ESOA just broke out of CEO letterTEXT
It went over $1.55 for a while today, 1.46 now up 6%
Dear Fellow Shareholder:
For the fiscal year ended September 30, 2016, our company improved on what was previously a record year for each of our subsidiary companies, C.J. Hughes Construction and Nitro Electric Company. To begin, we grew our revenue by $38.7 million to $155.5 million in fiscal year 2016 from $116.8 million in fiscal year 2015. The company performed well on our normal operations along with adding several major projects in fiscal year 2016. This enabled us to earn $6.1 million income before tax in fiscal year 2016 compared to $3.7 million in fiscal year 2015. While recording $2.9 million in tax expense, we exhausted the remaining portion of our federal net operating loss carry forwards during fiscal year 2016. The result was a $2.9 million net income available to common shareholders in fiscal year 2016 compared to $1.8 million in fiscal year 2015. We also earned an adjusted EBITDA of $9.4 million in fiscal year 2016 compared to $7.6 million in fiscal year 2015. Equally important, we paid our company’s first dividend, $0.05 per common share, in June 2016.
Since I became President of Energy Services of America in early December 2012, we have made incredible strides. I have enclosed a balance sheet and income statement from that year for comparison to fiscal year 2016. To start with, we generated almost the same revenue with two companies in fiscal year 2016 compared to three companies in fiscal year 2012. We obviously achieved much better gross profit, but we also only had SG&A expenses of $7.3 million in fiscal year 2016 compared to $12.1 million in fiscal year 2012.
While I have written about purchasing office and fabrication facilities for Nitro Electric and increasing our lines of credit for operating capital and equipment purchases, we nevertheless have reduced our liabilities from $53.3 million at September 30, 2012 to $33.9 million at September 30, 2016. That has resulted in interest savings of over $1.0 million, while at the same time, reducing our vendor financed payables by $4.9 million. Finally, our total stockholders’ equity has increased from $6.4 million at September 30, 2012 to $22.5 million at September 30, 2016.
I am extremely pleased with the improvements that have been made over the last four years with one exception: the under-valued price of our stock. In December of 2012, our stock value fluctuated wildly between $0.50 and $1.00 per share, and rightfully so, as we were under a forbearance agreement and were restructuring our balance sheet. On December 28, 2016, our last trade was at $1.38. This value represents less than the tangible book value per share of $1.58 at September 30, 2016. Our price to earnings ratio is 6.57 at December 28, 2016, and our backlog was $78.5 million at September 30, 2016 compared to $71.3 million at September 30, 2015. Members of the Board and management have been consistent insider buyers of the stock and hope that you will continue supporting us in what is poised to be a great fiscal year 2017.
Sincerely,
Douglas V. Reynolds, President
Energy Services of America
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 2016 and 2012
2016 2012
Assets
Current assets
Cash and cash equivalents $ 3,815,790 $ 2,661,721
Accounts receivable-trade 24,059,432 18,485,166
Allowance for doubtful accounts (133,500 ) (240,071 )
Retainages receivable 5,810,474 2,477,903
Other receivables 106,837 340,876
Costs and estimated earnings in excess of billings on uncompleted contracts 5,953,818 11,260,254
Deferred tax asset 1,399,152 3,690,409
Prepaid expenses and other 2,485,101 2,026,514
Assets of discontinued operations 12,303 -
Total current assets 43,509,407 40,702,772
Property, plant and equipment, at cost 39,375,505 42,440,135
less accumulated depreciation (26,625,827 ) (23,387,158 )
Total fixed assets 12,749,678 19,052,977
Long-term notes receivable 137,281 -
Total assets $ 56,396,366 $ 59,755,749
Liabilities and shareholders' equity
Current liabilities
Current maturities of long-term debt $ 2,867,898 $ 10,118,907
Lines of credit and short term borrowings 6,232,943 18,516,276
Accounts payable 5,006,427 9,917,085
Accrued expenses and other current liabilities 5,933,571 3,518,481
Billings in excess of costs and estimated earnings on uncompleted contracts 3,410,548 1,368,559
Income tax payable 1,076,440 -
Liabilities of discontinued operations 28,671 -
Total current liabilities 24,556,498 43,439,308
Long-term debt, less current maturities 7,390,099 1,623,771
Long-term debt, payable to shareholder - 1,223,325
Deferred income taxes payable 1,926,077 7,027,980
Total liabilities 33,872,674 53,314,384
Shareholders' equity
Preferred stock, $.0001 par value
Authorized 1,000,000 shares, 206 issued at September 30, 2016 and 0 at September 30, 2012 - -
Common stock, $.0001 par value
Authorized 50,000,000 shares 14,839,836 issued and 14,239,836 outstanding at September 30, 2016 and 14,458,836 issused and outstanding at September 30, 2012 1,484 1,446
Treasury stock, 600,000 shares at September 30, 2016 and 0 shares at September 30, 2012 (60 ) -
Additional paid in capital 61,289,260 56,107,650
Retained earnings (deficit) (38,766,992 ) (49,667,731 )
Total shareholders' equity 22,523,692 6,441,365
Total liabilities and shareholders' equity $ 56,396,366 $ 59,755,749
ENERGY SERVICES OF AMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the years ended September 30, 2016 and 2012
2016 2012
Revenue $ 155,481,145 $ 157,738,736
Cost of revenues 141,283,142 156,056,529
Gross profit 14,198,003 1,682,207
Selling and administrative expenses 7,293,323 12,083,793
Asset impairment - 36,914,021
Income (loss) from operations 6,904,680 (47,315,607 )
Other income (expense)
Interest income - 3,034
Other nonoperating income (expense) (158,246 ) 140,115
Interest expense (875,254 ) (1,931,897 )
Gain on sale of equipment 268,448 45,930
(765,052 ) (1,742,818 )
Income (loss) from continuing operations before income taxes 6,139,628 (49,058,425 )
Income tax expense (benefit) 2,898,205 (536,248 )
Income (loss) from continuing operations 3,241,423 (48,522,177 )
Dividends on preferred stock 309,000 -
Income (loss) from continuing operations available to common shareholders 2,932,423 (48,522,177 )
Income from discontinued operations - -
Net income (loss) available to common shareholders $ 2,932,423 $ (48,522,177 )
Weighted average shares outstanding-basic 14,239,836 14,448,336
Weighted average shares-diluted 17,673,169 14,448,336
Earnings (loss) per share available to common shareholders $ 0.21 $ (3.36 )
Earnings (loss) per share-diluted available to common shareholders $ 0.17 $ (3.36 )
Please see the table below for a reconciliation of adjusted EBITDA for years ending September 30, 2016 and 2015:
2016 2015
(Audited) (Audited)
Net income available to common shareholders $ 2,932,423 $ 1,831,530
Add: Income tax expense 2,898,205 1,570,992
Add: Dividends on preferred stock 309,000 309,000
Add: Interest expense 875,254 761,079
Less: Non-operating (income) expense (110,202 ) (192,730 )
Add: Depreciation expense 2,503,471 3,291,386
Adjusted EBITDA $ 9,408,151 $ 7,571,257
Common shares outstanding 14,239,836 14,239,836
Adjusted EBITDA per common share $ 0.66 $ 0.53
Please see the table below for a reconciliation of tangible book value per share at September 30, 2016:
September 30, 2016
Total assets $ 56,396,366
Less: total liabilities 33,872,674
Less: intangible asset value -
Less: goodwill -
Tangilbe book value 22,523,692
Common shares outstanding 14,239,836
Tangilbe book value per share $ 1.58
Please see the table below for a reconciliation of the price to earnings ratio at December 28, 2016:
Closing share price at December 28, 2016 $ 1.38
Fiscal year 2016 earnings per share 0.21
Price to earnings ratio at December 28, 2016 6.57
