Q3 2021 Orbital Energy Group Inc Earnings Call

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Good day, everyone and welcome to orbital energy group's third quarter 2021 conference call.

At this time participants are in listen only mode.

A question and answer session will follow management's remarks.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host John Beisner Investor Relations.

Thank you operator good morning.

And welcome to orbital energy group's third quarter 2021 conference call.

Earlier this morning, the company issued a press release sports third quarter 2021 earnings results.

A copy of this release and accompanying Powerpoint presentation are available for download.

Events and presentations page of the Investor Relations section of the orbital energy group website.

Speaking on today's call are Jim O'neil, Vice Chairman and Chief Executive Officer, Idiots Ward Chief Financial Officer.

Also on the call today is the right step.

Today management will review the highlights of financial results for the third quarter as well as recent developments.

Following the formal remarks.

To your questions.

I would also like to remind everyone that today's call will contain certain forward looking statements made under the Securities Act with Nike 33, The Securities Exchange Act of 834 has abated.

Such statements are subject to risks and that search.

That could cause actual results to vary materially from those projected in the forward looking statements.

The company they experienced significant fluctuations in future operating results due to a number of economic competitive and other factors.

Such as the COVID-19 pandemic.

Including among other things the company's reliance on third party data factors supplies it service providers.

With agency budgetary and political constraints new.

Increased competition.

Is it the market today or in the performance or liability of its products integrated solutions and services.

These factors and others could cause operating results to vary significantly from those in prior periods and to those projected in forward looking statements.

Additional information with respect to these and other factors.

Which could materially affect the company and its operations are included inserted Forbes The company has filed with the Securities and Exchange Commission.

These forward looking statements are based on information available to orbital energy group as of today.

The company assumes no obligation to update statements as circumstances change.

With that I would like to turn the call over to Jim O'neil, Vice Chairman and CEO of orbital energy Jim. Please go ahead.

Thank you John and thank you to everyone for joining us this morning.

We began as announced this past Friday, Nick Grindstaff Who's joined overlay Energy group as Chief Financial Officer effective Tomorrow November 16th.

Nick brings over 20 years of experience in the infrastructure services industry and <unk>.

Very pleased to have him join <unk> team.

The airport will help transition Nick well into next year.

Dan has done a tremendous job for me as CFO.

We have been a great team and become greater France.

He is very comprehensive as John has a tremendous work ethic and I couldn't have asked for anything more out of them.

He was also very loyal to the boys all within OAG.

<unk> continues to increase and scope size and complexity. It is strategically important for the C suite to reside in one location, which is Houston payable.

Dan will remain in Portland, where he has a strong foundation of friends and family and I wish him much success in his future endeavors.

With that our third quarter results reflect our continued progress in transforming into a completely focused infrastructure services platform, our acquisition of Gibson technical services or gcs as Oag's telecommunications platform is producing immediate results with a pair of major project awards from charter Communications.

<unk> and one from Tuc, Mississippi based provider of broadband services in the quarter. We also expanded gts's scope of offerings through the acquisition of <unk>, a full service Telecom Engineering and network design company and overall solar services was awarded a second utility.

Scale solar project, which will move to construction early next year.

And our orbital power services sector orbital power are opioid experienced a 138% increase in revenue quarter over quarter due to the continued demand by invest strong utilities and electric cooperatives for our electric distribution services.

We are rapidly establishing a presence in the electric utility infrastructure market as a tier one quality contractor by safely providing services that meet or exceed our customers expectations.

Additionally, OPI were among the first responders to the Hurricane auto disaster that hit Southern Louisiana over Labor day weekend.

Approximately seven electric distribution crews were deployed with no access to food water or shelter and worked under adverse conditions for several days. We are very proud of the ability for our crews to accomplish a significant amount of work restoring power to affected areas without any safety incidents.

Heartfelt. Thank you for me and the leadership team for your efforts and fortitude to carry out your job responsibilities safely in the aftermath of a major hurricane event.

Eclipse Foundation group, a provider of drilled pier foundations, primarily for electric transmission structures and Substations mobilized its third foundation crew in the quarter and the outlook for continued growth was encouraging as its project opportunities expand and the company built its brand in the electric.

There will be service market.

Oh, Geez telecommunications platform Gibson services revenues increased 42% in the quarter, primarily due to the increase in five G upgrade activity, providing services to rebuild existing telecommunications facilities by adding additional fiber and installer boggy ratios to increase the <unk>.

Passive and speed of cellular services.

We're largely providing the service to customers and indoor environments predominantly large venues, while continuing to construct <unk> facilities in outdoor environment on a lesser scale.

During the quarter Gcs began to mobilize on our previously announced art off program Awards from charter and CEC in four States, Louisiana, Alabama, North Carolina, and Mississippi. These multiyear contracts required upfront costs to secure property.

Stage equipment offices, and the hiring of staff and contractors to begin construction.

In Virginia, we conducted the walk out of the existing telecommunications infrastructure necessary to fulfill let's say design of their state funded rural broadband program.

These mobilization costs, coupled with the delays in our golf project construction start dates due to multiple supply chain issues, including our local jurisdictions being overwhelmed with required permitting and utility locate requests coupled with the lack of construction materials resulted in a shortage in margins for the <unk>.

Quarter.

Additionally, the aftermath of Hurricane IATA caused project delays in Mississippi, and Louisiana as resources were utilized to restore services due to damaged infrastructure.

However, the positive news is the supply chain issues are beginning to abate in the fourth quarter and as we enter 2022, we expect auto project construction to be at full throttle with little or no delays.

The Aimco tuck in acquisition into GTS has resulted in immediate synergies, resulting in a significant increase in engineering design and drafting our cable TV and all of our programs.

As a result in the quarter <unk> added more than 200, additional workstations and 200, new employees, increasing to 400, new employees by year end.

In 2022, and Paul will experience will provide wireless and utility scale solar engineering and design services, which will further enhance both synergies and increasing profitability for <unk> and its shareholders.

Overall revenues for the third quarter more than doubled sequentially, we reported a quarterly gross profit for the first time since the fourth quarter of 2020 and increased our backlog by $115 million to $411 million, which is a leading indicator towards our path to profitability.

Okay.

I will cover our segments in more detail, but first I would like to turn this call over to Dan Ford, who will review our financial results for the quarter Dan.

Thank you Jim and good morning, everyone has been a pleasure serving as CFO for all energy group. These past many years. The last several partnered with Jim I'm confident it can be a great addition, and I'm delighted to help Nick and <unk> through the transition with that I will review the GAAP financial results for the third quarter of 2021.

Please note the electric power and solar infrastructure segment. Now also includes <unk>, which was required in July.

Total revenues for the third quarter were $30 9 million compared to $16 3 million in the second quarter.

The 90% sequential and a 127% year over year increase reflect both acquisitions of GTS endevco and the gradual economic recovery from the COVID-19 pandemic that positively affected our overall power and oil <unk> gas operations.

Gross profit for the third quarter of 2021 was $3 $8 million. This.

This compares to a gross loss of $1 2 million in the prior quarter and gross profit of $2 4 million in the third quarter of 2020.

The sequential improvement reflects growth in GTS.

And the addition of <unk>, coupled with improved margins for orbital power and Eclipse Foundation group the year over year improvement reflects the additions of GTS emco improve margins at orbital power and overall growth in revenues across the operating segments.

For the second quarter of 2021, SG&A was $13 7 million compared to $15 7 million in the second quarter of this year and $7 $2 million in the prior year quarter. The sequential decrease in SG&A is due to a decrease in equity vesting expense of $3 2 million Sars expense of $9 million and.

And equity based acquisition closing costs $6 million offset by increased SG&A associate with GTS and income operations of $1 $1 million.

And increases in SG&A for ramp up activities at orbital power of $1 $3 million and oral solar of $23 million.

Towards preparation to meet increasing backlog demands the year over year increase is related to the ramp up at overpower services group, which included increased payroll insurance cost startup cost Eclipse Foundation group and SG&A associated with the acquired operations in GTS and income partially offset by cost saving measures in the integrated energy infrastructure solutions segment.

Operating loss in the third quarter was $11 7 million compared to $18 $3 million for the second quarter and $6 3 million for the third quarter of 2020, the operating losses due to the previously mentioned items.

Net loss for the quarter was $10 $1 million compared to $8 2 million in the previous quarter and $3 2 million for the third quarter of 2020 for further details. Please refer to our 10-Q filing.

Turning to our balance sheet, we ended the quarter with cash cash equivalents and restricted cash of $12 4 million cash used in operating activities for the third quarter was $14 million compared to $951000 in Q3 of 2020 the.

The increased uses of cash in the third quarter were primarily associated with the net loss for the quarter, excluding $3 million noncash items increases youre period accounts receivable of $9 $4 million increased contract assets of $1 $1 million.

Offset by increased accounts payable of $1 6 million in accrued expenses and compensation of $1 8 million.

During the third quarter of 2021, the company sold 10 4 million shares of its common stock at a price of $3 65 per share for gross proceeds to the company of $38 million before deducting commissions and estimated offering expenses.

We have $112 million of remaining capacity to issue common or preferred stock or public debt under our S. Three registration with the SEC. This source of liquidity will help allow AEG to fund growth opportunities, including acquisitions that will contribute to the successful execution of the company's strategic growth plans with that I'll now turn the call back over to Jim.

Thank you Dan.

I joined this company about two years ago to transform at the time. So you are global from a service provider. So the natural gas industrial market into a service provider to the electric power telecommunications and renewable infrastructure markets.

Last year and into early 2021, we built the foundation for our strategy by organically, starting orbital power <unk> and Eclipse Foundation group service providers, primarily to Investor owned utilities electric cooperatives and municipalities and the opportunistic acquisition of overall.

Solar services, our utility scale solar EPC company, which served as a strategic platform to capitalize on future opportunities in the renewable market. We've laid this foundation, despite a sub $1 stock price and Kobe setbacks Obg's real transformation began in April of <unk>.

1021, with the acquisition of Gibson Technical services, which will serve as our telecommunications platform to increase profitable revenues, both organically and through synergistic tuck in acquisitions.

The GTS acquisition, we have completed two strategic tuck in acquisitions, Emco, and engineering and design company and more recently full Moon Telecom testing and commissioning company expanding our orbital telecommunications platform service capabilities customer base and geographic footprint.

Oh Jeez priority now is to pursue an electric power T&D platform acquisition.

This platform has acquired our transformation to a full service provider of infrastructure services since the electric power telecommunications and renewable markets will be complete.

We will then focus our efforts to grow revenues in our electric power and telecommunication platforms organically and through synergistic tuck in acquisitions, increasing backlog primarily comprised of predictable recurring revenues under multi year agreements with our customers.

Capital spending to upgrade and reconfigure the nation's electric transmission and distribution infrastructure is at an unprecedented level and will remain robust for years to come.

According to the American Society of Civil Engineers 2021 infrastructure report card released in March of this year. The majority of the nation's electric grid is AG with some components over a century old which is far past the 50 year life expectancy.

There are approximately 600000 miles of backbone electric transmission lines, and $5 5 million miles of electric distribution lives in this country and 70% of this infrastructure is well into the second half of their lifespans electric distribution is a key failure point and the <unk>.

Electric grid in terms of system reliability and accounts for 92% of all service interruptions are result of ageing infrastructure and severe weather events.

Concurrent with the aging grid dynamic and according to a December 2019 report by resources for the future in the coming years, you'll have an economy more dependent upon the electric transmission distribution system.

As the country becomes more electrify as it reduces its dependence on fossil fuels.

This results in the electric utilities potentially facing challenges in meeting higher electricity demand, which might require upgrades to infrastructure in order to accommodate the additional load.

OPI is estimated to increase its service capabilities, 400% during the year, expanding geographically and providing both overhead and other brown distribution construction services under multi year Master service agreements throughout the south from Texas to the Carolinas weeks.

We expect OPI growth opportunities to continue into 2022 at a similar pace that we've experienced this year.

Overall solar will begin construction on the first of two utility scale solar projects next month with the second project construction start date in February of next year slot.

Slide seven of our earnings presentation contains links for both of these projects that provide additional information.

Our utility scale solar project pipeline is robust and we anticipate additional project awards that will contribute construction revenues next year.

As a result orbital solar is expected to deliver significant financial results compared to this year, where the solar industry in general was tempered primarily due to COVID-19 impacts.

GTS is now well positioned to commence construction on major project awards and is expected to be in full construction mode going into next year.

Our recent tuck in acquisition a full moon further establishes GTS is a full service provider of end to end solutions to our <unk> and wireless customers.

Rowing forward when GTS completes a bargy upgraded and installed new <unk> radios full moon can then provide the required RF testing commissioning and turn up services a full service solution deploying a <unk> network is welcomed by our customers and as <unk>.

<unk> additional opportunities for services in the southeast U S with the opportunity to expand geographically in the future.

We continue to see unprecedented opportunities with our wireless and broadband customers for the foreseeable future and believe the market momentum. We are currently experiencing will continue throughout 2022 and beyond.

We expect future art off awards in the coming months, we also expect to make several additional acquisitions into our telecom platform GTS in 2022 and continuing effort to expand our service capabilities and as originally planned in order to create even more strategic synergies, thereby.

Maximizing profitability and shareholder returns.

The infrastructure Bill recently passed by the House and Senate provides additional meaningful opportunities for orbital.

This bill includes $65 billion for broadband access with roughly two thirds of that bigger earmarked for the deployment and rule and other underserved parts of the country and another $65 billion to improve the nation's electric grid building, new power logs and expanding renewable energy. These areas are right in the wheel.

House for orbital power and solar.

In summary, we are excited about the opportunities in front of us the mega trends unfolding and electric solar and telecom providers with meaningful opportunities as we execute on our strategy of acquiring companies to rapidly build scale and increase our geographic footprint with the objective of delivering.

Our three year financial targets, including a revenue CAGR of 20%, 10% EBITDA and 12% return on invested capital.

That includes our prepared remarks, now I would like to open the call for questions. Operator. Please go ahead.

If you'd like to ask a question at this time. Please press Star then the number one key on your Touchtone telephone.

Withdraw your question press the pound key.

Again that is star then one if you'd like to ask a question at this time.

Our first question comes from Jeffrey Campbell with Alliance Global partners.

Sure.

Jim Good morning, and first I wanted to say happy trails sedan in that I really enjoyed working with you and best of luck in the future.

Thank you Jeff.

Good morning.

Hey, Jim first a quick question, what's the timeline of the $410 6 million in backlog that's noted on slide three.

The timeline as far as how much is going to start out next year.

Is that a 12 month backlog is that part of it yes. That's the total that's the total backlog and I would say that the majority of that.

Other than the art, all for which that kind of lays out over.

Three to five year period.

So I would say that's about a third of the backlog. So that's going to lay out evenly over three to five years, but the rest of it would be I would say most of the rest of it is 12 month backlog and Dan would you agree with that.

I've actually got that disclosed in the Q and blow it up right now.

Okay.

Right.

Yes, I can look forward. Thanks.

Okay.

I Wonder if you could comment further on the orbital cells.

All of our services and what you see for the Division in 2022 slide eight notes a surge in utility scale solar interest and against that.

We're seeing industry reports suggest that utility solar may be particularly impacted by the current component shortages logistical bottlenecks. So wanted to get a little more color on your view.

Yeah, I mean, that's a good point, but there are some obviously simple.

Issues that.

Our pervasive not only with us but throughout the country.

A piece on 60 minutes last night that showed there were 80.

Maybe cargo ships.

L a with half the half.

Million.

Painters that we're yet to be unloaded, which was a record level, but.

Yeah, So it's pervasive bottleneck for the solar industry, but everywhere, but look we.

We believe that we have certainly we've already secured.

The materials necessary for this project that's starting.

In December.

I believe there is a pathway to to get the materials for the second project is starting in February.

We are in negotiations on another project.

That.

We hope to do.

To be awarded and moved to construction I have not heard of any supply chain issues, but those three projects.

But that's not to say there won't be any going forward. However, I do see some abatement to supply chain issues. I think we are starting to see some materials flow to the market, which is a good thing.

Okay, Yeah, certainly that's helpful.

Jeff circling back to your first question.

12 month backlog was 191 5 million.

So that's October one for the next 12 months and then the 18 month backlog is $274 million.

Okay, great. Thank you and Jim I'll ask one last one.

Can you just help investors understand what the TD acquisition that is obviously very important to management.

What's that going to provide that the rapid organic growth and power will not.

Well that's a good question I mean, when you're buying a established company that has the systems processes and people people largely being the management oversight.

You can span.

You can grow quicker.

Base platform.

Look at what we're doing at Gibson right I mean Gibson is just.

Their backlog has gone up significantly.

They have the bandwidth to two to grow that company.

Both.

Organically and through acquisition.

And we see the same opportunities with.

With an electric T&D platform as well.

That you can use Congress the home base of the mother ship to grow the business organically and through tuck in acquisitions, because they've got the people processes systems and track record for growing the business to where when you grow a business organically.

You're trying to bring in one piece at a time.

It's just a lot slower and frankly more inefficient not that we haven't done a good job with with orbital power Greenfield and it just takes a lot longer than when you buy a successful company that's already gone through those growing pains and that can scale more rapidly.

And if I could just ask one final one.

Alive.

Part two of overburden.

When you're thinking.

It sounds like what Youre, saying here is that you wanted to make this acquisition because you see a lot of business sense.

In front of you and you want to get accurate I'm wondering.

Where you see the greatest portion of that business over the next couple of years and what I'm really thinking about here is for.

For example, the huge resistance to the any CEC power line from Quebec to Massachusetts.

Matt too.

Completely green power.

It seems like that high definition, the high voltage power line side continues to get into a lot of NBA resistance I'm wondering where you killed.

The most successful growth this for years as you make this acquisition.

Yes.

That's great question.

I think.

Our focus is going to be on recurring revenue, which would be the electric distribution substation. The smaller transmission work and Theres still a lot of smaller transmission work that Greg.

Requires significant maintenance that is very recurring in nature, the bigger projects that you mentioned.

Again, it almost behaves like the solar market to work.

There was a lot of cyclicality to it.

Being able to predict certain projects will be approved and awarded to contractors go to construction, there's a lot of uncertainty there.

Great. Thanks for the questions I appreciate it.

Yes, Sir Thank you Jeff.

Our next question comes from Eric Stine with Craig Hallum.

Good morning, Ed Good morning, everyone.

Eric Good morning, So maybe maybe just start with that.

Orbital power services in the previous questions just on the company.

Our type of company that you may be looking for.

Any any thoughts on kind of what the limiting factors have been to this point I mean, obviously you've had in your plate full with.

On the telecom side cures.

Curious as it is at multiples out there is it finding the right company or is it just prioritizing your time.

Well I mean look we've got we've got a lot of great companies that want to join our team I think preliminary tactic for us today is our balance sheet and stock price, but I think as the company evolves and we make.

Some of these.

Acquisitions that are in front of us such as the <unk> platform that will resolve itself and then we'll be able to move forward with I think an acquisition program that would be.

Good.

At the pace at which I would expect it to be.

That will happen sometime into next year, but right now I would say that our headwind as our balance sheet and stock price.

<unk> is that.

I mean, clearly that's kind of your your your top objective is that a do you think that the 2022 event for power services.

I hope so I mean, that's our top priority. So we're going to try to get that done.

Try to get a deal done as quickly as we can because because of the opportunity.

Out of us that are that are immediate that we want to capitalize on.

So certainly we want to bring.

That scale of a company in houses as quickly as we can.

Okay.

Maybe just sticking with that theme and moving over to telecom with Gibson in place I mean is that something where.

I mean, we should expect more kind of smaller acquisitions that are complementary.

In terms of <unk> full moon and.

And others and maybe just thoughts on is it is it capabilities is it geographic and geographic expansion or maybe a combination of both.

It's a combination of those wallets and addition of new customers.

And yes they are.

Typically going to be the smaller risks.

Smaller acquisitions.

But multiples you pay are going to be a lot.

A lot less.

The synergies are going to be more significant.

And obviously.

Trying to differentiate from our competition in the eyes of our customers is extremely important so.

The Fuller suite of services that we can provide.

Total solution to our customers is extremely important so when you buy those expanded capabilities like you do with full moon and emco.

It also brings in new geographies and customers that they have historically been working with so it's very synergistic.

Got you.

Okay, maybe last one for me just on turning to solar you recently announced the <unk> joint venture.

I think a lot of that is because of the bonding capabilities any any way to quantify or just talk about how maybe the lack of having that in place to this point is limited in your business and what it means going forward.

Well look the only area of our business that we bought is on solar right and so.

If we if we get to a position where we're doing multiple projects then we're going to need that bonding capacity.

And so thats very helpful.

What's your goal there, but it's also because they can provide the high voltage solutions, we need today building the substations and the interconnect to the grid and so we can bring a total solution to the customer.

That we didn't have before so it's very synergistic.

Very synergistic partnership for us.

But the bonding is important because that would have been a limitation to us if we were trying to execute on all three.

345 solar projects at one time.

Gotcha, Thanks, a lot.

Thank you Eric.

Right.

I'm showing no further questions in queue at this time I'd like to turn the call back to Jim O'neil for closing remarks.

Thank you operator, and thank all of you for listening today I'd like to remind you that we are participating in a pair of investor conferences. This week.

Moreover, we will be holding virtual one on one meetings during the Craig Hallum Alpha Select conference on Thursday, we will be participating in the three part advisors southwest ideas conference in Dallas.

If you would like to schedule a meeting please contact your Craig Hallum representative or three part advisors and we look forward to speaking with many of you when we report our fourth quarter and full year 2021 results in March.

And following up with you on today's call.

Have a great day, and we'll talk to you soon bye.

Bye now.

This concludes today's conference call. Thank you for participating you may now disconnect.

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