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spk00: 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 open 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.
spk03: Thank you, Taryn. 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 Raouf Ghali, 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 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 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. These non-GAAP measures apply to both the presentation itself and our remarks. Turning to slide four, I will turn things over to Raouf Ghali, PIL's Chief Executive Officer. Raouf, please go ahead.
spk06: Raouf Ghali, Chief Executive Officer, PIL's Chief Executive Officer, Thanks, Devon. 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'm happy to report that we demonstrated improvement along several important metrics. we produced 77.1 million of CFR, a nearly 8% increase from last year's third quarter, driven in large by continued success in our Western U.S. operations, the resumptions of several projects and programs in the Northeast U.S., and new awards in the Southeast, Mid-Atlantic, and Europe. While we are beginning to see many of our markets opening up, specifically in most parts of the U.S., Europe, and North Africa, we are experiencing some headwinds in the Middle East, which has caused project deferrals. However, we believe that these projects will commence in 2022. Despite these deferrals, 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, roads and highways, primary and secondary educational facilities, 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 percent. Given the $71 million of new bookings we have recorded through November, we remain optimistic about new awards activity for the balance of the year and expect to end this year with new awards above last year's booking of 361 million. 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 special note of a recent award from Southern California Edison. one of the nation's largest utilities that was booked in early October and not part of our $92.6 million in third quarter bookings stated earlier on. A new five-year $125 million contract, of which Hill's portion is $56 million, extends 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. SCE has developed a portfolio of energy infrastructure projects totaling more than $11 billion to replace antiquated equipment and add new infrastructure to accommodate population growth. We are honored to support them in this vital endeavor. Moving on to slide six. As you'll see on this slide, our infrastructure wins include providing program management services for the Miami-Dade County Aviation Department's $5 billion capital program, encompassing Miami International Airport, as well as the county's executive and general aviation airports. This project will support modernization projects over the next 15 years. Capital program administration support services for the city of Philadelphia's ongoing capital program at Philadelphia International Airport. Construction management and inspection services to the Maryland Aviation Administration until 2026. Hale has been providing the CMI support services for air site, land site, and terminal projects at Baltimore, Washington, Thrugood, Marshall Airport, and Martin State Airport since 2015. Construction management services to the Pennsylvania Turnpike Commission for the $200 million PA Turnpike I-95 interchange Phase II project, the provision services for Phase II of the rehab and upgrade of Rail Route No. 10 in Romania, and project and construction management services for flagship mixed-use development in Cyprus, one of the most prominent green and sustainable developments 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. The bill will deliver $550 billion of investment to fortify our national infrastructure over the next five years, from bridges and roads to transit and rail, energy, ports, and harbors water and aviation, you'll see the current figures that the bill allocates to each one of these end markets. These are areas in which Hill has substantial experience and a track record of successful project completion. Through the first nine months of 2021, 46% of our total new awards were in infrastructure, and we won 193 million of infrastructure awards the previous year in 2020. The upgrades contained in this bill are necessary 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 projects in the EU under the Next Generation EU Initiative, the largest stimulus package ever financed in Europe. At present, the 750 billion euro program is being released to each country, and we expect procurement to start by the recipient countries in 2022. Thank you for your attention, and I will now turn things over to Todd Weintraub, Hill's Chief Financial Officer. Todd, please go ahead.
spk05: Thank you, Raoul. I'll pick things up from slide eight. This slide provides an overview of our gap 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 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 non-recurring and non-cash expenses of $1.8 million and $1.1 million in Q3 2021 and 2020, respectively. Excluding these non-recurring and non-cash expenses, SG&A expenses in Q3 2021 were $26.3 million or 81.2% of gross profit compared to $24.5 million or 85.4% of gross profit in Q3 2020. This decline in SG&A as a percentage of gross profit reflected continuing management of expenses to ensure that costs grow more slowly than gross profits, resulting in creating operating leverage. This followed a 470 basis point decline in the second quarter of 2021 compared to the second quarter of 2020. The dollar increase from 2020 to 2021 was due to costs related to discontinued apps and SOX remediation, the reinstatement of the company's 401k match and higher labor costs and travel as business activities have continued to increase. We reported operating income of $4.3 million as increased gross profit from higher CFR was offset by $511,000 in foreign currency exchange losses compared to $694,000 of an FX gain in last year's third quarter. We also returned to profitability with net income of 1.3 million or 2 cents per share compared to net income of 2.1 million or 4 cents 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 varied geographic and 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, a 60% increase in adjusted net income, and a 33% increase in adjusted EBITDA. Our adjusted EBITDA margin improved to 8.3% from 6.7% 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 in the top line to create operating leverage. Moving on to slide 11, we continue to improve our cash position. At September 30th, 2021, 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, mirroring our experience in 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, you'll see that we generated positive cash flow for the second consecutive quarter after the largely 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 30th, 2021 was $38.6 million, a $10.3 million increase from June 30th, 2021, and an $11.3 million improvement from the 2021 first quarter. Total liquidity at December 31st, 2020 was $45.9 million. Moving to slide 13, Our total backlog declined slightly to $660.7 million at September 30th, reflecting our positive book to burn during the quarter, being offset by some negative adjustments to existing backlog. Our 12-month backlog was $247.6 million as compared to $252 million at June 30th. From a geographic perspective, our backlog remained concentrated in the Americas, followed by the Middle East, Asia Pacific, Africa, and Europe. With respect to our facilities management business, these contracts comprised 8.6% of total Middle East and North Africa backlog as compared to 9.5% of total Middle East and North Africa backlog at June 30th, 2021. Thank you very much for your time, and I'll now turn the conversation back to Rauf.
spk06: Thank you, Todd. Now let's move to slide 14. We have revised our CFR guidance to 305 to 315 million from 320 to 330 million, reflecting COVID-19 project deferrals in the Middle East, and to a lesser degree, deferrals in the U.S. These projects are expected to roll over into 2022 and commence next year. Our adjusted EBITDA guidance for 2021 remains unchanged at 20 to 22 million, although we will likely come in at the lower end of this range. Thank you for your time today, and I'll ask the operator now to open the call to questions.
spk00: Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. If you are using a speakerphone, 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 1 on your telephone keypad at this time. Please hold a moment while we poll for questions. We'll take our first question from Pete Enderlin with MAZ Partners. Please go ahead.
spk01: Good morning, Ralph and Todd, and thanks for taking my questions. I really just have one at this point, and that is, well, it's sort of looking at the potential for revenue generation, CFR. And what I'd like, if you could possibly, is to give us some sort of greater depth on the way that CFR is generated and specifically your win rate over the last couple of years. In other words, of all the contracts that you're aware of that have been generated, how have you done in terms of a market share and also if you could kind of elaborate on that by geographical region and if possible by industry sector. So that's a lot of questions rolled into one, but the basic idea is how you go about generating CFR.
spk06: Okay, Pete. I'll take a first stab at it and talk. If you'd like to weigh in later on, please do. Okay, first way, I mean, generating CFR, the first step is obviously securing a new award, and the way we generate CFR is really mobilizing people on the assignments. Most of our projects and assignments require our staff to be physically present, if not full-time, some of the time and most of the times on the job, depending at what phase in the construction it is.
spk01: Can you say anything about your success in getting – excuse me. I was going to say, can you talk a little bit about win rates? In other words, of all the contracts that have been awarded to you and a number of other people,
spk06: Our win rate, let's start with the U.S. Our win rate in the U.S. is probably sitting anywhere between 35% to 45%, depending where in the U.S. we are. And in that percentage, we include mainly as well some of the re-competes that we have. and that's why it sometimes goes up to 45%. Depending on the year, if we have a lot of re-competes, obviously the win ratio goes up. I think worldwide, if we look at it and we put them all in one bunch, we'll be around the 33% to 35% on the win ratio. So one out of three is probably where we're at right now.
spk01: Do you think you can gain... that percentage of win rate over the next couple of years?
spk06: We're always striving to gain it, but what we're also striving right now is to focus more on the larger pursuits rather than focusing on the smaller pursuits because sometimes it takes, not sometimes, it takes usually the same amount of effort to win a small pursuit than it is to win a major pursuit. So the goal is to, first of all, we want to make sure that our clients were going after the assignments that really have the legs and the funding for it. And the second part is we want to focus more on the larger pursuits rather than focusing on every pursuit. I would rather, if I can keep the ratio of that ratio, win ratio, but win larger pursuits, that would be... that will have a definite positive impact on the CFR going forward.
spk01: 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?
spk06: No, there isn't a rule of thumb. It's very typical of this industry. In many cases, we compete. In many cases, we team up with our competitors. Really, the basis is what's the best strategy to win? Who's well positioned? And how can we make one plus one make three and four? So in each instance, We evaluate it, and based on the winning strategy, that's where we decide who we team up with.
spk01: Okay, and I apologize for making one question, you know, devolve into several different questions, but could you also give us any sense of your win rates by some of the major industry segments or categories, you know, such as airports or ports or whatever?
spk06: 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 the average. I think we're probably at 50% plus on the aviation because we've been really successful in pre-selling them, pre-selling our 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 on 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 can do a more detailed dive into all this.
spk01: Okay, that's great. Thank you very much. Very helpful.
spk00: We'll take our next question from Bill Gazellin with Dyson Capital. Please go ahead.
spk04: Thank you. First of all, your book to burn has been running at 1.2 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, and I'm thinking CFR revenue growth, of approximately 20%?
spk06: It'll have to grow, but I don't think you can correlate it because some of these contracts go out more than one year, so you may not realize it. All the additional in one year, it depends on where and what phase each one of those wins are. If they're in a design phase, for example, you'll have the mobilization probably in the latter part. It could be a three-year and four-year contract, so the first year It would be a smaller mobilization until they go into construction. But the trend of what you described is the correct one.
spk04: So directionally, revenues are up, but order of magnitude, I've gotten a little ahead of myself. That is correct. And relative to Southern California Edison, You'd mentioned that $56 million of that contract actually is the Hill component. Why was that not included in bookings?
spk06: Because we were awarded it after the end of the quarter, and so that the numbers equate and make sense to all of you and everyone. and be transparent, we have a cutoff point when we include them in the backlog.
spk05: And so that will be included in the fourth quarter, in other words, in the fourth quarter bookings.
spk04: Great. Makes perfect sense, and that explains part of your success of being up north of $70 million already this quarter. That is correct. Okay, thank you. And then Lastly, bear with me as I try to get the concept of this question out, but does the infrastructure bill lead to a surge in spending that will cause or require those who are doing the spending to use more external project management essentially because of the surge they would not be able to handle the activity internally and and therefore lead to even more demand for you all than just the dollars might represent?
spk06: I believe directionally, again, you're very correct, yes. Even before the surge of the spending, the agencies have been using our services and our competitive services. So as the dollars even increased, the need for those services, we believe, will even be more expensive.
spk04: And how quickly do you anticipate seeing the benefits from the infrastructure bill flow through in your bookings?
spk06: We'd hope to start seeing some of these bookings start coming in probably in the latter part of next year.
spk04: Great. Thank you both. Thank you.
spk00: As a reminder, ladies and gentlemen, if you do have a question or comment, you may press star 1 on your telephone keypad at this time. Again, that's star 1 if you have a question and would like to enter the queue. We'll take our next question from Sam Yake, private investor. Please go ahead.
spk02: Yeah, 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 Hill does some work in that area. Could you elaborate maybe how the increase in the price of oil may help your business?
spk06: Sure. Well, the positive increase in price of oil will allow both prices and public sector investors to really come back to the table and look at the long-term infrastructure needs and investments that they need to make. But I think one part of it is the price of oil going up. The other part of it, I think, in the Middle East, if that's what we're talking about, and I believe that's what your question is, we have another positive fundamental, which is there has been less several years conflicts within the region and those as well 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 on both the need for our services and the opportunities that we're going to have.
spk02: 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?
spk06: We continue to be talking to the Libyan government. We have been successful in collecting some of the 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 in Libya, Libya, they're going through an election at the end of December where we believe that, or we're hoping to have the stabilized government, freely elected government to go on 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, wanting their priority projects, which one of the priority projects are the projects with the educational facilities. So we're very hopeful, bullish, and confident that we will be getting our money back.
spk02: Okay, that sounds good. Thanks so much. Thank you.
spk00: For our next question, we'll return to Pete Enderlin with MAZ Partners. Please go ahead.
spk01: Well, I'm sorry. I was going to ask the same question. It was just asked, and I couldn't figure out how to withdraw my request to enter the queue. So, thank you very much.
spk06: Thank you.
spk00: And for our next question, we'll return to Bill DeZellum with Tietan Capital. Please go ahead.
spk04: Thank you. I'll actually jump on the Libya bandwagon. Relative to the rising oil prices, does that have much of an impact on Libya's interest and ability in repaying you?
spk06: No. From what I know and understand, I think Libya's reserves are quite healthy. What they owe us is I don't think it would make not even a drop in the bucket, as they say, with their reserves. But what does help is, and we always said this, that our ability to be able to recover all our funds from Libya is not contractual because they've never denied it, and it's not financial. It's about political stability. and once the country is stable, things go back to normal and they recognize the debt and they have the money to pay for it. Obviously, having high prices in oil makes it much easier because having more funds is a lot easier to pay people.
spk04: 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, just the fact that it will be over, you anticipate that that will be helpful?
spk06: We believe stability is what's required. It doesn't matter who, I believe, will be in charge. Once the country has stability, things should be looking much more positive for the country and for us. Great. Thank you.
spk00: And there appear to be no further questions at this time. We'll turn the floor back over to the management team for closing remarks.
spk06: 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.
spk00: 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.
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