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Hill International (NYSE:HIL)

Q4 2008 Earnings Call

March 10, 2009 11:00 am ET

Executives

Devin Sullivan – The Equity Group Inc.

David L. Richter – President & Chief Operating Officer

John Fanelli III – Senior Vice President & Chief Financial Officer

Analysts

Lee Jagoda – CJS Securities

Joseph Foresi – Janney Montgomery Scott

Timothy McHugh – William Blair & Company

Richard Paget – Morgan Joseph & Co.

Kevin Casey – Casey Capital

William Sutherland – Boenning & Scattergood, Inc.

David Gold – Sidoti & Company

Kevin Liu – B. Riley & Company

Arnie Ursaner – CJS Securities

Operator

Good day everyone and welcome to the Hill International fourth quarter and year-end 2008 financial results conference call. (Operator Instructions). I will now turn the conference over to Mr. Devin Sullivan of The Equity Group. Please go ahead sir.

Devin Sullivan

Thank you, Dennis. Thank you every one for joining us this morning. Our speakers on today's call will be David Richter, President and Chief Operating Officer of Hill International and John Fanelli, Senior Vice President and Chief Financial Officer.

Before we get started I’d like to remind everyone that statements made during today's call may fall within the definition of forward-looking statements under the Private Securities Litigation Reform Act of 1995. And it is Hill's intent that any such statements be protected by the Safe Harbor created thereby, except for historical information contained during this call, the matters set forth 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 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 Hill's forward-looking statements include modification and determination of construction management, project management, and claims management contracts, control and operational issues pertaining to business activities that Hill conducts pursuant to joint ventures with other parties, difficulties Hill may incur in implementing its merger and 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 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 would now like to turn the call over to David Richter, President and Chief Operating Officer of Hill International. Please go ahead David.

David L. Richter

Thank you very much Devin and thank you to everybody joining us on the call this morning. I would like to go through a sort of a summary review of our 2008 full year financials and then discuss in more detail the fourth quarter results for our company. We had a very strong 2008, our total revenue for the year grew to $380.5 million, a 31% increase over 2007. Our consulting fee revenue for the full year rose to $333.9 million, an increase of more than 64% over the prior year.

Of that consulting fee growth of 64%, 40% was organic growth and 25% growth came from acquisitions, the five acquisitions that we closed on in 2008. Our operating profit for the full year improved to $22.2 million, an increase of 26%. And net earnings grew nearly 25% to $17.7 million, which equated to $0.43 per diluted share based on 41.1 million shares outstanding over the course of the year. All of these numbers were record for our company, we have seen some tremendous growth in the last couple of years, but particularly in 2008, and we are very proud of the accomplishments we achieved during the year.

In the fourth quarter, our total revenue was a $104.6 million, an increase of over 21% from the fourth quarter of 2007. Our consulting fee revenue for the fourth quarter rose to $95.2 million, an increase of more than 62% from the fourth quarter of 2007. That growth consisted of organic growth of a little more than 39% and 23% growth from acquisitions. Breaking down our consulting fee revenue, 78% came from the Project Management Group and 22% came from the Claims Group, the percentage of CFR consulting fees from Project Management continues to grow as that side of our business sees faster organic growth and the bulk of our acquisition.

Breaking down our CFR by geography. In the fourth quarter 22% came from the Americas, 32% came from Europe, 35% from the Middle East, 8% from North Africa, and 2% from the Asia-Pacific region. For the first time, this year you will see in our 10-K those of you looking out to read it, we are breaking out North Africa from the Middle East, because we have seen a tremendous amount of growth there, the region only began for us about two years ago, and has become a significant factor in our business and as of this quarter and going forward North Africa will be its own region in our financial breakdown.

Looking at operating profit in the fourth quarter, we achieved operating profit of $3.8 million or 24% decline from the fourth quarter of 2007 as a result of several charges, which I will discuss in a minute. Net earnings in the fourth quarter were down 64% to $1.9 million as a result of the same charges, which equated to $0.05 per diluted share, based on $40.7 million diluted common shares outstanding. The charges I just mentioned, sort of summarize as follows. We took on additional reserves with respect to the collection of certain receivables, totalling $1.5 million in the fourth quarter.

We took on an expense for discretionary management bonuses that were made as of the end of the year that had not been accrued for during the year, and that totaled $1.2 million or as we calculated it, sort of an additional $900,000 in the fourth quarter, assuming that it had been accrued over the course of four quarters. We were impacted quite a bit, we have a significant operation in the U.K. and in Europe now and the decline principally in the value of the British Pound. But also secondarily in the decline of the value of the euro, had a significant impact on our earnings and not just our earnings, but also our net worth and our backlog figures as a result of that, the decline in the operating profit in the fourth quarter as a result of those currency devaluations was nearly $600,000. And we had an acquisition that we have spent close to a year negotiating and we are close to closing at the end of October of last year and given the change in the marketplace and evaluation with companies and all of the events in the economy and the stock market.

We reevaluated the value and the benefit of that deal and its price and start to renegotiate the price downward, the seller declined to do that, and in the fourth quarter, we walked away from that acquisition. We have been a very aggressive acquirer, but only of good companies at good prices and we are prepared to walk away from deals that we don't think create value for our shareholders. But we having gone to eleventh hour of that deal had a significant amount of legal, accounting and other cost involved and had to expense that in the fourth quarter that was an additional $400,000. If you add these back in, the impact to our operating profit was about $3.5 million, we would have achieved operating profit, absent these charges of over $7 million, slightly in excess of the consensus estimate for our operating profit in the fourth quarter.

On the net earnings side, on an after-tax basis, the impact to us was about $1.8 million or approximately $0.04 per diluted share, so we would have earned about $0.09 absent these charges. On top of that, we had several other issues impact us in the fourth quarter. We had an unusually high income tax rate of almost 46%, versus less than 3% in the fourth quarter of '07. In fourth quarter of '07 that number was unusually low because of a tax credit we received in that quarter, that otherwise would have been 20% and in the fourth quarter of 2008, it was unusually high for a variety of factors mostly due to the changing mix, where our earnings come from and we expect that in 2009 on an ongoing basis, our effective tax rate should be approximately 25%, but that obviously is subject to fluctuations depending upon where our earnings are coming from, in what jurisdictions, and also any acquisition that we do on a going forward basis and where their earnings would come from.

We also had a significant increase in the number of diluted shares outstanding, which negatively impacted our EPS. Those shares came from two issues, one was the exercise of our warrants at the end of 2007, which added over 13.5 million common shares to our accounts, and the achievement of our earn-out a year ago and the addition of 2.3 million shares that were issued to the shareholders of the formerly private Hill as a result of our merger agreement between Hill and Arpeggio. So, a significant increase in shares outstanding. Our SG&A for the quarter was about 43%, about 40% not included in the above charges, which I discussed.

This is still higher than the 36% to 38% guidance that we gave about a year ago, and what we expected our SG&A expenses to be during 2008. We acknowledge that costs are an important item. Obviously, we're going to be very aggressive this year in managing our indirect and our overhead costs and our unapplied cost, essentially our unutilized labor cost and we've taken a renewed focus on making sure that we keep our workforce and our workload in balance. We announced various overhead cuts in the third quarter at the last conference call of about $2.5 million. We expect to be aggressive in minimizing our overhead cost and are expecting to be able to take out a greater amount in that in the next several months in certain areas, where growth has either stopped or declined and in various overhead areas.

Jumping to backlog, our total backlog at the end of the year, $667 million, this was up 60% from the end of 2007, but flat from the end of the third quarter of 2008. Our 12-month backlog at the end of the fourth quarter was $269 million, this was up 37% from the 12-month backlog at the end of 2007, but was a decline of almost 14% decline from the end of the third quarter of 2008, what impacted our backlog in the short term was essentially a delaying of existing work as opposed to cancellations of work, which impacted the 12-month backlog, but didn't impact the overall backlog. And we also had a small impact from currency fluctuations, and as I mentioned before in the U.K primarily and also Europe, which declined the value of our backlog over the course of the fourth quarter.

Jumping to our business segment results, see we gave specific breakdowns in this year's earnings release for the two operating groups within our company, the Project Management Group and the Constructions Claims Group. Let me just hit on those for the fourth quarter briefly, our total revenue for the Project Management Group was approximately $82.5 million, this is a 28% increase over the fourth quarter of 2007. Our consulting fees with the Project's Group in the fourth quarter was $73.8 million, this is nearly 85% growth from the year earlier quarter. That growth consisted of about 54% organic growth and 31% growth from acquisitions. We acquired three project management firms in 2008; Shreeves, Gerens, and Euromost and they contributed to significant amount of growth through the operations of Project's Group.

The operating profit for the Group in the fourth quarter was $10.9 million, nearly 53% increase from the fourth quarter of 2007. The Project Management business remained very strong in the fourth quarter, although we certainly see a lot of market challenges ahead of us in 2009 and potentially beyond, including in specific sectors of the world, most notably Dubai and Europe at this time, but we are also seeing upside in a lot of areas, we continue to see growth outside of Dubai in the Middle East.

Oil has begun to head back North, we think that's going to have a positive impact and we continue to see opportunities particularly in Qatar, where we announced several new contracts in the fourth quarter, and North Africa where we continue to see growth, as well as in the U.S. public sector market. Our business in the United States in Project Management saw the flip side of the international business, outside the U.S. it is about 80% private sector. In the United States, our PM business is 80% public sector. Involved in public buildings, public works, infrastructure, transportation projects, and things of that regard. We see that business doing very well over the next couple of years, particularly in connection with Federal stimulus package and see a lot of upside potential there.

Jumping to the Construction Claims Group, in the fourth quarter it had total revenue of $22.1 million, an increase of little more than 1% over the fourth quarter of 2007. Consulting fees from the Claims Group in the fourth quarter were $21.3 million, a much larger increase, 14% increase over the prior year's quarter. That growth consisted of about 9% organic growth and 5% growth from acquisitions. The Claims Group acquired two firms last year, PCI and Chitester in the third and fourth quarters of the year and they had a positive impact on growth for the quarter as well.

Operating profit for the Claims Group in the fourth quarter was $1.3 million, which was in fact a 49% decline from the fourth quarter of 2007 and contrary to what we had been expecting, which was that claims would be benefiting in a difficult economic environment, they saw a challenging and difficult fourth quarter. The main weakness what we found was that short-term work, which is primarily what the Claims Group does versus the long-term work of the credit management group. Clients who are in a position to defer or delay short-term expense did so in the fourth quarter and then had a significant negative impact on the Claims Group.

Our utilization was down as a result and our unapplied labor was up, which increased SG&A and resulted in a, unfortunately a decline in operating profit for that group. It's our expectation that that is short-term in nature, that what we've seen on both sides of the house has been to a large measure delays the work, not cancellations of work and we think that could reverse itself in the Claims Group in 2009 as that delayed work gets done. Jumping back to the company as a whole, we exited the year with a very strong balance sheet and a solid financial position.

As of December 31, 2008, our balance sheet included cash and cash equivalents of about $20.4 million, working capital of $81.1 million. Total assets of $254 million and total debt of just under $19 million, of which about $14 million was against our senior credit facility with Bank of America. Our total shareholders' equity ended the year at $135.5 million, which is down from the third quarter despite our profitability as a result of several things including the decline in the value of certain overseas currencies, which impacted those operations balance sheet as well as our repurchase of shares during the fourth quarter, which I will talk about in a second.

As I said, we had about $14 million borrowed against our credit facility with Bank of America. In October, we increased that facility from $35 million to $60 million, and we are currently in negotiations with our lender for a further increase to ensure that we have the working capital we need and the acquisition capital for 2009 and going into 2010. We are very conscious of, as I said before, the economic circumstances in the world. We are keeping a very close eye on not only our expenses, but our cash flow. We have a very strong attention now on collecting our receivables particularly in overseas markets that are far hit by the economy, and maximizing our ability to access working capital both internally and externally. We can obviously make no assurances about the success of those negotiations, but we are optimistic that we will be in a stronger borrowing position a few months from now than we are today.

Two important things to note, the merger agreement between Hill and Arpeggio that was finalized in 2006 included an earn-out structure. The earn-out for 2008 was achieved, we had an EBIT target, Earnings Before Interest and Taxes of $18.4 million for the year, our actual EBIT was $21.2 million, the reason that's different from our stated operating profit is because of minority interest in certain companies that gets taken out of EBIT and with the earn-out having been achieved, we will be issuing 1 million shares of common stock sometime probably in the next 30 days to the shareholders of the formerly private Hill, and we also repurchased in accordance with our stock repurchase program that was put in place by our Board in November of 2008, approximately 1,165,000 shares of our common stock from the public markets at a total cost of $5.9 million or an average price of $5.10 per share. We have a significant amount remaining under that program and we anticipate given the current stock price that program will continue into 2009 at a more aggressive level.

That being said, despite what we think is a very undervalued stock at the moment, we are very confident about our business and where it’s heading, even despite the global economic challenges that are out there, that's obviously impacting our clients and us to a degree, but we think that there are a lot of upsides to the business, we are focused on minimizing our cost, maximizing our cash flow, we see some opportunities our there in the acquisition market, which we are pursuing and we think we have the ability in 2009 to continue to have organic growth in the face of these economic challenges, and to have earnings growth this year and we are working very hard to make sure that that happens.

So, with that being said thank you for listening to the presentation today. We are happy to, well John Fanelli, our CFO and I are happy to answer any questions that anybody has on the call.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Lee Jagoda with CJS Securities.

Lee Jagoda – CJS Securities

Hi good morning.

David L. Richter

Good morning, Lee.

Lee Jagoda – CJS Securities

In looking at the 6.5 or excuse me, the $3.6 million in adjustments, trying to reconcile that back to the $1.8 million or $0.04 share, what tax rate does that imply.

David L. Richter

Well, what we did was we just, looked at the impact on net earnings, we didn't assume any different tax rate. We just used the actual effective rate of 46% in the fourth quarter.

Lee Jagoda – CJS Securities

Okay.

David L. Richter

If you're trying to normalize the tax rate, you got to obviously come up with an even greater impact on.

Lee Jagoda – CJS Securities

Right. So, I should be using the…

David L. Richter

Yeah.

Lee Jagoda – CJS Securities

The 46% tax rate or 43% tax rate, correct…

David L. Richter

Correct.

Lee Jagoda – CJS Securities

To get there. Okay. And then backing that out of the SG&A line, assuming that all of the adjustments were in there, it would be like a 39% of sales sort of SG&A number. And I know you've targeted lower than that previously in terms of Q1 given the continued challenging environment, should it be, roughly 39% or higher or how should we think about SG&A for Q1 or the first half of '09?

John Fanelli III

Yeah. I would like to answer that Lee. This is John Fanelli. David had mentioned that we're looking at our cost structures, and in the third quarter we did eliminate some of the cost and that will be effective in the first quarter beginning in the first quarter of 2009. So, with that in mind, I think that we would be hopefully achieving a 38%, and then hopefully that will go down as the year proceeds based on our second phase of cost reduction program.

Lee Jagoda – CJS Securities

Okay. So, exiting 2009 then, where should we be sort of looking at a percent of sales number?

John Fanelli III

For a total year?

Lee Jagoda – CJS Securities

I mean in terms of, so if it’s 38 in Q1, and it trends down from there, do we end at 35 or do we end at 36 or 37?

John Fanelli III

We're expecting the same range that we gave last year, which was in the 36% to 38%, its…

Lee Jagoda – CJS Securities

For the full year?

John Fanelli III

Specific target, because there are a lot of variables, one variable, which impacted us in the fourth quarter was unapplied labor and that the claims business wasn't as busy as we expected and people had low utilization than we expected. The time that they spend not billable becomes SG&A.

David L. Richter

Right. Direct labor to unapplied labor. So, that number can be a strong variable depending upon how busy people look.

John Fanelli III

We just assigned a, if you look at our total G&A, and if you break it down, what's the component of that G&A, approximately 30% to 33% of our total G&A expense this year in 2008 was unapplied labor, that's a big piece of our SG&A, and, you can consider unapplied labor as a bearable component of our SG&A for various reasons, we have had, the increases due to, we had some acquisition in 2009 or 2008 with Gerens and Euromost particularly in the Project Management. So, those cost are going to increase as the increase in revenue also increases.

David L. Richter

Yeah. If you look at maybe you can't say this but we can, our indirect labor component of our SG&A was down for the fourth quarter relative to the full year and down for '08 relative to '07, and indirect labors are a pretty good indicator of what our administrative or corporate overhead costs are. And those numbers are coming down and we are being, as you and everybody else knows, we obviously had a lot of increase in our corporate overhead, over the last three years. I think down from a private company to a public one and in connection with our growth around the world, and that growth in overhead has clearly stopped, in fact we are looking at reductions, and as we continue to grow through that, we see our overhead costs becoming a small and small impact.

Lee Jagoda – CJS Securities

Sure. And then just on the Claims side, to the extent that you're not seeing any pickup or are you seeing any pickup in Q1 in terms of the deferred work in Claims. Are you or can you reduce heads or do we still have to incur the unapplied labor expense?

David L. Richter

I think it will be a combination of increased work, which will keep people busier and staff reductions in certain areas. We had about a net 5% drop in utilization in the Claims Group in the fourth quarter relative to the fourth quarter of '07. And as I said before, that keeping your workforce here, workload in balance is, not just something you go through in times like now, it's a constant effort in the Claims Group, because you just don’t know where the next job is coming from. And this year they will be very aggressive in making sure that the utilization rate stays as high as possible and that cost are kept at minimum.

Lee Jagoda – CJS Securities

Sure. And one more question and I will hop back in queue. You currently have roughly $14 million left on your share purchase authorization. Are there any covenants or bank issues that would prevent you from reentering the market, as soon as you can given the previous purchases were made at significantly higher prices.

David L. Richter

The purchases that we have made under the plan were subject to our bank's approval, and I would say anything we do going forward is going to be subject to that approval as well. As part of the renegotiation regarding our credit facility, we have asked for, we would discuss sort of a stock limit for share repurchases. Obviously, it’s not something lenders usually like to see, but we have talked about sort of a reasonable number that would be allowable given a kind of number we are talking about in the facility, which is in the nine figures.

Lee Jagoda – CJS Securities

Okay. Thank you very much.

David L. Richter

Yeah. Just to be clear, the facility is in the nine figures, not the repurchase program.

Lee Jagoda – CJS Securities

Right.

Operator

Our next question comes from the line of Joseph Foresi with Janney Montgomery Scott.

Joseph Foresi – Janney Montgomery Scott

Hello guys.

David L. Richter

How are you Joe?

Joseph Foresi – Janney Montgomery Scott

My question is. Yes sir, I’m good, thanks. My question is on the revenue side. Typically, you set out the 12-month backlog, you typically do a 130% to 140% over the next 12 months, has that changed in all?

David L. Richter

My guess it’s too early to tell. It should come down a little bit because of challenges and getting new work, it’s pretty much a function of how much new work you can win over the of course the next 12 months. As that becomes a little more challenging, whereas that number could come down slightly, but we don't expect any major changes in the number.

Joseph Foresi – Janney Montgomery Scott

Okay. So, are we talking maybe the 120 range or…

David L. Richter

I don’t think it would be low as 120, it would probably be in the 130 or 130s over the course of 2009.

Joseph Foresi – Janney Montgomery Scott

Okay. And then my next question here, it looked like you ended last quarter with a debt balance of, a total debt of about $7 million, in this quarter we were up to 18, you took a 14 million on the credit facility, maybe you could tell us why or what the purpose of that cash is for and why that balance increased?

John Fanelli III

I would be glad to Joe. Just going through the fourth quarter, actually our total debt at the end of third quarter was $7.5 million, an increase of $16 million or an increase of $8.5 million, and our cash was $26 million and that decreased to $20 million or a decrease of $6 million and it's due to the following items. We had the stock repurchase plan that David alluded to around $6 million, we made a quarterly tax payment of around $1 million. We had capital purchases of around 600,000. We had the acquisition of Chitester, which we paid a cash portion and also repaid their debt of around $1 million and we had working capital needs of close to $6 million and then we had to go out and borrow the 8.5 and that gave us our net decrease of $6 million for the quarter.

Joseph Foresi – Janney Montgomery Scott

Okay. And why didn’t you use cash balance to pay that, because you just want to keep the cash on hand?

David L. Richter

Well, the cash balance is international, the debt balance is in the United States, and we try not to bring back any cash, we don't have to minimize our taxes on those earnings.

Joseph Foresi – Janney Montgomery Scott

So, I guess my next question is just sort of inline with this, it sounds like you are going to try and extend your credit facility and maybe potentially do some more acquisitions, in your approach with the acquisitions I mean, first do you think that its given that fact that your free cash flow was negative last year, is it probably the right time to do an acquisition if I get your thoughts on that and then secondly your approach to the acquisitions, has that changed given where you're from a cash flow perspective?

David L. Richter

Yeah. Let me just give you a summary of where we are right now. We obviously pursued a lot of companies last year, probably talked to 12 to 15 companies over the course of the year and closed on five acquisitions. The current status is we're talking to one company, we are very far along in the discussions and we believe and hope that an acquisition will happen in the next two to four weeks. I can certainly give you no assurances that it will close, there are some hurdles between now and then, but we are optimistic that the deal will happen, it is a large acquisition, it’s the project management firm in the Western United States. And it will be the largest acquisition that we have ever done by revenues and people. So, doing more than $50 million a year in revenue. We are going to spend the next six months focusing on getting that deal done, and integrated, we think it adds a tremendous amount of value to the company, it strengthens us considerably. And the purchase price, it’s certainly not cheap, but we think it's a fair one for the business.

Joseph Foresi – Janney Montgomery Scott

Is that acquisition earnings accretive?

David L. Richter

Yes, we expect it will be earnings accretive in 2009 and going forward.

Joseph Foresi – Janney Montgomery Scott

And cash flow positive?

David L. Richter

Yes.

Joseph Foresi – Janney Montgomery Scott

And do you think it now is probably the right time, I just want to get some, some of your general thoughts on, is it now the right time to kind of lever up and take advantage of something or maybe the lower valuation or something of that nature?

David L. Richter

Yes. We think right now is the time to do this deal, even though it means, staffing our credit facility for the purchase price, it’s a company that is very highly regarded and we think combined with Hill, makes us a major player in a very significant marketplace and we are going to despite, I think fear has gripped a lot of people including Wall Street, including in this industry. And we think now, but whenever now, is always the right time to strengthen your business, continue to build it and grow it.

Joseph Foresi – Janney Montgomery Scott

Okay. Thank you.

Operator

Our next question comes from the line of Tim McHugh with William Blair & Company.

Timothy McHugh – William Blair & Company

First on upon that last question, John can you give us a, so what was free cash flow or operating cash flow of those two items, I missed some of those numbers?

John Fanelli III

Okay. I'll go over them one more time. During the fourth quarter, we had a stock repurchase of $6 million. We had a quarterly tax payment of a $1 million, capital purchases of $600,000. Our Chitester acquisition in the fourth quarter consisted of the cash portion also the repayment of their existing debt, which was about a $1 million, and we had working capital needs throughout Hill of around $5.9 million and we had to borrow $8.5 million that gave us our decrease in cash of $6 million that's really a brief synopsis of the fourth quarter.

Timothy McHugh – William Blair & Company

Okay. And if you look forward to your, if you've kind of budgeted for '09, do you have any sense, maybe relative to where EBITDA comes out or something like that, what you would expect cash flow to maybe look like going forward here on a little longer term basis?

John Fanelli III

We haven’t put the numbers together, but as David mentioned earlier, I mean our focus now is on two items, our accounts receivable, monitoring collecting our receivables has been a big focus for us, and also take a look at our cost structure. With a combination of those two, with our assumptions, we should be at positive EBITDA going into 2009.

Timothy McHugh – William Blair & Company

Okay. And can you just, David talk a little bit about the new business pipeline today both on the Claims and kind of the Project Management side, maybe relative to where it was three to four months ago, is it getting worse, is it stabilizing, what are you hearing from clients at this point?

David L. Richter

There is still a tremendous amount of work out there. I would say our pipeline work on both sides of the house, it's probably down slightly. We certainly are seeing increased levels of competition, but I think that we have seen in the fourth quarter and so far in the first quarter, a significant amount of work that we have won. We have some very big things out there that we think we are in a position to win. Hopefully, once we do, we will have that to announce, but the feedback I get talking to a lot of investors is, as I said before, everyone is gripped by fear. I think the construction market has come to a grinding halt, nobody is going to build anything, nobody can get financing for any project and, that is absolutely clearly not the case. The market is down, no question about it, in some areas it’s down a lot. But there is a tremendous amount of construction going out there. I think in 2008, the global construction market was went up to $5 trillion, it’s going to be $1 trillion this year, and a lot of stuff is going to get built and those projects need to be managed, and as always those projects are going to have disputes, that need to be resolved. We see a tremendous amount of work out there, it's certainly softer than it was a year ago, but we think we can, as I said before, win enough work to have organic growth in our consulting fees this year and be able to improve our earnings.

Timothy McHugh – William Blair & Company

Okay. And if I could just follow-up on kind of that last comment the organic growth fee, are you talking relative to the full year results or if I look just at kind of the fourth quarter run rate here, just annualizing that would imply, a decent pace of organic growth if you will, across the rest of 2009. Is that kind of what you're referring to or is that above and beyond what you have done recently?

David L. Richter

Pretty much, what I have said is all I am going to say. I didn't like a year ago kind of forecast the future, I think I am pretty bad at it, I don't know anybody is good at it. And we've tried to give a little guidance as possible, we have in certain areas of our spending like the 36 to 38% SG&A guidance that we gave, we’ve talked about in the past looking at the operating margins of 10% of more. In the last six months, just given all the uncertainty in the market, we really aren't going to give any guidance other than that we expect organic consulting fee growth and net earnings growth this year, beyond that, trying to pick a number to give a range is just too difficult.

Timothy McHugh – William Blair & Company

Okay. Thank you.

Operator

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

Richard Paget – Morgan Joseph & Co.

Good morning guys.

John Fanelli III

Goo morning.

David L. Richter

Good morning, Richard.

Richard Paget – Morgan Joseph & Co

David, I wondered if you could talk about what happens in the Project Management world when a project gets delayed or canceled? Now, is that something that you guys would manage and still be able to charge fees on and then once something does get [marked], does that lead to more construction claims work?

David L. Richter

It can very well lead to more claims work when you have those kind of issues. Dubai is a good example, we expect -- and Dubai is probably the worst example worldwide of a market grinding to halt on new work, but obviously we have a lot of existing work there, and that work is overwhelmingly continuing, but, we are anticipating in 2009, our claims business in Dubai is going to be larger than our project management business. And everything that's happening now with delays and issues and funding problems just leads to more problem, and that should have an upside on the claims side of the business. To a extent that a project is canceled, there is generally a winding down. So, our role continues as long as the client needs our services, sometimes may even continue quite a while. On delays, if it's a short-term delay, our role generally continues without too much change, if we were to downsize our staff on a project, it's possible to put them back in place six months later. So, clients are cognizant of that and there is a lot of ways they can cut cost. We are really the last cost they should be cutting on a project, otherwise they're really back to square one. And we've seen probably more delays on the claims side, short-term work is easy to push off, once there is a project going, you’re not slowing it down, because slowing it down causes also some additional problems, but on the short-term work that the Claims Group sees, it's very easy to defer pursuing a claim for three months. It's not so easy to defer a project that has a lot more moving parts. So, the, the deferrals that we saw in short-term really impacted the claims business in the fourth quarter and had minimal impact on the Projects Group.

Richard Paget – Morgan Joseph & Co.

And then getting to the U.S. with all the public spending that’s going to be happening and in some cases there is a time table, where it's kind of a use it or lose it. I mean, have you seen a lot of the states and federal construction mechanisms looking for Project Management more so in this particular case just because they don’t have the internal capability to process the volumes or projects that are expected to go through?

David L. Richter

Yeah. They're really going to have the internal capability, a year ago to manage the projects. State and local governments very much turn to outside project management firms to manage their project. We have seen numbers anywhere from a $100 billion to a $140 billion that's going to impact the U.S. infrastructure market, it goes beyond just highways and bridges, but also water projects, environmental cleanup, which we expect will be a big item on a Democratic agenda for the next four years. A lot more federal spending, not just spending money to the states, but also the federal government is spending more money on its own projects, and we are very well positioned with the federal government. So, we see an uptick in that, we think it's going to be later this year, probably in the second half and much more so in 2010, where we see a positive impact on our business from that. As I said before, about 80% of our business in the U.S. is public sector, we are very well positioned for that market and it’s also a big part of what's driving us to do this acquisition at this time, the firm we are talking to is almost entirely a public sector business and stronger in transportation than we are. So, I think that's going to be a big positive for us, again with the caveat that we expect the acquisition will close, but we won't know until it does.

Richard Paget – Morgan Joseph & Co.

So, I think just given, I think it was last week or the week before, they've officially released some of the stimulus money, have you guys seen any of these projects starting to move forward or it’s still going to take the government some time to move?

David L. Richter

Maybe your experience is different from mine, but government moves pretty slowly and it doesn't happen in weeks, it happen in quarters or even years. On the upside though, I know a lot of people thought, all of a sudden, DOT is going to get a $1 billion to a build a highway and now they have got a fear what to do, that's not the case though. Every agency, every state government, local government has projects that are in the works that are ready to go, some have been held back and so they get funding, but once the funding is there, they're in position to make it move forward, relatively quickly, relative to the process, but that still means quarters, not weeks.

Richard Paget – Morgan Joseph & Co.

Okay. And then do you have a breakdown of backlog between Project Management and Claims?

David L. Richter

Yeah I do. Let me give you that information. Our total backlog at the end of the year was $667 million. Of that, $623 million was in the Project Management Group. $44 million was in the Claims Group, and with respect to the 12-month backlog, that was $269 million at the end of the year. Of that, $236 million was in PM and $33 million was in Claims.

Richard Paget – Morgan Joseph & Co.

Okay. Thanks. I will get back in queue.

David L. Richter

Thank you, Richard.

Operator

Our next question comes from the line of Kevin Casey with Casey Capital.

Kevin Casey – Casey Capital

Hi, guys. Question about the acquisition and the way you guys look at acquisitions, how has the return on potential acquisitions changed given the decline in values offset by the higher interest you have to pay on increasing your revolver?

David L. Richter

Well, first of all, good morning Kevin. Looking back at the acquisitions in 2008, obviously this is a terrible time to measure the success or failure of those acquisitions, we acquired three project management firms in Europe, Europe has been hard hit, the biggest acquisition was in a market that was particularly hard hit, which was Spain and they're seeing a very challenging demand environment in the marketplace, the construction and real estate sectors out there have come down. In the U.K. where we acquired Shreeves has been similarly hard hit, but we've been able to bring work to them and keep them busy. I don’t think sort of the metrics for how we evaluate acquisition have really changed, I think we have seen slightly better economics on potential deals, certainly not the drastic change evaluations that the public companies have seen over the last six months. But there are still opportunities out there for good companies at good prices. I think if anything that may have slightly dried up the market for firms, for good firms anyway because good firms have the ability to sit back and wait for the market to turn. And you may see more bad firms on the market, who are maybe a little more desperate, we are seeing their work drying up, and those aren't the firms we want to acquire. So, we see a slower universe of potential acquisitions out there this year. As I said, we are not trying to buy, every firm we can get, focus right now on one firm, getting that closed, again get it potentially integrated. And then we will move on from there.

Kevin Casey – Casey Capital

And then how many of previous acquisitions still have earn outs?

David L. Richter

We have one acquisition, the acquisition of Euromost in Poland, which we acquired in May of last year. They had a two-year earn out, one for calendar year ’08, and one for calendar year ’09.

Kevin Casey – Casey Capital

And then if you integrated all these acquisitions, how much cost saving could you get?

David L. Richter

You know, given the nature of the firms, the fact that we didn't have overlapping operations, there were some cost savings, with Shreeves in the U.K., where we had an existing presence there, in fact a pretty large one. In Spain and Poland, they are standalone operations that really didn't result in a lot of savings for us, in fact very minimum. The two Claims acquisitions we did in the third and fourth quarters, there was a significant amount of cost savings from PCI, we had overlapping operations in California and Nevada, but the Chitester acquisition, they're headquartered in Florida, it’s a relatively small company and had about 15 employees and that again is pretty much of a standalone operation. Although, we have seen synergy benefits on the revenue side, as they can now sell to their clients as a much larger and stronger company.

Kevin Casey – Casey Capital

Okay. And then as those cost savings that you mentioned, have they flowed through the income statement yet or is that some of the cost savings you're talking about that's going to happen throughout the year this year?

David L. Richter

The cost savings we talked about in the third quarter, of the $2.5 million, it really didn't impact us in the fourth quarter much. We will see much more of an impact in the first quarter. Cost savings that we are looking at now probably won't impact us until the second quarter.

Kevin Casey – Casey Capital

Okay. Thanks. Good luck.

David L. Richter

Thank you, Kevin.

Operator

Our next question comes from the line of Bill Sutherland with Boenning & Scattergood.

William Sutherland – Boenning & Scattergood, Inc.

Thanks. Good morning everybody.

David L. Richter

Good morning Bill.

William Sutherland – Boenning & Scattergood, Inc.

Can you give us a little more color on these cost savings, just in terms of how they're being achieved, those ones you have already completed and the ones planned?

David L. Richter

Yeah. I specifically don't want to give you too much color given that much of it hasn't happened yet, but our business, primarily as you know payroll and rent. And to the extent that we have people coming off projects that aren't going at new projects, we've been aggressive in downsizing them. We are never really desirous of having a large bench being billable people that are between projects. And right now, we have extremely little patience for that and we're very focused on making sure that as projects, or as offices are being worked to end, that cost come down as quickly as possible.

William Sutherland – Boenning & Scattergood, Inc.

And David you mean both PM and Claims?

David L. Richter

We are looking at PM, Claims, and Corporate. Looking across the Board, making sure that we aren't spending more than we need to spend. And we expect, as I said, to see organic growth, so we are not splashing and burning, we are being very cost conscious in light of the economy.

William Sutherland – Boenning & Scattergood, Inc.

Are you seeing in the claims side, the delays from the Q4 kind of continuing more or less or any change in that direction that you saw in Q4?

David L. Richter

No, we haven’t seen a change yet.

William Sutherland – Boenning & Scattergood, Inc.

Okay. And if I am clear, that unapplied labor call out that you did and the expense structure, that was mostly in the Claims side?

David L. Richter

It was Claims and Projects, but it impacted the Claims business more because it’s a much smaller group.

William Sutherland – Boenning & Scattergood, Inc.

I see, okay. So, not different in numbers, but bigger impact?

David L. Richter

Right.

William Sutherland – Boenning & Scattergood, Inc.

The AR reserves how many accounts did that apply to?

David L. Richter

It was two accounts almost equal. One was in the Middle East and one was in the U.S.

William Sutherland – Boenning & Scattergood, Inc.

And have you changed your expectations for just your reserve levels in ’09 as far as percent of revenue?

David L. Richter

I am sorry. Bill, can you ask the question again?

William Sutherland – Boenning & Scattergood, Inc.

Yes. Are you also looking at just a bigger expense number there in order to build up reserves going forward?

David L. Richter

Yes. We tend to do our accounting in a very conservative manner, we think that’s the best course long term. Given the worldwide environment, we have increased our reserves and our expenses for bad debt and uncollectable receivables, and that gets monitored on a, probably more than a quarterly basis effectively a monthly basis to make sure that in the future we don’t have to take of these unusual hits.

William Sutherland – Boenning & Scattergood, Inc.

So, that's factored into your guidance in terms of the expense range that you have commented, okay.

David L. Richter

Yes it is.

William Sutherland – Boenning & Scattergood, Inc.

What was the PM gross margin in the fourth quarter, it was down year-over-year, but significantly ahead of where it had been sequentially, was that a mix of business issue?

David L. Richter

Our gross margin in Project Management? No, that wasn’t down at all, in fact in the fourth quarter it was 43.1%.

William Sutherland – Boenning & Scattergood, Inc.

Yeah. I was trying to say that it was better than, they had been sequentially? Yeah.

David L. Richter

Yeah. It has improved slightly, it was 43.1 versus 42.8 the earlier. For the full year, it was 41.1.

William Sutherland – Boenning & Scattergood, Inc.

Right.

David L. Richter

For our fourth quarter, 43.1, so it has been trending upwards. Claims have seen a slight decline in gross margin. In the fourth quarter, it was 55.8, down from 59.4 for the year earlier I think that's a result of lot of factors. We are seeing especially in the U.K., we are seeing a lot of price competition from firms that are having a very bad year, primarily the quantity of surveying firms that do some of what we do on the claims side, and they're going through a blood bath in the U.K., lots of layoffs and cuts and we see more competition from that as they will probably expand in other markets.

William Sutherland – Boenning & Scattergood, Inc.

Is that really the main factor in that line, I mean in that line?

David L. Richter

I believe, is yes.

William Sutherland – Boenning & Scattergood, Inc.

And then how about the upside or not the upside, but the uptick in the gross margin for PM?

David L. Richter

I'm sorry Bill, one more time.

William Sutherland – Boenning & Scattergood, Inc.

What about the uptick in the gross margin for Project Management, what's the factor there, is it sustainable?

David L. Richter

Yeah. We think it's sustainable, as you said an uptick, nothing has significantly changed in the PM business or where we are driving our revenue, our profitability from. So, I think it’s certainly a positive change we have seen over the last year or two, increasing gross margin internationally. And it used to, as you know, it used to be significantly less than the U.S. business, it;s now on a par and I think that has continued upward to some degree.

William Sutherland – Boenning & Scattergood, Inc.

And that was just a matter of….

David L. Richter

Bettered a little bit by the acquisitions, which tend to be a little lower gross margin that Hills does, despite the Gerens acquisition, it has gone up.

William Sutherland – Boenning & Scattergood, Inc.

Just a matter of pricing improving versus pay rates, that kind of thing?

David L. Richter

It's difficult to, in the PM business, where every sale is a unique pricing negotiation, to say there are trends in pricing, but it's kind of a tool which is more competition out there, particularly more companies on price internationally. So, we have seen our margins going up, I think it’s more a result of the mix changing slightly.

William Sutherland – Boenning & Scattergood, Inc.

Okay. And then last John, what's the DSO number at the end of Q4?

John Fanelli III

Well that has increased to over 90 days consolidated.

William Sutherland – Boenning & Scattergood, Inc.

Versus, can you give me a comp, I guess at the end of third quarter and then also year end?

John Fanelli III

Probably, at the end of the third quater it was probably slightly better than that, maybe in the mid-80s. And at year-end, it probably is around the 88 to 90 range. And like we said earlier, that's an area of focus for 2009 as our receivable and net collectibility of those receivables.

William Sutherland – Boenning & Scattergood, Inc.

So, DSO didn’t go up dramatically. Then you're just talking about a couple of days, where it may be five days from the end of third quarter, I suppose that -- I am just looking at the increase in working cap and trying to…

John Fanelli III

Well it's a combination, that number has gone higher than the 90s, but overall our focus is in the Middle East, and where the days are over a 125 days. That’s where the focus of lot of our attention is overseas account.

David L. Richter

Given the market environment, the economic environment, we actually expected that to be a lot worse, it picked up as John just mentioned by about five days quarter-to-quarter.

William Sutherland – Boenning & Scattergood, Inc.

Okay. And that is the bulk of the result of the…

David L. Richter

The results aren't making sure it doesn’t grow more than we get a back down versus it.

William Sutherland – Boenning & Scattergood, Inc.

Okay. But that is the bulk of the increase in working cap in the quarter I think it was $6 million?

John Fanelli III

Yeah. Increase in receivables, correct.

David L. Richter

Yeah, it’s especially surprising that a business is growing 40% organically, that has a slowdown in collections, going to see a decrease in cash flow over the quarter.

William Sutherland – Boenning & Scattergood, Inc.

And then last one, David, you are almost, when you were talking before about your European acquisitions, it doesn’t sound like Gerens, in particular is going to be accretive in ’09, but do you still expect that for Euromost? Thanks.

David L. Richter

Yeah. We expect Euromost will be accretive during the course of the year. Some of what impacted Western Europe three months ago is reaching Eastern Europe today, but we think Euromost is still very well positioned to do well and be profitable over the course of the year.

William Sutherland – Boenning & Scattergood, Inc.

Okay. Thanks Dave.

David L. Richter

Thank you, Bill.

Operator

Our next question comes from the line of David Gold with Sidoti & Company.

David Gold – Sidoti & Company

Hey, how are you? Two questions and I will try to make them quick. Number one, Dave can you speak a little bit on your level of confidence in the backlog, I mean obviously what we are seeing is a shift out that you alluded to from say 12 month to longer term, but, what's the sort of level of confidence that we don’t see something similar in for long-term or that would be realistic there?

David L. Richter

We were pleasantly surprised that the total backlog number didn’t go down. Of course with the quarter it stayed flat, obviously it's difficult to assess what your clients are doing over the course of several 100 projects.

David Gold – Sidoti & Company

Sure.

David L. Richter

But, I think given how well it held up in the fourth quarter, we have not seen significant cancellations by any means, as work gets pushed. It usually can only be pushed so far. And then it gets done. As I said, the short-term work was easily pushed, the longer-term work isn’t. There hasn’t been much of an impact on the PM business, and that’s the side we’ve most of the backlog. So, we are very comfortable that the backlog is there, that we are not going to see big chunks that would start to disappear over the course of the year. And at the same time, we are doing everything we can to add to it with new sales and new work.

David Gold – Sidoti & Company

Okay, okay. And then just one other, just to maybe help clarify, back and forth SG&A questions. John you mentioned that unapplied labor was 30% to 35% of G&A for the year, can you give a sense for what that was in the fourth quarter?

John Fanelli III

Fourth quarter was around 33%.

David Gold – Sidoti & Company

33% of the whole number.

John Fanelli III

Yes.

David Gold – Sidoti & Company

So, that wasn’t much higher in the fourth quarter than the…

John Fanelli III

Correct, but the percentage of that unapplied labor against our consulting fee revenue went up to 14.4%, a year ago it was little slightly less than 14%. And on a year-to-date basis, full year '08 it was 12%. So, you can see the trend there that was going on as a percentage of our consulting fee revenue.

David Gold – Sidoti & Company

So, in other words, largely because the reimbursables that would be coming down, that would explain that trend?

John Fanelli III

Not necessarily, no, because the reimbursables are all outside consultants, it's not internal people.

David Gold – Sidoti & Company

No, but I guess I mean what you said was it's 33% of G&A, but it's 14.4%, so in other words, over the base of the consulting revenue, it stepped up.

John Fanelli III

Correct.

David Gold – Sidoti & Company

So, I mean the reason for that would be that you have less reimbursable or am I missing something?

John Fanelli III

No, the…

David Gold – Sidoti & Company

In other words on a percentage basis right if you have less reimbursable, the number is going to be higher as a percentage of consulting or…

David L. Richter

The reimbursables don't impact that ratio at all.

John Fanelli III

What that is saying, David, is that our utilization rates are deteriorating somewhat.

David Gold – Sidoti & Company

Okay. No, I mean I guess what I’m just trying to just understand is you give two numbers, you said it's 33% of G&A in the fourth quarter and that's pretty consistent with the rest of the year, yet it's 14.4% to the consulting, which is up from say 12%

John Fanelli III

Right.

David Gold – Sidoti & Company

How do you gel those two if I missed it?

John Fanelli III

In other words, in the full year '08, the unapplied labor was only 30%, so it's a 10% increase just in the quarter.

David Gold – Sidoti & Company

Okay, okay. It was 30% for, gotcha you had given 30 to 35. All right, fair enough. I appreciate that.

John Fanelli III

Okay.

Operator

Our next question comes from the line of Kevin Liu with B. Riley & Company.

Kevin Liu – B. Riley & Company

Hi, thanks for taking my question. Looking at the opportunities on the U.S. public side as well as in North Africa, and then the decline in work in probably Europe and the Middle East, just wondering where you expect the regional shift to go, or if you expect that to move significantly throughout 2009? And then also relative to the PM backlog, just wondering given some of the work that you might see rolling off this year, do you still anticipate being able to grow organically in terms of this backlog number?

David L. Richter

Yeah, we think we will. The shift in geographic focus obviously is impacted by acquisitions. So let me just take that out of it, we still see growth organically in the Middle East, significant growth. As I mentioned Dubai, and to a much smaller degree Abu Dhabi has been impacted by what's happening over there. Outside of that country, we still see a tremendous amount of opportunity. Qatar is an area where we have been winning work, and that had a tremendous amount of wealth that hasn't been impacted to much of a degree by what's going on. And then North Africa obviously as well. So, we see North Africa becoming a bigger part of the business on an ongoing basis, we would see upside opportunity in the U.S. public sector market. And Asia-Pacific is a relatively small part of our business, it's been about 2% for several years now. So, not much of an impact there, we have some endeavor to grow our business primarily in China, in India over the short-term future, but I think those will be of very little of any impact to us in '09.

Kevin Liu – B. Riley & Company

And then any sense for how much the currency fluctuations had on in terms of just the backlog number sequentially?

John Fanelli III

Kevin, I think it’s minimal, but in the 12 months it was probably around 14% of that total decrease.

Kevin Liu – B. Riley & Company

All right. And then just lastly, considering your acquisition strategy as well as plans for further repurchases I’m wondering if you could give us a sense for how much leverage you are comfortable with, maybe how you look it relative to EBITDA or what other measures you might look for?

John Fanelli III

We are not comfortable at leverage much at all. We are, as I have told you, we are very [risk givers], we are not portfolio managers. This is only company we have, so we don't want to by any definition be over leveraged. That being said, we have an ability to, I think, borrow significantly more money than the current $60 million line that we have in place. We see a very good acquisition opportunity out there right now that we are focused on closing. And then we want to make sure that we have the working capital that we need to continue to run a growing business. We don’t want to become over leveraged. I think a lot of companies that became over leveraged at the top of the market are finding out how bad that can be at the bottom, but fortunately for us we kept a very strong balance sheet through 2008 and through today, and we think we can get a lot of benefit out of our, out of the money that we can borrow, interest rates are very low and we think we can do acquisitions that are accretive and continue to invest in our business in growing.

Kevin Liu – B. Riley & Company

Great. Thank a lot.

Operator

(Operator Instructions). Our next question comes from the line of Arnie Ursaner with CJS Securities.

Arnie Ursaner – CJS Securities

Hi. Good morning David. Could you go through your backlog by geography please and specifically highlight what you have in backlog from Dubai, and also if you have any major projects expected to be completed.

David L. Richter

I'll be happy to. Thanks for joining the call. I actually went through this before, but I would be happy to give it to you again. Total backlog of 667, was broken down 623 Project Management, and 44 Claims. In the 12-month backlog, the total was 269, of which 236 was in Project Management and 33 was in Claims. We don't have a specific breakdown for Dubai separate from the rest of the Middle East, and we don't have as far as we can tell any projects that are winding down there in 2009.

Arnie Ursaner – CJS Securities

But you did give the breakdown before by geography?

David L. Richter

No, we did not.

John Fanelli III

That was revenue.

David L. Richter

I gave a consulting fee breakdown for the fourth quarter by geography.

Arnie Ursaner – CJS Securities

Yeah, but backlog, by geography please?

David L. Richter

No, we don't have that information.

Arnie Ursaner – CJS Securities

Okay. And you began to speak about the organic growth and you gave some color that you expect significant growth in the Middle East, you were very upbeat about North Africa, very upbeat about the U.S. public sector, I guess I'm trying to get a little better feel, I know you don't want to give specific guidance, but global economic contraction that we're underway right now, what sort of levels of organic growth might we see and where are the other places we might see it from, and obviously places like Europe I imagine are expected to have negative trends?

David L. Richter

It's very difficult at any time, much less the presence to try and guess as to where our growth is going to be in 2009, and we don't want to do so. The statement I made earlier in the call, it was pretty much the only guidance we're going to give this year, which is even despite the economy, we are expecting organic growth in 2009 in consulting fees. And we are expecting to be able to grow our net earnings during the course of the year. Beyond that there it’s going to be 10%, 20%, 30%, 40% growth, we have no idea, but I can, caution to the wind too much, pretty much tell you that 40% organic growth is not very likely this year.

Arnie Ursaner – CJS Securities

But double-digit organic growth would be incredibly impressive in the current environment if that were the level you could achieve. So, let me ask a different question if I can, no one asked you about an update on the JVs and perhaps comment on how they might contribute to the growth rate you expect in ’09?

David L. Richter

Sometimes these JVs have taken our life for their own. They really are just a method by which we build relationship with the client or team with other firms in our business to win work from one or more clients. We made a lot of announcements early last year, we ended the year with an announcement regarding a joint venture for QPM, Qatar Project Management Company, where we teamed with Louis Berger to essentially outsource the PM work for two largest developers in Qatar. And we see that, that building pretty quickly and we see there is a tremendous opportunity for us this year and going into the future.

We established a real estate development joint venture in September called HIREP, Hill International Real Estate Partners, which is focused on several things, the biggest of which and the most imminent of which is a 1,500 foot tall skyscraper in Center City, Philadelphia. That project received full zoning approval in December of last year, and right now is, the company is focused on two things, one of which most important of which is signing tenants. Secondarily, we are preparing to launch a real estate fund, where we will raise money into the company and look to use that capital for investing in not only the American Commerce Center, but other projects primarily distressed real estate projects in the Mid-Atlantic area. We think there is a tremendous amount of upside, there is money available for investing in those kinds of funds that are focused on the disstressed opportunities at the moment, and it gives us access to capital so that we can invest in projects without investing Hill's capital, which we very much don’t want to do and aren’t going to do in the real estate business.

Arnie Ursaner – CJS Securities

Okay. Thank you very much.

David L. Richter

Thanks Arnie.

Operator

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

Richard Paget – Morgan Joseph & Co.

My followup was answered.

David L. Richter

Okay, Richard thanks.

Operator

There are no further questions. I will now turn the conference back to management.

David L. Richter

Everybody thank you for your time and attention today. We appreciate your involvement in the call. As I said, we were very happy about our record 2008 performance, we had some issues in the fourth quarter, which impacted sort of the headline of the results, but we think we held up pretty well. That being said, we have some issues to address when we focus on the Claims Group and making sure that turns around quickly, but our cost structure remains competitive and that we focus on the challenges that we have in the year ahead of us. That being said, we are going to get back to work, we will talk to you all soon. Thank you.

Operator

Ladies and gentlemen this concludes our conference for today. Thank you all for participating and have a nice day. All parities may now disconnect.

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Source: Hill International Q4 2008 Earnings Call Transcript
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