WILLIAMS INDUSTRIAL SERVICES GROUP INC. Cautionary Statement Regarding Forward-Looking Statements
This Form 10-Q and its exhibits contain or incorporate by reference various forward-looking statements that express a belief, expectation or intention or are otherwise not statements of historical fact. Forward-looking statements generally use forward-looking words, such as "may," "will," "could," "should," "would," "project," "believe," "anticipate," "expect," "estimate," "continue," "potential," "plan," "forecast" and other words that convey the uncertainty of future events or outcomes. These forward-looking statements are not guarantees of our future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict. Therefore, our actual outcomes and results may differ materially from those expressed in these forward-looking statements. Investors should not place undue reliance on any of these forward-looking statements. Except as required by law, we undertake no obligation to further update any such statements, or the risk factors described in our 2021 Report under the heading "Part I-Item 1A. Risk Factors," to reflect new information, the occurrence of future events or circumstances or otherwise. The forward-looking statements in this Form 10-Q do not constitute guarantees or promises of future performance. Forward-looking statements may include information concerning the following, among other items:
our ability to make interest and principal payments on our debt and satisfy the
? amended financial and other covenants contained in our debt facilities, as well
as our ability to engage in certain transactions and activities due to
limitations and covenants contained in such facilities;
our ability to generate sufficient cash resources to continue funding
operations, including investments in working capital required to support
? growth-related commitments that we make to our customers, and the possibility
that we may be unable to obtain any additional funding as needed or incur
losses from operations in the future;
? exposure to market risks from changes in interest rates, including changes to
or replacement of the LIBOR;
? our ability to obtain adequate surety bonding and letters of credit;
? our ability to maintain effective internal control over financial reporting and
disclosure controls and procedures;
? our ability to attract and retain qualified personnel, skilled workers, and key
officers;
failure to successfully implement or realize our business strategies, plans and
objectives of management, and liquidity, operating and growth initiatives and
? opportunities, including any expansion into new markets and our ability to
identify potential candidates for, and consummate, acquisition, disposition, or
investment transactions;
? the loss of one or more of our significant customers;
? our competitive position;
market outlook and trends in our industry, including the possibility of reduced
? investment in, or increased regulation of, nuclear power plants and declines in
public infrastructure construction and reductions in government funding,
including funding by state and local agencies;
? costs exceeding estimates we use to set fixed-price contracts;
harm to our reputation or profitability due to, among other things, internal
? operational issues, poor subcontractor performances or subcontractor
insolvency;
? potential insolvency or financial distress of third parties, including our
customers and suppliers;
? our contract backlog and related amounts to be recognized as revenue;
? our ability to maintain our safety record, the risks of potential liability and
adequacy of insurance;
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adverse changes in our relationships with suppliers, vendors, and
? subcontractors, including increases in cost, disruption of supply or shortage
of labor, freight, equipment or supplies, including as a result of the COVID-19
pandemic;
? compliance with environmental, health, safety and other related laws and
regulations, including those related to climate change;
? limitations or modifications to indemnification regulations of the
? our expected financial condition, future cash flows, results of operations and
future capital and other expenditures; the impact of unstable market and economic conditions on our business,
financial condition and stock price, including inflationary cost pressures,
? supply chain disruptions and constraints, labor shortages, the effects of the
recession;
? our ability to meet publicly announced guidance or other expectations about our
business, key metrics and future operating results;
the impact of the COVID-19 pandemic on our business, results of operations,
? financial condition, and cash flows, including global supply chain disruptions
and the potential for additional COVID-19 cases to occur at our active or
future job sites, which potentially could impact cost and labor availability;
? information technology vulnerabilities and cyberattacks on our networks;
? our failure to comply with applicable laws and regulations, including, but not
limited to, those relating to privacy and anti-bribery;
? our ability to successfully implement our new enterprise resource planning
(ERP) system;
? our participation in multiemployer pension plans;
? the impact of any disruptions resulting from the expiration of collective
bargaining agreements;
? the impact of natural disasters, which may worsen or increase due to the
effects of climate change, and other severe catastrophic events;
? the impact of corporate citizenship and environmental, social and governance
matters;
the impact of changes in tax regulations and laws, including future income tax
? payments and utilization of net operating loss and foreign tax credit
carryforwards;
? volatility of the market price for our common stock;
? our ability to maintain our stock exchange listing;
? the effects of anti-takeover provisions in our organizational documents and
? the impact of future offerings or sales of our common stock on the market price
of such stock;
? expected outcomes of legal or regulatory proceedings (whether claims made by or
against us) and their anticipated effects on our results of operations; and
? any other statements regarding future growth, future cash needs, future
operations, business plans and future financial results.
These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties, and other factors, including unpredictable or unanticipated factors that we have not discussed in this Form 10-Q. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by the forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. Investors should consider the areas of risk and uncertainty described above, as well as those discussed in the 2021 Report under the heading "Part I-Item 1A. Risk Factors." Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and we caution investors not to rely upon them unduly. The following discussion provides an analysis of the results of continuing operations, an overview of our liquidity and capital resources and other items related to our business. Unless otherwise specified, the financial information and discussion in this Form 10-Q are as of and for the three and six months endedJune 30, 2022 and are based on our continuing operations; they exclude any results of our discontinued operations. Please refer to "Note 4-Changes in Business" to the unaudited condensed consolidated financial statements included in this Form 10-Q for additional information on our discontinued operations. This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in this Form 10-Q and our audited consolidated financial statements and notes thereto included in the 2021 Report. 24 Table of Contents Backlog The services we provide are typically carried out under construction contracts, long-term maintenance contracts and master service agreements. Total backlog represents the dollar amount of revenue expected to be recorded in the future for work performed under awarded contracts. Revenue estimates included in our backlog can be subject to change as a result of project accelerations, cancellations or delays due to various factors, including, but not limited to, the customer's budgetary constraints and adverse weather. These factors can also cause revenue amounts to be recognized in different periods and at levels other than those originally projected. Additional work that is not identified under the original contract is added to our estimated backlog when we reach an agreement with the customer as to the scope and pricing of that additional work. Backlog is reduced as work is performed and revenue is recognized, or upon cancellation. Backlog is not a measure defined by GAAP, and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts. Backlog may not be indicative of future operating results and projects in our backlog may be cancelled, modified, or otherwise altered by our customers. We utilize our calculation of backlog to assist in measuring aggregate awards under existing contractual relationships with our customers. We believe our backlog disclosures will assist investors in better understanding this estimate of the services to be performed pursuant to awards by our customers under existing contractual relationships.
The following tables summarize our backlog:
(in thousands) June 30, 2022 December 31, 2021 Cost plus$ 185,325 $ 559,417 Lump sum 48,978 72,276 Total$ 234,303 $ 631,693 (in thousands) Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 Backlog - beginning of period $ 256,956 $ 631,693 New awards 17,227 55,520 Adjustments and cancellations, net 16,179 (327,292) Revenue recognized (56,059) (125,618) Backlog - end of period $ 234,303 $ 234,303 Total backlog as ofJune 30, 2022 was$234.3 million , compared with$631.7 million onDecember 31, 2021 , a decrease of$397.4 million , which was primarily driven by the loss of a multi-year contract within the nuclear decommissioning market inFebruary 2022 , contributing to a loss of approximately$374.6 million in backlog for the years 2022 through 2029. We estimate that$144.6 million , or 61.7% of total backlog onJune 30, 2022 , will be converted to revenue within the next twelve months and$98.1 million , or 41.9% of total backlog, will be converted to revenue within the remainder of the fiscal year. As ofDecember 31, 2021 , we estimated that approximately$157.2 million of our year-end backlog, as adjusted for the loss of the multi-year contract inFebruary 2022 , would be converted to revenue during 2022. Please refer to Item 1, Business under "Backlog" and "Note 17-Subsequent Events" included in the 2021 Report for additional information. 25 Table of Contents Results of Operations
The following summary and discussion of our results of operations is based on our continuing operations and excludes any results of our discontinued operations:
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2022 2021 2022 2021
Revenue $ 56,059 $ 91,571 $ 125,618 $ 152,422
Cost of revenue 53,778 82,218 117,628 136,971
Gross profit 2,281 9,353 7,990 15,451
Selling and marketing expenses 402 231 732 442 General and administrative expenses 6,294 6,372 12,365 12,683 Depreciation and amortization expense 46 46 112 87 Total operating expenses 6,742 6,649 13,209 13,212 Operating income (loss) (4,461) 2,704 (5,219) 2,239 Interest expense, net 1,261 1,213 2,480 2,506 Other income, net (240) (1,232) (419) (1,592) Income (loss) from continuing operations before income tax (5,482) 2,723 (7,280) 1,325 Income tax expense (benefit) (171) 77 58 262 Income (loss) from continuing operations$ (5,311) $ 2,646
Revenue for the three months endedJune 30, 2022 decreased$35.5 million , or 38.8%, compared with the corresponding period in 2021. This decrease was primarily related to a reduction inthe United States nuclear market of$20.1 million which was largely driven by the timing of a nuclear outage that occurs every other year that contributed to$17.6 million in revenue during the corresponding period in 2021. Additionally, the Company lost nuclear decommissioning projects, resulting in an$11.5 million reduction in revenue and exited the Canadian nuclear market, resulting in a$9.9 million reduction in revenue. These declines were partially offset by increased volume in the Company's water and transmission and distribution businesses of$4.0 million and$1.6 million , respectively. Revenue for the six months endedJune 30, 2022 decreased$26.8 million , or 17.6%, compared with the corresponding period in 2021. This decrease was primarily due to the timing of a nuclear outage that occurs every other year which accounted for a$19.4 million reduction in revenue. The nuclear outage contributed to approximately$3.1 million of revenue during the six months endedJune 30, 2022 compared to$22.5 million during the corresponding period in 2021. Additionally, compared to the same period in 2021, the Company lost certain nuclear decommissioning projects in early 2022, resulting in a$15.6 million reduction in revenue, and exited the Canadian nuclear market, resulting in a$14.0 million reduction in revenue. These declines were partially offset by a$6.9 million year-over-year increase with several key customers in our nuclear market, a$2.7 million increase in our chemical services market, increased volume in the Company's water business of$10.9 million , and growth in the transmission and distribution businesses of$2.5 million . Gross profit for the three months endedJune 30, 2022 decreased by$7.1 million , or 75.6%, compared with the corresponding period in 2021, while gross margin declined to 4.1% from 10.2%. The decrease in gross profit reflects start-up costs relating to our entry into the transmission and distribution markets and the impact of additional losses on certain lump sum projects in ourFlorida water markets. We anticipate that these projects will continue to generate revenues with no associated profits until completion within the fourth quarter of 2022. Excluding the impact relating to start-up costs in the transmission and distribution markets and the lump sum projects in the water market for which losses were incurred, the Company would have realized a gross margin of 10.0% rather than 4.1%. Gross profit for the six months endedJune 30, 2022 decreased by$7.5 million , or 48.3%, compared with the corresponding period in 2021, while gross margin declined to 6.4% from 10.1%. The decrease in gross profit reflects start-up costs relating to our entry into the transmission and distribution markets and the impact of additional losses on certain lump sum projects in ourFlorida water markets. We anticipate that these projects will continue to generate revenues with no associated profits until completion within the fourth quarter of 2022. Excluding the impact relating to start-up costs in the transmission and distribution markets and the lump sum projects in the water market for which losses were incurred, the Company would have realized a gross margin of 11.2% rather than 6.4%. 26 Table of Contents The following table reconciles our adjusted gross margin to our actual gross margin by deducting the energy transmission and distribution projects that are incurring start-up costs and lump sum projects in the water markets that are generating a loss. We believe this information is meaningful as it isolates the impact that our start-up costs and the non-profitable lump sum projects have on our gross margin. Because adjusted gross margin is not calculated in accordance with GAAP, it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as substitute for, or superior to, financial measures prepared in accordance with GAAP. (in thousands) Three Months Ended June 30, 2022 Six Months Ended June 30, 2022 Revenue $ 56,059 $ 125,618 Cost of revenue 53,778 117,628 Gross profit 2,281 7,990 Gross margin 4.1% 6.4% Minus: revenue from transmission and distribution start-up business (1,597) (2,540) Minus: revenue from Florida lump sum water projects (3,687) (9,928) Minus: total revenue deducted (5,284) (12,468) Minus: cost of revenue from transmission and distribution start-up business (3,228) (5,325) Minus: cost of revenue from the Florida lump sum water projects (4,861) (11,868) Minus: total cost of revenue deducted
(8,089) (17,193)
Adjusted revenue 50,775 113,150
Adjusted cost of revenue 45,689 100,435
Adjusted gross profit $ 5,086 $ 12,715
Adjusted gross profit margin 10.0% 11.2%
The Company recorded an operating loss for the three months endedJune 30, 2022 of$4.5 million compared to operating income of$2.7 million for the corresponding period in 2021. This operating loss was primarily due to the decrease in gross profits due to the start-up costs in the energy transmission and distribution markets and the non-profitable lump sum projects in our water market. The Company recorded an operating loss for the six months endedJune 30, 2022 of$5.2 million compared to operating income of$2.2 million for the corresponding period in 2021. This operating loss was primarily due to the decrease in gross profits due to the start-up costs in the energy transmission and distribution markets and the non-profitable lump sum projects in our water market.
General and Administrative Expenses
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2022 2021 2022 2021
Employee-related expenses $ 2,673 $ 3,438 $ 5,729 $ 6,970
Stock-based compensation expense 608 745
577 1,460
Professional fees 1,293 976 2,944 1,886
Other expenses 1,720 1,213 3,115 2,367
Total $ 6,294 $ 6,372 $ 12,365 $ 12,683
Total general and administrative expenses for the three months ended June 30,
2022 decreased $0.1 million , or 1.2%, compared with the corresponding period in
2021. The decrease was largely driven by a decrease in compensation expenses of
$0.9 million . This decrease was partially offset by increases of $0.3 million in
professional fees related to an ongoing legal matter and $0.4 million in other
expenses relating to computer software costs.
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Total general and administrative expenses for the six months endedJune 30, 2022 decreased$0.3 million , or 2.5%, compared with the corresponding period in 2021. The decrease was largely driven by a decrease in compensation expenses of$2.1 million . This decrease was partially offset by increases of$1.1 million in professional fees relating to an ongoing legal matter,$0.5 million relating to computer software costs and$0.3 million related to our exit from our Canadian nuclear market. Total Other Expense, Net
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2022 2021 2022 2021
Interest expense, net $ 1,261 $ 1,213 $ 2,480 $ 2,506
Other income, net (240) (1,232) (419) (1,592)
Total $ 1,021 $ (19) $ 2,061 $ 914
Total other expense, net, for the three months ended June 30, 2022 increased
$1.0 million compared with the corresponding period in 2021. The increase was
primarily due to a $1.0 million decrease in other income related to a smaller
distribution from a former subsidiary associated with a legal claim.
Total other expense, net, for the six months ended June 30, 2022 increased $1.1
million compared with the corresponding period in 2021. The increase was
primarily due to a $1.0 million decrease in other income related to a smaller
distribution from a former subsidiary associated with a legal claim, coupled
with a decrease of $0.2 million of other income related to profits associated
with a joint venture in the nuclear market and partially offset with a $0.1
million increase in currency conversion expense.
Income Tax Expense
Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2022 2021 2022 2021
Income tax expense (benefit) $ (171) $ 77 $ 58 $ 262
Income tax expense for the interim periods is based on estimates of the
effective tax rate for the entire fiscal year. The effective income tax rate is
based upon the estimated income during the calendar year, the estimated
composition of the income in different jurisdictions and discrete adjustments,
if any, in the applicable quarterly periods for settlements of tax audits or
assessments and the resolution or identification of tax position uncertainties.
For the three months ended June 30, 2022 , the Company recorded income tax
benefit from continuing operations of $0.2 million , or 3.1% of pretax loss from
continuing operations compared with income tax expense from continuing
operations of $0.1 million , or 2.8% of pretax income from continuing operations
in the corresponding period of 2021. For the six months ended June 30, 2022 , the
Company recorded income tax expense from continuing operations of $0.1 million ,
or (0.8)% of pretax loss from continuing operations, compared with income tax
expense from continuing operations of $0.3 million , or 19.8% of pretax income
from continuing operations, in the corresponding period of 2021.
The decrease in income tax provision from continuing operations for the three
and six months ended June 30, 2022 compared with the corresponding periods in
2021 was primarily related to the $0.2 million decrease in the Canadian income
tax provision.
Discontinued Operations
See "Note 4-Changes in Business" to the unaudited condensed consolidated financial statements included in this Form 10-Q for information regarding discontinued operations.
Liquidity and Capital Resources
During the six months endedJune 30, 2022 , our principal sources of liquidity were borrowings under the Revolving Credit Facility and effective management of our working capital. Our principal uses of cash were to pay for customer contract-related material, labor and subcontract labor, operating expenses, and interest expense on the Term Loan and the Revolving Credit Facility. See discussion in "Note 8-Debt" to the unaudited condensed consolidated financial statements included in this Form 10-Q for additional information about the Term Loan and the Revolving Credit Facility. 28
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