Q3 2021 Hill International Inc Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to your Hill International Inc. Third quarter 2021 financial results conference call and webcast all lines have been placed on a listen only mode and the floor will be opened for your questions and comments. Following the presentation. At this time. It is my pleasure to turn the floor over to your host Devin.
Sullivan Senior Vice President Sir the floor is yours.
Thank you Karen good morning, everyone and thank you for joining us today for Hill International's third quarter 2021 financial results Conference call. Our speakers for today's call will be Robert Golly, Chief Executive Officer, and Todd Weintraub Hill's 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 1090 Fives and <unk>.
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 statements of belief or intent any statements concerning financial projections, our plans strategies and 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 COVID-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 although.
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 in 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 are set forth in the risk factors section and elsewhere in the reports we have filed with the Securities and Exchange Commission.
Including that unfavorable global economic conditions may adversely impact our business our backlog it 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 forward looking statements.
I will draw your attention to slides, two and three which provide safe harbor information and definitions of the non-GAAP measures, we will be presenting.
Non-GAAP measures apply to both the presentation itself and our remarks.
Turning to slide four I will turn things over to <unk> Ghali Hill's Chief Executive Officer. Please go ahead.
Yes.
Thanks, Dan.
Good morning, everyone and thank you for joining us today to discuss our 2021 third quarter financial results.
We had a very strong quarter and I am happy to report that we've demonstrated improvement along with several important metrics.
We produced $77 1 million up CFR, a nearly 8% increase from last year's third quarter.
And lives by continued success in our Western U S operations.
<unk>.
Several projects and programs northeast U S.
Our new awards in the southeast mid Atlantic and Europe.
While we are beginning to see many of our markets opening up.
Typically in most parts of the U S Europe and North Africa.
We are experiencing some headwinds in the middle East which has cost.
It would be Paris.
However.
We believe that these projects will commence in 2022.
Despite these returns we expect that CFR will continue to grow in the fourth quarter.
We returned to profitability this quarter reporting net income of $1 3 million and adjusted net income of $2 8 million.
Adjusted EBITDA rose by 33% to $6 4 million.
We also produced the best bookings quarter in 2021.
With New awards totaling $92 6 million producing a book to burn ratio of 120%.
These new awards covered multiple geographies and end markets.
Including public utilities.
All those in highways.
Primary and secondary education assemblies, and rail and transit.
For the first nine months of 2021, New awards totaled $274 5 million, resulting in a year to date book to burn ratio of 121%.
Given the $71 million of new bookings, we have recorded.
Through November.
We remain optimistic.
New award activity for the balance of the year and expect to end.
This year with New awards above last year's bookings of 361.
Finally free cash flow.
Rose for the second consecutive quarter, reaching $6 1 million.
We expect to generate free cash flow in the current fourth quarter.
Moving on to slide five.
The next couple of slides highlight some of our recent wins.
I want to make especially now.
Our recent award from Southern California, Edison, one of the nation's largest utilities that was booked in early October.
And not to talk about $92 6 million in third quarter bookings stated earlier.
A new five year $125 million contract of which hence portion is $56 million.
Extend a 10 year relationship.
To provide project management and support services for assignments from Sce's major projects organization transmission.
Substation.
Distribution generation and asset management strategy and engineering groups.
He has developed a portfolio of energy infrastructure projects totaling more than $11 billion to replace anything related equipment and add new infrastructure to accommodate population growth.
We are honored to support.
To support them in this vital Indiana.
Moving on to slide six.
As you can see on this slide our infrastructure wins include providing.
Program management services for the Miami Dade County Aviation departments $5 billion capital program, encompassing Miami International Airport as well as the account executive and general aviation airports.
This project will support modernization projects over the next 15 years.
Apple program administration support services for the city of Philadelphia is ongoing capital program at Philadelphia International Airport.
Construction management and inspection services to the Maryland Aviation administration until 2026.
And Thats.
<unk> has been providing the CMI.
<unk> services for Air site land side.
And terminal projects at Baltimore, Washington through.
Marshall Airport and marketing State Airport since 2015.
Construction management services.
The Pennsylvania Turnpike Commission for 201 of the $200 million PAA Turnpike 95 interchange Phase III project.
The provision of services for phase two of the rehab and upgrade our railroad.
Number 10 in Romania.
And project and construction management services for flagship mixed use development.
Insiders one of the most prominent green and sustainable development in the country.
Moving on to slide seven.
We are excited that the $1 2 billion infrastructure Bill passed the house and is headed to the President's desk.
Dale will deliver 550 billion of investments to fortify our national infrastructure over the next five years.
From bridges and roads to transit and rail energy.
Courts.
And Harvard water and irrigation.
Youll see the current figures.
We will allocate to each one of these end markets.
These are areas in which handle as substantial experience and a track record of successful project completion.
Through the first nine months of 2021, 46% along with total New awards were in infrastructure.
And we won a $193 million of infrastructure awards the previous year.
In 2020.
The upgrades contained in this bill unnecessary and long overdue to ensure public safety as well as the efficiency and safe transport of goods across the country.
We are also continuing to monitor infrastructure project spend in the EU and then the next generation <unk> initiative.
The largest stimulus package and refinanced in Europe at.
At present, the 750 billion Euro program.
Is being released in each country, and we expect procurements or style by the recipient countries in 2022.
Thank you for your attention.
And I will now turn things over to Tom <unk>.
<unk> Chief Financial Officer.
Please go ahead.
Thank you Ralph.
Pick things up from slide eight.
This slide provides an overview of our GAAP results for the third quarter of 2021.
CFR for the third quarter increased to $77 1 million, reflecting business activity continuing to return to pre COVID-19 levels, including returns to full staffing on certain existing projects and mobilization on certain newly awarded projects.
As you've noted we expect that CFR will grow in the fourth quarter and allow us to hit our CFR guidance.
SG&A was $28 1 million compared to $25 6 million in last year's third quarter.
This included nonrecurring and noncash expenses of $1 8 million and $1 1 million in Q3, 2021 and 2020, respectively.
Excluding these nonrecurring and noncash expenses SG&A expenses in Q3, 2021 were $26 3 million or <unk> 81, 2% of gross profit compared to 24 and half million or 85, 4% of gross profit in Q3 2020.
This decline in SG&A as a percentage of gross profit reflected continued management of expenses to ensure that costs grew more slowly than gross profits, resulting in resulting in creating operating leverage.
This followed a 470 basis point decline in second quarter of 2021 compared to the second quarter of 2020.
The dollar increase from 'twenty to 'twenty, one was due to costs related to discontinued ops and Sox remediation reinstatement of the company's 401, K match and higher labor costs and travel and business activity has continued to increase.
We reported operating income of $4 3 million.
<unk> gross profit from higher CFR was offset by 511000 foreign currency foreign currency exchange losses, compared to $694000 of an FX gain in last year's third quarter.
We also returned to profitability with net income of $1 3 million or <unk> <unk> per share compared to net income of $2 1 million or <unk> per share in the prior year period.
The variance was due primarily to the factors impacting operating income just discussed as well as higher income tax expense allocation to the third quarter of 2021.
Moving to slide nine.
As you can see our revenue profile in the third quarter reflected very geographic end market and client exposure.
The U S continued to lead our operations in the third quarter driven in large part by infrastructure work.
We also continue to have a healthy exposure in the middle East Europe, and Africa, where we maintain a dominant industry position.
Now, let's briefly look at our results on an adjusted basis on slide 10.
On an adjusted basis and taking into account the items. We just discussed we reported a 34% increase in operating profit, 60% increase in adjusted net income and a 33% increase in adjusted EBITDA.
Our adjusted EBITDA margin improved to eight 3% from six 7% in last year's third quarter.
These improvements were driven by higher CFR and gross margin, while continuing to manage our costs to grow more slowly than the top line to create operating leverage.
Moving on to slide 11.
We continue to improve our cash position.
At September 32021, total cash rose to $33 2 million from $28 7 million in the second quarter and $26 7 million in the first quarter of 2021.
We continue to expect that our cash position will show further improvement during the current first quarter mirror renal experience from 2020 in which cash improved in the second third and fourth quarters. Following the first quarter use of cash related to seasonality and the timing of cash collections.
On a related note we continue to actively pursue the refinancing of our outstanding debt and are in discussions with both existing and potential new lenders.
Moving to slide 12, and as just mentioned.
See that we generated positive cash flow for the second consecutive quarter. After the large the seasonal declines we reported in the first quarters of both 2021 and 2020.
We continue to expect that we will be cash flow positive in the fourth quarter of 2021.
Total liquidity at September 32021 was $38 6 million a $10 3 million increase from June 32021, and $11 3 million improvement from the 2021 first quarter.
Total liquidity at December 31, 2020 was $45 9 million.
Moving to slide 13.
Our total backlog declined slightly to $660 7 million at September 30, reflecting our positive book to burn during the quarter being offset by some negative adjustments to existing backlog and.
12 months backlog was $247 6 million as compared to $252 million at June 30, yes.
From a geographic perspective, our backlog remain concentrated in the Americas, followed by the Middle East Asia Pacific Africa and Europe.
With respect to our facilities management business. These contracts comprised eight 6% of total middle East North Africa backlog as compared to nine 5% of total middle East and North Africa backlog at June 32021.
Thank you very much for your time and I'll now turn the conversation that drove.
Thank you Todd.
Now, let's move to slide 14.
We have revised our CFR guidance to $305 million to $315 million from $3 $20 million to $330 million, reflecting COVID-19 project be proud of in the middle East and.
And to a lesser degree deferrals in the U S.
These projects are expected to rollover into 'twenty to 'twenty, two and commence next year.
Our adjusted EBITDA guidance for 2021 remains unchanged at $20 million to $22 million, although we will likely come in at the lower end of this range.
Thank you for your time today, and I will ask the operator now to open the call to questions.
Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time, if you are using a speaker phone we ask that while posing your question you pick up your handset to provide the best sound quality.
Again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.
Please hold a moment, while we poll for questions.
We will take our first question with from Pete Enderlin with Amazing partners. Please go ahead.
Good morning.
And Todd and thanks for taking my questions I really just have one at this point.
As well.
Looking at the.
Potential for revenue generation CFR.
What I'd like if you could possibly.
So give us some.
Sort of.
Greater depth on the.
Okay.
Way that.
CFR.
Is generated.
Specifically your win rate over the last couple of years.
Other words of all the contracts that youre aware of that have been generated.
How have you done in terms of market share and also if you could kind of elaborate on that.
By geographical region that is possible.
By industry sector, So thats a lot of questions rolled into one but the basic ideas. How you go about generating CFR.
Okay great.
Ill take the first half rather than Todd.
And if you'd like to weigh in there on please do.
Okay, Firstly I mean.
We.
Generating CFR the first step is obviously.
Securing the New award.
And the way, we generate CFR is really mobilizing.
People on the assignments.
Most of our projects.
MSI items.
Require our staff to be physically present, if not full time.
Some of the time when most of the times on the job depending at what phase and the construction areas.
Can you say anything about your success getting.
Oh excuse me.
Sorry can you talk a little bit about.
Win rates and other words of all the.
Contracts that are awarded to you.
There are other people.
Our win rate, let's let's start with the win rate in the U S is probably setting.
Sitting anywhere between 35% to 45%.
Depending where in the U S. We are and and that percentage we include.
Mainly as well some of the Recompete that we have.
And Thats why it sometimes it goes up to 45% depending on the year.
Re competes obviously the win ratio goes up.
I think worldwide. If you if we look at it and we put them all in one month.
We'll be around that 33% to 35% on a win ratio.
One out of three.
It is probably where we're at right now.
Yes.
Do you think you can gain right.
The percentage of win rate over the next couple of years.
Yes.
Yes.
We're always striving to get it but what we'd also describing right now is to focus more on the larger pursuits, rather than focusing on the smaller questions because sometimes it takes that sometimes.
It takes usually.
The same amount of effort to win a small pursuit that it has two major.
A major Christian.
The goal is to first of all we want to make sure that our clients.
We're going after them.
Assignments that we need to have.
The legs and the funding for it and the second part is we wanted to focus more on the larger pursuits, rather than focusing on every person.
Okay.
If I can keep the ratio.
That ratio a win ratio, but when larger pursuits.
That will have a positive and definitely a positive impact on the CFR going forward.
And one more aspect of all of that is that in some cases, you compete with some of the large.
Program managers and construction managers and in other cases, you cooperate with them. So.
Is there some sort of rule of thumb of how you decide whether to compete or cooperate.
No there isn't a rule of thumb, it's really it's very typical of this industry.
Many of the cases, we compete in many cases, we came up with.
With our competitors.
Really the basis is.
What's the best strategy to win.
Well positioned and how can we make one plus one week three and four.
So in each instance, we evaluated and based on the winning strategy, that's where we decided when we came up with.
Okay, and I apologize for making one question.
Default into several different questions, but could you also give us any sense of of your.
Win rates by some of the major industry segments or categories.
Such as airports.
Ports or whatever.
Right now we have been very focused for example on the aviation sector.
And our win ratio in the aviation sector is probably higher than than the than the average I think we're probably at 50% plus on the aviation because we've been really successful in pre.
Pre selling them presale.
Pre selling out services teaming up with the right partners.
Showing our clients really.
On the value add that we have and we've invested a lot in the human resources and the team we have up there.
I think it would take a little bit too long to go into each one of these end markets.
But I'd be more than happy maybe if you'd like to contact Todd and I and we've been doing.
A more detailed dive into okay. That's great. Thank you very much very helpful.
We will take our next question from Bill does Allen with Diet and capital. Please go ahead.
Thank you.
First of all.
Your book to burn.
It has been running at one two for the nine months and for the quarter.
So bookings are 20% above revenue as we look out to next year.
Would that correlate to 2022 revenue growth of approximately <unk> revenue growth of <unk>.
<unk>, 2020%.
Yeah.
And it will have the growth, but I don't think you can pull related because some of these.
Our contracts go out more than one year. So you may not realize it all the all of the additional in one year it depends on where and what phase each one of those Windsor if theyre in a design phase for example, you'll have the mobilization properly in the latter part of it could be a three year four year contracts for the first year.
It would be a smaller mobilization until they go into construction.
But the trend.
What you've described is the correct Paul.
So directionally revenues are up but order of magnitude is that.
I've gotten a little ahead of myself.
That is correct.
And then relative to southern California Edison.
You had mentioned that the $56 million.
That contract actually is is the hill component.
Or was that not included in bookings.
Yeah.
Because we were awarded after the end of the quarter.
And so that.
The numbers equate makes sense, so all of you and.
And be transparent, we we have a cutoff point when reading sued them in in the book and the backlog.
And so.
That will be included in that will be included in the fourth quarter in other words in the fourth quarter bookings.
Great makes perfect sense and that explains part of your success has.
Being up north of $70 million already this quarter.
That is correct.
Okay. Thank you and then.
Lastly, bear with me as I tried to get the concept of this question out but.
But does the infrastructure Bill will lead to a surge in spending that that will.
That will cause or require that.
Those who are doing the spending to use more external project management essentially because of the surge they would not be able to handle.
Handle the activity internally.
Yeah.
And therefore lead to even more demand for you. All then and just the dollars might represent.
I believe Directionally again, Youre very correct, yes.
Even before the surge of the spending.
Yeah.
The agencies have been using our services and our competitor services. So as the dollars even increase the need for those services, we believe will even be more extensive.
And how quickly do you anticipate it.
<unk> seen the benefits from from the infrastructure bill of flow through in your.
In your bookings.
Yeah.
We would hope to start seeing some of these bookings coming in probably in the latter part of next year.
Great. Thank.
Thank you both.
Thank you.
As a reminder, ladies and gentlemen, if you do have a question or comment you May press star one on your telephone keypad at this time again Thats Star. One if you have a question I would like to enter the queue.
We will take our next question from Sam Yake private Investor. Please go ahead.
Thanks for taking my questions. One question I had is we've seen a sharp increase in the price of oil recently and I know he'll does some work in that area could you elaborate maybe how the increase in the price of oil may help your business.
Okay.
Sure.
Well the health of the fee.
Positive increase in price of oil.
Will allow both.
Yes.
And public sector investors to really come back to the table.
And look at the long term infrastructure needs and the investments that they need to make.
But I think it's one part of it is the price of oil going up the other part of it I think in the middle East, but that's what we're talking about it and I believe that's what your question is.
We have another positive fundamental which is there has been the last several years.
Complex.
Within the region and those as well and have also been settled and it's a much calmer and a more stable environment politically. So we believe that both of those factors.
Will impact us positively.
Both the need for our services.
And the opportunities that we want to have.
And do you have any update for us on the Libya situation. I know you made some hopeful comments about that is there any update you can give us.
We continue to be talking to the Libyan government.
We have been.
Successful in collecting some somewhat funds I believe last quarter.
Some minor funds.
We still expect to.
To be collecting most of them.
So I should correct that we expect to be collecting all of our funds.
As things are stabilizing and Libya.
Going through a.
Election.
At the end of December where we believe that we are hoping to have the stabilized government elected governments are gone there and therefore.
Things will come back to normality.
We have been in very very deep talks with them and serious talks of them wanting to go back to work.
One thing the priority projects, which one of the prior year projects are the projects with the educational facilities.
So we're very bullish.
Bullish and confident that we will be.
Getting our money back.
Okay that sounds good thanks, so much.
Thank you.
Next question will return to Pete Enderlin with <unk> partners. Please go ahead.
Well I'm sorry.
Im going to ask the same question I was just asking I couldnt figure out how to withdraw.
Requests to enter the queue. So thank you very much.
Thank you.
And for our next question will return to build this Alan with Titan Capital. Please go ahead.
Hi, Thank you I will actually jump on the bandwagon.
Relative to the rising oil prices does that have much of an impact.
Libbey is.
Interest and ability in and repaying your.
No.
From what I know and understand I think lithium reserves are.
Quite healthy.
What they owe us is.
I don't think.
Not even a drop in the bucket as they say with their reserves.
But what does help us.
Okay.
Yes.
Said this that our ability to be able to recover.
Funds from Libya has not contracture, because they've never denied.
And it's not financial its about political stability and once the country's stable.
Things go back to normal and they recognize the debt and they have the money to pay for it.
Instead of having.
High prices and oil makes it much easier because having more funds.
<unk>.
Is it your sense that the election results are going to matter in terms of your.
Opportunity to be paid or no matter, what the outcome of the election.
Fact that it will be over you would anticipate that that will.
That will be helpful.
We believe stability is what is required it doesn't matter who.
I believe what is being charged.
One the contrast ability.
It should be much more positive for the country for us.
Great. Thank you.
Yeah.
And there appear to be no further questions. At this time, we will turn the floor back over to the management team for closing remarks.
Okay.
Thank you very much.
We will be presenting at upcoming conferences this fall, including the southwest ideas in November and we hope to speak with you.
Thank you all very much for your time.
And have a wonderful day.
This does conclude today's teleconference. We thank you again for your participation you may disconnect. Your lines at this time and have a great day.
[music].
Yeah.
Okay.
[music].
Okay.
Yeah.
Hum.
Yeah.
Okay.
Hum.
Okay.
[music].
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Yeah.
Yes.
Okay.
[music].