Williams Industrial Services Group Inc.
Q4 2021 Earnings Call Transcript

Published: 17 Mar 2022

[Operator:]

Greetings and welcome to Williams Industrial Services Group Fourth Quarter and Full Year 2021 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Witty, Investor Relations. Thank you. You may 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; and Damien Vassall, Vice President and CFO. After Tracy and Damien provide their prepared remarks, we'll open the call for questions. Our fourth quarter results were issued yesterday afternoon and a slide presentation is available on the company's website at www.wisgrp.com. If you now turn to Slide 2 of our presentation, I'll briefly review the Safe Harbor statement. This conference call may include forward-looking statements that represent the company's expectations and beliefs concerning future events that involve risks and uncertainties and may cause the company's actual performance to be materially different from the performance indicated or implied by such statements. All statements -- other than statements of historical facts included in this conference call are forward-looking statements. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the company's expectations are disclosed in this conference call as well as with the other documents filed with the SEC. You can find all these documents on our website or at www.sec.gov. During today's call, we will also discuss non-GAAP financial measures. We believe these are useful in evaluating the company's performance. However, you should not consider this additional information in isolation or as a substitute for results prepared in accordance with GAA, when applicable, we have provided a reconciliation of non-GAAP measures with comparable GAAP results in the tables that accompany today's press release and slides. Please note that our conversation today will be about continuing operations unless otherwise noted starting with Slide 3. I'll now turn the call over to Tracy Pagliara. Please go ahead, Tracy.

[Tracy Pagliara:]

Thanks, Chris and good morning, everyone. A lot has happened since we last spoke and the team and I are optimistic about the evolving landscape and outlook for 2022. But first, let me discuss how we ended 2021. Williams posted fourth quarter revenue of $79.2 million, up significantly year-over-year. And overall, revenues for fiscal 2021 rose to $305 million from $269 million in 2020. We also posted a gross margin of 11.6% for the quarter and 10.3% for the year, and operating expenses of $6.8 million for the quarter, $24.5 million for 2021 in total. Adjusted EBITDA was $3.6 million for the quarter and $12.7 million for the year. While these metrics were within our revised guidance, they are not where we want to be but rather reflect the factors I spoke about last quarter, including operating losses on projects in our Florida business and contract delays regarding the key Canadian nuclear contract. In early 2022, the company then announced a tail to renew the subject Canadian contract. And separately that certain nuclear decommissioning work at three sites worth approximately $360 million of backlog through 2029 have been transferred to a competitor. As previously noted, the loss of the decommissioning business does not materially impact any particular year, including 2022. In addition, it was not high margin in nature. We began the year with roughly $271 million of backlog. While this is obviously materially lower than last quarter, it still leaves us in solid shape to meet our guidance for 2022. We also believe there are numerous opportunities to grow our backlog and accelerate the top line this year. After uplifting to the New York American Stock Exchange in 2021, we began a comprehensive review of our organization to determine whether we had the right people and structures in place to advance our core values and meet our goals. As a result and to address issues faced over the year, we reorganized and upgraded our leadership team in November and enhanced our business development focus and operating rigor. The company is also in the process of implementing new systems to streamline and strengthen the organization. In summary, Williams has addressed the root causes behind our operating and contract losses and is now poised to deliver good performance going forward with extensive opportunities to scale the organization in the future. Turning to Slide 4. I'd like to discuss the outlook a little bit further. As I just mentioned, our adjusted year-end backlog stood at approximately $271 million. However, on top of this backlog, we're bidding on significant additional work currently in the pipeline. Some investors have recently wondered how we can make our current revenue guidance when the backlog is off as lower than this target. To this, I just want to clarify two things. First, the previously reported backlog had a significant percent of revenue to be recognized in future years such that the impact of the decommissioning losses in 2022, as I mentioned, is small, only about $30 million. Second, we always have a meaningful portion of revenue in a given year that is actually won and booked within the 12-month period. In other words, there is nothing unusual about the amount of unbooked backlog and our anticipated total 2022 revenue. We're actually very excited by the opportunities on the horizon, including the 2021 infrastructure investment and Jobs Act. This, along with the expanding economy and overall demand for our services in general lead us to be bullish about the future. There are multiple paths to grow our business based on the industries we serve, the investments in infrastructure being planned and our diversified blue-chip customer base. Williams reputation remains second to none and we will continue to leverage our experience and relationships to penetrate new clients, expand business with existing ones and pursue higher-margin growth opportunities. I have more comments at the end but we'll now hand it over to Damien to discuss our quarterly financial results in greater detail. Damien?

[Damien Vassall:]

Thank you, Tracy and good morning, everyone. Let's review the financials in greater detail. Turning to Slide 5. We posted revenue of $79.2 million for the quarter, as Tracy mentioned, an increase of 24% over 2020. Sales rose year-over-year due to higher levels of work across numerous end markets, particularly decommissioning and nuclear maintenance. Revenue from Plant Vogtle 3 and 4 was approximately $14.8 million during the period, slightly less than Q3. Even with the recent loss of several decommissioning projects, we expect growth within the nuclear segment to continue. As Tracy discussed, our backlog remains solid and we're continuing to diversify the company to offset lower plant and Vogtle requirements going forward. Slide 6 shows operating trends for the company. We posted gross profit of $9.2 million or 11.6% of revenue for the fourth quarter versus $9.1 million or 14.2% of revenue last year. The lower gross margin reflects project mix including West plant global work, along with the ongoing impact of several previously announced fixed price projects in Florida which experienced cost overing last year which now report on a 0 margin basis. Going forward, we expect margins to remain under pressure but will improve as the year progresses. Operating expenses were $6.8 million for the quarter versus $6.5 million last year with the increase primarily due to higher SG&A costs. Our operating margin was 3.1% versus 4% last year. As always, we're assessing areas to further streamline overhead expenses and improved bottom line results going forward. I'll now turn the call back to Tracy for a review of our '22 guidance and his closing remarks. Tracy?

[Tracy Pagliara:]

Thanks, Damien. Slide 7 sets forth the 2022 guidance that we first provided in January. We envision revenue of between $305 million and $325 million and expect to post gross margins between 10.5% and 11%, including the impact of changing project mix and the 0 margin contracts, Damien discussed. While keeping a tight lid on costs, we anticipate SG&A to be 8.75% to 9.25% of revenue, largely due to some critical investments in upgrading our IT systems, both ERP and HR. Without those investments, SG&A would be between 8.25% and 8.75%. Reflecting all the aforementioned items, our adjusted EBITDA forecast is between $10 million and $12.5 million. Williams was clearly tested during recent challenges associated with certain operating and contract losses but our persistence in pursuing our strategic plan, the DNA for the entire organization helped sustain us to every tumultuous period. I am optimistic that the company is now better positioned for future success. The management and structural changes announced in November have made Williams a more growth-oriented enterprise with greater focus and discipline regarding operational execution. We are also yielding in our quest to constantly upgrade the key areas of our organization, safety systems and leadership among them. Williams has the right people in the right place with the fortitude to succeed. With the new team, systems and controls employees, we stand prepared to execute in 2022 and beyond. My belief in Williams and his vision for the future remains steadfast and we are grateful to our loyal stockholders who continue to support us as we move forward into the next phase of our growth story. With that, operator, we can open up the line for questions.

[Operator:]

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. Our first question comes from the line of Theodore O'Neill with Litchfield Hills Research. Please proceed with your question.

[Theodore O'Neill:]

Thank you very much. I have two questions, just looking over the K this morning. It says you're going to be exiting the Canadian market and I was wondering if you expect any meaningful savings or will those assets be redeployed elsewhere?

[Tracy Pagliara:]

It was pretty much a self-contained operation. There wasn't a lot of SG&A related to it in the U.S. business. So I don't expect a lot of savings. And we didn't -- we just had some offices up there. So in terms of redeploying assets our assets or our people essentially. So I don't see that either. Damien, you may have additional thoughts.

[Damien Vassall:]

No, I agree with that, Race. We have minimal operating expenses there and it was primarily our people which generated the revenue. So nothing further to add.

[Theodore O'Neill:]

Okay. The other thing that caught my eye was that you talked about the analog to digital factory control conversions and I was wondering if you could give us some insight into the opportunity you see there?

[Tracy Pagliara:]

There's a very significant opportunity for that. For example, Southern is in the midst of a multiyear digitalization upgrade and we know we have a piece of that work. So we're pretty excited about it. It's -- those are $100 million-plus projects over again. I don't know -- remember the exact amount of the Southern project as we sit here but it's very significant.

[Theodore O'Neill:]

Okay. Thanks very much.

[Operator:]

Our next question comes from the line of Julio Romero with Sidoti & Company. Please proceed with your question.

[Julio Romero:]

Hey, good morning. I was hoping to dive a little deeper into the revenue opportunities that you mentioned, how you're thinking about replenishing the backlog, if you could talk about opportunities by end market? And maybe specifically which ones are highest probability to convert to new awards over the next 12 months?

[Tracy Pagliara:]

Sure. We've got -- we have what we consider for 2022, our unweighted pipeline is over, is about $178 million. We think the weighted pipeline is just for '22, it's the total weighted pipeline is $400 million but just focusing on $22 million the weighted pipeline is $70 million. Of that, more than half of it is going to be in nuclear and we have some opportunities in our water business. It's pretty much evenly about evenly split in the rest of the end markets. So energy delivery water, chemical, although we do have a pretty significant this year opportunity in chemicals over $10 million of that would be chemical and then Pulp and paper would be about the same as the water and the energy delivery.

[Julio Romero:]

Okay. I appreciate that. That's helpful. And maybe I don't know if you can talk about some of the T&D projects that I think you've talked about over the last couple of quarters and how bidding trends are going in that sector?

[Tracy Pagliara:]

Trending well. We're doing work Eversource. We're looking at adding more crews throughout the year as we are with TECO down in Florida, Tampa Electric. So we're further along with Eversource because we started in the beginning of 2021. So I think we're looking at having about 10 crews by midyear and with Tampa Florida electric, to five crews standing if you've got better information pipe in. But the crews are continue to do very well with the customer. We're getting good feedback and we're seeing it's a very high growth area for us with margins in the range of 15% to 20%. So we're pretty excited about it.

[Julio Romero:]

Okay. And then maybe just last one for me is just on the OpEx spend. You mentioned some critical investments you're doing in '22 in ERP and HR. Do you think that kind of recurs in '23? Or do you see maybe OpEx reverting beyond this year? Just talk about how you see normalized OpEx spend maybe beyond this year?

[Damien Vassall:]

Yes. Let me take that, Tracy.

[Tracy Pagliara:]

Go ahead.

[Damien Vassall:]

As far as the OpEx spend, you're right. So we've talked about some investments back into the business, specifically with our ERP. We fully expect to complete this project and the integration in 2022. So with that, the -- those savings, would see those into 2023 as these expenditures would not repeat.

[Julio Romero:]

Got it. Thanks very much for taking the questions.

[Operator:]

Our next question comes from the line of Dick Ryan with Colliers. Please proceed with your question.

[Dick Ryan:]

Thank you. Hey Tracy, beyond the decommissioning work, just kind of wondering about the fluidity of it. Can you discuss the reasoning of the customer, the partner of the 360 going elsewhere and also in the current backlog of $271 million it looks like there is still a fair chunk of decommissioning work there. Is that at risk as well?

[Tracy Pagliara:]

I'll take the second one first. We're still doing the operating plant fuel movements for that customer. So we have no reason at the current time to believe that's in risk -- at risk continue to get more orders. The business we lost is -- relates to the non-operating plants where they're actually -- they're taking the plants, disassembling the plants, that -- the customer made a decision not based on our performance to just move that business to a competitor. One of our former employees went to a -- couple of our former employees into work with that competitor and they want to -- the customer decided to move the business to the competitor. So that's about as much as we can say about that.

[Dick Ryan:]

Okay. Looking at the Florida contract, the loss there, how long will that be a drag?

[Tracy Pagliara:]

Damien, can you take that?

[Damien Vassall:]

We expect that to run through late Q3, early Q4. That's been reflected in our guidance. We do have -- that -- those projects are costing us for approximately 90 basis points on our gross margin simply because we're generating revenue with 0 gross margin on those projects. So we expect it to run through this year but they will largely be completed in 2022.

[Dick Ryan:]

Okay, thank you.

[Operator:]

There are no further question -- we do have a question from John Deysher with Pinnacle. Please proceed with your question.

[John Deysher:]

Good morning, Tracy and Damian. It sounds like we have a lot to be hopeful for in 2022. Just a couple of quick questions. In the backlog of revised backlog of $270 million, how much of that is Vogtle?

[Tracy Pagliara:]

Damien, do you have that handy?

[Damien Vassall:]

Yes, I believe that there's about specifically for 2022, I believe there's about $35 million to $40 million in there but I needs to verify that number.

[John Deysher:]

$35 million to $40 million, because it was, I think, about $31 million at the year-end a year ago. So it's actually going up?

[Tracy Pagliara:]

Yes. We're picking up -- John, we're picking up more work as the site starts to get closer to the finish line. We are actually picking up more. We've been picking up more work the last several months. So we're in good shape at Vogtle.

[John Deysher:]

Okay. So it was $34 million to $35 million, you think?

[Damien Vassall:]

Yes. $35 million to $40 million, I'll verify the number but it's going to be in that range.

[John Deysher:]

Okay, all right. That's good news. The one of the priorities on the slide deck was reducing debt. And I was just curious how much do you think you might be able to reduce debt by a year from now?

[Tracy Pagliara:]

Yes. So the way I look at our debt or debt situation is that, well, obviously, it runs through -- the debt runs through December FY '26. As we generate excess cash flows, those cash flows would be earmarked to reduce the debt levels on our term loan. So I don't want to sit here and today, say a specific number of percentage but it is a priority for us to reduce those debt levels as we generate excess cash.

[John Deysher:]

Okay, all right. And I guess the other question is on the K in the personnel section, it looked like head count was up significantly, both at the corporate level and the craft level. And I'm just wondering, has that come down at all given the contract losses or -- is that still the same today because you're anticipating much more business? Or how should we think about that?

[Tracy Pagliara:]

Yes. So from a corporate office perspective, our headcount is approximately the same -- actually, it's down slightly. But the way you should think about it is as it relates to our craft labor, think of that as variable head count. So as we've exited the Canadian market and are moving away from the decommissioning loss contracts, the craft labor head count is going to come down. It will go back up as we bring on additional backlog. So that labor force is variable for us. If we do not have the work, we do not carry the labor.

[John Deysher:]

Okay. But back to the corporate, I mean, it was 572 people at the end of the year versus 460. Why the big jump given that revenues were only up slightly?

[Tracy Pagliara:]

Yes, just a point of clarification. Those numbers that you referenced, referencing those aren't entirely corporate folks. We have -- those numbers include our project in site management, the folks who are actually on the ground at these various job sites overseeing those projects. There is some correlation as revenue has gone up. You would expect the staff last headcount will increase but that's something that we're looking at to make sure that we're in line with our expected revenue generation.

[John Deysher:]

Okay. All right, good . I think that does it for me. Good luck going forward.

[Tracy Pagliara:]

Thanks, John.

[Operator:]

There are no further questions in the queue. I'd like to hand the call back over to Mr. Pagliara for closing remarks.

[Tracy Pagliara:]

So I just want to issue a clarification on an earlier question, we're projecting $10 million, $5 million crews for Eversource by the third quarter and three man crews for TECO by the third quarter. And my numbers were a little bit off earlier. So, I just want to thank everyone again for participating today. We appreciate your time and interest in Williams. Look forward again to talking next quarter. Take care and be well. Thank you.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.