ENGlobal Corporation (ENG) Earnings Call Transcript & Summary

Good morning, and welcome to the ENG 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 a.m. Eastern on May 5. [Operator Instructions] 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, 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 cost 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 essential workforce. Also included in direct costs is $829,000 of 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 nonrecurring legal fees of $70,000. The remaining increase is primarily related to the investment in our business, leaders and an increase in C&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 have suffered since the beginning of the pandemic. Our income tax expense consists of state income tax, primarily in states that do not use net income to calculate tax 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 $0.00 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 of 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, hard 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 our 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, started to pay off. Our bookings in April actually exceeded the bookings in the first quarter, which we think is a great indication that all the things we have done is starting to pay off. A few highlights as we announced a few weeks ago. We have been awarded another sustainable airplane fuel plant to be built up -- built in the U.S. We expect that work to turn over and be completed in the first phase midyear and then we will start the EPC phase. As also announced, we opened a construction group in West Texas, and I will come back to it a little bit later. We also have a number of bookings in our government group. So to reiterate the things we have done, which we 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 system, which is a great tool to managing our business. We have a new construction division. We continue working with a high-value, low-cost engineering center in Brazil, which is key to execute the work we are bidding. We have rebranded our company, which we think is very successful. We have engaged in a big marketing campaign on social media, LinkedIn, et cetera. We're 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 6 months. We look at the number of opportunities across a lot of industries. Our alliance partners is in place and works nicely. And as we've discussed before, we have strategies broken down in place for the segment we're working in. So a few specific highlights. As the press release we sent out a few weeks ago, we're going to build another modernized, standardized, sustainable airplane fuel for a client up in Northern U.S. This is -- 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 for ENGlobal to be in excess of $100 million. We're also expanding on that group. So it will be labeled from here on energy and renewables. And in the energy side, we have a number of projects. For our engineering and project services, we have 4 awards, 2 for Chevron, 1 for Exxon and 1 for Oxy. It again illustrates that our hard work starts finally to pay off. In the Government group, we have over $120 million in outstanding proposals; in our automation group, 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 in identified opportunities where we are actively bidding almost $100 million in a spread from Oxy, Conoco, XTO, P66, west and midstream, et cetera. Obviously, with the high oil price, we expect a great business here 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.

This is Jeff Campbell from Alliance Global Partners. My first question begins with an observation, the potentially expanded scope of the renewable jet fuel diesel project awaiting FID. It is obviously a huge load of confidence in ENGlobal. I was wondering what factors do you think went into expanding scope in 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 6,500 barrel per day plant, both on the 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 had the package predesigned to a certain extent. And -- so that's, I think, what brought them on board. Additionally, they were -- 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 kind of the volume that you're seeing in the various customer discussions and maybe even in the bids? Is it 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.

Well, 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 on to their standard unit.

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 could 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 other renewable diesel and sustainable airplane fuel, which we see out there, right? Now the big question then which one will really happen, but I think it's really across. The same in oil and gas, the same in renewables, the same in our government group. I think I know it doesn't show in the figures yet, it will. We just need to continue and trust to play we are. I'm convinced that 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 re-read the Permian expansion press release, it touched on -- it seemed to touch on automation initiatives within and 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?

And the first thing we need to continue doing is use the phrase which I picked up in ABB, which was ABB content, the ENG content. If you take the sustainable airplane fuel, as an example, where we then engineer, we fabricate, et cetera., we're also going to populate it with maximum ENGlobal content, meaning control system, buildings and everything else we could do. So we use the company we have. So one done for automation is, if you like, the internal sale. The external sale, we are surrounded by -- if you haven't use it, right? So we have signed that or resigned, I should say, a number of MSAs with Conoco, P66 a 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 shale 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.