Hill International Q1 2010 Earnings Call Transcript

Hill International Q1 2010 Earnings Call Transcript
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Hill International (HIL)

Q1 2010 Earnings Call

May 6, 2010 11:00 am ET

Executives

David Richter - President & Chief Operating Officer

John Fanelli - Senior Vice President & Chief Financial Officer

Devin Sullivan - The Equity Group

Analysts

Richard Paget - Morgan Joseph

Arnold Ursaner - CJS Securities

David Gold - Sidoti

Bill Sutherland - Boenning & Scattergood

Joseph Foresi - Janney Montgomery

Sarkis Sherbetchyan - B. Riley & Co.

Tim McHugh - William Blair

Richard Paget - Morgan Joseph

Presentation

Operator

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Good day everyone, and welcome to the 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.

Devin Sullivan

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 maybe considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and it’s 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, 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 determination of client contracts, control and operational issues pertaining to Hill’s 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 & Exchange Commission. Hill does not intend and undertakes no obligation to update any forward-looking statements.

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

David Richter

Thank you very much Devin. Thank you everyone else for 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 at the least. As we run through the numbers in detail, we 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 the acquisitions late last year of Boyken International and TRS Consultants.

Primary drivers have changed in our consulting fee revenue year-over-year, including the increases of $4.9 million in our North African projects business, $3 million from our acquisitions of Boyken and TRS, $1.5 million from our UK Claims business, $1.2 million of an increase in Middle East claims, and $1 million in our Southwest projects business.

Those were all set 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 European projects group, and $1 million of a decline in Asia Pacific claims.

Operating profits 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, 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 average expense for Hill in the first quarter. We were also impacted by 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, with $0.06 per diluted share, based on $40.9 million diluted shares outstanding, down 44.2% from $4.4 million, to $0.11 per diluted share based on $41.1 billion diluted shares for the first quarter of 2009.

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