Hill International Inc (HIL) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the Hill International 2009 third-quarter 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 would now like to turn the conference over to Gerrard Lobo with The Equity Group. Please go ahead, Mr. Lobo.

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

Before we get started, I would like to remind everyone that statements made during today's 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 discussed during this presentation, the matters set forth herein, including but not limited to any projections of 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 current expectations, estimates and assumptions and are subject to certain risks and uncertainties.

Although Hill believes that the expectations, estimates and assumptions reflected in the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any forward-looking statements. Important factors that could cause actual results, performance and achievements or industry results to differ materially from estimates or projections to attain the forward-looking statements include modifications and termination of client contracts, control and operational issues pertaining to business activities that Hill conducts on its own behalf or pursuant to joint ventures with other parties, difficulties Hill may incur in implementing acquisition strategy, the need to retain and recruit key technical and management personnel, and unexpected adjustments and cancellations related to backlog.

Additional factors that could cause actual results to differ materially from our forward-looking statements are set forth in reports filed with the Securities and Exchange Commission. Hill does not intend and undertake no obligation to update any forward-looking statements.

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

Thank you very much, Gerrard, and good morning, everyone. Thank you for joining us today for our third-quarter 2009 earnings conference call. As usual, I'm joined this morning by John Fanelli, Hill's Senior Vice President and Chief Financial Officer.

We are extremely pleased with our strong earnings per share performance for the third quarter of 2009, driven by improving performance within our construction claims group, a very strong group performance from our PM operations in the US and in Iraq, our cost control efforts over the past year, and a decrease in our diluted share count as a result of our share repurchase program over the past year.

For the third quarter of 2009, Hill's total revenue rose 5.2% to $103.2 million. Our consulting fee revenue declined slightly by 0.7% to $86.7 million for the quarter. That percentage decrease was comprised of a 1.5% decrease in organic work, offset by 0.8% growth from acquisitions.

The decrease in consulting fee revenue was unfavorably impacted by the strengthening of the US dollar versus other currencies, principally the British pound and the euro. Excluding the effects of the foreign currency exchange rate, Hill's consulting fee revenue during the third quarter would have increased 2.4% versus the third quarter of 2008.

Looking at our consulting fees by operating segment, 75.3% of these fees were generated within our project management group and 24.7% were derived from the construction claims group. By geographic region for the third quarter, our fee breakdown was as follows -- 20.5% from the Americas, 28.4% from Europe, 35.7% from the Middle East, 13.6% from North Africa, and 1.8% from Asia-Pacific.

We continue to focus on cost control, having taken out nearly $10 million in overhead costs over the past year, and improving the performance of our individual operating units. As a result, Hill's SG&A expense for the third quarter as a percentage of consulting fee revenue was down to 36.4%, an improvement of 100 basis points from the third quarter of 2008 and 190 basis points sequentially from the second quarter of this year. This is at the bottom of our guided range of 36% to 38% for the year.

As a result of these efforts, Hill's operating profit for the third quarter was $8.2 million, up 12.7% from the third quarter of 2008. As a percentage of consulting fees, our operating margin was 9.4%, up 110 basis points from a year earlier, but more significantly, up 230 basis points from the second quarter this year and up 470 basis points from the first quarter of 2009.

Hill's net earnings were up 12% this quarter to $5.8 million, equivalent to $0.15 per diluted share, based upon 39.5 million diluted shares outstanding. This is $0.03 better than our analyst consensus estimate of $0.12 for the quarter.

Our total backlog at the end of the third quarter was $597 million. While this is down slightly from $611 million at the end of the second quarter, that is largely the result of the cancellation of one large project in the Middle East, which had a negative impact on our backlog of $34 million. Without that cancellation, our backlog would have been up sequentially as we added approximately $107 million of new work during the third quarter, net of that one canceled project. This is one of our best quarters historically for new sales on top of an excellent sales quarter in the second quarter.

Looking at our two operating segments individually, our project management group generated total revenues of $81.1 million, up 9% from third quarter of 2008. Consulting fees for the projects group rose 0.7% to $65.3 million in the third quarter this year. And all of that growth was organic, primarily from North Africa, which showed an 86% increase due to several large new contracts in that region, and to the Middle East, which saw an 8.7% improvement in consulting fees versus the same period last year.

Sequentially, our project management group saw an 8.9% decrease in consulting fee revenue from the second quarter to the third quarter. This was the result of a significant drop in consulting fees in our European region, which accounted for about two-thirds of the decrease. This was somewhat the result of currency exchange rates, as I discussed before, but primarily the result of the poor economic conditions in the countries where we do business in Europe. We don't expect that trend to continue, and we are forecasting flat revenues in that region for the fourth quarter this year.

Operating profit for the project management group in the third quarter rose 12% to $12.1 million, due primarily to a significant increase in equities -- in earnings of affiliates, which was principally from our joint venture, Stanley Baker Hill, which performs work throughout Iraq. We've been seeing a decrease in work in Iraq lately, although we do expect to continue working there through at least the end of 2010.

Operating margin at our project management group was 18.5% of consulting fee revenue, within our historical range of 15% to 20%, up 180 basis points from the third quarter of 2008 and up 160 basis points from the second quarter of 2009.

For our construction claims group, total revenue for the third quarter this year declined to $22.1 million, a decrease of 6.6% from the third quarter of 2008. Consulting fee revenue for the third quarter was also a drop to $21.4 million, a 4.7% decrease versus the same quarter of 2008. That percentage change was comprised of an 8% decline in consulting fees organically, offset by 3.3% growth from two acquisitions last year.

Operating profit for the claims group for the third quarter was $1.8 million, a 29.3% drop from the third quarter of 2008. The comparisons to a year ago are less relative for our claims group, which has had an extremely difficult year as a result of the global recession. On our last earnings call, I noted that we were seeing an improvement, a significant improvement, in the performance of our claims group over the course of the summer, and that has clearly been the case during the third quarter.

Looking at business sequentially from the second quarter to the third quarter, the claims group saw an increase in total revenue of 7.3%, an increase in consulting fee revenue of 7.7% and an increase in operating profit of 89.5% quarter over quarter. Operating margin for the group improved from 5% for the second quarter to 8.8% for the third quarter. While this is still below the group's historical operating margin range of 10% to 15%, we are confident that the claims business is on the right track and are seeing an improving demand environment for its services.

We ended the third quarter with a stronger balance sheet, with cash and cash equivalents of $29.6 million, working capital of $106.3 million, total assets of $292.4 million, total debt of $36.1 million and shareholders' equity of $149.9 million.

We are very pleased with the progress we have made against our stated goals for the year of positive organic growth and an improvement in our earnings per share. After the first nine months of the year, we have achieved organic growth in our consulting fee revenue of 9.2%, and we've already earned $0.37 per share versus $0.43 per share for all of last year.

So we are well on our way to accomplishing both of these stated financial goals in most certainly the worst economic environment in our Company's history. I would be remiss in not attributing those accomplishments to the hard work and excellent performance demonstrated by our global team of construction professionals. They are the reason for our success, and we have every confidence that our Company can continue to grow and prosper as the economy improves.

And we are seeing signs regularly that the economy has bottomed out and is improving worldwide. We see projects moving forward. We see a healthy and growing pipeline of potential new work worldwide. And we continue to have positive expectations for our markets and Hill's performance in the fourth quarter of 2009 and going into 2010.

With that being said, John and I are happy to take any questions that anybody may have on the call.

(Operator Instructions). Richard Paget, Morgan Joseph.

David, I wondered if you could talk a little bit more about the project cancellation. Is this kind of a one-off, or are there other projects at risk? And then on the flipside, when you back that out, like you said, new awards were pretty strong. If you could give us a little bit more insight as to which areas of the market are doing better than others?

Sure, I'd be happy to. Obviously, we are in the worst economic environment in our history, certainly. While a lot of areas of the economy have been affected, some have been affected more than others. That was one significant project. As I said, it took about $34 million out of our backlog, but had a pretty negligible impact on our 12-month backlog. So we don't expect much of an impact in the short term from that cancellation.

It was in an area where we see a continuing positive environment, in fact getting better quarter to quarter, even month to month, and that is in the Middle East. Dubai is an area that has still been pretty hard hit, but in other countries, like Qatar, Libya, Saudi Arabia, Abu Dhabi, we continue to see a pretty positive environment for what we're doing.

As I said on the call earlier, the business for us in Europe, which is a business we've spent a lot of time in 2008 building up right before the current environment, has been extremely hard hit. Their consulting fees were down, and they accounted for two-thirds of the drop in our fees in the project management group from the second quarter to the third quarter.

So we expect Europe to be a pretty difficult environment going forward. We're not looking actively at any acquisitions in the European market. Our acquisitions are focused on the US market, where we see pretty strong demand, especially as we're focused in the US, about 80% to 85% of our business, on the public sector. We see that doing very well. The earnings performance of our US business picked up significantly from second to third quarter. And we see that doing very well. And with growth in the US and growth in the Middle East, we're expecting that over the next year we're going to do very well.

And getting to the claims side of the business, do you get the sense that there is a backlog of pent-up demand, and once clients are more comfortable that the economy is in fact going to get better, that you're going to see a big surge in new work? Or do you think it is just maybe more evenly going to start flowing back in?

No, we expected from the beginning of this was that the claims groups work that we weren't seeing coming in wasn't disappearing; it was simply being delayed or deferred and that there was this growing, essentially, wave of work out there, that once we recovered or got back to a more normal economy, we would start to see it come in quite a bit. And I think we're beginning to see the beginning of that wave.

We expect it will continue into the fourth quarter and in 2010 will get significantly stronger. Claims tends to be the ends of the project, the beginning and the end, where we do a lot of up-front consulting on getting projects set up, doing risk assessments, doing contract advisory work on new projects, and then dealing with the problems, the delays, the cost overruns and claims on projects towards the end.

So as the work begins to flow again, as disputes begin to be fought over, the claims group should be doing very, very well. And we expect the positive trend that we saw in the third quarter continue well into next year.

All right, thanks. I'll get back in queue.

Tim McHugh, William Blair & Company.

It's Joe Alkire. Just given your comments about maybe a decrease in activity in Iraq over the next few months, just wondering what you're expecting in terms of your equity earnings over the next quarter or two?

Yes, we had two exceptional quarters in the equity and affiliates line, which was driven largely by the fact that as some of the larger task orders were winding down, they were typically lump-sum or fixed-price task orders. And as we performed them with lower costs than we had anticipated and budgeted, there was a certain amount of windfall profits built into those task orders, which we realized in the second and third quarters.

We don't expect that level of profitability going forward. The work that we have in Iraq is beginning to slow down, although we expect to be there through the end of next year. And at the same time, we expect that to be offset somewhat by other joint ventures that are starting up, including what was a part of the contributor to the equity line this quarter, which was a joint venture with TMG in Egypt, and others that we expect to provide a greater contribution as Iraq begins to wind down.

Okay. Just given your comments about your forecasting flat revenue in Europe going forward, just wondering what you are seeing there that gives you confidence that that may flatten out?

Simply the backlog of work we already have in hand. We're seeing new work beginning to come in in some places such as Spain. I think Eastern Europe has still been pretty hard hit. And we're doing everything we can to continue to sell new work in those markets and keep our costs down. But we expect Europe to be pretty flat probably longer than the other areas of our Company.

Okay, thank you.

Arnie Ursaner, CJS Securities.

On the SG&A line, which has been one of the sticking points for quite a while, you did just a tremendous job this quarter bringing that level down both year over year and sequentially. Can you be as clear as you can about if there are any one-time reductions in there, or is this more of a sustainable level? And then I'll have a follow-up for that.

We've been focused on, since this recession began in the fall of last year, we've been very focused on cost-cutting existing overhead costs, as well as not taking on any new significant costs. We took out about $10 million of non-revenue-generating overhead costs between the third quarter of last year and the second quarter this year, and that has had a significant impact on our SG&A line, as you can tell.

For the third quarter, we're at the bottom of our range, estimated range for the year of $36 million to $38 million at about $36.4 million. And I think the only item in there that is irregular was we had a gain on the sale of a contract that we sold to a competitor. It was a contract that we had picked up from an acquisition and was in conflict with a current contract we had, so it was redundant. And we had a gain on that contract of $400,000 in the quarter.

And that would be in the SG&A line?

Yes, it comes out of SG&A.

Got it. So when you had spoken on Q2, you had talked about you had taken two -- you had eliminated two senior executives. You were also indicating you were going to close your offices in Dallas and Hong Kong. But subsequently, I think you decided to keep your office in Hong Kong open. So again, I'm just trying to -- you have not replaced these two execs, and reopening the office in Hong Kong did not impact your SG&A level in any material way?

Let me deal with those separately. The change we made in our US PM business has been an extremely positive one. We eliminated two very senior-level positions -- not the positions -- we took out two very senior-level people from the Company and replaced them with people who were already here who are doing an outstanding job so far in focusing on the right markets and business development and cost control. As a result, we've shut down two US offices, Dallas and Chicago as well, where we were losing money. We've eliminated those costs and that overhead.

In Hong Kong, right after the last call, after making a decision to close the office, several things changed. And there were some opportunities that we thought created enough upside to continue the office. They continued to lose money in the third quarter, but significantly less than they did in the second quarter. And we're projecting that going forward they're going to be at a breakeven level and not have a negative impact to our earnings.

Again, not to beat this to death, but it really matters to the overall model. To the extent you have revenue growth, which I think we're all expecting over the next few quarters, and you mentioned you're at the lower end right now relative to revenue, as revenue ramps up, are there going to be costs that are going to quickly flow back in, or in fact are you going to try very hard to keep it down near these absolute dollar levels?

No, we're going to try very hard to keep it down. We have been doing some hiring, but we're being very careful in having that hiring be on the operational side and not on the corporate overhead side. We've been able to pick up some very good people in the last couple of months that we think can help us develop new work. And they strengthen the business; they don't weaken it. The overhead side, we're being very careful about the costs we're incurring, and we're going to let the business continue to improve before we expand those costs at all.

Okay. If I can ask a quick one of John, on interest expense, it had a fairly sizable jump, and yet you are in a net cash position. Can you walk us through the factors on interest expense and how we should think about that line on a go-forward basis?

Well, the interest expense is based primarily on our credit facility. Our weighted average interest rate on that facility is running a little less than 4%. And just based on the borrowings that we have had, I would just use the average balance for the year.

Now, with respect to the debt, our balance at the end of the quarter was around $32.7 million. Subsequent to that and as of today, we paid down approximately $6 million of that debt since the quarter end. So I would just use a 4% rate on what you would think would be the average borrowings, which will probably remain at that rate, around $27 million, $28 million.

Okay, thank you very much.

Thank you, Arnie. By the way, we don't expect significant increases on our borrowing line for working capital. We expect to be cash flow positive going forward. And we'd only be using the line if we were looking at acquisitions.

Thanks again.

David Gold, Sidoti.

A couple of things. So, one, on the equity and affiliates line, could you give I guess a little bit more color there as to -- I guess the bulk of the contribution it sounds like is from the military piece and then maybe a smaller contribution from PMG, or how to think about that?

For the quarter, it was about 90% Stanley Baker Hill. We expect it's a much bigger piece from Hill TMG and other joint ventures going forward.

Okay, got you. And then, David, can you speak a little bit about the claims business? Obviously pleased to see it stabilized, and I'm speaking to positive trends there. But essentially, what do you think is happening there? Is it litigation dollars loosening up? Is it just the pipeline of work starting to open up, or some combination thereof? What do you think is pushing through so that we know how to think about that on a go-forward?

I think it's both of those things, and what I alluded to before, or said before, which was that the work that the claims group does hasn't disappeared. Contractors and owners aren't walking away from claims; they were just deferring the prosecution of them or the defense of them because everybody was so cautious with their dollars and their cash over the last nine months.

Those problems are still there. Construction is extremely complex. There are lots of problems. And at the end of the day, somebody's going to have to pay for them. And that work is beginning to loosen and move forward, and we expect a continual improvement in the claims group over the next several quarters and into 2010.

Okay, good. And then just lastly, in the release, you made some comments about numerous signs of improvement out there. And two things. One, I wonder if you can break down what you're thinking domestically, let's say, versus overseas at this point, where domestic has been obviously a softer spot; and then two, what metrics you are sort of looking at or watching -- which improving signs are you pointing to?

What we're generally looking at is we're looking at the work that is out there in the marketplace. We look at our pipeline of work in both of our two groups. There is a tremendous amount of work out there, and where we spend the bulk of our time is trying to win as much of it as we can. There is certainly enough work out there that we could grow significantly in 2010 versus 2009.

The business in the US specifically between the stimulus and public spending, despite a lot of strained budgets, the work that is moving forward is significant. And see a big benefit in our US PM business going forward.

We're looking at several acquisitions in the US to round out certain market sector weakness that we have and to build out our geographic reach. And I expect that by the end of the year, we will have some success in that front. We want to continue to be a strong player in the US and have greater geographic reach. And we expect that, combined with the Middle East, are probably going to be our two best markets in the next couple years.

Perfect. Thank you so much.

Joseph Foresi, Janney Montgomery Scott.

On the backlog side, it's kind of sort of been flattish. Given what you're seeing on the demand environment, could you give us just any thought on when you think you might turn positive and then start reaccelerating any visibility on any of that?

Yes, you know, I wish we had visibility into what projects we're going to win. We obviously have expectations going into every pursuit. But until we win a job, we just don't know. So while we have expectations over the long term, our backlog is going to continue to grow as we continue to succeed I think better than our competition.

From quarter to quarter, from month to month, we just don't know what's going to come in the door. We've had a couple of cancellations over the last six months, some of them pretty big, like the one this quarter, that can have an impact and make the backlog even lumpier than it normally is. But there just is no visibility in that until we get a letter from a client saying, you've won. We get a lot of those letters.

Can you maybe just provide --

(multiple speakers) about 20% of the projects that we chase in PM. It is probably about 30% in claims. But which we win and which we don't, we just don't know until that happens.

Maybe you could just talk a little bit more about the project, if you can give any visibility on the project cancellation that you had. Is there a particular reason? Is it consistent with the economy? Maybe just some color on that would be great.

I'm sorry, Joe, just ask that question again.

You had talked about a project cancellation that you had this quarter. I was wondering if you can give a little bit more visibility, maybe the reasoning behind it and where you're seeing that.

It was just a project in the Middle East that was canceled, as far as we know because of the economic conditions related to that specific project. We were only -- our contract was terminated because the project stopped, not because of anything that was done.

Any particular region that was in?

Region? It was in the Middle East.

No, I know, but is it Dubai still, or was it some other geography?

It was not Dubai. We have a pretty small presence in Dubai now. Dubai really came to a grinding halt. It's one of the few markets that did. And we have a relatively small presence. Dubai project management work is going to be between 1% and 2% of our business this year. So it's relatively small. That could go away next year and we would barely notice.

Could you remind me just again on the credit facility, how much have you used of the credit facility, and what was the change sequentially in the quarter?

Yes. The balance as of the end of the quarter -- I'm looking for it.

Joe, the balance at the end of the quarter was $32.7 million. And as I stated previously, we paid down around $6 million of that since the quarter, and we're down around $27 million. And based on the facility, we have around $35 million available.

Yes, it's a $100 million facility, but it is subject to all sorts of restrictions on how much we can borrow based on receivables and other things.

Got you. What's happening on the acquisition front? Do you expect to use the $35 million? Are you actively looking at anything?

We're actively talking to about eight or nine firms regarding acquisitions, as I think I talked about on the last call. Once we got the credit facility in place, we went back into the market. We've been having a lot of discussions. Most of them, the majority of those are at this moment moving forward positively.

It is our expectation that we will have one or more deals done by the end of the year or right after the beginning of the year. And our focus has been and we expect it to continue to be US project management firms.

Any general sense of the size of those deals, just roughly?

They are all over the board, but typically between 20 people and 200 people (multiple speakers).

Okay. And then just one last one from my end. I know Stanley Baker Hill performed pretty well. Do you expect that to continue heading into next quarter? And is that still the facilities work that I think you guys got from KBR? Is that the type of work the projects that were coming through?

No, it has nothing to do with KPR. Our work is for the Corps of Engineers. It was through Stanley Baker Hill. It's managing the entire reconstruction effort, and that's everything from roads to hospitals to military facilities to government office buildings, oil and gas facilities, schools, you name it.

At its peak, we had probably 350 people in Iraq on the ground working for the Corps between the three companies in the joint venture. That work began to slow down at the beginning of the third quarter, end of the second quarter. It continues to slow down. We expect it will be a smaller operation in 2010 certainly than it was in 2009. But they will continue that through the end of next year, and beyond that it's anybody's guess. We've never really had more than 12 months of visibility into that contract.

Great, thank you.

Kevin Liu, B. Riley & Co.

I just want to dig a little bit more into the sequential decline on the PM side of the business. You mentioned Europe had fallen out there. I guess going into the quarter, the backlog had actually been up sequentially. So what was it that actually drove that decline in revenues? Was it just projects falling out unexpectedly? Was it work that wrapped up and perhaps you just didn't replace it with some additional contracts?

I think why the backlog looked strong but the revenue fell off is that what you had was some of the short-term work disappearing as maybe projects were either delayed or canceled, while at the same time we were winning long-term work. So you might have seen a little bit of a shift within those regions of the backlog from 12-month to total. So the total number wouldn't have been affected very much.

Got it. And then just wondering what the cash flow from operations was in the quarter. And then in particular, on the receivables line, that seemed to tick up again when you guys had a pretty good collections quarter last -- in Q2. So I am wondering what we should expect for Q4. Do you get back to kind of a lower level of DSOs here?

Yes, Kevin. Our AR increased from June 30 from around $126 million to $141 million. That's an increase of around $15 million. And that was driven by all the growth in Libya and Middle East. But we experienced some slowdown in some Middle East collections and delays in collecting funds in Libya.

But we've had some significant corrective actions by working with our clients, establishing some type of payment plans and terms. A primary example is that we just completed a letter of credit with our Libyan client to expedite the payment process. It's not a matter of collectibility; it's a matter of getting the payment process through. So we should see some progress made in the fourth quarter.

Before you shift gears, we've been working very hard to make sure that our receivable collections haven't become a problem for our business. And we've been very pleasantly surprised by how little we've been impacted by the problems our clients are having, their cash flow issues. We continue to collect money from our clients. Our DSOs have been impacted a little bit, especially in the last quarter. But we expect that that is short term and our clients will continue to pay us for our work. John?

With respect to the cash flow, our cash from operations for the third quarter decreased over $5 million, and that was primarily due to the increase in the accounts receivable. Our year-to-date cash from operations is positive, around $1.5 million, but we should see that progressing on a positive note based on our accounts receivable collection.

Got it. And then one last question on the claims margin. I think just the actual direct costs there tick up I believe because you moved revenue generators back into that line off the bench. So as we look at that margin kind of going forward, is there any sort of pricing pressure that would keep it running below, say, the mid-50s, where you had been previously?

There's a little bit of pricing pressure out there, less than most people expect. It is pretty negligible. It doesn't have a huge impact on our margins, but it has had a little bit over the last nine months. We think a lot of that is short term as well and will disappear. Our margins have held up pretty well, and I think our gross margins have help up pretty well given the environment out there.

And maybe as a follow-up to that, I guess when you're starting to see the first wave of pent-up demand come back in that business, are there higher incremental costs up front that you would normally experience?

No, there are very little costs up front to us beginning new work. There are significant costs, and our clients are generally giving us a mobilization payment to cover that.

Thank you.

Mike DeBernardis, Lazard Asset Management.

Just piggybacking on that last question regarding the margins, maybe can you just comment on the margins in the backlog, and should we expect margins have bottomed here, gross margins, that is, on consulting fees, or do we see that pick up going forward?

The margins in the backlog aren't much different from what they have always been. We saw a little bit of a drop; it was about 150 basis points from the third quarter of '08 to the third quarter of '09. That was primarily, John, projects or claims?

Both projects and claims. The claims business for the third quarter, the margins were due to lower rates on some of the government contracts that we have. And also, oversees, we've been using independent reps on some large projects, which we generate lower markups on. Within the project management business, it's primarily just due to lower-margin work and wind-down of some costs on various projects.

Is there a follow-up question?

No, that's all. Thanks.

(Operator Instructions). Tim McHugh, William Blair & Company.

Maybe just quickly for John, can you give me a breakout between your next 12 months' backlog by segment?

Sure. I'll give you both pieces, the total and then the 12-month backlog. For project management, the total backlog is $563 million, construction claims $34 million, for a total of $597 million. 12-month backlog for project management is $245 million, construction claims $31 million, for a total of $276 million.

Thank you.

There are no further questions at this time. I will turn the conference back over to management.

Great. Thank you very much, everybody, for your time this morning. We're very happy with our earnings performance in the third quarter. We are, as I said, expecting that our markets are getting better, stronger. We see more work coming and we have great expectations for the fourth quarter and next year as well. We thank you for your attention and your investment in our Company, and we look forward to delivering even better performance going forward. Thank you.

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