UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

or

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period

from                                          to 

Commission File Number: 001-33961

HILL INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Delaware						20-0953973
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

One Commerce Square
2005 Market Street, 17th Floor
Philadelphia, PA						19103
(Address of principal executive offices)						(Zip Code)

Registrant’s telephone number, including area code:  (215) 309-7700

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). 

Yes  ý     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-Accelerated Filer

☐

Smaller Reporting Company

☒

Emerging Growth Company

☐

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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 57,086,992 shares of the Registrant’s Common Stock outstanding at November 1, 2022.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

 

Index to Form 10-Q

 

PART I			FINANCIAL INFORMATION
Item 1.			Financial Statements			6
			Consolidated Balance Sheets at September 30, 2022 (unaudited) and December 31, 2021			6
			Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)			7
			Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (unaudited)			8
			Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)			9
			Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)			10
			Notes to Consolidated Financial Statements			11
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			40
Item 4.			Controls and Procedures			41
PART II			OTHER INFORMATION			42
Item 1.			Legal Proceedings			42
Item 1A.			Risk Factors			42
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3.			Defaults Upon Senior Securities			42
Item 4.			Mine Safety Disclosures			42
Item 5			Other Information			42
Item 6.			Exhibits			42
Signatures						43

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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:

 

•Statements about the Merger;

•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:

 

•Risks associated with our ability to consummate the Merger, and the timing of the closing of the Merger, including the risks that a condition to closing will not be satisfied within the expected timeframe or at all or that the closing of the Merger will not occur;

•The occurrence of any change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement;

•The outcome of any legal proceedings that have been or may be instituted against the parties to, and others related to, the Merger and the Merger Agreement;

•The Merger diverting management’s attention from our ongoing business operations;

•Restrictions on the conduct of our business prior to completing the Merger, which may prevent us from pursuing certain strategic transactions, undertaking certain financing transactions and otherwise pursuing other actions, even if such actions could prove beneficial, and may cause us to forego certain opportunities we might otherwise pursue absent the Merger Agreement;

•The risk that the pendency of the Merger could adversely affect our business and operations, including the risk that some of our current or prospective customers, lenders or partners may delay or defer decisions, which could negatively impact our revenues, earnings, cash flows and expenses, regardless of whether the Merger completed;

•The risks set forth in Item 1A, “Risk Factors,” in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the "SEC") on March 31, 2022 (as amended by Amendment No. 1 thereto filed with the SEC on Form 10-K/A on May 2, 2022, (the "2021 Annual Report");

•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;

4

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•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 related to 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 related to international operations, including uncertain political and economic environments, acts of terrorism or war and other forms of geo-political unrest or conflict (including the ongoing conflict in Ukraine), 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. In accordance with the Reform Act, Item 1A of our 2021 Annual Report entitled "Risk Factors" contains cautionary statements that accompany those forward looking statements. You should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-Q, in our other filings with the SEC or in materials incorporated therein by reference.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

						September 30, 2022						December 31, 2021
Assets						(Unaudited)
Cash and cash equivalents						$	22,834					$	21,821
Cash - restricted						4,131						5,562
Accounts receivable, net						136,267						119,516
Current portion of retainage receivable						7,511						9,743
Accounts receivable - affiliates						19,702						21,741
Prepaid expenses and other current assets						9,224						9,937
Income tax receivable						1,397						2,163
Total current assets						201,066						190,483
Property and equipment, net						8,416						8,895
Cash - restricted, net of current portion						2,843						3,063
Operating lease right-of-use assets						15,825						18,347
Financing lease right-of-use assets						613						801
Retainage receivable						5,910						7,491
Acquired intangibles, net						2,963						3,002
Goodwill						40,105						44,127
Investments						1,139						2,038
Deferred income tax assets						1,944						2,165
Other assets						4,018						2,645
Total assets						$	284,842					$	283,057
Liabilities and Stockholders’ Equity
Current maturities of notes payable and long-term debt						$	31,335					$	25,841
Accounts payable and accrued expenses						74,028						63,856
Income taxes payable						4,438						2,610
Current portion of deferred revenue						4,406						4,088
Current portion of operating lease liabilities						4,788						4,777
Current portion of financing lease liabilities						250						246
Other current liabilities						6,997						6,006
Total current liabilities						126,242						107,424
Notes payable and long-term debt, net of current maturities						28,816						29,302
Retainage payable						326						279
Deferred income taxes						918						959
Deferred revenue						3,627						9,541
Non-current operating lease liabilities						15,981						18,565
Non-current financing lease liabilities						385						573
Other liabilities						10,990						13,175
Total liabilities						187,285						179,818
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, 63,664 shares and 63,291 shares issued at September 30, 2022 and December 31, 2021, respectively						6						6
Additional paid-in capital						219,116						217,471
Accumulated deficit						(83,616)						(83,813)
Accumulated other comprehensive loss						(9,342)						(1,813)
Less treasury stock of 6,807 at September 30, 2022 and December 31, 2021						(29,056)						(29,056)
Hill International, Inc. share of equity						97,108						102,795
Noncontrolling interests						449						444
Total equity						97,557						103,239
Total liabilities and stockholders’ equity						$	284,842					$	283,057

See accompanying notes to consolidated financial statements.

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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,
						2022						2021						2022						2021
Consulting fee revenue						$	85,142					$	77,061					$	254,262					$	227,158
Reimbursable expenses						24,429						19,543						63,275						58,079
Total revenue						$	109,571					$	96,604					$	317,537					$	285,237
Direct expenses						74,917						64,196						213,620						194,314
Gross profit						$	34,654					$	32,408					$	103,917					$	90,923
Selling, general and administrative expenses						31,035						28,121						92,831						82,906
Foreign currency exchange loss						803						511						3,730						2,751
Plus: Share of profit of equity method affiliates						506						551						1,456						1,805
Operating profit						$	3,322					$	4,327					$	8,812					$	7,071
Less: Interest and related financing fees, net						2,098						1,226						4,805						4,077
Other loss, net						104						—						319						—
Earnings before income taxes						$	1,120					$	3,101					$	3,688					$	2,994
Income tax expense						1,823						1,784						3,602						4,653
Net earnings (loss)						$	(703)					$	1,317					$	86					$	(1,659)
Less: net (loss) earnings - noncontrolling interests						(14)						58						(112)						265
Net (loss) earnings attributable to Hill International, Inc.						$	(689)					$	1,259					$	198					$	(1,924)
Basic (loss) earnings per common share - Hill International, Inc.						$	(0.01)					$	0.02					$	—					$	(0.03)
Basic weighted average common shares outstanding						58,073						57,245						57,858						57,102
Diluted (loss) earnings per common share - Hill International, Inc.						$	(0.01)					$	0.02					$	—					$	(0.03)
Diluted weighted average common shares outstanding						58,073						57,245						59,767						57,102

 

See accompanying notes to consolidated financial statements.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) EARNINGS

(In thousands)

(Unaudited)

 

						Three Months Ended September 30,												Nine Months Ended September 30,
						2022						2021						2022						2021
Net (loss) earnings						$	(703)					$	1,317					$	86					$	(1,659)
Foreign currency translation adjustment, net of tax						(2,969)						(1,177)						(7,611)						(2,733)
Actuarial losses from end of service benefit plan, net of tax						66						—						198						—
Comprehensive (loss) earnings						(3,606)						140						(7,327)						(4,392)
Less: Comprehensive (loss) earnings attributable to noncontrolling interests						(38)						(32)						5						(1,084)
Comprehensive (loss) earnings attributable to Hill International, Inc.						$	(3,568)					$	172					$	(7,332)					$	(3,308)

 

See accompanying notes to consolidated financial statements.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands) 

						Common Stock												Additional Paid-in						Accumulated						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, 2021						63,291						$	6					$	217,471					$	(83,813)					$	(1,813)					6,807						$	(29,056)					$	102,795					$	444					$	103,239
Net (loss) income						—						—						—						886						—						—						—						886						(97)						789
Other comprehensive (loss) income						—						—						—						—						(4,650)						—						—						(4,650)						140						(4,510)
Share-based compensation expense						331						—						771						—						—						—						—						771						—						771
Shares issued under employee stock purchase plan						42						—						56						—						—						—						—						56						—						56
Balance - June 30, 2022						63,664						$	6					$	218,298					$	(82,927)					$	(6,463)					6,807						$	(29,056)					$	99,858					$	487					$	100,345
Net earnings (loss)						—						—						—						(689)						—						—						—						(689)						(14)						(703)
Other comprehensive loss						—						—						—						—						(2,879)						—						—						(2,879)						(24)						(2,903)
Share-based compensation expense						10						—						818						—						—						—						—						818						—						818
Shares issued under employee stock purchase plan												—												—						—						—						—						—						—						—
Balance - September 30, 2022						63,674						$	6					$	219,116					$	(83,616)					$	(9,342)					6,807						$	(29,056)					$	97,108					$	449					$	97,557
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 income (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 (loss)						—						—						—						1,259						—						—						—						1,259						58						1,317
Other comprehensive income (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

See accompanying notes to consolidated financial statements.

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HILL INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

						Nine Months Ended September 30,
						2022						2021
Cash flows from operating activities:
Net earnings (loss)						$	86					$	(1,659)
Adjustments to reconcile net loss to net cash provided by (used in):
Depreciation and amortization						1,784						1,856
Recovery for bad debt						(431)						(2,794)
Amortization of deferred loan fees						344						568
Deferred tax expense						140						(120)
Share-based compensation						1,589						1,814
Operating lease right-of-use assets						3,908						3,306
Foreign currency remeasurement losses						1,544						2,510
Accounts receivable						(23,773)						(15,521)
Accounts receivable - affiliate						2,039						(5,728)
Prepaid expenses and other current assets						253						(3,951)
Income taxes receivable						399						1,232
Retainage receivable						3,534						(953)
Other assets						(976)						(1,926)
Accounts payable and accrued expenses						13,440						13,181
Income taxes payable						1,944						(1,202)
Deferred revenue						(4,351)						1,482
Operating lease liabilities						(3,702)						(2,698)
Other current liabilities						1,139						3,432
Retainage payable						47						(314)
Finance lease liabilities						(13)						—
Other liabilities						(1,260)						492
Net cash used in operating activities						(2,316)						(6,993)
Cash flows from investing activities:
Purchase of NEYO Group						—						(681)
Purchase of property and equipment						(1,472)						(1,197)
Net cash used in investing activities						(1,472)						(1,878)
Cash flows from financing activities:
Principal payments on finance leases						(184)						—
Repayment of term loans						(505)						(802)
Proceeds from revolving loans						31,667						29,785
Repayment of revolving loans						(25,336)						(25,816)
Proceeds from stock issued under employee stock purchase plan						56						118
Net cash provided by financing activities						5,698						3,285
Effect of exchange rate changes on cash, cash equivalents and restricted cash						(2,548)						(2,654)
Net decrease in cash, cash equivalents and restricted cash						(638)						(8,240)
Cash, cash equivalents and restricted cash — beginning of period						30,446						41,413
Cash, cash equivalents and restricted cash — end of period						$	29,808					$	33,173

						Nine Months Ended September 30,
Supplemental disclosures of cash flow information:						2022						2021
Interest and related financing fees paid						$	4,668					$	3,520
Income taxes paid						2,218						3,830
Cash paid for amounts included in the measurement of lease liabilities						5,681						4,897
Right-of-use assets obtained in exchange for operating lease liabilities						1,648						8,568
Right-of-use assets obtained in exchange for finance lease liabilities						—						538

 See accompanying notes to consolidated financial statements.

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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, construction claims and other consulting and advisory 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.

On August 26, 2022, Hill, 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 “Merger Agreement”), which amended and restated the Agreement and Plan of Merger, dated as of August 16, 2022, by and among the Company, Parent and Merger Sub. The Merger Agreement provides that, upon the terms and conditions set forth therein and in accordance with the General Corporation Law of the State of Delaware (“DGCL”), Merger Sub will be merged with and into Hill (the “Merger”) with Hill surviving the Merger as the surviving corporation and an indirect wholly owned subsidiary of Parent.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Hill’s common stock, other than as provided below, will be converted into the right to receive $3.40, without interest (such amount of cash, the “Merger Consideration”). The following shares of Hill common stock will not be converted into the right to receive the Merger Consideration in connection with the Merger: (i) shares held in treasury by Hill or owned by Parent or Merger Sub or any direct or indirect wholly owned subsidiaries of Parent, Merger Sub or Hill immediately prior to the effective time, and (ii) shares issued and outstanding immediately prior to the effective time that are held by a holder who is entitled to demand and has properly exercised and perfected demand and has properly exercised and perfected demand for appraisal of such shares pursuant to, and who complies in all respects with, Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) and has not effectively and validly withdrawn or lost such holder’s rights to appraisal.

Pursuant to the terms of the Merger Agreement, the consummation of the Merger remains subject to various closing conditions, including but not limited to (i) the receipt of consent or authorization under certain foreign antitrust laws, and (ii) the absence of any order that has the effect of preventing, making illegal or otherwise prohibiting the consummation of the Merger. As of the date hereof, the Company continues to expect to complete the Merger in the fourth calendar quarter of 2022. Upon the consummation of the Merger, Hill will no longer be traded or listed on any public securities exchange.

Note 2 — Liquidity

 

At September 30, 2022 and December 31, 2021, the Company's principal sources of liquidity consisted of $22,834 and $21,821 of cash and cash equivalents, respectively, $7 and $2,643 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively, $175 and $520 of available borrowing capacity under the International Revolving Credit Facility, respectively, and $3,436 and $5,980 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.

On March 31, 2022 and September 30, 2022, the Company entered into amendments of its main credit facility with Société Générale that extends 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 by 1.1% and 1.5%, respectively, effective March 31, 2022, while the term loan facility interest rate increased by 1.0%, effective March 31, 2022, and the Company paid an amendment fee of $463. The aggregate amount of the credit commitments under the facilities was reduced by an amount equal to $500 on each of September 30, 2022 and October 31, 2022 and will be further permanently reduced by $500 on November 30, 2022 and $3,000 on December 31, 2022. At September 30, 2022, the Company had $23,303 of borrowings and $4,972 of outstanding letters of credit under the Hill International, Inc. - Société Générale Domestic Revolving Credit Facility and $4,884 of borrowings and $509 of outstanding letters of credit under the Hill International N.V. - Société Générale International Revolving Credit Facility. These facilities are set to mature on May 5, 2023.

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The Company believes that it has adequate liquidity and business plans to continue to operate the business for the next 12 months from November 14, 2022, the date of this filing. This ability to continue as a going concern is dependent upon the ability to refinance the Domestic and International Revolving Credit Facilities prior to their May 5, 2023 maturity date. As such, the consolidated interim financial statements included in this Form 10-Q do not include any adjustments that might result from the inability to refinance the Domestic and International Revolving Credit Facilities.

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, 2021, as amended. 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.

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, 2022 or 2021.

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There was one client in Africa who accounted for 10% or more of gross accounts receivable at September 30, 2022 and December 31, 2021, respectively, which represents 14% of the gross accounts receivable balance at September 30, 2022 and December 31, 2021, respectively. These amounts were fully reserved for at September 30, 2022 and December 31, 2021.

(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.

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(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, 2022						December 31, 2021
Cash and cash equivalents						$	22,834					$	21,821
Cash - restricted						4,131						5,562
Cash - restricted, net of current portion						2,843						3,063
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows						$	29,808					$	30,446

(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 1,128 shares and 1,353 shares at September 30, 2022 and 2021, respectively. In addition, the Company had 138 and 1,038 restricted and deferred stock units outstanding at September 30, 2022 and 2021, respectively. These awards were excluded from the calculation of diluted loss per share for the three and nine months ended September 30, 2022 and 2021 because they were anti-dilutive.

The following table provides a reconciliation to net earnings (loss) used in the numerator for loss per share attributable to Hill:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2022						2021						2022						2021
Net (loss) earnings						$	(703)					$	1,317					$	86					$	(1,659)
Less: net (loss) earnings - noncontrolling interests						(14)						58						(112)						265
Net (loss) earnings attributable to Hill International, Inc.						$	(689)					$	1,259					$	198					$	(1,924)
Basic weighted average common shares outstanding						58,073						57,245						57,858						57,102
Effect of dilutive securities:
Stock options						—						—						—						—
Unissued share-based compensation units						—						—						1,909						—
Diluted weighted average common shares outstanding						58,073						57,245						59,767						57,102
Basic and diluted (loss) earnings per common share - Hill International, Inc.						$	(0.01)					$	0.02					$	—					$	(0.03)

(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.

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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, 2021 filed with the SEC on March 31, 2022, as amended.

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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.

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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.

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The components of the Company’s revenue by contract type and geographic region for the three and nine months ended September 30, 2022 and 2021 are as follows:

						Three Months Ended September 30, 2022																								Three Months Ended September 30, 2021
						Fixed Price						T&M						Total						Percent of Total Revenue						Fixed Price						T&M						Total						Percent of Total Revenue
Americas						$	6,068					$	51,807					$	57,875					52.7		%				$	5,398					$	45,964					$	51,362					53.1		%
Middle East/Asia/Pacific						3,507						21,871						25,378						23.2		%				773						20,848						21,621						22.4		%
Europe						8,923						7,361						16,284						14.9		%				10,898						2,999						13,897						14.4		%
Africa						3,791						6,243						10,034						9.2		%				1,125						8,599						9,724						10.1		%
Total						$	22,289					$	87,282					$	109,571					100.0		%				$	18,194					$	78,410					$	96,604					100.0		%

						Nine Months Ended September 30, 2022																								Nine Months Ended September 30, 2021
						Fixed Price						T&M						Total						Percent of Total Revenue						Fixed Price						T&M						Total						Percent of Total Revenue
Americas						$	23,064					$	143,602					$	166,666					52.4		%				$	14,778					$	132,923					$	147,701					51.7		%
Middle East/Asia/Pacific						12,162						63,730						75,892						23.9		%				7,000						56,320						63,320						22.2		%
Europe						22,819						23,401						46,220						14.6		%				25,247						19,695						44,942						15.8		%
Africa						8,087						20,672						28,759						9.1		%				2,027						27,247						29,274						10.3		%
Total						$	66,132					$	251,405					$	317,537					100.0		%				$	49,052					$	236,185					$	285,237					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 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.

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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, 2022 and 2021 that was included in the deferred revenue balance at the beginning of the periods was $61 and $456, respectively. The amount of revenue recognized during the nine months ended September 30, 2022 and 2021 that was included in the deferred revenue balance at the beginning of the periods was $7,981 and $4,051, 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 as of the end of the reporting period. The Company’s remaining performance obligations include fixed fee projects that have an executed contract, 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. Although remaining performance obligations reflect business that is considered to be firm, cancellations, scope adjustments, foreign currency exchange fluctuations or project deferrals may occur that impact the value or expected timing of their recognition. Remaining performance obligations are adjusted to reflect any known project cancellations, revisions to project scope, foreign currency exchange fluctuations and project deferrals, as appropriate. 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 right to invoice practical expedient. As of September 30, 2022 and December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $93,324 and $114,165, respectively. During the following 12 months, approximately 46.7% of the remaining performance obligations are expected to be recognized as revenue with the remaining balance recognized over 2 to 6 years.

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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, 2022						December 31, 2021
Billed (1)						$	112,646					$	112,441
Unbilled (2)						60,083						46,014
						172,729						158,455
Allowance for doubtful accounts (1)						(36,462)						(38,939)
Accounts receivable, net						$	136,267					$	119,516
Accounts Receivable - Affiliates
Billed (3)						$	3,755					$	10,229
Unbilled (2)						16,655						12,243
						$	20,410					$	22,472
Allowance for doubtful accounts						(708)						(731)
Accounts receivable - affiliates, net						$	19,702					$	21,741

(1) Includes $23,479 and $24,031 related to amounts due from a client in Libya as of September 30, 2022 and December 31, 2021, respectively, which where both fully reserved for in the allowance for doubtful accounts. .

(2) Amounts are net of unbilled reserves.

(3) Includes $802 and $2,179 of retainage receivables due from affiliates as of September 30, 2022 and December 31, 2021, respectively.

Note 6 — Intangible Assets

 

The following table summarizes the Company’s acquired intangible assets:

 

						September 30, 2022												December 31, 2021
						Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Engineering license						$	2,900					$	—					$	2,900					$	—
Client relationships						508						445						509						407
Total						$	3,408					$	445					$	3,409					$	407
Intangible assets, net						$	2,963											$	3,002

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, 2022 and 2021, respectively and $38 for the nine months ended September 30, 2022 and 2021, respectively.

 

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The following table presents the estimated amortization expense for the next five years: 

						Estimated Amortization Expense
Year ending December 31,
2022 (remaining 3 months)						$	13
2023						50
2024						—
2025						—
2026						—

 

Note 7 — Goodwill

 

The following table summarizes the changes in the Company’s carrying value of goodwill during the nine months ended September 30, 2022:

Balance, December 31, 2021			$	44,127
Translation adjustments (1)			(4,022)
Balance, September 30, 2022			$	40,105

(1) The translation adjustment was calculated based on the foreign currency exchange rates as of September 30, 2022.

The Company (the reporting unit) performed its 2022 annual impairment test effective July 1, 2022 and noted no impairment. Based on the valuation as of July 1, 2022, the fair value of the Company exceeded its carrying value. This was determined by using the price offered by the transacting company of $3.40 per share and multiplying it by the market cap as of July 1, 2022.

Note 8 — Accounts Payable and Accrued Expenses

 

Below are the components of accounts payable and accrued expenses:

						September 30, 2022						December 31, 2021
Accounts payable						$	32,982					$	23,573
Accrued payroll and related expenses						20,311						19,699
Accrued subcontractor fees						13,812						12,203
Accrued agency fees						3,962						5,048
Accrued legal and professional fees						1,687						1,833
Other accrued expenses						1,274						1,500
						$	74,028					$	63,856

 

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:

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																		Interest Rate (1)									Balance Outstanding as of
Loan						Maturity						Interest Rate Type						September 30, 2022			December 31, 2021						September 30, 2022			December 31, 2021
Secured Credit Facilities
Hill International, Inc. - Société Générale 2017 Term Loan Facility						11/05/2023						Variable						7.49%			7.51%						$	28,425		$	28,650
Hill International, Inc. - Société Générale Domestic Revolving Credit Facility (2)						05/05/2023						Variable						5.17%			5.06%						23,303			19,400
Hill International N.V.. - Société Générale International Revolving Credit Facility (3)						05/05/2023						Variable						4.46%			4.06%						4,884			5,802
Unsecured Credit Facilities
Hill International, Inc. - First Abu Dhabi Bank ("FAB") PJSC Overdraft Credit Facility (4)						04/18/2023						Variable						5.62%			5.71%						2,695			151
Unsecured Notes Payable and Long-Term Debt
Philadelphia Industrial Development Corporation Loan						04/01/2027						Fixed						2.75%			2.79%						310			358
Hill International Spain S.A. - Bankinter S.A. 2020 Term Loan (5)(6)						05/04/2024						Variable						2.39%			2.23%						143			239
Hill International Spain S.A. - Banco Santander, S.A. Term Loan (5)(6)						05/30/2025						Fixed						3.86%			3.91%						200			295
Hill International Spain S.A. - BBVA, S.A. P.P. Term Loan (5)(6)						06/19/2025						Variable						2.25%			2.28%						204			300
Hill International Spain S.A. - Bankia. S.A. 2020 Term Loan (5)(6)						06/05/2025						Variable						2.50%			2.54%						170			248
Total notes payable and long-term debt, gross																											$	60,334		$	55,443
Less: unamortized discount and deferred financing costs related to Société Générale 2017 Term Loan Facility																											(183)			(300)
Notes payable and long-term debt																											$	60,151		$	55,143
Current portion of notes payable																											31,533			26,043
Current portion of unamortized debt discount and deferred financing costs																											(198)			(202)
Current maturities of notes payable and long-term debt																											$	31,335		$	25,841
Notes payable and long-term debt, net of current maturities																											$	28,816		$	29,302

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, 2022 since the loan origination or modification date.

(2) As of September 30, 2022 and December 31, 2021, the Company had $4,972 and $6,457 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $7 and $2,643 of available borrowing capacity under the Domestic Revolving Credit Facility, respectively. The amounts available were based on the maximum borrowing capacity of $28,282 and $28,500 as of September 30, 2022 and December 31, 2021. See 'Secured Credit Facilities' section below for further information.

(3) As of September 30, 2022 and December 31, 2021, the Company had $509 and $478 of outstanding letters of credit, respectively, in addition to the balances outstanding above, which resulted in $175 and $520 of available borrowing capacity under the International Revolving Credit Facility, respectively. The amounts available were based on the Company's borrowing capacity of $5,568 and $6,800 as of September 30, 2022 and December 31, 2021, 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, 2022 and December 31, 2021. The Company had $436 of availability under the credit facility as of September 30, 2022 and $2,980 as of December 31, 2021.

(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, 2022. The Company had $3,000 of availability under the credit facilities as of September 30, 2022.

(6) Balances outstanding are reflected in U.S. dollars based on the conversion rates from Euros as of September 30, 2022 and December 31, 2021.

(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.

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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, 2022.

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 $1,569 and $314 at September 30, 2022 and December 31, 2021, 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 SOFR rate for the relevant interest period plus 4.85% per annum or the Base Rate plus 3.75% 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 6.00% 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.

On March 31, 2022 and September 30, 2022, the Company entered into amendments of its main credit facility with Société Générale that extend 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 by 1.1% and 1.5%, respectively, while the term loan facility interest rate increased by 1.0% and the Company paid an amendment fee of $463. The aggregate amount of the credit commitments under the facilities was and permanently reduced by an amount equal to $500 on each of September 30, 2022 and October 31, 2022 and will be further permanently reduced by $500 on November 30, 2022 and $3,000 on December 31, 2022.

Other Financing Arrangements

On May 1, 2022, subsequent to the maturity of the Company's previous commercial premium financing arrangement in April 30, 2022 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 $3,577. The terms of the arrangement include a $304 down payment, followed by monthly payments to be made over an eleven-month period at a 3.99% interest rate through April 30, 2023.

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At September 30, 2022, there was $2,097 balance payable to AFCO. At December 31, 2021, the balance payable to AFCO of $862 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 $818 and $443 for the three months ended September 30, 2022 and 2021, respectively, and $1,589 and $1,814 for the nine months ended September 30, 2022 and 2021, respectively. Should there be a Change in Control of the Company, unvested shares would immediately vest. The Company's related share-based compensation is comprised of the following:

Restricted Stock Units

During the nine months ended September 30, 2022 and 2021, 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 486 and 414 RSUs, respectively. During the three months ended September 30, 2022, 23 RSUs were granted. No RSUs were granted during the three months ended September 30, 2021. 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, 2022 and 2021, the related compensation expense was recorded based on a weighted average price per share of $1.90 and $2.36, respectively. During the three months ended September 30, 2022, the related compensation expense was recorded based on a price per share of $1.74

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, 2022, 2023 and 2024 for the RSUs granted during the nine months ended September 30, 2022 and for the years ended December 31, 2021, 2022 and 2023 for the RSUs granted during the nine months ended September 30, 2021. 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, 2022 and 2021, 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

During the nine months ended September 30, 2022 and 2021, the Company granted certain employees, executive officers and independent members of the Board of Directors equity awards in the form of deferred stock units ("DSU") that are subject to a combination of time and performance-based conditions and, in the case of independent members of the Board of Directors, immediate vesting, under the 2017 Plan, totaling 1,066 and 780 DSUs, respectively. DSUs totaling 276 and 5

were granted during the three months ended September 30, 2022 and 2021, respectively. Each DSU entitles the grantee to one unit of the Company's common stock. The time-based DSUs vest annually over a three-year period on the anniversary date of each grant.

Unvested time-based DSUs will be forfeited if the grantee separates from the Company prior to its vesting date. During the nine

months ended September 30, 2022 and 2021, the related compensation expense was recorded based on a weighted average price

per share of $1.86 and $2.36 respectively. During the three months ended September 30, 2022 and 2021, the related compensation expense was recorded based on a weighted average price per share of $1.74 and $2.57, respectively.

The number of common shares to be issued under the performance-based DSUs 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, 2022, 2023 and 2024 for the DSUs granted during the nine months ended September 30, 2022 and for the years ended

December 31, 2021, 2022 and 2023 for the DSUs granted during the nine months ended September 30, 2021. 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. 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, 2022 and 2021, the Company determined it was not probable that the target performance

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metric would be met for each of the RSU grants and, therefore, did not record any share-based compensation expense related to such RSUs. Vested DSUs will be issued immediately upon separation from the Company.

Stock Options

At September 30, 2022 and 2021, the Company had approximately 1,123 and 1,353 stock options outstanding, respectively, with a weighted average exercise price of $3.83 and $3.87, respectively. No stock options were granted during the nine months ended September 30, 2022 and 2021. During the nine months ended September 30, 2022 and 2021, options lapsed for approximately 230 and 211 shares, respectively, with a weighted average exercise price of $4.05 and $4.95, 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 162.8% and 57.5% for the three months ended September 30, 2022 and 2021, respectively, and 97.7% and 155.4% for the nine months ended September 30, 2022 and 2021, respectively.

The change in the Company’s effective tax rate for the nine months ended September 30, 2022 from the nine months ended September 30, 2021 was primarily due to the mix of pretax earnings in jurisdictions with different jurisdictional tax rates. Additionally, the Company did not recognize any significant discrete tax items for the three months ended September 30, 2022, compared to the three months ended June 30, 2021 in which we recognized additional discreet expense for certain withholding taxes and uncertain tax positions.

The reserve for uncertain tax positions amounted to $5,621 and $8,855 at September 30, 2022 and December 31, 2021, respectively.

 

The Company’s policy is to record income tax related interest and penalties in income tax expense (benefit). The Company recorded expense (benefit) for any tax-related interest and penalties of $(20) and $434 for the three months ended September 30, 2022 and 2021, respectively, and $(395) and $461 for the nine months ended September 30, 2022 and 2021, 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.

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.

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The following tables present certain information for operations:

Total Revenue by Geographic Region: 

						Three Months Ended September 30,																								Nine Months Ended September 30,
						2022												2021												2022												2021
Americas						$	57,875					52.7		%				$	51,362					53.1		%				$	166,666					52.4		%				$	147,701					51.7		%
Middle East/Asia/Pacific						25,378						23.2		%				21,621						22.4		%				75,892						23.9		%				63,320						22.2		%
Europe						16,284						14.9		%				13,897						14.4		%				46,220						14.6		%				44,942						15.8		%
Africa						10,034						9.2		%				9,724						10.1		%				28,759						9.1		%				29,274						10.3		%
Total						$	109,571					100.0		%				$	96,604					100.0		%				$	317,537					100.0		%				$	285,237					100.0		%

 

Consulting Fee Revenue by Geographic Region:

						Three Months Ended September 30,																								Nine Months Ended September 30,
						2022												2021												2022												2021
Americas						$	37,896					44.5		%				$	34,510					44.8		%				$	113,572					44.7		%				$	100,996					44.5		%
Middle East/Asia/Pacific						23,436						27.5		%				21,345						27.7		%				72,305						28.4		%				62,100						27.3		%
Europe						14,500						17.0		%				12,328						16.0		%				41,618						16.4		%				36,968						16.3		%
Africa						9,310						10.9		%				8,878						11.5		%				26,767						10.5		%				27,094						11.9		%
Total						$	85,142					99.9		%				$	77,061					100.0		%				$	254,262					100.0		%				$	227,158					100.0		%

For the three months ended September 30, 2022 the United States and the United Arab Emirates were the only countries to account for 10% or more of total revenue. For the three months ended 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, 2022 and 2021, 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,
						2022						2021						2022						2021
Americas (1)						$	6,436					$	8,139					$	22,288					$	20,879
Middle East/Asia/Pacific (1)						4,867						2,872						11,687						6,054
Europe (1)						3,770						2,623						7,785						6,517
Africa						2,520						1,032						5,695						5,117
Corporate (2)						(14,271)						(10,339)						(38,643)						(31,496)
Total						$	3,322					$	4,327					$	8,812					$	7,071

    (1) includes Hill's share of profit (loss) of equity method affiliates on the Consolidated Statements of Operations.

(2) includes foreign exchange losses of $803 and $511 for the three months ended September 30, 2022 and 2021, respectively and 3,730 and 2,751 for the nine months ended September 30, 2022 and 2021, respectively.

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Depreciation and Amortization Expense:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2022						2021						2022						2021
Project Management						$	349					$	6					$	1,049					$	769
Corporate						250						561						735						1,087
Total						$	599					$	567					$	1,784					$	1,856

Total Revenue by Client Type: 

						Three Months Ended September 30,																								Nine Months Ended September 30,
						2022												2021												2022												2021
U.S. federal government						$	4,870					4.4		%				$	3,506					3.6		%				$	12,576					4.0		%				$	11,636					4.1		%
U.S. state, regional and local governments						35,922						32.8		%				30,648						31.7		%				103,331						32.5		%				90,934						31.9		%
Foreign governments						23,710						21.6		%				23,401						24.2		%				72,000						22.7		%				75,137						26.3		%
Private sector						45,069						41.2		%				39,049						40.5		%				129,630						40.8		%				107,530						37.7		%
Total						$	109,571					100.0		%				$	96,604					100.0		%				$	317,537					100.0		%				$	285,237					100.0		%

Property, Plant and Equipment, Net, by Geographic Location:

						September 30, 2022						December 31, 2021
Americas						$	6,598					$	7,146
Middle East/Asia/Pacific						776						745
Europe						643						586
Africa						399						418
Total						$	8,416					$	8,895

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.

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Several lawsuits have been filed by purported stockholders of Hill relating to the Merger: on September 15, 2022, a lawsuit captioned Shiva Stein v. Hill International, Inc. et al, Case No. 1:22-cv-07907, was filed the United States District Court for the Southern District of New York (the “Stein Complaint”); on October 19, 2022, an additional lawsuit captioned Brian Dixon v. Hill International, Inc. et al., Case No. 1:22-cv-01374, was filed in the United States District Court for the District of Delaware; and on October 21, 2022 (the “Dixon Complaint” and together with the Stein Complaint and Dixon Complaint, the “Complaints”), another lawsuit captioned Sean Riley v. Hill International, Inc. et al., Case No. 1:22-cv-08983, was filed in the United States District Court for the Southern District of New York (the “Riley Complaint”). The Stein Complaint generally alleges that Hill made misleading or materially incomplete disclosures regarding the Merger in the preliminary proxy statement on Schedule 14A filed with the U.S. Securities and Exchange Commission (“SEC”) on September 14, 2022, including but not limited to claims that the preliminary proxy statement omitted material information regarding the financial projections provided to Houlihan Lokey and the valuation analyses performed by Houlihan Lokey, and that, as a result, Hill and each member of Hill’s board of directors violated Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and each member of Hill’s board of directors violated Section 20(a) of the Exchange Act. The Stein Complaint also alleges that all defendants violated 17 C.F.R. § 244.100. The Dixon Complaint and Riley Complaint allege similar disclosure deficiencies with respect to Hill’s definitive proxy statement on Schedule 14A filed with the SEC on September 30, 2022 (the “Definitive Proxy Statement”). The Complaints generally seek (i) injunctive relief, (ii) rescission in the event the merger is consummated or alternatively rescissory damages, (iii) an accounting for all damages suffered, (iv) plaintiff’s costs and disbursements in connection with the actions, including plaintiff’s attorneys’ and experts’ fees, and (v) such other relief as the court deems just and proper. Additionally, Hill has received demand letters from purported stockholders of the Company that contain claims similar to those in the Complaints.

Hill and its board of directors believe that the claims asserted in the Complaints and demand letters are without merit. However, solely to moot the unmeritorious disclosure claims and minimize the risk, costs, burden, nuisance and uncertainties inherent in litigation, Hill supplemented the disclosures contained in the Definitive Proxy Statement on October 24, 2022 (the “Supplemental Disclosures”) which should be read in conjunction with the Definitive Proxy Statement. Nothing in the Supplemental Disclosures will be deemed an admission of the legal necessity or materiality under any applicable laws for any of the disclosures set forth therein.

The outcome of any current or future litigation related to the Merger, is uncertain. Such litigation, if not resolved, could prevent or delay consummation of the Merger and result in substantial costs to Hill, including any costs associated with the indemnification of directors and officers. One of the conditions to the consummation of the Merger is that no governmental entity of competent jurisdiction (i) enacted, issued or promulgated any order that is in effect or (ii) issued or granted any order or injunction (whether temporary, preliminary or permanent) that is in effect, in each case which has the effect of preventing, making illegal or otherwise prohibiting the consummation of the merger. Therefore, if a plaintiff were successful in obtaining an injunction prohibiting the consummation of the Merger, then such injunction may prevent the Merger from being consummated, or from being consummated within the expected time frame.

 

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 $173, which is included in other liabilities in the consolidated balance sheet at September 30, 2022.

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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 sheets for all leases in excess of one year in duration. The lease liability represents the present value of the remaining lease payments, which only includes payments that are fixed and determinable at the time of commencement, over the lease term. The lease term may be adjusted for renewal or early termination options provided in the leases only if it is reasonably certain that the Company will exercise such options. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

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

Total rent expense of $2,117 and $1,950 for the three months ended September 30, 2022 and 2021, respectively, and $6,480 and $6,193 for the nine months ended September 30, 2022 and 2021, respectively, 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, 2022 and 2021 included $1,614 and $1,631, 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, 2022 and 2021, was $328 and $396, respectively. The sublease income recognized for the nine months ended September 30, 2022 and 2021 was $984 and 1,190, respectively.

The following is a schedule of maturities of lease liabilities by year as of September 30, 2022:

						Total Operating Lease Payments						Total Finance Lease Payments
2022 (excluding the nine months ended September 30, 2022)						$	1,481					$	66
2023						5,850						263
2024						4,891						228
2025						4,016						99
2026						3,514						—
Thereafter						4,735						—
Total minimum lease payments (1)						24,487						656
Less amount representing imputed interest						3,718						21
Present value of lease obligations						$	20,769					$	635
Weighted average remaining lease term (years)						5.07						2.59
Weighted average discount rate						6.63		%				2.47		%

(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, 2022, where applicable.

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

Introduction

The following discussion should be read in conjunction with the information contained in Hill International, Inc.’s (collectively referred to as “Hill”, “we”, “us”, “our” and “the Company”) unaudited consolidated financial statements, including the notes thereto. Statements regarding future economic performance, management's plans and objectives and any statements concerning assumptions related to the foregoing contained in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements. See our 2021 Annual Report, 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 expenses consist 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.

On August 26, 2022, Hill, 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 “Merger Agreement”), which amended and restated the Agreement and Plan of Merger, dated as of August 16, 2022, by and among the Company, Parent and Merger Sub. The Merger Agreement provides that, upon the terms and conditions set forth therein and in accordance with the General Corporation Law of the State of Delaware (“DGCL”), Merger Sub will be merged with and into Hill (the “Merger”) with Hill surviving the Merger as the surviving corporation and an indirect wholly owned subsidiary of Parent.

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Hill’s common stock, other than as provided below, will be converted into the right to receive $3.40, without interest (such amount of cash, the “Merger Consideration”). The following shares of Hill common stock will not be converted into the right to receive the Merger Consideration in connection with the Merger: (i) shares held in treasury by Hill or owned by Parent or Merger Sub or any direct or indirect wholly owned subsidiaries of Parent, Merger Sub or Hill immediately prior to the effective time, and (ii) shares issued and outstanding immediately prior to the effective time that are held by a holder who is entitled to demand and has properly exercised and perfected demand and has properly exercised and perfected demand for

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appraisal of such shares pursuant to, and who complies in all respects with, Section 262 of the General Corporation Law of the State of Delaware (the “DGCL”) and has not effectively and validly withdrawn or lost such holder’s rights to appraisal.

Pursuant to the terms of the Merger Agreement, the consummation of the Merger remains subject to various closing conditions, including but not limited to (i) the receipt of consent or authorization under certain foreign antitrust laws, and (ii) the absence of any order that has the effect of preventing, making illegal or otherwise prohibiting the consummation of the Merger. As of the date hereof, the Company continues to expect to complete the Merger in the fourth calendar quarter of 2022. Upon the consummation of the Merger, Hill will no longer be traded or listed on any public securities exchange.

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. As of September 30, 2022, most of our employees have returned 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.

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, other than those discussed above, were delays in the procurement processes of a number of our current and potential clients and a temporary slowing of certain collections.

Management currently believes that it has adequate liquidity and business plans to continue to operate the business and mitigate the continuing risks associated with the COVID-19 pandemic for at least the next 12 months from the date of this report.

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Results of Operations

Consolidated Results

(In thousands)

						Three Months Ended September 30,												Change									Nine Months Ended September 30,												Change
						2022						2021						$			%						2022						2021						$			%
Income Statement Data:
Consulting fee revenue						$	85,142					$	77,061					$	8,081		10.5		%				$	254,262					$	227,158					$	27,104		11.9		%
Reimbursable expenses						24,429						19,543						4,886			25.0		%				63,275						58,079						5,196			8.9		%
Total revenue						$	109,571					$	96,604					$	12,967		13.4		%				$	317,537					$	285,237					$	32,300		11.3		%
Direct expenses						74,917						64,196						10,721			16.7		%				213,620						194,314						19,306			9.9		%
Gross profit						$	34,654					$	32,408					$	2,246		6.9		%				$	103,917					$	90,923					$	12,994		14.3		%
Selling, general and administrative expenses						31,035						28,121						2,914			10.4		%				92,831						82,906						9,925			12.0		%
Foreign currency exchange loss						803						511						292			57.1		%				3,730						2,751						979			35.6		%
Plus: Share of profit of equity method affiliates						506						551						(45)			(8.2)		%				1,456						1,805						(349)			(19.3)		%
Operating profit						$	3,322					$	4,327					$	(1,005)		(23.2)		%				$	8,812					$	7,071					$	1,741		24.6		%
Interest and related financing fees, net						2,098						1,226						872			71.1		%				4,805						4,077						728			17.9		%
Other loss, net						104						—						104			-%						319						—						319			100.0		%
Earnings before income taxes						$	1,120					$	3,101					$	(1,981)		(63.9)		%				$	3,688					$	2,994					$	694		23.2		%
Income tax expense						1,823						1,784						39			2.2		%				3,602						4,653						(1,051)			(22.6)		%
Net (loss) earnings						$	(703)					$	1,317					$	(2,020)		(153.4)		%				$	86					$	(1,659)					$	1,745		(105.2)		%
Less: net (loss) earnings - noncontrolling interests						(14)						58						(72)			(124.1)		%				(112)						265						(377)			(142.3)		%
Net (loss) earnings attributable to Hill International, Inc.						$	(689)					$	1,259					$	(1,948)		(154.7)		%				$	198					$	(1,924)					$	2,122		(110.3)		%

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Three Months Ended September 30, 2022 Compared to the

Three Months Ended September 30, 2021

 

Total Revenue by Geographic Region:

						Three Months Ended September 30,																								Change
						2022												2021												$						%
Americas						$	57,875					52.7		%				$	51,362					53.1		%				$	6,513					12.7		%
Middle East/Asia/Pacific						25,378						23.2		%				21,621						22.4		%				3,757						17.4		%
Europe						16,284						14.9		%				13,897						14.4		%				2,387						17.2		%
Africa						10,034						9.2		%				9,724						10.1		%				310						3.2		%
Total						$	109,571					100.0		%				$	96,604					100.0		%				$	12,967					13.4		%

Consulting Fee Revenue by Geographic Region:

						Three Months Ended September 30,																								Change
						2022												2021												$						%
Americas						$	37,896					44.5		%				$	34,510					44.8		%				$	3,386					9.8		%
Middle East/Asia/Pacific						23,436						27.5		%				21,345						27.7		%				2,091						9.8		%
Europe						14,500						17.0		%				12,328						16.0		%				2,172						17.6		%
Africa						9,310						10.9		%				8,878						11.5		%				432						4.9		%
Total						$	85,142					99.9		%				$	77,061					100.0		%				$	8,081					10.5		%

     

Total revenue increased approximately $12,967 for the three months ended September 30, 2022 when compared to the same period in 2021. CFR was $85,142 and $77,061 of the total revenue for the three months ended September 30, 2022 and 2021, respectively, which was 77.7% and 79.8% of total revenues, respectively.

The increase in total revenue and CFR during the three months ended September 30, 2022 compared to the same period in the prior year is primarily driven by activity returning to pre-COVID levels, including returns to full staffing on certain existing projects and mobilizations on certain newly awarded projects.

Gross Profit by Geographic Region:

						Three Months Ended September 30,																																				Change
						2022																		2021																		$						%
																		% of Total  Revenue																		% of Total  Revenue
Americas						$	15,277					44.1		%				26.4		%				$	15,358					47.3		%				29.9		%				$	(81)					(0.5)		%
Middle East/Asia/Pacific						8,951						25.8		%				35.3		%				8,086						25.0		%				37.4		%				865						10.7		%
Europe						6,136						17.7		%				37.7		%				5,299						16.4		%				38.1		%				837						15.8		%
Africa						4,290						12.4		%				42.8		%				3,665						11.3		%				37.7		%				625						17.1		%
Total						$	34,654					100.0		%				31.6		%				$	32,408					100.0		%				33.5		%				$	2,246					6.9		%

Gross profit (margin) as a percentage of total revenue decreased for the three months ended September 30, 2022 compared to the same period in 2021. In the Middle East/Asia/Pacific margin decreased as a percentage of total revenue due to the closeout of higher margin projects new projects and increased labor wages. In Africa, the increase in margin as a percentage of total revenue was due to a decline in labor costs.

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SG&A Expenses

Our SG&A expenses increased $2,914 for the three months ended September 30, 2022 compared to the same period in 2021. The increase in year-over-year SG&A reflected increased investments in Hill's business development team as well as higher costs associated with consultants, temporary office support, and travel.

Foreign Currency Exchange Loss

There was a foreign currency exchange loss of $803 and $511 for the three months ended September 30, 2022 and 2021, respectively. The currency exchange loss for nine months ended September 30, 2022 was primarily the result of the weakening of the Euro against the dollar. The currency exchange loss for the three months ended September 30, 2021 was primarily the result of the weakening of the Libyan Dinar against the Euro.

Interest and Related Financing Fees, net

 

Interest and related financing fees for the three months ended September 30, 2022 were $2,098, net of $101 of interest income, compared to interest and related financing fees for the three months ended September 30, 2021 of $1,226, net of $94 of interest income.

Other Loss, net

Other loss, net is comprised primarily of interest cost from the Company's End of Service Benefit Plan.

Income Taxes

For the three months ended September 30, 2022 and 2021, we recognized income tax expense of $1,823 and $1,784, respectively.

The effective income tax rate for the three months ended September 30, 2022 and 2021 were 162.8% and 57.5%, respectively. The change in our effective tax rate for the three months ended September 30, 2022 was primarily a result of the mix of income among various jurisdictions with different statutory tax rates, as well as certain withholding taxes and uncertain tax positions recorded in 2021.

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Nine Months Ended September 30, 2022 Compared to the

Nine Months Ended September 30, 2021

 

Total Revenue by Geographic Region:

						Nine Months Ended September 30,																								Change
						2022												2021												$						%
Americas						$	166,666					52.4		%				$	147,701					51.7		%				$	18,965					12.8		%
Middle East/Asia/Pacific						75,892						23.9		%				63,320						22.2		%				12,572						19.9		%
Europe						46,220						14.6		%				44,942						15.8		%				1,278						2.8		%
Africa						28,759						9.1		%				29,274						10.3		%				(515)						(1.8)		%
Total						$	317,537					100.0		%				$	285,237					100.0		%				$	32,300					11.3		%

Consulting Fee Revenue:

						Nine Months Ended September 30,																								Change
						2022												2021												$						%
Americas						$	113,572					44.7		%				$	100,996					44.5		%				$	12,576					12.5		%
Middle East/Asia/Pacific						72,305						28.4		%				62,100						27.3		%				10,205						16.4		%
Europe						41,618						16.4		%				36,968						16.3		%				4,650						12.6		%
Africa						26,767						10.5		%				27,094						11.9		%				(327)						(1.2)		%
Total						$	254,262					100.0		%				$	227,158					100.0		%				$	27,104					11.9		%

Total revenue increased $32,300 for the nine months ended September 30, 2022 when compared to the same period in 2021. CFR was $254,262 and $227,158 for the nine months ended September 30, 2022 and 2021, respectively, which comprised 80.1% and 79.6% of total revenues, respectively.

The increases in total revenue and CFR for the nine months ended September 30, 2022 compared to the prior year period is primarily driven by activity returning to pre-COVID levels, including returns to full staffing on certain existing projects and mobilizations on certain newly awarded projects. Additionally, the purchase of NEYO group at the end of the second quarter of 2021 provided an additional $1,453 to total revenue and CFR during the current year period.

Gross Profit by Geographic Region:

						Nine Months Ended September 30,																																				Change
						2022																		2021																		$						%
																		% of Total Revenue																		% of Total Revenue
Americas						$	47,553					45.7		%				28.5		%				$	43,622					47.9		%				29.5		%				$	3,931					9.0		%
Middle East/Asia/Pacific						28,160						27.1		%				37.1		%				21,781						24.0		%				34.4		%				6,379						29.3		%
Europe						17,129						16.5		%				37.1		%				14,743						16.2		%				32.8		%				2,386						16.2		%
Africa						11,075						10.7		%				38.5		%				10,777						11.9		%				36.8		%				298						2.8		%
Total						$	103,917					100.0		%				32.7		%				$	90,923					100.0		%				31.9		%				$	12,994					14.3		%

     

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Gross profit (margin) as a percentage of total revenue increased 0.8% for the nine months ended September 30, 2022 compared to the same period in the 2021. In the Middle East/Asia/Pacific region, gross profit as a percentage of total revenue increased primarily due to new projects with lower labor costs. In Europe, gross profit as a percentage of total revenue increased due to mix of labor used on projects.

SG&A Expenses

SG&A expenses for the nine months ended September 30, 2022 increased by approximately $9,925 when compared to the same period in the prior year. The increase was primarily due to investments in the business development team and additional expenses associated with the NEYO group purchased at the end of the second quarter of 2021. In addition, consultants and temporary office support increased due to vacancies and additional work needed to address internal control deficiencies, and travel related expenses continue to increase towards a pre-COVID level. SG&A in 2022 also included a $0.6 million charge related to a bond that was called. The Company has received a final court order to have the bond returned and expects to reverse its charge in the second half of 2022. Also, the prior year period was reduced by an increase in bad debt recoveries associated with the receipt of payments against previously reserved receivables, primarily on a Libyan-based project.

Excluding the impact of the above-referenced Libya bad debt recoveries and bond cost, SG&A expenses as a percentage of gross profit in the nine months ended September 30, 2022 and September 30, 2021 would have been 92.8% and 94.7%, respectively.

Foreign Currency Exchange Loss

There were foreign currency exchange losses of $3,730 and $2,751 for the nine months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022, the foreign currency exchange losses were primarily caused by the weakening of the Euro. For the nine months ended September 30, 2021, the foreign currency exchange losses were primarily caused by a 70% weakening of the Libyan Dinar against the Euro and an 8% weakening of the Egyptian pound against the Euro.

Interest and Related Financing Fees, net

 

Interest and related financing fees increased $728 to $4,805 net of $69 interest income for the nine months ended September 30, 2022 as compared with $4,077 for nine months ended September 30, 2021, net of $17 of interest income.

Other Loss, net

Other loss, net is comprised primarily of interest cost from the Company's End of Service Benefit Plan.

Income Taxes

 

For the nine months ended September 30, 2022 and 2021, we recognized income tax expense of $3,602 and $4,653, respectively.

The effective income tax rate for the nine-month periods ended September 30, 2022 and 2021 was 97.7% and 155.4%, respectively. The change in the Company’s effective tax rate for the nine months ended September 30, 2022 was primarily a result of the mix of income among various foreign jurisdictions with different statutory tax rates, as well as certain withholding taxes and uncertain tax positions recorded in 2021.

Liquidity and Capital Resources

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

We utilize cash on hand and our revolving credit facilities to fund the working capital requirement caused by the lag discussed above and other operating needs. We believe our expected cash receipts from clients, together with current cash on hand and revolving credit facilities, are sufficient to support the reasonably anticipated cash needs of our operations over the next twelve months from November 14, 2022, the date of this report.

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At September 30, 2022, our primary sources of liquidity consisted of $22,834 of cash and cash equivalents, of which $18,474 was on deposit in foreign locations, and $3,618 of available borrowing capacity under our various credit facilities. We also have relationships with other foreign banks for the issuance of letters of credit, letters of guarantee and performance bonds in a variety of foreign currencies. At September 30, 2022, we had approximately $66,979 of availability under these arrangements. Our sources of liquidity under arrangements with foreign banks are available for repatriation as deemed necessary by us, with some restrictions and tax implications.

On March 31, 2022, we entered into an amendment of our main credit facility with Société Générale that extends 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 by 1.1% and 1.5%, respectively, while the term loan facility interest rate increased by 1.0% and the Company paid an amendment fee of $463. The aggregate amount of the credit commitments under the facilities will automatically and permanently be reduced by an amount equal to $500 on each of September 30, 2022 and December 31, 2022.

Pursuant to the Merger Agreement, we also have agreed to various specific restrictions relating to the conduct of our business between the date of the Merger Agreement and the time at which the Merger becomes effective, including but not limited to, agreeing to not to (i) issue or sell shares of our common stock or other equity or voting securities of the Company or any of its subsidiaries, or (ii) incur or assume any indebtedness, including by the issuance of any debt security (or any option, warrant, call or similar right to acquire any debt security), in each case subject to the terms of the Merger Agreement and any exceptions set forth therein. The Merger Agreement provides that, if requested by the Company, Parent and the Company shall use their respective commercially reasonable efforts to negotiate and enter into definitive documentation evidencing a credit facility or other interim financing in an amount to be mutually agreed by the parties thereto and otherwise on customary market terms as the parties shall mutually agree upon. However, this does not constitute a commitment to provide financing by Parent.

We believe that the Company has adequate liquidity and business plans to continue to operate the business for the next 12 months from November 14, 2022, the date of this filing. This ability to continue as a going concern is dependent upon the ability to refinance the Domestic and International Revolving Credit Facilities prior to their May 5, 2023 maturity date. As such, the consolidated interim financial statements included in this Form 10-Q do not include any adjustments that might result from the inability to refinance the Domestic and International Revolving Credit Facilities. 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. The Company expects to refinance these facilities by the end of 2022.

Sources of Additional Capital

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

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Cash Flows

						Nine Months Ended September 30,
						2022						Change						2021
Net cash used in operating activities						$	(2,316)					$	4,677					$	(6,993)
Net cash used in investing activities						(1,472)						406						(1,878)
Net cash provided by financing activities						5,698						2,413						3,285
Effect of exchange rate changes on cash, cash equivalents and restricted cash						(2,548)						106						(2,654)
Net decrease in cash, cash equivalents and restricted cash						$	(638)											$	(8,240)

Operating Activities

During the nine months ended September 30, 2022, cash used in operating activities was primarily due to an increase in accounts receivable, partially offset by an increase in accounts payable related to the timing of payments to vendors and subcontractors, an increase in other current liabilities and a decrease in retainage receivable. During the nine months ended September 30, 2021, cash used in operating activities was primarily due to increases in accounts receivable and prepaid expenses, partially offset by an increase in in accounts payable related to the timing of payments to vendors and subcontractors and an increase in other current liabilities.

Cash held in restricted accounts is used primarily as collateral for the issuance of performance and advance payment bonds, letters of credit and escrow. Restricted cash decreased from $8,625 at December 31, 2021 to $6,974 at September 30, 2022.

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

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

Investing Activities

During the nine months ended September 30, 2022 and 2021, cash was used in investing activities for the purchase of fixed assets.

Financing activities

During the nine months ended September 30, 2022 and 2021, cash provided by financing activities was used to fund the ongoing operating activities.

Effect of Exchange Rate Changes on Cash

For the nine months ended September 30, 2022, the effects of exchange rate changes on cash was primarily driven by the weakening of the Egyptian Pound (16.1%) and Euro (6.5%) against the U.S. Dollar.

For the nine months ended September 30, 2021, the effects of exchange rate changes on cash was primarily driven by the weakening of the Libyan Dinar (70.3%) and Euro (3.1%) against the U.S. Dollar.

Backlog

 

Our backlog represents CFR, which includes management’s estimate of the amount of contracts and awards in-hand that we expect to recognize as CFR in future periods as a component of total revenue. Our backlog is evaluated by management, on a project-by-project basis, and is reported for each period shown based upon the binding nature of the underlying contract, commitment or letter of intent, and other factors, including the economic, financial and regulatory viability of the project and the likelihood of the contract being extended, renewed or canceled.

 

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Backlog is not a measure defined in U.S. generally accepted accounting principles, and our methodology for determining backlog may not be comparable to the methodology used by other companies in determining their backlog.

 

Although backlog reflects business that we consider to be firm, cancellations or scope adjustments may occur. Further, substantially all of our contracts with our clients may be terminated at will, in which case the client would only be obligated to pay us for services provided through the termination date.

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

The following tables show our backlog by geographic region:

						Total Backlog												12-Month Backlog
September 30, 2022
Americas						$	341,605					47.8		%				$	122,398					48.4		%
Middle East/Asia/Pacific						164,167						23.0		%				62,385						24.7		%
Europe						110,357						15.4		%				42,224						16.7		%
Africa						98,854						13.8		%				25,657						10.2		%
Total						$	714,983					100.0		%				$	252,664					100.0		%
December 31, 2021
Americas						$	347,489					47.7		%				$	112,122					43.1		%
Middle East/Asia/Pacific						164,268						22.5		%				78,080						30.0		%
Europe						100,868						13.8		%				36,531						14.1		%
Africa						116,761						16.0		%				33,219						12.8		%
Total						$	729,386					100.0		%				$	259,952					100.0		%

At September 30, 2022, our backlog was $714,983 compared to $729,386 at December 31, 2021. We estimate that approximately $252,664 or 35.3% of the backlog at September 30, 2022, will be recognized over the next twelve months.

The amount of our new bookings, before any cancellations or other reductions, was $266,807 and equates to a book-to-burn ratio of 104.9% for the nine months ended September 30, 2022. Our book-to-burn ratio, a non-GAAP measure, is determined by taking our new CFR bookings and dividing it by CFR for the applicable period. This metric allows management to monitor the Company's business development efforts to ensure we grow our backlog and our business over time and management believes that this measure is useful to investors for the same reason.

The difference between the remaining performance obligations of $93,324 and the backlog of $714,983 at September 30, 2022 is due to the backlog including the full value of client contracts billed on a time and materials basis, whereas such time and material contracts, are not included as part of the remaining performance obligation. Such contracts are excluded from the remaining performance obligation because they are not fixed price contracts and the consideration expected under such contracts is variable as it is based upon hours and costs incurred, which results in the counter-party only being obligated to the Company for services provided through the completion or termination date.

Quarterly Fluctuations

 

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

Inflation

 

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

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Critical Accounting Policies

 

The Company’s interim financial statements were prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP"), which require management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting these judgments increases, such judgments become even more subjective. While management believes its assumptions are reasonable and appropriate, actual results may be materially different than estimated. The critical accounting estimates and assumptions have not materially changed from those identified in our 2021 Annual Report.

New Accounting Pronouncements

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

Item 3.          Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to

provide the information under this item.

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Item 4.   Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

The management of the Company, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2022. Management concluded that, due to the on-going remediation associated with the material weakness identified in our 2021 Annual Report, our disclosure controls and procedures were ineffective as of September 30, 2022 to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.

 

Exchange Act Rules 13a-15(e) and 15d-15(e) define “disclosure controls and procedures” to mean controls and procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. The definition further states that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

 

For a more comprehensive discussion of the material weaknesses in internal control over financial reporting previously identified by management as of December 31, 2021 and the remedial measures undertaken to address these material weaknesses, investors are encouraged to review Item 9A, Disclosure Controls and Procedures, of our 2021 Annual Report.

 

Changes in Internal Control Over Financial Reporting

 

Our remediation efforts for material weaknesses previously reported were ongoing during the nine months ended September 30, 2022, as described in Item 9A of our 2021 Annual Report. Management has implemented a series of both new and enhanced controls related to the deficiencies identified as a material weakness during the first three quarters of 2022. Management believes that effective performance of these controls over the course of 2022 will remediate the material weakness. Management has and will continue to conduct testing of these controls throughout the remainder of 2022. In order for the material weakness to be remediated, the controls must continue to be effective throughout 2022, evidenced by testing of these controls by both management and our independent auditors. There were no other material changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2022 that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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Part II — OTHER INFORMATION 

Item 1.  Legal Proceedings.

 

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

Item 1A.  Risk Factors.

 

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

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

None. 

Item 3.  Defaults Upon Senior Securities.

 

None. 

Item 4.  Mine Safety Disclosures.

 

Not applicable. 

Item 5.  Other Information.

 

None. 

Item 6.   Exhibits.

 

						EXHIBIT INDEX
Exhibit No.						Description
2.1						Agreement and Plan of Merger
2.2						Amended and Restated Agreement and Plan of Merger (GIS)
10.1						Tender and Support Agreement
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						XBRL Instance Document.
101.SCH						XBRL Taxonomy Extension Schema Document.
101.PRE						XBRL Taxonomy Presentation Linkbase Document.
101.CAL						XBRL Taxonomy Calculation Linkbase Document.
101.LAB						XBRL Taxonomy Label Linkbase.
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document.
104						The cover page of this Quarterly Report on Form 10-Q, formatted in Inline XBRL

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

			Hill International, Inc.
			By:			/s/ Raouf S. Ghali
						Raouf S. Ghali
						Chief Executive Officer
						(Principal Executive Officer)
			Dated:			November 14, 2022
			By:			/s/ Todd Weintraub
						Todd Weintraub
						Senior Vice President and Chief Financial Officer
						(Principal Financial Officer and Principal Accounting Officer)
			Dated:			November 14, 2022

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