ENGlobal Corp (ENG) 2022 Q1 法說會逐字稿

Good morning, and welcome to the ENG's 2022 first-quarter financial results conference call. At the request of ENG, today's call is being recorded and will be available for replay on the Investor Relations section of the company's corporate website, www.englobal.com

You may access the replay by dialing toll-free 877-481-4010 domestically, or 919-882-2331 internationally, and referencing conference ID 44765. This replay will be available shortly after the completion of the event through 9 AM Eastern on May 5. I would like to inform all parties that your lines have now been placed in a listen-only mode until the question and answer segment of this call begins. To ask a question in that segment you will receive instructions from myself.

At this point, I would like to turn the call over to Rick Eisenberg, Media Relations Director with Eisenberg Communications. Rick?

Thank you, operator, and thanks to everyone for joining us on this call. Before we begin, I'd like to review our forward-looking statements provision. During today's conference call company representatives may make forward-looking statements. Any statements made in this presentation about future operating results or other future events are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Please note that actual results achieved by the company may differ materially from such forward-looking statements. A discussion of factors that could cause such differences appears in the Risk Factors section of the company's 10-K. Presenting on the call today will be Darren Spriggs, ENG's CFO, and Roger Westerlind, ENG's President. Following the presentations, Darren, Roger and Mark Hess ENG's CEO, will be available for questions. And now, I'll turn it over to Darren Spriggs. Darren?

Thank you, Rick. I would also like to extend my welcome and appreciation for those on the call today. For the quarter, we reported approximately $7.4 million in operating revenue and $8 million in direct operating costs. Included in the direct operating costs is 426,000 related to underutilized staff, which is lower by 369,000 compared to the same period last year. Our current staffing level is necessary to maintain our central workforce. Also include indirect costs is 829,000 in the proposal costs, which has significantly increased over the same period last year due to the increase in volume of proposals.

Our SG&A increased $282,000 compared to the same period last year, which included non-recurring legal fees of $70,000. The remaining increase is primarily related to the investment in our business, leaders and an increase in T&E. Now that our clients are more accessible with the lifting of travel and office restrictions, the success of our client relationships is driven by personal interaction with our customers, which has suffered since the beginning of the pandemic.

Our income tax expense consist of state income tax, primarily in states that do not use net income to calculate taxes like Texas. Our federal income tax expense is offset by an adjustment to the valuation allowance recorded against it. We recorded a net loss of $3.6 million or a negative $0.10 per share for the year, compared to the net profit of $46,000 or $0.0 per share last year.

Our backlog increased by $500,000 to $13.3 million, compared to $12.8 million at the end of last year. This is the second consecutive quarter our backlog has increased. The backlog as of the end of third quarter of 2021 was $8.4 million, as at the end of last year was $12.8 million and this quarter it was $13.3 million.

This increase in backlog is an indication that the investments we made last year are starting to pay off. As a reminder, last year, we completed a rebranding campaign, relocated our corporate office to be closer to our client base, redesigned our website, hired key business development personnel with strong relationships to clients in our industry. Roger will elaborate more on the positive signs we're starting to see later in the call.

Our cash balance was $17.7 million as of the end of the quarter, a decrease of $1.5 million over last year's balance of $19.2 million. Our working capital decreased $3.5 million, from $26.3 million to $22.8 million. The change in working capital is primarily related to the $3.6 million loss for the quarter, but it also included employee retention tax credit refund of $1 million.

We believe this cash-on-hand, along with internally generated funds availability under the company's revolving credit facility and other sources of working capital will be sufficient to fund ENGlobal's current operations and expected near-term growth.

And now to you, Roger.

Thanks, Darren, and good morning, everybody. As Darren indicated, the strategy which we have spoken about before start to pay off. Our bookings in April, actually, exceeded the bookings in first quarter, which we think is a great indication that all the things we have done is start to pay off. A few highlights as we had we announced a few weeks ago, we have been awarded the now the retained sustainable airplane fuel plant to be built in the US.

We expect that work to turn over and be completed the first phase mid-year, and then we will start the EPC phase. As also announced, we opened a construction route in West Texas that will come back to a little bit later. We also have a number of bookings in our government group.

So to reinstate the things we have done, which then again believes to pay off, we have a great new office. We have increased our fabrication capabilities by investing in Anderson. We have implemented a customer relation to the system, which is a great tool to managing our business, we have a new construction division.

We'll continue working with a high-value, low-cost engineering center in Brazil, which is key to execute the work we are bidding. We have re-branded our company, which we think is very successful. We have engaged in a big marketing campaign on social media, LinkedIn, et cetera, working on a key account strategy for the clients, now we have entertained for the last 12 months.

We have a new management team, which has now been in place for over six months. We look at the number of opportunities across a lot of industries. Our alliance partners is in place and worked nicely. And as we have discussed before, we have strength in is broken down in place for the segments we're working in.

Yes. So a few specific highlights for us the press release we sent out a few week ago, we're going to build another materialize, standardized sustainable airplane fuel, for a client up in northern US. This will be our second project. We think this is a very, very good example of our strategy forward.

We have a number of these projects, and we expect the value from global to be in excess of 100 million. We're also expanding on that group. So it will be labeled from here on energy renewables.

And in the energy side, we have a number of projects. For our engineering and project services, we have the four awards, two for Chevron, one for Exxon and one for Oxy again, illustrates that our hard work starts finally to pay off.

In the Government group, we have over $120 million in outstanding quotes in our automation group, where a significant amount as well. In that as I earlier said, we have won a number of contracts for SCADA systems, automation system, for the DoD.

In our oil, gas and petrochemical, we have over 150 million identified opportunities where we are actively bidding almost EUR100 million in a spread from OxyConaco ph, XTLP66, Western Midstream, et cetera. Obviously with the high oil price, we expect the great business year as well. Over to Jenny, thank you.

(Operator Instructions) Your first question is coming from Jeffrey Campbell. Please announce your affiliation and pose your question.

Hi, this is Jeff Campbell from Alliance Global Partners. My first question begins with an observation that potentially expanded scope of the renewable jet fuel diesel project awaiting FID is obviously a huge vote of confidence in ENGlobal. I was wondering what factors do you think went into expanding, in terms of scope and this project versus the first one that you did, the renewable diesel?

Well, I think we were able to demonstrate our expertise both on hydrogen unit, as well as the RDU, which is the renewable diesel unit. And so we have been investing in developing a standard 65 to 100 barrel per day plant, both on the -- a complete plant, which would include hydrogen and the RDU. So we were able to demonstrate that to the client that we had that expertise and we have the package pre-designed to a certain extent.

And so that's, I think, what brought them on board. Additionally, we were recommended to them by our technology partner, Haldor Topsoe. And so, I think that's a great vote of confidence from our technology partner.

And following up on that, Mark, how is this 6,500 barrel form factor arrived at? Is this the kind of the volume that you're seeing in the various customer discussions? And maybe if it is, some sort of a technological sweet spot? Is it based on the feedstock that's out there? Just some color on why you settled on that as your standard?

I think the answer to that is, that's what has been requested most in the marketplace. Haldor has a standard 6,500 barrel a day hydrogen bridge product. And so, we just kind of built onto their standard unit -- standard process.

Yes, that makes sense. Roger was making allusion to a lot of -- it sounded like a lot of interesting stuff going on out in the Permian Basin. I was just wondering if you could give us some general comments on the kind of projects that you're seeing growth in? And if there was a number as to how much is being bid on? I missed it. So if you can give us a sense of the size of the bids out there, collectively, that would be helpful.

I think where we are truly is, I think we have enough, in a way, there is never enough per se, but I think we have enough in the funnel. And we need to change the approach, which we have to close what we now have. And I think the one we just talked about is a great example. There is probably 120, the other renewable diesel and sustainable airplane fuel, which we see out there right now.

The big question, which one will really happen. But I think it is really across, the same in oil and gas, the same in renewables, the same in our government group. But I think, I know it doesn't show in the figures yet, it will. And we just need to continue trust to play. I'm convinced we will succeed, and I think the example I gave is just a few.

Okay. In the past, we've talked about automation from the standpoint of customer solutions. And when I went back and reread the Permian expansion press release, it seemed to touch on automation initiatives with ENG itself. So I was wondering if you could just give a little color on where you've targeted automation within your business to create improvement?

The first thing we need to continue doing is use the phrase, which I picked up in ABB, which was ABB content, ENG content. So if you take the sustainable airplane fuel as an example, where we then engineered, we fabricate, et cetera, but you're also going to populate it with maximum and global content, meaning control system, buildings and everything else we can do. So we use the company we have, so one time for automation, if you like the internal sale.

The external side, we are surrounded by -- if you're here in Houston, right? So we have signed on or resigned, I should say, a number of MSAs with Conoco P66 number, which is part of this process. And if we see the funnel for any of these, if you stick to automation, obviously, there is a big drive, for example, in the sale to demand, both from a cost and a safety point of view.

And we are part of that, and we're going to build on that even further, if that answers your question, Jeffrey.

Okay, that's helpful. And I guess my last question is, it was mentioned in the press release that the on-site construction initiative seems to be gaining some momentum. So I just thought I'd ask what sort of businesses, or what sort of businesses is this adding to the ENG book that was lacking prior to the effort?

What the clients want is a one-stop shop for the smaller EPC project and they are talking a few millions, maybe $5 million. So what we have decided here in that request is to, obviously, listen to our clients and offer that one-stop shop. It's a lot harder for a smaller job simply to subcontract, let's say, half the scope and do margins on margins.

So what we are following is the script that was developed a long time ago by Aecon, before they exited the oil and gas reserve. Doug Fieldgate, which was with Aecon then, is that --- is doing that. And what is that is done, one of the legs we're going to stand on, is to deliver full EPC self-perform for the smaller project. That has nothing to do with the plan like we just talked about for sustainable airplane fuel.

Okay. Good. Yeah, I appreciate that clarity. Well, again, congratulations on all the hard work last year and we're looking forward to seeing the fruits of all that labor as this year goes on.

Thank you so much.

Thank you. Victor Nostas, Nostas Group. Victor, over to you.

Yes. Hi. I just wanted to know how long do you think it will take to get the final investment decision?

I mean, the plan, which is shared by the end user with us that the goal is to close by end of July. As I'm sure you realize that there is a lot of moving pieces. But it's well advanced, let's put it that way. When it's appropriate, we will --- we can't disclose more, but so far, it's on schedule.

Thank you.

You're welcome.

(Operator Instructions) Okay, there appear to be no further questions in the queue. Would you like me to hand back for closing?

Yes. Yes, Jenny, please.

I'll hand back over to Rick, for your final remarks.

I have no further remarks, operator. I think we can end the call.

Okay. Perfect. Well, thank you so much, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.