Q4 2019 Earnings Call
Really we thank you for your patience that I see please remain on the line.
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Good morning, and welcome to the end Global 2000, a 19 year in financial results Conference call.
Our house for this morning, our Chief Executive Officer, Bill Coskey, and Chief Financial Officer, Mark has.
At the request of and global today's call is being recorded in will be available for replay on the Investor Relations section of the company's corporate website and global Dot com.
They also access the teleconference replay by dialing toll free 877481, 401 zero domestically or 91988 to two or 331 internationally referencing conference I'd 33183.
The replay will be available shortly after the completion of this events. So your nine am eastern time on June 26 to 2020.
I'd now like to inform all parties that your lines have been placed in listen only mode until the question and answer segment of this call begins.
Ask a question that segment you were Steve instructions from the operator.
At this point I would like to turn the call over to Jimmy cap, one Investor Relations director with market makers.
Thank you operator, and thanks, everyone for joining us on this call before we begin I'd like to redo our forward looking statements provision.
During today's conference call Company Representatives may make forward looking statements.
Any statements made in this presentation about future operating results or other future events are forward looking statements under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Please note that actual results achieved by the company may differ materially from such forward looking statements.
A description of factors that could cause such differences appears in the risk factor section of the company's form 10-K.
And now and global C O Wilkowski will present, an analysis of the company's performance in both the fourth quarter of 29 team and for the rest of that year Bill.
Thanks, Jamie Good morning, everyone and thank you for joining our 2019 year end results conference call.
It's really exciting once again to be able to speak with our investors on this conference call.
Before we will again I would like to send out our best wishes to all of you and your loved ones. During this time a national emergency.
Obviously very dynamic time that is impacting every part of our lives, including our business and work life.
Job number one for all of US is to take all actions that are necessary to stay safe and well.
As we are doing everyday heard in global.
Our company's proud of this morning is for all of our country's governmental leaders.
All national State and local leaders that every spot average probably start.
We simply pray that God will give our country's leaders wisdom in strikes that only he can provide after his power into buying items that we will all be left through these uncertain times.
Now on 10 globally.
As many of you may have read in our press release issued this morning, we haven't turned the corner to profitability.
In the fourth quarter last year, the company recorded earnings of $729000 or three cents per share.
The real called for excitement about this represents our first quarterly profit in roughly three years.
We also did much better on an annual basis.
Cutting our net loss from 21 cents a share on 2008 seems only five cents a share in 2019.
In a few minutes, our chief Financial Officer, Mark, Yes, we'll provide more details on these financial results.
But I can tell you know in very simple terms the reason for our success.
Yep being that we are successfully pivoting toward a new strategy.
The same time, we are reshaping our company in order to successfully execute argue strategy.
What's exciting to me is that we are really just now gaining traction on or do you mission.
Global legacy business had been want a working on thousands of low revenue engineering consulting assignments per year.
Thousands of employees.
Instead, we are now concentrating on pursuing a high revenue modular propped up and automation systems.
Supply contracts.
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In simple terms, we're pivoting from pursuing.
20000 dollar to 200000 dollar projects and we're now bidding and executing on 20 million dollar to 200 million dollar project.
It's a really big train for us, but our new business models I think that's very well.
Global has built an impressive core group of 300 or so team members.
We are quickly gaining the respective our customers and alliance partners.
Just as importantly, a bill a vertically integrated model.
Capabilities from multi disciplined process engineering detailed system design mechanical fabrication to automation system integration.
We now have the technical skills, and then health capabilities to deliver these modular systems, a very tight on a turnkey basis.
This is a very important selling point for us having clunky capabilities.
As a result, our backlog at the end of the year was up to about $59 million.
And the total amount of jobs in various stages. We're currently tracking there's an impressive $483 million.
Through all of our strategic efforts and successful execution.
We not only turned the corner in quarter four last year, but we are currently on track for continued profitability and the first quarter 2020.
It's very important that our shareholders understand what we mean when we talk about modular process. It was guns and modular automation systems.
A modular process system, we work on <unk>.
Typically utilizing third party technology.
And involved the conversion of natural gas or natural gas liquids.
Biomass feedstock into various chemicals and fuel.
These Ah outputs can include transportation fuel bunch of diesel.
Hi, Jim ammonia and methanol or other examples.
Modular automation system, we speak up involved what do you mind areas of activity.
Electronic plant wide control systems Oh.
Online propped up analytical systems and electric power distribution systems.
These three types of automation equipment are designed to be package doesn't portable cabinets.
Modular building, which again is performed in our shop, and then truck to the site.
Why is modular project execution of the fabrication facility.
So often talked about in appreciate it.
The answer is that modular execution of the size we target.
Typically as many benefits overstocked building plants in the field.
Then if that's it can be realized include number one lower problems all cost.
To a pretty project schedule.
Number three higher quality and finally number for a much safer environment for people to work him.
Each of the module fabricated in our shop is designed to be trackable, and then erected together in the field the form a complete plant.
So instead of talking this morning about specific project opportunities I believe it is more important for you to understand how we had in global.
Expects to receive an ongoing stream of opportunities and business in the years to come.
In this regard our focus is very much on building strategic relationships and alliances.
It is much better to have a relationship that will provide a continuous stream of business.
As opposed to seeking want all good opportunities.
There are five general categories of strategic relationships that we have already yet and that's it.
And that we're working to expand the ball.
These include number one process technology firms.
Because they provide the basic proprietary process technology require our project execution capability.
Number two.
His strategic relationships with the original equipment manufacturers or Oh, yeah.
Who often have opportunities to sell their equipment and large installations, but they need our complete integration capabilities.
Number three is strategic relationships with engineering and construction firms.
Which these large firms give us access to be a provider on the largest multibillion dollar projects in the world.
Well before the end users such as pipeline companies refineries petrochemical plant operators, because they often outsource their requirements directly to a single for alliance provider.
And number five finally as construction firms.
There are needed by us to be the C and D. P C isn't global as lot of construction contractor.
D.C. stands for engineering procurement and construction.
Global can perform engineering, we can handle the procurement, we can do fabrication and we can do automation, but again, we're not a construction contractor that's why we partner with construction firms.
For some projects. These firms are also more capable of providing the financial guarantee the bobbing required by our customers on some projects.
We expect a good part of our business to come primarily from these relationships and our list of preferred project partners is growing rapidly.
Going forward, we believe we're also well positioned to benefit from several external threats.
Especially the nation's accelerating dependence on the production of alternative and renewable energy.
We see today renewable energy projects continuing to ramp up.
All projects from traditional oil and gas Deckers, maybe on the decline over the near to midterm.
We haven't temporarily increased our business mix towards a clean renewable energy sector.
Which we expect will be much less affected by the low price of crude oil.
Oh, the three oil and gas sectors, our largest participation by far isn't downstream processing.
Which we expect will fare better than upstream and midstream during the low crude price environment.
We're also seeing continuing demand, resulting from large process control and analytical equipment installation.
Which seem to rate remained the man three the energy cycle.
As well as the U.S. militaries, increasing need to upgrade or place that's fueling systems that installations around the world.
By far our largest projects today involved renewable diesel.
Large process analytical installation.
And upgrading military fueling systems and all of these have drivers that are outside of traditional oil and gas.
At this point I'd like to the public discussion over to our CFO Mark House, who will provide greater detail on our 20 like team financial performance Mark.
Bill.
And 29 picking our revenues increased by approximately $2.5 million to 56.5 million, which kinda primary which came in.
In the fourth quarter in our automation segment.
Yeah No segment, we worked on a 156 projects for 44 customers with an average size.
100 $833000.
During 2018 and 20 Nike we worked on 129 projects for 40 customers with an average size of 935000.
Average revenue recognized for project was 287000 in 2019 versus 191000 in 2018. So we worked on 27 fewer projects that yielded 96000 more.
In each project.
Working on fewer larger projects is more cost effective and contributes to increasing increased profit margin in the segment. Most of these projects are for downstream clients.
One example of the result of this focus is that project. We were we're currently working on board downstream client that involves the procurement integration and commissioning of analytical systems within a plant.
While this project began in May of 2019, it expanded in the fourth quarter, we recognize 10.3 million of revenue on this project during 2019 of what $6 million came in the fourth quarter.
Current timeline for this phase of the project goes through August 2020, and there may be additional phases or scopes of work at that time work between now and then.
This type of automation commissioning services generally commands higher margins of work is as the work is more complicated and requires a higher skill level, which contributed to our increased profit margin of 29 thing.
Oh I can our automation segment.
Whose clients are primarily a downstream market sector in our APC EM segment. Our clients are in all three market sectors of oil and gas where commodity prices have larger influence on our client spending decisions in the mid and upstream sector.
In our APC EM segment in 2018, we work on 375 projects for 44 clients, which have.
An average size about a $29000 in 2019.
In 2019, we worked on 412 projects for 43 customers with an average size of $171000 average revenue recognized for project was 47000 in 2019 versus 64000 in 2018. So we worked on 37 more projects that yielded $17000 last.
For project.
Which contributes to the lower profit margin in 2019, we added two in addition to the discrete bidding opportunities. We have in the automation segment. We also benefit from Master services agreement under agreement under which it.
It is much easier for us to receive work releases or Peos as the commercial terms have already been negotiated.
Generally the size of these deals are smaller but received more frequently during 2019, we received more peos with smaller contract values than we did in 2018.
This was due in large part to the consolidation of certain of our upstream customers, whose awards were significantly smaller and spoken 20, Nike and they weren't 2018. It's also contributed to the overall decrease in revenue in the sector in the segment.
And gross profit in 2019.
However, we were also awarded a large downstream project in the fourth quarter of 20 lacking in this segment.
Which is a renewable diesel project.
We currently expect to recognize $22.4 million of revenue over the life of this award.
About 800000 of this revenue was recognized in 2019, and we expect Iraqi recognized most of the remainder in 2020 with a small amount rolling into 2021.
Therefore, we expect to see these statistics migrate towards the larger projects in 2020.
Another contributor to our gross profit declined in 2019 was an increase in the amount we spent to retain employees that were not fully utilized some project.
This contributed 3% of the 4% margin decline in that segment.
We continue to monitor our DNA cost and reduce them whenever possible.
And I cost decreased by about $740000 in 2019 as compared 2018.
We have nonrecurring charges in 2018 of about 466000, primarily for litigation settlements along with decreases in our facility costs in 2019.
Depreciation depreciation and labor related costs.
Our cash fluctuate based upon a billing and collection cycles associated primarily with our fixed price projects as well as the timing of payments for goods and services during the year, our cash flow from operations benefited primarily from a timing with payments from our customers.
Our working capital declined by $2.4 million during the year.
A million a a million dollars of this decline was due to the adoption of the new capacity lease accounting standard and the remaining decrease was due to the net loss for the year.
We believe our working capital is sufficient for our current level of operations and growth.
So at this time I'd like to turn the discussion back over to Bill and afterwards, we'd be happy to take your questions.
Thanks Mark.
One question being ask of almost every company today is how they are impacted by the Cologne of ours.
The answer has multiple apart.
First to our knowledge and thankfully none of our employees has contracted the code at 19 virus as of today.
As of late last week, our number of project hours and utilization of our personnel remained at very high levels consistent with what we've been saying you're today.
It's also important to note in global is classified isn't a central provider of critical infrastructure to the energy and defense industries.
Therefore to fabrication shops continue working on these critical projects.
Our office personnel in Denver, Tulsa in Houston are all under stay at home orders by local and state governments.
However, we are allowed to traveled her offices for central business.
But the majority of our office staff is productively working from home.
It's also important now that we have seen no cancellations or delays are currently booked projects as of today.
And the last two weeks, we got booked around two and a half million dollars worth of new business.
But we're still booking business as it currently stands we expect the impact from the Corona bars to be manageable for our company.
The recent drop in crude oil pricing is much more likely to have a greater impact on our energy clients and their spending plans going forward.
A very small amount of in global business is derived from upstream exploration and production spending.
Which we expect will be the hardest hit.
However, our customers reaction to low commodity pricing will also spill over to the midstream and downstream areas.
That we mainly do operate in.
And this reaction really cannot be quantified at this time.
We're fortunate to have good backlog or biggest areas of backlog and opportunities or in the renewable energy.
Automation and government areas, which we expect will continue to perform better than the oil and gas sectors.
In closing I'd like to thank each of you and the rest of world loyal and patient shareholders.
I know I speak for all of our management team on board of directors and repeating that we're.
Drill our returned to profitability.
The successful shift of our business.
It has laid the groundwork for an exceptionally successful period of growth.
And profitability going forward.
With that Mark and I are happy to take your questions.
Thank you ladies and gentlemen, if you did have a question or comments it a star one on your Touchtone telephone at this time using a speaker phone we ask that why pose your question you pick up your handset to provide the best sound quality.
Again, ladies and gentlemen, it does star one for any questions or comments at this time.
Please hold while we poll for questions.
Well go first to Richard Smith, a private investor.
Yes, good morning, and congratulations on a good quarter.
Okay.
For 2020 does the company expects to be profitable for the full year and there's the company have ample cash to initiate a stock buyback program. Since your stock is pretty low. Thank you.
I would have to say that prior to Oh. This.
The balance of the last couple of weeks, we were very bullish on 2020 and been profitable the entire year. We're gonna have to see how are the best of the last couple of weeks play out and how that's going to impact our 2020.
We do have a very high backlog rolling into 2020, our challenge is keeping our people.
Productive.
While there away from the office so the longer these stay at home orders a stay in place the more challenging that's gonna be.
As far as a buying back stock.
We we currently have about between 11 and $12 million of working capital and we think that we're going to need that working capital. This year for the projects that we currently have ongoing and some projects that we think a we're pretty close to landing so.
Thank a stock buyback as our cars at this point.
Okay. Thank you. Thank you.
And once again it was star one if you had a question well go to at Chalmette Sun I'm missing capital.
Hey, guys. Thanks, good quarter I'm, just a quick question as it relates the drop in oil prices.
In terms of the for your bio diesel and some of your alternative energy customers.
Have you seen like a reevaluation as to whether the economic still makes sense to get into the business given the low price stuff you know the prevailing <unk>.
Pricing in W. T I.
And what's the thought process involves strategically for these customers.
As they look down the <unk>, the the oil curve and pricing to make these decisions on on these big Capex projects.
I would say as of today, we've seen no reevaluation of ongoing discussions we're having on renewable energy projects. They continue to proceed wall and I can always change but.
We're having good discussions on renewable energy projects.
Oh, I guess much of the drivers are bio fuel tax credits and rounds and things that are <unk> not always tied to the price of crude oil although competitor is crude oil produced a diesel.
So.
That's about the best I can answer your question that wasn't we we've seen no drop off in the activity for renewable projects.
Okay. Thank you.
So.
And with no other questions holding I'll turn the conference back to Mr. coffee for any additional or closing comments.
Sure. Thanks again, everyone for joining us on todays call.
Please now that we're always here to answer your questions, which you can direct mark or myself and I are asking global dot com, thanks stay well and have a great day. Thank you.
Ladies and gentlemen that will conclude today's call. We thank you for your participation you may disconnect at this time.
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