Just how far long is it? How comfortable are you that you're going to capture all the cost headwinds in 2018? And how material is it?

Yes, look, I think I'd characterize it appropriately that it's a modest impact on margins. I'll leave it there. We're very comfortable that we have the situation and we're evaluating it and hopefully, it'll even be lower than what I'm suggesting. But ultimately, we're very confident. And it can't be that material given what I just described.

Okay. And when will the project be done?

It's near the end of this year.

Your next question comes from the line of Andy Wittmann from Baird.

I just had a clarification actually. In the footnotes to your segment operating profit reconciliation, Kevin, footnote 3 talks about a $15 million charge associated with a certain project in the quarter. But when I look at the value that you put up, like $33 million is -- seems like that's kind of in line with the range that you've been talking about. So can you just talk about what that is and help us understand a little better?

Yes, no problem, Andy. Look, we had -- yes, we had that, but we also had a little bit higher-than-normal fringe kind of true-ups, given actuarial work that was performed over the Q3, which largely offset that. So you kind of see that number, there's a plus in there and there's a minus in there, which netted to kind of the number that you're looking at. So that's why you're not seeing a big change.

What was the other corporate charge? It seems like a pretty decent amount there.

Fringe.

Fringe, it was fringe.

The fringe was the $15 million?

No.

No, no. It offset the incremental $15 million. It was a benefit.

Right. I'm just saying what was the charge related to?

Project, a project that's being evaluated.

Okay, all right. Just -- and then just also here on some of the numbers, it looks like some of your purchase accounting has moved around a little bit. It looks like it's all contained on the asset side of the balance sheet, Kevin. But goodwill is up, intangible is down. Can you just talk about what some of the drivers of that are? I guess, it's a good thing that we're not seeing the liability side increasing, but just given some investor sensitivity to this and other deals in the past, I thought it'd give you a chance to talk about some of the purchase accounting migration that's happened in the last couple of quarters.

Yes, look, the largest percentage of that is really related to our -- the preliminary estimates of customer list and PP&E fair value, which ultimately went down versus what ultimately we had in the original estimate. Certainly, some of that was in our -- in the ECR business, which we got from CH2M, and that's a big chunk of it. There's some other moving pieces in it. We do have some project accruals that are in there in terms of some potential risk. But if you look at the first two that I mentioned, the PP&E fair value and customer list values and customer -- and brand values, that kind of stuff, that's about $200-plus million of the incremental changes in the opening balance sheet.

Your next question comes from the line of Michael Dudas from Vertical Research.

Steve, in your prepared remarks, you talked about current backlog at 100 bps, I believe, greater than a year ago. Just to clarify that, what are some of the drivers in that change relative to the CH2 backlog you brought on? Is it the mix issue relative to just the better disciplined bidding or a better environment on grabbing a little bit better incremental margins as you're being more disciplined in putting projects in the backlog?

So as we've mentioned that it's up 100 basis points based on Jacobs' standalone reported or Jacobs' standalone backlog margin last year and because of the CH2M side. We've talked about the fact that the water business is a higher-margin business and so that's a major contributor. But I'm also pleased that when you look at the overall backlog performance from third quarter last year to third quarter this year, on a pro forma basis, both the Jacobs and the CH2M side of the business from last year have grown the backlog on the revenue side. So it's really a combination of good sort of combined performance, but especially some of the higher-margin businesses that we acquired with the CH2M business.

Excellent. And Steve, following up on ATEN. Of the 5 delineation markets that you put through on your presentation, what 1 or 2 -- you'll have to get through this big bump in transition on the positive side on the backlog of revenues, what 1 or 2 look more promising than some of the others? And is there a mix benefit or detriment relative to where you see the growth in new revenue contribution and new business in that segment going into 2019?

I'll just answer both regionally and sector-wise. Clearly, regionally, we see the strongest pipeline moving into 2019 in the U.S. with our core A&T business, as and evidenced by obviously some major wins, but also pipeline of opportunities. The nuclear -- as you know, the nuclear business, especially what we acquired from CH2M goes in certain cycles and where the 2019, '20 is expected to be an up-cycle on several large projects coming on the board. And so that's going to be important to us, as we go forward as well. I'd say those are 2 specific opportunities. The weapon sustainment area is important to us, as we mentioned in our strategy. And also because of the successful acquisitions and the Jacobs Connected Enterprise focus, we're expecting strong growth in cybersecurity and digital analytics, et cetera, as mentioned in my prepared remarks.

Your next question comes from the line of Jerry Revich from Goldman Sachs.

You folks have had really strong win rates in ATEN over the past year. Can you just talk about as you ramp up the revenue on those projects, as you mentioned earlier, how does the prospect list look in terms of your ability to continue to grow backlog in that business? Can you just give us a sense for the bookings outlook relative to the revenue ramp that you've laid out earlier in the call?

It's a great question, Jerry, one that I ask every quarter when we're sitting in our business reviews. And the good news is that in spite of the unprecedented or historical high win back in 2017 and '18 time frame, we still have an extremely strong pipeline of opportunities in the ATEN business. And I'm just kind of repeating what I said, especially in the U.S., as it relates to all of the different military sides and the cybersecurity side, NASA opportunities, both plus-ups as well as expanding our presence across all of our existing clients. So it's -- we -- the pipeline is strong, and so we're not just depending upon the ramp-up of the previous wins, but we're confident in continuing to put wins on the board with new business.

And so just for context, does that translate into backlog growth? Can you just maybe put a finer point on that?

Yes, we're still -- we're expecting continued backlog growth in ATEN as we move into '19.

Okay. And can we just circle up into the CH2M accounting so how much of the brand adjustment is greater integration? And did you get any benefit in the quarter from the accounting change in terms of the way it flowed through the P&L, Kevin? It's just a little counterintuitive considering how well the business is performing to see goodwill adjusted higher. Can you just flesh that out more in addition to what you mentioned in an earlier question?

Jerry. No real fundamental change, and let's call the incremental noncash charges associated with our business in Q3 versus Q2. Now look, we're continuing to evaluate it. We'll look at it, again, in Q4. But if there's any material change, we'll be providing that insight to you. As of right now, as of Q3, Q3 was very similar to Q2.

Okay. But in terms of just the business context, I mean, what's driving a negative adjustment to brand values when the business is performing well, the trade main values, et cetera? Can you just give us more context considering the business is performing well?

The value of Jacobs is a huge number. The value of CH2M and how we're integrating it into our company and driving holistic view what the new Jacobs organization looks like has actually reduced the value of the CH2M offering. So this is a discussion about the CH2M brand. I don't want to make a comment as if it wasn't important historically for that company, but within the construct of what we're doing about it and with the value proposition it has for us, it is a very different picture. So as you -- if you were to go to Denver, for example, to the previous headquarters, you won't see very much CH2M there, you'll see Jacobs. And that's because we're driving against an aligned one Jacob entity, which is reducing the value implications associated with CH2M.

Your next question comes from the line of Chad Dillard from Deutsche Bank.

I just had a question on earnings seasonality. Historically, if -- you see sequential earnings growth in the fourth quarter, but the implied guidance suggest that, that's not the case. So I was just curious whether it's a big project winding down or differences in seasonality related to the CH2M side? I ask because if I apply the typical seasonality, the fourth quarter exit rate would suggest 2019 guidance is pretty conservative, and especially if I factor in the cost savings and the pro forma 8% growth backlog. So just hoping to get some color there.

Well, first thing, $1.35 had some discrete benefits in it, so you got to recognize that. You take the tax and you take the balance out for those items, you're really getting closer to $1.25 figure. And then ultimately, our view is our taxes will be up a little bit more as we finalize the figures for the full year. So there'd probably be a little bit higher tax rate than what we've seen in the balance. And if you look at all of those numbers, we think we're targeting a pretty respectable underlying operating result that is actually quite attractive.

And just a question on ATEN. Can you just talk about when missile defense and the SOCOM projects hit the full run rate?

All of our projects end up having stages, because these are multiyear projects. So -- but I would say the majority of the ramp-up is going to be completed in -- by the first half of next year, probably more heavily weighted to the next 6 months, but through the first fiscal year next year.

Your next question comes from the line of Anna Kaminskaya from Bank of America Merrill Lynch.

I was hoping to get, maybe some color about revenue synergies that you highlight in your press release on -- whether they're coming from a regional upside, any particular markets you want to highlight here. And any metrics on, I don't know, employee engagement or assumption ratios, how that has an impact year-to-date.

Right. We've clearly had some preliminary or early-on wins that we attribute to the combined company. But the biggest impact so far is in the pipeline, which is exciting, because we see the bigger opportunities for revenue synergies ahead of us. And it's really coming in all the other areas that we talked about. Clearly, bringing CH2M's water and environmental capabilities across all of Jacobs, not only in the Infrastructure side where the combined strength is winning business and more business in water and environmental, but bringing those capabilities to the industrial side like our mining business and east oil and gas business and same thing with environmental. And so we're seeing it across the globe. Nuclear, the combination positions us well for the big nuclear jobs going forward, and so that's kind of in the pipeline as well. So again, I think we'll spend more time over the next year talking about actual wins and better attributable to revenue synergies, whereas these first 6 to 9 months has been more about the cost synergies. With regard to the culture and the people, it's going extremely well. As I mentioned, attrition rates are stable, which is always a concern and challenge during a merger of this size. And so we believe that the whole integration process, the IMO, Integration Management Office, that we put in place, which we believe, is a best-in-class process, is paying dividends. We're clearly keeping the momentum up on getting out in front of our people across the globe, not only communicating, engaging, but understanding where issues are and adjusting to those quickly and, again, there's a lot of excitement within the hallways of Jacobs' offices, but also at the client level, which is equally important. So it's early. We're -- this is only our second full quarter of reporting. And we're not going to let up on the focus to just really drive the right best-in-class culture going forward on a combined basis.

Great. And I just wanted to get more color or commentary on your note on Page 15, kind of, you continue to evaluate portfolio. Does it relate to your existing portfolio, do you find noncore asset or is that in relation to you redeploying cash into incremental acquisitions? Or is it both?

I think it's everything. If you look at the 3-year history of the company, back in 2016, Jacobs' standalone was less than 5% operating profit margin. We finished 2017 over 5%, closer to 5.5%. And we just put on the board a third quarter that has ramped up throughout this year over 6%. And so for us, it's not only to drive earnings growth, but to continue to demonstrate that we're going to have higher quality of earnings. And so it's to focus on the high -- the best end markets to make sure that we continue evaluating our existing portfolio to make sure that those -- everything we do, everything, is going to deliver margin growth. And if there's anything that we believe is not going to achieve that, we're going to assess alternative strategies. But clearly, the acquisition side of it as well will continue to be part of our strategy moving forward. And I think we've reiterated -- we've mentioned several times, we want to demonstrate our success capabilities on merging CH2M and Jacobs, and the more we do that, the more confidence we have on pulling the trigger on other things that will drive similar performance and margin improvement and earnings growth going forward.

Your next question comes from the line of Andrew Kaplowitz from Citi.

Steve, maybe you could talk just a little bit more about your conversations you're having with EC&R customers. Obviously, a lot of noise out there with the threat of trade wars, but oil prices are relatively high, it does seem like you've turned the corner here in ECR. You tend to be a little earlier cycle than some E&Cs, given your sustaining model. So you said you're seeing an increasingly strong inflection of business projects, and you could see continued nice step-up in the EC&R backlog? Or is the inflection more on catching up on turnarounds, environmental spend, more of the sustaining type work?

It's both. But first of all on the trade war, I mean, clearly, that's giving some of our clients, especially on the mining side, copper, for example, some concern as they're anticipating what's expected to be a supply-demand situation that's going to be very positive for that business over the next couple of years, but yet concerned about all the trade war noise in the short term. But what we continue to hear from those clients are that they believe it's short term, that it's not causing them to significantly slow down any of the conversion of studies into full projects over the next 12 to 24 months. And the same thing I would say from the oil and gas and chemicals side. The -- for us, I think the key is that we're going to stay committed even as the market starts rising to our -- our strategy to demonstrate that we can have sustainable growth and steady performance through the ups and downs of this industry. And I think we've proved that over the last 3 years, 4 years during the down market where Jacobs' backlog reduced significantly less than the rest of the industry. And now as we go forward, we want to make sure that what we put on the board for backlog growth not only has good low risk sustaining capital, maintenance and turnaround growth, which we expect, but that as we do participate in some of the larger projects that projects that we won't regret winning and we'll be able to preserve the margins and deliver the performance as we've done in the past and even in a better way with our new strategy of performance excellence. There are -- there's clearly an appetite for more risk out there that our clients are pushing on our industry, and so we're being careful and we passed on certain initiatives in the ECR business, because we didn't feel like it met our risk profile, but there are other opportunities emerging now that do meet our risk profile that we're going to attempt to win, and we think the balance of that coupled with the sustaining capital maintenance focus is going to be a successful strategy over the next several years in an improving market.

And Kevin, since you and Steve got there, you guys have done a really good job on the execution side. Maybe you could evaluate EC&R execution in general, as we sit here today. You gave -- you already gave us color on the charge and the potential modest issue in Q4, but could you tell us of the charge in Q3 was a CH2 project or a legacy Jacobs project? And you think EC&R margin could dip below 5% for a while before it comes back up?

Look, I think there's been tremendous improvement in execution across the entire portfolio, probably mostly in ECR and BIAF, because ATEN actually has -- had already had a pretty high level of execution performance prior to, but ECR and BIAF, both of those organizations have done a wonderful job over the last couple of years in improving our potential loss margin versus as-sold margin. That's kind of how we think about it. And as you and I have talked in the past, we -- there's always things that are happening. We get a little bit of a pickup, because we get an incentive payment or we get a little bit of a knock and we lose a little bit versus the as-sold margin. But the key is we want to protect that as-sold margin and go after the incremental incentives. And the amount of activity that we're seeing in terms of that -- those tickdowns versus the as-sold margins becoming smaller and smaller and smaller. Now look, we never want that number to be zero because I think that, that means that we're being too safe in terms of how we grow the business. But it's getting almost to a level where we continue to try and look for benefit absolutely. But we've gotten substantially reduced in terms of those potential ongoing aggravating kind of losses on a margin basis. And so the ECR business, I think, we'll continue to be able to have this 5-plus percent margin, I think, going forward and the expectation is we want it to be higher longer term. Could there be a blip here and there? Of course. if in fact the $15 million that we talked about, that was a Jacobs, but within the context of the holistic view of write-downs or losses versus as-sold margin, an extraordinary reduction where we're probably 1/3 of the numbers that we were back at our high point in 2015.

But Andrew, maybe -- just specifically, I think building on what Kevin said is that this is not something that we're expecting to drag into 2019, so it's a one quarter commentary.

Your next question comes from the line of Brent Thielman from D.A. Davidson.

Just a couple of quick follow-ups on ECR. The backlog, 80% reimbursable. Understand the appetite for a little more risk here going forward, but is it your desire to sustain the portfolio that's still majority reimbursable there?

Yes. No change to our strategy there.

And then I guess, also in that segment as you think about going after your some of these capital project opportunities when they come to fruition, what -- I mean, any sense what the margin opportunity is relative to that 5% that the segment's been running at?

Modestly higher. I mean, we're -- as Kevin kind of outlined, we've had success in that business that is -- if you go back to 2016, we're up about 100 basis points in that business from low 4s to a 5% or 4% to 5%. And our ECR team has certain strategies to take that higher.

Okay. Thank you. Thanks again for joining our call and would like to end the call by reiterating that we're well on our way to our mission to create a new kind of professional services company, and we like to describe it as like one that doesn't exist in our industries today. So thank you again, and we look forward to talking to you next quarter.

And this concludes today's conference call. Thank you for your participation, and you may now disconnect.