Q4 2019 Earnings Call
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Good day, everyone and welcome to see you ice global fourth quarter and full year 2019 conference call. At this time all participants are in listen only mode. A question and answer session will follow management's remarks. As a reminder, this conference call is being recorded a replay of today's call.
We will be available on C., you ice Globals web site later today and will remain poll sit there for the next 90 days.
I'll now hand, the call over to Mr. Eckstein of Katie C. S. Eight for introductions and the reading of the Safe Harbor statement. Please go ahead Sir.
Thank you operator.
Hello, everyone and welcome to see why Globals fourth quarter and full year 2019 conference call a copy of the company's earnings press release and accompanying Powerpoint presentation are available for download on events and presentations page of the Investor Relations section of the see why global website.
With us on todays call or Jim O'neil.
[noise], Chairman and Chief Executive Officer, Daniel Ward, Chief Financial Officer, and William CLO Executive Chairman.
Today will review the highlights in financial results for the fourth quarter and the full year as well as recent developments.
Following these four remarks, we'll be prepared to answer your questions.
I would also like to remind everyone that today's call will contain certain looking forward statements made within the meaning of section 27 eight of the securities active 1933, as amended and section 20, Onee UBS Securities and exchange active 1934 as amended.
Such statements are subject to risks uncertainties that could cause actual results may vary materially from those projected in forward looking statements.
The company May experience significant fluctuations in future operating results due to a number of economic competitive other factors such as the Corona virus, including among other things the company's reliance on third party manufacturers suppliers and service providers.
Government agency budgetary and political constraints newer increased competition changes in the market demand the performance reliability of its products.
These factors and others could cause operating results the vary significantly from those in prior periods into those projected in forward looking statements.
Additional information with respect to these other factors, which could materially affect the company. Its operations are included in certain forms. The company has filed with the Securities Exchange Commission.
These forward looking statements are based on information available to see we like to see why global today and the company assumes no obligation to update statements I circumstances change.
No at this time, it's my pleasure to introduce Jim O'neill, Vice Chairman and CEO of see why global.
Jim the floor is yours.
Thanks, Scott and thank you everyone for joining us today on our fourth quarter and full year 2019 earnings conference call.
In October of 2019. So you are global implemented the transformation strategy to become a diversified energy infrastructure services company.
Since then we have a copper several key objectives first we sold our domestic power and electro mechanical operations to strengthen our balance sheet and physicians, who you are global has a 100% energy services company.
Second in our legacy business, we've right sized our UK operations to Alon calls more appropriately with the challenging business environment, we've been experiencing while at the same time expanded our capabilities in our Houston office to capitalize on secular trends in the North American renewable energy market.
Third in the fourth quarter of last year, we began a greenfield operation portable power services.
Headquartered in Dallas. This operation is focused on building, an electric transmission and distribution service business to serve utility customers, primarily in the southwest United States.
And finally last Thursday, we announced our first acquisition and the infrastructure services space reach construction group, our utility scale solar engineering procurement and construction services company or EGPC company and apex North Carolina.
We're all very pleased with the progress we've made over the past six months in executing our strategy to transform see why global.
Before getting into more details about our recent accomplishments I'll briefly review the company's performance in 2019.
Revenues were $23.5 million for the full year 2019 up 15.5%.
Compared to $20.3 million for the full year 2018.
The increase was due to our integration revenues in our North American operations, primarily due to an expanding customer base that recognizes the quality of work performed in our Houston facility, coupled with strategically targeted business development efforts. This was offset by Lori integration revenues in our UK operations primary.
Only due to the lack of government projects funded due to the uncertainty around Brexit.
A major achievement in 2019 was the October sale of the electromechanical components business of our legacy power and electromechanical segment to a private and to see for total consideration of $15 million.
Apprised of approximately $4.7 million in cash paid at closing the retirement of approximately $5.3 million promissory note and the guaranteed five year receivable note a $5 million issued by the bar to see you are global.
This was a significant achievement for us and marked a major step in our plan to reshape the company.
Following this in December we sold the majority of our remaining power business to built views for $32 million and gross proceeds plus the assumption of certain liabilities and subject to post closing working capital adjustments.
This transaction combined with the previous sale of our electromechanical components business removed. So you are global from its domestic power and electromechanical business segment.
These were significant transactions and we believe the monetization or these assets was the best way to warm walk there previously untapped value to benefit our shareholders.
The remaining power and electromechanical operations of see you are Canada and see you out of Japan remain held for sale and we are currently seeking the best option for those entities.
Additionally, in December we announced the share repurchase program, where the company may repurchase up to $5 million I'll see you are global common stock at market prices.
We're very happy to return a portion of the proceeds from the sale of built used to our shareholders, which is consistent with our commitment to building shareholder value.
Besides creating immediate value for our shareholders. The proceeds from these two transactions also strengthened our financial and liquidity position and left the company with a virtually debt free balance sheet.
These enhanced financial resources have enabled us to continue to pursue our energy centric world strategy into 2020.
Yes.
As we discussed on our last call given the ongoing challenging environment in our UK operations, we've taken steps to rightsize, our resource base there while at the same time developing new opportunities for organic growth.
We have a talented team of engineers and a world class integration facility in the UK and have now diversified our operations from being a relying solely on gas that work revenue opportunities into biomethane to grid operational technology, and cyber security and industrial user applications.
These new areas of focus all gaining traction in the marketplace.
For example, we're going to Biomethane degrade projects in the first quarter this year.
For the impact of the Corona virus pandemic and oil price declines hit the UK and Europe, we were expecting 25% growth and our UK operations with breakeven income from operations and momentum building into 2021.
Well that short term financial goal will now be difficult to achieve given the macro environment in Europe and uncertainty around call. Good 19, we believe we have implemented the right strategy in the UK Frost is 60, you don't go long term.
Our U.S. integration facility in Houston continues to gain momentum with customers and given the progress. We've made today, we expect to grow revenues by 20% and 2020.
Boring potential impacts from a corona virus or low oil prices.
Primary opportunities in the U.S., our gas P.T. analyzers, biomethane to grid and Mercury measurement system projects.
As mentioned in our press release last week, our proprietary Ve technology sampling program is also gaining traction in the marketplace and is poised for significant growth this year, which not only generates product sales, but indirectly supports integration opportunities as well.
Small form nice since the Houston operation inception in 2015, gaining access to Fortune 100 companies has been difficult without an established tenure with these clients, but we have recently been accepted by several large oil and gas companies to their vendor list, thereby expanding our pipeline of project opportunities signal.
Secondly, going forward.
In the fourth quarter of last year. So you are global formed a wholly owned subsidiary orbital power services, So launches electric transmission and distribution services within operations office located in Dallas and a field service office located in Sherman, Texas.
In late January this year. The first crews went to work for utility customer, replacing a distribution lines circuit.
We will continue to profitably grow this business with new customers throughout the year.
In line with his strategy last week, we achieved a major milestone with the accretive platform acquisition, a breach construction group set to close in April 2020.
Reached construction is NEPC from with expertise in the renewable energy industry.
Headquartered in apex, North Carolina reaches a leading provider of U.P.C. services in the utility scale solar industry, whose leadership team. It has over 50 years of combined industry experience reaches a very attractive acquisition for so you are.
Not only is it a strong addition to our energy focused operations, but it also represents a substantial step and our strategic plan to become a diversified energy infrastructure service company.
This acquisition will bring with it several strategic benefits, including.
Expansions you are globals energy services business into the rapidly growing alternative energy industry, particularly building on reaches established relationships that currently exist with solar developers and panel manufacturers and the utility scale solar market.
Diversification of reaches current capabilities into a broader set of service offerings and the energy infrastructure market.
And enhancement, obviously, you are globals revenue, while contributing to positive net earnings.
To provide some context for that last remark for 2020 reach already has contracted backlog in excess of $100 million.
This acquisition is expected to be immediately accretive to see you are globals consolidated results.
And we're extremely pleased to welcome reach to the C. you are family and look forward to working with their senior management team to continue driving their profitable growth.
Most important adding reaches given see why global a strong base to expand its infrastructure energy services into the growing renewable energy market, while letting us take a strong role in helping to reduce carbon emissions throughout the country.
Reaches already a proven market leader in providing renewable energy EGPC services and their extensive renewable energy infrastructure platform combined with see your was existing energy services business lays the groundwork for a much greater diversified energy services platform.
Near term, we see strong synergies between reach in our recently internally developed overall power services group.
That combined capabilities, we have the potential to take advantage of future customer opportunities by diversifying into synergistic services and expanding geographically to serve the electric power industry as well as the larger infrastructure services market.
There was no better time for our interest into this market given the substantial capital investment programs that energy companies are making and we'll have to make into our nation's aging infrastructure.
These energy assets are just about beyond their serviceable lie and they simply must be upgraded or replaced its no longer an option for utilities to do this has become a critical need.
Then there's the shift in the electric power market as a transmission grid continues to move away from coal and nuclear power to renewable energy sources, such as wind and solar in natural gas.
The current age and configuration of the nation's electric power grid simply cannot support these new sources of generations.
Lastly, 50% or the workforce across these industries will soon be eligible for retirement within the next five years.
And given this trend we expect in the future that our customers will have to outsource more work that is currently being done in house, which should make more favorable resource domain and pricing environment for our services.
For these reasons them anymore, we are dedicated to transforming this company into a diversified energy infrastructure services company.
Our strategy remains the same to diversify our existing energy business and so the infrastructure services market through both organic growth and by pursuing a targeted acquisition strategy focused on innovative companies and complimentary industries.
We have begun this process with our acquisition of reach construction and the launch of orbital power services and we look forward to continuing to execute on this plan as we move through the rest of 2020 and beyond.
In summary, our actions during the fourth quarter and in early 2020 have improved our UK and Houston integration operations performance and increase the scope of our energy business by building a solid foundation to expand our energy infrastructure service offerings.
In doing so we also strengthen our financial on liquidity position, allowing us to continue to pursue are targeted acquisition strategy.
By executing on this strategy focused on innovative companies and complimentary industries, we will develop a diversified platform for growth and create long term value for our shareholders.
That concludes my opening remarks, now we'll pass the call on to Dan who will review our financial results Dan.
Thank you Jim and good afternoon, everyone.
Today, I'll review, our fourth quarter and full year 2019, GAAP financial result.
Thanks, Ryan to everyone that I will focus my remarks today on the company's continuing operations, which consist of our energy segment. The power and electromechanical segment. It's presented in discontinued operations as electromechanical business was disposed of during Q3, while the remainder of the domestic power business was divested during Q4, what do you like Canada and see why Japan remaining held for sale.
Well at the time and also presented as discontinued operations.
We reported total revenues of $5.7 million for the fourth quarter of 2019 compared to 7.4 million for the fourth quarter 2018.
These results reflect the lower integration revenues and our UK operations that Jim mentioned earlier related to uncertainty around Brexit. These were partially offset by increased integration revenues in our North America operations.
For the full year 2019, total revenues were $23.5 million, a 15.5% increase compared to $20.3 million for the full year 2018.
North American operations had significantly higher overall revenues then in 2018 after a strong fourth quarter, which were offset by weaker Q4 from our UK operations due to the factors I mentioned earlier primarily related to Brexit.
Gross profit was $1.5 million for the fourth quarter 2019, compared to a negative $490000 for the fourth quarter of 2018 and for the full year 2019, gross profit was $5.8 million compared to $2.6 million for the full year 2018.
Gross margin were 26% for the fourth quarter of 2019, and 24.7 per cent for the full year 2019.
Compared to negative, 6.6% and pause at 12.6% for the fourth quarter and full year 2018, respectively.
The margin increase was due largely to a 2018 increase the inventory reserves of $1.4 million related to write down of inventory and the 2018, one and a half million dollars write down of long term deposits and other assets that were prepaid.
Both of these accounting jetsons increase the cost to sales as a percent of revenues in 2018, we expect improved cost of revenues as a percentage of revenues in 2020 as result of increased sales of higher margin products and better make them integration projects along with increased service revenues.
For the fourth quarter of 2019 hatching eggs <unk> increased by $1.1 million to $6 million from $4.9 million in the year ago period.
The increase reflects increased corporate costs related to strategic initiatives higher professional fees and due diligence activities related to prospective acquisitions.
<unk> expenses for the full year, 2019 increase $1.4 million to $20.1 million from $18.6 million for the prior year.
Actually expenses as a percentage of revenue was approximately 85% compared to approximately 92% in 2018.
I think recessionary expenses were partially offset by decrease costs in the energy segment, primarily due to improved operating costs, including lower professional fees in 2019, and lower translated costs are UK operations due to generally lower foreign exchange rates and higher costs in the 2018 comparable period from increased marketing expenses related to the 2018 world gas comp.
Thanks.
Adjusted EBITDA loss for the fourth quarter was $6.8 million compared to a loss of two point mill $2.1 million in the year ago period.
For the full year 2019, adjusted EBITDA loss was $14 million compared to a loss of $8 million for the full year 2018.
Operating loss was $4.9 million for the fourth quarter 2019, compared to $8.9 million for the fourth quarter of 2018.
For the full year 2019, operating loss of $16 million compared to $22.1 million for the full year 2018.
Our backlog was $9.6 million at year end compared to $15.7 million at December 31, 2018, reflecting the timing of orders and delivery schedules for integration customers.
That's where our balance sheet, we ended the year of cash and cash equivalents of $23.4 million.
As previously announced in 2019, the company filled up domestic power and electro mechanical businesses in two separate transactions for total proceeds of $35.4 million.
Along with finding a loss from continuing operations prior to year end, we use some of this cash to pay off the existing borrowing facilities, which are made unnecessary by the cash generation from these sales.
In addition to the repayment of the borrowing facilities during the fourth quarter.
One of the quarter million dollars is utilized to pay investment banking advisor fees related to the transactions.
Also during the fourth quarter. The company is $7.3 million to fund operating activities that included reduction of refund liabilities of a million dollars accounts payable by <unk> point $7 million.
Contract assets and liabilities net <unk> point $3 million.
Along with those items, we began the greenfield launch of oral power services.
We reduced accrued expenses related to vps investment of point $5 million.
Utilize point $4 million for the stock buyback at 380350, 3000 shares and incurred continued cost related to diligence efforts for M&A.
More recently as previously announced we entered into a definitive agreement to acquire reach construction group for a combination of third party debt and company equity in a transaction valued at approximately $37 million.
This purchase price excludes working capital and certain other customary adjustments we made upon closing we expect to close the transaction in April subject to routine closing conditions.
Before I turn the call over to Jim for some closing remarks, I'd like to provide an update on our share repurchase plan.
As mentioned earlier in December our board authorized share repurchase program under which the company may repurchase up to $5 million other companies common stock at market prices.
For the period since the share repurchase plan with first approved through December 31, 2019 during the open buying window available to us.
We repurchased 353063 shares of our common stock at an average price of $1.17 cents on the open market.
I'll now turn the call back over to Jim for closing remarks.
Thank you Dan.
To summarize the last six months has been a transformative period for so you are global.
And just a six month period, we've strengthened our balance sheet by monetizing our non core assets rightsized and increased customer opportunities in our legacy energy business and expanded our service offerings into the electric utility construction space continue have transformation into an energy services company.
We believe there's no better time to do this given the increasing investment that's taking place in the energy infrastructure services space as well as the larger infrastructure services market.
Looking ahead to you our global isn't an excellent position to keep executing on this strategy, which should support our ability to expand our revenues profitability and continue to create long term value for our shareholders.
Before we go into Q in a I would like to make a few comments about the corona virus pandemic as it relates to our company.
Following the guidelines provided by the department of Homeland Security, We will continue to operate so you are global and its subsidiaries as an essential critical infrastructure workforce and we'll do so throughout this crisis as long as employees and key stakeholders, including our customers and vendors can do so safely and effectively most important of.
Courses the safety of our employees and their families who have been provided the proper protocol to operate during this time.
Due to the Corona virus, we've seen some customers and supply chain interruptions in our UK operations in the U.S., we have experienced little or no business impacts to date.
As we all know the people in Europe have endured this virus several weeks longer than those in the U.S. the situation with the Corona virus changes daily and we're closely monitoring it and how it could impact our business, Dan and I had originally intended to provide full year guidance on this call, but given this unprecedented situation we have decided to wait.
Right until the pandemic passes so we can properly we assess our financial position for the full year.
We thank you for your patience and urge all of you to keep yourselves and your family say by following CDC precautions to stay healthy during this outbreak.
That concludes our prepared remarks, now I would like to open the call for questions. Operator. Please go ahead.
Thank you.
It to ask a question you will need to press star one on your telephone.
To withdraw your question press the pound again to ask a question press star.
And our first question comes from Eric Stine with Craig Hallum. Your line is open.
Thank you my Dan.
Hi, Eric how are you suffering three doing well, but you did a good good good and just wanted to start on reach.
Maybe if you can talk about the growth profile of that business over the last couple of years and then I know that you talk about 100 million dollar plus backlog just curious on how we should view that whether that's a 12 month backlog or not.
So that $100 billion in backlog is just backlog for this year.
So it wouldn't be 12 month backlog they do have a pick an additional 40 million in backlog beyond this year.
And what we anticipate in doing this year as 100% in backlog.
So the company was founded in 2013 and they they started off that is being a foundation company doing most of the the ground clearing and leveling and Paul driving which is the most difficult part of solar projects.
And then they transitioned into being NEPC provider that the request to their customers around 2016.
So the growth trajectory is kind of <unk> taken off from that point.
And last year, I believe it or close to 30 million in revenue in this year, we're forecasting around 100 million.
Got it.
And I guess, one just confirming that the management team with the reaches staying with the company.
But also you you talked about it for you referenced in the release that.
While they're going to help you get into utility scale solar you're also going to help them get into other parts of your business. So maybe if you could just expand on that.
Yeah. The team is absolutely saying on board.
Young management team.
Again needed to balance sheet to grow that's a perfect situation and they are quite a opportunistic and are ready to expand their service offerings into into new areas that are synergistic to what they do.
And Oh for example, one of the things they do on these utility scale solar jobs as bill subcontract out the interconnection to the grid well, we can do that in house now we have the capability. That's a synergy but also build on the synergy and and move into the utility arena and do work for.
Utility a in municipality electric providers as well so there's significant opportunity there for us to growing in the southeast Asian region of the U.S. for they are located.
Got it.
Maybe lastly from me you know just any any thoughts and then on margins, whether it's a EBIT or EBITDA and then also.
So it sounds like it's going to be debt equity that you'll issue are you going to use any cash on hand.
Yes, so we're not using any cash on hand for this acquisition. It is all seller finance that so we were able to do this without a meeting bank financing or otherwise there's a.
Equity component of approximately 2 million shares that they will be receiving.
And then in respect to.
The margins a the net margin, we expect to be better than 10% on their business for 2020 and going forward as well such a very good margin business operates lean from an overhead standpoint. Its main cost drivers there are delivering to the customers so and not can.
I'd be adjusted as needed based on project work.
Hello.
And Eric World Rolling out the deal structure, one when we close the deal which will be in the next week or two.
Okay. Thanks, a lot.
Thank you.
Thank you. Our next question comes from Liam Burke with B. Riley FBR. Your line is open.
Thank you good afternoon, Jim Good afternoon, Dan and good afternoon.
Oh, Dan in his prepared statements was talking about the systems integration business, how those margins typically your lowest margin business, but there are improving and you'd expect that into 2020 to do better.
Hi, Jim is it because you've got more see like content in that integration business or are you seeing better pricing or you know what people want to payout.
It's really volume volume that we need do we need more volume, but the margins that were making on these contracts is good it's to cover the indirect we've gotten engineering and support staff that.
Oh, very a specialized that help differentiate us and what we do and we just need to get the volume up and this business in these businesses, which were which we're doing.
Oh, but the projects are profitable, it's just more cover and overhead.
Liam to your point, though we are also seeing significantly a greater volume related to Ve technology and that is an opportunity for us to capture some more margin on projects and and analytical systems or building. So that is that has helped out of line.
Oh, that's a good point I mean, we felt we sold 20 of those 2020 of the these sample probes but.
With that we've gotten pull through value and we're doing for projects that total almost a half million dollars that our door involve integration of that technology. So you know the and that could be 20% to 30% of of our revenue in Houston is just because of this new technology that will launched 20 or 31.
<unk> revenue this year.
So there's a lot of good things going on right now and the way of growth opportunities.
Okay and Jim on the the development of Overbuilt power the acquisition of reach you've got inorganic strategy. We've deployed your first cruise.
How do you look at the balance as you grow this business between acquisition and a and organic.
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That's a good question I don't think there's any recipe to it I think it's just being opportunistic you know we we still plan to do you know two to four acquisitions a year. This year, there's a little different we've got the Corona virus going now so I don't know, how that's going to impact as long term, but.
But where we see opportunities to grow organically Opportunistically, we'll do that and at the same time, we're going to try to do you know that at least two to four acquisitions in each year.
Great and Dan real quick.
Jim mentioned that there needs to be some additional investment in the Houston facility is there any meaningful step up and capital expenditures and 2020.
Its the Capex that we're investing is any mostly related to the power services group and so there is gonna be a step up it.
It's.
Not can be that dissimilar from what you were used to our power electro mechanical business from a dollar standpoint, but there is a step up particularly in Q1 of what we're investing oney equipment for that group.
You can imagine the heavy trucks and lifts and all the things that go with serving a utility construction industry space. So for over a power services, there will be investment equipment.
For the two oral gas groups in the UK and U.S., we don't see a lot of investment necessary.
For the our operations from a Capex <unk> equipment standpoint, and then reach being more of a project management firm again is fairly capital investment light Capex light so.
Sure.
Great. Thank you Jim Thank you Dan.
Thank you Lam.
Thank you we have a question from Rob Brown with Lake Street <unk> markets. Your line is open.
Your next round rock.
Hi, just wanted to follow up I know, what the orbital power systems business that you're building Greenfield keep sense of what kind of run rate you expect that to be in the next sort of year to or how we look at it and maybe some of the customers that that's that's addressing as the market that's interesting thing.
I'll talk qualitatively about it I mean, I'd say again with the virus that you'd see it may slow us down a we haven't seen any slowdown to date, but.
I think this business can ramp.
Pretty significantly over the next several years.
And it's going to be meaningful contributor to the bottom line. We hope this year I don't want authority numbers out right now until we get through this pandemic.
But clearly.
Oh, yeah, it'll be a contributor to the bottom line this year and beyond.
That being said we are seeing significant interest from the markets where that team is being introduced a again in the southeast, particularly around Oklahoma, Texas, New Mexico areas. So we will be why is it.
Yeah southwest.
There is a strong market for that team.
Okay, and maybe could you give a sense of that the typical project size. If there is one of that business. So what's typical project.
Scale.
Look they work and crews of four to six people on a crew.
With two buckets trucks in a bigger there so that I mean, that's what.
They work in crews and they go out and that they're giving it a certain amount of work to do each day. So it's it's a very recurring revenue stream.
Oh, yeah typically done on units.
Worked our time and material, so well and right now we probably have about you know all in with support staff.
Probably 30 30 to 35 people in that group right now so it's relatively small.
But but we do plan to rapid ramp it fairly rapidly has you know because we are building momentum and there is like Dan said interest from other customers to to take some of our crews.
Okay, great. Thank you that's very helpful Turner.
Mhm.
I show no further questions at this time.
I'd like to turn call over to Mr., Jim O'neill, Vice Chairman and CEO for closing remark.
Well I'd like to thank everyone again for joining us on todays call and for your continued interest in so you are global and we look forward to having follow up conversations with many of you and to updating you on our continued progress.
Thanks, again have a great Rusty your day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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