Q2 2020 Hill International Inc Earnings Call

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Greetings and welcome to Hill Internationals second quarter Twentytwenty financial results Conference call.

At this time, all participants are in I'll listen only mode.

A question answer session will follow the formal presentation.

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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 at the equity group.

Thank you Brock and good day, everyone. Thank you for joining us for sale Internationals second quarter 2020 financial results. Our speakers today will be rose Golly, Chief Executive Officer, and Todd Weintraub Hills, Chief Financial Officer.

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 the matter set forth here in including but not limited to any statements of belief or intent any statements concerning financial projections, our plans strategies objectives for future operations 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, including but not limited to risks and uncertainties related to the covert 19 pandemic, the willingness and ability of governments and other clients to undertake and complete infrastructure projects and our ability to maintain and support business development.

Activities.

Well, 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 of our forward looking statements.

Important factors that could cause our results to differ materially from estimates or projections contained in our forward looking statements are set forth in the risk factor section and elsewhere in the reports we filed with the Securities and Exchange Commission, including the unfavorable global economic conditions may adversely impact our business are back not our backlog may not be fully realize is.

Revenue in our expenses, maybe higher than anticipated.

We do not intend and undertake no obligation to update any forward looking statements.

Before I turn things over to grow Golly I would like to make you aware of the safe Harbor statement regarding forward looking statements and GAAP financial measures.

Which will apply not only to the presentation, but to the remarks made today.

And with that said I'd now like to turn the call over to Golly pills, Chief Executive Officer growth. Please go ahead.

Thank you thank you Devin.

Good morning, everyone and thank you for joining us today to discuss our second quarter financial results.

On behalf of everyone at him I Hope you and your families are safe and well.

I'm happy to say that hill is continuing to serve our global clients with industry Benchmark project management construction management and related services.

I will work has been deemed essentially by many governmental authorities and substantially all our billable employees are serving ongoing projects in 34 countries.

As you can see on slide four.

We had a good.

2022nd quarter.

Rebounding to a large degree from the impact of covert 19.

Then had on operations earlier in the year.

Although the effects of the pandemic still linger.

We attribute this rebound to several factors.

Including our low risk professional service model.

Our geographic.

End market.

Cline and Klein diversity.

The evolving nature of our projects and of course, the continuing professionalism and commitment of all our employees.

As you can see on this line, we produced $75.8 million in CFR.

Our maintaining our as generally on track with our revised annual guidance.

Haven't adjusted EBITDA of $5.3 million.

Return to generating positive free cash flow and improve our liquidity profile.

We also secured approximately 70 million of New awards in the second quarter, despite sluggish activity.

Due to covert.

We anticipate that new awards will accelerate in the second half of the year.

Todd will discuss our results in greater detail shortly.

We could please turn to slide five.

As you can see our revenue profile roof reflects varied.

Varied geographic.

End market and try and exposure and allows us to quickly adapt to changing market environments.

The bulk.

Our project work continues to be in the U.S.

Followed by the Middle East.

Our middle East exposure, while still a very important part of our business has declined by design as we focus our efforts more and more on the U.S. infrastructure market.

To this end I'm happy to announce that following my Griffin's retirement.

Drew Jeter has joined us as president of the Americas.

Drew brings over 30 years of experience and program management of Mega programs in the federal environmental and infrastructure space.

Prior to joining CH to and Jacobs. He retired with a rank of curnow from the U.S. Air Force.

Drew will oversee the operations of has northeast mid Atlantic Southeast seven Weston.

In Latin America regions, and we'll look forward to leveraging his experience to help drive our growth.

Our fee based model mitigates threats typically associated with address construction services. It provides us though with the flexibility to pursue complex dynamic long term projects, along with added benefit of providing us with repeat business.

Historically Hill has had approximately 70% of its CFR from repeat clients, both U.S. and international.

We have shut down our operation in Brazil, due to the continuous economic downturn that has worsened due to the covert 19 pandemic.

We do not see the short to midterm market favorable to our business model.

This caused a nonrecurring expense in the second quarter.

Protects the remaining business from continuous losses.

Todd will provide more detail in his presentation.

Moving onto slide six.

We have made a deliberate pivot to global infrastructure projects, which we received which we believe.

Our resilient sustainable and a potential catalyst for domestic and international economic growth as we emerge from this pandemic.

We are currently supporting infrastructure projects that include highway upgrade and reconstruction in Pennsylvania, and Ohio expansions on the Port of long Beach in California redevelopment of the Salt Lake City International Airport, an extension of the goal Metro Gold line in Los Angeles.

And natural gas transport for Europe's trends a drastic pipeline.

Given now 44 year track record.

Successful project completion, we believe that hill as well position to capture covert 19 stimulus related global infrastructure project opportunities.

In the U.S. alone, there's an estimated two trillion.

Of under investment in infrastructure, and we're closely monitoring congressional legislation activity related to infrastructure spending.

Now moving on to slide seven.

As we have stayed in the past hills emerging facility management business provides us with the opportunity to extend our client relationships beyond the completion of a project and create a recurring revenue stream.

By applying our project management expertise to a network of experienced subcontractors we.

We can offer multiple solutions based on facility complexity.

Hi, Chris Cline requirements installed equipment and budget.

This relationship can begin at project kickoff well is the long term management services integrated into the scope.

At present this is a small part of our total operations. However, it has become a renewed focus to help.

We are currently providing facility management services in three countries with Blue chip clients, including the Abu Dhabi National Oil company Adnoc.

But its entire portfolio of adnoc facilities.

We believe that opportunities exist in all markets in which we are currently conducting business and our in various stages of negotiation to provide de services to other entities some of which are existing hill clients and some of which are not.

Thank you for your attention and I will now turn things over to Todd Weintraub held as Chief Financial Officer.

Todd. Please go ahead.

Thank you ROE I'll pick things up from slide eight.

This slide provides an overview of our GAAP results for the second quarter of 2020.

CFR for the second quarter of 2020.

75.8 million compared to 77 million in the second quarter of 29 teams, reflecting delayed projects start to first half 2022nd half of the year into 2021.

East delays would due in large part uncertainties driven by cobot 19.

Selling general and administrative expenses were 26.9 million or 35.5 percentage CFR.

As many of you are aware, we achieved 43.2 million dollar decline in anyone's Gionee from 2016 to 29 team.

As previously announced we have also undertaken several initiatives designed to reduce corporate costs by 10 million in 2020, which we are on track to achieve.

Operating profit.

For Q2, 2020 was 3.3 million compared to operating profit of 4.6 million in Q2 2019.

As Joe noted during Q2, 2020, we shut down or operations in Brazil, which have become increasingly challenged to do that countries ongoing economic crisis and more recently the impact of cold at 19.

These market forces combined to produce a negative impact on hills total operations in connection with the closure Hill recorded a nonrecurring noncash loss of 4.1 million, which in turn produced a second quarter net loss of 2 million.

We are confident that the shutdown of our operations in Brazil is the proper decision for our company given the negative financial impact, but these were happening on our overall financial results.

Hi, good cost savings improved cash flow associated with this closure in combination with those generated by our cost reduction initiatives ongoing business development should allow us to build scale promising market geographies and sharpen our focus on opportunities that deliver better returns.

Moving on to slide nine which presents our results on an adjusted basis.

On an adjusted basis operating profit increased 4.8 million, so the 2022nd quarter, which adds back which adds back 802000.

Share based compensation 56000 at that acts and 636000 nonrecurring activity next gen eight including the settlement of tax liability last year's second quarter included a nonrecurring credit 1.1 million related to true up of restructuring costs.

Adjusted net income was 3.6 million in 2022nd quarter, Yeah, we triple that a 1.2 million last year second quarter.

Lower rest DNA adjusted for the just discussed items as well as lower tax expense in 2020 was partially offset by lower gross profit in 2020 due to the impact of lower CFR from coal good as discussed.

We reported EBITDA of 5.3 million in the 2022nd quarter.

This compared to 4.9 million in last year's second quarter.

Moving on to slide 10.

We continue to maintain strong focus on liquidity management.

Cash collections during Q2 2020 normalized after being delayed due to the pandemic in Q1 2020, producing 7.1 million dollar increase in unrestricted cash at June Thirtyth as compared to March 31st 2020.

And that was up liquidity up 8.1 8.9 million for March March 31st 2020.

Free cash flow in in Q2, 2020 was 6.2 million a nearly $18 million improvement from the first quarter of 2020.

We believe a portion of this was due to some catch up the late first quarter collections. We expect the second half of the year to continue to be cash positive, albeit at a lower rate than Q2.

It is worth noting that cash flow generation and the increases in cash liquidity during the quarter were chief primarily from organic growth. We're currently evaluating recently opened mainstreet lending programs to determine our eligibility.

Now if you'll turn your attention to slide 11.

As previously announced Q1 2020 bookings declined due to covert 19 related project deferrals and cancellations. We also had some cancellations introductions of existing projects.

This resulted in a 46 million dollar adjustments backlog at June Thirtyth 2020, Thankfully as Joe noted during Q2, 2020, and improving business landscape generated more than 70 million of New awards in Europe Middle East can the United States.

From a geographic perspective, our backlog is currency traded in the U.S. with the middle East comprising the next largest area after U.S.

Thanks, very much for your time and I'll now turn the conversation back to ROE.

Thank you Todd.

If you could move to slide 12.

We are cautiously optimistic for the balance of Twentytwenty and we find ourselves in a much stronger position and just a few short months ago.

As previously announced we withdrew our 2020 CFR guidance of 330 million to 350 million earlier this year due to the uncertainty regarding the economic impact of the pandemic.

Based on current business conditions, and considering certain previously announced project deferrals and cancellations that occurred earlier. This year. We now expect CFR for 2020 to range between $300 million to $310 million, consisting of both new awards and extension of existing contracts.

I note that the deferred and cast some projects mentioned previously negatively impacted our CFR my around 10 million in the second quarter alone.

These were offset by new bookings and I'm proud of the efforts of our business development team and their focus on capturing these opportunities.

We are targeting an annual gross margin of 38% to 39% for twentytwenty consistent with previous guidance.

As a result of our cost reduction initiatives. We now expect the corporate expenses for Twentytwenty will approximate 110 million down from our previous estimate of 120 million.

We do not expect that this reduction will negatively impact pine service or business development.

We also expect to generate adjusted EBITA of $16 million to $20 million for the year with a long term goal of 10% EBITDA margin.

Thank you for your time today.

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I'd like to turn the call back over to Mr. Golly for closing remarks.

Thank you.

This is an extra ordinary time and it has required an extra burden response once again im very proud of our team and the remarkable fortitude they are demonstrating.

Hello. This is strong and vibrant company, we have a long history of success a portfolio of more than 10000 completed in assignments and our reputation that is among the best in our industry.

We believe that we have taken the steps necessary to help us to navigate this challenging times along with a plan that will build on our strengths and allow us to capture the opportunities inherent in our industry.

We we remain committed to creating long term value for our shareholders.

On behalf of have as 2700 employees around the world I. Thank you for your continued support of Hell internationally.

I have a wonderful day.

This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.

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