Visionary Holdings Inc. (GV) Q4 2018 Earnings Report, Transcript and Summary

Greetings and welcome to The Goldfield Corporation Fourth and Full Year 2018 Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Josh Littman, with Alpha IR. Please go ahead, sir.

Thank you, and good morning, everyone. I'd like to welcome you to The Goldfield Corporation conference call to discuss the company's fourth quarter results for 2018, which were reported yesterday. Joining us on today's call are President Chief Executive officer, John Sottile; and Chief Financial Officer, Steve Wherry. If you did not receive yesterday's press release, please contact Alpha IR group at 312-445-2870, 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 provision of the Private Securities Litigation Reform Act of 1995. You can identify these statements by forward-looking words such as may, well, expect, anticipate, believe, estimate, plan and continue or similar words. Any forward-looking statements are based upon Goldfield's management's current expectations about future events, and Goldfield assumes 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, 2018. 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 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, Josh, and good morning. We appreciate you 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 year and the fourth quarter. In 2018, we achieved a record revenue. Although margins did not meet our expectations, we continue to execute our strategic plan by expanding our customer base, service lines and the geographic regions we serve. We continue to invest in both personnel and capital resources to implement our plan. We see tremendous growth opportunities, which we are aggressively pursuing to position Goldfield within this market segment. And I am excited for what the future holds for Goldfield. While much of our efforts will continue to focus on recently developed customer relationships, we're experiencing similar growth opportunities from our existing customer base. We have balanced our resources and capabilities to meet the needs for future projects. Our expanded customer base is providing opportunities to be more selective in both the timing types of projects we undertake. We remain confident in our ability to execute on awarded projects in a safe and efficient manner and expect to continue to build momentum in 2019. At this point, I would like to share with you some specifics on what we accomplished in 2018 and what lies ahead for 2019. In 2018, we executed multiple service contracts in the Texas Southwest region. We believe these contracts will provide the foundation for future growth and improved project opportunities across multiple service lines within this region. We are expecting strong growth in our substation service line expansion in both the Texas Southwest and mid-Atlantic regions. We recently executed a 7-year contract to provide transmission construction and maintenance service work for LG and EKU. We are also providing distribution construction and maintenance services under a separate arrangement with the same utility. We have recently reallocated resources within our foundation group to establish a new subsidiary, Precision Foundations. This has provided us expanded bidding opportunities for both union and nonunion contractors. In December 2018, we resumed the repurchase of the company's common stock and have repurchased over 900,000 shares. On March 7 of this year, the board expanded the repurchase program to include an additional 2.5 million shares. In 2019, we expect to see a positive impact on both revenue and profit in Q1 and Q2 associated with the sales of completed units at our Abacos and Harbor Beach real estate projects. The company expects to purchase approximately $11 million of equipment held under master lease agreements starting in March of this year through 2021. The financial impact, when completed in Q4 2021, will have an estimated annual savings of over $2.5 million in our electrical construction operations. 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?

Thank you, John, and good morning, everyone. On today's call, I will be reviewing our 2018 annual and fourth quarter results as compared to the same prior year periods. Full year 2018 total revenue was $138.1 million, an increase of 21.2% compared to the same period of last year, attributable to increases in electrical construction operations. Electrical construction revenue for 2018 was $136.5 million, an increase of 25.1% from $109.2 million in 2017. This increase is primarily due to increases in both MSA and non-MSA customer-project activity for the year ended December 31, 2018. Revenue from real estate development operations decreased to $1.6 million in the 2018 full year from $4.8 million in 2017, mainly due to the decline in the number of completed units available for sale. For the full year, gross margin on electrical construction operations decreased to 16.5% for 2018 compared to 20.6% for 2017, mainly due to escalating costs, competitive pressures and expansion into lower margin service lines. Our provision for income taxes was $1.8 million in 2018 versus $1 million last year. Our current effective tax rate is 26.3% compared to 10.8% last year. The 2018 effective tax rate differs from the federal statutory rate of 21% mainly due to state income taxes. In 2017, the difference was mainly due to the one time favorable effect of the U.S. tax act enacted in December of 2017. Turning to the fourth quarter. Fourth quarter 2018 total revenue was $36.7 million, an increase of $7 million compared to the same period last year, also driven by increases in electrical construction operations. Electrical construction revenue in the 2018 fourth quarter was $36.7 million, an increase of $9.4 million or 34% from $27.3 million in 2017. Year-over-year, fourth quarter revenue improved primarily due to increases in both MSA and storm-work activity. Revenue from real estate development operations in the 2018 fourth quarter decreased $2.3 million from the same period in 2017, also due to a decline in the number of units sold and completed units available for sale. Fourth quarter 2018 gross margin on electrical construction operations declined to 13.4% compared to 15.7% for the 2017 quarter. The decrease was mainly due to the same reasons that impacted full year results. Comparing the 2018 fourth quarter to the 2017 fourth quarter, depreciation and amortization expenses increased approximately $574,000. This was mainly the result of an increase in capital expenditures. SG&A expenses remained flat in the 2018 fourth quarter when compared to the same period last year. Operating income was $853,000 in the 2018 fourth quarter compared to $1.6 million in the 2017 period. The decrease was driven by reduced real estate development activity and an increase in depreciation expense. Net income decreased to $664,000 or $0.03 per share for the 2018 fourth quarter from $3.3 million or $0.13 per share in the same period of 2017. Net income for the 2017 fourth quarter included a onetime $2.5 million or $0.10 per share income tax benefit, primarily due to the tax act previously mentioned. EBITDA for the fourth quarter ended December 31, 2018, was $3.3 million compared to $3.2 million for the same period of 2017. Turning to backlog. Total backlog at December 31, 2018, remained strong at approximately $214 million. At the end of the fourth quarter, our 12-month total electrical construction backlog decreased 7.6% to $101.8 million compared to $110.2 million 1 year ago, mainly due to MSA backlog runoff and adjustments to existing MSA backlog estimates. As of December 31, 2018, estimate MSA has accounted for approximately 79.3% of total backlog versus 87.3% at December 31, 2017. Now turning to the balance sheet. At December 31,2018, we had approximately $11.4 million of cash and cash equivalents, $29.2 million of funded debt, $33.1 million of working capital and an $18 million revolving line of credit, of which $12.4 million was available for borrowing. On March 7, the company entered into 2 new loan agreements totaling $20 million. The first loan is for $4.5 million, and the second is for an additional facility of $15.5 million. The purpose of the $4.5 million facility is to purchase equipment previously held under master lease. The $15.5 million additional facility is to provide financing for equipment purchased for electrical construction operations. This concludes our prepared remarks. Operator, please open the call to questions.

[Operator Instructions]. Our first question today is coming from George Casper, a Private Investor.

First question's on the Texas development. Can you elaborate a little bit about how you're handling your expansion there, relative to what you do in the southeastern part of the United States? Is it similar in nature of what you're trying to do? Are there opportunities in Texas that don't exist in the southeast that you can accomplish there? And how successful do you think you can be on a comparative basis year-to-year there?

George, thank you very much for joining us. George Casper? Yes. In Texas, it is different than the southeast, and let's start first on Texas. We -- as I have shared with you in the past, we have -- we had -- we need additional utilities to work for so we can look for additional work to bid on. We have -- we are pleased that Oncor is now part of our -- part of the group or utilities we serve, and we are performing quite a number of jobs for them at this time and look forward to additional work in the future. This gives us a broader ability, Oncor is just one of a number of new utilities that we have secured in Texas. Additionally we have AEP on the substation side, and we are developing -- we're attempting to develop the AEP on -- also on the transmission side, I believe that will come shortly. Additionally, we work for Texas-New Mexico Power, and we will -- we're on projects for them as we speak. And I think the ability to have additional work to look at will give us opportunities to cover the summertime work, which has been so challenging. We've historically done reasonably well during the winter months, only to give it back during the summer months when we can't get the necessary outages, or they are severely restricted out by Orcot the -- who provides -- who limits...

The outages.

The outages, yes, in the state of Texas. So we are very pleased with the success that we have. We believe this is going to pay off, both in margins and in additional revenue. It had already paid off in revenue with a substantial increase in 2018. We believe this is only the beginning as we move forward. Go ahead, George. I thought your question was only on the southeast. Did you ask one on the southeast?

Let me ask one additional on Texas, and then you can compare it. Are you able to accomplish getting into areas in the Permian basin, the very large oil drilling area, that's really -- the expansion that's going to come about next 2 to 3 years is going to be very considerable. And I doubt very much whether they have electrical power transmission in the area. Do you find yourselves getting into that area through the utilities that you have established connections with?

The utilities we serve, such as Oncor, such as CPS, LCRA, raises to -- all of the utilities in Texas cover a broad area, and as we plan there -- as the system is planned, we go to the area that they need us to be in Texas and the adjoining states. We are -- we're not stuck in Texas. We certainly go to Oklahoma, Louisiana or wherever, to accommodate the needs of the utilities that were performing services to.

Okay, all right. And compared to what you're doing in the southeastern area, what's different there relative to the Texas pursuit?

I think the southeast needs -- also needs an expanded customer base. We are bidding new MSA agreements in Florida, and those MSAs, if we're successful, when they're awarded, can have a material positive impact on work we perform there. Also we're seeing a strong increase in the number of EPC works or EPC contracts that are being awarded, and we are sharing in that group working with the various engineering companies that -- to provide the EPC, that is Engineering Procurement and Construction work.

Okay. And could I ask one additional on real estate? Can you describe how far along you are in completion work potentially on your real estate buildout? And how much acreage do you have to build on? Do you have a figure that you could give us on that? The real estate business down here in Florida is going wide open, of course, and is very strong.

Well, I -- we certainly don't look at it in terms of acres because when you think in terms of acres, when you're dealing in oceanfront properties, you're thinking in terms of how many units can you build on that piece of property. We believe that the project, as I mentioned in my comments, that I did draw attention that we expect to close on number of units in 2 projects in the Q1 and Q2 of '19, and this should positively impact the quarters. And the reason I mentioned that, and I don't normally comment on future work, is because of the way we inventory cost and real estate and hold the inventories in place until we actually closed on the units that we have completed. So as you go along for a year or 2, your inventorying costs. We have other projects. I don't know the total, Steve. I think it's about 8 or 9, 10 other projects.

About 9.

Yes. There are nine other projects, George, that we're going to be bringing online over the next few years We like to keep about 3 years out behind us. We don't want to get too much inventory. But these projects are in various stages of development. On oceanfront real estate is very, very difficult to develop and very time-consuming. And it takes a number of years to bring them online. In the type of business we're in, don't think of things in acres. We think in more in terms of units per project and the oceanfront ones obviously will command the biggest margins, but also one of the most challenging to construct.

Our next question today is coming from Sam Roborovski [ph] from SCR Asset Management.

659-4559. Okay.

Sam, you're online. How are you doing?

Okay. So tell me, on the properties, we didn't close anything. What do we expect to close in the first and second quarter? We have 20 properties, we have 20% down, when do we close these?

No, no, no. It is the number of units that we have. These properties are coming on over a number of years. What's happening is, we have 2 projects which are now completed, and we are in a position to close on those completed units. On the oceanfront one, we have 13 out of 14 sold. It actually -- that just -- we actually had just got into a position to be able to sell them yesterday. So we expect those closings to take place as expeditiously as possible as you know, if we find -- some of the people are -- the cash ones are easy to close, the ones that are being handled through conventional financing take a longer period of time, and that's why we didn't say that they would all close in Q1. Some will fall over to Q2. And we actually have closed. Go ahead, Sam.

Of the 20 properties, how many do we have 20% down?

No, no, no.

You might have mentioned earlier the units. So..

Okay. In terms of the units, all units that are under contract at Abacos is 20%. We don't go further until we get that.

Okay. So we're in March. We expect to close any in the March quarter?

Yes. I don't have an exact count. Like I said, it was just yesterday that we got turned loose on all of the finals. It's challenging.

Okay, okay. Number two, as far as the stock buyback, you bought to $2,29. There were blocks of stock that took place at that point. I presume, did somebody come to you or did you have a bid-out? Or how did that block. I assume you bought the 400, there was a big blocks that were traded. I assume you bought those blocks?

As you know, we cannot solicit, okay. And we were approached and we purchased one large block and then we can get into the open market transactions under the -- as law permits, and we got -- how much of that did we get? Of the 3.5 million that we had, I think we got 900,000.

We had 900,000 in a quarter.

Yes. We had 900,000 in a quarter. Before when we had -- last weekend expanded that back up again. It becomes a values idea, Sam. When that stock hit itself like that, Steve and I, we went ahead and moved to acquire those. I think our average price was $2.29.

Yes.

I think that was good, John. And I noticed since the end of the year you bought 67,000 shares. What price did you pay and I assume that was in the open market?

Yes, sir, it's in the open market. I don't know that I have that. I'm guessing it's in the $2.34 to $2.52 range it's in that neck of the woods. Again, we are looking for where is our -- the company's money best placed, and when that stock price dropped down like that, we view that as an excellent investment for our holders.

Okay. John, as you and I know, I've been involved for many years, and we know each other very well and you've been a very astute in buying what's good. One of the things I'm pleased that you changed, I'm not sure, hopefully, I'm pleased that you changed the IR firms and hopefully you will make presentations, but I think to the extent that you could have made a statement on the purchase of the block, I think that would've been good information for the market to know. I know that you had to buy, and what have appeared that $2.29 when those blocks took place, that you were the buyer, because it didn't show up anywhere else which your other shareholders.

Okay. Actually, I didn't think of it that way, Sam. I was thinking in the aggregate number of shares the company would be purchasing and that we would be reporting that number, and as they would be more concerned that the company is using those funds to repurchase shares in open market or non-solicited transactions.

Okay. Well, I think it was good. It was an opportune value, et cetera.

Thank you. That we agree. You and I are on the same page.

Yes. Now one other thing. As far as the MSAs, are your contracts down to 6 years? Or how many of these contracts are we at the tail end that they're going to wind off? And sort of could you quantify the number of dollars of bids you might get out there to increase your backlog?

Okay, there's a lot going on in the rebidding and renewal of MSA contracts, and these MSA contracts, and MSAs are kind of a funny creature, because some of the MSAs are -- have units in them that you use, and some of them you actually bid, it is more a privilege to be on the property. So you might actually bid without units and some of them you bid under units, depending upon utility. There are -- there is a -- there are contracts out for bid right now that will be material as time moves forward in the event we are successful on the rebidding. I mean, there -- people -- it is critical and I know you understand this. It is the runoff of these contracts that has such an impact on the backlog, and I have no reason to believe we're not going to be successful. We've been there for many years. They rebid from time to time. It may be the change is around some. But I have no reason to believe that we're not going to continue to work for those same customers. Even though you'll get a five year contract that we may have been doing $20 million a year in one division and that same contract is at another division and doing $15 million over there and then you multiply that 5x, it amounts to a lot of money. So there is a lot out there that will impact our backlog by the end of 2019.

Okay. One final comment that you made a change in your IR firm. I hope you will go out and talk to more potential investors and be more available on the phone when potential investors call, set it up with your lawyers, et cetera, your ability to call and talk about what's going on. I mean, it's clear that your story is a good story, and you have to get it out there, and that's my...

And I do want to comment on that, Sam. We did change our IR firm. We are pleased that we did it. We do go, Steve and I travel around the country to various...

Investor conferences.

And have spoken with quite a number of people over the past several years. We plan to continue this in the future. Normally, calls when they came in, they will go to the IR firm. The IR firm will answer the initial questions, and if appropriate then it'll move down to Steve and I to be more specific as we move forward.

Our next question today is coming from Kirk Kerminedes from Carole and Henick, Inc. [ph].

You talked about last year, some of the headwinds, cost pressures, competitive bidding, some lower margin projects, is any of that changing in '19? And how or what reason will there be for a change in '19 to the better?

We believe that the expansion in the number of utilities that we have under our umbrella will give us a greater opportunity to be more selective in the projects that we are attempting to secure. And that every project has to be looked at on its own feet as to the margin you want to put it, when it occurs during the year, when you need work during the year. And I go back to Texas that the issues that faced us out there, were the -- there's a lot of work during the summer months. All contractors suffer from this. Having the ability to have summer work or projects that start and run them for multiple years, is critical to our future. We will continue to pursue additional utilities to work and to expand the amount of work that we're doing for our existing customers and meet with them often, because it is in their best interest to keep us at a high level of operations to make their jobs more competitive. We actually -- we do experience competitive pressures in where we lowered some profit margins, but that was done to secure additional work to offset certain fixed costs that we felt were more important, and that -- it did work, okay. And Texas improved as a result of this in 2019. I mean, the headwind on that is labor cost that are continuing to increase and labor related costs that are continuing to increase such as per diem and equipment costs are going up. Although I'm very pleased with -- of the plan to convert our existing master lease agreements. I think that's going to have an excellent positive impact, financially, on the company over the next couple of 3 years. By the time we get them all converted, it's going to have a very positive impact in the future.

Okay. A couple of years ago, you did really well with smaller high-margin projects when you had the flooding and then came around real strong. Are the smaller high-margin products not available? Or is the landscape changed?

The landscape has changed and they're not unavailable. We continue to bid those size projects. Those are actually -- the '16 was strongly impacted by 3 very complicated projects that we did very well on. They were all 3 very large projects, and they don't come along very often. When they do come along and we are in the right place at the right time, we will capitalize on the projects, and it will have a strong impact, and may be anomalous impact on the company from time to time. There haven't been any in the last couple of years like that, but 3 of them came in 2016.

We've reached the end of a question answer session. I would like to turn the floor back over to John for any further closing remarks.

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.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.