Hill International — Proxy Contest (July 2015)
59 slides from Hill International's proxy contest presentation, Jul 22, 2015
Slide 1: ISS Presentation, July 2015
ISS Presentation , July 2015 Hill International
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS Certain statements contained herein may be 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 historic
Slide 3: About Hill International
ABOUT HILL INTERNATIONAL Worldwide Leader in: Project Management Services Construction Claims Consulting Founded in 1976 by Chairman Irv Richter Went Public in 2006, Now Listed on the New York Stock Exchange (HIL) David Richter Promoted to CEO in 2014 2014 Consulting Fees of $576M (+12%) 2015 Foreca
Slide 4: Global Presence
HE Hill International GLOBAL PRESENCE
Slide 5: Diverse Revenue Base by Region and Client Type
DIVERSE REVENUE BASE By Geographic Region By Client Type (Percent of Consulting Fees, 2014) 5 Private Sector 47% U.S. Federal Government 2% U.S. State, Local and Regional Governments 13% Foreign Governments 38% U.S./Canada 22% Latin America 7% Europe 14% Middle East 47% Africa 4% Asia/Pacific 6%
Slide 6: Diverse Revenue Base by Project Type
DIVERSE REVENUE BASE By Project Type 46% Buildings Transportation 35% Other 2% Energy 12% Industrial 2% Environmental 3% (Percent of Consulting Fees, 2014) 6
Slide 7: Rankings: Fastest-Growing and Largest Firms
44th Fastest-Growing A/E/C Firm in U.S./Canada (Named to List 12 Times in Past 13 Years) RANKINGS Size Largest Independent CM Firm in the U.S. 9th Largest Overall CM Firm in the U.S. 11th Largest Program Management Firm in the U.S. 3rd Largest Buildings CM Firm in the U.S. Growth PRINT VERSION 7
Slide 8: Project Management Group
PROJECT MANAGEMENT GROUP 74% of Consulting Fees Hill Manages All Phases of the Construction Process, from Concept through Completion “Agency” CM Model (Low Risk) vs. General Contractor or CM-At-Risk Model (High Risk) Program Management Project Management Construction Management Project Management Ov
Slide 9: Construction Claims Group
CONSTRUCTION CLAIMS GROUP Services Claims Analysis Litigation Support Cost and Damages Assessment Delay and Disruption Analysis Expert Witness Testimony Lender Advisory Services Risk Assessment Project Neutral® Adjudication Management Consulting 26% of Consulting Fees Largest Construction Claims Pra
Slide 10: Largest Contract Wins During Past Year
LARGEST CONTRACT WINS DURING PAST YEAR PRINT VERSION 10 New York, NY $56 M Contract New York City Transit Superstorm Sandy Recovery Efforts NJTA Facilities Improvement Program New Jersey $34 M Contract Dubai Parks Development Dubai, UAE $51 M Contract ADNOC Residential Facilities Abu Dhabi, UAE $25
Slide 11: Financial Performance
Financial Performance 11
Slide 12: Key Takeaways – Financial Performance
History of strong revenue growth driven by successful acquisition strategy and robust organic growth. Stable gross profit margins indicating effective cost control. Primarily through organic growth and cost cutting initiatives Operating Profit and EBITDA margins have recovered since 2011. The Compan
Slide 13: Strong Consulting Fee Revenue Growth
Strong Consulting Fee Revenue (CFR) Growth 13 CFR increased 11.1% yoy in 1QFY15 and is expected to rise 13-17% yoy in FY15 Source: FactSet
Slide 14: Successful Acquisitions
Successful Acquisitions 14 Since FY09, the Company has spent $51mn on acquisitions, that have helped revenue increase by over $200mn Source: FactSet
Slide 15: Stable Gross Profit Margin
Stable Gross Profit Margin 15 Despite challenging end-market conditions, gross profit margin has remained relatively stable Source: FactSet
Slide 16: Operating Profit Margin has Improved
Operating Profit Margin has Improved 16 * Operating Profit margin = (Gross Profit – SG&A expense)/CFR
Slide 17: 2010-2014 CFR Bridge
2010-2014 CFR Bridge 17 From 2010-2011 Libyan CFR declined from $67.3 million to $9.2 million as Hill exited Libya in February of 2011 in response to the revolution From 2011-2012 Libyan CFR declined from $9.2 million to zero In 2011 a higher margin project with the U.S. Corps of Engineers (based in
Slide 18: 2010-2014 EBITDA Bridge
2010-2014 EBITDA Bridge 18 2010 – 2014 EBITDA Bridge (please see Appendix for details) From 2010-2011 Libyan EBITDA declined from $25.6 million as a result of the February 2011 pull-out. The roll-off of the Iraqi project resulted in a loss of $5.1 million of EBITDA in 2011 Organic EBITDA and Acq. EB
Slide 19: Corporate Costs Remain Under Control
Corporate Costs Remain Under Control 19 The Company has maintained strict cost control on corporate overhead Source: FactSet
Slide 20: Share Price Performance
Share Price Performance 20
Slide 21: Key Takeaways – Price Performance
Hill’s share price has been affected by factors beyond its control – in particular, political turmoil in Libya Rapid build-up in Accounts Receivable (A/R) due to delayed payment by Libya and lost EBITDA from Libyan operations since March 2011, caused a domino effect resulting in violation of debt co
Slide 22: Importance of Middle East – Continued Backlog Growth
Total Backlog at Beginning of Period Millions Strong Middle East Backlog is driven by construction growth in the UAE, Qatar, Oman and Saudi Arabia. Representing over 40% of Hill’s current total backlog. $600 $800 $400 $200 $0 $1,000 $1,200 Importance of Middle East – Continued backlog growth $463 $4
Slide 23: Middle East Financial Trends
Actual CFR 2012 UAE Qatar Bahrain Kuwait Saudi Arabia Jordan Iraq Actual OP 2012 UAE Qatar Bahrain Kuwait Saudi Arabia Jordan Iraq Oman Shift to a more balanced country mix and maintain strong investment grade exposure. Actual CFR 2013 UAE Qatar Bahrain Kuwait Saudi Arabia Jordan Iraq Oman (USD in m
Slide 24: Libya: A Perfect Storm
Beginning 2008, Hill benefited from strong CFR and highly profitable projects in Libya in support of the expansion of several universities in the country In April 2010, Libya temporarily suspended payments due to a national audit. While Hill passed the audit by Nov. 2011; it however, had to fund the
Slide 25: Libya Summary Timeline
Libya Summary 2008: Begin providing work in Libya in support of the expansion of several universities Feb 2011: Political unrest begins in Libya Libyan A/R balance = $59.8M Dec 2010-Jan 2011: Hill receivables acknowledged as proper by Libyan government agency. Receive payments aggregating $15.0M Apr
Slide 26: Impact of Libya on Share Price
Impact of Libya on Share Price 26 Analysts had favorable rating and expectation of growth for Hill prior to the Middle East crisis Pre-Crisis Analyst Commentary In 2010, we envision a year of improving momentum as slower markets such as Europe progressively improve, and we look for the company to re
Slide 27: Impact of Libya on Share Price (contd.)
Impact of Libya on Share Price – contd. 27 Middle East crisis created significant headwinds for the Company – all of which was beyond its control Post - Crisis Analyst Commentary After expanding its Project Management business steadily through the 2008-2009 economic downturn, Hill hit a severe air p
Slide 28: Libya's Domino Effect – Build-up of Accounts Receivable
Libya’s Domino Effect – Rapid build-up of Accounts Receivable 28 Review of all contractors and delay in payments for Libyan projects resulted in massive increase in Accounts Receivable (A/R) Source: FactSet Hill kept investors informed about the uncertainty in Libya as noted in the FY2011 10-K “Unce
Slide 29: Libya's Domino Effect – Violation of Debt Covenants
Libya’s Domino Effect - Violation of Debt Covenants 29 Violation of financial covenants due to rapid build-up in A/R resulted in: a) higher interest expense and related financing fees due to credit negotiations, and b) significant increase in cost of credit – up to 20% per annum under the Term Loan
Slide 30: Libya's Domino Effect: Increase in Long-Term Debt
Libya’s Domino Effect: Increase in Long-Term Debt 30 The rapid build-up of Accounts Receivable, led to increased borrowing to fund operations Source: FactSet, SEC filings. * FY14 Accounts Receivable include Libya receivables
Slide 31: Libya's Domino Effect: Increase in Interest/Financing Expense
Libya’s Domino Effect: Increase in Interest/Financing Expense 31 New Term Loan and credit arrangements were available at significantly higher interest rate – thus high interest expense/financing costs Source: FactSet * Includes $9.3M of accelerated interest paid upon the early payoff and termination
Slide 32: Historical Share Price Performance
Historical Share Price Performance 32 Hill’s share price has been impacted most by project related news from Libya Source: FactSet '09 '10 '11 '12 '13 '14 '15 2 3 4 5 6 7 8 DC Capital Partners offer 1QFY15 earnings 3QFY13 earnings 3QFY10 earnings Analyst Upgrade 4QFY11 earnings. Income declined due
Slide 33: Comparable Share Price Performance is Not Appropriate
Comparable Share Price Performance is Not Appropriate 33 Hill’s share price has suffered more due to geo-political uncertainty/crisis in Middle East and Africa - in particular, Libya - than any of the peers. As such, a comparative “peer” Total Shareholder Return analysis is misleading as it fails to
Slide 34: DC Capital Partners Offer
DC Capital Partners (“DC Capital”) Offer 34
Slide 35: Board Rejected DC Capital's $5.50 Offer
The Board unanimously rejected DC Capital Partner’s offer of $5.50 per share (“Offer”) for various reasons, including the following: During the one-year period preceding the offer, Hill had achieved record revenue and backlog, successfully issued equity to strengthen the balance sheet, and refinance
Slide 36: Offer was Not Compelling
Offer was Not Compelling 36 The Offer did not provide meaningful acquisition premium, particularly, in light of strong revenue and guidance for FY15 Source: FactSet
Slide 37: Analyst's Commentary Prior to the Offer
Analyst’s Commentary Prior to the Offer 37 Analyst expected Hill’s plan to yield a higher stand-alone value than DC Capital’s Offer Source: KeyBanc Capital Markets report dated March 15, 2015
Slide 38: Consensus Estimates Suggest Strong Growth
Consensus Estimates suggest Strong Growth over Next Two Years 38 DC Capital’s Offer grossly undervalued Hill by ignoring the double-digit growth expected in next two years Source: FactSet
Slide 39: Strong Backlog Growth
Strong Backlog Growth Millions Total Backlog at Beginning of Period $0 $400 $600 $1,000 $800 $200 39 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q15 $247 $416 $667 $620 $675 $795 $923 $1,080 $1,027 $1,039
Slide 40: High Visibility 12-Month Backlog
High Visibility 12-Month Backlog at Beginning of Period Much of Hill’s revenue is tied to contracts that generally have terms of 2-5 years, with some as long as 6-8 years. The long-term and predictable nature of these contracts provides a stable base of recurring revenue and provides increased visib
Slide 41: Board Nominees
Board Nominees 41
Slide 42: Bulldog Nominees have Questionable History
Bulldog Nominees have Questionable History 42 Securities Law Violations On November 26, 2006, the SEC staff stated that both of Bulldog’s nominees, Phil Goldstein and Andy Dakos, as participants in another proxy contest, violated the SEC’s proxy rules. On October 17, 2007, the Commonwealth of Massac
Slide 43: Bulldog Nominees have Questionable History (contd.)
Bulldog Nominees have Questionable History (contd.) 43 Poor Track Record of Adding Value Since August 2012, Goldstein has served as Chairman of the Board and Dakos has served as a director of Imperial Holdings, Inc. (NYSE:IFT). Since they joined its board, IFT has been the subject of investigations
Slide 44: Who are Bulldog Nominees?
Who are Bulldog Nominees? 44 NO construction and/or claims experience i.e. ZERO related industry experience NO international experience – 74% of Hill’s business is outside the US. NO new ideas to manage the business or create shareholder value. Bulldog’s proxy materials do not outline any plan to cr
Slide 45: Who are Bulldog Nominees? (contd.)
Who are Bulldog Nominees? – (contd.) 45 Phil Goldstein and Andrew Dakos each serve on FOUR public boards. Andrew Dakos is the President of Special Opportunities Fund (SPE) and Chief Compliance Officer of Bulldog Investors. Phil Goldstein is Chairman and Company Secretary of SPE and Member of Bulldog
Slide 46: Bulldog Nominees Track Record – Imperial Holdings
Bulldog’s Nominees Track Record – Imperial Holdings 46 Bulldog is the largest shareholder of Imperial Holdings (IFT), with 16.7% of shares outstanding as of 6/25/2015. In July 2012, three Bulldog nominees (including Messrs. Dakos and Goldstein) were added to Imperial Holdings’ 7-member board pursuan
Slide 47: Bulldog Nominees Track Record – Imperial Holdings (contd.)
Bulldog’s Nominees Track Record – Imperial Holdings (contd.) 47 Source: FactSet
Slide 48: Bulldog Nominees Track Record – MVC Capital
Bulldog’s Nominees Track Record – MVC Capital 48 Bulldog nominee, Phil Goldstein has served on the board since 2012. Also, Gerald Hellerman, who was appointed as a Bulldog nominee at Imperial Holdings, has served since 2012. Gerald also serves on the Board of The Mexico Equity & Income Fund and Spec
Slide 49: Bulldog Nominees Track Record – Mexico Equity & Income Fund
Bulldog’s Nominees Track Record – The Mexico Equity & Income Fund (MXE) 49 Phil Goldstein, Andrew Dakos and Rajeev Das of Bulldog serve on the 6-member board. Gerald Hellerman, who has been affiliated with Bulldog is also a director. Despite Bulldog and its Nominees having extensive experience in th
Slide 50: Bulldog Nominees Track Record – Special Opportunities Fund
Bulldog’s Nominees Track Record – Special Opportunities Fund (SPE) 50 Phil Goldstein and Andrew Dakos of Bulldog serve on the 5-member board. Gerald Hellerman, who has been affiliated with Bulldog is also a director. Bulldog nominees also have management positions: Andrew Dakos is the President, Raj
Slide 51: Hill Nominees – Camille Andrews
Hill Nominees – Camille Andrews 51 Camille Andrews Six years of experience as a member of Hill’s Board of Directors Chair of the Board’s Governance and Nominating Committee Associate Dean and a member of the faculty of Rutgers University School of Law at Camden with expertise in corporate, securitie
Slide 52: Hill Nominees – Camille Andrews (contd.)
Hill Nominees – Camille Andrews (contd.) 52 Camille Andrews Served on numerous non-profit boards, including AYCO Foundation (a Goldman Sachs Charitable Foundation), Walnut Street Theater, the Philadelphia Zoo, New Jersey Cares for Abused Children, and the Camden Leap Academy Charter School Recipient
Slide 53: Hill Nominees – Brian W. Clymer
Hill Nominees – Brian W. Clymer 53 Brian W. Clymer Nine years of experience as a member of Hill’s Board of Directors Chair of the Board’s Audit Committee Former Senior Vice President of External Affairs, Prudential Financial, Inc. Former Treasurer of the State of New Jersey Former President and CEO
Slide 54: What Our Nominees Have Achieved
Successfully navigated Hill through Libya crisis Achieved consistent revenue growth, without sacrificing Gross Profit Margin Ensured speedy recovery of Operating Profit Margin Deleveraged the Balance Sheet to significantly reduce interest expense Announced $25M+ in overhead cost-cutting. The Company
Slide 55: Conclusion
Unlike its peers, Hill’s greater international exposure has had profound impact on its share price and financial performance. The crisis in Libya – which was beyond the Company’s control – adversely impacted Accounts Receivable which had a domino effect on the financials and share price performance.
Slide 56: Conclusion (contd.) – Vote FOR on the WHITE Proxy Card
Bulldog’s proposal to amend terms of the poison pill is redundant as the Company has voluntarily terminated the shareholders rights plan. The current Board and management team have a successful track record of growing the business. Hill has over $1billion in backlog – the highest in its history. Mor
Slide 57: The Global Leader in Managing Construction Risk
The Global Leader in Managing Construction Risk www.hillintl.com Prepared by Alliance Advisors LLC.
Slide 58: Appendix – EBITDA Reconciliation
Appendix – EBITDA reconciliation 58 Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is not a measure of financial performance under GAAP. Management believes EBITDA, in addition to operating profit, net income and other GAAP measures, is a useful indicator of Hill’s financi
Slide 59: Additional Information and Where to Find It
Additional Information and Where to Find It 59 The Company has filed a definitive proxy statement with the SEC in connection with the solicitation of proxies for its 2015 Annual Meeting of Stockholders. STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ THE DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDM