ENGlobal (Nasdaq:ENG), a leading provider of engineered modular
solutions to the energy industry, today announced a net loss of
$5.7 million and a diluted loss per share of $0.21 for the fiscal
year ended December 29, 2018. The Company incurred non-cash
expenses for goodwill impairment, depreciation and amortization,
and stock compensation of $2.7 million during 2018 and income tax
expense of $0.1 million primarily due to state margin tax.
Management's Assessment
William Coskey, P.E., Chairman and Chief
Executive Officer of ENGlobal said: “The Company is making strides
to benefit from the multi-year strategic initiative we began in the
fall of 2017. We have identified modular project execution
offerings as the opportunity to which our capabilities are best
applied, and focused our business development team on communicating
these offerings to specific clients. Seven strategic initiatives
have been identified where we can provide complete project
execution that includes engineering, design, fabrication and
integration of automated control systems as a complete packaged
solution for our clients, preferably in a modular form. This
“design it once – build it many times” concept has many merits for
our clients including a single vendor interface, better control of
costs, better control of schedule and lower safety risk, among
other things, which is being well received by many of our
clients.”
Mr. Coskey continued: “One result of our
positioning and sales efforts is that the new opportunities and
proposal pipeline we track continues to increase. Many of these
proposals are larger, but have not yet been awarded and have
exceeded our expected award timing. Our backlog, which represents
an estimate of projects that have not been completed, increased to
$29.2 million at December 29, 2018. This compares to backlog of
$24.1 million as of December 30, 2017. I expect our backlog will
continue to increase over the course of 2019, based on current
levels of proposal activity.”
Mark Hess, ENGlobal's Chief Financial Officer,
said: “We showed significant progress towards profitability through
the first three quarters of 2018, reducing our quarterly loss to
$197 thousand for the third quarter. However, during the fourth
quarter the Company experienced significant, unforeseen employee
benefit cost - that is anticipated to be short lived but which
negatively impacted both our gross profit and SG&A. This trend
reversal compounded by the Company’s recent financial results also
triggered an impairment of our goodwill in the fourth quarter.”
Mr. Hess continued: “ENGlobal’s cash on hand is
trending positively, increasing $0.8 million during the fourth
quarter, 2018 to a total of $6.1 million at December 29, 2018 and
has continued to increase year to date in 2019 as we close out some
of the larger in-process projects before investments in new
projects are required. Although cash on hand has increased in the
first quarter of 2019, gross profit has been negatively impacted by
the delayed execution of current and expected project awards. As a
result, our financial results for the first quarter are expected to
be negatively impacted.”
Mr. Hess continued: “We continue to be very
mindful of our overhead structure, and total SG&A costs have
continued to decrease. Although the Company has made investments in
key individuals, product developments, new facilities and
equipment, in addition to the increased employee benefit cost
mentioned above, these areas of additional overhead cost have been
more than offset by SG&A decreases in other areas of our
business.”
2018 Fiscal Year results as compared to 2017 Fiscal Year
results:
Revenue decreased to $54.0 million for the
fiscal year ended December 29, 2018, or 3.2%, from $55.8 million
for the fiscal year ended December 30, 2017. ENGlobal reported a
net loss of $5.7 million, or $0.21 per diluted share, for the
fiscal year ended December 29, 2018, compared to net loss of $16.3
million, or $0.59 per diluted share, for the prior year period. The
Company incurred income tax expense of $0.1 million during 2018
primarily due to state margin tax, compared to income tax expense
of $10.1 million during 2017. The Company incurred non-cash
expenses for goodwill impairment, depreciation and amortization,
and stock compensation of $2.7 million during 2018 and the Company
incurred non-cash expenses for depreciation and amortization and
stock compensation of $1.6 million during 2017. No goodwill
impairment was recorded in 2017.
In April 2015, the Company’s Board of Directors
authorized the repurchase of up to $2.0 million of the Company’s
common stock from time to time, based on prevailing market
conditions. The Company is not obligated to repurchase any dollar
amount or specific number of shares of common stock under the
repurchase program, which may be suspended, discontinued or
reinstated at any time. The stock repurchase program was suspended
on May 16, 2017 and reinstated on December 19, 2018. Through
December 29, 2018, ENGlobal had repurchased and retired 1,212,773
shares of common stock at a total cost of $1.5 million, including
21,723 shares for $15 thousand in between December 19, 2018 and
December 29, 2018.
The following table illustrates the composition
of the Company's revenue and profitability for its operations for
the fiscal years ended December 29, 2018 and December 30, 2017:
|
Year Ended |
|
Year Ended |
(amounts in
thousands) |
December 29, 2018 |
|
December 30, 2017 |
Segment |
Total Revenue |
% of Total Revenue |
Gross Profit Margin |
Operating Profit (Loss) Margin |
|
Total Revenue |
% of Total Revenue |
Gross Profit Margin |
Operating Profit
(Loss)Margin |
|
|
|
|
|
|
|
|
|
|
Engineering &
Construction |
$ |
24,152 |
44.7 |
% |
12.5 |
% |
4.7 |
% |
|
$ |
22,595 |
40.5 |
% |
4.9 |
% |
(7.9 |
)% |
Automation |
|
29,844 |
55.3 |
% |
13.1 |
% |
(2.5 |
)% |
|
|
33,170 |
59.5 |
% |
16.1 |
% |
6.5 |
% |
Consolidated |
$ |
53,996 |
100.0 |
% |
12.8 |
% |
(9.6 |
)% |
|
$ |
55,765 |
100.0 |
% |
11.5 |
% |
(11.0 |
)% |
|
|
|
|
|
|
|
|
|
|
The following table illustrates the composition
of the Company's revenue and profitability for its operations for
the three months ended December 29, 2018 and December 30, 2017:
|
Three Months Ended |
|
Three Months Ended |
(amounts in
thousands) |
December 29, 2018 |
|
December 30, 2017 |
Segment |
Total Revenue |
% of Total Revenue |
Gross Profit Margin |
Operating Profit Margin |
|
Total Revenue |
% of Total Revenue |
Gross Profit Margin |
Operating Profit Margin |
|
|
|
|
|
|
|
|
|
|
Engineering &
Construction |
$ |
5,583 |
44.0 |
% |
2.4 |
% |
(5.6 |
)% |
|
$ |
5,619 |
38.9 |
% |
(11.3 |
)% |
(28.5 |
)% |
Automation |
|
7,098 |
56.0 |
% |
11.9 |
% |
(25.6 |
)% |
|
|
8,811 |
61.1 |
% |
13.7 |
% |
5.1 |
% |
Consolidated |
|
12,681 |
100.0 |
% |
7.7 |
% |
(25.3 |
)% |
|
|
14,430 |
100.0 |
% |
4.0 |
% |
(17.4 |
)% |
|
|
|
|
|
|
|
|
|
|
The following is a summary of the Company’s statement of
operations for the last four quarters which may be helpful in
analyzing our ongoing business:
(amounts in
thousands) |
|
2018 |
|
|
Fiscal Year |
|
Q1 |
Q2 |
Q3 |
Q4 |
|
|
2018 |
|
Revenue |
$ |
13,188 |
|
$ |
13,872 |
|
$ |
14,255 |
|
$ |
12,681 |
|
|
$ |
53,996 |
|
Gross Profit |
|
1,413 |
|
|
2,253 |
|
|
2,293 |
|
|
974 |
|
|
|
6,933 |
|
Gross
Profit Margin |
|
10.7 |
% |
|
16.2 |
% |
|
16.1 |
% |
|
7.7 |
% |
|
|
12.8 |
% |
General &
Administrative Expenses |
|
2,582 |
|
|
2,869 |
|
|
2,483 |
|
|
2,096 |
|
|
|
10,030 |
|
Goodwill
impairment |
|
— |
|
|
— |
|
|
— |
|
|
2,086 |
|
|
|
2,086 |
|
Operating Loss |
|
(1,169 |
) |
|
(616 |
) |
|
(190 |
) |
|
(3,208 |
) |
|
|
(5,183 |
) |
Net Loss |
|
(1,200 |
) |
|
(992 |
) |
|
(197 |
) |
|
(3,282 |
) |
|
|
(5,671 |
) |
The following table presents certain balance sheet items as of
December 29, 2018 and December 30, 2017:
(amounts in
thousands) |
As ofDecember 29,
2018 |
As of December 30,
2017 |
Cash and restricted
cash |
$ |
6,060 |
$ |
9,648 |
Working capital |
|
13,725 |
|
16,846 |
|
|
|
The Company's Annual Report on Form 10-K for the year ended
December 29, 2018 is expected to be filed with the Securities and
Exchange Commission today reflecting these results.
About ENGlobal
ENGlobal (Nasdaq:ENG) is a leading provider of
engineered modular solutions to the energy sector throughout the
United States and internationally. ENGlobal operates through
two business segments: Automation and Engineering. ENGlobal's
Automation segment provides services related to the design,
integration and implementation of process distributed control and
analyzer systems, advanced automated data gathering systems and
information technology. Within the Automation segment,
ENGlobal's Government Services group provides engineering, design,
installation and operation and maintenance of various government,
public sector and international facilities, and specializes in the
turnkey installation and maintenance of automation and
instrumentation systems for the U.S. Defense industry worldwide.
The Engineering segment provides multi-disciplined engineering
services relating to the development, management and execution of
projects requiring professional engineering and related project
management services. Further information about the Company and
its businesses is available at www.ENGlobal.com.
Safe Harbor for Forward-Looking Statements
The statements above regarding the Company's
expectations regarding its operations and certain other matters
discussed in this press release may constitute forward-looking
statements within the meaning of the federal securities laws and
are subject to risks and uncertainties including, but not limited
to: (1) our ability to identify, evaluate, and complete any
strategic alternative in connection with our review of strategic
alternatives; (2) the impact of the announcement of our review of
strategic alternatives on our business, including our financial and
operating results, or our employees, suppliers and customers; (3)
the effect of economic downturns and the volatility and level of
oil and natural gas prices; (4) our ability to retain existing
customers and attract new customers; (5) our ability to accurately
estimate the overall risks, revenue or costs on a contract; (6) the
risk of providing services in excess of original project scope
without having an approved change order; (7) our ability to execute
our expansion into the modular solutions market and to execute our
updated business growth strategy to position the Company as a
leading provider of higher value industrial automation and
Industrial Internet of Things services to its customer base; (8)
our ability to attract and retain key professional personnel; (9)
our ability to fund our operations and grow our business utilizing
cash on hand, internally generated funds and other working capital;
(10) our ability to obtain additional financing, including pursuant
to a new credit facility, when needed: (11) our dependence on one
or a few customers; (12) the risks of internal system failures of
our information technology systems, whether caused by us,
third-party service providers, intruders or hackers, computer
viruses, malicious code, cyber-attacks, phishing and other cyber
security problems, natural disasters, power shortages or terrorist
attacks; (13) our ability to realize revenue projected in our
backlog and our ability to collect accounts receivable and process
accounts payable in a timely manner; (14) the uncertainties related
to the U.S. Government’s budgetary process and their effects on our
long-term U.S. Government contracts; (15) the risk of unexpected
liability claims or poor safety performance; (16) our ability to
identify, consummate and integrate potential acquisitions; (17) our
reliance on third-party subcontractors and equipment manufacturers;
(18) our ability to satisfy the continued listing standards of
NASDAQ with respect to our common stock or to cure any continued
listing standard deficiency with respect thereto; and (19) the
effect of changes in laws and regulations, including U.S. tax laws,
with which the Company must comply and the associated cost of
compliance with such laws and regulations . Actual results and the
timing of certain events could differ materially from those
projected in or contemplated by the forward-looking statements due
to a number of factors detailed from time to time in ENGlobal's
filings with the Securities and Exchange Commission. In addition,
reference is hereby made to cautionary statements set forth in the
Company's most recent reports on Form 10-K and 10-Q, and other SEC
filings.
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CONTACT: Mark A. Hess (281) 878-1000 ir@ENGlobal.com
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