Visionary Holdings Inc. (GV) Q3 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Goldfield Corporation Third Quarter 2018 Conference Call. As a reminder, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Steve Carr of Dresner Corporate Services. Thank you. 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 third 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 Dresner Corporate Services at 312-726-3600 and we will send you a copy, or go to Goldfield's Web site, where a copy is available under the Investor Relations tab. A replay of today's webcast will be available on the company's Web site 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 Web site. 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 third quarter. We achieved record revenue during the first nine months of 2018. Income was adversely affected by lower project margins attributable to competitive pressures and a change in project mix, including a lower volume of storm work. In the first nine months of 2018, we saw a significant increase in MSA and non-MSA projects in both the Texas Southwest and Mid Atlantic operations. However, our Southeast operations experienced a decline in non-MSA project activities due to competitive pressure, project mix, and a reallocation of labor requirements from the Southeast to the Texas Southwest region. Additionally, in the Southeast operations, customer demand exceeded our labor resources during the first-half of 2018. Finally, our other electrical construction revenue in the nine months decreased due to a decline in storm work from the comparable 2017 period. We maintain a consistent focus on expanding our geographic reach, service lines, and customer base. We see specific growth opportunities in substation, distribution, and foundational construction. Goldfield's solid reputation for providing value to its customers are discipline bidding strategy and a strong track record of safety and performance, and the industry will continue to drive value for our shareholders. We anticipate momentum will continue through 2018, due to an expanded customer base, healthy backlog and a strong bidding climate for future projects. Industry activity and trends continue to point to historic investments in the electrical infrastructure. Now I would like to share with you some developments during the third quarter we believe will put us in a favorable position to capitalize on this market. In our Texas Southwest operation, we have experienced an increase in bid opportunities and awarded projects under a new MSA awarded in 2018. As additional utility customers are added, our bidding opportunities will continue to increase. Our experience, proven track record, and depth of resources will enable us to offer expertise in bringing projects to a successful and timely completion. In our Mid Atlantic operations, we continue to see opportunities for growth. We are currently bidding multiple MSAs with major utilities for transformation, distribution, and substation services. Additionally, as we continue to increase the number of utilities we serve, the level of work will become more consistent. This will provide a significant positive impact especially for our Texas Southwest operations. Finally, we participated in hurricane, storm restoration efforts in the Southeast and Mid Atlantic regions of the United States. Most of our efforts have been confined to the Florida Panhandle and occurred subsequent to the close of the third quarter. For the nine months, storm restoration is down from 2017. Although this work is unpredictable, we remain committed to assist 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. On today's call, I will be reviewing our quarter-over-quarter results for the third quarter 2018 as compared to the third quarter 2017. Third quarter 2018 total revenue was $29.5 million, an increase of $5 million or 20.4% compared to the same period last year. Electrical construction revenue in the 2018 third quarter was $29.5 million, an increase of $5.9 million or 25% from $23.6 million for the 2017 period. Year-over-year, quarter-to-date revenue improved mainly due to increases in projects awarded and were completed in the Mid Atlantic, Texas Southwest, and Southeast regions. The revenue increases were partially offset by decrease in project activity and our other electrical construction operations due to lower storm work. Revenue from real estate development operations decreased to $2,000 in the 2018 third quarter from $891,000 in the same period of 2017, as no completed residential units were available for sale during the three months ended September 30, 2018, compared to three units sold during the same period in 2017. Third quarter 2018 gross margin on electrical construction operations declined to 11.5% compared to 14% for the 2017 quarter. The decrease was attributable to a change in project mix, in particular, a higher volume of lower margin project. Year-over-year, SG&A expenses decreased 11.1% in the 2018 third quarter, due mainly to lower salary and wage-related expenses as a result of a partial bonus waiver and executive compensation for 2018 when compared to the same period last year. Comparing the 2018 third quarter to the 2017 third quarter, depreciation and amortization expenses increased approximately $317,000. This was mainly the result of an increase in capital expenditures. Our provision for income taxes was a benefit of $82,000 in the 2018 third quarter versus an expense of $15,000 in last year's third quarter. Our current effective tax rate for the third quarter is 29.8%, compared to 40.2% last year. The effective tax rate differs from the Federal statutory rate of 21%, mainly due to state income taxes and non-deductible expenses. Operating loss what $105,000 in the 2018 third quarter, compared to operating income of $139,000 in the 2017 period. The decrease was driven by the same factors which impacted our electrical construction gross margin in addition to higher depreciation expense and lower other operations margin. The decrease in operating income was partially offset by lower SG&A expenses. Net loss increased slightly to $193,000 or $0.01 loss per share for the 2018 third quarter from $157,000 or $0.01 loss per share in the same period of 2017. EBITDA for the third quarter ended September 30, 2018 was $2.1 million compared to $1.8 million for the same period of 2017. This increase was primarily due to lower SG&A expenses, no discontinued operation expenses, and an increase in gain on sale appropriate equipment, partially offset by lower operating margin. Turning to backlog, total backlog at September 30, 2018, which includes total revenue estimated over the remaining life of the MSAs plus estimated revenue from fixed price contracts decreased 11% to $180.6 million compared to $202.9 million last year, mainly due to MSA runoff and adjustments to existing MSA backlog estimates offset by the addition of a new MSA customer. As the end of the third quarter, our 12-month total electrical construction backlog increased 6.1% to $99.2 million compared to $93.6 million one year ago, mainly due to the increases in MSA projects. As of September 30, 2018, estimated MSA is accounted for approximately 78.2% of total backlog versus 82.1% at September 30, 2017. It is our intention to continue to grow our MSA business. Now turning to the balance sheet, at September 30, 2018, we had approximately $13.6 million of cash and cash equivalents, $25.7 million of funded debt, $31.9 million of working capital, and $18 million revolving line of credit, of which, $17.4 million was available for borrowing. This concludes our prepared remarks. Operator, we are now ready to open the all to questions.

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Sam Rebotsky with SER Asset Management. Please state your question.

Yes. Good morning, John and Steve. The billings cost an excess of billings of $15 million, does that relate to the Texas jobs that there delays, and do we expect -- has these billing been made as the work been done, for example, we're at November 7 today, do we have significant sales as of now relative to those jobs?

You want us…

Yes. Sam, I mean Texas maybe in there, but it's throughout the whole company. The biggest thing of course I would add is we can't bill a customer until certain segments of the job are performed, the units are completed. So you can be in progress. So it just falls out, it's different jobs, it's a different combination. A good portion of those have been built since 9/30, but there -- I mean it's just normal, it just like fluctuate.

One of the things you see, Sam; not to interrupt, Steve here, is we have had a material increase in growth during the period, and as such, you sort of create this obvious [ph] in addition where the revenue -- well, it's growing, there are -- the money that is out there and unbilled is larger than it historically would be in a growing market.

Okay.

If we reiterate [indiscernible] many of the MSAs require the completion of the unit before you can bill it. It cannot be partially complete and billed. So you are in an awkward situation. It has never been a problem with collectability, and I think it's been something historic in our industry that we have seen through other contractors that they had similar issues.

Yes, that is correct, John.

Okay. For the MSA, the 141 million versus 166, are you down to the last years of a more MSAs and the work -- are you -- you have a lot of bids out there and do you expect to…

Yes.

Yes.

Sam, the answer is a simple yes. I'm not saying we have seven or eight or nine MSAs. And these MSAs are three to five to seven-year term, and as MSA -- say, it's $100 million five-year MSA, we -- and it's $20 million a year, as you get into the fifth year of it, you only have $20 million left in the backlog, generally speaking you can't put more, it would be improved to put more than $20 million on the books to be completed during that year. We expect to renew or re-bid successfully the current MSAs that we have, and some of the amounts may materially affect future backlog. So it can be deceiving, not deceiving, but it can be confusing, you have to really understand that the -- runoff is a big number.

And John, remember that we entered into to begin with a lot of MSAs…

About the same time, yes.

-- about the same time, so they're going to runoff [indiscernible] burn off on a consistent basis. I mean, we have renewed -- we have had renewals and there will be other renewals coming, but we are also pursuing other MSAs that are in process.

So assuming…

That makes sense, Sam?

Yes, it does, and assuming the end of the year, December this MSA number should increase and although presumably you can't announce some of the contracts, is there any way when you sort of get a job, can you make a press release or is there a competitive problem to do this?

Sure. So I mean, the answer is yes, Sam, but we only report material jobs. They would probably have to be in the $15 million-$20 million range to get reported. The MSAs, again, looking back at backlog, again, it is critical to keep in mind that these are in a runoff; sometimes the [indiscernible] the utility will come to you and say, "Hey, we are going to just keep you in place for another six months," and that MSA will just get additional six months of backlog put to it, but it's a runoff at the end of that six months period. So it can't be deceiving.

And remember, on the MSAs it's an estimate of work, it's not a signed contract for…

As you know, Sam, in a GAAP measure, it is in the GAAP measure.

Yes, well…

Go ahead, Sam.

That's very positive. Just one further thing as far as the real estate, you have the -- let's see, residential properties on the construction 6 million aid and you have the property and then you have the let's see the residential property and the differed charges in other assets of which 5 million is land, how many jobs are you working on when do you expect to complete them do you have deposits relative to these and when do they get completed could you sort of some color on that?

Sam, as they changed the reporting methods for real estate about 10 years ago. It is now done on a completed contract methods that is we will report revenue and income from, when the project closes and the unit is sold. We have two principle projects under construction and the present that is avocados a 14 unit oceanfront that we have substantial deposits on not like the old days. These are 20% deposits and the 14 units we have 12 of those under contract, and then, Harbor Beach Club which we have 3 out of 6. We expect that these projects will be completed probably in the first quarter of next year. Some of them may close this year but I would expect substantially all of them will close by the end of the first quarter of next year.

Okay, that's very constructive and I guess you have to flesh this out John. Let's hope that the numbers follow and the stock could get more support. Good luck.

And thank you, Sam. Appreciate it.

Thank you. [Operator Instructions] Our next question comes from Steven Branstetter with ABL Investment. Please state your question.

Good morning, gentlemen.

Good morning.

Good morning. The gross margins have been steady through declining this year, is that something we should expect to continue, should we expect on the level off, what should we look for in 2019 just as a roundabout number where we're going to be?

We believe that we can maintain our historic let's say 20% gross margin the margins that we have in the past. In an effort to gain additional work, we have been tightening up on the margins on certain projects first principally in our Texas Southwest area in order to secure additional work. Now remember we have new MSA's employees that is going to provide is a greater number of projects to look at. Historically, the third quarters have suffered, they did last year, they did this year, because the level of work in Texas dropped all substantially during that period. As these new MSAs or customer relationships and there are three new customer relationships in Texas. In addition to our historic ones, that we will see we are hoping to see and it is what we planned to have a higher level of projects to look at such that we will have adequate work during the summer months. Does that make sense?

Yes, so I guess third quarter historically weak it's the time actually to start developing relationships to pull in the contracts the following year is that kind we were looking at?

We knew we've gone for some time, this is an issue, and over the last couple of years. We have been developing new relationships on core AEP and others in that region in addition to other parts of the country but focusing on Texas, we will come through the first six months doing very well and then have a dreadful third quarter. Hopefully, the new customers that we have secured will substantially mitigate or correct that problem during the third quarter of the future years.

Okay, also is there any issue with getting skilled labor the wages increasing; are you able to get skilled labor if you do get bigger jobs?

The answer is generally speaking, yes. It is a regional in part it's a regional issue. We have had problems in the southeast and to a lesser degree in the mid Atlantic regions securing high quality labor, this is where the working exceeds or the demand for labor exceeds our ability to provide. Skilled labor, the workforce is getting older, if you have two ends of the spectrum, you have a much older group let's call it in the 55 plus and then you have a much younger 20 to 30 group and there is a big there's a GAAP, a substantial GAAP at least as far as we're concerned in the center that presents challenges. There is we have in Texas, south west been able to secure adequate labor. At this time to as work develops, the Southeast has been much more challenging and to a lesser degree of the mid Atlantic. But it is a problem but I believe we will be able to as a larger project comes along, we will be able to manage without issue.

Is there a reason why you're focusing on Texas over say the Carolina's or Florida?

No, we and it has been an Achilles' heel, historically the Carolinas are continuing to grow and performing extremely well. Florida is performing well both in the union and non-union arenas. Texas, we have focused on the problem associated with the third quarter and an adequate work to put our labor forces. So it is time for force to keep more labor on the payroll than we want to spread labor to projects and reduce the margins on those projects, again I'll reiterate the new utilities that we have secured. We believe in future years should all said that, and hopefully, the third quarter will not suffer as well as in the past. It could be I mean this could material affect the overall earnings of the company in future years but please don't misunderstand more we're most assuredly focusing on the Carolinas because of the growth in that area is very strong and the Southeast continues to be very strong.

Okay, fourth quarter last year you had a pretty steep decline in the margins. They went from 22.8% I guess in late December, 2016 is down to 15.7% December 31, 2017. Here we have the fourth quarter of 2018, should we expect continued decline, should we respect a level off?

We typically don't on future quarters but I don't see any material adverse, anything that would materially adverse margins moving forward. We were those utility customers that we have and other customers. We have developed should also be you know the discount for quarters other than the third quarter. So it will give us greater work to look at moving forward and from the fourth through the third quarter, if that makes sense to you?

Right, of course and then one last question on the acquisition front are there any small contractors you guys look at the acquired constructing companies that have come to look at you guys?

We look both strategically and organically at drawing our business we are going to be focusing in two areas in addition to transmission that we historically have not been a large part of our business that is in distribution and substations and this is not regionally. This is throughout our entire both in the mid-Atlantic to southeast and Texas Southwest region, so we will be focusing on all of that both strategically and organically. Strategically we look at companies all the time, we have targeted some obviously we have not been successful in securing any as of yet. They're very price.

Okay, thank you, gentlemen.

Yes.

Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the floor back to management for closing remarks. Thank you.

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

Thank you, sir. This concludes today's conference. All parties may disconnect. Have a great day.