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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from                                          to 
Commission File Number: 001-33961
HILL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 20-0953973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Commerce Square 
2005 Market Street, 17th Floor
PhiladelphiaPA19103
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001HILNew York Stock Exchange(NYSE)

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

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



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

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



HILL INTERNATIONAL, INC. AND SUBSIDIARIES
 
Index to Form 10-Q
 
 
   
   
 
   
 
   
 
   
 
   
 
   
   
   
   
   
   
   
   
   
   
   
   
3


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

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PART I — FINANCIAL INFORMATION
Item 1.   Financial Statements.
HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
 March 31, 2021December 31, 2020
Assets(Unaudited)
Cash and cash equivalents$18,935 $34,229 
Cash - restricted4,460 3,752 
Accounts receivable, net106,786 98,186 
Current portion of retainage receivable12,189 11,775 
Accounts receivable - affiliates25,888 23,285 
Prepaid expenses and other current assets11,343 9,378 
Income tax receivable644 2,298 
Total current assets180,245 182,903 
Property and equipment, net9,593 9,443 
Cash - restricted, net of current portion3,321 3,432 
Operating lease right-of-use assets19,575 13,116 
Financing lease right-of-use assets354 288 
Retainage receivable5,835 6,044 
Acquired intangibles, net2,793 2,253 
Goodwill45,178 46,397 
Investments3,352 2,805 
Deferred income tax assets3,612 3,698 
Other assets2,358 1,620 
Total assets$276,216 $271,999 
Liabilities and Stockholders’ Equity
Current maturities of notes payable and long-term debt$2,165 $987 
Accounts payable and accrued expenses63,350 67,797 
Income taxes payable2,253 2,219 
Current portion of deferred revenue3,436 3,305 
Current portion of operating lease liabilities5,111 4,797 
Current portion of financing lease liabilities101 70 
Other current liabilities7,723 5,796 
Total current liabilities84,139 84,971 
Notes payable and long-term debt, net of current maturities50,348 48,294 
Retainage payable69 600 
Deferred income taxes1,309 1,210 
Deferred revenue8,194 7,488 
Non-current operating lease liabilities19,542 13,184 
Non-current financing lease liabilities258 186 
Other liabilities6,794 6,778 
Total liabilities170,653 162,711 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value; 1,000 shares authorized, none issued
  
Common stock, $0.0001 par value; 100,000 shares authorized, 63,204 shares and 62,920 shares issued at March 31, 2021 and December 31, 2020, respectively
6 6 
Additional paid-in capital215,502 215,010 
Accumulated deficit(82,233)(79,542)
Accumulated other comprehensive income840 1,318 
Less treasury stock of 6,807 at March 31, 2021 and December 31, 2020
(29,056)(29,056)
Hill International, Inc. share of equity105,059 107,736 
Noncontrolling interests504 1,552 
Total equity105,563 109,288 
Total liabilities and stockholders’ equity$276,216 $271,999 
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
March 31,
20212020
Consulting fee revenue$72,409 $77,150 
Reimbursable expenses14,677 16,158 
Total revenue$87,086 $93,308 
Direct expenses59,855 65,048 
Gross profit$27,231 $28,260 
Selling, general and administrative expenses27,686 28,098 
Foreign currency exchange loss287 4,051 
 Plus: Share of profit of equity method affiliates588 24 
Operating loss$(154)$(3,865)
Less: Interest and related financing fees, net1,347 1,299 
Plus: Other income, net2 345 
Loss before income taxes$(1,499)$(4,819)
Income tax expense1,076 1,603 
Net loss$(2,575)$(6,422)
Less: net earnings - noncontrolling interests116 159 
Net loss attributable to Hill International, Inc.$(2,691)$(6,581)
Basic loss per common share - Hill International, Inc.$(0.05)$(0.12)
Basic weighted average common shares outstanding56,978 56,543 
Diluted loss per common share - Hill International, Inc.$(0.05)$(0.12)
Diluted weighted average common shares outstanding56,978 56,543 
 
See accompanying notes to consolidated financial statements.
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HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 
 Three Months Ended March 31,
 20212020
Net loss$(2,575)$(6,422)
Foreign currency translation adjustment, net of tax(1,642)(255)
Comprehensive loss(4,217)(6,677)
Less: Comprehensive (loss) earnings attributable to noncontrolling interests(1,048) 
Comprehensive loss attributable to Hill International, Inc.$(3,169)$(6,677)
 
See accompanying notes to consolidated financial statements.
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HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands) 
 Common StockAdditional
Paid-in
Retained
Earnings
Accumulated Other
Comprehensive
Treasury StockHill Share of Stockholders’Non-controllingTotal
Stockholders’
 SharesAmountCapital(Deficit)Income (Loss)SharesAmountEquityInterestsEquity
Balance - December 31, 202062,920 $6 $215,010 $(79,542)$1,318 6,807 $(29,056)$107,736 $1,552 $109,288 
Net income (loss)— — — (2,691)— — — (2,691)116 (2,575)
Other comprehensive income (loss)— — — — (478)— — (478)(1,164)(1,642)
Share-based compensation expense270 — 449 — — — — 449 — 449 
Shares issued under employee stock purchase plan (1)
14 — 43 — — — — 43 — 43 
Balance - March 31, 202163,204 $6 $215,502 $(82,233)$840 6,807 $(29,056)$105,059 $504 $105,563 
Balance - December 31, 201962,708 $6 $212,759 $(71,360)$(3,817)6,546 $(28,231)$109,357 $871 $110,228 
Net income (loss)— — — (6,581)— — — (6,581)159 (6,422)
Other comprehensive income (loss)— — — — (96)— — (96)(159)(255)
Share-based compensation expense — 399 — — — — 399 — 399 
Shares issued under employee stock purchase plan (1)
83 — 105 — — — — 105 — 105 
Transfer of shares pledged as collateral (2)
(261)— — — — 261 (825)(825)— (825)
Balance - March 31, 202062,530 $6 $213,263 $(77,941)$(3,913)6,807 $(29,056)$102,359 $871 $103,230 

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

See accompanying notes to consolidated financial statements.
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HILL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months Ended March 31,
 20212020
Cash flows from operating activities:
Net loss$(2,575)$(6,422)
Adjustments to reconcile net loss to net cash used in:
Depreciation and amortization694 2,424 
Recovery of bad debts(231)(479)
Amortization of deferred loan fees220 175 
Deferred tax expense170 490 
Share-based compensation449 399 
Operating lease right-of-use assets1,319 1,575 
Foreign currency remeasurement losses287 4,376 
Changes in operating assets and liabilities:
Accounts receivable(9,835)(4,203)
Accounts receivable - affiliate(2,602)(6,143)
Prepaid expenses and other current assets(1,772)(2,608)
Income taxes receivable1,651 (45)
Retainage receivable203 (755)
Other assets(2,346)1,231 
Accounts payable and accrued expenses(3,919)1,964 
Income taxes payable46 431 
Deferred revenue1,195 (2,994)
Operating lease liabilities(1,063)(1,323)
Other current liabilities1,914 696 
Retainage payable(530)29 
Other liabilities(1)250 
Net cash used in operating activities(16,726)(10,932)
Cash flows from investing activities:
Purchase of property and equipment(812)(833)
Net cash used in investing activities(812)(833)
Cash flows from financing activities:
Repayment of term loans(257)(217)
Proceeds from revolving loans5,405 18,792 
Repayment of revolving loans(1,777)(7,836)
Proceeds from stock issued under employee stock purchase plan11 50 
Net cash provided by financing activities3,382 10,789 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(541)(513)
Net decrease in cash, cash equivalents and restricted cash(14,697)(1,489)
Cash, cash equivalents and restricted cash — beginning of period41,413 24,982 
Cash, cash equivalents and restricted cash — end of period$26,716 $23,493 
 Three Months Ended March 31,
Supplemental disclosures of cash flow information:20212020
Interest and related financing fees paid$1,140 $1,150 
Income taxes paid133 87 
Transfer of proceeds from shares pledged as collateral to treasury stock 825 
Cash paid for amounts included in the measurement of lease liabilities1,535 1,910 
Right-of-use assets obtained in exchange for operating lease liabilities7,906  
Right-of-use assets obtained in exchange for finance lease liabilities125  

 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 and other consulting services primarily to the buildings, transportation, environmental, energy and industrial markets worldwide. Hill’s clients include the U.S. federal government, U.S. state and local governments, foreign governments and the private sector.

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

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

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

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


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

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

Other Income, net

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

Summary of Significant Accounting Policies

(a)                                 Foreign Currency Translations and Transactions

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

(b)                                 Concentrations of Credit Risk

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

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

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

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

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(c)                                 Allowance for Doubtful Accounts

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

(d)                                    Retainage Receivable

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

(e)                                 Income Taxes

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

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

(f)                                 Revenue Recognition

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

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

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

(g)                                    Restricted Cash

Restricted cash primarily represents cash collateral required to be maintained in foreign bank accounts to serve as collateral for letters of credit, bonds or guarantees on certain projects. The cash will remain restricted until the respective project has been completed, which typically is greater than one year.
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same such amounts shown in the statements of cash flows:
March 31, 2021December 31, 2020
Cash and cash equivalents$18,935 $34,229 
Cash - restricted4,460 3,752 
Cash - restricted, net of current portion3,321 3,432 
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows$26,716 $41,413 

(h)                                    Earnings (loss) per Share

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

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

The following table provides a reconciliation to net loss used in the numerator for loss per share attributable to Hill:
Three Months Ended March 31,
20212020
Net loss$(2,575)$(6,422)
Less: net earnings - noncontrolling interests116 159 
Net loss attributable to Hill International, Inc.$(2,691)$(6,581)
Basic weighted average common shares outstanding56,978 56,543 
Effect of dilutive securities:
Stock options  
Unvested share-based compensation units  
Diluted weighted average common shares outstanding56,978 56,543 
Basic and diluted loss per common share - Hill International, Inc.$(0.05)$(0.12)

(i)                                    New Accounting Pronouncements

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

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

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Recently Adopted Accounting Pronouncements

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

Recently Issued Accounting Pronouncements

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

Note 4 — Revenue from Contracts with Clients

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

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

Time and Materials Contracts

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

Fixed Price Contracts

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

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Change Orders and Claims

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

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

U.S. Federal Acquisition Regulations

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

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

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

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The components of the Company’s revenue by contract type and geographic region for the three months ended March 31, 2021 and 2020 are as follows:
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Fixed PriceT&MTotalPercent of Total RevenueFixed PriceT&MTotalPercent of Total Revenue
Americas$4,274 $40,295 $44,569 51.1 %$6,194 $40,997 $47,191 50.6 %
Middle East/Asia/Pacific2,365 17,710 20,075 23.1 %4,883 22,400 27,283 29.2 %
Europe7,204 5,416 12,620 14.5 %6,429 5,108 11,537 12.4 %
Africa564 9,258 9,822 11.3 %206 7,091 7,297 7.8 %
   Total$14,407 $72,679 $87,086 100.0 %$17,712 $75,596 $93,308 100.0 %

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

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

Accounts Receivable

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

Contract Assets and Liabilities

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

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

Remaining Performance Obligations

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

Note 5 — Accounts Receivable 

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

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

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Note 6 — Intangible Assets
 
The following table summarizes the Company’s acquired intangible assets:
 
 March 31, 2021December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
 
Engineering license$2,653 $— $2,100 $— 
Client relationships509 369 509 356 
Total$3,162 $369 $2,609 $356 
Intangible assets, net$2,793 $2,253 

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

The Company amortizes client relationship intangible assets over the estimated useful life of ten years. Such amortization expense was $13 and $27 for the three months ended March 31, 2021 and 2020, respectively.
 
The following table presents the estimated amortization expense for the next five years: 
 Estimated
Amortization
Expense
 
Year ending December 31,
2021 (remaining 9 months)$38 
202251 
202351 
2024 
2025 
 

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

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

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

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Note 8 — Accounts Payable and Accrued Expenses
 
Below are the components of accounts payable and accrued expenses:
 March 31, 2021December 31, 2020
 
Accounts payable$18,791 $20,953 
Accrued payroll and related expenses*28,626 28,508 
Accrued subcontractor fees8,238 8,711 
Accrued agency fees4,141 4,239 
Accrued legal and professional fees1,934 2,894 
Other accrued expenses*1,620 2,492 
 $63,350 $67,797 
 * $1,818 in costs related to the Company's end of service benefit plan at December 31, 2020 that were previously included in other accrued expenses and are now reflected in accrued payroll and related expenses.


Note 9 — Notes Payable and Long-Term Debt
 
The table below reflects the Company's notes payable and long-term debt, which includes credit facilities:
Interest Rate (1)
Balance Outstanding as of
LoanMaturityInterest Rate TypeMarch 31,
2021
December 31, 2020March 31,
2021
December 31, 2020
Secured Credit Facilities
Hill International, Inc. - Société Générale 2017 Term Loan Facility06/20/2023Variable7.62%7.67%$28,875 $28,950 
Hill International, Inc. - Société Générale Domestic Revolving Credit Facility (2)
05/04/2022Variable5.39%5.50%17,400 14,400 
Hill International N.V.. - Société Générale International Revolving Credit Facility (3)
05/04/2022Variable4.09%4.11%3,229 4,035 
Unsecured Credit Facilities
Hill International, Inc. - First Abu Dhabi Bank ("FAB") PJSC Overdraft Credit Facility (4)
04/18/2022Variable5.73%5.65%1,291  
Unsecured Notes Payable and Long-Term Debt
Hill International Spain S.A.-Bankia S.A. & Bankinter S.A.(5)
12/31/2021Fixed2.21%2.21%420 581 
Philadelphia Industrial Development Corporation Loan04/01/2027Fixed2.79%2.79%405 421 
Hill International Spain S.A. - Bankinter S.A. 2020 Term Loan (5)(6)
05/04/2024Variable2.23%2.23%320 357 
Hill International Spain S.A. - Banco Santander, S.A. Term Loan (5)(6)
05/30/2025Fixed3.91%3.91%352 367 
Hill International Spain S.A. - BBVA, S.A. P.P. Term Loan (5)(6)
06/19/2025Variable2.28%2.28%352 367 
Hill International Spain S.A. - Bankia. S.A. 2020 Term Loan (5)(6)
06/05/2025Variable2.54%2.54%291 303 
Total notes payable and long-term debt, gross$52,935 $49,781 
Less: unamortized discount and deferred financing costs related to Société Générale 2017 Term Loan Facility(422)(500)
Notes payable and long-term debt$52,513 $49,281 
Current portion of notes payable$2,351 $1,171 
Current portion of unamortized debt discount and deferred financing costs$(186)$(