Visionary Holdings Inc. (GV) Q2 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the Goldfield Corporation 2018 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode and a brief question-and-answer session will follow the formal presentation. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to Steve Carr. Thank you. Please go ahead.

Thank you and good morning everyone. I would like to welcome you to the Goldfield Corporation conference call to discuss the company’s second quarter results for 2018, 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 that this discussion may contain forward-looking statements within the meaning of the Safe Harbor provision 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 required 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, the quarterly report on Form 10-Q and 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, Steve and good morning. We appreciate you 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 second quarter. We are very pleased with the continued improvement in our operations since the third quarter of last year. Revenue has grown steadily from $29.6 million in the fourth quarter of 2017 to $34.4 million in the first quarter of 2018 to $37.5 million in the second quarter of 2018. Additionally, our gross margins remain solid from 15.7% in the fourth quarter of 2017 to 21.5% in the first quarter of 2018 to 19.1% in the second quarter of 2018. To achieve higher revenue volume, margins will reduce slightly. In the first half of 2018, we saw a significant increase in awarded bid and MSA projects for our Texas and Southwest operations. We also experienced an increase in bid in MSA work in our Mid-Atlantic operations. However, our Southeast operations experienced a decline in both MSA and non-MSA project activity due to competitive pressures and customer demand exceeding our labor resources. We have recently been successful in increasing our labor force to take it on additional MSA and bid projects. Our backlog at the end of the second quarter remained healthy. Total backlog increased 12.7% to $146.1 million compared to $129.7 million for the previous year mainly due to an increase in our firm contract awards attributable to an increase in non-bid non-MSA bid work. 12-month electrical construction backlog improved 24% to $85.5 million, up from $68.8 million a year ago for the same reason as the increase in total backlog. These results demonstrate that the fundamentals of our business are robust and provide us opportunities for continued growth. We anticipate momentum will continue through 2018 due to a healthy backlog and a strong bidding climate for future project opportunities. Industry activity and trends continue to point to historic investments in electrical infrastructure. Now, I would like to share with you some developments during the second quarter we believe will put us in a favorable position to capitalize on this healthy market for years to come. In our Texas and Southwest operations, we have been awarded work under a recently signed 3-year MSA mentioned last quarter. We expect to be bidding on projects covering multiple regional offices from another major utility added in recent weeks. As additional utilities are added, our bidding opportunities will also continue to increase. Our experience, proven track record and depth of resources enable us to offer our expertise in bringing projects to a successful and timely completion. We have established a substation construction operation in our Mid-Atlantic office and we are in the process of bidding an MSA agreement with a major utility for substation projects. Finally, as we continue to increase the number of utilities for who we work, projects should become more consistent throughout the year. This will provide a significant positive impact, especially for Texas and Southwest and Mid-Atlantic operations. Our priority is to focus on continued growth and sustainable profit margins for our shareholders. Accordingly, we remain committed to project execution and a disciplined approach in all our bidding and operational activities. 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.

Thank you, John and good morning everyone. On today’s call, I will be reviewing our quarter-over-quarter results for the second quarter 2018 as compared to the second quarter 2017. Second quarter 2018 total revenue was a record $37.5 million, an increase of $8.4 million or 28.8% compared to the same period of last year. Electrical construction revenue in the 2018 second quarter was $36.2 million, an increase of $7.4 million or 25.7% from $28.8 million for the 2017 period. Year-over-year, revenue improved mainly due to increases in projects awarded and were completed. We experienced an improvement in our Texas and Southwest operation and Mid-Atlantic operations quarter-over-quarter. The revenue increases were partially offset by a decrease in project activity in the Southeast operation. Revenue from real estate development operations increased to $1.3 million in the 2018 second quarter from $305,000 in the same period of 2017. Second quarter 2018 gross margin and electrical construction operations declined to 19.1% compared to 25.7% for the 2017 quarter. The decrease was attributable to a change in project mix in particular, a higher volume of lower margin projects. Year-over-year, SG&A expenses increased 35.8% in the 2018 second quarter due mainly to higher salary and wage-related expenses for 2018 when compared to the same period last year. Also contributing to this increase were higher professional fees and expenses as well as an increase in real estate selling expenses. Comparing the 2018 second quarter to the 2017 second quarter, depreciation and amortization expenses increased approximately $190,000. This was mainly the result of an increase in capital expenditures. Our provision for income taxes was $1 million in the 2018 second quarter versus $1.5 million in last year’s second quarter. Our current effective tax rate is 32.5% compared to 36.8% last year. The current effective tax rate differs from the federal statutory rate of 21%, mainly due to state income taxes and non-deductible expenses. It is higher than our expected annual tax rate of 29.6% due to non-deductible executive compensation. Operating income decreased to $3.4 million in the 2018 second quarter from $4.1 million in the 2017 period. This decrease was driven by the same factors which impacted our gross margin as well as the higher SG&A and depreciation expenses I just discussed. Net income declined slightly to $2.2 million or $0.08 per share for the 2018 second quarter from $2.5 million or $0.10 per share in the same period of 2017. EBITDA for the second quarter ended June 30, 2018 was $5.4 million compared to $5.9 million for the same period of 2017 as a result of the same factors which drove operating income. Turning to backlog, total backlog at June 30, 2018 which included total revenue estimated over the remaining life of the MSAs plus estimated revenue from fixed price contracts increased 12.7% to a $146.1 million compared to $129.7 million last year, mainly due to an increase in firm contract awards attributable to an increase in non-MSA bid work. At the end of our second quarter, our 12 month total electrical construction backlog increased 24.3% to $85.5 million compared to $68.8 million one year ago, for the same reason as the increase in total backlog. As of June 30, 2018, estimated MSAs accounted for approximately 76.7% of total backlog versus 89.5% at June 30, 2017. It is our intention to continue to grow our MSA business as it provides opportunities for operating efficiency. Now turning to the balance sheet at June 30, 2018, we had approximately $9.9 million of cash and cash equivalents, $20 million of funded debt $34.3 million of working capital and an $18 million revolving line of credit of which $14.6 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.

Thank you. [Operator Instructions] Our first question comes from the line of Stephen Branson with ABL [ph]. Please go ahead.

Good morning gentlemen, congratulations on the good quarter. Can you discuss the labor issue you had in Southeast and how you alleviated the problem?

Sure, our Southeast operations we were challenged by having inadequate transmission labor to service the contracts we had in that principally in Florida. As a result we have or we have recently as I shared with you in the press release secured additional labor for the Southeast which should alleviate much of the issue that we were faced with in the first half of the year. We are still trying to add to our crews as demand is – continues to be very strong in the Florida area.

Is there any opportunity to acquire a product contractor?

We are always on the look both strategically and organically to acquire people – to acquire companies that are consistent with our growth desires. We are pushing there a number of them out there. We are pursuing them as yet we have obviously not secured a company, but we are looking at several at present that are coming up for sale. Additionally, we would like to grow ourselves organically by identifying customers in particular areas of our field that we want to pursue more in the future.

Going forward the gross profit margins, where do you see them settling in the 20% range, 21% range?

I think that’s accurate. We – as we discussed we had lowered our profit margins principally in Texas to secure additional work. We have high fixed cost and we want to reduce the percentage of that fixed cost principally in the Texas and Southwest. And we intentionally dropped the margins to secure the work. In addition to that we have been successful in adding as we mentioned in the last quarter adding an additional utility encore to the utilities which we are working for that we have MSA agreements. We have recently added another utility, AEP to our group of utilities that we work for. We haven’t done any work for AEP yet, but they are an enormous utility that run not only in the Texas and Southwest, but through the Mid-Atlantic region. That’s a big deal. But it’s important to us moving forward. But again I reiterate we have not yet we have been approved here in the last few weeks and expect to start receiving work to look at late this month.

Thank you, gentlemen.

Thank you. And our next question comes from the line of Kurt Caramanidis with Carl M. Hennig. Please go ahead.

Hi guys. Yes. It sounds like there is quite a bit of activity going on, he asked my main question, but is real estate something, is that going to be much of anything as we go forward or is that I noticed it was over $1 million last quarter?

Real estate has been a part of our business for over 15 years and it is a significant part of our business from ‘01 through ‘07. When the market crashed it took some reorganizing of that group. In recent – in the last couple of years we have seen a very strong real estate market. We have secured some very desirable oceanfront properties and related near oceanfront properties. We work on very good margins in the real estate and it’s very hard for us not to do it. We don’t have three employees in that whole in the real estate area, so are our fixed costs are very small. We have no equipment and other than a few computers and a few pickup trucks. So it is a business that we think we have a great elasticity and in order to secure the additional work when these projects become available. We are general contractors. We are also real estate brokers, so we are able on and some of the time to materially reduce our costs moving forward. So I view real estate it is probably never going to be a large even if it becomes a segment it’s still going to be a small part of our business because I expect the electrical construction probably will outgrow the real estate moving forward, if it that answers your question.

Yes. Thanks. I appreciate it.

And our next question comes from the line of George Gasper, Private Investor.

Yes. Good morning.

Good morning George.

I would go to – goes into a little bit more about the overview of the look on the general high wire install upgrading that apparently in the last year what suggested would be very sizable and just to point out particularly in your neck of the woods where you are located down in Florida and North Carolina, both Florida Power & Light and Duke are talking multi-billions of investment in some their properties going into generator systems, power generation, how do you – considering the situation and it appears as though you have got some momentum now on the revenue side and is this and it appears as though the additional revenue stream will have to take off to compensate for the lower margins that you are operating under, is that how you…?

Let me – we are looking at some of these things on a regional basis. The lowering of the margins was done in Texas and Southwest to achieve the higher revenue because of the very high fixed cost.

Okay.

In Florida our challenge was more a labor challenge that we are beginning to crack, I am not going to by any means tell you that we have achieved the goals we are looking to do in Florida. But we are – we have increased the number of crews we have and this is all transmission. In transmission in Florida and expect for that to continue to improve in the future. So regionally the margins were dropped in Texas Southwest. This didn’t happen in Florida and did not happen in the Mid-Atlantic. And I do point to you the – the very high growth it was nearly what, 50% Steve in the Mid-Atlantic and of Southwest – Texas and Southwest, it’s almost 50% growth. So we – George, I think regionally we have more work to do in Florida. We have seen huge growth in those two areas. We expect all of this to continue. We don’t see any reason that will get in the way.

Okay. And then just a little further on that transmission expansion that’s evolving, are you kicking on additional activity, in other words of capacities of what you can accomplish in the transmission area from say a year ago or 2 years ago as to the exact thing that you are doing in the field are there some opportunities out there that you haven’t been involved in before, but you are moving into them?

There are opportunities that we would like to move into in the future. We would like to be in the distribution business in addition to the transmission business. There are beauties of the trends. The distribution business is generally lower margin. However, the revenue is more consistent throughout the year. Transmission and distribution are different animals and they are done by different people. What the distribution does provide although at lower margin a more consistent work throughout. And as you are aware, we are involved in distribution in – and substation work in our Mid-Atlantic region. In Kentucky, we have distribution crews. We are bidding additional work out there and it remains to be seen if we are going to be successful. But we are scratching the surface that we want to pursue probably in the future is becoming a greater force in the distribution business.

Okay. And let me ask one additional question please, this business in Texas that you are involved in which is very interesting because that market seems to be expanding due to the eye the expansion in the oil industry, do you see yourself getting into any kind of marketing of power generation equipment into the oil area like that Midland Basin for example elsewhere, where there is the water problem is so serious, there is a huge demand for powering up to [indiscernible] water, are these areas of activity that conceivably could develop for you?

No, I think we are going to continue. When you look at Texas from an operational standpoint, we need a greater number of projects to look at that can be serviced by our Texas operation. We would like to get work from the coast right down to the border and with Mexico and then all the way up northward throughout Texas, Oklahoma and in that region. The addition of encore, if you think about it CPS which is one of the utilities we work for is down in the San Antonio area. LCRA, Lower Colorado River Authority is principally around Austin and then encore is in the Dallas-Fort Worth area. AEP covers all those, not on all of them, but principally to the East and to the North. So we have materially expanded the number of people and the exposure that we have, so we can bid on additional projects in the future. This is takeaway from the lows that we have been facing during the summer months in Texas and that has been punishing in recent years. We had some relief last year from the Hurricane that came in and we were able to provide forces as we add these utilities and we began working for them on a higher level of business. Now we have secured some pretty good size jobs for at least one of the utilities. But moving forward, it is our goal to continue to expand the number of utilities that we work for so we will have a better choice of work and a better choice of profit margins we need to achieve. Additionally, I do want to reiterate that the substation business is an area that we are pursuing and has been successful in the Mid-Atlantic region. We plan on expanding that in other regional offices, not to diminish that we are going to get into the distribution business either strategically or organically in the future.

It is very encouraging to hear your comments here, I think that you have got a very nice revenue stream upward projection and to keep that moving forward, hopefully it’s not too far away when you can reach the $50 million a quarter range in terms of revenues?

We are looking forward to it George.

Thanks for your comments.

Yes sir.

And our next question comes from the line of Sam Rebotsky with SER.

Yes. John, I want to apologize, I missed most of your presentation, so if the question is repetitive I will read the transcript, the backlog do you have enough employees to improve the backlog, I see in the industry there has been the backlog transmission and various other business has been substantial, I didn’t see that your – my expectation is that the backlog would have improved more significantly, including more or what’s the story?

Well. Sam, let me talk with Steve a little bit. But I think we have improved early in our backlog. The backlog upside new SMA – the new MSA works are not in there?

Yes. We have got encore, but we did not add anything into the backlog from their future work. Sam it’s – as we have said before, it’s an art not a science on this backlog calculation. So we base it kind of historical performance. We don’t have any projections on what we are going to have, so we don’t have it there. But it’s – the MSA runoff, some of them came into play at the same time. So they are running off and then we expect to renew them, but until we renew them beyond our extension terms we just don’t have anything.

Sam, you do know how those MSAs work and how are they runoff, if you got to, okay, I mean I can explain it again if you need.

Are we in the last 6 months or 1 year of the MSAs or what kind of where are we in the MSAs, but…?

Sam, I think there are seven MSAs and some of them we are in the last year of them and in some of them we are in the first year. So it – some of them are being re-bid, some of them are just being extended. It’s a whole set of different opportunities. But in addition to that we do have new customers and hope to add new MSAs if that is the particular style that the future utilities use. Some of the utilities are now using I would say it should work.

Okay, alright. Well keep up the good work and hopefully we could get more business and become more profitable and make everybody happy. Okay.

Thank you, Sam.

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

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. Have a good day.

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