Hill International, Inc.
Q1 2019 Earnings Call Transcript

Published: 14 May 2019

[Operator:]

Welcome to Hill International, Inc. First Quarter Earnings for Fiscal Year 2019 Investor Call. On this call, John Grau of InvestorCom will provide some introductory remarks on the content of the call. John will be followed by Hill International's CEO, Raouf Ghali; and Senior Vice President and Chief Financial Officer, Todd Weintraub. Mr. Ghali will discuss the status of the company and expectations for Hill's immediate and long-term future. Mr. Weintraub will detail Hill's first quarter results for 2019. As a reminder, this call is being recorded. John, please begin.

[John Grau:]

Thank you. To everyone on this call, please note the following. Certain statements made on this call are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and it is our intent that any such statements be protected by the safe harbor created thereby. Except for historical information, any matters set forth herein, including any statements of belief or intent and any statements concerning our future plans and strategies are forward-looking statements. These forward-looking statements are based on our current expectations and assumptions and are subject to risks and uncertainties. We do not intend and undertake no obligation to update any forward-looking statement. With that, let me turn the call over to Raouf Ghali, Hill International's CEO.

[Raouf Ghali:]

Thank you, John, and thank you to everyone on the call. First, we are happy to report that our backlog and consulting fee revenue have increased by 12% and 5%, respectively, from last quarter. We are also pleased to report improved profitability. Today, we will start the call with updates since our last earnings call in March, then Todd, our CFO, will provide details on the financial performance for the quarter. Thereafter, I will go through the recent wins and our expectation for the remainder of the year. Then we will open the call for questions and finally, some closing remarks. We started this quarter with strong sales that are quickly turning into consulting fee revenue, or CFR. The Middle East is leading this initial growth while all other regions continue on a steady path according to plan. Some noteworthy accomplishments for this quarter

[Todd Weintraub:]

Thank you, Raouf, and thank you to everyone on the call. I know everyone is anxious to hear about the progress we've made against the agenda we laid out on our last quarter in March. I'm thrilled to share that we are on track and executing that plan in several respects. One, our backlog has grown by 12% since year-end to $831 million at March 31; two, our adjusted EBITDA was a positive $2.4 million for the quarter; three, we have positive free cash flow of approximately $7 million for the quarter; four, consulting fee revenue was $79 million for the quarter, up from $75 million last quarter and reversing a multi-quarter negative trend; and five, SG&A was $31 million for the quarter. Adjusting for some onetime expenses, our SG&A was $30 million, in line with our guidance for approximately $120 million for 2019 full year. I'm really happy to say my remarks this quarter will be much shorter than last because I don't have to take much time explaining a huge amount of nonrecurring costs and other adjustments. While we did incur some costs related to the prior restructuring and restatement, they were very minor compared to 2017 and 2018, totaling just over $1 million. We fully expect all of these costs to be completely done during the second quarter. We also adjusted EBITDA up for noncash stock compensation and down from an unrealized FX gain each for about $200,000, pretty much offsetting each other. I want to provide you now with more detail on the results for the quarter. Given all the noise in the 2018 results that renders year-over-year comparisons not very meaningful at this point, I think it makes sense to talk about this quarter's results as a trend from last quarter and relative to our plan. We had indicated our belief that Q4 2018 was a trough and we would turn the corner in 2019. We are now seeing evidence of this in our Q1 2019 results. Our consulting fee revenue trended up by about 5% from $75 million last quarter to $79 million this quarter. We expect our CFR will continue to increase quarter-over-quarter during the year. Our gross margin on that consulting fee revenue was 39.8% in the first quarter, up slightly from 39.3% in Q4 2018. Our SG&A for the quarter was $31 million versus $37 million last quarter, so you saw a continuing improvement. Adjusting for the lingering costs related to the restructuring and restatement of just over $1 million, SG&A for the quarter would have been around $30 million, in line with our annual guidance of $120 million. We continue to believe this level of SG&A is sustainable and the increases in CFR and gross profit will mostly fall right through to the bottom line increasing our EBITDA margin over time to approximately 10%. Looking at backlog, our backlog at March 31 is $831 million, a significant 12% increase from $740 million at year-end and in line with our prior guidance that backlog would be over $800 million by the end of the first quarter. So this is more evidence that we have turned the corner and have started to grow the backlog again. As I said last quarter, I understand the desire for us to provide specific guidance beyond SG&A and directional insights. However, the rate of growth of our backlog and the timing of our procurement cycle and mobilization will impact short-term results. Therefore we will not be giving any further specific guidance, other than to reiterate we expect our adjusted EBITDA for 2019 will exceed the 2018 level. The important points are

[Raouf Ghali:]

Thank you, Todd. With that, let's proceed with some of our latest wins. As I mentioned on the last call, Hill was selected to provide project and construction management services for a major aviation project in the Middle East. With our award now officially received and key members mobilized, I can announce that this project is the expansion of Hamad International Airport in Doha, Qatar. Once underway, we expect this assignment to peak at over 180 staff members to manage our scope. In Saudi Arabia, Hill was selected by the Riyadh Development Authority to continue our supervision services for the design of Phases 1 and 2 of the Momento King Salman Park Project. Once complete, this 13-square-kilometer park will be the largest urban park in the world by far and will feature the royal art complex, a national theater, an opera house, art academies, amusement centers, libraries, museums, galleries are amongst other attractions. Green spaces will feature open squares, sports compounds and the 18-hole royal golf course. The park is also a key component of the Kingdom's Vision 2030 program. In Egypt, the Madinet Nasr for Housing & Development selected Hill to manage the company's mixed-use projects at Taj City and Sarai. These 2 projects will service Cairo's cultural and entertainment destinations, respectively, with luxury residence, retail and commercial areas, a world-class hotel, medical facilities and an international school. These latest wins represent the type, this is a testament to our reputation, I believe, since the end of last year when we focused again on our clients' reputation, we have seen an immediate reaction with clients returning to Hill to help realize their most high-profile assignments. In addition to our Middle East wins, Hill has also been securing major assignments in other regions since our last call. In the United States, these include

[Raouf Ghali:]

In closing, let me reiterate. Hill's backlog is up 12% for the quarter and we expect the trend to continue. Our consulting fee revenue is up 5% for the quarter, gross profitability has improved as we convert our new sales to CFR. The trend will continue. DSO have decreased and SG&A continues to stay at the required levels. Thank you to everyone for your attention and participation. This concludes today's call.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.