HOUSTON, Nov. 03, 2017 (GLOBE NEWSWIRE) -- ENGlobal, a leading provider of engineering and automation services, today announced results for the third quarter ended September 30, 2017.
ENGlobal reported a net loss of $12.1 million for the third quarter of 2017 which was a $12.6 million decrease over net income of $0.5 million reported for the prior year period. The third quarter 2017 results included the effects of a $11.3 million non-cash charge relating to a valuation allowance that was taken against the Company's deferred tax assets. Net loss per diluted share was ($0.44) versus net income per diluted share of $0.02 for the third quarter just ended and for the third quarter of 2016, respectively.
During the second quarter of 2017, management worked closely with a strategy consultant to perform an assessment of the Company and both short term and long term market trends, which in turn assisted management in updating its long term business growth strategy. This assessment was completed in the quarter just ended and concluded that ENGlobal's market segments that are expected to experience the highest future growth rates are those relating to Industrial Controls and Automation and the Industrial Internet of Things (IIOT).
These are both areas in which the Company has extensive experience providing higher value products and services to its clients but have not been the Company's primary focus in recent years. As a result of this strategic assessment, management has developed a multi-year plan to invest and position the Company as a leading provider of higher value industrial automation and IIOT services to its extensive customer base - an area that has historically produced higher project margins for ENGlobal.
Additionally, through previous organic initiatives, ENGlobal is now a vertically integrated service provider with expertise in project related engineering, mechanical fabrication, systems integration and automation. This positioning has allowed the Company to differentiate itself from most of its competitors as a full service provider - delivering benefits by reducing its clients' need to coordinate multiple vendors. In addition, ENGlobal is now able to pursue larger scopes of work focused on a wide range of modularized engineered systems. Management believes that because of the vertical integration strategy, an increasing amount of engineering, mechanical fabrication and systems integration services necessary to support the Company's strategic growth plan will be awarded to the Company.
Management's Assessment
William A. Coskey, P.E., Chairman and CEO of ENGlobal stated: "Our management has been very busy - taking actions during the quarter to begin the implementation of ENGlobal's strategy. These first steps included the reorganization and refocusing of our business development personnel, the development of relevant marketing materials and the successful adoption of a new customer relationship management system. In addition, during the quarter we completed the reorganization of our operations staff resulting in a senior VP responsible for the staffing, training, development and project execution of our automation business and a senior VP with the same responsibilities for our multidiscipline engineering and EPC projects business."
Mark A. Hess, ENGlobal's Chief Financial Officer stated: "During the quarter, we continued to work through many projects that were awarded at the end of last year and early this year at relatively lower margins. Combined with our low productivity levels following hurricane Harvey, this produced lower than expected revenue and gross margin for the quarter. While our selling, general and administrative costs continue to be rationalized and reduced, the reduction was not enough to offset the reduced gross margin. In addition, during the quarter, pursuant to standard accounting rules, we established a valuation allowance against our deferred tax assets of $11.3 million."
Mr. Hess continued: "While work as a result of our strategy assessment is in its beginning phases, we have seen encouraging early indicators that this approach is aligned with our customers' strategic focus and will be well received by our clients. As one example, we have been developing our automation pipeline over the last few quarters resulting in a 20% increase of our automation backlog during the quarter just ended. Proposal activity has been healthy and we are currently awaiting client decisions on a number of significant opportunities."
The following is a summary of the income statement for the three months ended September 30, 2017 and September 24, 2016:
| (amounts in thousands) | Three months ended September 30, 2017 | Three Months ended September 24, 2016 | ||||
| Revenue | $ | 12,896 | $ | 15,968 | ||
| Gross Profit | 1,621 | 3,881 | ||||
| General & Administrative Expenses | 3,041 | 3,511 | ||||
| Operating Income (Loss) | (1,420) | 370 | ||||
| Net Income (Loss) | (12,154) | 489 | ||||
The following table presents certain balance sheet items as of September 30, 2017 and December 31, 2016:
| (amounts in thousands) | As of September 30, 2017 | As of December 31, 2016 | ||
| Cash | $ | 10,898 | $ | 15,687 |
| Working capital | 19,163 | 22,200 | ||
The following table illustrates the composition of the Company's revenue and profitability for its operations for the three and nine months ended September 30, 2017 and September 24, 2016:
| (amounts in thousands) | Three months ended September 30, 2017 | Three Months ended September 24, 2016 | ||||||||||||||||||||
| % of | Gross | Operating | % of | Gross | Operating | |||||||||||||||||
| Total | Total | Profit | Profit | Total | Total | Profit | Profit | |||||||||||||||
| Segment | Revenue | Revenue | Margin | Margin | Revenue | Revenue | Margin | Margin | ||||||||||||||
| Engineering & Construction | $ | 8,573 | 66.5% | 10.5% | 0.3% | $ | 8,216 | 51.5% | 17.7% | 6.6% | ||||||||||||
| Automation | 4,323 | 33.5% | 16.7% | 4.4% | 7,752 | 48.5% | 31.3% | 22.5% | ||||||||||||||
| Consolidated | $ | 12,896 | 100.0% | 12.6% | (11.0)% | $ | 15,968 | 100.0% | 24.3% | 2.3% | ||||||||||||
| (amounts in thousands) | Nine months ended September 30, 2017 | Nine Months ended September 24, 2016 | ||||||||||||||||||||
| % of | Gross | Operating | % of | Gross | Operating | |||||||||||||||||
| Total | Total | Profit | Profit | Total | Total | Profit | Profit | |||||||||||||||
| Segment | Revenue | Revenue | Margin | Margin | Revenue | Revenue | Margin | Margin | ||||||||||||||
| Engineering & Construction | $ | 26,833 | 64.9% | 13.5% | 3.5% | $ | 25,000 | 56.0% | 11.5% | 1.8% | ||||||||||||
| Automation | 14,503 | 35.1% | 15.5% | 4.0% | 19,622 | 44.0% | 23.1% | 11.9% | ||||||||||||||
| Consolidated | $ | 41,336 | 100.0% | 14.2% | (8.8)% | $ | 44,622 | 100.0% | 16.6% | (6.3)% | ||||||||||||
