Energy Services of America
(AMEX: ESA)
Marshall Reynolds, CEO & Chairman
Ed Burns, President
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Corporate Profile:
Energy Services of America (ESA) is committed to providing the highest quality of construction services to the Natural Gas, Oil, Chemical and Electric Industry while maintaining the reputation and professional integrity earned through decades of experience by our subsidiaries.
Our companies continue to operate independently to focus on the customer needs and provide the resources necessary to meet the challenges for a successful project. At the same time, the resources and support of all ESA subsidiaries are available to each company, providing the strength and versatility to accomplish multiple projects of significant size and diverse requirements concurrently. While the quality of our work, reliability, agency compliance and on-time delivery are essential components of our organizations core philosophy human safety is our number one priority.
TRANSCRIPT:
WSR: Good day from Wall Street. This is Juan Costello, Senior Analyst with the Wall Street Reporter, and joining us today is Marshall Reynolds, CEO and Chairman of Energy Services of America, as well as Ed Burns, President of the company. The company trades on AMEX and the ticker symbol is ESA. Thanks for joining us today, gentlemen.
Marshall Reynolds: You are very welcome.
WSR: Now starting off, what were the value drivers behind the company’s Q3 results, which were particularly strong?
Ed Burns: Basically, what we dealt with — and this is Ed Burns — when the recession hit late last year, most in the pipeline business was kind of just put on hold. There were a lot of projects that’s just either withdrawn or delayed. With the demand for natural gas and with the market somewhat improving in the natural gas area, more projects have opened up and that’s what resulted in the added revenues, which have resulted in a profit.
WSR: Talk about some of the company’s different subsidiaries and how well they fit into the business model.
Ed Burns: Basically, four subsidiaries; three were somewhat tied to CJ Hughes, but we have them separate. ST Pipeline is a company that deals primarily with what’s known as transmission pipelines, which are over the road type lines. Contractors Rental Corporation, which was part of CJ Hughes, does the same thing as ST Pipeline. Then, we also have the reminder of CJ Hughes, which is separate, which is a little more diverse. They do work in water, sewer, plant work for larger corporations, various other types of projects; so it’s a little more diverse than the others, and not as much of a specialty. Then, we also have a company called Nitro Electric, which is basically a company that does industrial type electric work for automakers, power companies, etcetera. So how it fits together with the other is a lot of the projects that are done on the natural gas side require electrical work, and they are able to do that. Also, there are instances on the electrical side where they need piping or trenching, which ties into our other companies.
WSR: Talk about some of the trends going on right now in the energy sector and how well positioned Energy Services of America is to capitalize on some of the emerging trends.
Ed Burns: What we believe that we are very well positioned. We have roughly $30 million worth of equipment at market value, we have seasoned people who can perform the work, and what we are seeing thus far is, for 2010, it looked as if the demand for pipelines is on the rise. Energy Services is located in Huntington, West Virginia, which the Appalachian Basin, which has the estimate of 200 trillion, I think, mcf of gas in it. We are kind of almost in the center of it. So, we can reach out to Pennsylvania in the Marcellus Shale area, which is also part of the Appalachian Basin; West Virginia, Kentucky; part of Ohio is in the Appalachian Basin. So, we are pretty centrally located, which in pipeline business with the heavy equipment that you have to transport to mobilize to do a project, having a central location — the closer it is to you, the easier it is to do the work. So, we think we have a little bit of a competitive advantage in that area. Plus, our people are very, very seasoned at doing work in very steep terrain, which is a great deal of the Appalachian Basin has.
WSR: What else differentiates the company from other players in your sector?
Ed Burns: I think one thing that helps is our diverseness. We can do many things in addition. We have the capabilities to do the production pipelines, the transmission pipelines, and the distribution pipeline. Other people have that capability, but we believe that with our location and with our seasoned employees — the foremen, supervisors in our company probably have on an average, 20 years plus experience; so they know what they are doing and they have the capabilities and can just get the job done. With any customer that we have, the drive is get it done on budget or below, and get it done in a timely manner, and we pride ourselves on doing that.
WSR: Perhaps you can walk us through your background and experience, Marshall and Ed, as well as that of some of the key management team of the company.
Ed Burns: This is Ed, I will start out. My background is financial. I’m a CPA. I started out in public accounting; was in banking for a long time, and along with Mr. Reynolds and some other folks, got involved at CJ Hughes initially and I’m fairly new to the pipeline business, since 2002. As to our key people, we have some excellent CEOs. ST Pipeline, the President — his name is Jim Shafer. Jim Shafer has actually worked on the Alaska Pipeline. He’s been in the pipeline business all of his life, started ST Pipeline Company in 1984; has had tremendous growth, and just a solid company. Dwight Randolph is President of CJ Hughes. Dwight’s family was part-owners in CJ Hughes. He’s been in the business since he was 16; so he’s been there 47 years, just a vast, vast amount of experience. Contractors Rental — the young man that heads that up for us — his name is John Holley. He has worked on pipelines not just in the United States but also South America. Has a very, very great track record, great relationships with a lot of customers. Nitro Electric is headed by a person by the name of Lane Ferguson. Lane has been in the electrical side most of his life. Nitro Electric has a long history of projects. They’ve done projects as large as 200 million in Council Bluffs, Iowa; they did a job there. And then underneath them is a whole cadre of seasoned professionals that we’re very blessed to have. Marshall, you want to give yours?
Marshall Reynolds: I’ll give you just a little background. Ed and I got together in the banking business 100 years ago when I was Chairman of Key Centurion and he was the CFO at Huntington Publishing. Over the banking business and within a year, he was the top CFO in the banking business in the state. My thing is — I put together the biggest printer in the state and the biggest banking company in the state and machine shops and dairies and — awful lot of different businesses, did a print on CJ Hughes. It was in the air, and CJ Hughes was in trouble and so I put together a little loop and took up, in essence, a controlling interest in it. Ed had never worked in that industry at all. But I had popped with him and he was available and — so he went down and took over that company; he was the CEO of that company and had a little better than three year run and we turned it around almost instantly. Ed can get the job done. He did a great job there, and then we stepped it up and went with the CSA Bank and then made Hughes a part of it and Hughes is a very important part of ESAC. Only problem ESAC had that I could see is based on our forecast, when we had this terrible turnaround, meltdown in August, it sort of sent us back at least six to nine months. But as people are getting a little more comfortable with that, we are seeing things, rollout — the numbers at the end of the first quarter or the second quarter here will show a positive trend. I’m sure that trend will be up significantly in the next quarter. We have seen an unusual losses early on, 1.9 million of that was loss of S&D that got carried back or carried forward, whichever the accounting term is. But we’re six to nine months behind where we should have been, but we are there and we are making progress every month. This is a better company. Every month, the earnings are beginning to show and it will continue to show and the trend will continually significantly upward.
WSR: In terms of some of the milestones, what sort of goals has the management team set for the company over the course of the next year?
Ed Burns: There is a lot of financial and non-financial goals. We are working very, very hard to make sure that while business has been down and there is a tremendous amount of bidding available now, we are trying to make sure that we bid sensibly and not chase a contract just to get contract only to lose money. So, one of our goals that we are working very hard and monitoring and I think we are doing pretty well on that is to make sure that we are bidding intelligently and profitably. Internally, we being this new of a company, we have a lot of — I guess we call them synergies, to go after; one is liability insurance. The companies, particularly in the gas business, liability insurance is very, very expensive and we are spending huge amounts of dollars between the four companies for that. We believe that by going after a consolidated insurance with maybe higher deductibles or a captive that we will be able to save 40% to 50% of what we are paying on insurance, pretty big numbers, and there is many others like that. I’d just use that as an example that we are about trying to capture. So, I guess our goals are to organize ourselves better, operate more efficiently, and then also once things set all to look towards more acquisitions of companies that will complement the existing ones we have and add to them and then ultimately to get some more diversification. We are in the gas now and it’s a hot item but there are other areas of energy that we think may be opportunities for us. Mr. Reynolds gets calls weekly if not daily from potential candidates to acquire, but we are trying right now to get our current operations in a good order before we move to that.
WSR: What are the sort of criteria do you look for in companies that you’re looking to acquire and as far as your growth for this year, will you look to grow the business from within or you look for some more of these M&A activities that you just mentioned?
Ed Burns: We think we’ll have substantial growth from the 2009 September 30th numbers. We will have substantial growth from within just because of the anticipation of what we are seeing today that 2010 revenue levels will be significantly higher. Plus, we’re able to establish relationships and grow those relationships. So, we think we will have a substantial increase in revenues in 2010 from there. There currently are available a significant number of companies that — when this market recession occurred, they were doing great, but it’s kind of brought them to their knees somewhat and heretofore hadn’t considered being a part of another company are now coming and saying I’d like for somebody else to have to worry about all, “how we are going to pay for this and how we are going to pay for that?”. So, they are out there, but as I said, we want to make sure that we have our internal operations as smooth as we can and be ready to take those on. But we could — I’m sure there are probably eight to ten transactions that you could do pretty quickly I would say if there aren’t more.
Marshall Reynolds: We started off with just meltdown and basically that put an awful lot of things on hold with our customer base but it also put some things on hold for us. We want to see some things check out. Now, we are satisfied — we got to pretty positive trends and grow the topline and obviously growing the bottom line and we thought we need another six months for that before we jump out and do an acquisition.
WSR: In terms of investors, do you believe that right now, investors understand the general direction of the company?
Marshall Reynolds: I don’t think so. If they did, they would jump on this one because this dog will hunt.
WSR: Are you actively trying to educate investors about the new happenings at the company?
Marshall Reynolds: We are doing an interview with some folks and — we are not aggressively out creating stories and telling stories. We want the investors to watch the results and six months down the road, when you see the trend that we have continue and the numbers speak for themselves and tell a story for you.
WSR: That’s true. Yes, it’s very true.
Marshall Reynolds: We are confident we are going in the right direction.
WSR: Once again, joining us today is Marshall Reynolds, CEO and Chairman of Energy Services of America as well as Ed Burns, President and Director of the company. Energy Services of America trades on AMEX and the ticker symbol is ESA, currently trading at 3.21 a share. So before we conclude, what are some of the key reasons why investors should consider the company as a good long-term investment opportunity?
Ed Burns: I guess basically the way we come down to it is we think we have a sound business, we have qualified people, and the energy demands for this country are continuing to grow. We believe that we will be able to provide services to those energy providers in a way that is satisfactory to them, priced reasonably to them, we get profitable for the shareholders of Energy Services. So, I guess that’s how I have to sum it up.
WSR: Great, go ahead.
Marshall Reynolds: I think Ed did a great job to sum it up. Where would this business be if we hadn’t had this meltdown last August, and the answer is same place that we are going to end up six to nine months from now. Had that meltdown not occurred, what would this stock be worth a dime, the answer is pretty significant, and so investors are going to do well long-term at this company.
WSR: We certainly do look forward to continuing to track the company’s progress and to report on its growth, and I’d like to thank you both for taking the time to join us and to update our investors today.
Marshall Reynolds: We appreciate it.
Ed Burns: Thanks.
