Williams Industrial Services Group Inc.
Q2 2021 Earnings Call Transcript

Published: 18 Aug 2021

[Operator:]

Greetings, and welcome to the Williams Industrial Services Group Second Quarter 2021 Conference Call. As a reminder, this conference is being recorded. I’d now like to turn the call over to your host, Chris Witty, Investor Relations Adviser. Thank you. You may begin.

[Chris Witty:]

Thank you, and good morning, everyone. Welcome to the Williams Second 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 second quarter results were issued this morning and a slide presentation is available on the company’s Web site at www.wisgrp.com. If you turn now to Slide 2 on the deck, I will review the Safe Harbor statement. During this call, we may make forward-looking statements during the formal discussions as well as during the Q&A session. These statements apply to future events, which are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release and slides, as well as with other documents filed with the SEC. You can find all these documents on our website at www www.sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe these are useful in evaluating the company's performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. When applicable, we have provided a reconciliation of non-GAAP measures with comparable GAAP results in the tables that accompany today's release and slides. Please note that our conversation today will be about continuing operations unless noted otherwise. Starting with Slide 3. I will now turn the call over to Tracy Pagliara. Please go ahead, Tracy.

[Tracy Pagliara:]

Thanks Chris, and good morning, everyone. Our second quarter was one of many accomplishments starting with top line growth. Revenue rose 26% year-over-year to $91.6 million with strong performance across the business. Even as revenue from Vogtle 3 and 4 was down. This was more than made up by higher sales in other areas as Randy will review further in a moment. Suffice to say we are well on our way to meeting our revenue guidance this year, based on our current run rate, backlog and active pipeline. Moreover, our backlog rose over $200 million more than 44% since the end of the first quarter, due to the expansion work at Indian Point and other recent work wins leaving us with a record of $664.4 million. At the same time, we kept operating expenses in line with the first quarter although gross margins were impacted by mix and other factors, including timing, which again, Randy will go over in detail. We posted adjusted EBITDA of $4.9 million. Overall, the company remains well positioned to have a great year due to our current book of business and ongoing demand for our array of infrastructure services, as shown on slide 4. To reiterate, our total backlog is the highest that it has ever been since we began reporting this metric and achievement that underscores our commitment to customer satisfaction, the capabilities of our highly skilled staff, and our ability to win new business across a variety of end markets. As a reminder in April, the New York Public Services Commission approved the transfer of the Indian Point Energy Center to Holtec, including three nuclear reactors. Through our past work and reputation, we're proud to be considered part of team Holtec which was instrumental in securing additional decommissioning work in Indian Point. As you can see from the chart, our business mix continues to evolve consistent with our goal to both share of core nuclear business, and further diversify the company into other attractive adjacent end markets. We have strengthened nuclear with new contracts and fuel storage and decommissioning as well as more projects for utility customers. We also achieved a number of other noteworthy wins during the quarter regarding other end markets, including one of the largest orders in the history of our New York and Jacksonville core office in the energy and delivery, wastewater end markets respectively; two, our first order for natural gas distribution infrastructure replacement work in Connecticut, and three the initial Masters Contract Services work for power distribution upgrades in Florida, a three year project. Our backlog has grown further since the end of the quarter to $684.1 million as of July 31, 2021. And we anticipated being even larger at the end of 2021. We have approximately $200 million of further highly profitable pipeline opportunities of which we expect to book at least another $100 million of orders during the second half. As a reminder, we began the year with over $500 million of highly probable backlog and converted approximately $300 million of that pipeline to backlog year-to-date. Longer term, we're pleased to see the infrastructure build in Washington, making its way through Congress. As I've said in the past, we believe this initiative offers many opportunities for growth going forward. There appears to be plenty of funds to upgrade the electric grid and improve water, wastewater facilities. While the fine print has yet to be revealed, this can only provide positive momentum to wins in the years to come. And we're glad it has bipartisan support. In addition, the American Nuclear Infrastructure Act, another bipartisan bill, introduced by the US Senate in July 2021 supports continued operation of America's existing reactors and sets the stage to deploy advanced nuclear technologies. Against this backdrop, as I'll discuss in a moment, we are in good shape to reach all of our previously announced guidance targets this year. In addition, our cash flow typically picks up in the second half. So we are poised to pay down additional debt and strengthen the balance sheet in the coming quarters. We're on track to do what we said we would this year, post solid top line growth, manage expenses, reduce debt and provide healthy returns to our investors. I'll make a few more comments at the end of the call. But will now hand it over to Randy to discuss our quarterly financial results in greater detail. Randy?

[Randy Lay:]

Thank you, Tracy, and good morning, everyone. Turning to slide 5; we posted revenue of $91.6 million for the quarter as Tracy mentioned, increase of 26% over 2020. Sales rose year-over-year due to higher activity with numerous customers and outage related work. More than offsetting a reduction of Vogtle 3 and 4 where revenue was $18.6 million during the period. We saw an uptick in decommissioning as well as in nuclear maintenance locations undergoing planned outages. We expect similar sales trends for the remainder of 2021. Our backlog as Tracy mentioned is now at record levels as we successfully diversify the business to offset the lower global requirements. Slide 6 shows operating trends for the company. We posted gross profit of $9.4 million or 10.2% of revenue for the second quarter versus $9.4 million or 12.9% of revenue last year, with the change reflecting several factors. Aside from project mix, including a lower amount of Vogtle work, margins were also impacted by the timing of an incentive related to a multiyear contract. While the associated incentive was booked in last year second quarter in the amount of $1.1 million, this year it will be recorded in our third quarter. Going forward, we expect margins to continue trending up and are sticking to our overall 2021 guidance between 11% and 13%. Operating expenses were $6.6 million for the second quarter versus $5.6 million last year, with the increase due to investments in new business development, reflecting a heightened level of bid activity, as well as an increase in salaries and stock compensation expense. The year-over-year comparison also reflects the impact of COVID related expense reductions in the 2020 second quarter. The operating margin was 3% versus 5.2% last year; however, as SG&A is expected to remain relatively flat going forward, we anticipate operating margins to grow substantially in the quarters to come. As an administrative matter, the company is now classified as an accelerated filer and will file its 2021 10-K next year in 75 days that is on or before March 16, 2022. And its 10- Q is in 40 days following the end of each of our fiscal quarters. Also this year as a smaller reporting company in a non accelerated filer, the company has not been subject to the auditor association requirements of Section 404 of the Sarbanes-Oxley Act. However, because of the measurement period results of the second quarter, the company has now met the requirements as an accelerated filer and will become subject to the auditor association requirements of Section 404 of the Sarbanes-Oxley Act when filing the annual report on Form 10-K for the year ended December 31, 2021. I'll now turn the call back to Tracy for review of our 2021 guidance and his closing remarks. Tracy?

[Tracy Pagliara:]

Thanks Randy. Turning to slide 7, I wanted to reaffirm that our guidance for fiscal 2021 remains unchanged. The company initially announced these expectations on February 8, and we are confident that we will attain them. 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 7.7% to 8.25%. Adjusted EBITDA as forecasted to be $16 million to $18 million. I'm pleased that Williams continues to post solid reliable results, and is on the road to drive greater returns. I want to thank all of our employees for the tremendous job they've been doing winning more business and executing in a way that meets our customers expectations. We are upbeat about 2021 and beyond as the company benefits from increasing infrastructure demand, and numerous plans to upgrade the country's nuclear, water, wastewater and electric grid facilities. With that operator, we can open the line for questions.

[Operator:]

Our first question comes from Theodore O'Neill with Litchfield Hills.

[TheodoreO'Neill:]

Thank you. Congratulations on the good quarter. Question, two questions, Randy, first is on the contract incentive is related to the multiyear customer contract that is going to appear in the third quarter of 2021. Is it going to be similar in size to what got booked in the second quarter of 2020?

[RandyLay:]

Yes, that's our expectation, that won't be materially different.

[TheodoreO'Neill:]

Okay. And as you say here you're going to reduce debt of, can you tell us is it -- are you going to reducing it by more or less than 10%?

[RandyLay:]

I'd say that it's probably going -- I mean 10% it's probably a good number of the ADL moved up a bit in the quarter, as you saw on the filings, although we're not very much frankly, as we also pay down the amortization on the term debt. So yes, I'd say that's a reasonable expectation that would sort of be the benchmark, and then we'd depending on where cash flows are, we may in fact do something a little bit more than that, but we'll see where we are as we go through Q3 and Q4.

[Operator:]

Our next question comes from Dick Ryan with Colliers.

[DickRyan:]

Thank you. Hey, Randy, will there be any outage work hanging over into Q3? Or was that pretty much just all Q2 event?

[RandyLay:]

Q2 event, pretty much done.

[DickRyan:]

Okay. And then, Tracy, the delays or push outs of Vogtle 3 and 4, how is that -- how are you kind of handicapping that within your guidance that you've provided?

[TracyPagliara:]

It's incorporated in the guidance. I mean we think that we're obviously committed to Southern and back door site to meet all their stated timelines. As the project gets moved out, we tend to pick up more work. So there we think it's in there that would potentially provide a little bit of upside, but right now, we're -- it's incorporated in the guidance as we've given it.

[DickRyan:]

The orders obviously, Indian Point was the biggest factor there. What else in Q2 and then so far in July? What other sorts of projects have you booked?

[TracyPagliara:]

It's been water. In terms of what we -- if we look at the original $500 million and the $300 million of high profitability that we booked? It's energy delivery, it's natural gas distribution and it's some more nuclear. And it's Canada nuclear. So it's a pretty broad spectrum of crossing markets of other orders besides just the Indian Point.

[DickRyan:]

Okay, one last thing. You mentioned Canada, with Canada starting to reopen, what's the outlook up there and kind of the pipeline of bidding opportunities that you might have going forward?

[TracyPagliara:]

We're definitely more optimistic than we were I mean, but Canada was essentially has been very, very slow. So we see some, definitely see some opportunities in the pipeline, and continue to believe that Canada will be one of our strongest markets going forward.

[Operator:]

Our next question comes from John Walthausen, a Private Investor.

[UnidentifiedAnalyst:]

Yes. Good morning and congratulations on a good quarter. I was curious about the Indian Point work, at what point do we start seeing that go through revenues? And is there something that we should understand about the way that profits will be recognized on network?

[TracyPagliara:]

We're already starting to work, do work. And there's nothing particular about how the profits will recognize revenue, the way we recognize revenue, another time and material work. And to the extent that there's lump sum work, blended in with other projects would be on the same revenue recognition standpoint. Kelly, do you have anything further to elaborate about that?

[KellyPowers:]

Yes, what I would say is, like you said, we're already doing work, and we're ramping up. Things continuously over, say, the next three months to be prepared to have a volume of work by the end of this year and through the next two years. It's -- we don't start the older path the fuel canister movements on this site until next year, and that's where we'll be at peak volume, it will be next year.

[UnidentifiedAnalyst:]

Okay, that's helpful. And is this primarily cost plus or there are incentives for performances, particularly meaningful part of this work and complexity?

[KellyPowers:]

Yes, I mean, it's primarily cost plus, yes.

[TracyPagliara:]

It's primarily cost plus, yes.

[UnidentifiedAnalyst:]

Thanks.

[TracyPagliara:]

Occasionally, we will get additional project work that will be fixed price or target price where we'll have incentives to earn better margin, but primarily cost plus.

[Operator:]

At this point, there are no other callers in queue. So I'd like to turn the call back over to Mr. Pagliara for any 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. In the meantime, take care of yourself and be safe. Have a good day. Thank you.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation.