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spk04: Greetings and welcome to Williams Industrial Third Quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Chris Witte, Investor Relations Advisor. Thank you. You may begin.
spk03: Thank you, and good morning, everyone. Welcome to the Williams Third Quarter Conference Call. With me on the call today are Tracy Pagliara, President and CEO, Randy Lay, EVP and COO, and Damian Vassal, Vice President and CFO. After Tracy and Damian provide the prepared remarks, we'll open the call for questions. Our third quarter results were issued yesterday afternoon, and a slide presentation is available on the company's website at www.wisgroup.com. If you now turn to slide two in our presentation, I'll review the Safe Harbor Stable. 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 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 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 three, I'll now turn the call over to Tracy Palliera. Please go ahead, Tracy.
spk01: Thanks, Chris, and good morning, everyone. Williams posted third quarter revenue of $56.7 million, which while up slightly from Q2, was down significantly from last year's comparable period. As I'll review further in a moment, we've continued to face challenges converting pipeline to revenue in 2022. Our gross margin was 1.3% for the quarter, reflecting the previously discussed issues associated with our Florida water business, as well as costs tied to expanding into the transmission and distribution markets. Without such expenses, our adjusted gross margin was 9.7%. I will discuss these issues near the end of the call when reviewing our current guidance and outlook. Operating expenses were $7 million this quarter, which included professional fees and legal expenses related to matters settled during the quarter. In addition, the variance year-over-year reflects the fact that in 2021, we reversed approximately $1.2 million of incentive compensation, reducing costs accordingly. Adjusted EBITDA was $6.2 million for the quarter, reflecting the fact that we received net proceeds of approximately $10.8 million related to two legal settlements during the period. Without such payments, which are counted as other income, EBITDA would have been negative. At the end of the quarter, the company's backlog stood at roughly $353 million, up more than 1%. $100 million from Q2's $234 million. This reflects several recent wins, most notably the multi-year extension of business with a large southern utility providing maintenance and modification services at various sites throughout their footprint. This work, through a longstanding joint venture, is estimated to be worth approximately $120 million of revenue over the next four years. Now turning to slide four, I'd like to discuss the state of the business and current growth outlook. It goes without saying that our results continue to be negatively impacted by several factors, including the slower than anticipated award environment, additional losses in our Florida water business, and not recurring startup costs and legal fees. While our top line has been depressed due to delayed customer decisions, We remain optimistic about the long-term prospects for the business. There is strong demand for our services driven by the large capital budgets of our customers, as well as government funding, reflecting bipartisan support in Congress for the prioritization of infrastructure spending. In addition, our recent wins and strengthening backlog give us reason to be more positive about the future. We can continue to actively focus on new business development while concurrently taking measures to streamline the company's operations and reduce costs. We remain steadfastly dedicated to improving WIM's growth and profitability profile. I'll have more comments at the end of the call, but we'll now hand it over to Damien to discuss our quarterly financial results.
spk06: Thank you, Tracy. Thank you, Tracy. And good morning, everyone. Let's review the financials in greater detail. Turning to slide five, we posted a revenue of $56.7 million for the quarter, as Tracy mentioned, versus $73.4 million in 2021. Sales fell year over year due to lower levels of nuclear and decommissioning work, more than offsetting higher revenue across our other core markets. Revenue for Vogel III and IV was approximately $18.4 million during the period. Given that our backlog grew substantially during Q3, we believe the fourth quarter will show a top line improvement, including certain work that has been delayed from earlier in the year. We are optimistic about growth heading into 2023 based on our backlog, pent-up utility demand, and government budget priorities. Slide six shows operating trends for the company. We posted gross profit of $700,000 or 1.3% of revenue for the third quarter versus 6.8 million or 9.2% of revenue last year. The lower margin reflects project mix along with the ongoing impact from our T&D investments and certain previously announced projects in Florida operating at a loss. Excluding these startup costs and the Florida work, our gross margins would have been 9.7% for the quarter. We expect reported margins to remain under pressure near term, but improve in 2023. Operating expenses were $7 million for the third quarter versus $4.6 million last year. The $2.4 million variance reflects litigation and professional fees, along with the fact that in last year's comparable quarter, we reversed $1.2 million of incentive compensation expense, reducing it accordingly. With the litigation now behind us, operating expenses will be lower going forward, and we have identified additional opportunities to cut costs and streamline the business. 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 seven sets forth the revised guidance that we issued yesterday. While it certainly disappoints us again, To reduce our guidance, this reflects several near-term challenges that continue to negatively impact the business this year. We now forecast revenue of between 245, 45, and 255 million for 2022 and expect to post gross margins between 5.5 to 5.75%. We anticipate SG&A to be 10.5 to 11% of revenue. Our adjusted EBITDA is forecast to be between $2.5 and $3.5 million, including the impact from recent litigation settlements, without which EBITDA would have been negative this year. Aside from the sluggish reward environment, the biggest impact items impacting our result this year continue to reside with certain Florida projects and our investment in the T&D business. While the latter issue is a strategic one which should bear fruit over time, the former, that of poorly performing contracts, has become larger than previously anticipated. With that in mind, we are focused on executing the remaining legacy Florida water projects, the substantial majority of which are scheduled to be completed this year. with only four continuing into 2023. In addition to address negative cash flows in the company's business, Williams has developed a plan to aggressively reduce costs and improve our working capital management, which is outlined in greater detail in our Form 10-Q report for the third quarter. Our 2022 financial performance has clearly been well below expectations, and the management team accepts full responsibility for getting the company back on track. Our near-term goal is to finish the year with an enhanced projected margin profile for 2023 and to implement meaningful cost cuts to ensure much better results going forward. We also need to position the company for stronger backlog growth by executing well on some key nuclear projects for 2023. We remain bullish about the opportunities that are in markets, but need to move past significant headwinds that have dampened our performance for several quarters. We look forward to earning your confidence again and restoring your trust in Williams in the very near future. With that operator, we can open the line for questions.
spk04: Thank you. Ladies and gentlemen, at this time, we'll be conducting a question and answer session. If you'd like to ask your question, you may 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 would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Julio Romero with Sudodian Company. Please proceed with your question.
spk05: Thanks. Hey, good morning. To start on Florida, I guess, you know, what's changed in regards to the Florida water business over the last three months that has led to additional losses?
spk01: Randy, you want to take that?
spk07: Sure, I'll take it. fundamentally, we had a series of projects that we talked about in the past that were a combination of two things. Estimates that were not accurate and project management that was not as effective as it needs to be. So back, as you may recall, back in April, May, we replaced management than pretty much every project manager in the office, with the exception of a couple. And that led us to go – and these are, in some cases, projects that are of some size – led us to go back and then reexamine those estimates, reconfirm spending as well as what would it take to successfully complete the projects. um and that's what all that's changed is we understand uh better at this point what it's going to take to bring those projects to completion the you know the good news is of those projects that we had significant concerns over the bulk of those will be completed this year we do have a couple of projects of significant size that will complete in 2023 in the last one in the third quarter and And those are the ones, as Tracy mentioned, that we're going to be concentrating on. So it's really putting a finer point on the cost to complete those projects, as well as replacing the management that have been the most significant changes.
spk05: Okay. No, I appreciate the color. And I guess, you know, talk about maybe what gives you guys the confidence that you have a good grasp on the Florida situation as it stands now.
spk07: Well, I think first and foremost, we put in place some risk mitigation steps to ensure that any work that we do can be completed profitably. And that's meant that in many cases we have in bidding those projects, we have been high. And so that's been part of the strategy to mitigate that. Second, it really does come down to making sure that for every operation that we're going to undertake on those projects, that we're managing both two things. One, sort of the legacy of the estimates being poor is probably the biggest area that we've had to spend time on. And second, there are still not inconsiderable supply chain issues particularly as it comes to those parts of these projects that require electronic components, control systems, and so on, that require the same chips that go into transformers and everything else that in the supply chain has been disrupted, and then working with our customers to make sure that A, we get it done, but B, that the burden of getting it done and the extension of the schedule is understood that we need to work together to get that accomplished so that the weight of the cost of doing that doesn't sit on billions. And so far, our customers have been, they see the same things in the marketplace that we do. So those are probably the two major things. And probably I'd add third, maybe it goes without saying, is that we're in constant touch with our customers on these larger projects as we manage through those sorts of issues.
spk05: Understood. Maybe turning towards the balance sheet, can you just talk about the accounts receivables balance? The press release mentioned delays in collecting cash receipts from customers, and the day sales outstanding have kind of turned it up over the last two quarters. Could you just talk about, is that a timing issue, or are there some collections that you think you might not eventually be able to collect on?
spk06: No, so it's primarily timing. We did see our DSO slip up during the quarter, and that was a result of one particular project where there was some delays in collecting on those receivables. As far as not being able to collect, our receivables, we still believe, are very strong and collectible. And as reflected in the allowance that we also show on the balance sheet, So we've got a reserve of approximately $300,000 on the $37 million receivable number. So we don't see much risk in the collectability on our receivables.
spk05: Okay. Last one for me is just on the T&D startup. Can you talk about maybe the revenue run rate you're seeing, the volumes you're seeing? You did $3 million of revenues in T&D in the third quarter or just under $3 million. What's embedded for What are you seeing on volumes and what's embedded in the revenues for T&D in the fourth quarter guide? Thank you.
spk06: Yeah, so as far as the fourth quarter goes, we expect the percentage of revenue to be approximately the same in the fourth quarter. However, we specifically on one of the T&D contracts, we did see that turn to profitability in the third quarter. So we expect that to continue in the fall.
spk05: Okay, I'll pass it on. Thanks very much.
spk04: As a reminder, it is star one to ask your question. Our next question comes from the line of Theodore O'Neill with Litchfield Hills. Please proceed with your question.
spk02: Thank you very much. I was wondering if you could give us some more detail on what's going on with Eversource and signing them up for a couple of years with a master service agreement and whether or not there's additional opportunity on the natural gas pipeline side of the business.
spk07: Yeah, let me take that. What we signed on for is an extension to our MSA with new rates, and that's what's driving the financial performance, and that's a three-year extension with a two-year option to extend to five years. We have been granted additional coverage in Connecticut in the natural gas distribution area, we have resources, activities, and we are looking at the potential to extend that operation into the contiguous states of Rhode Island and Massachusetts. So that together with what that brings with it is an increase in activity, but also an increase in volume and an increase in return. So that particular aspect of T&D is moving along quite well in the direction that we expected it to. We expected it to go once we signed off on the new MSA. And so there's upside. There's certainly some volume upside to that, and we'll talk more about that as we move into 2023. And there's some additional upside that will come from expansion of our territory.
spk02: Okay. And I was wondering if you're seeing any inflationary impacts in the business.
spk07: Yeah, certainly for certain commodities. We're seeing it in cement. seeing it less so steel has tended depending on where you are to be the inflationary pressures on steel have uh abated somewhat but supply has been an issue depending on it's more localized issue than a global issue um but certainly cement and then the obvious right diesel and those sorts of uh those sorts of consumables um we've seen you know same inflation that anybody else has seen by those products um But those are probably the areas. Lumber has come down some, but it's out for what we're – and then, of course, the costs continue to escalate. If you can get the components you need, costs there continue to escalate.
spk02: Okay. Thanks very much.
spk07: Yep.
spk04: As a reminder, it's star one to ask your question. Once again, that's star one to ask a question. There are no further questions in the queue. I'd like to hand the call back over to Mr. Pagliaria for closing remarks.
spk01: Thank you, everyone, for participating today. We appreciate your time and interest in Williams and look forward to talking again next quarter with better results. Take care and be safe. Thank you.
spk04: 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.
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