Good morning. Next presenting company is Energy Services of America, trades on the Nasdaq under the symbol ESOA. Do not let the name fool you. They do some work within the energy space, but primarily involved in distribution of water and gas. They do have some gas transmission as well. Here to walk you through this story is Doug Reynolds, company CEO. With him is Charles Crimmel, company CFO. ESOA is a client of Three Part, so if you like what you hear and you have some more questions after the presentation, please feel free to reach out to myself or Doug and Charles, and we will be happy to set something up afterwards. Doug?
Thank you, and thank you, John. You started to steal my thunder there about my presentation today, but I think there is still enough left. The great philosopher Meat Loaf once said, "I want you, I need you, but there ain't no way I am ever going to love you. So do not be sad because two out of three ain't bad." I would tell you, for ESOA, we are very much that way.
I think we are a great growth company. I think we got great value. But our name sometimes puts us in the wrong boxes of how people think about our company and think about what we are trying to accomplish. I wish if we would have had a name and been smarter, or the people that were here before I would have given us a cool name like Quanta or Primoris. Maybe we would have their multiple and not our multiple.
You came here today to learn about new companies and things maybe flying under the radar and why there is a value someplace versus somewhere else. What is funny is we come to these meetings, and one of the first things, if you punch our name into any screener, like you go on Seeking Alpha and you hit peers, it shows up energy, oil field services is what it pops up as. If you do Yahoo, you do the same thing. You look at our multiple and it is like, okay, we would be a normal multiple in those businesses. But that is not really what we do. You say, "We do construction." I wish my friend Tom was here from Atlanta. What is his last name, Tom?
Claugus.
Claugus. Tom came over and we met with him six times. He says, usually after the first couple of meetings, he goes, "I just do not like construction. It is just construction." Construction is one of those things that very much has a connotation with people. What is funny is I am in the construction business. We were in the construction business. My wife, she is in the religious business. She is a pastor, and we have youth events at our house all the time. These young people come over and in West Virginia, they come up to our trailer park and it is really nice place in the trailer park.
They say, "Gosh, Mr. Reynolds, what do you do?" If I tell them I am a construction worker, my wife sort of gets aggravated with me, says, "Why do you always want to mess with people?" I am like, "I think that is the best description." She says, "No, you are a lawyer." I said, "Well, I have not been to court in 10 years, so I am not really a lawyer." The funny thing is, we have this little debate going game. One day I am sitting there and I said. I use ChatGPT and punch things into it. I asked ChatGPT, I said, "Make a cartoon based on everything you know about me," and this is what it came up with.
After that, I sent this to her and said, "I have finally won." If ChatGPT and the stock screeners and everybody else has this connotation about what we do, construction, what does that mean? Capital intensive, labor intensive, weather dependent, very regulated, all these things that can make a project have incredibly volatile earnings. If the market believes that and those sources think that, then the market values are going to indicate that. I think that really just is not what we do, actually. We base in West Virginia. We do a lot more business, what I would call industrial services. We are inside plants, not necessarily capital intensive in those industries.
We do multiple year, multi blanket type pricing with customers in the regulated utility sector where today we are fixing a station up for American Water, and tomorrow we are taking up some pipe for the gas company, putting it back in. As we get into the numbers real quick, just at a real quick glance, you look at our value. We have had a heck of a run the last 10 years. As I said, we went away from that high, capital intensive energy business, gas transmission business. That several years ago was, say, 75% of our business. Nowadays, it is about 25%. That business has really been challenged for a lot of years. You look forward and say, okay, looks like we are at the new part of a cycle in that business. We have had incredible growth on the top line of our businesses, backlogs increasing.
Most importantly, it is kind of the theme of my thing today is two out of three ain't bad. We have financial matrices that compare favorably to most of our larger rivals, and we trade at considerably lower multiples, and we have consistently done that. The good part for you today is I usually come to these meetings and I think our stock was about $7 or $8. I like to come to these meetings where our stock has went up 30% in these meetings, and it really does not matter what I say. I say, "Hey, look, if you would have bought six months ago, you would have been up 30% or 40%." We have actually had a little bit of a drawdown in our stock. Even Tom, who has never bought our stock after meetings. You missed it when it is up 30%, 40%.
Again, as I said, we were almost $20 a few months ago. We had a great run coming out of our capital raise in February. There was a lot of enthusiasm. Had a great quarter for the second quarter compared to previous years. I didn't think the third quarter was that bad a quarter. There was two estimates out there, and we came in in between them. Market's traded down a little bit lately, but I still feel really strong about the long term value and what we're trying to accomplish. Most of you all, many of you all hadn't heard about our company. You're very well acquainted with that probably represents 95% of our revenue on that sheet. We work on the electrical side, we work a lot for Toyota. It's our biggest customer.
Work for large on the transmission side, TransCanada, Marathon, and on the distribution side, water, the private and public water sectors. Again, this shows you the growth sector of this business, and it doesn't go back to 2015, 2016, but if you would've looked at this in that time, that dark blue at the bottom would have been 75%. As you can tell, over the years, we've really grown that light blue, which is the gas and water distribution business, which is, in my opinion, our best risk-adjusted returns. Regulated utilities, generally speaking on the private side especially, water, gas distribution, blanket contracts, multiple years. Rarely do we have a super large project. Probably the average project in that area is probably $50,000 or $100,000. So a lot of chance to hit a lot of singles.
As you can tell, that dark blue has been really in a terrible downturn for a lot of years. We feel like that business is just starting to turn, and there's a different attitude than there was a few years ago in the gas transmission business. It used to be, "Hey, we've got to keep our heads down," and gas was seen as the bridge fuel to a renewable future. Today it's very much like, "Hey, we're going to have all this energy need. We better get the gas to these data centers, to these different need points, and we're going to have an increased demand in gas." If that is the case, I really feel like all three of our businesses are really going to be hitting on all cylinders in the next five or 10 years.
Again, the only criticism I got from our last quarter really directly is someone said, "Oh, your backlog's down from the March quarter." Most of our businesses are based in the Mid-Atlantic, and so our December to March quarter, we're usually not burning a lot of backlog. We're booking a lot of the businesses. Right now, we're really looking at mostly work for 2027, other than last things that we fit in or emergency work or smaller things. But our bigger things we're looking for right now, we're already booking calendar year 2027 work for our bigger things. So I don't see that the backlog is really down. If you compare it to where we were in 2025 at this time, it's above where we were both at nine, or ahead of where we were at this time in 2025.
Again, EBITDA, that's what we get up every day is we try to make a buck at this, and do a good job for our customers. It's been trending up. There is some volatility to it, and that's one of the things where I'm sure people don't like about construction on these larger jobs. You almost always have one that's not going your way, and you hope it's a smaller one, and you have enough work to make sure it's not too much of the whole. I think if you look over the last few years, it's trending up. The businesses that we are adding and growing are generally 20% + margin work in the capital-intensive work.
In the smaller things, or in the electrical side, moving more from the maintenance contracting and the 10% and under margin to 15% on new construction on electrical HVAC in plant work. One of the most important things about our company is we want to be stable and have a great balance sheet so that when something does go bad, we're ready for it, and then when we have opportunities, we have the balance sheet and capacity to continue to grow. As we've been going along, we first of all focus on growth, but we're a shareholder-friendly company. We've done acquisitions where we can add services and continue to grow. Our board of directors is old school. I have a lot of discussions with investors like you all, and some people say, "Gosh, you should pay a dividend.
Don't." Our board generally feels that if we make money, we're going to pay a dividend, and if we make more money, we're going to pay more in dividends. In June of this year, we increased our dividend again from $0.03 to $0.04 a quarter. Hopefully, obviously, if things are successful, we'll continue to grow through dividends. When things get rough out there in the marketplace, we always figure it in the 5x EBITDA longer-term business. We would love to buy businesses like ours at 5x EBITDA. We'd much rather buy our own stock back at 5x than buy someone else because we know the business so much better and have a comfort level with it.
We put where we think the stock might trade in a sell-off in the marketplace over the last couple of years when there's been a tariff fight or there's been something going on and market gets a little rough. We've generally been there buying back stock. That's how we look at our capital allocation strategy and feel like it's been conservative, but fruitful for our shareholders. Again, record tangible book value and look forward to increasing that every year. Again, I think we're in great growth businesses, and most of the people in our marketplace, a lot of family-owned businesses that are trying to figure out what their strategy is to go forward. A lot of them have great customer relationships. They have incredible employees we'd love to have on our team.
Every year we have usually done an acquisition at least and fit one of them in. We have those conversations going, and we can come up with the right combination for the families and for the employees and fit into what we are doing. I think you will continue to see us try to grow through M&A. Whenever we talk about our market, some of it is a little bit in flux. Our electrical, we work for Toyota. Like Alabama, the only thing we do there is the Toyota plant on the electrical side. We have a division in Michigan that works on that. The main area is the Mid-Atlantic. The water and gas distribution is similar.
We go as far west as Louisville, up to Dayton in those businesses, and then straight east, if you imagine Columbus, West Virginia and a little bit into the Virginia Highlands. The gas transmission business, the big pipe, we go where the work is. Generally, that we feel like we can service our guys travel to. We do work up in New York, Michigan, Tennessee, Carolina. We have projects usually in those areas. A lot more Midwest, Indiana, Michigan. Again, that is big pipe, construction trades related, higher wages, traveling, national unions on the welding side. It has a little different mix, a little different labor force, different cost structure. That sort of gives you an idea of where we operate and how the businesses kind of function. Charles, you want to take over and go over some of the individual businesses in the balance sheet?
Yes.
Thank you.
Thank you, Doug. It is always great to be here at these conferences. Enjoying getting out and being able to talk to people and pitch Energy Services of America to people. Doug gave you a great overview of the company there. What I wanted to do is take a few minutes to talk to you about the growth of the company and how that growth is translating financially. Come back over here. We can see that going back to fiscal year 2020, we had revenues in a range of about $120 million. At the end of September 30th of 2025, we finished about $411 million in revenue. Our trailing 12 months revenue is about $467 million there. We have seen some substantial growth. Of course, here says about 3.5 x growth from fiscal year 2020 to fiscal year 2025.
And more importantly on that is we have shown that the company has demonstrated that it can grow scale in the revenue. But more importantly is translating that into profitability. As we can see here on the EBITDA over the past year, we finished fiscal year 2025 at about $17 million in EBITDA, about 4.2%, I believe it was. Over the trailing 12 months, we brought that up to $33 million and about 7.2% there. So obviously that is a main focus of us right now is not just increasing revenue, but also increasing the profitability on that revenue. Talking about some backlog here. The way we look at backlog is we have really two main components. The large of which being our projects that we have under contract. Of that $286 million, roughly about $216 million of that is on specific projects.
Projecting that we are going to burn about $200 million of that off within 12 months. The other component that we look at on our backlog is maintenance contracts, blanket contracts, and such. Some of those maintenance contracts, blanket contracts, can be three-year contracts. What we do is we put in a historical average of revenue that would correlate to about 12 months of work on that. So that makes up the other $70 million of backlog that we would anticipate burning off within the 12 months. Some other things about the company, of course, our capital allocation, I know Doug mentioned this some, but we have about $8 million-$12 million a year that we spend on investing in our fleet, investing in our yellow iron, as we call it, our heavy equipment.
Big consumers, pickup trucks, skid steers, mini exes, dump trucks, is where we put our capital money at. Also, as Doug mentioned, we believe in paying a dividend. We are at $0.04 quarterly now, $0.16 annually per share on that. We did have a capital raise that we completed in February that brought in roughly about $22 million worth of proceeds to the company. From that, we were able to reduce our debt. We paid off our line of credit, which was at about $17 million. Also paid down some of the financing that we had on some of our acquisitions. So companies such as the West Virginia Pipeline , Ryan Construction, Tri-State Paving, we have completely paid off that financing debt, and we made a significant dent in the financing of our Tribute Contracting company. So we felt that that was a good way to use those proceeds.
It also helped us with the bank. We were able to renew our line of credit with them here in the past month or so. So we have a two-year rolling line of credit with the bank, $30 million, that is subject to a borrowing-based analysis. So we feel like we have the capital needs that we need to complete our construction projects. The other benefit of that capital raise was also to help us out with our bonding line. We now have roughly about a $400 million bonding capacity that we have with Philadelphia Insurance. Several of our companies do a lot of work in the public sector. So what that really helps to do is to allow us to go after bigger projects on the public side due to the bonding constraints and everything. So it is really freed us up of that.
Really felt like the capital raise that we did helped us in multiple areas. This time, we will open it up. Are there any questions that anybody has for Doug or I on the company?
Yeah.
Yeah.
25.
About 35, yeah.
35. 15 at Tri-State. 15. About $75 million has been acquisitions.
We also had a startup. Our general contractor was a startup that we did in-house, but that is about $50 million worth of revenue too.
For the most part, what we look to do is, usually there is an owner or somebody that wants to retire, and so what we want to do is, we want him to have some role there into a transition period. We did buy Ryan in bankruptcy. That was a little different situation. Ideally, if it is a really good business, we want the end customer to see as little change as possible early on.
So, hey, it is a good business, we do not want to screw it up. I always joke, that is the most important thing. Do not screw up something that is working. So we generally want, "Okay, here is where you are going to go. You want to retire in a couple of years. Here is our plan," and kind of get them to agree to it and feel like that we were all on the same page going forward. Go ahead.
Can you talk about-
It is really interesting. A couple of weeks ago, there was a company called [inaudible] that was talking about coming to West Virginia to build data centers, and they are based in California. So we are right there. There are two big data centers that are in the news nearly every single day, something about them, one in Putnam County and one called Monarch, that has got a lot of attention.
And we are meeting with some of their people with the West Virginia Business Summit next week. And so, it looks like these things are going to get built, and I think we will have a great shot. I cannot imagine somebody can bring a wage rate structure from California and out-compete us in West Virginia. Generally, our wages and our cost structure is much lower, and we are not going to be paying per diems for most of our guys that live in the market.
Obviously, maybe somebody comes in and just bids such low that we do not want to compete, but I think we will have a great opportunity. That is how I see it. Go ahead, [inaudible].
How do you manage the backlog?
The backlog, we book the work. There's a lot of work out there. There's some cyclicality to it. When you say manage it, we want to make sure our guys are working. For the most part, we just have to sort of manage it in the sense of what we have. There's some things that, I would say weather and on the distribution businesses, sometimes the customers will build something to be in backlog, and they're saying, "Hey, I know we have this contract. We're out of money. We're not going to be able to start this until next year or five months from now.
We have a new budget year." Oftentimes, in some of the businesses, the backlog manages us versus us managing the backlog, but we always try to do it in a manner where we're professional with the customers and meet their expectations, and sometimes that is better or worse in terms of the backlog fluctuations.
To your organic growth, it's pretty remarkable. What do you attribute that to? A lot of these kinds of vertical events, people, what has allowed you to grow organically-
On the organic side, I would say there's several things. The water business has had a real inflection post-2014, when you had all the stuff going on in Flint, Michigan. There's been just a lot more public scrutiny over water quality. A lot of these systems all over the country have been massively neglected for 50 years. So whether it's, "Hey, this system is leaking water, it's terrible. There's lead pipes," PFAS is now kind of the next thing they're looking at on it. So I think, one is the scrutiny in that area has caused these municipalities to say, "We got to do something." And one of the responses, kind of from a political standpoint is there's been a lot of money in the COVID programs and the IIJA flow to these municipalities that obviously has helped the business.
One of the big things, I think, over the last 10 years has been privatization, the American Water, the Essential Utilities, is they buy these systems from municipalities. Oftentimes, the municipality is selling because they're ran down. The public won't support these public officials that run it, find that they don't want to do a rate increase, and they don't want to take the political hit, so they sell it, they get some money in, they can fix some other problems. And generally speaking, then the private utilities got to bring that system up to their standard. So I would say that business, when you say has been the biggest driver, if you go back and look at the charts I was showing you on the water and gas distribution businesses, that's been the biggest driver of those businesses over the last seven, eight years.
Yeah. One thing I'd like to add about our organic growth then is, we have our Nitro Construction business. About three, four years ago, Nitro was about a $50 million- $55 million maintenance contract, basically working in automotive power, chemical plants day in, day out for customers. So it's a hard way to make money. You turn dollars. But what they've been able to do then is to build another layer of new construction on top of that, and we're seeing some things such as the successfully completed project down in Tennessee called the BlueOval project, working with Ford, working in Liberty, North Carolina now with Toyota. Nucor has a facility that they're building in Mason County, West Virginia, that is near finishing up construction on that.
Nitro has gone from a company in the $50 million- $55 million range to being somewhere close in the $140 million- $150 million range.
We should see our backlog should grow kind of September to February. That is normally when we are booking work for the year. It is almost always we are going to have backlog growth then. I would tell you the bid pipeline work, I really like the type. We are trying to push the customers more into a risk sharing on the gas transmission side so that we do not have as volatile business. That is one of the main things we are looking at booking this work differently in that area. On the electrical side, you would say these data centers in Virginia, we have done about $10 million, probably have $10 million in the backlog on that.
It is going to be, do we want to go over to Virginia and do fire protection and fire suppression, I am sorry, and electrical on that, or do we want to do stuff in our own backyard, and trying to figure out how that is going to fit in. Some of that hits. I think you will see considerable backyard growth this year, and we are working our business plan for next year. I feel confident in saying we are going to put a business plan together to grow the business. I do not know if that is we go to $600 million or $550 million, or, we haven't got that far along, but we see a very healthy demand picture in most of our business lines. Go ahead.
I was going to say, as you think much further down in business planning, where would you like to be in three to five years from now? Are you thinking about long-term vision as well?
That is like an intermediate vision of, and I have said this really for the last 15 months, that we want to get to $500 million at 10% EBITDA margins. I would say we are probably going to break $500 million before we get to 10% EBITDA margins. When I originally said that, I had some different ideas in mind. I think there is still more growth opportunities, so we are still investing in growth to grow the top line.
I feel like that is where we are in a cycle. So once you get there, all right, maybe I think the stock will kind of re-raise. I think it is a lot more likely we will be $700 million, and maybe we do not get to 10%, but if you get to 9% on $700 million, that is better than 10% on $500 million. I just think it is more likely, frankly.
Yeah. So one of the areas when you are thinking about-
It is more driven by our customers, frankly. If Toyota said, "Hey, we want you to go here." Like we went to Michigan. We had worked for Kellogg's up in Michigan. They say, "Hey, we want you to be our permanent maintenance contractor in this marketplace." A couple of years ago, we put an office in there, hired an estimator. Frankly, all we really had was Kellogg's, and we would get into other stuff and lose some money at it. We have really been trying to grow that business. Now Michigan is solidly profitable. We have been doing a lot of work on the food side up there and some other things. It really is driven by if our customer says, "We want you to stay." Right now, we are in North Carolina working for Toyota.
When that project is finished, if they say, "Hey, we want you to stay here," and we have guys that will head that up and be there every day and have the relationships in the plant, we will probably have permanent things in North Carolina. If we feel like they tell us to stay and we cannot, we cannot find someone that wants to be the leader down there, it is really personnel driven to have the leadership, okay, then we will not. Our goal would be to find some new places like that and go with our customers where they want us.
It's not that hard to move the equipment. The harder thing is to have the leadership and somebody that can grow a business. We've tried that in different business lines. We've had some that haven't worked. On the electrical side, we had somebody that we thought we could start growing an electrical transmission business. Probably we started this last September, October, and that guy didn't have the character, frankly. It was a character issue. We're like, "All right. Can this start over?" Our hardest thing to find is the leadership.
How many guys you got out there in leadership positions driving?
In leadership positions? When I say that, if you look at these different lines, like if you look at CJ Hughes, they have a president, but then they have business line leaders. I'd say in CJ Hughes, there's probably seven or eight people that really have the key customer relationships. If you say across the whole platform, probably 50 people really drive. We obviously have marketing people, but that's more top of the funnel work. They're getting leads and trying to track opportunities down than getting to the guys at the end of the day that get the work done really drive results much more than the marketing people.
[inaudible ]
We are building up. We work in Toyota on a maintenance basis all the time in different plants. The biggest project we have for Toyota is their Liberty, North Carolina facility. We are in year two of year three with that. That plan should be done next year to next year. I will have that
Do you have any questions?
Go ahead. Go ahead .
Two. One, you all showed that over the last 10 years so much of your new growth came from new lines of business, like water and gas transmission and utilities. Is there any other lines of business that you all are looking to get into or are you just going to focus?
That was really businesses we were already in. A lot of them were acquired, but American Water, we had been working for years. We just grow those businesses within that. Our acquisitions were mostly inside those water and gas distribution.
They are just reallocation.
Right.
Okay. Since you mentioned that you have a lot of these, like the Albion Financing or whatever that puts you all in the wrong category. Have you all considered changing that?
It is one of those things that we have considered. You hate to change it. We were joking, like, if we just change the name to Data Centers of America, I think our stock would double. Next year, the whole business may crash, and then we might be, "We have got to change our name to energy again." Then people are pissed at the data center. That is always the hard thing is what do you choose? If you choose the sexiest thing today, tomorrow it might be less sexy. That has been a thing we have discussed, jokingly at least. We probably need to give it something like Quantum. Just a cool name that does not mean anything. Okay, that is a good idea. It will save money on rebranding and yeah, don't have to get a new website. It is really good.
There's a lot of businesses that have great leadership in the sense of most of it's family-oriented and maybe the family's not interested in construction. Kids are doctors, lawyers, and they're looking for a solution for that, and so they sometimes turn to someone like us, or a lot of time the alternative is some type of financial buyer. I feel like we offer a really good, at least something they can feel comfortable with, and we try to, as we structured our deals, if you go back and look at our filings, we ask them to usually take on a block of stock, and so that our interests are lined up, and that we're wearing the same jerseys.
As you get into this, you got to find the right people you want to be in business with, and that on a value perspective, they feel like they're getting a fair consideration. We've never done a deal with an investment banker. We've done something every year. I get inundated with proposals. Most of them are just not in the footprint, not really what we do. We've responded to a few and made inquiries. We've never got two foot I don't think we've ever even made a visit. They have an expectation of what this business is worth, and maybe we meet up or maybe just like, "Hey, we really like this about the business, but that might not be a good fit." We've not been successful going that route. Any other questions? Got two minutes and 50 seconds.
For your capital stack and balance sheet, y'all have about $25 million or $30 million on the debt, including the current portion. Is that an ideal amount of debt for y'all as a company, or do you want to bring that down and level further?
We generally are always trying to deleverage until we found the right opportunity to leverage back up. In our situation, our debt now is lower probably in terms of revenue and everything than it's ever been. We feel like we're in a great position to do the next acquisition, and probably debt will play some component of that into the consideration.
Is there any way of issuing additional equity?
Additional what?
Equity. Issuing additional equity.
I would think that we wouldn't be looking to raise equity until we're banging on $1 billion and had the right acquisition or something like that. One thing is we would go to these meetings, and there would always be some look at the balance sheet, and I always felt like that we weren't over-leveraged, but we were kind of on the higher end. Some of our larger shareholders, even when we talked about the capital raise afterward, they're like, "You know what? I always feel like my fear with you guys," and remember, we were $0.16 when I started. "My fear with you guys was always that there was a zero out there at some point, that you'd have the wrong transmission job, and it'd go bad," and you guys felt like that that really took the really far negatives way down.
At least they felt pretty supportive of it. Any other questions? Well, really appreciate you guys coming. We'll be hanging out here at least for a few minutes. If you have any other questions, give me a shout. Thanks.