Q1 2021 Hill International Inc Earnings Call
Greetings and welcome to Hill over there until first quarter 2021 financial results conference call and webcast. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Now I'd like to turn the conference over to your host Mr. Devin Sullivan Senior Vice President at the equity group. Thank you you may begin.
Thank you everyone. Good morning, and thank you for joining us today per Hill Internationals first quarter 2021 financial results call.
And our ability to maintain and support business development activities.
Although we believe that the expectations estimates and assumptions reflected in our forward looking statements are reasonable actual results could differ materially from those projected or assumed and any of our forward looking statements.
Important factors that could cause our actual results to differ materially from estimates or projections contained in our forward looking statements.
Set forth and the risk factors section and elsewhere and the reports we have filed with the Securities and Exchange Commission, including the unfavorable global economic conditions may adversely impact our business our backlog may not be fully realized as revenue and our expenses may be higher than anticipated, we do not intend and undertake no obligation to update any fall.
And looking statements.
I will draw your attention to slides two and three which provides a safe harbor information and definitions of the non-GAAP measures that we will be presenting this morning.
Turning to slide for I'd now like to turn things over to growth Ghali Hill, Chief Executive Officer growth. Please go ahead.
Thanks, Kevin and.
Good morning, everyone and thank you for joining us today to discuss our 2021 first quarter financial results.
I'll begin with banking halos, 'twenty 700 professionals around the world for their continuing hard work and dedication.
Their efforts have allowed us to continue to execute against our plan and provide the highest level of client service and.
And prepare us for what we hope will be a year of growth and evolution and held internationally.
Now, let's look at a quick summary of our performance for the first quarter.
We produced $72 $4 million of CFR, which reflects several project deferments and delays due to the lingering impact of COVID-19 and certain of our operating regions.
As stated previously we expected headwinds during the first two quarters of this year as.
As the post pandemic recovery takes hold.
However, starting in April.
We have seen encouraging movements and the U S and internationally and the areas of procurement and.
Awards and remove realization.
As a result, we.
We believe that the business would it be picking up well within our plan.
Our SG&A for the quarter was $27 $7 million, representing a decline both year over year and compared to the fourth quarter of 2020.
And again as previously stated and as revenue and normality return.
Post COVID-19, we expect that SG&A will gradually increase during 2021 and reach annual levels of approximately $120 million in future years.
We reported just below breakeven results on operating basis, which included lower CFR and over 400000, and noncash stock comp that combined with interest and income and expenses to push us to a net loss of $2 7 million for the first quarter.
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Adjusted EBITDA was 741000.
Perhaps most importantly, the momentum we experienced in the fourth quarter of 2020 with respect to new bookings continued into the first quarter of 2021.
We wrote $91 $5 million of new business this past quarter.
Which cover multiple geographies and end markets.
Including infrastructure and facilities management.
Procurement activity is accelerating, especially in India, and the United States, and we and we believe that this bodes well for our higher CFR as 2021 progresses.
Please turn to slide five.
As you can see our revenue profile and the first quarter reflected varied geographic and market and client exposure.
The U S continued to lead our operations in the first quarter.
Revenue and large bi infrastructure work that included strong mobilization and California at our <unk> five and gold line Metro projects.
And New York at our MTA program as well as our renewal of the Ohio Department and resources assignment.
We're also engaged and infrastructure and Arizona, Washington State, Pennsylvania, and Delaware just to name a few.
We also continue to have a healthy exposure and the middle East Europe, and Africa, where we maintained a dominant industry position.
Moving on to slide six.
This slide highlights some of our recent wins, including <unk>.
Three contracts awarded by the GSA to execute modernization.
And solid nation and repairs on the federal buildings, and Ohio, Maryland, Maryland and Indianapolis.
And in order to manage the modernization of the federal Reserve's echoes building originally built and $19 37.
A third task order to provide owner's representative services for the completion of the clinical and activation of essential health Health Medical campus in downtown Dallas, Minnesota.
Our facility Management award under which we will serve as the managing agent for the touch we are building company, which represents the Saudi Ministry of education.
We are pleased with the progress of our facility management business, which generated for.
For $1 million of CFR during the 2021 first quarter up 21% from $3 4 million and Q1 the previous year.
Finally, we are providing construction oversight inspection and coordination services for several municipal projects and the city of New Braunfels, Texas, including two new fire stations.
And your police station and veterans for Memorial.
Moving on to slide seven.
Every four years America Civil engineers and provide a comprehensive assessment of the nation's 17 major infrastructure categories.
The ASC infrastructure report card.
Shown here examines current infrastructure conditions and needs.
Signing grades and making recommendations to raise them.
According to this report card.
Overall grade of our nations infrastructure is a C minus and.
And you'll see where various categories ranked this year.
We believe that we are and then inflection point with respect to U S infrastructure.
It is impeding our ability to compete and the global economy.
And improvements are necessary to ensure our country is built for the future.
And we'll also if probably executed.
Help us.
<unk> out of the economy, and our economic hardship created by the COVID-19 pandemic.
We have created a committee focused on identifying U S domestic infrastructure opportunities to capitalize on the significant potential and growth engine for hill.
In 2020, we secured over $190 million and infrastructure bookings in the United States Middle East and North Africa and Europe.
And Q1 of this year, approximately 44% of our new business awards consistent of infrastructure projects.
The EU appears to be active in its pursuit of infrastructure projects to emerge stronger from the COVID-19 pandemic.
We continue to monitor our progress on these fronts and will and remain well positioned to capture the associated opportunities.
Moving on to slide eight.
We are delighted to announce several promotions unemployment.
Note that each one of these individuals brings more than two decades of experience for their new roles at Hill.
Our new President of <unk> Americas region, Mike Smith.
Previously served as our senior Vice President and Western regional manager.
The Western region was <unk> largest and most successful U S profit center in 2020 and is home to many of our largest and most complex long term assignments.
Greg Heinz current Vice President and operations manager will assume smiths previous position.
In addition.
Hill welcomes current southeast regional manager Lewis logo to the role of senior Vice President business development and Americas.
Current and vice President and larger customers that were rise to the role of first Vice President for the Florida and the Caribbean region.
And southern California.
The company's J P value.
<unk> has also been promoted to first vice president for operations.
Congratulations to each of these individuals.
Thank you for your attention and I.
I will now turn things over to Todd volume Chop Hill, Chief Financial Officer.
Todd. Please go ahead.
Thank you Ralph.
I'll pick things up from slide nine.
This slide provides an overview of our GAAP results for the first quarter of 2021.
CFR for the first quarter was $72 4 million a decline from the same period last year and reflecting delayed project starts due in large part to uncertainties driven by COVID-19.
It's important to note that we believe that we lost approximately $5 7 million of projects and Q1, 'twenty Q1, 2021 due to COVID-19 related delays.
We expect that many of these projects will commence during 2021, and we expect CFR to increase each quarter over the remainder of the year.
Selling general and administrative expenses were $27 7 million for 38, 2% of CFR as compared to $28 1 million or 36, 4% of CFR and Q2 Q1 and 2020.
This decline was primarily attributable to lower depreciation expense as well as declines in certain corporate expenses due to COVID-19 stay at home orders, partially offset by higher labor legal and insurance costs as well as the timing of certain other expenses.
The labor increases were primarily due to higher than normal southern cross, which we do not expect to recur.
And legal costs were due primarily to the settlement and return of previously incurred legal expenses in 2020, which did not recur in 2021.
We had an operating loss of 154000, and Q1, primarily reflecting lower CFR PD effects of COVID-19, and noncash stock compensation.
For 2021 result was an improvement over 2020, due primarily to favorable foreign currency and paths when compared to Q1 and 2020, partially offset by the lower CFR.
These same factors drove a net loss of $2 7 million and the quarter compared to a loss of $6 6 million and last year's first quarter.
Now, let's briefly take a look at our results on an adjusted basis on slide 10.
On an adjusted basis and taking into account for items that were just discussed.
We operate it profitably and we reported positive EBITDA for the quarter.
Turning to slide 11.
As you know, we maintain and very strong focus on liquidity.
And Q1 and 2021.
Cash used in operations was $16 7 million.
We consider this to be a transitory event, driven primarily by seasonality and the timing of cash collections and compares to cash use and operations of $10 9 million into 2021st quarter.
Just as we improved our liquidity significantly over the remainder of 2020.
We expect to do the same in 2021.
And particular, approximately $10 million, we expected to receive and Q1 2021 was deferred due to COVID-19 related delays and executing documentation necessary to collect payment.
$75 million of that has now been received and the project J D accounts and will be remitted to hill shortly with the remaining two and half million expected to be received during Q2 2021.
Based on this and the collection already seen and the second quarter to date, we expect that our cash position at June 32021, and the remainder of the year will show a material improvement from March 31 2021.
Which is the same trend that occurred in 2020.
We're forecasting year and unrestricted cash will exceed the $34 2 million unrestricted cash we reported at December 31 2020.
To add some insight our primary cash obligations are a payroll and our projects sub contractors a primary source of cash receipts is from is from clients. We generally pay our employees semi monthly in arrears and invoice our clients monthly in arrears our clients generally.
Payment approximately three months on average after the invoice date.
This creates a lag between the time and pay our employees and the timing and receive payments from our clients.
We bill our clients for any subcontractors used and we pay those subcontractors after receiving payments from our clients. So no such timing lag exists for the payments that we make to subcontractors.
We utilize our cash on hand, and our revolving credit facilities to fund working capital requirement caused by the lag discussed above and other operating needs we.
We believe our expected cash receipts from clients together with the current cash on hand, and above and credit facilities are sufficient to support the reasonably anticipated cash needs of our operations for the foreseeable future.
A number of our public sector clients fund their projects through annual calendar year budget allocations.
The budget approval allocation and funding process results and delayed collections from certain of these clients negatively impacting our cash flow for the first quarter.
This negative cash flow each year is generally reversed during the subsequent quarters during the year.
That could be the case again in 2021, just as it was last year.
Moving to slide 12, and as just mentioned Youll see that our cash flow declines during the first quarter of both 2020 and 2021.
During both periods cash used in operating activities was primarily due to increases in accounts receivable related to the normal first quarter lower collections as many of our public sector clients await new funding to become available and the new year as well as the timing of payments to vendors and subcontractors.
Additionally, in 2021 and as mentioned before the continuing effect of COVID-19 delayed the execution of documentation required for certain clients to remit payments totaling approximately $10 million the.
The majority of this has subsequently been collected with the remainder expected to be collected during the quarter ended June 32021.
Again, we believe that Q1 and 2021 represents the low point of free cash flow and liquidity for the year and that we will be cash flow positive each of the remaining quarters of 2021.
Total liquidity at March 31, 2021, including access to our line of lines of credit was $27 3 million as compared to $45 9 million at December 31 2020.
Moving on to slide 13.
Our backlog increased from December 31, 2020, and was the highest level over the last four quarters.
From a geographic perspective, our backlog remained consistent.
And concentrated in the U S.
We showed backlog increases and the Americas and as compared to December 31, 2020, with slight declines in Europe, and the middle East.
With respect to our facilities management business. These contracts comprised 11% of our total middle East and North Africa backlog at March 31, 2021.
Thanks, very much for your time and I'll now turn the conversation back to growth.
Thank you Todd.
If you could turn to slide 14.
We reiterate our guidance for 2021.
Based on our current business conditions and considering.
Previously announced project deferrals and cancellations that occurred earlier this year, we expect CFR to range between 320 and $330 million cash.
Consisting of both new awards and extensions of existing contracts.
Adjusted EBITDA for 2020, one is forecast to be between $20 million to $22 million.
Thank you for your time today.
And I'll now ask the operator to open the call to questions.
At this time, we'll be conducting a question and answer session. If you will.
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Our first question comes from the line of Bill <unk>.
And with Titan Capital. Please proceed with your question.
And thank you that's a Titan capital.
A couple of questions first of all relative to the backlog.
And it has been improving as you showed on slide 13, but given what you're talking about with some things loosening up relative to COVID-19 et cetera would you expect debt the.
Debt, there to be and acceleration in the rate of growth of the.
The backlog trend line.
This is Ralph I'll take that.
Take the question.
We are expecting our backlog to continue and getting stronger.
The rate of acceleration and it's very hard to predict because not.
And does not a lot of control that we have over it but I believe that you know there is a very high demand.
And for our services.
Particularly in the U S.
And as we as procurement accelerates.
I can't we can anticipate that the growth of our backlog and the U S is going to continue growing.
Great. Thank you and then.
Hmm.
Libya would you talk a little bit about what you're seeing there in terms of potential collection the.
The potential restart of work given that the government is net.
Showing.
Some signs of stability relative to where its been and the last couple of years.
Sure.
Good questions and I'll and.
And so that and one as well and if Tom wants to add something on this.
After I'm done Hill, as Jim just right and.
We're seeing a lot more stability, we are talking to our client and Libya. They have asked us.
To come to work and be patients right now and we're waiting for the.
Budget and the country's budget to be approved formulary and by the parliament for them to be able to start.
Paying down the debt.
One of their priorities is the education sector, which is the project that we used to have.
We went in and the higher education.
Campus Tripoli University campus, where we were.
Supervising and managing as a top priority for the government they want to reinstate and restart the whole program.
They have already and we haven't made.
And because it didn't warrant they owed us as part of the AAR they owed us local currency money as well they have made that payment to us probably last week.
Sorry for two or three weeks ago.
It was small in nature. So it didn't warrant a press release, but we are expecting.
As things normalize.
And that we would.
Collect R. R R.
Our fees and.
And once we do that.
We will be looking positively at potentially going and very carefully.
And so AAA for potential new.
Newark, and continuing the existing work and existing projects that we have.
So thank you and let me just add.
Let me just add to that just to remind everybody that we.
When the cool first half and the amount that was owed to hill was approximately $16 million U S and over the years, we have received.
<unk> payments, but we've kept up our efforts and our relationships with our with the with the with the.
And Libya and the remaining balance is approximately half of that right now so notwithstanding all of the political.
Our people and the country over the last few years, we have managed to collect about half of that and as Rahul said, we did receive a small and local payment the significance of that is less about the dollars and more of that we continue to work with them and and receive and and receive payments as we as we go along.
Okay.
Thank you both and so taking the cash.
And what you know today and I suspect, it's rather dynamic, but what would be your expectation on when you would restart work on that education system just given the.
And the cards as you see them today.
And Ah.
Yes.
Is it difficult to.
To predict and then.
Putting timelines on Libya is very hard because it's a political situation and other financial situation I think we've said that before.
Given the stability of the stability continues on we believe that and before the end of the year.
If we are.
If we collect all our previous.
And that's there and we have and advance payment.
And we would be going in before the year ends.
I believe it could be sooner, but again.
Liberty is unpredictable.
And as long as there's piece there I think within the timeframe that I'm talking about is pretty realistic.
Great. Thank you and then my last question is relative to the facilities management business and I didn't hear anything in your opening remarks.
And relative to that segment of your business that would you.
And would you please talk to kind of the update and for facilities management. Please.
Sure.
And management, which we really.
Or have introduced and are growing in both North Africa, and the Middle East continues to grow very nicely and I believe I commented and some of it and the case and I believe right now the backlog for facilities management and both those regions combined would be about 11%.
Of the backlog and facility management, we continue to grow that business, we're starting to see a lot of stability from it.
As well as fairly decent margins not much lower than what we usually get on the PM side, because most of our facility management assignments are really as agents.
Service agents for facility management.
Which which demands a higher rate than the usual.
Facility management, and some some other people and maybe familiar with.
We see this as a as a good reinforced.
Investment that we've made for.
For a continuous.
And repeat income.
For a long term.
On the on the profit and loss statement as well as.
It's a great growth potential with cros being able to to cross sell between the PM services and the facility management services. So it makes it a lot of sense for us to continue growing debt that business.
And the additional advantage to it.
And it's not.
Sensitive to any of the oil pricing for initial and.
Capex projects that we usually again involvement and and particularly in the middle East. So we're looking at it as a stable in force for both the income level.
As well as long term on on the economies as they go up and down with the oil prices.
Thank you Bob just to put and just to put some numbers around that for the first quarter.
And our CFR from the debt facilities management was up 21% over the comparable prior year.
For a period.
Great. Thank you very much that's fantastic growth.
And once again and as a reminder, if you would like to ask questions. Two for star one on your telephone keypad. Once again, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Pete Enderlin MAZ Partners. Please proceed with your question.
Good morning, Thank you.
To clarify the statement you made about the CFR trend over the rest of the year going up each quarter does that mean.
Versus the year earlier up sequentially from quarter to quarter.
And I believe it's both.
Okay Tom.
Yeah go ahead, and I believe that Yep Yep, that's correct I believe it will both will be both.
And what I would say is that's certainly true for the third and fourth quarters.
The second quarter, it will be true sequentially.
And whether it's true year over year.
And we'll see exactly what and when we're able to mobilize during the quarter and how much of that we're able to get so that will certainly be the trend.
And I think it will be it will be somewhere between relatively level year over year, and the second quarter versus maybe maybe up a little bit and the second quarter.
Thank you and.
Actually another clarification.
How do you define.
Infrastructure.
And it basically everything except buildings I mean, if you build up.
Hotel or.
A college campus or something like that that's not infrastructure, but everything else is infrastructure and the reason I asked that is because and slide number five most of the awards.
It looked like they were buildings not infrastructure.
Well that's correct.
And infrastructure.
The infrastructure is really vertical construction.
And we are mainly within transportation.
As well as utilities.
And whether that be.
And <unk>.
Electric power generation or power distribution.
Purely infrastructure basically vertical construction.
Rather than horizontal.
You mean literally and I'm sorry vertical.
Sorry, I meant horizontal versus vertical infrastructures horizontal versus vertical construction being buildings Oh, okay alright.
A lot.
And talking.
Talking about your.
Hill International.
And.
Inspection.
Services, that's fairly new business that you got it through through an acquisition.
Can you comment on the potential for that as pipeline build or also as you indicated.
And you see facilities management being a help what about <unk>.
As a pipeline.
Development tool and.
I have a follow up question to that but that's that's the first part of it.
Sure.
Great question and thanks for asking.
And then and engineering and inspection services.
As a service that we actually perform.
In many places around the United States as well as overseas and.
And New York in particular.
And in some other states, but for us for our discussion right now and New York, we could not.
<unk> construction management and inspection services, unless we hadn't and engineering license.
So.
And by obtaining the engineering and license to the recent acquisition that we did late last year, which now we have changed the names too to hits, we're now can provide.
Current and new clients within the northeast region and in Europe, particularly.
Services that we actually have the both credibility experience.
And our resources to actually performed and we cannot perform before.
As far as what the growth potential for that as well for us it would be and new market and then we could probably.
Close to over the next five years double our size and northeast region, just from providing these services.
Oh well.
I guess part of that also would be.
Can you expand it organically or would it be.
Likely that you would do other similar type acquisitions to get bodies.
Net people.
We have the I mean would probably do it organically, we wouldn't need to acquire anybody to get the bodies I think a lot of the people that we currently have have that capabilities within the region. We just could not provide these services.
We cannot sign the contracts physically to be able to do that.
Can you give us an idea of what percentage of your total backlog is.
Infrastructure at this point approximately.
I think you said it was hard to we haven't broken down.
I'd have to get back to you.
I don't want to give a bad number so that's not something that's in front of us right right now.
Okay, and then one more for me which is.
Well sort of two parts.
SG&A wasn't down very much and.
And that as much as revenues year over year.
And.
And you mentioned that you have some.
Severance costs in there. So it's the CFR is starting to build why are you still laying people off.
In fact, what's happening.
I don't think that I don't think that was a matter of you know Ling.
Playing people off as it was just what I would call. It normal course turnover. However, you.
You know we did we did lose we did lose a couple of people who had been with the company for a for a long period of time, So I don't think that that turnover and <unk>.
Total has really increased but the mix of that was with some longer tenured people who had.
Wed built up quite a bit of severance as well as.
You know as well as vacation PTO time off that that had to be paid out.
So that was a that was a factor, but we don't expect that to recur.
Okay and then.
You said SG&A.
SG&A is likely to go up to about 120 and then.
One would hope stays fairly level debt that the MAU.
For the next several years.
Is that something that would be the main source of.
Margin leverage for the company or is there also some potential margin leverage within the direct costs themselves.
No I think that you're absolutely correct that the main source of our leverage will be in maintaining that 120 million dollar cost base.
As we continue to grow the CFR and <unk> and see that drop through to the bottom line.
And so would that 120 level be.
So the way to look at 2022 basically and.
And beyond.
It's hard to say right now.
We have every intention and we could not give specific SG&A guidance for for this year because.
As we continue to recover from COVID-19, and we see things getting back to normal.
We'll manage SG&A and mine with the the rate and what that happens and with which things get back to normal so.
I would say that if we are at.
We're fully back to normal by the beginning of 2020 two.
And you know I think that we would we would approach that $1 20 number we we might still have savings, we can execute and not be all the way there.
But to the extent that this continues to linger a little bit more I think we still don't know exactly what's going to happen.
After the summer and into the fall and you know with it and what the vaccination rate globally is going to be so.
You know I think that over time, we will get there, but we'll probably manage 2022 and a similar fashion that we will see how everything is coming back to normal how the CFR is growing and will continue to manage our SG&A to essentially protect the bottom line.
Okay, well, that's all very helpful. Thank you very much.
And with debt we have reached the end up for question and answer session and I would like to turn the call back over to Mr. <unk> for any closing remarks.
Thank you.
We will be presenting at the upcoming Sidoti Conference later, this month and hope to speak with some of you there.
Thank you all very much for your time on behalf of the Hills 2700 employees around the world and thank you for your continuing support of Hill International.
Have a wonderful day.
This concludes today's teleconference. You may now disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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