Visionary Holdings Inc.
Q3 2017 Earnings Call Transcript

Published: 8 Nov 2017

[Executives:]

Kristine Walczak – Investor Relations John Sottile – President and Chief Executive Officer Steve Wherry – Chief Financial Officer

[Analysts:]

George Gasper – Private Investor Sam Rebotsky – SER Asset Management Michael Legg – Grand Slam Asset Management

[Operator:]

Good day, ladies and gentlemen and welcome to the Goldfield Corporation Third Quarter 2017 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Kristine Walczak of Dresdner Corporate Services. You may begin.

[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 third quarter and nine months 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, 2016, company’s quarterly report on Form 10-Q for the second quarter of 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 the 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, Christine and good morning everyone. Thank you for joining us and for your interest in the Goldfield’s 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 third quarter and the nine months. To start, we had a challenging third quarter. Our business was dramatically impacted by three major factors. First, MSA work did not materialize at the same level as last year. Next, almost universally our customers offered fewer bid opportunities than last year. And, our Texas operations in incurred a loss due to the retention of personnel for projects that did not materialize. These issues in conjunction with the fact that last year, first and second quarters included certain large higher margin, fixed price projects have led to disappointing year-to-date results. On a positive note, we are proud to be part of the storm restoration efforts following hurricane Irma in the third quarter. This was both one of the largest restoration efforts in U.S. history and for our company. Our Florida and Texas crews work cohesively, without a safety incident, demonstrating a very successful effort. Looking forward, while bidding opportunities this year have been lower than last year, we are now seeing a return to a normalized bidding activity and we believe our business will stabilize. We expect to see projects developed in the coming quarters. Despite the challenges we faced in the third quarter, we are working in a very healthy industry. Evidence of this can be seen in our growing backlog. Year-over-year our 12 months estimated MSA backlog increased 37%, while total backlog improved over 19%. Another confirmation of the health of our industry are the regional drivers that we believe will provide opportunities in for the foreseeable future. I'm going to highlight just a few. In a conference presentation in September, Duke Energy focused on the Carolinas, an area in which we have strong presence. Specifically Duke sighted future capital investments for natural gas generating facilities. Additionally, the company indicated plans to make investments in their grid of $10 million, 60% of which is to be made in the Carolinas. Next, the CEO of NextEra Energy, the parent company of Florida Power & Light discussed in an investor conference in September that the company will spend close to $20 billion in capital investments over the next three years, including more hardening of the grid. Specifically, FTL plans to bring forward ideas to the Florida Public Service Commission how to harden the last mile, as power travels from generating plants to customers. Overall, the United States power grid is aging and there are regulations in effect to encourage transmission and distribution spending. Additionally, the power generation mix continues to shift away from coal to natural gas and renewables. These are just the few of the industry activities and trends that point to historical lessons in electrical infrastructure and the growing project climate in our markets. 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. Our year-to-date 2017 consolidated revenue was $84.3 million, a decrease of $14.3 million or 14.5%, compared to the same period of last year. In the third quarter of 2017, total revenue decreased 20.1% to $24.5 million from $30.7 million, a year ago. Electrical construction revenue for the nine months of this year was $81.9 million, a decrease of $13.5 million or 14.2% from $95.4 million for the same period in 2016. For the 2017 third quarter, electrical construction revenue fell $6 million or 20.4% to $23.6 million from $29.7 million in the 2016 third quarter. Our results in both periods of this year, we're negatively impacted by fewer opportunities year-over-year. The 2017 nine months are also a challenging comparison to 2016 because of the inclusion of certain large high margin fixed price contracts, substantially completed in the first and second quarters of 2016. In the 2017 third quarter, we also experienced a lower volume of MSA work than in the same period of last year. The revenue decreases in both periods were partially offset by storm restoration work. Revenue from real estate development operations declined to $2.5 million in the nine months of 2017 from $3.3 million in the nine months of 2016, due to both a reduced number and mix of properties sold in the compared periods. For the third quarter of 2017, revenue from real estate development operations decreased to $891,000 from $1 million in the 2016 third quarter. Gross margin on electrical construction operations for the nine months of 2017 was 22.2% compared to 26.5% for the nine months of 2016. For the third quarter gross margin was 14% in 2017 compared to 21.9% in 2016. In both periods, the decrease was driven by reduced productivity in the Texas operations and lower revenue. The nine month period was also negatively impacted by the inclusion of higher margin projects in the 2016 period. It is important to note that for the nine months our gross margin remained strong. SG&A expenses increased 7.7% year-over-year in the 2017 nine months, due mainly to a change in the method of allocating corporate expenses into higher audit fees and expenses resulting from the change in our filing status to an accelerated filer. Both of these items were discussed on last quarter's conference call. These increases were partially offset by lower salary and wage expense. For the 2017 third quarter SG&A expenses increased 6% compared to the 2016 period, mainly as a result of the higher authorities, as well as, increased real estate selling expenses, partially offset by lower salary and wage expense. Comparing the 2017 periods to the 2016 periods, depreciation and amortization expenses increased approximately $714,000 in the nine months and approximately $235,000 in the third quarter. We increased our capital expenditures in the nine months of 2017 to take advantage of favorable purchasing opportunities and fleet upgrades most of which occurred in the first quarter. Our provision for income taxes was $3 million in the 2017 nine months versus $6.1 million in the same period last year. Our current effective tax rate is 37% compared to 36.7% last year. For the nine months, operating income decreased to $8.6 million in 2017 from $17 million in 2016. The decrease was driven by the inclusion of higher margin projects in the 2016 period, a decline in bid opportunities year-over-year and a third quarter loss of $1.5 million in the Texas operations, as John mentioned a moment ago. This loss was mitigated in part by reallocating resources to Florida for storm restoration work. For the third quarter, operating income decreased to $139,000 in 2017 from $3.7 million in 2016, driven by a lower volume of MSA work and fewer bid opportunities year-over-year as well as the loss in the Texas operations. Net income declined to $5 million or $0.20 per share in the nine months of 2017 from $10.4 million or $0.41 per share in the nine months of 2016. In the third quarter of 2017, net loss was $157,000 or $0.01 per share compared to net income of $2.3 million for $0.09 per share in the 2016 period. Year-over-year EBITDA for the nine months was $13.8 million in 2017 compared to $21.6 million in 2016. In the third quarter, EBITDA was $1.8 million in 2017 compared to $5.3 million in 2016. Turning to backlog. Total backlog at September 30, 2017 which includes total revenue estimated over the remaining life of the MSAs plus estimated revenue from fixed price contracts increased 19.2% to $202.9 million compared to $170.3 million last year. Mainly due to the successful renewal of an MSA agreement offset by existing MSA backlog run-off and adjustments to existing MSA backlog estimates. Because of this, total backlog at September 30, 2017 increased approximately $73 million for 56% from last quarter. At September 30, 2017, our 12 month total electrical construction backlog increased to $93.6 million compared to $75.9 million one year ago. Of the 12 months total backlog, our 12 months estimated MSA backlog increased approximately 37% year-over-year. Estimated MSAs accounted for approximately 82.1% of total backlog at September 30, 2017 versus 80.9% at September 30, 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 September 30, 2017 we had approximately $20.4 million of cash and cash equivalents, $25 million of funded debt, $37.5 million of working capital and an $18 million revolving line of credit of which $13.6 million was available for borrowing. Looking forward, we believe our solid financial position client 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 from Michael Legg with Grand Slam Asset Management. Please proceed with your question.

[Mitchell Legg:]

This is Mitch asking questions. The question starts with the debate activity. Can you just walk us through a little bit in terms of you're talking about the fact that there were fewer bid opportunities and sort of bidding activity has come back to normal. Can you just kind of walk us through a little bit better and explain a little better to us?

[John Sottile:]

Yeah, almost universally as I said in my comments, we experienced a lower bid activity during the third quarter. And that was not from a necessarily in Texas, but it was almost universal throughout our customer base. Again as we have undertaken to expand our efforts, to expand our geographic and customer base to give us greater opportunities and we are now calling a number of large utilities in an effort to get on their property to enhance our future bidding activity. Now we are seen an increase in bidding activities. We are also seeing from both MSA and from regular bid work. And this is gratifying; we’re also seeing opportunities for larger projects that we will be bidding on in the future.

[Michael Legg:]

Okay. And then in terms of the bids that you have there. Is your win rate remaining around the same level, is it better, worse?

[John Sottile:]

The win rate is I would say, we need to improve our win rate and we are examining all of our internal costs to make sure that they are honed accurately such that we can address these to the point we are, where we know exactly what our costs are and as you well understand, it's a dynamic number and it changes often. And we as a matter of fact as late as yesterday undertook to reevaluate our internal cost over the last two years to determine our actual cost and I think that will also help us in future.

[Michael Legg:]

Okay. And then the work on Irma, is that continuing through this quarter?

[John Sottile:]

No. Irma was fairly short lived. We probably did a total of about a little over $5 million in the quarter. We may have actually done some in this quarter, but it wasn't that much. But you got to remember whenever you’re doing storm work, you’re displacing other work. So, to some extent other work got displaced, while we were doing hurricane restoration work. But it came up the backbone of Florida and we were bound to participate in it and we did fine, we did well on the Hurricane restoration work, but it does displace other work. And accordingly that we didn't have all of our divisions involved in it. Many times say and let’s say, it hit in a general area oftentimes, our customers – we have existing contracts with customers that have critical completion dates and they won't necessarily allow us to leave to involve ourselves in those restoration efforts.

[Michael Legg:]

And $1.5 million of that cost you additionally in Texas for the contract that did not come, that's a cost that won’t be recurring into this quarter and future quarters?

[John Sottile:]

We're going to make it work that way. It was disappointing we thought there was work coming that did not materialize. It is as you know the work force is very difficult to build and we have a very competent workforce in Texas that is capable of assuming large projects. I would say if anything about Texas, its ability to take on larger projects is greater than any of our other divisions. So, we made an assessment and decided to keep that workforce in place, it was painful, but hopefully it will pay dividends in the future. So, it wasn’t only – I mean, that was in Texas, but we did have some reductions in MSA work in other places. Hopefully that is taken out.

[Michael Legg:]

So, to those costs, are those recurring in this quarter then or is that absorbed up by whatever bid activity is being won?

[John Sottile:]

Presently, it is being absorbed by the current activities. I mean, all of those people are working presently.

[Michael Legg:]

Okay. And then with respect to the real estate business. I think you guys had some condos you were developing in Key West. Were those affected by the storm activity?

[John Sottile:]

We are not helping condos in Key West. All of our real estate development in confined with Brevard County, Florida and they include both town houses and ocean front condominium projects in addition to other projects as they come on line –

[Michael Legg:]

And they would [indiscernible] to the storms, correct?

[John Sottile:]

That is correct.

[Michael Legg:]

Okay. Thank you.

[Operator:]

Our next question is from Sam Rebotsky with SER Asset Management. Please proceed with your question.

[Sam Rebotsky:]

Yeah, good morning, John, I guess it's been a difficult quarter and from the way you’ve run Goldfield’s over all the time you like to take profitable business presumably what you're doing now will help you bid more on projects that are going to be profitable as they have been. And when do we expect to close and get additional as the bidding activity has increased? What's the timeframe of adding to the business that we are bidding on? Is it three months, six months?

[John Sottile:]

Let me do it this way, Sam. We are seeing an improvement in general bidding activity, no one is sitting, no one is not on a job. We are not holding people in non-productive positions at the moment. We are seeing an increase in both MSA and that's a much broader number because it affects areas outside of Texas. And also Texas will be participating in a series of larger projects that are coming on line that we have not seen in some years. So, if we're successful in some of the larger projects, it will make a material difference to our future. Additionally, I want to emphasize that we are continuing to work with new utility customers that will enhance our geographic and our customer base. They give us greater opportunities in the future to bid work. By having those opportunities, we're going to be able to bid work that has not been available to us in the future and that’s using.

[Sam Rebotsky:]

Okay, John. Do we think, if we get a significant contract say, you know we will be able to make a press release. Is there a threshold where you think it would be appropriate to inform the Street and the shareholders that we've won significant contracts and improved the backlog?

[John Sottile:]

Yes, I would say in the event, we are able to be successful on any of the larger projects we're seeing out there, we would certainly make a press release regarding these. They're up in the threshold Sam that would do necessitate a press release. They’re material.

[Sam Rebotsky:]

Okay.

[John Sottile:]

And I don’t know if we’re going to comment on Sam, because it's like any other big project. You have four or five other contractors you're bidding with, but we are certainly going to make our greatest effort to secure the projects that we’re looking at. They would make a large difference to the consistency of work for certain of our divisions moving forward, partnership Texas.

[Sam Rebotsky:]

Okay. Are we bidding jointly with other people on new business? Or is that a way to get more business and guarantee that we have not a fall off?

[John Sottile:]

Let me do that in a couple of ways. We are teaming up with certain let's call them, engineering firms to bid work with them for future contracts. But most of that is the EPCs in the future and they're not today kind of work, so that's the future. We are not currently teaming up with anyone else other than a plethora of large subcontractors for some of the bigger work we’re looking at.

[Sam Rebotsky:]

Okay. That sounds good. And as far as the real estate, have the prices held up on the products you're selling and putting together? Or what is this the [indiscernible]?

[John Sottile:]

Prices are increasing on our product, but costs are also increasing. It's a hard market, Sam. But the other side of it is you got to keep your margin ahead of the price, the cost increases, typical real estate minutes [ph]. It’s a very good market, there a lot of the important things happening in Melbourne with growth in this area that is consuming a lot of real estate assets being built. Melbourne is growing very quickly.

[Sam Rebotsky:]

Okay. And as far as the EPA with the new administration that we hopefully see some kind of conclusion on this project where we don't have to keep adding additional funds, we could finalize and close this out.

[John Sottile:]

Sam, we believe that we have properly allocated the funds to close this out. We are at the mercy of certain governmental agencies that have the authority or the ability to make changes in midstream. If it were entirely on our camp, it would be easy. It is difficult because we're not always in full control of the situation. But I really do believe that substantially that we have covered the future cost I might say, much of this is not been incurred. But I believe we’ve covered future costs associated with this project that I believe you were in grammar school when it occurred.

[Sam Rebotsky:]

Okay. John, I'm very pleased the way you're running the company. The unfortunate thing this quarter was some negatives and you will turn it around and get some greater valuation for the stock. I mean, you have a very solid balance sheet with a lot of cash and the projects will come and the old shareholders will be rewarded. Okay, good luck, John.

[Sam Rebotsky:]

We need your support, Sam and we will be doing that. Thank you.

[Operator:]

[Operator Instructions] Our next question is from George Gasper, a Private Investor. Please proceed with your question.

[George Gasper:]

Yeah, thank you, good morning to everyone, John and Steve. First question, could you highlight again, define a little bit closer here this 12 months electrical construction backlog that you have listed here as $93.6 million. Again, how much of that is MSA backlog?

[John Sottile:]

Hold on a sec, George, I think Steve is going to probably wind up taking that one. But your question is specifically how much of the backlog is 12 month?

[George Gasper:]

12 month, correct, yes.

[John Sottile:]

I may let Steve take a shot at that.

[Steve Wherry:]

Yeah, George, we’ve got in the 12 months as you know we’ve got $93.5 million in backlog. $34 million is in project specific firm contracts and we have, just under $60 million in estimated MSAs.

[George Gasper:]

Okay, okay. Is there an increase in there?

[Steve Wherry:]

Yeah, that was increase from the 12 month.

[George Gasper:]

So, it’s at the MSA increase that influenced the cost?

[Steve Wherry:]

Yeah, both, that one is using [indiscernible], yeah; it went up about $1.5 billion project specific and about $16 million in the estimated SMA.

[George Gasper:]

Okay. And then now you’re closer to the 1.5 month into the current quarter? Is there anything that you could tell us about, are you seeing any momentum in this quarter already from where you closed out the previous quarter?

[John Sottile:]

George, as I said earlier we were seeing an increase in bidding activities and hopefully this will relate to improvements in the future quarters.

[George Gasper:]

Okay. And in terms of your comments about Duke and Florida Power and Light with their major views going forward on very substantial infrastructure project. Have you got any of those in-house now?

[John Sottile:]

Florida Power and Light has certain contracts and as does Duke that we are bidding on that would – any of them were successful would have a material impact on our future work. And it remains to be seen if we’re successful, if not on securing those projects. But the Florida Power and Light and the Duke Energy that's our backyard, okay, because we have a strong presence in the Carolinas and obviously, we have a very long presence and relationship with both Carolinas.

[George Gasper:]

Yes, okay, all right. Yeah, it looks like Carolina curling area could really pick up to and some major projects understand in around Hilton had in the Savannah area seems to be picking up, so I assume that the power requirement is going to gain momentum there. I’ve got a question on fiber install. Are you seeing any increase in the ability to do fiber install for Wi-Fi change from cable?

[John Sottile:]

Most of our – we don't do – most of our fiber is associated with slicing and I mean, look as Steve said, increase in the fiber revenue. We did see an increase in fiber revenue, but I don't think it is material to the overall numbers, George.

[George Gasper:]

I see. I see. Okay all right. And then, I noticed that on the financials that, you had an increase of about maybe $3 million, $4 million in terms of your carrying value on equipment and so on. And is that increase in terms of trucks or what –

[John Sottile:]

What happened, George is some favorable acquisition situations existed particularly with the conversion of RPO agreements and other arrangements that just appeared. We had a fairly aggressive capital expenditure program and we elected to go ahead and executed state bid during the first quarter, principally the first quarter to take advantage of some favorable situations. With that, I never vote [ph] for our utility line equipment.

[George Gasper:]

Okay, all right and hopefully as you indicated on Texas the prospects are improving there and your emphasis seems to be ready to take advantage of that, and just as the previous gentlemen asking questions. We’re – as shareholders are very hopeful that you can get this thing rolling again and materialize something better than we even thought two years ago.

[John Sottile:]

Yes, sir.

[Operator:]

At this time, I’d like to turn the call back to John Sottile for closing comments.

[John Sottile:]

I’d 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.

[Operator:]

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