Q3 2022 Orbital Infrastructure Group Inc Earnings Call
Good morning.
Good morning, everyone and welcome to the orbital infrastructures group's third quarter 2022 conference call.
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After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
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Thank you.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr. Kevin Mcgrath Investor Relations. Please go ahead Sir.
Thank you Colby and good morning, everyone and welcome to orbital infrastructure group's third quarter 2022 conference calls.
Earlier. This morning, the company issued a press release sports third quarter 2022 earnings results a copy of this release is available in the newsroom under the Investor Relations section of the company's website.
Speaking on today's call arching, Monial, Vice Chairman and Chief Executive Officer, and Nick Brian Staff, Chief Financial Officer Today Management will review the highlights and financial results for the third quarter as well as recent developments.
Boeing formal remarks management will answer questions.
I would also like to remind everyone that today's call will contain certain forward looking statements made under the Securities Act of banking 33, and Securities Exchange Act of <unk> 34 as amended.
These are subject to risks and uncertainties that could cause actual results to vary materially from those projected.
Statements.
Company 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.
<unk> service providers government agency budgetary constraint.
Constraints, new increased competition changes in market demand and the performance or liability products integrated solutions and services.
These factors and others could cause operating results to vary significantly from those in prior periods.
Yes.
Okay.
In addition, during this conference call, we will make reference to certain non-GAAP financial measures.
A reconciliation of these non-GAAP financial measures are available on the investors section of our web site in our third quarter.
<unk> 22 earnings press release.
Additional information with respect to these and other factors, which could materially affect eastern its operations are included in certain forms.
Bob.
Exchange conditions.
These forward statements are based on information available orbital infrastructure group as of today, the 14th 2020.
He assumes no obligation to update statements as circumstances change.
That said I would like to turn the call over to Jim O'neil, Vice Chairman and CEO of portfolio Construction group Jim. Please go ahead.
Thank you Kevin Good morning, and thank you for joining us today to discuss overall infrastructure group's third quarter 2022 results before I begin with my quarterly commentary I want to recognize and thank our employees for serving our customers in a safe and efficient manner each.
Each of our employees represent the <unk> brand and our efforts are recognized and very much appreciated.
Now to the developments of the third quarter.
Earlier this month, we announced that we were reducing both our revenue and EBITDA guidance for the full year of 2022.
I am disappointed with our downward guidance revision. However, we have made much progress in advancing our infrastructure strategy throughout the year and believe the company is now positioned to accomplish several milestones in the near future.
Mary contributor to our shortfall for the quarter and downward guidance revision for this year within our renewable segment, specifically ongoing losses on the Black Bear solar project.
We are approximately 80% complete on this project, which we expect to be substantially completed by the end of this year.
Poor performance on the Black Bear project has overshadowed the progress we have achieved in our electric power and telecommunications segments throughout this year.
Our consolidated results revenues for the quarter were $99 million and our adjusted EBITDA from continuing operations was a negative $14 $6 million without the renewable segment losses, our adjusted EBITDA for the third quarter is nine 9% of revenues or <unk>.
Electric power segment continues to perform as expected as we continue to.
Bob skilled resources and specialized equipment to meet the increasing demand from our investor owned utility customers to provide infrastructure services to maintain upgrade and expand the electric distribution and substation infrastructure electric power revenues were $36 $7 million and adjusted EBITDA.
With $6 1 million for the third quarter of 2022, we.
We expect profitable growth in this segment over the next several years as our customers are deploying record levels of Capex to address aging infrastructure storm hardening cyber security a grid reconfiguration from fossil fuels to renewable sources of generation.
In the third quarter, we did experience a reduction in segment revenues for a several week period due to the summer as customers deferred electric distribution maintenance on critical areas of electric power grid during a period of record high temperatures and elevated load on the electric power system or.
Our customer's decision to defer maintenance under these conditions as unusual but it does happen.
When conditions warrant.
In the communications segment generated $24 $1 million in revenue and $4 $5 million and adjusted EBITDA for the third quarter of this year profitable growth in this segment can be attributed to the increase in the rural digital opportunity fund off revenues and synergies that are materializing from the $3.
And acquisitions, we acquired into our telecommunications segment platform, which has broadened our capabilities, allowing us to provide additional services to existing customers and build momentum with new customers and expanded geographies.
A nation is significantly lacking the broadband and wireless infrastructure to deploy <unk> LTE and <unk> spectrum throughout rural areas municipalities and then maybe large population centers telecommunications infrastructure spending will be meaningful for years to come and we will provide significant opportunities for profitable growth.
In this segment.
Turning to our renewable segment revenues were $39 million and adjusted EBITDA was a loss of $26 million for the third quarter of this year.
As mentioned losses were primarily associated with the performance on the Black Bear solar project.
We're making progress on our revised renewable strategy to pursue utility scale solar several in mechanical construction services as a subcontractor to solar developers and abandoned our fixed price contract EPC model.
The primary reason for the annual financial guidance revision was poor performance in the renewable segment as well as uncommitted solar project opportunities expected in the fourth quarter of this year that had been deferred into 2023. In addition to expected price increases for our electric power distribution services from an existing customer.
In the Eastern U S did not materialize as a result, we are declaring future work that was in the prior guidance.
And for our electric power infrastructure services continues to be strong and it is prudent for us to be selective toward meeting our margin expectations.
I believe the equity market does not recognize the underlying value of orbital infrastructure group despite challenges with our capital structure and renewable segment performance the electric power and telecommunications segments have consistently increased profitable revenues over the past two years.
This dynamic coupled with our ongoing conversations with capital providers gives us confidence that we will have a solution in place by year end to restructure our balance sheet.
I will now turn the call over to Nick <unk> staff orbital CFO to provide more detail on our balance sheet restructuring efforts and financial information for the quarter Nick.
Thank you Jin today, we announced quarterly revenues of $99 8 million for the third quarter of 2022.
Loss from continuing operations net of income taxes was $141 6 million with an adjusted EBITDA loss of $14 6 million.
As we stated in the past 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, a GAAP measure as a supplement to our third quarter earnings press release.
For the third quarter GAAP loss from continuing operations was $1 22 per share. This compares to a loss from continuing operations for the third quarter of 2021 or <unk> 15 per share.
As a reminder, the financial results I am providing today are from our continuing operations and do not include results from our orbital gas North America entity, which was sold in the third quarter and reclassified to discontinued operations in December of last year.
<unk> results from our discontinued operations are disclosed in our Form 10-Q.
In the third quarter of 2022, our consolidated revenues were $99 8 million as compared to $24 8 million in the third quarter of 2021.
This increase is due to acquisitions and our electric power and telecommunications segment and organic growth across all operating segments.
Adjusted EBITDA was a loss of $14 6 million for the quarter as compared to a loss of $6 3 million in the third quarter of 2021.
The adjusted EBITDA losses for the quarter included $26 million loss in our renewable segment, primarily associated with the Black Bear project without the losses sustained in the renewable segment adjusted EBITDA would have been $6 million or an adjusted EBITDA margin of nine 9%.
In the third quarter of 2020 to the electric power segment had a slight decrease in revenues to $36 7 million compared to $41 3 million in the second quarter of 2022.
Adjusted EBITDA for this segment was $6 1 million or 16, 6% of revenues for the third quarter as compared to $8 1 million or 19, 6% of revenues for the second quarter of 2022.
As Jim discussed the unfavorable revenue and margin trends are primarily the result of a period of deferred maintenance in the quarter.
Over the same period, the telecommunications segment increased revenues to $24 1 million.
With adjusted EBITDA of $4 5 million or 18, 7% as compared to revenues of $20 4 million and adjusted EBITDA of $2 7 million or 13, 2% of revenues in the second quarter of 2022.
These increases are due primarily to the ramp up in construction on R&R programs over a five state area operational synergies from tuck in acquisitions and absorption of fixed costs through organic growth.
The renewables segment had revenues of $39 million and adjusted EBITDA loss of $20 6 million in the quarter compared to revenues of $32 3 million and an adjusted EBITDA loss of $4 8 million in the second quarter of 2022.
As previously stated operational performance issues on the Black Bear project was the primary contributor to the disappointing results for this segment.
Certain holding company cost exist outside of the defined operating segments for the third quarter. These costs were $4 6 million.
Total backlog was $472 3 million at the end of the third quarter of 2022 at four 6% decrease from the second quarter of this year.
This is due to a 51, 6% decrease in backlog in the renewables segment as the utility scale solar EPC contracts near completion.
Offset by a four 2% and three 2% increase in backlog in the electric power and telecommunications segments, respectively.
The significant increase in backlog for the electric power and telecommunications segments over sequential quarters is an indication of increasing demand for the services. We provide in these markets.
We've talked about the efforts underway to restructure the balance sheet.
<unk> debt service continues to be a factor that's puts pressure on our cash flow.
Continued improvement in the performance of our electric power and telecommunications segments is attractive to both debt and equity providers. We are in the advanced stages of this process with multiple capital providers and believe we will be in a position to provide more definitive information to the market in the coming weeks.
Turning to guidance on November <unk> 2022, the company announced its updated financial guidance for the full year 2022.
The company lowered its full year 2022, consolidated revenue guidance to a range of $350 million at $375 million.
Its previous range of $405 million to $450 million and lowered its full year 2022, adjusted EBITDA to a range of 4 million to $6 million from its previous range of 38 to 43 million.
This reduction in guidance was primarily due to the losses incurred in the quarter on the Black Bear project.
Also contributing was uncommitted work in the renewable segment being deferred to 2023.
To a lesser extent there was deferred electric distribution maintenance in the third quarter and a reduction in work for the remainder of the year from an electric power segment customer that did not meet our profitability objectives.
Our segment guidance is as follows as it relates to the electric power segment. We believe 2022 revenues will range between 155 million to $160 million with adjusted EBITDA margins to be in excess of 20%.
And our telecommunications segment, we expect revenues in the range of $85 million to $90 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 $110 million to $120 million, we do not anticipate additional material losses for this segment's outlook at this time.
Certain holding company costs exist outside of the defined operating segments. We estimate these cost to be $16 million for 2022.
Now I will turn the call back over to Jim.
Thank you Nick.
I believe our current stock price as a result of our challenged balance sheet and poor performance in the quarter.
These disappointing third quarter results are primarily attributed to a single EPC project in the renewable segment.
The electric power and telecommunications segments have performed beyond expectations throughout the year.
Pilot confident that profitable growth will continue in these segments for years to come.
Coupled with the shift away from providing fixed price EPC construction services in the renewable segment, we are positioned to provide predictable and recurring profitability going forward.
We believe we are very close to our balance sheet solution that will significantly improve the burdensome debt structure that exists today.
Our revised business model and restructured balance sheet will significantly improve our cash flow and <unk> ability to self fund organic growth, which we believe is the best course of action to achieve positive momentum on our stock price.
That concludes our prepared remarks, I'll now open the call for Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Pause just for a moment to compile the Q&A roster.
Your first question comes from the line of Eric Stine from Craig Hallum. Your line is open.
Hi, Jim.
Good morning, Eric.
Good morning.
So I guess first of all good to hear the confidence enroll in the capital structure solution here by year end I guess, we'll stay tuned on law, but may be just as we think about fourth quarter.
Obviously, I mean your guidance does imply a pretty meaningful step up in EBITDA and I know thats related to solar but just.
Maybe how things have trended quarter to date visibility into.
And in that improvement.
The solar the solar challenges there are kind of range bound.
And we will be wrapped up by the end of the year.
Atlantic into so.
Electric and telecom were selling.
Beyond expectations like I said on the call Eric.
Telecom has grown three folds from when we bought GTS.
Sure.
About 18 months ago, and their margins have gone up significantly as we leverage synergies.
You too.
Amp up to dawn on these <unk> opportunities, which we believe will be around for many years to come.
Electric power is doing real well.
We're back on the run rate.
We expected them to be.
Yeah.
After the third quarter.
Short falls that will cause drove about two or three week period solar the losses that we provided.
As of.
Two two weeks ago or so when we closed out the book so.
On EPC projects you'd recognize those losses as.
You spectrum, our reach skirts and so that isn't a 930 number so.
We're thrilled with that project being close to completion.
Ed.
Hopefully we won't have.
Another quarter like we did in the third quarter and certainly going into next year.
We feel really good about.
But the business and the recurring nature of the revenue streams as we move into the new the new <unk>, the new model and so we're not to pursue fixed price EPC and the continuation of our telecommunications electric power segment.
Revenue opportunities, which I'll feel really good about.
Gotcha, and then just maybe.
I don't know clones, the bulker are trending across the solar.
Challenges.
First of all I mean, maybe some of the changes you've made in that segment and obviously, we're making a shift to more or away from EPC such as the operational changes, obviously missing must've been mis.
Execution of <unk>, So maybe just some color there so to give people confidence.
Well look at all of the above right.
It's all of them all of the above.
We had some challenges alone.
I mean, it was a competitively bid job we were the lowest better.
And we had some operational challenges on the project aggregate and when that happens.
You can't get behind on these EPC projects.
Okay. Because you are always in the catch up mode. So we've made some leadership changes.
In the spring we are confident about.
And we are pursuing our new.
New renewable strategy to pursue more.
Civil and mechanical scope of work underway.
Much better contract structures from a risk standpoint.
But we've got to get through and finish these jobs wrong.
For Blackbird reach the one that's particularly finished challenge the other project the happy project is growing much better.
But both should be done by unhelpful.
But both should be done the happy projects should be done.
Bob.
And in the first quarter next year.
Okay.
Okay.
And then maybe last one for me I mean business Kings.
Given the new role and getting away from EPC to this change the visibility at all in that in that work I mean, I know, sometimes and while it's very lumpy and visibility can be top anyways, but I mean does this material materially change that or is it pretty much the same given the install of a high level of involvement.
I think I actually think it improves visibility somewhat it's still not the visibility we have on electric power telecom, but when you're pursuing an EPC project.
Those can be very lumpy now we're willing to provide.
Services to many different EPC provider so.
While there is still there still may be some lumpiness it should be better visibility because of the diversity of the customers that we can work forward and the opportunities versus <unk>.
Being on one or two EPC projects at a time that can be pretty lumpy.
Okay. Thank you.
Sure. Thanks.
Thanks, Eric.
Your next question comes from the line of Jeffrey Campbell from Alliance Global Your line is open.
Good morning.
Good morning, Jeff.
First when you talk about the legacy renewables in relation to the current backlog.
How much of the current backlog still as.
The old business model.
Yes, that's all actually all.
All legacy UPC, there will burning off we do have.
Opportunities that we were hopeful would have transacted this quarter.
And our new renewable model.
Primarily mechanicals to total work in some file driving those opportunities are still there we're close to signing some contracts that will go into backlog, but.
I would say that all of the.
Renewable backlog right now is associated with the.
Remaining construction that needs to be completed on the happy and black bear projects.
Okay Thats helpful.
I was just wondering I mean.
High level can you give us some kind of idea of what.
Revenue levels and margins as a special contractor might look like as compared to.
The prior guidance.
Meaning will it likely be a lower chunk of revenue.
<unk> wasn't known worldwide.
Ironically, they should be better.
Typically.
When you do an EPC project you do have more margins in that project because you are taking more risk.
We were splitting margins with our joint venture partner.
We actually will make better margins providing a.
Mechanical scope for civil scope of work under under our new construct the margins will be better I mean do you typically shoot.
15% margin at the project level.
When you're building some contingency for some risks but.
On the EPC projects we.
We're expecting about a high single digit return.
So I would say that the margins pursuing this less risky strategy will be close to double.
What we would've expected in the EPC model.
And that implies that going forward with the special.
Special contract model, you're not going to be.
Our joint venture partner's share in display.
Is that correct correct, yes correct.
And just to ask.
Ask the question again.
Okay, Great answer on the margins should we expect similar types of revenue levels.
Special contractor or are they likely to be lower.
Less lumpy as we've discussed a little bit earlier.
Kind of trying to get some feel for revenues.
Yes.
We're going to we're going to want to provide more color on that probably at the end of R. R.
On our fourth quarter earnings call, but.
I do expect us to build.
It's a meaningful backlog in that segment.
Comparable Bold award we would have expected.
As an EPC provider.
So we're.
Obviously, we need to build is going to ramp.
But we're looking at right now.
Some projects that are in the $20 million to $25 million range.
And if you can get a few of those sada, which I do expect some momentum.
We could have some meaningful backlog to announce by the end of by the end of the fourth quarter on our call in.
In February .
Okay. No that's helpful. Thank you.
With regard to telecommunications I, just wondered in it sounds like the business itself is running great.
Or is it bidding on any new projects currently.
We're actually not bidding on any work, it's all negotiated I would say the greater majority, 80% to 90% of what we do.
Is trying to satisfy our current customers, where we built relationships.
Trying to to meet there.
Growth needs going forward. So it's a good environment to be in right now both in electric power in telecommunications because we.
A lot of what we do is most of what we do is not bid.
Negotiating and partnering with customers to continue to meet their growth where growth needs.
Forward.
And my last question is should we expect any kind of windfall performance and electric power due to the heavy hurricane season.
Aronson in the southeast U S.
So the customers that we work for.
<unk> had so much work going on up there is critical and made sure that we didn't.
Good to release, but the non crews that we we stated I believe in the press press release that we did during the hurricane so.
I don't think there'll be any windfall, obviously will have some some good.
Margins, we were there for probably two weeks maybe with.
With non cruise so.
It will be additive, but it's not going to be material.
Okay, great. Thanks for all that.
Answers to the questions I appreciate it.
Thank you Jeff Thanks Chip.
There are no further questions at this time I will now turn the call back over to Jim O'neil CEO for closing remarks.
Thank you all for participating on our third quarter call today.
We hope everybody has a great day, and we look forward to following up with many of you in the future.
Thank you and goodbye.
This concludes today's conference call you may now disconnect.