Q2 2022 ENGlobal Corp Earnings Call
[music].
Good morning, and welcome to the E N G 2022 second quarter financial results Conference call.
The request of <unk> today's call is being recorded and will be available for replay on the Investor Relations section of the company's corporate website.
Ww Dot global Dot com.
You may access the replay by dialing toll free 870, 74814010 domestically or 909, eight H two to 331 internationally and referencing conference I'd 46147.
This replay will be available shortly after the completion of this event through to nine a M. Eastern on August 11 2022.
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 instructions for myself.
At this point I would like to turn the call over to Rick Eisenberg Media Relations director with Eisenberg Communications, Rick over to you. Thank.
Thank you operator, and thanks, everyone for joining us on this call before we begin I'd like to review our forward looking statements provision.
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.
Private Securities Litigation Reform Act of $19 95.
Please note that actual results achieved by the company may differ materially from such forward looking statements a discussion of 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 Sprague's, <unk> CFO , Roger Westerlund, Eog's, President and Marc Hess EOG CEO following the presentations Darrin, Roger and Mark will be available for questions and now I'll turn it over to Darren Spriggs Darren.
Thank you Rick I would also like to extend my welcome and appreciation for those on the call today.
For the quarter, we showed improvement.
And all of our income statement metrics compared to the same period last year.
Our <unk> results are in line with the trend we've been seeing for the past three quarters.
We expect this progress to continue in the second half of the year and into next year.
Highlights for the quarter compared to the same period last year.
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Revenue increased by 276211 4 million.
Gross profit increased by $1 3 million, primarily due to increased utilization of our staff.
And reduced expenditures on proposals.
Excluding the $1 4 million bad debt write off last year, our SG&A remain comparable with last year.
Net loss improved by $2 7 million to a $1 5 million loss net bonds.
Or a negative <unk> <unk> per share.
Backlog increased by $7 4 million to $19 million for the quarter.
All of these positive signs are an indication that the investments we made last year are starting to pay off.
As a reminder.
Last year, we completed our rebranding campaign.
Relocated our corporate office to be closer to our client base.
Redesigned our website.
Our key business development personnel with strong relationships with clients in the industry.
We also completed the acquisition of Calvert Energy and began our field services business in the Permian Basin in Q2.
Roger and Mark will elaborate on later.
Our cash balance was $14 1 million as of the end of the quarter.
A decrease of $5 1 million over last year's balance of $19 2 million.
Our working capital decreased $6 9 million from.
From $26 3 million to $19 4 million.
Change in cash and working capital is primarily related to the net loss.
$5 2 million for the year.
We believe this cash on hand, along with internally generated funds availability under our company's revolving credit facility.
And other sources of working capital will be sufficient to fund <unk> current operations and.
And expected near term growth.
And now to you Roger.
Thank you Darren and good morning, everybody.
For us who lives in the southern part of you as we know that Heath is an issue for all our people across our business unit heat that's been a focus multiple initiative across all size with a focus on hydration stress management.
But historically had oil and gas.
Corporations.
Our used zoned handheld itself is more on this high.
High utilization of project management engineering procurement, but a lot of project is going ultimately bidding on multiple projects and adding additional people to the team.
We are continuously adding additional clients new equipment that had been purchased like not like new scanners.
Fabrication, we're working through our backlog.
<unk> to increase that to the end.
End of the year.
Starting up is then this stainless steel fabrication in our port facility for clients.
Space becomes more of a daily issue.
We intend to sign.
Additional lease.
Four.
Standing our module fabrication in the west part of Houston.
Several inquiries both from Denver, and Tulsa received several bids walks down them more as schedules.
We continue refining our msas.
We have over 150 active msas.
As Darren mentioned, we are starting our west.
West, Texas Operation and Rusted bulk cruise is active.
And we have been.
Adding additional bids for pump pump abuse the stations.
Monahan office with Darren mentioned, the rebound cutting salaries schedule is scheduled for October 22nd.
On the project side, we are building additional booster stations extensional pipe racks.
Separate there is engineering services layer start this many other projects.
For the EPC opportunities for EPC work in oil and gas. We have received this week bids for compressor stations.
Southeast construction.
For our energy our renewables the focus remains on sustainable are planned fuels renewable diesel is a core pillar of our activity forward.
Our strategy is to be along the leading engineering procurement and fabrication for for renewable diesel and sustainable airplanes plants.
The talks are.
Ongoing with several new players in North America regarding these projects.
Our main project as reported earlier.
Bill sorry, build a new grassroots.
Sustainable airplane fueled plant in North Dakota, we expect to get.
Engaged in an EPC agreement.
Q4 this year.
The large portion of that plant will be built in our new fabrication shop in west Houston.
We also actively and waste to energy in highest regime.
And methanol.
We expect great result in this.
For our <unk>.
Government service, we have been awarded from the Tulsa Public school escaped us system.
We are working on several other bids in this area.
Our automation group is also very active with several major clients.
The integration, we continue our fabrication of the trailer program the hiring key people and training people for this.
And generally activities looks really good for later part of this year and continuing in 2023.
Sure.
Thanks Roger.
As you've just heard there are many opportunities in our business that we are very excited about it.
I'd like to highlight some of the progress that we've made over the last 12 months or so.
Through the efforts of our team we have steadily increased our backlog from $8 4 million at the end of Q3 last year to $19 million over $19 million at the end of this quarter.
That represents over 120% improvement in our backlog.
At the same time, we have steadily increased our revenue over the last four quarters from $5 9 million in Q3 of last year.
$6 9 million in Q4, seven 3 million in Q1, and $11 4 million this quarter.
The Q2 increase over over Q1 this year represents a 56% sequential increase.
Our gross profit increased this quarter as Darin mentioned due to.
Our ability to utilize our people more efficiently.
And <unk>.
Reduced.
<unk> on proposals as you mentioned.
This is a testament to the quality of the people that we have attracted and retained through October and during our rebuilding process.
We could not have achieved these results without are our people.
And I could not be more proud of our employees.
As you've heard from Roger our prospects for awards in Q3, and Q4 of this year look very good.
So our outlook for the remainder of the year also is very positive.
In addition to our core businesses that Roger touched on we announced in May the acquisition of Calvert Group, Belgium, which has a license for proprietary small scale gas to liquids technology utilizing a gliding art plasma in a modified Fischer tropes process.
This acquisition fits well within our global core capabilities of engineering design fabrication automation and commissioning, but more importantly, broadens our offerings now include a technology solution.
We are currently incorporating this technology into standard GTO trains of various sizes ranging from 25 barrels per day to 100 barrel per day designed to process 252.
Two 1 million standard cubic feet of gas per day.
We expect to complete the 25 barrel per day design soon and deliver one mid next year due to lead times on major components and we'll begin working on larger 50, and 100 barrel per day designs in the coming weeks.
We expect these trains to sell for between four and $9 million per train.
We expect that we could build that we could produce as much as one per week. When we are in full production.
Last year over 143 billion cubic meters of gas was cleared worldwide.
According to the global gas flaring reduction partnership and World Bank.
One solution to reduce the amount of gas flared each year is to convert it in an economical way to synthetic fuel diesel or naphtha and we believe our GTO plants will accomplish this.
Our initial approach to distribution of the GTO trains.
Through partnerships with service companies and countries with the highest levels of gas flaring.
To date, we've signed an exclusive marketing agreement with oil serve which we announced in July covering the countries of Iraq, Algeria light beer.
Lydia and UAE.
These markets alone represent 34 billion cubic meters of gas flared per year.
Or roughly $1 two trillion standard cubic feet of gas flared annually.
So as you can imagine the market for this solution is very large.
I am pleased with where we are today and what our outlooks are for the near future in the coming years I think we have a very strong base to build from.
And we have.
A lot of opportunities in our pipeline.
So at this point I'd like to turn the call over to questions operator.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions we'll comment please.
Keith.
One on your telephone keypad at this time, we also while posing your question you. Please pickup your handset and listen I want to speak for him to provide a sound quantity. Please wait whilst we poll for questions.
Thank you. Your first question is coming from Jeffrey Campbell of Alliance Global Partners Jefferies. Please ask your question.
Good morning, and congratulations for the upward trend.
The business.
First question I wanted to ask was how is the North Dakota location chosen for the plant that Roger described in his opening remarks.
Sorry can you repeat that.
Yes, I said, how maybe I should say why I'm just wondering.
How or why North Dakota became.
The location for the plants that you described in your opening remarks. The one that you said I think it's going to come online in the fourth quarter.
I think a combination of feedstock.
They operate their own lab.
Okay.
What's your what's your.
Current forecast or what's the range if you prefer.
<unk> from the first CGM plant that you've identified is happening sometime fairly early next year and the one unit per week scale manufacturing guidance, just trying to get a sense of what.
Do you see for that rollout.
Yes, I would say within 12 to 18 months, we could be on that pace.
Okay. That's helpful. Thanks.
Sticking with the GTA al My impression initial impression was that Obama is going to be the center of activity for base. These new modules, but the recently announced Martin deal at all Sir.
Certainly expands the potential footprint further sales I was just wondering.
With this team.
Seemingly rapid expansion of Amtrust, a surprise or was this an expectation.
No it was an expectation we.
In our diligence.
We met many of these players.
Okay.
And then <unk>.
Finally.
We recently saw that the EPA is intensifying scrutiny of methane leaks in the Permian with ni.
Supposedly within the Hyatt brand both in penalties for infractions.
I understand the logic of first focusing on the middle east due to the high level.
Emissions enforcement area I was just wondering have you had any contact with any potential future Permian customers.
Is that an area of interest over time, particularly now that you are managing your presence in the area.
Yes, we have had.
Contact with customers in the United States, not just in the Permian, but in other places.
The obviously the economics of the wells in the United States are different and the economics of the wells overseas.
U S is number four.
Country when it comes to flaring annually.
The.
And as you mentioned the more scrutiny in the more.
Regulations that yet.
Promulgated.
On flaring will only make this solution more attractive.
But I think we're going to have to come up with a different marketing philosophy and.
And solution.
<unk> for the clients here in the United States due to the well life and the <unk>.
<unk> produced on wells over their life.
No.
We're going to have to look at that but I do think that the market. There is a big market here and I think we can satisfy a significant portion of it.
And just to follow up on that accurate I think you just touched on it but when youre talking about the different economics youre talking about maybe longer lives conventional wells in the middle East as opposed to the.
Live hard die young.
Unconventional wells that we have here, but if I remember correctly there was at least.
Schematically on mobile our mobile solution for this calendar.
All of that you're building is that.
What you mean, when you say you need a different solution you have to develop something with mobility as opposed to maybe in the <unk>.
You can stay in one place for a longer time in the region.
So the way we're designing these units is that I wouldn't call them mobile, but they are transportable.
Mounted skid mounted trains they are on.
I don't remember how many skids for a small 25 barrel training I think there is 10 or 12 skids.
And.
And so there are placed at the well site.
And.
And so they can be picked up and move but it's not mobile in that you can.
Mounted on the back of it.
We learn drive it from.
From flare flare.
So.
But what I'm talking about is more of the economics of how.
That product is.
And to the marketplace.
Okay.
Whether okay.
As a sale or a lease or a day rate I don't know exactly how that would be we have to explore that.
Okay.
To do something on the hardware side more on the marketing side got it correct.
Thanks for the help I appreciate it.
Thank you. Your next question is coming from Rob Brown of Lake Street Capital. Please ask your question.
Good morning.
Good morning.
First question was just on the kind of the pipeline for the back half of the year and into next year. I know you said, it's it's improving quite a bit could you just give us some characterization about sort of the opportunities you see is it across the board or are there certain markets that are doing better.
Just a sense of how that pipeline is shaping up.
Yeah.
The strategy is if you go back to.
May be mid next year, when we invested in the oil and gas for petrochemical was.
Back on.
It kind of seeing the future of the oil price. It was as we remember very low and we took the opportunity to invest so we see that simply paying off debt.
No manager know forgot next steel too to oxy, obviously investing heavily.
Approval of that this year.
Yes.
<unk> talked about but also that serving our clients for example, setting up our West Africa, sorry, West ex us will breakthrough Sylvia.
Fly an EPC solution <unk> X deals to the Oxy studio Chevron's, but also the renewable.
Is coming strong.
My humble view I think the segment, we selected mid mid last year.
Sorry, it's all firing.
Okay, Great and then and then on the renewable business you've got a number of projects you said.
You said some of the new energy Bill will that accelerate these projects are there are there sort of incremental projects you see there and maybe is there could you scope out the opportunity from that bill.
Absolutely.
<unk> allocated as you probably know 3 billion. So the North Dakota project has applied for the USDA.
Financing, which is capped to $250 million I think the overall there as we know it takes sustainable airplane, we're going to ship.
Stripped from GAAP to stuff.
Roughly 30% by 2030 in you could translate to depth to number of plants being built.
That is many many many we talking well over 50 plants.
These chase that.
Steel southeast not just like solar Wilson, the beginning competitive when it comes to.
Compared with jet fuel so I think what we see is.
Is a lot of interest and I think we are working really hard on it.
And really tried to gauge who adult develop both on all breakers.
We really do it.
To me the way to look at it as how many of these plants. Many of these trains can we build and supply to all served to satisfy that market.
Okay.
Thank you a couple of questions on liquidity $14 million cash today, when do you expect to collect the payroll tax receivable is $2 billion does that have.
Third quarter fourth quarter.
We're expecting.
To collect on that.
Definitely <unk> in the third quarter.
Okay great.
And then that.
Alan.
We expected to get that this quarter.
We received one in the first quarter first quarter, we received one in the first quarter, we expected one and second quarter. So that didn't comp so to some extent we are beholden to the IRS for that for that payment.
Okay.
Well it certainly will help with liquidity so and then on the revolver, it's now going to occur and I think it matures may 23.
As I read it it's really somewhat restrictive borrowing base and so you really.
Don't have access to the full 6 million have you had any discussions with them about potential.
With new increase and maybe less restrictions that you've got.
14 billion of cash on the bank there is that.
What do you see.
Sure.
Yes, so we've had preliminary conversations with our lender about increasing that.
So those are ongoing conversations, but that's something we're looking into and considering and obviously, we want to increase that availability under our revolver.
I know that you've said you've sent me some.
Some.
Suggestions and observations and I appreciate that.
Obviously, we're looking into that.
Great and then last question I apologize, but the last quarter I think your new business.
Number there was in the margin was 859000 I wrote it down made that I've written down correctly. This quarter. You said you reduced that could you confirm the $8 59 to last quarter, but what is the number.
This quarter.
I'm not familiar with what you are asking Alan.
I guess in your gross margin I guess, it's the new business proposals, where youre spending a lot of money, making reply to rfps.
Okay.
Like last quarter, you referenced the 800 to $900000 number.
I think you said that number was less this quarter, but I didn't hear it.
Yes, so the proposal was.
This quarter I think was approximately 450000.
Okay.
Great.
That's all I've got thank you very much.
Thank you. Your next question is coming from Jeffrey Campbell of Alliance Global Partners Jaffray. Please ask your question.
Yes, Thanks for letting me ask a couple of follow ups first one was just regarding the backlog.
What's the time length of the backlog is that the standard 12 months or is there a different timing on it and you see that increasing over the next 12 months.
For the year.
Potential projects that you're talking about.
I think I mean.
I don't know of anything off top my head in our backlog that we wouldn't complete in 12 months.
And so and the answer to your second question is absolutely we are.
Trying to push on our backlog up every every month, that's a big focus for us.
Bookings.
Our booking ratio looking to burn ratio for this year. So far has over one four and we really want that to increase so that's.
That's our big focus.
Okay.
Regarding the all serve discussion just.
Okay.
Not to put words in your mouth, but it sounds like that.
The real value there is that they already have a business and that got a lot of relationships and you don't have to reinvent the wheel.
And those markets, which probably would be expensive and time consuming.
I'm just wondering of the countries that are.
<unk> identified is there any one in particular.
Tendency to move.
On units sold but sooner than later or.
They are not.
Really any big Distinguishment between one country than another.
I think Iraq has the.
Has the greatest opportunity I mean, there is a second largest flaring company country on the.
So.
They have.
The biggest opportunity we have.
Opportunities in Iraq that we're working with will serve on right now.
Excuse me.
And I don't want to downplay Oman, So as you mentioned earlier.
We've been working with.
Company in Oman to do the same thing that.
We'll serve is doing in the other countries and.
And so that may actually be the first place that we put at unit.
Okay, great. Thank you.
Thank you very much it appears we have no further questions in the queue.
Remind us do you still want to ask a question. Please press star one on your telephone keypad.
Okay, I'll now hand back over for any closing remarks.
No closing remarks from AMG.
Thank you and thank you for your time, Thank you operator.
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.