Williams Industrial Services Group Inc.

Deborah Pawlowski Luis Manuel Ramirez - Chief Executive Officer, President and Director David L. Willis - Chief Financial Officer and Senior Vice President

Joseph Bess - Roth Capital Partners, LLC, Research Division Chase Jacobson - William Blair & Company L.L.C., Research Division Jonathan P. Braatz - Kansas City Capital Associates Jonathan P.

Braatz - Oppenheimer & Co. Inc., Research Division Joseph Mondillo - Sidoti & Company, LLC Martin W.

Malloy - Johnson Rice & Company, L.L.C., Research Division

Thank you, operator, and good morning, everyone. We appreciate your time today and your interest in Global Power.

On the call with me are Luis Ramírez, President and CEO; and David Willis, Chief Financial Officer. Luis and David will be reviewing the results of the quarter and will discuss the recent acquisition of Hetsco, as well as provide an update on our growth strategy and outlook.

If you do not have the slides that accompany our discussion, they can be found along with the earnings release on the company's website at www.globalpower.com. The Safe Harbor statement is noted in full on Slide 2.

As you may be aware, we may make some forward-looking statements during this discussion, as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties, as well as other factors which could cause actual results to differ materially from what was stated here today.

These risks and uncertainties and other factors are provided in the earnings release, as well as other documents filed by the company with the Securities and Exchange Commission. These documents can be found at the company's website or at sec.gov.

Let me first turn it over to Luis, who will cover the revenue and market conditions. David will delve into financial results, and then Luis will close with a review of our recent acquisitions and strategy for growth.

Luis?

Good morning, everyone. So if we take a look at our performance in Q1 2013, our scorecard's a little mixed.

We experienced great revenue performance across the organization for both Products and Services. We were able to achieve 100% on-time shipment in our Products Division, and we saw strong Q1 Service revenues as well.

So on the Services revenue side, we remain cautious on the utilities spending rates. And as we mentioned last year, we started to see, at the end of the fourth quarter, a slight reduction in spending versus the previous year.

Some of that spend rate continues into this year, and while we're seeing more outage work this year than we did last year and more outage events, we also are seeing some of the elected work not being performed as expected. So we remain cautious on the Services revenue side, and continue to look at that and monitor that closely.

We saw some disappointing results from the Products Division due to margin erosion on specific projects, which David will elaborate on further. And we also took the time to invest and kind of jumpstart our strategic investments that we needed to have for the year that were going to help us drive productivity, more lean programs and also help us to deliver some of the commercial products that we've been working on the last couple of years.

So while that's $2 million higher than expected for the quarter, for the year, we're still on track to deliver as we said we would. In terms of the cash, we continue to see strong cash performance as well, with strong cash generated from receivables related to our product shipments in Q4 of last year.

Acquisition is really a great story for us. The acquisitions that we bought last year, Koontz-Wagner and TOG, are still performing above expectations.

We've seen great work and expansion into the oil and gas pipeline area, and we continue to see great order activity there as we finish out the year. So we're excited about what that's going to do for us as we go long-term.

The acquisition of Hetsco clearly puts us in the center of the natural gas services trend, which we've been focusing on since we came into the strategy last year. Hetsco will add some additional capabilities to our portfolio, and we'll talk more about that later.

But we're really excited in terms of our acquisition performance. Orders were also quite good for the quarter.

We saw our Services revenue go up this quarter, and we also were able to renew a major Services contract and extend it another 5 years, which should help our backlog story as we go forward. In terms of our Products, we have 1.5x book-to-bill.

I can tell you that a lot of that is also being driven by the growth that we're seeing in our Koontz-Wagner products line, and again, helping us to offset what we're seeing on the utility side. As we go to Page 2, we see the market landscape.

The U.S. market continues to see some mixed results.

The OEM turbine manufacturers recently pulled back some of their 2013 estimates in terms of product shipments, and that's certainly having an impact on the timing of some of those projects that we were expecting in the U.S. As you think about the market across the world, we continue to see strong bid performance and activity over at the emerging markets, especially around the Middle East and North Africa.

And with some changes in commodity pricing in South -- that may impact the economies in South America and others, we're watching how that's going to play out over the next couple of quarters in terms of capital spending. Europe continues to be flat and continues to see the performance that we've been talking about in past quarters.

As we go to the next page, we can get more details around the first quarter results. Our first quarter revenue from both divisions were solid.

About $10.1 million of the revenue generated in Q1 came out of the acquisitions that were added last year, and those were helping us to really offset the timing of the utility-scale projects that were being delayed here in the U.S. and other places for 2013.

So the idea is to bring in these acquisitions, and I think the strategy behind them has really paid off for us and we continue to enjoy a more diversified customer and market space in our business. Income from continuing operations was about a $1.2 million loss for the quarter, and that's really disappointing performance, again, driven by weak gross margins from Products, as well as some timing on some investments that we were making earlier this year.

As we go to the next page, you can see that the Products Division and the growth in Products Division has been very strong mostly around the oil and gas pipeline space, but also demand in the chemical industry and other areas, which the Koontz-Wagner acquisition is going to help us get into. We also will see the backlog for utility-scale projects point more to the second half of the year, and I will elaborate that a little bit further in the presentation.

Strong U.S. sales from acquisitions and we're seeing that -- and that's really exciting for us as we think about our strategy there.

In terms of Services, again, another solid backlog with no -- with some additional outage work here in the quarter, and we continue to see that work throughout the year. But again, we remain cautious about the weakness in the utility space and the need to continue to look at that space in terms of elective work.

And I'm going to hand it over to David so he can tell you more details about our financials.

Thank you, Luis, and good morning, everyone. If you turn to Slide 10, you can see our Products Division's first quarter 2013 revenue up $39 million, broken out by geography and by end market.

Our product shipped globally and mix varies with energy infrastructure development in the geographic markets we serve. North America was the most active market in the first quarter, representing 54% of product shipments.

Koontz-Wagner acquired in July of last year and TOG acquired in September of last year both had revenue concentrated in North America. The second largest geographic concentration was the Middle East, which accounted for 23% of shipments.

With respect to end markets, auxiliary products supporting utility-scale turbines accounted for 72% of first quarter Products revenue. Our strategy includes diversifying end markets and customers serves.

Our efforts are focused on those markets shown on Slide 11. On Slide 11, our Services Division's first quarter 2013 revenue of $78 million is depicted by market and by contract mix.

Currently, the vast majority of our Services revenue, almost 75%, comes from work performed at domestic nuclear power plants. The 22% of revenue from fossil fuel fired plant is primarily derived from maintenance and project work on coal plants.

The contract structure mix in the quarter was generally consistent with prior periods and is heavily weighted towards cost reimbursable work. As previously mentioned, we are focused on building exposure in markets expected to benefit from the natural gas macro trends.

Our recent acquisition, Hetsco, establishes our Services platform in the natural gas arena and expands our reach in the industrial gas processing. Please turn to Slide 12.

Consolidated gross profit for the first quarter of 2013 was $16 million, a decrease of approximately $500,000 from the first quarter of 2012. Consolidated gross margin of 13.7% was a 210 basis point reduction from the prior year, largely as a result of lower margin in our Products Division.

Products gross profit was $6 million, down 4.6% from the first quarter of 2012, with higher cost incurred on certain utility-scale gas turbine projects combined with underabsorption at our Massachusetts facility. Our recently expanded Massachusetts operation realized a measurable mix of business requiring fabrication in China in the first quarter of 2013.

Products gross margin was 15.3% of revenues, down from 19.4% in the first quarter of last year. Services gross profit and gross margin declined from the prior year primarily due to mix, with fewer capital projects in the current-year quarter, as Luis mentioned.

If you turn to Slide 13, you can see that we had an operating loss during the first quarter of 2013 of $1.9 million compared with an operating profit of $2.8 million during the first quarter of 2012. We have separated selling and marketing expenses from G&A to help provide greater clarity.

G&A expenses in the quarter included $1.4 million of investments in our growth strategy and related initiatives, as well as $400,000 of due diligence cost related to the acquisition of Hetsco. Our first quarter included the last $200,000 associated with CEO transition costs.

Products Division operating loss was $2.5 million compared with 2012's first quarter operating loss of $400,000. For the Services Division, operating profit of $700,000 was down $2.5 million from $3.1 million in the prior year period.

Reductions in operating income for both segments was attributable to increased operating expenses, of which approximately $2 million was unique to the quarter. Slide 14 contains balance sheet highlights.

Cash from operations in the first quarter was $8.5 million, up significantly from cash used in operations of $1.8 million in the first quarter of 2012. Collection of receivables following strong fourth quarter shipments was the primary driver.

Our cash balance was $36.5 million as of March 31, up from approximately $32 million at year end. Capital expenditures in the quarter were just $800,000, although we still anticipate CapEx in the order of $6 million to $8 million for the year excluding acquisitions.

Although we had no debt on our balance sheet as of quarter end, we drew $30 million on the revolver subsequent to the quarter to fund our acquisition of Hetsco. We have since repaid $5 million, leaving $25 million outstanding on the line.

Please turn to Slide 15. Consolidated backlog as of March 31 was $387 million, down from $394 million at the end of last year.

Services Division backlog was $257 million at quarter end, down about $24 million from year end. Services Division backlog consists of maintenance work to be performed over the next 12 months, plus all contracted capital project work.

Products Division backlog as of March 31 was $130 million. This included $37 million from the 2 acquisitions we made during 2012.

This was also up $7 million from year-end levels. Products book-to-bill ratio was 1.4 in the first quarter.

Quarter end backlog growth was driven by activity in the oil and gas pipeline industry. On Slide 16, we have provided updated guidance for 2013.

We are maintaining our original revenue guidance exclusive of the Hetsco acquisition at $485 million to $515 million for the year. Hetsco is expected to add approximately $15 million to $20 million in revenue in 2013.

That is expected to reduce the downside risk for Services as we continue to see challenging utility spend trends for elective maintenance projects. Products Division revenue guidance has not changed, but we favor the higher end of guidance as demand from the oil and gas pipeline industry for our packaged control house units have been very strong.

This is a great opportunity and we are working to expand capacity to further address this market. Services, as I mentioned, is also unchanged at $300 million to $310 million, with greater risk to the downside, excluding the benefit of Hetsco.

We continue to expect more than half of 2013 revenue to come in the second half of the year, primarily due to the timing of shipments for large utility-scale gas turbine auxiliary products. We are adjusting consolidated gross margin expectations for 2013 to a range of 16.5% to 17.5% of revenues, down from our prior guidance of 17% to 18% of revenues.

Products gross margin percentage guidance is now approximately 20% to 22% of revenues due to our lower first quarter gross margins. But it's still in line with the projects at this stage of the product cycle.

Services gross margin is expected to fall within the typical 12% to 14% range of revenues for that business, although we anticipate 2013 gross margins will likely come in at the high end of that range given the strong margin profile of Hetsco. Operating expenses are expected to be around $63 million for the year, excluding Hetsco, plus approximately $6 million to $7 million of incremental SG&A from the acquisition.

Approximately $2 million of the Hetsco SG&A relates to transaction and integration costs. Guidance on our effective tax rate has not changed.

We anticipate capital expenditures between $6 million and $8 million for the year, comprised of $3 million to $5 million for general maintenance and the balance for growth CapEx. With that, I'll turn it back to Luis to discuss our strategic initiatives.

Thanks, David. So as we think about the Hetsco acquisition that was just mentioned by David, I'd like to point out a couple of things that really excite us about the acquisition.

They're the leader in brazed aluminum heat exchange repair and maintenance services around the world that they have really, a great position with their customer base. As we mentioned at the beginning of the year and met with all of you on the strategies, one of the things we really were working on this year was to not only position us well in the sweet spot of natural gas services, but also to create a bit -- a beachhead for a natural gas services play in our business.

And this is clearly the beachhead that we are going to build the business from. We see a lot of runway ahead of us.

With this acquisition, we think that there's a lot of great work that we can do to continue to go after their installed base around the world. One thing that Hetsco does is it really has a great business model divided into repair, maintenance and safety as the core business, but they've also established a fabrication of piping and skids and vessels that are used in the natural gas and oil and gas space, as well as a construction and relocation business that really focuses on what's going on inside the fence in industrial locations.

So we really like this acquisition, we think it's going to be one of our -- a really great story for our business as we go forward. And it's also going to be -- perform the way we see the other 2 acquisitions perform that we got last year.

As we mentioned earlier, the Koontz-Wagner acquisition and also the TOG acquisition have both been accretive in the first year, and they continue to perform very well, well ahead of our expectations. So we're really excited about this one.

As you turn to Page 19, you can see how Hetsco fills that growth strategy that we've established for the business. And as we grow, we're going to continue to focus on natural gas services, air and gas filtration and separation, heat exchangers, energy conversion and so on, as a part of rebuilding and expanding our portfolio beyond the customer base that we currently have, and also, beyond the products and services that we currently have.

So operator, now, we'd like to open up the line for questions.

David, could you talk a little about your efforts in R&D? I know you guys have kind of been focusing on that a little bit more than you guys have historically.

Can you give us an update on what you guys are doing?

Yes. So I think on our last call, we had talked about we spent a fair amount of time and effort last year on 2 new product developments.

One, we talked about openly is the, what we call the echo diverter. We're in the process of bidding projects, taking that to market as we speak.

We have nothing in the backlog for that new product line, but we're cautiously optimistic we'll have bookings in 2013. Now this is going to be a product line pretty similar timing profile as our core Braden products, so booking this year would likely translate to revenue and margin benefit next year upon shipment.

There's some other products that we are -- have been technically qualified with our customers. We've run through those traps.

Fairly similar progress on those. We are bidding projects on those.

Again, nothing in backlog today, but we're optimistic that we could secure bookings this year, which would be revenue and margin benefit to us next year.

And Joe, I'd add one more thing. Joe, I'd add one more thing.

One thing we started to do this year and one of the things we kind of launched the year up with some strategic initiatives that we mentioned earlier is really to create a tollgate process, and created a list of product and service ideas from the businesses to create some organic growth place for us. And so far, so good.

What I can tell you right now is that we've completed the first 60 days of understanding what's in the pipeline, what we have available to us. And what we're uncovering is a lot of the value that we mentioned a few months ago was kind of unlocked in our organization.

And we've seen some really great ideas come out, things that people have been working on kind of in a skunkworks environment, which we're ready to start to make a little bit more movement on. So I'd say in the next few quarters, we're going to be spending some time creating some beta tests and things like that to prove some of the things we've looked at, and then we're probably going to decide on commercialization on some of those as well.

So the process here is really to try to create some organic growth opportunities within the businesses where we really haven't had a process to do it in the past, and I think it's certainly -- my experience in the last 60 days in seeing the team on that is very positive. I think we're going to hear more of these type of programs like the echo diverter and others coming from our Braden business and even our Williams business in terms of Services.

Okay. And then orders in the quarter, can you break that out in the Products Division by Braden versus KWC?

Yes, I wanted -- so the orders in the first quarter for our Products Division, I think we included that on the tables on the press release, approximately $56 million. The organic business, which is Braden and Consolidated Fabricators, was approximately 60% of the first quarter orders.

And then the 2 acquisitions from last year, KWCC and TOG, comprised the other 40%.

Okay. So for KWC and TOG, that -- it kind of frames it out a 2.0-ish book-to-bill.

Can you frame that a little bit more about what really, what demand you guys are seeing? And what's a -- is this a sort of growth that we could continue to see out of this business for orders?

Well, one of the strategic, I guess, objectives we wanted to accomplish was, particularly the KWCC acquisition, was access to new end markets served. We had very limited product scope serving the oil and gas pipeline industry.

And these packaged control houses are used, I think Luis touched on the last call, in each one of the -- on these compressor stations every 75 to 90 miles on an oil and gas trunk pipeline. Most of that order activity you're seeing there in the first quarter is very heavily loaded towards oil and gas.

Now they also participate on the power item, like our core Braden's compact businesses do, but the mix in the quarter was heavily tied to oil and gas pipeline work. And by all accounts, I think proposal activity in that end market remains robust.

Everything we're seeing in the overall industry there, that's likely to see a pretty good run here over the next couple of years. So I think we're one of many suppliers benefiting from the spend in that space.

So on the Products business, last year, you had some issues with the timing of shipments. There's a small cost issue this quarter.

Can you just talk about what's going on in that division to try to mitigate some of the risks of some of these issues going forward?

Sure. Look, I think we talked a lot about the on-time shipment challenges last year, and some of it being -- a lot of it being driven by customers, but some of it was our own doing.

And I would say, we're very disappointed with kind of the results of the first quarter as it relates to the product shipment of these 4 or 5 products that we had the issues with. I'd say that one of the things we did last year, and it goes into this year, is we implemented our strong review process around on-time delivery and all of those things.

And I can tell you that the on-time delivery for first quarter was 100%. So -- and by the way, I didn't expect it to be that.

I usually would see on-time delivery quarter-to-quarter can be between 89% and maybe 95%, and you're talking best-in-class companies. So for us to be at 100% was actually quite good.

But what we saw as we went back to last year, some of the things that we were looking at last year in terms of how these projects were being managed and so on, I think that kind of bled into this year because some of that stuff was already work in progress last year. So we got our arms around it in the fourth quarter.

In the first quarter, I'd say our arms were completely around it. And I'd say for the rest of the year, we're probably going to see a lot of improvement, or significant improvement in those results.

And I don't see a -- I don't anticipate a repeat of either the on-time delivery issues and the issues that we had on these 4 specific projects. What I will tell you, too, is that one of the challenges that we have in our Products business has always been making sure we have more visibility to what the customer decisions are at the -- as they're managing their own sites, and how that can have an impact on costs or on the timing of when we would ship our products.

So I'd say the team have really belt it down, the buckles. We actually restructured some of that organization at the beginning of the year, which I think was a great point for us to see some of the things that we were anticipating we would see in the quarter.

So for us, we got our hands around it. It's totally unacceptable that we had that issue.

I don't anticipate we're going to have that issue going forward as we finally implemented all the changes we wanted to do at the beginning of the first quarter. So that will be the way we operate the business, and I think the team will continue to see those improvements as we get to the year.

Okay. And then -- that's helpful.

David, following up on that. Can you just -- I think you talked about this a little bit last quarter.

I think it has to do with timing of shipments, but if you could just remind us on kind of a walk from the 15.3% gross margin this quarter to the 20% to 22% guidance range for the year?

Yes, so from a timing perspective in terms of revenue volume, as Luis mentioned, we're not too pleased with the hole we dug for ourselves over the first quarter. Having said that, we're confident we can deliver the year.

But mathematically, we still expect to be very back-half loaded. Particularly, we're expecting a heavy third quarter from both our Braden auxiliary products business shipments, as well as a heavy amount of packaged control houses coming out of Koontz-Wagner.

So in terms of the margin bridge, the embedded margin in our backlog, which we scrubbed for some of these issues, isolated issues we saw in the core organic business, the margin profile backlog is higher than what we reported by a fair amount here in the first quarter. So as Luis said, I think we've got our arms around these discrete issues in terms of productivity in our BMex facility.

I think we've properly factored that into our guidance for the full year, and so I think the combination of heavier shipment volumes later in the year at a higher margin profile. On a more granular basis, we saw this in the fourth quarter.

For us to hit our guidance last year, we had extremely high volume at better margins in the fourth quarter, which brought the full year back in line with our revised guidance that we gave last year. So I think we're seeing a similar profile.

We will be back half-loaded with better margin stuff going out the door later in the year.

Okay. And then just one more on the acquisition.

Luis, it's only been 1.5 weeks, I know, but can you just maybe give us some color on -- some more detail on where you're seeing the revenue synergies or cost synergies from Hetsco? And if possible, have you had any initial reaction from customers?

And are you seeing things come in quickly or is this going to kind of play out as we go through the year?

Well, Chase, on the customer side, as you know, we do a due diligence process. We had an opportunity, before we did the decision to close the deal, to meet with several customers, and the customer feedback was quite overwhelming and positive.

I'd say we had -- people were very excited about Hetsco going to a strategic because they felt that they would be able to grow and to also do more things in the future, even a smaller company can't always do. They also like the fact that we were a global business.

Hetsco, their -- the installed base and a lot of the product that they go and repair, if you look at a map of the world, it's equally distributed. Any country where you see oil and gas facilities or infrastructure, you'll see this equipment and they are really doing this work over the world.

So from a commercial synergy that we're looking to play out is to use the Hetsco natural gas services play, repair services, and also work together with some of the things that we've done in our own installed base around auxiliary equipment and parallelings around places like the Middle East and so on and grow there. I think those are great beachheads that we haven't had before.

And now that we have an aftermarket component, which as you see from the numbers is a nice margin business for us, we'd like to expand that for sure. In terms of the operational piece of it, what we also inherited from this is a facility down in Houston.

One of the things we didn't have in the business was a facility in Houston to give us more access to the oil and gas space there, the channels to market there, as well as the physical water channel to be able to be closer to some of the end customers there that are buying Koontz-Wagner products, that are buying products from Braden and so on. So we are excited about that and think that, that's going to help us to establish our own beachhead in North America in the area where we see a tremendous amount of investment going in right now with both suppliers and end customers, decision-makers right there in that part of Texas.

So that's going to be another opportunity for us. I'd say also that as I think about the business itself and where we're seeing things, I think that the business has shown a great growth record the last 2 years.

And that's one of the reasons why we were really attracted to the space. The leader who runs the business is well regarded by the customer base.

He has excellent technical knowledge and he also runs a really tight ship commercially. So all of these were good elements for us to say this is a business that we can build our natural gas story from and continue to work on that space over the next 3 to 5 years as we build the business out.

A couple of questions. Over the last year or so, we really haven't seen a lot of mainline, let's say, large-diameter pipeline business, i.e.

the Keystone and so on and so forth. It's been more midstream gathering pipeline.

What kind of expectations would you have as maybe some of these larger diameter pipeline projects begin hopefully this year? Do you have as much exposure to that segment as maybe to the smaller diameter?

Yes, Jon, the only difference between the 2 from our perspective when we think about our Koontz-Wagner business is the distance between compressor stations, between a small diameter and a large diameter pipeline. And we have had -- we did have experience.

When we purchased the business last year, one of the projects that they've done was one of the large diameter pipelines that was coming in through the Keystone piece of that, that they did do. And as we hear and we were listening as closely as you are to what's going on in Washington and what's going to happen there, well, what I -- those pipeline projects are still underway, and hopefully, they'll all get approved this year.

We also have gotten a tremendous amount of bid proposal activity around the smaller. And the pipelines are happening more at the regional level like in Ohio and other places, Texas and so on.

So I can tell you that for us, we're kind of -- the good news about Koontz-Wagner is that we're kind of indifferent about whether it's larger or smaller. What we care about is, are we in with the right end customer, are we -- is our relationship proven in terms of our ability to deliver and integrate the products that we use in the houses and so on and so forth.

Right now, what we're seeing is that the biggest challenge in the industry is really cycle time, getting stuff out the door given the amount of orders that are coming. So one of the challenges for us that we're doing is we're looking for ways to increase that capacity over time so we can be there when we start to see more of those orders come through in the next year or so.

So we're excited about it. I think for our Koontz-Wagner business today, that's great.

And what's also interesting for us is our Hetsco business benefits as well because a lot of the coal boxes that we see going into some of these sites are provided by our end customers who want us to do repair, and in some cases, they want us to do installation work with them. So I think for us, we got more bullets in the gun than we've had in the past and in terms of how we're going to address that.

And we're really looking forward to some of those decisions going positive by end of the year.

Well, Luis, to the extent that some of these projects are released, let's say, within the next 4 or 5 months, the big pipeline business, would you have the ability to serve that, meet those demands at this point?

Yes. I'd say yes because you're talking about -- I mean a lot of the suppliers have actually been already quoting these projects in anticipation.

We already kind of have a pretty good idea of who's doing what, and we're part of that. So I think it's more, like you said, it's a question of timing.

And as they release some of this stuff, if this gets approved towards the third quarter, fourth quarter of the year, I certainly think we'll be in a good position at that point to still deliver and meet those requirements. In addition to that, we -- as I said earlier, one of the potential opportunities we have in our own business right now, we have the B Mex facility down in Mexico where we've done some investments in.

If we need some additional capacity, we've qualified that facility to do some of that work. And we also need to think about how we might be able to leverage what we have done in Houston now with Hetsco.

But these are all kind of open questions for us that we're looking at, but in either case, we're going to try to make sure we have some of our own capacity to put to this. And if we need to do some more, we'll do more, but I think we're in a good spot.

We're -- this is one area of the business that I'm feeling pretty confident that we've got a good pipeline of business going forward.

Okay. One follow-up question.

If I'm doing the arithmetic correctly, you mentioned Hetsco might add $15 million to $20 million in revenue and gross margin of 35% to 40%, and incremental expenses of $6 million to $7 million, inclusive $2 million of transaction costs. So if I do the arithmetic correctly, am I getting to the point where Hetsco will be, for fiscal 2013, for the 8 months you have it, will be dilutive to numbers?

No, I think it's a pretty small business. So even at those ranges that we provided, Jon, we do expect Hetsco to be accretive to the business for fiscal year 2013.

So I'm happy to walk through the numbers as you want, but I think we tried to put enough out there that you could run the math, but we anticipate Hetsco to be accretive inclusive of the one-time charges. And Jon...

Did you say inclusive, David?

Yes. I'd say one more thing.

As I think about Hetsco, we -- about 11% of the business is focusing on construction work that they do inside the -- some of these industrial sites. And what's really been exciting for us, too, and this is one thing we probably haven't mentioned here, but we -- our Williams business, they have a lot of expertise around project management, large construction and provide labor to sites.

So we actually do see some additional commercial synergies that we need to evaluate here as we go forward for that part of the business. And I think that's one area where if we continue to see more of these infrastructure buildout projects in North America that Hetsco and Williams can both play in as well, which is the first time we've had an opportunity to really link Williams directly into one of our product businesses.

My first question relates to just looking at the Products top line guidance that you gave. It sounds like the oil and gas part of the business certainly is trending well and maybe better than expected.

You even pointed to favoring the high end of that guidance probably because of that. But how has the other side of the Braden part of the business been trending compared to your expectations?

And how does that sort of project pipeline in the industry look?

Great couple of questions there. I would say the first thing is that we anticipated this year, as we mentioned to you a few times in the past, that we thought that this year would be kind of a flat to down market when it came to the OEM outlook on natural gas turbines utility projects.

And so we've seen recently in the last couple of earnings releases from Siemens and GE, we've seen some of that come to fruition. So the good news for us is that we're still feeling pretty good about where Products will end.

Braden will end this year, as David mentioned earlier, still within our guidance and expectations. We spent a lot of time really working this year in that particular part of the business.

I call it building the backlog. And as I mentioned a couple of times ago, I think we had -- we've been taking a look at how the bid proposal activity's going and so on.

The good news for us is that the Middle East and North Africa in particular continue to perform. There's not been a -- we haven't seen a swing going the negative direction there, there's projects happening throughout that region.

There are still other projects happening in Asia as well. I think the challenge is going to continue to be what happens here in North America, that the big driver is still going to be, at the end of the day, industrial demand and the reserve margins.

And if met, if we see more coal-fired plants go offline, we think that, that promotes the need to build more natural gas sites in North America for power. Now, we have seen and we have seen the release of some projects here in North America this year, and I think that's been more promising than we have seen in previous couple of years.

So I think that we're still watching that cautiously. But as far as our expectations for that business, we feel pretty good so far that we'll meet those expectations.

And the question continues to be what happens in '14 and '15, and that's where we're spending a lot of time with the backlog right now with the work that we're doing there. So more to come on that one, but I think that we're still feeling like this year, we can get there.

At the same time, we're using this year to also reset a few things in our Products business so when we come out of the cycle, we'll be much more efficient. We're spending a lot of time on productivity initiatives, on leaning some processes that help create some of the issues that we faced last year and up into this year that we've seen in the first quarter.

And those things are going to really help us to create some additional internal capacity for growth that we haven't had before. So I'm, I guess, a little cautiously optimistic on this one.

It's not terrible, but it's certainly, we were watching the same leading indicators as everyone else and we're staying close to it.

Yes, Joe, I might just add to that. I think the proposal activity for that business remains pretty heavily weighted towards the international markets.

I don't know that there's a material shifting, anything positive or negative in what we saw 60 days ago when we were on the fourth quarter call. Backlog as of the end of the first quarter is actually a little bit heavier weighted towards North America for our overall Products business.

But I think that's really skewed with the KWCC order flow. We still see a fair amount of backlog in proposal activity on the OEM side of the business in international markets.

Okay. What do you guys look at in terms of sort of peak gross margins for that business?

Or what are your sort of long-term goals for gross margin in the products overall?

Well, you know what, this is -- so our historical organic businesses kind of through peaks and troughs, or the peak of the cycle over the last decade, that's been a 30% gross margin business. So in a very healthy cycle, it's certainly up there now.

The businesses we acquired kind of a mid- to high 20s business from last year, at least in the Koontz-Wagner. It's always a bit higher with the aftermarket profile.

So in terms of the peak OEM cycle, I think there's a fair amount of upside in the margins, but I don't want to mislead you. I don't think GE, Siemens or anyone is expecting that's right around the corner.

I think everyone's just chasing the projects that are out there, but there's not a gathering momentum any different than what it was probably 60 days ago.

Okay. And then, Luis, I was wondering if you could address sort of your long-term view of the company?

You've made a few acquisitions already since being here. Just what -- your 2- to 3-year outlook of what this company looks like down the road, that'd be great.

Look, as we mentioned a couple of times, I like the natural gas growth trend that we're on. I think when I got here last year, we spent a lot of time talking about the strategy, what we needed to do different, et cetera, to really create a growth strategy.

And one of the things that I always look for when I'm looking at a business model is what's the kind of natural organic growth model that a business has, and then what do you do to help improve that through capability, adding capability, adding technology, adding services and other higher margin activities that can help you take it up a notch. And so one of the things we did a lot of work on here was we said our Braden business typically was very dependent on the cycles at the OEM side.

And so as we've been diversifying our Products business in the last couple of acquisitions that we did, Koontz-Wagner, TOG and so on, those product acquisitions have helped us to diversify customer base. They've helped us to go deeper with some other areas that we were kind of playing on the peripheral zone like an oil and gas, and also expand market reach, which is something that we hadn't really done organically in terms of our base business.

So in the next 3 or 5 years, I'd like to see a business that's more balanced where we are less dependent on OEM cycles and kind of a portfolio that we're ambidextrous. That when one cycle's kind of down, you've got another one that's up.

And the other piece is getting a business plan where the margins over time are also better. I think the best measurement of success for all of us and for our shareholders is that we generate more income or profit in the business over time, and we really care about profit dollars as well.

So how do you do that in an efficient way is important. So I think in 3 or 5 years, we'd like to see this be a leading business in the natural gas space.

I like the Products, I like the Services aspect of it, and making sure that our portfolio is positioned so that we can start to generate more, what I'll call, cost synergies. I think one of the areas that we -- it's hard for us to do today because of the way we've been structured is that we've done a lot of businesses in the portfolio, but as we grow, we'd like to make sure we want to -- we create a structure that is more cost efficient in delivering over time.

And leverage is important in terms of that. So those are some of the things we're working on, but I definitely will tell you, in the natural gas space, strong products, leading technologies with strong services annuity and a team that can do the heavy lifting, and not just here in the U.S., but also in a few places around the world where we see our markets taking us today.

And that's something that we really need to focus on. But certainly, measurements, we want our total share return value to go up.

We want the income of the business in real dollars to go up over time, and we want to make sure we leverage our balance sheet to help us build capacity and capability where we need to.

On the Services side of the business, is there any opportunity for you all to get some additional work as activity ramps up on the new build nuclear units in South Carolina and Georgia?

Yes, Martin, this is David, there is. In fact, we've been -- we've had product scope on the 6 new reactors on the 4 different sites in the U.S.

for the last couple of quarters. Within the first quarter, approximately $10 million of our first quarter Services revenue was on nuclear newbuild.

Now I think most of that was candidly up at the TVA sites. But we do have scope on each one of those.

There was -- it's been fairly public that I think the projects have not progressed, the 2 sites on the East Coast as quickly as what the utilities had originally planned. But we get active scope on each one of those, and that's candidly one of our initiatives, is to grow that scope as those projects mature over time.

Okay. And then after gaining entry in the kind of inside the fence with the brazed aluminum heat exchanger repair business, are there other types of businesses that you see as logical extensions on that inside the fence?

Yes. Yes, I mean we've looked at gas separation in clean technologies, ways to make the flows more efficient into the generation piece of that as well.

We've also seen -- talked about some heat exchanger technologies inside the industrial side of the fence, not the large-scale utility, but the industrial side. And so we're looking at that.

I think those are the areas where you can -- as we think about the sweet spot going forward. And they fit right next to our Braden auxiliary products, they fit right next to what we're doing with our Con Fab skids.

They fit right next to some of the work we're doing with Koontz-Wagner as well. So broadening that, but doing it in a way, again, that is accretive overall to the business and that we're improving margins as we do those things and creating the right values for our shareholders and customer base.

Just a couple of follow-up questions. First off, on the Hetsco acquisition, David, how much the permanent amortization that you'll see beyond 2013, how much amortization are you expecting?

Well, I think we -- the way that we've modeled it, we put in estimates as we're going through the process to completing our purchase price accounting and valuation of intangibles. If you're trying to get to what is kind of a quarterly run rate on a go-forward basis for consolidated Global, I'd estimate that at about $1.8 million to $1.9 million per quarter of depreciation and amortization.

That's going to include our businesses that we have today, as well as the uptick in amortization as a result of the Hetsco acquisition.

So $1.8 million per quarter?

$1.8 million to $1.9 million for Global Power consolidated inclusive of Hetsco.

Okay. So how much was the amortization x Hetsco?

I'm just trying to figure out what the additional amortization that Hetsco brings.

Just the Hetsco piece? Is that your question?

Yes, just the -- yes, what's the additional amortization that Hetsco brings?

I think on an annualized basis, that's probably $1.5 million to $1.6 million subject to finalizing our purchase price accounting, just for the Hetsco piece.

Okay. And then also, what kind of growth rate has that business seen?

Well, it's project-based. I would say on a macro view, they more than doubled their revenues over the last 3- to 4-year period.

So you certainly have some lumpy projects in that. But if you look at them over the last 3 to 4 years, they have doubled their revenues compared to where they were.

So I think the macro's in that. They're the aftermarket component.

There's kind of a -- just like our core business at Braden, we always point everyone to OEMs such as GE and Siemens. I think a good leading indicator for them in terms of installed base is chart some of the other larger OEMs.

I think the end markets they serve have had a very good run over the last several years.

Okay. And then another question just on the Services business.

So I was just wondering, the underlying sales guidance seems like that's been performing under expectations, that's x Hetsco. And then the margin guidance sort of looks like it's actually under that bottom, sort of that 12% that you're looking at.

Just what is your bigger picture, I guess, expectations on what's going on there, and when do we start to see maybe a little bit more confidence in that business?

Well, let me at least take the first question -- first part of the question as to guidance, and I'm sure Luis may want to color commentate a little bit on the end markets. So to make sure we got our numbers right or that we weren't confusing, Joe.

We -- that has been performing to our expectations and in line with our guidance, both for the first quarter and what we expect for the year. Now our comments on the full year is that we expect to be on the top line basis near the lower end of the range.

We're still seeing, you may recall, we had a fair amount of a pullback in utility discretionary spend in 2012. We're still seeing that in fits and starts in '13.

So on a macro view, we had more outages lined up for '13 than what we had in '12. The spend in those outages has been a mixed bag.

We've had some that had nice scope increases, others that really had scope pullback. But in terms of first quarter performance and our views on the year, I think that's performing largely in line with expectations.

But our comments about full-year outlook is really based on what we're seeing as a continued pressure on utilities and spending. So I don't know, Luis, if you want to add...

It seems like excluding the Hetsco, it seems like the guide -- the margin comes in maybe 12% or lower though. Is that -- am I doing the math wrong?

Yes, I don't know how we're doing the math there, Joe. It's performing in line with what we had expected.

It is down from last year because it's heavier weighted towards maintenance, but I think it's in line with what we had -- what internal expectations, what we had guided The Street.

Okay. And then, I guess, just long-term -- I mean, I guess expectations on sort of when that business comes back or any idea?

Well, I think, again, I think we're still seeing a business model that's based on what utilities are doing. And as we see utilities start to release some capital expenditures in the next -- a couple of cycles, I think we'll see that business capture some more of that win.

But I think it's out -- a lot of it was really dependent on what happens with Fukushima in the nuclear space. That's something that they're now starting to talk more about.

And I think we'll start to see some of those orders be, with the bid proposals and things like that, be coming out very soon here. And that should help, certainly, take the market back up a little bit.

And also, at the end of the day, it's about efficiency. I mean, I think everyone of these operators today on the nuclear side is being compared to natural gas in terms of cost.

And that's put a lot of pressure on utilities. And I think, as I've always said, the price of natural gas being a little bit higher is probably not a bad thing for all of our businesses because if it goes up a little higher, there's more speculation, more work and things like that.

So I think right now, we got to watch what happens closely. But the Williams business remains a strong business for us, and we like the cash it generates and we certainly like the fact that we have a strong project management team there that can help us to grow some of the same type of projects that we're doing on the Hetsco side.

So we're going to try to see how we can create some organic opportunities there and diversify their portfolio a little bit, too. So it's not just dependent on the nuclear business.

What is the drivers of the business in terms of capital investments? Is it more this Fukushina or is it license renewals, upgrades?

What are you guys looking at?

It's probably going to be Fukushima. A lot of the upgrades have been done, a lot of licensing projects have been done.

I think a lot of it will be Fukushima going forward. And then certainly, as they take some of the aging equipment off site and do other upgrades on a case-by-case basis, but most of the upgrades that were done for generation had been done for a lot of these.

Okay. And then, David, just one last question.

In terms of cash flow, it seems a little lighter than I expected. Are you expecting those receivables to continue to trend downward?

Yes, we do. We do, obviously, the photograph and the yearly, we -- I do expect us to be -- continue to have good collections on receivables from some of our fourth quarter and first quarter shipments.

So we do expect to be a good cash flow generator this year from operations.

Okay. Well, thanks very much for joining us today, and we look forward to speaking to all of you soon.

Have a good day.