Q2 2022 Orbital Infrastructure Group Inc Earnings Call
Good day and welcome to the orbital infrastructure group second quarter 2022 conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero a question and answer session will follow management's managements remarks. Please note. This event is being recorded I would now like to turn the.
Conference over to Mr. John Beitler Investor Relations. Please go ahead Sir.
Thank you operator, good morning, everyone and welcome to the orbital infrastructure groups second quarter 2022 conference call.
Earlier this morning, the company issued a press release with our second quarter 2022 earnings results a copy of this release is available in the newsroom under the Investor Relations section of the orbital website.
Speaking on today's call are Jim O'neil, Vice Chairman and Chief Executive Officer.
Great stuff Chief Financial Officer.
Today management will review the highlights of the financial results for the second quarter.
Well as recent developments following the formal remarks management will answer questions.
I would like to remind everyone that today's call will contain certain forward looking statements made under the Securities Act with like from 33, It Security and Exchange Act like from 34 as amended.
<unk> are subject to risks and uncertainties that could cause actual results to vary materially from those projected in these forward looking statements.
He may experience significant fluctuations in future operating results due to a number of economic competitive and other factors such as COVID-19, the company's reliance on third party manufacturers.
Client services.
Hi, its service providers government agency budgetary and political constraints new.
Increased competition.
He is in 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 our forward looking statements.
Additional information with respect to these and other factors, which could materially affect.
The company and its operations are included in certain forms the company has filed with the Securities and Exchange Commission.
These forward looking statements are based on information available to orbital infrastructure group as of today August 11th 2022, and the company assumes no obligation to update these statements as circumstances change.
With that I would like to turn the call over to Jim O'neil, Vice Chairman and CEO of orbital infrastructure group Jim. Please go ahead.
Good morning, and thank you for joining us today to discuss the overall infrastructure groups second quarter 2022 results before I begin my commentary I want to thank our boys for their commitment to safely delivering exceptional service to our customers, especially this time of year. When many of our boys are exposed to the risk of heat related injuries.
While working in extreme temperatures our number one objective each and every day for our employees and our stakeholders interact with toward return home safely to their families clustered approach.
Your efforts.
Our name change from orbital energy group, the overall infrastructure group or O. R. G better represents our strategy to build infrastructure across the three segments of our business electric power telecommunications and renewables and supports our goal to provide services that contribute to reducing the world's overall carbon footprint our website and other related.
The items will be updated in the next few weeks to reflect this change.
The asset sale of our subsidiary orbital gas systems, North America to Mangan incorporated is expected next week and we'll complete the divestiture of our legacy orbital gas operations. The only remaining business just continued legacy gas operations as our Vinci technology proprietary sampling probe we believe there is.
When this technology and we are currently pursuing several avenues to divest this business by the end of the year.
Finally, before I get into my operational commentary, we stated on our first quarter earnings call that our number one objective was to restructure our balance sheet, specifically our debt structure over the last several months. We've engaged maybe lenders are equity firms that are presented a wide range of solutions and we remain deliberate in our actions to achieve the optimum structure for both the <unk>.
Company and our shareholders Nick will provide more details in his commentary.
Now that the developments of the second quarter and our outlook for the rest of the year.
Second quarter results continued our solid performance this year with record revenues in the quarter of $93.9 billion.
Demand for our services continues to be driven by broad based business strength from utility grid modernization and system hardening initiatives and telecom five G to forms as well as our reputation for solid and safe execution. We also believe momentum is building for continued profitable growth next year, and we continue to see opportunity.
These multiyear expansion across our salvage laws.
Consolidated revenues for the quarter increased 33, 6% sequentially compared to revenues for the first quarter of 2022 primarily from the increase in construction activity for Mercury Adobe scale Solar project awards as well as a ramp in rural digital opportunity Farnell art off construction under contract at a phosphate area adjust.
EBITDA for the quarter decreased 44, 7% sequentially compared to the adjusted EBITDA for the first quarter of 2022.
This decrease was attributed solely to operating losses experienced on the Black bear solar project during the quarter.
On a consolidated basis, we will increase our revenue guidance for the full year 2022 to a range of 405 million to $450 million.
From a previous revenue range of 375 million to 425 million.
Our annual revenue guidance. The increase is primarily due to the increasing demand for our services and our electric power and telecommunications segments.
The increase in revenue is largely under master service agreements or long term contracts.
And is offset somewhat by a decrease of uncommitted solar revenue projected in the second half this year.
Our adjusted EBITDA guidance for the full year of 2022 remains unchanged with a range of 38 million to $43 million as results from our electric power and telecommunications segment operations and the first six months of the gear were better than expected and we anticipate these segments will deliver similar results for the remainder of the year offset by the <unk>.
Renewable segment, specifically margin shortfalls recognize all the Blackberry solar project.
The market drivers and outlook for our business opportunities in our electric power and telecommunication infrastructure segments remains strong.
In our electric power segment, we continue to experience a precedent of demand from our investor owned utility customers to provide our skilled workforce to upgrade electric distribution and substation infrastructure.
And our telecommunications segment, we are experiencing increasing demand for our engineering design and construction expertise to support the rollout of art off programs as well as enhancements to <unk> LTE and the upgrade of the <unk> spectrum.
Also the synergies we are experiencing from our telecommunications trucking companies are bringing opportunities to provide additional engineering design and construction services with existing and new customers.
Last month, the bipartisan infrastructure investment legislation that was enacted will bolster and already prolific market environment in both our electric power and telecommunications segments. This is a historic investment in the nation's core infrastructure and includes $130 billion to upgrade the nation's electric grid and expand broadband access.
To underserved areas. These funds will be deployed over the next five years through 2026.
The utility scale solar market. So far this year has been negatively impacted by higher commodity prices.
<unk> strike exacerbated by the department of Commerce anti Circumvention investigation fees.
Wins have been somewhat mitigated through an executive order by President burdens on June six declaring an emergency with respect to the inadequate supply of solar cells and modules, which resulted in regulation for up to 24 months of duty free access to solar cells and modules from South East Asia.
Additionally, the recently enacted inflation reduction act will provide tax credits to companies building renewable energy products in America.
We believe legislation over the past few months is a positive for the renewable industry and will be a catalyst to increase solar project developments in the future.
We remain very confident in the outlook for our business our electric power telecommunications segment outlook for the remainder of the year and beyond remains strong we acquired two exceptional platform companies that are performing beyond our expectations. We've acquired tucking companies into our telecom platform, our synergies to expand our service offerings and customer base.
Being realized as well as leveraging synergies that our electric power segment to improve our legacy electric power have foundation operation performance and profitability.
In our renewable segment, we will shift our utility scale solar strategy away from providing E D C or engineering.
Procurement and construction services to be a specialized contract to provide skilled resources to EPC companies. This strategy reduces the risk profile of being an EPC and margins are enhanced because we don't have to share profits with our joint venture partner.
Did you Golar JV will continue to operate however, gingold, who will take on the EPC role in orbital solar will provide construction services to the JV our.
Our JV relationship with Jim Golar is not exclusive and we are currently in discussions with other EPC <unk> to be a contractor on their projects.
I will now turn the call over to our CFO Mick runs SAP or his financial overview Mick.
Thank you Jim today, we announced record quarterly revenues of $93 9 million for the second quarter of 2022.
Loss from continuing operations net of income taxes was $30 1 million with an adjusted EBITDA of $2 1 million.
For the second quarter loss from continuing operations was 31 per share.
In the second quarter of 2022, our consolidated revenues increased 33, 6% as compared sequentially to the first quarter of 2022.
This increase in revenues is the result of our strong backlog.
As an indicator of our annual revenue potential from a run rate perspective.
Adjusted EBITDA for the second quarter of 2022 was $2 1 million a decrease of $1 7 million as compared sequentially to the first quarter of 2022.
This decrease is the result of a loss realized in our renewable segment and the Black Bear project.
I'll discuss this further with the segment information.
And the second quarter of 2020 to the electric power segment increased revenues, 4% to $41 3 million compared to the first quarter of 2022 <unk>.
Adjusted EBITDA for the segment was $8 1 million or 19, 6% of revenues for the quarter.
These results were anticipated as we have experienced steady growth in Master service agreement revenues with our investor owned utility customers since our inception in this market in early 2020.
This upward trend to continue.
Over the same period, the telecommunications segment increased revenues 26, 7% to $20 4 million with adjusted EBITDA of $2 7 million or 13, 2% of revenues.
This revenue increase was also anticipated as we are experiencing continued ramp in Argos construction activity throughout the first half of this year.
The renewable segment had an increase in revenues.
122, 8% from the first quarter of 2022 to $32 3 million with an adjusted EBITDA loss of $4 8 million.
The increase in revenues can be attributed to both light source BP projects, the Black Bear project in Alabama, and the happy project in Arkansas. The EBITDA shortfall in the renewable segment can be attributed to weather and project execution issues on the Black Bear project.
This project will be substantially complete within the next two months. The happy project is achieving cost and schedule targets. Today. This project will complete before year end.
Certain holding company cost exist outside of the defined operating segments.
Second quarter these costs were $3 $9 million.
Also in the second quarter, we incurred some noncash charges that resulted in a loss of $9 million, primarily made up of the following items.
We recorded an $11 6 million dollar expense for fair value adjustment to the derivative related to the frontline power seller finance debt and.
In addition, we recorded $2 $3 million of expense from fair value adjustments on the financial instrument liability related to our syndicated debt. This.
This was partially offset by a gain of $4 9 million for the quarter related to fair value adjustments on warrant liabilities.
Our backlog was $495 3 million at the end of the second quarter of 2022.
A slight decrease of three 5% from the first quarter of 2022.
However, it is important to note that backlog increased in both the electric power and telecommunications segments. As we continue to build recurring revenue streams under Master service agreements with our customers offset by a reduction in backlog in the renewable segment due to the realization of revenues against our renewables backlog.
Yeah.
Improving our capital structure continues to be at the most importance.
We continue to evaluate multiple term sheets from lenders with bearing structures.
Currently had tranches of debt that are due in the next nine to 18 months. These.
These tranches of debt had high interest coupons and require significant principal payments. The structure of this debt has a material negative impact on our cash flow.
We're being very pragmatic and diligent work considering alternatives available to us to make certain we put the company in the best position possible with regard to capital structure.
Turning to guidance, although our consolidated adjusted EBITDA guidance remains unchanged and we are increasing our consolidated revenue guidance and.
And we are adjusting guidance across the segments with regard to the mix of revenue and adjusted EBITDA.
For full year guidance, we expected consolidated revenue range of 405 million to $450 million and an adjusted EBITDA range of $38 million to $43 million.
This reflects year over year revenue growth of 412% an improvement of $67 5 million in adjusted EBITDA for the full year 2022, compared to 2021 from the midpoint of our guidance.
As it relates to the electric power segment, we are increasing our expectations for both revenue and adjusted EBITDA and believe 2022 revenues will range between 160 million to $170 million with adjusted EBITDA margins in excess of 20%.
Any storm revenues realized in 2022 is not included in this guidance.
And our telecommunications segment, we are increasing our revenue guidance to a range of 82 to 92 million with adjusted EBITDA margin expectations for this segment in the mid teens.
Finally in our renewable segment the full year of 2022, we are lowering our revenue guidance to a range of 165 million to 185 million with adjusted EBITDA margins for this segment in the low single digits approaching breakeven for the year.
This lower revenue range is primarily due to a reduction in uncommitted work. It is now unlikely to produce revenue until 2023.
As a reminder, orbital solar provides engineering procurement and construction solutions because of utility scale solar market through its joint venture with <unk> power.
Our orbital solar will consolidate 100% of revenues generated.
But we'll absorb cost and the project paging globally for their participation, which contributes to a lower margin profile for this segment.
Certain holding company cost exist outside of the defined operating segments. We continue to estimate these costs would be $15 million for 2022.
You will find a reconciliation of EBITDA and adjusted EBITDA, both non-GAAP measures to loss from continuing operations a GAAP measure.
Well not to our second quarter earnings press release as it relates to our expectations in 2022.
Notwithstanding the loss in the quarter in the renewable segment. The company continues to improve its financial results sequentially quarter over quarter.
The electric power and telecommunications segments present organic growth potential at unprecedented levels and is reflected in our backlog and revised guidance for these segments. These improving metrics position us well toward restructuring our debt and we expect to have this completed in the fourth quarter.
And now I'll turn the call back over to Jim.
Thank you Nick.
In conclusion.
We're making significant progress in advancing our infrastructure strategy.
We have a very solid foundation in place in our electric power and telecommunication platforms and will continue to build profitable revenues from very stable long term master service agreements and customer contracts for years to come.
We're confident in our shift to a self perform model and our solar Division would you expect it to de risk our contract structure on future project Awards and improve margins. This strategy should reduce potential earnings volatility going forward.
Restructuring our balance sheet remains a top priority and as Nick detail, we're moving down several paths to find the best solution to enable the company to profitability and growth and increase shareholder value.
And market dynamics, specifically in our electric power and telecommunication industries remain very strong and dynamic for years to come.
A significant opportunity to increase shareholder value, both organically and through acquisitions once our balance sheet challenges are behind us.
Operator that concludes our prepared remarks, and we'll now open the call to Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your touch 10 phone if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Eric Stine with Craig Hallum. Please go ahead.
Hi, Jim Hi, Nick.
Hey, good morning, Eric Good morning.
Hey, So maybe can we just talk about solar a little bit.
No I think good news that you're.
So that you're making a little bit of a shift there and given some of the volatility in the in the challenges, but just curious you know what if you look at our representative project going forward, maybe how would your positioning change and then maybe just some thoughts on on what the margin profile would be.
For this new stance in that market.
Yeah, that's a great question.
Our solar business has evolved we started as EPC reviews.
Sub contractors to some extent.
But first the two projects that we've been awarded this year.
We've kind of shifted some of that have to take control of your world to self perform.
Things are going much better.
That is the margin profile of that business should be 12% to 15%.
Margins in it.
Right now, we're taking on more risks B C and we're delivering mid single digits.
So you know as a subcontractor to an EPC.
Your contract risk is much worse performance more defined scope of work.
And certainly there'll be a lot less volatility.
The stand point of.
Our earnings streams from those contracts that are de risk.
Do you think that the margins you mentioned that your expectation as it stands today it would be 12% to 15% I mean is that is that right.
With you being more of a sub contractor in that role would it be in that 12% to 15% or is it you know I guess more or less than that level or what's your expectation.
No I mean that that's where that's where the market is right now.
1% to 15% that's what.
Most of the margin profile of the of the subcontractors that we've used on most of our work when we can.
To put that out that resonate in B C.
That's that's about where the market is today.
So that business.
Obviously, a lot of it has to do it.
Your ability to be productive to but.
Brought on a good team.
We've got a lot of confidence and that has a lot of experience in building solar specifically the mechanical.
Some aspects of the civil part of the work.
We can be very good at.
Yeah, and and so I mean, I guess to sum it up it probably.
A fair amount less in terms of revenue, but hopefully at her ideally you know equal or greater EBITDA contribution is that kind of a thought.
I don't think the revenue should be any less or we might pick theres going to be lots of opportunity I mean, obviously it depends upon the market and the market as a whole right now is that the solar market.
I do think we're going to be some recovery.
Or our revenue ship for the end of the year was we did have some from APC opportunities, but we've pulled away from that to more self perform.
And so I believe we've got blood make $40 million in uncommitted, yes.
In solar for the rest of the year, which I think is very reasonable.
For the for this new strategy to be a subcontractor, but next year I think there's going to be some significant opportunities, but that will evolve and well.
We'll communicate more on that.
Future.
Got it okay.
Maybe in next one just on <unk> I know obviously.
Figuring out the balance sheet and restructuring the debt that's top of mind.
Once that's done I mean, do you feel like there are still areas that need filled in I mean is it more of a need to be filled in or a want to fill in.
In electric can also in telecom.
It's.
This is the market I mean the market is.
There are significant opportunities for us to grow organically.
And there is there are some acquisitions that will shortly production at all in that would.
Would provide.
Provide us additional services that we could provide our customers a better opportunistic.
Expand our geography, and our customer base Opportunistically synergistically with the platforms that we have named.
The balance sheets of the big headwind there, it's not the market that we've got plenty of opportunities to grow organically.
We don't quite have.
A remarkable job growing organically so far to date the skull.
But we acquired them.
And so if.
<unk> grown at a strong double digit organic right so far.
But I would still say that there's opportunities to even increase that organic growth and do some really good synergistic acquisitions once we get them the balance sheet challenges.
The switch, which we're confident we will here in the near and in the not so distant future.
Got it.
Thank you.
Yes, Thank you Eric.
The next question will come from Jeffrey Campbell with Allianz Global Partners. Please go ahead.
Hi, Good morning, first of all Big Alan Congratulations on the strong revenue in the quarter.
Right.
The MSA remarks seemed to refer to the former orbital power segment.
Just wondering how's the integration of orbital power in frontline progressing, particularly on.
Regarding our improvement in orbital power margins.
So all of the power of is making great strides every every quarter.
You know there are almost like a pseudo tuck in into frontline barrel, even though they were there before we bought frontline, but the best practices.
And synergies frontline brings all of the power of insignificant are beginning to see that.
And obviously that is part of the increased guidance it was not only the <unk>.
Other than expected results from frontline, but the improved performance in orbital power.
Allowed us to raise guidance I would say significantly in that segment for the rest of the year.
Yeah, well that that was sort of my my my thought and would you say that.
The back.
And that effort is progressing faster than you might have expected earlier and that's part of the reason for the increased guidance, maybe it had a more conservative view earlier, but now.
I have more confidence in their environment.
Yeah, I mean, I think it's a combination of things right I mean, I think the biggest the biggest.
Edwin to us being conservative was again the balance sheet.
No because we've got untapped potential to grow the business.
But yeah.
I mean, we felt like going into the year with supply chain challenges and everything else that we just needed to be prudent about our gods sector, but those issues seem to be working out and invest our industrial and utility customers have been.
<unk> been fairly active as they have been for the past several years.
In growth Capex and.
In telecom as well.
So telecom has got you know.
Similar momentum in the business rolling out infrastructure.
Specifically on the start off projects, which are which have gone really really well you guys are doing a really good job.
Okay.
With regard to the change in solar strategy.
Or is this going to affect the backlog in the future, meaning will the future business be booked in any different way than has been in the past.
No I think.
If anything.
It will provide more certainty and.
And backlog.
And look it's just a reset right.
I mean, we're resetting so it's kind of like okay. We're not pursuing these P. P suite projects anymore, we're going to pursue work as a subcontractor so Ben and this reset just recently happened.
So we'll.
We've got.
We're talking to many different EPC players some that we have relationships with.
From prior.
Our lives and.
You know I think that business will build here.
In the near term.
We should see some significant progress I would say.
You know over the next.
Three to six months on building backlog in that segment.
With our new approach.
Okay.
You mentioned, how some of the Etfs tuck ins or later and more work in the field I'm just wondering if you could.
Provide an example of one.
Sort of illustrates that point.
Yeah, I mean, we've almost tripled M coach Engineering group.
Well, we've added several hundred workstations to provoke.
More.
Our wireless power Fives retired engineering customers.
Directly.
She is leading to additional construction opportunities.
The small CFS acquisition that we did that I've said would probably be impactful.
Most likely in 2023.
We're seeing opportunities sooner than that no I think that's part of the increase in the guidance there.
Is that we're going to we're going to become a tier one provider to new customers, which is good.
So yeah, that's evolving I mean to sit with the tuck ins are doing exactly what we expected.
And that's really the crux of our strategy right, maybe we got to run a really good platforms.
And we want to offer to Opportunistically do tuck in acquisitions that are.
That that would enhance the services that we provide our customers.
Well.
Bring in new geographies and new cost customer bases.
Okay and for my last question just broadly on their cost and supply chain front are you experiencing any meaningful inflationary pressures or are having any issues procuring necessary components or equipment.
I mean, there is inflation.
Some factoring of everybody in all industries, but.
Fortunately.
Our customers are certainly in that same environment and understand the cost of inquiry. So.
It hasn't necessarily impacted our bottom line.
Okay, great. Thank you I appreciate the color.
Yeah. Thank you Jeff Thanks, Jeff.
This concludes our question and answer session I would like to turn the conference back over to Mr. Jim O'neil for any closing remarks. Please go ahead Sir.
Thank you operator, and this concludes our second quarter 2022 earnings Conference call. We appreciate your support and participation and look forward to following up with many of you here in the near future.
Have a great rest of your day, Thank you goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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