Visionary Holdings Inc. (GV) Q3 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Goldfields Corp Third quarter 2019 Financial Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host Josh Littman, Head of Investor Relations. Thank you. You may begin.

Thank you and good morning, everyone. I'd like to welcome you to the Goldfield Corporation conference call to discuss the company's third 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 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 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 September 30, 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 third quarter. We recorded a record electrical construction revenue for the quarter. This was driven by continued growth in transmission, substation and foundation construction activities throughout the company. As I shared with you during last quarter's conference call, we have made changes on our Texas Southwest operations bidding strategy that is having a positive effect. Profitability in Texas saw a continuous improvement throughout the quarter and losses in this region have been substantially curtailed. We believe these operations will continue to improve and be profitable for the fourth quarter of 2019. Looking forward in our Texas Southwest operations, we continue to secure additional customers that are providing a increased number of project opportunities. We are closely monitoring the market in this region to be in a position to make changes if necessary. Other areas continue to perform well. Our mid-Atlantic service line expansion into substation, foundation and distribution services has been accretive to results. Within our Southwest operations, we continue to pursue new project opportunities with a more diverse customer base than we have seen in the past. We expect infrastructure needs for electrical construction services to grow at record levels in the regions we serve. We believe Goldfield will continue to experience top line electrical construction growth with improved operating margins. At this point I'd like to turn the call over to Stephen 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 third quarter results as compared to the prior year. 2019 third quarter total revenue was $44.7 million, an increase of $15.2 million or 51.6% compared to the same period last year. The increase in total revenue was primarily attributable to increases in electrical construction and to a lesser extent, real estate development operations. Electrical construction revenue in the 2019 third quarter was $43.2 million, an increase of $13.7 million or 46.3% from $29.5 million for the same period in 2018, primarily due to increases in projects awarded and work completed in the Texas Southwest, Southeast and mid-Atlantic regions. The increase in the Texas Southwest region was primarily due to an increase in transmission project volume, service line expansion, and MSA customer project activity for the 3 months ended September 30, 2019. The increase in the Southeast region was due to an increase in both MSA and non-MSA project activity. The increase in the mid-Atlantic region is mainly due to service line expansion. As expected, revenue from real estate development operations increased $1.6 million for the 3 months ended September 30, 2019 due to the increase in the number of units sold. Gross Margin on electrical construction operations increased to 14.8% compared to 11.5% for the same period in 2018. Comparing the year-over-year third quarter results, depreciation and amortization expenses increased approximately $584,000 or 27.4% to $2.7 million. This increase was mainly due to the increase in capital expenditures to support revenue growth in electrical construction operations. Selling, general and administrative expenses increased $717,000 or 49.6% to $2.2 million, mainly due to increases in customary accrued executive bonuses as a result of a partial bonus waiver in executive compensation for 2018, which was not waived in 2019, and selling expenses in our real estate development operations. Operating income was $2.1 million in the 2019 third quarter, compared to a loss of $105,000 in the same 2018 period. The increase was primarily attributable to higher electrical construction and real estate development gross margins, partially offset by higher SG&A and depreciation expenses. Net income increased to $1.2 million or $0.05 per share for the 2019 third quarter from a loss of $193,200 or $0.01 loss per share in the same period of 2018. Cash provided by our operating activities in the period ended September 30, 2019 totaled $20.4 million compared to $6 million in the same period last year. The increase in operating cash flows is primarily attributable to the completion and sales of properties within our real estate development operations. EBITDA for the third quarter ended September 30, 2019 was $4.9 million compared to $2.1 million for the same period of 2018. Total backlog at September 30, 2019 increased $7 million or 3.9% to $187.5 million compared to $180.6 million as of September 30, 2018. At the end of the third quarter, our 12-month total electrical construction backlog decreased 3.2% to $96 million compared to $99.2 million one year ago, mainly due to the MSA backlog runoff partially offset by the award of new MSAs. Our provision for income taxes was $592,000 in the third quarter of 2019 versus a benefit of $82,000 in the same period last year. Our current effective tax rate for the third quarter is 33.8% compared to 29.8% in the same period last year. The effective tax rate for both the comparable periods differs from the federal statutory rate of 21% primarily due to non-deductible expenses and state income taxes. At September 30, 2019, we had approximately $21 million of cash and cash equivalents, $34 million of funded debt, $34.2 million of working capital and an $18 million revolving line of credit, of which $17.4 million was available for borrowing. Total capital expenditures for the 9 months ended September 30, 2019, was $16.2 million compared to $15.1 million in the same period a year ago. This increase was due to a combination of factors including equipment purchase for expansion efforts, continued fleet upgrades and the decision to purchase equipment coming off master lease during the first 9 months of 2019. Our updated CapEx projection for the 2019 full year is approximately $19 million. This concludes our prepared remarks. Operator, please open the call to questions.

Ladies and gentlemen the floor is now open for questions. [Operator Instructions] Our first question today is coming from Sam Rebotsky of SER Asset Management. Please go ahead.

Yes. Good morning John and Steve. Congratulations in the changes in Texas. Can you indicate, you said there were a $4 million losses in the 6 months? Did you breakeven in Texas and will be profitable in the balance of the year in Texas? Could you sort of quantify what's going on with the Texas jobs?

Hey Sam, it's John. During the quarter, Texas had a small loss. Actually, the transformation itself was profitable. But it was actually de minimis relative to what it had been in the past. And as I shared with you on the last call that we -- had taken -- undertaken changes in our bidding processes that are now having a positive effect on the Texas Southwest operations. We do believe that it will be profitable during Q4. Moving forward from there, we are -- we don't have the work in-house yet to for me to comment on Q1, Q2 of 2020. But as that work comes in-house, we will be in a position to feel better about commenting on it. Now Q4, all the word for Q4 is in-house. We don't have to bid anything else to get the work. It's all there.

So the work in the house on Texas, it will be not significantly profitable, it will be more than profitable. Do you think it's more profitable than you looked at for a breakeven for the 6 months? There will be some kind of improved profit and you're bidding the jobs in a way that it will be more profitable, maybe not as close as your other jobs, but it will be more respectable and profitable for the work to taking on the work.

Sam, because Texas is the elephant in the room, I don't have the budgets complete for the -- anything in Q4. Having said that, I am -- I believe that the profitability for Texas transmission should be between $500,000 and $1 million during the quarter. And I -- and as you know, I do not like commenting on that. But with the work that's in-house, it should be in that neck of the woods. And again, I don't normally comment, but because they're the elephant in the room. Now the bidding process, the bidding changes, and then it has more to do -- it has to do with a number of things. One of them is profit margins. And that's easy to fix, but it is the amount of risk that we're willing to assume when we undertake a project. That is, we have recognized over the last 5 years that substantially all of our problems are not building the job. They are the conditions that result from adverse weather conditions which you've read about more times than you cared to ever see. So we are managing the weather, hopefully so far successfully, and we will continue to manage the weather when we bid these projects. So when adverse weather conditions occur, as they do during the winter and spring, we will be in a position to move on without them having a material effect on these projects.

Well, that's great, John. And as far as the jobs that you're bidding on, the record volume that you have in this third quarter, it appears as there is a lot more work and you expect to continue to increase -- is the scope of the size for this quarter, will that continue and increase going forward?

Rather than comment on that, let me say that we have secured additional utility customers that will have a material impact on the number of projects that we see to bid. There are -- in recent weeks as these projects come in-house, we are seeing some, I don't know, a half a dozen projects that are in the $10 million to $30 million range. That will -- we will get our fair share of them. And they are not necessarily confined to Texas, but they are -- they run up through Oklahoma, Arkansas, Colorado, Louisiana. They run up that corridor heading towards in the Northeast. So Texas, because it's such a large state, is not confined the Texas. We have operated outside of the Texas State. It is truly Texas Southwest. And we see these opportunities continuing to expand and we are very pleased because with these opportunities should come increased project revenue on a more consistent basis. Now it hadn't happened yet, Sam. So that's our goal.

Well that's wonderful John. Keep up the good work and keep changing this structure into Goldfields benefit. Good luck. Thank you very much.

Thank you very much for your call sir.

Thank you. Our next question is coming from Brett Reiss of Janney Montgomery Scott. Please go ahead with your question.

Thank you. Hi Mr. Sottile.

Morning Mr. Reiss.

Hi. Quanta services is a competitor and they have relationships with a lot of the large California utilities that have the wildfire problems, so one thing that they're going to have to dedicate a lot of resources to take care of their client base in California. Does that leave a opportunity or vacuum for you in the east coast?

I don't really think so. I think -- and I don't want to speak too much for corner that we do not operate in California, we have made a conscious decision not to. We -- our jobs are still extremely competitive throughout all of our regional offices. So we continue to see this competitiveness. We do see certain line personnel particularly in the union arena that are moving to California to take advantage of the much higher rates being paid in California that are being paid in the areas that we serve. So it -- and I'm not seeing it, okay? But California is certainly sucking personnel -- line personnel into them -- into the state.

Okay. I kind of -- I thank you for that, kind of related to that. When you're negotiating with your Texas customers, so who bears the weather-related burdens, since more and more resources are -- and skilled people are being drawn to California, does that increase at the margin your ability to maybe impose more of the weather-related burden on the customer as opposed to bearing it ourselves?

What we do manage the weather in the bid for instance to give you for instance on the right away that conditions can go adverse in the event of a serious rain we make sure that we are covered through one method or another either through the bid or the utilization of maps on these projects and on the right of ways to be able to competitively move ahead even though that the rains there may be adverse, they will come. I mean the rains coming, it does it every winter and every spring certainly and in the period of time since we've been in Texas. So what we're seeing is a tightening of personnel and we have not seen that in the past in Texas but we're seeing a tightening of personnel possibly as a result of California. I can't comment on why but and from a non-union perspective we're also seeing a tightening of personnel. Our job is becoming, I don't really think so but there are more to look at and there is an enormous amount of work that we see not only on the horizon but happening as we speak.

If you get things right in Texas a year or so from now, what is your gross margin target?

It is -- the target is to return to that, I want to say, 20-ish range, Steve?

Yes.

The 20-ish range is where we're shooting for now. We've seen a drop down from there for various reasons that are disclosed in our public filings. But it is our goal to get back in the 20-ish range. I think back in the 25-26 range at this juncture is just unrealistic. Steve?

I agree.

Yes.

And one final one. Qantas Services, I see the other day purchased a company called Hallen Construction. Do you know them? Do they do similar things to you?

I'm not familiar with Hallen Construction. I do know that subsidiaries of Quanta have been out-buying substation -- not substation, foundation companies. But beyond that, I'm sorry, I don't know who they are. Are they east coast, west coast? Or don't know where they're at. Quanta is -- Quanta Service is a Goliath. It's a $10 billion, $11 billion company.

You are right. Sure. I guess one final one. If you did get the margins in Texas up to the 20%, what would you ballpark -- what's the earnings power of Goldfield with margins in Texas at 20%?

It would be dependent upon revenue. You have to understand that as I had mentioned a few minutes ago, we are seeing an enormous number of new projects on the street that people have questioned us why do we continue to chase Texas. It is literally elephant country. And as we secure additional utility customers to bid in that region, we feel that the opportunities are probably some of the best in the country for material growth with better margins.

If sometime within the next 2 years the U.S. economy goes into a recession, do you think the demand from your customers is basically recession resistant?

We are not -- in the event that there is a recession, saving it is -- saving the recession is being something staggering. We do not see a material adverse change in the amount of work that's coming. Much of this is mandated by federal and state laws that had been enacted, and it's all the utilities can do to keep up with these requirements, unless the federal or state governments change their existing demands, commitments, laws. As far as I can see forward, there will be increased growth in the areas we serve.

Great. That sounds good. Thank you very much for taking my questions.

Yes sir thank you.

Thank you. Our next question is coming from [indiscernible] a private investor. Please go ahead.

Yes good morning and congratulations. Good morning and nice session and nice improvement in the quarter. I'd like to ask you a little bit more. Do you -- this recent flooding, for example, around the Houston area was pretty serious. Were you called in to do any emergency work in the Southeast Texas or you were too far away from it to be called?

No, we were not involved in any restoration efforts in that area. Remember, for the most part, we are not a storm company. But when you see storms hit Florida, material storms, we will most -- we will be involved. We are not -- we're not distribution, which is generally the most adversely affected during hurricanes. You will not see us participating to any great degree. Don't get me wrong. You got one that comes into Miami, Fort Lauderdale and goes up the coast through Orlando. Everybody in the company would be working on it.

Yes. Okay. And then a question on the Texas oil patch. Are you getting closer to some work in that general vicinity like the Midland basin for example, where which looks like it needs an awful lot of upgrade on electrical side and other transmission sides to improve their ability to carry out their mission?

I hope so. We are looking at work in that area as we speak.

Okay. All right.

The short answer is yes.

Okay and then on the 5G install, any chance of you doing if not tower install or equipment on towers, but would you be involved in the requirement that's going to meet the need, a tremendous amount of pole install and in installing a 5G equipment on poles every maybe thousand feet in municipalities?

We are -- in the fiber business, we do 2 things. We pull fiber, okay? And then we do that. And then perform those jobs daily. In addition, we are involved in the splicing and testing business. The fiber installations is not a large part of our business and I do not expect it to be in the future. Even if you're doing long poles of fiber, you're doing 10-20 mile poles, it just is not that big of a -- has not and do not, does not expect to be that big a part of our business. Now, we'll continue to do the splicing and testing of course.

Yes. Okay. And then one question on the -- moving more opportunity going west from the mid-Atlantic area, we are going through the Carolinas and into Georgia. Is there a possibility that you're going to keep trying to push further west through those states, maybe say moving into Kentucky and Southern Illinois and Missouri area?

Absolutely. We are in Kentucky as we speak. We expect to be expanding our Kentucky operations during 2020. So that's -- the Kentucky, yes, we will be expanding that in 2020. In Georgia, we are probably going to be having discussions to be working on the system in Georgia. Yes. Short answer is yes.

There's a lot going on there in those areas and from construction of high ranking manufacturing possibilities. Many out of facilities had been built in the Southeast and going into Kentucky even, as opposed to coming out of Ohio or Michigan even. So that would require, I'm sure, a lot more power distributions.

There are other that are building big facilities down there too that require substantial power.

Right. Okay all right. Thank you very much. Good luck to you.

Thank you sir.

Thank you. Our next question is coming from Kurt Caramanidis of Carl M. Hennig. Please go ahead.

Very good.

Good morning sir.

Good morning. congratulations as well again it seems like we're on a good path. Do you know what that is Quanta's, what they're paying is a multiple of EBITDA or anything like that for these other companies?

No, that's nonpublic. Quanta is so big, you can't figure out. I mean, I know of companies that they have purchased that -- we're constantly looking at companies. And I -- it just it's not public, so I don't know. But I do know some of the people that are -- that actually own some of those companies. And for at present, I don't know what they paid. Now I believe that people are paying some of the equity -- or the financial equity and strategics are paying heavily for infrastructure-related companies. But without having it in writing, I simply don't know. I would be -- it would be conjecture and guess. I mean, I've got my own set of thoughts, but I don't think this is an appropriate venue for me to voice then. It's substantial look.

Yes. I mean it would be because if I'm right you're treating at about three times EBITDA which would seem quite low compared I think what probably some of this stuff is selling for. Are you with that cash you've got is that being used is that net that's a pretty large balance for debt reduction, you are looking at the stock as a buyback, you have a buyback going at these low valuations with the very strong outlook for the company?

Again, the short answer is yes, as you know. I guess, Steve, how much did we buyback last year, do you recall? It was -- we bought back about a 1,200,000 shares or something. It's over 1,000,000.

928,000

We bought back 928,000 last year.

[indiscernible].

We are constantly looking at the market. And when the opportunity presents itself, we believe that that is an excellent investment for our shareholders to buy back our own stock. I agree with you. I agree with you.

This is significantly under what I think probably other transactions are going for and the fact that now you maybe have a path to run on here. But lots of good things on the call. One last point, any of these deals that you could -- we got a long time before we hear from you now. Is there any chance that you've got quite a few pretty sizable deals in the next maybe 3 months that could come in that you could do any updates? We secured not blocking and tackling stuff. But it sounds like you've got some pretty nice opportunity just to get a touch out to the street on, if it's [indiscernible].

I agree. If there is a material project or 2 or 3, I think it would be incumbent that we advise the shareholders by public release. I agree with you. Yes. The answer is yes. If we get one of adequate size, we will make a press release to keep you posted. Yes, sir.

Thank you.

The answer is yes. We get one of adequate size we will make a press release to keep you posted. Yes sir.

Super. Thanks guys. Appreciate it.

Thank you sir.

Thank you. At this time I'd like to turn the floor back over to management for any additional or closing comment.

This is John Sottile. 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.

Ladies and gentlemen thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and have a wonderful day.