Q1 2020 Earnings Call
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Good morning, everyone and welcome to align group Holdings first quarter 2020 earnings conference call and webcast.
Joining me today are Mark Stauffer like Group Holdings, President and Chief Executive Officer, Robert Todd or Vice President and Chief Financial Officer.
Regarding the format of the cool we've allocated about 10 minutes for prepared remarks, which market Robert will highlight or our results and update our market outlook well then open the call for questions.
Well of course this conference call will make projections and forward looking statements regarding among other things or end markets revenues gross profits gross margin EBITDA EBITDA margin backlog projects in negotiation and pending awards as well as our estimates and assumptions regarding our future growth.
It is traded expenses and capital expenditures. These statements are predictions are subject to risks or uncertainties, including those described our 10-K that may cause actual results could differ materially from those statements more overpass performance is not necessarily an indicator of future results.
By providing this information we undertake no obligation to update or revise any projections or forward looking statements, whether as a result of new developments or otherwise also please note that adjusted net income adjusted earnings per share EBITDA and EBITDA margin, our non-GAAP financial measures under the rules of Securities Exchange Commission, including.
Regulation G. Please refer to reconciliations are definition is inclusive in the most comparable GAAP measures and reconciliation tables accompanying this earnings call within a press release issued this morning.
The press release can be found on our website at Www Dot override group holdings Inc. Dot com.
Also for additional discussion of risks factors that could cause actual results could differ materially from our current expectations. Please refer to our quarterly and annual filings with the FCC, which are also available in the Investor section of our web site and with that I'd like to turn call over to Mark Stauffer, President and Chief Executive Officer Mark.
Thank you and good morning, everyone. Thank you for joining our call.
Today, we will discuss our 2021st quarter results and provide you with an update on the current state of our business during his unprecedented times given the tell that 19 pandemic.
I'll begin with a few remarks, then turn the call over to Robert to review our financial results in more detail then I'll make some concluding remarks before we turn to Q it out.
First I'd like to extend our deepest empathy to those who have been affected by or had family or friends affected by this virus.
I also want to sincerely. Thank our team members, who are safely working at our project side yard builds board offices and remote locations around the nation and outside the country.
Our focus has been and will remain on ensuring the health and safety of all our people.
We're doing everything we can to support our customers keep our business operating and support our employees and our communities.
Our services are critical to the economy because were involved in construction activities supporting critical infrastructure, we are fortunate to be essential business.
We've been able to maintain our strong market position and in the first quarter delivered sequential and year over year improvement in profitability.
We continue to execute on projects in our sizable backlog with only minor disruptions.
To ensure the health and safety of all our employees, we have taken actions, including increased ship temperature testing social business thing heightened sanitation and disinfection practices used to face coverings covert 19 specific safety meetings leadership training and distribution of educational information.
We've also instituted I travel ban and we have most of our office staff working remotely.
As we now move toward the reopening of the overall economy, it's unclear, whether we may experience, some delays and the timing and execution of New project Awards later in the year.
Though this pandemic is unprecedented we're encouraged by our near record level of backlog or continued productivity. During this period at a long term resiliency of our end markets that we service.
We have taken steps to ensure that our liquidity position will enable us to continue to execute on projects in backlog and future pursuit.
We believe that we entered this pandemic from a position of strength and have gotten through the first phase of this challenge incredibly well.
Confident that we will be able to navigate any potential challenges as we move through the year, all while protecting the health and safety of our employees.
Now I'll turn the call over to Robert to discuss Q1 20 in more detail and elaborate on our liquidity in Castro.
Okay.
Thank you Mark thanks, everyone for joining us.
Before I jump in Chicago, 19 discussion and the related measures, we've taken to solidify the business I want to pick the opportunity to highlight our Q1 results.
Revenues for the first quarter, it's what exactly were 166.6 million compared to 143.1 billion in the first quarter of 2019. The increase in revenues are driven by increased project activity in the Marine segment.
We were also very pleased that in the first quarter, we had a book to Bill ratio of 1.2 times further expanding our backlog in providing us with a substantial amount of work to execute in the upcoming quarters.
First quarter 2020 reported gross profit was $19.8 million as compared to 9.1 million in the first quarter last year.
The year over year increase in margin was driven by a 140 basis point increase in project level margins and a 412 basis points improvement and indirect project support costs.
Also in the first quarter 2020, we book roughly 8.4 million of revenue with zero margin related to uninstalled materials in accordance with the accounting guidance under AMC six those fixed compared to 600000 in the prior year period. This resulted in a 80 basis point drag from gross margin.
Compared to the prior year period.
Note that margin on these materials will be recognized as they are installed.
Turning to the segments.
Excluding the growth of impact of accounting for uninstalled materials. The marine segment margins improved by over 1000 basis points year over year of which 73 Bips came from project level margins 997, Bips came from improvements in indirect project support costs. These improvements were primarily driven by.
Execution related margin expansion on certain projects and increased human capital and equipment utilization.
Resulting in higher absorption of fixed costs.
Now turning to the concrete segment.
The concrete segment year over year margins improved by 129 basis points of with 108 rebuilds of improvement came from project level margins slightly offset by 54 bids of increase indirect project support costs.
The improvement in project related margins were driven by increased labor efficiency.
One final note on gross margin in the first quarter, we adopted AMC threeqtwenty six regarding accounting for credit losses, considering uncertainty created by the Cobot 19 pandemic, we booked a 400000 dollar credit loss reserve against gross profit. This reserve reduced earnings by roughly one penny per share.
Moving to actually entering.
For the first quarter 2020 SGN expenses.
Were 15.9 million up from 50 million in the first quarter 20 nights paying the increase is driven by the pool ratable rule of the incentive compensation plan.
As a percentage of revenues first quarter 220, as DNA was 9.5% down from 10.4% in the prior year quarter.
We remain focused on as DNA being at or below 8.5% of revenues recognizing that we may see fluctuations on a quarterly basis now to bottom line results for the first quarter 2020 reported net income of 2.7 million or earnings of nine cents per share. These results compared to a net loss of 7.9 million.
Or a loss of 27 cents per share for the same period a year ago.
After removing approximately 300000 pretax non recurring costs associated with our process improvement initiatives and approximately 600000, a benefit from tax valuation allowances adjusted net income for the first quarter 20, 22.4 million or earnings of eight cents per share.
First quarter 2020, adjusted EBITDA was 12.2 million representing those.
The EBITDA margin of 7.3% compared to adjusted EBITDA of 3.1 million for margin of 2.2% in the first.
The quarter of last year.
We've been on approximately 1 billion worth of opportunities and were successful on 204 million in the first quarter for each one this resulted in a win rate of 20% well.
What's happening to execution of future project Awards remain uncertain. We are encouraged by the amount of quality work that we were able to successfully bid and win during the quarter.
As of March 31st 2020 backlog was up 609 million of which 362 million was associated with our marine segment and 247 million for the concrete segment. This is a record high for the concrete segment.
Currently the company has approximately 850 million worker bids outstanding, including approximately 57 million on which is the apparent low bidder or has been awarded contracts subsequent to the end of the first quarter 2020.
In total we currently have over $665 million projects between backlog and located a substantial increase from the end of 2019.
Moving into further Clover Nitin discussions are now address some of the proactive measures. We have taken as always we continue to monitor our capex needs and operating costs for this then we're deferring certain capital and.
Operational expenditures also we have developed and executed Haydn controls around cash management and broader risk management and mitigate patient.
Despite the noted challenges in uncertain uncertainty, we feel comfortable with our current liquidity position, which was enhanced in the first quarter as we as we generated 15.3 million in free cash flow.
At the end of Q1, we had 12.6 million of unrestricted cash and access to 12.9 million of availability under our revolving line of credit.
We ended the quarter were approximately 71.5 million in debt outstanding of which 35 million was related.
Due to the revolver and 36.5 million was related to the term loan.
This translated into a 1.7 5000 leverage ratio and a big sales ratio of 3.2 times.
We feel comfortable with our current debt levels and our secure in our covenants as always we will continue to evaluate opportunities to enhance our liquidity position in particular, we're working with our banks to explore ways to gain access to additional liquidity.
Also we will continue to look for opportunities to sell non core assets.
I want to reiterate we feel comfortable with our current liquidity situation, which will enable us to execute on our backlog.
And new projects, we were awarded in the coming quarters.
We remain optimistic in our ability to execute on our near record backlog as we continue to.
Navigate the current help in economic crisis, now I'll turn it back over to Mark to wrap up.
Thanks Robert.
Turning to our markets, we continue to see bidding activity in both our segment.
As I stated earlier, it's unclear, whether we may experience some delays in the timing and execution of New project Awards later in the year, but as we move to the next phase of improving the functionality of the economy, our focus will remain on profitable project pursuits.
We have diverse end market drivers in both our segment and while there may be a few that have or will be impacted but as a result October 19, there are others that we expect to provide bid opportunities.
As we go forward.
Our focus will be on the bids for these projects.
We have a strong history of adjusting between end market bid opportunities in our pursuit of select larger and longer duration projects will also benefit us as we go forward.
We remain in constant contact with our customers and we are coast closely monitoring their spending plans.
Additionally, we are tracking governor project letting scheduled across federal state and local agencies and we are encouraged by the bid opportunities we see upcoming in this space.
We will of course also track any movement on a federal infrastructure Bill that may be part of future stimulus spending plans for restarting the economy, which could provide significant bid opportunities and for which we are well positioned.
We started this year with a solid Q1 performance entered Q2 with backlog in low bids at elevated levels, including a record amount backlog in our concrete segment and we currently have nearly 850 million of bids outstanding.
We also continue to bid on projects in both of our segment.
While we remain focused on continuing to deliver improved performance given the uncertainty due to the co bid 19 pandemic on the timing and execution of New project Awards later in the year, we're proactively suspending our previously disclosed full year 2020.
As for adjusted EBITDA.
The situation. We are all experiencing is unprecedented however, we're confident that we have the team processes and procedures in place to get through this pandemic and we will be well positioned to take advantage of market conditions as the economy emerges from this crisis.
We are focused on safely meeting our customers' needs now and in the future anywhere.
Confident in along.
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One moment, please while we pull for questions.
Our first question today is coming from Marco Rodriguez from Stonegate capital markets. Your line is life.
Hi, Good morning, guys. Thank you for taking my questions morning, one Marco.
Yes, I was wondering if you could talk a little bit more on the liquidity aspects you mentioned down some some deferral of expenses.
Capex.
Maybe if you can kind of give us sense as far as where you think capex might end up in fiscal 2000, and what sort of expenses.
You might be deferring here.
Well, we're just being prudent Marco.
You know were.
Deferring some capex spend at that May not mean that we're deferring.
Equipment needs, we're certainly we need equipment for projects in the execution of those projects.
We may just acquire that equipment through other means.
Renting our leasing or something like that so you know as we've gone through this first phase we've just been.
45 days ago.
Yeah, we were kind of entering a new new world here and we weren't sure where things were going to go so we.
We're very.
Delivered about the plans we set in motion.
And so we've just been.
You know focused on controlling our cost as we always do but also just focused on.
Cash in protection of cash and so we will as we go through this will will determine.
When we need to spend or not spend but will will we are still meeting our needs out there.
With our equipment.
And so it's too soon to tell what what our full year Capex may look like right now we're sort of illness.
Suspension mode on an as needed basis and world will look at that and evaluate that as we go forward. Yes. Another thing, though through market will go to think about is that we were getting ready to kick off the ERP project.
We haven't canceled that what we suspended it we're going to give a little further integral in and we can read and react and see how that plays out. So we're looking at that from month to month and as we do a more clarity into the future will make the the go board decisions around ERP later on in a year.
Got it.
And in terms of.
Backlog is there any sort of color you can provide in terms of what the margins look like for the marine them concrete segment.
Well, we do now we're pleased with where we are in the.
In the in the work that we're bidding in the margins that were bidding our work yet.
You know in line with what our expectations of then obviously.
That is one part of the equation in terms.
RVR.
Our performance Amena, we've been focused on our Indirects as you know through our.
Processes last year I think right.
First quarter, you saw improvement there Robert touched on that in his remarks that so we're focused on not only the margins on the projects that also.
Drilling the other cost indirect costs that are in Cogs and.
It sounded like you had mentioned that you're still seeing good bid activity in both markets.
But your suspending kind of longer term, you're just kind of not sure what.
What that might look like or what sort of delays may come about is there anything that you're seeing in particular that they did kind of giving you pause for the later part of the year or any sort of additional color you might be or the frame there to help us understand that.
Yes, I think it's just we we don't know what the future is going to all right. So I think as we talked about in the remarks.
Yeah, we came into this thing with near record levels of backlog.
We we've been able to continue to work, where where we've we've been as an essential business in virtually every market that we're in even under the various orders stayed home order. So we've been able to continue productivity.
As we stated we have had minor disruptions, but nothing.
Substantial but we just don't know what the what the future is going to old.
You know we're confident in.
The long term.
Resiliency of our markets.
We think we're positioned well coming into this thing and we as I said, we got through this first phase with the shutdown incredibly well, but we just it's just it's just being crude at I mean.
We didn't we don't know what we might see but as we said in our remarks.
Yeah, we're going to be focused on the work that is coming out.
And we're going to be focused on.
Going after profitable project pursuits, and so we're going to continue to do what we're doing that.
We don't know what's going to happen down the road with this sale, it's just prudent for us too.
Pull that out at this point and that to be specific to your question. There's not anything we're seeing its just.
That gives us pause is just.
Knows what's going to happen later on in the year and in the fall and things like that so there. So there's such a wide array of scenario is that going out there that can play out here.
We'll go to challenge on Riocan, there's there's not a.
Cheerful is there to be second wave that can impact the current work business in backlog right now and then looking burn work.
Turning on how the end markets, we add two to two slowdown there can also impacted so as Mark said, there's just a wide array of outcomes that can happen.
I don't understand thank you guys I appreciate your time.
Yes.
Thanks for next question is coming from pro Frac from Noble capital markets. Your line is now lives.
Good morning, Mark Good morning, Robert.
Yes.
Can you expand Robert on your liquidity you ended the quarter with cash of wed just a little bit over 12 million and what's your availability on the revolver now.
We ended the quarter with a little over $12.5 million than we have another artwo point for almost 30 million of availability.
In our in my comments over the last couple of quarters.
We talked about you know returning to the free cash flow position and we thought it liquidate in in Q1 from working capital also during Q2, we started seeing cash coming in both in a our ticked up in Q3 Q4 last year, we're now starting to see that liquidate.
And that has come back in.
Yes, and looked at cash working capital changes positive little over 4 million age it what's your outlook for the second quarter, maybe for the rest a year from in working capital perspective. If you have if you have an idea that Robert.
I accepted the guaranteed casino in the same trend or is it really is going to.
Dependent upon you know the level of activity you know seasonality wise in Q2 acute hearing we tend to burn more cost as we borrow more cost leverage.
Great to see you know that have a little bit of a toll on working capital creeping up but it is really going to turn will be dependent upon.
How much activity, we were able to get into over the next couple of quarters.
Great and then Mark when you talk to you gave a little color on just the suspension of EBITDA guidance and.
Maybe be helpful that sort of look at the bids outstanding that you have now with 850 million.
Is it more on the marine side or the concrete side that you're you're.
Maybe a little more cautious or little more concerned about from standpoint of just the visibility into the second half of the year.
Well no. Good question I think again, we're continuing to see work come out for bid and in both segments. We're continuing to book work in both segments. So again I think this is.
Just a it's a prudent course for US right now just not knowing what's going to happen whether or not work is going to be negative new work is going to be affected in the future as I said right now.
You know asset in the remarks, we're focused on delivering improved result results.
We're focused on going after the work that is out there we do anticipate that there maybe some.
As I said in her remarks, there, maybe some markets that or projects that get a little more or a little more affected right now, but theres others.
We anticipate activity will continue.
As we go forward a lot of stuff.
That's been in the planning stages in the pipe in the pipeline.
They already have its financing in place. So that's very encouraging the other hand, we've seen.
We certainly seeing some people pull back their capex budgets.
In certain sectors, but.
You know where.
Again, we're focused on what we can focus on.
We have been.
Being able to continue to operate we've got a nice backlog coming into that we're continuing to see work come out for beds.
And so.
That's all positive as far as we say, it's really just around being prudent given they given the unknown.
Nature of this and again just to reiterate my answer the last question is.
There's nothing specific that is causing us to do this is just being prudent given the other macro.
Uncertainty, but.
You know again from our perspective, we're focused on.
Doing well and doing all we need to do too.
We continue to work continue to improve on our results.
Great and if I could just follow up on that when you look at you mentioned capex budgets coming down my assumption is it it's the.
The energy industry.
Less of a driver now in for the Texas economy than it was saying a decade ago, but still that's potential source is concerned.
And then secondly is it also from standpoint of looking at some of the public.
Work you do for public entities usage from its fiscal standpoint, looking at just watch tax revenue, whether its sales or income taxes is it.
That kind of funding perspective, if you could just follow up a little bit on that that'd be helpful.
Sure well, yes, I mean, obviously in the energy space I mean.
Everybody, saying, what's gone on their way with energy and unrelated to the.
To the switch off of the economy, if you will so.
You've seen out there where a lot of the.
Energy companies have pulled back on Capex, a lot of that has to do with the upstream stuff.
So that's the that's one thing that's out there I will say as you know a couple of weeks ago. We.
Did put an announcement out on some work that we just.
Were awarded any energy sector. So there is still things that are going on out there, even though there's a pullback.
There are still things that are progressing there.
So with respect to the government sector, that's actually one where again we have.
Exposure, there, particularly on the marine side.
In the government space that are our sets that we're seeing from a lot of the agencies aspart, particularly at the state and federal level is that.
You know they intend to to put workout so we.
We've again then then.
Closely watching and in discussions with the you know.
The various folks that at the agencies and stuff and seed see things coming out on the schedule in the next.
Couple of quarters, So again I I think.
You know, we're seeing work to bet on we think we will still continue to see work that out as we go forward.
It's just you know again nothing specific that we're seeing to pull this now we just think it's prudent given the uncertainty and as things move forward throughout the year as we gain more clarity around that then we'll address will address.
Guidance at that point, but.
Right now.
That there's there's nothing specific that that there were going to point to this is why reported down just it's just kind of a macro.
Macro environment, but as far as.
What we're seeing out there like I said, we've got diverse end markets.
A lot of different drivers, while we may see some that have some some pullback from others. We think are going to go forward.
And you know.
Again, as you said, Texas has diversified a lot in the last.
A couple of decades, and so we expect down.
Again, the same thing to apply in Texas, where certain things will go forward and other things maybe a little more impacted for a period of time.
Great that's helpful and Robert if you could.
If you Wouldnt mind, just expanding on sort of your your view on enhancing liquidity.
I noticed in the quarter you sold assets with generated about 1.3 million of and since you and proceeds from asset sales and then you have insurance recovery.
Just a little bit over a million can you frame sort of the the potential buckets are out there in stores additional asset sales and then are there any other insurance recoveries that might occur over the next couple of quarters.
So yeah, I think about it kind of a few a few pockets here the selling of equipment is kind of normal normal course of a business. So as things you'll get a little old here and we move them as a pause in accordance with our equivalent strategy well some of things that we've talked about over the last few quarter.
Oh around some of the non core.
Real estate assets, well, we have a few pieces that.
You know, we're looking to liquidate now the timing of that you know in this environment.
Okay can fluctuate. So I want you know you know guide you to to the timing of when we think something like that that could happen, but it's something that that will pressing you know for toward and then the other piece I was just the you know the cash from operations continue to see you know are a.
Liquidate.
And you know the EBITDA that we generated over the last.
You know you know.
Four quarters.
The $46 million of drones will even to fieldnet really converts cash flow the kind of bucket that that that I think about you know enhancing liquidity and then finally, you know working for banks to.
Let's see if we can.
Add some availability to the revolver. So as we work through that we'll have more to say on it.
Great. Thank you so much.
Yes.
Thanks for next question is coming from Alice Frankel from B. Riley and PR. Your line is now lives.
Thank you it's good to hear your all a.
Healthy and say and very very nice quarter.
That's great Alex.
Martin in a normalized market can you remind us what year.
Segment margin targets are.
Yeah. The you know in a normalized market, we would want to see concrete EBITDA margins in the in the high single digits, and we would want to see.
Of Marine in Canada.
Lower on a consistent basis on a lower double digits.
That's kind of you know target ranges for us.
Do you think your backlog today, yes.
Executed as planned and.
There aren't any.
Material impacts on timing issues on.
Start dates in what DDG backlog today can get you to those levels or is it kind of.
Walking your way towards those targets in a year or two.
Well I think you know again, a lot of the things that we've done in the past year, we talked about your all in the previous.
Several quarters.
You know have been too.
With a focus on improving our our processes and.
So, we're making you know better decisions quicker and faster.
So you know again that is still.
The track that we've been on.
And we're going to continue down that that track and again, you know ERP as part of that as Robert touched on earlier.
So I think it you know there's a couple things as one we're pleased with the progress we've made in that regard.
We had LNG no.
He has sort of two pieces to the performance of that as you know at the project level, and then controlling a indirects and the.
Rosacea and equipment utilization things like that so we've been focused on on both of those things I think you know you can you kind of see that.
The progress we've made on that in a in our Q1 results and so we're continuing down that path and.
No I would say that we're comfortable with where we are in the backlog in terms of margin and we're focused on the things we've been focused on around.
Labor and equipment efficiency and again I think you saw.
Yeah the positive.
Direction, we've moved down that in in Q1 so.
Yeah, we think.
In a normalized world Yeah, we're making.
Progress now on on achieving those those goals for ourselves.
Last question as it relates the heavy civil segments.
Margins picked up nicely here in the first quarter kind of versus other prior quarters.
Can you talk a little bit about the mix between more traditional construction versus dredging activities and how that mix may have benefited the first quarter two anyway.
Yes, our drilling is up about 18% year over year in the quarter, but really what drove the margin was oak improvement in indirectly touch living on it on to the comments we saw substantial increase.
And margins driven by better equipment utilization I'm, a good chunk that was from the drought is well in on the labor side of things, we had less honest on labor. So people have hard work on projects. So we're starting to projects as opposed to being on the sidelines. So it really is really the stores really a story of.
Being driven by Indirects and when you look at the overall consolidated margins.
Concrete was was flat from a revenue standpoint, and marine so year over year activity increase so better margins are made a boat or larger gallons of this year well for the total business, but overall fleet, where we are we did see margin expansion at the project level of but most of it was really care about India.
Cost.
That's great. Good luck, thanks I don't.
Thank you we reach of our.
I do apologize would give a power follow up from pro fat from.
One moment please.
Perfect. Your line is now allow for your follow up.
Hi, just quick question.
Did you consider or did you apply for any of the paycheck protection program benefits. Its it seems like construction companies in.
General and then in particular taxes seem to be age.
See aligned with those funds allocated towards that.
Did you consider that or is it something that you just didn't think you qualify for.
Well, we have waited yeah, just to be prudent we looked at everything as we talked about earlier you know our focus kill it ended up as this crisis was unfolding was too.
You know make sure we were protecting liquidity.
And focused on cash and liquidity the TPP does not apply to us.
So we just we looked at the details of that it doesn't apply to US. The main street lending programs. I mean, we looked at the details of that just to be aware of them.
In case, we don't think that that the.
You know that Thats, a necessity for us but.
Yeah, we certainly looked at.
Oh, all options that that may have been available as we were going through this but.
Ill, let Robert kind of touch on all the rest of that yeah. We take a look at all over it I think the PV program. The BPP program you have to have a less than 500 employees were closer to 20 704. So yes. That's eliminated out the main street lending program Oh, we looked at that as well, but we think our goes bad is to continue to work.
Our banks.
Down the road, maybe there could be an option, but at this particular point in time or work with the banks in squeezing liquidity out of the current operations is our best bet.
Great. Thanks Seth.
Thank you we reached about question answer session on to turn the floor back over to management for any further closing comments.
Well, we owe thanks, everybody for joining us and though we look forward to catching up on the next call in August stay well everybody.
Thank you that does conclude today's teleconference. You may disconnect. Your lines. This time and have a wonderful day, we thank you for your participation today.
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