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spk04: Hello, and welcome to the Williams Industrial Services Group first quarter 2022 financial results conference call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Chris Witte, Investor Relations. Please go ahead.
spk03: Thank you, and good morning, everyone. Welcome to the Williams First Quarter Conference Call. With me on the call today are Tracy Palliera, President and CEO, Randy Lay, Executive Vice President and COO, and Damian Vassell, Vice President and CFO. After Tracy and Damian provide their prepared remarks, we'll open the call for questions. Our first quarter results were issued yesterday afternoon, and a slide presentation is available on the company's website at www.wizgroup.com. If you'd like to turn to slide two in our presentation, I 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 can 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 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 will provide 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 noted otherwise. Starting with slide three, I'll now turn the call over to Tracy Palliera. Please go ahead, Tracy.
spk01: Thanks, Chris, and good morning, everyone. Thank you for joining our call today. Williams posted first quarter revenue of $69.6 million, which, while up 14% year over year, was down sequentially from Q4 due to normal seasonal patterns. As we previously said, our first quarter typically reflects reduced business levels related to slower activity to start the year. We posted a gross margin of 8.2% for the quarter, reflecting continued challenges from our Florida water business and startup costs associated with new locations to serve our energy delivery and market. Damien will speak a little bit further about gross margin in a minute. Operating expenses declined to $6.5 million, which included $700,000 of litigation expense. As previously discussed, these legal fees and costs are tied to action being taken against a former employee and competitor relating to the wrongful loss of Williams' business. Reflecting all these factors, adjusted EBITDA was $100,000 for the quarter. We finished the period with $257 million of backlog, which includes $38 million of new contract wins. As I'll discuss in a moment, we expect greater award activity in the months to come, and in addition, are reiterating our guidance for fiscal 2022. Now turning to slide four, I'd like to discuss the state of the business and current outlook. While it's been a relatively short period of time since reporting Q4 results, a few things have changed that positively altered the landscape going forward. In March, Congress and the administration finally passed the $1.5 trillion omnibus spending bill for fiscal 2022, thus ending months of operating in their purgatory under continuing resolution, which slowed decision-making and stymied implementation of programs outlined under the 2021 Infrastructure Investment and Jobs Act. The Multi-Year Infrastructure Investment and Jobs Act will add more than $45 billion of supplemental investments to enhance water and power grid infrastructure, and includes $6 billion of funding designed to extend the life of existing nuclear facility. Thus, the Act provides supplemental funding for many critical areas we serve, addressing infrastructure in dire need of upgrade. At the same time, we're focusing on new business development activities to win contracts with the necessary people and facilities in place, all of which impacted our gross profit this quarter. We view the remainder of 2022 as having strong potential to build our backlog given overall market trends, increasing demand, and improving bid activity. We're dedicated to diversifying the business and moving into higher margin areas that can lead to sustained, solid results in the quarters and years to come. I'll 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?
spk08: Thank you, Tracy, and good morning, everyone. Let's review the financials in greater detail. Turning to slide five, we posted a revenue of $69.6 million for the quarter, as Tracy mentioned, an increase of 14% over 2021. Sales rose year over year due to higher levels of work across our nuclear and water end markets, more than offsetting lower Canadian business and decommissioning work. Revenue from Plant Volvo 3 and 4 was approximately $15.9 million during the period, slightly more than in Q4. As Tracy discussed, although our backlog did not grow substantially during the first quarter, we are optimistic about more rapid growth for the remainder of the year due to pent-up demand, government budget priorities, and high bid activity levels. Slide six shows operating trends for the company. We posted gross profit of $5.7 million or 8.2% of revenue for the first quarter versus $6.1 million or 10% of the revenue last year. The lower margin reflects along with the ongoing impact of several previously announced fixed price projects in Florida, which we experienced cost overruns last year and now report on a zero margin basis. Margins were also lowered due to startup costs associated with the expansion into the energy transmission and distribution markets, as Tracy mentioned. Excluding these startup costs and the Florida projects, Gross margins would have been 10.5% for the quarter. We expect margins to remain under pressure but improve as the year progresses. Operating expenses were $6.5 million for the first quarter, including $700,000 of litigation expense versus $6.6 million last year, reflecting lower SG&A costs. While making progress bringing down our expenses, we continue to assess ways to further streamline our overhead and approve the bottom line results going forward. I'll now turn the call back to Tracy for a review of our 2022 guidance and his closing remarks. Tracy.
spk01: Thanks, Damien. Slide 7 sets forth the 2022 guidance that we first provided in January. As I mentioned earlier, there has been no change to this guidance. We envision revenue of between $305 and $325 million. and expect to post gross margins between 10.5% and 11%, including the impact of changing project mix previously discussed. We anticipate SG&A to be between 8.75% and 9.25% of revenue, reflecting some critical investments in upgrading our IT systems, both ERP and HR. Without those investments, SG&A would be expected to be between 8.25% and 8.75%. As mentioned earlier, the operating expenses in Q1 included $700,000 of one-time legal fees and related costs. Reflecting all the aforementioned items, our adjusted EBITDA forecast remains between $10 million and $12.5 million. The first quarter of 2022 is expected to be the weakest period we report this year, as is typical, and we are confident in our ability to steadily show improving sequential results, particularly in the second half of 2022. Our margins are anticipated to climb, reflecting both improving mix and a declining impact from some legacy problems, as previously discussed. Our backlog in revenue should also both benefit from an active bid environment and strong overall demand, recently strengthened by the 2021 Infrastructure Investment and Jobs Act. The key takeaway from today is that in Q1, we continued investing in the future to turn around the business and have not changed the guidance for the rest of 2022. We are confident that the company is heading in the right direction for improved operating performance for the remainder of this year, as well as 2023 and beyond. supported by the following factors. First, the increasing acceptance of nuclear is an essential element of a carbon-free electricity footprint. Second, the expanding infrastructure needs in key states served by Williams due to population growth and the imperative to strengthen the energy grid. Third, the substantial capital project budgets of our utility and municipality customers to address those needs And finally, the anticipated more than $50 billion of applicable supplemental new investments in water, power, and clean energy under the Infrastructure Investment and Jobs Act. As always, we appreciate our long-term shareholders' support, patience, and passion as we move Williams forward. With that, operator, we can open the line for questions.
spk04: Thank you, and I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Theodore O'Neill from Litchfield Hills Research. Your line is now live.
spk02: Thank you very much. So two questions for you. So this entry into the energy transmission and distribution markets, can you talk about what you do in there and what the opportunity is? And the second question revolves around the Florida water market project where you're booking revenue with no profit. And in the queue, you say you won't see the profit until fourth quarter 22. Is that going to have a significant impact on Q4 gross profit margin?
spk01: I'll take the first part of the question. I'll probably ask Damon to comment on part of the second question. The opportunity in the transmission and distribution in market is we're working with Eversource in Connecticut to put in new natural gas lines for distribution lines into residences. We think the opportunity is quite substantial given the amount of money that Eversource has committed in terms of capital to spend on that. It's over $7 billion over the next several years. In Tampa, we're working with TECO, which is Tampa Electric, which is the utility that serves the Tampa and surrounding areas, and we're putting in infrastructure, new distribution lines for power to residents as well. So both of those opportunities are substantial due to the capital budgets with the utilities and the fact that additional money is going to be allocated for those areas based on the Infrastructure Investment and Jobs Act. With respect to the Florida situation, that's a hangover from the losses that we reported last year in Florida. But let me let Damien elaborate further on that.
spk08: Yeah, sure. Thanks, Tracy. So the Florida projects, these fixed price projects in the water markets, we expect those projects to run through our early Q4 of this year. Our guidance reflects those projects will remain at a zero percent gross profit. Obviously, we're taking measures to to be able to reverse that through productivity gains as well as potential change orders, but it will run through Q4 this year at zero gross margin.
spk02: Okay, okay. It wasn't clear the way I read the queue if there was going to be a profit. You'll be booking profit and no revenue in the fourth quarter. Okay, thank you.
spk04: Yeah, sure. Thank you. As a reminder, that's star one to be placed into question queue. Our next question today is coming from Julio Romero from Sidonian Company. Your line is now live.
spk05: Hey, good morning. Just staying on the topic of the Florida project, can you maybe quantify how much revenue came from that in the first quarter and how much more revenue is expected to be booked for the remaining nine months of the year?
spk08: In queue one, there's about $9 million. Yeah. In Q1, there was approximately $9 million coming out of those projects. And going forward for the remainder of the year, we expect those projects to generate approximately $16 to $18 million in revenue.
spk05: Got it. That's very helpful. So you expect greater award activity in the coming months? Can you maybe talk about how you expect orders to flow as we progress throughout the year? Do you kind of expect kind of a steady sequential growth or more of a step function in the back half?
spk01: We're expecting more of a step function in the back half because of the infrastructure investment and jobs act monies. None of those have really... hit the books yet. We know they're coming. We've done the research. So I think it's going to pick up in the second half.
spk08: Okay. Understood. I would also add to that, historically, the first quarter is typically our slowest volume quarter. And we typically uptake from there.
spk05: Yep, understood. Can you give us any progress updates on the ERP and HR investments and if the timeline on ERP implementation is still at the same place?
spk01: Yeah, so the ERP we went live with within the last month and had a very good rollout and we're using the system now. That takes time. Excuse me, HRS. I apologize for that. The ERP is still scheduled to go live in the first quarter, and we're confident based on the progress we're having with the project to date that that's doable.
spk05: Okay, and that would be first quarter of 23? 23, correct. Okay. Perfect. And I guess it's more of a broader question. Um, can you maybe just speak to, you know, inflation supply chain, you know, what, if any effects are you working through at the current moment?
spk01: Damien, you want to take a shot with that?
spk08: Sure. So as, as we're all being impacted by inflation currently, uh, it's less of an impact on our business primarily because the majority of our contracts on a cost plus basis, which allows us to pass those costs on to our customers. As we look at our fixed price projects, there are some inflationary pressures there, particularly with the projects that we entered into some time ago before we started to see inflation increase. So we're managing those costs. As it relates to future bid activity, just based on the environment that we're in, we increasing our escalation and contingency to cover ourselves as we remain in this high inflationary environment.
spk05: Very good. Thanks for taking the questions. I'll hop back into the queue.
spk01: Thank you.
spk04: Thank you. Next question is coming from Vishal Misha from Misha Capital. Your line is now live.
spk06: Hi, good morning. Good to see you, Damien. Based on the prior couple of questions, I was upgrading my estimate of normalized gross margin. The current gross margin is a little in the low side because of the Florida. So assuming Florida revenue is about 10%, should we say that the normalized gross margin for the current business is around 11.5% or 12% excluding any Florida or any one-off events?
spk08: Is that fair to say? Excluding the Florida and startup costs, the norm-wise gross profit in the quarter is approximately 10.5%. Okay.
spk06: Okay, so 10 and a half to 11% is sort of a normalized gross margin. It's not including the zero revenue. Okay.
spk08: Correct. If that's carved out, yes.
spk06: Yeah. If so, going forward, it used to be like, you know, your gross margins used to be around 12 to 30%, but it has decreased to this level. Is it mostly because of the project mix or you think it can go back to around 5% number at some point?
spk08: Yeah, so you're correct. Historically, our business has generated 11% to 13% gross margins. 2022 is an abnormal year for several reasons. The startup cost associated with the entry into the transmission and distribution business, as well as the hangover on the Florida projects. Once we get past 2022, we'd expect our gross margins to go back to the normal profile that we've seen.
spk06: Okay, that's good. So you think they're assuming these are not costs. It may go to around 12% number. At least there is a chance next year.
spk08: Yes, we would expect to be in the 11 to 13% range.
spk06: Great. And for STNA as well, it is on the higher side and you say adjusted is about 50 basis points lower than what you have right now. But again, that's 8.2 to 8.75% versus about 7% what it used to be. So again, the same question is whether normalized margins, next year margins, let's say, will they go back to your historical or they have settled at these higher levels, which is let's say earlier it was 7%, now it's like 8 1⁄2% from this. Is it now going like normalized next year, let's say, will it go to like 7% area or do you think it'll stay at 8 1⁄2%? Yeah, 8 1⁄2% is high for us.
spk08: As we're going through a transition period, which is causing some of the SG&A costs to increase. As we mentioned earlier, we did have about $700,000 in non-recurrent legal expenses. So some of these one-time costs get behind us. We'd expect to be below 8% going forward.
spk06: Okay, that's all. Thanks.
spk04: Thank you. As a reminder, that's star one to be placed into question queue. Our next question is coming from John Deicher from Pinnacle. Your line is now live.
spk07: Good morning, everyone.
spk04: Good morning.
spk07: A couple of quick questions. With regards to the new business initiatives, are you planning on opening any offices in pursuit of that? And if so, where?
spk01: Yes, we're looking at the southeast and Gulf Coast and northeast. We think we'll need to open new offices in support of our water and energy delivery initiatives. So we have some key geographies. Florida is obviously one. Georgia, Tennessee, Texas are areas that we're looking at because of population growth. And in the Northeast, with respect to energy delivery, you know, population growth and the imperative to upgrade the power grid.
spk07: Do you anticipate opening any offices before your end?
spk01: I think that would be more likely a 2023 initiative, but we're actively evaluating that. The information about where the infrastructure investment and job tech money is spent is relatively new, so we're going to follow the money, if you will. but I think we'll have more clarity on that probably in the second half, even though we've made some progress trying to figure out where that money's going. I think there'll be more clarity in the second half, so that would probably lend itself to a 2023 event.
spk07: Okay, that makes sense. With regard to your revolver and term loans, I think they're both tied to LIBOR contracts. And, you know, looking at the current LIBOR rates, I think three-month and six-month LIBOR rates are up roughly 40 basis points each from just a month ago. And I'm curious if you've done any sensitivity analysis as to what cash interest costs might do should LIBOR rates continue to climb.
spk08: Yeah, that's something that we're also evaluating. And it will obviously have an impact on our business from an interest expense standpoint. The way we're looking to mitigate that is to manage our working capital more tightly to hedge some of those increased cost potential.
spk07: I don't quite follow that. Manage working capital more tightly. How does that? reduce your interest rate costs? Do you have the ability to prepay both of those?
spk08: No, I was more so referring to our revolving credit facility. So rather than using that and carrying a balance, we would look to improve our DSOs to bringing cash into the business sooner in order to avoid using the ABL.
spk07: Okay, that makes sense. Can you do anything on the term loan side?
spk08: There are provisions in the agreement that there are some penalties associated with prepayment.
spk07: Okay, so you would consider prepayment or you would not consider prepayment?
spk08: We would opt not to prepay.
spk07: Okay. You're pretty exposed on the term loan if, in fact, LIBOR goes up substantially.
spk08: Yeah, that's correct. We are evaluating that. We expect the growth in the business going into the second half of the year, again, will help us generate more cash, which will allow us to... manage our working capital.
spk07: Okay. All right. Thank you, and good luck.
spk01: Thanks, John.
spk04: Thank you. At this point, there appears to be no further questions in the queue, so I'll turn the floor back over to Mr. Pagliara for any closing remarks.
spk01: Thank you, everyone, for participating today. We appreciate your time and interest in Williams and look forward to talking to you again next quarter. Take care and be safe and well. Have a good day.
spk04: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line and have a wonderful day. We thank you for your participation today.
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