Visionary Holdings Inc.
Q4 2017 Earnings Call Transcript

Published: 15 Mar 2018

[Executives:]

Kristine Walczak - IR John Sottile - President and CEO Steve Wherry - CFO

[Analysts:]

Sam Rebotsky - SER Asset Management

[Operator:]

Greetings and welcome to the Goldfield Corporation's 2017 Fourth Quarter and Full Year Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kristine Walczak. Thank you. Please go ahead.

[Kristine Walczak:]

Thank you, and good morning, everyone. I’d like to welcome you to the Goldfield Corporation conference call to discuss the company’s fourth quarter and full year results for 2017, which were reported yesterday. Joining us on today’s call are President and Chief Executive Officer, John Sottile; and Chief Financial Officer, Steve Wherry. If you did not receive yesterday’s press release, please contact Dresdner Corporate Services at 312-726-3600 and we will send you a copy or go to Goldfield’s website, where a copy is available under the Investor Relations tab. A replay of today’s webcast will be available on the company’s website under the Investor Relations tab. Before we begin, I want to remind you this discussion may contain forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as may, will, expect, anticipate, believe, estimate, plan and continue or similar words. Any forward-looking statements are based upon Goldfield management’s current expectations about future events and Goldfield assumes no obligation to update any such forward-looking statements, except as reported by law. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these forward-looking statements are no guarantee of future performance. These risks and uncertainties are discussed in the company’s annual report on Form 10-K for the year ended December 31, 2017, and in yesterday’s press release. Also, certain non-GAAP financial information will be discussed on the call today. A reconciliation of this non-GAAP information to most comparable GAAP measure is set forth in yesterday’s press release, which can be found on the Investors section of the company’s website. With that said, let me turn the call over to John Sottile.

[John Sottile:]

Thank you, Kristine, and good morning everyone. Thank you for joining us and for your interest in the Goldfield Corporation. After my initial remarks, I will turn the discussion over to our CFO, Steve Wherry who will update you on the financial performance for the fourth quarter and for the year. Fourth quarter revenues and margins improved over the third quarter. We experienced overall increase bidding and project activity specifically. Fourth quarter electrical construction revenue improved $3.7 million despite the absence of over $5 million of storm work which we incurred in the third quarter. This was driven by an increase in both bid and MSA work. Gross margin also improved up 170 basis points from 14% in the third quarter to 15.7% in the fourth quarter. Our Texas operations continue to incur a loss in the fourth quarter, albeit slightly lower than the third quarter due to a higher volume of lower margin projects. However, since year end, we have seen a substantial turnaround in awarded projects for 2018, which we believe will result in significant growth over 2017 in our Texas operations. I will caution that future revenue and the impact on our earnings cannot be predicted with certainty. Overall, we finished 2017 with a healthy backlog. Year-over-year our 12-month estimated MSA backlog increased 18% while our total backlog improved over 13%. This improvement demonstrates that the fundamentals of our business are strong. It also represents the strength of the demand for our services and gives us visibility for continued growth. We believe infrastructure spending improved transmission and distribution activity and the drivers for utility investment will continue to provide opportunities for Goldfield for the foreseeable future. We also believe the tax cuts and jobs act states renewable portfolio standards and the aging of the electric grid are positive trends for us now and in the future. Overall, the United States power grid is aging and there are regulations in effect to encourage transmission and distribution spending. Additionally, power generation mix continues to shift away from cold to natural gas and renewables. We believe many of our customers are continuing to invest in their grid systems and in new infrastructure to ensure system reliability, economic efficiency and the integration of natural gas and renewables. In 2018 we continue to build our reputation for quality and performance. We will lead in safety which begins with training. We also look forward to develop business opportunities that reach a broader base of clients. Finally, we will work to create shareholder value, which includes returning our gross margin to historic levels. As you saw in our earnings release, Goldfield recorded a tax benefit of $2.5 million or $0.10 per share in the fourth quarter as a result of the recent tax cuts and jobs act. We’re planning to utilize this benefit to continue to upgrade our fleet and to increase field and administrative salaries in 2018. This concludes my prepared remarks. At this point, I’d like to turn the call over to Steve Wherry, our CFO to provide a review of our financials. Steve?

[Steve Wherry:]

Thank you, John and good morning, everyone. Full year of 2017 total revenue was a $114 million a decrease of $16.5 million or 12.6% compared to the same period of last year. In the fourth quarter of 2017, total revenue decreased 6.7% to $29.6 million from $31.8 million a year ago. Electrical construction revenue for 2017 was $109.2 million, a decrease of $16.6 million or 13.2% from $125.8 million for 2016. Year-over-year, revenue decreased in 2017 due to fewer awarded bid opportunities and the inclusion of certain larger higher margin fixed price contracts substantially completed in the first and second quarters of 2016. The revenue decrease was partially offset by storm restoration work and increased master service agreement or MSA work. For the 2017 fourth quarter, electrical construction revenue fell $3 million or 10.2% to $27.3 million from $30.4 million in the 2016 fourth quarter. In the 2017 fourth quarter, we experienced a lower volume of MSA work than in the same period of last year. Revenue from real estate development operations improved slightly to $4.8 million in the 2017 full year from $4.7 million in the same period of 2016. For the fourth quarter of 2017, revenue from real estate development operations increased to $2.3 million from $1.4 million in the 2016 fourth quarter due to an increase in the number of unit sold in the same period in 2016. For the full year, gross margin on electrical construction operations decreased to 20.6% for 2017 compared to 25.6% for 2016. Here again, the inclusion of higher margin projects in 2016 negatively affected the comparison to the 2017 margin. Additionally, a decline in awarded bid opportunities and increased competition way on our margin. We also saw the impact from losses in our Texas operation of $2.8 million in aggregate decrease our margin, $1.5 million in the third quarter and $1.3 million in the fourth quarter. These losses are attributable to the retention of personnel for certain potential projects that did not materialize in a higher volume of lower margin projects. For the fourth quarter, gross margin decreased to 15.7% in 2017 compared to 22.8% in 2016. In the 2017 fourth quarter, we experienced a higher volume of lower margin work compared to the 2016 period. Additionally, we incurred the loss in our Texas operation. Year-over-year, SG&A expenses increased 11.8% in the 2017 full year and 26% in the 2017 fourth quarter due mainly to higher accounting and professional service fees resulting from the change in our filing status to an accelerated filer. Comparing the 2017 periods to the 2016 periods depreciation and amortization expenses increased approximately $906,000 in the full year and approximately $191,000 in the fourth quarter. We increased our capital expenditures in both periods of 2017 to take advantage of favorable purchasing opportunities and fleet upgrades. Our provision for income taxes was $1 million in 2017 versus $7.8 million last year. Our current effective tax rate is 10.8% compared to 37.3% last year. The effective tax rate differs from the federal statutory rate of 34% mainly due to the tax cuts and jobs act enacted in December. As John discussed, net income included a onetime income tax benefit of $2.5 million or $0.10 per share primarily due to this tax reform. With regard 2018 planning, we anticipate our effective tax rate will be approximately 26% to 29%. For the full year, operating income decreased to $2.2 million in 2017 from $21.4 million in 2016. For the fourth quarter, operating income decreased to $1.6 million in 2017 from $4.4 million in 2016. In both periods, the decreases were driven by the same factors which impacted our gross margin as well as the higher selling, general and administrative and depreciation expenses I just discussed. Net income declined to $8.3 million or $0.33 for the 2017 full year, from $13 million or $0.51 per share in the same period of 2016. In the fourth quarter of 2017, net income increased to $3.3 million or $0.13 per share compared to net income of $2.6 million or $0.10 per share in the 2016 period. Both periods include the $2.5 million or $0.10 per share income tax benefit I just discussed. EBITDA for the 2017 full year was $17.1 million compared to $27.6 million in 2016. In the fourth quarter, EBITDA was $3.2 million in 2017 compared to $6.1 million in 2016. Turning to backlog, total backlog at December 31, 2017 which includes total revenue estimated over the remaining life for the MSAs plus estimated revenue from fixed price contracts increased 12.7% to $214.2 million compared to $190 million last year, mainly due to successful renewal of an MSA agreement and adjustments to existing MSA backlog estimates partially offset by existing MSA backlog run-off. Because of this, total backlog at December 31, 2017 increased approximately $11.2 million or 6% from the third quarter of 2017. At December 31, 2017, our 12-month total electrical construction backlog increased to a $110.2 million compared to $97.6 million one year ago. Of the 12-month total backlog, our 12-month estimated MSA backlog increased approximately 18% year-over-year. Estimated MSA is accounted for approximately 87.3% of total backlog at December 31, 2017 versus 85.7% at December 31, 2016. It is our intention to continue to grow our MSA business as it provides opportunities for operating efficiencies. Now turning to the balance sheet, at December 31, 2017 we had approximately $18.5 million of cash and cash equivalents, $22 million of funded debt, $36 million of working capital and an $18 million revolving line of credit of which $14.8 million was available for borrowing. Looking forward, we believe our solid financial position, customer base and commitment to attracting and retaining an outstanding workforce should allow us to favorably impact future results to our shareholders. This concludes our prepared remarks, operator we are now ready to open the call to questions.

[Operator:]

[Operator Instructions] Our first question is coming from the line of Steve Emerson [ph] with Emerson Investment Group. Please go ahead with your question.

[Unidentified Analyst:]

Yes, can you give us a flavor for the objective gross margins in your backlog, generally or when you might start to see the lower margin backlog run-off and when you might expect to see the higher gross margin with your current wins?

[Steve Wherry:]

The gross margin in the backlog, we believe will be more normalized in the 20% range looking forward, judging by the work on-hand and what we see from future, MSA and bid work moving forward. We have no reason to believe that it will -- much of this -- is driven by revenue amounts in Texas and with Texas showing a stronger opening in 2018, we are hopeful that this will continue into the future, does that answer your question.

[Unidentified Analyst:]

Yes, it does.

[Steve Wherry:]

Okay,

[Unidentified Analyst:]

And I have a statement to you and the board, please launch an investigation into the leak of the weak numbers before this quarter and the prior quarter, it leaves a very sour taste with us holders.

[John Sottile:]

I want to comment briefly on that. We have no reason to believe that there is a leak of information or internal numbers, we know closely and monitor closely all personnel that have access to those number which by the way is very limited in this small company and I sincerely don’t believe that there is a leak. Judging by the volume that occurred yesterday, it was at approximately the average volume. I have seen these many times over the years, I really don’t believe that there is a leak, but that’s one man's opinion. We monitor it very closely and I do want you to know that. Next?

[Operator:]

Okay, thank you. Our next question is coming from the line of Sam Rebotsky with SER Asset Management. Please proceed with your question.

[John Sottile:]

Good morning, Sam.

[Sam Rebotsky:]

Yes, good morning John, and Steve. Hey John, the Texas expenses was the 2.8 of which 1.5 million versus the prior quarter and 1.3 million is the current quarter and could you sort of quantify the size of the awards in Texas and will we continue to have losses in the first quarter relative to Texas, you indicated in the 10-K that you move some people to Florida, is this a permanent move from Texas and talk more about your Texas operation going forward.

[John Sottile:]

Yes, let me, hey Sam, let me give you a flavor on Texas. Texas is in large part revenue driven, it was set up after we did the deck project to be a -- let’s say a $25 million a year revenue office and we have several MSA agreements that the work has been very slow in coming and we really didn’t see it until the beginning of 2018. We see strong bidding and securing of additional work in Texas. In addition to that, we are grooming or trying to secure and I believe successfully new customers that will be critical to the future, we have to have not only the existing MSAs and utilities we work with, we have to have additional opportunities to bid work with other utilities in Texas, there is a lot of them in Texas, Texas is a very large state and there is a lot of power line is going to build there, and we believe that we are going to get our fair share of that moving forward, And again, I want to reiterate that not only are we seeing a much stronger bidding and securing a work in Texas over last year, we feel that the addition of new utilities to our opportunities list will also bode well for 2018. So, anything you want to add to that Steve?

[Steve Wherry:]

Sam you mentioned the move of employees to Florida, we did that in the third quarter that's temporary for the storm work.

[John Sottile:]

Yeah, Sam what we did as we I think we moved up of 200, we had a total of about 200 people mobilized for distribution work in Florida that storm came right at the middle of the state and we were able to avail ourselves and I think the revenue was over $5 million during that two or three-week period. We didn't see that rollover into the fourth quarter, but it was a significant opportunity and demonstrated at least to this person that our capabilities in the distribution were greater than I thought. Those are of course back in Texas. We essentially took Texas and drop it in Florida and made distribution crews out of them, which I, and without incident I might add, there were no safety issues. And I'm very proud of the Texas group for what they've accomplished because whenever you're in a storm everything is a mess. And you've got power lines everywhere and it is a very dangerous situation. Thanks.

[Sam Rebotsky:]

So, we currently have 363 permanent employees where we had 343 before, I assume part of this is attributable to Texas. And based on the loss of the $1.3 million, do we expect the loss in Texas in the current quarter or if we do, do we expect it eliminated in the second quarter, or are we up and running to sort of achieve the profitability the $0.10 or something more than the $0.03 that we showed in the current quarter.

[John Sottile:]

With what we're seeing particularly in Texas? We believe that revenues are well covered in the first quarter. Looking beyond that, we are relying upon conversations with the utilities with work that they have coming. The summer work is always critical in Texas. Last year, we made good money through the first half and then gave it back, because of a lack of work in the third quarter when we were keeping employees, employees to build power lines that the utilities had assured us the work was coming. Having said that, we are as you know we have a business development group that is continuing to focus on expanding this -- our customer base in Texas and in adjoining states in order to give them greater opportunity to bid more work.

[Sam Rebotsky:]

Okay. Thank you. I have some additional questions up. I'll jump back in.

[John Sottile:]

Thank you.

[Steve Wherry:]

Go ahead.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from the line of George Gasper, [ph] Private investor. Please go ahead with your questions.

[Unidentified Analyst:]

Yes, good morning to everyone there.

[John Sottile:]

Good morning, George.

[Unidentified Analyst:]

First, just a little bit more on the commentary that you mentioned in your third quarter the fourth quarter comparison with third quarter and that the $5 million that was related to the work on weather related in the Florida area. And that was not there in the fourth quarter. So that's a pretty impressive number that you generated, without that in the fourth quarter. Can you elaborate on where that momentum came from in the fourth quarter? Was that MSA business, or was there something else that was going on to help you?

[John Sottile:]

No, that's an easy one. Essentially what we did as we lifted the entire Texas operation and moved at the Florida to participate in the storm restoration. Additionally, we used all of our Florida operation to be on storm work and in addition to that our foundation crews were also involved in this. So, everyone in the company from a construction perspective saving the northern regional office which had commitments that would not allow them to come to Florida participated in the storm restoration. So, I am very proud that they will able to mobilize for that work. Now that work was done essentially by the end of September and everyone returned to their respective areas.

[Unidentified Analyst:]

Well, so that business wasn't there in your fourth quarter, correct?

[John Sottile:]

Yes, it was de minimis, a 150,000.

[Unidentified Analyst:]

Right, okay. And so, with the revenue stream that you incurred in the fourth quarter had to be replaced then by other business…

[John Sottile:]

That’s correct.

[Unidentified Analyst:]

Can you elaborate on what was going on in the fourth quarter that helped you transitionalize that from that weather-related business?

[John Sottile:]

Sure. Let me give that one to Steve and he’ll help you with that.

[Steve Wherry:]

Yes George, we picked up from our MSA customers, we picked up approximately $5 million and then our bid work, our bid activity for non-MSA customers picked up about $3.5 million in the fourth quarter.

[Unidentified Analyst:]

Okay. All right. And then I have a broader question on looking at your expansion, you talked about trying to boost up the Texas operations at this point in time. What about your strategy moving further West from Florida to Carolina is there any possibility of you’re trying to broaden up and push Eastward in that Georgia area or the Alabama areas?

[John Sottile:]

The answer is yes. The primary focus at the moment is to make sure our Texas operations have an adequate number of projects to be bidding on such that we can continue to work during the more challenging summer months when it’s more difficult to get outages to perform work. But we’re -- much of the focus is on Texas at the moment. However, having said that we are looking at we expect to be expanding other operations outside their traditional areas in the future. We are looking at let us call it for the moment new opportunities that we believe will enhance our business and make it more vertically integrated.

[Unidentified Analyst:]

Okay all right. And then one broader question following that there has been an appearance with Duke and Florida Power and Light for some very substantial expenditures going forward in their plants, and I would think that that should give you some momentum going forward. Are you feeling any of that in the near-term or is that still ways out there to accomplish some broader growth for you in terms of your revenue stream?

[John Sottile:]

We are seeing this particularly from Duke, we are seeing an increase in the amount of work that they’re bringing to market right now. In Florida Power and Light is putting out a fair amount of bid work at the moment. It is challenging to find adequate personnel to build these power lines. we have made as you can see in my prepared remarks and after the implementation of the tax cut and jobs act the first thing we did is assess our favorites within particularly the Florida area and made adjustments to both pay rates and benefits in order to be able to attract line men to put us to be one of the highest paid contractors for field work in the site. It is very-very difficult to hire qualified personnel to build these lines. That is probably our biggest challenge and constraint at the moment.

[Unidentified Analyst:]

Okay. And just on that comment that you made, does this entice you with this personnel situation to be looking at finding an acquisition that could align you better from that point of view?

[John Sottile:]

Absolutely. And we do look at acquisitions, however they are suffering from the same problems we have. Sometimes when you acquire you have to be quite judicious George. You do buy their goodwill and their context, but also you buy their problems. I am a strong believer in organic growth by offering the best pay, the best benefits and the best workplace and clear-cut safety environment and training for the personal. So, I mean that's been our mantra and it -- I believe it will service well moving forward.

[Unidentified Analyst:]

Good. Okay, well good luck to the downtrend in your business and potential turnaround, you learned a lot in the last that your and hopefully that all go positive for you going forward. Thank you.

[John Sottile:]

Appreciate it.

[Operator:]

Next, we have follow-up questions from Sam Rebotsky with SER. Please go ahead.

[Sam Rebotsky:]

Yes, hi, John. You've included in the value line small in midcap. And yesterday I receive the issue that included Goldfield even though it stated March 2016. As far as safety, they included you as lowest number five technical average of number three and performance number five and I think Kristine or somebody from your company should talk to value line because relative to safety with a $2.15 to $2.20 book value and almost $1 per share in cash, I would think you pretty safe and I think it requires a little more effort on Investor Relations to participate more and tell your story.

[John Sottile:]

I don't get it. We will follow-up on that Sam. I don't get it because that has not been the way they've handled these in the past as far as I know. I can't imagine why it would be a -- I mean all of our -- you know all of our ratio, Sam -- I mean this…

[Sam Rebotsky:]

Right, you are right, that's why I think indeed some kind of contact and interaction with value line to share what -- where you are on that because as far as safety and the companies in the industry are relative your valuations or as a low and I think it requires a little more interaction. Now one other thing Mill Road Capital as filed a 13D as far as investing in Goldfield more than 5% and increased it -- have you had contact with them and sort of what your thoughts of their investing in Goldfield's et cetera and going forward?

[John Sottile:]

We have had contacts with them but with respect to their intention, I would use the clue is that their story to tell. We have had good conversations with them and informative conversations and I think whatever their plans are that Mill Road story to tell. Not ours. And they have excluded anything other than what you know, and I know.

[Sam Rebotsky:]

Right. And as a strong support of Goldfield for a many, many years, I think you sort of have to get out and tell your story as best you can and more so and I think it's positive what you are doing and inform because as such a largely, well held stock and the stock being in more and more indexes, the impact happens pretty often and the stock is free to trade. So, good luck going forward, John.

[John Sottile:]

Thanks again, Sam.

[Operator:]

Thank you. And next we have follow-up questions from George Gasper, Private Investor. Please go ahead.

[Unidentified Analyst:]

Yes. Thank you. One question on this quarter you're two and a half months into the first quarter now. Is there anything that you could give us a thought on as far as how you see the result prospects for the quarter on a relative basis?

[John Sottile:]

George none other than what we have commented on with respect to an improvement in the amount of work and mid work or saying and am I work moving forward. There is a strong bid and but beyond that I'd rather not comment.

[Unidentified Analyst:]

I see. Okay, thank you.

[John Sottile:]

Yes sir.

[Operator:]

Thank you. This concludes our question-and-answer session. I’d like to turn the floor back over to management for closing comments.

[John Sottile:]

I would like to thank everyone for joining us on our conference call today. Also, I would like to express my sincere thanks to our shareholders for their continued support. Thanks, again.

[Operator:]

This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.