Micro-Cap Firing On All Cylinders, Revenues Surge 53% On Continued Profitability

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Thursday, May 14, 2020

After more than two decades of success as an engineering consulting and technical staffing firm, ENGlobal (NASDAQ:ENG) found its business and margins shrinking year-over-year in the 10 years leading up to 2018. That’s when founder and CEO Bill Coskey developed a new strategy, one that would yield higher revenues and profit margins for ENG and its investors.

Instead of pursuing hundreds of small assignments in the range of $10,000 to $200,000, ENGlobal switched to a model that positioned the company to compete for much larger turnkey projects, with revenue value between $10 million to $250 million.

Two years later, Coskey’s business acumen in pivoting the business and adding turnkey capabilities for delivering modular process and automation systems is paying off.  After posting the company’s first profitable quarter in five years in the fourth quarter of 2019, ENGlobal delivered net income again in Q1 2020 on a 53% surge in revenue.

For the quarter ended March 28, 2020, the Houston-based company had revenue of $19.26 million, up 53% from $12.16 million in the year prior quarter. That’s a solid start to the year after reporting $56.45 million in revenue for all of 2019.

Most importantly, though, over 73% of this Q1 2020 revenue was produced by the company’s Automation segment – with a gross profit margin of 21% - and only 27% of Q1 revenue from ENGlobal’s Engineering & Construction business, with a gross profit margin of 5%. As a result, net income for the quarter came in at $1.1 million, or $.04 per share, up from a net loss of $974,000, or ($0.04) per share, in Q1 2019. These Q1 2020 results followed a Q4 2019 fourth quarter showing net income of $741,000, or $.03 per share. ENGlobal also trimmed its Q1 2020 selling, general and administrative expenses to $2.13 million for the quarter compared to $2.30 million a year earlier.

The company had $6.77 million in cash and cash equivalents on hand and $11.91 million in working capital at the end of March.

Impressively, ENGlobal has achieved these results despite being focused primarily on the energy sector throughout the U.S. and internationally - an energy market that is at multi-year lows. 

The company’s growing sales and profits are owing to several factors - for starters, the aforementioned larger project awards. Second, ENGlobal is somewhat insulated from low oil prices because its clients are typically more downstream, such as chemical processing plants, oil refineries, and more recently, renewable fuel installations. These businesses aren’t as affected by fluctuations in crude prices. Furthermore, the company is establishing valuable strategic relationships which enhance it’s modular solutions – with equipment OEMs, process technology licensors, large E&C firms and major end users –all which play right into ENGlobal’s business model.

There is of course the looming question surrounding Covid-19 that has economists and analysts alike wondering how it will impact the world and the O&G market specifically. Even with those factors, the company had about $53 million in backlogged work at the end of the first quarter and more than $100 million in proposals outstanding. So if ENGlobal holds close to its last 12-month pace during which time it was awarded about 39% of proposals (on a dollar volume basis), the company’s 2020 outlook will remain bright.

While many stocks have languished in 2020 at the hands of coronavirus, shares of ENG are eking out a yearly gain, providing some evidence as to what Wall Street is starting to see in the company, its leadership and business execution.

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