Hill International's (HIL) Q2 2014 Results - Earnings Call Transcript

Hill International Inc. (HIL) Q2 2014 Earnings Conference Call August 7, 2014 11:00 AM ET

Executives

Devin Sullivan - SVP, Equity Group
David Richter - President and COO
John Fanelli - SVP and CFO

Analyst

Chase Jacobson - William Blair
Tahira Afzal - KeyBanc Capital Markets
Jerry Sweeney - Boenning
Michael Conti - Sidoti & Company
Pete Enderlin - MAZ Partners

Operator

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

I’d now like to turn the conference over to your host, Devin Sullivan, Senior Vice President of the Equity Group. Thank you Devin, you may now begin.

Devin Sullivan

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

Before we begin, I would 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, the matters set forth herein including, but not limited to, any projections of revenues, earnings or other financial items; any statements concerning plans, strategies and objectives for future operations; and statements regarding future economic conditions or performance, are forward-looking statements.

These forward-looking statements are based on our current expectations, estimates and assumptions and are subject to certain risks and uncertainties. Although we believe that the expectations, estimates and assumptions reflected in forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any 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 our forward-looking statements are set forth in the Risk Factors section and elsewhere in the reports we have filed with the Securities and Exchange Commission. We do not intend, and undertake no obligation, to update any forward-looking statement.

With 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 everyone joining us today for our earnings conference call. Yesterday after the market close, we announced our financial results for the second quarter of 2014 which were exactly in line with the preliminary results that we announced last Monday, June 28th. Our strong top line growth has continued but Hill having now generated record consulting fees for the seventh quarter in a row. So let's jump right into the numbers.

Total revenue for the second quarter of 2014 was a record $159.6 million, an 8% increase from the second quarter of 2013. Consulting fee revenue for the second quarter was a record $144.5 million, a 13% increase from last year’s second quarter.

This growth in consulting fees consisted of 11% organic growth plus 2% growth as result of our acquisition last year of Binnington Copeland and Collaborative Partners. Our gross profit in the second quarter rose to $61.3 million, up 15% from the second quarter of last year. Our gross margin as a percentage of consulting fees improved by 110 basis points to 42.4% in the second quarter versus last year.

Our SG&A expenses in the second quarter were $52.6 million up 22% from a year ago when Hill saw the benefit of a $2.6 million reversal of an early reserve and lowered SG&A for second quarter of last year. Our SG&A margin rose to 36.4% a 270 basis point rise year-over-year but absent the year earlier reversal, our SG&A margin would have been only 70 basis points rather than 270.

Hill’s EBITDA for the second quarter was $10.6 million, down 11% from last year’s second quarter. EBITDA margin as a percentage of consulting fees was 7.3% in the second quarter down 200 basis points from last year. Absent the year earlier reversal, our EBITDA margin was unchanged this year from last year.

Operating profit in the second quarter was $8.7 million, down 12% from last year’s second quarter. Our operating margin in the second quarter was 6.0% down 170 basis points from last year’s second quarter. Again absent the year earlier reversal our operating margin would have been up 40 basis points from last year instead of down 170. Looking at our bottom line, we had net earnings in the second quarter of $1.5 million or $0.04 per diluted share which was up 111% from last year’s second quarter.

Now looking at the second quarter performance of our two operating segment separately. Total revenue at Hill’s project management group during the second quarter was a record $122.0 million, a 4% increase from last year. Consulting fee revenue for the second quarter was a record $108.5 million, a 10% increase from year ago. This growth was comprised of 8% organic growth and 2% growth from our acquisition of Collaborative Partners at the end of last year. The Projects Group saw a 13% increase in gross profit to $41.2 million for the quarter with gross margin on a percentage basis at 38.0%, up 120 basis points from last year.

SG&A expenses of the Projects Group were up 21% in the second quarter to $28.0 million. Absent the year earlier reversal, SG&A expenses would have been up by only 9%. As a percentage of CFR, SG&A margin was 25.8%, up 250 basis points year-over-year and absent the year earlier reversal, SG&A margin would have been down 10 basis points from last year.

Operating profit for the Projects Group during the second quarter was $13.2 million, a slight decline of 1% from last year. Operating margin as a percentage of CFR was 12.2%, a 130 basis point drop from a year ago. Although absent the year earlier reversal it would have been improved by a 140 basis points. This 12.2% operating margin is getting much closer to the Projects Group's target of 15% but there is still room for significant improvement there.

For our Construction Claims GROUP’S total revenue during the second quarter was a record $37.6 million, a 22% increase from the second quarter of last year. Consulting fees for the Claims group was a record $36.0 million, also a strong 22% increase from last year. The breakdown at the Claims group’s growth in CFR was 19% organically and 3% from their acquisition last year of Binnington Copeland.

The Claims group’s saw its gross profit rise by 20% to $20.0 million but saw a slight drop in its gross margin as a percentage of consulting fees to 55.7%, down 90 basis points from last year's second quarter. SG&A expenses for the Claims group were up 28% a $17.0 million in the second quarter and as a percentage of consulting fees they were up by 200 basis points to 47.2%.

Second quarter operating profit for the Claims group was $3.1 million, a 10% decline from last year. As a percent of consulting fees, this was a 300 basis point decline from the year-earlier quarter with operating margin for the Claims group dropping to 8.5% in the second quarter of this year. Claims had a great quarter for growth but operating margin is obviously headed in the wrong direction. At 8.5% operating margin for the second quarter, the Claims group has a long way to go to get back to its target up, 15% but this will be our focus going forward in the balance of 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 second quarter, our Corporate SG&A expenses were $7.6 million, up 11% from the year-earlier. As a percent of consulting fees, this was 5.3%, down 10 basis points from last year’s second quarter and this is getting much closer to our goal of having our corporate expenses under 5% of consulting fees.

Regarding our backlog, our Company’s total backlog at the end of the second quarter was $972 million, down less than 1% from the end of the first quarter this year. This backlog consisted of $923 million in our Projects Management Group and $49 million on our construction Claims group.

12-month backlog at the end of the second quarter was a record $404 million, up about 1% during the quarter. This was broken down into $355 million in our Projects Management Group and $49 million in our Construction Claims group.

We had net bookings during the second quarter of $139 million, with a book-to-bill ratio of 96%. A good sales quarter, significantly better than the first quarter of this year, our book-to-bill ratio was only 77%. Some of the major new contracts that we’ve announced over the last three months since our last earnings call include $10 million contract to act as Project Manager for the Mall of Qatar and $8 million contract to provide (cash flow of PM) [ph] services to the Los Angeles, Community College District, an $8 million one year extension of our contract as program manager for the $1.9 billion Gold Line Foothill Extension in Southern California, a $7 million contract to manage the rail extension program for Denver’s regional transportation district, two contracts totaling $6 million to provide management services at San Francisco International Airport, a $4 million contract to manage construction of the $1.1 billion Bidbid-Sur highway in Oman, a $3 million contract to manage construction of the Boulevard Mall in Qatar, a $2 million contract to manage the construction of Seven Wind Farms throughout Brazil, a $2 million contract to act as Project Manager for the new Langham Palm Jumeirah Hotel in Dubai, a $2 million contract to oversee the renovation of Terminal 2 at Cairo International Airport, a $2 million task order contract from the District of Columbia Public Library, a contract to provide delivery insurance services for the $8 billion Sydney North West Rail Link project, our largest infrastructure project right now in Australia, and a contract to manage construction of the new St. Regis Hotel in Astana, Kazakhstan. And we are expecting even bigger wins in the second half of this year.

During our last call we gave guidance for 2014 consulting fees of between $575 million and $600 million for the year. This equates to approximately 12% to 17% growth for the year. Based on the consulting fees we achieved so far through the first half, current market conditions and the backlog I discussed earlier, we reaffirm but narrow our prior consulting fee guidance. We now estimate that our consulting fees for 2014 will be between $580 million and $590 million, which is equivalent to approximately 13% to 15% growth in our consulting fees for the year.

Yesterday we closed on a follow on public offering of Hill's common stock that was led by underwriter Keybanc Capital markets. We sold a total of approximately 9.5 million shares at a price of $4.25 per share receiving gross cash proceeds of approximately $40.6 million. This equity offering was a condition precedent to our ability to refinance our existing senior debt on attractive terms and pricing and we are very happy that we were able to get the offering done successfully over the past two weeks.

As we announced last week, when we began the equity offering, we have received a commitment from Societe Generale to provide us with new senior debt financing in the amount of $165 million that will allow us to replace both our Bank of America revolver and our term loan from Tennenbaum Capital Partners. The new financing includes a $45 million revolver, paying about 5% interest, down from the 8% we are paying under our current Bank of America revolver and a $120 million term loan paying about 8% down from the 20% that we’re paying out of the Tennenbaum second lien term loan. We expect that this new debt financing will close before the end of this month.

The combined effect of the new debt and equity refinancing means that we should be able to significantly lower our interest expense going forward, which has been running at an annual rate about $23 million per year. We’ll be able to reduce this by more than half going forward and we’ll also be able to significantly improve our borrowing capacity so that have adequate capital for our anticipated growth in the near term.

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

Question-and-Answer Session

Operator

Thank you. We’ll now be conducting a question-and-answer session. (Operator Instructions) Our first question today is from Chase Jacobson from William Blair. Please proceed with your question.

Chase Jacobson - William Blair

So first, I guess John can you just confirm or David can you confirm how the proceeds from the equity offering will be used towards the cash and debt balances and just what the fees we should be expecting in the third quarter as it relates to the incomes statement.

John Fanelli

Okay. As David mentioned, the sources of our cash will be from the $165 million of which $120 million we will receive at closing. We received a gross amount of $40 million from the public offering. That $160 million will pay off our existing revolver with BofA and also pay the existing term loan of 100 million. With the transaction fees we should net around $5 million on our balance sheet. Our balance sheet will de-lever from the current 3.6 times to 3.1 times. And as David mentioned our annual interest will almost be reduced in half from $23 million down to $11 million, $12 million.

David Richter

Yes, we’ll have a -- the revolving credit facility that we’ll have with Societe Generale will be unused on day one except for some letters of credit that we’ll carryover from the Bank of America line and our short-term plan is to move those LCs out of our senior revolver where it expensive and obviously impacts our borrowing ability and move those to local banks in the Middle East and elsewhere, where they are needed.

Chase Jacobson - William Blair

Okay. I guess secondly, so good job on the gross margin, but the SG&A continues to be above the 35% target. Are you still thinking you can get to 35% to 36% for the year and maybe just some examples of what you’re doing to get that number down or is it all going to come from overhead leverage?

David Richter

We give target of 35% to 37% with 36.4% in the second quarter. It’s been higher than we’ve expected. Unapplied labor in particular has been higher than we’ve anticipated and that’s going to be a core focus of ours as we’re in the second quarter heading over the fourth quarter. We definitely want that number to come down and it should come down as a percent I think it will be like closer to 35% towards the end of the year.

Chase Jacobson - William Blair

Okay. I guess just one more then I’ll turn it over but now with the equity offering added by [ph] the debt refinanced, can you comment on the acquisition pipeline I guess now that you’re more free to execute your growth strategy.

David Richter

Yes, we’ve been fairly quiet for the last 3.5 years. Our acquisition of Engineering S.A in Brazil in February of 2011 was our really big acquisition. We closed two small acquisitions last year both with stock because we were prevented under our Bank of America terms from doing acquisitions for cash during that time period with the new availability they will have under the line stronger balance sheet. I expect that we'll be more aggressive going forward on the acquisition side.

Operator

Thank you. Our next question today is coming from Tahira Afzal from KeyBanc Capital Markets. Please proceed with your question.

Tahira Afzal - KeyBanc Capital Markets

I guess first question is if you look at your pipeline of prospects, David how do you see the organic growth shaping up? Are you looking at your G&A and where it’s going to be? Embedded in that what kind of organic growth rate are you assuming?

David Richter

We're not assuming anything but we’re certainly expecting a better sales path in the third and fourth quarters of this year. We’ve got some visibility into that already. There’s also big projects out there we're still waiting to hear-on. So certainly our expectation that will be above that 1:1 book to bill ratio, that really view as a floor. The organic growth that we see -- we had 20, certainly 22% organic growth last year, 23% overall. We’re targeting 13% to 15% in this year and again about 1% of that, maybe 2% will be from acquisitions. And the rest will be organic growth. We don’t see any challenge in having double digit organic growth and frankly we’d be disappointed with anything less than double digit growth organically. How much better than we can do, it all depends on the wins that we get and how quickly we can ramp up on those projects.

Tahira Afzal - KeyBanc Capital Markets

Got it. And if I look at the whole breakdown you give us which is very helpful on what you've won since the close of the second quarter roughly adds up if I'm getting my numbers right, $55 million or so. So as you look forward, you’ve seen some pretty nice big projects, $8 million type of projects coming in. Should we expect the prospects that you’re seeing to be of a similar size or is there something outside this demand there?

David Richter

Yes. I would say that the total number was a little lighter than we expected. I said 96% book to bill. We always aim for than more 1:1. The size of the projects as well were relatively small. There were some big projects in there, projects like Denver and Sydney that I think are much bigger and I'm seeing much bigger work for us down the line, but sometimes the initial contract maybe a small amount or a determinate amount. We have a couple of large projects that we’re chasing now and a couple of large projects that we've won and its much, much bigger than this range of contact as I think, the largest project I announced on that list I gave towards quickly enough, $10 million contract. We’ve been seen contracts $25 million, $50 million, $75 million contracts in the last couple of years. We have some of those that we're chasing and hopefully we will reporting on those real soon, second half of this year.

Operator

Thank you. Our next question today is coming from Jerry Sweeney from Boenning. Please proceed with your question.

Jerry Sweeney - Boenning

I’d like to touch on the margin real quick, you set that goal at 15% for both segments. Obviously the claims is down in the single digits which sounds like you're not that happy about obviously but in both of those, how do you start affecting a way to get there, because you trend up and you trend back down. Just curious if there is a particular roadmap to make that road to 15% a little bit more clear?

David Richter

Yes. I wish I could summarize it 60 seconds for you but the biggest issue really has been and first of all, start with the fact the Claims group just delivered record revenues and strong growth in the first half of this year. And they’ve been ramping up staff wise and unfortunately it’s the same time we’ve had an increase in unapplied labor which to some degree is a reflection of that stamping up, new people come on board until they are fully billable. There’s going to be that applied cost to having them but we're obviously going to go through a review of -- as we always do at the end of the year, we're planning our budget for 2015. We’re going to be going through and looking at the costs on both side of the house Claims and Projects. We’re going to be looking at who’s performing and who’s not. And we’re going to be aggressive in making sure that the cost structure in place that we need for the kind of growth we’re expecting in 2015 and do the best we can to bring down our SG&A and the easiest number in that category to bring down is on applied labor.

Jerry Sweeney - Boenning

And in the place through -- some guys transfer in and out depending on when Projects end correct? That’s part of the unapplied labor, aspect of it.

David Richter

Unapplied labor is the cost to people that are normally billable when they're not billable.

Jerry Sweeney - Boenning

Okay. All right. And then as people ramp up or come on, generally, is it a six month timeframe before it’s from day one to fully billable or does it vary?

David Richter

No it’s not that long ever. We wouldn’t bring them onboard. It's usually measured in weeks or a month.

Jerry Sweeney - Boenning

Got it. Switching gears a little bit I know in Q3 there’s going to be some fees associated with the repayment. I think interest cost is going to be a little bit higher in the quarter. I think the amortization of the Tennenbaum loan; can you, can we just get a touch to clarity on that. And then also just go over what the anticipated tax rate on a go forward basis is going to be.

David Richter

Let me the first half of that and I’ll let John talk about the tax rate. The fees and expenses, firstly equity offering just come up the amount raise. These expenses of the debt refinancing will be amortized over the term of the loans which are five for the revolver and six for the term loan. The only one time cost that we will have is the Tennenbaum loan is carried on our balance sheet as of the end of the second quarter $89 million.

And we have to pay back the full par value of that loan which is a 100. So we'll see a onetime $11 million hit in the in the third quarter. We also have some unamortized cost in connection with the Bank of America revolver that will be written-off when that loan is terminated and that’s about $1.5 million. Those will be onetime costs in the second quarter that will hit us on the interest expense line.

On a going forward basis we’re anticipating our interest expense to come down from about $5.5 million a quarter down to between $2.5 million and $3 million at quarter. So a big savings that will drop entirely to our bottom line because we don’t pay U.S. income taxes, we don’t have to tax effect that savings. So that will come straight through and benefit us at the EPS line.

John Fanelli

And what that does, Jerry is that it also will bring down our effective tax rate going forward in 2015 with the savings in our interest cost and improved profitability we’re forecasting to be in the mid-40s in our effective tax rate.

Jerry Sweeney - Boenning

Got it, okay. So one timer in Q3 will be cumulative $12.5 million and I think it’s fair to do the assumption maybe half the quarter at the old interest and then maybe half the quarter at the new interest on a combined basis.

John Fanelli

That’s exactly the right way to look at it.

Operator

Thank you. Our next question today is coming from Michael Conti from Sidoti & Company. Please proceed with your question.

Michael Conti - Sidoti & Company

Dave, can you maybe talk about the change in the price sensitive nature of your current and prospective clients, international clients and the impact it had on our gross margin?

David Richter

I really can’t because pricing really hasn’t changed. We didn’t see much pricing pressure during the recession. Unlike what general contracts do, we’re not bidding the work. We’re not -- the low price bidder doesn’t get the work in professional services. Our client is selecting the firm that’s best technically capable of managing their projects or helping them resolve their claims. So it’s generally not a price sensitive competition. So we haven’t seen too much of an impact over the last couple of years from that and we’re not seeing any kind of benefit from it coming out of recession. So our pricing is fairly consistent if you look within the two groups. We certainly have some changes over the years as our share PM versus Claims has changed because PM has lower gross margin than Claims. If you look at the two groups historically it doesn’t really move around very much.

Michael Conti - Sidoti & Company

And just regarding the 12 month backlog,, can you give us a sense of I guess the type of margin you’re seeing there is that still more or less in line with historical project management and CC groups, and perhaps breakout the backlog by geographical region?

David Richter

It is in line with the historical gross margins. We don’t see any change in that, and no we don’t give a breakdown of backlog by geography.

Michael Conti - Sidoti & Company

Okay, fair enough. And I guess lastly, maybe your view on the competitive landscape, with new AECOM acquisition, how that may have changed or potentially change your outlook going forward?

David Richter

Yes, we view, I've gotten asked that question quite a bit. We view the AECOM URS combination as very positive for us. First of all that’s two competitors that become one. They have one bite at the apple instead of two and certainly given the size that they are and the depth they have in design I think, that’s going to conflict them out of more and more project management assignments, because certainly the vast majority of cases is the same designer. Same firm is not both designer and private manager. So I can expect that their PM business will suffer as result and that our PM business will benefit as result.

Michael Conti - Sidoti & Company

Okay, interesting. And I guess just touching upon with the consulting Claims, obviously strong growth in the first half. Can you give us an idea what the utilization was for the quarter and the year-over-year growth?

David Richter

I actually don’t have the utilization numbers in front of me. I don’t think John does either.

John Fanelli

It’s around 62%.

David Richter

For the quarter?

John Fanelli

Yes.

David Richter

62% for the quarter in claims which is right in line with our historical average of about 60% to 65%.

Michael Conti - Sidoti & Company

Okay. And can you breakout project management?

David Richter

No we just don’t have those numbers in front of us. If you want Mike, we can email those to you.

Operator

Thank you. (Operator Instructions) Our next question today is coming from Pete Enderlin with MAZ Partners. Please proceed with your question.

Pete Enderlin - MAZ Partners

Did the refi have any specific terms limiting your ability to do acquisitions at what kind of level do those begin to come into play

David Richter

There were typical contact provisions regarding acquisitions. We generally have the baskets that we don’t need their permission for than above and beyond that we do. Those don’t restrict stock acquisitions, only cash. We have enough borrowing availability in the new line with our cash balance that anything that we think we’re going to look at in the near term we're not expecting any issues regarding.

Pete Enderlin - MAZ Partners

So that implies that near term at least do not talk about any really big acquisitions?

David Richter

No. We have a small acquisition that we’re probably two months away from closing on, a European firm that will into our Construction Claims group. We’re pretty far long in that process, it’s relatively small it’s in mind the two last acquisitions that we did, less than $5 million annual revenues. And that structured as an old stock deal. We don’t have any other acquisitions pending although now that we have this in place, we are going to start looking at more and more opportunities to grow our business, especially if the economy is improving and we have the available borrowing capacity to be able to effect acquisitions in.

Pete Enderlin - MAZ Partners

Okay. And as a perennial question about Libya and the possibility of getting that money anytime in the foreseeable future?

David Richter

It’s been a difficult couple of months. We had every expectation that we were going to be getting a major payment at the beginning of the summer from Libya following up on the $10 million that we received in the first quarter of this year and the third quarter of last year. Slowing that down in the late spring, the National Congress had a vote of no conference in the Prime Minister and he was thrown out of office. A new Prime Minister came in and given the change in leadership, that slowed bureaucracy to a crawl. Nobody wanted to make any decisions that might be second guessed or revised by the new administration.

And then obviously in the last couple of months there's been a major uptick in violence over there. So right now we don’t have much visibility into what’s going to happen and when, but we’re remain just as confident as we did before that at some point we’re going to continue to collect most if not all of our funds out of Libya and actually back to work there. But it’s a troubled situation. Like a lot of parts in the world they're going through quite a bit of strife right now and unrest. But mostly countries continue to operate and we’re just going to have to continue to be patient for our funds.

Pete Enderlin - MAZ Partners

David, is the letter of credit that you have for $14 million against that? Is that at risk because of all the turmoil over there?

David Richter

Well, we do have a several letters of credit totaling $14 million a standby letters of credit and it gives us some assurance that if need be we can get paid. We don’t think those LCs are at risk and we don’t think that there’s a question of our payment. Its only question of timing. It’s question of when, not if.

Pete Enderlin - MAZ Partners

Okay. Then getting back to the general question about SG&A costs and overall level of expenses, you have more than 100 offices worldwide many of which are pretty small. Is there any thought to consolidating some of those how do go about making them eventually more efficient than they are now?

David Richter

Well, we look at our offices on a regular basis and to extent that they don’t enough work to support their staff and be profitable. From time to time we do close offices. There’s no major review being undergone right now to do that, as far as I know but that happens from time to time. The key for us is that we never spend most of the last decade building out taking really taking really what was at the beginning of the century a primarily American company and really building out a global presence and that global footprint is expensive. It's incurred a lot cost from doing so. And we did that right when the construction market was coming down dramatically in 2008 in the next couple of years.

The trick for us to really drive our profitability upward is to grow into that infrastructure which we’re in the process of doing, now that we’re back to double digit organic growth and be able to leverage that growth into significantly lower SG&A as a percent and higher operating margins as a percent. We’ve talked about, we can get the two groups to 15% operating margin. We can get our corporate cost under 5% we should be able to throw 10% operating margins. That’d the highest in the industry. Last year we [indiscernible] measured by operating profits divided by total revenue, we were the second most profitable company in the industry of the firms that we looked at after Jacobs. And we’re just beginning to get to the levels of profitability that we should we at and we can be at. So the trick for us is to double our business, not by adding another 100 offices but by doubling the size of the 100 offices we have. And if we can do, our bottom line will change dramatically for the positive.

Pete Enderlin - MAZ Partners

And then looking again as the changing landscape in the industry with AECOM and URS and I think they made another acquisition of the company called Hunt. [Indiscernible] reported to be considering selling parts as [indiscernible] do you have any comments to make it about that?

David Richter

Yes. If you got a $1 billion from our lenders but [indiscernible]. Its great company and you’re going to see this is an industry that’s been consolidating for long time. It was surprising to us that they would do the divesting of that company so quickly after buying it. They've only owned it for about five years, but number one is somewhere else. Overall we see consolidation as a positive for us. The same thing I talk about regarding AECOM URS is true, every time there is a combination. Its fewer competitors out there with more complex. We are a pure project management firm. We don’t have the design conflicts, the construction conflicts that a lot of our bigger competitors have and longer term we’re very positive on being able to gain market share in a growing industry as our competitors are consolidating.

Pete Enderlin - MAZ Partners

Okay. And then one more if I may Dave, and that is, what about possible adjacent businesses that you could get into on a long-term strategic basis?

David Richter

There are certainly opportunities for us in the construction sector and outside the construction sector to expand, what we have try to do as we’ve been on acquisition program for the last 17 years, we've brought 22 firms. Every one of those firms is either a project management firm or a claims firm. We’re world class in providing those two services and we’ve decided to stick to our knitting and grow along those two service lines. We don’t see ceiling to our ability to continue to grow those two businesses for the foreseeable future but I’m sure at point we may look at other opportunities. But that point isn’t right now.

Operator

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Richter for any further or closing comments.

David Richter

Thank you very much. We are very pleased with our Company’s growth in the first half of this year, but we know where our focus needs to be going forward which is on the bottom line. Once we refinance our debt later this month which will significantly lower our interest expense, we’re going to be focused on improving the operating margins of our two segments during the second half of this year and heading into 2015. By continuing to grow our revenues and minimize our overhead and interest cost, we expect that we can deliver substantially better earnings to our bottom line for the benefit of our shareholders. Thank you all for your continuing interest in our company and for participating in our call this morning. Bye, bye.

Operator

Thank you. That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.