Q3 2020 Orbital Energy Group Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly Tees continued sandvine. Thank you for your patience.
[music].
Good day, everyone and welcome to orbital Energy Group third quarter 2020 conference call. At this time all participants are in a listen only mode. A question answer session will follow management's remarks as a reminder, this comes from all this move accordingly.
Today's call will be available orbital energy group's website later today, we wouldn't be opposed there for the next 90 day I'll now hand, the call over to Mr. access line of Casey I say for introduction from the volume of the Safe Harbor statement. Please go ahead Sir.
Thank you operator.
Hello, everyone and welcome to orbital energy group's third quarter 2020 conference call.
A company of the Companys earnings press release, and accompanying Powerpoint presentation are available for download on the events and presentations page of the Investor Relations section of the orbital energy group website.
With us on today's call are Jim O'neil.
[noise], Chairman and Chief Executive Officer, and Daniel for Chief Financial Officer.
Today, we view the highlights for the financial results for the third quarter as well as recent developments following.
Following these for remarks, well be prepared to answer your questions.
I would also like to remind everyone that today's call will contain certain forward looking statements made within the meaning of section 27, a of the Securities Act of 933 as amended and section 20 Onee of the Securities Exchange Act of 934 as amended such.
Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in forward looking statements.
The company May experience significant fluctuations in future operating results due to a number of economic competitive and other factors such as the COVID-19 pandemic, putting my other things the company's reliance on third party manufacturers suppliers and service providers.
Government agency budgetary and political is strange newer increased competition changes in the market demand and the performance or liability of its products integrate solutions and services.
These factors and others could cause operating results to vary significantly from those in prior periods and for those projected in forward looking statements additional information with respect to these and other factors, which could materially affect the company. Its operations are included in certain forms companies filed with the Securities and Exchange Commission.
These forward looking statements are based on information available to orbital energy group today and the company assumes no obligation to update these statements as circumstances change.
Now at this time, it's my pleasure to introduce Jim O'neill, Vice Chairman and CEO of Global Energy Group, Jim the floor is yours.
Thank you Scott and thank you everyone for joining us on our third quarter 2020 earnings conference call.
During the third quarter, we continued to successfully execute on our strategy to transform orbital energy group into an energy services infrastructure provider, our electric power sold for infrastructure segment generated increased revenue growth for the quarter and we executed on a growing number of utility scale solar projects.
In electric transmission and distribution engagements.
We expect this momentum to continue through the fourth quarter and into next year.
At the same time, we continue to improve operating efficiencies throughout our organization moving us closer to our goal of becoming profitable and cash.
Cash flow positive on a consolidated basis as we move for into 2021.
Total revenues for the quarter were $13.6 million 75 per cent sequential increase compared to 7.8 million in the second quarter, and 124% increase compared to $6.1 million in the third quarter of 2019.
For year over year increase in revenues was primarily due to the pace of business returned to pre covert levels throughout most of our operations as well as the addition of revenues from both reached construction and overall power services collectively are electric power and sold for infrastructure segment.
The revenue from our electric power and solar infrastructure segment was offset in part by lower revenues from our orbital gas systems operations in Houston, which continue to experience project delays related to the pandemic as well as lower oil prices for.
For the most for customers and service providers alike have adjusted to operating in the current covenant environment and have implemented appropriate standards that provide for everyone's safety, while also maintaining business continuity.
The net loss for the quarter was $3.2 million compared to a net loss of 9.3 million for the second quarter of 2020, and a net loss for three or $312000 for the third quarter of 2019, we.
We had higher EPS DNA expenses compared to the same period last year, primarily due to the addition of overhead costs associated with supporting both reached construction and overall power services operations, which commenced this year. However, our sequential improvement for the quarter reflects our revenues are increasing and our electric power and.
Solar infrastructure segment and that the majority of startup costs and integration expenses, we incurred for this group for the first half for 2020 are now largely behind us.
As we stated on our last earnings call, we expected our infrastructure services group to contribute positively to our consolidated results for the quarter as revenues increase.
On a consolidated basis, we continue to believe that Oh Gee is on track to be EBITDA and cash flow positive going into next year as revenue momentum continues throughout the fourth quarter and into 2021 and beyond.
Dan will provide additional detail on our financial performance shortly.
Along with the increasing business, Oh, Geez electric power and solar infrastructure segment backlog at the end of the quarter increased $6 million for $43.5 million from $37.5 million at the end of the prior quarter.
These backlog figures do not include in excess of $10 million of recent solar projects that we were awarded subsequent to the end of the quarter.
Reconstruction, our utility scale engineering procurement and construction company is currently in various stages of construction on multiple solar projects.
During the third quarter, we experienced customer delays largely around permitting and delayed equipment deliveries, resulting in most construction activity not commencing until September.
With that said, we made great progress in securing and executing on solar projects for the third quarter and expect meaningful growth in the fourth quarter and beyond.
We have a significant pipeline of solar opportunities that we believe will contribute from answer growth for the company for several years to call.
In addition to reach construction overall power services are like for transmission and distribution service provider continues to gain traction securing contracts with investor owned utilities and electric cooperatives throughout the southwest and southern U.S.
In August orbital power was awarded a multiyear electric distribution Master service agreement for an electric cooperative in Georgia and subsequent to quarter end, a multiyear Master service agreement was executed with an investor owned utility in Oklahoma.
In addition to securing these agreements which will contribute incremental recurring revenue for the company orbital power also generated significant emergency response revenues during the quarter as we assisted utilities with critical infrastructure repairs caused by several hurricanes that hit both the northeast and Gulf Coast.
Regions.
Orbital powers emergency restoration have extended into the fourth quarter as we continue to provide hurricane support in the Gulf Coast region, as well as support to assist with ice storm related power outages in the Midwest.
I want to thank our employees for their tireless efforts and working safely without incident during their emergency response efforts.
This works for performed under extremely challenging conditions, and we very much appreciate all who participated in restoring power to affected communities. This year.
We continue to remain confident about overpower services and its prospects at this operation continues to gain increasing recognition in the industry.
We are in discussions with a number of customers to assist with their electric transmission and distribution capital plans and anticipate significant growth for orbital power in the coming year.
Market trends for the electric power and solar infrastructure segment remained very favorable for growth.
Many states for mandating that a significant increase in power generation must come from or renewable sources of energy.
As a result, more renewable projects such as utility scale solar assets are being constructed as states move away from coal and nuclear power generation.
The majority of the nations electric power transmission and distribution infrastructure is approaching the end up or is already be audits use for life.
Also there is a significant shortage of skilled labor in the electric power industry and utility customers throughout the nation and tend to add proven contractors onto their system to perform these services.
We believe the positive market trends for this segment of our business will continue resulting in increasing demand for our services that will last for many years to come.
Turning to our integrated energy infrastructure services segment for.
Backlog at the end of the third quarter was $8.5 million compared to $8.9 million at the end of the prior quarter.
Total gas systems, North America operations based in Houston was materially impacted by code and the price of oil as a result, the vast majority of large petrochemical gas measurement or sampling integration projects have been placed on hold until 2021 sorry.
Service projects for our technicians go to customer sites, such as petrochemical plants to service their equipment has resumed to some extent.
We do anticipate some increase in fourth quarter activity and subsequent revenues for the quarter as we are experiencing an increase in activity for request for quotations on smaller projects for petrochemical and renewable customers, but no major integration project work.
With that said several customers have indicated they will begin deploying capital on larger projects starting next year, although we have seen no indication of increased activity today.
Our UK orbital gas systems operations did experience I nearly full recovery from Cove in the third quarter of this year.
However, the company is currently facing new potential setback because of the latest government restrictions related to the resurgence of Cove in the UK.
Major projects supporting the principal gas that work of the UK and Ireland renewables, principally bio methane and hydrogen projects and service revenues for equally the major revenue contributors during the quarter.
Market momentum has continued into the fourth quarter. However, it's too early to tell what impact the new government restrictions or Brexit related issues may have on this momentum as we finish out 2020.
And 2021 barring any further covered our Brexit related setbacks, we anticipate growth opportunities in renewable projects and our UK operations.
Also April of 2021 marks the start of the next five year funding cycle for the UK gas network, where orbital is one of only for contractors approved for perform gas quality and metering upgrades for the UK gas transmission system operator.
I'd like to point out that our business development efforts earlier this year to pursue new markets, specifically renewable gas opportunities, we're able to moderate the impact to COVID-19 to a large degree.
As a result renewable project revenues comprised of approximately 20% of UK orbital gas systems revenues in the first nine months of 2020, driven by revenue from integration services from mainland Europe first Biomethane projects, which we were awarded earlier this year.
And finally, as we continue to execute on our energy infrastructure strategy, a critical component of this will be creating a robust environmental social and governance platform that will be essential in reshaping the culture of our company.
Specifically, our desire to provide services that contribute to reducing carbon emissions and providing opportunities for people of color to be trained employees and advanced in our industry.
On April 1st for this year overall energy completed its first acquisition to execute on this strategy.
Reached construction group, a black on enterprise, which provides engineering procurement and construction services. So the utility scale solar market.
In addition to being Black led enterprise reaches also contributing to a reduction of the nation's carbon footprint.
Further Paul White, a member of overall energy board of directors will be leading the company's diversity initiatives from.
The first initiative will be orbital energy working closely with reach in the development of the reach training Academy to identify cash train and develop underserved or disadvantaged people in the communities. We serve to staff skilled positions throughout orbital energy group and its subsidiaries.
Yes.
The company's primary objective is to provide opportunities for people of color and other underserved or disadvantaged people to find good paying jobs and the opportunity to advance their careers supporting their families and have a full unfettered access to the American dream.
And overall energy, we intend to be a catalyst for change in the electric power and removal construction industry, making a meaningful impact to help people improve their own loss.
This concludes my opening remarks, and now pass the call on to Dan who will review our financial results Dan.
Thank you Jim and good afternoon, everyone.
Today I'll review, our third quarter 2020, GAAP financial results.
I would like to remind everyone that I'll focus my remarks today on the company continuing operations.
Also please note that with the acquisition of reach construction group in April 2020, the company revised segment structure.
Electric power and solar infrastructure segment was formed during Q2 and now includes reached construction group and normal power for services for.
Obviously orbital power services, which commenced operations in the first quarter of 2020.
Was included as part of the former energy segment.
The former energy segment has been renamed as the integrated energy infrastructure solutions and services segment includes orbital gas systems limited in the UK and orbital gas systems North America.
The former power and electromechanical segment as presented in discontinued operations as electro mechanical business was disposed of during Q3 of last year, while the remainder of the domestic power business was divested during Q4.
Japan was divested effective September 32020, well see why Canada previously classified as held for sale and presented here as discontinued operations.
I'll speak more on this topic later in my remarks.
We reported total revenues of $13.6 million for the third quarter.
20000, compared to $6.1 million for the third quarter of 2019 and increase of 124% year over year increase reflects the addition of reconstruction and oral power services as well as increased customer activity during the quarter falling COVID-19 related project delays, we experienced earlier in the year.
This was offset somewhat by lower revenues from the orbital gas systems operations during the quarter.
UK market continues to face headwinds surrounding over 19, Brexit and the impact of the political environment on investment within the sector. While the U.S. markets also continued to face headwinds for any COVID-19 and the price of oil.
Gross profit was $2.4 million for the third quarter of 2020 compared to $1.4 million for the third quarter of 2019.
The improvement is mainly due to increased revenues as I mentioned earlier.
We expect this improvement will continue throughout the remainder of 2020 and into 2021 girl.
Gross margin was 17.3% for the third quarter of 2020 compared to 23.4% for the third quarter of 2019.
The integrated energy infrastructure solutions and services segment had gross profit margin of 29.7% during the quarter compared to 23.4% in the prior year.
The margin decrease was attributed although power and solar infrastructure segment for each project, which often have lower margins than the integrated energy infrastructure solutions and service segment.
More significant project size and overall profit.
We expect margin to improve during the fourth quarter as our low power services momentum continues with greater operating efficiencies and new customers along with reach project commencing in Q4 with improved margin and increased revenue.
And how many throughout our industries continue to adapt to the new operating environment created by COVID-19.
Increased sales of higher margin products, a better mix of integration projects increased service revenues throughout our energy focused operations and a significant backlog of solar project to reach construction group are expected to drive continued improvement to the company's profitability.
During the three months ended September Thirtyth 2020 assets, you name increased $2.4 million compared to the prior year comparative period.
The increase in EPS you name for the quarter was due to increased EPS unit costs related to oral power services and reach construction along with increased corporate costs largely due to strategic initiatives, which included increased professional fees and costs associated with due diligence activities related to prospective acquisitions net.
These increases were partially offset by decreased SNA Kourtney integrated energy infrastructure solutions and services segment that implemented cost cutting measures.
Continuing loss from operations was $6.3 million for the third quarter 2020, compared to $3.7 million in the prior year period due to the items previously mentioned.
As Jim noted net loss for the quarter was $3.2 million compared to a net loss of $312000 for the third quarter 2019. This.
This was a sequential improvement of $6.1 million from Q2 2020.
Given reach solar project delays in the queue for along with higher operating expenses during the quarter, specifically atrial total power services and reached construction overhead costs for Q3 results were negatively impacted we.
We believe this is a short term matter with the increase in region, although power services activities expected in the fourth quarter based on existing backlog.
The significant reach construction contract from backlog are expected to deliver revenue beginning in Q4 2020 I wish line, we expect to see earnings have reached construction began to more positively impacted group.
Although power services should also continue to see increases in that business and is expected to achieve profitability early next year.
As Jim touched upon earlier at September Thirtyth 2020, our backlog has increased to $52 million from $46.4 million at June 32020.
And up year over year due to the inclusion of reaches backlog and growth from Auro power.
Timber $30 million to $52 million backlog consists of $43.5 million from the electric power and solar infrastructure services segment and $8.5 million from the integrated energy infrastructure solutions and services segment.
We continue to see the long term benefits from the acquisition of reach instruction. Despite any pandemic related challenges and expect it will subsea it will add substantial revenues and positive earnings to orbital energy group whatsoever.
Well some of recent projects have pushed into the fourth quarter and next year as mentioned previously we are already seeing some other projects coming back online.
That's because we just project pipeline is based on its proven repeatable processes to provide its customers with safe high quality predictable results in a cost effective manner.
Lastly at the end of the third quarter, we held cash and cash equivalents of $4.1 million unrestricted cash of $3.6 million.
From a cash utilization standpoint, the company has continued to reduce cash outflows on both a sequential and year over year basis in Q3 cash used in operating activities was approximately $951000 compared with $1.3 million in Q2 and $7.7 million during the first quarter.
Cash used in investing activities during Q3 was $303000 compared with 186000 in Q2 and $7.4 million in Q1.
Which included the $3 million note receivable was reached construction that an acquisition was allocated to the purchase.
Financing activities provided $939000 during the quarter compared with $1.6 million in Q2, and Q on use of $429000.
Please note. The Q2 amount was primarily the result of PPP funding received during the quarter offset by paying them note payable from.
Some notable items pertaining to cash usage during the nine month period include the reach construction acquisition.
Working capital adjustment payment on the 2019 sale of the power business purchases of power and equipment deposits and changes in working capital.
The company continues to work to improve cash flow and managed working capital as it works through COVID-19 related delays and other project related delays.
For the reach backlog of contracts that pushed into Q for longer term, we expect to generate positive cash flow based on the backlog of orders to be delivered both from Rhys construction and orbital power services.
We continue to take steps to bolster our short term liquidity, including disciplined management of both working capital and expenses.
In the first half of the year the company and its subsidiaries entered into unsecured loans in the aggregate principal amount of approximate $1.9 million pursuant to the paycheck protection program.
The loans and interest included there on is forgivable, partially or in full if certain conditions are met.
We also filed a shelf registration in July for up to $50 million for.
While we have no plans at this time to go back to the markets. We felt this was a prudent at the time to keep our options open as we explore all potential avenues.
Before I turn it back over to Jim I'd like to provide an update on the like Canada and Japan.
Both of which were previously classified as assets held for sale.
As I noted earlier on September Thirtyth 2020, the company sold to see our Japan operations to backwards international for approximately $163000 of seller financing for a small gain over book value.
At September 32020, the assets and liabilities of the companies see like Canada subsidiary are still include assets held for sale with the expectation that the sale of these assets will be completed in 2020 and the company will have fully exited its previous power and electromechanical operations.
I'll now turn the call back over to Jim for closing remarks.
Thank you Dan.
In summary, we believe orbital energy group is well positioned for future growth and success.
Throughout this pandemic our team has continued to transform the company into a diversified infrastructure services provider and to position OE GE to benefit from the economies eventual recovery.
This has been accomplished through the acquisition of breach construction group to pursue utility scale and community solar projects. The development of orbital power services to provide transmission and distribution services and the business development activities that overall gas systems targeted at renewable project revenues.
With the progress we've made to date, we believe overly energy group is the inflection point and we intend to capitalize on this momentum moving forward.
We expect to continue our transformation as we keep expanding our infrastructure capabilities and service scope, both organically and through targeted acquisition opportunities, which we are constantly exploring.
The outlook for the energy infrastructure markets that we serve is extremely positive as capital deployment for building, new utility scale solar capacity, and replacing and reconfiguring existing transmission and distribution infrastructure is expected to be robust for several years for comp.
At the same time, we have taken the necessary steps to ensure that the health and safety of our customers and employees.
I want to take an opportunity to thank all of our employees for their commitment to deliver exceptional products and services, while executing our safety protocols.
I also want to thank our customers and business partners for their continued support.
Last but not least building a strong environmental social and governance or yes G platform is a priority for the leaders of this company.
And this will be integrated into our culture as we continue to grow our energy infrastructure services platform.
The services, we provide will contribute to a cleaner healthier environment.
In the terms of social responsibility, we intend to serve as an agent of change for our industry for providing employment opportunities for people of color and other underserved or disadvantaged people.
We take this commitment very seriously and we will look to be an industry leader in our SG efforts.
That concludes our prepared remarks, now I would like to open the call for questions. Operator. Please go ahead.
Thank you, ladies and gentlemen to ask the question you need to press star one of your telephone.
A question please press the pound key.
Please stand by what we can tell but you any roster.
Our first question comes from Rob Brown with Lake Street Capital. Your line is open.
Okay.
Hi, good morning, guys.
Good morning, good morning, Ralph.
Just wanted to get a little bit on the reach pipeline of solar projects. You said there are a number of projects you're bidding on and maybe you could just characterize the pipeline at this point and and how long you have visibility on.
Size of projects and how long those projects.
But to be continuing.
Rob we see.
Several $100 million worth of opportunities.
To be executed on.
You know between now and the end of <unk>.
2021, and we expect more opportunities come out as we move into next year.
And.
We're talking about opportunities that we believe that we can secure so the the.
The only the challenges is when these projects go to construction.
They are permitting issues and so for bunch song was very much commonplace in this business but.
At Cantor of activity the pace of opportunities will continue to increase and and we will continue.
Continued to generate more solar revenue overtime.
Okay. Okay. Good.
And then maybe just in terms of the electrical business our business the yes.
How much of your business with storm work, how much was the TD infrastructure and how do you kind of see that mix playing out overtime.
You want to take that Dan on the mix of how much share yes.
Yes, the mix it was about 40 60 during the quarter.
What I would say I don't have the numbers exactly in front me, but I would I would say is about 40 60.
40% storm other us schedule.
Going forward I think is a better question for Jim to address and how that works for me and I think you know storm work is going to be something that.
That don't necessarily putting your forecasts from when it comes it can be meaningful.
We did generate more stores are generating more storm revenue in the fourth quarter to that won't be anywhere near where we were in the third.
But at the same time.
We've increased the number of crews.
Through this investor day work, which is recurring.
So all in all.
We we should see growth in that business.
Over the long haul as well.
With with storm being an incremental positive when it does happen tip.
Typically in the for sale.
Second third.
We see we see most of that in the third quarter typically most of the storm revenue.
And the second would probably be the second highest.
Store for.
Definitely.
Makes sense.
And then the.
And then on the gas infrastructure side it sounds like visibility there is pretty low at this point is is that.
You are seeing really sometime next year that that can pick up again in the U.S., but.
When you get kind of get visibility there or is it still too early to tell and is it more back half loaded type activity.
Oh for snap back back half loaded activity I mean, we we.
Hopefully, we'll start seeing more visibility about what's going to happen in our North American operations.
By the end of year.
Because engineering needs to be done, which as you know.
Which is a six week day week lead time before construction happens so.
I think customers are waiting two views budgets for 2021 on these larger capital projects and.
Hopefully, we'll have visibility and then by moving into the year, but.
Yeah, the visibility right now is not good.
In Houston and its.
It's not that much better right now in the UK other than we do see a path to opportunities in the UK.
With the cash.
Cash network Rebidding.
The five year plan.
Plan and.
And some of the renewable gas opportunities that we see.
Okay. Thank you.
Thats right.
Our next question comes from Eric Stine with Craig Hallum. Your line is open.
Hi, Jim Hi, Dan Hi Air Air.
Hey, So you mentioned just on reach the you know what the pipelines look in line, but I was wondering if you can.
Maybe provide a little color around the type of uptick that you expect in force corridor.
Knowing that there still is some timing uncertainty there, but then also.
The kind of step up you might you.
You might expect in 2021.
Yeah, I mean that.
Back when when we had our second quarter call I expect to see more solar growth in the back half of this year. We've had a couple of projects the bigger projects have been delayed due to permitting.
We do expect the fourth quarter for for the Salt for solar revenues in the fourth quarter to be.
Better than what we experienced in the third quarter, but.
But at some point this is going to ramp significantly in my opinion, two two to where we're going to be moving in order of magnitude from from you know.
Moving to $60 million.
Quarter I mean this is this is a revenue story for us that's what it's going to take us to profitability to execute profitably on on the infrastructure segment.
The solar and electric power infrastructure segment, both have significant growth.
Trajectories.
We're going to experience here as we move into next year so for.
In the fourth quarter, we probably won't we'll see some gain but not not.
Mean nothing.
Thats a good gains in revenues, but as we get into the into next year I expect those numbers to ramp.
Ramp a lot more as a percentage of growth each quarter.
Okay got it on that.
Maybe just turning to the acquisition plan I think last quarter, you'd said that potentially you me I mean, you you that you're looking.
Got some potentials that you may close one by the end of the year. So curious if that's still the case.
But then also you know just what that what that is what that outlook is longer term and.
It's the balance sheet a bit of a hindrance until you.
Current the cash flow positive and start build net cash balance.
Yeah. That's a great question, we've got we've got several acquisition targets teed up and.
We did decide because of the significant amount of growth that we're experiencing in and.
Our electric power and solar segment that.
Some of these.
Opportunities that we were looking to potentially close this year.
Moving into next year, so it's likely that we won't make another acquisition. This year, but we certainly have candidates teed up to bring on board when the time is right.
And high level I mean, I think you've said in the past two to three two to three year. I mean is that I mean is that still the way that people should think about it oh, yeah two to three year.
Good number.
And people should think of it that way I mean, we we want to make acquisitions.
We want to growth for acquisition, we want to bring on companies that add to our portfolio.
And infrastructure, either geographically or expand two service lines that we provide today.
And.
And better cash flow positive and have opportunities for for profitable growth. So it's definitely part of our story and two to three years is definitely.
Target for us.
Got it and then lastly, just to confirm so on EBITDA and cash flow positive.
By now is there a is there a time I mean, maybe not by the end of this year I guess predicated on how much that step up is.
But is that something you know just a just thoughts is that something you think is early in 2021.
For more of kind of an annual number for 2021.
We expect to be there in the first quarter of next year earlier early in 2021.
And that will be dependent upon the growth in.
Electric power and solar infrastructure segment as.
We continue to see some significant growth in both.
Our electric Barentine de group over the power services and reach construction.
Sorry, Eric were you asking timing on on the two act two to three acquisitions year W or no.
Hi, intending on on.
Net cash flow positive target of good.
Good deal.
Thank you thank.
Thank you Eric.
Our next question comes from Liam Burke with B. Riley Your line is open.
Thank you good morning, Jim Good morning, Dan for in line for sale.
Jim or Dan you saw a significant step up sequentially and your gross margins for the second quarter, how much of that was the ramp up in the a and the project business and how much contribution or improved margin contribution did you get from the storm recovery.
In restoration.
We saw considerable margin coming out of the Candy group overall, and especially the storm work start work as you as you know is very high margin, but crews out working long day is long hours and getting paid.
Essentially from the time they leave there.
The yard driving to wherever the whatever state or region, there are going to be in its billable time.
So very that's debt certainly contributed positively to margin, but the TNT projects and there's a whole performed really well during the quarter.
[music].
So it was a bit of a mix there, but definitely this storm work.
Provided a nice boost in into that group into that segment.
So if I look into fourth quarter, just on the same thought process, even without the storm contribution the ramp up in projects as you convert from backlog to revenue.
Should translate to continued trends and gross margin improvement.
And gross profit improvement certainly in gross margin.
The solar projects, which are larger scale are low or lower margin as a whole.
The APC contracts are generally.
In the teens overall that have much more significant.
Profit profile for the whole so.
It will be a mix.
It's not exactly I would say.
As a split the TNT group, Yes, we would consider continue to expect that to perform.
And provide that positive impact to but I think as we see growing revenues from the solar group that margin will be that growth in the TNT as it pertains to its impact on margin will be offset by the growth in revenue and the lower margin value of the solar projects, so kind of a mix there you're.
Trying to fair.
Fair enough and then on just one more on TNT.
I think you had two nice MSC agreement signed how does the visibility or pipeline look on on that and that business.
Bad debt visibility is really good I mean, when you get a multi year Fms say like that your crews are basically become almost like an employee of the customer and Theyve got work to do every day and it's pretty secure weren't factory industry typically well.
Well count that revenue in backlog.
They estimate what the revenues would be in the ammo sales for that multiyear period. So.
Confident.
The industry is and I am that that work is recurring revenue that's very predictable.
Uh huh.
It's.
I've not seen very often where.
Those contracts will be terminated a very I think happened back in <unk> when we.
We went into the.
Session.
Where utilities cutback distribution crews.
That Ron Im assays, but other than that in my my history.
In the industry.
For those and I say just continue to roll in in the crews continue to work on that system and and don't.
They don't leave.
I'm sorry, Jim on the M. essays I met what's if there's any pipeline visibility on new agreements that you called out a new agreements from yes, yes, no. Okay I probably didn't do a good you know the cash.
Sure.
We.
We have we're in discussions with customers and.
It's more of a function of us being able to secure proves that we're confident that work safely that or.
Net or have a history of good execution.
And.
And.
Before before we take on some of these opportunities, but there are other utilities that would like us to participate under an MSC agreement with them I would I would.
I would guess that will probably add.
One or two more.
I say agreements with with Investor owned utilities or co ops.
Within the next quarter or two.
Going into next year.
Great. Thank you Jim Thank you Dan thank.
Thank you. Thank you.
Thank you. Our next question comes from Jeffrey Bernstein.
I was hoping.
Hey, guys. So it sounds like you guys have been very busy I. Thank you for all the all the hard work.
For questions just on the historic relationships with.
Nam and UK grid energy.
Is any of that.
Still potentially are going to come forward at some point or as the statute of limitations ran out on those.
That's a good question Geoffrey I mean, we.
I, we have hope that those opportunities will play out, but we've been waiting for that for a long time and they just continue to be delays. So.
For Snam I mean, we've got a we've.
We've got a significant amount of meters other deployed there already and I believe there's been some discussion about ordering some more but that hasn't happened yet.
Yeah, I mean, it's just a very fluid situation.
Gotcha.
And then on the gas.
GAAP PT.
All the utilities now.
The message is sort of gotten out post cove its debt that we're seeing peak.
You know hydrocarbon energy.
And everyone is now planning to move to renewables etcetera, etcetera, So obviously a great backdrop.
For.
For you guys.
The guys who have tons of infrastructure in the gas market are trying to figure out how they participate in this world in it and it's mostly through hydrogen.
How does calorific value measurements apply there if it does at all when they start to want to put hydrogen entities Nat gas utility systems.
Yes, I mean, I'll tell you that many of the opportunities that we have going forward, especially in the UK or building.
For in our integration group for hydrogen related on the gas for gas PT device for the born the bigger opportunities that we have for it is in renewable gas and that is bring us from integration opportunities to us win win win those projects get released to go to bid so.
That's a differentiator differentiator for us, but those projects.
Seem to have been slowed down somewhat coming to market, so, but that's where the big opportunities are in both for us and in the UK are in renewable gas for our company.
Terrific. Thank you.
Hey, Jeff.
And I show no further questions in the queue at this time I would like to turn the call back over to Mr., Jim O'neill, Vice Chairman and CEO for closing remarks.
Well. Thank you all for your participation and our.
Our call today and for your continued interest in overlap energy group and we look forward to having follow up conversations with many of you.
And to update you on our progress. So thank you again and have a great day.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect have a good day.
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