Hill International, Inc.
Q3 2015 Earnings Call Transcript

Published: 11 Nov 2015

[Operator:]

Greetings and welcome to the Hill International Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Devin Sullivan, Senior Vice President of the Equity Group. Please go ahead, sir.

[Devin Sullivan:]

Thank you, Kevin. Good morning, everyone and thank you for joining us today. Our speakers for today will be David Richter, President and Chief Executive Officer of Hill International and John Fanelli, the company’s Senior Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements made during this call may be considered forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 and it is our intent that any such statements be protected by the Safe Harbor created thereby. Except for historical information, the matters set forth herein including, but not limited to, any projections of revenues, earnings or other financial items; any statements concerning our plans, strategies and objectives for future operations; and any statements regarding future economic conditions or performance are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and assumptions and are subject to certain risks and uncertainties. Although we believe that the expectations, estimates and assumptions reflected in forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Important factors that could cause actual results to differ materially from estimates or projections contained in our forward-looking statements are set forth in the risk factor section and elsewhere in the reports we have filed with the Securities and Exchange Commission. Including that unfavorable global economic conditions may adversely impact our business our backlog will not be fully realize as revenue and our expenses maybe higher than anticipated. We do not intend and undertake no obligation to update any forward-looking statement. With that said, I would now like to turn the call over to David Richter, President and CEO of Hill. David, please go ahead.

[David Richter:]

Thank you, Devin, and good morning to everyone joining us for today’s earnings conference call and happy Veterans Day to all you as well. Yesterday, we announced our financial results for the third quarter of 2015. We also filed with the SEC yesterday restated financial statements for the years 2012, 2013 and 2014 and for the first two quarters of 2015. This restatement was filed in order to fully reserve approximately $60 million in accounts receivable owed to us from the government of Libya and remove approximately $40 million in [leaving] [ph] contracts from our backlog, both effective as of the end of 2012. All prior results included in yesterday's earnings release and referenced by us today during this call reflect the restated numbers. Now jumping right to the third quarter results. Total revenue in the third quarter was a record $178.9 million, an 11% increase from the third quarter of 2014. Consulting fee revenue for the third quarter was $158.6 million a 9% increase from the prior year's third quarter. This growth consisted of 7% organic growth plus 2% growth as a result of our acquisition of Cadogans and IMS over the past year, versus the second quarter of this year it was a slight decline of less than 1% and the only time in the past 3.5 years that our CFR did not increase sequentially. With respect to the geographic breakdown of our growth, Africa was our fastest growing market during the third quarter with consulting fees up 29% year-over-year followed by Europe which was up 24%, the U.S. was up 21%, the Middle-East was up 6%, Asia Pacific was down 15% and Latin America was down 22%. Our gross profit in the third quarter rose to a record $69.2 million up 11% from the third quarter of last year. Our gross margin as a percent of consulting fees was up 60 basis points to 43.7% versus the third quarter of last year. Our SG&A expenses in the third quarter were $57.5 million, up 12% from the year earlier quarter. Our SG&A margin as a percent of consulting fees was up 100 basis points year-over-year to 36.3% in the third quarter. Unusual SG&A expenses which adversely impacted our results in the third quarter included $900,000 for severance primarily in Europe as a result of our ongoing cost optimization program and $200,000 in legal and other fees related to the recent proxy contest and our financial restatement. Hill’s EBITDA for the third quarter was a record $14.2 million up 6% from the third quarter of last year. EBITDA margin as a percent of consulting fees was 8.9% in the third quarter down slightly by 30 basis points from the year earlier quarter, but it was up 50 basis points in the second quarter of this year, so is trending in the right direction. Operating profit for the quarter was also a record $11.7 million up 4% year-over-year. Our operating margins in the third quarter was 7.4% a 40 basis points decline from the third quarter of last year, but again 70 basis points improvement from the second quarter of this year. At the end of the third quarter of 2014 we closed on a debt refinancing so last year we had substantially higher interest expenses under our old facilities as well as a one-time charge of approximately $10.8 million in connection with the ending of that facility. As a result, during this year’s third quarter, we saw significantly lower interest expense, $4.1 million versus last year’s $16.1 million. This year - this expense also included approximately $600,000 in a one-time charge related to additional interest expense in connection with a litigation settlement. As a result of all of the above Hill’s net earnings in the third quarter of this year were $2.9 million or $0.06 per diluted share versus a net loss last year of $9 million or $0.19 per diluted share. Now looking at the third quarter performance of our two operating segments separately, total revenue of Hill’s Project Management Group during the third quarter was $135.5 million an 11% increase from the third quarter of last year. Consulting fees for the quarter at the Projects Group were a record $116.5 million a 9% increase from last year. This growth breaks down as 8% organic and 1% from the acquisition earlier this year of IMS. The Projects Group saw a 12% increase in gross profit to $46.1 million for the third quarter with gross margin on a percentage basis at 39.5%, up 90 basis points from last year. SG&A expenses of the PM Group were up 8% during the quarter to $30.6 million but as a percent of consulting fees, SG&A margin was down by 20 basis points from last year to 26.3%. Operating profit for the Projects Group was $15.4 million up 19% versus last year’s third quarter and operating margin as a percent of consulting fees was 13.2%, 110 basis point improvement from last year. In summary, a solid quarter for our Project Management Group. For Hill’s Construction Claims Group, total revenue during the third quarter was $43.4 million 9% growth from last year. Consulting fees for the Claims Group were $42.0 million, a 10% increase from last year. This growth in consulting fees was comprised of 7% organic growth plus 3% growth from the acquisition last year of Cadogans. The Claims Group saw its gross profit rise by 8% to $23.2 million, the gross margin as a percent of consulting fees declining slightly to 55.1% down 60 basis points from last year. SG&A expenses for the Claims Group were up 15% to $18.6 million during the third quarter and as a percent of consulting fees they were up 220 basis points to 44.2%. Third quarter operating profit of the Claims Group was down 13% to $4.6 million versus a year ago. Operating margin as a percent of consulting fees was 10.9%, a 280 basis point decline from last year’s third quarter. A good but not great quarter for our Claims Group. In addition to the SG&A incurred by our two operating segments, we also incurred SG&A in our Corporate Group. During the third quarter our corporate SG&A expenses were $8.3 million up 20% from the year earlier quarter and as a percent of consulting fees it was 5.2%, up 40 basis points from last year. While our corporate costs are up versus a year ago, they have been steadily declining throughout 2015. During the second quarter our corporate expenses were $9.1 million or 5.7% as a percent of CFR and during the first quarter they were $9.3# million or 6.1% relative to CFR. Clearly they are heading in the right direction which is lower. With respect to backlog, our total backlog at September 30 was $879 million down 7% during the quarter. This backlog consisted of $830 million of our Project Management Group and $49 million in our Claims Group. 12 month backlog of September 30 was $397 million also down 7% during the quarter. This is broken down into $353 million from our Projects Group and $39 million from our Claims Group. Hill had net bookings during the third quarter of $94 million, which equates to a book to bill ratio of just 59%, well under our quarterly goal, which is at least a 110%. Based on Hill’s financial performance year-to-date, current market conditions and the backlog amounts I just mentioned we have adjusted and narrowed our prior guidance with respect to consulting fee revenue in 2015. We now expect consulting fees to be between $630 million and $640 million for the year, which would equate to approximately 9% to 11% growth for the year versus 2014. Our growth through the first nine months was 9.9%, so we are right in the middle of that range so far this year. Also we have narrowed our prior guidance regarding EBITDA margin as a percent of consulting fees, which we now estimate will be in the range of 8% to 9% for the year. Based on our consulting fee guidance this would put our 2015 EBITDA in the range of $50 million to $58 million for the year. Our EBITDA margin was 7.6% for the first nine months, but in the third quarter it was 8.9%. So it’s trending into that range and we certainly expect the fourth quarter to be even better than the third quarter with respect to EBITDA. Thank you all very much. John Fanelli and I are happy to take any of your questions at this point.

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session [Operator Instructions] Our first question today is coming from Tahira Afzal from KeyBanc. Please proceed with your question.

[Sean Eastman:]

Hi gentlemen. This is Sean on for Tahira today.

[David Richter:]

Good morning Sean.

[Sean Eastman:]

Good morning guys. So my first question is just to drill into the softer bookings in the quarter. I assume it’s incremental headwinds in the Middle-East causing those lower book-to-bill ratios that you saw. Could you just help us understand what is happening in the Middle-East in terms of geographic softness or end market softness?

[David Richter:]

Yes. We would be happy to Sean. Clearly, as this year has played out, our sales have been weak in the Middle-East, we think it’s primarily due to the price of oil and the headwinds that we are seeing in our clients spending habits and their budgets. Of the decline in backlog through the first nine months of this year 75% of that came from lower backlog in the Middle East. So that’s clearly the cause. We’re also seeing because of the continuing strength of the dollar that our backlog is being impacted by that. About 13% of the decline in our backlog was strictly as a result of the change in exchange rates.

[Sean Eastman:]

Okay. And then do you see any risks to what is already in backlog in the Middle-East just in terms of projects being potentially cancelled or reducing scope?

[David Richter:]

No, we don’t see any material risk to that at all.

[Sean Eastman:]

And then just in light of the softer revenues and you obviously adjusted your guidance for 2015, but does the recent development sort of change your longer term views into 2016 on the way your backlog and revenues will point to?

[David Richter:]

Right now, we don’t have any views on that. We are in the process of beginning our budget for 2016, that process gets completed in January and as usual we expect that in March when we deliver the fourth quarter financial results we will once again give guidance on both consulting fees and EBITDA margin for 2016.

[Sean Eastman:]

Okay, understood. And then just last thing for me is that we kind of read the headlines about potentially some payments being withheld in the Middle East. Do you see any risk to your collections or cash flow in the near-term?

[David Richter:]

We haven’t seen any change so far this year in collections, and we don’t anticipate any.

[Sean Eastman:]

Okay. All right thanks gentlemen. I’ll get back in queue.

[Operator:]

Thank you. [Operator Instructions] Our next question is coming from Mike Shlisky from Seaport Global. Please proceed with your question.

[Michael Shlisky:]

Good morning, guys.

[David Richter:]

Good morning.

[John Fanelli:]

Good morning, Mike.

[Michael Shlisky:]

So looking at what is in the revised guidance here based on what happened in the first nine months it looks like in the fourth quarter you are going to at least have as good of a quarter as you had in the third, if not substantially better. We are already in November here, so I was wondering if you can give us a sense as to what might make it more like a $15 million EBITDA quarter and what might make it more of a $20 million EBITDA quarter here in the fourth quarter?

[David Richter:]

Well, I could say that the current trend that we are on going into the third quarter we said will continue. We are anticipating lower one-time expenses unlike what we had in the third quarter to impact us. We did have also an unusually high effective tax rate at 56% in the third quarter, we’ve been I think giving some guidance on that that should be in the 40s and that should go back to that range going forward. So that was hopefully a one-time event in the third quarter. It’s only mid-November, we do have utilization numbers for October, they were very strong and we are hoping those continue throughout the rest of the fourth quarter and then we end the year on a really, really positive basis. We had a significant amount of severance about $900,000, severance usually is a fairly negligible amount for us with the exception of Europe, and probably 90% on that severance expense was in Europe, but that’s now done, we got a lower cost structure in certain operations there and we don’t anticipate any more in the fourth quarter. So we should be benefiting from that lower cost structure in the absence of severance there going forward.

[Michael Shlisky:]

Okay. Great and as my follow-up here, just want to touch briefly on the U.S. Federal highway bill. I know that transportation structure is certainly a piece of your business. Do you have any sense as to whether there is any kind of major projects that have been waiting to be unlocked here for you in the near-term or perhaps and maybe in 2017 that you have been kind of waiting on some kind of major bill to kind of get passed here, or is this not going to be major for your particular business?

[David Richter:]

No, as I have said in the past, the transportation bill is a non-factor to our business, we have a significant amount of U.S. highly work, but it’s not really contingent upon Federal funding, the projects are already moving forward. So it could affect future projects with the ones that are beyond our radar screen. We’ve seen a bunch of work just in the last 30 days, primarily California on highway projects, we’ve got some more that we haven't announced yet and we think that will be a good market for us next year, but it’s not relied upon the transportation bill. Congress always finds money for infrastructure spending and this year is no different, next year will be no different.

[Michael Shlisky:]

Okay. And if I can just squeeze in one last one here on exchange rates. Do you have any idea how much that affected your topline in the quarter and perhaps year-to-date and perhaps further how much of the change in your guidance for revenues had to do with FX?

[David Richter:]

Mike you have got a couple of factors, which is certainly with the strengthen dollar I think, I read somewhere it’s now seven years in a row that dollar has strengthened. A business like ours at 75% outside of United States is going to be impacted by that. Not everywhere, but certainly at some place, most recently Brazil had seen the real devalue significantly versus the dollar and we’ve got a large operation there, but our revenue is being brought back, our backlog, our account receivables, our cash all that gets impacted by a strengthening dollar, impacted negatively. Our income hit in the third quarter related to foreign currency adjustments was $700,000, to the negative.

[Michael Shlisky:]

You said on the income?

[David Richter:]

Yes, the impact to our bottom line, $700,000.

[David Richter:]

All right I’ll leave there guys. Thank you very much.

[John Fanelli:]

Thank you.

[David Richter:]

Thanks Mike.

[Operator:]

Thank you. Our next question today is coming from Chase Jacobson from William Blair. Please proceed with your question.

[Chase Jacobson:]

Hi good morning.

[John Fanelli:]

Good morning Chase.

[David Richter:]

Good morning Chase.

[Chase Jacobson:]

First question, you mentioned that you weren’t having any issues in terms of collections, but I understand that Hill is in a kind of a good position on these projects to avoid that but the DSOs, they came down earlier in the year that bounced back up the last two quarters, can you just give us some color there?

[John Fanelli:]

Chase, primarily a little slowdown in the Middle-East where most of these revenue and related receivables coming out, we’re working through that with our clients.

[Chase Jacobson:]

Okay.

[David Richter:]

Our DSOs for the quarter were 98 days.

[Chase Jacobson:]

Okay.

[David Richter:]

The Middle-East as usual is the worst defender on that regard, but that number bounces around from quarter-to-quarter, we don’t expect any negative long-term trends on collections or cash flow as a result.

[Chase Jacobson:]

Okay. And I know you are not giving guidance for next year, but the backlog is down year-over-year, the 12 month backlog, in the double-digits. You guys have done a good job with the margin this year, but it seems like most of it is because of volume, because the total SG&A dollars are actually up. So I guess my question is, if revenue were to follow the backlog trend next year, how do you think you are positioned from a cost standpoint and do you have flexibility to take more cost out of the business?

[David Richter:]

I think, I said this on one of the earlier earnings calls. Growth isn’t our problem at this point. Our focus this year has been on cost cutting, it’s been on maximizing our EBITDA, our operating profit and our earnings per share, our net earnings, and also to maximize our cash flow, to some degree growth hurts* cash flow. We’ve got a significant amount of debt, our focus is on bringing that down and relative to our profitability and on an absolute basis as well. And frankly slower growth only improves our cash flow, it doesn’t hurt it. So that's our top priority. Similarly there is nothing we can do about Middle-East spending. It is what it is and we have got to react to that. The Middle-East still is expecting to grow this year, I think the number I gave you before is 10% growth this quarter, but it’s running about that this year - I’m sorry, 6% this quarter, it’s up about 10% for the year so far. So it’s still growing. This is not a slash and burn strategy. We got to continue to perform for our clients, provide excellent services, we got to continue to be in a market place and try and win work. So I don't anticipate a lot more cost cutting going forward, we are going to just focus on the bottom line and try to squeeze out as much profitability from this business as we can. But keep in mind, we are already on the higher end of the firms in our industry regarding operating margins. Certainly Acom and Jacobs are two closest public comps, we make more money than they do and they have a lot more size and a lot more scale and they are a lot less global than we are. So we are doing everything we can to maximize our earnings and expect that will continue next year, no matter what growth rate we anticipate.

[Chase Jacobson:]

Okay. And then I guess on a more positive note, as it relates to the Middle-East, the contract extension that you announced today. Is that in the third quarter backlog and is that all CFR?

[David Richter:]

It’s not a 100% CFR, but we are the prime on that contract, we have some subs, I would say probably in the order of 15% to 20%. So about – at least 80% of that money is by Hill, it’s already in the backlog.

[Chase Jacobson:]

Was that a third quarter booking or earlier in the year?

[David Richter:]

It was booked in the first half of the year.

[Chase Jacobson:]

Okay.

[David Richter:]

It took a while to get that contract through the government approval process. So that was booked in the first half and we’ll carry it through. We are expecting the one-year extension we will not get to see on the projects, we are anticipating another one-year extension when that is over and then the project will probably wind down at that point as it gets completed.

[Chase Jacobson:]

Okay. I mean is that going to be a similar size or is it just winding down the project at that point?

[David Richter:]

No, it will most likely be a smaller contract than that one, than what we just announced.

[Chase Jacobson:]

Got it. Thank you.

[John Fanelli:]

Thanks Chase.

[Operator:]

Thank you [Operator Instructions] Our next question is coming from Pete Enderlin from MAZ Partners. Please proceed with your question.

[Peter Enderlin:]

Thank you. Good morning.

[John Fanelli:]

Good morning.

[David Richter:]

Good morning, Pete.

[Peter Enderlin:]

David as you know Acom reported their results yesterday and it was sort of off the top comment, but they said that there wasn’t much impact in their Middle East business due to the weak price of oil. I know they are relatively smaller not in absolute dollar, but relatively smaller in the Middle East, but is there something different about the way they are positioned over there from you?

[David Richter:]

No. they are bigger in the Middle East than we are although I’m sure it’s a smaller percent of their business, a much smaller percent. They may have been talking about their existing business and I can reiterate that our existing business has not seen much of an impact. What we have seen is an impact on new business coming in and new wins going forward. So I don’t know if they commented on that or not, but I would be surprised if they are seeing a different environment than we are over there.

[Peter Enderlin:]

Okay. Yes, I don’t think they did specifically. In your backlog have there been recent cancellations or adjustments?

[David Richter:]

There are always adjustments up and down, but no material cancellations during the third quarter.

[Peter Enderlin:]

Okay. What is the timing of the two recent contracts that you have got in California, CalTrends and SANDAG. When do those begin to slow to the revenues?

[David Richter:]

I believe both of will slow in relatively quickly.

[Peter Enderlin:]

Okay.

[David Richter:]

Those are contract and the clients have work to give and we’ll start to ramp up our staffing on both of those assignments. The one with SANDAG is really significant, we are about a one-third partner to the prime on the contract with CH2M on $16 million contract to provide work for SANDAG, which is the San Diego & Association Governments. They have significant amount of infrastructure work to be add. They gave out multiple contracts but we are excepting to see at least our fair share of that work and there is a lot of work to be done. We also announced that our $15 million of contracts for two districts of CalTrends, some is prime, some is sum and we also won more work from CalTrends relatively to that press release went out that we will be announcing probably the next month or two.

[Peter Enderlin:]

Can you give us some…

[David Richter:]

I'm sorry not to cut on speech, but California has been a good market for us this year, we see a lot of work coming off that today.

[Peter Enderlin:]

Can you give us an idea what the total of orders has been since the end of the third quarter? you mentioned there are fair amount of things in the pipeline. So some qualification or so on what you have actually gotten and what you may still have in process or potentially getting?

[David Richter:]

Other than what I just said, it’s tough to give you any detailed information on projects that we haven’t - that we won but haven’t announced yet or project that we think we’re going to win in the near future.

[Peter Enderlin:]

Okay. So broadly internationally, GE and all Alstom recently got big contracts to participate in the modernization of the Indian railway system, which apparently is very decrepit, it needs a huge amount of upgrading and so on. Is that an opportunity for you and are you positioned at all to take advantage of that?

[David Richter:]

I see tremendous opportunity and as is a lot of our management team in Asia in general and I think the best market for us in Asia, going forward, the one that creates most opportunity for us is India. We are doing a lot of buildings work there right now. We have only been in the country for a few years, but I think we have a over a 100 staff there now. Its primarily a private sector buildings work, we are doing work with some of the largest and best developers in India. I think there is a probably a greater opportunity for us in infrastructure, there is a huge need, I think there is going to be a tremendous amount of money spent in that front in India and we are doing everything we can to improve our position in that market. Continue to grow, not just organically but probably acquisition as well. We are talking to a firm in that market and I think there is tremendous opportunity for us in India.

[Peter Enderlin:]

Acquisitions like that I expect would be relatively small. Nothing on the order of Brazilian acquisition for example and things like that. Is that a fair assumption?

[David Richter:]

Yes, since I mentioned a firm, yes it's a relatively small firm that call it in the order of 20 to 30 people. So not huge, but when you are growing in a new market and you are trying to open doors for yourself and resources are critical issue, as they always are when you are expanding some place new. We see I think a nice opportunity for us there.

[Peter Enderlin:]

All right, great. Thank you very much.

[Operator:]

Thank you. Our next question today is coming from Gerry Sweeney from Roth Capital Partners. Please proceed with your question.

[Gerard Sweeney:]

Good morning David. How you are doing?

[David Richter:]

Good morning Gerry.

[Gerard Sweeney:]

Just a quick question on some of the charges in the quarter, I think the total is $1.7 million. I can understand I guess the $0.6 million that went into interest, goes into interest but the severance, does that fall into corporate or would that fall into the actual Claims and Project Management segment…

[David Richter:]

The severance was - the vast majority of the severance fell into the Project Management Group.

[Gerard Sweeney:]

Okay. Got it. So that would actually be a boost there and then the…

[David Richter:]

Severance always falls on the operations where the person is being severed.

[Gerard Sweeney:]

Got it and then the legal - I imagine that was on the corporate?

[John Fanelli:]

Yes.

[David Richter:]

Yes it was.

[Gerard Sweeney:]

Okay. So, definitely there is a little bit more potential, we’re not going to see charges like that going into the fourth quarter.

[David Richter:]

You know what the receiving charges were principally in October and early November. That will be on the order of several hundred thousand dollars.

[Gerard Sweeney:]

Okay. Got it, all right. That’s all I had. I just wanted a little bit more clarity. Thank you.

[John Fanelli:]

Thanks Gerry.

[Operator:]

And our next question today is coming from [Mark Braha] (Ph) of Private Investor. Please proceed with your question.

[Unidentified Analyst:]

Good morning David.

[David Richter:]

Good morning Mark.

[Unidentified Analyst:]

How are you?

[David Richter:]

I’m doing wonderful. How is your family?

[Unidentified Analyst:]

Everybody is good. Thank you. I want to touch on the couple of things. With the debt service down approximately $9 million, I believe that's the number that you stated, have you achieved all the cost cutting that you have given guidance to in the past two conference calls? And what seems to go against that grain is that your SG&A has increased as appose to decreasing, which is my first question. The second question is in light of the fact that you are stating that you see potential growth in Asia and India specifically. How come your contribution to bottom line was down 15% this quarter?

[David Richter:]

I'm not [indiscernible] to the second part of the question Mark. Our contribution to the bottom line was down…

[Unidentified Analyst:]

When you gave the breakdown of your business increasing 29% in Africa, 24% in Europe and so forth, you listed Asia as down 15%, just based on your last comment, the last question that was out there that you are seeing growth in Asia and specifically and India, how come the overall business was down?

[David Richter:]

Yes, the primary driver of the decrease in revenues was the Claims Group, not a Project Management Group. Our revenues in India specifically which is becoming sort of the core operation of our Asian Project Management business, those revenues were up and when you look at the size of the market, the potential opportunity for us there is not just big, but gigantic, certainly outweighing anything the Claims business could do in that region. On the cost cutting, we have continued and probably will continue some minor cost cutting into the fourth quarter. So we will see possible some slight severance charge there, and some potential savings there during the quarter and we are going to take a look at where we are going into 2016, what our budget looks like and try to hit the ground running in January. I don't expect any cost cutting to continue beyond the end of the year.

[Unidentified Analyst:]

Well, do you feel or can you illustrate that you’ve delivered on I believe the number you gave in the past was about $25 million in cost cutting. Have you delivered on that guidance?

[David Richter:]

We have through September 30, we have implemented about $21 million of the $25 million of cost cutting and we will do a little bit more during the fourth quarter, but I guess this will be shorter than 25%, but we will have gotten probably at least 90% of the way there.

[Unidentified Analyst:]

And is that exclusive of the debt service?

[David Richter:]

It has nothing to do with the debt service. Debt service is separate.

[Unidentified Analyst:]

Okay.

[David Richter:]

So that the decrease in interest expense that we have seen in 2015 versus 2014 is an addition to the overhead cost cutting.

[Unidentified Analyst:]

Okay. So you are saying if I'm understanding you correctly, you will deliver approximately $21 million of the $25 million in cost savings?

[David Richter:]

No, we already have delivered that. We would have seen more of an impact in the third quarter, but our revenues were several million dollars below where we expected and that had an impact on labor and some others. We will see more than $21 million by the end of the year, but I guess they will probably - about 90% of the cost cutting that we announced implemented this year.

[Unidentified Analyst:]

Okay. And as far as the SG&A increasing last quarter, do you see that as a trend or do you see that as an aberration?

[David Richter:]

No, I see the trend over the course of this year, first quarter, second quarter, third quarter trending in the right direction. SG&A going down both in absolute dollar terms and as a percent, the third quarter was our best quarter of the year with respect to SG&A and we had a number of unusual items that went into that quarter. So we are expecting the fourth quarter to be even better and then we are going to continue to try and focus on minimizing our overhead costs going forward in 2016.

[Unidentified Analyst:]

Okay. Thank you, David.

[David Richter:]

Thanks Mark.

[Operator:]

Thank you. We've reached the end of our question-and-answer session. I would like to turn the floor back over to Mr. Richter for any further or closing comments.

[David Richter:]

Great. Thank you very much. We have a solid third quarter and as I said earlier, we are expecting our fourth quarter to be even better. And we are looking forward to a very strong finish in 2015. Thank you all for your interest in our company and for participating in our earnings call this morning. Take care.

[Operator:]

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.