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 2020 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 level of indebtedness;
our ability to make interest and principal payments on our debt and satisfy the
? 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;
? failure to maintain effective internal control over financial reporting and
disclosure controls and procedures in the future;
? 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 our expansion into international 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;
? the failure of the
benefiting our end markets;
? 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;
? adverse changes in our relationships with suppliers, vendors, and
subcontractors;
? compliance with environmental, health, safety and other related laws and
regulations;
? 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 general economic conditions including the current economic
disruption and any recession resulting from the COVID-19 pandemic;
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, as has occurred at our
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;
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? our participation in multiemployer pension plans;
? the impact of any disruptions resulting from the expiration of collective
bargaining agreements;
? the impact of natural disasters and other severe catastrophic events (such as
the ongoing COVID-19 pandemic);
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 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. In addition, some of these risks, uncertainties and other factors have been, and may further be, exacerbated by the COVID-19 pandemic. 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 2020 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, 2021 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 2020 Report. 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. 22
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The following tables summarize our backlog:
(in thousands) June 30, 2021 December 31, 2020 Cost plus$ 605,807 $ 430,694 Lump sum 58,550 13,156 Total$ 664,357 $ 443,850 (in thousands) Three Months Ended June 30, 2021 Six Months Ended June 30, 2021 Backlog - beginning of period $ 460,550 $ 443,850 New awards 262,213 299,454 Adjustments and cancellations, net 33,165 73,475 Revenue recognized (91,571) (152,422) Backlog - end of period $ 664,357 $
664,357
Total backlog as ofJune 30, 2021 was$664.4 million , compared with$443.9 million onDecember 31, 2020 as our backlog increased by$220.5 since year end, it was primarily driven by our decommissioning which accounted for$217.6 million of the increase. We estimate that approximately$199.5 million , or 30.0% of total backlog onJune 30, 2021 , will be converted to revenue within the next twelve months and$123.4 million , or 18.6% of total backlog, will be converted to revenue within the remainder of the fiscal year. As ofDecember 31, 2020 , we estimated that approximately$165.3 million , or 37.2% of total backlog, would convert to revenue in 2021. Results of Operations The Company continues to monitor several factors that may cause actual results of operations and financial results to differ from our historical results or current expectations. These factors include: inflationary and political environment, work delays on projects and supplies, new laws, regulations and guidelines, new project requirements, and the impact of the COVID-19 pandemic, including the consequences of governmental and other measures designed to prevent the spread of the virus, the continued sporadic outbreaks of COVID-19 cases and the ongoing spread of the new COVID-19 variants, the impact of COVID-19 vaccines, including the speed at which they are approved, disseminated and widely adopted, and their effectiveness against COVID-19 and its evolving strains, and the ultimate duration and scope of the pandemic. These and other factors could affect the Company's operational results and cause them to not be comparable to those of the same period in previous years. For instance, the effects of the COVID-19 pandemic led the Company to implement enhanced safety standards and processes on a project inGeorgia that experienced COVID-19 cases on site and caused work delays on projects inNew York due to specific state, local, municipal and customer mandated stay-at-home orders and new project requirements that were established to protect workers and the general public. Additionally, during the third quarter of 2020, we experienced a delay in a nuclear project and an outage cycle inLouisiana and have experienced a slow-down in business development activities and bid opportunities, particularly on the eastern shore of theLake Huron area inOntario, Canada due to COVID-19. Although the majority of stay-at-home orders were phased-out by the end of the second quarter of 2020, we are still experiencing impacts associated with the COVID-19 project specific protocols. While the Company has not yet experienced a material negative impact on its operational results, these project specific requirements are expected to remain in place for the foreseeable future, which will continue to impact project schedules and workflow going forward. In addition, federal and state governments have increased spending as part of efforts to mitigate the impact of COVID-19 on the economy. The amount and timing of such spending will be directly impacted by the duration of required efforts to contain COVID-19 and the severity of the negative impacts created by the virus and its effect on the economy. Any recovery from the COVID-19 pandemic and related economic impact may also be slowed or reversed by a number of factors, including any widespread resurgence in COVID-19 infections. The results presented in this Form 10-Q are not necessarily indicative of future operating results. 23 Table of Contents 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) 2021 2020 2021 2020 Revenue$ 91,571 $ 72,549 $ 152,422 $ 138,696 Cost of revenue 82,218 63,194 136,971 122,432 Gross profit 9,353 9,355 15,451 16,264
Selling and marketing expenses 231 140 442 278 General and administrative expenses 6,372 5,386 12,683 11,586 Depreciation and amortization expense 46 57 87 98 Total operating expenses 6,649 5,583
13,212 11,962 Operating income 2,704 3,772 2,239 4,302
Interest expense, net 1,213 1,566 2,506 3,099 Other income, net (1,232) (499) (1,592) (621) Income from continuing operations before income tax 2,723 2,705 1,325 1,824 Income tax expense 77 196 262 244 Income from continuing operations $ 2,646$ 2,509 $ 1,063 $ 1,580 Revenue for the three months endedJune 30, 2021 increased$19.0 million , or 26.2%, compared with the corresponding period in 2020. The increase was primarily related to the timing of a nuclear outage which accounted for$17.7 million of growth. Additionally, we continue to experience growth in our decommissioning business which contributed to$6.8 million of incremental revenue, and growth in our fossil business, which contributed to$5.2 million of incremental revenue. These increases were partially offset by$12.3 million of reduced volume from maintenance and construction activities at Plant Vogtle. Revenue for the six months endedJune 30, 2021 increased$13.7 million , or 9.9%, compared with the corresponding period in 2020. The increase was primarily related to the timing of a nuclear outage accounting for$19.1 million of growth. Additionally, we continue to experience growth in the decommissioning market which contributed to$10.6 million of incremental revenue, coupled with a$7.1 million increase to incremental revenue from our fossil business. These increases were partially offset by$27.9 million of reduced volume related to construction and maintenance activities at Plant Vogtle. Gross profit for both the three months endedJune 30, 2021 and 2020 was$9.4 million . Gross profit for the three months endedJune 30, 2021 was impacted by the nuclear outage work we performed during the quarter, which has a lower gross margin profile compared to other services we perform, as well as reduced volume at Plant Vogtle. Gross margins in the quarter were also impacted by the timing of a contract incentive related to a multi-year customer contract. The incentive related to the second quarter of 2020 was earned and recorded in the second quarter of 2020 for$1.1 million ; the incentive related to 2021 is anticipated to be recorded in the third quarter. Gross profit for the six months endedJune 30, 2021 decreased$0.8 million , or 4.9%, compared with the corresponding period in 2020. The decrease in gross margin was primarily a result of reduced volume primarily at Plant Vogtle. Gross margin was also impacted by the decommissioning and nuclear outage work we performed during the six months endedJune 30, 2021 , which has lower gross margin profile compared to other services we perform. Gross margins in the quarter were also impacted by the timing of a contract incentive related to a multi-year customer contract. As discussed in the previous paragraph, gross margins for the six-month periods were also impacted by the timing of the recognition of a contract incentive earned and recorded in the second quarter of 2020 for$1.1 million ; the incentive related to 2021 is anticipated to be recorded in the third quarter. Operating income for the three months endedJune 30, 2021 decreased by$1.1 million compared with the corresponding period in 2020, due to an increase in operating expenses resulting from higher compensation costs related to business development and operating activities. 24
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Operating income for the six months endedJune 30, 2021 decreased$2.1 million compared with the corresponding period in 2020, due primarily to a$0.8 million decrease in gross profit and the$1.3 million increase in operating expenses from higher compensation costs related to business development and operating activities.
General and Administrative Expenses
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2021 2020 2021 2020
Employee-related expenses $ 3,438 $ 2,852 $ 6,970 $ 5,724 Stock-based compensation expense 745 617
1,460 1,088
Professional fees 976 950 1,886 2,245
Other expenses 1,213 967 2,367 2,529
Total $ 6,372 $ 5,386 $ 12,683 $ 11,586
Total general and administrative expenses for the three months ended June 30,
2021 increased $1.0 million , or 18.3%, compared with the corresponding period in
2020. The increase was primarily due to a $0.6 million increase in employee
related costs due to higher incentive compensation costs, an increase in
stock-based compensation of $0.1 million due to accelerated vesting of a
restricted stock award and a new grant of restricted stock units, and a $0.2
million increase in other expenses due to an increase in business travel and
meals.
Total general and administrative expenses for the six months ended June 30, 2021
increased $1.1 million , or 9.5%, compared with the corresponding period in 2020.
The increase was primarily due to a $1.2 million increase in employee related
costs due to higher incentive compensation costs, along with an increase in
stock-based compensation expenses of $0.4 million due to accelerated vesting of
a restricted stock award and a new grant of restricted stock units. These
increases were partially offset by a $0.5 million decrease in professional fees
and other expenses due to cost reduction initiatives.
Other (Income) Expense, Net
Three Months Ended June 30, Six Months Ended June 30,
($ in thousands) 2021 2020 2021 2020
Interest expense, net $ 1,213 $ 1,566 $ 2,506 $ 3,099
Other income, net (1,232) (499) (1,592) (621)
Total $ (19) $ 1,067 $ 914 $ 2,478 Total other income, net, for the three months endedJune 30, 2021 increased$1.1 million , or 101.8%, compared with the corresponding period in 2020, from total other expense of$1.1 million in the second quarter of 2020 to total other income of$19,000 . The increase was primarily due to receipt of$1.0 million from a former subsidiary related to a previous intercompany receivable that we recognized as a loss in 2018, coupled with a$0.4 million reduction in interest expense due to refinancing our debt inDecember 2020 . This was partially offset by a$0.3 million reduction in joint venture earnings due to lower volume as construction activities for Vogtle 3 and 4 are closer to completion, compared with the corresponding period in 2020. Total other expense, net, for the six months endedJune 30, 2021 decreased$1.6 million , or 63.1%, compared with the corresponding period in 2020. The decrease was primarily due to receipt of$1.0 million from a former subsidiary related to a previous intercompany receivable that we recognized as a loss in 2018, coupled with a$0.6 million decrease in interest expense and fees related to refinancing our debt in 2020. Income Tax Expense Three Months Ended June 30, Six Months Ended June 30, ($ in thousands) 2021 2020 2021 2020 Income tax expense $ 77 $ 196 $ 262 $ 244 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 endedJune 30, 2021 , we recorded income tax expense from continuing operations of$0.1 million , or 2.8% of pretax income from continuing operations, compared with income tax expense from continuing operations of
$0.2 25 Table of Contents million, or 7.2% of pretax income from continuing operations, in the corresponding period of 2020. For the six months endedJune 30, 2021 , we recorded income tax expense from continuing operations of$0.3 million , or 19.8% of pretax income from continuing operations compared with income tax expense from continuing operations of$0.2 million , or 13.4% of pretax income from continuing operations in the corresponding period of 2020. The difference between our effective tax rate and the federal statutory tax rate for the three and six months endedJune 30, 2021 and 2020 is primarily related to the Canadian income tax provision and the partial valuation allowance recorded on ourU.S. deferred tax assets. The decrease in income tax provision from continuing operations for the three months endedJune 30, 2021 compared with the corresponding period in 2020 was primarily the result of the$0.1 million favorable 2020 Canadian return to provision adjustment in the second quarter of 2021. The increase in income tax provision from continuing operations for the six months endedJune 30, 2021 compared with the corresponding period in 2020 was primarily the result of the$0.1 million Canadian income tax provision increase.
Tax Cuts and Jobs Acts of 2017
OnDecember 22, 2017 , the Tax Cuts and Jobs Act was signed into law, making significant changes to the Internal Revenue Code. Such changes include, but are not limited to, aU.S. federal corporate tax rate decrease from 35% to 21% effective for tax years beginning afterDecember 31, 2017 , the transition ofU.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as ofDecember 31, 2017 . Due to changes in interpretations and assumptions, and future guidance that may be issued and actions we may take in response to the Tax Cuts and Jobs Act, the ultimate impact of the Tax Cuts and Jobs Act may change in future periods. The Tax Cuts and Jobs Act is highly complex, and we will continue to assess the impact of certain aspects of the Tax Cuts and Jobs Act. For additional information, please refer to "Note 7-Income Taxes" to the consolidated financial statements included in this Form 10-Q.
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, 2021 , 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.
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