Visionary Holdings Inc. (GV) Q2 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to The Goldfield Corporation Second Quarter 2020 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Kristine Walczak of Effective Corporate Communications. 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 second quarter results for 2020, which were reported yesterday. If you did not receive yesterday's press release, please call 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'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 June 30, 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 this said, let me turn the call over to our Acting Co-CEO and Chief Financial Officer, Steve Wherry.

Thank you, Kristine, and good morning. We appreciate you joining us and for your continued interest in The Goldfield Corporation. Our CEO, John Sottile, sends his apologies for not being on our call today. As previously disclosed, Mr. Sottile is currently hospitalized and being treated for a non-COVID related respiratory condition. We will not be commenting further on Mr. Sottile's condition at this time. With me today is Jason Spivey, who serves as Acting Co-CEO and President of our wholly owned subsidiary, Power Corporation of America. Jason has more than 30 years' experience in the electrical construction industry. Demand for our services during the second quarter remained strong amid the extraordinary health and economic environment in which we are operating. Several key metrics we achieved include: successful service line expansion, which is beginning to pay dividends by opening doors to new customers and providing additional projects with existing customers, and contributed to a 19% increase in electrical construction revenue quarter-over-quarter. Improved volume of projects at higher margins, which grew electrical construction margin 420 basis points year-over-year and 340 basis points over the first quarter. Increased MSA project activity driven by our near record backlog, which should continue to provide strong opportunities during the second half of 2020. Most important, I want to sincerely thank all of our Goldfield employees for their commitment and resilience during these challenging times. Our existing pandemic plan, including measures implemented to protect employees in the field, and our work from home policies where appropriate, have been effective. Additionally, we continue to work in cooperation with our customers to meet their requirements for the safety of their employees and the general public. To date, we have not experienced any material adverse impacts on the availability of our workforce or key personnel as a result of COVID-19. The ability of our crews to continue to operate safely through the past several months in this difficult environment is one of our core competencies. I will now move to a review of our financials, of which I will review our second quarter results as compared to the prior year. Consolidated revenue for the second quarter of 2020 was $47.8 million, an increase of $3.4 million, or 7.7%, compared to the same period last year. The increase in total revenue was attributable to improved electrical construction operations project activity, offset by lower real estate development activity. Electrical construction revenue in the 2020 second quarter was $46.7 million, an increase of $7.5 million, or 19%, from $39.2 million for the same period in 2019. This improvement was primarily due to a $5.8 million increase in MSA projects awarded and work completed in the Southeast region and a $5 million increase in MSA transmission projects volume and service line expansion in the Texas Southwest region. These increases were partially offset by a $3.7 million decrease in MSA customer project activity in the Mid-Atlantic region. Revenue from real estate development operations decreased to $1.1 million for the three months ended June 30, 2020 from $5.2 million in the same period in 2019, primarily due to the number of units sold and the timing of completion of units available for sale. Gross margin on electrical construction operations increased 420 basis points to 18.7% compared to 14.5% for the same period in 2019. This improvement was mainly due to the increase in transmission project activity at a higher margin in the Texas Southwest region, which provided improved absorption of fixed costs. Comparing the year-over-year second quarter results, depreciation and amortization expenses increased approximately $263,000, or 9.6%, to $3 million. This increase was mainly due to higher capital expenditures to support revenue growth in electrical construction operations. Selling, general and administrative expenses remained level at $2.3 million. Operating income was $3.8 million in the 2020 second quarter compared to $1.6 million in the same 2019 period. This increase was mainly due to higher electrical construction gross profit, partially offset by lower real estate development gross profit and higher depreciation expenses. In the second quarter of 2020, our provision for income taxes was $1.1 million compared to $482,400 in the same period last year. Our current effective tax rate for the second quarter was 31.6% compared to 37.1%. The second quarter effective tax rate in 2019 was higher due to permanent differences in relation to expected income. Net income increased to $2.5 million, or $0.10 per share, for the 2020 second quarter from $819,000, or $0.03 per share, in the same period of 2019, primarily due to the increase in electrical construction activity, partially offset by lower real estate development activity. Cash provided by our operating activities in the period ended June 30, 2020, totaled $3 million compared to cash provided by operations of $11.5 million in 2019. The decrease in operating cash flows is primarily attributable to the timing of electrical construction projects. EBITDA for the second quarter ended June 30, 2020, improved 54.2% to $6.9 million, compared to $4.5 million for the same period of 2019. This increase was primarily due to improved electrical construction gross profit, partially offset by the decline in real estate development operations gross profit. Total backlog at June 30, 2020, increased 109.2% to $417.3 million, compared to $199.5 million a year ago. This improvement is primarily attributable to the award of 4 new MSAs. At the end of the second quarter of 2020, our 12-month total electrical construction backlog increased 60.5% to $171.2 million compared to $106.7 million 1 year ago, mainly due to the increase in firm MSA project activity, as well as an increase in the amount of estimated MSA work attributable to the award of new MSAs. At June 30, 2020, we had approximately $27.7 million of cash and cash equivalents, $42.5 million of funded debt and a $23 million revolving line of credit of which $12.3 million was available for borrowing. Total capital expenditures for the 6 months ended June 30, 2020 was $9 million compared to $14.3 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 $15.7 million. This concludes our prepared remarks. Operator, please open the call to questions.

Thank you. Ladies and gentlemen, at this time we'll conduct our question-and-answer session. [Operator Instructions] Our first question comes from Stephen Branstetter with ABL Investments. Please state your question.

Good morning, gentlemen. Are there any large contracts that you're bidding on that could possibly be signed in the near future?

We're always open to the pursuing contracts from all shapes and sizes all across the country. But there's rumors there'd be some large ones coming on the Street. We just haven't seen them yet.

Okay, very good. There was some rumor online that you might consider a name change of the company from Goldfield to Power Corporation of America to more, I guess, accurately reflect what type of business you're doing. Is there anything that you guys are considering on that front?

We've thought about it and the board considers it, and we'll resend that to the board for their consideration again.

Very good, have a great day gentleman.

Thanks Stephen.

Thank you.

Thank you. Our next question comes from Sam Rebotsky with SER Asset Management. Please state your question.

Yeah. Good morning Stephen and Jason. And John, get better soon. We're looking forward to you getting better. Stephen, the profit margins improved significantly, and John had spoken of this improvement in the previous conference call. The one thing I notice, the backlog had gone down from $473 million to $417 million on the long term. I assume we're bidding on jobs to get the backlog up? And are the jobs that we're bidding, are they significant in dollar amounts as we - of course we increased $0.25 billion the last time.

Yes sir. Sam, some of that large increase was due to a recent award of 4 new MSAs. As you know, as we - we burn through the backlog as we report our revenue. There can also be an adjustment as each quarter as we evaluate backlog, we have to make projections and estimates. And that's based on discussions with customers, based on discussions internally and looking at our workflow and the experience with that customer, is what I was trying to say. So that's the biggest reason there. But it helps the larger increases jump with the addition of new MSAs. We're continuing to bid and add work.

Okay. And the profit margins improved significantly, as John had talked about. Do we expect our profit margins to maintain or improve going forward?

Sam, we expect to - we target mid to high teens. And just remember, as John has always said, don't look at Goldfield on a quarter-to-quarter basis. You got to look at it over a longer period of time. But we're encouraged by the improved margins and the hard work of our teammates.

Okay. And the stock had improved very significantly. And I guess the - it's a very significant disappointment about John being in the hospital. But do we expect the - I guess hopefully the - has there been more people that are coming around and talking to Goldfield are interested in the company from various different aspects? Has there been more IR calls?

Yes, sir, there has been an uptick in that. And we've reached out to more investors and potential investors.

Well, that's very good. That's very good. And all right. All right, I will step back in. Hopefully there are other people that will talk. And hopefully we could maintain the profitability and the improvement in backlog. Of course, I know the other companies in the industry, their backlogs improved significantly. Their profits in the utility business improved, so good luck and best of luck to John. Get better quick.

Yes, Sir. Thank you so much Sam.

Thank you. [Operator Instructions] Our next question comes from Ashok Mehta. Please go ahead.

Yes, hi. I'm not sure I understood the comment about the backlog. Improved year-over-year as compared to the prior year's comparable quarter, but just compared to the end of the year, I noticed that it was down. So I know that estimates can vary, et cetera. But I just was curious, I mean, is there a sort of pipeline of new business better than at the end of the year? Or I'm just trying to sort of reconcile that backlog number being down versus the end of the year.

Well, a couple of large projects have burned off some revenue as previously disclosed, and we do change estimates. But we're constantly bidding new work, adding new jobs. Those get added in to our backlog.

Okay. So would you consider our pipeline of new business pretty robust, I guess? We've had a lot of growth in the last 18 months or so. I'm just kind of curious as compared to levels so far, how are we ranking in that kind of area?

Well, we look - our backlog is still significant compared to our historical levels. And we do see the opportunity for the growth through new customers. We continue to gain momentum through our expanded service lines, and that's been very helpful. We expanded our service lines in Texas. And actually, we expanded in the substation and distribution areas, as I'm sure you're aware, which led us to additional transmission work with one of our significant customers. So I hope that answers your question.

Okay. Yes. Thanks. Also, just on the real estate, I know we have a lull of a year this year on that. How does it look? I think there were supposed to be some new projects coming on in 2021, so can you provide any comment on that?

Yes. As you know, we completed the other projects we had under construction, sold those. And we have one coming out of the ground now with several more following and a significant project we're trying to roll out. So it'll be - revenue will roll in and increase back up in 2021 and then increase higher in two.

Okay. No, that sounds good. I guess I'll get back in the queue. Thank you.

Yes, sir. Thank you.

Thank you.

Our next question comes from George Gaspar. Please state your question.

Yes, can you hear me?

Yes George, we can hear you. Good morning.

Okay, good morning to you all. Could you highlight - I got three areas here - but the Texas growth outline, can you give us a little more color on how you're progressing in Texas?

George, we on our service line expansion that's opened up doors in Texas to continue, to allow us to pursue new customers with different service lines in those areas. We're pleased with the expansion and the results of Texas year to date, and we can hope to continue that momentum for the rest of the year.

Okay. All right, are you broadening your geographical outline there?

Yes, George. We're continuing to broaden that. I mean, as we've always said, John's always said, we're looking to expand and fill in the gaps between Virginia and West Texas, and we're looking to add more customers in Texas. And also, let me point out that we were able to service multiple states out of that Texas region. So we've gone into, as we've stated before, Arkansas and Oklahoma. Louisiana.

Okay. And then just on top of what the last comments you made about Oklahoma and Arkansas. Now you were adding Kentucky to the operation space. Is there anything you can say about that?

Kentucky is going well. The transmission work over there and distribution has opened the doors up for our foundation area to come in and provide a new customer to them as well. So we're very pleased with the continued expansion effort in the Mid-Atlantic region.

Okay. All right and then I know I've asked this question in the past conference calls about 5G work. Are you into trying to get some of that work off of towers and on down from there?

Our foundation side is looking at any foundation that would regard in putting in those towers, but we are - we have not been approached to install any of the cell towers associated with 5G yet. We are - if the opportunity presents itself, we will definitely entertain it, George.

Okay. All right, okay, I'm going to get back in the queue. Again, thanks.

Thank you, George.

Thank you. [Operator Instructions] Our next question comes from Stephen Branstetter with ABL Investments. Stephen Branstetter your line is open. Please state your question.

Hello.

Hi, Stephen.

Yes. It seems that investors believe your - since your backlog's gone down from Q1 to Q2 that your forward revenue lines are going to start going down. Could you more explain how these MSAs are signed every several years, every three years, four years, five years, and then they're not replenished until they're done so investors can get a better - get more clarity on where your revenue line might be next quarter or the next several quarters out?

Absolutely, Stephen. These MSAs come in lumps. They're multiyear. They may be a 1-year MSA. They go up to seven years. So we make an estimate based on the, as I've said, the discussion with the customers, the experience with the run rate with the customer. And currently, our MSA, the oldest one goes out to - or the longest one we have goes out to 2025. As I - go ahead.

So would you think it's more accurate to focus on the 12-month backlog? Is that more - it shows a nice increase from last year. So going forward, should we be looking for a nice increase from last year based on the 12-month backlog?

Historically, we beat that 12-month backlog. But that is a good number to look at. And I mean, we're - it's coming in.

That more accurately - not that it's line by line, but it's more accurately reflects where the next 12 months are heading compared to the previous 12 months.

Yes, sir.

Yes, sir.

That is correct. Okay. Is the company - not the guys on the field, obviously, but the people who work in the office, are they working from home or are they working in the office these days?

We're covering both of that. We have some that work from the office and some that work at home. We present that opportunity. But it's working out well.

Okay. And are there any of the big contracts that you signed? I guess the MSA work was big, and I think you had a $50 million contract signed at some point early this year or late last year. Are any of those starting soon that are going to start adding revenue to the - going forward?

They're under progress now. We're working on them as we speak.

Okay, great. Thank you, gentlemen.

Thanks, sir.

Thank you, Stephen.

Thank you. Our next question comes from George Gaspar. Please go ahead.

Okay, thank you. Can you talk a little bit about, other than mainline repair and install, their substation repair activity? Can you give us an idea of the outlook? And is there anything going on in substation install that is coming about potentially because of the increasing demand for this type of equipment? Can you give us some view on that?

Yes, George, right. We have both secured maintenance and new construction work in the substation side across our geographical area.

Okay. Is there anything - can you detect an increase in demand install for substations?

Yes. Especially in the greenfield areas or the green energy, we're seeing a lot more of those. And in areas with populations growing, we're seeing that influx as well.

Good, good. Well, okay. I know you guys are going through a tough time from a couple of different situations at this point in time. But it looks like you really got yourself a base well. And in this expansion that you're accomplishing along the way throughout the - from the Southeast to the Southwest is - should be assuring you of ability to increase your activity role and hopefully increase your backlog and build up your volume, so good luck to you going forward.

Thank you, George.

Thank you, George.

Thank you. I see no further questions at this time. I'll turn it back to management for closing remarks. Thank you.

Yes. Thank you. 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. All parties may disconnect. Have a good day.