Hill International, Inc. (NYSE:HIL) is a leading global professional services firm that provides program management, project management, construction management, construction claims, and other consulting and advisory services primarily to the buildings, transportation, environmental, energy, and industrial markets worldwide. With a rich history spanning over four decades, Hill International has established itself as a trusted partner for clients across various industries, delivering innovative solutions and driving successful project outcomes.
Financials
In its latest fiscal year, Hill International reported annual revenue of $377,438,000, a decrease from the previous year's figure. The company's net income for the year stood at a loss of $3,942,000, a decline compared to the prior year's performance. The company's operating cash flow for the year was -$12,663,000, and its free cash flow was -$14,360,000, both of which represent a decrease from the previous year.
Quarterly Performance
On a quarterly basis, Hill International has demonstrated a mixed performance. In the most recent quarter, the company reported consulting fee revenue of $85,142,000, an increase of 10.5% compared to the same period in the prior year. Reimbursable expenses for the quarter were $24,429,000, up 25.0% year-over-year. The company's gross profit for the quarter was $34,654,000, representing a 6.9% increase from the same quarter in the previous year.
Segmental Analysis
Hill International operates as a single reporting segment, the Project Management Group, which provides fee-based construction management services to clients worldwide. The company's revenue is generated from various geographic regions, including the Americas, Middle East/Asia/Pacific, Europe, and Africa.
In the most recent quarter, the Americas region accounted for 52.7% of the company's total revenue, the Middle East/Asia/Pacific region contributed 23.2%, Europe represented 14.9%, and Africa made up 9.2%. Compared to the same period in the prior year, the Americas and Middle East/Asia/Pacific regions experienced revenue growth, while Europe and Africa saw more modest changes.
Gross Profit Margin Analysis
Hill International's gross profit margin for the most recent quarter was 31.6%, a decrease from the 33.5% reported in the same quarter of the previous year. The decline in gross profit margin was primarily driven by lower margins in the Middle East/Asia/Pacific region, which were partially offset by improvements in the Africa region.
Selling, General, and Administrative (SG&A) Expenses
The company's SG&A expenses for the most recent quarter increased by 10.4% compared to the same period in the prior year, primarily due to investments in the business development team and higher costs associated with consultants, temporary office support, and travel.
Foreign Currency Exchange Impact
Hill International's financial results have been impacted by fluctuations in foreign currency exchange rates. In the most recent quarter, the company reported a foreign currency exchange loss of $803,000, compared to a loss of $511,000 in the same quarter of the previous year. The increase in foreign currency exchange losses was primarily due to the weakening of the Euro against the U.S. Dollar.
Liquidity
As of the end of the most recent quarter, Hill International had $22,834,000 in cash and cash equivalents, as well as $3,618,000 in available borrowing capacity under its various credit facilities. The company also has relationships with other foreign banks for the issuance of letters of credit, letters of guarantee, and performance bonds, with approximately $66,979,000 in availability under these arrangements.
On March 31, 2022, the company amended its main credit facility with Société Générale, extending the maturity dates of the Domestic and International Revolving Credit Facilities to May 5, 2023, and the term loan facility to November 5, 2023. The interest rates on the Domestic and International Revolving Credit Facilities increased, and the company paid an amendment fee.
The company believes it has adequate liquidity and business plans to continue operating for the next 12 months, but its ability to continue as a going concern is dependent on its ability to refinance the Domestic and International Revolving Credit Facilities prior to their May 5, 2023, maturity date. The company has retained a debt advisor to assist in the refinancing of these facilities and is conducting a formal process to secure this funding, with the expectation of completing the refinancing by the end of 2022.
Backlog and New Bookings
As of the end of the most recent quarter, Hill International's backlog stood at $714,983,000, with approximately $252,664,000, or 35.3%, expected to be recognized as revenue over the next twelve months. The company's new bookings, before any cancellations or other reductions, were $266,807,000 for the nine months ended September 30, 2022, equating to a book-to-burn ratio of 104.9%.
Merger Agreement
On August 26, 2022, Hill International, Global Infrastructure Solutions Inc. ("Parent"), and Liberty Acquisition Sub Inc., an indirect wholly owned subsidiary of Parent ("Merger Sub"), entered into an Amended and Restated Agreement and Plan of Merger. The agreement provides that Merger Sub will be merged with and into Hill, with Hill surviving the merger as an indirect wholly owned subsidiary of Parent. Subject to the terms and conditions of the agreement, each share of Hill's common stock will be converted into the right to receive $3.40 per share in cash, without interest.
The consummation of the merger remains subject to various closing conditions, including the receipt of consent or authorization under certain foreign antitrust laws and the absence of any order that would prevent, make illegal, or otherwise prohibit the consummation of the merger. The company continues to expect to complete the merger in the fourth quarter of 2022.
Risks and Challenges
Hill International faces several risks and challenges that could impact its future performance. These include:
1. Dependence on the construction and infrastructure sectors: The company's business is heavily dependent on the performance of the construction and infrastructure industries, which can be cyclical and subject to economic fluctuations.
2. Competitive landscape: Hill International operates in a highly competitive industry, with numerous firms vying for the same projects and clients.
3. Regulatory and compliance risks: The company's operations are subject to various laws and regulations, both domestically and internationally, which can change over time and impact the company's business.
4. Reliance on key personnel: Hill International's success is dependent on its ability to attract and retain qualified professionals, and the loss of key personnel could adversely affect the company's operations.
5. Geopolitical and economic risks: The company's global footprint exposes it to various geopolitical and economic risks, including political instability, currency fluctuations, and changes in local laws and regulations.
Outlook
Hill International has not provided any specific financial guidance for the upcoming fiscal year. However, the company's management has stated that it believes the company has adequate liquidity and business plans to continue operating for the next 12 months, subject to its ability to refinance the Domestic and International Revolving Credit Facilities prior to their May 5, 2023, maturity date.
Conclusion
Hill International is a diversified professional services firm with a strong presence in the construction and infrastructure sectors. While the company has faced some challenges in recent years, including the impact of the COVID-19 pandemic and fluctuations in foreign currency exchange rates, it remains a well-established player in its industry. The pending merger with Global Infrastructure Solutions Inc. presents an opportunity for the company to potentially unlock additional value for its shareholders. However, investors should carefully consider the risks and challenges facing the company as they evaluate the investment potential of Hill International's stock.