Q3 2021 ENGlobal Corp Earnings Call
Good morning, and welcome to the third quarter of 2021 financial results Conference call. Your host for this morning's call is chief Executive Officer, Mark hats at the request of P&G today's call is being recorded and will be available for replay on the Investor Relations section of the company's corporate website.
Www Dot and global Dot Com you.
You may access the replay by dialing toll free 8774814010 domestically or 919882 to 331 internationally and.
And referencing conference I'd four.
43346.
A replay will be available shortly after the completion of the event through nine a M. Eastern time on November 11th.
I would like to inform all parties that your lines have now been placed on a listen only mode until the question and answer segment of this call begins to ask a question in that segment you will receive restrictions from the operator at this point I would like to turn the call over to Rick Eisenberg Media Relations director with Eisenberg Communications, Sir the floor is yours.
Thank you operator, and thanks, everyone for joining us on this call.
Before we begin I'd like to review our forward looking statements provisions.
During today's conference call Company Representatives may make forward looking statements any statements made in this presentation about future operating results or other future events are forward looking statements under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Please note that actual results achieved by the company may differ materially from such forward looking statements a discussion of the factors that could cause such differences appears in the risk factors section of the company's 10-K.
Presenting on the call today will be Darren Sprigs, EOG CFO, Roger Westerlund Eog's President following the presentations Darrin, Roger and Marc Hess EOG as CEO will be available for questions.
Now I'll turn it over to Darren Sprigs Darren.
Thank you Rick.
Also like to extend my welcome and an appreciation for those on the call today.
For the quarter, we reported $6 million in operating revenue.
$6 7 million in direct operating costs.
<unk> and the direct operating cost is $1 6 million related to underutilized staff and proposal costs.
Which has significantly increased over prior periods.
During the quarter, we reported an employee retention tax credit of $1 3 million for retaining our staff.
This credit is classified as other income in accordance with GAAP.
Our SG&A was $3 1 million for the quarter, which included nonrecurring legal and advisory fees of 230000.
Compared to $2 2 million for last year.
The remaining increase is primarily related to investment in our business development staff and related activities.
<unk> and the amount of $4 9 million was forgiven during the quarter and is also included in other income.
Our income tax expense consists of state income taxes.
Primarily in states use income to calculate.
Such as Texas.
Our federal income taxes.
It was offset by an adjustments and valuation allowance recorded against it.
As a result, we recorded net income of $2 4 million or <unk> <unk> per share for the quarter.
Compared to a loss of $1 1 million.
Our <unk> per share last year.
For the first nine months of the year, we reported $29 4 million of operating revenue and $29 2 million of direct operating cost.
<unk> in the direct operating costs and $4 3 million of costs related to underutilized staff and proposal costs.
Has significantly increased over last year.
During the first nine months of the year, we recorded employee retention tax credit of $3 1 million or maintaining our staff.
Which is recorded as other income.
Our SG&A was $9 9 million for the first nine months of the year, which included an accounts receivable reserve of $1 4 million from one of our customers who suspended their operations.
And 350000 for nonrecurring legal and advisory fees compared to $6 6 million last year.
The remaining increase is primarily related to investment in our business development staff and related activities.
The PD lone.
The employee tax credits from this quarter and the employee retention tax credit for the first quarter.
Makeup essentially all of the $8 1 million in other income.
Our income tax expense consists of state income taxes, primarily in states that do not use incomes to calculate taxes like Texas.
Our federal income tax benefit is offset by an adjustment to the valuation allowance recorded against it.
As at the end of the quarter, our entire deferred income tax asset, including our NOL with reserves.
As a result, we recorded a net loss of $1 8 million or <unk> <unk> per share.
For the first nine months of the year compared to net income of 59000 or zero cents per share last year.
Our cash balance was $25 million as of the end of the quarter, an increase of $12 million over last year.
Our working capital increased $16 million over the last year to $30 million as of the end of the quarter.
We believe this cash on hand, along with internally generated funds.
Availability under our line of credit and other sources of working capital will be sufficient to fund in globals current operations and expected near term growth.
And now to you Roger.
Oh I'm sorry.
This is mark here.
I'll make the next statement.
We're going to talk about where we are in our.
And our.
Process.
Could change.
Changing this company from a primarily.
A.
Engineering services company to a full suite EPC company.
Last quarter, we spoke about a number of initiatives that we've undertaken to better position in global in the marketplace.
At the center of these initiatives is an improvement.
Our strategy that supports our short term and long term goals.
During our last call, we shared information about our target markets renewables automation government services and traditional oil and gas.
Our collective experience history and relationships in these markets supports the decision and market focus.
We are seeing significant increases in activity in each of the selective markets.
We spoke about recurring.
Seasoned leaders recruiting seasoned leaders for each of these markets by.
Targeting candidates with solid experience and relationships in ETF and EPC areas.
Which will help us further develop even stronger ties with our current.
Key clients.
The excitement surrounding our office relocation and rebranding has resulted in better applicants seeking career opportunities with us.
This rebranding is something that we share with you during our last call together.
We talked about how important this is to the overall strategy of EMG. The new logo the website the relocation and all of this strategy to better communicate and expand our capabilities to our current and new clients.
This campaign is fully launched and our online content is now noticeably improved.
The strategy execution has continued with the recent addition of construction services and global now offer self performed on site construction.
For small projects our full suite of services now consists of engineering and project execution services integration automation fabrication and now construction of small capital projects you.
You may have seen the press release on this topic.
With this addition, we offer our clients full self performed EPC project execution.
Because we are positively positioned with our clients. This expansion quickly generated two project awards for small construction projects.
These projects were awarded to <unk> global by two different major midstream and pipeline companies.
We will be releasing more information and providing additional confirmation on this addition to our strategy.
Soon.
Yes.
Last quarter, we updated everyone on the hydrogen plant we delivered from the from our facility in Henderson, Texas to Seaboard energy in Kansas We.
We successfully completed this project.
Has given birth to similar opportunities that our renewables group is currently bidding and we're evaluating.
In addition, our current administration has committed over $500 billion towards the energy transition and the new infrastructure plan.
This combined with the United Nations Climate Summit happening now.
We will drive an increase in this activity.
<unk> anticipates 1500 renewable diesel.
Jet fuel plants will be needed by 2030 to meet the Paris accords greenhouse gas reduction commitments.
Our significant leadership strength and this group is.
Has positioned EMG as an authority in this space.
And exposure to these opportunities is a reflection of our level of involvement and exposure in the market.
This is further confirmed by the number of new inquiries. This group is receiving.
With the initiatives, we have been pursuing pursuing we have improved our position in the markets that we serve.
We have made a significant equipment investment in our structural fabrication facility located in Henderson, Texas.
This equipment is it is a.
A critical part of our overall strategy for making our fabrication services more efficient and increasing its capacity.
We are seeing tangible signs of a successful strategy in the form of purchase orders for new and existing upstream clients.
We are seeing a similar trend in our automation and integration division within with an increase in opportunities from our existing client base.
The significance of these orders is far greater than the revenue that they represent.
It's an industry validation for our growth in this segment.
Our project Awards are also accelerating with recent Q4 purchase orders.
From several major IOC clients.
And stand above.
Where we stand and above average chance of winning the larger opportunities in our pipeline.
We have already exceeded our Q3 bookings so far in Q4.
This increase is a result of our business development activity and key account strategy combined with an uptick in the market.
We are seeing increases in key metrics.
Received RF queues from August to September are up 20% and we saw another 25% increase September to October.
Our number of submitted proposals has increased by $100 million in September.
This is also evidenced evidence of the increased business development activity in the early part of the year.
In total we have just under $250 million and working opportunities in a total of over $1 billion in identified opportunities in our pipeline.
I am optimistic about the opportunities. We currently have in our pipeline and the increase in metrics and the wins we are seeing.
Safety is a continual focus.
And then we gave an update of where.
We gave an update when we met last quarter.
I shared about our safety program zero impact and first things first our strong commitment to safety not only is paramount for our employees, but we will also continue to enable EOG to work for our clients. This is a priority for us and this focus and commitment reflects this fact.
At the same time, we have been improving our balance sheet and I am happy to report.
To you today that it is very strong.
We have access to our working capital facility and capital markets, if necessary with almost no debt.
This is an important fact for our customers.
As it provides them with greater assurance that we have the financial strength to complete there.
They're complex projects.
We believe in the strategy that we have chosen and implemented.
It is aggressive but realistic we are meeting weekly to monitor our progress and adjust where necessary. We are now seeing real results directly related to these strategic efforts and we are extremely optimistic about the future of EMG. We believe this positive momentum will continue to prove to be successful.
We have accomplished a significant amount so far in 2021.
And is 2022 quickly approaches we must continue to work with urgency and focus.
That being said we are very pleased to be able to report that our strategy is working.
This concludes my prepared remarks, and now I'd like to turn the call over to the operator for questions.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
Asphalt posing your question. Please pickup your handset is listening on speaker phone to provide optimum sound quality. Please hold a moment, while we poll for questions.
Your first question is coming from Jeffrey Campbell, Please announce your affiliation and pose your question.
Good morning. This is Jeff Campbell with Alliance Global partners.
Mark I was wondering to begin could you provide any color on the type of contracts that were not renewed during the third quarter just to give us some sense of where COVID-19 is creating the most disruptive.
Well I think what Youll see is as we entered.
Let's take a step back and go back to 2020, when we started 2020 we had.
Backlog of about $60 million and we worked through that even though even as COVID-19 came into play.
March of 2020.
We had significant backlog to carry us through.
We saw then at the end of 2020, where our business development folks, we're not able to go out and meet with our clients.
Our clients Werent working from the office they were working from home.
Had the added impact of the decrease in the oil price, which significantly <unk>.
Decreased activity in all of our markets.
And so.
The backlog that we had done at the end of 'twenty.
At the beginning of 2020.
<unk> reduced at the end of 2020 and has has reduced.
To this point simply because many of our clients are not our.
Just now getting back to the office and so.
Again with the uptick in the oil price and people getting back to work.
We are seeing.
Increases in activity both on the proposal side and actually only awards. Although the awards are smaller at this point theres been quite a bit of backlog.
When I say backlog theres been quite a bit of equipment.
That our clients had inventory that they needed to work through before placing new orders. So.
The projects that we were working on both on the.
On the renewable side with our hydrogen plant.
And on the government side.
Those that we've been working through that backlog and those are the ones that we have not yet replaced those larger projects.
Okay and then.
Thank you for that.
So now let's flip it with that in mind are there specific areas.
Your oil and gas offerings that you see recovering earlier.
It sounds like from your prepared remarks.
That's already apparent.
Yes, I think I think where we're going to see the market come back the quickest is going to be in the upstream sector. Roger may want to find out on this but.
That's what we're seeing is primarily in the upstream market.
As usual, it's the upstream piece.
Of the.
Market.
That swings the wildest so.
When when activity is high upstream is really high and when activity is low upstream is really really slow so.
That's kind of a leading indicator in the marketplace.
Alright that makes sense.
Regarding the new onsite construction capabilities can you quantify the size of the projects that you are willing to complete at this time.
Yes, we're going to start carefully.
I think what we're looking for is project somewhere between.
A few hundred thousand may be up to $5 million at this time.
Okay, great. Thank you.
And then now let's turn to the <unk>.
Recent announcement about the carbon capture and sequestration.
If it's successful.
How has things solution going to differ from what is currently available to industry.
I think.
So we went over a few of US Bruce Williams, which is leading our renewables group to San Francisco for a two day conference.
Right.
Thursday Friday last week, I guess Thats three days.
And I think that was troubling I will say is the current activity to really go to FY <unk>.
Sure didn't need.
Ill translate what comes out there is that if you only take.
Dana will airplane fuel, we need plus 30.
Gallons.
Oil production.
To fulfill the current need states that they expected to up to 40 and that translate down to a huge number of clients is a lot of people. That's talking about this I think that the trickier for outside of the industry as a whole.
Is to follow the ones that really going to succeed to get Jeff.
So it's really hard to.
Two to sort it out tried them we're working.
We're working hard without without technology partners with our construction partners.
It's to come I think we just need to be careful how we budget for 2022.
Okay and then.
My final question today is we focus a lot on the modular hydrogen production units.
For renewable diesel.
But now you are talking a lot about jet fuel which is.
An additional end markets.
Wondering are there any other applications.
Besides specifically the HBU for renewable diesel that you think might reasonably attractive project in the next 12 to 18 months.
You have the whole of the seal to capturing et cetera, I think.
Mainly submarkets to the whole.
One cleaning up what we do to our plan that down to produce tank cleaning a few so I think there is many at Avenue to see if you look at one of our technology provider how the top so they have a wide range of all processes.
Around this area. So so I think the way we see it is.
As long as we have the capability to manage engineer procure and fabricate.
What's really in.
In this plan doesn't really matter that much to us we have the process knowledge.
Bill is renewable diesel sustainable airplane, fueling et cetera, it doesn't really matter that much right. So as I said earlier I think it will be really need to understand is the one that have the capabilities to execute these projects. In addition to this maybe that should be said also the <unk>.
Yes.
It start moving the question is how quick they will move we know the pressure on some of the major ones to do this I think my personal view is some of them probably will succeed quicker than others, but we have.
We have every week number of calls with both investors and I will see that now seeking what should be really do.
So my point is really.
Is it now now not sure about that but I think we will see a lot of lot of activities in 2020 to that and I think we do.
Guests need to be very diligent in.
What we engage ourselves.
Okay, well, thank you for that and we kind of look forward to seeing that unfold in the next year. Thanks again.
Thanks, Jeff our pleasure.
Once again, if there are any remaining questions or comments. Please press star one on your phone at this time.
And there appear to be no further questions in queue.
Very well thank you operator, thank you.
Thank you everyone for joining US you all have a great day.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.