Q1 2020 Earnings Call
From a materially from the forward looking statements.
Accordingly. These statements are no guarantee of future performance. These risks and uncertainties are discussed in the company's annual report on form 10-K for the year ended December 31 29 team.
The company's quarterly report on form 10-Q for the first quarter 2020, and in yesterday's press release.
Certain non-GAAP financial information will be discussed on the call today, a reconciliation of these non-GAAP measures to the most comparable GAAP measures as set forth in yesterday's press release.
With that said, let me turn the call over to Rick Swartz.
Thanks, David Good morning, everyone. Welcome to our first quarter 2020 conference call to discuss financial and operating results I will begin by providing a brief summary of the first quarter results and then turn the call over to Betty Johnson, Our Chief Financial Officer for more detailed financial review following Betty's discussion, Todd Cooper and Jeff on it.
Our chief operating officers for our TNT and see nice segments will provide an industry outlook and discuss some of them why our groups opportunities going forward.
I will then conclude with some closing remarks and open the call up for your comments and questions.
First and foremost as a grown a virus pandemic continues to impact our lives our thoughts go out to everyone who has been affected by this virus whether directly or indirectly.
As developments continue to unfold, we are hearing to the latest government and client recommendations and protocols and we are taking swift and prudent measures to ensure that the health and safety of our employees and communities remain Paramount.
Despite the many challenges caused during this unprecedented time in the history. We are fortunate that a significant portion of our business is deemed critical or essential under the various governmental pronouncements governing business activities. During this pandemic.
We're thankful that we can continue to deliver high levels of performance reliability safety and quality to our clients and communities, while protecting and maintaining the electrical systems and networks that we all depend on.
We have enacted measures designed to maintain safe efficient and resilient business operations. During this pandemic and have created a task force that is actively monitoring the situation as it evolves. So we can adjust operations as needed.
The majority of our office employees are working remotely and we have provided resources to help them work as effectively as possible and they're shifting work environments.
Throughout the country, we're giving back to our communities and continuing to identify new opportunities to help during this difficult time.
In the first quarter the impacts to our business were relatively minimal as social distancing orders didn't start until the last month of the quarter. Our first quarter 2020 earnings results were solid with revenues of 518 $18.5 million, a 10.8% increase over the.
First quarter of 2019 and increases in gross profit earnings per share net income and EBITDA.
Our backlog was 150.
$1.54 billion at the end of the first quarter, which is a slight increase over the record backlog in the fourth quarter of 2019.
While we are encouraged to see continued progress on projects as well as steady bidding activity. We know we're not immune to the negative economic effects caused by this pandemic much remains to be seen in coming months as a country inc. incrementally increase recovers.
Our focus remains on supporting our customers employees and communities I'm confident that the business continuity plans, we put in place will allow us to continue to serve our customers who placed their trust in white, our grew more than ever Im humbled and grateful for the tenacity and dedication of our employees who've approach. This.
Evolving situation with urgency focused and determination.
Now Bedi will provide an overview of our financial results for the first quarter of 2020.
Thank you Rick and good morning, everyone on today's call I'll be reviewing our quarter over quarter results for the first quarter 2020, as compared to the first quarter 2019.
Our first quarter 2020 revenues were $518.5 million.
This represents an increase of $50.4 million or 10.8% compared to same period last year.
Cobot 19 pandemic started to have a relatively minimal negative impact on both our operating segments. During the last few weeks of first quarter due to project restriction instead home orders.
Although most of our operations are.
Hindered critical essential businesses, making our projects generally exempt from San Juan.
Our similar orders, we did experience some disruption.
As both our customers and employees implemented safe work procedures that have enabled the majority of our project should continue.
Our first quarter Tandy revenues of $259.3 million were down 4.9% compared to the same period last year.
The breakdown of Tandy revenues was $171.6 million for transmission.
And $87.7 million for distribution.
The Tandy segment revenues decreased primarily due to reduced volume on a medium sized transmission project that is nearing completion.
Approximately 48% of our first quarter two Andy revenues related to work performed on Master services agreements.
Cnine.
Revenues were $259.2 million, an increase of 32.6%.
Pat compared to the same period last year.
The CNS segment revenues increased due to incremental revenues from the CFO acquisition.
Partially offset by a decrease due to the timing of activity and various size projects, along with project restrictions and a temporary slowdown work related to the culprit 19 pandemic.
Our gross margin was 11.9% for the first quarter 2020, compared to 9.2% same print last year.
Increasing gross margin was primarily due to better than anticipated productivity on certain projects, partially offset by labor inefficiencies on certain projects.
All of which we are we are ongoing and ongoing negotiations to receive reimbursement.
As well as inclement weather experienced on certain other projects.
As you know expenses were $45 million, an increase of $12 million compared to the same period last year.
Chris was primarily due to the acquisition of sales side, along with higher employee related expenses to support the growth of our operations.
First quarter 2020, net income attributable to unlike our group was $9.9 million or 59 cents per diluted share.
Compared to $7.4 million are 44 cents per diluted share for the same period last year.
Total backlog as of March 31st 2020 was $1.54 billion, a record high and low 35.6% higher than a year ago, yes.
Our backlog as of March 31st 2020 consisted of $456.8 million or the Tandy segment and $1.08 billion for the CNS segment.
This represents another record high for the Cnine backlog.
Turning to the March 31st 2020 balance sheet, we had approximately $250.6 million of working capital.
$161.4 million of funded debt.
And a $185.1 million and availability under our credit facility.
Our funded debt net of cash was $127.4 million an improvement from the prior quarter up $26 million.
Free cash flow came in strong for the period at $26.1 million.
We have continued to focus on strengthening our balance sheet, which can be seen and our funded debt to EBITDA leverage ratio improvements over the last six months since our satisfy acquisition improving from 1.85 to 1.5 as of March 30, Onest 2020.
Or 1.2, when considering net debt.
We also continue to focus on our free cash flow controlling our operating and overhead cost and limiting capital expenditures to be sir.
Our.
Our ability to continue to fund our operations with continued scrutiny of this and in light of uncertainties around the economic impacts from the Covance 19 pandemic.
However, we continue to balance this was investing and developing key personnel and in procuring the specific specialty equipment on tooling needed to win an extra two projects of all sizes and complexity.
We believe that our credit facility strong balance sheet and future cash flow from operations will enable us to meet our working capital needs equipment investment growth initiatives and bonding requirements.
In summary, we had improvements this quarter in revenues gross profit net income earnings per share EBITDA free cash flow and backlog compared to the prior year.
Now I'll turn the call over to Todd Cooper, who will provide an overview of our transmission and distribution segment.
Thanks, Betty and good morning, everyone.
Across the United States, we are encouraged the project execution and bidding opportunities have remained active today with minimal impact from the code in 19 pandemic due to most of our TNT operations being considered critical and essential businesses.
Work activity, primarily consist of small to medium sized projects and we continue to execute routine maintenance and construction work under our long term Master service agreements.
The majority of bidding activity is also comprises small or medium sized projects with clients throughout the country. Additional alliance and then I'd say opportunities and a few larger projects primarily located in the eastern half of the us.
We have seen ample GPC and renewable proceeds and increases related to solar in battery storage facilities, which includes the recent award of a 100 megawatt class utility scale solar project with 25 megawatts and battery storage.
This exciting man with an anticipated start date in July 2020, and a 15 months build cycle is just north of $100 million and is not included in Q1 backlog.
Prior to the recent crisis the market outlook in capital spending projections for electrical infrastructure or robust.
The drivers for TMD, extending current internet remain intact, but it is too early to tell how the magnitude of timing of initiatives may be affected.
Currently in the northeast mid Atlantic Southeast the majority of bidding and project activity continues to be comprise small to medium sized work for long term clients.
And a few larger good opportunities thrown into the mix.
In addition to continuing long term and I'd say, we're throughout the Midwest in Texas small to medium sized project awards for transmission substation distribution and street lighting resetting into world.
Work began on the Connersville transmission project for Duke energy and the Gateway transmission project for Amarin in Southern Illinois, which are notable project awards for the company and our excess.
After the complete this year.
In the west so.
Oh bidding and project activity continues in Arizona, California, Colorado, and Utah, where we've seen where we also see.
Okay.
I think related opportunities.
Work was completed on the Harry on Eldorado project and continues on the Gateway West substation projects for Pacificorp.
On the distribution front as utilities are increasingly rely on outside contractors for where.
We continue to execute work on your long term Master service agreements with several utility clients.
We anticipate the steady stream of distribution work for the foreseeable future as the need for grid hardening continues.
Our TMB client base remains diligent and ensuring the reliability of our critical power delivery infrastructure to serve the nation and provides interconnection and network support for new renewable generation resources with that said, we anticipate there will be some impact to our business.
Economic effects from a pandemic are fully realized.
That may include reduced electric load projections due to an economic down carrier supply issues and possible project delays due to a slowing of regulatory approvals and permitting.
As an industry headlines continue to dominate b b dominated by news related to the pandemic we remain optimistic.
We are carefully track progress in changing dynamics, and we'll continue to be mindful of the lessons learned over the past few months and encourage continued caution that our daily practices.
As always.
We will continue to evaluate and invest in new efforts to improve the levels of service and value we provide in terms of quality safety and productivity.
In summary, we believe the TV market continues to hold opportunity and will devote ourselves to innovating investing in and transforming our businesses to bring invested in wire agree to our customers employees and shareholders.
I'll now turn the call over to Jeff why did we will provide an outlook of our commercial and industrial segment.
Thanks, Todd and good morning, everyone.
Continuing with the themes from Rick and Todd are seeing I'd business was minimally impacted by coven 19 in the first quarter in both construction and bidding activity due to shelter in place orders only applying during the last few weeks of the quarter.
Starting with the impact to ongoing construction activity throughout the us in Western Canada. Our primary focus has been to continue providing outstanding service to our clients, while keeping our employees safe and healthy.
A few of our projects are temporarily halted primarily in the northeast and on the West coast locations, where shelter in place orders are currently in the most stringent.
We've also experienced some slowing on projects across the organization due to social distancing requirements necessary adjustments to manpower. However, our employees continue to adapt rapidly to the new requirements, allowing us to continue most of our operations.
We entered 2020 with record backlogs and managed to improve backlog again in the first quarter a few projects. It had their start dates pushed forward and we anticipate others could follow suit, but in general our backlog remains intact.
Turning to market outlook bidding activity remains particularly strong through the first quarter was heavy activity occurring in the medium to large project category, just a handful of large project pursuits and put on hold while developers assess therapy the viability of their program.
Although the slow down through the first quarter was minimal market uncertainty could contribute to an overall deceleration in projects coming out to bid.
Recovery through the balance of year will be heavily dependent on overall economic recovery.
We're hopeful that the various approved stimulus packages provide greater opportunity and are encouraged by the possible approval of a long awaited infrastructure bill.
We believe the primary markets, we serve may be somewhat less vulnerable to economic slowing including healthcare transportation Datacenters warehousing renewable energy and water projects. In addition, many analysts are predicting increased spending in these markets as society changes their behavior.
Post pandemic.
The small project market has experienced a greater slowdown while owners focused our efforts on dealing with the pandemic. Many signs suggest that the service industry and small project market could quickly rebound later in the year in response to pent up demand.
As always we remain focused on working safely productively and in close collaboration with our clients and industry partners. We expect that our Cnine segment will emerge even stronger following the near term challenges. We are fortunate that most of our operations are considered an essential business and are proud to employees.
Best field and support services in the industry.
Thanks, everyone for your time today I'll now turn the call back to Rick will provide us with some closing comments.
Thank you for those updates Bedi, Todd and Jeff I'm, So very proud I am grateful to our dedicated field forces support services and management teams, who are playing a crucial role keeping the majority of our people working during this crisis.
And what our group as a leader in the industry. We will remain at the forefront of identifying interest rate trends and client needs in order to grow our business and provide superior service as efficiently and effectively as possible.
We believe these are the key factors that have and will continue to position and where our group for ongoing success. Operator, we're now ready to open the call up for your comments and questions.
Thank you.
And ladies and gentlemen, as a reminder to ask questions alluded to press star one on your telephone.
So withdraw your question please press the pound key.
Please standby we've compiled acuity roster.
And our first question comes from a lot of Justin Hauke with Robert W. Baird. Your line is open.
Yes, hi, good morning, everyone.
Yes, I understand that to two questions I'll focus on two different businesses, but.
Starting on C. and I.
Given that it is such a meaningful part of the backlog now two thirds of it.
I know you mentioned the areas that are relatively.
The cyclical and probably don't see an impact here from a downturn, but I guess could you just help maybe give us kind of a pie chart overview of what's your end markets look like in your current backlog today or may be geography, just something that kind of gives us.
Stake in the ground and what the mixes.
Well I'll start and I are ill start and then I'll, let Jeff add add something to it I think when we look at really what we have work wise, we have very little if any thing to do with multi use type facilities. So if you're talking about residential and some commercial combined we have very little of that work. So we feel we have no impact on that.
Hi, Jeff kind of talked about the market's fees and as far as healthcare data centers.
Governmental work that Skus that we do all the time and we do see that is increasing.
So we see that.
Not not going down at all and Jeff do you want to talk about some of your projects that may be you've had pushed out a little bit, but really nothing canceled that's within our backlog at all so far.
Yes, Rick.
We did see definitely slowdown as people were.
Just trying to anticipate what was coming our way a couple of those jobs have already come back.
A few have been pushed out and we've been in discussions about when they will restart so theres a bit of a hesitation here, but it doesn't look like anything that we see.
Long term there may be some.
Projects in the pipeline that we've been pursuing and we never know if they're going to happen or not but some of those looked like they may be pushed out even further.
Okay.
On on TNT then.
Yes, maybe this is for battery, but the the medium sized project.
Could you help quantify the impact of that from a revenue standpoint, and when that anniversaries. Just so we can kind of get a better idea the underlying growth in the transmission business.
Thank you can.
Say in our.
Our 10-Q, the majority of the change year over year was the change relating to that one medium sized project, which is essentially complete at this point in time had a very large.
It has a large material component, especially on the first quarter of last year. So the year over year comparison.
On a reduction was mainly related to that Todd anything else on that.
Nobody does that factor that visit the only thing I would probably add to that is our backlog remains strong within the TNT segment, we really haven't seen much work pushed out at this point and most of the MSC work. We do is remaining strong at this point. So so those are positives as it goes into.
At this and again I'll go back to what we always say quarter to quarter is the timing of the awards, we really don't have control over so as Todd said as backlog strong is is the work coming into bid is strong and when you look at that side of it we want to make sure we have the right contract in place and the right.
Terms and conditions before we accept any contract so our backlog can be a little lumpy.
But again still a strong bid market at this time.
Thank you.
Thank you and our next question comes from the line of Sean Eastman with Keybanc capital markets. Your line is now.
Hi, guys conquer Sean Thanks for taking my question.
Morning.
Good morning.
Just one started.
Book to Bill for the quarter, which was which was much better than what you're expecting at 1.2 times.
I just kind of wondering if there's anything like large and they're driving that and also what kind of margin profile. The current backlog supports relative to the operating margin target range you guys provided in the past.
Thanks, Barry the margin in our backlog is very similar to what it's been in the past.
So again really no changes on that side and not being on the nothing large it that made that big jump, it's small and medium sized projects. Jeff you on anything specific you want to talk about I agree Rick It's a good mix and it's a good mix from coast to coast.
So it's an era is very similar to what we've been looking at in prior quarters.
Got it thanks.
And then I guess I've a question on the and specifically wondering about the distribution part of it.
I'm just kind of wondering how much of the distribution work you guys do is tied to regulatory driven versus.
Compared to the housing cycle.
The majority of of the work, we do is tied to regulatory side.
It's not really I mean, some of it goes into housing where their extending that out but so much of it as the ongoing day to day maintenance.
Kind of that reliability side of it is where we're spending a lot of our time Todd you off anything you can add.
No Thats accurate, Jeff I mean, I mentioned in this when we were talking there but.
Grid hardening and reliability continues to be the primary driver for the distribution work across the country.
Thank you.
Thank you.
Our next question comes from the line of Jon Braatz with Kansas City Capital. Your line is now.
Good morning, Rick Betty.
I want to.
A question on the operating expenses, obviously, they were up quite a bit because of the acquisition, but can you give us a sound so what maybe the.
Gross and operating expenses might have been for let's say that the core organic piece of business.
Just trying to separate those two out.
We don't actually separate those two I'd say the majority of those dollars, though as the.
Sales side.
Overhead cost that came through.
Year over year, Okay, Okay, and then separately.
Got it than we have done I just want to make sure we add on that kind of as weve coming in this pandemic and we're looking at it and really though our business has been affected.
And we see that potentially continuing on we have done some stuff to to manage towards that we've got a strong backlog, but with that being said we have frozen all overhead.
Raises going forward. So we've implemented that now and then if the market changes or our business changes. It goes down we'll adjust further but we have implemented that and really we have except in areas to support growth. We have no new hires coming on so we are doing some sub proactively.
Also looking at capital expenditures and cutting those back everywhere, we can with the unknown nature of the market today Okay.
A record do you think capex will be for an out this year now.
At the beginning of the year, we said it would be similar to what it's been in the past I think it scan again I think we've identified approximately 15 million that we have is questionable.
Whether we need to spend or not and thats going to be based on the market going forward in how we see our work coming in and also our work Bernie Betty anything to add on that.
No no.
$15 million, depending on which scenario comes through the year progressive Okay, alright, Thank you very much.
Thanks.
Thank you and I was reminded to answer your question, we need to press star one on your telephone and to withdraw your question. Please press the pound key.
And our next question comes from a lot of JMP Yadav with Stifel. Your line is now open.
Hi, This is Joe on parallel Dell.
I had a quick question about how you guys were thinking about the renewable energy market moving forward to you guys see renewables bank prioritized and a potential infrastructure stimulus plan because it really wasn't included in the recent cover 19 Emulex plan.
Todd you want to pickup.
Yeah, Yeah I mean.
Our belief renewable generation is still going to be a key driver the industry and that primarily.
Due to the fact that so many utilities have made these announcements in the past we know what their plans are going forward, we see utilities that are going to be 50% renewable 100% renewable by certain dates that are out there. So we think it's going to play a big part.
We are working hard to ramp up and get the skill sets and the people in place to take part in that I did mentioned that the award of the solar plant that took place just a few weeks ago. So.
We think the drivers are the need for renewable generation that needs. It's the right thing to do meets the.
Meets the reports and what the utilities have put out there in the past month, what their plans Nicole softer future for future renewable generation.
Great. Thanks, and how are you guys thinking about the current state of the global market have you seen any changes and the availability of labor I know that you mentioned continuing to ramp up and key management and crop personality.
In the markets, we were in we Havent seen a big decline I mean that it's probably.
Around 5% of our business, it's been impacted and a lot of that has to do with projects as Jeff said kind of in California, Seattle in New York area that have been the stay at home as affected our projects labor wise, we have it we've never had a problem so far getting labor. So we havent seen the market Titan, especially during these days.
Thanks.
But I would say what the way we manage our workforce the supervision, we provide the tools and equipment in our safety aspect of our business. We've never had a problem attracting people on either the cnine side or the TMB today.
Great. Thanks.
Thank you.
This does conclude today's question and answer session I would now like to turn the call back to Rick Swartz for closing remarks.
To conclude on behalf of Betty Todd, Jeff and myself I sincerely. Thank you for joining us on today's call I don't have anything further and we look forward to working with you going forward and speaking with you again on our next conference call until then stay safe and healthy everyone.
Ladies and gentlemen. This concludes today's conference call you for participating in you may now disconnect.
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