Q1 2022 Orbital Energy Group Inc Earnings Call
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Good day, everyone and welcome to orbital Energy group first quarter 2022 conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow.
Instruments remarks.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over here.
Sure John Beisner Investor Relations. Please go ahead Sir.
Thank you Boyd and good morning, everyone and welcome to orbital energy group's first quarter 2022 conference call.
Earlier this morning, the company issued a press release for its first quarter 2022 earnings results a.
A copy of this release is available in the newsroom under 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.
<expletive> Ryan <unk>, Chief Financial Officer.
Management will review the highlights and financial results for the first quarter as well as recent developments.
Following the formal remarks management lines for questions.
I'd also like to remind everyone that today's call will contain certain forward looking statements made under the Securities Act of 1933 and Securities Exchange Act by some 34 as amended.
Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in the forward looking statements.
The company experienced significant fluctuations in future operating results due to a number of economic.
But other factors such as COVID-19, the company's reliance on third party manufacturers supplying service providers government agency budgetary and political constraints due increased competition.
Is it the market demand and 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 the forward looking statements. Additionally.
Additional information with respect to these and other factors, which could materially affect the company and its operations.
Included in certain forms the company has filed with the security and Exchange Commission.
These forward statements are based on information available to orbital energy group as of today May 16 2022.
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 Good morning, and thank you for joining us today to discuss orbital energy group's first quarter 2022 results and our outlook for the rest of the year.
Before I begin with my quarterly commentary I want to thank our employees for the safe and efficient delivery of services to our customers each of our employees represent the <unk> brand and their efforts are recognized and very much appreciated.
Now to the development of the first quarter, we continued to make progress towards building our infrastructure strategy across our three operating segments, serving the electric power telecommunications and renewable industries. This morning, we reported first quarter results that demonstrate we are off to a great start this year with record quarterly revenues of 70.
Point $3 million backlog at the end of the quarter was $513.5 million, which we believe reflects the continued advancement of our long term growth strategies, we continue to see opportunities for multiyear growth across our service lines driven by our solutions based approach and the growth of spending with <unk>.
<unk>, a new customers. Most importantly, <unk> achieved positive adjusted EBITDA, a non-GAAP measure of $3.8 million in the first quarter of 2022. This milestone is a first since I've been with the company and we believe a significant indicator of our steady progress towards improving shareholder value.
Our electric power segment delivered a 70% increase in revenues in the first quarter of 2022 compared to the fourth quarter of last year. This growth is attributed to the ongoing demand for our electric power and substation services, primarily driven by our investor owned utility customers and a very robust market environment, which we believe will.
Not subside for the foreseeable future.
Our telecommunications segment also increased revenues, 24% in the first quarter over prior quarter factors contributing to this growth included a significant increase in the ramp and art off program construction. Our previously awarded projects by charter and T. C over a five state area as well as an increase in construction revenues.
Associated with broadband deployments by other customers.
Outlook for our Telecommunications segment is also very positive as we believe that fiber deployment to rural America, as well as broadband and wireless infrastructure upgrades necessary to enhance <unk> LTE and the continued rollout of <unk> spectrum will increase the need for our services for many years to come.
In the first quarter, the telecommunications segment completed the acquisition of coax fiber solutions LLC our CFS.
Which while not a material event to the company is nonetheless, an important strategic acquisition to enhance our capabilities with customers.
First as an outside contractor specializing in the aerial and underground coax and fiber installation CFS was a strategic play to enhance our future position with at least two telecommunication customers and we expect to begin realizing the benefits of this acquisition later this year or in 2023.
And lastly, our renewable division underperformed during the quarter largely due to civil construction delays and the inefficiencies caused by persistent rainfall on the Blackberry utility scale solar project located outside of Montgomery, Alabama mitigation.
And mitigation plans are in place to get this project back on track, which we include organizational changes that were made subsequent to the quarter end.
We continue to position overall solar for future success, Robert Burns of season proven professional and the utility scale solar industry joined the company as orbital solar as President. In addition, Mike Mccracken current role as GTS as CEO expanded to include orbital solar CEO I'm confident that the addition of <unk>.
And Mike in their new roles will greatly enhance Oss is success and the renewable infrastructure business going forward.
On a consolidated basis OAG exceeded our financial expectations of breakeven EBITDA for the first quarter of 2022, our outlook for the remainder of this year remains unchanged. We are reconfirming, our revenue and EBITDA guidance for the full year of 2022, which is a revenue range of 375 to 425.
<unk> million dollars and an adjusted EBITDA range of 38 million to $43 million.
Look for our services in the electric power and telecommunications segments continues to strengthen despite supply chain challenges fuel costs. The recent changes in the state of the U S economy and in the World.
Numerous multiyear drivers exist today that will drive an increasing need for our instructors infrastructure services to upgrade and expand the nation's electric power and telecommunications infrastructure.
These drivers include aging infrastructure storm hardening of infrastructure Reconfiguring, the electric grid from traditional sources of fossil fuels to renewable generation shifting population centers the nation's move toward electrification, which includes electric vehicles, smart grid and smart city deployment being hanging.
It's been a four <unk> LTE spectrum and the rollout of the <unk> spectrum.
Renewable segment, specifically the outlook for utility scale Solar awards and additional construction revenue to fill the uncommitted revenue forecast and our guidance remains viable despite headwinds from supply chain and potential tariff increases on solar panels manufactured abroad.
Most of the opportunity pipeline, we are reviewing with clients have secured payables and our sourcing from U S manufacturers and we believe it is still likely we will receive additional project awards that will move toward construction this year.
Now a quick update on our discontinued operations.
Last week, we announced the sale of Oag's U K gas business orbital gas systems limited to Zero Group Limited. We're pleased this transaction is concluded and we have achieved achieved yet another milestone in our infrastructure strategy transition. We're currently under an exclusive LOI with a potential acquirer.
For our orbital gas U S operations, which we hope to finalize in the next several months.
Now I will turn the call over to Nick Ron Snap, our CFO for his comments on the quarter and our 2022 outlook Nick.
Thank you Jan today, we announced record quarterly revenues of $70 3 million for the first quarter of 2020 to.
Loss from continuing operations net of income taxes was $36 7 million with an adjusted EBITDA of $3 8 million, which is a significant milestone as this is the first time since the company's transition to an infrastructure services provider and adjusted EBITDA has been positive and is a significant indicator that we are successfully X.
<unk> on our infrastructure strategy as we move toward profitability.
As we stated last quarter, we believe adjusted EBITDA is the best financial measure as an indicator of operational performance.
You will find a reconciliation of EBITDA and adjusted EBITDA, both non-GAAP measures to loss from continuing operations GAAP measure as a supplement to our first quarter earnings press release.
For the first quarter loss from continuing operations was 44 per share.
As a reminder, the financial results on providing today are from our continuing operations and do not include results from our orbital gas North America orbital gas UK entities.
Was your reclassified to discontinued operations in December and at the end of the first quarter were included in assets held for sale.
Detailed results from our discontinued operations will be disclosed in our Form 10-Q.
In the first quarter of 2022, our consolidated revenues and adjusted EBITDA increased 71, 5% and 425, 3%, respectively as compared sequentially to the fourth quarter of 2021.
These results demonstrate continued improvement in our operational performance and positions the company to deliver much improved financial results for the full year of 2022.
In the first quarter of 2020 to the electric power segment increased revenue, 70% to $39 7 million compared to the fourth quarter of 2021.
Adjusted EBITDA for the segment was $7 9 million or 20% of revenues for the quarter.
The primary driver is the ongoing increased demand for our electric power distribution services.
Over the same period, the telecommunications segment increased revenues 23, 8% to $16 1 million with adjusted EBITDA of $2 2 million or 13, 8% of revenues.
Primarily due to the ramp up in construction on Argos programs over a five state area.
Renewable segment had an increase in revenues of 202, 1% from the fourth quarter of 2021 to $14 5 million with an adjusted EBITDA loss of $2 3 million.
The margin shortfall was primarily due to inclement weather challenges and operational inefficiency on the light source VP Blackberry utility scale solar project.
Certain holding company cost exist outside of the defined operating segments for the <unk>.
First quarter these costs were $4 million.
Our total backlog was $513 5 million at the end of the first quarter of 2022.
<unk> decrease of one 9% from year end.
However, 12 month backlog increased seven 5% to $294 6 million from the fourth quarter of 2021, which.
Which we believe is an indicator of the robust business environment. We are operating in today as total backlog can fluctuate due to the timing of multi year Master service agreement revenue burn versus contract renewables renewed.
Renewables.
One of our top priorities is to optimize the company's capital structure to ensure our ability to fund strategic growth, both organically and through acquisition, while maximizing shareholder value.
We currently have tranches of debt that are due in the next 12 months to 18 months.
These tranches of debt have high interest coupons and requires significant principal payments.
Structure of this debt has a material negative impact on our cash flow.
Improving our capital structure with regard to a few tranches of our debt is of utmost priority and we continue to focus on this aspect of our balance sheet.
Our improving financial performance is a strong signal to the capital markets.
And we are currently reviewing multiple term sheets, which had been recently submitted by lenders I'm confident with continued operational performance, we will be successful in restructuring these debt obligations.
Subsequent to the quarter, we reached an agreement with the frontline power sellers to refinance the seller notes $20 million of the $87 million has been paid with proceeds from the recently announced equity transaction.
<unk> million dollars is the remaining $67 million will be paid at year end 2022, and the remaining $52 million has been extended to May 31 2023.
Okay.
As part of the frontline power sellers agreement to defer a portion of the seller's note a $4 per share floor price was established for the 11 6 million shares of common stock as part of the acquisition consideration.
62% of the shares are subject to lockup until November 16, 2022, and 38% are subject to lockup until November 16 2023.
This agreement is subject to mark to market accounting.
And as such non cash $25 9 million dollar cost was incurred for the quarter.
The mark to market accounting, we'll require an adjustment every quarter based upon <unk> stock price until the lockup period expires.
Turning to guidance as Jim commented, we expect strong revenue and adjusted EBITDA growth for the remainder of 2022.
As such we reconfirm, our full year guidance, our consolidated revenue range of $375 million and $425 million and an adjusted EBITDA range of 38 million to $43 million.
This reflects year over year revenue growth of 382% an improvement of $67 5 million in adjusted EBITDA for the full year 2022, compared to 2021 from the midpoint of our guidance.
Our segment guidance also remains unchanged.
As it relates to the electric power segment, we believe 2022 revenues will range between $115 million and $130 million with adjusted EBITDA margins to be in excess of 20%.
Storm revenues, we might realize in 2022 is not included in the guidance.
And our telecommunications segment.
We expect revenues in the range.
9% to $70 million with adjusted EBITDA margin expectations for this segment in the mid teens.
Finally in our renewable segment for the full year of 2022, we anticipate revenues in the range of $200 million to $225 million with adjusted EBITDA margins for this segment.
The mid single digits.
As a reminder, orbital solar provides engineering procurement and construction solutions to the utility scale solar market through its joint venture with gene Golar power, where orbital solar will consolidate 100% of revenues generated by <unk>.
We will absorb cost and the project paging Julie for their participation, which contributes to a lower margin profile for this segment.
Certain holding company costs exist outside of the defined operating segments. We continue to estimate these costs to be $15 million for 2022.
You will find a reconciliation of EBITDA and adjusted EBITDA, both non-GAAP measures to loss from continuing operations GAAP measure as a supplement to our fourth quarter earnings press release as it relates to our expectations in 2022, now I will turn the call back over to Jim.
Thank you Nick.
In conclusion as a top 10 overland is your group shareholder.
Very much aware of our current stock price and capital structure challenges.
Successful execution of our infrastructure strategy and delivering improving financial results is the best remedy for addressing these challenges.
We're currently positioned and very robust end markets with multi year growth drivers. We believe we are in the most prolific time in the history of the industries, we serve and the need for our services.
We will continue to execute on our infrastructure strategy with the goal of achieving our 2022 financial expectations.
Operator that concludes our prepared remarks, and we'll now open the call to Q&A.
Thank you Sir as a reminder to ask a question you will need to press star one on your telephone to withdraw it.
<unk> press capacity.
Your first question is from Jeffrey Campbell of Alliance Global Your line is open.
Good morning, congratulations on the strong quarter.
Good morning, Jeff.
I noticed that SG&A dropped about 35% in the quarter.
Also saw the negative stock options illustrate the cash flow statement I was just wondering if this was largely related to the orbital gas sale or something else.
No.
Jeff This is Nick we had a.
On the G&A side, we had a.
But some charges associated some credits associated with some stock comp.
That.
That is reflected through G&A just want one time credits.
Okay. Thank you.
Yes.
Can you expand a little bit on the solar project delay that you mentioned this morning.
And you haven't altered your 2022 guidance.
Safe to assume the delays are expected to be made up over the rest of the year.
Yeah, I mean look with these projects have FERC completion dates.
And we plan to make those completion dates.
So yes, we will make up time on the Black Bear project.
The civil aspect of any job obviously is.
In my opinion, the most risk is space, especially.
I hate to talk about weather, but weather can impact production.
And.
That's what's happened so we're still in.
The civil phase of that project.
We're working our way through it.
And I'm confident we'll get back on schedule.
On this project.
Okay.
And bearing all that in mind, maybe Nick you update the revenue cadence for the rest of 2022.
The revenue cadence would be I mean, obviously, we expect ramps.
Ramp in revenue.
We've talked about this before but the third quarter as our high revenue period.
The second and fourth.
Probably second and third and they can take an alternate.
The first quarter is the lowest so we expect a ramp in revenues in the second and third quarter and obviously.
With the some of the solar revenues being delayed from a revenue recognition standpoint.
We will probably have bigger quarters in the second and third quarter.
Because of that they're convinced the nature of those revenues.
With the completion dates in mind.
<unk>.
The Blackwater project.
Alright.
Helpful. Thank you.
We haven't heard about any new projects for a while.
Washington's released $110 billion infrastructure spending with broadband specifically highlighted and you mentioned the recent acquisition in the division could lead to further contracting so I thought maybe a little.
High level color here would be helpful.
Yeah look we're still in the early stages of art off awards.
None of US none of our guidance takes into affect Amy federal funding other than the oro projects or wherever and Anne.
Or any sort of any federal funding on infrastructure would be additive to what we're doing and in the acquisition was basically a very small acquisition that was strategic bet.
Allowed us access to two.
Two customers, who we work for in the past GTS has.
But.
It further positions us to become a.
What they call a tier one supplier to these customers.
And that's going to play out over the next probably towards the end of the year and into next year.
It just further positioning the company to expand its services with new customers.
The experience of our geographical footprint.
And on that point.
Expanded work be likely to be more hard off work or is this.
Different work environment.
It's all of the above.
I mean these customers have received off award.
They also have legacy systems with the.
Before G L T enhancement as well as the rollout of <unk>.
And so this company brings those outside plant construction capabilities, which are.
Proven with these customers, but they've worked for before.
<unk> significant upside opportunity for us once these customers rollout their programs.
And finally now that organic.
Orbital power is operating under.
Former frontline tower construction leadership.
I wondered if you could provide some sense of how this might develop going forward, meaning frontline.
Frontline has largely been a Texas based business, whereas orbital power has operations outside of Texas. So wondering well orbital power continue to look to grow through additional msas might front lines start to expand outside of taxes, just sort of your high level view of this would be helpful.
Yeah.
Yes look for all of our segments.
The objective is to build our client base.
First the objective is to take care of the clients, we have and grow with them secondly would be to expand with new customers.
I think the.
The key to the the legacy orbital power group right now is to enhance our margins before we grow that business.
But there is significant opportunity to grow.
In this very robust market with new customers.
It's really about making sure that you bring on the right people.
To.
Obviously you know.
The equipment footprint as necessary to as Walter experience. So.
Yeah.
I think that the benefit of.
The frontline leadership.
Being over the electric power segment is <unk>.
As synergies best practice transfer to enhance margins and certainly collectively.
We could provide broader solutions too.
To existing and new clients.
And so we're going to be very thoughtful.
T J about growing the non union part of our business, we need to profitability as we go.
Our primary objective right now.
Got it okay. Thank you I appreciate it.
Yes, Sir.
Your next question is from X to the line of Craig Hallum. Your line is open.
Hi, Jim Hi, Nick.
Hey, good morning, Eric Good morning.
Good morning, So just thinking about the outlook here for 2022, obviously.
Would that backlog you've got.
Very good visibility for electric power in telecom.
Just curious I mean, given the narrow EBIT range, obviously solar is kind of the the piece that's going to drive low end versus high end of guide just curious.
Do you need additional business just to confirm do you need additional solar winds that potentially hit in 2022 to reach those levels or is this more about just completing happy.
And then again getting back on the timeline for Black bear.
So we think that.
That.
No.
We're going to win one one or two more awards this year that will move to construction.
That didn't happen.
The revenue gods made perhaps shortfall and again, we're confident that we're going to hit that guidance right now, but if it didn't happen the revenue guidance, where it would make it but I do think that the EBITDA guidance.
We certainly would be in place even without solar because additional solar.
Because of the significant opportunities that we see on.
The consolidated portfolio, which includes electric power telecommunications and the margins in those groups are.
Four four and five times more as a percentage of revenues in solar and so it doesn't take much to makeup I mean, if we had $100 million shortfall at solar it's $5 million to the bottom line right.
And.
Very little incremental growth in telecom and electric power to make up for that so that would be the worst case scenario I think that the EBITDA.
Guidance is very much in play.
Even even if we did have shortfalls in solar on the on the revenue side.
Okay understood.
That's great and see the previous questions.
I think focused on frontline and maybe I'll ask it a little bit differently or just clarify things here, but I know frontline is very exposed to.
I guess, a handful of customers, maybe a large customer and in a lot of it in Texas. I mean is this something now that frontline is under the orbital.
RLI.
You can expand those capabilities or that reach to other states other regions other large customers.
So look with.
That's a great question.
With or without us consolidating.
Those groups some of the electric power segment.
We've made a conscious decision to focus on the customers that we have in hand.
And their needs we would get calls all the time for Bruce.
And so that's how prolific the market is right now I mean, we could we could go to work for.
Any investor owned utility.
Okay across the south right now.
We get calls all the time, our focus is to grow with it take care of the customers that we have a key concentration with now and have a legacy relationship with.
So.
Yes.
People worry about concentration I'm not worried about concentration of electric distribution, because we could pivot quickly.
And move crudes to another customer immediately if we had to.
Which won't happen, but if it did it wouldn't be a problem.
Got you and so you have plenty of room to go there.
Okay. Maybe then this is just high level I mean, obviously the cap structures.
Of your of utmost focus here, but just as you think about the platform going forward.
Do you feel like it.
There are other areas I know you are making some you mentioned a small acquisition here in telecom.
Are there any other spots that you think you would really need to fill in or do you believe that you've got the platform now and that you can continue.
Continue on the on the process.
We have the platform in place, we're not interested in expanding into any new service areas.
The telecommunications electric power markets are highly fragmented there is significant opportunity for us to grow there.
That's what our focus is we want to build a recurring revenue model and predictable certain.
Markets, where we saw multi year.
<unk> with customers.
Gives investors confidence that we've got the certainty and outlook on our business, you're going to see very little fluctuation in margins.
Strong margins and Youre going to have steady revenue growth and that's what we want to continue to build.
But at some point, we want that business to be 80% of our revenues.
And not solar be 50% of our revenues.
Got it thanks a lot.
Yeah. Thank you Eric we appreciate it thank you.
No more questions and I would like to turn the call back over to Jim O'neil for closing remarks.
Well. Thank you all for joining our first quarter 2022 earnings call Conference call. Today. We certainly appreciate your time this morning and look forward to following up with many of you in the coming days. Thank you very much have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
Yes.
Okay.
Okay.
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