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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
or
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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)
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Delaware |
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20-0953973 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
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One Commerce Square |
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2005 Market Street, 17th Floor |
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Philadelphia, PA
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19103 |
(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code:
(215) 309-7700
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, par value $0.0001 |
HIL |
New York Stock Exchange ("NYSE")
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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 56,677,873 shares of the Registrant’s Common Stock
outstanding at October 28, 2021.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Form 10-Q
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 other than as required by law.
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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
Assets |
|
(Unaudited) |
|
|
Cash and cash equivalents |
|
$ |
26,293 |
|
|
$ |
34,229 |
|
Cash - restricted |
|
3,811 |
|
|
3,752 |
|
Accounts receivable, net |
|
115,049 |
|
|
98,186 |
|
Current portion of retainage receivable |
|
11,813 |
|
|
11,775 |
|
Accounts receivable - affiliates |
|
29,013 |
|
|
23,285 |
|
Prepaid expenses and other current assets |
|
13,494 |
|
|
9,378 |
|
Income tax receivable |
|
1,026 |
|
|
2,298 |
|
|
|
|
|
|
Total current assets |
|
200,499 |
|
|
182,903 |
|
Property and equipment, net |
|
8,816 |
|
|
9,443 |
|
Cash - restricted, net of current portion |
|
3,069 |
|
|
3,432 |
|
Operating lease right-of-use assets |
|
17,908 |
|
|
13,116 |
|
Financing lease right-of-use assets |
|
692 |
|
|
288 |
|
Retainage receivable |
|
6,988 |
|
|
6,044 |
|
Acquired intangibles, net |
|
2,767 |
|
|
2,253 |
|
Goodwill |
|
44,903 |
|
|
46,397 |
|
Investments |
|
2,511 |
|
|
2,805 |
|
Deferred income tax assets |
|
3,880 |
|
|
3,698 |
|
Other assets |
|
2,268 |
|
|
1,620 |
|
|
|
|
|
|
Total assets |
|
$ |
294,301 |
|
|
$ |
271,999 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
Current maturities of notes payable and long-term debt |
|
$ |
22,780 |
|
|
$ |
987 |
|
Accounts payable and accrued expenses |
|
80,230 |
|
|
67,797 |
|
Income taxes payable |
|
1,021 |
|
|
2,219 |
|
Current portion of deferred revenue |
|
4,339 |
|
|
3,305 |
|
Current portion of operating lease liabilities |
|
4,937 |
|
|
4,797 |
|
Current portion of financing lease liabilities |
|
202 |
|
|
70 |
|
Other current liabilities |
|
9,264 |
|
|
5,796 |
|
|
|
|
|
|
Total current liabilities |
|
122,773 |
|
|
84,971 |
|
Notes payable and long-term debt, net of current
maturities |
|
29,442 |
|
|
48,294 |
|
Retainage payable |
|
285 |
|
|
600 |
|
Deferred income taxes |
|
1,299 |
|
|
1,210 |
|
Deferred revenue |
|
7,527 |
|
|
7,488 |
|
Non-current operating lease liabilities |
|
18,393 |
|
|
13,184 |
|
Non-current financing lease liabilities |
|
502 |
|
|
186 |
|
Other liabilities |
|
7,253 |
|
|
6,778 |
|
|
|
|
|
|
Total liabilities |
|
187,474 |
|
|
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, 63,249
shares and 62,920 shares issued at September 30, 2021 and December
31, 2020, respectively
|
|
6 |
|
|
6 |
|
Additional paid-in capital |
|
216,942 |
|
|
215,010 |
|
Accumulated deficit |
|
(81,467) |
|
|
(79,542) |
|
Accumulated other comprehensive (loss) income |
|
(66) |
|
|
1,318 |
|
Less treasury stock of 6,807 at September 30, 2021 and December 31,
2020
|
|
(29,056) |
|
|
(29,056) |
|
Hill International, Inc. share of equity |
|
106,359 |
|
|
107,736 |
|
Noncontrolling interests |
|
468 |
|
|
1,552 |
|
Total equity |
|
106,827 |
|
|
109,288 |
|
Total liabilities and stockholders’ equity |
|
$ |
294,301 |
|
|
$ |
271,999 |
|
See accompanying notes to consolidated financial
statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Consulting fee revenue |
|
$ |
77,061 |
|
|
$ |
71,543 |
|
|
$ |
227,158 |
|
|
$ |
224,453 |
|
Reimbursable expenses |
|
19,543 |
|
|
17,109 |
|
|
58,079 |
|
|
51,956 |
|
Total revenue |
|
$ |
96,604 |
|
|
$ |
88,652 |
|
|
$ |
285,237 |
|
|
$ |
276,409 |
|
Direct expenses |
|
64,196 |
|
|
59,998 |
|
|
194,314 |
|
|
190,078 |
|
Gross profit |
|
$ |
32,408 |
|
|
$ |
28,654 |
|
|
$ |
90,923 |
|
|
$ |
86,331 |
|
Selling, general and administrative expenses |
|
28,121 |
|
|
25,588 |
|
|
82,906 |
|
|
80,543 |
|
Foreign currency exchange loss (benefit) |
|
511 |
|
|
(694) |
|
|
2,751 |
|
|
3,622 |
|
Plus: Share of profit of equity method affiliates |
|
551 |
|
|
983 |
|
|
1,805 |
|
|
2,021 |
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
4,327 |
|
|
$ |
4,743 |
|
|
$ |
7,071 |
|
|
$ |
4,187 |
|
Less: Interest and related financing fees, net |
|
1,226 |
|
|
1,275 |
|
|
4,077 |
|
|
3,870 |
|
Less: Other loss, net |
|
— |
|
|
152 |
|
|
— |
|
|
3,654 |
|
Earnings (loss) before income taxes |
|
$ |
3,101 |
|
|
$ |
3,316 |
|
|
$ |
2,994 |
|
|
$ |
(3,337) |
|
Income tax expense |
|
1,784 |
|
|
1,071 |
|
|
4,653 |
|
|
2,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
1,317 |
|
|
$ |
2,245 |
|
|
$ |
(1,659) |
|
|
$ |
(6,113) |
|
Less: net earnings - noncontrolling interests |
|
58 |
|
|
131 |
|
|
265 |
|
|
308 |
|
Net earnings (loss) attributable to Hill International,
Inc. |
|
$ |
1,259 |
|
|
$ |
2,114 |
|
|
$ |
(1,924) |
|
|
$ |
(6,421) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share - Hill International,
Inc. |
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
(0.03) |
|
|
$ |
(0.11) |
|
Basic weighted average common shares outstanding |
|
57,245 |
|
|
56,702 |
|
|
57,102 |
|
|
56,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share - Hill International,
Inc. |
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
(0.03) |
|
|
$ |
(0.11) |
|
Diluted weighted average common shares outstanding |
|
57,245 |
|
|
56,702 |
|
|
57,102 |
|
|
56,551 |
|
See accompanying notes to consolidated financial
statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(LOSS)
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Net earnings (loss) |
|
$ |
1,317 |
|
|
$ |
2,245 |
|
|
$ |
(1,659) |
|
|
$ |
(6,113) |
|
Foreign currency translation adjustment, net of tax |
|
(1,177) |
|
|
639 |
|
|
(2,733) |
|
|
5,385 |
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) |
|
140 |
|
|
2,884 |
|
|
(4,392) |
|
|
(728) |
|
Less: Comprehensive (loss) earnings attributable to noncontrolling
interests |
|
(32) |
|
|
376 |
|
|
(1,084) |
|
|
203 |
|
Comprehensive earnings (loss) attributable to Hill
International, Inc. |
|
$ |
172 |
|
|
$ |
2,508 |
|
|
$ |
(3,308) |
|
|
$ |
(931) |
|
See accompanying notes to consolidated financial
statements.
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 |
|
|
$ |
6 |
|
|
$ |
215,010 |
|
|
$ |
(79,542) |
|
|
$ |
1,318 |
|
|
6,807 |
|
|
$ |
(29,056) |
|
|
$ |
107,736 |
|
|
$ |
1,552 |
|
|
$ |
109,288 |
|
Net earnings (loss) |
|
— |
|
|
— |
|
|
— |
|
|
(3,184) |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,184) |
|
|
207 |
|
|
(2,977) |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(297) |
|
|
— |
|
|
— |
|
|
(297) |
|
|
(1,259) |
|
|
(1,556) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
270 |
|
|
— |
|
|
1,371 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,371 |
|
|
— |
|
|
1,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under employee stock purchase plan |
|
44 |
|
|
— |
|
|
95 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
95 |
|
|
— |
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2021 |
|
63,234 |
|
|
$ |
6 |
|
|
$ |
216,476 |
|
|
$ |
(82,726) |
|
|
$ |
1,021 |
|
|
6,807 |
|
|
$ |
(29,056) |
|
|
$ |
105,721 |
|
|
$ |
500 |
|
|
$ |
106,221 |
|
Net earnings |
|
— |
|
|
— |
|
|
— |
|
|
1,259 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,259 |
|
|
58 |
|
|
1,317 |
|
Other comprehensive loss |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,087) |
|
|
— |
|
|
— |
|
|
(1,087) |
|
|
(90) |
|
|
(1,177) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
3 |
|
|
— |
|
|
443 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
443 |
|
|
— |
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued under employee stock purchase plan |
|
12 |
|
|
— |
|
|
23 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
23 |
|
|
— |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2021 |
|
63,249 |
|
|
$ |
6 |
|
|
$ |
216,942 |
|
|
$ |
(81,467) |
|
|
$ |
(66) |
|
|
6,807 |
|
|
$ |
(29,056) |
|
|
$ |
106,359 |
|
|
$ |
468 |
|
|
$ |
106,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2019 |
|
62,708 |
|
|
$ |
6 |
|
|
$ |
212,759 |
|
|
$ |
(71,360) |
|
|
$ |
(3,817) |
|
|
6,546 |
|
|
$ |
(28,231) |
|
|
$ |
109,357 |
|
|
$ |
871 |
|
|
$ |
110,228 |
|
Net earnings (loss) |
|
— |
|
|
— |
|
|
— |
|
|
(8,535) |
|
|
— |
|
|
— |
|
|
— |
|
|
(8,535) |
|
|
177 |
|
|
(8,358) |
|
Other comprehensive income (loss) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,096 |
|
|
— |
|
|
— |
|
|
5,096 |
|
|
(350) |
|
|
4,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
— |
|
|
— |
|
|
1,201 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,201 |
|
|
— |
|
|
1,201 |
|
Shares issued under employee stock purchase plan |
|
162 |
|
|
— |
|
|
201 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
201 |
|
|
— |
|
|
201 |
|
Transfer of shares pledged as collateral
(1)
|
|
(261) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
261 |
|
|
(825) |
|
|
(825) |
|
|
— |
|
|
(825) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - June 30, 2020 |
|
62,609 |
|
|
$ |
6 |
|
|
$ |
214,161 |
|
|
$ |
(79,895) |
|
|
$ |
1,279 |
|
|
6,807 |
|
|
$ |
(29,056) |
|
|
$ |
106,495 |
|
|
$ |
698 |
|
|
$ |
107,193 |
|
Net earnings |
|
— |
|
|
— |
|
|
— |
|
|
2,114 |
|
|
— |
|
|
— |
|
|
— |
|
|
2,114 |
|
|
131 |
|
|
2,245 |
|
Other comprehensive income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
394 |
|
|
— |
|
|
— |
|
|
394 |
|
|
245 |
|
|
639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
— |
|
|
— |
|
|
415 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
415 |
|
|
— |
|
|
415 |
|
Shares issued under employee stock purchase plan |
|
16 |
|
|
— |
|
|
20 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
20 |
|
|
— |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2020 |
|
62,916 |
|
|
$ |
6 |
|
|
$ |
214,596 |
|
|
$ |
(77,781) |
|
|
$ |
1,673 |
|
|
6,807 |
|
|
$ |
(29,056) |
|
|
$ |
109,438 |
|
|
$ |
1,074 |
|
|
$ |
110,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) 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.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
Cash flows from operating activities: |
|
|
|
|
Net loss |
|
$ |
(1,659) |
|
|
$ |
(6,113) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by (used
in): |
|
|
|
|
Depreciation and amortization |
|
1,856 |
|
|
3,380 |
|
Recovery of bad debts |
|
(2,794) |
|
|
(1,306) |
|
Amortization of deferred loan fees |
|
568 |
|
|
521 |
|
Deferred tax expense |
|
(120) |
|
|
500 |
|
Share-based compensation |
|
1,814 |
|
|
1,616 |
|
Operating lease right-of-use assets |
|
3,306 |
|
|
3,163 |
|
Loss on liquidation of subsidiary |
|
— |
|
|
4,064 |
|
Foreign currency remeasurement losses |
|
2,510 |
|
|
3,622 |
|
Deferred payroll tax payments |
|
— |
|
|
2,711 |
|
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
|
(15,521) |
|
|
4,686 |
|
Accounts receivable - affiliate |
|
(5,728) |
|
|
(6,294) |
|
Prepaid expenses and other current assets |
|
(3,951) |
|
|
(2,418) |
|
Income taxes receivable |
|
1,232 |
|
|
39 |
|
Retainage receivable |
|
(953) |
|
|
(416) |
|
Other assets |
|
(1,926) |
|
|
(2,643) |
|
Accounts payable and accrued expenses |
|
13,181 |
|
|
1,641 |
|
Income taxes payable |
|
(1,202) |
|
|
(1,161) |
|
Deferred revenue |
|
1,482 |
|
|
(2,451) |
|
Operating lease liabilities |
|
(2,698) |
|
|
(3,259) |
|
Other current liabilities |
|
3,432 |
|
|
3,426 |
|
Retainage payable |
|
(314) |
|
|
(730) |
|
|
|
|
|
|
Other liabilities |
|
492 |
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
(6,993) |
|
|
3,266 |
|
Cash flows from investing activities: |
|
|
|
|
Purchase of NEYO Group |
|
(681) |
|
|
— |
|
|
|
|
|
|
Purchase of property and equipment |
|
(1,197) |
|
|
(1,101) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
(1,878) |
|
|
(1,101) |
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from term loans |
|
— |
|
|
1,291 |
|
Repayment of term loans |
|
(802) |
|
|
(666) |
|
Proceeds from revolving loans |
|
29,785 |
|
|
38,486 |
|
Repayment of revolving loans |
|
(25,816) |
|
|
(24,268) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock issued under employee stock purchase
plan |
|
118 |
|
|
221 |
|
|
|
|
|
|
Net cash provided by financing activities |
|
3,285 |
|
|
15,064 |
|
Effect of exchange rate changes on cash, cash equivalents and
restricted cash |
|
(2,654) |
|
|
(97) |
|
Deconsolidated cash |
|
— |
|
|
9 |
|
Net (decrease) increase in cash, cash equivalents and restricted
cash |
|
(8,240) |
|
|
17,123 |
|
Cash, cash equivalents and restricted cash — beginning of
period |
|
41,413 |
|
|
24,982 |
|
Cash, cash equivalents and restricted cash — end of
period |
|
$ |
33,173 |
|
|
$ |
42,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
Supplemental disclosures of cash flow information: |
|
2021 |
|
2020 |
Interest and related financing fees paid |
|
$ |
3,520 |
|
|
$ |
2,722 |
|
Income taxes paid |
|
3,830 |
|
|
2,018 |
|
Transfer of proceeds from shares pledged as collateral to treasury
stock |
|
— |
|
|
825 |
|
Cash paid for amounts included in the measurement of lease
liabilities |
|
4,897 |
|
|
5,914 |
|
Right-of-use assets obtained in exchange for operating lease
liabilities |
|
8,568 |
|
|
288 |
|
Right-of-use assets obtained in exchange for finance lease
liabilities |
|
538 |
|
|
475 |
|
See accompanying notes to consolidated financial
statements.
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 September 30, 2021 and December 31, 2020, the Company's
principal sources of liquidity consisted of $26,293 and $34,229 of
cash and cash equivalents, respectively, $4,591 and $7,495 of
available borrowing capacity under the Domestic Revolving Credit
Facility, respectively, $1,614 and $1,085 of available borrowing
capacity under the International Revolving Credit Facility,
respectively, and $6,131 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 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. Variants of the virus continue
to emerge in various region and countries worldwide. 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 November 8, 2021, the date of this
filing. Additional disclosure on the impact of COVID-19 on the
Company is included in Part I. Item 2 Management's Discussion and
Analysis 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,
the accompanying unaudited interim consolidated financial
statements 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.
NEYO Group Acquisition
On June 30, 2021, the Company acquired all of the equity interests
of NEYO Group, a 120-person firm specializing in cost management
and estimating support and also providing project management,
project monitoring, and other services. NEYO maintains offices in
Bangalore, Chennai, Delhi, and Mumbai, as well as project offices
in Hyderabad, Pune, and Kolkata.
Reclassification
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 and nine months ended September
30, 2020 has been recast to conform to current year
presentation.
Other Loss, net
During the nine months ended September 30, 2020, a loss of $4,064
was recognized due to the bankruptcy filing and deconsolidation of
our operating subsidiary in Brazil (see Note 15), net of other
non-operating income of $65. An additional $345 of other income was
recognized during the three months ended March 31, 2020,
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 income (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
income (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 and nine months ended September 30, 2021 or
2020.
There was one client in Africa who represents 10% or more to gross
accounts receivable at September 30, 2021 and December 31,
2020, respectively, which represents 14% and 16% of the gross
accounts receivable balance at September 30, 2021 and December
31, 2020, respectively. These amounts were fully reserved for at
September 30, 2021 and December 31, 2020.
(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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
Cash and cash equivalents |
|
$ |
26,293 |
|
|
$ |
34,229 |
|
Cash - restricted |
|
3,811 |
|
|
3,752 |
|
Cash - restricted, net of current portion |
|
3,069 |
|
|
3,432 |
|
Total cash, cash equivalents and restricted cash shown in the
consolidated statements of cash flows |
|
$ |
33,173 |
|
|
$ |
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 and 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 1,589 shares at September 30, 2021 and 2020,
respectively. In addition, the Company had 1,038 and 715 restricted
and deferred stock units outstanding at September 30, 2021 and
2020, respectively. These awards were excluded from the calculation
of diluted loss per share for the three and nine months ended
September 30, 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 September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Net earnings (loss) |
|
$ |
1,317 |
|
|
$ |
2,245 |
|
|
$ |
(1,659) |
|
|
$ |
(6,113) |
|
Less: net earnings - noncontrolling interests |
|
58 |
|
|
131 |
|
|
265 |
|
|
308 |
|
Net earnings (loss) attributable to Hill International,
Inc. |
|
$ |
1,259 |
|
|
$ |
2,114 |
|
|
$ |
(1,924) |
|
|
$ |
(6,421) |
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
57,245 |
|
|
56,702 |
|
|
57,102 |
|
|
56,551 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Stock options |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Unvested share-based compensation units |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Diluted weighted average common shares outstanding |
|
57,245 |
|
|
56,702 |
|
|
57,102 |
|
|
56,551 |
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per common share - Hill
International, Inc. |
|
$ |
0.02 |
|
|
$ |
0.04 |
|
|
$ |
(0.03) |
|
|
$ |
(0.11) |
|
(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.
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 for contract renegotiation's 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.
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.
The components of the Company’s revenue by contract type and
geographic region for the three and nine months ended
September 30, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021 |
|
Three Months Ended September 30, 2020 |
|
|
Fixed Price |
|
T&M |
|
Total |
|
Percent of Total Revenue |
|
Fixed Price |
|
T&M |
|
Total |
|
Percent of Total Revenue |
Americas |
|
$ |
5,398 |
|
|
$ |
45,964 |
|
|
$ |
51,362 |
|
|
53.1 |
% |
|
$ |
5,046 |
|
|
$ |
43,149 |
|
|
$ |
48,195 |
|
|
54.4 |
% |
Middle East/Asia/Pacific |
|
773 |
|
|
20,848 |
|
|
21,621 |
|
|
22.4 |
% |
|
7,655 |
|
|
15,074 |
|
|
22,729 |
|
|
25.6 |
% |
Europe |
|
10,898 |
|
|
2,999 |
|
|
13,897 |
|
|
14.4 |
% |
|
7,387 |
|
|
4,078 |
|
|
11,465 |
|
|
12.9 |
% |
Africa |
|
1,125 |
|
|
8,599 |
|
|
9,724 |
|
|
10.1 |
% |
|
(75) |
|
|
6,338 |
|
|
6,263 |
|
|
7.1 |
% |
Total |
|
$ |
18,194 |
|
|
$ |
78,410 |
|
|
$ |
96,604 |
|
|
100.0 |
% |
|
$ |
20,013 |
|
|
$ |
68,639 |
|
|
$ |
88,652 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2021 |
|
Nine Months Ended September 30, 2020 |
|
|
Fixed Price |
|
T&M |
|
Total |
|
Percent of Total Revenue |
|
Fixed Price |
|
T&M |
|
Total |
|
Percent of Total Revenue |
Americas |
|
$ |
14,778 |
|
|
$ |
132,923 |
|
|
$ |
147,701 |
|
|
51.7 |
% |
|
$ |
15,736 |
|
|
$ |
130,094 |
|
|
$ |
145,830 |
|
|
52.8 |
% |
Middle East/Asia/Pacific |
|
7,000 |
|
|
56,320 |
|
|
63,320 |
|
|
22.2 |
% |
|
16,481 |
|
|
55,846 |
|
|
72,327 |
|
|
26.2 |
% |
Europe |
|
25,247 |
|
|
19,695 |
|
|
44,942 |
|
|
15.8 |
% |
|
25,566 |
|
|
11,868 |
|
|
37,434 |
|
|
13.5 |
% |
Africa |
|
2,027 |
|
|
27,247 |
|
|
29,274 |
|
|
10.3 |
% |
|
201 |
|
|
20,617 |
|
|
20,818 |
|
|
7.5 |
% |
Total |
|
$ |
49,052 |
|
|
$ |
236,185 |
|
|
$ |
285,237 |
|
|
100.0 |
% |
|
$ |
57,984 |
|
|
$ |
218,425 |
|
|
$ |
276,409 |
|
|
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.
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 September 30, 2021 and 2020 that was included in the deferred
revenue balance at the beginning of the periods was $456 and $579,
respectively. The amount of revenue recognized during the nine
months ended September 30, 2021 and 2020 that was included in the
deferred revenue balance at the beginning of the periods was $4,051
and $571, 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 September 30,
2021 and December 31, 2020, the aggregate amount of the
transaction price allocated to remaining performance obligations
was $92,155 and $101,800, respectively. During the
following 12 months, approximately 58.8% of the remaining
performance obligations are expected to be recognized as revenue
with the remaining balance recognized over 1 to 6
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 |
|
September 30, 2021 |
|
December 31, 2020 |
Billed
(1)
|
|
$ |
104,228 |
|
|
$ |
113,021 |
|
|
|
|
|
|
Unbilled
(2)
|
|
51,719 |
|
|
37,960 |
|
|
|
155,947 |
|
|
150,981 |
|
Allowance for doubtful accounts
(1)
|
|
(40,898) |
|
|
(52,795) |
|
Accounts receivable, net |
|
$ |
115,049 |
|
|
$ |
98,186 |
|
|
|
|
|
|
Accounts Receivable - Affiliates |
|
|
|
|
Billed
(3)
|
|
$ |
14,776 |
|
|
$ |
15,560 |
|
Unbilled
(2)
|
|
14,938 |
|
|
8,380 |
|
|
|
$ |
29,714 |
|
|
$ |
23,940 |
|
Allowance for doubtful accounts |
|
(701) |
|
|
(655) |
|
Accounts receivable - affiliates, net |
|
$ |
29,013 |
|
|
$ |
23,285 |
|
(1) Includes $24,025 and $33,242 related to amounts due from a
client in Libya as of September 30, 2021 and December 31,
2020, respectively, which where both fully reserved for in the
allowance for doubtful accounts. The decrease in the balance at
September 30, 2021 from December 31, 2020 is primarily due to
the devaluation of the Libyan Dinar.
(2) Amounts are net of unbilled reserves.
(3) Includes $1,568 and $1,303 of retainage receivables due from
affiliates as of September 30, 2021 and December 31, 2020,
respectively.
Note 6 — Intangible Assets
The following table summarizes the Company’s acquired intangible
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
|
|
|
|
|
|
|
|
Engineering license |
|
$ |
2,653 |
|
|
$ |
— |
|
|
$ |
2,100 |
|
|
$ |
— |
|
Client relationships |
|
509 |
|
|
395 |
|
|
509 |
|
|
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,162 |
|
|
$ |
395 |
|
|
$ |
2,609 |
|
|
$ |
356 |
|
|
|
|
|
|
|
|
|
|
Intangible assets, net |
|
$ |
2,767 |
|
|
|
|
$ |
2,253 |
|
|
|
During the year ended December 31, 2020, the Company acquired a
Grandfathered Engineering Corporation 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 for the three months ended September 30, 2021 and 2020
and $38 and $67 for the nine months ended September 30, 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 3 months) |
|
$ |
13 |
|
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 nine months ended
September 30, 2021:
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
$ |
46,397 |
|
Additions
(1)
|
162 |
|
Translation adjustments
(2)
|
(1,656) |
|
Balance, September 30, 2021 |
$ |
44,903 |
|
(1) Refer to Note 3 - Basis of Presentation,
NEYO Group Acquisition
subsection.
(2) The translation adjustment was calculated based on the foreign
currency exchange rates as of September 30, 2021.
The Company performed its 2021 annual impairment test effective
July 1, 2021 and noted no impairment. Based on the valuation
as of July 1, 2021, 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.
Note 8 — Accounts Payable and Accrued Expenses
Below are the components of accounts payable and accrued
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
|
|
|
|
Accounts payable |
|
$ |
33,852 |
|
|
$ |
20,953 |
|
Accrued payroll and related expenses* |
|
24,824 |
|
|
28,508 |
|
Accrued subcontractor fees |
|
11,669 |
|
|
8,711 |
|
Accrued agency fees |
|
4,450 |
|
|
4,239 |
|
Accrued legal and professional fees |
|
1,435 |
|
|
2,894 |
|
Other accrued expenses* |
|
4,000 |
|
|
2,492 |
|
|
|
$ |
80,230 |
|
|
$ |
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 |
|
September 30,
2021 |
December 31, 2020 |
|
September 30,
2021 |
December 31, 2020 |
|
Secured Credit Facilities |
|
|
|
|
|
|
|
|
|
|
|
Hill International, Inc. - Société Générale 2017 Term Loan
Facility |
|
06/20/2023 |
|
Variable |
|
7.54% |
7.67% |
|
$ |
28,725 |
|
$ |
28,950 |
|
|
Hill International, Inc. - Société Générale Domestic Revolving
Credit Facility
(2)
|
|
05/04/2022 |
|
Variable |
|
5.16% |
5.50% |
|
17,400 |
|
14,400 |
|
|
Hill International N.V.. - Société Générale International Revolving
Credit Facility
(3)
|
|
05/04/2022 |
|
Variable |
|
4.07% |
4.11% |
|
4,747 |
|
4,035 |
|
|
Unsecured Credit Facilities |
|
|
|
|
|
|
|
|
|
|
|
Hill International, Inc. - First Abu Dhabi Bank ("FAB") PJSC
Overdraft Credit Facility
(4)
|
|
04/18/2022 |
|
Variable |
|
5.71% |
5.65% |
|
— |
|
— |
|
|
Hill International (North Africa) Ltd - Arab Bank PLC ("Arab Bank")
Payroll Overdraft Facility
(5)
|
|
07/16/2022 |
|
Variable |
|
N/A |
N/A |
|
— |
|
N/A |
|
Hill International (North Africa) Ltd - Arab Bank General Simple
Assignment of Contracts Overdraft Facility
(5)
|
|
07/16/2022 |
|
Variable |
|
N/A |
N/A |
|
— |
|
N/A |
|
Unsecured Notes Payable and Long-Term Debt |
|
|
|
|
|
|
|
|
|
|
|
Hill International Spain S.A.-Bankia S.A. & Bankinter
S.A.(6)
|
|
12/31/2021 |
|
Fixed |
|
2.21% |
2.21% |
|
139 |
|
581 |
|
|
Philadelphia Industrial Development Corporation Loan |
|
04/01/2027 |
|
Fixed |
|
2.79% |
2.79% |
|
373 |
|
421 |
|
|
Hill International Spain S.A. - Bankinter S.A. 2020 Term
Loan
(5)(6)
|
|
05/04/2024 |
|
Variable |
|
2.23% |
2.23% |
|
267 |
|
357 |
|
|
Hill International Spain S.A. - Banco Santander, S.A. Term
Loan
(5)(6)
|
|
05/30/2025 |
|
Fixed |
|
3.91% |
3.91% |
|
320 |
|
367 |
|
|
Hill International Spain S.A. - BBVA, S.A. P.P. Term Loan
(5)(6)
|
|
06/19/2025 |
|
Variable |
|
2.28% |
2.28% |
|
327 |
|
367 |
|
|
Hill International Spain S.A. - Bankia. S.A. 2020 Term Loan
(5)(6)
|
|
06/05/2025 |
|
Variable |
|
2.54% |
2.54% |
|
270 |
|
303 |
|
|
Total notes payable and long-term debt, gross |
|
|
|
|
|
|
|
|
$ |
52,568 |
|
$ |
49,781 |
|
|
Less: unamortized discount and deferred financing costs related to
Société Générale 2017 Term Loan Facility |
|
(346) |
|
(500) |
|
|
Notes payable and long-term debt |
|
|
|
|
|
|
|
|
$ |
52,222 |
|
$ |
49,281 |
|
|
Current portion of notes payable |
|
|
|
|
|
|
|
|
22,979 |
|
1,171 |
|
|
Current portion of unamortized debt discount and deferred financing
costs |
|
|
(199) |
|
(184) |
|
|
Current maturities of notes payable and long-term debt |
|
|
|
|
|
|
|
|
$ |
22,780 |
|
$ |
987 |
|
|
Notes payable and long-term debt, net of current
maturities |
|
|
$ |
29,442 |
|
$ |
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 September 30, 2021 since the
loan origination or modification date.
(2) As of September 30, 2021 and December 31, 2020, the
Company had $6,509 and $6,605 of outstanding letters of credit,
respectively, in addition to the balances outstanding above, which
resulted in $4,591 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 September 30, 2021 and December 31, 2020. See 'Secured
Credit Facilities' section below for further
information.
(3) As of September 30, 2021 and December 31, 2020, the
Company had $558 and $2,189 of outstanding letters of credit,
respectively, in addition to the balances outstanding above, which
resulted in $1,614 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
$6,919 and $7,309 as of September 30, 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
facility is subject to be reviewed annually in April by FAB, 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
September 30, 2021 and December 31, 2020. The Company had
$3,131 of availability under the credit facility as of
September 30, 2021 and December 31, 2020.
(5) In July 2021, the Company, through one of its subsidiaries,
entered into two overdraft facilities with Arab Bank. There is no
stated maturity date however, the facilities are subject to be
reviewed annually in July by Arab Bank. Amounts may be drawn in
either Egyptian Pounds or in the U.S. Dollar. Interest rates are
equal to 1.0%, plus the Central Bank of Egypt ("CBE") corridor
rate. No amounts have been drawn on as of September 30, 2021.
The Company had $3,000 of availability under the credit facilities
as of September 30, 2021.
(6) Balances outstanding are reflected in U.S. dollars based on the
conversion rates from Euros as of September 30, 2021 and
December 31, 2020.
(7) 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 September 30, 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 $403 and $755 at September 30, 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.
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.
The Company is in discussions with both existing lenders and
potential new lenders to refinance the Secured Credit Facilities
prior to their maturity in May 2022 for the Domestic and
International Revolving Credit Facilities and June 2023 for the
2017 Term Loan Facility.
Other Financing Arrangements
On May 1, 2021, subsequent to the maturity of the Company's
previous commercial premium financing arrangement in April 30, 2021
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 $3,350. The terms of the arrangement include
a $503 down payment, followed by monthly payments to be made over a
ten-month period at a 2.88% interest rate through March 31,
2022.
At September 30, 2021 and December 31, 2020, balances payable
to AFCO of $1,717 and $872 were reflected in other current
liabilities on the Company's consolidated balance sheets,
respectively.
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 $443 and $415 for the three months ended
September 30, 2021 and 2020, respectively, and $1,814 and
$1,616 for the nine months ended September 30, 2021 and 2020,
respectively. The Company's related share-based compensation is
comprised of the following:
Restricted Stock Units
During the nine months ended September 30, 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. No RSUs were granted during the
three months ended September 30, 2021 and 2020. 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 nine months ended September 30, 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 nine months ended
September 30, 2021 and for the years ended December 31, 2020, 2021
and 2022 for the RSUs granted during the nine months ended
September 30, 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 nine months ended September
30, 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.
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. Unvested DSUs are subject to
forfeiture if the grantee separates from the Company prior to its
vesting date.
During the three months ended September 30, 2021 and 2020, 5
and 39 DSUs were granted at a weighted average price of $2.57 and
$1.58, respectively. During the nine months ended September 30,
2021 and 2020, 780 and 334 DSUs were granted at a weighted average
price of $2.42 and $1.70, respectively. DSUs granted partially
include units awarded to the Company's board of directors (the
"Board") as part of their annual service retainer. DSUs were also
granted to executive officers that are subject to a combination of
time and performance based conditions that vest over a three-year
period.
Stock Options
At September 30, 2021 and 2020, the Company had approximately
1,353 and 1,589 stock options outstanding, respectively, with a
weighted average exercise price of $3.87 and $4.02,
respectively. No stock options were granted during the nine
months ended September 30, 2021 and 2020. During the nine months
ended September 30, 2021 and 2020, options lapsed for
approximately 211 and 281 shares, respectively, with a weighted
average exercise price of $4.95 and $3.71,
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 57.5% and 32.3% for the
three months ended September 30, 2021 and 2020, respectively,
and 155.4% and (83.2)% for the nine months ended September 30,
2021 and 2020, respectively. The interim tax calculation prescribed
under ASC 740-270 can yield unconventional results as seen in the
effective tax rate for the nine months ended September 30, 2021,
which is impacted by discrete tax items such as uncertain tax
positions and certain withholding taxes in relation to the mix of
pretax earnings in certain jurisdictions in which no loss benefit
is recognized.
The change in the Company’s effective tax rate for the nine months
ended September 30, 2021 from the nine months ended September 30,
2020 was primarily due to the mix of pretax earnings in
jurisdictions with different jurisdictional tax rates, as well as
certain withholding taxes and uncertain tax positions recorded in
2021.
The reserve for uncertain tax positions amounted to $7,740 and
$6,328 at September 30, 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 $39 and $70 for the three
months ended September 30, 2021 and 2020, respectively, and
$500 and $68 for the nine months ended September 30, 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 its consolidated financial results, however the Company
does not feel there will be a significant impact.
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 September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
51,362 |
|
|
53.1 |
% |
|
$ |
48,195 |
|
|
54.4 |
% |
|
$ |
147,701 |
|
|
51.7 |
% |
|
$ |
145,830 |
|
|
52.8 |
% |
Middle East/Asia/Pacific |
|
21,621 |
|
|
22.4 |
% |
|
22,729 |
|
|
25.6 |
% |
|
63,320 |
|
|
22.2 |
% |
|
72,327 |
|
|
26.2 |
% |
Europe |
|
13,897 |
|
|
14.4 |
% |
|
11,465 |
|
|
12.9 |
% |
|
44,942 |
|
|
15.8 |
% |
|
37,434 |
|
|
13.5 |
% |
Africa |
|
9,724 |
|
|
10.1 |
% |
|
6,263 |
|
|
7.1 |
% |
|
29,274 |
|
|
10.3 |
% |
|
20,818 |
|
|
7.5 |
% |
Total |
|
$ |
96,604 |
|
|
100.0 |
% |
|
$ |
88,652 |
|
|
100.0 |
% |
|
$ |
285,237 |
|
|
100.0 |
% |
|
$ |
276,409 |
|
|
100.0 |
% |
Consulting Fee Revenue by Geographic Region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
34,510 |
|
|
44.8 |
% |
|
$ |
33,697 |
|
|
47.2 |
% |
|
$ |
100,996 |
|
|
44.5 |
% |
|
$ |
104,261 |
|
|
46.5 |
% |
Middle East/Asia/Pacific |
|
21,345 |
|
|
27.7 |
% |
|
21,709 |
|
|
30.3 |
% |
|
62,100 |
|
|
27.3 |
% |
|
69,241 |
|
|
30.8 |
% |
Europe |
|
12,328 |
|
|
16.0 |
% |
|
10,549 |
|
|
14.7 |
% |
|
36,968 |
|
|
16.3 |
% |
|
32,197 |
|
|
14.3 |
% |
Africa |
|
8,878 |
|
|
11.5 |
% |
|
5,588 |
|
|
7.8 |
% |
|
27,094 |
|
|
11.9 |
% |
|
18,754 |
|
|
8.4 |
% |
Total |
|
$ |
77,061 |
|
|
100.0 |
% |
|
$ |
71,543 |
|
|
100.0 |
% |
|
$ |
227,158 |
|
|
100.0 |
% |
|
$ |
224,453 |
|
|
100.0 |
% |
For the three months ended September 30, 2021, the United States
was the only country to account for 10% or more of total revenue.
For the nine months ended September 30, 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 and nine months ended
September 30, 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
September 30, |
|
Nine Months Ended
September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
Americas
(1)
|
|
$ |
8,139 |
|
|
$ |
8,884 |
|
|
$ |
20,879 |
|
|
$ |
25,210 |
|
Middle East/Asia/Pacific
(1)
|
|
2,872 |
|
|
1,457 |
|
|
6,054 |
|
|
3,939 |
|
Europe
(1)
|
|
2,623 |
|
|
1,520 |
|
|
6,517 |
|
|
4,355 |
|
Africa |
|
1,032 |
|
|
485 |
|
|
5,117 |
|
|
1,763 |
|
Corporate
(2)
|
|
(10,339) |
|
|
(7,603) |
|
|
(31,496) |
|
|
(31,080) |
|
Total |
|
$ |
4,327 |
|
|
$ |
4,743 |
|
|
$ |
7,071 |
|
|
$ |
4,187 |
|
(1) includes Hill's share of loss (profit)
of equity method affiliates on the Consolidated Statements of
Operations.
(2) includes foreign exchange losses (benefit) of $511 and $(694)
for the three months ended September 30, 2021 and 2020,
respectively and $2,751 and $3,622 for the nine months ended
September 30, 2021 and 2020, respectively.
Depreciation and Amortization Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
Project Management |
|
$ |
6 |
|
|
$ |
341 |
|
|
$ |
769 |
|
|
$ |
1,009 |
|
Corporate
(1)
|
|
561 |
|
|
364 |
|
|
1,087 |
|
|
2,371 |
|
Total |
|
$ |
567 |
|
|
$ |
705 |
|
|
$ |
1,856 |
|
|
$ |
3,380 |
|
(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
nine months ended September 30, 2020.
Total Revenue by Client Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
U.S. federal government |
|
$ |
3,506 |
|
|
3.6 |
% |
|
$ |
4,552 |
|
|
5.1 |
% |
|
$ |
11,636 |
|
|
4.1 |
% |
|
$ |
13,084 |
|
|
4.7 |
% |
U.S. state, regional and local governments |
|
30,648 |
|
|
31.7 |
% |
|
29,652 |
|
|
33.4 |
% |
|
90,934 |
|
|
31.9 |
% |
|
90,552 |
|
|
32.8 |
% |
Foreign governments |
|
23,401 |
|
|
24.2 |
% |
|
23,149 |
|
|
26.1 |
% |
|
75,137 |
|
|
26.3 |
% |
|
74,118 |
|
|
26.8 |
% |
Private sector |
|
39,049 |
|
|
40.5 |
% |
|
31,299 |
|
|
35.4 |
% |
|
107,530 |
|
|
37.7 |
% |
|
98,655 |
|
|
35.7 |
% |
Total |
|
$ |
96,604 |
|
|
100.0 |
% |
|
$ |
88,652 |
|
|
100.0 |
% |
|
$ |
285,237 |
|
|
100.0 |
% |
|
$ |
276,409 |
|
|
100.0 |
% |
Property, Plant and Equipment, Net, by Geographic
Location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021 |
|
December 31, 2020 |
|
|
|
|
|
Americas |
|
$ |
7,250 |
|
|
$ |
7,741 |
|
Middle East/Asia/Pacific |
|
704 |
|
|
917 |
|
Europe |
|
492 |
|
|
544 |
|
Africa |
|
370 |
|
|
241 |
|
Total |
|
$ |
8,816 |
|
|
$ |
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.
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 $334, which is included
in other liabilities in the consolidated balance sheet at
September 30, 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 $1,950 and $1,875 for the three months ended
September 30, 2021 and 2020, respectively, and $6,193 and $6,038
for the nine months ended September 30, 2021 and 2020 is included
in selling, general and administrative and direct expenses in the
consolidated statements of operations. Total rent expense for the
nine months ended September 30, 2021 and 2020 included $1,631 and
$1,488, 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 September 30,
2021 and 2020, was $396 and $390, respectively. The sublease income
recognized for the nine months ended September 30, 2021 and 2020
was $1,190 and $946, respectively.
The following is a schedule of maturities of lease liabilities by
year as of September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Lease Payments |
|
Total Finance Lease Payments |
2021 (excluding the nine months ended September 30,
2021) |
|
$ |
1,923 |
|
|
$ |
56 |
|
2022 |
|
5,988 |
|
|
216 |
|
2023 |
|
5,212 |
|
|
216 |
|
2024 |
|
4,271 |
|
|
181 |
|
2025 |
|
3,471 |
|
|
65 |
|
Thereafter |
|
7,194 |
|
|
— |
|
Total minimum lease payments
(1)
|
|
28,059 |
|
|
734 |
|
Less amount representing imputed interest |
|
4,729 |
|
|
30 |
|
Present value of lease obligations |
|
$ |
23,330 |
|
|
$ |
704 |
|
Weighted average remaining lease term (years) |
|
5.62 |
|
3.46 |
Weighted average discount rate |
|
6.71 |
% |
|
2.40 |
% |
(1) Partially includes rent expense amounts payable in various
foreign currencies and are based on the foreign currency exchange
spot rates as of September 30, 2021, where
applicable.
Note 15 - Deconsolidation of Controlling Interest in
Subsidiary
On June 12, 2020, Hill International Brasil S.A ("Hill Brazil")
filed for bankruptcy and liquidation with the Bankruptcy Court of
Sao Paulo, Brazil. Hill Brazil was a consolidated operating
subsidiary of Hill International Brasil Participacoes LTDA ("Brazil
Consolidated"). A trustee was appointed by the court on June 15,
2020 to oversee the settlement of liabilities and close the entity.
The Company lost control of Hill Brazil on the date of the
bankruptcy filing and, as a result, deconsolidated Hill Brazil at
that time.
At June 12, 2020, Hill Brazil's assets totaled $1,901, and
consisted of Cash of $9, Accounts receivable of $1,380, Property,
Plant & Equipment of $295 and other assets of $217. At June 12,
2020, Hill Brazil's liabilities totaled $3,538 and consisted of
Accounts payable and accrued expenses of $1,800, debt of $365,
deferred revenue of $132 and other liabilities of $1,242.
Therefore, Hill Brazil's liabilities exceeded assets by $1,638. The
write-off of the investment in Hill Brazil by Brazil Consolidated
resulted in a $1,201 loss. The write-off of the balance sheet and
write-off of the investment in Hill Brazil resulted in a $437 gain
on the deconsolidation before consideration of foreign currency
adjustments and intercompany items.
In conjunction with the liquidation of Hill Brazil, the Company's
intercompany receivables from Hill Brazil totaling $116 were fully
reserved and an intercompany payable of $1,180 to Hill Brazil from
Brazil Consolidated was written off against the income/loss of the
liquidation. Additionally, $5,565 of accumulated other
comprehensive losses related to foreign currency adjustments was
taken into expense. This resulted in a net loss of $4,064 related
to the deconsolidation which was recorded on the consolidated
statements of operations under Other loss (income),
net.
On December 29, 2020, Brazil Consolidated filed for bankruptcy and
liquidation with the Bankruptcy Court of Sao Paulo Brazil. Brazil
Consolidated was a consolidated subsidiary of Hill International,
N.V. The Company lost control of Brazil Consolidated on the date of
the bankruptcy filing and, as a result, deconsolidated Brazil
Consolidated at that time which resulted in an additional net loss
of $1,437 being recorded on the consolidated statements of
operations under other loss (income), net for the year ended
December 31, 2020. The balance sheet of Brazil Consolidated
primarily consisted of intercompany payables. The corresponding
intercompany receivables were written off on the respective
entity's balance sheets in conjunction with the liquidation and
deconsolidation of Brazil Consolidated resulting in no net
consolidated income/loss impact. The net loss is primarily
comprised of the deconsolidation of $1,350 of net assets, and $313
of accumulated other comprehensive losses related to foreign
currency adjustments taken into expense which were offset by $226
of eliminated capital.
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 other than as
required by law.
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 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. Variants of the virus continue to emerge in
various regions and countries worldwide.
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.
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.
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.
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.
Results of Operations
Consolidated Results
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Change |
|
Nine Months Ended September 30, |
|
Change |
|
|
2021 |
|
2020 |
|
$ |
% |
|
2021 |
|
2020 |
|
$ |
% |
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fee revenue |
|
$ |
77,061 |
|
|
$ |
71,543 |
|
|
$ |
5,518 |
|
7.7 |
% |
|
$ |
227,158 |
|
|
$ |
224,453 |
|
|
$ |
2,705 |
|
1.2 |
% |
Reimbursable expenses |
|
19,543 |
|
|
17,109 |
|
|
2,434 |
|
14.2 |
% |
|
58,079 |
|
|
51,956 |
|
|
6,123 |
|
11.8 |
% |
Total revenue |
|
$ |
96,604 |
|
|
$ |
88,652 |
|
|
$ |
7,952 |
|
9.0 |
% |
|
$ |
285,237 |
|
|
$ |
276,409 |
|
|
$ |
8,828 |
|
3.2 |
% |
Direct expenses |
|
64,196 |
|
|
59,998 |
|
|
4,198 |
|
7.0 |
% |
|
194,314 |
|
|
190,078 |
|
|
4,236 |
|
2.2 |
% |
Gross profit |
|
$ |
32,408 |
|
|
$ |
28,654 |
|
|
$ |
3,754 |
|
13.1 |
% |
|
$ |
90,923 |
|
|
$ |
86,331 |
|
|
$ |
4,592 |
|
5.3 |
% |
Selling, general and administrative expenses |
|
28,121 |
|
|
25,588 |
|
|
2,533 |
|
9.9 |
% |
|
82,906 |
|
|
80,543 |
|
|
2,363 |
|
2.9 |
% |
Foreign currency exchange loss (benefit) |
|
511 |
|
|
(694) |
|
|
1,205 |
|
(173.6) |
% |
|
2,751 |
|
|
3,622 |
|
|
(871) |
|
(24.0) |
% |
Plus: Share of profit of equity method affiliates |
|
551 |
|
|
983 |
|
|
(432) |
|
(43.9) |
% |
|
1,805 |
|
|
2,021 |
|
|
(216) |
|
(10.7) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
4,327 |
|
|
$ |
4,743 |
|
|
$ |
(416) |
|
(8.8) |
% |
|
$ |
7,071 |
|
|
$ |
4,187 |
|
|
$ |
2,884 |
|
68.9 |
% |
|