Orbital Energy Group, Inc. (NASDAQ:OEG) Q4 2021 Earnings Conference Call March 30, 2022 5:00 PM ET
Company Participants
John Beisler – Investor Relations
Jim O’Neil – Vice Chairman and Chief Executive Officer
Nick Grindstaff – Chief Financial Officer
Conference Call Participants
Jeffrey Campbell – Alliance Global
Operator
Good day, everyone, and welcome to Orbital Energy Group Fourth Quarter 2021 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, John Beisler, Investor Relations.
John Beisler
Thank you, Josh. Good afternoon, everyone, and welcome to Orbital Energy Group’s Fourth Quarter 2021 Conference Call. After the market closed today, the company issued a press release for its fourth quarter and full year 2021 earnings results. A 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’Neil, Vice Chairman and Chief Executive Officer; and Nick Grindstaff, Chief Financial Officer. Today, management will review the highlights and financial results for the fourth 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 Securities 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 in 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, supplies 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 could cause operating results to vary significantly from those in prior periods and to those projected in 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 Securities and Exchange Commission. These forward-looking statements are based on information available to Orbital Energy Group as of today, March 30, 2022, and the company assumes no obligation to update these statements as circumstances change.
With that, I would like to turn the call over to Jim O’Neil, Vice Chairman and CEO of Orbital Energy. Jim, please go ahead.
Jim O’Neil
Thank you, John. Good afternoon and thank you for attending our fourth quarter 2021 earnings conference call. Before I start on my quarterly commentary, I want to welcome Nick Grindstaff, who is joining me today as Orbital Energy Group’s CFO on his first quarterly conference call. Nick and I have a lot of information to share with you today on some very positive developments at OEG. I also want to thank all of our dedicated employees for their hard work and tenacity as we face the challenges of COVID-19 both personally and professionally in 2021. Our workforce interfaces with our customers every day, safely providing services that meet and exceed our customers’ expectations. Each of you represent the OEG brand, and I very much appreciate your efforts.
Our fourth quarter 2021 financial results demonstrated a meaningful improvement sequentially and has positioned the company for positive financial results for the full year of 2022. In the fourth quarter, our consolidated revenues were a record $41 million, a 65% increase compared to the third quarter. And our adjusted EBITDA from continuing operations, a non-GAAP measure, was a loss of $1.2 million, an improvement of $5.9 million compared to the prior period. Nick will provide more details on our operating results in his portion of the call.
In the fourth quarter, our operating — our reporting segments have been redefined to Electric Power, Telecommunications and Renewables, which better align with how we communicate to our investors and manage our operations. We recently announced the Orbital Gas business was reclassified to discontinued operations, and we are currently in active discussions to divest our Orbital Gas U.K. and Houston operations. Any information being reported or communicated for prior periods has been conformed to align with these new reporting segments.
During 2021, we completed 2 transformational acquisitions, Gibson Technical Services and Frontline Power Construction, that will service platforms in our Telecommunications and Electric Power segments, respectively. These 2 companies have had many years of success and are established leaders in the industry they serve and we believe will provide meaningful profitable growth for years to come.
The company’s transformation over the past year, coupled with the strong market drivers, positions us to execute on our strategy to deliver shareholder value through significant revenue growth and positive adjusted EBITDA from continuing operations for 2022. As such, we are providing a range of revenue and adjusted EBITDA expectations for the full year of 2022.
Revenues are expected to range between $375 million and $425 million, and adjusted EBITDA is expected to range between $38 million and $43 million. This reflects an increase of 382% in revenues and an improvement of $67.5 million in adjusted EBITDA for the full year of 2022 compared to 2021 based on the midpoint of our guidance.
Our backlog at year-end has increased over 1,000% year-over-year and 28% sequentially quarter-over-quarter. We anticipate strong year-over-year organic revenue growth from our Electric Power segment, largely driven by the growing demand for our services from our [investor-owned] utility customers as they deploy record levels of CapEx to modernize the grid and interconnect renewable energy sources. Our Telecommunications segment will equally experience significant organic growth in 2022 driven by the RDOF, or Rural Deployment of Fiber program awards, the deployment of 5G spectrum and the enhancement of 4G and LTE infrastructure.
In our Renewables segment, we are experiencing a resurgence of utility-scale solar programs and are currently in construction on 2 large utility-scale solar programs: the Black Bear and Happy projects for Lightsource BP. Additionally, we are in various stages of negotiations on over $1 billion pipeline of additional utility-scale solar opportunities, where we are likely to receive additional solar awards that will move to construction this year.
As we enter 2022, we are experiencing positive momentum across all of our segments with strong market drivers that have set the stage for success for many years to come.
With that said, I will turn the call over to Nick for his comments.
Nick Grindstaff
Thanks, Jim. Jim and I worked together for 17 years prior to us reuniting here at Orbital Energy Group. I’m thrilled to be here and look forward to working with Jim and the Orbital team toward increasing shareholder value.
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 U.K., which were reclassified to discontinued operations in December and are now included in assets held for sale. Detailed results from our discontinued operations will be disclosed in our Form 10-K.
As Jim mentioned, today, we announced record quarterly revenues of $41 million for the fourth quarter of 2021. Loss from continuing operations net of income taxes was $15.7 million with an adjusted EBITDA loss of $1.2 million. Going forward, we believe adjusted EBITDA is the best financial measure for our investors as an indicator of operational performance. You will find a reconciliation of EBITDA and adjusted EBITDA from continuing operations, both non-GAAP measures, to loss from continuing operations, a GAAP measure, as a supplement to our fourth quarter earnings press release.
For the fourth quarter, loss from continuing operations per share was $0.21. For the full year of 2021, revenues were $82.9 million. Loss from continuing operations net of income taxes was $49.8 million with an adjusted EBITDA loss of $27 million. Loss from continuing operations per share was $0.86.
In the fourth quarter of 2021, our consolidated revenues and adjusted EBITDA increased 65% and 83.6%, respectively, as compared sequentially to the third 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 2022.
For the full year 2021, revenues were $82.9 million, an increase of 286% compared to the full year of 2020. Adjusted EBITDA was a loss of $27 million. Net loss from continuing operations net of income taxes was $49.8 million, and loss from continuing operations per share was $0.86. These operating results are generally attributed to investment in our greenfield electric distribution and foundation service operations and the absence of utility-scale solar projects in 2021. These investments have positioned the company well toward delivering positive operating results in 2022.
In the fourth quarter of 2021, the Electric Power segment increased revenues 91% to $23.3 million compared to the third quarter of 2021, primarily due to the acquisition of Frontline Power and the continued expansion of ongoing legacy electric power distribution operations.
Over the same period, the Telecommunications segment increased revenues 49% to $13 million, primarily due to construction commencing on federally funded RDOF programs over a 4-state area. Although the Renewables segment had an increase in revenues of 23% from the third quarter of 2021 to $4.8 million, this fell short of expectations, primarily due to the delay of construction on the Lighthouse BP Black Bear project.
Our total backlog was $523.7 million at the end of the fourth quarter of 2021, another record level. Backlog is up 28% sequentially over the third quarter of 2021 and over 1,000% on a year-over-year comparison. Approximately half of our 12-month backlog of $274.1 million includes revenues that are repeatable and sustainable in nature under master service agreements for Electric Power and Telecommunications customers.
As we move into 2022 toward positive EBITDA, a top priority 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. I have had the opportunity to work in lead financial roles at 2 infrastructure services companies that were part of industry consolidations prior to OEG, and I believe the position that we are in today with regard to capital structure is not unique for an early-stage acquisitive consolidator.
The company’s strong backlog, coupled with improving quarter-over-quarter performance, is a very positive signal to potential lenders, and we are engaged in conversations with several institutions to address our capital structure over the coming months. Options that we are exploring include various types of combinations of debt and equity instruments, again, all with the intent of optimizing our capital structure for the benefit of our shareholders.
Also, we have reached an agreement with the Frontline Power sellers to refinance the seller notes. $35 million of the $87 million will be due May 31, 2022, and the maturity on the remaining $52 million will be extended to May 31, 2023.
Turning to guidance. As Jim commented, we anticipate strong revenue and adjusted EBITDA growth in 2022. For the full year 2022, we believe our consolidated revenue range is $375 million to $425 million, and our adjusted EBITDA range is $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 full year 2022 compared to 2021 from the midpoint of our guidance. This revenue growth and improvement in adjusted EBITDA is expected to be led by our Renewables segment as we have 2 100-megawatt-plus utility-scale solar programs under construction as well as strong double-digit organic growth in our Electric Power and Telecommunications segments, largely due to projects under contract and unprecedented demand for our services in these segments going forward.
As it relates to the Electric Power segment, we believe 2022 revenues will range between $115 million to $130 million. A significant amount of the revenues in this segment are under master service agreements and provide a recurring base of business that we expect will continue to organically increase over the next several years, driven primarily by North American utilities’ outsourcing activities required to replace, rebuild and upgrade existing infrastructure.
We expect the Electric Power segment adjusted EBITDA margins to be in excess of 20%. Any emergency restoration-related revenues we will not realize in 2022 is not included in this guidance.
In our Telecommunications segment, we expect revenues in the range of $60 million to $70 million, driven by the federally funded RDOF construction programs as well as increasing demand by our wireless and wireline customers for our engineering, design, construction, maintenance, testing and commissioning services, largely around system upgrades driven by the rollout of the 5G spectrum and 4G LTE enhancements. Our 2022 adjusted EBITDA margin expectations for this segment is 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. This range anticipates that Orbital Solar will be awarded 1 to 2 additional utility-scale solar projects that will move to construction in 2022. Adjusted EBITDA margins for this segment are expected to be 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 Jingoli Power, where Orbital Solar will consolidate 100% of revenues generated but will absorb cost in the project to pay Jingoli for their participation, which contributes to a lower-margin profile for this segment.
Certain holding company and unallocated costs exist outside of the defined operating segments. We estimate these costs to be $15 million for 2022. You will find a reconciliation of EBITDA and adjusted EBITDA from continuing operations, 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.
On a consolidated basis, from a revenue seasonality perspective in 2022, we expect the first quarter revenues to be slightly higher than the fourth quarter of 2021 then growing sequentially into the third quarter with a slight decline in the fourth quarter. We also anticipate margins for the first quarter to be the lowest for the year. Margins do increase in subsequent quarters as volumes increase and we successfully execute through individual project contingencies throughout the year.
We as well as most of our customers are experiencing supply chain issues across all of our operating segments. However, we’ve been working closely with our customers to strategically plan to maximize productivity of our workforce. We have taken into account the current cadence of supply chain issues into the guidance we have provided to you today.
While uncertainties exist today in our business and in the economy driven by the COVID-19 pandemic, we expect fewer issues in 2022 compared to the last couple of years. In 2021, the company completed 4 acquisitions: Gibson Telecom or GTS; and the tuck-in acquisitions, IMMCO and Full Moon Telecom; as well as the acquisition of Frontline Power. These acquisitions will significantly change the magnitude of amortization, acquisition and integration costs and certain other corporate and unallocated costs as well as the quarter-to-quarter timing of these items. Please refer to our 10-K for details associated with these cost components.
Now I will turn the call back over to Jim.
Jim O’Neil
Thank you, Nick. I would characterize 2021 as a transformational year for OEG. The strategic acquisition of 2 platform companies, GTS in our Telecommunication segment and Frontline Power in our Electric Power segment, will add significant recurring profitable revenue streams with strong organic growth opportunities for years to come as we capitalize on the positive market trends in these industries. GTS and Frontline Power are the platform companies I envisioned in acquiring when I joined the organization as CEO in October of 2019, and the company is now positioned for profitable growth in 2022 and beyond.
To accomplish our objectives required a considerable amount of capital in the form of both debt and equity. It has not and never has been our intent to operate long term with our existing capital structure. However, it was imperative that we established our market presence without delay to position ourselves to take advantage of these very positive industry dynamics.
Our capital structure is in transition. And as Nick commented, one of our top priorities is to optimize our capital structure, reducing leverage and repositioning our balance sheet accordingly with operating performance improvement in 2022. We have a strong foundation to build from in each of our operating segments with very strong market drivers for our services. I’m confident that 2022 will be a rewarding year for our employees and shareholders.
Operator, that concludes our prepared remarks, and we’ll now open up the call for questions and answers.
Question-and-Answer Session
Operator
Our first question comes from Jeffrey Campbell with Alliance Global.
Jeffrey Campbell
Jim, just quickly regarding the sale of the natural gas businesses. Do you expect to sell the business as it’s currently organized? Or is it more likely that the U.S. and U.K. businesses will be sold separately?
Jim O’Neil
It’s more than likely that they’ll be sold separately, Jeff, to strategics that work geographically in the same regions that they work.
Jeffrey Campbell
It sounds like the short-term bill for Frontline has dropped to $35 million. So just wondering, what sort of options are you entertaining in that regard?
Jim O’Neil
Jeff, repeat that. What about the $35 million? I didn’t catch your question.
Jeffrey Campbell
I said it sounded like from what Nick said that the Frontline bill, the impending one has dropped down to $35 million, then the rest is the next year. So I’m just wondering what you’re thinking about with regard to the $35 million that’s upcoming.
Nick Grindstaff
Yes. So yes, we are in the market. We’ve got several options. We’re exploring both debt and equity options in that regard and certainly expect to have a solution by the end of May.
Jeffrey Campbell
Okay. I wanted to ask now that Frontline is ostensibly OEG’s T&D platform, how does Orbital Power fit into the portfolio? And will you continue to invest in the growth of that division as well?
Jim O’Neil
That’s a great question. We’ve actually almost look like Orbital Power’s a tuck-in into Frontline. We’ve already been leveraging best practices and synergies with Frontline being the platform and Orbital Power almost being like a tuck-in. And we’re starting to realize those benefits to the bottom line, which is part of the improvement that we’re going to see year-over-year. Orbital Power will be much improved in 2022.
Jeffrey Campbell
Okay. Because one thing I was thinking about with Orbital Power is that, if I understand it correctly, Frontline’s business is heavily aligned to Texas, whereas some of the Orbital Power MSAs are in other states. So I just wondered if that was an attractive feature of keeping both of them, the diversity of markets and states that you can reach with the 2 different entities.
Jim O’Neil
I think the most important part about the Frontline Power acquisition and Orbital Power working together is that they provide synergistic services. They’re both very strong in electric distribution services in particular. And with that capability and the company building those resources, it gives us a greater ability to scale the geographically in with new customers. So there’s more coordination between the 2 companies.
Jeffrey Campbell
Okay. You — there was a mention of additional projects in Renewables expected to come when there was a discussion of the backlog for the year. I was just wondering, are those most likely to come from this evolving relationship with [Lightspeed]? Or would it possibly be with other companies as well?
Jim O’Neil
The Lightsource BP relationship is one that we value tremendously. And obviously, that’s the Black Bear and Happy projects we’re on, and we’re certainly looking to expand our relationship with them. But the $1 billion opportunity pipeline consists of many other customers that we had been developing relationships with, which gives us a diverse customer set to potentially work for this year. So our guidance does expect to get at least 1 to 2 more projects that will move to construction in 2022.
Jeffrey Campbell
Okay. And the last area that I wanted to touch on — well, actually, 2. First, regarding logistics and materials, there was some mention of that. We’ve heard from third-party sources that there’s considerable concern about the difficulty in obtaining solar panels and inverters and other pieces of equipment that are particularly aligned to utility-scale solar projects. So I just — it sounds like you don’t share that concern to a high degree. So I’m just wondering, what have you done to blunt those risks?
Jim O’Neil
It’s a concern, Jeff. But we work more closely with our customers and the suppliers strategically. The way I look at it is, it took before the pandemic about 6 months lead time, and now it’s running about 9 to 10 months lead time on some of those items. So you just have to plan for it more in advance. And if there are any supply chain interruptions, we work very well with our customers to mitigate that the best we can to work on other parts of the project, whatever we can do to be as efficient as possible. And that’s across all of our segments, not just the Renewables segment.
Jeffrey Campbell
Okay. And then my final question was with regard to Gibson and IMMCO, and maybe more specifically IMMCO. IMMCO had a recent announcement about 2 million fiber-to-the-premises designs and office expansion. I was just wondering, how does the IMMCO work translate into fieldwork for Gibson? Or what are the synergies IMMCO might have in the Orbital portfolio?
Jim O’Neil
Well, the engineering and design is the tip of the spear to get the work, right? So you bring in IMMCO who is not only expanding our capabilities to do engineering and design for wireless customers and broadband customers, but they’re also bringing in new customer base as well. So that is a good lead-in for us to go provide a total solution to our customers to where historically maybe IMMCO provided just engineering. Now it gives us an opportunity to bring a full one-stop-shop solution, which is what many of our customers are looking for today, especially when they have a track record of success and a relationship built off of the quality of work that either GTS or IMMCO have done for them in the past.
And, Full Moon, the Full Moon acquisition was huge as well because they’re on the other end of the spectrum, where they do the testing and commissioning of the infrastructure once everything has been installed. So it really broadens our ability to provide a one-stop shop, which is really attractive to our customers.
Operator
And I’m not showing any further questions at this time. I would now like to turn the call back over to Jim O’Neil for any further remarks.
Jim O’Neil
Well, thank you, operator, and to all of you for listening today. I’d like to remind you that we are participating in the Alliance Global Virtual Conference that’s coming up this Wednesday. If you’d like to schedule a meeting, please contact your AGP representative or Three Part Advisors. We look forward to speaking with you when we report our first quarter 2022 results in May. Have a great evening. Goodbye.
Operator
Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.
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