Hill International Inc (HIL) 2010 Q1 法說會逐字稿

Good day everyone and welcome to Hill International First Quarter Earnings Conference Call. At this time, I would like to inform you that this conference call is being recorded and that all participants are currently in a listen-only mode. I would now like to turn the conference over to Mr. Devin Sullivan of the Equity Group. Please go ahead, sir.

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'd 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 Hill's intent that any such statements be protected by the Safe Harbor created thereby. Except for historical information disclosed during this call, the matters set forth herein including but not limited to any projections of earnings or other financial items, any statements concerning 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 Hill's current expectations, estimates, and assumptions and are subject to certain risks and uncertainties. Although Hill believes 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 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 forward-looking statements include modification and termination of client contracts, control and operational issues pertaining to business activities conducted on its own behalf or pursuant to joint ventures with other parties, difficulties incurred in implementing its acquisition strategy, the need to retain key technical and management personnel and unexpected adjustments and cancellations related to backlog.

Additional factors that could cause actual results to differ materially from forward-looking statements are set forth in the reports filed with the Securities and Exchange Commission. Hill does not intend and undertakes no obligation to update any forward-looking statement. I'd 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, Devin; and thank you, everyone else joining us this morning for our quarterly earnings conference call.

Yesterday we announced our first quarter 2010 financial results. To put it simply, we had a weak quarter to say the least. As we look to the numbers in detail, we will also focus on the issues that impacted us positively and negatively.

For the first quarter of 2010, Hill's total revenues grew to $104.5 million, a 0.5% increase from the first quarter of last year. Consulting fee revenue for the first quarter declined slightly to $91.9 million, a decrease of 0.2% from the first quarter of 2009. This decrease in Hill's consulting fee revenue for the quarter was due to a 3.5% organic decline, offset by 3.3% growth in acquisitions late last year of Boyken International and TRS Consultants.

Primary drivers of change in our consulting fee revenue year over year included increases of $4.9 million in our North African projects business, $3 million from our acquisitions of Boyken and TRS, $1.5 million from a U.K. claims business, $1.2 million of an increase in Middle East claims and $1 million in our Southwest projects business.

Those were offsets by declines of $6.8 million in our project management work in Iraq, $2 million from our Dubai projects business, $1.9 million in our Europeans projects group, and $1 million of a decline in Asia/Pacific claims.

Operating profit for the first quarter of 2010 dropped to $2.7 million, a 37.8% decrease from the first quarter of 2009. Our operating margin as a percentage of consulting fee revenue dropped to just 2.9% from 4.7% in the quarter a year ago. This was driven by a slight decrease in our gross margin from 42.6% to 42.2% combined with a slight increase in our SG&A percentage from 39.1% to 40.2%.

While our corporate overhead continues to drop as a percentage of consulting fee revenue, from 7.7% a year ago to 7.2% this quarter, the SG&A of our operating groups increased from 31.4% to 33.0%. This was primarily the result of the acquisitions late last year of Boyken and TRS which had a high unapplied labor and indirect labor in the first quarter, as well as having caused higher amortization expense for Hill in the first quarter. We were also impacted the loss of a significant amount of high-margin work in Iraq, as I mentioned earlier.

We received an income tax benefit of nearly $500,000 in the first quarter. As a result, our net earnings in the first quarter were $2.5 million or $0.06 per diluted share based on 40.9 million diluted shares outstanding; down 44.2% from $4.4 million or $0.11 per diluted share based on 41.1 million diluted shares for the first quarter of 2009.

Included in the diluted share count for the first quarter were 1 million shares issued in April of this year in connection with our management team's earn-out which was tied to the going-public merger between Hill and Arpeggio back in 2006. The earn-out is now complete and there will be no more earn-out shares issued and resulting in dilution in the future.

We also look at our financial performance sequentially, meaning versus the immediately prior quarter. From the fourth quarter of '09 to the first quarter of 2010, Hill's total revenues were down 5.3% and our consulting fees were down 1.8%.

The fourth quarter was trending upward after a difficult early 2009, so we obviously are disappointed to see a negative trend to begin 2010.

Our gross profit was only down 5.5% sequentially, but because of higher labor costs as we started the New Year with raises causing significant overhead increases, combined with lower utilization and the added costs of our two acquisitions, our operating profit was down 64.0% and our net earnings were down 46.2% in the first quarter versus the fourth quarter, despite only a slight drop in consulting fees.

Looking at the performance of our two operating segments separately; we continued to see a very positive trend in our Construction Claims business. Total revenue in the first quarter for Hill's Construction Claims group increased to $25.4 million, an increase of 9.6% over the first quarter of '09. Consulting fee revenue in the first quarter for the Claims group increased to $24.6 million, an increase of 9.6% over the year-earlier quarter, an increase that was all organic.

Operating profit for the Claims group in the first quarter was $4.2 million or 17.2% of CFR; a jump of 81.6% from the first quarter of 2009.

The first quarter was far more challenging for our Project Management business. Hill's PM group had total revenues in the first quarter of $79.1 million, a decrease of 2.1% compared to the first quarter of '09. Consulting fees for the Projects group in the first quarter were also down to $67.3 million, a decrease of 3.4% from the prior year's quarter.

That percentage change was comprised of an organic decrease of 7.8%, offset by a 4.4% increase from acquisitions.

Operating profit for the Projects group in the first quarter was $5.1 million or 7.6% of CFR, a drop of 43.9% compared to the first quarter of 2009.

During the first quarter, we had negative cash flow from operations of $8.9 million and negative net cash flow of $800,000. The primary driver of the negative cash flow was an increase in our accounts receivable.

We ended the first quarter with a strong balance sheet with total assets of $289 million, cash and cash equivalents of $30.1 million, and total debt of $35.1 million. And shareholder's equity at the end of the quarter was $159.1 million.

Turning to our backlog; our backlog took a significant drop, in both total and 12-month during the quarter. Hill's total backlog at March 31 decreased to $550 million from $620 million at the end of last year. 12-month backlog at the end of the quarter was $240 million, down from $282 million at December 31.

These decreases were the result of lower net bookings in the first quarter, primarily due to several major project cancellations in the Middle East. We had about seven cancellations, totaling about $35 million in total backlog and new sales of just $55 million during the quarter; obviously on the sales side and with the cancellations, a disappointing quarter to say the least.

In response to how we performed in the first quarter, we took some significant cost-cutting actions at the end of the first quarter and the beginning of the second quarter. We recently made about $7 million in annual overhead cost, which included the termination of over 50 people within the Company. We incurred about $500,000 in severance cost in connection with that; half of which we incurred in the first quarter and half of which we incurred in April.

Obviously we began 2010 with very positive expectations that the worst of the economy was behind us. Given our performance, particularly in the Project Management group in the first quarter, we still think we may have some significant headwinds, but we're working hard to sell as much work as we can, cut as much of our cost as we can, and do significantly better in the second quarter and throughout the rest of the year. So with that, John Fanelli, our CFO and I are happy to take any questions that you may have.

(Operator Instructions). And our first question will come from the line of Richard Paget with Morgan Joseph.

I wanted to see if we can get some more color on the project cancellations; just listening to some other conference calls-- the E&C companies and them saying they're starting to see pickups there; oil has been pretty high for a long time. I'm wondering if there's a particular area or type of project, whether it's these are projects that were maybe bid a long time ago and customers are saying-- well, prices are cheaper; maybe we'll try and rebid them at lower prices. I'm wondering if there's any kind of trend that you can give us a sense of what's going on and then what's the outlook going forward (inaudible) just finally over here?

Yes, as far as we know, all the cancellation resulted in not because Hill was terminated, but because the project was terminated. They were primarily in the Middle East and primarily they were commercial and presidential and mixed-use projects that I think were just impacted by the economy and the ability of our clients to raise funds and borrow debt to fund their projects.

We thought the worst of that was going to be in 2009 and was behind us, but we obviously had some more that was lingering and the clients decided to officially pull the plug.

None of them, as far as I know, had any significant revenue being generated from them. They were long term in our backlog and as far as further cancellations, we just don't know.

So you're saying that some of these are commercial projects that were brought up maybe a year ago and had been holding out and hadn't been cancelled like some other ones earlier? Is that fair to say?

That is fair to say.

Then could you give us a sense of how many of these kind of commercial projects that need to raise debt to go forward remain in backlog?

No, I couldn't tell you that.

Is it a big number or it's-- I mean just to ball-park it.

I couldn't even put a number to it. Obviously, we're at every stage of projects throughout the world from wrapping some up to beginning new ones. And the breakdown of where the projects stand within our backlog; we don't calculate that.

Okay. I guess on a brighter note, the profitability in Claims was pretty strong. What do you think the sustainability of that is; is that business indeed-- was it some kind of catch-up work or is this just the trend is getting better and we can expect kind of mid-teen rate going forward?

Well, we've seen a three quarter trend in positive results out of the Claims group-- the third and fourth quarter of last year and the first quarter of this year. And we certainly would like to see it continue. One of the downsides of the Claims business is it can be very lumpy in its results and its sales. And while we have high expectations for this year, we certainly can't give you any assurance that the second quarter is going to be better or worse or the same.

But obviously we're very pleased with the margins, with the growth and with the performance of the group as a whole for the first quarter.

Okay, thanks. I'll get back in queue.

Our next question will come from the line of Arnie Ursaner with CJS Securities.

Good morning. I want to try to follow up on the last question and get a little more clarity. In your March 11th conference call, you were asked by an analyst-- you had some project cancellations-- has that activity died down or do you feel better about your backlog and your answer on March 11th was-- we are not aware of any major cancellations that we had in the fourth quarter and bold and underline in my notes-- we are as comfortable now as we've been with our backlog. We don't anticipate anything being cancelled. But obviously some projects here and there sometimes do.

Since that was 18 days before the end of the quarter, can you comment when these seven projects were cancelled and give us a lot better clarity on when they occurred and when you were aware of it?

Yes, Arnie. The bulk of the projects were cancelled in March. As of the February backlog which I don't even think we had as of that conference call, they were in the backlog; by the March 31 backlog they were not.

So what you're saying is that you were not aware of this 18 days before the end of the quarter- when the seven projects cancelled that late in the quarter.

Yes.

Okay. As a follow up to that, your business model is based on-- you don't have project risks; that's one of the more positive things about your Project Management business. And yet you do basically time and materials billed. What was the cause of the 300 basis point margin hit in the quarter, given that you don't have fixed costs?

You're talking about the operating margin?

Yes.

Yes, it was a combination of some increased SG&A costs--

Actually I was talking about the gross margin. You were 36.2% which is well below where you've been for that segment.

Let me just take a look. Yes, it was a 290 basis point drop from the (inaudible).

Well again, since your costs are basically time and cost billed-- why would you have that big of hit? Were you under pricing pressure in the quarter?

No, we don't believe so; not in a material way.

What happened?

What we had Arnie was a significant drop in very high margin work in Iraq; almost $7 million worth of consulting fee revenue which was extremely high margin work for us. So the remaining work was a little lower margin. We brought on work-- about $3 million worth from the acquisitions of Boyken and TRS which had lower gross margins than Hill traditionally has; and that difference was the primary driver of that.

The driver at the bottom line was increased unapplied labor, both from Hill as well as from the two acquisitions, offset a little bit by some gains in some other areas of the Company.

When was the $6.8 million work in Iraq cancelled?

It wasn't work cancelled. We have work-- we had a high level of work in the first quarter of last year relative to the first quarter this year. Our contract in Iraq is going to be over by the end of the third quarter of 2010. It's been trending lower for the last six to nine months and we expect it to wind down over the next six months and then we'll be completed on that project.

Okay, and again on the acquisitions you made; did they lose money in the quarter? [Did you have] a negative impact on your gross margin from the two acquisitions?

Between the two of them, it was neutral. One lost a slight amount of money. One made a slight amount of money.

Okay, final question from me regarding your SG&A again relative to your reduced expectations or lowered expectations or more tightly controlled expectations delivered March 11th; you missed this quarter by quite a bit. And again, I'm hard pressed to not assume you at least had some inkling of some of these things. What is your current view of SG&A for the balance of this year and embedded in that, given the as you pointed out-- disappointing performance in Q1, was there a reversal or a reduction in management bonus accruals in Q1?

We gave a target I believe in the last call of 35% to 37%; down from our target of 36% to 38% last year. Obviously for this quarter I think it was 41.1%, John?

Yes.

So obviously well outside the margin. We expect it to trend downward significantly from there, although-- John are you still comfortable giving that 35% to 37% target for the year?

I would say slightly a little higher. What happened, Arnie, in the first quarter with the integration of the two acquisitions of TRS and Boyken; the integration of those two in terms of overhead reduction came in the latter part of the quarter and we completed those in the beginning of the second quarter. So we should see some leverage on our costs. So I would say we'd be close to what we have projected, but maybe slightly higher.

Yes, we had very little ability to trim the overhead until they were integrated. That took about 90 days with both companies. And yet we were saddled with the higher amortization from both of the companies which impacted us quite a bit. I can't imagine that we're going to be near 41% going forward.

I'll jump back in queue. Thank you.

Our next question will come from the line of David Gold with Sidoti.

Hey, good morning. I wanted to get a little more color if you can on the change in the backlog sequentially as to-- can you give us a sense for-- obviously you had some cancellations but sort of order of magnitude there and then laid-over sales; basically was it both? Was it cancellation and just a really bad sales quarter or was it more the cancellation or what sort of happened in there?

Well, it was really a combination of the two, David. We burnt through $92 million of backlog in the first quarter. We had about $35 million cancel-- and those are major projects-- we constantly have slight increases, slight decreases in our backlog; those are being reassessed every month. But we highlighted these seven because they were significant. That gave us a-- and given the change in the backlog- minus $70 million; we sold about $55 million worth of new work for the quarter. That for us is a bad quarter. We had two quarters last year with over $100 million of new sales-- the second and third quarter.

And we had a combination of really two things on the business development front. We had some projects we thought we were going to win that we lost and we had some projects that we thought we're going to win, and still think we're going to win that got pushed into the second quarter hopefully and hopefully not the third quarter as well.

We have a lot of big projects we're chasing. The pipeline is still pretty solid and we just have to do our job and deliver the new work. We don't know what that's going to be in advance. We can guess, but until our client notifies us if we've won or lost, it's impossible to know.

Okay. On that note, is there anything from here that we did differently as to the sales activity? In other words--

Yes, it's not a matter of changing or restructuring. It's just a matter of continuing to push as aggressively as we can. We are constantly trying to improve our business development efforts. We have a team in place in the U.S. to find that business. It's been there for a little more than 12 months. I think they're doing an excellent job as far as their effort. I'd like to see better results and I think we will see better results over the next 12 months.

Internationally, we've had some areas slipping. It's been a challenging sales environment. There's a lot of work out there that we think we can close on in 2010 and we're doing everything that we can to make that happen. As you know, one of the most important things we do here is sell new work because we can't grow until we do that.

Got you. And then just one last as to the overhead-- the G&A cuts that you've made; can you give us some sense of what you've done there to get to the $7 million?

Yes, it was primarily people. Our biggest expense is payroll. So we took out a little over 50 people, between February, March and April that combined with direct salary, cost and direct cost on the expenses will save us on an annual basis almost $7 million in overhead costs with very little impact on revenue.

And were they largely on the PM side?

They were throughout the company-- Corporate, Claims and Projects.

Okay. Alright; thank you.

Our next question will come from the line of Bill Sutherland with Boenning Scattergood.

Okay; thanks, good morning. John, can you give us the backlog split for the quarter?

Sure. The total backlog-- Project Management was $518 million, Claims $32 million; for a total of $550 million.

And do you have the 12/31-- it would be helpful.

Yes. 12/31 Project Management was $583 million, Claims $37 million for a total of $620 million.

The 12-month backlog numbers for March 31 for Project Management was $210 million, Claims $30 million for a total of $240 million. And as of December 31 Project Management was $249 million, Claims $33 million for a total of $282 million.

Okay, thank you. The-- most of my questions have been asked already. I am just still a little fuzzy on what happened with the-- particularly the operating margin level in Project Management. This is sort of I guess on top of Arnie's question. The-- if I can just-- maybe just going through it again; maybe I didn't hear everything, David; if you don't mind doing that?

No, not at all. Probably the biggest impact on us was the decrease in work in Iraq; a decline from the first quarter of '09 to the first quarter of '10 of $6.8 million and that was extremely high margin work for us. That operation is entirely a field operation essentially with no real overhead; so all of our costs there are reimbursable. So we have very high margins on that business.

We had a decrease in work of about $2 million in Dubai. I don't have to explain why that business is going down. Europe has been challenging for us as well, and we saw a decrease of about $1.9 million, principally in our Polish operation where the economy there has been very hard hit. And that operation is entirely a private sector project management business and that work has dried up significantly.

At our Asia/Pacific claims operation, despite the fact that claims overall did very well, that business continues to struggle.

So it-- yes, I got the revenue change impacts, it was just the margin impact. So it really was Iraq kind of disproportionally impacting the operating margins in PM and--

It was Iraq; it was the Middle East business which had a revenue decline and their margins decreasing. We had some delays in getting new staff up and billable in our North African operation, primarily in Libya. And we added two businesses in December that added really nothing to the bottom line in the first quarter, yet increased both our overhead and our amortization cost because the acquisition which had a significant difference as well to the bottom line of the Projects group.

So looking ahead as far as how quickly the margins can come back in this unit. I guess the challenging thing is going to be the air pocket created by Iraq?

I'm sorry. Was that the end of the question?

The question David is just looking ahead and trying to understand kind of how quickly you can get PM's margins back to an acceptable range. It seems like the biggest challenge will be finding business to replace Iraq that's got similar margin characteristics.

Yes, I don't think there's any question of that. And we're pursuing several projects right now that would replace Iraq or possibly more; projects in the Middle East, North Africa and the U.S. And our job, most importantly this year, is to make sure that we close on those sales.

Okay. Just last-- is there any update on Hill International Real Estate Partners at this point?

No, nothing different from the last time we talked about it.

Okay, thanks David.

Our next question will come from [Jeff Rosetti] from Janney Montgomery.

Hi, it's Jeff Rosetti for Joe Foresi. I just wanted to get an update on your acquisition plans.

The acquisition plans are what they've always been which is that we're constantly on the lookout to acquire good project management and claims firms or any other business that is complementary to what we do. We have quite a few firms that we're actively talking to and I don't want to make any guesses on what's going to close in the near future, but we are very confident on that front that we'll be able to bring in some high-quality firms over the balance of the year.

And you had mentioned the target before of about $100 million in debt; is that something that's still a target to date?

$100 in debt?

Bringing up debt--

Well, we have a $100 million credit facility. We have about $35 million borrowed against it at the moment-- in fact less than that because that number includes some overseas debt. So we have a lot of borrowing capacity to fund any acquisitions that we need to do or our working capital.

I think I may have said in the past that $100 million is sort of where we would be comfortable, based on today's business. As we get larger, our balance sheet gets stronger, we bring in good companies into the fold and improve our profitability; we might be more comfortable with a higher amount. Our credit facility has a $500 million accordion feature which we can increase it to if we have the assets to support the higher line. But we are by nature a risk adverse company when it comes to a lot of bank debt and we don't want to put the Company too much at risk on that front.

Okay, and then you mentioned that Stanley Baker Hill-- that work in Iraq was going to be over at the end of the third quarter. Is there any update on maybe any additional work in Afghanistan or elsewhere for the joint venture?

No, not for the joint venture. We have some work in Afghanistan in partnership with Baker. We are chasing another contract there with the same partner, but that work is relatively small and certainly is not on the same level of magnitude that Iraq has been.

Thank you.

Our next question will come from the line of Sarkis Sherbetchyan with B. Riley & Company.

Hi guys. Can you hear me well?

We can hear you fine, Sarkis.

Alright, great. A couple of housekeeping questions here; can you breakout D&A by segment please?

Give John one minute to flip through his book.

Well we disclosed this in the press release in the tables but I can go over it again with you if you like. For the Project Management for the quarter, total SG&A was slightly over $20 million and for the Claims business it was $10.3 million.

Is this depreciation and amortization?

He was asking for D&A not SG&A.

Oh, D&A; I'm sorry.

Do you have those numbers broken out?

I don't have those but I can get those for you. Why don't you ask another question and then I'll see if I can find it--

If you'd like you can feel free to email John to respond with the actual numbers.

Okay, sounds good. I guess moving on to the other questions; it seems like the decisions for the project cancellations; was this largely due to financing from the customers. Can you give us some more color on that?

My understanding it's a combination of financing as well as market conditions where those projects are located.

And you also mentioned a couple of projects in the euro zone as well; so there were project cancellations outside of the Middle East (inaudible)?

I said they were primarily in the Middle East. I think six of them were in the Middle East and one was in North Africa.

Okay. And how are collections holding up and is there anything that you can do to potentially bring DSOs down?

Sarkis, we're doing our best. Our DSOs, even with the quarter that we had, sustained about the same it was at the end of the fourth quarter. We're targeting each client. We have monthly meetings to address outstanding receivables and we make concerted effort to get those collected.

Unfortunately, we're in some parts of the world where collections typically are very slow, like the Middle East and North Africa. And we do everything we can to bring our DSOs (inaudible). And given the economy now, it's certainly slower than it was two years ago, but we're making every reasonable effort we can to decrease our DSOs.

Okay. And what do you think about repurchasing shares? There's still (inaudible) quite a bit.

I'm sorry. Can you ask that one more time?

What do you think about repurchasing shares?

We have a share repurchase program that our Board put in place in November of '08; it was increased in August of last year of $40 million. Against that I believe we've spent about $17 million or so. So we have a lot of dry powder in that regard. We have some limits respecting our bank agreement, but we have a pretty large ability to repurchase shares when we think they're undervalued. And given where I last saw the stock price this morning, we think they're undervalued. So that is something we may look at over the balance of this year.

Alright. Thank you very much.

I have that amortization and depreciation. The D&A for the Projects group for the first quarter was $1,379,000; and for Claims it was [$538,000].

Thank you very much.

Our next question will come from the line of Tim McHugh with William Blair.

Yes, good morning. I just wanted to ask on the weakness in the new sales that you mentioned for Q1; was that more so in the Middle East or was it spread across the geographies. And I guess you mentioned a few projects that slipped. Were those also Middle East or was that just spread around?

No, I think it was spread around pretty well.

Okay. And then the cost savings here given that this is primarily people or payroll expense that you've cut out; should we see those cost savings pretty quickly here in 2Q and Q3 or will it take some time?

Yes, I think we'll see certainly a majority of them in Q2 and all of them by Q3. In addition to that, we are continuing to look at our costs to make sure that, given how we're going to be doing the second quarter month by month; we're doing everything we can to keep our overhead costs as low as we can.

Okay, thanks. That's all I had.

Our next question will come from the line of Richard Paget with Morgan Joseph.

Just a quick follow up. You haven't talked much about the domestic market. Have you guys seen any kind of pickup in activity outside of commercial?

Well, we don't really do any commercial in the U.S. The areas where we are-- in public sector and transportation; we do see a lot of work out there and we're working hard to close as much of it; not for the U.S. public sector but everywhere with a couple of exceptions is pretty strong. And we've got some big opportunities.

I think the first quarter was not a good sales quarter for the U.S. PM group, but we expect that to change over the balance of the year.

Okay, so relative to where we were in March, I mean you have I guess seen the pipeline pick up? Is that fair to say?

Do you mean like over the last 30 days?

Yes.

No. I think the pipeline is at the same place it was 30 days ago. We haven't seen a change in it.

Okay, and then a just quick housekeeping-- what should we expect for tax rate going forward?

For the full year, between 15% and 18%.

And then what would be a normalized annual going into 2011?

Again, it depends on the mix; I would say in that range, maybe slightly higher between 18% and 20%.

Okay. Thanks.

We have a follow up question from Arnie Ursaner with CJS Securities.

Sorry I was on mute. I wanted to try to follow up on Richard's question if I can. To avoid again more surprises by your Company, could you focus a little more about April? You mentioned several-- some of the sales you have that were weak slipped. I'm assuming-- I don't want to put words in your mouth-- they were not consummated in April. Is that fair to say?

What I said exactly was that we had a lot of projects we were chasing; some we thought we were going to win and we didn't; and some we expect to win that weren't decided in the first quarter and haven't been decided yet. We hope it will be resolved over the next couple of months and we're confident that a significant amount of those projects we're going to win and bring in some new work.

Okay. Since they caused a huge shortfall in Q1, can you comment on additional cancellations you've had in April that may have affected backlog?

I'm not aware of any.

Okay, and again given the enormous miss in Q1, have you changed your process or reviewed or qualified things that are in your backlog to see if they're likely to move forward?

No we haven't.

Is there any reason you haven't given thought to that?

To qualify our backlog-- how do you expect us to qualify our backlog?

Well you have an order in backlog; if it's a customer where you deem it may need financing or other issues, it might be something where you qualify-- in other words in the past you had indefinite quantity, indefinite work where you will at some point take it out of backlog. If you have more short-term work, a more careful review of your backlog could perhaps give investors a better feel for what you're looking at.

We're constantly going through an evaluation; by constant I mean every month-- of the backlog; how much we expect to get from that client; both short term and long term. Certainly with IDIQs we have to constantly be seeing whether we're getting enough work out of them to keep the full amount of the IDIQ in our backlog and that happens on a regular basis.

But as far as going through and seeing whether our clients have enough money to fund their project, whether the market sector is strong enough to support their project; obviously that kind of qualitative review of our backlog we don't do.

Okay. And your margins in Claims Consulting; obviously this was a very nice positive surprise in the quarter and well above your views of where you thought they would normalize. How should we think about the margin going forward and was there any one-time fee or other item that caused Q1 to be materially above your longer-term views for margin there?

Obviously the Claims group bounces around from quarter to quarter. We did have one material windfall fee. We very rarely do any kind of contingency work, but in the first quarter we received a contingency from a client that resulted in a positive impact to the bottom line of the Claims group of $2 million for the quarter.

Okay. Thank you very much.

(Operator Instructions). And there are no further questions and we'll turn the conference back over to management.

Thank you, everybody. We appreciate your time today. We are as disappointed with our performance in the first quarter as I know you and our other investors are. And we're going to continue to try hard to produce better numbers for the balance of the year. Thank you very much.

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.