Hill International, Inc. (HIL) on Q1 2022 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the Hill International First Quarter 2022 Financial Results Conference Call. . As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Devin Sullivan, Senior Vice President of the Equity Group. Please go ahead.
Devin Sullivan: Thank you, Joe. Good morning, everyone, and thank you for joining us today for Hill International's First Quarter Financial Results Conference Call. Our speakers for today are Raouf Ghali, Chief Executive Officer; and Todd Weintraub, Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during this call may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and it is our intent that any such statements be protected by the safe harbor created thereby. Except for historical information, the matters set forth herein, including, but not limited to, any statements of belief or intent, any statements concerning financial projections, our plans, strategies and objectives for future operations are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and assumptions and are subject to risks and uncertainties, including, but not limited to, risks and uncertainties related to the COVID-19 pandemic, the willingness and ability of governments and other clients to undertake and complete infrastructure projects and our ability to maintain and support business development activities. Although we believe that the expectations, estimates and assumptions reflected in forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Important factors that could cause our actual results to differ materially from estimates or projections contained in our forward-looking statements are set forth in the Risk Factors section and elsewhere in the reports we have filed with the Securities & Exchange Commission. Including that unfavorable global economic conditions may adversely impact our business, our backlog may not be fully realized as revenue and our expenses may be higher than anticipated. We do not intend and undertake no obligation to update any forward-looking statement. We have prepared a slide presentation for today's call, which is available for your reference at our website www.hillintl.com. The safe harbor provision applies to the information contained in those slides, and those slides also include definitions of the non-GAAP measures we will be discussing today. With that said, I'd now like to turn the call over to Raouf Ghali, Hill's Chief Executive Officer. Raouf, please go ahead.
Raouf Ghali: Thank you, Devin. Good morning, everyone, and thank you for joining us today to discuss our 2022 first quarter financial results. After a strong finish to 2021, I'm pleased to report a very promising beginning to the new year. Revenue topped $100 million, increasing 17.4% to $102.2 million from $87 million in 2021. Consulting fee revenue rose 12.5% to $81.4 million from $72.4 million in the prior year period, and was our first $80 million quarter since the first quarter of 2018. New contract awards were $88 million, resulting in a book-to-burn ratio of 1.08. Operating profit improved to $1 million from an operating loss of $154,000 in the first quarter of last year. Our net loss narrowed significantly from the prior year's quarter, and adjusted EBITDA rose to $3.2 million from $741,000 in the same period last year. Our backlog increased for the second consecutive quarter to $736 million, its highest level in over 2 years. And finally, we have taken steps to reduce our G&A expenses at an annualized rate of approximately $4 million. We believe that those actions will allow us to more fully capture profit opportunities associated with our anticipated CFR growth without sacrificing any aspect of client service or operational integrity. Speaking of CFR, our top line growth this year was driven in large part by infrastructure projects in the U.S., in particular, in roads and highways and transit programs and projects. As we stated last quarter, we believe that the COVID-19-related headwinds that we experienced these past 2 years are subsiding. And that new delayed projects, especially in the U.S. and Europe are being given the green light to proceed. Given our contract wins over the last several quarters, our new business outlook for the year and a second consecutive quarter of rising backlog, we remain very confident in our outlook. We are monitoring accelerating growth opportunities across each of our end markets and geographies, and continue to see significant opportunity in infrastructure projects. With respect to new awards in Q1 2022, many of our wins were infrastructure related, including delivering project management and project control services for San Francisco International Airports noise insulation program, managing construction for the Capital Metropolitan Transportation Authority at McKalla Station and Red Line in Austin, Texas. Being selected to provide construction management services to the Pennsylvania Department of Transportations, Central Access Philadelphia or CAP project which will replace and expand the existing bridge structure over the Interstate 95 in Center City, Philadelphia. Being awarded a construction management services contract by the port authority of the Allegheny County in Pennsylvania for their PAAC bus rapid transit system project. And providing construction management services for the flagship mixed-use Project Marina Towers in Egypt on behalf of the new urban communities authority. Approximately 40% of new awards in 2022 first quarter were infrastructure related. These awards were not associated with the 2022 federal infrastructure bill. But instead, or a combination of new projects and deferred programs that have been reinstated as we continue to exit the lockdowns associated with COVID-19. We continue to expect that we will realize awards associated with the infrastructure bill starting late this year. Our low-risk professional services business model provides us with the flexibility and resiliency to grow under multiple economic circumstances. Moreover, our diverse revenue profile, which is driven by very geographic end market and client exposure allows us to adapt to changing market environments and quickly pivot towards opportunities as they arise. We reiterate our outlook for 2022. We are forecasting CFR of $340 million to $350 million, an increase of 11% to 15% from 2021. Our adjusted EBITDA guidance for 2022 is expected to range between $22 million to $24 million, up from adjusted EBITDA of $16.3 million, and representing a growth of 35% to 47%. That said, thank you for your attention, and I'll now turn things over to Todd Weintraub, Hill's Chief Financial Officer. Todd, please go ahead.
Todd Weintraub: Thank you, Raouf. Revenue increased 17.4% in the quarter, coming in at $102.2 million compared to $87.1 million in last year's first quarter. CFR for the quarter increased 12.5% to $81.4 million from $72.4 million in the first quarter of '21, reflecting an increase in project activity to pre-COVID levels. For the quarter, the majority of our revenue was generated in the Americas, followed by our Middle East, Asia Pacific region, Europe and then Africa. Gross profit improved $31.8 million or 31.1% of total revenue from $27.2 million or 31.3% of total revenue in last year's first quarter. SG&A rose 6.7% to $29.5 million from $27.7 million in last year's first quarter. SG&A Included nonrecurring and noncash income of $0.1 million and expenses of $0.4 million in the '22 and '21 first quarters, respectively. Excluding these nonrecurring and noncash expenses, expenses were $29.6 million in the first quarter or 91.3% of gross profit, which compares to $27.3 million or 100% of gross profit in last year's first quarter. This decline in SG&A as a percentage of gross profit reflected our continuing commitment to managing expenses to ensure costs for more slowly in gross profits. As Raouf mentioned, we have reduced the run rate of G&A expenses by approximately $4 million annually, the initial impact of which is expected to be realized in the current second quarter ending June 30, '22. These expenses were achieved primarily by realigning certain parts of our workforce to improve utilization and efficiency. Operating income improved to $1 million from an operating loss of $154,000 in the first quarter of '21, driven by higher CFR and improved gross profit, offset by an increase in foreign currency exchange losses and higher SG&A to support our growth initiatives. On an adjusted basis, Adjusting operating profit improved to $2.4 million from adjusted operating profit of $161,000 last year. Net loss for the quarter narrowed to $544,000 or $0.01 per share compared to a net loss of $2.7 million or $0.05 per share in the year ago period. Adjusted net income improved to $864,000 from adjusted net loss of $2.4 million from last year's first quarter. Adjusted EBITDA for the '22 first quarter improved to $3.2 million, up from $741,000 in last year's first quarter. The reconciliations for these adjusted figures are included in our press release. Our unrestricted cash position at March 31, '22 was $23.9 million and total liquidity was $27.8 million. Net cash used in operating activities was $3.3 million. While use of cash is consistent with historical first quarter performance, first quarter is our lowest cash collection quarter for the year typically. It's important to note that there is a significant improvement in cash -- net cash used in operating activities of $16.7 million in the first quarter of last year. Free cash flow for the quarter was negative $4.1 million which has much improved from negative free cash flow of $17.5 million in last year's first quarter. With the first quarter behind us, we do expect to generate positive cash flow for the remainder of 2022. We have amended our main revolving and term loan facilities to extend the maturity of the revolving facilities to May 2023 and the term loan to November 2023. We paid a fee of 1% on the term loan facility and 0.5% on the revolving credit facility and will pay an additional 0.5% on the revolver at the end of the second, third and fourth quarters of 2022. The interest spreads on both these facilities will increase by 1%. As Raouf noted, our total backlog growth for the consecutive quarter, improving to $736.1 million from $729.4 million at December 31, '21, reflecting our positive book-to-burn during the quarter. Our 12-month backlog at March 31, 2022, was $264 million. From a geographic perspective, our backlog remain concentrated in the Americas with nearly 48%, followed by the Middle East, Asia region, Africa and Europe. Thanks very much for your time, and I'll now turn the conversation back to Raouf.
Raouf Ghali: Thank you, Todd. Thank you for your time today. and I'll ask the operator to open the call to questions.
Operator: . Our first question is from Pete Enderlin with MAZ Partners.
Peter Enderlin: You have had book-to-bill ratios of more than 1.08 in the past -- recent past even. And so I'm wondering with the infrastructures beginning to start to flow in an economy that's fairly strong, although that's a question about how sustainable that is. Were there more wins that you could have gotten that somehow were just delayed at this point in the cycle?
Raouf Ghali: Pete, and you are right. We've had book-to-burn much higher in the fourth quarter and other quarters prior to that. However, typically, first of all, our first quarter is usually the slowest one for bookings, just because most of our business is really with the public sector, and it takes some time for the public sector for the awards during the early parts of the year. But to answer your question on the infrastructure bill, we have not seen any of the procurement that's coming out of the infrastructure bill yet hit the street. I think it's twinkling down through the administrative burden between the federal and the state governments. We're expecting to start seeing really potential awards happening towards the later part of this year. I think I mentioned that during our call earlier.
Peter Enderlin: Right. Yes. And then a related question to that is, have there been any significant cancellations, which, as I understand the way you account for them would show up as reduction in the book-to-bill ratio.
Raouf Ghali: We've not had any major cancellations. We've had some minor adjustments as we usually do when certain task orders or contracts -- the contracts are not fully absorbed and they're coming to an end. There's sometimes some minor adjustments. But other than that, we have not had any cancellations now.
Peter Enderlin: Okay. And you did mention and have had some reductions in the ongoing level of SG&A. So what -- how should we think about that level as a sustainable amount for this year and next?
Raouf Ghali: I think the amounts that we've done are sustainable and I'll let Todd as well weigh in on it and add to what I have to say, they are sustainable. What we're doing is not a temporary. This was mainly taking -- looking at our utilization, getting it more efficient. Looking at some of our indirect or overhead staff and really fine-tuning some of the things. We had added some indirects for some growth that we've seen. And now we're just fine-tuning some of these elements.
Peter Enderlin: So what do you think the budgetable level of SG&A going forward would be?
Todd Weintraub: We haven't really given any specific guidance on .
Peter Enderlin: But you have in the past, though.
Todd Weintraub: A couple of years ago, we did. But we're -- we don't have any current guidance on the SG&A levels. But I think you can look at the run rate. And as we said, we should be able to reduce from the current run rate that we have. But I would add to that, that we're also constantly -- we've got more efficient. And as Raouf said, we have better staff utilization at this point. We've put some efficiencies in. We've been able to eliminate some positions. On the other hand, as we go forward, we expect we're going to have opportunities to make investments to support future growth as well. So there will be some counterbalance to that. But I think what this really does is it positions us to be able to do that without increasing SG&A and with being able to sustain current levels.
Peter Enderlin: Okay. And then one more, if I might. And that is, is there anything you can say specifically about the kind of pricing that goes into some of these bids? I mean, it doesn't appear that there's a lot of pricing sensitivity. But I mean, obviously, especially for some of the government business, there may be an increasing amount of sensitivity and pricing competition is a pretty competitive business.
Raouf Ghali: You're correct. It is a competitive business. Our gross margin has not been coming down. We've been defending the gross margins. We're not going in just to buy work or get work. I think there's going to be a lot of work coming down. So we're looking at it very carefully. Resources are something and the talents in the market are scarce. So we want to make sure we're putting our talent and our resources to best use for both our clients and our shareholders for the maximum returns.
Operator: Our next question is from Bill Dezellem with Tieton Capital.
William Dezellem: The first question I'd like to start with is relative to Libya, did you collect $487,000 in the quarter?
Raouf Ghali: Yes, we did.
Todd Weintraub: Yes.
William Dezellem: And what is the -- I mean, that's -- I mean, congratulations, but that is a small number relative to the total. What were the circumstances of that collection? And how are you thinking about future collections given the now fractured -- refractured government?
Raouf Ghali: We continue monitoring and being part of the situation in Libya to make sure that we collect all our money. Again, as I said before, it's a matter of timing. The reason why this time the amounts were relatively smaller than previous times in other collections is because our contract has a certain percentage of collection where we collect in local currency and a much bigger portion of the contract that's collected in foreign currency or hard currency as they say. This was a portion of the local currency that was being paid, and we got the approval process. Obviously, having a fractured government, it takes longer for approval process and longer for any money to flow. So we took whatever we could get, and we continue making headways in order to make sure that we collect every penny of it.
William Dezellem: And at one point, we had the sense that there was some desire on the Libyan government's front to restart the project. But I think your mindset was that, that would be terrific after they paid you for what you have done. Where are you sensing their mindset is relative to wanting to restart that project?
Raouf Ghali: They have -- they're very eager to start the projects. They have already been talking to the contractors that were on the project, contractors were mobilizing. They just finished their 1 month of Ramadan, which really puts a damper on any activities. It is one of the priority projects, but we maintained our position that we need a significant amount of money before we can go back in there. And I'd just like to remind you that I believe the debt is now -- outstanding debt is $20 million from an initial $60-plus million that we had. So we've collected a significant amount. And in the last 18 months, I think over $10 million was collected. And we're expecting to collect more. And once we do, and we see that without putting the company in any high risk, we will support our clients. But just make sure that it's with a low risk and that we've collected most of our money.
William Dezellem: And Raouf, is it a fair perspective that with oil prices being higher that the government would have a lot more cash to -- available to them? And is that even relevant is that even a relevant factor given the fractured government?
Raouf Ghali: Obviously, with oil prices being higher, there is a lot of additional cash that's coming into the country. The issue of Libyan's government not paying was not lack of money, and it was not -- them not recognizing the debt because, obviously, they've recognized that the debt and continue to do so. It's a matter of the political environment that allows them to be able to make payments. And the reason to make payments is for them believing that the economy is coming back on and they need to restart immediately their priority projects, which this one is one of them. So having a fractured government does provide a challenge, but we've been collecting money during the previous times when there was a fractured -- or a dual government within Libya.
William Dezellem: That's helpful. A couple of additional questions, if I may, please. Facilities Management. Would you please provide an update on that aspect of your business, please?
Raouf Ghali: Sure. We continue growing in the facility management. We're pursuing 2 or 3 large assignments mainly in the Middle East and North Africa, the facility management. They have been postponed for -- one for the whole month of Ramadan, where things were very slow on it. But we're expecting to have, hopefully, some good news by our next quarter results on it.
William Dezellem: Well, I won't say congratulations, but good luck for pulling that off. And I know that you had a big facilities management contract in Saudi Arabia that I'm not sure if it even was able to start before COVID shut it down. where does that lie?
Raouf Ghali: I believe you're referring to the school projects where we're managing I believe a total -- there was a total of 3,000 schools that initially we're managing, probably 600, I believe, 640 of them. And to answer your question, yes, we had started before COVID. During COVID, unfortunately, with the schools being closed down, we demobilize most of the -- most of our staff. All our staff have been remobilized right now, and we continue providing that service. We've gotten an extension for next year. So we continue providing those services.
William Dezellem: And you had mentioned that, that was approximately 650 schools out of 3,000. What about the remaining schools? Is there an opportunity to pick up the remaining?
Raouf Ghali: Yes, there's an opportunity waiting for the task orders to come out, and we'll see where they're going to go. Obviously, they have several options. One of them is us.
William Dezellem: Great. And then relative to your guidance, I'd like to just kind of work through a couple of numbers, if we may. The low end of the guidance, if you take off or remove the first quarter CFR, that leaves about $86 million per quarter of CFR to achieve the low end, where it's closer to $90 million per quarter to achieve the high end for the remaining 3 quarters. The question is, do you anticipate with what you see developing with your business that CFR essentially ramps sequentially? And so we would just see a -- I don't want to overstate this, but really a smoothness to your growth on a sequential basis throughout this year. Is that the right way to look at it? Or is there some lumpiness that we need to be thinking more about?
Raouf Ghali: Usually, our first quarter is probably the slowest quarter. And it's just because of a matter of working days. You start off the year with New Year's and some vacation time that drills down from January, then you have a couple of public holidays during the first quarter, which really you have February, which is a short month. So typically, the first quarter is usually our weakest or slowest quarter in CFR. The second and third quarters are usually strong quarters. Even though you have summer vacation as well, which a little bit dampens it, but that's offset by some couple of months that have more than the average working days. And one day working day difference makes a lot of difference because your cost is the same, but your revenue differs. And the fourth quarter is somewhere in between -- it's stronger than the first, but sometimes most of the time is not as strong as the third -- as the second and third quarter.
William Dezellem: And this year, given what you've said a couple of times throughout this call about the infrastructure bill projects picking up as the year progresses. Do you believe that the normal seasonality of that slowing or a lower level of CFR in Q4 will repeat? Or is this a unique year where you have an opportunity to see CFR grow sequentially in Q4 in spite of the normal seasonality?
Raouf Ghali: Well, I think that this year is unique. And one aspect is, our -- first of all, our 12-month backlog is probably the highest it's been in comparison to the expected CFR. So a lot of the anticipated book is already in hand versus having to really book and then burn in the same year. Having said that, we're expecting some additional new wins to come in. So I don't believe that the fourth quarter is going to be much slower than the rest, than the third and fourth quarter, which is usually sometimes we see that in this. But it's not going to be due to the infrastructure bill, it's because our backlog is very strong and our 12-month backlog is strong. I believe the infrastructure bill, if we start seeing the procurement and some of the money flowing, you're going to get the awards, but you're not going to have time to really impact the CFR that much by.
William Dezellem: Congratulations on a great start to the year.
Operator: Our next question is from Tim Chatard with Meros Investments.
Timothy Chatard: A couple of questions related to debt. My understanding last year was that you were progressing towards refinancing your debt lower as far as rates so that you might be able to pursue M&A and then that narrative changed into a situation where the debt was renegotiated and extended at higher rates. And I guess a couple of things there. I guess maybe why did that occur? And why can't you use unrestricted cash to pay off some of that debt now? That's my first question.
Todd Weintraub: So in terms of what happened, we initially did have a commitment letter from a major financial institution. If we talked about that, that would have been favorable. Unfortunately, we were not able to get that syndicated. The market was not accepting what have been proposed. And so now we've -- as you see amended and extended, so that we'll put in a different solution within the next few months. In terms of the unrestricted cash, the levels of cash we're running at now, that's pretty much the level of operating cash we need to have on the balance sheet. Our cash -- because we're an international company, we have -- we don't have 1 bucket of $23 million of unrestricted cash in there. It is broken up amongst all the different regions and even within the regions, there's a number of countries within Europe, within the Middle East, within North Africa, and we've got local operations. So the cash is fairly well dispersed throughout the country and not just even though it is unrestricted and that there's no restriction on it. It's not readily available to go ahead and pay down debt because we do need to have that to meet our just day-to-day operating needs and working capital needs. So the level that we're at now is there really is not an excess in order to be able to pay down debt -- and we do manage that. I mean, if we do have an opportunity to pay down debt occasionally because we've gotten an influx of cash, we'll do that. But typically, we're going to have to redraw that we draw that as well as the business cycle goes.
Timothy Chatard: Yes. That was my suspicion. And I noticed in your debt renegotiation that the banks have, I guess, put the Libya receivables to debt pay down or they've moved those to the front of the line, requiring debt paydown with those receivables. Can you add any more color to how those Libya receivables will function specifically with the debt?
Todd Weintraub: I'm not sure that there's much to add. Essentially, I think the lenders are looking at the Libya receivables as kind of not really included in the plan. And we don't -- I mean they're not part of our budgeting. They're not part of anything that we really put in. So to the extent that we're able to collect over and above. The lenders would like to see that go towards pay down and we think that makes perfect sense, and it's a good idea too. So we agreed to go ahead. And to the extent that we get those Libya payments, we'll go ahead and reduce debt. a little bit more complicated, we'll go for it because we do have to -- we do have 2 facilities within the revolving credit facility. There's a domestic and international. So in the first instance, it would go to pay down the international facility that is much less. And after that, we would look to pay down the domestic facility with anything that we are able to collect from Libya during the year.
Timothy Chatard: And back on the SG&A question that's come up a couple of times. In order to hit your guidance for the year, the SG&A and hard numbers is going to be between $120 million to $125 million, I think. Notwithstanding kind of the sales target that you put out there, in aggregate dollar terms, the SG&A dollars will rise this year. My question is what's the best way for us to look at SG&A. Would it be as a ratio of CFR or you in your prepared comments referred to SG&A as a percentage of gross profit. And I'm just wondering which do you think is the best to look at? And do you have any longer-term targets for the ratio that you do think is best?
Todd Weintraub: So I think that you could look at either, I would not look at it as a percentage of revenue because we do have pass-throughs in there that could store. But I think our gross margin or gross profit as a percentage of CFR, that's been fairly consistent. We expect it to remain to be fairly consistent. So whether you look at SG&A as a percentage of CFR or gross profit, I think you could do it either way and kind of get the same answer. So that's the way I would kind of think about it. But -- and no, there's no -- we haven't put out any guidance in terms of what a target percentage would be of either of those nor I think when we put out a target other than to say that you should see that percentage declining. We have said that we expect, not just expect, we're very adamant that our costs are going to grow less than our profits, whether you want to think about that in terms of gross profit or in terms of CFR. We said that we're going to grow CFR by 11% to 15% over last year is the guidance. So our costs should certainly grow by something significantly less than that. And there's no -- we believe there's no headway within the cost base to be able to continue that for a good period of time before we really having to take any step-level function up in SG&A. So we expect that to continue to be the trend that overall, when you look at it as a CFR or as a percentage of gross profit, the costs in SG&A will continue to grow at a lower rate in that. And what we have said, and I don't want to change that is we expect we're driving towards getting to an adjusted EBITDA to CFR ratio about 10%. We're still well below that. But we expect that we're going to get there by continuing to grow costs less than we're growing CFR.
Timothy Chatard: Yes. Okay. That's helpful. Yes, to hit your guidance this year, that SG&A to gross profit would be about 89%. And looking historically here, you had been as low as about 86.5% in 2019, and that would get you somewhat closer to that EBITDA target. But that's good to know that that's the right ratio.
Operator: And our next question is from Eric Goldberg, another Private Investor.
Eric Goldberg: So I'm a long-term investor in Hill. I've owned the equity for about 8 years now. And I invested largely because of the sophistication of the Board and particularly the sophistication of the management. So that doesn't seem to align with your failures you reported last quarter in your ability to meet SEC requirements, reported requirements. And I mean, surprisingly, it seemed like you didn't have a fully functional billing department. So my question is to Todd. Are those problems behind us? Do we have to worry about SEC, failures and billing, staffing? Is that behind us now? And then a second question, if I may, on the claims management business. Have you started selling that service now? And have you contracted and generated any revenue from that? And I guess lastly, the difficulty of the equities trading $1.19 or so, in your sales process, is that starting to become a concern for the sales effort from the client's -- potential clients?
Todd Weintraub: So I'll take the first two regarding billing and SEC and leave the others to Raouf. Billing issues are behind us. We've increased staffing for our billing department. We've also identified some improvements in the process itself. So that has come back under control. And we're starting to see the impact of that now. It takes some time to work through, but we have seen an improvement in the year-to-date so far in being able to take care of the unbilled receivables out there and get those billed. So that is behind us. In terms of SEC issues, I guess I need some clarification on the question. I'm not -- I don't know exactly what you're referring to when you say SEC failures.
Eric Goldberg: Basically just -- concerning the reporting failures, didn't the SEC or didn't you have a ?
Todd Weintraub: You're talking about controls. Okay. You're talking about the material . Okay. Yes. So just to put -- I just wanted to take a step back and put a little perspective about that, that when we initially had the restatement, the 3-year statement, back in 2017 and finally got that filed in the fall of 2018, we had 19 material weaknesses on a disaggregated basis that were identified. And we've spent a tremendous amount of effort since then remediating those in -- during 2019, we were able to remediate about half of those. During 2020 we were able to remediate the remainder except for 2 of them. And then during the past year, we did complete -- remediate all the ones that have been existing. Unfortunately, there was one more that popped up. And to put some context around that, the work that we had really done was to put in an effective control system to avoid the problems of the past and to put in a well-designed control system. And largely, the work over the couple of years to accomplish that was completed. What we found during the final year is that the execution of those controls that had put into place was not done on a consistent enough basis and that led to the material weakness, the 1 material weakness that we have now. So the weakness is more a matter of execution of control than it is of not having the controls in place at all. That -- and to explain the way that the auditor's assessment works, they assess the control operation throughout the entire course of the year. So they were not consistently performed throughout the course of the year. By the time we got to the fourth quarter, there were no testing issues in the fourth quarter of last year. We did execute everything. Everything was proper in the fourth quarter, but it had not been consistent throughout the year. We're now through the first quarter, we're testing the first quarter and the expectation is that throughout the year, we are compliant now, and we're executing all of the controls properly. We haven't seen any exceptions year-to-date. We need to continue testing, but there's every expectation that we are remediated. We continue to take steps to improve on that. And that when the opinion is issued for next year, it will be a completely clean opinion.
Eric Goldberg: The claims management business, I'm interested in that. So any update on that?
Raouf Ghali: Sure. Let me take this one. As of last week, our noncompete has expired. And we can -- we are not restricted on how much of the claims business we can take on. So to answer your questions, yes, we have already a couple of assignments have shown up even before from clients that knew us and needed claims work on it. We have mobilized already some staff. But we are, as I mentioned it last time, we're structuring it a bit differently. We're going to have it as an extension of our project management services because we continue, as part of our project management services, claims is still a big part of it, especially during supervision and inspection services. So we have taken on a couple of new claims assignment. We're expecting that we're going to take on quite a lot more. But we are going to be starting that business again organically for now, and we're going to do it with existing talent, augmenting it with just a few hires as long-term assignments come in and work with a lot of independent consultants that are in that business. So pay only when they're billable. We expect our margins are going to move upwards because of that business. And as it grows, we're going to look -- relook at the organization and how we're going to develop it once we have a critical mass assemble on the claims business side. Does that give you enough color?
Eric Goldberg: That was great. To me, it seems like an exciting opportunity with incremental investments being somewhat limited. So I'm excited about that. And in the selling process, has there been an expressed concern over kind of the position of the company now from a financial strength? Have you seen that?
Raouf Ghali: No, we have not. We haven't. I haven't had any calls from any of our clients, whether in the U.S. or overseas, concerned about our price of stock and what we're trading at, at levels we're trading at. I think as long as we can provide them the services and the quality that we've always been providing, and we -- any subs in particular with U.S. state and local and federal governments. As long as we pay ourselves on time, I'm not sure that there's any concerns or any issues with what level our stock is traded at.
Eric Goldberg: And just one last question. We seem to talk about the Libya outstanding debt on a recall. Has there been any thought about just selling that receivable and paying off debt and being done with it.
Raouf Ghali: Just like to clarify one thing. I tried not to talk about the Libya receivables, but I answer any questions they tell me. So -- yes, we would -- if there was an opportunity to sell that receivable, we would have. Obviously, we didn't because we can find there's very few buyers. And in particular, since Libya was in a flux politically. But given where we're at, having started with $63 million of outstanding debt, bringing it down to $20 million. I think we've taken the lion's share out of it. And we're pretty confident we're going to get the remainder, it's a matter of time and hopefully shorter than what it has taken so far.
Operator: Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the call back to Raouf Ghali for any closing remarks.
Raouf Ghali: Thank you all very much for your time, and have a wonderful day. We look forward to speaking with you in connection with our 2022 second quarter financial results.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
