Hill International Inc (HIL) 2007 Q3 法說會逐字稿

Good day, everyone and welcome to the Hill International third-quarter financial results conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. I will now turn the conference over to Devin Sullivan, Senior Vice President of The Equity Group. Please go ahead, sir.

Thank you, Luanne and good morning, everyone. Thank you for joining us this morning. The speakers on today's call will be David Richter, President and Chief Operating Officer and John Fanelli, the Senior Vice President and Chief Financial Officer of Hill.

Before we get started, I would like to remind everyone that statements made during today's call may fall within the definition of forward-looking statements under the Private Securities Litigation Reform Act of 1995. Any such statements are subject to risks and uncertainties and overall economic and market conditions, competitors and clients' actions and other conditions, which could cause actual results to differ materially from those anticipated, including those risks identified in Hill's filings with the Securities and Exchange Commission. Accordingly, such statements should be considered in light of these risks.

Any prediction by Hill is only a statement of management's belief at the time the prediction is made. There can be no assurance that any prediction once made will continue thereafter to reflect management's belief and Hill does not undertake to update publicly its predictions whether as a result of new information, future events or otherwise.

I would now like to turn the call over to David Richter, President and Chief Operating Officer of Hill International. David, please go ahead.

Thank you very much, Devin. Good morning, everyone. Thank you for your time this morning. John and I are very happy to be here to talk about Hill's financial results for the third quarter and where our business is headed into the fourth quarter and into next year.

Let me start with a brief overview of our performance during the third quarter, including some breakdown of our performance at our two operating segments -- Project Management and Construction Claims -- and then I will go into some more detail on some of the things that are driving our business.

Hill's total revenue in the third quarter rose 45% to $72.2 million. Net revenue, which our accountants define as revenue less reimbursable expenses, was up 51% to $51.5 million. Of this growth, 24% was organic and 28% was the result of the two acquisitions that we made in the past year.

Net revenue in our Project Management Group was $35 million for the quarter, up 37% from a year ago. Of that growth, 23% was organic and 14% was due to our acquisition of KJM & Associates in May of this year. Net revenue for our Construction Claims Group rose 94% to $16.4 million for the third quarter. The vast majority of this increase, 69%, was due to the acquisition of James R. Knowles last September, but absent Knowles, the Construction Claims Group still generated strong organic growth of more than 25%.

On a consolidated basis, Hill's gross profit rose by 61% in the third quarter to $24.6 million. This equates to 47.8% of net revenue, an increase of 300 basis points from 44.8% of net revenue in the third quarter of last year. Hill's SG&A expense rose reflecting the higher overhead costs of the Knowles and KJM operations and increased corporate overhead costs as a result of Hill being a public company.

While he were a public company in the third quarter of 2006, we have added significant corporate costs since then, including more senior management, business development, human resource and financial staffing, as well as we have had to take on additional Sarbanes-Oxley costs and stock option compensation expense during this year as well.

Our consolidated operating profit for the third quarter rose to a record $5.1 million, up 39% from the third quarter of 2006. Our operating margin was 10.0% of net revenue, the highest for any quarter this year. Our operating margin was 7.8% in the first quarter and 8.3% in the second quarter. Our third-quarter operating margin was down slightly from 10.9% in the third quarter of 2006, which was a very strong quarter for us.

Our goal in the short term is to generate consistent operating margins of at least 10% with our goal over the long term being to earn operating margins hopefully in the mid teens. The operating margin of our Project Management Group improved to 20.4% during the third quarter this year, up from 19.0% in the third quarter of 2006. The operating margin of our Claims Group was 10.8% for the third quarter, up from 8.3% in the year earlier quarter, driven in large part by improved profitability at our Knowles operation.

Hill's consolidated net income grew by 31% to $3.8 million in the third quarter. Our earnings per share for the quarter grew to $0.13, up from $0.12 a year ago despite the fact that we had a 20% increase in our diluted shares outstanding.

Our financial position at the end of the third quarter was quite strong and is about to get even stronger. At September 30, we had cash and cash equivalents of $13.2 million, almost $44 million in working capital and a net worth of nearly $62 million, which represents a tenfold increase from our net worth at the end of 2005 before we went public.

Despite having to increase our credit line with LaSalle Bank during the third quarter from $25 million to $35 million, our borrowings against the LaSalle credit line were down at the end of the third quarter and, as of today, are essentially down to zero.

In October, we announced that we were calling for the redemption of all of our outstanding warrants. The redemption date for the warrants is November 23, so warrants must be exercised before that date. Assuming that all of the remaining 10.9 million warrants are exercised, we would be receiving additional proceeds of nearly $55 million in cash and Hill's total shares outstanding as of the redemption date would increase to approximately 38.2 million shares.

The next logical question most people have is what do we intend to do with all of this capital? What we intend to do is continue our pursuit of strategic acquisitions in both the Project Management and the Construction Claims sectors, primarily focused on the US and the Western European markets. With more than $100 million in cash and borrowing capacity combined, we obviously want to put that capital to good use and accelerate our already strong growth further with additional acquisitions.

We only closed two acquisitions during our first 15 months as a public company, which was fewer than we had anticipated, but we believe that these were two very successful acquisitions for our business and we have, during this time, substantially increased our ability to successfully integrate the companies worldwide into our business.

We are also being very selective as to price and quality of firm that we are going to acquire and in fact have passed on several acquisition opportunities over the last six months because they didn't fit our criteria for becoming part of our Company. But currently, we have a very strong pipeline of firms that we are having active acquisition discussions with and we are very confident that we can close at least several acquisitions within the next three to six months.

With respect to our backlog, we had a very good third quarter for business development. Our total backlog at the end of the third quarter rose to $380 million, up $86 million or 29% from the end of the second quarter. Our 12-month backlog grew from $150 million to $179 million during the third quarter, a 19% rise.

And just to give you a segment breakdown of our backlog, our total backlog within our Project Management Group rose to $349 million from $263 million a quarter earlier. Total backlog at the Claims Group remained essentially flat at $31 million. The 12-month backlog numbers for both groups, for Project Management, it rose from $130 million to $156 million and the 12-month backlog at our Claims Group rose from $20 million to $23 million. Strong growth companywide.

Among the new contracts that we won during the third quarter were assignments from the Abu Dhabi National Oil Company, a major contract for Southern California Edison, a role as project manager for the $7.8 billion King Abdullah Financial District in Saudi Arabia, as project manager for the $1.6 billion Tameer Towers in Abu Dhabi, as construction manager for the $800 million Mall of Arabia in Dubai. We won two major assignments in Libya. We won two major assignments in Vietnam. We won in New York City a major $50 million contract for the New York City Housing Authority. We were selected as the project manager for the [Okeana] waterfront development in Dubai, for a luxury, mixed-use development in Qatar and for numerous other projects. In fact, this morning, we announced our first project for NASA as project manager for a $200 million modernization project in Virginia.

In summary, we are very pleased with the Company's performance, financial and otherwise, during the third quarter. We believe we have positioned our Company very well and expect even better performance during the fourth quarter and into 2008 and beyond.

With that, our CFO, John Fanelli and I would be happy to take any questions anybody has. Operator, please open the call to questions.

(OPERATOR INSTRUCTIONS). Arnie Ursaner, CJS Securities.

Hi. This is [Lee Jagoda] for Arnie Ursaner. Congratulations on a good quarter.

Thank you, Lee.

Gross margins were up year over year because of the Claims revenue increase, but they were also up sequentially a fair amount. Was this any one-time mix-related positives or are you just taking on new contracts in Project Management at higher margins?

Arnie, it is new contracts that we are acquiring.

Okay. And just one more thing on Libya. Have you started to realize any revenue so far and do you have any sense of what we should be building in for Q4?

The work at Libya has just begun ramping up at the end of the third quarter, so we anticipate greater revenue from that in the fourth quarter. How much? I really don't know. John, do you have a --?

We estimate around a few million dollars for the remainder of the fourth quarter in revenue.

And that would then ramp as we go into '08?

Yes.

Okay. Thank you.

Richard Paget, Morgan Joseph.

Good morning, guys.

Good morning.

Good morning, Richard.

I wondered if you could talk a little bit more about backlog trends. It seems like out of the new business you have listed, a lot of it is international and you have started to hear some people be a little bit concerned about non-residential construction in the US. Some of the industry sources are saying certain subsegments are going to be either flat to down next year, so I just wondered if you could kind of characterize how you see the business growing in the US and if you can break down backlog international versus the US, I don't know if you do that, that would be helpful.

Actually, I don't think we do break down the backlog US versus overseas. Most of the concern that we hear about nonresidential construction is focused on the commercial market. We actually do very little commercial work in the US. The vast majority of our work in the United States on the Project Management side is public sector work, probably 75% or 80%. We see that as very strong. We have seen significant growth in our US business, not just as a result of the KJM acquisition, but organic growth. We are very confident across just about every market sector we are involved in that there is still greater opportunities for us out there.

Okay, so I mean would you -- even just more directionally, is greater growth happening overseas or it is still strong in both markets?

If you look specifically at the third quarter, we actually had stronger growth in the US. I think a lot of the projects that we've won lately are just beginning to ramp up and we will see a lot more revenue from those in the next couple of quarters. Our acquisitions are going to be focused more in the US. As you know, it is our intent to build out much more of a national presence. We are sort of -- I always like to say we are an A player in the Middle East and a B player in the US. We obviously want to be an A player in both places. And so I expect a lot more growth from acquisitions in the US, but our growth has been pretty strong.

I think what you see is -- and don't let the press releases be a reflection of our business exactly because the fact is the biggest projects that are out there to be won are in the Middle East. They generate the best press releases, but we are waiting on a lot of work in the US. Our New York City office in particular has seen a lot of growth. We have a new manager, Bob Hixon in our Washington, DC office focused on the federal marketplace and this NASA project is the first one that he has won, but I expect a lot more from that office in the future.

And what KJM has given us on the West Coast, more than just their business and a chance to improve it, it is really a foothold for Hill to build operation. We're seeing a lot of business development opportunities out there and I think a lot more of those will come to fruition in the next 12 months.

Okay. Then with the acquisitions, now that you have this warrant money perhaps a little bit earlier than you may have expected, what are kind of the profile of your acquisition targets, general revenue size? I am assuming it is bigger than what it had been recently.

There really is no target size. The fact is we are looking at lots of different kinds of companies. I have tried to sort of segregate the market into small, medium and large and as cutoffs, essentially a small firm is $5 million in revenue or less; medium is $5 million to $25 million and large is over $25 million. So we are looking at several small acquisitions and we are talking two firms that have 10 people or less. We are talking to a firm that has over 200 people.

So I think what is more important to us is getting a strong firm with good people at a reasonable price. As I said earlier, we had a lot of conversations in 2007 that I think would have been good acquisitions for us, but the prices weren't reasonable. I guess that is one fallout from this sector just being so strong, construction being so strong on Wall Street is I think people's expectations have risen and we have walked away from a lot of discussions because of price. We are looking for the right fit at the right price and size. Just because we have more money doesn't mean we are going to start looking at gigantic firms. We want the right firms that are the right fit for us.

Now have you seen those price expectations change over the last month or so given the credit crunch and recent E&C valuations have definitely come down?

No, the market doesn't move -- the market for private companies doesn't move as quickly as Wall Street does and you have got owner managers, companies that were founded by the people who are still running them. This is the only business they have and sometimes they want a skyhigh price in order to sell it. We are very often talking to firms that aren't interested in selling, that haven't put themselves out for sale, so we have got to not only convince them to sell, but to sell to us. Sometimes that is a pretty high price hurdle, so we are continuing to look. I think the pipeline of firms that we have right now is over half a dozen that we are actively talking to and I would expect that we can close at least half of those or more in the next six months.

Okay, thanks. I will get back in queue.

David Gold, Sidoti.

Hey, good morning. Just another question for you on the acquisition front. So Dave, when you talk about doing presumably a few or maybe a half dozen acquisitions in the next three to six months, is that -- well, generally speaking, looking at the boatload of cash that you have coming in from the warrants, is that -- does that -- is it within the realm of possibility that you use all of that cash in the acquisitions in the next six months?

No, it is not. I mean that's the reason -- let me restate your question so everyone is clear. There is no chance that we could spend $100 million in six months. Of basically $65 million in cash and $35 million in borrowing capacity, that money will last us, given opportunities out there we don't even know about yet, we expect that those funds will last us several years.

I see, I see. Okay. Fair. So just wanted to get a sense for kind of again just to follow up on the size there. And then part two, can you speak a little bit about operating margin these days at Knowles? I think target for year-end was 10% and it looks like we are pretty damn close if not there.

Yes, we have essentially fully integrated Knowles into our Claims business, so we don't -- I guess we have sort of a ballpark idea because Knowles is essentially 75% of our overall Claims business today. We don't break it out for financial purposes. The Claims Group as a whole had a 10.8% operating margin in the third quarter. Traditionally, our Claims Group had done about 15%. Knowles, our target for this year after making 6.6% the last four months of last year, our target for this year was 10%. Knowles is essentially there. You can see on a consolidated basis, our Claims Group is doing about 11%. And we believe that next year with our consolidation essentially complete that we can get them up to 15%, so we still see significant upside profitability potential in the Claims Group.

Very good. Thanks so much.

Bill Sutherland, Boenning & Scattergood.

David and John, good morning. The international revenue was -- did you give this out, John, what percent of total?

International? Year to date or for the quarter?

Just the quarter.

For the quarter, it was just a hair under 50% if you are looking at total revenue. For net revenue, it was higher than that.

Did you guys talk about any of the sort of key numbers in constant currency terms or did currency have an impact? Let me ask it that way.

No, it did not have a significant impact on our results.

It was a small positive, but it wasn't really material.

Okay. John, I didn't quite get your response on the question about the gross margin in Project Management, it being at least higher than prior quarter or my model. Can you just go through that again, please?

Yes, it was a combination of the new contracts and projects coming on board and also better utilization.

So when you say the contracts coming on board, so they are just slightly better priced, is that -- I mean I would think early on that might not be quite as good margin contributors.

Yes, Bill. The overseas contracts that we are seeing today are at a higher price. We have been pushing for better pricing in the Middle East in particular. Our costs have been going up and we have been able to, because of the labor market there, we have been able to pass through significant increases to our clients and the result is our gross margins on that work have been gone up.

We are also seeing bigger projects where we are putting on significant amounts of staff on a project and that essentially makes it more efficient for us and fewer projects where we have 10, 15 people and more projects where we have 30, 40, 50 people involved. And that has resulted in better margins for us.

We also saw some significant growth in the US market where gross margins are higher than the overseas markets and so our gross margin for projects for the third quarter was 44.3%. That was up from 42.4% for the third quarter of '06.

Well, that is exactly -- you just hit on the reason I was a little confused because I didn't realize US had actually kept pace and therefore, I thought the blend might be going the other way.

We will have total revenue breakdown by geography in our 10-Q. The 10-Q, let me check with John, is being filed today?

Yes.

Okay. Last one on the big deal that you won in Libya for the university. If that comes on, can you kind of give us color on the impact on the margins, which I think it is a slightly different structure than your others?

It is not really a different structure, but obviously when you have a new operation in Libya in a new country, it is almost -- there is very little overhead costs from winning new work. So, yes, something that significant impacts us. It is essentially -- it was a $56 million contract overall. As I said before, we expect to get about 75% or 80% of that work of subcontractors involved. So it is about roughly $42 million to $45 million worth of net revenue for us. Over a relatively short period of time, I think the contract is 28 months.

So while we will ramp up over the third and even the fourth quarter, by the first quarter of next year, we should be up and running and we are anticipating literally close to, what, $4 million a quarter in revenue?

$4 million to $6 million.

$4 million to $6 million on operating margins that are probably in the mid to high 30s.

Okay.

We also saw some significant growth -- we talked about this probably about six months ago, but not really since -- some significant growth in the work that we are doing in Iraq and that has had a real positive impact on us, not only from the work that we are doing directly, but also from the profits that we get distributed -- I think it shows as earnings from affiliates on our income statement -- profits that we are getting from that joint venture that manages that work.

Isn't that the lion's share of the impact on your P&L?

No, the lion's share is actually from the work that we perform.

Can you give us a sense of how much that is now?

Well, our staffing has gone from about 10 people to about 50 over the last six months. John, do you want to give him some ballpark revenue numbers?

Revenue numbers year to date that we generate is around $8 million and we had profitability around $2.9 million and then you add that to the $1.4 million that we received in our equity and our affiliates, it is around $4.3 million for the whole nine months, so it has got some significant impact on our operation.

Yes, we expect that -- we ramped up really during the second quarter. We expect a lot more impact next year and then beyond 2008, we don't see an end in sight to the work that is being done over there. Now obviously, we have a presidential election coming up, so you have no idea what is going to happen. For the foreseeable future, we see a continued strong presence over there. We have been able to grow our work while most of the other firms that do what we do have either left Iraq or have seen shrinking work. I think that is a real result of a really strong team over there leading that effort.

John, the $2.9 million year-to-date profit, that is operating?

Operating, yes, that's operating costs.

Okay. So I had assumed that you had kind of hit a run rate in the joint venture until you get your next -- when you go back in as a joint venture for another I can't even think of the word.

You mean the next task order?

Yes, task order. Thank you. Is that the right way to think about the joint venture, just task order to task order?

Yes, I mean we get annual task orders about every February. We get a one-year task order for work that will define what our scope is and then how much work and staffing is required. And while our contract ends in I guess it is March of '09, we have the ability to extend the contract and we don't see the work being done by then, not at all.

Okay. John, David, thanks very much.

Thank you, Bill.

(OPERATOR INSTRUCTIONS). Kevin Liu, B. Riley & Co.

Hi, congratulations, guys.

Thank you, Kevin.

I wanted to talk about the growth from the Construction Claims Group. Can you give us a sense for whether that came from headcount utilization or price increases and kind of how that broke out?

We really don't break the number down. It was probably from headcount increases. There was a slight increase in utilization. We did do a round of price increase in January of this year. I expect that we will do another round this year, probably even stronger. (Technical difficulty) -- having one of the -- if not largest practice in the world and I think there is a lot more that we can get out of it.

You're able to notice from our competitor, Navigant, that while we probably have more staff, they have more revenue, so we think there is a lot more forward potential in the pricing of the Claims Group that we can accomplish and we will attempt that in January of '08.

Okay. And I apologize if I missed this earlier, but just wanted to get to the margins on the Project Management Group. They have increased kind of sequentially. Is that primarily due to the KJM acquisition or are you actually seeing higher margins in your overseas contracts?

No, very little of it is related to KJM. We saw some significant growth in the US, vis-a-vis the overseas markets in the third quarter. That helped. US gross margins are stronger than overseas gross margins in the PM business. We did get some better performance out of KJM in the third quarter than the second. I think that is just having put the acquisition behind us and getting them all busy. We took some costs out of the business beginning October 1. I think that had a pretty minor impact on the third quarter.

And then given where the new work is coming from, how do you expect the gross margin to trend as we look out over the next several quarters specifically for Project Management?

Yes, we expect the US business to be relatively flat. We think the overseas business will pick up a little bit, but not significantly.

Richard Paget, Morgan Joseph.

Just a clarification on the Baker Hill JV, so that 875 in equity and affiliates is kind of a good run rate to think about going forward?

Yes.

With possible growth or it will just kind of bounce around that?

No, I think it will be relatively around that number. We are at what we think now is full staffing given the past quarter we have in hand. We don't know what they are going to have for next year, but we expect it is going to be at least the same or more.

Okay. And then how should we think about corporate going forward? I mean how much is kind of at this fixed level versus variable? Has it peaked in terms of your SarbOx setup costs, etc. and you guys have the staffing in place or do you still think it is going to continue to trend up?

I think the build-out that we have accomplished in our corporate overhead departments, specifically finance, IP and HR, has leveled off. I think we have built out the team that we need for the foreseeable future. Foreseeable meaning next 12 to 18 months or so. I don't expect any major new high-level hires. We have been adding some salespeople in the lower operations to help continue to drive some strong sales growth. But I think the corporate SG&A will be relatively flat. We will actually probably see a decrease next year in our SOX costs. Once we are compliant by the end of this year, obviously maintenance -- SOX maintenance is a lot less expensive than SOX compliance. We may even see a tickdown in that and the SG&A, the operations themselves will continue to grow the way they grow. We expect to take some additional costs out of the Knowles operation, out of their SG&A over the next three to six months and that operation will be essentially fully integrated.

Okay. So going into next year, we should get some decent corporate leverage then?

Yes, we did during the third quarter essentially wipe out the entire financial overhead of KJM. As of October 1, we consolidated them fully into here and had about a half dozen staff depart. So that will cut the cost of that operation significantly.

Okay, thanks.

[Macon Redsell], King Capital.

Hey, how are you doing?

Doing good, Macon.

Good, good. Nice quarter.

Thank you.

A couple of questions. Just kind of a big picture question, how much work right now is going into Iraq? Kind of as you look at the backlog or as you look at business next year, what percent of the business would you say is Iraq related?

We are running at about, what, about $4 million a quarter?

$4 million a quarter?

That's a good ballpark.

Maybe let's say $5 million a quarter, $20 million a year on a business -- it's less than 10% of our business.

Okay. Less than 10%. Do you think that if -- I mean I know that the terrorists -- I mean I hope this is a trend that we see continues. But believe it or not, the car bombing in some of the headlines news that we have had for several years, the statistics are actually getting better. And I know we are certainly not out of the woods over there by any stretch of the imagination, but in terms of the safety, at least the last couple of months, the data has been pretty encouraging.

If we moved into an environment in a democratic -- or if we get a democratic regime where there is a little bit less focus maybe on Iraq and things calm down, is there a lot of -- is there a lot of work over there that is kind of bubbling at the seams that would likely -- could that throw the kind of the situation into full gear for the construction environment? Are there a lot of projects that are being pushed off because of the danger in the area? If that got better over the next couple of years, how do you think that could impact your business and what sort of pent-up demand do you think there is for the rebuilding over there right now?

I think the reconstruction effort itself has been relatively stable. Sometimes there are shifting demands depending upon who is in charge there and the issue that we have -- the big issue we have is that we generally have a rotating client and that people will cycle in, cycle out every six to 12 months and one general or one colonel may have a different set of priorities from the last and that is on top of shifting political winds in Washington.

But despite all of that, we have seen our team continuing to develop more work. What you mentioned before about the safety, we have been counting our blessings. We have had a team over there for 3.5 years now and we have never even had an injury, much less an employee killed.

We have a little more concern today because obviously our team has grown, as I said, from 10 to 50 and in addition, we are doing a lot more work outside the Green Zone. Our team has basically been in the headquarters and in Baghdad and now as they are going about the country, obviously that implies a little bit more of a security and safety risk. But so far, we have had 100% success in that regard. And believe me, we count our blessings everyday that that continues.

We don't see any short-term change in what is going on over there, even a change in who is in the White House I think might redirect more of the funding away from the military aspects and more towards reconstruction, redevelopment and those types of efforts. There is obviously a lot of damage that has been done by the war and that needs to be fixed. However the military situation is over there, I think that we are going to have an obligation as a country to continue to pay for a lot of the reconstruction effort and if we are paying for it, we are going to be managing it.

Any updates on just kind of where you are in terms of the joint ventures in the Middle East? I know you mentioned a little bit about Abu Dhabi National Oil Company, kind of any more progress there? I know you are taking a trip over there sometime soon, is that right?

Yes, it is really sort of two answers to that question. One is obviously we have been talking to a lot of clients in the Middle East about developing more long-term relationships and what that generally means is setting up some kind of a joint venture or partnership where we would be there, the go-to PM firm for most, if not all of their work in exchange for them having an ownership interest in the entity. And we have been talking to several clients about doing something like that.

There is obviously a strong benefit for them. They get a dedicated team focused on their projects and they get half the profits back for a service they were giving away. The benefit to us is we get obviously a steady pipeline of work and we have had several conversations, we haven't closed any of them yet. We are still confident that one or more of those will happen in the short-term future, but other than that, I don't want to try and give you percentage guesstimates on what likely the success is.

We are also trying to make a major push into the oil and gas market to work with Abu Dhabi National Oil Company. ADNOC was a big win for us. They have been a good client and that relationship has continued. We have won another project with another national oil company that we haven't announced yet, but we will soon that I think will give us a lot more experience on those types of facilities.

And with the work we are doing in the Middle East as far as our resources and our network of offices and the relationships that we have been building, that work is still predominantly and by predominantly I mean like 80% to 90% buildings work, we could -- I think and we're hoping we can expand our work into the oil and gas market in a big, big way and that would be real positive for us. There really is no pure project manager like Hill that is a player in the oil and gas market and we think we could become one.

What kind of technical expertise I mean do you have to have? You would be switching gears a little bit in terms of what you are actually building or do you think it would be a pretty easy transition?

It is only a transition in the people that you need to hire. Obviously you can't take a guy who is a -- not so obviously, but you can't take someone who has been managing a skyscraper and put him on an oil refinery. He just doesn't have the right skill set and the clients don't allow that. They want people managing their projects that have the specific expertise of their project and that is why it is sort of a step-by-step process that as we start to win that work, we start to build up a team, then we start to get some momentum in that area. We have historically had very little capability in-house in oil and gas, but that has been changing and we expect in the next one to two years, it will change big time.

Thank you. Keep up the good work.

Thank you, Macon.

Bill Sutherland, Boenning & Scattergood.

Just one quick one here on the gross margin in Project Management. A lot of moving pieces clearly. What is a good band to think about that that group should operate in given your current domestic/international mix and also a couple of the other pieces moving around?

Yes, the number was heading towards more of like a 40% number given the growth that we are seeing overseas and obviously it's headed back up and that has been very positive for us. But where it is right now, give or take a percentage point either way, is probably a pretty good metric for what it is going to be in the next 12 to 18 months.

Okay. And then the split -- well, I can wait for the Q on that. That's all I needed, David. Thank you.

There are no further questions. I will now turn the conference back to Mr. David Richter.

Thank you very much. Bill, you jumped back to the end of the queue, but you were the end of the queue, so if you have one more question, feel free to ask it now.

There are still no questions.

Okay. Thank you very much, everybody. We appreciate your time this morning. We will get back to work and continue to try and build this business, make more money and hopefully continue to drive the stock price higher for all of our benefit. So thank you very much for your time. Take care.

Ladies and gentlemen, this concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.