Q4 2021 Hill International Inc Earnings Call
Greetings and welcome to the Hill International fourth quarter, 2021 financial results conference call.
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.
I will now turn the conference over to your host Devin Sullivan of the equity group. Thank you you may begin.
Thank you Alex good morning, everyone and thank you for joining us today for Hill internationals fourth quarter and full year 2021 financial results conference call.
Speakers for today's call are Robert Sally Chief Executive Officer, and Todd Weintraub, 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 attempt 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 risks and uncertainties related to the COVID-19 pandemic.
Willingness and ability of governance and other clients to undertake and complete infrastructure projects 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 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 add adversely impact our business.
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 forward looking statements.
We have prepared a slide presentation for today's call, which is available for your reference at our website Www Hill I N T L Dot com.
On the in the events and presentations section.
The safe Harbor applies to the information contained in those slides.
The slides also include definitions of the non-GAAP measures that we will be discussing today.
And now I'd like to turn the call over to Rolf Ghali Hill's Chief Executive Officer Rose. Please go ahead.
Thank you Devin.
Good morning, everyone and thank you for joining us today to discuss our 2020 one financial results.
We ended the year in very strong fashion across several.
Metrics.
Consulting fee revenue rose to 305 million from $297 million in 2020 , achieving our previous guidance.
CFR for 2021 was driven in large by infrastructure projects in the U S, especially in roads and highways and tranches program and projects.
We believe that the COVID-19 related headwinds.
We experienced those past two years are beginning to subside.
And that belief is validated by our success in business development during the year.
Although we are still in early recovery, we do believe that hill is well positioned to capture significant growth opportunity and opportunities in 2022 and beyond.
Given by U S infrastructure investments and the commencement of new and delayed projects internationally.
New contracts awarded for 'twenty, 'twenty, one rose by 21% to 437 million.
From 361 million last year, producing a book to burn of 143% compared to 122% last year.
These new awards covered multiple geographies and end markets, particularly in the U S and Europe .
Backlog at December 31st 2021 Rose, 9% to 730 million from year end 2020, and represented the highest backlog since 2019.
We narrowed our net loss improved EBITDA by more than 37% and ended the year with an adjusted EBITDA of $16 3 million.
Our adjusted EBITDA for the year was below our previous guidance.
Due to a one time unusual expenses related to our response to COVID-19 pandemic.
Todd will provide additional details however, I want to stress.
That these one time costs were confined to 2021 and are not expected to repeat in 2022 or any future periods.
Our 2021 and fourth quarter results were also largely encouraging with CFR rising 8% to $78 million from last year's fourth quarter.
And new contracts, increasing 95% to 162 million from 83 million.
With respect to New awards in Q4.
2021 our project wins and comps encompass.
Each of our global regions and focus.
Probably not permanently right.
On infrastructure projects and programs.
They include it serving as lead technical consultant for current and future.
Since Metro and family projects in the Africa region increase.
Managing the delivery of John Hopkins.
Medicine, and health systems, New 126000 square foot health and care and surgery Center project under 138 acre site in Maryland.
Selective as program management consultant for a five year contract for the Texas Department of Transportation's alternate delivery program.
Serving as owners engineers for the development of the new power plant in Eastern Macedonia, and Frankie Greece.
And providing P. M C M services for two new task orders under the Santa Clara Valley Transportation authorities ongoing six $5 billion capital program in California.
We continue to expect that his project management services will be in high demand by agencies and owners, who will be securing funds associated with the infrastructure Bill.
For all of 'twenty or 'twenty, 145% of our total New awards what infrastructure related.
We believe this success makes him an ideal partner as.
As we sit here today.
Our expectation is that we will begin to realize these awards in late 2022.
We're also pleased to have made further progress in collecting our outstanding receivables from our client the organization for the development of administration administrative centers.
Oh that an agency of the Libyan National government.
Earlier. This month, we received 500000 cash payment against our outstanding balance and expect more to come.
Yeah.
Before turning things over to Todd I want to address that question.
We have been hearing regarding the ongoing war in Ukraine.
It has no exposure.
Two and no operation in Ukraine, or Russia, we do not plan on pursuing work in these regions and of course.
We are praying for a swift and peaceful resolution to this conflict.
That said thank.
Thank you for your attention and I will now turn things over to Todd Weintraub Hill's Chief Financial Officer.
Todd. Please go ahead.
Thank you Joe.
CFR in the fourth quarter increased to approximately $78 million from approximately $72 million in last year's fourth quarter, primarily reflecting returned to pre COVID-19 business activities.
For the quarter. The majority of our revenue was generated in the Americas, followed by Middle East APAC, Europe and Africa.
If your roof noted despite generating higher CFR our results for the fourth quarter and full year periods of 21 were negatively impacted by unemployment labor costs and higher than normal pay time off resulting from a onetime allowance for employees to carryover unused 2020 P. T O into 2021.
As an accommodation during the COVID-19 pandemic.
Despite this negative impact we felt strongly that it was important to support our employees during an unprecedented time.
These costs were confined to 'twenty, one and are not expected to repeat in 'twenty, two or future periods.
Gross profit was approximately $33 million or 40%, 42% of CFR compared to 53 million or 46% of CFR in last year's fourth quarter.
The 6 million CFR improvement quarter over quarter was offset by a decrease in gross profit as a percentage of CFR due primarily to a credit from one of our partners in 2020 that did not recur in 2021.
SG&A was approximately 31 million or <unk> 38, 39% of CFR compared to approximately 29 million or 40% of CFR in last year's fourth quarter.
The increase in SG&A for the quarter was related to the on applied labor costs, and one time PTO allowance that I mentioned earlier.
The effects of our lower gross profit as a percentage of CFR and SG&A increases impacted our operating income of approximately $2 million as compared to operating profit of approximately 6 million last year's fourth quarter.
Net loss for the quarter was $2 3 million or four cents per share compared to a net loss of $1 8 million or three cents per share last year.
Adjusted net loss for the quarter was 257000 compared to an adjusted net loss of 699000 in last year's fourth quarter.
Fourth quarter of 2020 included $1 4 million dollar expense related to the closing of the Companys, Brazil operations.
Adjusted EBITDA for the 2021 fourth quarter was $5 2 million compared to $5 7 million in last year's fourth quarter.
For the year CFR improved too.
Approximately $305 million from approximately 297 million the year before.
Gross profit improved to approximately $124 million or 45% of CFR from approximately $119 million or 43% of CFR last year.
SG&A was $114 million or 37% of CFR compared to approximately $109 million or 36, 8% of CFR last year.
Operating income was $9 3 million.
In 2021, compared to 10, and a half million for full year 2020.
On an adjusted basis operating income for 'twenty, one was approximately 14 million compared to approximately $17 million last year.
In 2020, adjusted operating income included a $2 6 million tower.
Realized FX losses compared to just under 700000 in 'twenty one.
As well as $1 6 million write off of leasehold improvements as opposed to know Sunshine in 'twenty one.
<unk> income for 'twenty. One included 2 million of nonrecurring activity, which includes the partial collection of fully reserve Libyan receivable on a net basis.
Net loss for the year narrowed to approximately $4 million or seven cents per share for approximately $8 million or 14 cents per share last year.
Adjusted net income for 2021 was 700000 as compared to adjusted net income of approximately $4 million in 2020.
Our unrestricted cash position at December 31, 21 was approximately $22 million and total liquidity was $31 million cash.
Cash flow for the year turned negative reflecting payment during 'twenty, one of certain items deferred from 2020, including employer taxes and rent increased working capital do you see a far growth as well as slower billing due to resource shortages and the timing of collections on certain clients. We are now current on the deferred items are billing fun.
She is fully staffed and we expect to have positive cash flow for 2022.
As Bruce noted.
We received a payment of over $500000 from <unk>.
Our tightened with the remaining balance.
Balance owed to hill is a little over $20 million against the original accounts receivable balance of approximately $60 million at the time when the Libyan civil unrest began in 2011.
The company fully reserved net accounts receivable from ONEOK at the time and remains in discussions with the appropriate authorities in Libya regarding the receipt of additional payments.
Our full year 'twenty, one EBITDA rose, 38% to approximately 11 million from approximately 8 million last year.
<unk> EBITDA was $16 3 million as compared to $19 million in 2020, due primarily to the unemployed labor and paid time off items discussed above.
We have amended our main revolving and term loan facilities to extend the maturity of the revolving facilities to may 2023, and the term loan to October 2023.
Paid a 1% fee on the term loan portion and a 5% fee on the revolving portion and will pay an additional 5%.
Housing portion only at the end of the second third and fourth quarters of 'twenty two.
The interest spreads on both facilities will increase by 1%.
As Ralph noted our total backlog rose, 9% to approximately $730 million from 667 million at December 31, 2020.
Backlog also increased 10, 4% for backlog of 661 million at September 30th 2021, reflecting a positive book to burn during the quarter.
Our 12 months backlog at December 31, 21 was $260 million.
From a geographic perspective, our backlog remains concentrated in the Americas with nearly 48% followed by the Middle East APAC Africa and Europe .
Thanks, very much for your time and I'll now turn the conversation back to Rolf.
Yeah.
Thank you Todd to close for 2022 we're forecasting CFR of $340 million to $350 million, an increase of 11% to 15% from 2021.
12 month backlog of 260 million represents 74% to 77% of our projected CFR for 2022.
Our adjusted EBITDA guidance for 'twenty to 'twenty, two is expected to range between $22 million to $24 million.
Up from adjusted EBITDA of $16 3 million and representing a growth of 35% to 47%.
Thank you for your time today.
And I will now ask the operator to open the call to questions.
Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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Our first question comes from the line of Peter Enderlin with M. A Z partners. Please proceed with your question.
Good morning, Thanks for taking my questions.
The first one is you obviously had a very sharp pickup in contract awards in the fourth quarter.
Can you give us a little more color on how that suddenly wrapped up when the overall economic environment didn't seem to improve very much or was it mostly due to.
Projects that had been deferred or the granting awards have been delayed because of COVID-19 or was there some other things involved.
Sure. Thank you for the question.
We had a very strong contracts awards.
In several regions, but mainly the U S was very strong for US we had couple of major contract.
Awards, one of them in California on the infrastructure and utilities.
Well at Southern California Edison Company.
Which has been a client with a for us for 15 years.
So we were extending them with a major contract.
And I believe that has been announced already.
Other major assignments, we had again in the infrastructure in the U S as well as couple of large awards.
In Europe .
On infrastructure programs in southern Europe to be exact.
You mentioned by the way I think Europe rewards.
And your comments on the slides.
Slides I saw.
Yes.
Greece and in southern Europe , but do you have anything significant going on in.
The mainstream of northern Europe .
We continue having a lot of business in northern Europe , one of them in Switzerland, being with the United Nations, the revamping of the entire United.
The United Nation campus in Geneva, which is a 10 year contract that continues to be very strong for us.
That's one of our major programs, we also have.
The headquarters of the I T.
Which is another U N owned.
Nonprofit organization.
We're in Germany.
I'm doing several major projects for for commercial.
Contracts such as our Nike.
And we are on several of the major.
Programs with the different projects.
For the.
Data data centers and other critical.
Critical projects that that were given to us by a major corporations, such as Microsoft Intel and so forth.
Okay. Thank you and Todd can I try to pin you down a little bit on the onetime cost for.
For differed time off.
Was that about equal to the difference in SG&A for the year or can you give us some better idea of how significant that was.
Yeah It was significant.
He was actually not an exact quantification some of it is an estimation on what we thought would happen versus what could happen with that time often the impact.
What I can say is that absent absent that we would have been we would have been fairly close to the lower end of our previous guidance.
And our previous guidance I think for the EBITDA was $20 million to $22 million.
Towards the lower end of that so I think absent that without giving you an exact quantification of it would've put us fairly close to that range.
Okay. Thank you fair enough and.
No.
The whole idea of the company I think really is to leverage that.
The growth in CFR, but.
And the plan was to keep SG&A basically flat.
If you go looking forward are you going to do.
More leverage from.
No.
Continuing to hold that flat or can you.
Get some improvements in the direct labor.
<unk> on gross margin.
Other words is it more SG&A or more gross margin.
To provide leverage going forward.
It's it's SG&A the I.
I I don't expect that the gross margin is going to very much that's been pretty consistent over the years and.
In the direct labor.
It is what it is and that's you know for the most part passed through in terms of margin. So the leverage really comes from the SG&A and.
Holding that as flat as possible or.
I think it's safe to say that SG&A is will increase a little bit but.
It will increase at a much slower rate than the CFR will increase.
Okay well.
Thanks very much.
Good work on the on the top line, we need to see more on the bottom line obviously.
Thank you Peter we are working on I think you'll start seeing that starting from next year.
Okay, great. Thanks for this year.
Thanks.
Our next question comes from the line of Matt Dane with Titan Capital Management. Please proceed with your question.
Thank you I was curious are you starting to see any benefits yet from the infrastructure Bill both of the United States as well as I know Europe has in place some are infrastructure related additional spending as well are you starting to see any of that flow into backlog, yet or are you having discussions around that.
This point in time, just curious an update there.
Sure.
We are starting to see signs that things are coming down I think the impacts of the bill and the money flowing.
We're expecting to see that towards the end of this year.
We're really the procurement comes in but what we're starting to see is in particular.
In New York and.
East Coast is.
The budgets of state budgets have been released and there's a lot more.
Funding for the infrastructure that was held up.
In the last 18 months to two years because of the political.
Standstill that happened in those in those states.
So it's not particularly.
Related to the infrastructure bill, but because they are anticipating of that coming in the budgets have been released and Theres a lot more money.
That we're seeing being awarded to us.
And flowing in the market.
Okay.
Great. Thank you.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Zach Liggett with doesn't like it. Please proceed with your question.
Hi, Thanks for taking my questions.
My first question is on the internal controls and.
I was just hoping you can give us an update on when you expect that to be remediated.
Yes.
Absolutely it will be remediated over the next over the next couple of months.
And you know we're disappointed that.
Know that we still have this.
We have this material weakness notwithstanding we were able to clear.
The existing ones.
And you know, we we have put in and we're very confident that at this point after a lot of work over the last couple of years that the.
That's a design control structure is in place and very effective.
But you know there was.
There was some change in personnel throughout the year that unfortunately.
Contributed to some of those controls that we have put in place just not being performed on a consistent basis throughout the year, which is you know which is really the basis that you see for the us into your weakness.
So.
You know, we will be dealing with that in terms of and already have taken steps in terms of retraining strength personnel be bringing on some additional personnel to ensure that that gets that gets executed on a consistent basis.
So you know it's.
It's never good news, but I think.
To put everything in perspective the.
Really heavy lifting is putting the control structure into place which has been done.
Along with that it has to be executed.
Execution part is a little bit of E.
Less heavy lifting I would say.
So we've already taken steps to address that I will say that.
We saw a much better performance of the controls in the fourth quarter and most of these issues that popped up with earlier in the year and although we did have a strong performance in the fourth quarter over the controls.
Just because of the inconsistent performance throughout the year that showing the recent food Michelle weaknesses. So we're on our way to remediate that.
Alright fair enough and then my second question is on the free cash flow expected in <unk>.
22, you have a pretty big.
Improvement guided adjusted.
Adjusted EBIT.
I'm curious, how you guys see that flowing through to free cash.
And then what your priorities are with the cash.
And at a share price, that's that's back near all time lows.
Hum.
Just curious if you're I don't think I've seen you guys ever do a buyback.
I'm curious if the board is discussing that.
With either.
The free cash you expect in 'twenty two.
And or whatever it comes from.
Just if you could give us some thoughts on I guess capital allocation in general and your expectations for free cash flow in 'twenty two thank you.
In terms of expectations for free cash flow.
What we've said is we expect it to be a positive and.
With no further quantification of that.
Other than I.
I think that we're probably if you look at historically, our first quarter is a is a pretty down quarter generally for cash flow I mean, we usually have negative cash flow in the first quarter.
We're sitting.
Sitting here and I don't have quarter numbers, yet, but I think we will see.
We'll see better performance during the first quarter than we have since full year, well I would say is that we expect that we're going to be.
Somewhat a somewhat positive.
You know based on the view that we have that we have right now.
And.
I don't think that that's going to give rise to a big pool of.
Of capital to be allocated.
If you if you look at our guidance.
Guidance for the year on the top line, which is 11% to 15% top line growth.
There was a working capital component of startups, that's required in order to achieve that so and we have sort of a minimum level of of unrestricted cash that we need just operate the business day to day.
So.
I'm not sure that I'm, not just revenue basis, there's there's going to be a.
Big pool of cash that we have to figure out.
What to do with in terms of your question about.
About if we were to get a you know another chunk of money from from Libya, and you know what to do with that I think that's pretty speculative.
And Oh, I'll, let <unk> address some you know any.
Any questions about.
About board activities.
Thank the interest probably compete with you know macro going to discuss that but I'll leave that drove to discuss.
Thank you Todd as far as that I mean, we look at we look at days that's first.
Get the money out of Libya are once we get the cash and we're going to be looking from a board point of view what is the best use of the cash whether it's a buyback.
Or reinvested in the business.
Or potentially pay dividends I mean, this is a board decision that we need to discuss it but let's first get the cash and make sure that we have the working capital that we need to run the business and then obviously, we want to do what's best for shareholders.
And what's going to give the best value for shareholders going forward.
Yes.
Okay. Thank you I I I I I will note too.
It's important to note that.
To the.
The extent that we do get a lithia cashin.
And this will be N V. This will be in the agreements that were filed so you can look at the details, but there is a requirement that will in.
In the first instance, we are going to use that to pay down debt you know some of the outstanding debt. So that'll be the first the first use of the any any Libyan money that we are you know.
We do get in.
You know to certain extent before we you know before we will kind of be free to allocate that to other other uses.
Okay. I guess, just one follow up there that I mean do you have a targeted.
Leverage ratio or other debt metrics youre looking at I mean, it seems like you've got variable rate debt, you've got a increasing interest rate environment I guess.
What are you what are you thinking in terms of appropriate leverage for the business.
We kind of had been running.
For this right now for this quarter and you know again.
It wasn't a strong cash quarter. So we're running at a 2.36.
Net net debt to EBITDA leverage.
That's a little bit higher than we've been on run rate basis, we've been kind of sub two.
And I mean.
I'm fine with where we are right now that the covenant is actually for three times I don't think we really want to operate at a three times absent a good reason to be doing that so I think the target theres not a specific target but.
You know I think around that.
One and a half to two range is a comfortable range generally to be in.
Alright, great. Thanks, guys.
Our next question comes from the line of Eric Goldberg, a private Investor. Please proceed with your question.
Mr. Goldberg. Please proceed with your question with your question, Yes. Thank you very much. Thank you for the question.
Questions about your comment in one of your recent filings about getting back into the claims business.
Apparently your noncompete expires in mid.
Twenty-second can you give us some thoughts into how you approach the claims business that when you sold the business sold it for about.
40 million down about 161 billion.
And you can't use the retained dollars a pill.
Pill.
The claims business that scale and that's number one and number two could you give us a sense of what the margins could be in the claims business now, but you got the India facility and it gets up if there is any update on the facilities management business. Thank you.
Sure.
We are very excited.
I'm getting a macro shop in Ghana.
We're very excited that we are a free again to go into the claims business.
Because it's a business, where we do hold a very high reputation.
We will retain the expertise to be able to do that.
Mobile than our current approach is we're going to have a center of excellence for the claims under the existing project management business that we have we're not going to create another unit for it.
Are we going to be till now we have been responding to certain inquiries because of our noncompete that we cannot perform and we could not service our clients, but that we will now be taking on assignments from clients.
In order to get back into the claims business.
And we're going to be servicing these clients existing and new ones are.
Organically we saw.
Still have a fairly large.
Our network of experts in that is required for that business. So we would it be tapping into that.
And we were.
Again, we would service grow the business.
But based on.
Really using current staff levels and current expertise that we have in house.
And do it organically the margins are much higher.
Or fairly.
Hi, as far as.
The claims business is concerned but also the claims business their short term assignments.
And that's why they are really.
Require a higher margin for it so.
So we're setting it up a little bit different than what we used to again, we have created the largest claims consultancy practice in the world that we.
The invested in because of <unk>.
Yeah conflicts that we that the company was saying so we wanted to recreate some parts of that.
Provided to our clients.
Because they've been asking for it.
But we're going to set it up a little bit different and it's going to be a support function rather than a complete separate function for now.
Again, we're going to look at it.
What the minimal investment.
And with the highest possible returns for it.
Once once we're in the business, we're going to reassess and relocate it whether that's the long term strategy or just for now.
And change it if need be.
The wise, we're going to continue as is.
As far as I believe you asked margin wise.
Project management businesses and the.
Low forty's as far as gross margin, we expect to be at least five to eight points higher on any of our claims assignments.
As for facility management of a continuing drawing that that service overseas.
Particularly in the Middle East and North Africa.
We are awaiting for shouldn't several large awards.
That is anticipated this year and I hope to be able to hopefully by when would come back on.
Talking about our first quarter be able to announce some of these awards.
As they come in.
I hope I've.
Okay. Thank you.
Our next question is a follow up from Peter Enderlin with MDC Partners. Please proceed with your question.
Yes. Thank you.
You know you've stated that you have a strong position in transportation infrastructure, all the different pieces of that.
Airports and rail and highway et cetera, and also our strong position in energy, but are there other vertical segments.
Can enter.
Project management, either organically or by niche acquisitions.
It could open up more opportunities for CFR growth I'm thinking of things like you know you.
You do sell already in the resorts construction area.
Maybe alternative energy remediation other environmental aspects. So are there things like that that you that you are looking at it would it be.
More likely to be internal or through niche acquisitions.
Yeah.
Peter Good good question I mean, there's there's a lot of nations that we can look at one of them is for example high speed telecommunication networks, which Oh, you know what the private area coming up there's going to be both.
Infrastructure, that's required for it as well as on the wireless as well a lot of upgrades that were looking at that.
Of how potentially.
To focus on it and go on and go on it.
As far as acquisition is concerned once we have the liquidity for acquisitions, we intend to go back into acquisitions, but it's going to be towards the end markets that we've already invested in.
And mainly in the U S. I think I've said it before.
We would be looking at acquisitions that really will help us grow in the a tighter market in the U S.
As well as potentially for the disaster recovery, which continues to be a very strong market for us.
Growth potentials.
These would be the the main two end markets that we'd be looking at.
Okay. Thank you.
Thank you.
Ladies and gentlemen, we have reached we ended the question answer session I will now turn the call over to management for closing remarks.
Okay.
Thank you everyone for joining us today.
And I look forward to speaking to you.
And few months talking about our third quarter, our first quarter financial results. Thank you very much.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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