Visionary Holdings Inc. (GV) Q1 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Goldfield Corporation’s First Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Josh Littman of Alpha IR Group. 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 first quarter results for 2019, 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 Alpha IR Group at (312) 445-2870 and we will send you a copy or go to Goldfields 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 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 Form 10-Q for the quarterly period ended March 31, 2019. 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, Josh. 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 first quarter. We achieved a record revenue in the first quarter of 2019, an increase of 37.9% over the same period last year. Electrical construction revenue increased $7.3 million to $41.4 million and real estate development revenue increased to $6.1 million. Consolidated net income was $1.8 million, a decline of 626,000. EBITDA for the quarter increased to $5.5 million from $5.4 million when compared to the same period last year. Gross margins declined to 14.7% from 21.5% in our electrical construction segment primarily due to projects in our Texas Southwest operation that were adversely affected by weather and startup cost relating to our substation service line expansion. Although margins did not meet our expectations, we saw quarter over quarter sequential margin improvement despite issues encountered in Texas. We continue to focus on both geographic and service line expansion. We have been successful in expanding foundation construction services to a broader range of customers including both union and non-union contractors. The number of transmission and distribution crews continue to expand under our recently awarded MSA in Kentucky. New projects had been awarded under four recently secured MSAs. The addition of these MSAs is expected to provide expanded bidding opportunities across multiple service lines. This increase will continue to reinforce our growth and diversification goals, giving us a larger customer base, a greater number of projects to bid and to be more strategic in the projects we pursue. We believe that providing a diverse offering of electrical construction services including transmission, distribution, substation, foundation and fiber optics will enhance our opportunities to continue to expand our geographic customer base while strengthening services offered to existing customers. Our real estate development operations delivered a solid performance in the first quarter due to the closing of units under contract for recently completed townhome and ocean front projects. We continue to work on the development of our currently owned properties while pursuing additional real estate for future development. The company repurchased 67,709 shares during the quarter, bringing the total shares repurchased to 928,820 since December 10, 2018. 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 2019 first quarter results as compared to the prior year period. First quarter 2019 total revenue was $47.5 million, an increase of $13 million or 37.9% compared to the same period last year. The increase in total revenue was attributable to increases in electrical construction operations as well as revenue recognized from real estate development operations. Electrical construction revenue in the 2019 first quarter was $41.4 million, an increase of $7.3 million or 21.3% from $34.1 million for the same period in 2018. Year-over-year first quarter revenue improved primarily due to increases in projects awarded and work completed in the southeast and mid-Atlantic regions. These increases were primarily due to continued growth in both MSA and non-MSA customer project activity and service line expansion. As expected, revenue from real estate development operations increased to $6.1 million for the three months ended March 31, 2019 from $307,000 in the same period in 2018. Due to the increase in the number of units sold and completed units available for sale. As John previously mentioned, first quarter 2019 gross margin on electrical construction operations decreased to 14.7% compared to 21.5% for the same period in 2018. The decrease was primarily attributable to project losses in our Texas Southwest operations resulting from adverse weather, as well as substation service line expansion start-up cost. Comparing the 2019 first quarter to the 2018 first quarter, depreciation and amortization expenses increased approximately $694,000, SG&A expenses increased 19.5% to $2.5 million in the 2019 first quarter when compared to the same period last year. This increase was primarily attributable to selling expenses in our real estate development operations. Operating income was $2.9 million in the 2019 first quarter compared to $3.5 million in the same 2018 period. The decrease was primarily attributable to lower electrical construction margins as well as higher depreciation and SG&A expenses, partially offset by real estate development sales activity. Net income decreased to $1.8 million or $0.07 per share for the 2019 first quarter from $2.4 million or $0.09 per share in the same period of 2018. Cash provided by our operating activities in the period ended March 31, 2019 totaled $2.5 million compared to the year ago period of $2.9 million. Operating cash flows normally fluctuate relative to the needs of our electrical construction operations and real estate development projects. EBITDA for the first quarter ended March 31, 2019 was $5.5 million compared to $5.4 million for the same period of 2018. Total backlog at March 31, 2019 increased $15.2 million or 7.8% to $208.2 million compared to $193.1 million as of March 31, 2018. At the end of the first quarter, our 12 month total electrical construction backlog decreased 10.9% to $99 million compared to $111.1 million, one year ago, mainly due to MSA backlog run off and adjustments to existing MSA backlog estimates, partially offset by the addition of backlog from new MSAs. Our provision for income taxes was $827,000 in the first quarter of 2019 versus $878,000 in the same period last year. Our current effective tax rate is 31.7% compared to 26.7% in the same period last year. The effective tax rate for both the comparable periods differs from the federal statutory rate of 21% mainly due to state income taxes and non-deductible expenses. Now turning to the balance sheet. At March 31, 2019, we had approximately $15 million of cash and cash equivalents, $42.5 million of funded debt, $33.6 million of working capital and an $18 million revolving line of credit, of which $12.4 million was available for borrowing. Total capital expenditures for the first quarter ended March 31, 2019 was $12.4 million compared to $3.4 million in the year ago period. The increase was due to a combination of factors, including equipment purchased for expansion efforts, continued fleet upgrades and the decision to purchase equipment coming off master lease at the [Technical Difficulty] Our updated CapEx projection for the 2019 full year is $17.4 million. This concludes our prepared remarks. Operator, please open the call to questions.

Thank you, we will now be conducting a question-and-answer session. [Operator Instruction] Our first question today is coming from Sam Rebotsky from SER Asset Management. Your line is now live.

Yes, good morning, John and Steve. It’s a good improvement over the fourth quarter. Let’s look at the electrical and the Texas problems. What do we need to fix this and when do we expect to be more profitable or be profitable more comparable to your other jobs?

Good morning, Sam. As you know, Texas is one of the highest growth areas in the country for construction – electrical construction. It is a market that we feel strongly about. And we will continue to pursue that market for those reasons. The issues that affected us, the weather-related issues. As you know, if you follow the weather at all in Texas, there has been a chronic amount of rain, particularly in the Dallas-Fort Worth area where much of our work is located currently. And it has had a material adverse effect on the projects in Texas. Future bidding, as we’re moving forward now, we have identified those issues that need to be mitigated in order to make – in order to reduce our – these exposures or to manage the weather better. That includes making sure that the right-of-ways are accessible. When the rain in Texas becomes, when it’s as serious as it has been, the right-of-ways become literally impassible and require the use mats in order to traverse the right-of-way. So that’s one of the mitigation. We are going to make sure that we have taken into account that exposure. Additionally, as we get into these areas, we have expanded the amount of track equipment that we utilize because of the low ground pressure associated with this equipment in order to ride the right-of-ways. So it can, so those are the two principal mitigation factors that we’re going to be using in order to better manage the weather, Sam.

Well, that sounds –

Let me rattle on for a second and then...

Sure.

You go ahead, go to your next question.

No. Go ahead, John, you’re doing good.

All right. As you know, we have made it a point to expand our customer base moving forward and we have accomplished that. We believe that the amount of work we are seeing now is far greater than what we have seen in the past. As you know by seeing more work, Sam, we are going to be able to choose, be more selective in the projects that we pursue. So the more work you see, the more choices you have and we’re seeing at this time a lot of – quite a number of projects from a number of different utilities. We believe that this will drive volume which we are as you are aware Sam, we are very sensitive to the level of because our fixed cost is designed for certain levels of operation. We believe that the additional work that will accrue, will have a, again a material positive effect on Texas.

Okay. The jobs you spoke of winning about, four jobs, are these new customers. What is the timeframe of these jobs? And your MSAs, which are running off, is there, is it, they’re basically five year contracts or seven year, and are you at the tail end? Or is it a mix of these jobs or are you, the bulk of in the middle of the job or sort of just talk about the jobs that you have and the jobs that you’re winning on your business going forward?

All of the above. What we were talking about in the release, with the MSAs. We have secured a number of new MSAs or contracts as the case may be for various utilities, some of it’s in our Midwest. Some of it’s in Texas and elsewhere. There are run-offs that are subject to renewal and we expect to be hearing from those by mid-year. So we’re in a constant state, we have enough MSA in progress that they run off and new ones come on, and or renewed is the case may be. So I think, you are correct. It is all of the above.

Okay, John. I just want to switch to the real estate. You closed, that you had the permits at the middle of March based on your last conference call and you closed the – you had 18 or 20 contracts, were they all closed in this March quarter, what, how many will close? How many do you expect to close in the June quarter?

There is more than one project involved here. But I would say most, not most, more than half were closed in Q1, but there are still a substantial number to be closed that are closed in Q2. Additionally, during Q2 we do have some inventory that make close before the end of the quarter. So it’s difficult to say, how many are actually going to, I mean of the total number, we closed a little less than, a little more than half at the Abacus project and then, but there is an additional, there’s a number of units that still remain unsold that may close during the quarter, so it’s hard to tell, but yes, there will be an impact in Q2 from these projects. There are additional projects coming online, as we move forward into the year. There is, the queue of real estate and some of these are larger projects than the avocados. The permitting period, Sam, is so long, you could, it could take up to three years to get one of these things from the initial stages, all the way to being completed. So the big projects, the oceanfront projects are particularly challenging because of the permitting involved, it just becomes so arduous. Not at all permitting isn’t arduous today, but we will also be seeing other smaller projects being constructed and built over the next couple of years, but we will see larger projects coming on larger than avocados that I don’t know if we’ll get it finished next year, but it might be earlier, early in the following year. But there will be a, slug a little stuff in between now and then.

My recollection, there was one piece of real estate that you were planning to sell and how many more projects do you. In other words, the revenue. Do you expect to, I believe your pace of the real estate was higher than it had been and do you expect to increase that or what’s your expectation, would produce more profit, is the market strong or where are we going in Florida?

I think the market at the moment in Florida is, I wouldn’t call it weak, but it is weaker than it was, let’s say six months ago. We’re seeing it what may be a seasonal bump right now. Hard to tell. Our real estate revenue is going to be lumpy, because of the way we report earnings. It’s on a completed contracts method, Sam. And so it’s going to be lumpy moving forward, and I think they disclosed that there was $40 million worth of potential sales for projects that we have in-house that are in very basis, some of which we’ve not done anything with and some of which are under construction. But it’s going to be lumpy, Sam, at best.

John, you have been doing. I am pleased the way you have been functioning and doing Goldfield. Unfortunately, the market is not, it doesn’t understand Goldfield. Hopefully, you could get out and tell the story better because clearly either the people avoid buying the stock or they want to buy it all at the same time and I think with more information about who Goldfield is, you may get a greater interest. Good luck, John.

Thank you very much.

Thank you. Our next question is coming from George Gasper, a Private Investor. Your line is now live.

Yes, good morning to everyone. Couple of question. Could you describe a little bit about the opportunity as you move west out of the southeastern part of the United States. I think you mentioned the Kentucky project possibly but what are your thoughts about going, pushing through in Georgia and eastward into excuse me westward into that lower Midwest area that would tie then you into the Texas area.

George, what we would like to do is to close the gaps between Virginia and West Texas. We would like to have a better coverage of let’s call it the southeast United States but principally between Virginia and West Texas, and our goal is to get better coverages. We focused a lot on Texas as you know, simply because it is quote, Elephant country. There are so many projects coming, becoming available, we simply must continue to pursue those. We believe that there are so many projects available that as we mitigate any or issues associated with weather as I shared with Sam that we’re going to be in a position to take advantage of those. But our principal goal is to fill in those areas, both in transmission. But with also with substation, distribution and foundation. Foundation is going to be an important part of our business and as we move forward.

Thank you. [Operator Instructions] Our next question is coming from Brett Reiss from Janney Montgomery Scott. Your line is now live

Thanks for the opportunity to ask a question or two. Mr. Sottile with respect to the margins in Texas with the weather mitigation initiatives and the start-up costs, I assume kind of behind us, will the margins in the next quarter move from the 14.7% to the low 20s which, and is that your corporate target.

That is the corporate target. I do not think that we will achieve that in Q2. We believe that as we, we are hoping for an improvement. But the quarter obviously is not over yet, so that remains to be seen. The implementation of these style changes or bidding mitigation changes take a fair amount of time to put in place and to bring into reality. We like other contractors, we’re seeing pushouts and that is the utility will tell us that here are the projects that are bidding and now all of a sudden they are pushed out for a variety of reasons from materials to permitting to god know, what. But we are seeing, it’s not unusual to see 30, 60, 90-day pushouts of these projects. So getting this implemented is taking time. I can certainly speak from here forward and we have doing, we have already implemented our changes. It is, as the new work comes on, you’re seeing that there is a delay of could be 30, 60, 90 days for this to go from bidding to implementation and construction of these projects and the reporting of income.

Okay, another question if I may, I follow one of your larger competitors, Quanta Services and they always wax poetic on their conference calls, how one of the things, giving them a competitive advantage is they’ve got a locked up, skilled labor force, if you are successful in getting new business and it sounds like you’re well on your way to do that. Do you have the labor force with the requisite skills to efficiently deliver on this new business.

We have the labor force or it can be secured through current sources to undertake any project, we assume moving forward, it would be imprudent, extremely imprudent to take on work that we cannot build efficiently for ourselves and for our reputation in front of the utilities. It is critical to us that our reputation in front of the utilities is critical. Quanta is a monster. It is the biggest player. I respect them highly. It’s a very fine company run by very smart people. I don’t view they have any competitive advantage, I do not believe they have any competitive advantage over us in the markets that we are working. If it’s a $500 million job. That’s not our market. If it’s a $20 million job. That’s our market. So I believe that we can compete with them, MYR, MasTec, whomever it may be quite easily and fairly. But if it’s a $100 million project, more then $100 million, we don’t, we like smaller projects. Say $20 million and under $25 million and under. That is the market area that we have chosen and where we are, our company is presently not designed to do those. Do the larger projects. It doesn’t mean, we can’t. We just don’t want to allocate that many of our resources and then short change other customers because we’ve taken a larger portion of our resources and dedicated it to individual projects.

Right, now with respect to the 67,000 shares you bought back, what was the average price you paid?

233, 230 times…

From December, we paid an average of 230 for the whole 100,000. So we are...

Right. So will you tend to be an opportunistic buyer, when the stock is below or at book value, is that a fair statement?

There are number of factors that will affect our purchases of stock moving forward. But that’s a fair statement.

Okay. Just a real estate question or two. The value that the lots are carried on the books versus what you think the fair market value of the lots would be, is there any color you can give me on that?

Because most of our real estate rolls through, we don’t vary there, we don’t believe that there is a material gain and or loss, as we move through this. Some of them are worth because we own them, a number here. Yes, they might be worth two times or three times what we paid for it, but some of them may be only worth what we paid for, we’re certainly not upside down. But I don’t think of it in those terms. We did do a disposition this year of a surplus piece of real estate simply because the market conditions for the type of project that we wanted to put on there did not exist. So we felt it was better to dispose of it and reallocate those that financial of the money elsewhere.

Okay and one last one, becasue I’m new to the situation. Is your primary business utility infrastructure and the real estate business is really a funding source to fund your primary business which is utility Infrastructure.

I believe that to be generally accurate. We are involved in the, our exposure in the real estate area is very small. We only have three people on the payroll but we are general contractors. Okay. So we build our own projects. We are real estate brokers which means, we can handle the sales if we want to of ours and other properties. Having said that, it has been a good business, particularly this year. And at least locally within the the, I would say, 50 mile or 100 mile range. We expect to pursue these. The real estate offers excellent opportunities.

Right.

It certainly has, it done well in the last couple of here recently, and we have projects that are moving along and one of our biggest challenge is the permitting process.

Right. Where do you see the company, what’s your vision on where the company will be three years from now in terms of revenue and earnings power and what keeps you up at night that would prevent you from realizing on your vision.

Without going into specific numbers, it is the growth we expect to achieve in our market areas. Number one, that is we expect growth in terms of top and bottom line revenue and income in all our service areas. Additionally, we are trying to fill in both from a geographic and from a service aspect those areas in between, we would like to see a greater presence between our Florida and Texas offices and there are utilities that operate in that region that we would like to continue to pursue. But we’re doing it judiciously, because our growth rate has been very strong, and we don’t want to get out in front of ourselves.

And what keeps you up at night in this utility?

What keeps me up at night. Abrupt changes in the thinking of utilities, okay.

Right.

Getting a call that they’ve decided that they’ve cut off their transmission construction program in the middle of the road and you do a, and all of a sudden you have to reallocate resources overnight. Or being a subcontractor, there is some other contractor and find out that that other contractor, all of a sudden has an issue with their customer and that you’re standing around unable to pursue the work and you’ve done nothing wrong. It is forces outside our control that keep me awake at night. We are a well – are you new to the company, we are well financed, we have the need, we are believers and we have excellent equipment to perform our present needs and future goals. So I feel very strongly that we are in the right business, particularly at the right time. And in the right part of the country. The southeastern United States is an area of very strong growth and we are embedded in these areas and have a very strong presence and good relationships. We want to continue to, to grow our relationships with our not only our current customers or to maintain those relationships but to generate new relationships to give us a greater opportunity to see more work to pursue and that will give us a better area to, better opportunity to choose work moving forward. That’s a big deal. Having more choices is always a big deal.

Now do you have some bench strength in the company to help you do all of this?

Repeat it.

Well, it’s really a depth of management.

Bench strength. I got you now. He said, bench strength. Everyone is always challenged in our industry. Every company is challenged by bench strength. We are in a constant process of pursuing talent and there is talent out there, it’s just hard to come by, because the talent is working somewhere else. But we are pursuing the personnel to assist us, to help us achieve the growth goals and the new customer goals. There is a, a lot of time is being focused on that in order to achieve these. We are fully conscious that without the future talent, we are not going to be able to achieve the goals that we have laid out in front of us. We don’t have a great big depth on the bench, right now. Everybody is working as hard as they can. So it has to come from sources and we are going to be pursuing those. We are pursuing those.

Great. Thank you very much for answering all my questions.

Yes, Sir. Thank you for asking.

Our next question is a follow-up from George Gasper, a Private Investor. Your line is now live.

Okay, thank you. Sorry, I had a telephonic problem here. I don’t know if you really got the question I was asking or not, but I was just wondering as you push westward out of the southeastern part of the United States. What are your thoughts and moving Georgia, Kentucky westward in the lower Midwest maybe to reach right straight through to the Texas area, can you comment on your thoughts there.

Having said that, we, one of our MSA is LG and EKU, where we have both transmission and distribution services in Kentucky. So that does, hopefully that answers part of the question. We do want to continue to fill the gap between there and Texas. We are seeing, we are pursuing customers particularly utilities that are operating in the Louisiana, Alabama, Arkansas region. I mean, we perform work in, we just got finished with a wind project in North Western Kansas, way up in the corner.

Yes.

So I mean, we have the capability right now, George, to assume projects and material projects in areas far outside of Texas. Texas is such a monster of a state, to travel 600 million or 800 miles to the project is not a big deal. You can darn there, do that in Texas. If you are in Brownsville or in, or north of Dallas, it’s a long way. So for us to go two states to the north or into Louisiana is not an issue.

I see. And just additional question on that Texas area, maybe I’ve asked this in the past, but is the South Western part of Texas attractive to you at this point in time for expansion?

Yes. Encore in Texas and Mexico and AEP, all of whom we work with. Some less, some more than others.

Okay, all right. And then my last question is related to your opportunity on 5G insta, are you going to be there, it looks like this is going to require an enormous amount of field work across most of the United States.

George, as you know, we are in the fiber optics splicing business and also in the installation of fiber optics, but that’s generally associated with the construction of power lines on the OPGW. So as these become a part of the system, am sure there are positives that are going to accrue to us. But you have to realize what our business is. It is in the slicing and the installation of OPGW. We don’t do any ADSS anymore. Or I guess we do but it’s almost nothing. But as 5G comes on, I am sure it will impact the entire industry. But only, for us, it’s only to the extent it is associated with electrical power line construction.

Right. Okay. And then if I could squeeze one in about on the real estate side, your real estate generally has been in your general vicinity of where you’re located in terms of your management operations. There seems to be an awful lot of expansion in the Fort Myers and north of Naples area now moving east out on Naples. Does that area interest you? Maybe even from a electrical work point of view, do you see that as opportunity?

Please, believe me, we do a lot of work in that area in the electronic construction. Some of the, we work for Florida Power & Light, Lee County Electric Coop and others down there. I mean, we have a very large presence and crews on the ground as we just see it. So we have that well covered.

Okay. All right, well that’s good to hear. Okay, thank you, kindly.

Yes, sir.

Thank you, ladies and gentlemen, I’m showing no further questions at this time. I’ll hand the call back to John Sottile for any 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 line at this time and have a wonderful day. We thank you for your participation today.