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WILLIAMS INDUSTRIAL SERVICES GROUP INC.

(WLMS)
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WILLIAMS INDUSTRIAL SERVICES : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/18/2021 | 08:03am EST

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 U.S. Congress to pass infrastructure-related legislation

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 U.S. or

Canada;

? 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 Plant Vogtle site in Georgia, 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;


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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

Delaware law;

? 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
ended June 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.

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Table of Contents

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 of June 30, 2021 was $664.4 million, compared with $443.9
million on December 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 on June 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 of December 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 in Georgia that experienced COVID-19 cases
on site and caused work delays on projects in New 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 in Louisiana and have experienced a
slow-down in business development activities and bid opportunities, particularly
on the eastern shore of the Lake Huron area in Ontario, 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 ended June 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 ended June 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 ended June 30, 2021 and 2020 was $9.4
million. Gross profit for the three months ended June 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 ended June 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 ended June 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 ended June 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

Table of Contents


Operating income for the six months ended June 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 ended June 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 in December 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 ended June 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 ended June 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 ended June 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 ended June 30, 2021 and 2020 is primarily related
to the Canadian income tax provision and the partial valuation allowance
recorded on our U.S. deferred tax assets. The decrease in income tax provision
from continuing operations for the three months ended June 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 ended June 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

On December 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, a U.S. federal corporate tax rate decrease from 35% to 21%
effective for tax years beginning after December 31, 2017, the transition of
U.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 of December 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 ended June 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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Financials (USD)
Sales 2021 303 M - -
Net income 2021 2,58 M - -
Net Debt 2021 30,3 M - -
P/E ratio 2021 33,7x
Yield 2021 -
Capitalization 89,7 M 89,7 M -
EV / Sales 2021 0,40x
EV / Sales 2022 0,34x
Nbr of Employees 994
Free-Float 79,0%
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Mean consensus BUY
Number of Analysts 2
Last Close Price 3,37 $
Average target price 6,50 $
Spread / Average Target 92,9%
EPS Revisions
Managers and Directors
Tracy D. Pagliara President, Chief Executive Officer & Director
Damien Vassall Chief Financial Officer & Vice President
Robert Bruce Mills Chairman
Daved Karl Chief Information Officer
Randall R. Lay Chief Operating Officer & Executive Vice President