Orbital Infrastructure Group, Inc. (OIG) Q1 2021 Earnings Call Transcript

Good day, everyone, and welcome to Orbital Energy Group's First Quarter 2021 Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow management's remarks. As a reminder, this conference is being recorded. A replay of today's call will be available on Orbital Energy Group's Web site later today and will remain posted there for the next 90 days. I will now hand the call over to Mr. Eckstein of KCSA for introductions and the reading of the Safe Harbor statement. Please go ahead, sir.

Thank you, operator. Hello, everyone, and welcome to Orbital Energy Group's first quarter 2021 conference call. A copy of the company's earnings press release and accompanying PowerPoint presentation are available for download on the Events & Presentations page of the Investor Relations section of the Orbital Energy Group Web site. With us on today's call are Jim O’Neil, Vice Chairman and Chief Executive Officer; and Dan Ford, Chief Financial Officer. Today, we'll review the highlights and financial results for the first quarter as well as recent developments. Following these formal remarks, we'll be prepared to answer your questions. I would also like to remind everyone that today's call will contain certain forward-looking statements made within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in forward-looking statements. The company may experience significant fluctuations in future operating results due to a number of economic, competitive, and other factors such as the COVID-19 pandemic including among other things the company's reliance on third-party manufacturers, suppliers, and service providers; government agency budgetary and political constraints; new increased competitions; changes in the market demand and the performance or liability of its products; integrated solutions and services. These factors and others could cause operating results to vary significantly from those in prior periods and to those projected in forward-looking statements. Additional information with respect to these and other factors which could materially affect the company and its operations are included in certain forms the company’s filed with the Securities and Exchange Commission. These forward-looking statements are based on information available to Orbital Energy Group today and the company assumes no obligation to update statements as circumstances change. Now, at this time, it is my pleasure to introduce Jim O’Neil, Vice Chairman and CEO of Orbital Energy. Jim, please go ahead. Jim O’Neil: Thank you, Scott, and thank you everyone for joining us today on our first quarter 2021 earnings conference call. During the first quarter, we continue to execute on our transformational strategy to become an infrastructure service provider serving the electric power transmission and distribution, telecommunications and renewable markets. Just subsequent to the end of the first quarter, we successfully completed our accretive platform acquisition of 100% of the capital stock of Gibson Technical Service, an Atlanta-based telecommunications company, providing diversified telecommunication services nationally since 1990. During the first quarter, we launched a new subsidiary, Eclipse Foundation Group, a drilled shaft foundation construction company that provides foundation services primarily to the electric transmission and substation markets. Also in the first quarter, Orbital Solar Services was named the engineering, procurement and construction, or EPC company of choice, for the newly-formed Black Sunrise Half Century Fund, which over the next three years expects to build over 1 gigawatt of solar power with a beginning investment of $725 million. With this relationship, we have enhanced our presence in the renewable and alternative energy marketplace by securing a string of upcoming utility scale projects, along with planned follow-on developments for our solar division that should persist well into the next few years. Additionally, Orbital Power Services landed two additional multiyear Master Service Agreements with investor-owned utilities. And finally, our Orbital Gas business has recently turned the corner as business activity is now returning to more normalized levels, moving past the effects of COVID-19 that it experienced most of last year. I will now provide more detail on Gibson Technical Service, or GTS, which is now a wholly-owned subsidiary of OEG and its results will be consolidated beginning with our second quarter results. This was our first strategic acquisition of 2021 and the first of several acquisitions we plan to execute upon this year. Since its founding in 1990, GTS has provided superior customer services, advanced technology solutions, and unparalleled quality to its customers and the telecommunication industry. GTS’ customers include Cox Communications, Charter Spectrum, Comcast Communications, Verizon, and other industry leaders. GTS’ management team, including their CEO, Mike McCracken; Chief Operating Officer, Jon Martin; and Chief Financial Officer, Robert Moore, will remain with the company. I’m very pleased with this acquisition and I believe it’s an excellent platform for us to build out our telecommunications services group and to drive profitable revenue growth going forward. GTS is a recognized leader in telecommunications, including broadband and technical services, construction, distributed antenna systems, wireless capabilities and more. With its comprehensive suite of service solutions, GTS is well positioned to serve customers in a rapidly growing marketplace. The telecommunications market has significant industry momentum, primarily driven by the rollout of 5G spectrum and the increasing bandwidth requirements in areas such as healthcare, entertainment, and other public venues. We expect this momentum will continue for years to come. According to a February 2021 article by the Boston Consulting Group, the economic impact of the 5G spectrum will be significant. By delivering faster speeds, lower latency and higher reliability, 5G will spur activity across consumer, industrial and public domains. For example, the 5G spectrum can revolutionize healthcare, transforming telemedicine and the remote monitoring of patients. Over time, the indirect benefits to the U.S. economy are estimated to contribute an additional $1 trillion to $1.2 trillion to the nation's GDP. An estimated $400 billion to $500 billion will be spent to deploy 5G across the nation by the year 2030. In addition to giving us a foothold in this attractive sector, the GTS acquisition further diversifies OEG’s service offerings and is another step towards that transformation into a full service infrastructure platform company. In addition to its strategic benefits, this transaction adds immediate value to our shareholders. For the calendar year 2020, GTS’ audited results include gross revenues of approximately $40 million, gross profit of $6.8 million, and an unaudited adjusted EBITDA of $5.5 billion. For calendar year 2021, GTS expects to generate revenues of approximately $50 million and EBITDA of approximately $8 million. Earlier this month, GTS was successfully awarded projects with a significant number of miles for the build out of fiber optic broadband infrastructure over multiple states for several telecommunication providers. These projects will significantly increase OEG's backlog with revenue expected to be recognized over the next three to five years. We are very pleased with this development and look forward to sharing similarly positive news with you in the future as we continue to execute on our acquisition strategy. In the first quarter, we also launched a new subsidiary, Eclipse Foundation Group. Headquartered in Gonzales, Louisiana, just outside of Baton Rouge, Eclipse is a drilled shaft foundation construction company that specializes in providing services to the electric transmission and substation, industrial, communication towers and disaster restoration market sectors. The Eclipse team has approximately 30 years of industry experience and is well known for its expertise in successfully executing projects in extremely difficult operating environments, such as water, marsh, or rock terrains. Eclipse utilizes amphibious equipment, vibratory caissons to construct up to 16-foot diameter shafts at depths greater than 80 feet in marshland and deeper waters, and also has the expertise and equipment to successfully drill through hard rock and granite. The addition of Eclipse to our electric power infrastructure platform enhances our overall service offerings in an industry that is experiencing growing demand. Eclipse serves as a valuable asset to many of us other operations where we can realize operating synergies, perhaps most notably with Orbital Power Services. The multiyear outlook for capital spending on electric power transmission and distribution infrastructure remains strong. In Edison Electric Institute presentations from February of this year indicated that utility CapEx spending has increased every year in the last decade, increasing from approximately $74 billion in 2010 to an estimated spend of $140 billion in 2020. These figures are the sum of generation, transmission and distribution spending by our customers. Additionally, over the same time period, not only has the total CapEx spending increased but the amount of transmission and distribution spending as a percentage of the total CapEx has increased as generation CapEx has decreased about 10% of total CapEx over the 10-year period. Market drivers include state, regulatory and legislative mandates to modernize the grid, reconfigure the grid from fossil fuel generation to renewables, smart grid investment and security. In addition to our progress in telecom and foundation construction, during the first quarter, Orbital Solar Services subsidiary was named the engineering, procurement and construction, or EPC company of choice for the newly-formed Black Sunrise Half Century Fund. The Black Sunrise Fund, or BSF, was created in concert with Akon Lighting, a leading developer of clean energy projects across the globe, to bring large scale solar power to North America by decommissioning coal fired plants throughout the United States and converting them into utility scale solar energy farms, producing clean energy. As I mentioned previously, over the next three years, BSF expects to build over 1 gigawatt of solar power, beginning investment of $725 million. Orbital Solar Services is responsible to provide full EPC services for these solar facilities with work commencing as early as the fourth quarter of this year. We are thrilled to partner with the Black Sunrise Fund in a socially responsible and environmentally friendly endeavor, which I believe is a great example of showing that corporate America can do well by doing good. These utility scale projects along with planned follow-on developments will enhance our presence in the renewable and alternative energy marketplace well into 2021 and beyond. Further, this venture with the Black Sunrise Fund also advances one of our key priorities, which is to raise our environmental, social and governance efforts. ESG initiatives are something every corporate entity should consider a priority, and this endeavor will open up significant opportunities for Black entrepreneurs and Black-owned companies throughout the industry. As I've noted previously, at Orbital Energy Group, we intend to be a catalyst for change in the electric power and renewable construction industry making a meaningful impact to provide opportunities and quality of life for people in need in this country. Now, I will review our first quarter 2021 results. Total revenues for the quarter were $9.5 million, a 67% year-over-year increase, compared to $5.7 million for the first quarter of 2020. The year-over-year increase was primarily due to the addition of Orbital Solar Services, the ramp up of Orbital Power Systems and the start-up of Eclipse Foundation Group. This was partially offset by lower integration revenues in the Orbital Gas Systems operation. The net loss for the quarter was $18 million compared to a net loss of $7.4 million for the comparative period last year. We had higher SG&A expenses compared to last year, primarily due to the addition of overhead costs associated with supporting both Orbital Solar and Orbital Power Services operations, which commenced last year as well as to support our newly formed Eclipse operations. We continue to see increasing opportunities here, but in the short term expect to incur costs of our growing fleet and related personnel. We expect the short-term costs will be mitigated once these operations gain traction with additional customers, which we expect will happen throughout the course of the year. We also incurred equity compensation related charges and other compensation expenses during the first quarter, along with M&A costs as we continue to pursue acquisitions. At March 31, 2021, OEG’s total consolidated backlog was $62.1 million, a sequential increase of $21.7 million or approximately 150% from the fourth quarter of last year, as well as a significant increase year-over-year as backlog at the end of the first quarter of 2020 was $9.5 million. More notably, second quarter backlog should increase substantially compared to the first quarter due to the GTS acquisition, plus the addition of broadband build out project awards that I mentioned earlier. Also, during the second quarter, Orbital Power Services added two additional multiyear Master Service contracts with investor-owned utilities. More notably, almost all of this backlog is recurring predictable revenues, which somewhat offsets the cyclicality and uncertainty of the large project solar work we are pursuing. Now, let's review our outlook for the business segments going forward. As I noted earlier, we continue to see an improving operating environment and financial performance in Orbital Gas Systems in both North America and in the UK. At Orbital Gas Systems in Houston, the year started off as anticipated with strong backlog, which is further increased during the first quarter. However, during the first quarter, the production flow was slow as we completed the required engineering for several control buildings and one biomethane skid with backlog production scheduled throughout 2021 based on customer schedule requirements. Midyear through the fourth quarter, we expect to be heavy into the production cycle and may need to bring in subcontractors to assist with the workload. We expect momentum to continue throughout the year as we are in discussions with several customers to build gas measurement and sampling skids and analyzer cabinets. We are also experiencing an uptick in our service revenues, which are approaching activity back to pre-COVID levels. As you may recall, our North American business was the most impacted compared to our other service offerings by COVID in the 2020 oil price drop. Also in the first quarter of 2021, Orbital Energy Services acquired full ownership of the VE Technology patent portfolio. We have also expanded our integration and technology applications into the renewable markets and received our first biogas to grid system entry order this year. We continue to focus on winning the integration and analytical packages and also providing maintenance services for these systems in the biogas markets. In our Orbital Gas UK operations, we continue to see a stronger resurgence in activity as the impact of COVID-19 was not as severe as here in North America. As I noted on our last call, our UK operations have been cash flow positive since the third quarter of last year and cash flows should remain favorable throughout at least the first half of this year. This is primarily due to our continued focus on expanding into developing markets outside of our traditional core gas network business. Already in the second quarter, our UK operations have been notified of a significant contract award from the Irish Gas Networks and have been qualified as a supplier to perform services for the UK transmission operators RIIO-2 project, which is a five-year contract to upgrade the gas network. This project will guarantee a minimum volume of work over the contract period and first orders are anticipated in the second half of this year. The renewable gas market is also accelerating as the UK government incentive program to build biomethane facilities is set to end in March of 2022. As a result, significant orders are expected in the second and third quarter of this year. And finally, Orbital Gas UK will complete another hydrogen project in the second quarter, which strengthens our market position as a proven service provider in this emerging market. Looking at Orbital Solar Services, which provides engineering, procurement and construction services to the utility scale solar customers, we continue to see limited activity during the first quarter. This is consistent with the industry at large mainly due to COVID-19 and its related impact on the manufacturing and delivery delays of solar panels from China to the United States and continuing project delays as people wait on potential incentives and tariff relief from Biden administration. Progress on solar awards has been slower than anticipated. While we remain bullish about our multiyear outlook for solar, our opportunities have shifted into the second half of this year. Currently, we are in exclusive and final discussions with a major international utility to provide EPC services on a utility scale solar project in Pennsylvania. Additionally, we’re exclusively negotiating to provide EPC services to several community scale solar projects that are expected to move to construction in the second half of this year. These projects combined are approximately 200 megawatts of utility scale solar. We continue to pursue other projects on our opportunity pipeline, which is in excess of $1 billion with many of these projects planned to move to construction this year. As I mentioned on our year-end earnings call, the Black Sunrise Fund project opportunity will likely be in 2022. As I've stated in the past, we remain bullish on the multiyear outlook in the utility scale solar market. According to the U.S. solar market insider report March 2021 publication, the solar industry will see historic growth over the next decade, growing four times by 2030 to 419 gigawatts of capacity. This growth continues to be driven by factors driving renewable energy development, including strong demand, declining costs, gains in battery storage technology, and growing incentives as state mandates for the grid operators to move from fossil fuels to renewable power generation. Turning to our Orbital Power Services subsidiary, which provides electric transmission and distribution, construction and maintenance services to the electric power industry, we continue to ramp up crews as we are scheduled to start work for two more investor-owned utilities in the coming weeks on our Master Service Agreements, which provides us with stable and recurring revenue streams. The gating factor in supporting these customers is to ensure our customers have qualified electric transmission and distribution crews that can perform their work safely and efficiently. As a result, we onboard our crews well before they are placed on the customer system to evaluate the technical competency and experience level of the new employees, including providing appropriate technical and safety training, which resulted in additional costs during the first quarter. Also, we had several lump sum projects which were impacted by weather issues that generated losses for the quarter. These projects are now completed and the vast majority of our electric distribution activity is now on our unit price contracts. Since its inception early last year, Orbital Power revenues continue to increase as we expand geographically and secure new customers as well as increased crews for existing customers. Related to this, our newly-formed Eclipse Foundation Group has continued to see strong demand since we launched it in January. During the first quarter, Eclipse successfully completed its first project, finishing the quarter with backlog of approximately $200,000 which as of today has increased to more than $1 million as Eclipse continues to build momentum in the marketplace. In addition, we are currently reviewing several million dollars in 2021 related opportunities. As I mentioned earlier, Eclipse is complementary to our other service lines, especially Orbital Power, as foundation work is often a part of building electric transmission or substation facilities. With Eclipse, we can now offer our T&D customers a complete solution package. In conclusion, I want to reiterate that Orbital Energy Group is a forward-looking story with considerable prospects for both organic growth and growth through strategic targeted acquisitions. Our Orbital Gas business continues to rebound in 2021, both in North America and in the UK. In addition, Orbital Power continues to gain traction in the industry as we continue to speak with several electric power transmission and distribution construction companies that already have multiple MSAs with blue chip customers. Further, Orbital Solar Services, while experiencing little activity in the first half of this year, is under exclusive negotiations on several projects and is pursuing additional opportunities from a robust project pipeline. In addition, we expect meaningful revenues from our partnership with the Black Sunrise Fund to begin next year. Adding to this organic growth, we continue to pursue our acquisition strategy targeting attractive companies in the electric power and telecommunication industries that primarily provide steady, dependable recurring revenue streams. The Gibson Technical Service acquisition and subsequent contract award is an example of the potential that established companies with a clear strategy for growth can bring to OEG’s long-term success. With these dual plans [ph], we are well positioned on the path to achieve profitable growth on a run rate basis during the second half of this year, as we continue our transformation to a diversified infrastructure services company. This concludes my opening remarks. And now I will pass the call on to Dan who will review our financial results. Dan?

Thank you, Jim, and good morning, everyone. Today, I'll review our first quarter 2021 GAAP financial results. I'd like to remind everyone that I will focus my remarks today on the company's continuing operations. Also please note that with the acquisition of Reach Construction Group in April 2020 now operating as Orbital Solar Services, the company revised its segment structure. The electric power and solar infrastructure segment was formed during Q2 2020, and includes Orbital Solar Services, Orbital Power Services, and now Eclipse Foundation Group. Previously, Orbital Power Services, which commenced operations in the first quarter of 2020 was included as part of the former energy segment. The former energy segment was renamed as the Integrated Energy Infrastructure Solutions and Services segment and includes Orbital Gas Systems Limited in the UK and Orbital Gas Systems, North America. We reported total revenues of $9.5 million for the first quarter of 2021 compared to $5.7 million for the first quarter of 2020, an increase of 67%. The year-over-year increase reflected continued ramp up of Orbital Power Services and the start-up of Eclipse Foundation Group in the electric power and solar infrastructure services segment. The increase was partially offset by lower revenues during the quarter from our Orbital Gas Systems operations. The UK market continued to face headwinds related to COVID-19, Brexit and the impact of the political environment on investment within the sector, while the U.S. markets also continue to face headwinds surrounding COVID-19 and associated project delays. Gross loss was $1.3 million for the first quarter of 2021 compared to gross profit of 0.6 million for the first quarter of 2020. The decrease was attributable to ramp-up costs at Orbital Power Services, weather-related impacts to project schedules and start-up costs related to the launch of Eclipse Foundation Group and lower margin projects during the period for Orbital Solar Services. We expect margins to improve substantially during 2021, as Orbital Telecom Services starts to contribute, Orbital Power Services gains greater operating efficiencies and expands its crew counts with new customers and the Orbital Solar Services begins work on significant solar projects. During the balance of 2021, we forecast improved margin and increased revenue as companies throughout our industry continue to learn to cope with the post COVID-19 environment. The increased sales of higher margin products, a better mix of integration projects, increased service revenues throughout our energy focused operations and in solar projects for Orbital Solar are all expected to drive the continued improvement to the company's profitability, as well as the GTS acquisition, which we believe will be accretive. For the first quarter of 2021, selling, general and administrative costs was $14.5 million compared to $7.2 million in the prior year period. The increase in SG&A for the quarter was due to increased costs related to Orbital Power Services and Orbital Solar along with start-up costs of the Eclipse Foundation Group and $2.6 million of employee and director-related stock-based compensation vesting expense. Also contributing to the increase were increased corporate costs and the other segment due to an increase in the mark-to-market adjustment to the executive cash base stock appreciation rights and employee performance bonuses. Orbital Solar Systems was acquired in Q2 2020. So in addition [indiscernible] Orbital Solar Services, including amortization expense related to acquisition intangibles, are increased compared to the first three months of 2020, which was prior to Orbital Solar Services acquisition. The company also continued to incur professional fees related to mergers and acquisitions as the company pursues growth, both organically and through acquisitions, as demonstrated by the April acquisition of Gibson Technical Service. These increases were partially offset by decreased SG&A costs in the Integrated Energy Infrastructure Solutions and Services segment due to cost saving measures. The company's operating loss was $17.3 million for the first quarter of 2021 compared to $7.1 million in the prior year comparative period due to the items previously mentioned. As Jim noted, net loss for the quarter was $18 million compared to a net loss of $7.4 million for the first quarter of 2020. We do expect to see overall improvement in revenues, gross margins and net results as 2021 progresses. We also expect an increase in Orbital Solar and Orbital Power Services activity during the second half of 2021. For Orbital Solar, the company expects a meaningful of the utility scale solar market to drive significant backlog and revenue growth during the second half. As Jim previously mentioned, Orbital Solar growth will be benefited by its partnership with Black Sunrise Investment Fund over the next several years. In addition, Orbital Power Services should continue to grow its business throughout the year and we currently expect this segment to achieve profitability in the second half of 2021. At March 31, 2021, our backlog was $62.1 million compared to $40.4 million at December 31, 2020 and $9.5 million at March 31, 2020. The year-over-year increase is due to the inclusion of Orbital Power Services’ increased backlog and the addition of Orbital Solar backlog. This also reflects updated timing of orders and delivery schedules for integration customers. Lastly, we ended the quarter with cash and cash equivalents of $34.7 million and restricted cash of $1.2 million. In Q1, cash used in operating activities was $13.5 million compared to $7.7 million in Q1 2020. Cash used in investing activities during Q1 was $3.5 million compared to $7.4 million in Q1 2020. The increased uses of cash during the first quarter were primarily for M&A activity related to our GTS acquisition, ramp-up costs at Orbital Power Services, start-up costs for Eclipse Foundation Group and cash used by Orbital Solar Services operations, along with ongoing working capital requirements. While the company saw an initial cost increase from Orbital Power Services and Eclipse Foundation Group, we expect these groups to become cash flow positive from operations as the business environment normalizes and the company continues to increase revenue generating service crews deployed. To mitigate these short-term costs, we continue taking steps to shore up our liquidity including disciplined management of both working capital and expenses. As we mentioned previously, during the height of the pandemic, Orbital and its subsidiaries entered into unsecured loans in the aggregate principal amount of proximately $1.9 million pursuant to the Paycheck Protection Program. The loans and interest thereon is forgivable, partially or in full, if certain conditions are met. The company has applied for forgiveness of these loans. During the first quarter of 2021, we supplemented this liquidity by issuing $45 million worth of common stock. Subsequent to quarter end, we closed on $10.7 million of debt funding to further support operating and M&A activities going forward. Additionally, we filed a shelf registration allowing OEG to issue as much as $150 million in additional shares of common or preferred stock or public debt as we explore potential avenues for growth and acquisitions. With these enhanced sources of liquidity, we remain confident in our ability to continue executing on our strategic growth plans. With that, I will now turn the call back over to Jim for closing remarks. Jim O’Neil: Thank you, Dan. In summary, in the first quarter of 2021, we continue to execute on our strategy to transform Orbital Energy Group into an infrastructure service provider serving the electric power, transmission and distribution, telecommunication and renewable industries. We achieved several milestones during the quarter, including our interest into the telecom sector with our acquisition of GTS. Additionally, we expanded our breadth of capabilities in electric power, transmission and distribution services with the launch of the Eclipse Foundation Group, a turnkey deep foundation construction provider whose skill set complements our Orbital Power Services Group. At the same time, we continued our initiatives to organically grow our existing operations through activities, such as our strategic partnership with the Black Sunrise Fund and Orbital Power Services continued expansion with existing as well as with new customers. Looking ahead, we remain confident that our actions have laid the groundwork for Orbital Energy Group's long-term growth strategy. As we continue to build a diversified infrastructure services platform, both organically and through strategic acquisitions, we will expand both our top and bottom line growth, while building value for all of our shareholders. That includes our prepared remarks. Now, I would like to open up the call for questions. Operator, please go ahead.

[Operator Instructions]. Our first question comes from the line of Eric Stine from Craig-Hallum. Your line is now open.

Good morning. It’s Aaron Spychalla on for Eric. Thanks for taking the questions. Jim O’Neil: Good morning.

Good morning, Aaron.

Good morning. Maybe first on the Orbital UK business. Can you just kind of talk about your expectations there over the next year, areas of optimism and just how that pipeline is maybe shaping up versus the last few quarters? I know you talked about the significant award in Ireland and kind of opportunities in LNG and hydrogen. Can you just expand on that a little bit? Jim O’Neil: Yes. We've been positive cash flow or neutral cash flow since the third quarter of last year and we expect that to continue throughout the year. So we're definitely seeing improvement. I would say that the biggest part of that improvement is diversification both geographically with natural gas and then in addition to natural gas, pursuing new markets, specifically renewable energy, which has been a big boost to the company's overall revenue. The RIIO project, we expect that to be announced. We participated on that in the past that there's very few suppliers that are approved to be on that system. It’s a five-year build out that's going to have a minimum guarantee of revenues per year. So that should ramp up towards the second half of this year, which we're pretty excited about that because that will be a major contributor to revenue. And then we picked up this Irish gas network project, which is to maintain the gas measurement system saw on that network which is a nice lift for the company as well. So we're seeing some nice increases, nice momentum in that marketplace post COVID for sure.

All right. Thanks for the color. And then on backlog, can you kind of give a breakdown of kind of timing of recognition there? Obviously, it sounds like there's quite a bit of opportunities that have happened in the second quarter and you expect to happen in the back half with solar that can kind of be converted into revenues as well. So just trying to get an idea of kind of cadence of revenues in the back half of the year. Jim O’Neil: Sure. So approximately half of the backlog in the electric power and solar segment, we would expect to turn over in 2021. And then all of the backlog pretty much in the Energy Infrastructure Group with the Gas Group we would expect to turn over in 2021 as well. And so we see some room to be increasing both of those for the remainder of the year also. So we're really positive on where the backlog stands right now.

And that's without the telecom addition as well, the backlog that's going to come in from Gibson. And then we haven't quantified the Master Service Agreements that we have to build out broadband over several state areas, but we will have more detail on that in hopefully the coming weeks, definitely by the end of the quarter, and that should significantly increase backlog even though that big project, the broadband build out isn't really going to get started until the fourth quarter of this year.

Understood. And then maybe last for me. You touched on it a little bit, supply chain. Can you just kind of talk a little more broadly about what you're seeing in supply chain, not just in solar but maybe across the rest of the business and any type of labor constraints that you're seeing at all? Jim O’Neil: That's a really good question. Labor has historically been the biggest gating factor, especially on the electric power side of our business. But now we're seeing some equipment delays from COVID, the manufacturing of new bucket trucks, for instance. Typically, you feel these effects nine months to a year after in the construction business, and that's what we're seeing now. We're having to make commitments to equipment out to 2022, which typically that hasn't happened in the past in this industry. So I think the big areas are the bucket trucks and the digger derricks and the specialized equipment that you use in both the telecom and the electric power side as well as some delays in the solar panel deliveries from China. But we'll work through it. We've got a path to mitigate some of these issues going forward. But it is a headwind.

All right. Thanks for the color. I'll hop back in the queue. Jim O’Neil: Thank you, Aaron.

Thank you, Aaron.

Thank you. Our next question comes from the line of Jeffrey Campbell from Alliance Global. Your line is now open.

Good morning. Jim O’Neil: Good morning, Jeff.

Good morning, Jeff.

Jim, you noted that the SG&A jumped quite a bit on the start-up of Orbital’s organic T&D businesses. I just wondered, does this ramp up to just the businesses that are growing at the rate that you expected or are they ahead or behind schedule? Jim O’Neil: Well, I think we're right on schedule. We have been pursuing additional investor-owned utility MSA work for probably the last four to six months, and we needed to just get a resume of working safely and efficiently, which we have. So we've been asked to participate for these two more utilities under these Master Service Agreements. And so we got to be thoughtful about bringing people on. And so we had to bring on probably close to 10 crews and get them through the evaluation process and training process before we put them on the system. And to Dan’s point, once we get a consistency of work that can carry the profitability of that group, we continue to spend money to try to ramp up, which is a good thing. But it doesn't serve well to the bottom line during the transition. But I think we're on schedule to where we're expected to be with the electric power distribution group for 2021.

Okay, great. Thank you for that color. You noted your intention to make additional acquisitions this year. I wondered if you could just give us some high level color on how that effort is progressing. And in particular, if the bias for acquisitions is toward the power group or the telecommunications businesses just based on the quality of the business that you're looking at. Jim O’Neil: I think I'm agnostic to whether it's the electric transmission and distribution or telecommunication, we're being more opportunistic. I'll tell you when you buy a platform like Gibson, the power of synergies really comes from trying to find organizations that are synergistic with the platform. So, we're looking at tuck-ins that we think will make the one plus one equal three or more factor. But the major focus for us on acquisitions is recurring revenue under multi-service agreements, which you'll get from both the telecommunications and from the electric power T&D’s group. So I think there's no preference, like I said, on which way we go, whether we go to electric power or telecom, it's -- we're pursuing companies in both sectors, and we'll be opportunistic and execute on the ones we think will add the greatest value in the short and long term.

Okay. Thank you. And for my last one, I'll just ask a little bit higher level question. You've noted that OEG has significant exposure to the T&D market. Biden administration seems poised to support strategic growth in this area, but NIMBY forces remain an impediment even when they're tied to renewable energy. I’d refer to the New England Clean Energy Connect project as an ongoing example. So high level, do you see the landscape for interstate T&D projects improving? And to what extent is OEG’s [indiscernible] exposed to this business as opposed to maintenance of existing infrastructure? Jim O’Neil: Yes. Right now, we're not as exposed to the bigger transmission projects that fall under the barrier that you mentioned. We're doing mostly the smaller distribution and smaller transmission of projects, which are the day-to-day recurring maintenance. They call it maintenance, but it's really small CapEx projects that we're doing to replace aging conductor or poles or insulators, which is the majority of what we do.

Okay. Thank you. Jim O’Neil: Thank you.

Thank you. Our next question comes from the line of Liam Burke from B. Riley. Your line is now.

Thank you. Good morning, Jim. Good morning, Dan. Jim O’Neil: Good morning.

Good morning.

Jim, can you give us some color on what has gone on, on the build out on solar in terms of expectations changing from last time we spoke on the call to now and being in the deferral of some of those revenues? Jim O’Neil: Well, it's a couple of things. One, I didn't want to be sitting here without us being on a contract -- executing a contract right now. But it is what it is. There's a couple of factors. One is the project that we're negotiating has been delayed to some degree. I was hoping it would have started by now from the last call. And then secondly, we did lose one opportunity that we were competitively bidding against one other person. So, look, I'm still optimistic about it. The lumpiness of this business can be frustrating to both me and investors. But I can see a path to where we're going to make significant revenues in this group. But this is a cyclical business. And that's one reason why we have a sense of urgency to diversify into recurring revenue streams to where it takes a little bit of the cyclicality out of our outlook.

And that -- it goes hand in hand with the acquisition of GTS as well as the Foundation, the starting of the Foundation business broadens your portfolio. The telcom MSA agreement sounds pretty exciting. I know you have to be careful as to what you say. But can you give us a little more color on that? Jim O’Neil: Yes, I do need to be careful right now, because we're still working through what we can say with the customer because we just executed this just last week. But it's a recurring revenue type project that's going to be a multiyear build. And it's going to be a consistent recurring revenue stream, which is what we expected. We'll be serving the project management and doing a significant amount of construction ourselves and subcontract with some of the work as well. But it's building broadband fiber throughout a multistate area, which is to upgrade the fiber optic network for the 5G spectrum.

And was this in the works when you bought -- when you made the acquisition or is this something that you were able to bring in post acquisition?

It was something that I think the team was working on that we weren't really that focused on it until we won it. We knew that the GTS team was working on this opportunity. But we weren't counting on it. But we were hopeful. And we did find out post acquisition that we were awarded a significant piece of that contract of the project.

Thank you, Jim. Jim O’Neil: Thank you, Liam.

Thanks, Liam.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Mr. Jim O’Neil, Vice Chairman and CEO, for closing remarks. Jim O’Neil: Okay. I would like to thank everyone again for joining us on today's call and for your continued interest in Orbital Energy Group. And we look forward to having follow-up conversations with many of you and updating you on our progress. So thank you again and have a great day.

This concludes today's conference call. Thanks for participating. You may now disconnect.