ENGlobal Corporation
Q1 2022 Earnings Call Transcript

Published: 8 May 2022

[Operator:]

Good morning, and welcome to the ENG's 2022 First Quarter Financial Results Conference Call. At the request of ENG, today's call is being recorded, and will be available for replay on the Investor Relations section of the company's corporate website www.englobal.com. You may access the replay by dialing toll free 877-481-4010 domestically or 919-882-2331 internationally, and referencing conference ID 44765. This replay will be available shortly after the completion of this event through 9

[Rick Eisenberg:]

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 of the Private Securities Litigation Reform Act of 1995. 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 Spriggs, ENG’s CFO; and Roger Westerlind, ENG's President. Following the presentations, Darren, Roger, and Mark Hess, ENG’s CEO, and will be available for questions. And now, I'll turn it over to Darren Spriggs. Darren?

[Darren Spriggs:]

Thank you, Rick. I would also like to extend my welcome and appreciation for those on the call today. For the quarter, we reported approximately $7.4 million in operating revenue and $8 million in direct operating costs. Included in the direct operating cost is $426,000 related to underutilized staff, which is lower by $369,000 compared to the same period last year. Our current staffing level is necessary to maintain our essential workforce. Also included in direct costs is $829,000 of proposal costs, which has significantly increased over the same period last year due to the increase in volume of proposals. Our SG&A increased $282,000 compared to the same period last year, which included non-recurring legal fees of $70,000. The remaining increase is primarily related to the investment in our business leaders and an increase in T&E, now that our clients are more accessible with the lifting of travel and office restrictions. The success of our client relationships is driven by personal interaction with our customers, which has suffered since the beginning of the panic. Our income tax expense consists of state income tax, primarily in states that do not use net income to calculate tax like Texas. Our federal income tax expense is offset by an adjustment to the valuation allowance recorded against it. We recorded a net loss of $3.6 million or a negative $0.10 per share for the year compared to the net profit of $46,000 or $0.00 per share last year. Our backlog increased by $500,000 to $13.3 million compared to $12.8 million at the end of last year. This is the second consecutive quarter our backlog has increased. The backlog as of the end of third quarter of 2021 was $8.4 million. As of the end of last year, it was $12.8 million, and this quarter, it was $13.3 million. This increase in backlog is an indication that the investments we made last year are starting to pay off. As a reminder, last year, we completed a rebranding campaign, relocated our corporate office to be closer to our client base, redesigned our website, hard key business development personnel with strong relationships to clients in our industry. Roger will elaborate more on the positive signs we're starting to see you later in the call. Our cash balance was $17.7 million as of the end of the quarter, a decrease of $1.5 million over last year's balance of $19.2 million. Our working capital decreased $3.5 million from $26.3 million to $22.8 million. The change in our working capital is primarily related to the $3.6 million loss for the quarter, but it included an employee retention tax credit refund of $1 million. We believe this cash on hand, along with internally generated funds, availability under the company's revolving credit facility, and other sources of working capital will be sufficient to fund ENGlobal's current operations and expected near-term growth. And now to you, Roger.

[Roger Westerlind:]

Thanks Darren. Good morning, everybody. As Darren indicated, the strategy, which we have spoken about before start to pay off. Our bookings in April actually exceeded the bookings in the first quarter, which we think is a great indication that all the things we have done is starting to pay off. A few highlights as we announced a few weeks ago, we have been awarded another sustainable airplane fuel plant to be built up -- built in the US. We expect that work to turn over and we completed the first phase midyear and then we will start the EPC phase. As also announced, we opened a construction group in West Texas. As I will come back to a little bit later, we also have a number of bookings in our government group. So to reiterate rate, the things we have done, which we then again believe to pay off. We have a great new office. We have increased fabrication capabilities by investing in Anderson. We have implemented a customer relation system, which is a great tool to managing our business. We have a new construction division. We continue working with a high-value, low-cost engineering center in Brazil, which is key to execute the work we are bidding. We have rebranded our company, which we think is very successful. We have engaged in a big marketing campaign on social media, LinkedIn, et cetera. We're working on a key account strategy for the clients now we have entertained for the last 12 months. We have a new management team, which has now been in place for over six months. We look at a number of opportunities across a lot of industries. Our alliance partners is in place and works nicely. And as we have discussed before, we have strategies broken down in place for the segment we're working in. So a few specific highlights, as the press release we signed out a few weeks ago, we're going to build another modulized, standardized, sustainable airplane fuel for a client up in Northern US. This is -- will be our second project. We think this is a very, very good example of our strategy forward. We have a number of these projects, and we expect the value for ENGlobal to be in excess of 100 million. We're also expanding on that group. So it will be labeled from here on energy and renewables. And in the energy side, we have a number of projects. For our engineering and project services, we have four awards, two for Chevron, one for Exxon and one for Oxy again, illustrates that our hard work starts finally to pay off. In the Government group, we have over 120 million in outstanding quotes in our automation group, a significant amount as well. In that, as I earlier said, we have won a number of contracts for SCADA systems, automation system, for the DoD. In our oil, gas and petrochemical, we have over 150 million in identified opportunities, where we are actively bidding almost €100 million in a spread from OxyConaco [ph, XTLP66, Western Midstream, et cetera. Obviously, with the high oil price, we expect the great business here as well. Over to Jenny. Thank you.

[Operator:]

Ladies and gentlemen, the floor is now open for questions [Operator Instructions] Thank you. Your first question is coming from Jeffrey Campbell. Please announce your affiliation and pose your question.

[Jeffrey Campbell:]

Hi. This is Jeff Campbell from Alliance Global Partners. My first question begins with an observation, the potentially expanded scope of the renewable jet fuel, diesel projects, awaiting FID is obviously a huge vote of confidence in ENGlobal. I was wondering what factors do you think went into expanding scope in this project versus the first one that you did, the renewable diesel?

[Mark Hess:]

Well, I think, we were able to demonstrate our expertise both on hydrogen unit as well as the RDU, which is the renewable diesel unit. And so we have been investing and developing a standard 6,500 barrel per day plant both on the complete plant, which would include hydrogen and the RDU. So we were able to demonstrate that to the client that we had that expertise, and we had the package pre-designed to a certain extent. And so that's, I think, what brought them onboard. Additionally, they were -- we were recommended to them by our technology partner, Haldor Topsoe. And so I think that's a great vote of confidence from our technology partner.

[Jeffrey Campbell:]

And following up on that, Mark, how is the 6,500 barrel form factor arrived at? Is this bid, kind of, the volume that you're seeing in the various customer discussions and maybe even the bids? Is it some, sort of, a technological sweet spot? Is it based on the feedstock that's out there? Just some color on why you settled on that as your standard?

[Mark Hess:]

Well, I think the answer to that is -- that's what has been requested most in the marketplace. Haldor has a standard 6,500 barrel a day hydrogen bridge product. And so we just, kind of, built on to their standard unit – standard process.

[Jeffrey Campbell:]

Yes, that makes sense. Roger was making allusion to a lot of -- it sounded like a lot of interesting stuff going on out in the Permian Basin. I was just wondering, if you could give us some general comments on the, kind of, projects that you're seeing growth in? And if there was a number as to how much is being bid on, I missed it. So if you could give us a sense of the size of the bids out there, collectively, that would be helpful.

[Mark Hess:]

I think where we are truly is, I think, we have enough in a way. There is never enough per se. But I think we have enough in the funnel and we need to change the approach, which we have to close what we now have. And I think, the one we just talked about is a great example. There is probably 120 other renewable diesel and sustainable airplane fuel, which we see out there, right? Now the big question then which one will really happen. But I think it's really across the same in oil and gas, the same in renewables, the same in our government group. I think, I know it doesn't show in the figures yet. It will. We just need to continue and trust to play. I'm convinced that we will succeed. And I think the example I gave is just a few.

[Jeffrey Campbell:]

Okay. In the past, we've talked about automation from the standpoint of customer solutions. And when I went back and reread the Permian expansion press release, it touched on -- it seemed to touch on automation initiatives within ENG itself. So I was wondering if you could just give a little color on where you've targeted automation within your business to create improvement.

[Mark Hess:]

The first thing we need to continue doing is use the phrase, which I picked up in ABB, which was ABB content, ENG content. So if you take the sustainable airplane fuel as an example, where we then engineer, we fabricate, et cetera, but you're also going to populate it with maximum and global content, meaning control system, buildings and everything else we can do. So we use the company we have, so one time for automation, if you like the internal sale. The external side, we are surrounded by -- if you're here in Houston, right? So we have signed on or resigned, I should say, a number of MSAs with Conoco P66 number, which is part of this process. And if we see the funnel for any of these, if you stick to automation, obviously, there is a big drive, for example, in the sale to demand, both from a cost and a safety point of view. And we are part of that, and we're going to build on that even further, if that answers your question, Jeffrey.

[Jeffrey Campbell:]

Okay. Yeah, that's helpful. And I guess my last question is, it was mentioned in the press release that the on-site construction initiative seems to be getting some momentum. So I just thought, I'd ask, what sort of businesses, or what sort of business is this adding to the ENG book that was lacking prior to the effort?

[Roger Westerlind:]

What the clients want is a one stop shop for the smaller EPC project and they are talking a few millions, maybe $5 million. So what we have decided here in that request is to obviously listen to our clients and offer that one-stop shop. It's a little hard for a smaller job simply to subcontract, let's say, half the scope and do margins on margins. So what we are following is the script that was developed a long time ago by Aecon before they exited the oil and gas reserve. So Doug Fieldgate, which was with Aecon is that – is doing that. And what is that is done one of the legs we're going to stand on is to deliver full EPC self perform for the smaller project. That has nothing to do with the plan like we just talked about for sustainable airplane fuel.

[Jeffrey Campbell:]

Okay. Good. No, I appreciate that clarity. Well, again, congratulations on all the hard work last year and we're looking forward to seeing the fruits of all that labor as this year goes on.

[Roger Westerlind:]

Thank you so much. Thank you.

[Operator:]

Thank you. Your next question is coming from Victor Nostas of the Nostas Group. Victor, over to you.

[Victor Nostas:]

Yes. Hi. I just wanted to know, how long do you think it will take to get the final investment decision?

[Roger Westerlind:]

I mean, the plan, which is shared by the end user with us that the goal is to close by end of July. As I'm sure you realize that, there is a lot of moving pieces. But it's well advanced, let's put it that way. When it's appropriate, we will – we can't disclose more, but so far, it's on schedule.

[Victor Nostas:]

Thank you.

[Roger Westerlind:]

You’re welcome.

[Operator:]

[Operator Instructions] Okay. There appears to be no further questions in the queue. Would you like me to hand back for closing?

[Mark Hess:]

Yes. Yes, Jenny, please.

[Operator:]

I'll hand back over to Rick for your final remarks.

[Rick Eisenberg:]

I have no further remarks, operator. I think we can end the call.

[Operator:]

Okay. Perfect. Well, thank you so much, 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.