Hill International — Proxy Contest (July 2016)
45 slides from Hill International's proxy contest presentation, Jul 26, 2016
Slide 1: 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 2: Executive Summary
EXECUTIVE SUMMARY Worldwide Leader in: Project Management Services Construction Claims Consulting Founded in 1976 Went Public in 2006, Now Listed on the New York Stock Exchange (HIL) David Richter Promoted to CEO in 2014 2015 Consulting Fees of $631M (+9%) 2016 Forecasted Consulting Fees of $630M-$6
Slide 3: Rankings: Fastest-Growing and Largest CM Firm
31st Fastest-Growing A/E/C Firm in U.S./Canada (Named to List 14 Times in Past 15 Years) RANKINGS Size Largest Independent CM Firm in the World 8th Largest Overall CM Firm in the U.S. 8th Largest Program Management Firm in the U.S. 3rd Largest Buildings CM Firm in the U.S. Growth PRINT VERSION 4
Slide 4: Diverse Revenue Base
DIVERSE REVENUE BASE By Geographic Region By Client Type (Percent of Consulting Fees, 2015) 5 Private Sector 50% U.S. Federal Government 2% U.S. State, Local and Regional Governments 13% Foreign Governments 35% U.S./Canada 24% Latin America 5% Europe 14% Middle East 48% Africa 4% Asia/Pacific 5% 5
Slide 5: 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 6: 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 World’s Largest Construction Cl
Slide 7: Key Accomplishments since New CEO Appointment in Dec. 2014
8 KEY ACCOMPLISHMENTS since NEW CEO APPOINTMENT in Dec. 2014 Total Revenue Up 12% to Record $720.6M Adj. EBITDA Up 17% to Record $49.7M Adj. Operating Profit Up 17% to Record $39.5M Adj. Net Earnings of $15.1M vs. 2014 Net Loss of ($6.1M) Actual Net Earnings of $6.9M vs. 2014 Net Loss of ($6.1M) $21
Slide 8: Key Accomplishments since New CEO Appointment in Dec. 2014
KEY ACCOMPLISHMENTS SINCE NEW HEE CEO APPOINTMENT IN DEC. 2014 Hill ap oeational Total Revenue Up 12% to Record $720.6M Adj. EBITDA Up 17% to Record $49.7M Adj. Operating Profit Up 17% to Record $39.5M Adj. Net Earnings of $15.1M vs. 2014 Net Loss of ($6.1M) Actual Net Earnings of $6.9M vs. 2014 Net
Slide 9: Hill Has Faced Significant Macro-Economic Challenges
HILL HAS FACED SIGNIFICANT MACRO-ECONOMIC CHALLENGES 10 Dubai Real Estate Collapse Brazilian Economic Collapse Strengthening Value of U.S. Dollar Oil Price Collapse Global Economic Recession Libyan Revolution Source: FactSet. Data as of 7/21/2016. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20
Slide 10: Oil Price Collapse (2014 to-date)
OIL PRICE COLLAPSE (2014 to-date) Source: FactSet. Data as of 7/21/2016. In 2015, Hill earned 50% of its revenue from oil producing countries in Middle East and Africa. 11 '12 '13 '14 '15 '16 30 40 50 60 70 80 90 100 110 Crude Oil Price 20-Jul-2011 to 21-Jul-2016 (Daily) Price (US$dollar) Crude Oil
Slide 11: Despite Macro Challenges, Hill Has Outperformed Its Peers
DESPITE MACRO CHALLENGES, HILL HAS OUTPERFORMED ITS PEERS Over the last three years the market has recognized the efforts of the management in not only bringing the company out of a difficult geo-political and economic situation but positioning it for further growth. 12 Source: FactSet.
Slide 12: Outperformed Peers and Russell 2000 Since New CEO
HILL HAS OUTPERFORMED ITS PEERS AND RUSSELL 2000 SINCE APPOINTMENT OF NEW CEO 13 Source: FactSet. 40 60 80 100 120 140 160 12/31/2014 3/16/2015 5/27/2015 8/06/2015 10/16/2015 12/29/2015 3/11/2016 5/23/2016 Performance Since New CEO - 1/1/2015 to 7/21/2016 HIL Peer Median Russell 2000
Slide 13: Outperformed Since Rejection of DC Capital's Latest Offer
HILL HAS OUTPERFORMED SINCE REJECTION OF DC CAPITAL’S LATEST OFFER 14 Source: FactSet. 80 90 100 110 120 130 140 150 160 2/04/2016 2/26/2016 3/18/2016 4/11/2016 5/02/2016 5/23/2016 6/14/2016 7/06/2016 Performance since the Board rejected DC Capital's offer (2/4/2016 to 7/21/2016) HIL Peer Median Rus
Slide 14: Summary: TSR Performance
SUMMARY: TSR PERFORMANCE HIL’s share price has responded to improved financial performance and successful refinancing of expensive debt. Total Shareholder Return (TSR) has outperformed the peer median since 1QFY11 (May 6, 2011) result announcement - which was the first time HIL disclosed the financi
Slide 15: Summary: TSR Performance
iT 1s SUMMARY: TSR PERFORMANCE Hill International + HIL’s share price has responded to improved financial performance and successful refinancing of expensive debt. + Total Shareholder Return (TSR) has outperformed the peer median since 1QFY11 (May 6, 2011) result announcement - which was the first t
Slide 16: Consistent CFR Growth
CONSISTENT CFR GROWTH Annual CFR Growth of over 9.5% Despite end-market challenges, HIL has benefited from sustained CFR growth on year on year and quarter on quarter basis Quarter on Quarter CFR Growth 67% 17 $399 $418 $512 $577 $632 $638 CY11 CY12 CY13 CY14 CY15 Q1 16 TTM $94 $99 $123 $137 $151 $1
Slide 17: Diversified Revenue and Strong Backlog
DIVERSIFIED REVENUE AND STRONG BACKLOG 2015-2016 backlog impacted by fewer new contract wins in the Middle East because of the drop in oil prices and the impact that had on construction spending there. Company expects backlog will range between $900M and $1.0B by year end 2016. 18 Source: HIL 10-K.
Slide 18: Adj. EBITDA Growth Has Outperformed CFR Growth
ADJ. EBITDA GROWTH HAS OUTPERFORMED CFR GROWTH – UP 365% SINCE FY11 19 Source: FactSet, HIL 10-K. Please see the Appendix for EBITDA reconciliation.
Slide 19: Middle East and Africa Have Delivered Consistent Operating Profit
MIDDLE EAST AND AFRICA HAVE DELIVERED CONSISTENT AND SIGNIFICANT OPERATING PROFIT Source: HILL.. * Includes $48.5 million reserve on Libyan receivables 20
Slide 20: Effective Cost Controls Have Resulted in Higher Margins
EFFECTIVE COST CONTROLS HAVE RESULTED IN HIGHER MARGINS 21 Source: FactSet, HIL 10-K. 2015 Adj. EBITDA Margin is calculated based on 2015 adjusted EBITDA. Please see the Appendix for 2015 EBITDA reconciliation. 2015 Adj. SG&A % of CFR is calculated based on 2015 adjusted SG&A. Please see the Appendi
Slide 21: Managing Corporate Costs During Period of Record Growth
MANAGING CORPORATE COSTS DURING PERIOD OF RECORD GROWTH 22 Source: FactSet, HIL 10-K. 2015 Corporate Expense as % CFR is calculated based on 2015 adjusted Corporate Expense . Please see the Appendix for 2015 Corporate Expense reconciliation. Despite 58% increase in CFR (2011-2015), Corporate Expense
Slide 22: Successful Refinancing of Debt Has Reduced Interest Burden
SUCCESSFUL REFINANCING OF DEBT HAS REDUCED INTEREST BURDEN HILL successfully refinanced its loans at a much lower rate saving over $15 million in 2015 interest expense. FY16 guidance is for Free Cash Flow of $20-25M (net operating cash flow ranging between $25M-$30M) – a record for HILL 23 Source: F
Slide 23: Highest Revenue Growth vs. Peers
HIGHEST REVENUE GROWTH VS. PEERS Source: FactSet, HIL 10-K. 24
Slide 24: Highest Long Term Revenue Growth vs. Peers
HIGHEST LONG TERM REVENUE GROWTH VS. PEERS Source: FactSet, HIL 10-K. Data between Jan 1, 2011 and Dec 31, 2015. 25
Slide 25: Highest EBITDA Margin vs. Peers
HIGHEST EBITDA MARGIN VS. PEERS Source: FactSet, HIL 10-K. HIL’s 2015 EBITDA margin is calculated based on FY15 adjusted EBITDA and CFR. Please see the Appendix for EBITDA reconciliation. 26
Slide 26: Analyst Confidence
ANALYST CONFIDENCE Date Recommendation Target Price KeyBanc May 8, 2016 Overweight $6.00 Seaport Global May 16, 2016 Buy $5.00 “We reiterate our Buy rating and $5.00 price target following an in-line quarter, solid bookings growth and incrementally positive commentary for large award opportunities o
Slide 27: Outlook
OUTLOOK The turnaround in HILL’s financial and share price performance has significantly improved outlook for the company. Backlog is expected to range between $900M and $1.0B by year end 2016 – up significantly from $860M at beginning of year After eliminating approx. $21M in annualized SG&A expens
Slide 28: Outlook
HELE OUTLOOK Hill International The turnaround in HILL’s financial and share price performance has significantly improved outlook for the company. + Backlog is expected to range between $900M and $1.0B by year end 2016 — up significantly from $860M at beginning of year + After eliminating approx. $2
Slide 29: Background: 2015 and 2016 Stockholders Meetings
BACKGROUND 2015 Stockholders Meeting Two Hill nominees were re-elected with 55% of votes cast in favor despite proxy contest by Bulldog Investors Hill’s Senior Executive Bonus Plan was approved with 88% of votes cast in favor Bulldog’s proposal to hire an investment banker to investigate a liquidity
Slide 30: Corporate Governance Enhancements
CORPORATE GOVERNANCE ENHANCEMENTS Appointed two new independent directors to the Board, each of whom was also appointed to the Compensation Committee (7 out of 9 board members are independent). Appointed one of the new independent directors as Chairman of the Compensation Committee. Initiated a comp
Slide 31: Corporate Governance Enhancements – contd.
CORPORATE GOVERNANCE ENHANCEMENTS – contd. The Board approved the following Bylaw amendments: Added a Lead Independent Director and appointed Brian Clymer to the position Lowered ownership threshold for stockholders to call a special meeting from majority to 25% Minimum director qualifications (“gol
Slide 32: New Independent Directors
NEW INDEPENDENT DIRECTORS Joined Hill’s Board in October 2015 Chief Strategy Officer for American Express Global Business Travel. Prior to that, he was a Vice President with Dell, Inc. from 2009 to 2013. Before that, he worked for 20 years with Perot Systems Corp. in numerous roles, including Presid
Slide 33: Directors Recommended for Re-Election
35 DIRECTORS RECOMMENDED FOR RE-ELECTION Gary F. Mazzucco, CPA Director Joined Hill’s Board in June 2013 Steven M. Kramer Director Joined Hill’s Board in June 2010 Irvin E. Richter Chairman Hill’s Founder and Chairman of the Board Member, World Presidents' Organization Past member of the Constructio
Slide 34: Bulldog's Nominees Are Not Qualified to Serve on Hill's Board
36 BULLDOG’S NOMINEES ARE NOT QUALIFIED TO SERVE ON HILL’S BOARD David Sgro ZERO corporate management experience Currently sits on two public boards: - SAEX is DOWN 98% since Sgro joined its board - PANL is DOWN 76% since Sgro joined its board Charles Gillman Runs a “family office” with undisclosed
Slide 35: Bulldog and Its Nominees Do Not Have Real Plan for Hill
BULLDOG AND ITS NOMINEES DO NOT HAVE REAL PLAN FOR HILL August 7, 2015, at the 2015 Annual Meeting - each of Bulldog's nominees and its proposal recommending that an investment banker be hired to explore a liquidity event were defeated, with the majority of stockholders voting as recommended by our
Slide 36: Summary
SUMMARY HIL’s TSR has outperformed the peer group, Russell 2000 and the S&P Small Cap 600 Since appointment of new CEO in Dec. 2014; Since rejection of DC Capital’s latest offer. HIL’s TSR has outperformed the peer median since the first disclosure of the financial impact of Middle East (Libyan cris
Slide 37: Summary – contd.
SUMMARY – (contd.) HIL has enhanced its Corporate Governance Appointed two new independent directors to the Board Initiated a comprehensive strategic review of executive compensation programs, policies and practices Revised Insider Trading Policy All Board Committees comprised of independent directo
Slide 38: Summary – contd.
SUMMARY - (contd.) Hill International + HlL has enhanced its Corporate Governance + Appointed two new independent directors to the Board + Initiated a comprehensive strategic review of executive compensation programs, policies and practices + Revised Insider Trading Policy + All Board Committees com
Slide 39: 2010 - 2015 EBITDA Reconciliation
2010 - 2015 EBITDA RECONCILIATION 41 (dollars in thousands) Years Ended December 31, 2015 2014 2013 2012 2011 2010 EBITDA, as reported $41,040 $42,460 $43,532 $(32,744) $10,699 $27,842 Libya (credit) reserve - (4,948) (2,240) 48,549 - - Employment tax reversal - - (3,693) 4,000 Bad debt expense 3,35
Slide 40: SG&A Reconciliation
SG&A RECONCILIATION 42 (US$’000) Year Ended Dec 31, 2015 SG&A, as reported $ 237,504 Libya credit - Bad debt expense $ (3,350) Severance costs $ (1,495) Proxy contest $ (1,369) Labor dispute $ (1,048) Note reduction $ (959) Restatement $ (460) Total adjustments $ (8,681) SG&A, as adjusted $ 228,823
Slide 41: Corporate Expense Reconciliation
CORPORATE EXPENSE RECONCILIATION 44 (US$’000) Year Ended Dec 31, 2015 Corporate Expenses, as reported $36,816 Adjustments: Legal and professional fees related to a shareholder proxy contest -$1,369 Settlement of a labor dispute with a former executive -$1,048 Restatement of consolidated financial st
Slide 42: Additional Information
The Company filed its definitive proxy statement for its 2016 Annual Meeting of Stockholders with the U.S. Securities and Exchange Commission (“SEC”) on July 5, 2016. Stockholders are urged to read the proxy statement because it contains important information. Stockholders may obtain the proxy state
Slide 43: Non-GAAP Reconciliations
NON-GAAP RECONCILIATIONS 45 EBITDA Reconciliation 2010-2015 in thousands of $ 2015 2014 2013 2012 2011 2010 Net earnings (loss) attributable to /Hill 6,931 $ (6,148) $ 3,562 $ (76,766) $ (6,017) $ 14,216 $ Interest 14,663 30,485 22,864 18,150 7,262 3,144 Income taxes 8,442 8,300 6,350 13,442 (6,186)
Slide 44: Non-GAAP Reconciliations
iL NON-GAAP RECONCILIATIONS Hill International EBITDA Reconciliation 2010-2015 in thousands of $ 201s 2014 2013, 2012 2011 [Net earings (loss) attributable to /Hil Sess § (aaa S 3562S (70766) § (6017) S Interest races 30.485 22,808 18,150 7,262 Income taxes aaa 8300 6350 aaaaz (6186) Depreciation an
Slide 45: Hill International: The Global Leader in Managing Construction Risk
Hill Hill International The Global Leader in Managing Construction Risk www.hillintl.com 1.800.283.4088