Williams Industrial Services Group Inc.
Q4 2020 Earnings Call Transcript

Published: 31 Mar 2021

[Operator:]

Greetings. Welcome to Williams Industrial Services Group Fourth Quarter and Full Year 2020 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I'll turn the call over to Chris Witty with Investor Relations Advisor. Chris, you may now begin.

[Chris Witty:]

Thank you and good morning, everyone. Welcome to the Williams' fourth 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 fourth quarter results were issued this morning, and a slide presentation is available on the company's website at www.wisgrp.com.

[Tracy Pagliara:]

Thanks, Chris and good morning, everyone. Before I begin the formal part of our earnings call, I want to take a brief moment to remember Charles “Mac” Macaluso, the former Chairman of our Board of Directors who passed away on February 22nd, 2021. Mac left a lasting imprint on the company during his 13 years as our Chairman. He also had a huge impact on the lives of those who had the privilege and blessing to work with him. We will miss Mac as we advance our mission to achieve Williams' goals. The year 2020 was an unusual time due to various pandemic challenges and related economic uncertainty. Nonetheless, Williams met its financial guidance in all material respects, and continue to execute its strategic initiatives. Full year revenue rose to 26 - $269.1 million, just below $270 million, the low end of our expectations, but an increase of 9.5% versus 2019. Unfortunately, COVID-19 made it difficult at times, to win new customers, to better start new projects and to complete work on pending job sites. However, we're proud of how well we performed in this environment. And I want to thank our employees and partners for their dedication and diligence in meeting our customers' expectations during the year.

[Randy Lay:]

Thank you, Tracy and good morning, everyone. Turning to Slide 11, we posted revenue of $64.1 million for the quarter as Tracy mentioned. Sales fell slightly year-over-year, reflecting $3.3 million of higher revenue from Canadian nuclear contracts and a $1.7 million increase related to decommissioning work, offset by a $9.7 million reduction in revenue tied to the Vogtle 3 and 4 nuclear project. Again, for the year 2020, we posted revenue of $269.1 million as composed to - as compared to $245.8 million in 2019 for an increase of 9.5%. As we worked on our Vogtle backlog, the company is successfully building our business in other business in order to take the place of the Vogtle backlog. Slide 12 shows operating expense trends for the company. We posted gross profit of $9.1 million or 14.2% of revenue for the fourth quarter versus $9.1 million or - 13.6% of revenue last year, essentially making the same profit on the lower revenue base. The 2020 quarter benefited from improved product mix and was the highest gross margin period of the year. We expect to continue to report solid margins in the coming quarters with our 2021 overall guidance between 11% and 13%.

[Tracy Pagliara:]

Thanks, Randy. Turning to Slide 14, I wanted to reiterate our guidance for fiscal 2021, which we 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. As a reminder, the first quarter will be our lightest for 2021 consistent with prior years. Williams is recognized as a reliable customer-focused and experienced infrastructure construction and maintenance services company. We have a diversified backlog with blue chip customers in robust energy and industrial sectors, good cash flow enhanced by large net operating losses, loss carry forwards and limited capital expenditure requirements and minimal warranty and receivable collection exposure. Our utility and municipality customers require ongoing infrastructure maintenance and improvements during recessionary cycles, and their capital projects typically are completed during economic downturns. Thus, we continue to believe that any residual impacts from the pandemic will not have any significant long-term adverse consequences on the business.

[Operator:]

Thank you. We'll now be conducting the question-and-answer session. Thank you. Our first question is coming from the line of John Walthausen with Walthausen & Company. Please proceed with your questions.

[John Walthausen:]

Yes, good morning. Good job guys. I appreciate that. Had a couple of quick questions. One, you pointed - the working capital improvement was pretty dramatic in the quarter, you pointed out that it's a continuing effort. Can you talk about why you expect to be able to do that? Is that because you've been able to modify the contracts in a more favorable payment term? Or what are we seeing like gives that opportunity?

[Tracy Pagliara:]

Randy, do you want to take that?

[Randy Lay:]

Sure, I'd be happy to. I think it's a combination of a couple of things. One is, we, in 2020 and continuing as the company's financial performance has continued to improve, we've worked hard with our vendors and our operating organization and our procurement team to achieve vendor terms that were consonant with the state of the business and its improved performance and that was very successful in 2020. And as on an ongoing basis, I think we have a much better foundation for negotiation. So that's part of it, getting that side squared away. And then we worked particularly with our major customers from a receivable standpoint to just ensure that, you know, a few days on a significant amount of money with some of our larger customers makes a big impact on our working capital. So we've worked that. I think broadly, what you're seeing is, because of the efficiency in which we drop earnings down to cash flow, once you clear away some of the, you know expenses that really were associated with getting the company to the point it is today. You know minimal CapEx relatively speaking, you've got from a cash tax standpoint, you have significant net operating losses going forward. And so what that should translate into and did in the quarter and we expect as we look at the business over the long-term that will continue to translate into taking cash to de-lever. So that's really the biggest piece of it. You know also, a portion of this Vogtle 3 and 4 being a very big portion of the backlog that could drive a significant result on both the AP side and the AR side. So as that moves down and we get into a more diverse customer mix, relative to our total revenues and backlog that also contributes to the improvement.

[John Walthausen:]

Yeah, thank you very much. If I may, a follow-on question. You pointed out that you expected that the first quarter to be the lightest quarter of the year as is typical - typical year particularly if we go back to '19, the second quarter is the heavy one. Is that - do you expect that or there are more comments that you can provide about the trend of quarter-to-quarter of which ones will be the -

[Randy Lay:]

Sure. I think you've got the essence of that. And we would expect in the second quarter, given some of the activity that we're involved in, that we would expect the second quarter to be, you know, significant, maybe between the second and third quarters probably the most significant quarters of the year. So the first quarter as we ramp up that you know, again, I think it's consistent with it being a light quarter, as we've seen in previous years, but certainly the second and to some extent as well the third quarter will be substantial quarters.

[John Walthausen:]

Good. Thank you very much.

[Randy Lay:]

You're welcome.

[Operator:]

Thank you. The next question comes from the line of Dick Ryan with Colliers. Please proceed with your questions.

[Dick Ryan:]

Thank you and congratulations on such a dramatic turnaround guys over the last couple of years. It's pretty impressive. And to say, Tracy, if I could talk a little bit about or ask a question on Canada. I'm assuming things are still pretty closed down up there. What's the outlook for maybe Canada opening up? And I think there were maybe up to six refurb - projects up there. Can you kind of give us a state of the activity you're seeing in Canada and how that flows into this potential $500 million of orders?

[Tracy Pagliara:]

Sure. Thanks, Dick. We see Canada that's started the year off from slow, a little bit slower than the rest of our end markets. But we see it picking up here into the second quarter. There's very good opportunity for us with our professional services agreements in Canada, but we also, there are some construction maintenance project type work that we see being bid this year finally that were delayed last year. So we think as the year progresses, Canada gets to be a more robust market for us.

[Dick Ryan:]

Okay, okay. When you look at, you know, over the years, you had some challenges with either maintaining or gaining any new LTA agreements. How does that look at this point in time, given your restructuring?

[Tracy Pagliara:]

Well, we've - we haven't added any new LTA agreements in the nuclear space other than we did, you know, get the renewal of long-term renewal of the Energy Northwest contract a couple years ago, but that's definitely a target area for us. And we are more optimistic now than we've been in years that we have the right circumstances in the business to be in a position to win one or more of those. You know I can't put a date stamp on when that might be, but certainly we keep track of when those contracts come up for renewal. And we feel pretty good about our prospects.

[Dick Ryan:]

Okay. When you look at the pipeline, the $500-ish million, is any of that driven yet by the administration's effort for new infrastructure building. I guess that was the new wastewater contract of $30 million in Q1 is pretty impressive. Has any infrastructure potential kind of flowing into that pipeline yet?

[Tracy Pagliara:]

Not so far actually that's just with the, you know, the, without any stimulus associated with the infrastructure. You know, there's a lot of, you know, independent of what the administration does. We have great opportunities there. But we think there'll be even greater opportunities if what we're reading about what President Biden is going to apparently announce today, there'll be hundreds of billions of dollars for the nation's electrical grid and water, drinking water infrastructure. So we would expect our business will benefit from that, but today, not yet since it's still not been announced.

[Dick Ryan:]

Okay. Okay, great. Again, congratulations. Thank you.

[Tracy Pagliara:]

Thank you.

[Operator:]

Our next question is coming from the line of Theodore O'Neill with Litchfield Hills Research. Please proceed with your question.

[Theodore O'Neill:]

Hi. Just a quick question. What's driving your success in winning this wastewater business?

[Tracy Pagliara:]

We have an office in Jacksonville, Florida and we have a couple of years ago put new leadership in charge of that office. We improved our performance dramatically, our safety - including safety. Last year was the first year that that office did not have a recordable safety incident and I don't know how many years, but it's - I think the first time we had never had a safety recordable in 12 months. So it's just our reputation precedes us and we have made a concerted effort to extend outside of our main customer's footprint, which is JEA and we now have - we had one customer primarily when, you know in 2019, now we have over 6, and we continue to bid for new work in the rest of Florida and now most recently in Houston we're bidding for wastewater work in Houston.

[Theodore O'Neill:]

Thank you.

[Operator:]

Thank you. Thank you. There appear to be no further callers in the queue. So I'll turn the call back to Mr. Pagliara for his 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, be safe and well and I hope you enjoy Happy Easter and continued good health. Take care. Thank you.

[Operator:]

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