Q1 2020 Earnings Call
Please note that information reported on this call speaks only as of today, February 5th 2020 and therefore you're advised at any time sensitive information May no longer be accurate at the time of Replay listening or transcript.
This conference call include certain statements including statements related to the company's expectations of its future operating results and maybe considered forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995.
Customers are cautioned that such forward-looking statements involve risks and uncertainties and that actual results May differ materially from those projected in these forward-looking statements.
These risks and uncertainties include but are not limited to competition and competitive pressures sensitivity to General economic and Industry conditions International political and economic risks availability and price of raw materials and execution of business strategies. For more information. Please refer to the company's filings with the Securities and Exchange Commission now, I'll turn the call over to Palace CVO right exact and good morning everyone. Thank you for joining us today to review policy fiscal 2020 first quarter results will make a few comments and then I will turn the call over to Mike for more financial commentary before we take your questions.
We been a short time since our year-end fiscal 2019 conference call. I'll focus on providing an overview of the current quarter and then I'll share some general observations about our markets.
We are pleased with our first quarter results particularly in a quarter. That is one of our lighter quarters for Revenue throughout our fiscal year.
As we mentioned on our last call the first quarter of fiscal 2020 was impacted by the calendar year and seasonality from reduced work hours through several holiday periods from a year-over-year perspective revenues increased $134 in the first quarter, which was 23% higher than the first quarter of fiscal 2019.
Additionally that income improved a 2.8 million dollars in the border from a reported net loss in the prior-year of two point seven million dollars.
We attribute this financial Improvement to the many commercial and operational actions that have been ongoing across the business for some time these include a disciplined approach of the mix and quality of our backlog as we get worse you focus on operating efficiencies and productivity robust supply chain initiatives and managing our sg&a and cost structure efficiently and effectively dead.
as a result
The pair of sequentially to the fourth quarter of fiscal 2019 the revenue decline in the first quarter reflects, the seasonal impact of your project Closeouts as well as the timing of projects and process wage across our manufacturing facilities.
From an order's perspective 137 million dollars of new orders in the quarter are Canadian operation had a notable win being awarded a large Municipal contract, which would be executed over a year.
During the last few quarters inquiry activity has been active with a growing amount of breastfeeding resources being focused on efforts to support several larger projects.
Recently, we are starting to see a number of our customers that are pushing out schedules for new bookings for midsize projects in the three to ten million dollar range over the past twelve eighteen months these midsize projects have helped wage support our Revenue growth through 2019 and into the first half of 2020.
These midsize projects are important pillars of our business model as we work to fill open capacity in the second half of 2020.
As I have noted in Prior calls The Funnel of project activity supported and driven by Abundant low price natural gas remains active particularly in the Gulf Coast region. We are pleased to report that polished product quality people and persistence resulted in the award of a substantial contract supporting to design manufacturer integration and testing Jake Paul Custom integrated electrical distribution solution for a large industrial complex being constructed in the United States.
This project will span over three years as we design build and deliver multiple power control rooms in support of the project. This order will be included in our fiscal second-quarter orders and backlog report.
Charles International operations continue to show signs of positive recovery versus fiscal 2019 backlog supporting our Canadian and UK divisions at the end of our first quarter of 2020 was notably higher compared to the prior-year.
As we navigate through fiscal 2020 and in 2021, our largest operational challenge will be recruiting and retaining high-quality direct labor in an already tight labor market wage.
We are also actively engaging independent contractors utilizing overtime and leveraging our supply chain and Global manufacturing footprint shifting work two locations to balance capacity when economically viable, we're optimistic that these tactical initiatives and strategic actions will drive improve customer fulfillment and sustainable margins throughout fiscal 2020 and we intend to remain committed to increasing our investment in our D programs while maintaining investments in professional development of our people during fiscal 2020.
All continues to be a technology leader in the development and manufacture of electrical distribution products and solutions We Believe improvements to new and existing products will ensure we continue to have a broad portfolio off base likewise. We know employee satisfaction and and engagement directly impacts our continued success around customer satisfaction and retention. Therefore we are actually investing in employee training and development.
in summary
For immediate efforts are focused on filling open capacity in the second half of fiscal 2020 as we Monitor and adjust to increasing delays and customer timelines a midsize projects from our core and markets.
As a significant portion of our revenue is derived from our small to mid-sized project-based. We expect 2020 results to be more lumpy than usual as we continue to execute on our current backlog am also preparing for the longer-term to deliver on recent larger project towards that won't for the most part deliver after physical 2020. Therefore we remain cautiously optimistic about production capacity in the second half of 2020 with that. I'll turn the call over to Mike to provide more detail around our financial results before we take your questions.
Thank you, Brett and good morning everyone in the first quarter of fiscal 2023 reported net revenue of $134 million a $25 or 23% increase versus the same period in the prior year.
Okay, Ms.
For the first fiscal quarter. We're under the $37 million it one point zero quarterly book-to-bill ratio, which resulted in $426 million dollars in first quarter ending backlog, which was at 7 million dollar increase versus the prior quarter.
Compared to one year ago domestic revenues increased by $16 or 18% to $106 million driven in large part by healthy industrial and market demand month. We experienced your rear increase volume performance across most sectors of the business with the oil gas and petrochemical sectors having the most substantial and favorable impact on the results with a 30% Revenue increase over the prior year. While utility was up 20% in traction up 67%
Compared to the same period one year ago International revenues generated from both our foreign operations as well as export shipments from our domestic locations increased by nine million dollars million in the first quarter of fiscal 2020.
Gross profit improved by seven million dollars versus the first quarter of 2019 to $22 million dollars in the first quarter of fiscal 2020 gross profits as a percentage of revenues increased 290 basis points to 16% in the first quarter compared to a year ago. This Improvement is driven by higher value as well as favorable project need an operating leverage across most of our facilities Global selling General and administrative expenses for $17 in the current quarter Higher by $1 versus the same. A year ago, however sg&a as a percentage of revenues decreased by 190 basis points to 13% of Revenue versus the same period last year
In the first quarter of fiscal 2020 we reported net income of 2.8 million dollars or twenty four cents per share in the first fiscal quarter compared to a net loss of two point six million dollars or a $0.23 per share loss in the first quarter of fiscal 2019 in the first quarter of fiscal 2020. We generated $2000000 operating cash flow and Investments and property plant and Equipment during the quarter with two million dollars. You're over a year free cash flow is lower by nine million dollars off by a reduction in the net position of our contract asset and liabilities in fiscal one cube of the prior-year.
at the end
First quarter we had cash and short-term Investments of 121 million, which was fifty million higher than a year ago in four million lower than our fiscal 2019 year end position a long-term debt including current maturities with $800,000.
Looking ahead to the full year for fiscal 2020. We do anticipate variability across our quarterly landscape driven by both project timing on the larger projects as well as the softening of inquiry activity for the smaller to midsize projects across our oil gas and petrochemical and markets considering this we continue to work the fiscal 2020 book opportunities in order to utilize our plan capacity throughout the second half of fiscal 2020.
With respect to the large order that Brett mentioned previously Howell manufacture multiple power control rooms for this order that will be designed integrated and tested across a period of approximately 36 months with the majority of the project revenue generated in fiscal 2021 and 2022. We do not anticipate this specific project will suck material impact on our fiscal 2020 Revenue emergent overall considering our current backlog the present level of Market activity as well as the off-ramp up in research and development investment. We reaffirm our expectations that fiscal 2020 will be a successful and profitable year for the company.
at this point will be
Happy to answer your questions.
Thank you. We will now be conducting a question-and-answer sessions. If you would like to ask a question, please press star one on your telephone keypad a confirmation tone will indicate your lines in a question. You may press star to if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow-up question and then Riku for additional questions. One moment, please while we pull for questions.
Good morning, Mike and Brett.
I like to I like to start the the gross margin on a sequential basis. I know it's a seasonally weak quarter. Could you just kind of talk about the the drop in the in the gross? Margin? How much was it seasonality? How much was it the pricing in jobs, um that you executed on and how much was it the reference to higher labor costs that that becoming an issue? Yeah, John John, this is Mike. I'll take that one, you know project pricing in the margins that we have in our backlog really really flat. We don't see any impact from a a pricing perspective. But as you age sequentially at our one Q 20 vs are four Q 19-3 q19 need to bear in mind that through the second half of last year second half of nineteen. We have been rampaging variable resources to execute our backlog in the projected Pipeline and given this we carried those resources through one q and given the seasonality of of Thanksgiving.
holidays and Christmas holidays
The you know, the younger absorption was slightly more pronounced that said I would remind remind you that this one Q was our best one Q in four or five years, you know 2014 last time. We actually generated a more favorable one Q
Right, right, right and I was a little surprised the R&D spend was was actually lower than I was projecting put it that way. Could you talk a little bit about your ranting R&D spend this year I expect for you tally to be and I guess, you know add on to that your total capex budget for twenty twenty how that looks now.
John spread, we're still committed to some of the plans we put in place throughout last year and started executing on those. We've had a little slow start for various thoughts on kind of one of the major projects is got a pause right now. We think it's temporary and it looked clear that in the second quarter and and get back to our plans but still committed to bring the ramp up and in developing a strategic plan around the product side on the capex side. No no major change in terms of our run rate year-over-year roughly about percent of revenues, give or take a couple couple of projects were considering in the back half of this year, but we're still looking at them in evaluating trying to understand. What is the best opportunity for them? So
So bright with a good number for warranty be eight million dollars this year.
Or is that going to be on the high side of this point?
Might be a little bit on the high side, but probably give you a better color next quarter. Once we get through this this issue and understand how quick we get the products that we want to get into the pipeline developed and we're more importantly to testing which is worth a lot of our cost. Come on the outside the lab the labs cost a lot of money to get the electrical switchgear test improved the standards. So the timing of that okay, it is a little get it all off at the end of this fiscal.
All right. I'll get back to you. Thanks guys.
Our next question comes from line of John 10:1 Tang was c j s security is please proceed with your question. Good morning. Gentlemen, thank you for taking my questions. First of all congrats on the the large order being black was just wondering what the size of that is in the current margin profile of that if you're willing to disclose it or at least the ballpark. Hey, Josh bread. So I you know a lot of our contracts most of them pretty strong confidentiality. Is this does as well I can tell you the job is is in excess of a hundred million dollars. It's in line with my quarterly comments in terms of the US market being gas-driven and
it's it's a competitive was competitive job, but
I don't think auditing are they order in terms of what we've been running the last couple of years in terms of pricing?
Great, and then just in terms of how many more projects like this your tracking and have the capability to handle as a stress to fill in your factories. There are a number of projects that we continue to support wage the estimate resources and track and like a lot of folks were watching the fundamentals out there in the macro environment in again, not just the cost side of gas, but we're the final product facilities headed bulbs are more than a couple that we're we're working through for the next twelve to twenty-four months when capacity standpoint John's earlier question on capex would be one of those questions. We've still got some opportunities some of our facilities to
Do do some Investments to handle additional capacity. But right now for the ones we're tracking we feel good that we can we can handle anything that comes our way. Got it. Thank you. And then just a midsize projects that you were mentioning that pushed out. Is there any fundamental reason for that to be happening? When you talk to your clients? Are they signing anything specific and also, you know, can you describe the number of projects that actually were pushed out into the right and kind of where they fell into the calendar? Well, we're still watching the the number but in terms of the reason know I've been talking to a lot of people as well as you know other companies and on a space, you know.
consensus
Should be a sort of a pause. There's no real fundamental driver whether the macro things that are going on in last few months are already having an effect. You know oil is down a little bit macro demand is changing. It seems to be for the short-term. So it doesn't seem to be a long-term reason for it. But but there's clearly something in the market that that us and some others that operate in this space are experiencing right now.
Okay, got it. And then in terms of the way the year is going to shape up given this uncertainty last year. You had kind of a a pretty straight shot from you know, one time to call it a hundred fifty million in Revenue. Are you going to see much more luck this year compared to what you saw last year and in terms of getting to a theater and number? Yeah, I think the answer to that is yes. I mean the second half is Brett alluded to it still taking shape off with the the softness that we're seeing in the inquiry levels. And you know, I I think as we try to utilize the the pipeline and and get the book and Bill in for Thursday we're talking about now is probably late three q4q volume to fill that plant capacity. It will be a little little choppier.
Okay. And just one final one on the backlog exiting Cube.
One how much is that was was scheduled to liquidate this year.
Probably probably about two-thirds of it.
Okay, great. So sorry one more question. You mentioned the large project taking place over 36 months and 21 and 22 is a biased any specific year, you know more Twenty-One or twenty-two months. Yeah, that that that's still to be defined John but it will I mean as we get further into the project, that'll that'll be a little clearer. But right now it's definitely it's definitely between 2122. Okay. Thank you.
Our next question comes from line of John brats with Kansas City capital. Please proceed with your question.
Morning, Brett and Mike brought in the in your press release you talk about you want to begin leveraging the commercial pipeline to help offset a technical nature of the core and markets. Can you talk a little bit about those commercial markets the commercial pipeline what you're working on how you think it can evolve over a sort of a two to three year period and you know how much how much sort of cyclic ality? Can you can you drive out of the office out of the corporate at the corporate level?
well
I think for the for the time frame you asked about John the next two to three years. We're going to be predominately still driven by the core. Okay, well gassed up to come up and Market the if you look back years ago during the last downturn and some of the things we did on the Rd side as well as Geographic expansion. I'm going to pick on East Canada an area where we historical didn't have a sustained organic footprint. We over the last couple of years have methodically continued that process so of our product development has underscored what I'll call for the commercial utility transmission generation as well as general access to those commercial markets now,
Just two things here one is the product side. I do think there's there's room to go here to start to continue that what we've learned gives you to building on those cycles that we've done these Canada are parts of the world, but there's also the part of a club some of these channels so I can't not going to tell you I can come in and you know, Chase every building that's being built all over the world that has a medium voltage or even low voltage in the in the bottom of the building but there are markets on the industrial space off the initial space that I think we can do better than we're doing today with score underscore by some of the products that we have today and that we want to develop in the pipeline. Is that going to require a different marketing or sales force what require a different additional level of new investment to to reach those markets off?
Yes, definitely Channel management is something that we've been working on last couple of years here.
All we do have a a growing group to handle that channel that suffered from a historical direct sales group. And then as far as adding into the model something we're talking about the board and you know, is that an opportunity to to accelerate it is it is definitely a conversation. We're actively having okay. All right. Thank you.
As a reminder, if you would like to ask a question, press star one on your telephone keypad. Again. Please ask one question and one follow-up. Our next question comes the line, Grand Rapids to assist you with.
Yeah, Mike. I just want to talk a little bit about m&a. What are your thoughts about maybe buying some smaller assets that may extend your product reaction to something, you know tin gentle to what you're doing. I know you're putting money into R&D to expand, you know, your opportunity pipeline, but you know, maybe you know another business that is, you know, close to age the the core but not exactly the core of what you do. I got to imagine that some of the assets of pricing a lot better today than they were a year ago.
Yeah.
I guess the way it answered that John is, you know from a capital allocation perspective a few a few points, you know, just maintaining a very strong balance sheet with minimal Leverage is is very important to distribute that we value. Uh, secondly as we we assess our Capital allocation framework R&D is a big part of that is is Brett spoke of previously and then third time going to have an opportunity arises that enables the business to grow inorganically, you know through an accretive tucking investment. We're we're certainly all leaders but it's really the maintenance of the strength of balance sheet is is a a most important to us.
Okay, that sounds right. Thank you, sir.
Okay. Thanks.
Thank you. We have reached the end of the question and answer session Mister cope. I would now like to turn the floor back over to you for closing comments overall despite the fact we are pleased with our first quarter performance over the last several quarters. Our operations teams are executing. Well, successfully imprudently meeting the challenge of our growing backlog while near-term visible midsize projects has become slightly more challenging for the remainder of our fiscal 2020 planning the value and strength of Polish people products and world-class facilities have again demonstrated are sustained down position as evidenced by a recent large project towards I would like to thank our valued customers and our supplier partners for their continued trust and support of how we appreciate your continued interest in Palo and look forward to speaking with export.
Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.