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spk00: Good day, everyone, and welcome to Orbital Energy Group first quarter 2022 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow management's remarks. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. John Weisler, Investor Relations. Please go ahead, sir.
spk04: Thank you, Moira. Good morning, everyone, and welcome to Orbital Energy Group's first quarter 2022 conference call. Earlier this morning, the company issued a press release for its first quarter 2022 earnings results. The copy of this release is available in the newsroom under the investor relations section of the Orbital Energy Group website. Speaking on today's call are Jim O'Neill, Vice Chairman and Chief Executive Officer, and Nick Greinstaff, Chief Financial Officer. Today, management will review the highlights and financial results for the first quarter, as well as recent developments. Following the formal remarks, management will answer questions. I would also like to remind everyone that today's call will contain certain forward-looking statements made under the Securities Act of 1933 and Security and Exchange Act of 1934 as amended. Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected into the forward-looking statements. The company may experience significant fluctuations in future operating results due to a number of economic, competitive, and other factors such as COVID-19, the company's reliance on third-party manufacturers, supply and service providers, government agency, budgetary and political constraints, new increased competition, changes in the market, demand, and the performance or liability of its products, integrated solutions, and services. These factors and others can cause operating results to vary significantly from those in prior periods and to those projected in the forward-looking statements. Additional information with respect to these and other factors which could materially affect the company and its operations are included in certain forms the company has filed with the Security and Exchange Commission. These forward statements are based on information available to Orbital Energy Group as of today, May 16, 2022. and the company assumes no obligation to update statements as circumstances change. With that, I would like to turn the call over to Jim O'Neill, Vice Chairman and CEO of Orbital Energy. Jim, please go ahead.
spk05: Thank you, John. Good morning, and thank you for joining us today to discuss Orbital Energy Group's first quarter 2022 results and our outlook for the rest of the year. Before I begin with my quarterly commentary, I want to thank our employees for the safe and efficient delivery of services to our customers. Each of our employees represent the OEG brand, and their efforts are recognized and very much appreciated. Now to the developments of the first quarter. We continue to make progress towards building our infrastructure strategy across our three operating segments, serving the electric power, telecommunications, and renewable industries. This morning, we reported first quarter results that demonstrate we're off to a great start this year with record quarterly revenues of $70.3 million. Backlog at the end of the quarter was $513.5 million, which we believe reflects a continued advancement of our long-term growth strategies. We continue to see opportunities for multi-year growth across our service lines, driven by our solutions-based approach and the growth of spending with existing and new customers. Most importantly, OEG achieved positive adjusted EBITDA, a non-GAAP measure, of $3.8 million in the first quarter of 2022. This milestone is a first since I've been with the company, and we believe a significant indicator of our steady progress towards improving shareholder value. Our electric power segment delivered a 70% increase in revenues in the first quarter of 2022 compared to the fourth quarter of last year. This growth is attributed to the ongoing demand for our electric power and substation services, primarily driven by our investor-owned utility customers, and a very robust market environment which we believe will not subside for the foreseeable future. Our telecommunications segment also increased revenues 24% in the first quarter over prior quarter. Factors contributing to this growth included a significant increase in the ramp in RDOC program construction on previously awarded projects by Charter and TEC over a five-state area, as well as an increase in construction revenues associated with broadband deployments by other customers. The outlook for our telecommunications segment is also very positive as we believe that fiber deployment to rural America as well as broadband and wireless infrastructure upgrades necessary to enhance 4G, LTE, and the continued rollout of 5G spectrum will increase the need for our services for many years to come. In the first quarter, the telecommunications segment completed the acquisition of Coax Fiber Solutions LLC, or CFS, which, while not a material event to the company, is nonetheless an important strategic acquisition to enhance our capabilities with customers. CFS is an outside plant contractor specializing in the aerial and underground coax and fiber installation. CFS was a strategic play to enhance our future position with at least two telecommunication customers, and we expect to begin realizing the benefits of this acquisition later this year or in 2023. And lastly, our renewable division, underperformed during the quarter, largely due to civil construction delays and the inefficiencies caused by persistent rainfall on the Blackberry Utility Scale solar project located outside of Montgomery, Alabama. Mitigation plans are in place to get this project back on track, which we include organizational changes that were made subsequent to the quarter end. As we continue to position Orbital Solar for future success, Robert Burns, a seasoned proven professional in the utility-scale solar industry, joined the company as Orbital Solar's president. In addition, Mike McCracken's current role as GTS's CEO expanded to include Orbital Solar's CEO. I'm confident that the addition of Robert and Mike in their new roles will greatly enhance OSS's success in the renewable infrastructure business going forward. On a consolidated basis, OEG exceeded our financial expectations of break-even EBITDA for the first quarter of 2022. Our outlook for the remainder of this year remains unchanged. We are reconfirming our revenue and EBITDA guidance for the full year of 2022, which is a revenue range of $375 to $425 million and an adjusted EBITDA range of $38 million to $43 million. The outlook for our services in the electric power and telecommunications segments continues to strengthen, despite supply chain challenges, fuel costs, the recent changes in the state of the U.S. economy and in the world. Numerous multi-year drivers exist today that will drive an increasing need for our infrastructure services to upgrade and expand the nation's electric power and telecommunications infrastructure. These drivers include aging infrastructure, storm hardening of infrastructure, reconfiguring the electric grid from traditional sources of fossil fuel to renewable generation, shifting population centers, the nation's move toward electrification, which includes electric vehicles, smart grid and smart city deployment, the enhancement of 4G LTE spectrum, and the rollout of the 5G spectrum. Our renewable segment, specifically the outlook for utility-scale solar awards, and additional construction revenue to fill the uncommitted revenue forecast in our guidance remains viable, despite headwinds from supply chain and potential tariff increases on solar panels manufactured abroad. Most of the opportunity pipeline we are reviewing with clients have secured panels and are sourcing from U.S. manufacturers, and we believe it is still likely we will receive additional project awards that will move toward construction this year. Now, a quick update on our discontinued operations. Last week, we announced the sale of OEG's UK gas business, Orbital Gas Systems Limited to InZero Group Limited. We are pleased this transaction is concluded, and we have achieved yet another milestone in our infrastructure strategy transition. We are currently under an exclusive LOI with a potential acquirer for our Orbital Gas U.S. operations, which we hope to finalize in the next several months. Now I will turn the call over to Nick Ronstaff, our CFO, for his comments on the quarter and our 2022 outlook. Nick?
spk01: Thank you, Jim. Today we announced record quarterly revenues of $70.3 million for the first quarter of 2022. Loss from continuing operations net of income taxes was $36.7 million with an adjusted EBITDA of $3.8 million. which is a significant milestone as this is the first time since the company's transition to an infrastructure services provider that adjusted EBITDA has been positive and is a significant indicator that we are successfully executing on our infrastructure strategy as we move toward profitability. As we stated last quarter, we believe adjusted EBITDA is the best financial measure as an indicator of operational performance. You will find a reconciliation of EBITDA and adjusted EBITDA both non-GAAP measures to loss from continuing operations, a GAAP measure, as a supplement to our first quarter earnings press release. For the first quarter, loss from continuing operations was 44 cents per share. As a reminder, the financial results I'm providing today are from our continuing operations and do not include results from our Orbital Gas North America or Orbital Gas UK entities, which are reclassified to discontinued operations in December and at the end of the first quarter were included in assets held for sale. Detailed results from our discontinued operations will be disclosed in our Form 10-Q. In the first quarter of 2022, our consolidated revenues and adjusted EBITDA increased 71.5 percent and 425.3 percent, respectively, as compared sequentially to the fourth quarter of 2021. These results demonstrate continued improvement in our operational performance and positions the company to deliver much improved financial results for the full year of 2022. In the first quarter of 2022, the electric power segment increased revenues 70% to $39.7 million compared to the fourth quarter of 2021. Adjusted EBITDA for the segment was $7.9 million or 20% of revenues for the quarter. The primary driver is the ongoing increased demand for our electric power distribution services. Over the same period, the telecommunications segment increased revenues 23.8% to $16.1 million, with adjusted EBITDA of $2.2 million, or 13.8% of revenues, primarily due to the ramp-up in construction on RDOF programs over a five-state area. The renewable segment had an increase in revenues of 202.1% from the fourth quarter of 2021 to $14.5 million, with an adjusted EBITDA loss of $2.3 million. The margin shortfall was primarily due to inclement weather challenges and operational inefficiency on the light source BP Black Bear Utility Scale solar project. Certain holding company costs exist outside of the defined operating segments. For the first quarter, these costs were $4 million. Our total backlog was 513.5 million at the end of the first quarter of 2022, a slight decrease of 1.9% from year end. However, 12-month backlog increased 7.5% to 294.6 million from the fourth quarter of 2021, which we believe is an indicator of the robust business environment we are operating in today. as total backlog can fluctuate due to the timing of multi-year master service agreement revenue burn versus contract renewables. One of our top priorities is to optimize the company's capital structure to ensure our ability to fund strategic growth both organically and through acquisition while maximizing shareholder value. We currently have tranches of debt that are due in the next 12 to 18 months. These tranches of debt have high interest coupons and require significant principal payments. The structure of this debt has a material negative impact on our cash flow. Improving our capital structure with regard to a few tranches of our debt is of utmost priority, and we continue to focus on this aspect of our balance sheet. Our improving financial performance is a strong signal to the capital markets, and we are currently reviewing multiple term sheets which have been recently submitted by lenders. I am confident with continued operational performance we will be successful in restructuring these debt obligations. Subsequent to the quarter, we reached an agreement with the frontline power sellers to refinance the seller notes. $20 million of the $87 million has been paid with proceeds from the recently announced equity transaction. $15 million of the remaining $67 million will be paid at year-end 2022, and the remaining $52 million has been extended to May 31, 2023. As part of the Frontline Power Sellers Agreement to defer a portion of the seller's note, a $4 per share floor price was established for the 11.6 million shares of common stock as part of the acquisition consideration. 62% of the shares are subject to lockup until November 16, 2022, and 38% are subject to lockup until November 16, 2023. This agreement is subject to mark-to-market accounting And as such, a non-cash $25.9 million cost was incurred for the quarter. The mark-to-market accounting will require an adjustment every quarter based upon OEG stock price until the lockup period expires. Turning to guidance, as Jim commented, we expect strong revenue and adjusted EBITDA growth for the remainder of 2022. As such, we reconfirm our four-year guidance. A consolidated revenue range of $375 million to $425 million and an adjusted EBITDA range of $38 million to $43 million. This reflects year-over-year revenue growth of 382% and an improvement of $67.5 million in adjusted EBITDA for the fourth year of 2022 compared to 2021 from the midpoint of our guidance. Our segment guidance also remains unchanged. As it relates to the electric power segment, we believe 2022 revenues will range between $115 million and $130 million with adjusted EBITDA margins to be in excess of 20%. Any storm revenues we might realize in 2022 is not included in this guidance. In our telecommunications segment, we expect revenues in the range of $50 million to $70 million with adjusted EBITDA margin expectations for this segment in the mid-teens. Finally, in our renewables segment, For the full year of 2022, we anticipate revenues in the range of $200 million to $225 million, with adjusted EBITDA margins for this segment in the mid-single digits. As a reminder, Orbital Solar provides engineering, procurement, and construction solutions to the utility-scale solar market through its joint venture with Gingoli Power, where Orbital Solar will consolidate 100% of revenues generated but will absorb costs in the project to pay Gingoli for their participation which contributes to a lower margin profile for this segment. Certain holding company costs exist outside of the defined operating segments. We continue to estimate these costs to be $15 million for 2022. You will find a reconciliation of EBITDA and adjusted EBITDA, both non-GAAP measures to loss from continuing operations, a GAAP measure as a supplement to our fourth quarter earnings press release as it relates to our expectations in 2022. Now I will turn the call back over to Jim.
spk05: Thank you, Nick. In conclusion, as a top ten Orbital Energy Group shareholder, I'm very much aware of our current stock price and capital structure challenges. Successful execution of our infrastructure strategy and delivering improving financial results is the best remedy for addressing these challenges. We're currently positioned in very robust end markets with multiyear growth drivers. We believe we're in the most prolific time in the history of the industries we serve and the need for our services. We will continue to execute on our infrastructure strategy with the goal of achieving our 2022 financial expectations. Operator, that concludes our prepared remarks, and we'll now open the call to Q&A.
spk00: Thank you, sir. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw a question, press the pan key. Your first question is from Jeffrey Campbell of Alliance Global. The line is open.
spk02: Good morning and congratulations on the strong quarter. Good morning, Jeff. Thank you. I noticed that SG&A dropped about 35% in the quarter and also saw the negative stock options illustrated in the cash flow statement. I just wondered if this was largely related to the orbital gas sale or something else.
spk01: No, hey Jeff, this is Nick. We had a, on the GNA side, we had some charges associated, some credits associated with some stock comp that is reflected through GNA, Jeff's one-time credits. Okay, thank you.
spk02: Can you expand a little bit on the solar project delay that you mentioned this morning? Since you haven't altered your 2022 guidance, is it safe to assume the delays are expected to be made up over the rest of the year?
spk05: Yeah, I mean, look, these projects have firm completion dates, and we plan to make those completion dates. So, yes, we will make up time on the Black Bear project. The civil aspect of any job obviously is, in my opinion, the most riskiest piece, especially I hate to talk about weather, but weather can impact production, and that's what's happened. So we're still in the civil phase of that project. We're working our way through it, and I'm confident we'll get back on schedule on this project. Okay.
spk02: And bearing all that in mind, maybe Nick, can you update the revenue cadence for the rest of 2025?
spk05: The revenue cadence would be, I mean, obviously we expect ramp in revenue. Again, I think we've talked about this before, but the third quarter is our high revenue period. The second and fourth are probably second and third, and they can alternate. The first quarter is the lowest. So, you know, we expect a ramp in revenues in the second and third quarter, and obviously With some of the solar revenues being delayed from a revenue recognition standpoint, we'll probably have bigger quarters in the second and third quarter because of the condensed nature of those revenues with the completion dates in mind on the Black Bear project.
spk02: Right. That's helpful. Thank you. We haven't heard about any new GPS projects for a while. I just read that Washington has released $110 billion to infrastructure spending, with broadband specifically highlighted. And you mentioned the recent acquisition in the division could lead to further contracting, so I thought maybe a little high-level color here would be helpful.
spk05: Yeah, look, we're still in the early stages of RDOF awards. None of our guidance takes into effect any federal funding other than the RL projects that we have in hand. So any federal funding on infrastructure would be additive to what we're doing. And the acquisition was basically a very small acquisition that was strategic that allowed us access to two customers who we worked for in the past, GTS has. it further positions us to become what they call a Tier 1 supplier to these customers. And that's going to play out, you know, over the next, you know, probably toward the end of the year and into next year. It's just further positioning the company to expand its services with new customers and expand our geographical footprint.
spk02: And on that point, would the expanded work be – likely to be more RDOF work, or is this a different work entirely?
spk05: It's all of the above. I mean, these customers have received RDOF awards, but they also have legacy systems, you know, with the 4G LTE enhancement as well as the rollout of 5G. And so, you know, this company brings those outside plant construction capabilities, which are proven with these customers that they've worked for before and provide significant upside opportunity for us once these customers roll out their programs.
spk02: Finally, now that Organic Orbital Power is operating under former Frontline Power Construction leadership, I wondered if you could provide some sense of how this might develop going forward, meaning Frontline's largely been a Texas-based business, whereas Orbital Power has operations outside of Texas. So I'm wondering, will Orbital Power continue to look to grow through additional MSAs? Might Frontline start to expand outside of Texas? Just sort of your high-level view of this would be helpful.
spk05: I mean, yeah, look, for all of our segments, the – The objective is to build our client base. First, the objective is to take care of the clients we have and grow with them. Secondly would be to expand with new customers. I think the key to the legacy Orbital Power Group right now is to enhance the margins before we grow that business. But there is significant opportunity to grow in this very robust market with new customers. it's really about making sure that you bring on the right people to, and obviously, you know, the equipment footprint is necessary, too, as well, to expand. So I think that the benefit of both the frontline leadership and, you know, being over the electric power segment is synergies, best practice transfer to enhance margins, and certainly collectively we could provide broader solutions to existing and new clients. So we're going to be very thoughtful and strategic about growing the non-union part of our business. We need the profitability as the primary objective right now.
spk02: Got it. Okay, thank you. I appreciate it. Yes, sir.
spk00: Your next question is from Eric Stein of Craig Hallam. Your line is open.
spk03: Hi, Jim. Hi, Nick.
spk05: Hey, good morning, Eric.
spk03: Good morning. Good morning. So just thinking about the outlook here for 2022, obviously, with that backlog, you've got very good visibility for electric power and telecom. So just curious, I mean, given the narrow EBITDA range, obviously solar is kind of the piece that's going to drive low end versus high end of guide. Just curious, you know, do you need additional business just to confirm, do you need additional solar winds that potentially hit, uh, in 2022 to reach those levels? Or is this more about just completing happy? Um, and then again, getting back on the timeline for Black Bear.
spk05: So we think that, that, uh, we're going to win one or two more awards this year that will move to construction. If that didn't happen, the revenue guidance may have shortfall. And, again, we're very confident that we're going to hit that guidance right now. But if it didn't happen, the revenue guidance wouldn't make it. But I do think that the EBITDA guidance certainly would be in play even without solar because additional solar. because of the significant opportunity that we see in the consolidated portfolio, which includes electric power telecommunications. And the margins in those groups are four, four and five times more as a percentage of revenue than solar. And so it doesn't take much to make up. I mean, if we had $100 million in shortfall in solar, it's $5 million to the bottom line, right? And that's significant. you know, very little incremental growth in telecom and electric power to make up for that. So that would be the worst-case scenario. I think that the EBITDA guidance is very much in play, even if we did have shortfalls in solar on the revenue side.
spk03: Yep. Okay. Understood. That's great. And so the previous questions, I think, focused on frontline energy. And maybe I'll ask it a little bit differently or just clarify things here. But I know Frontline is very exposed to, I guess, a handful of customers, maybe a large customer, and a lot of it in Texas. I mean, is this something now that Frontline is under the orbital umbrella that you can expand those capabilities or that reach to other states, other regions, other large customers?
spk05: So, look, that's a great question. With or without us consolidating that group and those groups into the electric power segment, we've made a conscious decision to focus on the customers that we have in hand and their needs. We get calls all the time for proof. And so that's how prolific the market is right now. I mean, we could go to work for any investor-owned utility across the south right now. We get calls all the time. Our focus is to grow with and take care of the customers that we have a key concentration with now and have a legacy relationship with. So if, you know, people worry about concentration, I'm not worried about concentration electric distribution because we could pivot quickly and move crews to another customer immediately if we had to, which won't happen. But if it did, it wouldn't be a problem.
spk03: Gotcha. I see you have plenty of room to go there. Okay, maybe then this is just high level. I mean, obviously the cap structure is, of your utmost focus here, but just as you think about the platform going forward, I mean, do you feel like there are other areas? I know, I mean, you are making some, you mentioned a small acquisition here in telecom. I mean, are there any other spots that you think you really need to fill in, or do you believe that you've got the platform now and that you can continue on the process?
spk05: We have the platform in place. We're not interested in expanding into any new service areas. The telecommunication electric power markets are highly fragmented. There's significant opportunity for us to grow there. That's what our focus is. We want to build our recurring revenue model in predictable certain markets where we sign multi-year agreements with customers and it gives investors confidence that we've got the certainty and outlook in our business. You're going to see very little fluctuation in margins. You're going to have strong margins, and you're going to have steady revenue growth, and that's what we want to continue to build. At some point, we want that business to be 80% of our revenues and not solar be 50% of our revenues. Got it. Thanks a lot. Yeah, thank you, Eric. We appreciate it. Thank you.
spk00: No more questions, and I would like to turn the call back over to Jim O'Neill for closing remarks.
spk05: Well, thank you all for joining our first quarter 2022 earnings conference call today. We certainly appreciate your time this morning and look forward to following up with many of you in the coming days. Thank you very much and have a great day.
spk00: this concludes today's conference call. Thank you for participating. You may now disconnect.
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