Hill International Inc (HIL) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Hill International reports fourth-quarter and full-year 2011 financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Devin Sullivan, Senior Vice President of the Equity Group. Thank you, Mr. Sullivan, you may begin.

Thank you, Manny, and good morning everyone. Thank you for joining us today. Our speakers on this morning'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 begin I would like to remind everyone that certain statements contained during this call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. It is our intent that any such statements be protected by the Safe Harbor created thereby.

Except for historical information discussed during this call, the matters set forth during, including but not limited to, any projections of revenues, earnings, or other financial items, any statements concerning our plans, strategies, and objectives for future operations, and any statements regarding future economic conditions or performance are forward-looking statements. These forward-looking statements are based on current expectations, estimates, and assumptions, and are subject to certain risks and uncertainties. Although we believe that the expectations and 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 our actual results, performance, and achievements, or industry results to differ materially from estimates or projections contained in forward-looking statements include modifications and termination of client contracts, control and operational issues pertaining to business activities that we conducted on our own behalf or pursuant to joint ventures with other parties, difficulties we may incur in implementing our 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 the reports filed with the Securities and Exchange Commission. We do not intend and undertake no obligation to update any forward-looking statements. So, with that said, 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 good morning to everyone joining us today for our latest quarterly earnings conference call. Yesterday, after the market closed, we announced both our financial results for the fourth quarter and full year 2011, as well as a two-year extension of our senior credit facility, both of which we will be discussing this morning in detail. As usual, we will go through the fourth-quarter financial results in detail, first for the Company as a whole, and then for each of our two operating segments. In each case, we will discuss our year-over-year performance as well as our quarter-over-quarter, or sequential performance.

For the fourth quarter of 2011, Hill's total revenue was $122.6 million, a 4% decline from the fourth quarter of 2010. Consulting Fee Revenue, or what we call CFR, for the fourth quarter was $99.6 million, a decrease of 2% from last year's fourth quarter. This drop in CFR was due to a 17% organic decline, primarily driven by the suspension of our work in Libya early last year, partially offset by 15% growth from our acquisitions of Engineering SA in Brazil and TCM Group in California since the beginning of last year's fourth quarter. Hill's earnings before interest, taxes, depreciation, and amortization, or EBITDA, in the fourth quarter was $2.3 million, down 71% from the prior year's fourth quarter.

Our operating loss in the fourth quarter was a negative $1.3 million, compared to an operating profit of $5.3 million in the fourth quarter 2010. Our net loss for the fourth quarter was $600,000, or a loss of $0.02 per diluted share based on 38.5 million diluted shares outstanding. Unusual or extraordinary items in the fourth quarter that negatively impacted our bottom-line performance include the following -- a $2 million increase in Hill's net debt expense as a result of our then-current banking situation to $2.9 million for the quarter from $900,000 in the year-earlier quarter, more on this issue later; a $1.6 million reserve of our investment in a Saudi Arabian joint venture; a $1.1 million adjustment to amortization in connection with our Brazilian acquisition last year; an increase of $700,000 in the impact to earnings from noncontrolling interest in our non- wholly-owned subsidiaries to $800,000 for the quarter from $100,000 a year earlier, this was also the result of our acquisition in Brazil; and, a $600,000 write-down of our investment in a commercial development in Philadelphia, following the sale of the underlying property last year.

On the positive side, we benefited from a $4.4 million tax benefit in the fourth quarter, which was a $500,000 tax expense in the fourth quarter of 2010. Looking at our fourth-quarter performance sequentially, meaning versus the third quarter, Hill's total revenue was down 5% and our CFR consulting fees were down 3%. Despite our success over the past year in winning a lot of new work, significantly growing our backlog, this hasn't yet impacted our Consulting Fee Revenue, and we continue to see some delays in getting staffed up on many of our new projects.

Project consulting fees being down 3% in the fourth quarter versus the third, our gross profit was up 3% with a strong 280-basis-point improvement in our gross margin on a percentage basis to 45.4%, up from 42.6% in the third quarter. This improvement in gross margin, however, was more than offset by a big increase in our SG&A expense to $46.4 million in the fourth quarter from $41.8 million in the third. As a percentage of consulting fees, they were up by 590 basis points to 46.7% of consulting fees from 40.8%. This was primarily the result of the various balance sheet adjustments I mentioned earlier, totaling $3.3 million in the fourth quarter, plus a small decrease in our utilization to 70.6% for the fourth quarter from 72.0% for the third. That results in higher unapplied labor, which is a component of our SG&A expense.

As a result of all of this, our EBITDA was down from $6.2 million in the third quarter to $2.3 million in the fourth quarter. We swung from an operating profit of $1.9 million in the third quarter to an operating loss of negative $1.3 million in the fourth quarter. Our operating margin as a percent of consulting fees went from 1.8% in the third quarter to a negative 1.3% in the fourth. And for earnings per share, we went from making $0.02 in the third quarter to losing $0.02 in the fourth, certainly not a strong finish to the year or what we expected.

We aren't going to get into the full-year numbers, but I would like to make a point about 2011 as a whole. Despite an unexpected revolution in Libya early last year that effectively closed one of our largest and most profitable geographic markets in the world, we achieved record revenue, breaking $500 million in total revenue for the year. Keep in mind that, as recently as 2005, our last year as a private Company, we broke $100 million in total revenue for the first time. So we've grown our revenue nearly five-fold in six years. But for the Libyan revolution, 2011 would have been a fantastic year for Hill for the bottom line as well as for our top line.

Now looking at the fourth quarter performance of our two operating segments separately, total revenue at Hill's Project Management Group during the fourth quarter was $96.2 million, a decrease of 6% from the fourth quarter of 2010. Consulting fee revenue for the fourth quarter at the Projects Group was $73.6 million, a 3% decrease from the fourth quarter of 2010. The Projects Group saw a 24% organic decline driven primarily by the suspension of our work in Libya, partially offset by more than 20% growth from the two project management acquisitions made at the beginning of last year's fourth quarter. Those two acquisitions of companies in Brazil and California exceeded our expectations last year in their performance, and we expect continued strong performance from them in 2012 and beyond.

Operating profit for the Projects Group for the fourth quarter was $6 million, a decrease of 47% in the fourth quarter 2010. Looking at sequential performance, the total revenue of Hill's Projects Group was down 2%, although consulting fees were up 1%, from the third quarter to the fourth. The Group however saw a big increase in gross profit, up 11%, with a 380-basis-point increase in gross margin on a percentage basis, from 37.9% to 41.7%. This was offset somewhat by increased SG&A expense for the Projects Group which was up 10% and as a percentage of consulting fees it was up 270 basis points from 30.9% to 33.6%. About half of this increase was due to the adjustment in the Brazilian amortization that I discussed earlier.

All of this drove operating profits for the Projects Group up 17% quarter to quarter. As a percentage of consulting fees, this was a 110-basis-point improvement with operating margin for the Projects Group going from 7.0% in the third quarter to 8.1% in the fourth. This is still well below the Group's historical operating margin, which has often been in the 15% to 20% range, so we know we have more work to do improving profitability for our Project Management Group.

For Hill's Construction Claims group, total revenue during the fourth quarter of last year was $26.4 million, up 1% from the fourth quarter of 2010. Consulting fees for the fourth quarter of the Claims Group were $25.9 million, a 3% increase from last year's fourth quarter. This growth was entirely organic. Operating profit for the Claims Group for the fourth quarter was $2.2 million, an 18% increase from the fourth quarter of 2010 -- solid year-over-year performance. While we had an improving quarter sequentially for the Projects Group, we had a worsening quarter for our Construction Claims Group in the last quarter of last year.

Looking at sequential performance, the total revenue of Hill's Claims Group was down 14% and its consulting fees were down 12% between the third and fourth quarters. The Group saw a 10% drop in its gross profit, although gross margin as a percentage of consulting fees actually improved by 120 basis points going from 54.5% to 55.7% between the third and fourth quarters. SG&A expense for the Claims Group was up 5%, primarily as a result of lower utilization in the fourth quarter which we typically see because of holidays and vacations in December. As a percentage of consulting fees, it was up 780 basis points from 39.5% to 47.3%. This all drove operating profit for the Claims Group down 51% from the third quarter to the fourth quarter. As a percentage of consulting fees, this was a 650-basis-point decline with operating margin for the Claims Group going from 14.9% in the third quarter to just 8.4% in the fourth. This, again, is well below their normal historical range of 10% to 15% operating margin. The Claims Group underperformed at the bottom line for the quarter as well.

Regarding backlog, Hill's total backlog at the end of the fourth quarter dropped slightly by $12 million to $2.295 billion from $2.307 billion at the end of the third quarter. Twelve-month backlog at the end of the fourth quarter dropped much more significantly to $332 million from $475 million at the end of the third quarter. This was the result of continued delays to the start of the major housing involvement in Iraq which pushed much of the Hill and HillStone backlog for this project past the end of 2012. I'll address this in a little more detail shortly. Hill had net bookings for the quarter of $88 million, a solid sales quarter for our Company but below our expectations which are always to add more net bookings to our backlog in a quarter than we burn off in consulting fees.

Some of the major new contracts announced by us over the past four months since our prior earnings call include the following -- a $20 million extension of our contract with the Abu Dhabi National Oil Company; a $7 million expansion of our work as project manager on a multi-billion dollar Jabal Omar development in Saudi Arabia; two contracts totaling $6 million to provide on-call construction management services for the Los Angeles County Department of Public Works; a $5 million expansion of our work for the Abu Dhabi Health Services Company; a $3 million contract to manage construction on the 30,000-seat soccer stadium in Iraq; three contracts totaling $3 million from the Port of Long Beach in California; a $2 million contract to provide project monitoring services on seven hospitals throughout Spain; $2 million contract to manage the rehabilitation of a municipal district heating system in Romania; a $2 million contract to manage the I-15 interchange project in California; two contracts to manage construction of five separate shopping mall projects in Brazil; a contract to manage the renovation of the Greater Philadelphia Innovation Cluster, in Pennsylvania; a contract to manage renovation of the Nile Ritz-Carlton Hotel in Cairo, Egypt; contract to manage construction of the Red Lion Energy Center in Delaware from Bloom Energy, a green energy developer; and a contract to advise the government of Greece on the privatization of the old Athens International Airport, a property that I think is three times the size of Monaco and more than twice the size of Central Park.

Regarding HillStone and the two contracts that we received in the second quarter of last year to support a multi billion-dollar housing development in Basra, Iraq, those contracts are conditioned on our client TRAC receiving all necessarily financing and government approvals for the development to move forward. We've been actively involved in assisting TRAC throughout this process and we continue to believe that they are making progress toward getting a successful launch, albeit slower than we originally anticipated. We currently expect revenue for Hill to begin in the fourth quarter of this year 2012 and for HillStone to begin at the end of the fourth quarter. We continue to believe that it is likely that TRAC will be able to obtain financing and approval for this project. The amounts included in our backlog related to this project are $1.5 billion of our total backlog, and $35 million of our 12-month backlog as of the end of 2011.

Moving from Iraq to Libya, we believe we are getting much closer to a successful return to that country. We are in active discussions with the new Libyan government to return to work in the projects we were managing and to get paid the more than $59 million that we are owed for past work performed on those projects. Our current estimates for when we expect all of this to be resolved is early in the second quarter of 2012. Finally, as we announced yesterday, we were successful in getting a two-year extension of our current $100 million senior credit facility with a bank group that was led by Bank of America.

The result of this is that we now have sufficient time to finalize the collection of our Libyan receivables, to be able to significantly pay down our bank debt, to improve our bottom-line financial performance, to lower our overall interest rate, which fluctuates based upon our level of debt, as well as we achieved better financial confidence that now will take us out of default, which we expect will give us the ability to lower our overall debt expense, which climbed significantly every quarter of last year. We do expect our debt expense will drop from where it was in the fourth quarter, and that our bottom line will start to benefit from this new agreement beginning in the second quarter of this year. With that, John Fanelli, our CFO, and I are happy to take any of your questions.

Thank you.

(Operator Instructions)

Arnie Ursaner, CJS Securities.

I guess I'll start with Libya. You mentioned that you are hopeful that you can have this resolved early in the second quarter. What specific factors, if there are any, are you citing or would you cite that would lead you to believe it will be resolved by then?

Our management in the Middle East and North Africa is currently in active discussions with the government. We have been asked to submit a proposal to return to work on the projects we were managing. The government has told us and others that their top priorities in the short-term are in the healthcare and education sectors, and most of the projects that we are managing for the government were in the education sector, higher education. The primary client that we had in Libya, which was ODAC, the Organization for the Development of Administrative Centers, has submitted their budget to the government which included amounts for our projects and for us to be paid in this year. We understand that budget has been approved.

We are having active discussions with ODAC regarding the timing of our return to those projects. They want to get what's now called Tripoli University as open as possible by September when the new class comes in. And we are also having detailed discussions with them regarding the amount and the timing of our payments. So we think we are closer than we've been for the last year in getting both back to work on the project which is important, to bring back that revenue and profitability to our Company, as well as to get paid in the amounts that we are owed.

David, two more follow-ups. I believe you had $44 million or so of backlog from that country. If you get this new work, is that included in the backlog you have, or would that be new incremental work? And then I have a quick follow-up after that.

We're going to have to take a look at -- once we have our proposal accepted by the government and we're negotiating a new contract, which we expect we will, we'll have to make an adjustment. We do have $44 million of total work in our backlog related to Libya. We don't yet know whether the new work is going to be more or less than that but once we do we will make an adjustment.

Okay. And from a risk profile since you obviously got surprised by the magnitude of the problem going in, what specific steps does Hill intend to take to avoid this being a problem going forward to make sure you get paid?

Yes. We had a fairly unique situation because we had essentially almost all of our work tied up with one client on one series of projects. And Libya went through a review process beginning in about April of 2010 where they were reviewing foreign contractors, the amount they were billing, the terms of the contract, et cetera, which resulted in payment being stopped to us for about seven or eight months. We were doing about $6 million a month so it didn't take very long for our receivables to really balloon. We had gotten through that process with a clean bill of health. We were just beginning to get a pay down of those overdue receivables when the revolution occurred. So it was obviously unfortunate timing for us, certainly good timing for the people of Libya who now have shaken off a 42 -year-old dictator -- he wasn't 42, his rule was 42 years.

We think great things are going to happen in Libya. We think we're ideally positioned to benefit from that because of our prior experience there, our knowledge on the ground and specifically with respect to these projects which we believe are going to be moving forward. We're certainly going to be doing everything we can to minimize our exposure going forward, but we have a client in the Libyan government that certainly does not have cash issues. It's an oil-rich country with tens of billions of dollars of overseas assets of the Qaddafi regime now being unfrozen. So we think we have certainly a client that has the ability to pay us and the wherewithal to pay us once we get through what we've gone through.

Will you demand payment before you do the work?

It's difficult for us when we're negotiating any contract with any client to demand anything. Certainly we try to get the best payment that we can, the best payment terms that we can, the best contractual protections that we can. When we originally began working Libya, our very first contract there was for $55 million. We were able to negotiate a 10% upfront payment which we received. I know we're having discussions regarding the same kind of advance payment so that we are more ahead of the game. But certainly, the paydown of the existing receivables is also a condition of our continuing work in Libya and the government knows that.

Thank you.

Thank you, Arnie.

David Gold, Sidoti & Company.

David, on the claims business, I guess curious how to think about that. Broadly I guess over the past few months, sort of thought we were out of the woods there, so to speak. But it seems like it softened up into the fourth quarter. Give us a sense of what's going on there, how much of it you view as seasonal and whatnot, and what you think now that we are a couple months into 2012?

Yes. The claims group certainly is not seasonal, it does have its up-and-down months, and traditionally, December is its worst bottom-line months of the year as you see a significant amount of people on holidays or vacation. The claims performance can be sporadic. It's a short-term consulting practice. It tends to bounce around a lot more than the project management group does which is the business of long-term contracts and steadier utilization. Utilization was down for the claims group significantly, unfortunately for the fourth quarter, but we typically see that.

We see a lot of work coming in the door, though. We think 2012 is going to be a better year, although given the fact that the first quarter of 2011 was the worst quarter in the claims group's history, and they had to dig out of that hole and did so very quickly and very successfully in the second and third quarters, we think this year is going to be even better. 2011 was a record year in consulting fees and total revenue for the claims group. The profitability was slightly down from 2010 only as a result of the bad fourth quarter. But we expect it to have a record year in 2012.

Okay. And then on G&A, even if we adjust for the write-downs that you have, it still ticked up quite a bit, in the fourth quarter. Give us a sense -- I'll take it from either one of you, for what a good run rate there is? And thinking about that there may be some cost reductions given that it's ticked up a bit?

David, this is John. We are going to focus more on our overhead reduction, but the increase in SG&A really focuses on improved utilization. So if we improve our utilization and really take a look at our overhead reduction, which we expect to do for 2012, we expect our overall percentage of our revenue, the CFR, to be in the 38% to 40% range.

Okay. Got you. All right. And just one other, John, did you give the breakdown for the backlog?

No. I can give it to you now.

Thanks.

I'll start with total backlog. PM business -- $953 million. The claims business -- $42 million. HillStone -- $1.3 billion for a total of $2.295 billion. The 12 month backlog, PM -- $280 million. The claims business -- $42 million. And HillStone -- $10 million.

Say that again, HillStone, did you say $10 million?

$10 million.

Okay --

And the total is $332 million.

Perfect.

That's in line with what we talked about earlier which was that we expect HillStone's work to begin at the beginning of the fourth quarter and HillStone's work to begin at the end of the fourth quarter, based on what we know right now.

Say that again, David?

I said our expectations as of right now, and it's reflected in the 12-31 backlog, and this is in 12-31's expectations it's March 7's expectations, is that Hill's work is going to begin in the beginning of the fourth quarter and HillStone's work is going to begin at the end of the fourth quarter.

Got you. Perfect. Thank you both.

You're welcome.

Thank you, David.

Chase Jacobson, William Blair & Company.

So just on the Iraq project, when do you expect the financing to be done now considering you expect your work to start in the fourth quarter?

Our expectation is that the financing as well as everything else will be in place sometime in the second quarter.

Okay. And has there been any change in the structure of the financing, or in terms of how we should think of your profitability on that project since last quarter?

There's no change in how you should view our profitability. One of the delays has been that our client TRAC Development Group has changed banks. It's still a Middle Eastern bank but a different one, but a bank that they think provides better capability to fund the entire development. A bigger, wealthier bank. So that development was relatively recent. So our expectations currently is that the second quarter, we're hoping that it's obviously done and in place is soon as possible. But I can only remind everybody that this is TRAC's development that they have to move forward, and TRAC that has to put everything in place, not us. So we're just basically reporting what they're telling us, even though we're actively involved in the process, we're not the ones controlling it.

Okay. That's helpful. Thanks. And then looking at the backlog and the revenue in the project management business, backlog has been doing pretty well there. I think this is the first quarter it's been down sequentially I think since the beginning of 2010. Was there a particular end market or region that you felt was worse than you expected this quarter? Or was it timing and should we expect that to start turning positive again early in the year based on your prospects right now?

It's really not predictable going forward. You never know what you're going to win and what you're going to lose. There were a couple of very large projects that we expected to win and we didn't that would have changed the quarter drastically. One of the reasons why I went through with the whole long list of contracts we won was to show really the diversity of the projects throughout the US, Latin America, Europe, the Middle East. We continue to see strength in certain key markets, probably the strongest for us at the moment are the Middle East, the US, and Brazil.

Okay.

On the project management side.

Okay. So even excluding the $200 million or so that's there from the HillStone/Iraq project, backlog is still up pretty good year-over-year. Did that organic revenue start to turn once you get past the tough comps from Libya?

Yes. We think so. We have won a significant amount of work. The fourth-quarter 2010 was a record quarter for us, and then the next I think three quarters were each a record going forward. I think the fourth quarter was the first time it wasn't. We've brought in a lot of work over the last five quarters. On some of that work, it has been delayed. Some of the work unfortunately like in the US we get a lot of IDIQ contracts that are subject to getting task orders going forward.

Sometimes those get delayed. We're starting to see, especially in the US, far more opportunities to put those contracts into action, convert them to revenue. We're seeing some big opportunities as well that we expect, we think we can win in the first half of this year that are really going to help us in the second half. And our goal for the business this year is to make sure that we end the year with our consulting fees up and our SG&A down. And we think we can achieve that.

Okay. That's helpful. Thanks a lot.

(Operator Instructions)

Gerry Sweeney, Boenning & Scattergood.

Just to follow up on the previous question about the ramp-up in some of the staffing. Is there any way you can manage that or is that completely out of your hands and you have to wait for task orders?

It is almost entirely reactive to what our clients authorize us to do.

Okay.

And I think I've mentioned before that in the boom years, we were seeing award decisions being made very quickly. We were seeing awards turn into contracts quickly and contracts turn into on-the-site staffing and revenue fairly quickly. That has definitely slowed down over the last four years. And even as we see an improving market, we still see things moving more slowly than they did in the 2003 to 2007 timeframe.

Is there any potential for some of those contracts to go away or not be funded or the task order to be canceled?

There's always that risk, but we don't see any of that. We had no cancellations in the fourth quarter to any of our major contracts in our backlog. I can't think of anything -- top of my head that is at risk --

There's no trend in that direction?

Or we see as speculative. No trend at all.

Okay. Got it. And then could you run through the expenses -- I got the $2 million increase in debt, then you laid out three or four other items. Could you run through those again, and then also, were they expected going into the fourth quarter or during the fourth quarter or was that something that some of those write-downs and charges materialized after the quarter ended when you were finishing up the books?

Let me run through the three of them, they were balance sheet adjustments --

Yes.

-- as opposed to increases quarter over quarter. And they totaled $3.3 million. The largest was a $1.6 million reserve on a Saudi Arabian joint venture that was services we had provided. The expectation of payment, if and when a project was won by the joint venture and our work moved forward; to date it hasn't. And our auditors insisted on a write-down of that from our balance sheet. Their is still a chance that might move forward in the future, but the longer it goes, the less hope we have.

Got it.

There was a $1.1 million adjustment from how we were amortizing certain intangible assets related to the acquisition of Engineering SA in Brazil. We had to adjust the timing over which we amortized it, so it's essentially doubled how much amortization we had to take. We owned the business for a little more than three quarters, so we had to take that entire adjustment in the fourth quarter. The upside is we'll burnoff the amortization twice as fast as we otherwise would have. And the other one was a $600,000 write-down in connection with the end of our real estate development entity in Philadelphia. The property underlying that was sold last year. We realized a significant amount of cash from that sale, but it was $600,000 less than our balance sheet investment in the Company.

Okay.

It totaled $3.3 million, all of which we took in the fourth quarter.

And was there a $700,000 number that was in there as well, maybe not for the balance sheet?

I had mentioned a $700,000 increase in what's now called noncontrolling interest, used to be called -- (multiple speakers)

Oh, yes. Got it. Okay.

-- as a result of the Brazilian acquisition where we acquired 60% of that business. And so that number on the income statement went to $800,000 for the fourth quarter versus only $100,000 in the fourth quarter of 2010.

Got it. Okay. I was not writing as quickly --

Nobody can write as quickly as I can talk.

I think that is it. I appreciate it.

Thank you.

Thank you, Chase.

Arnie Ursaner, CJS Securities.

A couple quick ones for John. John, what tax rate should we be thinking about for the upcoming year?

Based on our budget, we're using 15% to 20% effective tax rate.

Okay. And what is the rate on the new debt?

The debt is really based on certain levels of pricing, which ties to our consolidated leverage ratio.

Okay.

And based on our current leverage ratio, it's 7.5%. So as we improve the leverage ratio, it will also lower our interest rate and also as we pay down the debt, our total interest expense will be reduced --

Our expectation is that a significant amount of money that we get in from Libya, hopefully as I said in the second quarter, is going to be used to pay down our senior credit facility and we'll get a double bang for our buck, meaning that we'll be paying a lower interest rate because our leverage will be lower, on a lower amount of debt. So we think beginning in the second quarter, our debt expense, which was incredibly high in the fourth quarter, is going to start coming down significantly.

Okay. Were there one-time fees in the debt expense in Q4? And since you finalized your agreement in Q1, will there be one-time fees in Q1?

You're correct on both points. In the first quarter of 2012, we're expecting fees in the amount of around -- close to $2 million. And that's a combination of the forbearance fee that we paid in January that related to the forbearance agreement and also costs relating to finalizing the second amendment to the credit agreement of around $800,000. And then on top of that, you had your normal interest expense on the outstanding borrowing.

So your interest expense in Q1 will be materially higher than what you actually had in Q4 because of the one-time fees?

That is correct.

What were the one-time fees in Q4, please? Were there any?

Well, there were some forbearance fees from the previous -- because we went through multiple forbearance agreements, and then we also incurred some professional fees relating to that. And they were in the probably $600,000 to $700,000 range.

Of one-times?

Yes.

The bank's also tried to get my firstborn son, but --.

But you only have daughters.

The joke is on them, I have four daughters.

They can try all day, they are not going to get your son. (laughter)

Going back to HillStone for a couple quick tidbits, I think when you were speaking earlier, David, you had mentioned $35 million in your 12-month backlog. You gave us $10 million specifically for HillStone, so am I doing the math that you have $25 million for HillStone embedded in your project management backlog?

That is correct.

It's related to that project; it's not for HillStone. It's Hill's direct contract on the project management side. $25 million for Hill and $10 million for HillStone.

And then you mentioned the financing you expected to be in place by Q2 but yet you didn't expect any benefit until Q4, so why is there that three or four month gap, if you will?

Just that we're trying to be as conservative as possible on the backlog projections.

Okay.

It obviously has been delayed beyond when we thought it would. When we announced the contract in June of last year we expected it would be getting for us in the fourth quarter of 2011, which became the first quarter and is now, obviously, the second quarter.

Okay.

We're just trying to downplay expectations at this point given that the continued delays obviously give us some concern. But as I said, we still think the project is more likely than not to move forward.

And actually back in November 2010 in your earnings call, I think you indicated specifically at that point there were other countries evaluating this type of work that maybe haven't had some of the other political and financing issues. There are some very strong countries in the Middle East that would have been targets. Of the various people you were talking to, what are you hearing about why they haven't moved forward?

I think we've heard different things. HillStone continues to talk to other clients besides TRAC on other developments probably the one with the most potential is a housing development in Saudi Arabia. Saudi has committed to spending north of $60 billion on housing for its people going forward. We are in discussions regarding a joint venture with a Saudi partner to create a development entity in Saudi Arabia to take advantage of that would use both the HillStone system as well as Hill's project management services. That's probably the biggest opportunity but there's others that HillStone is looking at as well throughout Africa and Latin America and the Middle East.

And then Saudi Arabia, have they chosen others to do some of the work and you're competing for different work, or have they not given any contracts yet for this $60 billion opportunity?

The only contract I'm aware of is a big contract they gave for master planning over the entire process. It went to one of our competitors -- I'm not aware of any contracts specifically that were given out by the government for development and construction of housing. I think right now they're focused on the services and pulling it all together. We think we could be one of the first contracts that they give.

And have they indicated any sense of timing?

I think probably about the same timing, second quarter of this year.

Okay. And I know you gave a lot of contract wins you have, but maybe one of the things I'm trying to get a feel for is if you could summarize or give us the percent of your backlog by various regions. It just sounds like, based on the number of awards, and I could be wrong on this, that you're seeing increased exposure to the Middle East. Maybe facts would change my thinking.

No. The Middle East continues to be one of our strongest regions. We don't break down the backlog by region. But I can tell you where we're seeing a lot of activity is the Middle East, and probably the hottest markets there for us right now are Saudi Arabia and Iraq, and I'm talking about Iraq outside of the TRAC housing development. But we're seeing work directly for the Iraqi government. As I mentioned, we won a soccer stadium there recently. We've won some other work lately that we haven't yet announced, but hopefully we will in the short-term future.

They have a significant amount of money to help rebuild their country and the oil revenues to pay for it. We expect Libya before too long is going to be a major area of new revenue. Brazil continues to sell well. We see a lot of work coming to us in that country. And the US continues to be a strong market, particularly where we're strong, which is the Northeast and the far West.

Okay. That's all I have. Thank you.

Thank you. We have no further questions in queue at this time. I'd like to turn the floor back over to Management for closing remarks.

Thank you, everybody. We appreciate you joining us this morning. We're looking forward to continuing to improve our business in 2012, and we appreciate your continued interest in our Company and our stock. Thank you all for joining us.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.