ENGLOBAL CORPORATION The following discussion is qualified in its entirety by, and should be read in conjunction with, our Consolidated Financial Statements and Notes thereto, included elsewhere in this Report.
Overview
We have identified modular project execution offerings as the opportunity to which our capabilities are best applied, focused our business development team on communicating these offerings to specific clients and realigned our internal reporting structure to better facilitate complete modular project execution. We have identified five strategic market initiatives where we have a history of delivering project solutions and 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 including a single vendor interface, better control of costs, better control of schedule and lower safety risk. These five targeted market initiatives include: (i) Renewables; (ii) Automation; (iii) Refining and Transportation; (iv) Upstream and (v) Government Services. We have identified specific individuals within the Company to lead the efforts for each market initiative - "a champion" - while coordinating with the other sales leaders.
COVID-19 Update
On
As a result of these current and future uncertainties, we felt it necessary to
utilize all avenues of available assistance as they may not be available in the
future when needed. On
On
18
On
Because the severity, magnitude and duration of the COVID-19 pandemic and its economic consequences are uncertain, rapidly changing and difficult to predict, the impact on our business, financial condition and results of operations remains uncertain and difficult to predict. If COVID-19 continues to spread or if the response to contain the COVID-19 pandemic is unsuccessful, we could experience a material adverse effect on our business, financial condition, and results of operations. For additional information, see Part II. Item 1A "Risk Factors."
Results of Operations
Our revenue is comprised of services revenue and the sale of engineered modular
solutions. We generally recognize service revenue as soon as the services are
performed. The majority of our engineering services have historically been
provided through time-and-material contracts whereas a majority of our
engineered modular solutions revenues are earned on fixed-price contracts.
During 2020, we worked on 323 projects ranging in size from
In the course of providing our services, we routinely provide materials and equipment and may provide construction management or construction services on a subcontractor basis. Generally, these materials, equipment and subcontractor costs are passed through to our clients and reimbursed, along with handling fees, which in total are at margins much lower than those of our services business. In accordance with industry practice and generally accepted accounting principles, all such costs and fees are included in revenue. The use of subcontractor services can change significantly from project to project; therefore, changes in revenue and gross profit, SG&A expense and operating income as a percent of revenue may not be indicative of our core business trends.
Segment operating SG&A expense includes management and staff compensation, office costs such as rents and utilities, depreciation, amortization, travel, bad debt and other expenses generally unrelated to specific client contracts, but directly related to the support of a segment's operations. Corporate SG&A expenses includes investor relations, business development, governance, finance, accounting, health, safety, environmental, human resources, legal and information technology which are unrelated to specific projects but which are incurred to support corporate activities.
Reporting Segments
Our segments are strategic business units that offer different services and
products and therefore require different marketing and management strategies.
Separate operational leaders are in charge of our engineering offices and our
automation offices, including the office that contracts with government
agencies. The operating performance of our segments is regularly reviewed with
the operational leaders of the two segments, the CEO, CFO and others. This group
represents the CODM for
Our corporate and other expenses that do not individually meet the criteria for segment reporting are reported separately as Corporate expenses.
19
Comparison of the years ended
The following table set forth below, for the years ended
EPCM Automation Corporate Consolidated
Operations Data
For the Year Ended December 26, 2020 :
Revenue $25,929 $38,520 $- $64,449 100.0%
Gross profit 2,358 6,093 - 8,451 13.1%
SG&A 2,427 1,569 4,838 8,834 13.7%
Operating income (loss) (69) 4,524 (4,838) (383) (0.6)%
Other income, net 14 0.1%
Interest expense, net (153) (0.2)%
Tax expense (103) (0.2)%
Net loss (625) (1.0)%
Loss per share $(0.02)
EPCM Automation Corporate Consolidated
For the Year Ended December 28, 2019 :
Revenue $19,436 $37,010 $- $56,446 100.0%
Gross profit 1,631 6,285 - 7,916 14.0%
SG&A 2,461 1,690 5,166 9,317 16.5%
Operating income (loss) (830) 4,595 (5,166) (1,401) (2.5)%
Other income, net 49 0.1%
Interest expense, net (31) (0.1)%
Tax expense (83) (0.1)%
Net loss (1,466) (2.6)%
Loss per share $(0.05)
20
EPCM Automation Corporate Consolidated
Year Over Year Increase (Decrease) in
Operating Results:
Revenue $6,493 $1,510 $- $8,003 14.2%
Gross profit 727 (192) - 535 6.8%
SG&A (34) (121) (328) (483) (5.2)%
Operating income (loss) 761 (71) 328 1,018 (72.7)%
Other income, net (35) (71.4)%
Interest expense, net (122) 393.5%
Tax expense (20) 24.1%
Net loss 841 (57.3)%
Loss per share $0.03 Revenue -Overall, our revenue for the year ended
Gross Profit -Gross profit for the year ended
Gross profit in our EPCM segment increased
Gross profit in the Automation segment decreased
Selling, General and Administrative - Overall, our SG&A expenses decreased by
21
Other income,net - Other income, net of expense, decreased
Tax expense -Tax expense was
Net Income (Loss) - Net loss for the year ended
Liquidity and Capital Resources
Overview
We define liquidity as our ability to pay liabilities as they become due, fund
business operations and meet monetary contractual obligations. Our primary
sources of liquidity are cash on hand, internally generated funds, and
borrowings under the PPP Loan and the Revolving Credit Facility. Our cash
increased to
On
In addition, on
We believe our cash on hand, internally generated funds and availability under the Revolving Credit Facility along with other working capital will be sufficient to fund our current operations and expected activity for the next twelve months.
Cash and the availability of cash could be materially restricted if (1) outstanding invoices billed are not collected or are not collected in a timely manner, (2) circumstances prevent the timely internal processing of invoices, (3) we lose one or more of our major customers or our major customers significantly reduce the amount of work requested from us, (4) we are unable to win new projects that we can perform on a profitable basis or (5) we are unable to reverse our use of cash to fund losses. If any such event occurs, we would be forced to consider alternative financing options.
Our Board of Directors continues to review strategic transactions, which could include strategic mergers, reverse mergers, the issuance or buyback of public shares, or the purchase or sale of specific assets, in addition to other potential actions aimed at increasing shareholder value. The Company does not intend to disclose or comment on developments related to its review unless and until the Board has approved a specific transaction or otherwise determined that further disclosure is appropriate. There can be no assurance that the Board's strategic review will result in any transaction, or any assurance as to its outcome or timing.
22
Cash Flows from Operating Activities
Operating activities used approximately
Cash Flows from Investing Activities
Investing activities used cash of
Cash Flows from Financing Activities
Financing activities provided cash of
Stock Repurchase Program
On
Accounts Receivable
We typically sell our products and services on short-term credit and seek to
minimize our credit risk by performing credit checks and conducting our own
collection efforts. Our trade accounts receivable decreased
23
Risk Management
In performing services for our clients, we could potentially face liability for breach of contract, personal injury, property damage or negligence, including professional errors and omissions. We often agree to indemnify our clients for losses and expenses incurred as a result of our negligence and, in certain cases, the sole or concurrent negligence of our clients. Our quality control and assurance program includes a control function to establish standards and procedures for performance and for documentation of project tasks, and an assurance function to audit and to monitor compliance with procedures and quality standards. We maintain liability insurance for bodily injury and third party property damage, professional errors and omissions, and workers' compensation coverage, which we consider sufficient to insure against these risks, subject to self-insured amounts.
Seasonality
Our revenues are generated by services, and therefore holidays and employee vacations during our fourth quarter negatively impact revenues for that quarter, which is only partially offset by the year-end efforts on the part of many clients to spend any remaining funds budgeted for services and capital expenditures during the year. Our clients' annual budget process is normally completed in the first quarter, which can slow the award of new work at the beginning of the year. Principally due to these factors, our first and fourth quarters are typically less robust than our second and third quarters.
Critical Accounting Policies
Please see Part II, Item 8, Note 2 - Accounting Policies and New Accounting Pronouncements for additional information regarding our critical accounting policies.
24
© Edgar Online, source
