Hill International, Inc. (HIL)

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Hill International, Inc. (HIL)

Q4 2014 Earnings Conference Call

March 13, 2015 11:00 ET


Devin Sullivan - Senior Vice President, Equity Group

David Richter - President and Chief Executive Officer

John Fanelli - Senior Vice President and Chief Financial Officer


Mike Shlisky - Global Hunter Securities

Chase Jacobson - William Blair

Tahira Afzal - KeyBanc Capital Markets

Pete Enderlin - MAZ Partners

Walter Schenker - MAZ Capital Advisors

Stewart Pond - Medley Capital

Michael Conti - Sidoti & Company

Mark Braha - Private Investor



Greetings and welcome to the Hill International Fourth Quarter and Full Year End 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to the host today, Mr. Devin Sullivan, Senior Vice President of the Equity Group. Thank you, sir. You may now begin.

Devin Sullivan

Thank you, Latonia. Good morning, everyone. Thank you for joining us today. Our speakers for today will be David Richter, President and Chief Executive Officer of Hill International and John Fanelli, the company’s Senior Vice President and Chief Financial Officer.

Before we begin, I would like to remind everyone that certain statements made during the course of this call maybe 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 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 our current expectations, estimates and assumptions and are subject to certain risks and uncertainties. Although we believe 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 of our 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 our forward-looking statements include modifications and termination of client contracts, control in operational issues pertaining to business activities that we conduct in 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 our backlog. Additional factors that could cause actual results to differ materially from our forward-looking statements are set forth in the reports we have filed with the Securities and Exchange Commission. We do not intend and undertake no obligation to update any forward-looking statement.

So, with that said, I’d now like to turn the call over to David Richter, President and CEO of Hill International. David, please go ahead.

David Richter

Thank you, Devin and good morning to everyone joining us for today’s earnings conference call. Yesterday, we announced our financial results for the fourth quarter of 2014.

The total revenue for the fourth quarter for our company was a record $169.1 million, a 17% increase from the fourth quarter of 2013. Consulting fee revenue, or CFR, for the fourth quarter was also a record at $148.7 million, a 14% increase from the prior year’s fourth quarter. This growth in consulting fees consists of 12% organic growth, plus 2% growth as a result of our acquisitions of Scottish consultancy, Cadogans and New England project management firm, Collaborative Partners over the past year. Our gross profit in the fourth quarter rose to a record $64.4 million, up 10% from the fourth quarter of 2013. Our gross margin as a percentage of consulting fees was down by 150 basis points to 43.3% in the fourth quarter versus the prior year.

Our SG&A expenses in the fourth quarter were $61.1 million, up 18% from the year earlier quarter. Our SG&A margin was up 160 basis points year-over-year to 41.1% for the quarter. The largest increases in SG&A expense for the fourth quarter were the following: an increase in unemployed labor of $2.8 million year-over-year, an increase in bad debt expense of $2.7 million, an increase in indirect labor of $1.6 million, an increase in administrative travel expenses of $400,000 and professional fees incurred in connection with the Cadogans acquisition of $200,000 during the fourth quarter.

Hill’s EBITDA for the fourth quarter was $5.7 million, down 38% from the fourth quarter of 2013. EBITDA margin as a percentage of consulting fees was only 3.8% in the fourth quarter, down 330 basis points from a year earlier. Operating profit for the quarter was $3.3 million, down 52% year-over-year. Our operating margin in the fourth quarter was just 2.2%, a decrease of 310 basis points from the fourth quarter of 2013. With operating profit down so much in the fourth quarter, we saw a net loss during the quarter of $3.5 million or a loss of $0.07 per diluted share compared to a net loss during the prior year’s fourth quarter of $1.3 million or a loss of $0.03 per diluted share.

Our net loss was also negatively impacted by an increase in income tax expense of $900,000 between 2014 and 2013. One area where we saw significant improvement in the fourth quarter, however, was interest expense. As a result of the debt refinancing we closed at the end of the third quarter last year, our interest expense during the fourth quarter was $3.7 million, down 35% from $5.6 million during the fourth quarter of 2013. Despite the net loss, the fourth quarter was a very strong quarter for cash flow with Hill having positive operating cash flow of $12.7 million for the quarter.

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