Williams Industrial Services Group Inc. (AMEX:WLMS) Q4 2022 Earnings Call Transcript

Williams Industrial Services Group Inc. (AMEX:WLMS) Q4 2022 Earnings Call Transcript April 3, 2023

Operator: Good day, and welcome to the Williams Industrial Services Fourth Quarter 2022 Financial Results Conference Call. All participants will be in a listen-only mode. . After today’s presentation, there will be an opportunity to ask questions. . Please note this event is being recorded. I would now like to turn the conference over to Chris Witty, Investor Relations Advisor. Please go ahead.

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, EVP and COO; 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 Friday afternoon and a slide presentation is available on the company’s Web site at www.wisgrp.com. If you now turn to Slide 2 in our presentation, I’ll 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 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 other documents filed with the SEC. You can find all these documents on our Web site or at 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 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’ll now turn the call over to Tracy Pagliara. Please go ahead, Tracy.

Tracy Pagliara: Thanks, Chris, and good morning, everyone. Williams posted fourth quarter revenue of 55.8 million compared with 79.2 million in last year’s comparable period. As previously discussed, while dealing with lower nuclear and decommissioning work, we also encountered delays converting pipeline to revenue in 2022. That said, things are looking better for 2023 as I’ll review in a minute. Our gross margin was negative for the quarter, reflecting the issues associated with our Florida water business as well as costs tied to expanding in the transmission and distribution markets. Without such expenses, our adjusted gross margin was 12.5%. Operating expenses were 7 million this quarter, roughly in line with last year. Due to the lower revenue and negative margins, Williams had an adjusted EBITDA loss for the quarter of 7 million versus adjusted EBITDA of 3.6 million in 2021.

At the end of the quarter, the company’s backlog stood at roughly 333 million. Putting 2022 behind us, Williams is starting to benefit from cost cutting activities, the closure of non-core assets and improved revenue margin and adjusted EBITDA growth. In addition, we continue to work on assessing strategic alternatives, as I’ll discuss more in a moment. Now turning to Slide 4, I’d like to provide a bit more color regarding our operations and outlook. As I just mentioned, the first quarter of 2023 is already proving to be better in terms of overall financial performance than the prior year period. Major customer projects have improved our year-over-year revenue comparison and even surpassed original expectations, with revenue through February of approximately $65 million.

In addition, excluding our underperforming businesses, water, transmission, distribution and chemical, which we are in the process of exiting, our gross profit through February was approximately 7.5 million or 12.8% of revenues and our adjusted EBITDA was approximately 4.5 million. We are aggressively reorienting the company to target the most profitable markets and withdraw from non-core businesses, transforming Williams into a leaner, more focused enterprise with higher margins and better bottom line results. At the same time, the company continues to explore all strategic options to further improve our operating outlook and unlock value for our shareholders. While we cannot provide detailed specifics at this time, the process, including working with Greenhill, already makes us comfortable about the future of Williams.

In the interim, we are also working diligently with our existing lenders to ensure that we have the necessary liquidity to achieve our near-term goals. With that, I’ll hand over the call to Damien to discuss our quarterly financial results. 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 $55.8 million for the quarter, as Tracy mentioned, versus $79.2 million in 2021. Sales fell year-over-year primarily due to lower nuclear and decommissioning work, while revenue for Vogtle 3 & 4 was approximately 16.3 million during the period. Given demand trends and government spending priorities as well as a solid backlog and pipeline, we remain optimistic about potential growth in 2023. Slide 6 shows operating trends for the company. We posted a gross loss of 1.7 million for the quarter versus gross profit of 9.2 million last year. This performance reflects project mix, including the ongoing impact from T&D investments and the previously announced projects in Florida operating at a loss.

Excluding such startup costs and the Florida work, our gross margin would have been 12.5% for the quarter versus 11.6% last year and our adjusted operating loss would have been approximately $400,000. We expect margins to improve as we near completion of certain projects and exit non-core businesses, as Tracy discussed. Operating expenses were 7 million for the quarter versus 6.8 million last year. We continue to target streamlining initiatives to reduce expenses going forward and improve underlying operating results. With that, operator, we can open the line for questions.

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Q&A Session

Operator: We will now begin the question-and-answer session. . Our first question today comes from Julio Romero with Sidoti & Co. Please go ahead.

Julio Romero: Thanks. Hi. Good morning. Thanks for taking my questions. On your March 2 press release, you talked about your performance through that date in 2023. Revenue was trending higher year-over-year at that point. Can you just speak to if that’s still the case today? In other words, did revenue through March grow year-over-year compared to the first quarter of ’22?

Damien Vassall: Yes, I’ll take that one, Tracy. Julio, thanks for the question. So, as Tracy mentioned, Q1 of this year is coming in strong. The early indication of March results in 2003 mirrors the trend that we’ve seen for the first two months. So in comparison to Q1 of last year from a volume perspective, it will be much stronger from what we saw a year ago this time.

Julio Romero: Okay, that’s very helpful. I appreciate that. Just turning to the backlog, can you maybe talk to order trends through the first three months of the year and how that’s been looking as we stand here today?

Damien Vassall: Yes, so I’ll point to what we’re seeing. We’re seeing decent orders come through in the first quarter. Our pipeline remains robust. We’re in the process of executing on some pipeline opportunities to convert those to backlog.

Julio Romero: Okay, great. And maybe touching on the balance sheet, if you could just talk about the liquidity of the company as it stands today and maybe how much availability do you have today to tap on the revolver and on the delayed draw downs?

Damien Vassall: I won’t speak to the precise liquidity numbers, as we sit here today. However, I will say that our lenders have continued to be supportive of the business through liquidity support. The relationship remains strong and they are supportive of the company.

Julio Romero: Very good. And then if I could squeeze one more in, if you could for modeling purposes give us a sense of what GAAP interest expense dollars should look like this year?

Damien Vassall: Yes, so we’re expecting GAAP interest to be in the $5 million to $5.5 million range for ’23.

Julio Romero: Okay. I’ll hop back in the queue. Thanks very much for taking my questions.

Damien Vassall: Thank you.

Operator: The next question comes from John Deysher with Pinnacle. Please go ahead.

John Deysher: Good morning, everyone. Thanks for taking my questions. Starting off, could we get a little more detail in terms of the Florida water projects and the TD startups? I think the last time we spoke you indicated that some of the unprofitable Florida project contracts would spill over into 2023. Where are we with that? And when will those unprofitable projects be off the books completely?

Tracy Pagliara: Randy, you want to take that?

Randy Lay: Sure. So we have 15 active projects in Florida excluding some ongoing relationships that are in related businesses for water. Of those, we expect that by the time we exit Q2 or pretty closely around, John, we’d be down to about five active projects and those will drop off as we go into Q3. And with the exception of one project that we expect final completion of will drop off in the first part of 2024 just as we wrap up that project. So that’s the array. So we’re expecting substantial completion of a good number of projects in the first half of 2023. And then in the balance of 2023, we’ll expect the others to be done with the exception of one.