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Hill International, Inc. (NYSE:HIL)

Q4 2013 Earnings Conference Call

March 11, 2014, 11:00 AM ET

Executives

Devin Sullivan - Senior Vice President, The Equity Group Inc.

David Richter - President and Chief Operating Officer

John Fanelli - Senior Vice President and Chief Financial Officer

Analysts

Lee Jagoda - CJS Securities

Chase Jacobson - William Blair

Gerry Sweeney - Boenning & Scattergood

Alan Weber - Robotti & Company

Pete Enderlin - MAZ Partners

Michael Conti - Sidoti & Company

Dennis Scannell - Rutabaga Capital

Walter Schenker - MAZ Partners

Operator

Greetings, and welcome to the Hill International reports fourth quarter and full year 2013 financial results conference call. (Operator Instructions) 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.

Devin Sullivan

Thank you, Manny. Thank you 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 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, 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 for 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 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 could differ materially from estimates or projections contained in forward-looking statements are set forth in the risk factors section and elsewhere in the reports filed with 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.

David Richter

Thank you, Devin, and good morning to all of you joining us today. Yesterday, after the market closed, we announced our financial results for the fourth quarter and full year of 2013. Without a question, last year we had the best operating performance in our company's history.

Total revenue, consulting fee, EBITDA, operating profit 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 growth consists 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. U.S. 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 from 3%. And Asia-Pacific result was 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%. The U.S. 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 at 39.5%, a 400 basis point drop year-over-year.

This was higher than our average for the year, which is typical to December, as almost always the worst month of the year with respect to utilization and was again in past year. But for the full year, our SG&A margins came in 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, total 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. 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 bottomline, we had a small net loss in the fourth quarter of $1.3 million or $0.03 per diluted share that's versus a consensus estimate of $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 is primarily due to our ongoing high interest expense, 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 intend to focus on 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 continue to have very strong operational cash flow. Those 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 is the best six months 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. Consultancy 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 Projects Group's growth and consulting fees, it was up 1% for the U.S. and up 23% internationally. The Projects Group saw a 20% increase in its gross profit with $40.1 million in the quarter. The gross margin on a percentage basis at 40.5%, up by a 110 basis points from last year's fourth quarter.

Despite 17% growth in consulting fees, SG&A expenses of 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 percent of consulting fees was 11.8%, a 630 basis point improvement and more than double of 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.

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 U.S. 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 its 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 Groups going to 8.0% in the fourth quarter of last year. Both of our Projects and Claims Group 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 a 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, 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 to be topped $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 is broken down into $351 million from our Project Management Group and $43 million from our Construction Claims Group.

We had 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 Governorate of Basra, in Iraq, to manage facility and infrastructure development under their 2014 master plan; an $18 million extension of our work, providing PM services for the expansion of Bahrain International Airport; a $17 million extension of our contract to provide project management support services to 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 GSA'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, consulting fees in 2013, we are also providing consulting fee guidance for 2014. Based on current market conditions and the backlog amounts I discussed earlier, we estimate that consulting fee revenue for 2014 will be between $575 million and $600 million for the year.

This guidance is based on organic growth only, reflects approximately 12% to 17% growth in consulting fees for the year. While less than 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. Today, we have now collected nearly $10 million against what was a $60 million account receivable. The most recent payments were made primarily in U.S. 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 money 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.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Lee Jagoda of CJS Securities.

Lee Jagoda - CJS Securities

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

John Fanelli

Very minimal, around $5 million.

Lee Jagoda - CJS Securities

And then, does the growth guidance assume you win the Oman rail network project that's been discussed in various trade for us?

David Richter

No. It doesn't assume that we win anything that we're currently chasing. And just a follow-up on that statement, if we do win that project and the works for several quarters now, and we don't know when the decisions is going to be made -- if we do win that project, we want to file this on, it will be the biggest contract in our company's history, and would change these numbers significantly.

Lee Jagoda - CJS Securities

I mean your guidance would have to imply that it include some of the works you're currently chasing, just because the 12 month backlog is less than the $575 million to $600 million?

David Richter

It obviously includes the fact that we're going to win work this year. It just doesn't include any specific contract, mega contracts like Oman Rail will be for us.

Lee Jagoda - CJS Securities

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

David Richter

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

Lee Jagoda - CJS Securities

Through the year of 2015?

David Richter

Of 2015. Two more years, and the fourth quarter contributed about $14 million of consulting fees. And I believe it was still in the order of $45 million to $50 million for the year. Full year, John?

John Fanelli

Yes.

Operator

The next question is from Chase Jacobson of William Blair.

Chase Jacobson - William Blair

Can you update us on your expectations and maybe with regards to how much of the future payments will be in U.S. dollars? And of the U.S. dollars that you've received, are those still being held of receiving foreign accounts?

David Richter

First, in 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 will be paid in U.S. dollars and there is also a small component paid in British pounds.

Chase Jacobson - William Blair

Are those dollars available in the U.S. or they're going to have to be repatriated?

David Richter

The funds that we received most recently in U.S. dollars and British pounds, has already been repatriated.

Chase Jacobson - William Blair

And then, Middle East has been very strong for you guys and some of the recent commentary have suggested that you continue to see a lot of opportunities there. How sustainable is the growth that we've 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? I mean does it go up from 44% of revenue closer to 50% by the end of the year, any color there would be great?

David Richter

Yes, when you have a year like we just had with the Middle East and you're growing 50% to 60%, as the denominator gets bigger that becomes harder too. Certainly, we don't expect those kind of growth rate. That's why we always give guidance. It was quite a bit lower this year than last year, but there is certainly plenty of opportunity 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 of contracts that we're winning over the last two years has gotten significantly bigger. We've been successful in staffing and management projects.

So I think that we'll continue to see those larger projects, especially as we made a move more into infrastructure side of that market and lesser on the building site, where you have a significant amount of rail, airports, highway, hospital, school programs all throughout the Middle East. Government is spending more and more money on those areas, and we expect to continue to benefit from it. As the denominator gets bigger, as I said, 50% to 60% growth becomes that much more difficult to achieve.

Chase Jacobson - William Blair

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

David Richter

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

Chase Jacobson - William Blair

And 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 of quarters. So just any color on what you're doing there to get that back up would be great?

David Richter

We were a little surprised, it was that high for the year. Claims Group 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, our utilization month. We're going to be working with the Claims Group over the next couple of months to see how we can get that number down.

The Claims Group and the Projects Group both have targeted operating profits of 50%. There is a heading back towards that number. We haven't achieved it yet since the recession began, but I expect that we will. And a big part of that's going to be getting our SG&A down, because they can't do it simply on gross margin expansion alone.

Operator

The next question is from Gerry Sweeney of Boenning & Scattergood.

Gerry Sweeney - Boenning & Scattergood

A quick question, just a follow-up on that SG&A. I did notice the Project Management, the gross margin was up about 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 into. Any comments on that, is that another seasonality issue there?

David Richter

No, maybe in a survey. The SG&A expense in the Projects Group was actually down in absolute dollar terms, down 1% for the quarter and there was a pick up in gross margins, because typically it runs between 35% and 40%. This quarter it was actually over 40%, which is a great quarter and a trend we hope will continue. We see there operating margins continue to improve.

Gerry Sweeney - Boenning & Scattergood

And then, talking about -- obviously, the Middle East has been doing great, any comments on maybe the U.S. or some growth opportunities here in the U.S. or Latin America and Africa, where you see that going maybe for 2014 and beyond?

David Richter

On all those different fronts, certainly as we continue to improve our balance sheet, which we expect to do this year are working on several fronts to accomplish that in addition to just 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 of years.

A big focus of our acquisition program is going to be on the U.S., and we'll see a lot of candidates, a lot of opportunities for us to improve our bottomline by improving our critical mass throughout the country, and also being able to fill in some geographic gaps that we currently have in the U.S.

There are significant number of the acquisition candidates and are easier to integrate, and we see the most value added from doing acquisitions here domestically. I don't see us doing any acquisitions in near future in Latin America, but we certainly expect to continue to start to see organic growth again in that region.

Brazil has been a little hard hit. We just saw that market there was down for us. A big part of that was due to exchange rate fluctuations with the Brazilian real, but some of it was just an organic decline. And I don't expect that we'll be doing acquisitions there. It will 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% and steady. 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 a great market for us to be in. We've been in that market now for nine months, in 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.

Gerry Sweeney - Boenning & Scattergood

Now, back to backlog and guidance. I mean I know this is a rule of thumb or a general back the envelope calculation, and look at backlog times 130% to 140% give us, again, a back the envelope kind of view of what revenue could be for the next 12 months? With 12 months backlog at $395 million in that area, then it still comes out 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 true that up a little bit, if possible?

David Richter

I think what you're going to see is and what we're hoping to see is kind of have a lot more success on the sales side. So that number maybe even above the higher end of the 140%. We've had two years of this fantastic sales and we expect that to continue to drive our growth, and I think we'll see more of a ramp up over the course of this year. I think we're also going to see more growth out of the Claims Group this year, and the Claims Group traditionally has very little 12 months backlog. So it apply to them as much as it applies to the PM operation.

Operator

The next question is from Alan Weber of Robotti & Company.

Alan Weber - Robotti & Company

On the call you mentioned the cash flow for the year and the quarter, what was that?

David Richter

Let me go back to that. The cash flow, I did mention 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.

Alan Weber - Robotti & Company

What's the difference between the two numbers?

David Richter

We've got 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.

Alan Weber - Robotti & Company

For the nine month it show, because I didn't see this for the year, for the nine months it showed net cash provided from operating activities are $8.9 million, what was that for the year?

David Richter

John, do you have those?

John Fanelli

$21.4 million.

Alan Weber - Robotti & Company

And how much of that might be in the fourth quarter?

David Richter

In the fourth quarter, none of it was in there.

Alan Weber - Robotti & Company

Of all the payments came in the first quarter of 2014?

John Fanelli

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've got at about almost $7 million.

Alan Weber - Robotti & Company

And then, can you just talk about what you expect in terms of cash flow and the balance sheet relative to your EBITDA for 2014?

John Fanelli

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

Alan Weber - Robotti & Company

I mean 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?

David Richter

There are no strict formula. It certainly bounces around. Certainly, in the last half of last year, operational cash flow was better than our EBITDA. And a large part of that was because we had some deferred payments from our ramp up on the work at the Oman Airport's program, and we saw a lot of that cash flow hit us in the second half. So I would say, for this year you'll see probably at or around EBITDA.

John Fanelli

And it also depends on timing of refinancing under debt, because that has a major impact on our cash. And also the future Libya's payments will also come into the play as well.

Operator

The next question is from Pete Enderlin of MAZ Partners.

Pete Enderlin - MAZ Partners

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

David Richter

Pete, there is no seasonal pattern at all to when works comes in the door. It's strictly 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 about $95 million that went into our backlog from the $265 million contract that we won to manage half of the new Riyadh Metro system. We didn't have any major wins in the first half anywhere near the size of those two contracts.

Pete Enderlin - MAZ Partners

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

David Richter

Well, certainly, in the Middle East, where we're seeing these giant contracts and it bodes well for us. The contracts tend to be longer in term. We were waiting for projects five and 10 years ago and they were skyscrapers, which were popping up in Dubai and elsewhere. They don't take long to build, you can build a skyscraper in under two years.

The airport and rail and other types of projects we were waiting on the infrastructure side, they're five to 10 year projects. And when we get a lot in the total backlog number, not as much on a percentage basis is going to drop into our 12 months backlog.

Pete Enderlin - MAZ Partners

And your domestic business has sort of lagged certainly behind the international area. There is legislation in U.S. Congress now, but more infrastructure spending. I think I've seen numbers of $100 billion somewhat or $300 billion. If something like that passes, how soon would it begin to flow into contracts? I mean we're talking mainly about highways and rails and bridges and things like that?

David Richter

Yes, Obama's got a $302 billion infrastructure plan. I don't know how much of that is in past, but typically I think he learned this four years ago. Improving money today doesn't mean they'll start the very projects tomorrow. So there's quite a bit of a delay. And certainly, regarding the new project that have to be designed, there's usually a lag between who will get involved on the construction side. But certainly any increase in infrastructure spending is going to benefit us. It's our largest market sector in the U.S. by far.

Pete Enderlin - MAZ Partners

Aside from that possible legislation, do you see any general sign of a pickup in U.S. construction and infrastructure spending?

David Richter

We're seeing improvement across the board, I think it slow. It's much more marginal here than is elsewhere in the world, but certainly is heading in the right direction.

Pete Enderlin - MAZ Partners

And your negotiations with ODAC in Libya, do you negotiate for the payments first plus the new business or I mean you're doing about the same time or do you negotiate sequentially? In another words, you need to get paid first before you talk about the other stuff?

David Richter

We are doing both at the same time. So right now we're talking about the next series of payment, when those will be made. Our client has been paying us by invoice although it first. So we're working our way through the invoices that they have, and we're also simultaneously in the process of negotiating. They've been negotiated. We're finalizing two contracts to get back to work on the two major programs that we were involved in three years ago. Our expectation is, those will be finalized by late this quarter or next month.

Operator

The next question is from Michael Conti of Sidoti & Company.

Michael Conti - Sidoti & Company

A quick question on the SG&A line, were there any one-time item that negatively impacted that number?

John Fanelli

In the fourth quarter or for the year?

Michael Conti - Sidoti & Company

In the fourth quarter?

John Fanelli

A lot of adjustments that are made in the fourth quarter, so they kind of balance themselves out, but nothing really stands out with the net amount.

Michael Conti - Sidoti & Company

So how should we think about the SG&A lines for 2014?

John Fanelli

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

Michael Conti - Sidoti & Company

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

David Richter

Not very much. They were running about $5 million to $6 million a year in revenue and we expect a comparable numbers in 2014.

Michael Conti - Sidoti & Company

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

John Fanelli

Let me talk about that in a little more detail. Right now, we are focused on our senior revolver, which a bank group led by Bank of America. The revolver is due in about 12-and-a-half months. We are working with an investment bank, Houlihan Lokey to ideally get a new expanded facility for a longer-term and in 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 assurances that it will happen, but I would say at this point we're confident that we'll have something in place. It 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're currently talking about can be put in place.

Michael Conti - Sidoti & Company

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

David Richter

Are you saying if it doesn't happen or it does?

Michael Conti - Sidoti & Company

If it doesn't happen?

David Richter

We expect it to be same run rate we have 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?

John Fanelli

No. It depends on how we'd be financing the current debt.

David Richter

It's actually about $2 million.

Michael Conti - Sidoti & Company

$2 million you said?

David Richter

Yes.

Michael Conti - Sidoti & Company

And I guess a quick question on your effective tax rate, were there any losses or non-deductibles just to make that number unusually high for the fourth quarter?

David Richter

Well, in the fourth quarter and typically as when we're making adjustments to a lot of the taxes, and when we encourage some higher foreign withholding taxes that really relate to dividends, our cash movement, invoices between and among all the foreign jurisdictions, and we have to pay the total tax. So that's what kind of gave it a spike in the fourth quarter.

Michael Conti - Sidoti & Company

Any I guess do you have a number in mind for 2014?

John Fanelli

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

Michael Conti - Sidoti & Company

That's for the year?

John Fanelli

Yes, effective tax rate for the year.

Operator

The next question is from [ph] Marc Braha, a Private Investor.

Unidentified Analyst

I'm following-up to the financing and floating debt, the $23 million that has cost you this year for interest expense has virtually wiped out any profit dollars that were in the company, is it paying -- are the acquisitions that you are making sound compared to what its costing to finance these acquisitions?

David Richter

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 under valued, but we think the value-added from the acquisitions was compelling enough to do the deal. We were not in a position to do acquisition 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.

Unidentified Analyst

And 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?

David Richter

There is no strangling. And certainly, the interest expense is much, much higher than we wanted to be and the level of debt we have is much higher than we wanted to. We have a variety of plans in place for how we're going to address the debt. We can't do them all tomorrow, but we view them as sort of a series of dominoes, one is going to fall and then the next, and then the next. We definitely are overleveraged and we want to get our debt down. We want more of our strong EBITDA to drop to the bottomline to a benefit of even our shareholders.

So right now we are focused on putting a new revolver in place, after that we'll focus on rest of the debt. And if our stock improves to a point where we can raise equity to payoff debt, we will. We don't think it's at that point right now. Not even close to it for us to go to the markets and dealt with our existing shareholders at the current prices.

Unidentified Analyst

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

David Richter

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, when we took out about $25 million of overhead cost. And I think you've seen the impact that had on our EBITDA, which was dramatic.

We're not looking at the moment a major cost cutting, although as I said, we're going to be focused on our Claims Group about getting their SG&A down, because 50% is just simply too high. They're never going achieve the kind of profitability they need to. It's half of their consulting fees go to overhead. So we'll be focused on that going forward.

Unidentified Analyst

Making a homerun 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? And would that be the plan?

David Richter

Yes. That's one of the dominoes I referenced before. A significant amount of that money would come back to the U.S. for debt pay-down.

Unidentified Analyst

One other thing, Aramco, you've had previous dealings with that company, is that correct? Relationships, yet?

David Richter

Yes.

Unidentified Analyst

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?

David Richter

I read something about that. Yes.

Unidentified Analyst

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

David Richter

I obviously can't tell you. It hasn't popped up on my radar screen as a project either Saudi or Egyptian operation replacing, but we'll certainly look into it.

Unidentified Analyst

I missed the last couple of conference calls. And I maybe asking a question that may have been answered in the past, but the project that was originally on the books with HillStone, what did happen with that?

David Richter

That project in Iraq did not move forward. And HillStone was closed in on a year ago, that eventually shutdown and discontinued.

Unidentified Analyst

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

David Richter

No. It's not.

Operator

The next question is from Lee Jagoda of CJS Securities.

Lee Jagoda - CJS Securities

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?

John Fanelli

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

David Richter

We saw an improving interest rate situation last year. As that ratio improved, our interest is going to down.

John Fanelli

The total capacity and with the $39 million, possibly around $18 million in outstanding, 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.

Lee Jagoda - CJS Securities

And then 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 3x debt-to-EBITDA?

David Richter

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

Lee Jagoda - CJS Securities

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

David Richter

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.

John Fanelli

22% organic and 0.6% acquisition.

Lee Jagoda - CJS Securities

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

John Fanelli

Could you repeat that again?

David Richter

How much of our taxes are cash taxes?

John Fanelli

Probably all of it.

David Richter

I think when they want the taxes, they want it in cash.

Operator

The next question is from Dennis Scannell of Rutabaga Capital.

Dennis Scannell - Rutabaga Capital

Just a quick question. I am looking at full year results, and it looks like for the past two years, your incremental EBITDA margins have been kind of in the mid-20s. 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've done?

David Richter

Unless you mean EBITDA, our EBITDA margins are single digits.

Dennis Scannell - Rutabaga Capital

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 in EBITDA went up $25 million, so $25 million divided by $95 million is around 27%. In terms with the incremental sales, in terms of how much incremental EBITDA will be generated, do you think mid-20s is a good number for you going forward?

David Richter

I think that number may be aggressive. I think a lot of that improvement was based on cost cuttings that we did in '11 and '12. And therefore, '13 was higher than '12 because a lot of that cost cutting was implemented. I don't think you'll see that much improvement, but certainly, off the top of my head, probably the teens is a good number.

Dennis Scannell - Rutabaga Capital

I'm sorry, I missed that, off the top your head?

David Richter

I said that mid-teens is probably a pretty good number.

Operator

The next question is from Walter Schenker of MAZ Partners.

Walter Schenker - MAZ Partners

Just a quick question on, as you look at mid-teen growth in the consulting business in 2014, what sort of increase, 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?

David Richter

I am not sure it's going to require any additional debt. We have our cash flow north of 20. We are paying down our debt. And if that continues through 2014, we shouldn't need any additional borrowing capacity.

Walter Schenker - MAZ Partners

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

David Richter

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

Operator

The next question is from Michael Conti of Sidoti & Company.

Michael Conti - Sidoti & Company

Did you say that that ended at the end of 2015?

David Richter

Mike can you repeat your question. I think you were muted during the first half of it.

Michael Conti - Sidoti & Company

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

David Richter

Yes, we think it will.

Michael Conti - Sidoti & Company

That started beginning of January 2013, so do you expect to for that contract to be renewed?

David Richter

No. We expect the project will be finished at that point. We were brought into the project as a replacement for a prior PM. So the project was already have finished, which is why our contract is only about three years.

Michael Conti - Sidoti & Company

So I'm reading the press release now, saying it's a two year contract?

David Richter

I think it said two-and-a-half, but we expect it to go beyond the two-and-a-half.

Operator

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

David Richter

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.

Operator

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.

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