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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from                                          to 
Commission File Number: 001-33961
HILL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware   20-0953973
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
One Commerce Square  
2005 Market Street, 17th Floor
Philadelphia PA 19103
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code:  (215) 309-7700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.0001 HIL New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý     No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 
Yes  ý     No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act
Large Accelerated Filer   Accelerated Filer
Non-Accelerated Filer   Smaller Reporting Company
      Emerging Growth Company



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes   No  ý

There were 56,626,168 shares of the Registrant’s Common Stock outstanding at April 30, 2021.



HILL INTERNATIONAL, INC. AND SUBSIDIARIES
 
Index to Form 10-Q
 
 
     
5
     
 
5
     
 
6
     
 
7
     
8
 
9
     
 
     
     
     
     
     
     
     
     
     
     
     
     
3


PART I
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), and it is Hill International, Inc.'s (the "Company") 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 projections of revenues, earnings, margin, profit improvement, cost savings or other financial items; any statements of belief, any statements concerning the Company's plans, strategies and objectives for future operations; and any statements regarding future economic conditions or performance, are forward-looking statements.
 
These forward-looking statements are based on the Company's current expectations, estimates and assumptions and are subject to certain risks and uncertainties. Although the Company believes 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.
 
Those forward-looking statements may concern, among other things:
 
The markets for the Company's services;
Projections of revenues and earnings, anticipated contractual obligations, funding requirements or other financial items;
Statements regarding the impact and effect of the COVID-19 pandemic;
Statements concerning the Company's plans, strategies and objectives for future operations; and
Statements regarding future economic conditions or the Company's performance.
 
Important factors that could cause the Company's actual results to differ materially from estimates or projections contained in our forward-looking statements include:
 
The risks set forth in Item 1A, “Risk Factors,” in the Company's most recent Annual Report on Form 10-K;
Unfavorable global economic conditions may adversely impact its business;
Our backlog, which is subject to unexpected adjustments and cancellations, may not be fully realized as revenue;
Our expenses may be higher than anticipated;
Modifications and termination of client contracts;
Control and operational issues pertaining to business activities that the Company conducts pursuant to joint ventures with other parties; and
The ability to retain and recruit key technical and management personnel.
 
Other factors that may affect the Company's business, financial position or results of operations include:
 
Unexpected delays in collections from clients;
Risks related to the effect of the COVID-19 pandemic on the Company, including its employees and related costs and including any project cancellations, delays and modifications;
Risks of the Company's ability to obtain debt financing or otherwise raise capital to meet required working capital needs and to support potential future acquisition activities;
Risks of international operations, including uncertain political and economic environments, acts of terrorism or war, potential incompatibilities with foreign joint venture partners, foreign currency fluctuations, civil disturbances and labor issues; and
Risks related to contracts with governmental entities, including the failure of applicable governing authorities to take necessary actions to secure or maintain funding for particular projects with us, the unilateral termination of contracts by the governments and reimbursement obligations to the government for funds previously received.
 
The Company does not intend, and undertakes no obligation to, update any forward-looking statement. In accordance with the Reform Act, Part II, Item 1A of this Report entitled “Risk Factors” contains cautionary statements that accompany those forward-looking statements. You should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-Q, in our other filings with the Securities and Exchange Commission ("SEC") or in materials incorporated therein by reference.

4

PART I — FINANCIAL INFORMATION
Item 1.   Financial Statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
  March 31, 2021 December 31, 2020
Assets (Unaudited)
Cash and cash equivalents $ 18,935  $ 34,229 
Cash - restricted 4,460  3,752 
Accounts receivable, net 106,786  98,186 
Current portion of retainage receivable 12,189  11,775 
Accounts receivable - affiliates 25,888  23,285 
Prepaid expenses and other current assets 11,343  9,378 
Income tax receivable 644  2,298 
Total current assets 180,245  182,903 
Property and equipment, net 9,593  9,443 
Cash - restricted, net of current portion 3,321  3,432 
Operating lease right-of-use assets 19,575  13,116 
Financing lease right-of-use assets 354  288 
Retainage receivable 5,835  6,044 
Acquired intangibles, net 2,793  2,253 
Goodwill 45,178  46,397 
Investments 3,352  2,805 
Deferred income tax assets 3,612  3,698 
Other assets 2,358  1,620 
Total assets $ 276,216  $ 271,999 
Liabilities and Stockholders’ Equity
Current maturities of notes payable and long-term debt $ 2,165  $ 987 
Accounts payable and accrued expenses 63,350  67,797 
Income taxes payable 2,253  2,219 
Current portion of deferred revenue 3,436  3,305 
Current portion of operating lease liabilities 5,111  4,797 
Current portion of financing lease liabilities 101  70 
Other current liabilities 7,723  5,796 
Total current liabilities 84,139  84,971 
Notes payable and long-term debt, net of current maturities 50,348  48,294 
Retainage payable 69  600 
Deferred income taxes 1,309  1,210 
Deferred revenue 8,194  7,488 
Non-current operating lease liabilities 19,542  13,184 
Non-current financing lease liabilities 258  186 
Other liabilities 6,794  6,778 
Total liabilities 170,653  162,711 
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, 63,204 shares and 62,920 shares issued at March 31, 2021 and December 31, 2020, respectively
Additional paid-in capital 215,502  215,010 
Accumulated deficit (82,233) (79,542)
Accumulated other comprehensive income 840  1,318 
Less treasury stock of 6,807 at March 31, 2021 and December 31, 2020
(29,056) (29,056)
Hill International, Inc. share of equity 105,059  107,736 
Noncontrolling interests 504  1,552 
Total equity 105,563  109,288 
Total liabilities and stockholders’ equity $ 276,216  $ 271,999 
See accompanying notes to consolidated financial statements.
5

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
  Three Months Ended
March 31,
2021 2020
Consulting fee revenue $ 72,409  $ 77,150 
Reimbursable expenses 14,677  16,158 
Total revenue $ 87,086  $ 93,308 
Direct expenses 59,855  65,048 
Gross profit $ 27,231  $ 28,260 
Selling, general and administrative expenses 27,686  28,098 
Foreign currency exchange loss 287  4,051 
 Plus: Share of profit of equity method affiliates 588  24 
Operating loss $ (154) $ (3,865)
Less: Interest and related financing fees, net 1,347  1,299 
Plus: Other income, net 345 
Loss before income taxes $ (1,499) $ (4,819)
Income tax expense 1,076  1,603 
Net loss $ (2,575) $ (6,422)
Less: net earnings - noncontrolling interests 116  159 
Net loss attributable to Hill International, Inc. $ (2,691) $ (6,581)
Basic loss per common share - Hill International, Inc. $ (0.05) $ (0.12)
Basic weighted average common shares outstanding 56,978  56,543 
Diluted loss per common share - Hill International, Inc. $ (0.05) $ (0.12)
Diluted weighted average common shares outstanding 56,978  56,543 
 
See accompanying notes to consolidated financial statements.
6

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
  Three Months Ended March 31,
  2021 2020
Net loss $ (2,575) $ (6,422)
Foreign currency translation adjustment, net of tax (1,642) (255)
Comprehensive loss (4,217) (6,677)
Less: Comprehensive (loss) earnings attributable to noncontrolling interests (1,048) — 
Comprehensive loss attributable to Hill International, Inc. $ (3,169) $ (6,677)
 
See accompanying notes to consolidated financial statements.
7

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands) 
  Common Stock Additional
Paid-in
Retained
Earnings
Accumulated Other
Comprehensive
Treasury Stock Hill Share of Stockholders’ Non-controlling Total
Stockholders’
  Shares Amount Capital (Deficit) Income (Loss) Shares Amount Equity Interests Equity
Balance - December 31, 2020 62,920  $ $ 215,010  $ (79,542) $ 1,318  6,807  $ (29,056) $ 107,736  $ 1,552  $ 109,288 
Net income (loss) —  —  —  (2,691) —  —  —  (2,691) 116  (2,575)
Other comprehensive income (loss) —  —  —  —  (478) —  —  (478) (1,164) (1,642)
Share-based compensation expense 270  —  449  —  —  —  —  449  —  449 
Shares issued under employee stock purchase plan (1)
14  —  43  —  —  —  —  43  —  43 
Balance - March 31, 2021 63,204  $ $ 215,502  $ (82,233) $ 840  6,807  $ (29,056) $ 105,059  $ 504  $ 105,563 
Balance - December 31, 2019 62,708  $ $ 212,759  $ (71,360) $ (3,817) 6,546  $ (28,231) $ 109,357  $ 871  $ 110,228 
Net income (loss) —  —  —  (6,581) —  —  —  (6,581) 159  (6,422)
Other comprehensive income (loss) —  —  —  —  (96) —  —  (96) (159) (255)
Share-based compensation expense —  —  399  —  —  —  —  399  —  399 
Shares issued under employee stock purchase plan (1)
83  —  105  —  —  —  —  105  —  105 
Transfer of shares pledged as collateral (2)
(261) —  —  —  —  261  (825) (825) —  (825)
Balance - March 31, 2020 62,530  $ $ 213,263  $ (77,941) $ (3,913) 6,807  $ (29,056) $ 102,359  $ 871  $ 103,230 

(1) Included $32 and $55 of proceeds related to shares issued under the Employee Stock Purchase Plan during the three months ended March 31, 2021 and March 31, 2020, respectively, that were received in the subsequent period, but were excluded in Hill International, Inc.'s (the "Company") consolidated statements of cash flows.
(2) Reflects 261 shares of the Company's common stock pledged as collateral under the terms of a secured promissory note payable to the Company. During the three months ended March 31, 2020, the Company exercised its right to retain the shares upon the note holder's agreement to relinquish the shares upon the promissory note maturity date.

See accompanying notes to consolidated financial statements.
8

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
  Three Months Ended March 31,
  2021 2020
Cash flows from operating activities:
Net loss $ (2,575) $ (6,422)
Adjustments to reconcile net loss to net cash used in:
Depreciation and amortization 694  2,424 
Recovery of bad debts (231) (479)
Amortization of deferred loan fees 220  175 
Deferred tax expense 170  490 
Share-based compensation 449  399 
Operating lease right-of-use assets 1,319  1,575 
Foreign currency remeasurement losses 287  4,376 
Changes in operating assets and liabilities:
Accounts receivable (9,835) (4,203)
Accounts receivable - affiliate (2,602) (6,143)
Prepaid expenses and other current assets (1,772) (2,608)
Income taxes receivable 1,651  (45)
Retainage receivable 203  (755)
Other assets (2,346) 1,231 
Accounts payable and accrued expenses (3,919) 1,964 
Income taxes payable 46  431 
Deferred revenue 1,195  (2,994)
Operating lease liabilities (1,063) (1,323)
Other current liabilities 1,914  696 
Retainage payable (530) 29 
Other liabilities (1) 250 
Net cash used in operating activities (16,726) (10,932)
Cash flows from investing activities:
Purchase of property and equipment (812) (833)
Net cash used in investing activities (812) (833)
Cash flows from financing activities:
Repayment of term loans (257) (217)
Proceeds from revolving loans 5,405  18,792 
Repayment of revolving loans (1,777) (7,836)
Proceeds from stock issued under employee stock purchase plan 11  50 
Net cash provided by financing activities 3,382  10,789 
Effect of exchange rate changes on cash, cash equivalents and restricted cash (541) (513)
Net decrease in cash, cash equivalents and restricted cash (14,697) (1,489)
Cash, cash equivalents and restricted cash — beginning of period 41,413  24,982 
Cash, cash equivalents and restricted cash — end of period $ 26,716  $ 23,493 
  Three Months Ended March 31,
Supplemental disclosures of cash flow information: 2021 2020
Interest and related financing fees paid $ 1,140  $ 1,150 
Income taxes paid 133  87 
Transfer of proceeds from shares pledged as collateral to treasury stock —  825 
Cash paid for amounts included in the measurement of lease liabilities 1,535  1,910 
Right-of-use assets obtained in exchange for operating lease liabilities 7,906  — 
Right-of-use assets obtained in exchange for finance lease liabilities 125  — 

 See accompanying notes to consolidated financial statements.
9

HILL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
 

Note 1 — The Company
 
Hill International, Inc. (“Hill” or the “Company”) is a professional services firm that provides program management, project management, construction management and other consulting services primarily to the buildings, transportation, environmental, energy and industrial markets worldwide. Hill’s clients include the U.S. federal government, U.S. state and local governments, foreign governments and the private sector.

All amounts included in the following Notes to the Consolidated Financial Statements are in thousands, unless otherwise indicated, except per share data.

Note 2 — Liquidity
 
At March 31, 2021 and December 31, 2020, the Company's principal sources of liquidity consisted of $18,935 and $34,229 of cash and cash equivalents, respectively, $4,590 and $7,495 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively, $1,926 and $1,085 of available borrowing capacity under the International Revolving Credit Facility, respectively, and $1,840 and $3,131 under other foreign credit agreements, respectively. Additional information regarding the Company's credit facilities is set forth in Note 9 - Notes Payable and Long-Term Debt.

In December 2019, COVID-19 was identified in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic as a result of the further spread of the virus into all regions of the world, including those regions where the Company's primary operations occur. The effects of this global pandemic on the Company include anticipated lower gross and operating margins, as well as temporary delays in certain accounts receivable collections. These effects may continue in the foreseeable future. The Company is focused on preserving its principal sources of liquidity and managing its cash flow and will continue to evaluate the potential short-term and long-term implications of COVID-19 on its consolidated statements of operations. The Company believes that it has adequate liquidity and business plans to continue to operate the business and mitigate the risks associated with COVID-19 for the next 12 months from May 10, 2021, the date of this filing. Additional disclosure on the impact of COVID-19 on the Company is included in Item 2 Management's Discussion and Analysis within the Overview section of this Form 10-Q.

Note 3 — Basis of Presentation
 
Summary
 
The accompanying unaudited interim consolidated financial statements were prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") pertaining to reports on Form 10-Q and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. In the opinion of management, these statements include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the consolidated financial statements. The consolidated financial statements include the accounts of Hill and its wholly and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
 
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The interim operating results are not necessarily indicative of the results for a full year.
10


Reclassification


Foreign currency transaction gains and losses that in previously periods had been included in selling, general and administrative expenses line item on the Consolidated Statements of Operations are presented as a separate line item on the Consolidated Statements of Operations for the three months ended March 31, 2021. The related foreign currency transaction gains and losses for the three months ended March 31, 2020 have been recast to reflect this change. This change has no impact on the total operating loss reported.

Certain geographic regions have been combined in tables throughout the document including in Note 4 - Revenue from Contract with Clients and Note 12 - Segment and Related Information. In the current year, Americas includes United States and Latin America and Middle East/Asia/Pacific includes Middle East and Asia/Pacific. The related presentation for the three months ended March 31, 2020 has been recast to conform to current year presentation.

Other Income, net

During the three months ended March 31, 2020, $345 of other income was recognized, representing the cancellation of a loan agreement made with the PIDC-Local Development Corporation that was funded to the Company on October 24, 2014 as part of the city of Philadelphia's (the "City") Economic Stimulus Program. In February 2020, the City agreed to cancel this loan as a result of the Company satisfying all obligations upon which cancellation of such debt was conditioned in such loan agreement.

Summary of Significant Accounting Policies

(a)                                 Foreign Currency Translations and Transactions

Assets and liabilities of all foreign operations are translated at period-end rates of exchange while revenues and expenses are translated at the average monthly exchange rates. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity titled accumulated other comprehensive loss until the entity is sold or substantially liquidated. Gains or losses arising from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency), including those resulting from intercompany transactions, are reflected in the Company's consolidated statements of operations. The impact of foreign exchange on long-term intercompany loans, for which repayment has not been scheduled or planned and permanent equity has been elected, are recorded in accumulated other comprehensive loss on the Company's consolidated balance sheets.

(b)                                 Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and accounts receivable.

The Company maintains its cash accounts with high quality financial institutions. Although the Company believes that the financial institutions with which it does business will be able to fulfill their commitments, there is no assurance that those institutions will be able to continue to do so.

No single client accounted for 10% or more of total revenue for the three months ended March 31, 2021 or 2020.

There was one client in Africa who represents 10% or more to gross accounts receivable at March 31, 2021 and December 31, 2020, respectively, which represents 12% and 16% of the gross accounts receivable balance at March 31, 2021 and December 31, 2020, respectively. These amounts were fully reserved for at March 31, 2021 and December 31, 2020.

11

(c)                                 Allowance for Doubtful Accounts

The allowance for doubtful accounts is an estimate prepared by management based on identification of the collectability of specific accounts and the overall condition of the receivable portfolios. When evaluating the adequacy of the allowance for doubtful accounts, the Company specifically analyzes trade receivables, including retainage receivable, historical bad debts, client credits, client concentrations, current economic trends and changes in client payment terms. If the financial condition of clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Likewise, should the Company determine that it would be able to realize more of its receivables in the future than previously estimated, an adjustment to the allowance would increase earnings in the period such determination was made. The allowance for doubtful accounts is reviewed on a quarterly basis and adjustments are recorded as deemed necessary.

(d)                                    Retainage Receivable

Retainage receivable represents balances billed but not paid by clients pursuant to retainage provisions in certain contracts and will be due upon completion of specific tasks or the completion of the contract.

(e)                                 Income Taxes

The Company estimates income taxes in each of the jurisdictions in which it operates. This process involves estimating its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheets. The Company assesses the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent it believes recovery is not likely, the Company establishes a valuation allowance. To the extent the Company establishes a valuation allowance in a period, it must include an expense within the tax provision in the consolidated statements of operations. The Company has recorded a valuation allowance to reduce the deferred income tax assets to an amount that is more likely than not to be realized in future years. If the Company determines in the future that it is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position, that the deferred tax assets subject to the valuation allowance will be realized, then the previously provided valuation allowance will be adjusted.

The Company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is more likely than not that the benefit will be ultimately realized. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

(f)                                 Revenue Recognition

The Company generates revenue primarily from providing professional services to its clients under various types of contracts. In providing these services, the Company may incur reimbursable expenses, which consist principally of amounts paid to subcontractors and other third parties and travel and other job related expenses that are contractually reimbursable from clients. The Company includes reimbursable expenses in computing and reporting its total revenue as long as the Company remains responsible to the client for the fulfillment of the contract and for the overall acceptability of all services provided.

If estimated total costs on any contract project a loss, the Company charges the entire estimated loss to operations in the period the loss becomes known. The cumulative effect of revisions to revenue, estimated costs to complete contracts, including penalties, incentive awards, change orders, claims, anticipated losses, and others are recorded in the accounting period in which the events indicating a loss are known and the loss can be reasonably estimated. These loss projects are re-assessed for each subsequent reporting period until the project is complete. Such revisions could occur at any time, and the effects may be material.

See Note 4 - Revenue from Contracts with Clients for more detail regarding how the Company recognizes revenue under each type of its contractual arrangements.

(g)                                    Restricted Cash

Restricted cash primarily represents cash collateral required to be maintained in foreign bank accounts to serve as collateral for letters of credit, bonds or guarantees on certain projects. The cash will remain restricted until the respective project has been completed, which typically is greater than one year.
12


The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows:
March 31, 2021 December 31, 2020
Cash and cash equivalents $ 18,935  $ 34,229 
Cash - restricted 4,460  3,752 
Cash - restricted, net of current portion 3,321  3,432 
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 26,716  $ 41,413 

(h)                                    Earnings (loss) per Share

Basic earnings (loss) per common share have been computed using the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share incorporates the incremental shares issuable upon the assumed exercise of stock options, the assumed vesting of stock and deferred and restricted stock unit awards using the treasury stock method, if dilutive.

The Company has outstanding options to purchase approximately 1,353 shares and 1,616 shares at March 31, 2021 and 2020, respectively. In addition, the Company had 1,050 and 789 restricted and deferred stock units outstanding at March 31, 2021 and 2020, respectively. These awards were excluded from the calculation of diluted loss per share for the three months ended March 31, 2021 and 2020 because they were anti-dilutive.

The following table provides a reconciliation to net loss used in the numerator for loss per share attributable to Hill:
Three Months Ended March 31,
2021 2020
Net loss $ (2,575) $ (6,422)
Less: net earnings - noncontrolling interests 116  159 
Net loss attributable to Hill International, Inc. $ (2,691) $ (6,581)
Basic weighted average common shares outstanding 56,978  56,543 
Effect of dilutive securities:
Stock options —  — 
Unvested share-based compensation units —  — 
Diluted weighted average common shares outstanding 56,978  56,543 
Basic and diluted loss per common share - Hill International, Inc. $ (0.05) $ (0.12)

(i)                                    New Accounting Pronouncements

Changes to U.S. GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs and, based on its assessment, determined that any recently issued or proposed ASUs not listed below are either not applicable to the Company or adoption will have minimal impact on its consolidated financial statements.

For additional information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 3 to the consolidated financial statements in Item 8 of Form 10-K for the year ended December 31, 2020 filed with the SEC on March 16, 2021. See update below.

13

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles in ASC 740 and improves how certain income tax-related guidance is applied. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption was permitted. The amendments in this update were applied prospectively. The Company adopted the new standard as of January 1, 2021. The standard did not have a material impact on the Company’s consolidated financial position or results of operations upon adoption.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments (Topic 326) - Credit Losses: Measurement of Credit Losses on Financial Instruments, which provides guidance regarding the measurement of credit losses on financial instruments.  The new guidance replaces the incurred loss impairment methodology in the current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. This ASU will be effective for the Company commencing January 1, 2023. The Company is in the process of assessing the impact of this ASU on our consolidated financial statements and disclosures.

Note 4 — Revenue from Contracts with Clients

The Company recognizes revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for such goods or services.

Below is a description of the basic types of contracts from which the Company may earn revenue:

Time and Materials Contracts

Under the time and materials (“T&M”) arrangements, contract fees are based upon time and materials incurred. The contracts may be structured as basic time and materials, cost plus a margin or time and materials subject to a maximum contract value (the "cap value"). Due to the potential limitation of the cap value, the economic factors of the contracts subject to a cap value differ from the economic factors of basic T&M and cost plus contracts. The majority of the Company’s contracts are for consulting projects where it bills the client monthly at hourly billing rates. The hourly billing rates are determined by contract terms. Under cost plus a margin contracts, the Company charges its clients for its costs, plus a fixed fee or rate. Under time and materials contracts with a cap value, the Company charges the clients for time and materials based upon the work performed however there is a cap or a not to exceed value. There are often instances that a contract is modified to extend the contract value past the cap. As the consideration is variable depending on the outcome of the contract renegotiation, the Company will estimate the total contract price in accordance with the variable consideration guidelines and will only include consideration that it expects to receive from the client. When the Company is reaching the cap value, the contract will be renegotiated, or Hill ceases work when the maximum contract value is reached. The Company will continue to work if it is probable that the contract will be extended. The Company will only include consideration or contract renegotiations to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. If the Company continues to work and is uncertain that a contract change order will be processed, the variable consideration will be constrained to the cap until it is probable that the contract will be renegotiated. The Company is only entitled to consideration for the work it has performed, and the cap value is not a guaranteed contract value.

Fixed Price Contracts

Under fixed price contracts, the Company’s clients pay an agreed amount negotiated in advance for a specified scope of work. The Company is guaranteed to receive the consideration to the extent that the Company delivers under the contract. The Company recognizes revenue over a period of time on fixed price contracts using the input method based upon direct costs incurred to date, which are compared to total projected direct costs. Costs are the most relevant measure to determine the transfer of the service to the client. The Company assesses contracts quarterly and will recognize any expected future loss before actually incurring the loss. When the Company is expecting to reach the total value under the contract, the Company will begin to negotiate a change order.

14

Change Orders and Claims

Change orders are modifications of an original contract. Either the Company or its client may initiate change orders. They may include changes in specifications or design, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Management evaluates when a change order is probable based upon its experience in negotiating change orders, the client’s written approval of such changes or separate documentation of change order costs that are identifiable. Change orders may take time to be formally documented and terms of such change orders are agreed with the client before the work is performed. Sometimes circumstances require that work progresses before an agreement is reached with the client. If the Company is having difficulties in renegotiating the change order, the Company will stop work if possible, record all costs incurred to date, and determine, on a project by project basis, the appropriate final revenue recognition.

Claims are amounts in excess of the agreed contract price that the Company seeks to collect from its clients or others for client-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs. Costs related to change orders and claims are recognized when they are incurred. The Company evaluates claims on an individual basis and recognizes revenue it believes is probable to collect.

U.S. Federal Acquisition Regulations

The Company has contracts with the U.S. government that contain provisions requiring compliance with the U.S. Federal Acquisition Regulations (“FAR”). These regulations are generally applicable to all of its federal government contracts and are partially or fully incorporated in many local and state agency contracts. They limit the recovery of certain specified indirect costs on contracts subject to the FAR. Cost-plus contracts covered by the FAR provide for upward or downward adjustments if actual recoverable costs differ from the estimate billed under forward pricing arrangements. Most of the Company's federal government contracts are subject to termination at the convenience of the federal government. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination.

Federal government contracts that are subject to the FAR and that are required by state and local governmental agencies to be audited are performed, for the most part, by the Defense Contract Audit Agency (“DCAA”). The DCAA audits the Company’s overhead rates, cost proposals, incurred government contract costs and internal control systems. During the course of its audits, the DCAA may question incurred costs if it believes the Company has accounted for such costs in a manner inconsistent with the requirements of the FAR or Cost Accounting Standards and recommend that its U.S. government corporate administrative contracting officer disallow such costs. Historically, the Company has not incurred significant disallowed costs because of such audits. However, the Company can provide no assurance that the DCAA audits will not result in material disallowances of incurred costs in the future.

Disaggregation of Revenues
The Company has one operating segment, the Project Management Group, which reflects how the Company is being managed. Additional information related to the Company’s operating segment is provided in Note 12 - Segment and Related Information. The Project Management Group provides extensive construction and project management services to construction owners worldwide. The Company considered the type of client, type of contract and geography for disaggregation of revenue. The Company determined that disaggregating by (1) contract type; and (2) geography would provide the most meaningful information to understand the nature, amount, timing, and uncertainty of its revenues. The type of client does not influence the Company’s revenue generation. Ultimately, the Company is supplying the same services of program management, project management, construction management, project management oversight, troubled project turnaround, staff augmentation, project labor agreement consulting, commissioning, estimating and cost management, labor compliance services and facilities management services. The Company’s contracts are generally long term contracts that are either based upon time and materials incurred or provide for a fixed price. The contract type will determine the level of risk in the contract related to revenue recognition. For purposes of disaggregation of revenue, the contract types have been grouped into: (1) Fixed Price - which include fixed price projects; and, (2) T&M - which include T&M contracts, T&M with a cap and cost plus contracts. The geography of the contracts will depict the level of global economic factors in relation to revenue recognition.

15

The components of the Company’s revenue by contract type and geographic region for the three months ended March 31, 2021 and 2020 are as follows:
Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
Fixed Price T&M Total Percent of Total Revenue Fixed Price T&M Total Percent of Total Revenue
Americas $ 4,274  $ 40,295  $ 44,569  51.1  % $ 6,194  $ 40,997  $ 47,191  50.6  %
Middle East/Asia/Pacific 2,365  17,710  20,075  23.1  % 4,883  22,400  27,283  29.2  %
Europe 7,204  5,416  12,620  14.5  % 6,429  5,108  11,537  12.4  %
Africa 564  9,258  9,822  11.3  % 206  7,091  7,297  7.8  %
   Total $ 14,407  $ 72,679  $ 87,086  100.0  % $ 17,712  $ 75,596  $ 93,308  100.0  %

The Company recognizes revenue as it transfers promised goods or services to clients in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company exercises judgment in determining if the contractual criteria are met to determine if a contract with a client exists, specifically in the earlier stages of a project when a formally executed contract may not yet exist. The Company typically has one performance obligation under a contract to provide fully-integrated project management services, and, occasionally, a separate performance obligation to provide facilities management services. Performance obligations are delivered over time as the client receives the service.
The consideration promised within a contract may include fixed amounts, variable amounts, or both. Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur. In estimating the transaction price for pending change orders, the Company considers all relevant facts, including documented correspondence with the client regarding acknowledgment and/or agreement with the modification, as well as historical experience with the client or similar contractual circumstances. The Company transfers control of its service over time and, therefore, satisfies a performance obligation and recognizes revenue over time by measuring the progress toward complete satisfaction of that performance obligation. The Company’s fixed price projects and T&M with a cap contracts,expected to exceed the cap value, generally use a cost-based input method to measure its progress towards complete satisfaction of the performance obligation as the Company believes this best depicts the transfer of control to the client. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Due to the nature of the work required to be performed under the Company’s performance obligations, estimating total revenue and cost at completion on its long term contracts is complex, subject to many variables and requires significant judgment.

For basic and cost plus T&M contracts and T&M with a cap, not expected to exceed the cap, contracts, the Company recognizes revenue over time using the output method which measures progress toward complete satisfaction of the performance obligation based upon actual costs incurred, using the right to invoice practical expedient.

Accounts Receivable

Accounts receivable includes amounts billed and currently due from clients and amounts for work performed which have not been billed to date. The billed and unbilled amounts are stated at the net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance is based upon an assessment of client creditworthiness, historical payment experience and the age of outstanding receivables.

Contract Assets and Liabilities

Contract assets include unbilled amounts typically resulting from performance under long-term contracts where the revenue recognized exceeds the amount billed to the client. Retainage receivable is included in contract assets. The current portion of retainage receivable is a contract asset, which prior to the adoption of ASC 606, had been classified within accounts receivable.
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The Company’s contract liabilities consist of advance payments and billings in excess of revenue recognized and are reported as deferred revenue in the consolidated balance sheets. The Company classifies billings in excess of revenue recognized as deferred revenue as current or non-current based on the timing of when revenue is expected to be recognized.

The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s performance and client payments. The amount of revenue recognized during the three months ended March 31, 2021 and 2020 that was included in the deferred revenue balance at the beginning of the periods was $2,737 and $7,861, respectively.

Remaining Performance Obligations

The remaining performance obligations represent the aggregate transaction price of executed contracts with clients for which work has partially been performed or not started as of the end of the reporting period. The Company’s remaining performance obligations include projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. T&M contracts are excluded from the remaining performance obligation as these contracts are not fixed price contracts and the consideration expected under these contracts is variable as it is based upon hours and costs incurred in accordance with the variable consideration optional exemption. As of March 31, 2021 and December 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $75,776 and $101,800, respectively. During the following 12 months, approximately 52.0% of the remaining performance obligations are expected to be recognized as revenue with the remaining balance recognized over 2 to 5 years.

Note 5 — Accounts Receivable 

The components of accounts receivable and accounts receivable - affiliates reflected in the Company's consolidated balance sheets are as follows:

Accounts Receivable March 31, 2021 December 31, 2020
Billed (1)
$ 111,499  $ 113,021 
Unbilled (2)
38,171  37,960 
  149,670  150,981 
Allowance for doubtful accounts (1)
(42,884) (52,795)
Accounts receivable, net $ 106,786  $ 98,186 
Accounts Receivable - Affiliates
Billed (3)
$ 14,617  $ 15,560 
Unbilled (2)
11,930  8,380 
$ 26,547  $ 23,940 
Allowance for doubtful accounts (659) (655)
Accounts receivable - affiliates, net $ 25,888  $ 23,285 
(1) Includes $23,926 and $33,242 related to amounts due from a client in Libya as of March 31, 2021 and December 31, 2020, respectively, which where both fully reserved for in the allowance for doubtful accounts. The decrease in the balance at March 31, 2021 from December 31, 2020 is due to the devaluation of the Libyan Dinar.
(2) Amounts are net of unbilled reserves.
(3) Includes $1,411 and $1,303 of retainage receivables due from affiliates as of March 31, 2021 and December 31, 2020, respectively.

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Note 6 — Intangible Assets
 
The following table summarizes the Company’s acquired intangible assets:
 
  March 31, 2021 December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
 
Engineering license $ 2,653  $ —  $ 2,100  $ — 
Client relationships 509  369  509  356 
Total $ 3,162  $ 369  $ 2,609  $ 356 
Intangible assets, net $ 2,793  $ 2,253 

During the year ended December 31, 2020, the Company acquired a Grandfathered Engineering Corporation license ("engineering license"), which was determined to have an indefinite useful life and therefore it is not amortized.

The Company amortizes client relationship intangible assets over the estimated useful life of ten years. Such amortization expense was $13 and $27 for the three months ended March 31, 2021 and 2020, respectively.
 
The following table presents the estimated amortization expense for the next five years: 
  Estimated
Amortization
Expense
 
Year ending December 31,
2021 (remaining 9 months) $ 38 
2022 51 
2023 51 
2024 — 
2025 — 
 

Note 7 — Goodwill
 
The following table summarizes the changes in the Company’s carrying value of goodwill during the three months ended March 31, 2021:
 
Balance, December 31, 2020 $ 46,397 
Translation adjustments (1)
(1,219)
Balance, March 31, 2021 $ 45,178 
(1) The translation adjustment was calculated based on the foreign currency exchange rates as of March 31, 2021.

The Company performed its 2020 annual impairment test effective July 1, 2020, and noted no impairment. Based on the valuation as of July 1, 2020, the fair value of the Company exceeded its carrying value. The Company performs its annual impairment test during the second half of each year unless events or circumstances indicate an impairment may have occurred before that time.

The Company’s changes in estimates and assumptions, including decreases in stock price and market capitalization, could materially affect the determination of fair value and/or conclusions on goodwill impairment. As a result of recent events, including market volatility and the impact on the global economy, it is at least reasonably possible that changes in one or more of those assumptions could result in impairment of our goodwill in future periods.

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Note 8 — Accounts Payable and Accrued Expenses
 
Below are the components of accounts payable and accrued expenses:
  March 31, 2021 December 31, 2020
 
Accounts payable $ 18,791  $ 20,953 
Accrued payroll and related expenses* 28,626  28,508 
Accrued subcontractor fees 8,238  8,711 
Accrued agency fees 4,141  4,239 
Accrued legal and professional fees 1,934  2,894 
Other accrued expenses* 1,620  2,492 
  $ 63,350  $ 67,797 
 * $1,818 in costs related to the Company's end of service benefit plan at December 31, 2020 that were previously included in other accrued expenses and are now reflected in accrued payroll and related expenses.


Note 9 — Notes Payable and Long-Term Debt
 
The table below reflects the Company's notes payable and long-term debt, which includes credit facilities:
Interest Rate (1)
Balance Outstanding as of
Loan Maturity Interest Rate Type March 31,
2021
December 31, 2020 March 31,
2021
December 31, 2020
Secured Credit Facilities
Hill International, Inc. - Société Générale 2017 Term Loan Facility 06/20/2023 Variable 7.62% 7.67% $ 28,875  $ 28,950 
Hill International, Inc. - Société Générale Domestic Revolving Credit Facility (2)
05/04/2022 Variable 5.39% 5.50% 17,400  14,400 
Hill International N.V.. - Société Générale International Revolving Credit Facility (3)
05/04/2022 Variable 4.09% 4.11% 3,229  4,035 
Unsecured Credit Facilities
Hill International, Inc. - First Abu Dhabi Bank ("FAB") PJSC Overdraft Credit Facility (4)
04/18/2022 Variable 5.73% 5.65% 1,291  — 
Unsecured Notes Payable and Long-Term Debt
Hill International Spain S.A.-Bankia S.A. & Bankinter S.A.(5)
12/31/2021 Fixed 2.21% 2.21% 420  581 
Philadelphia Industrial Development Corporation Loan 04/01/2027 Fixed 2.79% 2.79% 405  421 
Hill International Spain S.A. - Bankinter S.A. 2020 Term Loan (5)(6)
05/04/2024 Variable 2.23% 2.23% 320  357 
Hill International Spain S.A. - Banco Santander, S.A. Term Loan (5)(6)
05/30/2025 Fixed 3.91% 3.91% 352  367 
Hill International Spain S.A. - BBVA, S.A. P.P. Term Loan (5)(6)
06/19/2025 Variable 2.28% 2.28% 352  367 
Hill International Spain S.A. - Bankia. S.A. 2020 Term Loan (5)(6)
06/05/2025 Variable 2.54% 2.54% 291  303 
Total notes payable and long-term debt, gross $ 52,935  $ 49,781 
Less: unamortized discount and deferred financing costs related to Société Générale 2017 Term Loan Facility (422) (500)
Notes payable and long-term debt $ 52,513  $ 49,281 
Current portion of notes payable $ 2,351  $ 1,171 
Current portion of unamortized debt discount and deferred financing costs $ (186) $ (184)
Current maturities of notes payable and long-term debt $ 2,165  $ 987 
Notes payable and long-term debt, net of current maturities $ 50,348  $ 48,294 

Footnotes to the Notes Payable and Long-Term Debt Table above:

(1) Interest rates for variable interest rate debt are reflected on a weighted average basis through March 31, 2021 since the loan origination or modification date.

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(2) As of March 31, 2021 and December 31, 2020, the Company had $6,510 and $6,605 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $4,590 and $7,495 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively. The amounts available were based on the maximum borrowing capacity of $28,500 as of March 31, 2021 and December 31, 2020. See 'Secured Credit Facilities' section below for further information.

(3) As of March 31, 2021 and December 31, 2020, the Company had $682 and $2,189 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $1,926 and $1,085 of available borrowing capacity under the International Revolving Credit Facility, respectively. The amounts available were based on the Company's borrowing capacity of $5,837 and $7,309 as of March 31, 2021 and December 31, 2020, respectively. See ''Secured Credit Facilities' section below for further information.

(4) FAB credit facility lender was formerly known as National Bank of Abu Dhabi. There is no stated maturity date, however, the loan is subject to annual review in April of each year, or at any other time as determined by FAB. Therefore, the amount outstanding is reflected within the current maturities of notes payable and long-term debt. Balances outstanding are reflected in U.S. dollars based on the conversion rates from AED as of March 31, 2021 and December 31, 2020. The Company had $1,840 and $3,131 of availability under the credit facility as of March 31, 2021 and December 31, 2020, respectively.

(5) Balances outstanding are reflected in U.S. dollars based on the conversion rates from Euros as of March 31, 2021 and December 31, 2020.

(6) Includes loan agreements, through a subsidiary of the Company, entered into between April and June 2020, where the respective loan agreements require interest-only monthly payments during grace periods that last from six months or one year from the date of the agreements. The variable interest loans are subject to either semi-annual or annual review by the respective lenders thereof and the respective interest rates in respect thereof are determined based on the European Inter-Bank Offered Rate, or “EURIBOR,” for the relevant interest period (or at a substitute rate to be determined to the extent EURIBOR is not available), plus a margin, as set by the respective lender.

Secured Credit Facilities

The Company's secured credit facilities with Société Générale (the "International Lender") and other U.S. Loan Parties (the "U.S. Lenders") under a 2017 Term Loan of $30,000 (the "2017 Term Loan Facility"), a $25,000 U.S.-denominated revolving credit facility (the "Domestic Revolving Credit Facility"; together with the 2017 Term Loan Facility, the "U.S. Credit Facilities") and a €9,156 ($10,000 at closing) Euro-denominated revolving credit facility (the "International Revolving Credit Facility"; together with the U.S. Credit Facilities, the "Secured Credit Facilities") contain customary default provisions, representations and warranties, and affirmative and negative covenants, and require the Company to comply with certain financial and reporting covenants. The financial covenant is comprised of a maximum Consolidated Net Leverage Ratio of 3.00 to 1.00 for any fiscal quarter ending on or subsequent to March 31, 2017 for the trailing twelve months then-ended. The Consolidated Net Leverage Ratio is the ratio of (a) consolidated total debt (minus unrestricted cash and cash equivalents) to consolidated earnings before interest, taxes, depreciation, amortization, share-based compensation and other non-cash charges, including bad debt expense, certain one-time litigation and transaction related expenses, and restructuring charges for the trailing twelve months. In the event of a default, the U.S. Lender and the International Lender may increase the interest rates by 2.0%. The Company was in compliance with this financial covenant at March 31, 2021.

On April 1, 2020, the Company amended its Secured Credit Facilities, which increased the credit commitment with one of the U.S. Lenders under the Domestic Revolving Credit Facility by $3,500 from $25,000 to $28,500 and simultaneously decreased the credit commitment with the International Lender under the International Revolving Credit Facility by €3,179 (approximately $3,500 at closing) from €9,156 (approximately $10,000) to €5,977 (approximately $6,536 at closing).

The aggregate unamortized debt issuance costs under the Domestic Revolving Credit Facility and International Revolving Credit Facility were $615 and $755 at March 31, 2021 and December 31, 2020, respectively, and were included in prepaid expenses and other current assets and other assets in the consolidated balance sheets.

The interest rate on borrowings under the Domestic Revolving Credit Facility are, at the Company’s option, either the LIBOR rate for the relevant interest period plus 3.75% per annum or the Base Rate plus 2.75% per annum. The interest rate on borrowings under the International Revolving Credit Facility will be the EURIBOR for the relevant interest period (or at a substitute rate to be determined to the extent EURIBOR is not available), plus 4.50% per annum.

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Commitment fees are paid quarterly and are calculated at 0.50% annually on the average daily unused portion of the Domestic Revolving Credit Facility, and are calculated at 0.75% annually on the average daily unused portion of the International Revolving Credit Facility.

Generally, the obligations of the Company under the Domestic Revolving Credit Facility are secured by a first-priority security interest in the Eligible Domestic Receivables (as defined in the Domestic Revolving Credit Facility), cash proceeds and bank accounts of the Company and certain of the Company’s U.S. subsidiaries, and a second-priority security interest in substantially all other assets of the Company and such subsidiaries. The obligations of the Subsidiary (as defined in the International Revolving Credit Facility) under the International Revolving Credit Facility are generally secured by a first-priority security interest in substantially all accounts receivable and cash proceeds thereof, certain bank accounts of the Subsidiary and certain of the Company’s non-U.S. subsidiaries, and a second-priority security interest in substantially all other assets of the Company and certain of the Company’s U.S. and non-U.S. subsidiaries.
 
Other Financing Arrangements

On May 1, 2020, subsequent to the maturity of the Company's previous commercial premium financing arrangement in April 30, 2020 with AFCO Premium Credit LLC ("AFCO"), the Company entered into a new financing agreement for the renewal of its corporate insurance policies with AFCO for $3,391. The terms of the arrangement include a $509 down payment, followed by monthly payments to be made over a ten-month period at a 3.04% interest rate through March 31, 2021.

At March 31, 2021 there was no balance payable to AFCO in other current liabilities on the Company's consolidated balance sheets. As of December 31, 2020, there was $872 to AFCO reflected in other current liabilities on the Company's consolidated balance sheets.

Note 10 — Share-Based Compensation

The Company recognized total share-based compensation expense in selling, general and administrative expenses in the consolidated statement of operations of $449 and $399 for the three months ended March 31, 2021 and 2020, respectively. The Company's related share-based compensation is comprised of the following:

Restricted Stock Units

During the three months ended March 31, 2021 and 2020, the Company granted certain employees and executive officers equity awards in the form of restricted stock units ("RSU") that are subject to a combination of time and performance-based conditions under the 2017 Equity Compensation Plan (the "2017 Plan"), totaling 414 and 723 RSUs, respectively. Each RSU entitles the grantee to one unit of the Company's common stock. The time-based RSUs vest annually over a three-year period on the anniversary date of each grant. Unvested time-based RSUs will be forfeited if the grantee separates from the Company prior to its vesting date. During the three months ended March 31, 2021 and 2020, the related compensation expense was recorded based on a weighted average price per share of $2.36 and $3.28, respectively.

The number of common shares to be issued under the performance-based RSUs will be determined based on three levels of performance metrics based on the Company's earnings and will be assessed on an annual basis for the years ended December 31, 2021, 2022 and 2023 for the RSUs granted during the three months ended March 31, 2021 and for the years ended December 31, 2020, 2021 and 2022 for the RSUs granted during three months ended March 31, 2020. If the Company meets the performance metrics for any one of the measurement periods, such units will vest on the next anniversary date of the grant date. All vested RSUs will be settled on the third anniversary of the grant date. Unvested RSUs are subject to forfeiture if the grantee separates from the Company prior to its vesting date. During the three months ended March 31, 2021 and 2020, the Company determined it was not probable that the target performance metric would be met for each of the RSU grants and, therefore, did not record any share-based compensation expense related to such RSUs.

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Deferred Stock Units

Deferred Stock Units ("DSU") issued under the 2017 Plan entitle participants to receive one share of the Company's common stock for each DSU and they will vest immediately upon separation from the Company. The compensation expense related to these units was determined based on the stock price of the Company's common stock on the grant date of the DSUs.

During the three months ended March 31, 2021 and 2020, 591 and 8 DSUs were granted at a weighted average price of $2.36 and $3.18, respectively, which included 585 DSUs granted to executive officers during the three months ended March 31, 2021 that are subject to a combination of time and performance-based conditions that vest over a three-year period. Unvested DSUs are subject to forfeiture if the grantee separates from the Company prior to its vesting date. In addition, the Company granted 6 and 8 DSUs to the Company's board of directors (the "Board") as part of their annual service retainer during the three months ended March 31, 2021 and 2020, respectively.

Stock Options

At March 31, 2021 and 2020, the Company had approximately 1,353 and 1,616 stock options outstanding, respectively, with a weighted average exercise price of $3.87 and $4.03, respectively. No stock options were granted during the three months ended March 31, 2021 and 2020. During the three months ended March 31, 2021 and 2020, options lapsed for approximately 211 and 263 shares, respectively, with a weighted average exercise price of $4.95 and $3.67, respectively.

Note 11 — Income Taxes
 
The Company calculates the interim tax expense based on an annual effective tax rate ("AETR"). The AETR represents the Company’s estimated effective tax rate for the year based on full year projection of tax expense, divided by the projection of full year pretax book income/(loss) among the various foreign tax jurisdictions, adjusted for discrete transactions occurring during the period. The effective tax rates were (71.8)% and (33.3)% for the three months ended March 31, 2021 and 2020, respectively.

The change in the Company’s effective tax rate for the three months ended March 31, 2021 from the three months ended March 31, 2020 was primarily due to the mix of pretax earnings in jurisdictions with different jurisdictional tax rates, as well as not having the ability to benefit from losses in jurisdictions that have a history of negative earnings.

The reserve for uncertain tax positions amounted to $6,425 and $6,328 at March 31, 2021 and December 31, 2020, respectively.
 
The Company’s policy is to record income tax related interest and penalties in income tax expense. The Company recorded expense for any tax-related interest and penalties of $27 and $3 for the three months ended March 31, 2021 and 2020, respectively.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all, or some portion, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Management evaluates the need for valuation allowances on the deferred tax assets according to the provisions of ASC 740, Income Taxes. In making this determination, management assesses all available evidence, both positive and negative, at the balance sheet date. This includes, but is not limited to, recent earnings, internally-prepared income projections, and historical financial performance.

On March 11, 2021 the American Rescue Plan Act was signed into law. The Company is currently evaluating the impact this legislation may have on the consolidated financial results, however the Company does not feel there will be a significant impact.



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Note 12 —Segment and Related Information
 
The Company operates as one reporting segment which reflects how the Company is managed, which provides construction and project management services to construction owners worldwide. Such services include program management, project management, construction management, project management oversight, troubled project turnaround, staff augmentation, project labor agreement consulting, commissioning, estimating and cost management, labor compliance services (collectively, "integrated project management") and facilities management services.

The following tables present certain information for operations:

Total Revenue by Geographic Region: 
  Three Months Ended March 31,
  2021 2020
 
Americas $ 44,569  51.1  % $ 47,191  50.6  %
Middle East/Asia/Pacific 20,075  23.1  % 27,283  29.2  %
Europe 12,620  14.5  % 11,537  12.4  %
Africa 9,822  11.3  % 7,297  7.8  %
Total $ 87,086  100.0  % $ 93,308  100.0  %
 

Consulting Fee Revenue by Geographic Region:
  Three Months Ended March 31,
  2021 2020
 
Americas $ 31,910  44.0  % $ 35,215  45.6  %
Middle East/Asia/Pacific 19,774  27.3  % 24,752  32.1  %
Europe 11,550  16.0  % 10,581  13.7  %
Africa 9,175  12.7  % 6,602  8.6  %
Total $ 72,409  100.0  % $ 77,150  100.0  %

For the three months ended March 31, 2021, the United States and the United Arab Emirates were the only countries to account for 10% or more of total revenue. For the three months ended March 31, 2020, the United States and the United Arab Emirates were the only countries to account for 10% or more of total revenue.

Operating Profit (Loss) by Geographic Region:
  Three Months Ended
March 31,
  2021 2020
 
Americas (1)
$ 4,940  $ 7,145 
Middle East/Asia/Pacific (1)
1,533  1,281 
Europe (1)
1,790  1,697 
Africa 1,055  863 
Corporate (2)
(9,472) (14,851)
Total $ (154) $ (3,865)
    (1) includes Hill's share of loss (profit) of equity method affiliates on the Consolidated Statements of Operations.
(2) includes foreign exchange losses of $287 and $4,051 for the three months ended March 31, 2021 and 2020, respectively.


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Depreciation and Amortization Expense:
  Three Months Ended
March 31,
  2021 2020
Project Management $ 423  $ 364 
Corporate (1)
271  2,060 
Total $ 694  $ 2,424 
(1) includes $1,582 additional depreciation charge for the write-off of leasehold improvements related to the Company subletting office space in Philadelphia to a third party for the three months ended March 31, 2020.

Total Revenue by Client Type: 
  Three Months Ended March 31,
  2021 2020
 
U.S. federal government $ 3,418  3.9  % $ 4,610  4.9  %
U.S. state, regional and local governments 27,729  31.8  % 30,551  32.7  %
Foreign governments 22,860  26.2  % 25,364  27.2  %
Private sector 33,079  38.1  % 32,783  35.2  %
Total $ 87,086  100.0  % $ 93,308  100.0  %

Property, Plant and Equipment, Net, by Geographic Location:
  March 31, 2021 December 31, 2020
 
Americas $ 7,909  $ 7,741 
Middle East/Asia/Pacific 824  917 
Europe 547  544 
Africa 313  241 
Total $ 9,593  $ 9,443 

Note 13 — Commitments and Contingencies
 
Legal Proceedings

From time to time, the Company is a defendant or plaintiff in various legal proceedings which arise in the normal course of business. As such the Company is required to assess the likelihood of any adverse outcomes to these proceedings as well as potential ranges of probable losses. A determination of the amount of the provision required for commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each proceeding. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease the Company’s earnings in the period the changes are made. It is the opinion of management, after consultation with legal counsel, that the ultimate resolution of these proceedings will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
 
Knowles Limited (“Knowles”), a subsidiary of the Company, is a party to an arbitration proceeding instituted on July 8, 2014 in which Knowles claimed that it was entitled to payment for services rendered to Celtic Bioenergy Limited (“Celtic”).  The arbitrator decided in favor of Knowles. The arbitrator’s award was appealed by Celtic to the U.K. High Court of Justice, Queen’s Bench Division, Technology and Construction Court (“Court”). On March 16, 2017, the Court (1) determined that certain relevant facts had been deliberately withheld from the arbitrator by an employee of Knowles and (2) remitted the challenged parts of the arbitrator’s award back to the arbitrator to consider the award in possession of the full facts. In May 2019, Celtic issued a claim against Knowles for negligent application and a hearing was held in December 2019. The arbitration was concluded in August 2020 in Knowles' favor, however, an immaterial cost claim is still under appeal and the Company is still waiting to hear the Court's final decision.
24


Loss on Performance Bond

On February 8, 2018, the Company received notice from the First Abu Dhabi Bank ("FAB", formerly known as the National Bank of Abu Dhabi) that Public Authority of Housing Welfare of Kuwait submitted a claim for payment on a Performance Guarantee issued by the Company for approximately $7,938 for a project located in Kuwait. FAB subsequently issued, on behalf of the Company, a payment on February 15, 2018. The Company is taking legal action to recover the full Performance Guarantee amount. On September 20, 2018 the Kuwait First Instance Court dismissed the Company's case. As a result, the Company fully reserved the performance guarantee payment above in the first quarter of 2018. The Company filed an appeal before the Kuwait Court of Appeals seeking referral of the matter to a panel of experts for determination. On April 21, 2019, the Court of Appeals ruled to refer the matter to the Kuwait Experts Department. Hearings with the Kuwait Experts Department were held during July and September 2019. A final report was issued by the panel of experts in October 2019 for the held hearings on January 7, 2020 and February 4, 2020 and reserved the case for judgment to be issued. In June 2020, the Kuwait Court of Appeal issued judgement confirming the Kuwait First Instance Court's decision. The Company filed a pleading before the Kuwait Cassation Court in August 2020. Hill's challenges are still pending before the Kuwait Cassation Court and a hearing has not yet been scheduled.
Other
 
The Company has identified a potential tax liability related to certain foreign subsidiaries’ failure to comply with laws and regulations of the jurisdictions, outside of their home country, in which their employees provided services. The Company has estimated the potential liability to be approximately $1,314, which is included in other liabilities in the consolidated balance sheet at March 31, 2021.

Note 14 — Leases

The Company leases office space, equipment and vehicles throughout the world. Many of the Company's operating leases include one or more options to renew at the Company's sole discretion. The lease renewal option terms generally range from 1 month to 5 years for office leases. The determination of whether to include any renewal or early termination options is made by the Company at lease inception when establishing the term of the lease. Based on the later of the lease's commencement date or Company's adoption of ASC-842 on January 1, 2019, the Company recognizes right-of use lease assets and lease liabilities on its consolidated balance sheet for all leases in excess of one year in duration. The lease liability represents the present value of the remaining lease payments, which only includes payments that are fixed and determinable at the time of commencement, over the lease term. The lease term may be adjusted for renewal or early termination options provided in the leases only if it is reasonably certain that the Company will exercise such options. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Rent expense for operating leases is recognized on a straight-line basis over the lease term from the lease commencement date through the scheduled expiration date for rent payments that are determined to be fixed, or are determinable at the lease commencement date. Some of the Company's lease arrangements require periodic increases in the Company's base rent that may be subject to certain economic indexes, among other items. In addition, these leases may require the Company to pay property taxes, utilities and other costs related to several of its leased office facilities. Typically, these amounts for such payments cannot be determined at the lease commencement date, and are identified as variable lease payment, which are recognized as incurred.

Total rent expense of $2,138 and $2,307 for the three months ended March 31, 2021 and 2020, respectively, is included in selling, general and administrative and direct expenses in the consolidated statements of operations. Total rent expense for the three months ended March 31, 2021 and 2020 included $489 and $389, respectively, that was associated with leases with an initial term of 12 months or less, in addition to variable costs the Company is responsible for paying on all leases.

The Company subleases certain real estate to third parties. The sublease income recognized for the three months ended March 31, 2021 and 2020 was $368 and $176, respectively.

25

The following is a schedule of maturities of lease liabilities by year as of March 31, 2021:
Total Operating Lease Payments Total Finance Lease Payments
2021 (excluding the three months ended March 31, 2021) $ 4,994  $ 82 
2022 5,989  107 
2023 5,208  107 
2024 4,273  72 
2025 3,471 
Thereafter 7,552  — 
Total minimum lease payments (1)
31,487  373 
Less amount representing imputed interest 5,743 
Present value of lease obligations (2)
$ 25,744  $ 373 
Weighted average remaining lease term (years) 5.55 3.49
Weighted average discount rate 7.09  % 2.16  %
(1) Partially includes rent expense amounts payable in various foreign currencies and are based on the foreign currency exchange spot rates as of March 31, 2021, where applicable.
(2) Includes $1,091 in operating new lease and lease extensions to lease agreements that have been executed, but has not yet commenced, as of March 31, 2021.


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands).

Introduction

The following discussion should be read in conjunction with the information contained in Hill International, Inc.’s (collectively referred to as “Hill”, “we”, “us”, “our” and “the Company”) unaudited consolidated financial statements, including the notes thereto. Statements regarding future economic performance, management's plans and objectives and any statements concerning assumptions related to the foregoing contained in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements. See our Annual Report on Form 10-K, for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the "SEC") on March 16, 2021, including the factors disclosed therein, as well as "Disclosure Regarding Forward-looking Statements" for certain factors that may cause actual results to vary materially from these forward-looking statements. We assume no obligation to update any of these forward-looking statements.

Overview

We earn revenue by deploying professionals to provide services to our clients, including project management, construction management, facilities management and related consulting. These services are primarily delivered on a “cost plus” or “time and materials” ("T&M") basis in which we bill negotiated hourly or monthly rates or a negotiated multiple of the direct cost of these professionals, plus actual out-of-pocket expenses. Our direct expenses are the actual cost of these professionals, including payroll and benefits, except for paid time-off, which is recorded in selling, general and administrative expenses ("SG&A") on our consolidated statements of operations. We also provide services under fixed price contracts and T&M contracts with a cap.

Our revenue consists of two components: consulting fee revenue ("CFR") and reimbursable expenses. The professionals we deploy are occasionally subcontractors. We generally bill the actual cost of these subcontractors and recognize this cost as both revenue (reimbursable expenses) and direct expense. CFR refers to our revenue excluding amounts paid or due to subcontractors. We believe CFR is an important measure because it represents the revenue on which we earn gross profit, whereas total revenue includes subcontractors on which we generally pass through the cost and earn minimal or no gross profit.

We compete for business based on a variety of factors such as technical capability, global resources, price, reputation and past experience, including client requirements for substantial experience in similar projects. We have developed significant long-standing relationships, which bring us repeat business and may be difficult for others to replicate. We believe we have an excellent reputation for attracting and retaining professionals. In addition, we believe there are high barriers to entry for new competitors especially in the project management market.

SG&A consists primarily of personnel costs that are not billable and corporate or regional costs such as sales, business development, proposals, operations, finance, human resources, legal, marketing, management and administration.

The Company operates as a single reporting segment, known as the Project Management Group which provides fee-based construction management services to our clients, leveraging our construction expertise to identify potential trouble, difficulties and sources of delay on a construction project before they develop into costly problems. Our experienced professionals are capable of managing all phases of the construction process from concept through completion, including cost and budget controls, scheduling, estimating, expediting, inspection, contract administration and management of contractors, subcontractors and suppliers.

Impact of COVID-19 on our Business

In December 2019, COVID-19 was identified in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic as a result of the further spread of the virus into all regions of the world, including those regions where our primary operations occur.

We instituted a work-from-home policy for all offices and employees globally in late March 2020, except for field-based employees who normally work on-site at our client’s facilities. These field-based employees are complying with our respective clients’ policies. The majority of our field employees were already located in the regions where they deliver their services, so the travel restrictions that have been enacted by various government authorities have not materially impaired our ability to continue to perform services for our clients. Employees are returning to their assigned offices, on a modified basis, as their city, state and country reopens, consistent with the applicable requirements of local law.

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Most of the projects to which we provide services have been classified as essential services by the relevant governmental authority and as such have continued despite restrictions on the operation of "non-essential" businesses by certain governmental authorities. The majority of our billable employees have continued to provide billable services to our clients, either on-site or remotely at the same or at a slightly reduced volume as in effect prior to the pandemic. We estimate that COVID-19 resulted in loss of CFR of approximately $5.7 million for the three months ended March 31, 2021, exclusive of delayed projects awards and cancellations brought on by the virus.

Nearly all our employees had company laptop computers and the ability to work remotely prior to the institution of our work-at-home policy. The work-at-home policy did not have a significant impact on our employees’ ability to perform their job requirements. Our internal control structure does not generally require physical access to our office locations, and has not to date and is not expected in the future, to be adversely impacted by the pandemic and the corresponding response by certain governmental authorities. Processes that require physical access to our offices, such as receiving mail (including collections) and processing and mailing manual checks, are being performed by designated individuals at a reduced frequency while certain of our offices continue to operate on a limited basis.

The main impacts on our business observed to date other than those discussed above are delays in the procurement processes of a number of our current and potential clients. We expect these delays in the procurement process to adversely impact the timing of our new bookings, resulting in lower bookings, CFR and backlog for the duration of the economic slowdown caused by the pandemic.

Management implemented various actions and policies that resulted in approximately $11,000 in cost reductions to partially offset the reduction in CFR for the year ended December 31, 2020. We expect costs in 2021 to increase modestly in line with an anticipated rebound in activity, as the effects of the COVID-19 pandemic subside and the Company's activity increases. We will continue to manage costs and their association with CFR relative to the continuing effects of the pandemic on our activities.

The full extent and duration of the impact of the pandemic on our operations and financial performance is currently unknown, and depends on future developments that are uncertain and unpredictable, including the institution of new lockdowns by certain government authorities, the duration and spread of the pandemic, its impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions and the actions to contain the virus or treat its impact, among others.

We will continue to evaluate the potential short-term and long-term implications of the COVID-19 pandemic on our consolidated financial statements and operations. The potential additional future impacts to our consolidated financial statements of operations include, but are not limited to: decreased CFR, lower gross and operating margins, impairment of goodwill and indefinite-lived intangible assets and fair value and collectability of receivables.

Any of these outcomes could have a material adverse impact on our business, financial condition, results of operations and cash flows. Management currently believes that it has adequate liquidity and business plans to continue to operate the business and mitigate the continuing risks associated with the COVID-19 pandemic for at least the next 12 months from the date of this report.
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Results of Operations

Consolidated Results
(In thousands)
  Three Months Ended March 31, Change
  2021 2020 $ %
Income Statement Data:
Consulting fee revenue $ 72,409  $ 77,150  $ (4,741) (6.1) %
Reimbursable expenses 14,677  16,158  (1,481) (9.2) %
Total revenue $ 87,086  93,308  $ (6,222) (6.7) %
Direct expenses 59,855  65,048  (5,193) (8.0) %
Gross profit $ 27,231  $ 28,260  $ (1,029) (3.6) %
Selling, general and administrative expenses 27,686  28,098  (412) (1.5) %
Foreign currency exchange loss 287  4,051  (3,764) (92.9) %
Plus: Share of profit of equity method affiliates 588  24  564  2,350.0  %
Operating loss $ (154) $ (3,865) $ 3,711  (96.0) %
Interest and related financing fees, net 1,347  1,299  48  3.7  %
Plus: Other income, net 345  (343) (99.4) %
Loss before income taxes $ (1,499) $ (4,819) $ 3,320  (68.9) %
Income tax expense 1,076  1,603  (527) (32.9) %
Net loss $ (2,575) $ (6,422) $ 3,847  (59.9) %
Less: net earnings - noncontrolling interests 116  159  (43) (27.0) %
Net loss attributable to Hill International, Inc. $ (2,691) $ (6,581) $ 3,890  (59.1) %
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Three Months Ended March 31, 2021 Compared to the
Three Months Ended March 31, 2020
 

Total Revenue by Geographic Region:
  Three Months Ended March 31, Change
  2021 2020 $ %
     
Americas $ 44,569  51.1  % $ 47,191  50.6  % $ (2,622) (5.6) %
Middle East/Asia/Pacific 20,075  23.1  % 27,283  29.2  % (7,208) (26.4) %
Europe 12,620  14.5  % 11,537  12.4  % 1,083  9.4  %
Africa 9,822  11.3  % 7,297  7.8  % 2,525  34.6  %
Total $ 87,086  100.0  % $ 93,308  100.0  % $ (6,222) (6.7) %

Consulting Fee Revenue by Geographic Region:
  Three Months Ended March 31, Change
  2021 2020 $ %
     
Americas $ 31,910  44.0  % $ 35,215  45.6  % $ (3,305) (9.4) %
Middle East/Asia/Pacific 19,774  27.3  % 24,752  32.1  % (4,978) (20.1) %
Europe 11,550  16.0  % 10,581  13.7  % 969  9.2  %
Africa 9,175  12.7  % 6,602  8.6  % 2,573  39.0  %
Total $ 72,409  100.0  % $ 77,150  100.0  % $ (4,741) (6.1) %
     
CFR was $72,409 and $77,150 for the three months ended March 31, 2021 and 2020, respectively, which comprised 83.1% and 82.7% of total revenues, respectively.

The decrease in total revenue and the corresponding decrease in CFR for the three months ended March 31, 2021 compared to the same period in 2020 was primarily due to delayed project starts and project suspensions due to the COVID-19 pandemic.

Gross Profit by Geographic Region:
  Three Months Ended March 31, Change
  2021 2020 $ %
     
% of
CFR
% of
CFR
Americas $ 13,081  48.0  % 41.0  % $ 14,276  50.5  % 40.5  % $ (1,195) (8.4) %
Middle East/Asia/Pacific 6,123  22.5  % 31.0  % 7,233  25.6  % 29.2  % (1,110) (15.3) %
Europe 4,345  16.0  % 37.6  % 3,961  14.0  % 37.4  % 384  9.7  %
Africa 3,682  13.5  % 40.1  % 2,790  9.9  % 42.3  % 892  32.0  %
Total $ 27,231  100.0  % 37.6  % $ 28,260  100.0  % 36.6  % $ (1,029) (3.6) %


Gross profit as a percentage of CFR increased 1% for the three months ended March 31, 2021 compared to the same period in the 2020. In the Americas, gross profit as a percentage of CFR increased as a result of a reduction in direct expenses, primarily labor costs. In the Middle East/Asia/Pacific region, gross profit as a percentage of CFR increased due to a reduction in direct expenses, primarily agency fees and bond charges on certain projects, as well as the liquidation of a bond in 2020 ($350) that did not recur in 2021. These increases were partially off-set by a decrease in gross profit as a percentage of CFR in Africa as a result of the start of a large project with a lower margin.

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SG&A Expenses

SG&A expenses for the three months ended March 31, 2021 decreased approximately $412 when compared to the same period in 2020. The decrease was primarily due to a $1,700 decrease in depreciation expense as a result of an additional depreciation charge for the write-off of leasehold improvements related to the Company subletting office space in Philadelphia to a third party recorded in 2020 which did not recur in 2021. In addition, travel expenses decreased $500 and business development expenses decreased $300 as a result of continued COVID-19 restrictions. Also, audit related fees decreased $500. These decreases were partially offset by a $1,100 increase in indirect labor costs, a $800 increase in legal expense as a result of the settlement and return of previously incurred legal expenses in 2020 which did not recur in 2021, and a $350 increase in insurance expense due to insurance rate increases. SG&A expenses represented approximately 38.2% and 36.4% of CFR for the three months ended March 31, 2021 and 2020, respectively.

Foreign Currency Exchange Loss (Benefit)

There was a foreign currency exchange loss of $287 for the three months ended March 31, 2021 compared to a foreign currency loss of $4,051 for the same period in 2020. The currency exchange loss for three months ended March 31, 2021 was primarily the result of 9% strengthening of the Euro against the U.S. Dollar and currencies pegged to the U.S. Dollar partially offset by a weakening of the Libyan Dinar (68%) and Egyptian Pound (8%) against the Euro. The currency exchange losses for the three months ended March 31, 2020 were primarily caused by a weakening of the Brazilian Real (12%) against the Euro and a weakening of the Turkish Lira (9%) against the Euro, partially offset against the strengthening of the Egyptian pound (15%), during the period.

Interest and Related Financing Fees, net
 
Interest and related financing fees for the three months ended March 31, 2021 were $1,347, net of $21 of interest income, which was consistent with interest and related financing fees for the three months ended March 31, 2020 of $1,299, net of $46 of interest income.

Other (Loss) Income, net

During the three months ended March 31, 2021 and 2020, the Company recognized other non-operating income of $2 and $345, respectively. The $345 in 2020 represented the cancellation of a loan agreement made with the PIDC-Local Development Corporation that was funded to the Company on October 24, 2014 as part of the city of Philadelphia's (the "City") Economic Stimulus Program. In February 2020, the City agreed to cancel this loan as a result of the Company satisfying all obligations upon which cancellation of such debt was conditioned in such loan agreement.

Income Taxes

The effective income tax rate for the three months ended March 31, 2021 and 2020 were (71.8)% and (33.3)%, respectively. The change in our effective tax rate for the three months ended March 31, 2021 was primarily a result of the mix of income among various jurisdictions with different statutory tax rates.

Liquidity and Capital Resources

Our primary cash obligations are our payroll and our project subcontractors. Our primary source of cash is receipts from clients. We generally pay our employees semi-monthly in arrears and invoice our clients monthly in arrears. Our clients generally remit payment approximately three months, on average, after invoice date. This creates a lag between the time we pay our employees and the time we receive payment from our clients. We bill our clients for any subcontractors used and pay those subcontractors after receiving payment from our clients, so no such timing lag exists for the payments we make to subcontractors.

We utilize cash on hand and our revolving credit facilities to fund the working capital requirement caused by the lag discussed above and other operating needs. We believe our expected cash receipts from clients, together with current cash on hand and revolving credit facilities, are sufficient to support the reasonably anticipated cash needs of our operations over the next twelve months from May 10, 2021, the date of this report.

A number of our public sector clients fund their projects through annual calendar-year budget allocations. The budget approval, allocation and funding process results in delayed collections from certain of these clients negatively impacting our cash flow for the first quarter. This negative cash flow is generally reversed during subsequent quarters during the year.

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At March 31, 2021, our primary sources of liquidity consisted of $18,935 of cash and cash equivalents, of which $15,951 was on deposit in foreign locations, and $8,356 of available borrowing capacity under our various credit facilities. We also have relationships with other foreign banks for the issuance of letters of credit, letters of guarantee and performance bonds in a variety of foreign currencies. At March 31, 2021, we had approximately $51,480 of availability under these arrangements. Our sources of liquidity under arrangements with foreign banks are available for repatriation as deemed necessary by us, with some restrictions and tax implications.

Please see "Impact of COVID-19 on our Business" above for our discussion about the impact of COVID-19 on liquidity.

Sources of Additional Capital

A significant increase in our current backlog or impacts on our liquidity from the COVID-19 pandemic may require us to obtain additional financing. If additional financing is required in the future due to an increase in backlog, impacts from the COVID-19 pandemic or changes in strategic or operating plans, we cannot provide any assurance that any other sources of financing will be available, or if available, that the financing will be on terms acceptable to us.

Cash Flows
Three Months Ended March 31,
2021 Change 2020
Net cash used in operating activities $ (16,726) $ (5,794) $ (10,932)
Net cash used in investing activities (812) 21  (833)
Net cash provided by financing activities 3,382  (7,407) 10,789 
Effect of exchange rate changes on cash, cash equivalents and restricted cash (541) (28) (513)
Net decrease in cash, cash equivalents and restricted cash $ (14,697) $ (1,489)

Operating activities

During the three months ended March 31, 2021, cash used in operating activities was primarily due to increases in accounts receivable related to normal first quarter lower collections as many of our public sector clients await new funding to become available in the new year as well as the timing of payments to vendors and subcontractors. Additionally, the continuing effect of COVID-19 delayed the execution of documentation required for certain clients to remit payments totaling approximately $10 million, the majority of which has been subsequently collected with the remainder expected to be collected during the three months ending June 30, 2021. For the three months ended March 31, 2020, cash used in operating activities was primarily due to increases in accounts receivable related to normal first quarter lower collections as many of our public sector clients await new funding to become available in the new year. We believe we also experienced a slowing of collections towards the end of the three months ended March 31, 2020 due to the impact of COVID-19 discussed above under the Impact of COVID-19 on our business.

Cash held in restricted accounts is used primarily as collateral for the issuance of performance and advance payment bonds, letters of credit and escrow. Restricted cash increased from $7,184 at December 31, 2020 to $7,781 at March 31, 2021, primarily due to the issuance of new collateral.

We manage our operating cash flows by managing key working capital accounts in total. The primary elements of our working capital are accounts receivable, prepaid and other current assets, and accounts payable. 

From year to year, the components of our working capital accounts may reflect significant changes. The changes are due primarily to the timing of cash receipts and payments within our working capital accounts combined with changes in our receivables and payables relative to the changes in our overall business.

Investing activities

During the three months ended March 31, 2021 and 2020, cash was used in investing activities for the purchase of fixed assets.
32


Financing activities

During the three months ended March 31, 2021 and 2020, cash provided by financing activities was used to fund the ongoing operating activities.

Effect of exchange rate changes on cash

For the three months ended March 31, 2021, the effects of exchange rate changes on cash was primarily driven by the weakening of the Libyan Dinar (69.3%) against the Euro and the weakening of the Euro (4%) against the U.S. Dollar.

For the three months ended March 31, 2020 the effects of exchange rate changes on cash was primarily driven by the weakening of the Turkish Lira (9.4%), Brazilian Real (22.5%) and Polish Zloty (8.25%) against the U.S. Dollar.

Backlog
 
Our backlog represents CFR, which includes management’s estimate of the amount of contracts and awards in-hand that we expect to recognize as CFR in future periods as a component of total revenue. Our backlog is evaluated by management, on a project-by-project basis, and is reported for each period shown 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.
 
Backlog is not a measure defined in U.S. generally accepted accounting principles, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog.
 
Although backlog reflects business that we consider to be firm, cancellations or scope adjustments may occur. Further, substantially all of our contracts with our clients may be terminated at will, in which case the client would only be obligated to us for services provided through the termination date.

We adjust backlog to reflect project cancellations, deferrals and revisions in scope and cost (both upward and downward) known at the reporting date. Future contract modifications or cancellations, however, may increase or reduce backlog and future CFR.

The following tables show our backlog by geographic region:
  Total Backlog 12-Month Backlog
March 31, 2021        
Americas $ 291,693  42.9  % $ 108,260  43.9  %
Middle East/Asia/Pacific 157,002  23.0  % 68,768  27.8  %
Europe 97,716  14.3  % 36,390  14.7  %
Africa 134,914  19.8  % 33,590  13.6  %
Total $ 681,325  100.0  % $ 247,008  100.0  %
December 31, 2020        
Americas $ 276,752  41.6  % $ 105,721  45.2  %
Middle East/Asia/Pacific 160,211  24.0  % 66,407  28.3  %
Europe 105,478  15.8  % 37,062  15.8  %
Africa 124,273  18.6  % 25,187  10.7  %
Total $ 666,714  100.0  % $ 234,377  100.0  %

At March 31, 2021, our backlog was $681,325 compared to $666,714 at December 31, 2020. The March 31, 2021 increase in backlog was primarily related to contract extensions in Africa and the Americas. We estimate that approximately $247,008 or 36.3% of the backlog at March 31, 2021, will be recognized over the next twelve months.

33

The amount of our new bookings, before any cancellations or other reductions, was $91,506 and equates to a book-to-burn ratio of 126.4% for the three months ended March 31, 2021. Our book-to-burn ratio, a non-GAAP measure, is determined by taking our new CFR bookings and dividing it by CFR for the applicable period. This metric allows management to monitor the Company's business development efforts to ensure we grow our backlog and our business over time and management believes that this measure is useful to investors for the same reason.

The difference between the remaining performance obligations of $75,776 and the backlog of $681,325 at March 31, 2021 is due to the backlog including the full value of client contracts billed on a time and materials basis, which contracts, are not included as part of the remaining performance obligation. Such contracts are excluded from the remaining performance obligation because they are not fixed price contracts and the consideration expected under such contracts is variable as it is based upon hours and costs incurred, which results in the counter-party only being obligated to the Company for services provided through the completion or termination date.

Quarterly Fluctuations
 
Our operating results vary from period to period as a result of the timing of projects and assignments. We do not believe that our business is seasonal.

Inflation
 
Although we are subject to fluctuations in the local currencies of the countries in which we operate, we do not believe that inflation will have a significant effect on our results of operations or our financial position.

Critical Accounting Policies
 
The Company’s interim financial statements were prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"), which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting these judgments increases, such judgments become even more subjective. While management believes its assumptions are reasonable and appropriate, actual results may be materially different than estimated. The critical accounting estimates and assumptions have not materially changed from those identified in the Company’s 2020 Annual Report on Form 10-K.

New Accounting Pronouncements

For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 3 to the consolidated financial statements filed herein.

Item 3.          Quantitative and Qualitative Disclosures About Market Risk.
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to
provide the information under this item.
34

Item 4.   Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2021. Management concluded that, due to the on-going remediation associated with the material weakness identified in our 2020 Annual Report on Form 10-K (“2020 Form 10-K"), our disclosure controls and procedures were ineffective as of March 31, 2021 to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.
 
Exchange Act Rules 13a-15(e) and 15d-15(e) define “disclosure controls and procedures” to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
 
For a more comprehensive discussion of the material weaknesses in internal control over financial reporting previously identified by management as of December 31, 2020 and the remedial measures undertaken to address these material weaknesses, investors are encouraged to review Item 9A, Disclosure Controls and Procedures, of our 2020 Form 10-K.
 
Changes in Internal Control Over Financial Reporting
 
Our remediation efforts for material weaknesses previously reported were ongoing during the three months ended March 31, 2021, as described in Item 9A of our 2020 Annual Report on Form 10-K. There were no other material changes in our internal control over financial reporting that occurred during the three months ended March 31, 2021 that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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Part II — OTHER INFORMATION 

Item 1.  Legal Proceedings.
 
Information required by this item is incorporated by reference to Part I, item 1, Note 13 — Commitments and Contingencies, Legal Proceedings.

Item 1A.  Risk Factors.
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to
provide the information under this item.


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
 
None. 

Item 3.  Defaults Upon Senior Securities.
 
None. 

Item 4.  Mine Safety Disclosures.
 
Not applicable. 

Item 5.  Other Information.
 
None. 

Item 6.   Exhibits.