Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong project execution across most business segments despite challenges.
- Healthy bidding activity and strategic expansion of partnerships.
- Significant growth opportunities in the data center market driven by AI.
- Awarded a $170 million transportation project in Canada, solidifying regional relationships.
- Strong liquidity with $427 million in borrowing availability and a low funded debt-to-EBITDA leverage ratio of 0.3 times.
Negative Points
- Second quarter revenues decreased by 6.7% compared to the same period last year.
- Gross margin significantly decreased to 4.9% from 10.1% in the same period last year.
- Operating loss margin in the T&D segment was 1.8%, down from an operating income margin of 7.5% last year.
- Net loss of $15 million compared to net income of $22 million in the same period last year.
- Challenges with clean energy projects and a specific C&I project negatively impacted financial performance.
Q & A Highlights
Q: On the solar project delays and cost overruns, are these in the same competitive territories where you decided to step away from bidding?
A: Yes, they are in some of those same markets. We will continue to be selective in this environment, taking on additional work at the right price and with the right customer.
Q: Should we still expect T&D operating margins at 7% and C&I at 4% by year-end?
A: We expect T&D performance to be in the midrange and C&I at the lower range, excluding troubled projects. There could be additional impacts from ongoing projects, but we believe most have been identified.
Q: Can you discuss the outlook for T&D given market expectations for softness in the back half of the year?
A: We see a lot of activity in small and midsized projects. Larger projects have been slower to market, but we expect them to roll out. Long-term, the market looks great, though short-term it could be lumpy.
Q: Are there provisions to protect against owner-related delays in clean energy projects?
A: Contracts cover certain items, but not everything. We continue discussions with customers and historically have settled issues without litigation, though we are prepared to litigate if necessary.
Q: Was there a triggering event this quarter that led to a broader review of gross margin assumptions?
A: The T&D results were impacted by clean energy projects, particularly solar, which faced delays and weather issues. These issues hit us in one quarter but were not widespread across all business segments.
Q: Details on the $170 million transportation project in Canada?
A: It’s a larger, long-term project expected to last 3.5 to four years, starting next year. We have experience with similar-sized projects.
Q: How are you thinking about revenue guidance for the rest of the year?
A: We will be selective with solar projects, leading to a decline in T&D revenue. However, we expect growth in C&I and small to midsized T&D projects to offset this.
Q: What gives you confidence that challenged projects will roll off by year-end?
A: Most projects are rolling off as planned. We have good visibility on remaining projects and do not anticipate additional troubled projects at this time.
Q: How much of the project issues were due to internal execution versus external factors?
A: While we could have done some things differently, not all losses were due to our actions. Potential litigation limits how much detail we can provide.
Q: Are clean energy projects inherently riskier than T&D projects?
A: Generally, no. Issues can arise that make specific projects riskier, but clean energy projects have been accretive to margins in some markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
