Hill International, Inc.
Q1 2014 Earnings Call Transcript

Published: 9 May 2014

[Operator:]

Greetings and welcome to the Hill International reports First Quarter 2014 Financial Results. 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. I would now like to turn the conference over to your host, Devin Sullivan, Senior Vice President of the Equity Group. Thank you, you may now begin.

[Devin Sullivan:]

Thank you, Shay. Good morning everyone. Thank you for joining us today. Our speakers for today will be David Richter, President and Chief Operating Officer of Hill International and John Fanelli, the Company’s Chief Financial Officer. Before we begin, I would like to remind everyone that certain statements made during this call maybe 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, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements are set forth in the Risk Factors section and elsewhere in the reports we have filed with the Securities and Exchange Commission. 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. David, please go ahead.

[David L. Richter:]

Thank you, Devin. And good morning to all of you joining us today. Yesterday after the close of the market, we announced our financial results for the first quarter of 2014. Our strong top line growth from 2013 has continued into this year with Hill having generated record consulting fees for the sixth quarter in a row. Our bottom line, however, continue to be a challenge with Hill achieving essentially a break-even quarter with respect to net earnings. This is primarily a result of our high interest expense, lowering the amount and the cost of our debt continues to be our top priority and we will have more to say in this topic later in the call. But, first let’s take a look at the details of our first quarter financial performance. Total revenue for the first quarter of 2014 was a record $150 million, a 10% increase from the first quarter of 2013. Consulting fee revenue for the first quarter was a record $137.2 million, a 12% increase from last year's first quarter. This growth in consultant fees consist of 10% organic growth, plus 2% growth as a result of our acquisitions of BCA, a South African claims firm and Collaborative Partners, a New England project management firm over the past year. Our geographic breakdown in the first quarter was as follows. The Middle East was our largest geographic market at 46% of our consulting fees, and is up from 41% during the first quarter of last year. The U.S. and Canada were 21% of our consulting fees in the first quarter, down from 24% last year. Latin America was 8%, down from 11% last year. Europe was 15% of our consulting fees, down from 16% a year ago. Africa was at 5%, up from 3% a year earlier. And Asia-Pacific was also at 5%, up from 4% a year ago. Africa, which grew by 56%, was our fastest growing region, due to strong organic growth as well as the acquisition of Binnington Copeland. That was followed by Asia-Pacific, which grew its consulting fees by 42%. The Middle East grew by 24%, Europe saw growth of 4% during the first quarter, first time in a long time that we’ve seen organic growth in this part of the world. The U.S. and Canada were essentially flat in the first quarter versus a year ago, and Latin America was down 21% in the first quarter. Company-wide, our gross profit in the first quarter rose to $58.7 million, up 18% from the first quarter of last year. Our gross margin as a percentage of consulting fees improved by 200 basis points to 42.7% in the first quarter. This increase was the result of improving gross margins in both of our two operating segments. Our SG&A expenses in the first quarter were $52.7 million, up 22% from a year earlier, with SG&A growing faster than consulting fees in the first quarter, the result was an increase in our SG&A margin for 38.4%, a 380 basis point rise year-over-year. This is primarily the result of lower than normal utilization of our billable professionals during the quarter, and we’ve ramped staffing in several regions in anticipation of further growth during the year. We expect that our SG&A margin will be lower than the first quarter for the remainder of the year. So EBITDA for the first quarter was $8.2 million, down 14% from last year’s first quarter. EBITDA margin as a percentage of consulting fees was 6.0% in the first quarter, down a 180 basis points from a year earlier. Operating profit in the first quarter was $6.0 million, down 19% from last year and our operating margin in the first quarter was 4.4%, down 160 basis points from the first quarter of 2013. Regarding our bottom line, we had a small net profit in the first quarter of $53,000 which equates to $0.00 per diluted share. Although this was an improvement from a net loss in a year ago quarter of $380,000 or $0.01 per diluted share loss. Now, looking at the first quarter performance of our two operating segments separately, total revenue with our project management group during the first quarter was $113.2 million, a 5% increase from the first quarter of last year. Consulting fee revenue for the first quarter at the Projects Group was a record $101.8 million, a 7% increase from a year earlier. This growth was comprised of 6% organic growth and 1% growth from our acquisition of Collaborative Partners at the end of last year. The geographic breakdown of the Projects Group’s growth and consulting fees was a negative 3% in the U.S. and a positive 11% internationally. The Projects Group saw a 12% increase in its gross profit to $39.0 million for the quarter with gross margin on a percentage basis at 38.4%, up by 180 basis points versus last year. SG&A expenses at the Projects Group, however, were up 26% in the first quarter to $28.1 million. As a percentage of consulting fees, SG&A expenses were up 410 basis points year-over-year to 27.6% for the Projects Group. As a result, operating profit during the first quarter was $10.9 million for the group, a decline of 11% from the first quarter of last year. Operating margin as a percentage of consulting fees was 10.8%, a 220 basis point decline versus a year ago. For our Construction Claims Group, total revenue during the first quarter was a record $36.8 million, a 29% increase from the first quarter of last year. Consulting fees for the Claims Group were a record $35.5 million, also a 29% increase. The breakdown of the Claims Group’s growth and consulting fees was 24% organically and 4% from the acquisition of Binnington Copeland. Geographically, the group was up 18% for the U.S. and Canada and up 32% internationally. The Claims Group saw its gross profit rise by 30% to $19.6 million and saw a big improvement in its gross margin as a percentage of consulting fees to 55.3%, up 40 basis points from last year. SG&A expenses for the Claims Group were up 34% to $17.0 million in the first quarter and as a percentage of consulting fees they were up by 190 basis points to 48.0%. First quarter operating profit for the Claims Group was $2.6 million, a 7% increase from the first quarter of last year. As a percentage of consulting fees, this was a 150 basis point decline from the year-earlier quarter with operating margin for the Claims Group dropping to 7.4% in the first quarter of this year. Claims had a great quarter for growth, but continues to be challenged as does the Projects Group from rising overhead expenses. This will be a major focus for both groups for the remainder of 2014. In addition to the SG&A incurred by our two operating segments, we also incur SG&A in our corporate group. For the first quarter, our corporate SG&A expenses were $7.6 million, up just 2% from the year-earlier quarter. As a percentage of consulting fees, it was 5.5%, down 50 basis points from last year’s first quarter. This is getting much closer to our goal of having our corporate expenses be under 5% of consulting fees. Regarding our backlog, our company’s total backlog at the end of the first quarter was $978 million, down 5% from the end of last. This backlog consisted of $934 million from our Projects Group and $44 million from our Claims Group. 12-month backlog at the end of the first quarter was a record $400 million, up 2% during the quarter. This was broken down into $356 million from our Projects Group and $44 million from our Claims Group. We had net bookings during the first quarter of $88 million, which included three major backlog reductions, totaling $80 million. Absent these three adjustments, Hill achieved net bookings of $106 million during the quarter or a book-to-bill ratio of 77%. Obviously weak sales caught up in the company, but one we don’t expect will be repeated during the balance of the year. During our last earnings call, we gave guidance for 2014 consulting fees, based on the consulting fees we achieved during the first quarter. Current market conditions and the backlog amounts we discussed earlier, we reaffirm that our 2014 consulting fees will be between $575 million and $600 million for the year. This equates to approximately 12% to 17% growth in consulting fees for this year versus last year. As we discussed on our last earnings call, given our much improved operating performance over the past year and the beginning of the collection of our over due receivables from Libya, we believe we are now positioned to be able to restructure our balance sheet in order to significantly lower our interest expense. As mentioned before, we retained Financial Advisor, Houlihan Lokey last year to help us with this process, and we believe we are well along the path to successful debt restructuring. We are in advanced negotiations at the moment with the major international commercial bank to provide us with senior debt financing that will allow us to replace both our Bank of America revolving credit line and our term loan with Tennenbaum Capital Partners. The effect of this restructuring means that we should be able to lower our interest expense, which has been running at an annual rate of about $22 million to $23 million, by approximately two thirds. We still have a lot of work to do to get this new financing in place and we are assuming no assurances that the current deal we are negotiating will close, well they will close in the same terms we are currently discussing. At this moment we are confident with how the negotiations are progressing. We are able to close the transaction, we expect it will occur and be announced before our next earnings call. With that John Fanelli, our CFO and I are happy to take any of your questions.

[Operator:]

Thank you. (Operator Instructions) Our first question comes from Lee Jagoda from CJS Securities.

[Lee Jagoda:]

Hi, good morning.

[David L. Richter:]

Good morning.

[John Fanelli III:]

Good morning, Lee.

[Lee Jagoda:]

So looking at the SG&A, is the rising overhead just a function of adding hedge account ahead of growth or is there something else in that number that you could potentially adjust in the next couple of quarters?

[David L. Richter:]

It’s the combination of that whereas some pockets of the company that set us low quarter, February in particular was a very slow month for us. Primarily that occurred in Middle East Claims and U.S Project Management, but most other areas in the company are ramping up and some delays, unanticipated delays between when we hired the people and when we expect the work to start had a significant impact on our unapplied labor for the quarter. And that being said, utilization improved month by month, but in both groups, January was the worst month utilization and March was the best. So we’ve expectations that the March performance will continue into the second quarter.

[Lee Jagoda:]

Okay, and then just focusing on claims revenue, it was much stronger than our estimate and improve nicely year-over-year. To the extent that the increase in SG&A was just simply adding headcount there, ahead of the growth. Can you kind of provide an expectation for claims revenue as we move into Q2 and Q3?

[David L. Richter:]

Yes, as you know claims is a more difficult part of our company to project long-term with any kind of accuracy. But the feeling that within the Claims Group management right now is that – it’s something very positive year for us. And the growth that we’ve seen is going to continue.

[Lee Jagoda:]

Okay, and then just one question on the refinancing. To the extend you’re in advance negotiations with this international bank, why should it take up to the time of your next quarter’s call to get something done on that?

[David L. Richter:]

I agree with you completely, but unfortunately when you are dealing with bankers and lawyers things tend to drag-out. We are talking about a facility big enough to take out both Bank of America and Tennenbaum, and that takes time to negotiate, takes time to document and it takes time to implement that. So our expectation is that we’re probably talking about July at some point, just given what we needed to do between now and closing. And we have a draft limit letter from the bank. We are currently reviewing it and expect to get back to them with comments in a few days. We are progressing as quickly as we can.

[Lee Jagoda:]

Okay I’ll hop back in queue. Thanks very much.

[David L. Richter:]

Thank you, Lee.

[Operator:]

Thank you, your next question comes from Chase Jacobson from William Blair.

[Chase A. Jacobson:]

Hi, good morning.

[John Fanelli III:]

Good morning.

[David L. Richter:]

Good morning, Chase.

[Chase A. Jacobson:]

Another question on the SG&A. You mentioned it should come down as a percentage of sales throughout the year. How about on an absolute basis and if the 35% to 36% of CFR is still the target for the year?

[John Fanelli III:]

Yes, I think it’s going to come down as a percent, we don’t expect it do come down on an absolute basis and yes, that is still our target for the full year.

[Chase A. Jacobson:]

Okay. And your previous answer about that you mentioned that some projects were starting a little bit slower than you had originally thought something that we heard across a lot of EMC companies in your coverage. I mean is that something that you are seeing kind of like a trend that you are seeing throughout your business, I know you are worried about that continuing throughout the year were that moved slower with customers are worrying to work, but they are not releasing it on schedule?

[David L. Richter:]

No, we are not worried about it, because we think it’s going to continue. I think it’s more than your normal certainly before the recession projects again ramped up very quickly. We saw a huge slowdown in 2008, 2009, it is done better. But certainly on old projects between when we get hired and when they actual give us the go ahead and start work, there is going to be a lag, and we are anticipating that now.

[Chase A. Jacobson:]

Okay. And last one, John can you just give any detail on the movement in our receivables in the quarter and anything on Libya worth noting?

[John Fanelli III:]

On the receivables our DSO improved when you exclude the Libya receivable improved to 89 days versus 85 a year-ago. And improve unit from last….

[David L. Richter:]

Even 95 years…

[John Fanelli III:]

95 a year ago. And 91 at the end of our 2013. So we are seeing some improvement in our DSOs, with respect to Libya.

[David L. Richter:]

Yes, I’m happy to take than one, John. We saw a little bit of slowdown because there was a change in the Prime Minster in Libya, which had an impact on the bureaucracy moving forward, Ali Zeidan is out as the new Prime Minster, that he was just sworn in Sunday early this week. And we are expecting that the progress we achieve is now going to continue and move forward. We are hopeful that before our next earnings call we have another check in our hands, significantly bigger then the ones we’ve received to-date. But as always we have very little ability to predict exactly when funds are going to be transferred to us. We are hopeful it is going to be very shortly, we are also hopeful that we can begin to put in place the contracts that we've negotiated with the government and beginning to get back to work.

[Chase A. Jacobson:]

Thanks.

[David L. Richter:]

Thanks Chase.

[Chase A. Jacobson:]

Thank you.

[Operator:]

Thank you. Our next question comes from Gerry Sweeney from Boenning & Scattergood.

[Gerard J. Sweeney:]

Good morning guys.

[John Fanelli III:]

Good morning, Gerry.

[David L. Richter:]

Good morning Gerry.

[Gerard J. Sweeney:]

Just a quick follow up on the SG&A side, you mentioned that you're starting to see a lag between being awarded to work in the start of that work. Are you saying that was partly responsible for some of that's ramp up in staff, and then the work had begin as quickly so had a little bit of excess staff on hand and you're going to anticipate this going forward?

[David L. Richter:]

That was primarily the case in the Middle East Claims Group and the U.S. Project Management Group, yes.

[Gerard J. Sweeney:]

Okay got it. And then, just taking a look at forward growth, obviously you have multiple quarters of large projects, your 12 month backlog that have record in the all-time backlog took a little ticked downward, but as you look out to the future, the Middle East has been great, I think David I have spoken to you about where the next opportunities of growth are, maybe can you update us as to what you're looking at maybe I think previously you were looking in the U.S. but maybe give us some little details of some of the opportunities you see in the U.S. especially after you for rework your credit agreement?

[John Fanelli III:]

Yes, you're specifically talking about organic growth?

[Gerard J. Sweeney:]

Yes. Or organic or acquisition to matter of fact.

[David L. Richter:]

Okay, I’m happy to answer both. We certainly expect to continue to see strong organic growth in the Middle East. Some of the growth has been strong on a percentage basis in Africa and Asia-Pacific just because they are working off much smaller denominators, but those regions have become key contributors to our growth and to our earnings. Asia-Pacific in particular had a very strong turnaround and we’re seeing a lot of growth and improved profitability there. In the U.S. as I said it was flat in the first quarter versus a year ago, but we have expectations that have, it was down this year, it’s going to begin to ramp up. That’ve had some key wins that we are in the process of getting signed and getting staffed on, but some delays not just in getting to work, not just to starting to work but also in announcing it. We have a lot of big wins to announce anyone tracking the press releases since the last call hasn't seen many of them, so we've certainly had a lot more wins than we have announced to-date and those are beginning at shortly. On the acquisition side, our focuses continues to be primarily on the U.S. market and secondarily, on the European market.

[Gerard J. Sweeney:]

Europe, you little bit – it is? You sort of downplayed Europe in the past obviously you got a little bit of growth there for the first time, what are you looking at in Europe and have you changed your mind on that market?

[John Fanelli III:]

No, think Europe continues to struggle but there are a lot of firms there and the opportunities to acquire firms on a relatively cheap basis there because of that market continue to be significant, so we're taking a look, I can tell you were going to acquire any firms in Europe, but we're certainly looking at some.

[Gerard J. Sweeney:]

So some of the acquisitions would not only be a geographic expansion but potentially also expertise expansion?

[David L. Richter:]

Yes, correct.

[Gerard J. Sweeney:]

Okay got it. That’s it from my end, thanks a lot.

[David L. Richter:]

Thank you.

[Operator:]

Thank you. Our next question comes from [Keith Enderlin from MAZ Partners] (ph).

[Unidentified Analyst:]

Thank you. David, looking at the question of headcount and SG&A expenses and so on, let’s take a little broader view on that, on the Project Management business. Your revenues from 2009 to 2013 increased 42% and the number of professionals increased 85%. So does that indicate that there is a lack of operating leverage? Obviously you have financial leverage, but does it mean that every time you add business you have to add a commensurate number of people and therefore you really don’t have operating leverage?

[David L. Richter:]

Yes, I’ve got to say I don’t necessarily agree with the numbers you just threw out.

[Unidentified Analyst:]

I thought I got them right out of your Annual Report.

[David L. Richter:]

It may be a differential. And what dates are you using because…

[Unidentified Analyst:]

2013 versus 2009.

[David L. Richter:]

We didn’t grow by 40% in that 80% new staff. Those numbers typically run in tangent. Effective staffing usually is a little lower than the actual growth in dollars and our consulting fee revenue. We think there’s significant leverage and continued growth. Right now one of the things that we’re focused on is the size of our offices. These offices carry a certain level of overhead and if we can grow the offices to be among the Project Management, primarily a field service, doesn’t require a lot of overhead growth to add new projects in a particular region. I think we’re seeing a lot more possibilities at the individual offices and the individual regions. We’re also seeing leverage in our corporate costs as those continue to drop year-over-year and we can manage a much bigger business at the same time, adding very little corporate expense.

[Unidentified Analyst:]

Okay, thanks. Now obviously it wasn’t a great quarter for wins, contract wins, but is there anything you can take away from not winning the big Oman rail contract, which on the last call you mentioned if you hadn’t gotten, it would have been your largest contract ever. I mean is it because of a lack of expertise in a certain area or is it just that there were so many people competing for the same business that was a tough win?

[David L. Richter:]

It certainly was a nice project to win. We did not win it. It tells you, I think, the lesson learned is we have a lot of great competition and they have great people in their companies as well and you don’t win everything you chase. I think our average in Project Management is about 20% to 25% win. So we have lost 75% to 85% of the projects to chase unfortunately. It’s just a matter of which ones you win and which ones you don’t.

[Unidentified Analyst:]

Right. On the refinancing, would that likely involve any strategic changes or are we basically just talking about changing terms with an existing structure?

[David L. Richter:]

No, I wouldn’t bother any strategic change in the business at all. I think what’s driving it is that we had significantly better operating performance last year. So we look at this on a trailing 12-month basis. We have $41 million of EBITDA last year, following up on $60 million of EBITDA in 2012, which is a vastly different enterprise to go out to the market and see debt financing. That combined with our growth last year and the beginning of our collection of the Libyan receivables means that you’re looking at lending money to Hill the way Tennenbaum was 20 months ago. It’s a much different situation today and we’re able to get a take because it’s reflected in the deal that we’re currently negotiating, much closer to market rates for commercial loans than what we’re facing 20 months ago, which was going to hedge funds and paying a much steeper price. And I said that we should be able to open and close the deal that’s going on the table. Our interest expense is down by two-thirds, from $22 million to $23 million a year, down to probably $7 million or $8 million a year in interest cost and that’s a significant savings. It’s going to drop right to our bottom line because that’s not a number that’s actually tax affected, because we don’t pay taxes in the U.S. So that, call it, $14 million to $15 million right to the bottom line is probably $0.35 a share. Going forward that will be able to add to our EPS.

[Unidentified Analyst:]

Now you’ve made small acquisitions for stock when the stock was $3 or $4 a share and that was obviously because you had to at the time on the returns of the existing agreement. When that new agreement, the new financing was in place, which way would you lean in terms of acquisitions as far as cash versus stock goes?

[David L. Richter:]

We’ve done a couple of acquisitions recently that were done for stock, because first of all, we had to under our bank agreement there also, we would have probably anyway, just to conserve our cash given our balance sheet as it currently exists. Going forward, if we have the cash, new deals and not have to dilute our shareholders then that would be our preference.

[Unidentified Analyst:]

And what kind of potential do you see for expanding in China and Australia, which are obviously significant markets and you have small stakes there now?

[David L. Richter:]

I think both locations for us have really nowhere to go, but up. We have a presence in China for both Project Management and Claims. We had a Claims operation in Australia. We see both of them expanding this year and continuing to grow. Obviously China is a much, much bigger market for potential growth and we have a very small base to build on. So, opportunities for the company long-term are terrific.

[Unidentified Analyst:]

Okay. Thanks a lot.

[David L. Richter:]

Thank you, Keith.

[Operator:]

Thank you. Our next question comes from Walter Schenker from MAZ Partners

[Walter M. Schenker:]

I was going to beat SG&A. I withdraw my question. Thank you.

[David L. Richter:]

Okay. Thank you, Walter.

[Operator:]

Thank you. Our next question comes from [Mark Rahat] (ph), a private investor.

[Unidentified Analyst:]

Good morning, David. How are you?

[David L. Richter:]

Good morning, Mark. Great.

[Unidentified Analyst:]

Okay. You touched on Libya a little bit. I’d like to go back to the Middle East in general. With the unrest that’s in the Middle East, are there any other projects that are in jeopardy or are we holding backwards anything being held up because of the political unrest?

[David L. Richter:]

The comment I hear constantly is the political unrest. It’s actually very little of that, certainly in the markets where we do business and the largest markets in the Middle East that we’re in are Saudi Arabia, the UAE, Qatar, Oman and Iraq and they’re all highly stable. So we don’t have any projects that are being impacted by anything that we’re seeing. Obviously Libya is getting back to normal. It’s going through a lot of challenges and it is having some instances there as they try to rebuild their country, but we’re expecting that in the short-term future we continue to collect on our receivable and we’re going to have new contracts to go back to work there and that we will and that will be a comparable operation for us. We become more stable over time, not less stable. The only other question I’m really hearing about is Syria. That has certainly slowed down, but we have no operations in Syria at all.

[Unidentified Analyst:]

Okay. Getting on Libya, at the last meeting, I think you said there was about $6 million that was collected. Has that increased since the last meeting?

[David L. Richter:]

Since the last call we haven’t collected any cash at Libya. We had collected about $9.9 million to-date and we are expecting given the current conversations that are happening between us and our client. That the next payment we receive hopefully in the very near future will be from more from that.

[Unidentified Analyst:]

Is the financing that’s in place the potential financing that contingent upon Libyan collections?

[David L. Richter:]

No it’s not.

[Unidentified Analyst:]

Okay, do you have any comments as to the recent increase significant increase in trading volume on Hill stock on the stock market?

[David L. Richter:]

Yes, our guess has been that once we’ve begin to collect the money from Libya, which we announced in the fall and then again earlier this year in a significant way, given the financial turnaround of our performance last year the biggest negative – the two biggest negatives about our stock maybe these only two negatives about our stock have been the Libyan receivable and our expensive debt, and at the market now expects us to be able to resolve both of those problems in the near future. And it’s our plan to resolve both of those in the near future. So with those going away I think, the stock price which was from our perspective very under valued has obviously it’s been on a good run. Over the last 12 months, based on yesterday’s close over the last 12 months the stock is up 133% and just from the beginning of this year, it’s up almost 60%, which we think is very positive. The market obviously didn’t like our earnings so far today, but we expect that the balance of this year is going to be a lot stronger. If you take a look at how we did in March versus the prior two months. It’s a breakdown of numbers little bit. And we essentially lost $0.05 of share in January and February and made $0.05 share just in March to breakeven for the quarter. So we are trending in the right direction lot of that low utilization has already improved itself. We are expecting the same in April and if we can continue March’s performance through the balance of the second quarter and the balance for the year, then we’re going to have a great rest of 2014.

[Unidentified Analyst:]

Has there been significant increase in institutional interest in the company?

[David L. Richter:]

There surely has been yes. We’ve seeing more interest by investors and potential stockholders. And we’ll be speaking at three conferences over the next 30 days, of the much better sense of interest in activity and attendance once we appear those three conferences.

[Unidentified Analyst:]

Got it, thank you very much.

[David L. Richter:]

Thank you, Mark.

[Operator:]

(Operator Instruction) Our next question is a follow-up from Lee Jagoda from CJS Securities.

[Lee Jagoda:]

Hey, just a couple of more from me.

[David L. Richter:]

Sure Lee.

[Lee Jagoda:]

The losses that you incurred in January to February where they a function of timing of revenue or costs or both?

[David L. Richter:]

They were primarily a function of low utilization in those months. I had a number, I didn’t give them, give you then everyone else on a call then it for the numbers, in our Claims Group utilization in January, February and March respectively was 58%, 59% and 64%. So very strong upward trend there, in our Project Management Group 82%, 83% and 85% for the three months of the quarter. And already good numbers in PM, but obviously trending upwards in a big way.

[Lee Jagoda:]

If I could ask for a little more color, could you give us the utilization in those three months a year ago. And then the headcount in each of those months?

[David L. Richter:]

I can’t give you the headcount but give you utilization if you give me one second. In projects a year ago it was 83%, 85%, and 86% in January, February, March, and in claims it was 59%, 64%, and 65%, putting out a similar trend last year.

[Lee Jagoda:]

Okay, and then John. Just a question on the interest expense in the quarter, it was lower by about $500,000, despite higher debt levels, is there anything you can add there?

[John Fanelli III:]

Yes. Our interest rates with the revolvers, based on a grid, and we had continuous improvement and equity is based on our consolidated leverage and it continuously improved in each of the quarter at the end of the year with that it its lowest. So we had the benefit in the first quarter.

[Lee Jagoda:]

And how should that trend Q2, Q3 and Q4 this year?

[John Fanelli III:]

Well our agreement last amendment which was – well the third amendment was the banking crews had a clause in there that if we did not get the banking group out by March 31, 2014 there will be an additional 2%. So it was going to go up.

[David L. Richter:]

Yes, we are now in the last year of our revolving credit agreement it expires March 31 of next year.

[Lee Jagoda:]

Okay. And then David one more for you and I am all done. Just the $18 million of backlog adjustments, can you provide a little color on what exactly that was?

[David L. Richter:]

It was – no part has been canceled just adjustments in the backlog on three projects. That were over estimated in our prior backlog report.

[Lee Jagoda:]

And that was on the Project Management side?

[David L. Richter:]

All three were in the U.S Project Management Group. Yes.

[Lee Jagoda:]

All right, thanks very much.

[Operator:]

Thank you. Our next question comes from Michael Conti from Sidoti & Co.

[Michael F. Conti:]

Hey, guys, I just have few questions. On the Project Management side how much of the Oman project contribute to that?

[David L. Richter:]

Contribute to revenue or

[Michael F. Conti:]

Yes, yes.

[David L. Richter:]

Operating profit or what?

[Michael F. Conti:]

Yes, CFR.

[David L. Richter:]

Is there number John?

[John Fanelli III:]

No, I think it’s around $3 million, $4 million a month.

[Michael F. Conti:]

For the month of 12.

[David L. Richter:]

It was probably about $10 million. So that’s about 9% to 10% of our consultancy fees with PM Group to the quarter.

[Michael F. Conti:]

Okay, great. And just regarding to Riyadh Metro project, can you break out how much revenue you guys brought it for this quarter? And how much is left from that contract?

[David L. Richter:]

I’m looking at John, he is looking at me. I want to get a liking

[John Fanelli III:]

I think there is approximately $80 million, $81 million less on that project. But I don’t have the specifics on the run rate.

[David L. Richter:]

Yes, so Riyadh Metro is one of those projects that is ramping up slower than we had anticipated. So we are not by any means, anyway near. But the project you’re going to generate once it goes to construction and it’s fully zapped up.

[Michael F. Conti:]

Okay, good. And I just want to clarify, so you guys expect SG&A to – I guess increase right now absolute dollar value from this quarter. Did I get that right?

[David L. Richter:]

Stayed the same or slightly increased, but as a percent of consulting fees continued to drop.

[Michael F. Conti:]

Okay, great. That’s all I have.

[John Fanelli III:]

Thank you, Mike.

[Operator:]

Thank you, at this time we have no further questions. I’d like to turn the call back over to Mr. Richter for closing comments.

[David L. Richter:]

Great, thank you very much. We are very pleased with our company’s growth in the first quarter of this year, but we know where our focus needs to be going forward which is on the cost side. With one of the focus on getting our SG&A costs down and even more importantly our interest expense down, and we look forward to reporting positive news on both fronts during our next earnings call which will be in early August. Thank you all for your continuing interest in our Company and participating in our call, bye-bye.

[Operator:]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.