Q1 2020 Earnings Call
Good morning, So I'll continue into fracture energy alternatives first quarter 2020 conference call.
I'd like to know participants on today's call our analysts and only mode with that I will turn the call over to Kimberley stricken investor relations for I.E.. Okay. Kimberly. Please go ahead.
Hello, and thank you for joining us today to discuss <unk> first quarter 2020 financial results.
Well, that's from management, R.J.P., Remus, President and Chief Executive Officer, and Pete more bake Chief Financial Officer.
Before turning on the call over to management I would like to note that today's discussion contains forward looking statements.
I, a speech or gross and financial expectation.
Forward looking statements should be considered in conjunction with a cautionary statements and yesterday's press release and the risk factors included in the company's F.D.C. files.
Except that's required by law <unk> no obligation to update it forward looking statements after today's call.
Management will be presenting some Don gap financial measurement as references including adjusted EBITDA. The appropriate gap financial reconciliation can be found on the investor section of I A.A.'s website as well as it yesterday's press ready.
And with that out now turn the call over <unk>, President and Chief Executive Officer J.P. read. Please go ahead J.P.
Thanks, Kimberly and good morning.
We appreciate your joining our first quarter of 2020 earnings conference call and hope that everyone listening in today is staying safe and healthy.
Before I comment on the corner would fall a significantly increase revenues and profitability as compared to the first quarter of 2019.
To talk about a top of mind subject the impact of the coping 19 pandemic on <unk>.
Let me stories I should with the safety of our employees in the communities in which we work.
Mid March at the onset of coping 19.
We deploy the protocol setting place fire Chief operating officer, Michael Stoker.
You also leave our crisis management team.
These protocols have enabled our construction teams to stay focused on your work at hand without any delay in service to our customers.
We enhanced are already extensive sanitation procedures procuring protective mask and other personal protection equipment for cruise and placed Handwashing stations and 55 gallon drums of sanitizer add our project sites.
Daily temperature checks are conducted and if anyone feel sick or showing symptoms of covert 19, a strict stay at home policy is followed.
We are offering or employees five days paid leave to obtain the necessary testing if they believe they have been exposed to cope with 19.
In addition crews are being kept at a minimum of six feet apart in compliance with social distancing guidelines.
Well keep you know our Crusade. We are also insuring that are employees abide by all of our customers own safety and security protocols.
Well today, we're not aware that any of our construction crew members all customer employees, who worked closely with us have contracted the virus.
That said should there be any instance, where one of our project sites is exposed to cope with 19.
We have contingency plans ready to ensure the safety and wellbeing of older employees and customers.
Of course is not just about the strength of the leadership at the top end deploying the crisis plans. It's also about the employees to perform the work day in day out.
Even in the midst of a global health crisis, our employees remain dedicated to one another in service of our customers.
True Testament to I A. strong work ethic.
One positive light and all this darkness is that for the first quarter of 2020, we obtained what are the best safety Records in the history of our company.
Well, let me turn to the impact of the pandemic on our business.
Much of the economy is that a hall as a result of the pandemic as of today I A. has not experience any material negative impact from covert 19.
If this continues for the rest of the year, we are well on our track to meet the full year 2020 guidance. We initially provided on our queue for 2019 call.
<unk> R.C.F.O.'s will speak further guidance later on today's call.
The momentum we experienced in the fourth quarter of 2019 continued into the first quarter of 2020.
Revenues from the first quarter total 358.2 million Oh, 88.7% year over year.
Are renewables in specially civil segments.
Accounted for 69.5% and 30.5% of revenues respectively.
The renewables segment generated revenues of 248.7 million, an increase of 236.1% over the first quarter of 29 thing.
The strong growth in our renewables revenue was primarily driven by more favorable weather conditions than in the prior year.
Earlier start to 2020 projects and an increase in a number of projects constructed in Q1, twentytwenty as compared to the first quarter 28.
Especially civil segment reported revenues of 109.4 million, which was roughly flat with the prior to here.
Well, we followed the decline in heavy civil construction into first quarter of 2020 as compared to Q1 of 2019.
This decline was offset by improvements in a rail division.
Even with the onset of the pandemic in mid March we have not seen a slowdown in our work and the revenue growth that we saw in Q1 continued into April.
All the work I Ain't performs including maintaining roads highways bridges railroads and power systems throughout the United States.
Sitter critical infrastructure.
Means that our work sites have an exemption from the state and local shoulder at home orders.
Although we've received and also sent some force majeure letters to customers related to their supply chains, we have not experienced any significant delays in projects in fact, the timing scheduling and resource management all of our projects. During covert 19 is fairly consistent with what.
Experienced before the impact of the pandemic took goal.
Although there are some inherent slowdowns associated with the enforcement of covert 19 safety procedures.
Most of our project timelines have some cushion built into the schedule. So that even a few weeks delay caused by the covert 19 virus would not result in a material disruption in the final completion date.
We remain in close contact with each of our customers.
From that our projects remain on schedule it to gain insight into their pipe line of work.
Due date, we are pleased to report that we have not had any layoffs and in fact, we hired over 500 craft labor in a month of April alone <unk>.
Unemployment Unfortunately at record highs, we're seeing an influx of how available we've received job applications for oil and gas Engineers for example, who have extensive energy construction experience.
Now available to support our wind and solar projects.
Bidding also remains quite active particularly in the wind and rail markets, where some of the request for proposal for projects that go into 2021 and even into 2022.
The majority of our estimators have always worked remotely. So it was a seamless transition to remote working status for bidding team. So.
Estimates are also typically reviewed and approved online. So the person reviews of R.S.P.'s are not needed for us to proceed with our building.
Speaking of when he knew work over the past quarter, we secured a number of key solar contracts, bringing our solar backlog to 270 million at the end of Q1 2020 compared to 99 million at the end of Q. for 2019.
Why construction a subsidiary of I A. was awarded a 20 megawatt solar contract to build a 60000 module solar farm Northern Indiana. This past core.
Once construction is complete.
South Bend, Indiana farm, well more than doubled the regions electricity from solar energy resources.
In Georgia are subsidiary I A. constructors was selected as the engineer procure construct the contractor for the airplane Solar farm project in the southeast region of the state.
This solar farm. One include 95000 solar modules to track the Sun from East to West.
<unk> will be hiring 200 crap workers to support this project.
Jordi of which will be recruited from Georgia.
Specifically from the military veterans community.
Turning to wind.
Why construction are subsidiary that manages utility scale renewable energy and heavy civil infrastructure projects.
Awarded a 65 million dollar winning contract for 150 megawatts farm in the northern portion of Iowa.
Once completed this farm will produce enough energy to power approximately 70000 homes.
$56 million with this contract was booked into our backlog as though the under the fourth quarter of 2019.
It's clear that even with the price of oil and gas historically low levels. There is still a push for greener more renewable sources of energy.
What the impending phase out.
Of the full production tax credit or P.T.C. for wind by the end of 2020 owners are pushing for us to complete their projects this year.
Importantly, economics of renewable wind projects remains strong even without the full tax credit.
In a recent report by the energy research arm or Bloomberg the global unit cost of wind and solar energy has fallen significantly as the technology for extracting in story renewable resources improves in project sizes expand.
Ultimately, even with the challenges posed by coded 19.
Continues to make great progress for the in the first quarter.
Backlog provides a strong visibility into the remainder of the here and we are confident in our long term growth strategy.
Well that said Oh now turned to call over to Pete Moric, Our Chief financial officer to discuss our first quarter results in further detail.
<unk>.
Thanks, J.P. and thanks to everyone listening.
Welcome to our first virtual earnings call, which follows our first virtual closing the bar books and honored review.
Currently over 90% of our back off is working remotely and I applaud everyone on our team for completing this quarter rent process as smoothly as possible.
We found our first quarter form 10, Q. yesterday, which means that I can limit by discussion.
Some other financial highlights.
Our first quarter revenues and gross margin benefited from projects a kicked off in December last year that meant that we had cruising equipment in place to take advantage of milder winter weather at some of our job site location.
That's J.P. mentioned revenue has continued to improve in the month of April.
There may of course be some shifting of revenue from quarter to quarter, but at this time, we still expect to meet our full year revenue target.
Soon so that the impact to cope with 19 on <unk> and our customer.
Does not worse than from what we are experiencing today.
But this time of uncertainty we don't know what we don't know during the first quarter, we created contingencies for increased potential future pandemic costs that are larger project.
<unk> contingency amount is approximately $10 million because of the percentage of completion calculations. These covert 19 contingencies redo start gross margin in the first quarter by $5.4 million.
We expect the remaining $4.6 million left in the contingency will reduce gross margin over the rest of 2020.
Like any contingency if we do not in cover the costs, we will increase margins as the projects are completed.
Unfortunately, this is not the first economic downturn in my career and we're going back to the standard play Buck list of things, we need to do to conserve cash.
[noise] that list includes hunkering down wrong on your lines of credit and staying focused on your business.
Eliminated all non essential employee travel.
Acted a hiring freeze for new corporate employees.
Differed are four one k. matching and paid our series B. and series they dividends in kind rather than in cash for the first quarter.
Through the end of April our costs and expenses associated with the pandemic total $600000, which $250000 what's for sanitation supplies and 100000 for one time I T. Department expenses.
We also incurred around $80000 in providing a thermometer allowance so that every I Ain't employee can self test each morning.
Are liquidity at the end of the first quarter consisted of $58.1 million in cash and 26.3 million remaining on our revolving credit facility.
We have since fully drawn down down that revolver posting another quarter.
We fully expect to meet our cash needs over the next 12 months.
Also helps that we do not have any required term loan amortization payments due until June 2022.
R. term loan that senior leverage ratio is under 1.5 times.
Significant reduction from where we were just three quarters ago.
Last year, I A. raised $180 billion by issuing series be preferred stock and we used a portion of those proceeds d. leverage our balance sheet by paying down our term note from 300 million at the beginning of 2019 to approximately 173 million today.
Effort to improve our liquidity has put us on a much more stable path for Crow.
A few other comments about the first quarter.
Interest expense for the quarter total 16.1 million up from 10.4 million of the first quarter of 2019, primarily as a result of increased interest on our series be preferred stock, partially offset by decrease borrowings under our line of credit in term loan in the first quarter.
We recorded in income tax benefit of zero point $9 billion compared to a benefit of 8.9 billion for the same period in 2019.
At our level so pretax income.
Serious be preferred stock dividends have a significant impact on tax rates as they are an interest expense for income statement purposes, but are not a deductible expense for federal or state income taxes.
Where the first quarter net loss total $12.7 million or loss of 66 cents per diluted share.
Well, a significant improvement as compared to a loss of 23.6 million or a dollar nine per diluted sharing the prior year period. Our goal is to you improving and to attain <unk>.
Adjusted EBITDA total 16.5 billion for the first quarter or 4.6% of revenues as compared to a loss of $5.7 million or minus three per cent of revenues in the first quarter of 29 team.
Earnings to release, which we issued yesterday evening.
I was the calculation I've adjusted either.
Cash used in operations for the first quarter total 74.2 million.
Compared to 37.5 million calf used an operations in the same period a year ago.
Generally have negative cash flow from operations in the first quarter of each year, resulting from the lower level first quarter operations compared to the fourth quarter of the previous year.
Capital expenditures for the first quarter total $8 million simply 5.8 million.
Works finance through financing Lisa's.
This is in line with our expectation that capital expenditures will be approximately two per cent of our revenues for 2020.
Our total debt at the end of the quarter totaled 366 million, which included 173.3 million outstanding under a revolving credit facility intern long.
3.9 million of equipment loans, and 188.8 million of series be preferred stock are preferred stock is considered debt because it is mandatorily repayable in 2025.
During the quarter, we added approximately 200 million a new projects to our backlog, which helped a partially offset the 358.2 million dollar revenue burn in the corridor.
Are backlog total approximately $2 billion provide this is solid visibility for the rest of the year.
As J.P. mention are bidding teams are very active as we are looking to add to backlog.
So far in 2020, we have not experienced any significant disruptions to our business from covert 19.
In an uncertain world, we recognize the potential for significant business disruptions beyond our control if the spread of the pandemic increases.
Cannot predict the results of our operations liquidity and cash flows if there were a future government mandated quarantines that prevent our crews from being on site that prevent delivery of equipment or that caused customers to cancel or delay construction projects.
If we were to see significant changes in our operating environment, we would reconsider our guidance at that time.
However, based on what we know and have control of today, we are reiterating our full year twentytwenty guidance, which anticipates full year revenues up between 1.5 billion at 1.65 billion.
Full year adjusted EBITDA of between 105 million to 125 million.
I hope that everyone is staying safe and healthy.
Now we will end the C.F.O.s <unk> will hopefully be our last virtual earnings call and turn the call over to J.P.R.C.E.O. four is closing remarks.
Thanks Pete.
We expect that covert 19, we'll have a significant impact on how all companies manage their businesses longer term I a. was in a solid financial and operational position going into the pandemic and we are poised to be even stronger when we return to a more stable macro conditions.
As I mentioned bidding activity at this time remains very strong.
And we are seen robust opportunities for additional growth across each of our end markets.
Even with the impact of covert 19, the global engineering and construction market is only predicted to beat down a half a percentage point compared to last year.
In the U.S. spending on transportation, including rail is forecast to improve 4% year over year power, including natural gas in renewable energy along with highway in the street could construction are all expected to report revenue increases of 2% to 3% on average this year.
We hope they history repeats itself in Reemerging from the downturn, we see pent up demand in government and public authority spending for critical infrastructure to reinvent great the industry in our economy.
The U.S. market for when construction remains very strong.
When now supplies more than 7% other nations electricity. According to the American Wind Energy Association and another 44 Gigawatts of when project capacity or 62 billion investments is either in construction or an advanced stages of development across the U.S. today.
With the price of oil and gas continuing the drop and even Ricci negative territory renewable energy sources are still booming renewables are expected to account for 21% of all electricity in the United States in Twentytwenty upfront, 18% in 2019 and only.
10% in 2010.
Some cases wind and solar panels now produce electricity, even cheaper than that of natural gas or cold and since April of 2019.
<unk> energy generation has routinely eclipsed coal fired generation on a national basis.
Today over 40 states in the U.S. have adopted renewable portfolio standards.
These standards require the utilities continue to increase their generation mix of renewables, creating a need for when construction well beyond the expiration of the P.T.C.
I, yeah expects to benefit from these renewable energy and especially civil market opportunities.
The enhancement star capital in operational structure over the past years that Pete just spoke to we can now take advantage of the mini prospects for growth across each of our in markets.
As we look to add new contracts to our growing backlog, we will remain acutely focused on maintaining our employees safety, providing excellent service to our customers and driving significant value for shareholders.
We wish all listening in today, along with each of your family's health and safety during these difficult times.
Knowing that we will emerge from the current situation even stronger than before.
Thank you all again for joining our first quarter 2020 earnings call. We look forward to continuing to share our progress over the coming corridors and hope that the next time, we speak the world would be back to business as usual.
Operator, let's now open up the call two questions.
Thank you.
Task. The question. Please press star one on your telephone keypad.
Information tell a handy he your line is in the question Kim.
<unk> if you like dream of your question from the queue.
Participated choosing speaker equipment may be necessary to pick up your handset before pressing they start here.
Our first question is from.
<unk> with P.H.D. the thin please proceed.
Hey, Thanks, Yeah. Good morning, congratulations on the quarter and thanks for so provided an outlet can these times.
Thanks <unk> <unk>.
Hey.
J.P.I. network beyond that kind of it now and so much in certain be out there I guess it'd be helpful. For me and maybe listeners just to kinda here with the strategic priorities are for you know when I mean on one hand got pretty healthy markets. It seemed on the other hand, you kind of want to play a bit a defense right now so.
Just be helpful for an update kind of here commit there.
Oh yeah.
<unk>, thanks for that Brett.
No p. in his in his comments went through several strategic.
Initiatives that we're executing right now during coven, obviously, the conserve liquidity and cash <unk>, probably like a every pier.
Bars, and and it really every industry.
In the World right now.
But you know luckily, but that's on the backs of Oh, great performance in the in the boat in the business as a I think witnessed in this core and and as we've continued to kind of reiterate in this call.
Yeah <unk>.
<unk> something that we don't know we have <unk>. It appears the years going to continue to play out as as we thought.
And we remain optimistic about that on a code to go for basis.
You know, we remain very fixated on continuing to.
Place replace our burn off each and every month with good in quality backlog for 2021, and a even 2022.
So recently have done that and we will continue to concentrate on that this quarter and success of course throughout the year.
Tremendous pipeline of opportunities in front of us.
In in all of her in segments.
But in particular I I, just I think the company is well positioned.
Whether whether you look at the renewable side of our business or especially civil.
Yeah. These are these are in markets that that are continuing to perform well through this covin situation and from every every.
Indicator the worst seen so far.
They're going to going to perform well.
You know in a post code environment, you know to kind of dissect that just a little bit on the on a renewable side. There's just.
We're certainly in the Middle I don't think anybody would disagree in the middle of a mega trend of Super pivot. If you will have of our country in our world isn't a into a carbon less environment.
And and certainly are backlog is is a great representation of that.
They they we see we see no shortage of capital investment.
From from our customers.
And and the folks that invest in our projects on on a go for basis, even in a coven environment.
That's what we're hearing now and we don't see anything that that really changes that outlook on especially civil standpoint.
Whether you think about our transportation side <unk> real work or.
It's a it's continuing to be worse, continuing to see robust opportunities throughout our geographic markets throughout the country.
And <unk>.
We expect well well I know, there's some concern, especially on the transportation side of Oh, <unk>, specifically states that have consumption base gas taxes.
The feedback and we're getting from our representation trade representation in in Washington is that well.
You know at a minimum with the next <unk>. The next stimulus, we sort of the least see a plug for for the gas tax Oh hold that's being.
And.
Created by the Black and consumption, but we expect Congress to act on that pretty we're pretty bullish on that so.
You know overall, we just yeah kind of some at.
Obviously, we've we've been out on what what we were out on what we think 2020 is but the opportunities that we see for the business you know kind of want to go for basis continue to be strong coming through <unk>.
We're pretty excited that were in that position.
Okay, and and the comments that in an unreal kind of surprised me just 'cause, but right now is just drag on a little bit, but what what do you see in there.
You know for us in particular, we're we're seeing cap X., then with our customers to be quite strong you know the rail the rail industry is in a in a period of a of change with the efficiency upgrades in such a.
And that that seems to be pushing right through coven, well you haven't had <unk>, we haven't seen any changes in that whatsoever. So.
Well like I said, where we continue to be in a very a good spot from from the strategic point of view just across the hall in markets not seem really any any disruption.
Okay, and then you know heard from a lot of companies here in this corner about solar and kind of utility scale solar I mean, really perking up a lot of activity out there I I don't imagine they can be as big as your when business I guess to question can you use capacity from your win business to kind of support.
That that growth cause I imagine, it's moving faster than when.
And Q. I guess the question is kind of how big piece the bike in the speaker yeah.
Yeah I good question well.
Certainly there are there are a lot of skill sets and a lot of resources that can be transfer back and forth between.
Those two markets. So yes from the from the very day that I think we build our first solar project in 2010, Brent from the very from the very first day that we build a solar project, we have routinely transfer cruise and resources back and forth. They are transferable, obviously oh.
Solar farm, you're not installing turbines 100 meters in the air, but there's still there's still a lot of.
<unk> similarities and and and also you know our construction and project management resources are drills directly transferable, whether we assign those folks to.
Or a similar projects. So you know, but that is beneficial you know the the one the one thing you have resulting right. Now is you have both markets in in kind of an all time unprecedented build out. So you know, whether it's I a. or or any any of.
Are.
Pairs are competitors in the in the market you know we're all we're all you know resources are are critical for continuing the scale of business you know I I think.
I think as far as the growth I think it's a tremendous opportunity I'd I'd be careful about putting the exact numbers on that coming out of this call. What I would say is that you know we manage that would this that grove discipline as we would with any growth area of the business.
We're we're only going to the opportunity certainly there.
And we're going to grow up as we can add on to our resources in a in a systematic manner.
We don't they'll they'll turn we don't want to get out over skis.
We're not going to so <unk> he is.
Our customers and wind most of them are pivoting into sold so we're able to cross sell those opportunities and.
We look forward in you know as we go down the road 21, 22, 23 that solar will become more of a mix of that renewable segment and and will be a building more of a more of an more of an equal mix for our porky customers.
Okay.
That I guess, maybe one more.
<unk>, Yeah kind of helped me understand <unk>, what <unk>, what kind of liquidity do you think the main pain to kind of run that does that.
A certain kind of get comfortable I mean, obviously, you don't think backlog lots to execute on but imagine keeps them.
Entity that are so.
What kind of the minimum level comfort level for you.
Well I think we're pretty much at that level right now brand I think we have obviously done a series of models to kind of stress test, where we are and yeah. What would happen. If we were shut down for a month or two I think right about now is hopefully point the lower end of where we will be and we see that.
Yeah at this point, we should be able to increase liquidity through the end of the year Interestingly enough you know for a company like US one of the biggest challenges to make sure. We don't ramp up too quickly. So when we look at where we are right. Now we think we should be fine and then at this level.
We are comfortable and.
Well there may be day to day fluctuations, we probably good level for us to stay.
Okay, Alright, guys <unk> <unk>.
Thanks, a lot <unk>.
Yeah, We said never question and answer session I have to turn the call back over to K.P.V. him for closing remark.
Well, we we think of each and every one of you for join US today for Q1 2020 earnings call. Most importantly, Oh you in this.
This uncertain environment, please stay safe and stay healthy and we look forward to.
Reporting or can you two earnings and in August.
Thank you have a good day.
Thank you. This concludes stays conference you may disconnected lines at this time and thank you for your participation.