Q2 2020 Limbach Holdings Inc Earnings Call
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When Buck Holdings second quarter 2020 earnings conference call at this time, all participants are they listen only mode.
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Your mind or this conference is being recorded it is now my pleasure to introduce your host Mr. Jeremy Hellman. The equity group. Thank you may begin.
Thank you very much and good morning, everyone yesterday afternoon, Limbach Holdings announced in 2022nd quarter results on filed its form 10-Q for the quarter ended June Thirtyth 2020 today. The company will be reviewing those results are providing an update on current market conditions. The company May also referred to a slide presentation accompanying this call presentation.
In the Investor section of the company's website at Www Dot Limbach <unk> Dot com.
Okay Karges, everyone to review the forward looking statement disclosure on slide two of that presentation with that I'll turn the call over to Charlie bake in the President and Chief Executive <unk>, Chief Executive Officer, Limbach Holdings, and Jayme Brooks the company's Chief Financial Officer. Please go ahead Charlie.
Welcome everyone and thanks for joining us.
In the midst of a difficult constantly evolving economic environment and public health response to covert during the second quarter.
Good luck generated solid financial and operating results and made substantial progress number of key objectives, including dramatically improved cash flow.
In fact by certain measures the second quarter reflected one of the company's best quarterly performances in several years. Despite the disruption caused by the widespread outbreaks of corporate might tea.
Our office staff service technicians craft employees performed exceptionally well under extraordinary difficult circumstances this quarter.
While doing so well heightened focus on remaining sake.
It was a terrific effort.
Im proud of all the members of the Liberty.
With virus cases currently increasing in many markets with knowing that the fall winter could be challenging from a public health perspective.
We'll take some comfort didn't having been challenged during second quarter and having seen the best respond does it did.
We're quickly deemed Epicentral service provider in nearly all of our geographic markets and appropriately so.
Given the heightened focus on me, telling the air quality indoor environments.
We don't see that see that essential designation changing of the future. Although we would not be surprised you're experiencing push and pull a project activity and they any given month or quarter, depending upon what's happening around us.
During this period, we also benefited from the diversity of the business model, which allowed us to shift resources to geographic regions and end markets with the greatest opportunities.
So while there continues to be an element of uncertainty as we look forward. We believe the dynamic is manageable based upon what we experienced achieved in the second quarter.
As I will discuss shortly businesses largely back on track it really has been for sometime now.
We understand that a limited number of customers have reevaluated capital spending plans for the next several quarters or years, what are the fluid and boring, but like this one what certain is that those plans will change again.
Our core end markets of healthcare education data centers, R&D, namely with life Sciences remain active.
And we believe there were opportunities to support customers with enhanced mechanical systems and innovative solutions to address their new and evolving concerns.
Although corporate 19 impact on field activity largely abated at the quarter. The company was impacted by the deferral of some revenue that we anticipate rebate up later this calendar year, so with that let's move on to review the second quarter performance.
As a reminder, we adopted does assay topic six so six and 842 in the fourth quarter of 2018 for the annual and quarterly periods. Beginning after January one 2019, you'd be a modified retrospective transition approach.
Since we filed our 29 p. quarter results before we were required to adopt to new standards.
Good to recast our 20 <unk> quarterly results to probably like these two new standards at each quarter and during 2018.
So all the numbers, we discussed today for the second quarter of 2019 or as a recap.
For all remaining quarterly filings and 2020, we will be recasting the comparable 2018 quarterly period results to comply with these two new standards.
Well certainly categorization bin laden may change in each quarter, there's no impact on full year results or cash flows previously reported for fiscal 2018.
But that it will not comment our second quarter results. Please follow along in the company presentation, starting on slide four.
Total revenue increased by 1.9% year over year, despite the impact of the delayed revenue in certain geographic market due to the impact of the virus.
Construction revenue increased just over 1% well service revenue increased 5%.
On a sequential basis construction revenue fell by just more than 3% well service revenue was flat neither of which was probably expected at the circumstances. This de quite Robert is revenue that was pushed out the quarter due to the virus its impact on field operation and we believe this remedy will likely be or did the future period.
Notwithstanding the modest revenue gains year over year gross profit increased 14.9% well gross margin expanded 170 basis points. This was due to a better overall margin profile work executed during the quarter, both operating segments and slightly richer makes a service work related to construction at work.
Hey, continuing improvement is service segment gross profit margin.
That has been a big focus in recent quarters and we're pleased to see that segment margins have continued to increase.
During the quarter Marty also benefited from the successful execution of a quick hitting high margin emergency project in Michigan market in that instance, our Michigan team converted a convention center. It just 250 bed hospital, it's just 11 days, which is a terrific accomplishment.
At the same time, we responded aggressively deteriorating economic climate by reducing our operating costs wherever possible. This included everything from temporary and permit head count reduction salary deferrals and other fixed and variable SG any cost reduction.
In the aggregate during the quarter as she makes sense declined by 3.3 million year over year as a percentage of revenue estimate expense was 10.2% in the quarter I think compared to 12.9% in the prior year period.
However, a portion of this second quarter production <unk> expense is likely to be temporary as we've noted on prior calls we reduced head count determination furloughs it reduced hours given the pace with beach activity resumed during the ended the second quarter in into the third quarter most of those furloughed employees and those employees.
Looking reduced hours have returned to work on a full time basis, then ultimately it's positive developments, which we view as an indication of the health of the visits in the markets in which we operate.
In other cases expense reductions are likely to be more sustainable. One example is travel expense.
This is almost entirely eliminated during the second quarter travel returns to a new on normalized level at some point in the future. Nonetheless, we remain committed to a disciplined approach U.S. you name. It is focused on making investments required to support this company long term strategic plan.
At the same time based on the here today profitability and our expectations of continued profitability for the remainder of the year. We also expect to be funding old or substantial portion of the company's performance based incentive compensation programs, which are included in the S. You in a line item because these programs are performance based.
The aligned interest so significant degree when the company performed to expectations our employees overboard with the performance fell short employs incentive compensation is impact.
Because of the company's underlying performance challenges in 2018 to 2019, the incentive program was largely unfunded well the lack of performance incentives in those years was disappointing. So many of our employees given their personal a local branches significant contribution the company as a whole is required to meet certain levels of.
Good profitability before incentive compensation programs are funded.
In those years the triggered conditions were not met and as a result, no performance. Instead. It was paid we expect to meet those performance.
Conditions this year.
Another challenge that the virus has done little to relieve the pressure on the industry's labor situation.
Given that we've experienced first hand for both the recruiting and retention perspective, we need to monitor closely and be able to dress compensation concerns fundamentally our business is built on a human capital model and retaining and recruiting talent is critical to our success.
Shifting to slide five let me highlight a few items, which were summarized the company's year to date performing as compared to the prior year period.
Revenue increased 2.9% well gross profit increased 3.3% driven by a 223 basis point increase in service segment gross margin.
As a result as a growth in gross profit and tighter management of SGT adjusted EBITDA increased 54.9% to 11.8 million.
Based on these year to date result, we now have greater competence did the credit markets remain open, we maybe able to accelerate and refinancing of our senior credit facility.
Of course, the environment can be quite quickly change however, reducing the company's cost of debt capital remains a key priority for the leadership team.
Turning now to slide six backlog of 471 million represented a decrease sequentially.
Well as compared to December 31, this was by design.
We've communicated previously our enhanced project selection process applies more stringent filter to new project opportunities.
That dynamic together with reallocation of certain sales resources to the service segment has impacted your today construction sales as well as construction backlog.
We did experience some slowdown in large project proposal activity during the second quarter as potential customers took a wait to see approach to capital spending.
But by design, we're also not pursuing as many of those opportunities. So that we can instead focus on the older direct market.
As of this call we have not experienced any cancellations in backlog due to the virus.
What's not reflected in the June Thirtyth backlog number is approximately 130 million a contract opportunities that we have characterized as promised.
In the case, a promise projects as we communicated before we're performing preconstruction activities under a preconstruction contract in advance of negotiating executing the principal contract or we are negotiating definitive project documentation, which has not yet complete.
The value of the Unexecuted contracts has not been included in the backlog at this time, which is consistent with the company's policy on backlog recognition. However, we expect most of those opportunities to enter into backlog by yearend.
So it's been a historical experience.
For some color on our construction sales activities, we are experiencing a steady pipeline a project opportunities and healthcare life Sciences data centers sexual utility plants indoor forming.
We have realized contractions with opportunities and entertainment education, hospitality and the office sector.
The only meaningful sector that we counted on his entertainment, but we have discussions ongoing with those customers for smaller service and maintenance project work, which would mean expansion for our service revenue.
The story is somewhat different in the service segment, where on a year to date basis service sales has increased more than 50% versus 29 team.
We obviously like this trend and are focused on both generating new ownership relationships as well as expanding those relationships we already retain.
Service sales did decelerate in Q2 relative to Q1 due to the virus, but we still grew nearly 50% for the quarter on a year over year basis.
Service also posted profit growth year over year as well as sequentially.
Also as a reminder, sales refers to new work and projects that have been sold which in most cases reflected a backlog except for work both sold and performed in the same period.
This is a distinction from revenue, which is work actually performed a built in the period, whether it be from service project backlog maintenance contracts were TM opportunities.
At the end of the quarter service sales picked up including a number of opportunities generated from the virus. This includes air cleaning and filtration methods, such as ultra Violet and bipolar I anticipation of various building types such as office buildings K through 12 colleges and universities.
Between the existing backlog promise work.
Other active construction opportunities and a large service business. We believe we have good visibility on revenue for 2020 warm.
This is consistent with the company's experienced during the great recession, where activity remained robust through 2010, driven by strong backlog entering the cycle and the nature of our diversified market sector experience.
I also want to know did not have the current scale of our service business back in 20.
Oh wait.
I'd also like to draw your attention to the cash flow statement, including included in our 10-Q filing it specifically to the net cash provided by operating activities line item.
On a year to date basis Limbach is generated cash flow from operations of 22.5 million of which 18.9 billion was generated in the second quarter.
Greater net income was partially responsible for the shorn cash flow generation, but we also made tremendous progress is working improving working capital management.
Let me now pivot quickly to project claims across all the claims situations, which total in excess of $40 million, we're working diligently with various counterparties the point acceptable outcomes.
We continue to execute against our strategies in each case, but anticipate the resolution of several claims will push from late this year into 2021.
That does not suggest that the underlying merits for our strategies have changed all that in some cases discussion slowed during the second quarter due to the virus.
We ended the quarter with 28.8 billion of cash on hand, and it provided an update our liquidity position on slide seven.
That cash balance increased to 30.3 million as of July 30, Onest and Apple June Thirtyth in July 31st we had 10.5 million undrawn availability under our revolver.
I'm happy to report, we've not had to draw on the revolver since.
March 23rd.
And don't expect to do so for the balance of the you're assuming the continuation of current market conditions.
As you've seen from prior reports over the last several months the company has generated increasing cash balances and liquidity over the year given the uncertainty of economic environment. It's important that we continue along this positive trajectory.
We believe the changes we've implemented to working capital management or sustainable and we look forward to reporting approved cash balances liquidity as we move forward.
The second quarter will undoubtedly be remembered as one of the more extraordinary purists will the bucks corporate existence.
Never before as the company encountered a comparable market dislocation nor rebounded in such a brief period with such splints.
What we face some difficult moments the ability of our poised to respond was inspiring.
Our heroes of the field and in areas like Treasury and working capital management. These actions will benefit the company for a long time to comp.
For much of the on the ground evidence suggests that the most challenging periods isn't the rear view mirror, we have to anticipate the possibility of additional market dislocation over the next 12 to 24 months given the number of macro economic political and public health headwinds.
So we remain laser focused on maintaining an adequate liquidity cushion.
On aggressively exploring opportunities to reduce our cost of debt capital and securing profitable construction service work that meets our criteria with respect to risk profile profitability and cash flow all the while we remain at essential services expect to enjoy the benefits or geographic and market diversification.
Good.
Before he wants Kuni I'd like to address two final issues.
First as noted in our August 4th 8-K, and press release on July 31st we received an unsolicited proposal from our largest stockholder mr., Brian Pratt together with Blue Wolf capital to purchase common stock from a company.
As it relates to anything in connection with the proposal for Mr. Pratt and Blue Wolf capital, We don't plan to speak to those matters or anything related there to at this time.
Including as part of the Cumulate portion of this call.
To the extent anyone has any questions. We refer you to our form 8-K just to reiterate.
And be clear as to where our focus is and as we've said before the company's board of directors and management team are focused on maximizing value for all of our stockholders.
Finally, let me also clarify that was depressed as though known relationship to the chairman of our board of Directors Gordon Jeep Brett.
Second let me address the guidance that was included in yesterday's press release for calendar year 2020, we're guiding toward revenue of 560 to 600 million and adjusted EBITDA of 20 to 24 million.
Underlying these ranges as the assumption that any impact of the company in the back half of the year from the resurgence of covert 19 is no more extensive more impactful than what we experienced in the second quarter.
We've also consider risks and opportunities in our backlog and believe we have taken into account any further margin deterioration on those projects that had been challenging.
Additionally, the guidance Weve offered does not assume any resolution of the more significant claims opportunities discussed earlier.
With that were available to take your questions.
Thank you, ladies and gentlemen, we will now be conducting the question and answer session.
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Thank you. Our first question comes from the line of Gerry Sweeney with Roth Capital Partners. Please proceed with your question.
Good morning, charming Charlie Thanks for taking my call.
Good morning merger.
A question on the service side in particular lots of a news out there about companies meeting or building owners to work on track systems, because the curve, it's improved ventilation check ventilation clutter.
There's an opportunity for your service side of the business.
Jerry absolutely.
What we actually instituted back I think it was in April.
We've been having weekly calls Tuesday evenings actual late afternoon with all of our sales representatives throughout the company built surface and construction and we're working on topics each week.
Where we're kind of learning our way through cobot or where the opportunities are what we saw starting really in.
Early June through late June was tremendous activity with building owners trying to figure out how to get their buildings open back up.
Right now obviously, there's a big focus on education facilities.
So we've worked at very aggressively and route talking to our customer base across the entire older direct as well as you're working with general contractors to let them know what we can help you with this that the other thing to get these buildings.
Retrofitted.
The other thing that's kind of interesting Jerry's that.
In the months of March we really saw of kind of Oh.
Backing off of you can't come into our building and that can change really into may now because that means that it's really didnt happen during that period, we're seeing a real uptick.
Your happening really in June this kind of the new normal is starting to settle in.
People, realizing we've got to get back to business. So, yes, I mean, it's a tremendous opportunity for us Jared and we're working very aggressively.
And this is.
As far out of curiosity, I guess, but.
It's an opportunity for almost a recurring type business that going into building.
I don't know that's affecting changed from what folks are successful.
Just to.
You know more consistent revenue type of contract from that perspective as well.
Look I think so.
You'll filtration has been a quite frankly, the easy want to push with our customer base. So that's that's what we've seen a big uptick there, but when you when you really look at what's happening right now.
This is a terrific opportunity for our company because.
A lot of building owners or confused as to what to do so again, we have our existing base of customers that I think we're going to be able to expand our relationships with many more work.
And we're also out knocking on a lot of doors of buildings, we haven't been servicing and we've got customers that are say absolutely committed and help.
And we've given our sales force kind of.
It's really an order card listening out all the different things, we can do so they could listen to the customers concerns going to go back with the solution. So we think it's an opportunity to expand revenue with our existing customer base, which theirs.
Well over 1000 customers, we deal with on the service side.
And also.
It gives us the opportunity to open up doors to customers that previously we weren't but we have been servicing so.
It's kind of a it's a very interesting period.
No, we're pretty pumped up about it.
Switching gears the construction side.
Very good margin results, but.
Maybe a couple of points one was there how much of an impact that the Michigan emergency work with the transformation two hospitals that building have just on.
That segment was it.
A large impact moderates et cetera, any type of so I was just give on that and then.
Just first.
It was moderate Jerry and I have to say I'm. So proud of the Michigan operation I mean, what they did in a matter of ours and converting that facility working around the clock.
Our Michigan business their top performers for the company consistently and the customer base locally realize they were the right.
Group to bring it to get the stone.
And they got to done we made about or a profit off of that and it was.
It was just great to see I guess, the real point was it was revenue we didnt expect right that that hit so quickly.
And we saw a bunch of quite frankly, a lot of other emergency work creep in there too.
That helped offset some of the pullback we saw in Boston a bit of Michigan, because we did see some pullback in Michigan and also that with our Disney Coast.
And then I don't want to monopolize the corporate.
Stick on the margin front on the construction I think in the press release you mentioned.
Backlog had maybe richer margins I think it's the terms of yours.
Can you just.
Just talk to us a little bit about.
Going out getting new work is there an absolute line drawn in the fan we won't take a project less.
This act that gross margin type and should we sort of anticipate.
Margin.
Yes, staying up at the current level.
Onetime things aside of course so.
When we.
Dealt with what we dealt with over the past couple of years with some challenges with.
Selling too much work in a couple of markets that we couldn't find the labor pool to execute all of it that bird to us.
We clearly have learned from all of that in over the past its almost 24 months now weve inserted certain risk management processes and what are the key processes is any project over certain size has to go through our risk Review Committee, which is scheduled every Friday morning any of.
Our branch leaders can request time to come in at present that project.
I will tell you we look at the project under a microscope the risk profile the profit margin profile and the cash flow profile, we've rejected a number of projects, but in many cases the conversation led to go back improve the margin by 400.
Basis points or we want this kind of cash arrangement.
Before we want to see this risk matter addressed insufficient detail that we're comfortable with it otherwise we're killing the deal.
So proud of our team they all rallied around that nobody wants to go back to where we work. So as a result, we're seeing better margins quite frankly were cherry picking the projects. We want all the construction side of the house. So would we use that word richer.
We've done a very smart job at risk management.
Looking at the profitability of the projects and making sure we're gonna see solid cash flow.
One more.
Just a follow up when you're looking at risk management under looking at projects can you lot a line.
That pipeline or potential pipeline or timeline at that project coming through with potential labor available in the markets you have that visibility.
Is that.
Yes.
Jerry I can't I think it was 18 months ago restarted it but every month during the mostly branch reviews. Each branch leader has to present their labor curves and you can see on the labor curves and that's 12 months out where they need to sell business and they have available craft talent and project management talent to execute that work so.
Thats been in place for a while when they present these projects on Friday morning. So these are the larger projects are.
The general rule is anything over seven and a half million dollars has to come to the risk review committee or any other project that we see that you know my COO myself or even a branch manager wants to put through the risk management review so at this point.
We we don't allow a project to go forward.
Yes, the labor curve all works out that they could prove to us they they have a gap they need that sale, but we're no longer doing this thing where limbach very proud of our organization, we ability to hire people. It take care, where people were famous sport, but we're no longer relying upon that we're relying upon the proven.
Talent, we have in our business and we've got some of the best to make sure we could execute that work and make a damn good profit and collect our cash.
Okay I appreciate it really nice quarter and great to see so I appreciate the question.
Thank you. Our next question comes from Brent Thielman with D.A. Davidson. Please proceed with your question.
Great. Thank you.
Just a clarification on the work in Michigan, and when you say moderate.
Is that a million or less.
Jamie Yes, we're not commenting on that [laughter], Brent where we yeah, we don't normally get into the details of the projects but.
It was it was a good project from a revenue and profitability perspective, I think are quite was very very satisfied with what we did.
And.
We worked at round the clock to make that happen.
We should've done a couple of war, though.
We're very proud of what we did up there in Michigan.
Okay.
And where are you with some of the ongoing problem projects and the completion perspective, I guess, whereas L.A. acts and when do you expect to wrap that up and then.
Second question to that that write downs outside at southern California. The other half of it what were those attributable to.
So yes look.
Good Washington, DC, we have several claim up type situations going on and there's strong progress on all of them and but there's no problem jobs DC. That's all that's won't pass on past.
Southern California.
Our Big project that were completed is the LTX midfield terminal project.
And it got pushed out a couple of months due to coated.
There was it was shut down for a little bit that have started back up that there were some setbacks, but anyway, we're working our way through that and it looks like it Nov completion.
The vast majority of the work on that project. Both the construction work is actually complete what we're doing today is any sort of punch list.
Hearing things that have to be squared away. So the majority of the pain is through and actually if you look at Q1 in Q2, you can see the pain was dramatically reduced because the projects or wrapping up.
In Southern California, we are following a similar path that we took in mid Atlantic.
We looked at major construction sales, we stopped we caught our breadth and today that business is really focused on more of older direct and smaller projects with a general contractors. So we're repeating what we did a mid Atlantic the leadership out there we did make a change.
Range and actually the existing leader that was out there really good guide.
Unfortunately, oversold the capacity to deliver everything out there, but we.
Have moved them over to work on the LTX matter and you'll get that resolved and we are making steady progress with our customer.
Conversations are continuing we're seeing some good steady progress there, it's still take a while ago. So.
Jamie any further comment on that.
No I mean, we've definitely seen decline in this in the second quarter, so out and so that's come down substantially in Q2.
Continue to expect that to surface trail down.
Okay, and then the windfall from working capital on cash flow this quarter did that reverse in the second half is here I.
I guess fully reengaging on on projects.
As far as.
Where we're at.
With working capital, it's been but it really really you know a great period of just looking at.
Collecting retention converting change orders.
So we could build them and really making sure we're staying cash positive on our projects, which when you look back at the past we were not where we should have been so our new leadership team. It's great that Jamie joined US back in October our new Chief operating officer, Mike, We can and the complete branch leadership.
Team.
They've really done a great job at Youre focusing in on getting cash.
Brent would we entered this.
Oh pulpit period, and I might have mentioned this on the last call.
I think it was late March where we were having daily management tools to deal with all the moving parts that we were.
Seeing happened in front of us like what are we do with this what are we do with that I came up with this.
Three tactical actions stay safe that was dealing with all the covert risks.
Get cash.
And get work so we get cash that we started having daily phone calls and then it moved it to two days were still doing a two days a week, where the guys are just on top of our game I mean, we have good data, we know where to push and now we're actually all those items. So we believe it sustainable and actually with.
There's more room for improvement plus we have further resolution of our claims once we see that cash come at the door that'll improve the picture even more.
Okay.
And then salary beyond the temporary delays because the co bed.
Is there any work included in backlog that.
Subject to more prolong delays a deferral by your customers just because the then decision on projects that you add to the Buck anything because of that.
No there's been no cancellations no de booking everything is underway.
So.
I think the pipeline we've identified some very nice opportunities I mentioned the promise work in my comments about 130 million yet to be booked and those projects, we're really moving along nicely there appear to be firmly committed to happen.
And then when we look at our pipeline there was a little soft.
Early in the quarter, but then you know as June and White into July we're seeing some very nice opportunities being presented.
It is so.
But it's in certain sectors. So I mentioned healthcare it kind of shut down there for a little bit because they lost there.
Income streams off of.
What's the word I'm thinking about.
Elective surgery, but now that's open back up and we're now seeing your conversations.
Continuing on certain projects be it newbuilds or renovation starting to come back so healthcare seems to be pretty good.
Research and development, namely on life Sciences seems to be very strong.
Education, I think there's going to be a nice retrofit type set of opportunities there with.
And I commented earlier about that.
To get the buildings back open so schools can function and the other part that I really didn't oh by the grow markets. That's kind of interesting. We're also these indoor forms for marijuana or popping up all over the place and because of our reputation of building one of the first indoor forms of a new Jersey Arrow forms.
A lot of people coming to us asking us to budget those and help with design.
And then finally and I didn't comment on this earlier.
Interested to see we're manufacturing goes.
The anti China bit that's going on and the potential onshoring.
We have some light manufacturing experience, but we see that as an opportunity for further expansion. If we see an uptick and we'll certainly shifted that if we see the opportunity.
Okay I appreciate that Charlie maybe on the just on the guidance if I assume that service business continues to run at sort of at the pace that AD budget, which has been solid growth.
That's sort of implies the construction business could be a drop in profitability in the second half can you just walk me through the bridge to the outlook into the second to.
Jamie can you take up was.
Yes, we're just getting we're not really doing it by segment at this point because we're seeing.
Services coming on again here at the end of the quarter into the beginning of the third quarter. So we didn't break down from a servicing construction perspective.
Just a top to top line in total.
Yeah, Brett I think you don't from our perspective, right now and our strategic plan, we're going to continue working construction opportunities.
But as I commented, we're seeing a tremendous opportunity to expand our owner direct offering that segment.
We see tremendous growth opportunity and I think you'll to sales kind of indicated that you're on your growth. So we're going to really.
Cherry pick our construction opportunities going forward for all the right reasons, the risk management things I talked about profitability cash flow.
But we quite frankly, just see much better outcomes much better margin with the service older direct segment. So we're going to continue to focus our resources on expansion in that area.
Okay.
Try and another way to ask around the term sheets.
And it's more just a question that there's any expectation for her that communication.
The board regarding that.
Brett I'm, sorry, I'm, just thinking of the guidance you're could you just asked a question again.
No.
Just wanted to let's say Oh.
Yes. It is there any expectation for further communication from the board just regarding were.
Yes, we're not going to comment at this time.
Okay, all right. Thanks for taking the question all right. Thanks.
Thank you. Our next question comes from Gara named Mark with one main capital. Please proceed with your question.
Hey, guys.
Thats on.
Great corner.
I guess the first question I have is.
So you guys you guys had a history of putting up is great quarters on its encouraging guidance and then I'll, let him there is some problem projects.
And so I guess the question you feel like you've baked enough conservatism here, so Tom for any unexpected pick ups and my turn up in the back half.
Yeah, we did extensive ali reach our branches, we look at all the projects the monthly project review.
And.
Everybody could input into those numbers. So we feel based on where we sit today and the visibility that on those are solid solid numbers.
We reinstituted something.
Last year, we were forecasting quarterly for the year, we'd always do a new forecast, we'd actually increased that now on a monthly basis all of our systems are in place. We can do that so as we see the sales come in each month. They can you should the business units can project out there.
[noise] their numbers. So we can see on a monthly basis, what's happening and where we have to make changes or where we have to shift resources. So it's it's been a really improving situation on visibility.
And again I just want to reinforce what Jamie just said about our monthly project reviews. Every project is reviewed monthly and that just feeds back into our.
Database and it's given us a clearer picture and I think the risk management processes that we've put in place over the past 18 to 24 months after what we went through.
Oh really starts to pay off.
Yeah.
That's helpful and I guess it another way to asses or do you feel you bake a level of conservatism in the here, though are you did like just looking at your Q2 margin EBITDA margin of 6% you guys, you're guiding to 3.5% margin in the back and I understand there's some more DNA rolling onboard and I'm just wondering at par.
Of that margin compression between Q2 to the back half as you guys putting out a number that you feel very confident you're going to hit or is it more of a realistic number yes, we obviously built some conservative.
There are anticipated the numbers and we want to be solid on our numbers.
Okay alcohol how much of.
The.
Margin compression from Q2, the back which is pretty meaningful I again from 6% down there in Africa, and how much it added more DNA rolling back on.
Well, that's what it was so for the S. You need we wanted to clearly in our room in our prepared remarks pointed out that Q2, obviously was not a fixed run rate.
We had the furloughs, we had reduced.
Hours employees were working and so.
With the travel and there is so there's some of those temporary items that are coming back online and they started to the ended the quarter being the end of Q2.
On an starting in Q3 as business is picking up.
So that run rate, obviously is not going to be the same as well as as we commented before we are executing this year in incentive comp in being accrued into those numbers and so as we continue to perform you're going to see that's in the us new item.
Okay alcohol.
And then.
Charlie you commented on visibility into 2021.
21 year I.
I guess could you elaborate on that a little more I mean as that visibility into what a typical year would look like are we talking about 80% of what are your typically look likely I commented embedded do you have into that here.
Yes, so you take into account backlog of where we stand today I mentioned the promise sales plus we have other sales were laser focused in on but they have reached that level of negotiation yet. So we have a pretty clear picture of 21.
As far as what we think could happen.
And I guess the other thing that we're all I think everybody's concerned about what will Cobra due to us or the fall.
But I think.
Based on what we did in March and how quickly. This management team took action I think we impressed they had a lot of many many people. Many stakeholders, we took immediate action and I think the way we executed.
Thank you through the covert crisis.
We'll do it again.
If we have to we're faced with that challenge. So you're all that will be too I think a strengthening position on 21.
And the other comments Brent actually asked a question about the service or maybe it was Gerry.
We're going to keep pushing like all heck from the older direct we just think thats a tremendous opportunity again, we're going to still continue with our construction opportunities where we have excellent execution.
Where we have great customer relationships.
But we do see this period right now as heck of an opportunity to expand that older relationship.
People need us and Brett.
Air quality, it's it's better about right now.
Yeah.
Again, so the visibility as into flat revenue growing revenue or some level of revenue. That's a percentage of what you guys did this year.
I can't comment on revenue right now I will tell you we are laser focused on bottom line.
Right.
Okay, and then you okay.
We'll take it offline.
[noise] and then it was great to hear you guys.
In competition and positive cash flow going forward and you have the potential to town somebody's fines.
Heading into next year and at what point do you just take out that were cash and you guys are going to get to the point seems like.
The next 12 months, where you could just be a net cash.
Now it seems that im having are actually reported that.
Are you guys just comfortable at this level of data and you're comfortable that you're going to be on a brief side with acceptable terms.
Yes, we are aggressively working our options for every five so were definitely that has managed its focus and from the cats perspective, we're.
Holding on to the cast and minimize maximize our liquidity right now just to be paid prepared for any uncertainty and so as the each each month in each quarter gives us more visibility and our action plan.
Great. Thank you.
Thank you.
Thank you. Our next question comes from John.
Investors. Please proceed with your question.
Thanks. Thanks.
Charlie Jamie and everybody. Thanks for a great quarter and congrats I appreciate it as a shareholder.
I just wanted to follow up on the S. DNA.
Sensation, a little bit so what what what do you think a normalized.
A number looks like.
Hi, good margin.
On an annual basis is trying to get a feeling for.
You know the current quarter was not not a sustainable going for a number what it what what should be.
Marty targeting.
Hey, Jay I. Appreciate you wanted to get more clarity into that were definitely put out guidance with regards to our bottom line. We're really focused on the bottom line and write another just it's fluid with regards to our SCD. So right now that the target is that bottom line number that we give guidance on.
John I also when you look at what we did in March I mean that was a very painful day when we let go about 18% salaried staff.
Some of that staff is needed to come back because of revenue taking off which is great to see but the reality is some of that staff.
Not be coming back we realized we didnt need it we are working more efficiently.
I'm actually blown away about how well we're working from home.
Our all of our offices are up and running we have incredible protocols Andrew offices.
The oldest corporate standards that we all know about today, but.
Lot of or people continue to work at home and I'm, we're actually see productivity take off we just.
Or in the midst of second employee survey about how they're doing working from home.
So a lot of we're thinking through a lot of things right now about leveraging our people people weren't working 95, they're working when they need to work and the productivity seems to be improving.
And in the Big question is what are we to do with all our real estate.
So we're thinking that through I mean, we have leases, but where could we go do we really need all the real estate. We have today. So that's a future opportunity everything fluid right everything safely right now lack of it is really focused on the on the bottom line number.
Okay.
We're still John we're still also working our way through other opportunities for cost reduction.
I think it fueled our interest and see what we can do.
We see some opportunity for purchasing and some other opportunities, which would help I don't think it's going to be tremendously meaningful to the bottom line, but I think there's other opportunities that we have initiatives well underway to continue to sharpen our restaurant expense.
Okay.
And does it do here your guidance contemplate.
[music].
More write downs in the second half I mean, do you think were largely through that there's still it's going to be just sort of.
He slow decline to that in a number.
When the week, when do we sort of get that to breakeven or even hopefully positive.
We expect to see the decline happening I would have good last quarter as well so that is factored in there as projects are wrapping up and.
We expect to see that declining.
John we.
He is going to have a write ups and write downs of the business. We propose a project. It gets executed yes. The made at the where you estimated youre expecting certain things to happen to sort of way and is variable sometimes we have pick up because of what we had expected and other times, we do face the challenge where the project Didnt goes expected Theres no claim involved there's no pursue.
It's just maybe we missed something in an estimate or there was just some fields condition that we just had to deal with.
I think we're laser focused on our risk management process at this point to try to weed out those things.
Yesterday.
Because we're doing the call today, we actually did our risk review call yesterday morning at a project was presented around large chiller replacement project and what are the things. We identified was just the logistics and we ask that team to go back to US how are you going to move the old chiller out and the new chiller in we want to steal logistics plan.
They have to come back to us improve to us they really have figured that out. So we're trying to improve our estimates make sure. We're adequately covered we have certain contingency levels in those estimates so that we can see better better outcomes, which means upside one of the thing I will share is that.
Late last year, we introduced a project profit share program, which is where.
We estimate a project the team has got to deliver that margin, but if they see opportunity.
They now will share a portion of that upside directly with that project team and it's a very structured very structured process.
We didn't have that in the past. So we believe the ownership of the numbers on a project that contract risk and opportunity is now going to be.
Really incentivized by those project teams execute execute well that was one of the things we identified having come through the past couple of years as a risk management processes process, we needed to insert or compensation Committee approved it and we move forward with it so that should also help so net net we see net right.
Ups as opposed to write down so work in process, you're always going to have some variables, but I think we're doing the right things to make sure we get to the point, where it's positive.
I understand but is it is it correct would it be correct to say that the the the.
The the current all the write downs recently there.
Those are all on projects.
You know started or agreed to.
Four way before you put all these risk controls in place and that.
I kind of refer to them as legacy legacy stuff. If the deal. The answer is the majority of that yes, yes. Okay. Alright. Thank you very much appreciate it and just fantastic results and thanks really hard work. Thanks John.
Thank you we have reached the end of our question and answer session I'd like to pass the floor back to management for any additional closing comments.
Look.
Oh, Dan proud.
Of our organization and our people the crisis hit US we acted fast.
I know, there's some simple but.
It worked stay safe get cash get work, they're very tactical statements, but it got everybody aligned here and we worked and we worked hard that's across the entire company.
I think with where we're going right now with all the things we've done our business units are performing well.
I believe we have a bright future despite everything that's going on around us we're clearly essential.
The diversity of our business, which I've reinforced.
Many many times through different conversations with many investors are on these calls we were prepared for a downturn because of the diversity. We can shift resources, we're not in once market sector were not one geography, and obviously we have construction we have service.
And the other thing a very proud of is the discipline.
That the management team has inserted into the business, we learned some tough lessons over the past couple of years, but we've come through and we've come through it stroll.
Thank you for your interest and we look forward to talking to you in Q3.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.