Orbital Infrastructure Group, Inc. (OIG) Q2 2021 Earnings Call Transcript

Good day, everyone, and welcome to Orbital Energy Group Second Quarter 2021 Conference Call. At this time, participants are on a listen-only mode. A question-and-answer session will follow management's remarks. As a reminder, this conference call is being recorded. A replay of today's call will be available on Orbital Energy Group's website 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 statements. Please go ahead, sir.

Thank you, operator. Hello, everyone. And welcome to Orbital Energy Group Second Quarter 2021 conference call. A copy of the Company's earnings press release, and accompanying PowerPoint presentation are available for download on the Events and Presentations page of the Investor Relations section of the Orbital Energy Group website. With us on today's call are Jim O’Neil (ph), Vice Chairman and Chief Executive Officer, and Dan Ford (ph), Chief Financial Officer. Today will review the highlights and financial results for the Second 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, supplies and service providers, government agency budgetary and political constraints, new increased competition, 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 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 on our second quarter 2021 earnings conference call. The second quarter was a dynamic period for Orbital Energy Group as we continue our transformation into a full-service infrastructure service provider. During the quarter, we completed our platform acquisition of Gibson Technical Services, or GTS, creating a strong foothold for us in the telecommunications industry. Complementing this milestone transaction, Orbital Power Services experienced significant expansion in the second quarter, both at Orbital Powered Incorporated, or OPI, expanding their distribution services into two new investor on utilities, and that Eclipsed Foundations, which ramps from 1 crew to 3 crews in the quarter, providing drilled peer foundations to electric transmission customers. We also experienced expansion at Orbital Solar, which is awarded as first large utility-scale solar project a 137-megawatt program for a major developer in the Southeast U.S. And finally, with oil prices holding around $70 a barrel over the gas has experienced a resurgence of activity from energy companies both in Houston and the UK. All of these accomplishments resulted in significant backlog growth in the quarter. At June 30th of 2021, OEG 's total consolidated backlog was approximately $295 million, an increase of 630% from backlog of $40.4 million at December 31 of 2020. Today, our backlog is approaching $400 million, and we expect backlog to increase meaningfully going forward. Backlog is a good leading indicator of our progress implementing our infrastructure strategy and to improving the Company's consolidated financial performance. As we enter 2022 with our progress today, advancing our strategy, we continue to believe the Company will achieve an EBITDA in cash flow positive runway. Now, I'll review our second quarter 2021 results. Total revenue for the quarter was $16.3 million, a 110% year-over-year increase compared to $7.8 million for the second quarter of 2020. Primarily due to the addition of GTS, the ramp-up of Orbital Power Services, and the startup of Eclipse Foundation Group and the electric power and solar infrastructure services segment. We also experienced higher revenue from our U.K. operations during the quarter. These increases were partially offset by lower integration revenues and our U.S. Orbital Gas Systems operations during the quarter. The net loss for the quarter was $8.2 million benefiting from a $9 million income tax benefit. During the quarter, the Company expense $4.6 million of equity-based compensation for employed performance incentives at bested, and $0.8 million for a referral fee to a consulted on the GTS acquisition. This compares to Q2 2020 net loss of $9.3 million, which had an income tax benefit of $1.5 million. Additionally, we incurred increased cost to build out personnel, equipment, and supplies with our overall power services operations. For the first 3 months in 6 months of 2021, on allocated indirect costs that negatively impacted gross margins and net results were 2.5 million and $4.8 million respectively. In 2021, we had a steady increase in crude performance to project serving our electric power customers. These upfront costs are an investment in our business and will generate profitable revenue growth going forward. Additionally, the operations of Orbital Solar Services had minimal project revenues during the 3 and 6 months related to project delays, while the Company maintained the staffing levels in preparation for these projects that are now coming online. We believe these are startup-type costs that will be offset in future periods with the generation of revenues and profits off the significant backlog that has been built during 2021, which we expect to result in significant improvement in quarter over quarter income from operations. Dan (ph) will provide further details on this shortly. Now, let's talk about the telecommunications market and the acquisition of our telecommunications platform, GTS. One of OEG 's top priorities was to acquire a proven telecommunications infrastructure services Company, providing a full-service solution, which includes the engineering, design, project management, construction, and maintenance to broadband and wireless customers. That's because we believe the telecommunication industry is in the very early stages of one of the most exciting infrastructure build-outs in history of this industry. The deployment of 5G wireless technologies and the associated broadband network is unparalleled compared to deployment of prior communication evolutions, and part of OEG strategy was to establish a meaningful position in this industry. One of the bigger initiatives in the 5G deployment is federal and state funding programs intended to bring broadband connectivity to rural America. The Rural Digital Opportunity Fund will provide $20.4 billion in funding over a 10-year period to support broadband networks in rural communities across the country. Additionally, in October of 2020, the FCC established the 5G run fund for rural America, which will provide up to an additional $9 billion in funding over the next decade to bring 5G wireless broadband connectivity to rural America. Given these regulatory backdrops, our visibility continues to improve as we see massive fiber builds across the country by new and legacy customers. In addition, just last week, the Senate passed a $1 trillion Bipartisan Infrastructure Bill, which includes additional investment in enhancing the telecommunications network and the deployment of the 5G spectrum. The acquisition of Gibson Technical Services was the perfect opportunity to begin building our telecommunications platform. Founded in 1990, in [Indiscernible] outside of Atlanta, GTS is well-established engineering, time, and construction service provider to the broadband and wireless industry, serving telecommunications, medical, and entertainment customers. GTS has a highly technical and experienced employee base with very little employee turnover. The Company is led by one of its founders, Mike McCracken, towards a clear strategy on how to profitably grow this platform, both organically and through acquisition, in a market where the demand for our services should increase for many years to come. In the short time since acquiring GTS, we've been awarded some significant project work, including a project for a major U.S. cellular carrier to install a distributed antenna system and a large Atlantic Coast Conference or ACC University Stadium. GTS won this project in June and work has just recently commenced. It is scheduled to be completed during the 2021 ACC football season. Building on this momentum, GTS results are recently awarded a major project by Charter Communications, a leading Broadband connectivity Company and cable operator serving more than 31 million customers in 41 states through Spectrum brand. GTS has been engaged by Charter for approximately 8,600 miles of full-service Broadband construction across 3 states, including Louisiana, Alabama, and North Carolina. This project is scheduled to begin this year and extend over the next 5 years. In addition, GTS was awarded 700 miles of rural broadband build-out in Mississippi for Telephone Electronics Corporation, or TEC, of Jackson, Mississippi. Construction is underway and is scheduled to continue throughout the next four years. The project is made up of a combination of federal, state, and private funding, and was the first of its type to be awarded. It speaks to the reputation and capabilities at GTS to be awarded this first such initiative. Given GTS ' broad footprint combined with its diverse complement of service offerings, we anticipate numerous broadband opportunities in the future. We are extremely grateful for the confidence that our customers have shown in our abilities by awarding us these contracts and we look forward to continuing our relationships with them going forward. A key aspect of our growth strategy is to opportunistically acquire complementary tuck-in companies into GTS to expand their platform service capabilities, broaden their customer base, and extend their geographic footprint. Our July acquisition of IMMCO will bring immediate synergies to GTS, expanding their engineering design capabilities, broadening their customer base, primarily into state-funded, [Indiscernible] programs, and thereby extending the combined entities geographic footprint into new states, largely on the Eastern Seaboard. Additional synergies include IMMCO providing Orbital Solar Services with engineering and design capabilities for utility scale solar projects, which was previously outsourced to third parties. And finally, GTS and IMMCO expect to combine the operating facilities in some shared services functions, realizing meaningful cost savings going forward. As stated, we believe the telecommunications market will be very active for years to come, and we anticipate strong growth opportunities and increased demand for our nationwide services, both in the near term and over the next several years. Our visibility will continue to improve during the second half of 2021, and we expect there to be a significant increase in broadband and wireless activity in 2022. OEG will capitalize on a strong telecommunication market to opportunistically expand its market presence, both organically and through tuck-in acquisitions. GTS has established significant momentum over the last 2 months. And we expect this momentum to continue as it is a top priority of the Company to identify additional tuck-in acquisitions that will position OEG and GTS to grow market share in this industry for years to come. Now, I will turn our discussion to Orbital Solar Services. The long-term outlook for the utility-scale solar sector remains incredibly encouraging. In the first half this year, the industry as a whole experienced a slowdown of project awards, primarily due to shortages of solar panels and steel caused by manufacturing delays due to the pandemic, which have led to an estimated 6 to 9 month delay in product delivered, according to a recent industry report from the Cowen and Company. In addition to the shortage of materials, project developers delayed construction in the first half of 2021, given inflation and potential regulatory changes in the U.S. around tax credit support for renewables. In late June, the U.S. Internal Revenue Service extended the safe harbor period for solar projects under the investment tax credit, providing support for projects that have been disrupted by the pandemic. This extension was expected by developers and has served as the catalyst for the increasing level of utility-scale solar activity we're experiencing today. In June, we were awarded our first significant solar projects of this year. A 137 megawatt utility scale solar project to be constructed in Arkansas. Most recently, we announced another 132 megawatt project to construct a solar firm in the Southeast U.S.. This project will consist of 350,000 solar panels installed across 800 acres of land and will provide power for 20,000 homes per year. Earlier this year, we provided an outlook that the Company will generate 200 million to 300 million in utility-scale solar revenues for the full year of 2021. These projects awards were anticipated in the $200 million to $300 million range, but were delayed due to the lingering effects of the pandemic and related factors I discussed earlier. The tepid environment for utility-scale solar industry endured in the first 6 months of this year has largely pushed the timing of most projects forward 6 months to 9 months, resulting in projects moving to construction later than we originally anticipated. Now, the bulk of this revenue from project awards is anticipated in 2022. While the utility-scale solar industry has not yet returned to optimum activity levels, these recent project awards are very encouraging. And while we continue to maintain a cautious outlook for this business for the remainder of 2021, it is quite possible that additional project awards will materialize during the remainder of this year. Turning to the electric power transmission and distribution market, major trends in the energy market point to continued investment in clean energy, improving grid resiliency in favorable energy policies. The long-term business strategies of our customers reflect these trends, which present growth opportunities for Orbital Power. Reconfiguring the electric grid from sources of fossil fuel generation to renewable energy is a significant growth driver of infrastructure improvements. And we are strategically expanding our presence with utilities to capitalize on infrastructure projects in solar developers to capitalize on clean energy project opportunities. According to our February whitepaper from the Energy Systems Engineering Groups, Power, System, Analysts, and Energy Department Research, the cost of new transmission needed is estimated to be at least $100 billion and possibly 3 times higher. We believe the migration to electric vehicles as the predominant needs of transportation in the coming decade will be a major catalyst in modernization of the electric distribution grid. Increasing electrical vehicle usage will have an enormous impact on the last mile of delivering electricity to charging vehicles. The proposed American jobs plan includes a $7.5 billion investments to fund the acceleration of electric vehicles and build a national network of charging stations, and related infrastructure across the country to support the growing fleet of electric vehicles that will be on the road. To support our role in this industry's anticipated growth, Orbital power is presently on track for a fivefold increase in its crew count in revenue run rate by the end of the year compared to the same period last year. During the second quarter, Orbital Power expanded its customer base, executing multi-year electric power distribution maintenance contracts, but three additional investor on utility customers. We anticipated these awards several months ago, and due to the shortage of skilled labor and specialized equipment to prepare for these contracts, Orbital Power onboarded crews and purchased equipment and supplies well in advance of generating revenue. Additionally, we recorded certain one-time cost during the quarter, related to mobilizing job-specific resources for our new customer, where we have supporting, upgrading their electric distribution systems in metropolitan areas. These are often inherent costs for establishing a workforce with a customer in a new complex environment. While it was not ideal, onboarding technical personnel, equipment, and supplies in advance of generating revenues, we believe this was necessary due to the scarcity of skilled labor in the shortage of equipment availability I mentioned earlier. This resulted in significantly increased costs for the quarter and financial results that were below our internal expectations. We expect that these costs overruns are temporary and can largely be attributed to the growth Orbital Power is experiencing this year. Transitioning to Orbital Gas Services, we experienced an increase in customer activity due to our oil price, which is stabilized around $70 per barrel, coupled with business activities returning to pre-COVID levels. As discussed previously, several large petrochemical refinery projects were awarded to our Houston operations earlier this year. These projects were largely in the engineering and designing stage the first half of this year and have now moved to construction in our Houston facility. The projects are associated with providing customers with gas analyzer buildings where we have installed gas chromatographs and other instrumentation for gas process control and measurement systems which are required as both customers are expanding certain areas within their refinery operations. We're also experiencing increased activity from our renewable natural gas customers, requiring Orbital gas to engineer, design and build grid entry systems that measure the energy level of the renewable gas as it is transported into the main natural gas grid system. In summary, the current macro environment in these prevailing trends should not change with the price of oil or COVID and we expect continued momentum throughout 2021 to 2022. Our U.K. operations are also experiencing a resurgence to customer activity. The renewable market is very active as order for biomethane gas entry units are increasing driven by the U.K. government's incentive scheme to developers that is set to end in March of 2022. As a result of these increase in renewable gas systems, Orbital Service revenues are expected to grow in 2021 compared to prior periods. The U.K. operation has also qualified on our shortlist of perspective suppliers for the next 5-year funding cycle for National Grid, the U.K. gas transmission operators. We expect to learn more from National Grid about the contract awards and their commitment to minimum work volumes over the next 5 years in the not-so-distant future. Once awarded, this program will be a significant contributor to Orbital to UK's financial performance and should provide a meaningful stream of recurring revenue to their business in 2022 and beyond. Before I continue, I'd like to provide an update on COVID-19, specifically its impact on our business. Across all of our operating segments, our customers are making progress toward returning their respective business and capital spends to pre -COVID levels. Some industries are further along than others, but all have positive post-COVID momentum. We have not experienced any impact to our business thus far from the Delta variant operator. With that said, the impact COVID-19 had on the shutdown of the manufacturing sector during the second and third quarter of last year, has impacted all aspects of our business. And as most of you know, this is an industry-wide issue and not limited to just Orbital Energy. Challenges continued related to acquiring vehicles, specialty equipment, consumables, and customer-provided products to build their programs. We expect this dynamical, inevitably, increased costs. and delay some projects for a short period of time until the supply chain returns to normal levels. As with the COVID pandemic of last year and any other challenges arising that are simply beyond our control, we will manage through these hurdles. On a positive note, none of our recent project awards or backlog has been canceled due to the manufacturing challenges. Our customers have been quite understanding about this supply chain issues as they're also dealing with the same challenges. Aside from our operating segments, we also made strides in other areas during the quarter in more recent weeks. In the last 2 months, our Board of Directors elected 3 new independent directors, including Paul Addison (ph), Dr. Jerry Sue Thornton (ph), and La Forrest Williams (ph). These professionals bring diverse experiences, broad perspectives, and extensive expertise in many areas vital to OEG strategy going forward. They are all welcome additions to our increasingly diverse and highly qualified Board of Directors. We would also like to thank Sean Rooney for his service on our board. Sean will be departing to pursue other business opportunities following our Annual Shareholder Meeting in October. And we wish him the best in his future endeavors. Our newly constituted Board of Directors will have 9 Board members, including 6 independent directors, which are 67% and 83% ethnic and gender diverse, establishing an ESG tone for the Company, starting at the very top. We are also implementing programs at our operating platforms to recruit, hire, develop, and provide career opportunities for disadvantaged people in the communities that we serve. This concludes my opening remarks and now I'd like to pass the call on to Dan Ford, who will review our financial results. Dan.

Thank you, Jim (ph) and good morning, everyone. Today, I'll review our second quarter of 2021 GAAP financial results. Please note the electric power and solar infrastructure segment now also includes the Greenfield Eclipse Foundation Group, started in Q1 of this year, and the acquisition of Gibson Technical Services in April of this year. We reported total revenues of $16.3 million for the second quarter of 2021, compared to $7.8 million for the second quarter of 2020, an increase of 110% Year-to-date revenues were $25.8 million compared to 13.5 million in the prior-year period, an increase of 92%. As Jim mentioned previously, the year-over-year increase reflects the addition of GTS, our new telecommunications subsidiary that continued ramp-up of Orbital Power Services and the start of Eclipse Foundation Group in the electric power and solar infrastructure services segment, as well as increased revenue from our U.K. operations. These increases were partially offset by lower revenues during the quarter from our Orbital Gas Systems, U.S. operations, and the previously discussed delays in solar projects for 2021. U.S. markets continue to face headwinds surrounding COVID-19, and associated project delays as Jim has discussed. Gross loss was $1.2 million for the second quarter of 2021 compared to gross profit of $1 million for the second quarter of 2020. Year-to-date, the gross loss is $2.5 million compared to $1.6 million of gross profit for the 6 months in 2020. The decrease is attributable to ramp-up cost of the Company's Orbital Power Services group, startup costs at Eclipse Foundation Group, and lower-margin products during the period for Orbital Solar Services. As Jim (ph) noted previously for the second quarter and year-to-date, 2021, unallocated indirect costs for equipment, supplies, and labor negatively impacted gross margins and net results from the Orbital Power Group. As cruise continue to deploy the project serving our growing backlog with customers, we expect these start-up costs will become profit generators going forward. We expect margins to improve substantially during 2021 as the Orbital Telecom Services contributes more revenues, Orbital Power Services continues to gain greater operating efficiencies and increases revenues, and as Orbital Solar Services begins to work on significant solar projects during the balance of 2021, with improved margin and increased revenues. And coming throughout our industries continue to learn to cope with the post COVID-19 environment. Increased sales of higher-margin products, a better mix of integration projects, increased service revenues throughout our energy-focused operations, and solar projects for Orbital Solar are all expected to drive continued improvements to the Company's profitability, along with the revenues coming from GTS going forward, and the benefits of its recently announced acquisition of IMMCO. For the second quarter of 2021, SG&A was $15.7 million compared to $6.8 million in the prior-year period. For the 6 months ended June 30th, SG&A increased to $30.2 million from $14 million in the prior year. The increase in SG&A for the quarter and year-to-date was due to increased SG&A costs related to the ramp up at Orbital Power Services Group, which included increased payroll and insurance costs, and start-up costs at Eclipse Foundation Group, as well as previously mentioned, equity-related expenses. For the year-to-date period, equity-related expenses were $8.1 million, including the Q2 expense of $4.6 million for vesting of employee performance incentive awards and $0.8 million for a referral fee to a consultant on the GTS acquisition. For the contributed increase, where increased corporate costs in the other segment due to an increase in the mark-to-market adjustment to the executive cash-based stock appreciation rights and employee performance bonuses. The addition of GTS in April 2021 and Orbital Solar Services in April 2020 as compared to the first 6 months of 2020, further increased SG&A, as those periods were prior to the acquisitions and contributed. These increases were partially offset by decreased SG&A costs in the integrated energy infrastructure solutions and services segment due to cost-saving measures there. The decline to operating loss was $18.3 million for the second quarter of 2021 compared to $7.2 million in the prior-year comparative period. For the 6 months, end of the operating loss was 35.5 million compared to 14.3 million in the prior year. The operating loss was due to the previously mentioned items. As Jim noted, net loss for the quarter was $8.2 million benefiting from a $9 million income tax benefit, compared to a net loss of $9.3 million for the second quarter of 2020, which included a $1.5 million income tax benefit. For the 6 months ended June 30th, the net loss was $26.2 million with the $8.9 million tax benefit in 2021, compared to a net loss of 16.7 million and a tax benefit of 3.2 million in the prior-year period. For further details, please refer to our 10-Q filing. We expect revenues to continue to ramp up for the second half of 2021 with the addition of the GTS, including the recently announced acquisition of IMMCO. We also expect an increase in Orbital Power Services and Orbital Solar activities during the remainder of 2021. For Orbital Power Services, we expect this segment should continue to grow its business throughout the balance of the year, and we currently expect the segment to achieve profitability within the second half. In addition, the Company expects the meaningful growth of utility-scale solar market to drive significant backlog and revenue growth for Orbital Solar during the second half of 2021. At June 30th, 2021, our backlog has increased to $294.9 million compared to $62.1 million at March 31st and $40.4 million at December 31, 2020. The increase was due to the inclusion of GTS and an improved Orbital Solar backlog and growth from Orbital Power. This also reflects updated timing of orders and delivery schedules for integration customers. Of this total, approximately $124.9 million is expected to be recognized in the 12 months following Q2. Lastly, we ended the quarter with cash and cash equivalents of $9.6 million and restricted cash of $1.2 million. In Q2, cash used in operating activities was $9.3 million compared to $1.3 million in Q2 of 2020. The increased uses of cash during the second quarter were primarily for M&A activity related to our GTS acquisition, the ramp-up costs at Orbital Power Services and start-up costs of the Eclipse Foundation Group, and cash used by Orbital Solar Services operations. And while the Company's on initial cost increase from Orbital Power Services and Eclipse Foundation Group, we expect these groups to become cash flow positive as the business environment normalizes, and the Company continues to increase revenue-generating service crew deployment. 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've mentioned previously, during the height of the pandemic Orbital and [Indiscernible] entered into unsecured loans and the aggregate principal amount of approximately $1.9 million pursuant to the Paycheck Protection Program. The loans and interest accrued thereon is forgivable partially and full if certain conditions were met. The Company did receive forgiveness of these loans during the second quarter. During the first quarter of 2021, we supplemented this liquidity by issuing 45 million shares of stock. Additionally, subsequent to quarter end in July, we closed a registered direct to offering. The Company sold 10,410,990 shares of its common stock at a price of $3.65 per share for gross proceeds to the Company of $38 million, before deducting commission and estimated operating expenses. For our self-registration file in the first quarter, we continue to have the capability to issue an aggregate of $150 million of common or preferred stock or public debt under the S-3 registration with $112 million of remaining capacity. As we explore potential avenues for growth in acquisitions, the enhanced source of liquidity, we remain confident in our ability to continue executing our strategic growth plans. With that, I'll now turn the call back over to Jim for closing remarks.. Jim O’Neil: Thank you Dan (ph). In closing during the second quarter, we achieved several milestones while executing on our strategy to transform Orbital Energy into an infrastructure service provider serving the electric power transmission and distribution, telecommunications, and renewable markets. We completed our accretive platform acquisition of Gibson Technical Services, establishing a solid leadership position in the telecommunications services sector. Since completing this acquisition, we have capitalized on the momentum in the telecommunications market, being awarded substantial customer projects and adding our complementary tuck-in acquisition of IMMCO. In addition to our progress in telecom, during the second quarter our Orbital Power Services and Eclipse Foundation Group businesses continued to gain traction adding to our revenue growth. Further, we expect to continue to build upon the recent solar contract awards, which are expected to provide significant revenue growth in earnings going forward. At the same time as a Company, we continue to enhance our ESG efforts by diversifying our Board of Directors, while also initiating programs to drive our pursuit of ESG excellence. Looking ahead, Orbital Energy Group continues to be a forward-looking store with substantial prospects for continued rapid organic growth,

as well as accelerated growth through strategic, complementary acquisitions to increase our services capabilities and expand our geographic footprint. Our priorities are to continue with opportunistic tuck-in acquisitions, bringing companies into GTS, that will expand our position as a full-service infrastructure service provider to our telecommunication customers. We're also pursuing the acquisition of electric power transmission and distribution platform Company to position OEG in this marketplace, and deploy the same tuck-in strategy we have implemented at GTS. As the environment has improved, we have a renewed sense of urgency to expand our presence in the industry to reserve Jim O’Neil: as reflected in the dynamic increase in our backlog numbers. And finally, we believe we will achieve an EBITDA and cash flow positive run rate as we enter next year. That concludes our prepared remarks. Now, I would like to open the call for questions. Operator, please go ahead.

Thank you. [Operator Instructions]. Our first question comes from Jeffrey Campbell with Alliance Global. Your line is open.

Good morning, and congratulations on the backlog build. Jim O’Neil: Thank you, Jeff. Good morning.

First, I wanted to ask about IMMCO. Just wondering, broadly, does it have any business with GTS competitors that we can now assume that were loses and becomes part of GTS? Jim O’Neil: Jeff, that's a great question. We do have some work with competitors in our industry that typically doesn't go away. Today, for instance, Graph Foundation Group works for competitors that we have on the electric distribution projects that we work on. And also in solar, some of the interconnections we do in some areas are done by competitors. So it's kind of an interesting industry that you typically don't lose the historic work that you've done for competitors when you offer specialized service like we do at IMMCO.

Okay. Great. Well, thanks for that color. And my follow-up is you've announced fairly short timelines to complete the two large announced solar projects. I was just wondering how you're going to manage to meet these deadlines bearing in mind the shortage and the cost inflation in steel and solar panels that you mentioned earlier in your remarks? Jim O’Neil: Yeah, so the cost of the steel and solar panels will certainly be passed on to the customers. In some cases, we've secured pricing already that's locked in from the vendors. We've got the project management teams and the subcontractors engaged to be able to complete these works to our satisfaction, and certainly have the bandwidth to do more work in the future as well. So we've done a nice job of coordinating the resources we need to complete these projects on time.

Okay. Great. Thanks. I appreciate it. Jim O’Neil: Thank you, Jeff (ph).

Thank you. Our next question comes from Eric Stine (ph) with Craig - Hallum. Your line is open.

Hi, Jim (ph). Hi, Dan (ph). Jim O’Neil: Good morning, Eric (ph).

Good morning. So maybe just on the telecom side and [Indiscernible]. I mean, just -- we love some commentary on how early you think that is, how much of an opportunity there is going forward both -- well, I mean, I guess in GTS's current geographic footprint. But as you look further out, and then I'd love to know how IMMCO potentially expands that or improves your visibility into further work. Jim O’Neil: That's a great question. We've got -- I mean, fortunately, we announced on some of the very first projects that came out, the TEC project and the charter built over that 3-state area. I think we're just scratching the surface on. Obviously, what projects will come out over the next several years to be built, and we certainly think we're in good position to capture more work in this area, especially in the art of area. So I expect that will be a great growth opportunity for us going forward. IMMCO is a great synergy for us. They bring more engineering and design capabilities to us for a broader customer base over a broader geography. So the strength of our 2 Companies together, there's customers they have -- both has that we could go do some of the project management and construction on and vice versa. There's customers that we have that we could get more upfront on into the engineering design stage where IMMCO has that relationship. So it's a great synergy and we expect to do more acquisitions in the future broaden our capabilities in customer-based and help strengthen our organization even further.

Got it. And then maybe to stick into your strategy and kind of tuck-ins. You mentioned that you had a -- it sounds like you've got a fairly near-term acquisition that you've got lined up, at least you're working towards on the transmission side. Maybe, just some details on -- I mean, anything you can give, whether it's size, geographic area, anything would be helpful. Jim O’Neil: Yeah, man. I think the only thing I could say right now is that, that's the top priority to us. To get the -- to get an acquisition done in the Electric T&D space. Next, and certainly that goes into the equation on being cash flow positive and EBITDA positive as we go into next year. So the timing on that is important to us. I really don't want to get into the geography right now or the size. It's a very tight marketplace and people will be able to zoom in on probably, who we're looking at. So I want to avoid that at this time, but we'll get more information out to you as soon as we can once we start moving forward with the deal.

Got you. Okay. Maybe last one for me. Just in the power services business, you mentioned the 2 new investor on utility contracts. Is that something you're able to give more details on size or area, or just to give us some color on how that business is starting to expand. Jim O’Neil: I would just say that we're moving across the South into the Southeast. We're expanding synergistically -- geographically, if you will. We should be, as I said to my commentary, at 54 crews by the end of the year, which is a fourfold increase during the year. So that's one of the challenges with margins right now. As we tried to ramp this business go over rapidly, we're having to bring on cruise and equipment earlier than we normally would because of the headwinds we're facing, which I mentioned, COVID and the tight labor markets. But it's a good problem to have, and hopefully, we'll reach steady straight at some point to where we start having recurring profitable revenues, and we expect to have that frankly by the end year and going into next year.

Got it. Thank you. Jim O’Neil: Yes sir. Thank you, Eric.

Thank you. And we have a question from Alex Rygiel with B. Riley. Your line is open.

Thanks Jim and Dan, and a nice quarter there. Can you give us a little bit more breakdown of the mix of backlog in hand today?

So we've split backlog of -- into the 2 segments. We don't break it down further than that to individual entities or subcategories, but I can share the backlog at the operating level. So the electric power and infrastructure services segment, which includes the Gibson Telecom, Orbital Solar, and the Orbital Power, and Foundation Group, it's 281.6 million in backlog. And then our Orbital Gas, UK and Orbital Gas, Houston, which make up the integrated infrastructure -- integrated energy infrastructure solutions segment, has backlog of about $13.3 million. So the majority of it is in the electric power infrastructure?

Sure. And then clearly you’ve won a ton of work here. You've mentioned acquisitions, super exciting time. Can you help us to think about a cadence of revenue in the third quarter and fourth quarter and how we should think about that and model it? Jim O’Neil: I mean, Alex (ph), a lot of it is going to depend upon acquisitions. But if you just look at the businesses in hand today that we have, we expect very strong growth in backlog. We went from 295 at the end of the quarter to we're at about 400 million today. I think that pace is going to continue for quite some time. And frankly, that's the important leading indicator for us to move to profitability because in the past, we haven't had a lot of revenue. We had 30 million a year for the last several years, 25 million to 30 million a year of revenue. That wasn't as profitable, frankly, as what we're making now and now we're ramping up significantly. And that's going to be what brings us in the profitability primarily is the volume of work that we do. Profitable revenues which we're building in backlog. And I think that cadence will continue very strongly for the -- for the unforeseeable future.

And one last question. I -- I assume that not all of your revenue really up passes through backlog. How should we think about that with some other contractors? Maybe 30% of their annual revenue doesn't really pass through backlog. Is that about correct for you all as well? Jim O’Neil: We don't -- there's not a lot of pass-through costs other than potentially some small amount on solar. But there's not a lot of pass-through costs on our Electric T&D business today. And certainly not on telecom either, now that you certainly -- buying IMMCO eliminated a lot of that because we did outsourcing engineering and design. Some of our projects to IMMCO, and I think that was the biggest area of pass-through historically. So I think going forward, our number would be much less than 30%, probably less than 10%, 5% to 10% if that is pass-through.

And just to clarify, I'm really trying to get at how much of your revenue is coming from short-cycle work that doesn't -- Jim O’Neil: Oh, sorry. Yeah. Well, most of all, the electric power distribution workers' short cycle look. We bill weekly there on production. And, obviously, the solar work is going to be over a longer period of time. Recognizing that revenue, we meet key milestones on projects and get paid, but that should be no more than a month or so. And then the telecommunication work is similar to the Electric T&D, or as we get to bill regularly on progress towards construction. So, yeah, I think the turnover is going to be pretty quick on project production versus billing versus getting paid.

Thank you. Jim O’Neil: Yes, sir. Thank you, Alex.

Thank you. Our next question comes from Jeff Bernstein with Cowen. Your line is open.

Just a couple of questions. Can you talk a little bit about your expectations for the power restoration business, considering all the weather events that seem to be happening more regularly, and how much do you like that business, and just some characteristics about that? Jim O’Neil: Good morning, Jeff. Look, none of us want to see these catastrophic events happen, but certainly growing our base in that business, especially in the South and Southeast purchase, exponentially better position than we were last year to respond to -- to any of these events. And certainly, we're tied in with -- with many of the utilities because of -- because of us responding last year into others that go, and specifically just go after the storms. We're tied in there with contracts to respond immediately. We are also working with many investor-owned utilities that will release us for mutual assistance to go support other history utilities that have had a catastrophic event on a storm. So we're well-positioned now to take advantage of storm work and that would certainly be a big bolster to our revenue and bottom line.

Terrific. Thank you. And then I think that you might have said that there was another platform acquisition in your future at some point, I'm not sure if I have that right. And -- and can you just clarify. Does that mean another area of actual work in what you're doing now or is it potentially like a larger geography covering acquisition? Jim O’Neil: Right. So even though we've done a great Greenfield of our Electric T&D work, we want to buy a platform in each of the 3 infrastructure segments we're focused on. So we bought one in solar, we've bought Gibson in the telecom --

Got you. Jim O’Neil: -- sector, and now we're looking for a platform acquisition in Electric T&D.

Got you. Jim O’Neil: And then once we do that, we'll focus on tuck-ins like the IMMCO acquisition and the GTS, we'll focus on expanding the platforms through acquisition with synergistic acquisitions that expand their service capabilities, geography, or customer base.

Terrific. That great. And then just on the R&G side, nice to hear that you've won some of those contracts on integrating into the pipeline systems. What's -- How big is that going to be the discussion that there's the potential for 8,500 projects in the U.S. or something like that? But what do you guys see there? Jim O’Neil: Rock breakers, a huge opportunity. We had one of our first units left our shop in Houston to go to a major R&G developer, which we're excited about after going through many rounds of RFP with -- against other players. And certainly they didn't face their decision solely on costs. It was on -- the total package of quality, some of the technology. So we feel well-positioned to be a leader in that area, both in the U.S. and the U.K. so I think as that business ramps we'll get our share of it and we're very excited about it. We're seeing a nice uptake of activity there. Frankly, our shop in Houston is doing really well now. We spent the first half of the year in engineering design. But now we've moved into the construction realm in a big way on a lot of these projects. So we should see much better results from our Orbital Gas ' group in the second half of this year.

Great. Sounds great. Thank you. Jim O’Neil: Thank you, Jeff.

And that's all the questions we have at this time. I would like to turn the call over to Mr. Jim O’Neil, Vice Chairman and CEO for closing remarks. Jim O’Neil: I would like to thank everyone again for joining us on the call today and for your continued interest in Orbital Energy Group. We look forward to having follow-up conversations with many of you and updating you on our progress. Jim O’Neil: So I want to thank everyone again, and hope everyone has a great day. Goodbye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.