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spk05: Greetings and welcome to Hill's International Second Quarter 2021 Financial Results Conference Call and Webcast. At this time, all participants are on 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Devin Sullivan, Senior Vice President at the Equity Group. Thank you. You may begin.
spk02: Thanks, Rob. Good morning, everyone, and thank you for joining us today for Hill International's second quarter 2021 Financial Results Conference call. Our speakers for today's call will be Rawuf Ghali, Chief Executive Officer, and Todd Weintraub, Company's Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during this call may be considered forward-looking statements within the meaning of the Private Securities and Litigation Reform Act of 1995 and it is our intent that any such statements be protected by the safe harbor created thereby. Except for historical information, the matter set forth 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 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 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 this morning. Turning to slide four, I'll now turn things over to Rauf Ghali, Hill's Chief Executive Officer. Rauf, please go ahead.
spk00: Thank you, Devin. Good morning, everyone, and thank you for joining us today to discuss our 2021 second quarter financial results. I'll begin as always by thanking Hill's 2,900 professionals in 36 countries around the world for their continued hard work and dedication. This year, Hill is celebrating 45 years of helping clients deliver the infrastructure of change. Our internationally recognized teams of experts have delivered thousands of successful projects across the world with an aggregate construction value of more than $600 billion. Over these past five decades, our colleagues have created Hill's legacy. More importantly, they will alter our future as we pursue multiple growth opportunities this year and beyond. Slide five, please. Now let's look at a summary of our performance for the second quarter. We produced 77.7 million of CFR up from last year's second quarter and first quarter 2021. The headwinds we experienced in the first quarter of this year have abated and the global recovery from COVID-19 is picking up speed. We continue to expect that business will accelerate in the second half of the year, particularly in the U.S. we have remobilized our staff and reached pre-COVID staffing levels by quarter end. Our SG&A for the quarter was $27.1 million, up marginally from last year's second quarter, but declining slightly from quarter one of this year. 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 an income of $2.9 million in the quarter. On a net basis, we reported a modest loss. Adjusted EBITDA was $3.8 million. I'm also very pleased with the pace of new bookings, which came in at $90.4 million in the second quarter, resulting in a book-to-burn ratio of 116.4%. These new awards covered multiple geographies and markets, including aviation, rail and transit, roadways, water, and public facilities. For the first half of 2021, new awards totaled $182 million, resulting in a year-to-date book-to-burn ratio of 121%. We remain optimistic about new awards activity for the balance of this year. Moving on to slide six. This slide highlights some of our recent wins, including an award from Los Angeles World Airport, or LAWA, to manage airport concessions development, tenant projects, and airport commercial analysis and development at lower properties, including Los Angeles International Airport, Van Nuys Airport, and Palm Dane Land Holdings. A contract to continue our program management services for the Metro Gold Line Foothill Extension Construction Authority for Phase 2B of the award-winning Foothill Gold Line Light Rail Project. A contract to provide Technical Assistance for Phase II Bucharest, Romania's Glina Wastewater Treatment Facility, one of the largest environmental projects in the country. An Award to Manage for Loudoun County's 65 Million Recreation and Community Center project in Ashburn, Virginia. A Project Management Award to support the Advanced Roadway Package of the Medina Central Area MCA development. This is a 1.4 square kilometer project in the municipality of Medina and a key part of the Kingdom of Saudi Arabia's ambitious Vision 2030 program. I am also pleased to announce two additional project wins, an award from the City of Philadelphia to continue providing capital program administration support services for the ongoing multi-billion dollar capital program at Philadelphia International Airport. This award represents our ninth consecutive contract at the airport. And a major award with an important new client in our southeastern U.S. region, a contract to provide program management services for the Miami-Dade County Aviation Department's $5 billion capital program improvement. This program encompasses work at Miami International Airport and other properties and will support modernization projects over the next 15 years. Please turn to slide seven. At the end of the second quarter, we acquired the Neo Company, a pan-India cost consultancy firm with 120 professionals. This was not a material investment for Hill. but it was strategic. NEO reinforces Hill's program, project, and construction management resources across the country with expertise spanning multiple market sectors, including commercial, residential, industrial, hospital, healthcare, and retail clients, areas where Hill also brings expertise. The acquisition specifically provides us with estimating capabilities which we did not possess in India. We now have the ability to involve NIO in a larger project opportunities and leverage the fine reputation the company has built throughout India. I want to welcome NIO's management and thank our country leader and Vice President Said Manimini for completing the transaction in a swift manner. We look forward to doing great things with our new colleagues. Moving on to slide eight, the U.S. is focused on the pending infrastructure package currently working its way through Congress. At this point, it's impossible for us to know what the final legislation will look like. However, all indications suggest that it will focus almost entirely on physical infrastructure projects. This includes, amongst other things, roads Bridges and tunnels, the largest federal investment in public transit in history, according to the president. Rail projects and ports and airports. Our national infrastructure is in dire need of repair and any support from the federal government to invest in those long-term vital hard assets is welcome news. As noted on last call, we have created a committee focused on identifying U.S. domestic infrastructure opportunities to capitalize on the significant potential growth engine for HIL. Outside the U.S., the European Union remains active in its support of infrastructure projects, and this offers HIL added opportunities under the Next Generation EU initiative, the largest stimulus package ever financed in Europe, The EU has agreed to invest 750 billion euros to undertake infrastructure projects including railways, airports, highways, smart infrastructure, green energy transition, and upgrades for airports, water efficiency, buildings, and hospitals, and tourism. We believe that HIL is well positioned to capitalize on these global opportunities and we are optimistic about the long-term positive impact these initiatives can have on our growth. Thank you for your attention, and I will now turn things over to Todd Weintraub, Hale's Chief Financial Officer. Todd, please go ahead. Thank you, Raoul.
spk03: I'll pick things up from slide nine. This slide provides an overview of our GAAP results for the second quarter of 2021. CFR for the second quarter increased to 77.7 million, reflecting business activity continuing to return to pre-COVID levels, including returns to full staffing on certain existing projects and mobilization on certain newly awarded projects. We continue to expect CFR to increase each quarter over the remainder of the year to end the year at the lower end of our 320 to 330 million dollar guidance. SG&A was $27.1 million, or 34.9% of CFR, as compared to $26.9 million, or 35.5% of CFR, in Q2 of last year. The dollar increase was primarily due to higher labor costs as business activity returns to normal levels and the reinstatement of the company 401k match, as well as increased travel costs due to the lifting of COVID-19 stay-at-home orders and that were in place during this period in 2020. These increases were partially offset by an increase in bad debt recoveries associated with the receipt of payments against previously reserved receivables, primarily on a Libya-based project. We reported operating income of $2.9 million as increased gross profit from the higher CFR was offset by $1.7 million of an increase in foreign currency exchange losses compared to the same period in last year, the results of the partial collection in foreign currency of the Libyan-based account receivable, and the higher SG&A just discussed. On a net basis, we reported a modest loss that was driven by the above-referenced items and a $1.7 million increase in income tax expense when compared to last year's second quarter. The higher income tax was the result of certain withholding taxes and uncertain tax positions recorded in 2021, both of which were discrete items exceeding the normal levels. Turning to slide 10, as you can see, our revenue profile in the second quarter reflected varied geographic and market and client exposure. The U.S. continued to lead our operations in the second quarter, driven in large part by infrastructure work that included the Metro Goldmine Phase 2B in California, the Phoenix Sky Harbor International Airport, Trenurbano Heavy Rail System in Puerto Rico, Santa Clara Valley Transportation Road task orders, New York City Transit, and Philadelphia International Airport. 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 11. On an adjusted basis and taking into account the items that we just discussed, we reported positive operating profit and positive adjusted EBITDA. Adjusted operating profit was down from 2020 levels due to lower CFR year to date related to COVID impacts, less favorable reserve experience in 2021, and higher payroll costs. We expect each of these items to reverse over the second half, resulting in year-over-year growth for the second half and for the full year. Adjusted net income and adjusted EBITDA were negatively impacted by these same factors. Adjusted net income was also impacted by the income tax items discussed previously. Turning to slide 12, our cash position at June 30th, 2021 improved $28.7 million from $26.7 million at March 31. We continue to believe that our cash position for the remainder of the year will show material improvement from the end of the first quarter, the same trend which occurred in 2020. We continue to believe that year-end unrestricted cash will exceed the $34.2 million in unrestricted cash that we reported at year-end. On a related note, we continue to pursue the refinancing of our outstanding debt and have made substantial progress reaching an agreement with potential lenders. Although we cannot provide specific details at this time, the terms are expected to be favorable and we expect to close before the end of the current third quarter. Moving to slide 13, and as just mentioned, You'll see that we return to generating positive cash flow in the second quarter after the largely seasonal declines we reported in the first quarter of both 2021 and 2020. We expect that free cash flow will accelerate in the second half of 2021 and that we will be cash flow positive in each of the remaining quarters of 2021. Our total liquidity at June 30th, 2021 including access to our lines of credit, was $28.3 million up from $27.3 million at March 31st and compared to $45.9 million at the previous year end. Turning to slide 14, our total backlog totaled $672 million at June 30th, 2021. Our 12-month backlog was $252 million, the highest level the 12-month backlog has been in two years. From a geographic perspective, our backlog remained concentrated in the United States. We showed backlog increases in the Americas and the Middle East and Africa compared to December 31st, 2020, with slight declines in Europe and Asia Pacific. With respect to our facilities management business, these contracts comprised 9.5% of total Middle East and North Africa backlog at June 30th, 2021, compared to 11% at March 31st, 2021. We expect that percentage will continue to increase over time. Thanks very much for your time, and I'll now turn the conversation back to Rauf.
spk00: Thanks, Todd. Moving on to slide 15. We are reiterating our guidance for 2021. Based on current business conditions and considering certain previously announced project deferrals and cancellations that occurred earlier this year, we expect CFR will come in at the lower end of our 320 to $330 million range, consisting of both new awards and extensions of existing contracts. Adjusted EBITDA for 2021 is forecast to be between $20 million to $22 million. Thank you for your time today, and I will now ask the operator to open the call to questions.
spk05: 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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
spk06: One moment, please, while we poll for questions. Our first question comes from Mekshai Thola, a private investor.
spk05: Please proceed with your question.
spk06: Hey, good morning, everyone.
spk01: Congratulations on a good quarter. Just wanted to ask a question on the acquisition of the NEO Group. Could you throw some light on any valuation metric on an adjusted basis or an EBITDA basis, what was paid for it?
spk03: It was, we haven't disclosed the precise amount that we paid for it. As mentioned in the comments, From a financial standpoint, it was financially not a material or significant transaction. I believe if you want to get some scope on that, if you look at the state and the cash flows, you can probably get a rough idea, but we haven't disclosed the exact price of that.
spk01: Thank you. If I may add just one more question. Last year there was another acquisition made with regard to the Licensed Engineering Corporation in New York. Just wanted to get a feel on how that's going so far. You know, what's your take on the previous acquisition and how it's been going on so far?
spk00: Okay, I'll take that. That's a very good question. I can give you some progress. It took us, we have now registered. the license in our name. Because of COVID, there has been delays in moving this, the license, into our name and being fully operational. We now have completed this. We have been shortlisted on several opportunities together with other JV partners, and we feel by next year we're going to be generating revenue through that acquisition and the license that we acquired.
spk06: Perfect. Thank you. That'd be it on my end. Thank you very much.
spk05: Our next question comes from P. Enderlin with Mazz Partners. Please proceed with your question.
spk07: Good morning. Thank you. First question on the pass-through expenses, reimbursable expenses. Those were up, I think, 28%. Is there some specific mixed reason for that or just a way the revenues flow through in a particular quarter?
spk06: But that's a much bigger increase than the CFR overall. Todd, I don't have an answer to that.
spk03: Yeah, Peter, I think there's no bigger story there. It's just what you said. It indicates that there's more subconsultants being used on particular jobs just due to the mix of the particular jobs this period has composed to as compared to last.
spk07: So that's not a sustainable trend that's going to seem... greater use of subcontractors specifically, is it?
spk03: No, I mean, there's nothing strategic about that. There's no underlying strategy to do that in any particular period. It's just going to depend on the particular business mix. As you know, there's many contracts where we don't use any subcontractors and everything, all the revenue is the CFR. There's other ones, you know, primarily on larger projects where we do bring in subconsultants to supplement. So it really just is a matter of what the particular mix is.
spk07: Okay. And then along similar lines, accounts receivable from affiliates also had a pretty big increase, $10 million. What was behind that?
spk03: So the accounts receivable from affiliates is, you know, typically we have particular JVs. We have, you know, we have a couple of large ones. So there's no concern about that receivable, just the timing of collections from the clients to flow through the JV and then ultimately back to Hill. So, yes, there was an increase. We're not concerned about it, that, you know, that money – will be collected in third quarter, and you should see that balance going back down by the end of third quarter to normal levels. Okay, thank you.
spk07: And then there was a mention, I think, that small acquisition added to the new business booked in the quarter. Was that NEO, and how much did that add? I mean, it's a very small acquisition in terms of the financials. structure, but did it add anything significant to the backlog?
spk03: Yeah, so again, we haven't, you know, I think the only thing we've really disclosed financially is on the cash flow statement. You know, you can see the purchase price, but we haven't disclosed specifics about EBITDA or backlog or any of those metrics. Again, it's not financially material to the company, so it adds some backlog and will add some EBITDA, but we haven't publicly disclosed that information.
spk07: Okay. And then the $7 million of restricted cash, just remind us what that restriction or those restrictions are. Thank you.
spk03: Substantially, all of that relates to cash collateral that we have to post for certain bonding requirements that we have in projects. We do have a number of bonding facilities, and for the most part, and to give you some idea of that, we've got about, I believe about $66 million in outstanding bonds to cover various projects as of June 30th. The majority of that is through facilities where there is no or little cash collateral, but we do have certain projects that we don't have a facility to cover, and we have to cash collateralize those. So the restricted cash just refers to cash backing for bonds, which we don't have a noncollateral facility set up for.
spk07: Got it. Thanks. And then one last one for me. The Port of Miami, I think just this morning or yesterday, announced a $1.4 billion bond financing. I mean, is that like New Jersey, New York Port of Authority where the port also includes the airports, or does that have nothing to do with your Miami-Dade County Airport win recently in terms of the financing available?
spk00: Peter, I believe it does not. It's not like the Port Authority of New York. I think it's separate.
spk07: Okay. All right, thank you. Well, good luck for the second half. Thanks a lot.
spk06: Thank you. Thank you, Peter.
spk05: Our next question comes from Bill Desalem with Teton Capital. Please proceed with your question.
spk04: Thank you. First of all, relative to the NEO acquisition, Is there any potential for the 120 people that were part of the acquisition to do work outside of India?
spk00: I'll take that question. Yes, most definitely. There is potential for them to do outside, for outside work, estimating work. It's mainly a QS company, so they can do work for our projects outside of India by even doing the work in place in India, and they're part of our resources if we need them to travel to other offices as well. But I think there's plenty of work in India itself that they will be very busy with.
spk04: Raul, the spirit of the question where I was headed with this is that oftentimes Indian labor is lower cost and has been used to, you know, outside of India. in multiple industries. I'm not referring to your industry. So that's where we're wondering if there's a potential to use those resources and actually increase your margin on some projects.
spk00: And the answer is definitely yes. That is one of the upside of having acquired NEO is to be able to do exactly what you just described in addition to fulfilling local opportunities.
spk04: Great. I appreciate that. And then second, would you please give us an update on collecting your Libyan U.S. dollar-based AR, please?
spk00: Sure. As I've said before on other calls, you know, Libya, it's a matter of politics. It's not a matter of collecting it being a financial issue. The Libyan government continues to recognize the debt. We are in constant talks with our client and with the Libyan government. And we are in discussions with them for recovery of the debt, the old debt, as well as looking at other opportunities in Libya to support the new interim government in Libya. The timing of that is the one part that I cannot answer and give a straight answer on when it's going to be. We believe it's imminent, but this is, you know, it's a political situation that we have to both manage and work with.
spk04: Thank you. And then lastly, Todd, I don't want you to feel left out. Why did taxes exceed the normal level?
spk03: There were two discrete items. One of them was a FIN 48 or, you know, uncertain tax position, and it relates to the, it relates all the way back to the sales claims group. And, you know, we still have some, you know, still we're filing returns for the claims group post that, you know, post that. Those returns have been under audit, and an assessment was made in those returns. We are challenging that assessment. It was rather vague as to the reason for disallowance of some expenses. But we're generally pretty conservative with our tax expense in terms of what we reserve for uncertain positions. So that was one major item. And the other had to do with some withholding taxes. The law changed in Qatar. in terms of when those withholding taxes need to be due after the expenses are incurred. So we, you know, that was kind of a timing that we had to accelerate some of the taxes paid, withholding taxes related to our business in Qatar. So that was a bit of a catch up. So those are two discrete items. Between the two of them, that was a little bit under $2 million in expense.
spk06: Great. Thank you both.
spk05: We have reached the end of the question and answer session. At this time, I'd like to turn the call back over to Raul Scali for closing comments.
spk00: Thank you very much, Rob. Hill will be presenting at upcoming conferences this fall, including the DA Davidson Diversified Industrial and Service Conference in September, and we hope to speak with some of you there Thank you very much for your time and have a wonderful day.
spk05: This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.
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