Visionary Holdings Inc. (GV) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Goldfield Corporation Second 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 Kristine Walczak of Dresdner Corporate Services. You may begin.

Thank you and good morning everyone. I would like to welcome you to the Goldfield Corporation conference call to discuss the company’s six months and second quarter 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.

Thank you, Kristine and good morning everyone. Thank you for joining us and for your interest in the Goldfield Corporation. Since this is our first earnings conference call, I will begin by offering a short synopsis of our company as a backdrop for the call. I will also discuss some key regional industry drivers that we believe will be important to Goldfield’s continued growth. After my initial remarks, I will turn the discussion over to our CFO, Steve Wherry who will update you on the financial performance that we achieved in the 3 and 6 months periods ended June 30. First, I want to describe who we are and what we do. Goldfield constructs and maintains energy infrastructure systems for the power utility industry. We support the delivery of energy, including transmission lines, distribution systems, substations, drilled pier foundations, energized services, telecom and fiber and storm restoration throughout the Southeast and Mid-Atlantic regions of the United States and Texas. Through our operating subsidiaries, Power Corporation of America, C and C Power Line and Southeast Power Corporation, we serve investor-owned and municipal utilities as well as government agencies. Goldfield is also involved in the development of residential properties on Florida’s East Coast. Revenue from real estate accounted for less than 3% of consolidated revenue in 2017. Due to the size of these operations, real estate is currently not a reportable segment. The company plans to build oceanfront condominiums and townhouses on currently owned real estate properties. Our primary electrical construction customers include Duke Energy, Florida Power & Light, Central Electric Power Cooperative, Santee Cooper, CPS Energy LLC RA, Lee County Electrical Cooperative and Orlando Utilities Commission. Goldfield has been a publicly traded company for over 100 years. We entered the energy infrastructure industry in 1972 through an acquisition. In 1983, our subsidiary Southeast Power Corporation was formed. In 2002, we expanded into South Carolina and then into Texas in 2010. In 2014, we acquired Jacksonville, Florida based C and C Power Line establishing a union electrical construction operation. Moving to regional industry drivers we believe will provide opportunities for growth for Goldfield. Duke Energy has announced plans to spend $25 billion in investments over the next 10 years to modernize the electrical grid including storm hardening, targeted under grounding and resiliency. Duke Energy also announced a 23% year-over-year increase in their capital plan driven by grid modernization in the Carolinas. And finally, on Duke Energy, an announcement to spend $30 billion between 2017 and 2021 on electrical utilities and infrastructure. Florida Power & Light announced it plans to spend between $17.5 billion and $19 billion from 2017 through 2020 in total projected capital deployment. Specifically, Florida Power & Light announced plans to invest between $8 billion and $10 billion from 2017 through 2020 in transmission and distribution projects. These include main power line hardening, pool inspection and replacement, transmission and wood structure [ph] replacement, new smart grid technologies and automated feeder and lateral switches. As part of its expected T&D development Florida Power & Light announced plans to spend $3 billion in storm hardening through 2020. And LCRA plans to spend $1.1 billion over the next 5 years on capital projects to support the needs of transmission systems. These are just a few examples of the industry activity and trends that point to historic investments in the electrical infrastructure and the growing project climate in our markets. As mentioned in our earnings press release yesterday, we believe the announced electrical construction plans with existing customers present opportunities for growth in the future. We believe we are strongly positioned to bid and win our share of these projects. Successfully and safely execute them and continue to serve the needs of our customers. This concludes my prepared remarks. At this point I would like to turn the call over to Steve Wherry, our CFO to provide a review of our financials. Steve?

Thank you, John and good morning everyone. Our first half 2017 consolidated revenue was $59.8 million, a decrease of $8.2 million or 12% compared to the same period of last year. In the second quarter of 2017 total revenue decreased 9.8% to $29.1 million from $32.3 million a year ago. Electrical construction revenue for the first six months of this year was $58.3 million, a decrease of $7.5 million or 11.4% from $65.7 million for the same period in 2016. For the 2017 quarter, electrical construction revenue fell $2.1 million or 6.8% to $28.8 million from $30.9 million in the 2016 second quarter. Our results in both periods of this year were 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, partially offset by continued growth in MSA or master service agreement projects. Revenue from real estate development operations declined to $1.6 million in the first half of 2017 from $2.3 million in the first half of 2016 and to $305,000 in the second quarter of 2017 from $1.4 million in the second quarter of 2016 due to both a reduced number and mix of properties sold in the comparative periods. Gross margin on electrical construction operations for the first half of 2017 was 25.5% compared to 28.6% for the first half of 2016 and for the second quarter was 25.7% in 2017 compared to 29.5% in 2016. It is important to note that the margin in the first half of 2017 is substantially the same as that achieved in the full year 2016. Our gross margin remains strong for our industry. SG&A expenses increased 8.5% year-over-year in the 2017 first half due mainly to a change in the method of allocating corporate expenses. In Q1 2016 management reassessed the amount of cost allocated between corporate and electrical construction operations and as a result the amount of corporate cost allocated to electrical construction operations increased. This was primarily attributable to the company’s continued growth over the past 2 years and the increased involvement of corporate to support finance and accounting rules within the electrical construction operations. Historically including Q1 of 2016, the allocation of corporate administrative costs were included in electrical construction cost of sales, subsequent to Q1 2016 management concluded those costs would be more appropriately reflected within electrical construction SG&A. In Q1 of 2016 corporate charges within electrical construction cost of sales was determined to be immaterial for reclassification on the income statement. For the 2017 second quarter SG&A expenses decreased 5.4% compared to the 2016 period as a result of lower selling expenses in the real estate development operation. On a go forward basis we expect total SG&A to increase in the second half of fiscal 2017 due to additional accounting and auditing expenses expected to be incurred associated with our change in designation from a smaller reporting company to an accelerated filer. In addition, due to your market cap increase, we are required our auditors attest to and report on management’s assessment of our internal controls. Comparing the 2017 period to the 2016 period depreciation and amortization expenses increased approximately $500,000 in the first six months and approximately $300,000 in the second quarter. The company secures equipment to performance projects from multiple sources including direct purchases of equipment, master lease agreements, rental with purchase options and conventional rentals. Our equipment purchases are first evaluated on a regional basis and then based on contract specific needs. We increased our capital expenditures in the first half of 2017 to take advantage of favorable purchasing opportunities and fleet upgrades. Our provision for income taxes was $3 million in the 2017 six months period versus $4.8 million in the same period last year. Our current effective tax rate is 36.7% compared to 36.8% last year. For the six months operating income decreased to $8.4 million in 2017 from $13.3 million in 2016. For the second quarter, operating income decreased to $4.1 million in 2017 from $6.3 million in 2016. In both periods, the decrease was driven by the substantial completion of certain large high margin fixed price projects, lower volume and an increase in depreciation. Net income declined to $5.2 million or $0.20 per share in the first half of 2017 from $8.1 million or $0.32 per share in the first half of 2016. In the second quarter, net income declined to $2.5 million or $0.10 per share in the 2017 period from $3.9 million or $0.15 per share in the 2016 period. Year-over-year first half EBITDA was $12 million in 2017 compared to $16.2 million in 2016. In the second quarter, EBITDA was $5.9 million in 2017 compared to $7.8 million in 2016. Turning to backlog, at June 30, 2017, our 12-month total electrical construction backlog decreased slightly to $68.8 million compared to $71.4 million 1 year ago. Of the 12-month total backlog, our 12-month estimated MSA backlog increased 36.2% year-over-year, while project specific firm backlog decreased as a result of the completion of several large fixed price contracts in 2016 and early 2017. Total backlog at June 30, 2017, which includes total revenue estimated over the remaining life of the MSAs plus estimated revenue from fixed price contracts was $129.7 million compared to $163.9 million last year. Estimated MSAs accounted for approximately 89.5% of total backlog at June 30, 2017 versus 81.1% at June 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 June 30, 2017, we had approximately $22.4 million of cash and cash equivalents, $26.5 million of funded debt, working capital of $38.3 million 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 a topnotch workforce should allow us to deliver strong returns to our shareholders. This concludes our prepared remarks. Operator, we are now ready to open the call to questions.

[Operator Instructions] Our first question comes from George Gasper, a Private Investor. Please proceed with your questions.

Yes, good morning. John, could you elaborate a little bit on the fixed price contracts that were very significant profit contributors in the 2016 period that were completed and what type of work did those contracts involve and how do you see the future for generating similar type of contracts, fixed price contracts or have you changed your approach on this?

Thank you, George. There were several contracts during the first and second quarter of 2016, which as Steve mentioned in his remarks that they were higher margin fixed price contracts. To the best of my knowledge, they were not MSA contracts, but they were fixed price contracts. These contracts were our transmission aligned construction contracts. They were complex contracts. And it’s one of the reasons for the high margin and this is the kind of work we will plan to continue to pursue in the future. These are that being outside the MSA work which is fundamental part of our work that keeps the base level of operations going. But these type of jobs are ones that we choose that come out for bid. And I think George it was in three parts, what was the last question.

Yes. That answers it. Just wanted to know that you are going to try to tackle those types of opportunities and I am understanding that what you are saying is that this is a lot of line install that was involved…?

George, this is transmission line construction. Yes, we are endeavoring to continue to do that in the future. It is a very important part of our business and we are seeing a very strong bidding atmosphere from our customers for fixed price contracts moving forward from here. So we are we are hopeful this is going to be translating the jobs that we will be bidding on and successfully receiving in the not too distant future. Thanks George.

Okay. Could I ask second question please?

Sure.

Okay. Could you give us a bit of a thought on how you see the operations in the second half of the year, you came – your earnings have come down basically because of you and what you have explained because of these higher fixed profit contracts from previous, but going in you are now 40 days into your third quarter and how do you perceive your second half operations, can you generate the revenue streams that could possibly get back up over the second quarter revenue stream going forward this year?

George, as you know the company has a policy of not providing guidance for the future. Having said that, as I said a minute ago what it is important to note that the bidding atmosphere is very strong right now. We are seeing from numerous large customers strong bidding activity and we believe the work that will be coming there in the future will hopefully will accrue to us.

Okay.

Thanks George.

Our next question comes from Victoria Constantino [ph] of GBH. Please proceed with your question.

Hi. Thank you for taking my questions. Going back a little bit to the backlog trend, can you maybe give us a little bit more color on the MSA projects, are those renewals, are those kind of expansions with current customers and your outlook for MSA going forward?

Thank you. When you review the MSA contracts and our backlog it in general – there is a lot of attention has to be paid to the timing of the renewal of our MSA contracts. And that can have a critical impact on the amount of backlog. So we have a number of MSAs and some are – of which are in various stages of renewal. And this can have a dramatic impact on the amount of our backlog moving forward. So it is you have to look at it with some caution because as you were aware some of these contracts – the contracts run between 1 year and 5 years. And as you move through the period of the contract, the amount remaining to be – remaining in backlog will decline moving forward. And then you have a cliff type renewal. So when the contract renews it will jump back up to whatever level it would be estimated for the term of the new contract. So if that gives you sufficient color, let me know if you want to ask another question on that I am happy to give it a try.

Yes. I mean just a follow-up on that in terms of the gross margin of contracts and current backlog, I mean we understand there has been a spike in gross margin over the last – first half, because of the fixed contract, but if you can maybe elaborate more on what the gross margin, the current backlog and I guess what’s the normal gross margin going forward that we should expect?

The gross margin is going to vary quarter-over-quarter. We are a bottom line driven company. We are a gross margin driven company. And we feel that, that is one of the most important things we do is to provide high gross margins. Having said that, the first quarter and second quarters of 2016 were impacted by several jobs that Steve mentioned here a minute ago that the – that they were higher gross margins than they had been historically. And if you are searching that are these repeatable, we believe that they are repeatable in the future, but they will certainly vary quarter-over-quarter depending upon the mix of work that we have.

Okay, thank you so much.

Yes.

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

Yes, good morning, John. Congratulations on your first conference call. I guess the last two quarters you earned $0.07 and $0.10 of 2016. Hopefully your future comparison will be easier going forward. Now, as far as the bidding process, could you sort of indicate how do you – how many bids you have out there now and what’s your expectation of succeeding on obtaining this future business?

Sam, I will do that in a general fashion. The company has seen a very strong across the board bidding, not bidding, but what indication of work coming from our existing and new customers. You will recall that we put out a press release few months back that we have entered into a strong push on business development and we are now seeing the fruition or the initial fruition of the business development taking place. We are entertaining new customers that we have not in the past. We are bidding work under EPC contracts that we have not done in the past. And hopefully in the future, we are going to see this translate to revenue and related problem.

Okay, thank you. I got one follow-up, John. Your stock is now included in the Russell and with your greater exposure, do you plan to appear at investor conferences etcetera in the future and if so which ones might you be appearing at?

We do plan to participate in investor conferences moving forward. I believe, we are going to be at the D.A. Davidson one in September.

Well, congratulations. Hope you continue the improvement that you have done. Good luck, John.

Thank you. Thank you for your support Sam for many, many years.

Our next question comes from Kurt Caramanidis of Carl M. Hennig. Please proceed with your question.

Hi, guys. Yes, thank you for having the conference call as well. My question is kind of around utilization of labor, I am trying to kind of get my arms around what maybe your earnings power is, last quarter for instance, what – were you pretty much running flat out or did you have downtime or not? I am trying to find out is it bigger margin projects that could get more profit or do you have to make an acquisition or have more labor kind of where have you been running as far as days off, are you pretty much running flat out?

I would say in the last quarter we were not running flat out despite the fact that comparison to 2016 deals with several projects that were higher margin. We are able to assume greater work than we saw in the first half moving forward. And as I mentioned a moment ago, the bidding activity appears to be very strong at the moment and we are hopeful that, that will translate into revenue and profit. But we believe at the present, we have adequate labor to grow the company at the rate they were wanting to achieve. Labor is our major constraint particularly supervision in the field because that’s where it’s made, that’s where safety is performed and where our productivity is performed and high-level supervision in the field is critical and that’s a challenge for everyone in the industry [ph].

Great, it’s very good color, I appreciate it.

Thank you.

Our next question comes from Steven Branstetter [ph] of ADL Investments. Please proceed with your question.

Good morning gentlemen. Are you seeing any potential acquisition targets maybe in the private markets that can help you grow the company’s operational footprint?

We are endeavoring to grow the company through both organic and strategic acquisitions. We do conduct, we work at – we are working at finding companies that will fill in the gaps that we presently have. We generally work from Virginia around the West Texas. There are certain gaps and certain other parts of our business that we would like to strengthen moving forward. And from a strategic standpoint, we are looking for acquisitions that will – that have contract in place that have good safety records, that have strong management and these are challenging to find as you might well understand. And but again, we are looking at them in both in geographic continuity and work continuity to our existing businesses. Organically, we are following the same track where we are expanding into regional on a regional basis from state to state. We will work from our particular regional offices. And we are seeking to acquire new customers that are in adjacent areas where we can service from our existing regional offices, did that answer your question Steve.

Yes. I have one more, if that’s okay?

Sure.

Okay. Can you discuss your OSHA designation and the size of contracts that you can bid on where larger companies like MYR Group probably can’t bid on or don’t bid on?

Well I am not quite sure what the question is the – are you talking under OSHA or what was the question?

Was that on the OSHA T&D…?

You are talking about the OSHA T&D or what are you talking about?

Yes.

As you know we participate along with other – the other major contractors in the business. I think it was about 16 of them in the OSHA strategic alliance. We are very proud to be part of that group or honored to be there and the association with these other major power lines that were say built more than half the power lines built in this country. This alliance works. We have adopted from for safety purposes the best practices and if you – and I know you have been to the website, but it’s important to look at that website, see who is part of the group and see what the best practices are. We have adopted those best practices and it is it means a lock to the utilities that we work for that we participate in this organization. And we take it very seriously. We are very – we are quite honored to be part of that. With respect to the size what we met, we generally work at to secure projects probably under $50 million. It is a market in most probably under $20 million is really where we are going to be that. But we will certainly we have done over $50 million plus contracts in the past. We do not aim at $200 million and $300 million contracts that is not what we do. We don’t have the workforce available to be able to do that. And we find that some of the best margins are down in the small areas under $20 million, did that work Steve.

Thank you. Yes, very good. Thank you.

Okay.

Our next question is a follow up from Victoria [indiscernible] with GBH. Please proceed with your question.

Hi, thank you all again for taking my questions. Just a quick follow-up, do you have a share buyback program and given where the stock price is now considering everyone? Thank you.

The company has had a share buyback program and has used this in the past. At present, the board feels that the cash in the company is better spent on acquisitions and the upgrade of its fleet of equipments. The company shares, we feel that our stock is under value presently, but it is challenging for the board to allocate those resources, but at present we do not – we have not in the last quarter made purchases under that plan. We do keep it in place and should the opportunity this may change before you. We could be in the market at anytime, but it is we have not been in the last quarter. So, I don’t want to speak for the board and say we are not going to do it, because we very well could, but at present, I think those resources are better allocated to acquisitions and fleet upgrades within the company.

Thank you.

Yes, ma’am.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the call back over to Mr. John Sottile for closing remarks.

I would like to thank everyone for joining us on our first investor conference call of the Goldfield Corporation. Also, I would like to express my sincere appreciation to our shareholders and to everyone at Goldfield for their continued support. We are looking forward to working with you in the future. Thank you.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.