ENGlobal Corporation

Good morning and welcome to the nGlobal first quarter 2021 financial results conference call. Your hosts for this morning are Chief Executive Officer Mark Hess, Chief Financial Officer Darren Spriggs, and President Roger Westerlund. At the request of nGlobal, today's call is being recorded and will be available for replay on the investor relations section of the company's corporate website, nGlobal.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. I would now like to inform all parties that your lines have 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 the operator. 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, N-Global 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's 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 is due to several large projects that were 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 calls were higher by $400,000 this quarter compared to last year. The increase is primarily due to investment in Keith's staff to support our enhanced business development initiatives that better focuses on Keith's strategic clients in our five targeted markets. The company recorded an 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, our four cents per share. This decrease in net income was primarily a 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 remain 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 in Global's current operations and expect a near-term growth. I will now turn it over to Roger.

Thanks, Darrell, 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 4th. We can see that markets continue 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 where actually meeting people and understand where our customers' plans are for this year and next year. If we measured it through our CRM Pipedrive 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 work with and have long-term agreements with EF, mostly service agreements. We are... optimistic about the later part of this year, especially if we look into 2022. In the Pipedrive, 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 three or quarter four. On the good news, The press release for our hydrogen plant, which we are building for Seaboard, was out April 28th. We're building this together with Fagan, Alder Topsa, and it's expected to be completed by end of this year. We, Orscope, which is the number of modules, will be shipped in June 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, as 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.

Thank you, Roger. Like many others in our industry, we continue to deal with the after effects of COVID. Because of the strong backlog that we had last year, its impact on us has lagged much of the broader market as we work through that backlog. This is evidenced by our reduced earnings, reduced income, and reduced backlog this year over last year. We've been able to weather the pandemic without large scale reductions in our staff. And in doing so, we have utilized the government assistance programs available to us. Therefore, we've been able to maintain our staff experience in providing traditional oil and gas solutions, as well as our experience, expertise in hydrogen, solar, and other renewable energy solutions. So we're well prepared to execute opportunities as they're awarded to us. As you know, Roger joined our team in November of 2020, and since that time, he's spent an enormous amount of time reorganizing our business into our market-focused organization that provides complete vertically integrated service offerings to our clients in each market. At the same time, Roger has been recruiting the connected, experienced senior business development people to complement and backfill where needed in our organization. This is a proven methodology that Roger has deployed in the past, and I have full confidence that it's going to work for us here at Englobal. While we are early in this transition, it's already beginning to pay dividends. At a time when the economy is beginning to rebound, our opportunities are greater now than they have been since I arrived at Englobal 10 years ago. Our top priority is to convert these opportunities in the backlog and then execute them profitably, and we have high expectations for this year. At this point, I'll turn it over to questions.

Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your line at this time. We do ask If you are listening via speakerphone, please pick up your handset for optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone at this time. Please hold a moment while we poll for questions. We have no questions in the queue at this time. Mark, do you have any closing comments you'd like to finish with?

Yes, I want to thank everyone for listening. We appreciate our shareholders and we appreciate you sticking with us and wish everybody to have a great and safe day.

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.