Williams Industrial Services Group Inc.
Q1 2021 Earnings Call Transcript

Published: 19 May 2021

[Operator:]

Greetings, and welcome to the Williams Industrial Services Group First Quarter 2021 Financial Results . Please note, this conference is being recorded. I will now turn the conference over to your host, Chris Witty, Investor Relations Adviser. You may begin.

[Chris Witty:]

Thank you, and good morning, everyone. Welcome to the Williams First Quarter Conference Call. With me on the call today are Tracy Pagliara, President and CEO; Randy Lay, Senior VP and CFO; and Kelly Powers, President of Operations and Business Development. After Tracy and Randy provide their prepared remarks, we'll open the call for questions. Our first quarter results were issued this morning and a slide presentation is available on the company’s Web site at www.wisgrp.com.

[Tracy Pagliara:]

Thanks, Chris, and good morning, everyone. As expected, our first quarter results reflected lower business activity and less favorable project mix due to a variety of factors we touched on during our last call. Our second half 2020 bookings were lower than planned due to COVID-19 delays and related matters, which directly impacted work levels in Q1. However, the 2021 revenue outlook is still very positive, and we're pleased by the active good environment, as well as loosening pandemic restrictions. I'll speak to that more in a moment. Our gross margin was 10% for the quarter versus 10.4% last year and operating expenses rose slightly to $6.4 million as we invested in business development, personnel and initiatives to win new contracts and strengthen the outlook. We ended the with $460.6 million of backlog but expect this to increase significantly throughout the remainder of 2021, including the anticipated expansion of decommissioning work at Indian Point, New York, which we’ll elaborate on further in a minute. We are also otherwise booking new orders to be converted to revenue this year at the pace projected when we issued our financial guidance. Against this backdrop, we are reaffirming our 2021 financial guidance and backlog expectations as a whole, which I will review later in the presentation.

[Randy Lay:]

Thank you, Tracy, and good morning, everyone. Turning to Slide 5 in the deck. We posted revenue of $60.9 million for the quarter, as Tracy mentioned. Sales fell year-over-year, reflecting a reduction in work at Vogtle 3 and 4 where revenue was $17 million during the period. This is due to overall project timing, partially offset by greater decommissioning work and other business growth. Revenue for the quarter was in line with our expectations as discussed in our 2020 earnings release. And as previously mentioned, this period represents the low point for 2021. Our backlog is building and we're successfully diversifying the business to offset the lower Vogtle levels. Slide 6 shows operating trends for the company. We posted gross profit of $6.1 million or 10% of revenue for the first quarter versus $6.9 million or 10.4% of revenue last year, reflecting changes in project mix. Going forward, we expect margins to trend up and are sticking to our 2021 overall guidance between 11% and 13%. Operating expenses were $6.6 million for the quarter versus $6.4 million last year with a slight increase due to investments in new business development, reflecting a heightened level of bid activity. The operating margin was negative due to the lower revenue but we anticipate operating margins to grow substantially in the quarters to come, adjusted for severance and stock based compensation.

[Tracy Pagliara:]

Thanks, Randy. Turning to Slide 7. I just wanted to reiterate our guidance for fiscal 2021, which we initially announced February 8th. We expect revenue to be in the range of $310 million to $320 million, gross margins of 11% to 13% and SG&A to be 7.75% to 8.25% of revenue. Adjusted EBITDA is forecast to be $16 million to $18 million. Our first quarter results, which were anticipated, do not change our estimated expected outcome for 2021. We believe the company is well positioned to capitalize on future opportunities across our end markets, leveraging ongoing demand for our infrastructure upgrades to grow top line results and improve overall performance. We're bullish about the road ahead and the increasing diversity of our backlog. With our improved financial results, stronger balance sheet and phenomenal resume, we are better positioned to win long term agreements than ever before. Before turning the call over to the operator, let me remind our listeners that we'll be participating in the Sidoti Microcap Virtual Conference tomorrow, May 20th. We will post an updated investor presentation and hope you can participate in the conference. With that, operator, we can open the line for questions.

[Operator:]

And our first question is from Dick Ryan with Colliers.

[Dick Ryan:]

Tracy, it looks like Vogtle revenues were down in Q1 versus a year ago and sequentially. Is this kind of a new normal with those two projects expected to come online over the next 12 to 24 months or was there something in the quarter that was more timing related?

[Tracy Pagliara:]

So I think this is expected as the project goes into its final phases. As you recall, nuclear reactor number three is expected to go online in January or thereabouts. And the second reactor would be later in 2022. So the first quarter, we saw about $15 million less in revenue than we did the first quarter last year. There are things that are going on the site where we think there may be opportunities for us to pick up scope. But overall, the project is going to end. So as more things get completed, generally speaking, there will be less revenue for us at that site.

[Dick Ryan:]

Typically, when those projects come online, I mean I don't think the revenue necessarily drops off. I think you have some lingering or some ongoing project work from them. Is that the case in Vogtle 3 and 4?

[Tracy Pagliara:]

That's our expectation that there will still be cleanup work that would be consistent with, certainly, the last time we were involved in a major construction project like Watts Bar back five, six years ago. And we are still very keen to continue to work for Southern Nuclear and new project work. So I think the combination of the two would certainly give us optimism that we'll continue to be working in some capacity on that site, whether it’s cleanup work relating to the nuclear construction or new project work as we go forward.

[Dick Ryan:]

On Q2 results, I think -- will the outage business kick in again in this June as it did in June of 2019? And if so, can you give us kind of an order of magnitude of the impact that that may bring?

[Tracy Pagliara:]

Well, it'll be comparable to what you saw in 2019. So we're somewhere in the range of $20 million of revenue, in that range.

[Dick Ryan:]

And what's the margin of that business versus some of the other project work?

[Tracy Pagliara:]

Well, there's a blend of work that's being done. Some of it's projects. Some of it's just maintenance. Kelly, why don't you try and explain that a little bit?

[Kelly Powers:]

From a volume standpoint, there is more of the straight T&M, that is at our kind of the lower end of our margin profile. So you look at the blend for the second quarter, that's offset by a lot of project work that's even outside of the outages. So the general outage margin profile will probably be about 9%.

[Dick Ryan:]

And Tracy, I'm not sure if I caught. Did you talk about the amount of wastewater business you booked in the quarter? And kind of what's the -- you talked generics about the strengthening infrastructure build for wastewater. But do you have any numbers behind what you booked in Q1?

[Tracy Pagliara:]

We booked -- just for the Florida office, we booked over $30 million worth of orders. So that’s an all time high point for us one quarter.

[Operator:]

Our next question is from Theodore O'Neill with Litchfield Hills.

[Theodore O'Neill:]

I dialed in late, so forgive me if you've covered this in detail. But do you have any more insight into the Indian Point and timing of that and the scope of the project?

[Tracy Pagliara:]

Well, the Public Service Commission has to meet to formally approve the final license transfer. I believe it's scheduled to do that today. And so in terms of the actual dollar scope, I'm not at liberty to say exactly what that would be. But it will be a 10 year project with three nuclear reactors, so it will be a very significant project for us.

[Operator:]

It looks like we have reached the end of our question-and-answer session. I'll now turn the call back over to CEO, Tracy Pagliara, for closing remarks.

[Tracy Pagliara:]

Thank you, everyone, for participating today. We appreciate your time and interest in Williams and look forward to talking again next quarter or perhaps tomorrow if you're participating in Sidoti. So thank you very much. Take care and be well.

[Operator:]

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.