Visionary Holdings Inc. (GV) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the Goldfield Corporation First Quarter 2020 Conference Call. [Operator Instructions]. I would now like to turn the conference over to Kristine Walczak of Effective Corporate Communications. Ms. Walczak, 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 first quarter results for 2020, 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 me at 312-898-3072, 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, 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 Form 10-Q for the quarterly period ended March 31, 2020. 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, Kristine, and good morning. We appreciate you joining us and for your continued 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 of 2020. We entered 2020 with a record backlog and a strong balance sheet. Our results for the first quarter 2020 also included improved electrical construction revenue and margin compared to 2019. We achieved these results despite a slow start during the first quarter with certain MSA contracts. As we expected and shared with you in the last quarter, our work on those MSA contracts is now underway and should contribute to enhanced results for the second quarter and beyond during 2020. We are pleased with the results, notwithstanding the challenging environment faced by most companies today. More importantly, the health and safety of our employees comes first. As of now, we have not been significantly impacted by COVID-19, other than some additional time requirements for our executive and field personnel. We have proactively taken measures to mitigate the spread of the virus and to ensure stability. To date, we have no crew shutdowns as a result of the pandemic. We are continuing to monitor the impact of the pandemic, and we are prepared to react to changes that we may encounter. Importantly, we continue to deliver our commitment to our shareholders by executing projects and securing future work. Since we provide critical infrastructure services and perform virtually all of the electrical construction work outdoors, the company's businesses have not experienced any material adverse impacts. We believe that both our electrical construction revenue and net income will show strong improvements in the second quarter. However, we do anticipate that current economic uncertainty will impact our real estate development operations by delaying the start of several projects. Our Texas-Southwest region demonstrated striking improvement from last year's first quarter, contributing to growth in both top and bottom lines. This performance is a function of the ongoing expansion into substation and distribution services, development of new customer relationships and securing profitable projects from new and existing customers. Looking forward, the expansion into substation and distribution services, award of new MSAs, securing of major project awards and our strong backlog should have a material positive effect on our results in the second quarter and throughout 2020. This, combined with our strong balance sheet and successful efforts to expand our target market, should provide the opportunity for continued growth in revenue and shareholder value. 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 first quarter results as compared to the prior year. First quarter 2020 total revenue was $45 million, a decrease of $3 million or 6% compared to the same period last year. The decrease in total revenue was primarily attributable to lower real estate development revenue, partially offset by improved electrical construction revenue. Electrical construction revenue in the 2020 first quarter was $43 million, an increase of $2 million or 4% from $41 million for the same period in 2019. This improvement was primarily due to increases in MSA project activity, including service line expansion in the Texas-Southwest region, partially offset by decreases in non-MSA project activity, mainly in the mid-Atlantic region. As you may recall, we mentioned last quarter that the new MSA we secured in the Mid-Atlantic region would experience a slow start in the first quarter of 2020, but would produce material revenue and profit beginning in the second quarter. In the Southeast region, we remain at lower than projected crew levels. Revenue from real estate development operations decreased to $2 million for the 3 months ended March 30, 2020, from $6 million in the same period in 2019 due to the decrease in the number of units available for sale. As John mentioned, we believe that the current economic uncertainty will impact our real estate development operations this year by delaying the start of certain projects. Gross margin on electrical construction operations increased to 15.3% compared to 14.7% for the same period in 2019. This improvement was mainly due to our service line expansions, as well as higher foundation construction activity with improved margins across multiple service regions. Lower project activity in both our Southeast and Mid-Atlantic regions negatively impacted margins. Comparing the year-over-year first quarter results, depreciation and amortization expenses increased approximately $312,000 or 12% to $3 million. This increase was mainly due to higher capital expenditures in 2019 to support revenue growth in electrical construction operations. Selling, general and administrative expenses increased $75,000 or 3% to $3 million, mainly due to a onetime severance charge. Also contributing to this increase were higher legal expenses, partially offset by lower real estate development selling expenses and corporate executive accrued bonus expense. Operating income was $2 million in the 2020 first quarter compared to $3 million in the same 2019 period. This decrease was mainly due to lower real estate development gross profit and higher depreciation expense, partially offset by higher electrical construction gross profit. In the first quarter of 2020, our provision for income taxes was a benefit of $106,000 compared to an expense of $827,000 in the same period last year. The recently enacted CARES Act includes certain modifications to the tax code, which resulted in a material benefit to the company's income tax provision for the first quarter of 2020. Our current effective tax rate for the first quarter was a benefit of 7.7% compared to an expense of 31.7% in the same period last year, primarily due to a onetime item recorded as a result of the CARES Act. Net income decreased to $1.5 million or $0.06 per share for the 2020 first quarter from $1.8 million or $0.07 per share in the same period of 2019. This decrease is primarily due to the decline in real estate development activity, partially offset by a decrease in the tax provision. Cash used in our operating activities in the period ended March 31, 2020, totaled $4 million compared to cash provided by operations of $2 million in 2019. The decrease in operating cash flows is primarily attributable to the timing of real estate development and electrical construction projects. EBITDA for the first quarter ended March 31, 2020, was $5 million compared to $6 million for the same period of 2019. This decrease was primarily due to lower gross profit from real estate development operations, partially offset by higher gross profit from electrical construction. Total backlog at March 31, 2020, increased $265 million or 127% to $473 million compared to $208 million a year ago. This improvement is due to the increase in estimated MSA work, primarily attributable to the award of 4 new MSAs, 2 are which from new MSA customers. At the end of the first quarter of 2020, our 12-month total electrical construction backlog increased 75% to $173 million compared to $99 million 1 year ago, mainly due to the increase in firm MSA project activity, as well as an increase in the estimated MSA work. At March 31, 2020, we had approximately $27 million of cash and cash equivalents, $45 million of funded debt and a $23 million revolving line of credit, of which $12 million was available for borrowing. Total capital expenditures for the 3 months ended March 31, 2020, was $5 million compared to $12 million in the same period a year ago. This decrease was due to the mix of assets purchased versus leased in the comparable quarters for our electrical construction operations. Our CapEx projection for the full year 2020 is $14 million. This concludes our prepared remarks. Operator, please open the call to questions.

[Operator Instructions]. Our first question is from the line of Sam Rebotsky with SER Asset Management.

Now based on our backlog, should we assume that the MSAs that the revenue will increase proportionately and the profitability will follow?

Not necessarily. These are multiyear MSAs and the income -- the revenue and income will occur over -- I think, Steve, they run anywhere from 3 to 7 years?

Yes, sir.

So they run from 3 to 7 years, Sam. So while we expect an increase in the revenue and related profit, it's not going to be proportionately like it's going to double overnight. We don't expect that. It can happen, but that is not what we expect. These -- it was awkward for us because when these 4 MSAs were signed, they were not letting any workout, and that hurt the first quarter. It's one of the reasons the first quarter was held back is we were not able to put underway projects that we knew were in the queue. So after we were able to sign these, it really takes a month or 2 or so before they can get cranked up, but we expect to -- we are now seeing the projects being let, and we are working on them that are covered under those 4 MSAs.

Now these four MSAs, so they -- which district are they? Texas, Southeast, how -- what's the breakdown?

Well, there's Florida, Texas, Mid-Atlantic, generally, all across the board, to be honest with you. But principally in those areas.

And at this point in time, the Texas area, we have improved our profitability, and everything is working pretty good as far as because in this first quarter, the sales improved pretty decently. So I assume you have straightened out, more or less, the profitability of the Texas operation?

Texas has improved. There are other contributors than transmission in Texas are related or service lines in both distribution and some case are contributing to both revenue and profit. We are hopeful that they will continue to do this as we move forward. In Q1 -- I mean they just got started up in 2019. Prior to that, they had either lost money or contributed very little. It takes a while to get these new service lines, get the king's work out of them. But we view that as a greater contributor than we had inspected -- we expected in the past. And in all honestly, the utilities themselves, and I'm not trying to blame anybody, there are processes they go through that adversely affect them by COVID-19 and compliances that would literally there were days or hours that they come out with new rules every moment. And many of them are working from home. So I question their productivity on handing work out. Now work is coming out well, but -- as we move along, but COVID-19 is -- it does affect, not us, but our customers to some degree.

And as far as the COVID-19, as far as our contracts are concerned, is there any possibility, if there's any delays that because of the excess costs were reimbursed relative to that, I mean, the way we bid those jobs?

Well, you've said two different things. Under our current contracts, generally, the answer is no. Under future contracts, we have to make assessments as to what we think the impact may be on the projects from COVID-19, if any. So we are being very cautious about potential delays and the reasons for these potential delays that may occur. It gets into subcontracts, and penalties, and LVs and just a whole plethora of things that the utilities are aware of when we enter into a contract.

Our next question is from the line of George Gasper [ph], Private Investor.

Just a little bit more on the Texas situation. It was a struggle getting started, and you really put a lot of effort in and getting it straightened out, and it looks to be moving ahead here. Can you describe a little bit more about the area in Texas that you are working and what your opportunities are for expansion there in branching out?

We operate throughout the entire state. But in addition to that, many of our projects will run into Oklahoma, Colorado, Arkansas and Missouri. So Texas is a good place to work out of. We have yards in Fort Worth, Dallas-Fort Worth area, and then we have them in Bastrop. And of course, Texas is enormous. But out of our primary yards, we are able to work in a -- 4 or 5 other states competitively.

Okay. All right. That's good. And I had a question on substation activity, in which you mentioned a couple of different times. Do you see -- it would seem like there is more tremendous increase in the demand for electricity and the movement of power over long distance lines. And it would almost appear to me that there is got to be an upgrading in substations install and replacement. Is that a possibility for you?

That is absolutely correct. Every power line has got to have a couple of substations, at least. So I mean think about it, they -- and many of them are in bad need of upgrades. And every time they install a new power line, you have to have a new substation to go with it. When they upgrade a power line, they have to upgrade the substation at the same time. And we do a lot -- in addition to building new ones, we do a lot of repair work and upgrade work on the substations, and we're getting better at it every day. And I am pleasantly surprised at the amount of work we are seeing and the amount of work we can see coming in the substation arena.

That's very encouraging. And going back, coming out of that region, moving back to more South Central. You indicated in the past calls that you are breaking into Kentucky. How is that going along?

It's in its -- we have several contracts in Kentucky, both in transmission and distribution. We are working on methods to continue to improve our profitability and continuity of work. So it's -- I think the opportunities are excellent, but it does have a little ways to go before it becomes as mature as Texas has become for us. And it's okay, believe me, east of Texas is a solid year to get straight.

Great. And just a general question about your view of trying to expand your overall business. Are there areas of product offerings that you can expand on generally looking forward to broaden your revenue stream capabilities?

Yes. As I've shared with you in the past, George, our general area that we work runs from, let's say, Virginia around to West Texas. Having said that, there are major utilities that we will be courting in those areas. And our goal is to continue to fill in the utilities that we are not currently working for, and then either create new yards, acquire new companies or organically grow them. But it is still to just fill in these areas. We believe these areas are going to continue to be strong growth areas and should result in excellent sources of revenue and related profit.

Okay. Okay. That's good. And one specific question about a product line. I think I asked this in the last conference call. About the 5G install environment, has that encouraged you to try to branch into that?

We install fiber optic cable, okay? Whatever it is, 5G, we install. It's like people talking about wind farms. Wind farms make no different to us. It's electricity. And electricity is carried through wires, and they could be wind farms, it could be -- any method of generating electricity requires the same wires. So some of it is DC, but we don't do much of that. And it's mostly -- it really doesn't matter how it's generated. And the 5G, I don't think it really matters much whether it's 5G. That's just is a whole new growth area for the communications companies. And we work for a slug of them. It's not a big business, but we do work for a number of them.

Our next question is from the line of Kurt Caramanidis with Carl M. Hennig.

Wondering about -- with guys working at home that you are probably dealing with as far as getting business, has bidding activity slowed at all? Do you think that through the quarter with things opening up that could increase? Or what's the current and maybe your outlook on bidding activity and size of opportunities, projects, that kind of thing?

That's a challenging question for me. I don't think we're as adversely affected as one might think with the number of our customers that are working from home. We are still seeing projects coming on the Street. I know in the real estate arena, working through government agencies, we had to slide back a major project about 5 or 6 months that hurt because it would have produced substantial income in '21 -- or in '20 that is now going to get shoved to '21. I think, and this is really guesswork, it is a little challenging for me to believe that they're going to be as productive at home as they will be in an office environment because of their ability to interact with other people, other engineers and so forth that are designing the projects. So it's difficult to really give a good answer to that. Let's hope not. But we are still -- I mean our level -- it's not as if our revenue has died or anything, but I really think that come this summer and fall, you will see improvements in revenue. I just can't get around to believing that they are as productive, and I know I'm being redundant, as they historically have been.

Okay. And on the margin front, gross margin front, fourth quarter was clearly quite a pop, and then we pulled back with the start-up cost, a slow start to Q1 this year. Do you see upper teens kind of a bridge in between through the rest of the year? What is -- kind of just some general thoughts on gross margins Q2 and kind of the rest of the year?

We still are shooting in the 16% to 19% range, but we also believe that the opportunities to exceed that are very good. You got to get started on the new projects. And additionally, you have to be very careful, as we have discussed in the past, to judge Goldfield on a quarter-over-quarter basis. I still feel good about the margins and for the improvement in the margins. But in safety's sake, let's stay with the 16% to 19%, and hopefully, we are able to improve on that. Remember, it did get better. I mean over a quarter -- was it -- it's 1 quarter or it's year-over-year? Steve?

Yes. We were...

It's 15.3% versus...

15.3% and 14.7%.

Yes. So it actually did improve, but it was not what we would like to see. But the failure of -- to sign those MSAs or the delays, rather, to run those MSAs, were -- adversely affected Q1. I'm not going to kid you there. It's just draw again, draw again, draw again to get those signed. And once you get them signed, it's not like the switch gets turned on and they dump it all on you. Then they have to go and continue to engineer the new projects, and then you have to go through the normal processes. It can take several months. We are now just getting to where we are seeing the results or the opportunities from the new MSAs, and some of them are brand new, I mean, they are new, to see the results of those. So we are -- we think there are excellent opportunities for continued improvement in the revenue and, of course, the related margins.

Great. And just a follow-up for my first question. So are there larger opportunities such as last fall, where you were able to announce, "Hey we secured a couple of big deals" in the next quarter, let's say. Are you working -- how's the outlook on that? Is there anything that in the next quarter we might see, "Hey, we just secured something here or there that's worthy of a note, worthy of a release" or something?

We are always working on material or larger projects. And for every one we get, there's a number of them that fall by the wayside. We -- yes, they are out there. And sure enough, if I say to you that I don't expect one next week, one will hit. There are some very large ones out there that we're working on and bidding as we speak. But that doesn't mean we're going to be [indiscernible].

Our next question is from the line of Steven Branstetter with ABL Investments [ph].

On the real estate front, are we going to assume the second half of the year is going to be pretty slow on both?

I think that is accurate. Yes. The real estate is a small division of the company and only employs three individuals. And substantially, everything is outsourced. During much of the time, we are building single family homes, we are building townhomes and other smaller projects. The larger oceanfront projects that also command the big margins generally take between 2 and 2.5 years to purchase, engineer, price and build and sell. So I would say that it will be flat.

Are you looking at any opportunities to purchase land?

You bet you. Yes, sir. We got several of them.

Our next question comes -- is a follow-up from the line of Sam Rebotsky with SER Asset Management.

Yes. John and Steve, this is a difficult time but you have demonstrated the -- acquiring these projects and the profitability, which will improve, and it would appear the story is appropriate to come out and the helping coming out, unfortunately, you can't make a presentation at a conference. But to the extent there are virtual conferences, I believe it would be a good idea to seek them out and tell the story so that there could be a greater valuation put on Goldfield. Is there any thought on seeking out any of these virtual conferences and telling the story?

Absolutely. It is -- as you know, the world is changing quickly. We want to make sure when we design one of these virtual conferences that we target the right group and are able to get the -- whether we do it -- whatever method we use to do it, I think that's a good idea and if we can get the proper people, the proper investors at the conference. But, yes, I think it's a good idea and wholeheartedly agree.

Thank you. At this time, I will turn the floor back to John Sottile for 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. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.