Hill International Inc (HIL) 2013 Q4 法說會逐字稿

Greetings, and welcome to the Hill International reports fourth-quarter and full-year 2013 financial results conference call.

(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.

Thanks, and good morning, everyone. Thanks for joining us today. Before we begin, I'd like to remind everyone that certain statements made during this 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, the matters set forth herein, including, but not limited to, any projections of revenues, earnings, or other financial items; any statements concerning plans, strategies, and objectives, or future operations; statements regarding future economic conditions or performance, are forward-looking statements. 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, estimates, and assumptions reflected 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 are set forth in the risk factors sections and elsewhere in the reports filed with the Securities and Exchange Commission. We do not intend and undertake no obligation to update any forward-looking statements.

That said, I'd now like to turn the call over to David Richter. David, please go ahead.

Thank you, Devin. Good morning to all of you joining us today.

Yesterday after the market close, we announced our financial results for the fourth quarter and full year of 2013. Without question, last year we had the best operating performance in our Company's history. Total revenue, consulting fees, EBITDA, operating profits, and total backlog all climbed to new records. And most importantly, our Company returned to profitability after two years of net losses.

But to this morning's call, we're going to focus, as we always do, on our quarterly results. Total revenue for our fourth quarter was $145 million, an increase of 15% from the fourth quarter of 2012. Consulting fee revenue for the fourth quarter was a record $130.9 million, an increase of 18% from last year's fourth quarter. This quarter consisted of 17% organic growth, plus 1% growth from our acquisition of Binnington Copeland in South Africa last year.

Our geographic breakdown in the fourth quarter was as follows. The Middle East was our largest geographic market, at 44% of our consulting fees, and is up from 35% from the fourth quarter of 2012. The US and Canada were 22% of our consulting fees in the fourth quarter, down from 26% for the fourth quarter of the prior year.

Latin America was 10% in the fourth quarter, down from 13% a year earlier. Europe was 13% of our consulting fees, down from 19% a year earlier. Africa was at 5% in the fourth quarter, up 3%. And Asia-Pacific was also at 5%, up from 4% a year earlier. Every region except Europe and Latin America grew in absolute dollar terms in the fourth quarter of this past year versus the fourth quarter of 2012.

Africa, which grew by 75%, was our fastest-growing region due to strong organic growth, as well as our acquisition of Binnington Copeland last year. That was followed by the Middle East, which grew 51%, and Asia-Pacific, which increased by 47%. Europe and Canada were essentially flat in the fourth quarter. Latin America was down 11%, and Europe was down by 15%.

Company-wide, our gross profit in the fourth quarter rose to $58.7 million, up 22% from the fourth quarter of 2012. Our gross margin as a percentage of consulting fees improved by 150 basis points to 44.8% in the fourth quarter versus the same quarter in the prior year. This increase was the result of improving gross margins in both of our two operating segments.

Our SG&A expense in the fourth quarter was $44.8 million, up only 7%, despite the 18% increase in consulting fees. This resulted in a decline of our SG&A margin of 39.5% and a 400 basis point drop year over year.

This was higher than our average for the year, which is typical, since December is almost always the worst month of the year with respect to utilization, and was again this past year. But for the full year, our SG&A margins came in at a record low 35.8%, right in the middle of our forecasted range of 35% to 37% for the year.

Given our leverage and our higher revenues, [yield] EBITDA for the fourth quarter jumped by 322% year over year to $9.2 million. EBITDA margin as a percentage of CFR was 7.1% in the fourth quarter, up 510 basis points from the year earlier's fourth quarter.

For the full year, our EBITDA was a record $41.3 million, a huge jump from 2012, when we achieved EBITDA of only $15.8 million. On a percentage basis, our EBITDA margin in 2013 was 8.1%, the highest it has been since 2009.

Operating profit in the fourth quarter was $7.0 million, much improved from a $300,000 operating loss during the fourth quarter of the prior year. But our operating margin in the fourth quarter was only 5.3%, well short of our goal of 10% operating margins, so we have much room for continued improvement in this regard.

Regarding the bottom line, we had small net loss in the fourth quarter of $1.3 million, or $0.03 per diluted share. That is versus a consensus estimate of a $0.01 loss for the quarter. This was much better than the fourth quarter of 2012, when we posted a net loss of $22.5 million, or $0.58 per diluted share. This past quarter's loss was primarily due to our ongoing high interest expense, an unusually high tax expense for the quarter, and the low utilization I mentioned earlier.

For the full year, our Company achieved profitability for the first time since 2010. Last year we had net earnings of $1.6 million, or $0.04 per diluted share. We certainly don't think our turnaround is complete by any means, and we tend to focus in 2014 on continuing to grow our topline, improve our operating efficiencies, and lower both the amount and the cost of our long-term debt.

This last item is getting more achievable, because in the fourth quarter we continued to have very strong operational cash flow. Total operating cash flow during the fourth quarter was a positive $12.5 million, and total cash flow was a positive $3.7 million.

Following up on a strong third quarter as well, our operating cash flow for the past two quarters was a positive $27.5 million, and total cash flow was a positive $8.5 million. This was the best six-month period for operating cash flow in our Company's history, and a trend we expect will continue in 2014.

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 $111.8 million, a 13% jump from the fourth quarter of 2012. Consulting fee revenue for the fourth quarter at the Projects Group was $99.0 million, a 17% increase, and entirely the result of organic growth.

The breakdown of the Project Group's growth and consulting fees was up 1% for the US, and up 23% internationally. The Projects Group saw a 20% increase in its gross profit, with $40.1 million for the quarter, with gross margin on a percentage basis at 40.5%, up by 110 basis points from last year's fourth quarter.

Despite 17% growth in consulting fees, SG&A expenses for the Projects Group were actually down 1% in the fourth quarter to $28.4 million. As a percentage of consulting fees, SG&A expenses were down significantly, to 28.7%, a 530 basis-point decrease from the prior year's fourth quarter.

Operating profit for the Projects Group for the quarter was $11.7 million, a 153% increase from the fourth quarter of 2012. Operating margin as a percentage of consulting fees was 11.8%, a 630 basis-point improvement, and more than double what it was a year earlier. All around, just a great quarter for our Project Management Group.

For Hill's Construction Claims Group, total revenue during the fourth quarter was a record $33.1 million, a 23% increase. Consulting fees for the Claims Group was a record $31.9 million, a 22% increase from the prior year's fourth quarter.

The breakdown of the Claims Group's growth and consulting fees was 19% organically, and 3% from the acquisition of Binnington Copeland last year. Geographically, it was down 4% for the US and Canada, and up 29% internationally. The Claims Group saw its gross profit rise by 27% to $18.5 million, and saw a big improvement in its gross margin to 58.1%, up 230 basis points from the prior year's fourth quarter.

SG&A expenses for the claims group were up 25% to $16 million in the fourth quarter. As a percentage of CFR, they were up slightly, by 100 basis points, to 50.1%. Getting it's SG&A margin well below 50% is certainly an area the Claims Group will be focusing on in 2014.

Fourth-quarter operating profit for the Claims Group was $2.5 million, an increase of 47% from the fourth quarter of 2012. As a percentage of consulting fees, this was a 140 basis-point improvement from the year-earlier quarter, with operating margin for the Claims Group going to 8.0% in the fourth quarter of last year. Both of our Projects and Claims Groups saw record results for the full year of 2013, and we congratulate them for their achievements, but we are expecting even better performance this year.

In addition to the SG&A incurred by our two operating segments, we also incur SG&A in our Corporate Group. For the fourth quarter, our corporate SG&A expenses were $7.3 million, up just 9% from the year-earlier quarter. As a percentage of consulting fees, it was 5.6%, down 40 basis points from the year-earlier quarter, and getting closer to our goal of having our corporate expenses under 5%.

Regarding our backlog, our Company's total backlog at the end of 2013, as we previously announced, was a record $1.027 billion, up 8% from the end of the third quarter of last year, and the first time in our Company's history that we talked $1 billion in backlog. This backlog consisted of $984 million from our Projects Group, and $43 million from our Claims Group.

12-month backlog at the end of the year was a record $394 million, up 3% during the fourth quarter. This was broken down into $351 million from our Project Management Group, and $43 million from our Construction Claims Group. We had net bookings during the fourth quarter of $197 million, which equates to a book-to-bill ratio of more than 150%.

On both of these metrics, it's an outstanding sales quarter for our Company. We also added another $10 million of backlog from our December acquisition of Collaborative Partners, a Boston-based project management firm.

Some of the major new contracts we announced over the last four months since our last earnings call include: a $54 million contract from the governor of Basra in Iraq to manage facility and infrastructure development under their 20/14 master plan; an $18 million extension of our work to provide PM services for the expansion of Bahrain international Airport; a $17 million extension of our contract to provide project management support services with Southern California Edison; a $10 million contract to manage construction of two mixed-use tower projects in the Lusail District of Doha in Qatar.

Three contracts totaling $10 million to manage various highway improvement projects in Southern California; four contracts totaling $8 million to manage the development of four wind farms in Brazil; a $7 million contract to provide project management oversight services to the United States Federal Railroad Administration; a $7 million contract extension to continue providing project management services on the development of the King Abdullah Financial District in Riyadh, Saudi Arabia.

A $3 million contract to manage construction of the Frost Museum of Science in Miami; a $3 million contract from TSA's Region 2 to manage their energy savings performance contract program; a $2 million contract to manage construction of the Al Samawah Olympic Stadium in Iraq; and quite a few other major wins, soon to be announced.

Following up on the guidance that we gave for consulting fees in 2013, we are also providing consultancy guidance for 2014. Based on current market conditions and the backlog amounts I discussed earlier, we estimate the consulting fee revenue for 2014 will be between $575 million and $600 million for the year.

This guidance, which is based on organic growth only, reflects approximately 12% to 17% growth in consulting fees for the year. While less than the 23% growth we saw in 2013, we believe that this growth is achievable and will represent a very successful year for our Company.

With respect to Libya, as we announced a few weeks ago, we have continued to collect cash on our long-overdue receivables from the Libyan government. To date, we have now collected nearly $10 million against what was a $60 million account receivable. The most recent payments were made primarily in US dollars, and we expect more payments in the near future.

While there is no agreement or timetable for further payments from Libya at the moment, we are hopeful that we will receive all remaining monies owed to us from the Libyan government during 2014. We are currently engaged in active discussions with them over further additional payments, as well as several new contracts that we expect will see us return to Libya later this year.

With that, John Fanelli, our CFO, and I are happy to answer any of your questions.

Thank you.

(Operator Instructions)

Our first question is from Lee Jagoda of CJS Securities. Please go ahead.

Hi, good morning.

Good morning, Lee.

Just a couple questions regarding your guidance. First off, is there any assumption of work in Libya in that 12% to 17% growth?

John?

Very minimal, around $5 million.

Okay. And then, does the growth guidance assume you win the Oman rail network project that has been discussed in various trade press?

No, it doesn't, certainly with anything there were [term limitations].

Okay. Can you just update -- ?

And just to follow up on that statement. If we do win that project, and it's in the works for several quarters now, and we don't know when the decision is going to be made. If we do win that project, we'll win a [five files on], it would be the biggest contract in our Company's history and would change these numbers significantly.

Well, I mean, your guidance would have to imply that it includes some of the work you are currently chasing, just because the 12-month backlog is less than the $575 million to $600 million.

It obviously includes the fact that we are going to win work this year. It just doesn't include any specific contract. Make-it contracts, like the Oman rail would be for us.

Okay. And one last one, and I'll hop back in the queue. In terms of the Oman airport contract you are currently doing work on, when do you expect it to conclude, and what did it contribute in both Q4 and 2013 for you?

We expect that contract is going to go through at least the end of 2015.

Through the end of 2015?

Of 2015. So two more years. In the fourth quarter, contributed about $14 million of consulting fees. And I believe it was somewhere on the order of $45 million to $50 million for the year, the full year, John?

Yes.

Perfect. Thank you.

Thank you. The next question is from Chase Jacobson of William Blair. Please go ahead.

Hi. Good morning.

Good morning, Chase.

Can you update us on your expectations in Libya with regards to how much of the future payments will be in US dollars? And of the US dollars that you have received, are those in -- are those still being held overseas in foreign accounts?

Yes. Those are the terms of our contracts, we expect the majority, probably about two-thirds of the funds, or possibly more, of the funds that we receive from Libya would be paid in US dollars. And there's also a small component that's paid in British pounds.

Okay. Are those dollars available in the US, or do they have to be repatriated?

No. The funds that we received most recently in US dollars and British pounds has already been repatriated.

Okay. That's helpful. And then the Middle East has been very strong for you guys. Some of the recent commentary has suggested that you continue to see a lot of opportunities there.

How sustainable is the growth that we have been seeing in the Middle East? And when we look at the guidance for this year, how much of that do you expect to be coming from the Middle East? Does it go up from 44% of revenue, closer to 50% by the end of the year? Any color there would be great.

Yes, yes. When you have a year like we just had with the Middle East, and you're going 50% to 60%, as the denominator gets bigger, that becomes harder to achieve. Certainly, we don't expect those kind of growth rates. That's one of the reasons why we gave guidance that was quite a bit lower this year than last year.

But there's certainly plenty of opportunities in the Middle East. One of the benefits that we've seen is, we are viewed there as one of the top-tier competitors. The size contracts that we are winning over the last two years has gotten significantly bigger.

We've been successful in staffing the management projects. I think that we'll continue to see those larger projects, especially as we made a move more into the infrastructure side of that market, less so on the building site.

But you have a significant amount of rail, airport, highway, hospital, school programs all throughout the Middle East. Governments are spending more and more money on those areas, and we expect to continue to benefit from them. As the denominator gets bigger, as I said, 50% to 60% growth becomes that much more difficult to achieve.

Okay. So it sounds like it should be, though, still increasing as a percentage of the total as you go through the year?

Yes. I don't know if we are going to hit 50% for the year, but it's certainly heading in that direction.

Got you. And then one last one. On construction claims, you mentioned it briefly, but can you just give a little bit more color on the higher SG&A and what's being done to get that back down so we can see the higher operating margin that you kind of -- pretty good margin over the last couple quarters. So any color on what you are doing there to get that back up would be great.

Yes, we were a little surprised it was that high there. Claims, we've had a good quarter, so an improvement from the year-earlier quarter. But as is often the case, the fourth quarter is not the best quarter of the year for the Claims Group because of holidays and vacations and issues like that related to December, which is generally our worst month of the year, utilization-wise.

We're going to be working with the Claims Group over the next couple months to see how we can get that number down. The Claims Group and the Projects Group both have targeted operating profits of 15%.

They've been heading back towards that number. We have achieved it yet since the [bisection] began. But I expect that we will, and a big part of that is going to be getting their SG&A down, because they can't do it simply on gross margin expansion alone.

Okay, all right. Appreciate it. Thanks.

Thank you. The next question is from Gerry Sweeney of Boenning & Scattergood. Please go ahead.

Good morning, guys.

Good morning, Gerry.

Quick question on the-- just to follow up on that SG&A. I did notice the project management, the gross margin was up above 40% in the quarter, as well. But it looks like the SG&A picked up there, as well, and it didn't quite see a follow-up through the operating line. I mean, it was a good margin, but with gross margin up 2.5% to 3%, I thought I would see a little bit more flow into. Any comments on that? Is that another seasonality issue there?

No. (inaudible) The SG&A expense in the Products Group was actually down in absolute dollar terms, down 1% from the quarter.

With the pick-up in gross margin, it could typically run between 35% and 40%. This quarter it was actually over 40%, which was a great quarter, and we certainly hope it will continue. We see their operating margins continuing to improve.

Okay. Got it. And then talking about -- obviously, the Middle East has been doing great. Any comments on maybe the US or some growth opportunities here in the US or Latin America and Africa? Just see where you see that going, maybe in the next -- for 2014 and beyond?

Yes. On all those different fronts, certainly, as we continue to improve our balance sheet, which we expect to do this year, working on several fronts to accomplish that, in addition to our ongoing operating cash flow. We certainly expect to get back into acquisitions in a bigger way than we've seen over the last couple years.

A big focus of our acquisition program is going to be on the US. We'll see a lot of candidates and a lot of opportunities for us to improve our bottom line by improving our critical mass throughout the country. And also being able to fill in some geographical gaps that we currently have in the US. There are certainly a significant number of acquisition candidates, and those are easiest to integrate, and we see the most value added from doing acquisitions here domestically.

I don't see us doing any acquisitions in the near future in Latin America. But we certainly expect to continue to see -- expect to see organic growth again in that region. Brazil has been a little hard hit.

You saw the market there was down for us. A big part of that was due to exchange rate fluctuations with the Brazilian reals, but some of it was just an organic decline. But I don't expect that we'll be doing acquisitions there. I think we'll be relying more on organic growth picking up.

Africa, as you saw, was our biggest grower. It's a very small region for the Company overall. But it grew by almost 75% [on setti]. About half of that was organic growth and half of it was related to our acquisition in South Africa of Binnington Copeland.

Both groups, Projects and Claims, are looking at additional growth in Africa. They see it as a good market. We may look at acquisitions there.

Certainly, South Africa looks like it's a great market for us to be in. We've been in there -- in that market now for nine months, Claims only, but we see an opportunity to build a PM presence there long term and to use that as a launching pad for more opportunities in sub-Saharan Africa.

Okay. Thanks. Appreciate that update.

Now, back to backlog and guidance. I know that this is a rule of thumb, or general, back-of-the-envelope calculation, but I would look at backlog times 130% to 140% gives, again, a back-of-the-envelope kind of view of what revenue could be for the next 12 months. With 12-month backlog at $395 million in that area, it still comes out to, at the upper end, $550 million in revenue, and your guidance is $575 million to $600 million. Are you expecting more of that full backlog to trickle down into the 12-month backlog? Just want to get a -- true that up a little bit, if possible.

Yes. I think what you are going to see is -- and what we're hoping to see is, we've been having a lot more success on the sales side. So that number may be even above the higher end of the 140%.

We have had two years of just fantastic sales, and we expect that to continue to drive our growth. And I think we will see more of a ramp-up over the course of this year. I think we are also going to see more growth out of the Claims Group this year, and the Claims Group traditionally has very little 12-month backlog.

Okay. Got it.

So that would (multiple speakers) apply to them as much as it applies to the PM operations.

Okay. Understood. All right, that's helpful. Thank you.

Thank you. The next question is from Alan Weber of Robotti & Company. Please go ahead.

Good morning. On your call, you mentioned the cash flow for the year and the quarter. What was that?

Yes, let me go back to that. The cash log -- I did mention it for the whole year. The cash flow for the fourth quarter, operating cash flow was $12.5 million. Total cash flow was $3.7 million. For the last six months of the year, for the third and fourth quarters combined, our operating cash flow was $27.5 million, and total cash flow was $8.5 million.

What's the difference between the two numbers?

There's three components to our cash flow. Operational cash flow from our operations; we have financing, which is borrowings and repayments under our credit facilities; and then investments.

So the nine months, it showed that you -- because I didn't see this for the year, for the nine months, it showed net cash provided from operating activities, or $8.9 million. What was that for the year?

John, do you have those --

$21.4 million.

Okay, great. And how much of that's from Libya in the fourth quarter?

In the fourth quarter, none of it was from Libya.

All the payments came in the first quarter of 2014?

We had some payments that were made in the third quarter of 2013, about $3 million worth, and in the first quarter of this year, we collected about almost $7 million.

Okay, great. Can you just talk about what you expect in terms of cash flow and the balance sheet relative to your EBITDA for 2014?

I'm not sure I understand your question. Cash flow relative to EBITDA?

Yes, in other words --

As a percentage?

Well, no. If you take the EBITDA, whatever my projection would be, less your interest, and less taxes, how that would line up with the actual operating cash flow?

There is no strict formula. It certainly bounces around. Certainly, in the last half of last year, operational cash flow was better than our EBITDA.

I think in large part, that was because we had some deferred payments from our ramp-up on the work at the Omani airports program. And we saw a lot of that cash flow hit us in the second half. So I would say, for this year you would see the [gar] be at or around EBITDA.

And it also depends on our timing of our refinancing of the debt, because that has a major impact on our cash.

Right. Okay. Okay, great.

And also the future -- Libya's payments will also come into play, as well.

Right. Okay, great. Thank you very much.

Thank you. The next question is from Pete Enderlin of MAZ Partners. Please go ahead.

Good morning. Thank you. In the fourth quarter, your orders were up 22%, if you back out the Collaborative Partners increment. And the third quarter was very strong, also, but the first half was not so much in terms of incoming order strength. Is there some kind of seasonal pattern that you can generalize about how orders are generated and when they are generated?

Yes, Pete, there's no seasonal pattern at all to when work comes in the door. It's simply a question of when our clients make decisions to move forward with us, or not, on any particular project.

Our two biggest wins last year were in the fourth quarter on the Basra program, $54 million contract. And in the third quarter, we won a -- I think it was about $95 million that went into our backlog from a $265 million contract that we wanted to manage half of the new Riyadh metro system.

Right.

We didn't have any major wins in the first half anywhere near the size of those two contracts.

David, the total backlog was up 12%. The 12-month backlog increased 3% in the fourth quarter. Is there a general trend toward longer-term contracts that affects that balance?

Certainly, in the Middle East, when we are seeing these giant contracts, it bodes well for us. The contracts tend to be longer in term. We were waiting for projects 5 and 10 years ago, and there were skyscrapers which were popping up in Dubai and elsewhere.

They don't take long to build. You can build a skyscraper in [a village] in under two years. The airport and rail and other types of projects that we're winning on the infrastructure side, they're 5- to 10-year projects. But when we get a lot in the total backlog number, not a lot -- as much on the percentage basis is going to drop into our 12-month backlog.

Right. Your domestic business has sort of lagged, certainly behind the international area. There is legislation in US Congress now, but more infrastructure spending. I think I've seen numbers of $100 billion-some odd, or $300 billion. If something like that passes, how soon would it begin to flow into contracts? We are talking mainly about highways and rails and bridges and things like that.

Yes. No, Obama's got a $302 billion infrastructure plan. How likely that is to pass. But typically, I think he learned this four years ago. Improving money today doesn't mean there's shovel-ready projects tomorrow. There's quite a bit of a delay.

And certainly, because a new project would have to be designed, there's usually a lag between when we do get involved and on the construction side. But certainly, any increase in infrastructure spending is going to benefit us. It's our largest market sector in the US, by far.

Aside from that possible legislation, do you see any general sign of a pick-up in US construction and infrastructure spending?

Yes, we are seeing an improvement across the board. I think it is slow. It is much more marginal here than it is elsewhere in the world, but it certainly is heading in the right direction.

Okay. And then in your negotiations with ODAC in Libya, do you negotiate for the payments first, plus the new business -- or do you do them at the same time, or do you negotiate sequentially? In other words, do you need to get paid first before you talk about the other stuff?

No, we are doing both at the same time.

Okay.

So right now, we are talking about the next series of payments, when those will be made. Our client has been paying us by invoice, oldest first, so we are working our way through the invoices that they have.

We are also simultaneously in the process of negotiating. They've been negotiated -- we are finalizing two contracts to get back to work on the two major programs that we were involved in three years ago. Our expectation of those will be finalized by later this quarter or next month.

Okay. Thanks. Congratulations on the solid operating results.

Thank you, Pete.

Thank you. The next question is from Michael Conti of Sidoti & Company. Please go ahead.

Hello, guys. Quick question on the SG&A line. Were there any one-time items that negatively impacted that number?

In the fourth quarter or for the year?

In the fourth quarter.

I think it's been alluded to.

A lot of adjustments are made in the fourth quarter, so they kind of balance themselves out. But nothing really stands out when you net them out.

Okay. So how should we think of the SG&A line for 2014?

I think based on our projections, up 35% to 36% of total CFR.

Okay, great. I'm curious as to with the revenue guidance, how much of that included the acquisition from Collaborative Partners?

Not very much. They were running about $5 million or $6 million a year in revenue. We expect a comparable number in 2014.

Okay. And with your interest expense and the debt, what progress have you made on possibly restructuring and getting that down a bit?

Yes, let me talk about that in a little more detail. Right now, we are focused on our senior revolver, which is with a bank group led by Bank of America. The revolver is due in about 12.5 months. We are working with an investment bank, Houlihan Lokey, to ideally get a new, expanded facility for a longer term and at better terms than the facility we have today.

We're hoping we're going to have something in place in the second quarter of this year. Certainly, we can't give any reassurances that will happen, but I would say at this point, we are confident that we will have something in place. They will give us more longer-term stability on a facility, get our interest expense down, but also give us more availability to working capital if the facilities that we are currently talking about can be put in place.

Sure. So if that doesn't happen, what run rate do you expect for the upcoming year with interest?

Did you say, if it doesn't happen, or if it does?

If it doesn't happen.

We expect it to be the same run rate we had last year, which was about $23 million of interest expense for the year. If it does happen, we expect a small decrease in that number. John, you want to speculate on the decrease?

No, it depends on how we'd refinance the current debt.

Okay. Potentially by a couple million dollars.

A couple million, you said?

Yes.

Okay. And a quick question on the effective tax rate. Were there any losses or nondeductibles, just to make that number unusually high for the fourth quarter?

Well, in the fourth quarter, it typically is when you make your adjustments to a lot of the taxes, and we incurred some higher foreign withholding taxes that really relate to dividends, cash movement, invoices between and among all of the foreign jurisdictions. And we have to pay withholding taxes, so that's what kind of give it a spike in the fourth quarter.

Okay. Any -- do you have a number in mind for 2014?

Based on our forecasting, it should be in the range of 60% to 70% -- effective tax rate.

That's for the year?

Yes, effective tax rate for the year.

Okay. That's it for me. Thanks, guys.

You're welcome.

Thanks, Mike.

Thank you. The next question is from Mark [Braha], a private investor. Please go ahead.

Good morning, David. How are you?

Good morning.

Following up to the financing and floating debt, of the $23 million that it has cost you this year for interest expense, has virtually wiped out any profit dollars that were in the Company. Is it pay -- are the acquisitions that you are making sound compared to what it is costing to finance these acquisitions?

Yes. The last two acquisitions that we did last year, Binnington Copeland and Collaborative Partners, both of those deals were for stock. And they were made at prices for our stock that we think is significantly undervalued, but we think the value added from the acquisitions was compelling enough to do the deal.

We were not in a position to do acquisitions for cash. And given where our balance sheet is today, we wouldn't have. But we think those two companies have significantly improved our Company, and we think they were good acquisitions.

All right. Following up to that, do you contemplate any alternative means of raising capital? Maybe raising equity as opposed to keeping these loans that are virtually strangling the Company?

(laughter) No, it's not strangling us, but certainly the interest expense is much, much higher than we want it to be, and the level of debt we have is much higher than we want it to be.

We have a variety of plans in place for how we are going to address the debt. We can't do them all tomorrow, but we view them as sort of tiers of dominos. One is going to fall, and then the next, and then the next.

We definitely are over leveraged, and we want to get our debt down. We want more of our strong EBITDA to drop to the bottom line to the benefit of you and our other shareholders.

Right now we are focused on putting a new revolver in place. After that, we will focus on the rest of the debt, and if our stock improves to a point where we can raise equity to pay off debt, we will. We don't think it is at that point right now. Nor even close to it for us to go to the markets and dilute our existing shareholders at the current prices.

Okay, and you referred to it in previous quarters of, especially last year, of making major cost cutting throughout the Company. Obviously, you've alluded to the fact that you are not exactly where you want to be at this particular point. Where do you think your shortfall is in that area?

Yes. I think the major cost cutting I was talking about then was cost cutting we had done in 2011 and 2012 in response to the situation in Libya, where we took out about $25 million of overhead costs. And I think you've seen impact that had on our EBITDA, which was dramatic.

Yes

We are not looking at the major cost cutting, although as I said, we are going to be focused on our Claims Group about getting their SG&A down, because 50%, it's just simply too high.

All right.

They're never going to achieve the kind of profitability they need to, if half of their consulting fees go to overhead. So we will be focused on that going forward.

All right. Making the home run assumption that Libya comes through with paying the balance of, as I recall, close to about $50 million in owed money this year. Would that significantly draw down part of our revolving debt and, effectively, our interest costs? Would that be the plan?

Yes, that's one of the dominos I referenced before. A significant amount of that money would come back to the US for debt pay-down.

Yes. One other thing. Aramco. You've had previous dealings with that company. Is that correct?

Previous --

Relationships?

Yes.

Okay. They announced yesterday that they were going to be doing a $40 billion project with the Egyptian Army for housing. Are you aware of that?

I read something about that, yes.

Okay. Is that something that we might be looking into as a possible venture?

I honestly can't tell you. It hasn't popped up on my radar screen as a project, that either our Saudi or Egyptian operations are chasing, but we will certainly look into it.

All right. I missed the last couple conference calls, and I may be asking a question that may have been answered in the past, but the project that was originally on the books with HillStone, whatever happened with that?

That project in Iraq did not move forward. And HillStone was closed about a year ago. That eventually shut down and discontinued.

So that's not part of our backlog anymore, is it?

No, it's not.

Okay. I just wanted to clarify that. All right. Well, best of luck in your new position, and I hope we can be seeing a profitable year this year.

Thank you very much. We hope so, too.

Thank you.

(Operator Instructions)

And the next question is from Lee Jagoda, CJS securities. Please go ahead.

John, just a couple more details regarding your debt. What's currently drawn on the revolver, what's the total available capacity, and what's the current rate on that revolver?

Total debt at the end of the year on the revolvers was $39 million, and the interest on that is -- at that time was around 8.5%. And it was dropping in the 7%s, because it's based on our leverage -- consolidated leverage ratio.

We saw an improving interest rate situation last year. And as that ratio improved, our interest rates came down.

Total capacity is with the $39 million, plus we had around $18 million in outstanding and LCs, so that gives us around $46 million, $47 million -- or $57 million, so we have around $8 million of capacity at the end of the year under that revolver.

Okay, great. And would there be anything else that would preclude you from doing a total refinancing of all of your debt, given that your leverage ratio is down now close to 3 times debt to EBITDA?

No, nothing is precluding us from doing that, but we want to do what's in our best interest at the best rates that we can get in the market. And as I said, we've come to the conclusion that if we refinance our revolver first, that will improve our pricing on and chances of accomplishing a refinancing of the rest of the debt.

Okay. And then could you just give us the organic growth numbers for both Q4 and for 2013? I think I might have missed that.

Yes. Let me see if I can do that. In the fourth quarter, we had 18% growth, 17% organically, 1% from acquisitions. I don't have that for the full year, but it's probably about the same.

It was 22% organic and 0.6% acquisitions.

Okay, great. John, one more question and then I'm done. The 60% to 70% tax rate you expect in 2014, how much of that is cash taxes?

Could you repeat that again?

How much of our taxes are cash taxes?

Probably all of it.

Okay.

When they want the taxes, they want it in cash.

Thank you. The next question is from Dennis Scannell of Rutabaga Capital. Please go ahead.

Yes. Good morning. David, nice job. Just a quick question.

I'm looking at the full-year results, and it looks like for the past two years, your incremental EBITDA margins have been kind of in the mid-20%s. I think I actually calculated around 27% for both 2012 and 2013. Is that a good number to use going forward, or is that kind of higher than normal because of the cost cutting that you have done?

I'm not sure you mean EBITDA. Our EBITDA margins are single digits.

No, I understand. I meant incremental EBITDA margins. So you increased consulting fee revenues by just under $100 million, $417 million to $512 million, so call it $95 million, and EBITDA went up $25 million, so $25 million divided by $95 million is around 27%.

In terms of the -- with the incremental sales, in terms of how much incremental EBITDA will be generated, do you think mid-20%s is a good number for you going forward?

I think that number may be aggressive. I think a lot of that improvement was based on cost cutting that we did in 2011 and 2012.

Yes.

And therefore, 2013 was higher than 2012, because a lot of that cost cutting was implemented. I don't think you will see that much improvement, but certainly, off the top of my head, probably the teens is a good number.

I'm sorry, I missed that. Off the top of your head -- ?

I said the mid teens is probably a good number.

Mid teens. Absolutely. So we should continue to see good overall EBITDA margin improvement. Perfect That's all I had. Thanks a lot, guys.

Okay. Thanks, Dennis.

Thank you. The next question is from Walter Schenker of MAZ Partners. Please go ahead.

Hi, thank you. Just a quick question. As you look at mid-teen growth in the consulting business in 2014, what sort of increased -- since everyone seems to be hung up on debt, what sort of increase in working capital might that require, which I suspect would be heavily funded by incremental debt?

I'm not sure is it's going to require any additional debt. We have our cash flow now at this point where we're paying down our debt, and if that continues through 2014, we shouldn't need any additional borrowing capacity.

Okay. So the fact that you only have $8 million left on the revolver shouldn't be an issue as you look at the business?

Well, it's also part of what's driving our restructuring now just to give us more of a cushion. But we expect that to our own earnings and our own cash flow, that our total debt will be coming down this year.

Okay. Thank you.

Thank you. The next question is from Michael Conti of Sidoti and Company. Please go ahead.

(technical difficulty) Did you say that that ended at the end of 2015?

Mike, can you repeat your question? I think you were on mute during the first half of it.

I'm sorry. With the Oman project, did you say that that was going to go through the entire 2015 year, at the end of 2015?

Yes. We think it will.

So because if that started beginning of January 2013, do you expect that to -- do you expect for that contract to be renewed?

No. We expect the project to be finished at that point. We were brought into the project as a replacement for a prior CM. So the project was already half finished.

Okay.

Which is why our contract is only about three years.

Because I'm reading the press release now. It's saying it's a two-year contract for --

I think it said 2.5, but we expect it to go beyond the 2.5.

Okay. That's all I have. Thanks.

Thank you. We have no further questions in queue at this time. I would like to turn the floor back over to Mr. Richter for any closing remarks.

Thank you. We are very pleased with our Company's financial performance in 2013, and we are expecting an even better performance in 2014.

Thank you all for your continuing interest in our Company and for participating in our call this morning. And we look forward to our next earnings call in early May. Take care.

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