ENGlobal Corporation (ENG) Earnings Call Transcript & Summary

Good morning, and welcome to the ENGlobal First Quarter 2021 Financial Results Conference Call. Your host for this morning are Chief Executive Officer, Mark Hess; Chief Financial Officer, Darren Spriggs; and President, Roger Westerlind. At the request of ENGlobal, today's call is being recorded and will be available for replay on the Investor Relations section of the company's corporate website englobal.com. You may also access the teleconference replay by dialing toll-free (877) 481-4010 domestically; or (919) 882-2331 internationally and referencing conference ID 41192. This replay will be available shortly after the completion of this event through 9 a.m. Eastern Time on May 13, 2021. [Operator Instructions] At this point, I would like to turn the call over to Rick Eisenberg, Media Relations Director with Eisenberg Communications.

Thank you, operator, and thanks, 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. And now ENGlobal CEO, Mark Hess, will present an analysis of the company's performance for the first quarter of 2021 and provide some outlook for the remainder of the year. Mark?

Thanks, Rick. Appreciate it. Good morning, everyone. Thank you for joining us this morning. I think I'm going to hold my comments until the end. I'm going to let Darren go through the quarter, and then Roger is going to make his comments. And then I've got a few comments to say after Roger does his presentation, and then we'll go to answer some questions. So at this point, I think I'll turn it over to Darren, and we'll go ahead and get started.

All right. Thanks, Mark. Our revenues in the first quarter of 2021 were $12.4 million, which was down 35.4% or $6.8 million from the comparable quarter in 2020. The decrease in revenue was due to several large projects that are completed in 2020, primarily in our Automation segment. We continue to work through our backlog, which was $18.6 million at the end of the quarter. Our gross profit in the first quarter was 8.1% compared to 16.9% for the same time period last year. The decline was primarily a result of maintaining our experienced workforce necessary to execute our projects we anticipate starting in the near future. These costs made up over 5% of the gross margin decline. It is important to note that one result in maintaining our staffing levels as we have the ability to take advantage of the payroll tax credit that was recorded in other income on our financial statements. SG&A costs were higher by $400,000 this quarter compared to last year. The increase is primarily due to investment in key staff to support our enhanced business development initiatives that better focuses on key strategic clients in our 5 targeted markets. The company recorded net income of $46,000 in Q1, which included the $1.7 million employee retention tax credit compared to $1.1 million of net income last year or $0.04 per share. This decrease in net income was primarily the result of our lower sales volume, the increase in variable labor costs and the investment in our business development efforts. Our cash balance and working capital remained steady at about $14 million, which was comparable to the end of last year. We believe the cash on hand, along with the internally generated funds availability under the company's revolving credit and other sources of working capital, will be sufficient to fund ENGlobal's current operations and expected near-term growth. I will now turn it over to Roger.

Thanks, Darren, and good morning, everybody. It looks like though we're returning to the new normal. As we all know, 70% of the U.S. population is supposed to be vaccinated at least with the first shot by July 4. We can see that market has continued to pick up, especially in the renewables, hydrogen, ammonia renewables and automation and integration. We feel that now when clients start to return to the office, we can go back to, I guess, a new normal. We're actually meeting people, understand where our customers plans for this year and next year. If we measure it through our CRM pipe drive system, we can see a significant increase in activities. We have confirmed 166 opportunities with a combined value of well over $600 million, which is up significantly from 2020. In our third market, automation, oil and gas, renewables and integration, we see activities across all clients that we worked with and have long-term agreements which are master service agreements. We are optimistic about the later part of this year, especially if we look into 2022. In the pipeline, with all the opportunities we have, we are, again, optimistic, but we think that a lot of these opportunities will only come to fruition later this year, quarter 3 or quarter 4. On the good news, the press release for our hydrogen plant, which we are building for Seaboard was out April 28. We're building this together with Fagen, Haldor Topsoe, and is expected to be completed by end of this year. We -- our scope, which is the number of modules will be shipped in June 20 this year and the plant is expected to be completed and up and running in 2021. When finished, it will produce approximately 85 million of renewable diesel. And in closing, we see a number of these opportunities that I'm sure everybody is aware of, of the shift to renewable fuels, not only hydrogen, but other types of renewable projects is plenty. Thank you. Over to Mark.