10-Q: Energy Services of America Reports Q1 2025 Results, Impacted by Weather and Transmission Project Timing

Energy Services of America's Q1 2025 revenue increased to $100.6 million, but net income decreased due to lower gross profit in gas and petroleum transmission and increased administrative expenses.

Summary

• Energy Services of America (ESOA) reported its financial results for the first quarter of fiscal year 2025, ended December 31, 2024.
• Revenue increased by $10.5 million to $100.6 million, compared to $90.2 million for the same period in 2023.
• The increase was driven by growth in Gas & Water Distribution and Electrical, Mechanical, & General categories, offset by a decrease in Gas & Petroleum Transmission work.
• Net income decreased to $854,000, compared to $2.0 million for the same period in the prior year.
• The decrease in net income was primarily due to a decrease in gross profit in Gas & Petroleum Transmission work and an increase in selling and administrative expenses.
• The company completed the acquisition of Tribute Contracting & Consultants, LLC on December 2, 2024, for $22.0 million in cash and $2.0 million in Energy Services Common Stock.
• The company's unaudited backlog at December 31, 2024, was $260.2 million, compared to $243.2 million at September 30, 2024.
• The company is still under review by the SBA regarding the forgiveness of $9.8 million in PPP loans.

Sentiment

Score: 5

Explanation: The report presents mixed results, with revenue growth offset by a decline in profitability. The acquisition of Tribute is a positive development, but the ongoing SBA review of PPP loans creates uncertainty. Overall, the sentiment is neutral.

Positives

• Revenue increased by 11.6% to $100.6 million.
• Gas & Water Distribution revenues increased by 83.2% to $31.3 million.
• Electrical, Mechanical, & General revenues increased by 14.3% to $50.9 million.
• The company's unaudited backlog at December 31, 2024, was $260.2 million, compared to $243.2 million at September 30, 2024.
• The company acquired Tribute Contracting & Consultants, LLC which contributed $1.6 million in revenue between December 2, 2024, and December 31, 2024.

Negatives

• Net income decreased by 58.1% to $854,000.
• Gas & Petroleum Transmission revenues decreased by 35.4% to $18.5 million.
• Total gross profit decreased by $575,000 to $10.3 million.
• Selling and administrative expenses increased by $1.4 million to $8.6 million.
• The company is still under review by the SBA regarding the forgiveness of $9.8 million in PPP loans.

Risks

• The company's financial results are subject to seasonal variations due to weather, customer spending patterns, bidding seasons, and holidays.
• The pipeline industry can be highly cyclical, reflecting variances in capital expenditures in proportion to energy price fluctuations.
• The company's revenue and profit recognition depend on the accuracy of its estimates of the cost to complete each project.
• The company is subject to potential credit risk related to business and economic factors that would affect its customers.
• The company is still under review by the SBA regarding the forgiveness of $9.8 million in PPP loans, and any penalties in addition to the potential repayment of the PPP Loans could negatively impact the company's business, financial condition and results of operations and prospects.

Future Outlook

The Company is receiving significant bid opportunities for water and wastewater projects, natural gas transmission and distribution projects and electrical, mechanical, and general construction projects. The Company's unaudited backlog at December 31, 2024, was $260.2 million, as compared to $185.9 million and $243.2 million at December 31, 2023, and September 30, 2024, respectively. While adding additional projects appears likely, no assurances can be given that the Company will be successful in bidding on projects that become available. Moreover, even if the Company obtains contracts, there can be no guarantee that the projects will go forward.

Management Comments

• The Company is receiving significant bid opportunities for water and wastewater projects, natural gas transmission and distribution projects and electrical, mechanical, and general construction projects.

Industry Context

The company operates in the construction and service industry, providing services to customers in the natural gas, petroleum, water distribution, automotive, chemical, and power industries. The company's performance is affected by factors such as weather, customer spending patterns, bidding seasons, holidays, and energy price fluctuations.

Comparison to Industry Standards

• It is difficult to compare Energy Services of America directly to industry standards without more specific information on their project mix and geographic focus.
• Companies like MasTec (MTZ) and Quanta Services (PWR) are much larger and have a broader geographic reach, making direct comparisons challenging.
• However, ESOA's focus on the mid-Atlantic and central regions of the United States allows them to develop specialized expertise and relationships in those markets.
• Their mix of union and non-union labor also provides flexibility in bidding on different types of projects.
• To assess their performance against industry standards, it would be helpful to compare their gross margins and backlog growth to similar-sized companies in their specific geographic markets and service areas.

Legal Proceedings

• The Company is in negotiations with a pension fund to resolve a withdrawal liability claim, and all future payments have been suspended as part of the negotiation.

Related Party Transactions

• The Company has a $1.0 million promissory note agreement with Corns Enterprises as partial consideration for the purchase of Tri-State Paving.
• The Company entered into an operating lease for facilities in Hurricane, West Virginia with Corns Enterprises.
• SQP made an equity investment of $156,000 in 1030 Quarrier Development, LLC.
• CJ Hughes entered into an agreement, cancelable at any time, with Construction Specialty Services (CSS), which is owned by Chuck Austin, the President of CJ Hughes.

Stakeholder Impact

• Shareholders: The decrease in net income and earnings per share may negatively impact shareholder value.
• Employees: The company's ability to secure new projects and manage costs will impact job security and compensation.
• Customers: The company's ability to provide reliable and cost-effective services will impact customer satisfaction.
• Creditors: The company's ability to meet its financial obligations will impact its creditworthiness.

Next Steps

• The company will continue to pursue bid opportunities for water and wastewater projects, natural gas transmission and distribution projects, and electrical, mechanical, and general construction projects.
• The company will continue to work with the SBA to resolve the review of PPP loan forgiveness applications.

Key Dates

Keywords

Energy Services of America, financial results, Q1 2025, revenue, net income, acquisition, Tribute Contracting & Consultants, backlog, PPP loans, construction, pipeline, water distribution, electrical services, mechanical services, general contracting