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Hill International Reports Second Quarter 2020 Financial Results

Second Quarter 2020 Overview

  • Consulting Fee Revenue (“CFR”) of $75.8 million
  • Net loss of $2.0 million, or $(0.03) per diluted share
  • Adjusted net income of $3.6 million or $0.06 per diluted share
  • Adjusted EBITDA grew 7.3% over last year’s second quarter to $5.3 million
  • New contract awards totaled approximately $70 million for the quarter ended June 30, 2020
  • Total liquidity at June 30, 2020 rose by $8.9 million from March 31, 2020 and cash from operations was $6.4 million

PHILADELPHIA, Aug. 05, 2020 (GLOBE NEWSWIRE) — Hill International, Inc. (NYSE:HIL) (“Hill” or the “Company”), the global leader in managing construction risk, announced today its financial results for the second quarter ended June 30, 2020 (“Q2 2020”).

“While we are continuing to address the effects of COVID-19 on certain aspects of our operations, Hill’s Q2 2020 performance improved across several metrics compared to the first quarter of 2020 and we remain cautiously optimistic for the balance of the year,” said Hill CEO Raouf Ghali.  “We generated operating profit and exited the second quarter in a strong financial position. I am very proud of how our team has responded to these challenges and their continuing commitment to serving our global client base. During Q2 2020, we secured approximately $70 million of new awards in Europe, the Middle East, and the United States.  We continue to focus on global infrastructure projects, which we believe are resilient, sustainable and potential catalysts for economic growth as we emerge from this crisis.”

“We reported our sixth consecutive quarter of positive Adjusted EBITDA, generated $6.4 million of cash from operations and, when compared to March 31, 2020, increased our total liquidity by $8.9 million to $27.8 million” said Todd Weintraub, Hill’s Chief Financial Officer.

Q2 2020 Financial Results Overview

Hill’s consulting fee revenue (“CFR”) was $75.8 million, compared to $77.0 million in the second quarter of 2019 (“Q2 2019”). CFR in Q2 of 2020 was negatively impacted by approximately $10.0 million from deferred and canceled projects due in large part to the uncertainties created by COVID-19.

Selling, general, and administrative (“SG&A”) expenses were $26.9 million, or 35.5% of CFR, compared to $27.4 million, or 35.6% of CFR, in Q2 2019. The Company is on track to achieve the $10 million in corporate cost reductions in 2020 announced last quarter.

Operating profit for Q2 2020 was $3.3 million, compared to operating profit of $4.6 million in Q2 2019. Adjusted operating profit, a non-GAAP measure (see definition and reconciliation below) was $4.8 million in Q2 2020 compared to $4.2 million in Q2 2019.

During Q2 2020, Hill determined to shut down its operations in Brazil, which had become increasingly challenging due to that country’s ongoing economic crisis and, more recently, the impact of COVID-19.  These market forces combined to produce a negative impact on Hill’s total operations. In connection with the closure, Hill recorded a non-recurring, non-cash loss of $4.1 million (“Brazil Office Closure”).

Net loss attributable to Hill in Q2 2020 was $2.0 million, or $0.03 per diluted share, compared to net income attributable to Hill of $1.6 million, or $0.03 per diluted share, in Q2 2019, due primarily to the Brazil charge. Adjusted net income, a non-GAAP measure (see definition and reconciliation in the table below), improved to $3.6 million from $1.2 million in Q2 2019.

Adjusted EBITDA, a non-GAAP measure (see definition and reconciliation below) rose 7.3% to $5.3 million in Q2 2020 from $4.9 million in Q2 2019.

Financial Condition and Backlog

Net cash provided by operating activities in Q2 2020 improved to $6.4 million from net cash used in operating activities of $7.0 million in Q2 2019. Free cash flow (as defined below) for Q2 2020 was $6.2 million, which represents net cash provided by operating activities, less $0.1 million in purchases of property and equipment during the quarter. Free cash flow during Q2 2019 was $(7.7) million, which represents net cash used in operating activities, less $0.7 million in property and equipment purchased during the quarter.

Unrestricted cash at June 30, 2020 was $23.2 million, a $7.1 million improvement from March 31, 2020 and a $7.3 million increase from December 31, 2019. The Company had approximately $4.6 million in available and undrawn credit facilities at June 30, 2020, up $1.8 million from $2.8 million at March 31, 2020. These improvements increased the Company’s total liquidity by $8.9 million from March 31, 2020.

Cash flow generation and the increases in cash and liquidity during the quarter were achieved primarily from the Company’s operating activities. The Company is currently evaluating the recently opened Main Street Lending Programs to determine its eligibility.

Backlog (which is a non-GAAP measure; see definition below) decreased to $647.9 million at June 30, 2020 as compared to $706.5 million at March 31, 2020 and $764.7 million December 31, 2019, which included re-evaluation and write down of the realizable value of a number of contracts booked before January 1, 2019, some of which were as a result of the impacts of COVID-19. Backlog also declined in Q2 2020 as the result of other COVID-related cancellations and scope reductions.

2020 Financial Guidance

CFR for 2020 is expected to range between $300 – $310 million, consisting of both new awards and extensions of existing contracts. 

Annual gross margin is targeted at 38% – 39% for 2020, consistent with previous guidance.

SG&A for 2020 is expected to approximate $110 million, down from our previous estimate of $120 million and reflecting the previously announced removal of an additional $10 million in annual corporate costs initiated in Q1 2020. 

Adjusted EBITDA for 2020 is expected to range between $16 million – $20 million.

Non-GAAP Measures

The following measures below are not measures of financial performance under U.S. generally accepted accounting principles (“GAAP”) and should be considered in addition to and not as a substitute for, or superior to, the related measure of performance prepared in accordance with GAAP.

Backlog

Backlog represents the Company’s estimate of the amount of uncompleted projects under contract and awards in-hand that are expected to be recognized as CFR in future periods as a component of total revenue. Hill’s backlog is based upon the binding nature of the underlying contract, commitment or letter of intent, and other factors, including the economic, financial and regulatory viability of the project and the likelihood of the contract being extended, renewed or canceled. Although backlog reflects business that the Company considers to be firm, cancellations or scope adjustments may occur. It is an important indicator of future performance and is used by the Company in planning Hill’s operational needs. Backlog is not a measure defined in GAAP and the Company’s methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog.

Adjusted Operating Profit (Loss)

Adjusted operating profit (loss) is operating profit (loss), adjusted to exclude non-recurring items and non-cash items including unrealized foreign currency exchange losses (gains), share-based compensation and the write-off of leasehold improvements previously included in property and equipment on the Company’s consolidated balance sheets. The Company believes that adjusted operating profit (loss) is useful to investors and other external users of Hill’s financial statements as a measure of a company’s core ongoing operations, without regard to generally non-recurring items and non-cash activity.

Adjusted Net Income (Loss) Attributable to Hill

Adjusted net income (loss) attributable to Hill is net income (loss) attributable to Hill, adjusted to exclude non-recurring and non-cash items including unrealized foreign currency exchange losses (gains), share-based compensation and the write-off of leasehold improvements previously included in property and equipment on the Company’s consolidated balance sheets. The Company believes that adjusted net income (loss) attributable to Hill is useful to investors and other external users of Hill’s financial statements as a measure of a company’s operating performance, without regard to generally non-recurring items and non-cash activity.

EBITDA

Earnings before interest, taxes, depreciation and amortization (“EBITDA”), in addition to operating profit, net income, and other GAAP measures, is a useful indicator of Hill’s financial and operating performance. Investors should recognize that EBITDA might not be comparable to similarly titled measures of other companies. The Company believes that EBITDA is useful to investors and other external users of Hill’s financial statements in evaluating its operating performance because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, and depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired.

Adjusted EBITDA is EBITDA, adjusted to exclude the impact of certain items, including non-recurring, one-time costs (as presented in the table below) and non-cash items such as unrealized foreign currency exchange losses (benefit) and share-based compensation expense. The Company believes that adjusted EBITDA helps its investors and other external users of Hill’s financial statements understanding of a company’s operating performance, without regard to non-recurring and other non-cash activity.

The Company does not provide a reconciliation of its 2020 financial guidance for such non-GAAP measure to GAAP due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for non-recurring, one-time costs and other charges reflected in its reconciliation of historic numbers.

Free Cash Flow

Free cash flow, a non-GAAP measure, includes net cash provided by (used in) continuing operations, less purchases of property and equipment. Free cash flow is a useful indicator that provides additional perspective on Hill’s ability to generate cash that is available to the Company for taxes and other corporate purposes. Investors should recognize that free cash flow might not be comparable to similarly-titled measures of other companies. This measure should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP.

Conference Call

Management will host a conference call on Thursday, August 6, 2020 at 12:00 pm ET to discuss the results and business activities. Interested parties may participate in the call by dialing: 

  • (877) 407-9753 (Domestic) or
  • (201) 493-6739 (International)

The call will also be accessible on the “Investor Relations” section of Hill’s website at www.hillintl.com.  Click on “Financial Information” and then “Conferences and Calls”.

About Hill International

Hill International, with approximately 2,700 professionals in more than 65 offices worldwide, provides program management, project management, construction management, and other consulting services to clients in a variety of market sectors. Engineering News-Record magazine recently ranked Hill as the eighth-largest construction management firm in the United States. For more information on Hill, please visit our website at www.hillintl.com.

Forward Looking Statements

Certain statements contained herein may be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and it is our intent that any such statements be protected by the safe harbor created thereby. Except for historical information, the matters set forth herein including, but not limited to, any statements of belief or intent, any statements concerning our plans, strategies, and objectives for future operations and any statements regarding our expectations for the timing of our work on projects 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 the effects of any continued spread of the COVID-19 virus or effects of decreased oil and gas prices. 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 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 statement.

Hill International, Inc.  The Equity Group Inc.
   
Elizabeth J. Zipf, LEED AP BD+C Devin Sullivan
Senior Vice President Hill International, Inc Senior Vice President
One Commerce Square (212) 836-9608
2005 Market Street, 17th Floor [email protected]
Philadelphia, PA 19103  
(215) 309-7707 Lena Cati
[email protected]  Vice President
  (212) 836-9611
  [email protected]

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

    June 30, 2020   December 31, 2019
Assets   (Unaudited)    
Cash and cash equivalents   $ 23,198     $ 15,915  
Cash – restricted   4,423     4,666  
Accounts receivable, net   105,435     103,892  
Current portion of retainage receivable   17,075     16,459  
Accounts receivable – affiliates   23,237     18,776  
Prepaid expenses and other current assets   12,658     9,340  
Income tax receivable   1,542     2,256  
Total current assets   187,568     171,304  
Property and equipment, net   9,771     11,895  
Cash – restricted, net of current portion   4,040     4,401  
Operating lease right-of-use assets   15,279     17,451  
Financing lease right-of-use assets   96      
Retainage receivable   5,430     5,695  
Acquired intangibles, net   178     232  
Goodwill   44,431     48,024  
Investments   2,667     1,711  
Deferred income tax assets   2,929     3,800  
Other assets   2,493     5,038  
Total assets   $ 274,882     $ 269,551  
Liabilities and Stockholders’ Equity        
Current maturities of notes payable and long-term debt   $ 1,828     $ 1,792  
Accounts payable and accrued expenses   66,914     65,172  
Income taxes payable   1,888     3,152  
Current portion of deferred revenue   7,628     10,773  
Current portion of operating lease liabilities   5,465     5,736  
Current portion of financing lease liabilities   27      
Other current liabilities   8,357     4,876  
Total current liabilities   92,107     91,501  
Notes payable and long-term debt, net of current maturities   53,570     41,150  
Retainage payable   2,017     1,551  
Deferred income taxes   418     419  
Deferred revenue   1,321     3,041  
Non-current operating lease liabilities   14,910     17,030  
Non-current financing lease liabilities   69      
Other liabilities   3,277     4,631  
Total liabilities   167,689     159,323  
Commitments and contingencies        
Stockholders’ equity:        
Preferred stock, $0.0001 par value; 1,000 shares authorized, none issued        
Common stock, $0.0001 par value; 100,000 shares authorized, 62,609 shares and 62,708 shares issued at June 30, 2020 and December 31, 2019, respectively   6       6  
Additional paid-in capital   214,161     212,759  
Accumulated deficit   (79,895 )   (71,360 )
Accumulated other comprehensive income (loss)   1,279     (3,817 )
Less treasury stock of 6,807 and 6,546 at June 30, 2020 and December 31, 2019, respectively   (29,056 )   (28,231 )
Hill International, Inc. share of equity   106,495     109,357  
Noncontrolling interests   698     871  
Total equity   107,193     110,228  
Total liabilities and stockholders’ equity   $ 274,882     $ 269,551  

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

    Three Months Ended June 30,   Six Months Ended June 30,
    2020   2019   2020   2019
Consulting fee revenue   $ 75,760     $ 77,035     $ 152,910     $ 156,035  
Reimbursable expenses   18,689     21,222     34,847     40,905  
Total revenue   $ 94,449     $ 98,257     $ 187,757     $ 196,940  
Direct expenses   65,032       66,955     130,080     134,202  
Gross profit   29,417     31,302     57,677     62,738  
Selling, general and administrative expenses   26,857     27,407     54,955     58,744  
Foreign currency exchange loss (benefit)   265     8     4,316     (18 )
 Plus: Share of profit of equity method affiliates   1,014     717     1,038     1,131  
Operating profit (loss)   $ 3,309     $ 4,604     $ (556 )   $ 5,143  
Interest and related financing fees, net   1,296     1,411     2,595     2,923  
Other loss, net   (3,847 )       (3,502 )    
(Loss) earnings before income taxes   $ (1,834 )   $ 3,193     $ (6,653 )   $ 2,220  
Income tax expense   102     1,493     1,705     2,588  
Net (loss) earnings   $ (1,936 )   $ 1,700     $ (8,358 )   $ (368 )
Less: net earnings – noncontrolling interests   18     83     177     150  
Net (loss) earnings attributable to Hill International, Inc.   $ (1,954 )   $ 1,617     $ (8,535 )   $ (518 )
                 
Basic (loss) earnings per common share – Hill International, Inc.   $ (0.03 )   $ 0.03     $ (0.15 )   $ (0.01 )
Basic weighted average common shares outstanding   56,409     56,032     56,476     55,989  
                 
Diluted (loss) earnings per common share – Hill International,Inc.   $ (0.03 )   $ 0.03     $ (0.15 )   $ (0.01 )
Diluted weighted average common shares outstanding   56,409     56,032     56,476     55,989  

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

  Three Months Ended June 30,(1)   Six Months Ended June 30,  
  2020   2019   2020   2019  
Cash flows from operating activities:                
Net loss (1,936 )   1,700     (8,358 )     (368 )    
Adjustments to reconcile net loss to net cash provided by (used in):                
Depreciation and amortization 251     794     2,675       1,585      
(Recovery) provision for bad debts (531 )   (1,491 )   (1,010 )     (557 )    
Amortization of deferred loan fees 173     182     348       361      
Deferred tax expense (benefit) 184     (13 )   674       (362 )    
Share-based compensation 802     801     1,201       1,042      
Operating lease right-of-use assets (843 )   1,156     1,956       2,564      
Loss on liquidation of subsidiary 4,064         4,064            
Foreign currency remeasurement losses (gains) (986 )   (445 )   3,390       (956 )    
Changes in operating assets and liabilities:                
Accounts receivable 2,579     4,953     (1,624 )     10,343      
Accounts receivable – affiliate 1,681     (4,970 )   (4,462 )     (5,188 )    
Prepaid expenses and other current assets (977 )   (1,147 )   (3,585 )     (596 )    
Income taxes receivable 350     (402 )   305       (601 )    
Retainage receivable 1,010     (235 )   255       (1,482 )    
Other assets (2,577 )   391     (1,346 )     1,081      
Accounts payable and accrued expenses 2,837     (9,336 )   4,801       (2,485 )    
Income taxes payable (1,681 )   302     (1,250 )     1,322      
Deferred revenue (1,522 )   (548 )   (4,516 )     (3,971 )    
Operating lease liabilities (843 )   (1,375 )   (2,166 )     (2,817 )    
Other current liabilities 2,966     2,177     3,662       2,208      
Retainage payable 436     (26 )   465       25      
Other liabilities (283 )   510     (33 )     288      
Net cash (used in) provided by operating activities 6,378     (7,022 )   (4,554 )     1,436      
Cash flows from investing activities:                
Purchase of property and equipment (139 )   (702 )   (972 )     (1,575 )    
Net cash used in investing activities (139 )   (702 )   (972 )     (1,575 )    
Cash flows from financing activities:                
Proceeds from term loans 1,265         1,265            
Repayment of term loans (217 )   (265 )   (434 )     (531 )    
Proceeds from revolving loans 9,404     (4,543 )   28,196       5,311      
Repayment of revolving loans (8,332 )   7,669     (16,168 )     (993 )    
Proceeds from stock issued under employee stock purchase plan 151     113     201       147      
Net cash provided by financing activities 2,271     2,974     13,060       3,934      
Effect of exchange rate changes on cash, cash equivalents and restricted cash (333 )   99     (846 )     (934 )    
Deconsolidated cash 9         9            
Net (decrease) increase in cash, cash equivalents and restricted cash 8,168     (4,651 )   6,679       2,861      
Cash, cash equivalents and restricted cash — beginning of period         24,982       23,107      
Cash, cash equivalents and restricted cash — end of period         $ 31,661       $ 25,968      
    Six Months Ended June 30,
Supplemental disclosures of cash flow information:   2020   2019
Interest and related financing fees paid   $ 2,141     $ 2,774  
Income taxes paid   1,425     1,980  
Transfer of proceeds from shares pledged as collateral to treasury stock   825      
Cash paid for amounts included in the measurement of lease liabilities   3,831     4,068  
Right-of-use assets obtained in exchange for operating lease liabilities (2)   347     18,689  
Right-of-use assets obtained in exchange for finance lease liabilities   96      

(1) Amounts for the three months ended June 30, 2020 and 2019 calculated based on the change between the six months ended June 30, 2020 and 2019 and the three months ended March 31, 2020 and 2019.

(2) Amount for the six months ended June 30, 2019 relates to the Company’s January 1, 2019 adoption of Accounting Standards Update (“ASU”) 2016-2, Leases (Topic 842). 
See Note 14 – Leases to the Company’s Consolidated Financial Statements for the period ended June 30, 2020.

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(In thousands)

The following table includes a reconciliation of these non-GAAP measures to its most directly comparable GAAP measure:

    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2020   2019   2020   2019
                 
Operating profit (loss)   $ 3,309       $ 4,604       $ (556 )     $ 5,143    
Adjustments to operating profit (loss)                
Share-based compensation   802       801       1,201       1,042    
Unrealized foreign currency exchange loss (benefit)   56       (147 )     4,159       (499 )  
Write-off of leasehold improvement (1)               1,582          
Non-recurring activity(2)   636       (1,072 )     636       146    
Adjusted operating profit   $ 4,803       $ 4,186       $ 7,022       $ 5,832    
                 
Net (loss) earnings   (1,936 )     1,700       (8,358 )     (368 )  
Less: net earnings – noncontrolling interests   18       83       177       150    
Net (loss) earnings attributable to Hill International, Inc.   $ (1,954 )     $ 1,617       $ (8,535 )     $ (518 )  
Adjustments to net (loss) earnings attributable to Hill International, Inc.                
Interest and related financing fees, net   1,296       1,411       2,595       2,923    
Income tax expense   102       1,493       1,705       2,588    
Depreciation and amortization expense (1)   251       794       2,675       1,585    
EBITDA   (305 )     5,315       (1,560 )     6,578    
Adjustments to EBITDA:                
Share-based compensation   802       801       1,201       1,042    
Unrealized foreign currency exchange loss (benefit)   56       (147 )     4,159       (499 )  
Brazil Office Closure   4,064             4,064          
Non-recurring activity(2)   636       (1,072 )     636       146    
Adjusted EBITDA   $ 5,253       $ 4,897       $ 8,500       $ 7,267    
                 
Net (loss) earnings attributable to Hill International, Inc.   $ (1,954 )     $ 1,617       $ (8,535 )     $ (518 )  
Adjustments to net (loss) earnings attributable to Hill International, Inc.                
Share-based compensation   802       801       1,201       1,042    
Unrealized foreign currency exchange loss (benefit)   56       (147 )     4,159       (499 )  
Write-off of leasehold improvement (1)               1,582          
Brazil Office Closure   4,064             4,064          
Non-recurring activity(2)   636       (1,072 )     636       146    
Adjusted net income   $ 3,604       $ 1,199       $ 3,107       $ 171    

(1) The write-off of leasehold improvements that was incurred during the quarter ended March 31, 2020 as a result of the sublease of the Company’s corporate headquarters as part of its cost reduction initiatives was included in depreciation and amortization expense and is reflected in SG&A in the Company’s consolidated statements of operations.

(2) Non-recurring activity includes costs incurred/(recovered) from the Company’s Profit Improvement Plan during Q2 2019 and the settlement of Hill’s employer tax liability under its former subsidiary recognized during Q2 2020, which are both reflected in SG&A within the Company’s consolidated statements of operations.

(HIL-G)

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