Q3 2019 Earnings Call
At this time for opening remarks, and introduction I would like to try to comprehensively to David Pitts years address your carpet Sir.
Please go ahead David.
Thank you Mark I wasn't quite good morning, everyone I'd like to welcome you to the Americas Conference call to discuss the company's third quarter results for 2019, which reported yesterday.
Joining us on todays call or Rick Swartz, President and Chief Executive Officer, Betty Johnson, Senior Vice President Chief Financial Officer, and try to limit.
Cooper Senior Vice President and Chief operating officer, and where groups transmission and distribution segment and Jeff When ACA Senior Vice President and Chief operating officer of Am wire goods commercial and industrial segment.
If you did not receive Yesterdays press release, please contact personal corporate services, that's where you want to 76 3600, and we will send you a copy or go to the M. work with website, where a copy is available under the Investor Relations tab.
Also a replay of today's call will be available until Thursday November 7th 2019 at 12 PM Eastern time by dialing 8558, Fivenine to 056 40 zero poor Fivethree seven 303, 406, and entering conference I'd to 563.
On one three.
Before we begin I want to remind you that this discussion may contain forward looking statements any such statements are based upon information available and wire group management as of this date.
And I'm wire group assumes no obligation to update any such forward looking statements. These forward looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward looking statements.
Accordingly. These statements are no guarantee of future performance. These risks and uncertainties are discussed the companies and report on Form 10-K for the year ended December 30 128 team.
The company's quarterly report on Form 10-Q for the third quarter 2019 add in yesterday's press release.
Certain non-GAAP financial information will be discussed on the call today.
A reconciliation of these non-GAAP measures to the most comparable GAAP measures as set forth in yesterday's press release.
With that said, let me turn the call over to Rick Swartz.
Thanks, David Good morning, everyone welcome to our third quarter 2019 conference call to discuss financial and operational results I will begin by providing a brief summary of the third quarter results and then turn the call over to Betty Johnson, Our Chief Financial Officer for a more detailed financial review following Betty's discussion Todd Cooper.
Jeff Monica, Chief operating officer, Spark DMD, and CF segments will provide an industry outlook and discuss some of employer groups opportunities going forward. I will then conclude with some closing remarks and open the call up for your comments and questions.
Our third quarter 2019 results included record high revenues as well as improvements and net income earnings per share and EBITDA compared to the same period of 2018. We also reached a record high backlog of $1.37 billion.
We understand that market leadership can only be achieved through our ability to adapt to our clients needs innovate and stay agile in tomorrow's world conventional client relationships have evolved as projects have become more complex and we're placing greater emphasis on collaboration communication and problem solving with all of our clients.
And where groups geographic scale depth of expertise and client focus mindset continued to deliver sound financial results that formed the foundation for consistent long term success, we have initiated training programs that address the current and future needs of our customers and we have implemented a year.
Reversal project management training program for our next generation couple of years.
Industry developments continue to be defined by headlines related to clean energy.
As well as ongoing trends in customer spending for electrical infrastructure.
The need to meet clean energy goals relieve congestion strengthen the grid and replacing aging infrastructure our key priorities.
We expect that output from these developments along with strong with a strong economy will continue to present a rate of diversified opportunities and the markets we serve.
Overall, we know and more ours greatest strength lies in the diversity and the dedication of our talented professionals.
Our reputation has built through their exceptional work and commitment to both our clients and community.
Through our focus on employee training and development, we support fulfilling careers that allow our employees to reach their full potential and make a genuine difference.
Now Bedi will provide details on our financial results for the third quarter of 2019.
Thank you Rick and good morning, everyone on today's call I'll be reviewing our quarter over quarter results for the third quarter of 2019 as compared to the third quarter 2018.
Our third quarter 2019 revenues were $583.2 million.
Represents an increase of $183.7 million, 46% compared to the same period last year and a record high for both segments.
Notably, even if we exclude the $65 million an incremental revenue from our recent acquisition of see aside our she and I segment would still have reached record quarterly revenues.
PNG revenues were $294.9 million up 32.5 per cent compared to the same period last year.
The breakdown of PNG revenues were $196.1 million for transmission and $98.1 million for distribution.
The Tandy segment revenues increased primarily due to the increase in revenue on small to midsize transmission projects projects.
Approximately 40% of our third quarter Tandy revenues related to work performed under Master service agreements.
You know revenues were $288.3 million, an increase of 62.9% compared to the same period last year.
Okay, and I segment revenues increased due to the increases in volume across all project sizes.
And the incremental revenues from the CFO .
Position.
Excluding the fewest I acquisition Cnf 2019 third quarter revenues grew approximately 26% from the prior year.
Our gross margin was 10.2% for the third quarter 2019, compared to 11.3% for the same period last year.
The decrease in gross margin was primarily due to projects that we continue to carry at lower than historical margins, which were pursuing additional compensation.
Additionally, gross margin included changes in estimates on certain contracts associated with recent acquisitions, which are subject to margin guarantees and represent potential consideration for which an upset is recognized and other expense.
These changes in estimates during the third quarter 2019 in 2018 were 1.1 million and $2.3 million respectively.
Third quarter 2018 was also positively impacted by a high volume of small changes in estimates in gross profit, which we do not.
Occur in the third quarter of 2019.
As you know expenses were $41.7 million, an increase of $10.5 million compared to the same period last year.
The increase was primarily due to the acquisition of C. S I, along with higher employee related expenses to support operations.
As soon as a percentage of revenue decreased to 7.1% for the quarter, which reflects a favorable impact from the record high sales compared to 7.8% and the prior period.
Yes, I can't acquisition was cash flow positive for our operations was not accretive for the first quarter. After the acquisition as previously indicated.
Yes, I operations generated a loss after taking into consideration of the $1.1 million of contingent consideration from margin guarantee provisions.
And additional noncash amortization of $1.1 million.
We expect to see a thought operation to be accretive after the first year of operations.
Third quarter 2019, net income attributable to him what our group was $10.4 million or 62 cents per diluted share compared to $8 million at 48 cents per diluted share for the same period last year.
Total backlog as of September Thirtyth, 2019 was $1.37 billion, a record high and was 24.5% higher than a year ago.
Total backlog as of September Thirtyth 2019 consisted of $463.8 million for the TMD segment and $902.3 million for the Cnine segment.
This represents another record high for the soon I backlog, even after excluding the additional backlog acquired in yes I acquisition.
Turning to the September Thirtyth 2019 balance sheet, we had approximately $245.9 million of working capital hundred $78.2 million, a funded debt and $229.3 million of availability under our credit facility.
During the third quarter, we completed an amendment restatement and expansion of our credit facility, which now has a 375 million dollar capacity.
We believe that our credit facility strong balance sheet and future cash flow from operations will enable us to meet our working capital needs equipment investment.
Both initiatives and bonding requirements.
In summary, we had improvements this quarter and revenue from both our Tandy unseen I segment.
Net income earnings per share EBITDA and backlog compared to the prior year and for the prior quarter.
I'll now turn the conference call over to tied Cooper, who will provide an overview of our transmission and distribution segment.
Thanks, Betty and good morning, everyone.
Our solid financial performance in the third quarter 2019 demonstrates the strength in winning in executing dnbi projects and a healthy market environment.
Bidding and performing projects of varying sizes and complexities reflects our ability to provide clients with a range of expertise in the markets we serve.
We are driving growth through organic strategies that enhance or range of services, while continuing to place for clients at the center of everything we do.
In the East we continue the bid work for long term fives, we were awarded Dominion's Valley to do 500, TV transmission line project and the hope welded Chesterfield to 30 KBW circuit rebuild project.
And our nearing completion on the telling him to do is 500 kv line.
Throughout the Midwest, Texas themselves, we're performing a variety of transmission substation and distribution projects through direct awards and Master service agreements for many customers.
And the west solid bidding and project activity continues in Arizona, California, Colorado and Utah.
We are positioned to capture some key projects to finish out 2019, it's a tribute to our backlog at the start of 2020.
In Arizona with strengthening capabilities and substation construction as many opportunities exist.
Remains robust in Colorado and in California, as we sell it extended master service contracts in Southern California Edison through the end of 2021 and.
And excel energy through mid 2022.
We're also continues on the gateway West substation projects for Pacific cooler, which includes the gym Bridger Aeolus and they have declined the stations.
Well the distribution front as utilities are increasingly rely on outside contractors for work.
We continue to execute work under long term Master service agreements with several utility clients.
We expect a steady stream of distribution work for the foreseeable future as the need for grid hardening continues.
[noise] continued growth investment and clean energy dominated industry news throughout the third quarter.
Associated interconnection expansions and upgrades of transmission infrastructure will be required for clean energy facilities, which we expect to present increased project opportunities.
In July 1st announced that the pace of U.S. renewables growth is going to surpass fossil fuel growth.
Greater margin than what they had anticipated as recently as April of this year.
First latest energy infrastructure update you indicated that the fossil fuel dip will be largely largely driven by the more than 4.6 gigawatts of coal forecasted for retirement.
And that new renewable energy capacity is expected to grow by more than 10% in 2022.
The revision in first latest projections underscores the dramatic changes taking place in our nation's generating mix, which presents opportunities for amway our group throughout the country.
New data released by the American Wind Energy Association in August indicated that wind farm development activity rose to a new high in the second quarter 2019.
Report noted a 10% increase in activity when compared to the same time last year.
The wind industry is expanding across the U.S. with more than 200 wind projects underway in 33 states.
A handful of long term appliance announced initiatives related to clean energy investments throughout the third quarter.
Nextera energy resources the now.
In July it will develop to skeleton Creek project, the largest hybrid renewable projects in the United States.
It will consist of the 700 megawatt facility in Oklahoma that will sort of 21 unum utility members and other customers of Western formers electric cooperative.
And we'll include 250 megawatts of wind 250 megawatts of solar and a battery storage project, the combined wind solar and energy storage facility. This with first of its kind announced in the southwest power.
Yes, EG and now it is on track to cut carbon emissions by 80% by 2046 relative to 2005 levels.
If you will also retire so all remaining interest in coal fired power plants with no plants built or acquired a new fossil fuel generation.
Yes, he is a leading developer in solar resources and as an actor supporter of offshore wind development in New Jersey.
In September Duke energy committed to neutralize it gets carbon emissions entirely by 2050 and cutting emissions in half but 2030.
The utility plants to double its renewable energy portfolio by 2025.
10% from previous schools.
These developments are encouraging as we continue to refine and expand our clean energy offerings across the broader.
Geographic footprint positioning amway are to be a contractor of choice for these developments.
As we expand our capabilities, we must do so knowing that today's customers are expecting more.
To remain a premier contractor of choice, we must consistently evaluate and invest in new efforts to improve the levels of service and value. We provide in terms of safety quality and productivity.
In summary, we believe the TMB market holds tremendous opportunity and we will continue to build ourselves to innovate invest in transformer business to bring the best for them way or group to our customers.
Ladies and shareholders.
I'll now turn the call it over to Jeff wanting to who will provide an outlook of our commercial and industrial segment.
Thanks, Todd good morning, everyone.
We experienced incremental financial improvements in the third quarter, which resulted in better financial outcomes than in the first two quarters of 2019.
We improved quarterly growth in revenue operating margins and backlog.
Turning to backlog, our commercial and industrial backlog expanded throughout most of our locations and we also benefited from a large backlog increase from newly acquired see aside we're pleased with the strategic fit of the project awarded.
This quarter in our primary markets of aviation Transportation, Hi Tech.
Water treatment warehousing renewable energy as these markets specifically continued to show positive economic forecasts and were again the major contributors to this quarter's backlog.
We put a great deal of effort into building sustainable long term relationships and each of these markets, which we believe has contributed to our continued momentum over several quarters. Our training programs are specifically designed to broaden our skills and the specific industries and combined with our already deep resume gift employer group.
Subsidiaries, a distinct advantage in capturing these highly technical projects.
Last quarter, we announced the acquisition of see aside and I shared our confidence in the talent that has joined our company along with an important cultural fit I'm looking forward to the abundant opportunities to expand our Preconstruction services.
Relationships and innovative installation methods as we merge our industry leading companies.
Hi, along with M. wire group subsidiaries have accounted pools employees and all departments as we continue integration where even more pleased.
About our alignment around the welfare of our employees advancements in technologies and delivering high quality and cost effective product that tribes benefit for all.
In addition to this quarter's awarded projects, we're thrilled with the size number and quality of the pursuits being discussed in many of our see an eye offices, leading to continued confidence in our view of the market.
I renewable energy portfolio continues to expand as we've gone under contract on solar projects of various sizes in both California, and New Jersey, two states with aggressive mandates to advance their use of alternative energy.
We're also excited that the client relationships gain through human and she OSI are increasing our increasing dialogue and opportunity in the emergence merging battery storage industry. We believe as battery storage continues its evolution into an increasingly feasible method deploy distributed energy.
Our unique position as a combined she and I intend de specialty contractor will become an ever increasing distinct advantage for our clients who are developing these next gen projects. In addition to the wealth of experience energy professionals already employed by our subsidiary companies we've been pleased.
Recruit new leadership from the renewable industry to bolster our pursuits in the renewable energy fields to wrap this up we expect to see steady bidding activity through the remainder of 2019 and into early 2020.
[noise] project opportunities are healthy in all markets across most of the U.S. in Canada. We've won a wide variety small to midsized projects in commercial industrial and transportation. Our research indicates that this market should remain resilient through 2019 and beyond.
Thanks, everyone for your time today I'll now turn the call back over to Rick who will provide us with some closing comments.
Thank you for those updates Betty Todd and Jeff I'm proud to serve as I'm, where our groups president and CEO I'm truly inspired by our people by the projects, we deliver for clients and the industry reputation we built together.
We were we remain committed to delivering excellent shareholder value and doing so through ethical sustainable and safe working environment.
In closing I'd like to thank our employees for their dedication.
And loyal clients and stockholders for their trust and support operator, we're now ready to open the call up for comments and questions.
Thank you Sir as a reminder to ask a question you will need to press star one on your telephone.
Good question press the pound rehash.
So my while we compile they continue roster.
Your first question comes from the line of Sean its name of Keybanc capital markets. Your line is open.
Hi, Tim Thanks for taking my question Oh.
Like our Marty Marty So I guess, the one thing that stood out in my model and the coroner was just the uptick and the transmission revenue run rate thats going to a little more color for exactly what you know driving that.
Healthy increase on revenues versus Twoq, you and maybe just kind of the duration on the projects that are driving that just to get a sense for I'm.
Just have revenues are trending overall in transmission.
I think the this is Todd revenues are trending well you know the in the quarter. We did have a few medium sized projects that are that we're getting started the did have some some large material and subcontractor.
Components as well.
But a you know the consistency of the markets still there on the T. and decide transmission small to middle medium sized projects or are out there. There are several in the beginning stages right now and as I mentioned in the script, we think that where there's a good chance were going to capture some and in the fourth quarter as well as Uh huh.
Upping, our backlog since beginning of 2020 as well.
Okay, and then just staying on the TV segment, a the other thing that was a.
A little offers our forecast was a the margin and handy were lower than we expected.
I just wondered now in light of the project mix and jobs wrapping up and you know subcontractor and material component.
Just directionally, where we're headed from here relative to that kind of 6% to 9% operating margin target you guys have out there for the segment.
This last quarter, we had a few impacts on a few projects that were going what we're currently negotiating change orders on so hopefully those will get settled the I don't often get settled by year end, it's really just ongoing conversations as these projects progress.
Really the normal course of business, so that had a slight drop because we don't take everything that we think we'll get.
We always leave a little little room to.
Negotiate and come out with something Thats fair for both sides. These are long term clients. So that had an impact on it that was really the biggest driver as we went through going forward and as we look at it and we discuss it a team and we look at whats viable out there to to come to market for us.
We see some good opportunities and we see ourselves you know pushing to get ourselves back up from where we're at today to those more normalized operating margin.
Okay, Great and then last one from me.
Considering the aside.
Acquisition. It was pretty large for you guys just wanted to get an update on.
Capital allocation priority over the next 12 months or assume you guys would be looking to pay down some debt, but other than that just wondering if we could see more acquisitions. If you guys are looking at some share buybacks any color there would be great.
Yeah I can take that this is Betty right. When it comes at the capital allocation I think we'd even talk this last quarter as to satisfy acquisition came through our focus with our free cash flow is to address our overall leverage and getting it back into the the levels that we historically.
Had operated at.
Prior to going to the point of another acquisition that looks like it'll be you know in 2020.
Probably more of a hiatus and focused on that site integration as well as others organic growth initiatives internally.
Well, we get the balance sheet at that point stock buybacks as you know our stock buyback program, we have not renewed we look at that every quarter.
However, our focus on the balance sheet, it's getting the debt pay down and the leverage.
We're below that range of our tolerance up to two.
Times EBITDA, but we're still looking to reduce the the debt that to the norms that we had at 1.2 or so.
Anything else.
No I think better you cover covered it well yeah again lots of opportunities out there if we choose to do an acquisition in the future I think there's a good pipeline out there, but really we don't need one to succeed we can really focus on or as you said, our organic growth and that focus on on building our base business.
Going forward.
Okay. Thanks, very much a nice job this quarter.
Thank you.
Again, ladies and gentlemen, if he has a question at this time. Please press Star then the number one on your telephone keypad.
I'm showing no further questions at this time I would now like to China.
Oh, we do have a question.
From the line have noted from Stifel. Your line is open.
Hi, Thanks, guys and I'm I apologize I'm hopping in here really late so you may have already touched on this but I did you give it did you provide any additional detail on how to think about the cadence of the intangibles amortization associated with the ASI as not just over the next 12 months that it's as most of that.
Burning off or how does that carry into kind of the back half of that 20 and 21.
The 1.1 million that we have in there for this quarter is pretty similar level that you can expect for the next year that incorporates our higher amortization for the backlog.
And that's the period that that after that.
It will start retire I'm going down.
It'll start laying down similar to hear when.
Someone who and where we had the large backlog for the first year and then it went back down for the the the amortization that will take will go on for a long period of time.
Okay.
And then just quickly you know I guess generally we've been hearing comments on it seems to be consistent with what you all set about just strength and the.
And attendee market overall, and I'm curious if you're seeing any.
Tightness in terms of labor are holding on to cruise.
Or if the markets, it's just not really quite at those levels yet.
As far as far as labor goes we really haven't had much problem problems.
Getting labor Airlift Oh.
Todd add to this a little bit I think you know we've got the right safety, we got the right equipment out there we've got the rights supervision and people want to work with our team so availability of resources for us to attract is pretty strong and we really haven't added we've never had to turn out or way a job in the last year that we couldn't manner.
We couldn't go after so we didnt have the possibility it we've been able to bid everything out there.
We're we watch a little tighter in some markets that are a little tighter and we're selective on which work we take on but again, we haven't not been able to go after any work and that goes for our PND and see a nice side okay.
And I think that.
No I was just going to add that you know rate right. Now you know what we've talked about the last a couple of years is the delays in the in the pushing out of the large CREZ projects and should some of that come to light and and 28 2020 or 21. It's it's certainly a concern that we've done our I own doing some some for the second tickets.
Some preventive measures to make sure that.
We have the resources available to a standalone or load.
Okay.
That's helpful and then I guess sort of along the same lines around capacity in a potential capacity constraints I think Belmont talked pretty openly about pretty very long lead times for some of the larger transmission towers. It does that impact you know how you guys are thinking about project schedules and just when when somebody.
These projects occurred on the larger projects I do you think it basically extends the cycle little bit because there are some of these capacity limitations out there.
You know that's a that's a very.
Well no situation throughout the industry and one of the things that we're seeing today is longer lead times from from award of project to actual construction and that is one of the drivers.
Some of the PC work that we're bidding and some of the the medium to larger sized projects that were bidding now have a much longer I guess, it's an advantage for us it gets more time to to prepare for those projects After awards that.
We're seeing a longer gap from award to start at projects as a result of what you just mentioned.
Okay.
Thanks, a lot that's helpful.
Again, ladies and gentlemen, if you have a question at this time. Please press star one on your telephone keypad.
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Im showing no further questions at this time I would now like to turn the conference back to Mr. support Sir.
Thank you everyone for participating on today's call I don't have anything further we look forward to working with you going forward and speaking with you again on our next conference call.
Ladies and gentlemen. This includes today's conference call. Thank you for participating you may now disconnect.