Williams Industrial Services Group Inc.

Luis Manuel Ramírez - Chief Executive Officer, President, Acting President of the Services Division and Director David L. Willis - Chief Financial Officer and Senior Vice President

Joseph Bess - Roth Capital Partners, LLC, Research Division Jonathan P. Braatz - Kansas City Capital Associates Joseph Mondillo - Sidoti & Company, LLC Paul Dircks

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 Manuel 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 IBI Power, as well as provide an update in our growth strategy, realignment activities 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 the 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 on the company's website or at sec.gov.

Let me first turn the call over to Luis, who will cover the drivers of our second quarter performance, revenue results and market conditions. David will then delve into financial results, our recent acquisition and our 2013 guidance.

And then Luis will close with a review of our goals and strategic objectives, as well as our realignment plans and actions and the focus of each of our segments. Luis?

Thank you, Karen, and good morning. As you can see from our release, we had a really great solid [sic] (second) quarter.

On an adjusted basis, the business delivered $0.13 earnings per share versus $0.09 in the same period 2012. We are pleased with the growth in revenues driven by acquisitions.

In particular, our Electric House Solutions business is expanding reach into higher-value adjacent segments. The recent addition of IBI will greatly enhance our ability to grow in the high-value natural gas growth trend.

As you look at our scorecard on Page 4, you can see that our product revenue has benefited from higher-than-expected demand from midstream oil and gas markets. Our services revenue benefited from increased outage work, as well as $3.2 million of new revenue generated by our newest acquisition, Hetsco.

Our cash level performance was outstanding. We generated $19.8 million in cash in the quarter from operations.

Our acquisitions are outperforming. Our book-to ratios were strong, and we had a great buildup of backlog in both Services and Products.

So if you go to Page 5, despite expected market conditions in the OEM power segment, which we all knew, our strategy to expand margin through simplification and acquisition is beginning to really generate results. As you can see, we had a solid performance in revenue in the quarter of $116 million, $20 million of which were coming from the Services side.

We also see strong demand continuing for Products in the oil and gas pipeline industry, and our latest acquisition of IBI will also help us to improve our ability to address that increased demand. Now I'd like to hand it over to David.

Thank you, Luis, and good morning, everyone. If you turn to Slide 7, you can see our Products division's second quarter 2013 revenue of $36 million broken out by geography and by end market.

Our product shipped globally in mixed areas, with energy infrastructure development in the geographic markets we serve. The Middle East and North America were both very active during the second quarter.

Each of those markets representing about 41% of product shipments. Koontz-Wagner, acquired in July of last year, and TOG, acquired in September of last year, both have a revenue concentrated in North America, while spending on power generation infrastructure continued at a high level in the Middle East.

With respect to end markets, auxilliary products supporting utility scale turbines accounted for 71% of second quarter products revenue. The acquisition of IBI on July 9 further penetrates adjacent end markets, and combined with our existing electrical house solutions portfolio, increases our presence in oil and gas and industrial turbine end markets.

On Slide 8, our Service division's second quarter 2013 revenue of $80 million is depicted by market and by contract structure mix. Currently, the majority of our Services revenue comes from the work performed at domestic nuclear power plants.

The 21% of revenue from fossil fuel-fired power plants is primary derived from maintenance and project work on coal plans. The addition of Hetsco, which we acquired in April 30, has extended our Services presence into the natural gas-related end markets, and the partial quarter revenue from Hetsco is represented by industrial gas and gas processing.

The Hetsco acquisition was an important step toward our strategic and growth initiatives as we have added a higher-margin natural gas services revenue stream to our business. The contract structure mix in the quarter were similar to prior periods and is heavily weighted towards cost-reimbursable work.

Please turn to Slide 9. Consolidated gross profit for the second quarter of 2013 was $18.8 million, an increase of approximately $1.8 million from the second quarter of 2012.

Consolidated gross margin of 16.2% was 170 basis points lower from the prior year due to a higher anticipated mix of maintenance services with less capital project work. Products gross profit was $8.6 million, up 7% from the second quarter of 2012, and Products gross margins were 23.8%, flat when compared to the prior year.

Lower household margins on utility scale, turbine, auxiliary equipment were offset by more favorable product mix in the quarter. Services gross profit increased by $1.2 million over the prior year on increased outages at nuclear power plants.

As I mentioned earlier, Services Division gross margin was down by 190 basis points due to the mix of services provided. The addition of our higher-margin Hetsco business for 2 months of the quarter had a positive impact on gross margin of 70 basis points, which partially offset the year-over-year decline in Services margins.

If you turn to Slide 10, you can see that our operating profit for the second quarter of 2013 was $2 million, which is flat with what we reported for the second quarter of 2012. Consolidated selling and marketing expenses increased by $1 million over the prior year to $2.5 million due to the incremental selling expenses associated with the acquisitions.

G&A expenses in the quarter included $1.7 million of acquisition costs that closed during the quarter, as well as another $400,000 of strategic investments in personnel and professional fees for our commercial growth strategy and realignment plans. Excluding these items, second quarter operating margin was 3.5% of sales.

Products Division second quarter operating profit was $1.2 million or 3.2% of sales, with improvements over the prior year related to higher volume and lower operating expenses. For the Services Division, operating profit of $800,000 was down by $400,000 from the prior year period due to increased operating expenses within this segment.

Slide 11 provides some highlights of our balance sheet. Cash generated by operations in the second quarter was $19.8 million, as Luis mentioned, up significantly from $1.3 million in the second quarter of 2012.

Timing on collection of receivables was the primary driver of the increase. Our cash balance was $40 million as of June 30, 2013, up from approximately $37 million at the end of the trailing first quarter.

Capital expenditures in the quarter were $1.7 million, and we continue to anticipate CapEx on order of $6 million to $8 million for the year. We had $20 million of debt on our balance sheet as of June 30, which was used to fund the Hetsco acquisition.

Additionally, to fund a portion of the $19.5 million acquisition of IBI, we added $10 million of debt subsequent to the end of the second quarter. Please turn to Slide 12.

Consolidated backlog at June 30 was approximately $409 million, up from $387 million at the end of the first quarter. Services Division backlog was $264 million at quarter end, up about $6 million from March 31.

This included approximately $2.5 million from the Hetsco acquisition. Services Division backlog consists of maintenance work to be performed over the next 12 months, plus all contracted capital projects.

Products Division backlog as of June 30 was $145 million. This included about $42 million from the 2 acquisitions we made during 2012.

Backlog increased in our organic products businesses primarily due to power generation orders, and increase in the acquired businesses were driven from oil and gas activity. Products Division book-to-bill ratio was 1.4x for the quarter and the year-to-date periods.

Slide 13 provides an overview of why we're excited with the recent acquisition of IBI. IBI engineers, designs and manufactures custom electrical packaging and integration solutions and is a direct bolt-on to our Koontz-Wagner business.

As Luis mentioned, through the addition of IBI, we are now able to better address the increasing demand for electrical house solutions by utilizing excess capacity at IBI's facilities, creating an immediate revenue synergy. IBI also increases our presence in strategically important end markets, including distributed power and midstream oil and gas.

It broadens our product line, electrical house solutions, to include generation sets used in distributed power applications. On Slide 14, we have provided updated guidance for 2013.

We are maintaining our original revenue guidance, exclusive of the Hetsco and IBI acquisitions, while Hetsco is expected to add $15 million to $20 million of revenue and IBI is expected to add $19 million to $24 million of revenue in 2013. Excluding IBI, Products Division revenue guidance remains $185 million to $205 million.

And Services Division revenue guidance, excluding Hetsco, is $300 million to $310 million. We now anticipate that the fourth quarter will be the strongest quarter of the year based on the expected timing of shipments for large utility scale gas turbine auxiliary products.

We are bringing in gross margin expectations to a range of 16% to 17%. That is down from our previous gross margin guidance of 16.5% to 17.5% due to project mix and a more competitive pricing environment in the OEM utility scale markets.

Operating expenses for 2013 are expected to be between $61 million and $62 million, excluding the two acquisitions. That is a reduction from our earlier guidance of $63 million, as we begin to implement our cost-out initiatives in the second half of the year.

The 2 acquisitions are expected to add an additional $11 million to $13 million of SG&A, with about $4 million of that to be nonrecurring associated with transaction integration costs. We are reducing our effective tax rate for 2013 to 15% to 20%, as we expect to have a onetime tax benefit of $4 million to $6 million in the fourth quarter of this year.

Excluding this benefit, our normalized tax rate would be in the range of 35% to 40%. We anticipate capital expenditures between $6 million to $8 million for 2013, which remains unchanged from prior guidance.

With that, I'll turn it back to Luis to discuss our strategic realignment and growth initiatives.

Thank you, David. As you know, our goal is to double revenues and operating margins in the next 3 to 5 years.

Our stated strategy has also been to move from commodity- or product-based type of organization to more of a value-added or solutions-oriented business. We also want to do this by expanding our margins through simplification and organic and inorganic growth.

So in order to do this, we're going to take some actions over the next few months that will help us to increase how we do that in efficient way, and also to create a structure that can better suit us for our future growth. We're going to be closer to the customer.

We're going to deliver efficiency and on-time performance, and we're also good to create a scalable organization that's not only closer to our customers, but also closer to the way in which we need to perform our work. In that vein, as you go to the next page, you can see that we are realigning our businesses into more of a market-facing organization.

Our Services business would be focused on market needs. It will be supporting nuclear energy services for utility, oil and gas and industrial customers, and our Products business will be focused on solutions, including auxiliary equipment and Electrical House.

If you go to the next page, you can see our Services business will be set into 4 customer segments. The first one is the one we worked in for a long time, nuclear.

We're going to continue to work there to build new power plant services and plant asset management capabilities. And then the Energy Services business is we'll be focusing on the utility, oil and gas and industrial segments to expand in the highly lucrative areas that we see around natural gas trends, including ethylene, petrochemical and fossil plant work.

On Page 19, you can see our Products Division will be split up between auxiliary equipment for natural gas turbines and electrical house solutions. We've always seen what the acquisitions under electrical house solutions has been able to do to add more value to our business, and we're going to continue to find ways to invest in product development and performance in both Products and Services as we go forward.

On Page 20, you can see that we are well on our way to creating a growth leadership structure. For the next 6 months, we're going to focus on planning and facilitation.

We expect to see benefits yield in 2014, and we'll see more efficient operations, we'll see some cost-out opportunities, and we'll also see ways that we can help create a scalable organization that delivers for our customers and for our shareholders. We expect that this realignment will help us achieve our margin expansion goals.

There's still a lot of work to be done and we will provide more details regarding the plan by the end of the year. Now I'd like to open it up for questions.

So when I take a step back and start to look at your guys' acquisitions that you did about a year ago, the KW and TOG acquisition, can you talk a little bit about give an update on what you guys are seeing? What your guys' expectations are for that business going forward, and kind of how that compares to where you guys were maybe 12 months ago?

Sure. When we talk about those acquisitions, actually, on the KW side, that sits primarily inside what we now call the Electrical Solutions business, electrical house solutions business.

When we acquired that business a year ago, as you know, we were primarily focusing on the end customer market that was serving the power generation space. And what's happened over the last 10 months is we've seen a lot of the business, and the performance of the business shift to a lot more work around oil and gas pipelines and other natural gas-related activities.

The business is growing at a pretty fast clip since we acquired it. In fact, I'd say, this year, our prognosis looks pretty positive that we'll probably beat the original plan for the business this year.

And with the acquisition of IBI that we just announced a few weeks ago, that's going to add more capacity to that business because we're seeing a lot more order intake than what we had capacity to serve. So it's actually a really good story all the way around.

It's a very good business in terms of how close we are to customers and how we're managing working around the other areas of the business that expanded for the markets that we serve.

Great. And then thinking about the IBI acquisition, how KW fits into that, you talked -- are you able to quantify at all how much you think that the lack of capacity could have bottlenecked your revenue growth in the quarter or for the year?

And when you think about your leadership position with the combination of the 2, can you talk about what you guys see as annual market opportunity for this combination?

Yes. So Joe, this is David.

In terms of the bottleneck capacity, I think we would have a bigger challenge delivering '14 order flow than we really would have in '13. I think we talked in our last call, Koontz-Wagner, the build in their backlog, they were really at a level where they were full up for the capacity that you had available within those operations.

So I think practically speaking, the addition of IBI frees up capacity and creates some upside for that segment, more for '14, necessarily, than for '13. In terms of the facilities, both of those are strategically located in positions where we want to be, particularly, the Caldwell facility really gives us access to west coast project opportunities.

You may recall, freight is typically incorporated into our scope of work for this business. So with the South Bend facility, it was very difficult to be competitive on west coast projects.

So the Idaho facility really opens up the geographic market we didn't have competitive access to before.

Okay, great. And then can you talk a little bit about what the margin opportunity you think there might be for this business with the combination of the 2?

Well, this is -- it's incorporated into our guidance. And in terms of the overall profile of this business, it looks and feels similar to our auxiliary products lines.

Meaning, kind of low- to mid-20s percent gross margins now. As the overall supply chain in the oil and gas sector gets filled up, clearly, some of the pricing leverage reverts to those of us in the supply chain.

But in terms of contract profile, it looks and feels pretty similar to our organic auxiliary products business. Obviously, in a tight market, we get a bit more pricing leverage.

In a down market, you're going to see pressure on prices. But with the oil and gas activities that Luis had mentioned, we're very comfortable with the business right now where it's situated.

Okay, great. And then with the realignment process and restructuring implementation going forward, can you talk a little bit about what the succession plan is at this point in time, with the departure of Ken a few months ago?

Well, one of the things that we did, as I alluded to on the pages that we have in the presentation today is we split businesses in Services into 4 main P&Ls and we are announcing also a new leadership structure there. So we've announced the CEO of the business, Neil Riddle [ph], who's been there for the last few months and really learning the business as he came in, is now going to be running the nuclear services business, and we've also announced that Ted Sellers [ph] who has come in from the outside, will be running the new energy services business.

So we have 2 seasoned leaders with experience in services and really a great platform on both sides that really kick off what we're trying to do with some of the new acquisitions like Hetsco that we just brought in a few months ago. And also to put more feet on the ground for TOG, the acquisition we did last year, which is mostly selling after-market service parts.

So we're really pleased with both the segments right now. We think the way we've aligned the business to be market-facing is going to be a tremendous advantage in the marketplace for us.

Okay, that's great. And then will they be reporting directly to you?

Is that the structure?

Yes, they will.

When we think about -- Luis, when we think about the realignment and some of the things you're going to be focusing on over the next 3 to 5 years, will it require additional personnel, additional investments? And when we think about the goal of achieving the operating -- doubling operating margins 3 to 5 years, is there's some low-hanging fruit that maybe we see a disproportionate share of the improvement in the early years?

Any color on that area?

I think that's a great question, John. One of the things that we started to do earlier this year is we've started to spend a lot of time on productivity programs.

A business that's growing and also expanding its footprint based on the acquisitions and everything that we've been working on in the last few months really requires us now to take a look at that structure and make sure that we're aligning it properly for the market. And then internally, we're going to make sure that we're running an efficient structure for the long-term so that we can leverage it as we go up in sales over time, and the cost hopefully go down over time.

So what we've been doing in the last few months is identifying those opportunities. We do have some things that we're -- some things, the very basic things, like just shining more light on some of the areas of expenditure that we should be shining more light on and making sure we're doing better on that.

We're also looking for lien opportunities. So we're liening out processes in the manufacturing side right now.

We kicked those teams off earlier this year, so we expect that for next year, we're going to see about 1/3 of the productivity programs coming out of the lien activities. And then the other piece that we're going to do is we're going to do investments for productivity.

So we think that some improvements that we could make in terms of capital improvements in a few of the factory locations. And also, I'd say footprint reduction and consolidation, those 2 things are going to require some additional capital expenditures.

But I think, as we're doing this, we're creating capacity with our productivity programs to help fund some of the other programs as well. So that's what we're trying to do.

I'd say we're in the process right now with coming up with a detailed plan, and we should have a pretty good plan to talk about in the next few months with all of you.

Okay. Going back to the Electrical Housing area, how large a market is that in its entirety?

And sort of your combined operations now, how big a player are you in that market from an overall perspective?

We've been looking at that the last few months as well. I'd say the market can range depending on, which market you're serving.

In North America right now, we think the market is somewhere around $1 billion to $2 billion of opportunity with the segments that we're serving today. Obviously, a lot of what we do has a lot of adjacent spaces as well.

I'd say in our segment, we're probably one of the leaders right now in terms of the work that we're doing for oil and gas and power generation. I'd say we're in the top 2 right now based on how combined we are.

So my goal for that business is to continue to invest in the areas around oil and gas, especially around the Gulf of the United States. We have plans to position a location.

We've now got the Hetsco facility down in Houston, Texas. We have the need to open up some more location for this business, for the Koontz-Wagner business as well.

And we also think that some of the Services businesses that we've launched under energy services will benefit from having a consolidated location in that region. So one of the plans, I think, that we'll be talking more about is how we're going to try to do that, try to consolidate some of those activities, which is then going to give us access to another market that we're not working with today.

Luis, when you acquired IBI, I went to the website. And I thought I saw on there that they were maybe thinking about a facility down in Houston, or already had a facility down in Houston?

No, they were in the planning stages of doing that. And what we've done with that is we've continued that planning process with our business.

We were thinking that, John, you may recall, our -- the Hetsco acquisition from the second quarter also has a facility down in Houston. So we're advancing the plans, but what we're really contemplating is trying to find a facility that could accommodate both of our businesses down there.

All right, all right. Sounds great.

And last thing, Luis, you mentioned that -- a little bit tougher pricing in the utility area.

Yes.

How tough is it? And do you see any improvement going forward?

Well, I take a lot of cues from our customers. And as you know, from the OEM market, both GE Power, Water and Siemens recently reported that they're still seeing a lot of pressure in terms of global turbine orders.

So that's one of the main drivers of that comment. And the other comment I'll make is also the utility spending in North America.

I think with the price of natural gas and the challenges of costs going up, one of our customers in the nuclear site told me that in their region, their energy demand is still around 1% for new consumer energy demand, but that their costs are going up 5%. So it's clearly an opportunity for us to help them find ways to be more productive.

And I think a lot more of the products and services in the future that we'll see, that will be offering to those customers will be related to that. How can we do better on productivity at the customer site and also help them create some capacity for what they need to do and invest?

So those are the challenges that we see right now in that market.

Just to jump on that last question, how does the actual backlog of, I guess, nat gas power capacity expansion projects, how does that look from your vantage point?

This is -- Joe, so on the OEM side, our -- within our products backlog of $145 million, about $42 million of that was related to the acquired business of Koontz-Wagner and TOG. So that mix of that $42 million is going to be heavily weighted towards oil and gas.

And one positive we did see in the quarter, that organic backlog also grew in the second quarter, which is really the OEM utility scale turbines that we've been talking about, and that was $103 million as of the end of the second quarter. As Luis mentioned, the pricing there is a bit competitive right now.

I think the outlook of both GE and Siemens have referenced in their calls is still less than clear, but it -- with respect to just timing of orders, we were pleased that in the second quarter, we actually had to build on backlog, both in our organic products business, as well as in the acquired businesses.

I was actually asking, what -- is your -- from your viewpoint, the actual construction of these nat gas power plants, could you give us a better idea since we don't necessarily see everything, what the sort of timetable is of the backlog of construction projects going out sort of a flattish over the next couple of years from this sort of depressed state that we're in? And then you see an uptick maybe in 2015, or sort of what does that construction backlog look like?

That's a good question. What we're seeing from Siemens is a lot of activity happening, picking up at the end of next year.

Projects that were kind of on hold are starting to be more proactive on the bidding process. So we're seeing that.

On the GE side, as they reported, they think next year is actually going to be a down year for their business overall. But we are still getting orders.

And so I think the quality of the information that we see is about as good as you right now in terms of what our OEMs are telling us. But I think this plans for GE to announce a new gas turbine at some point in the next couple of years that they put out, so I think that, that probably will be a turning point for them.

But certainly, we're also getting a lot of activity from the other major player, Mitsubishi, which is also establishing a new manufacturing center in Savannah, Georgia. And they've got -- they've already won a few orders.

So I think the market is definitely shifting right now between the players. But I'd say that for '14, it looks flattish to this year.

And I think for '15, we're not sure yet. We are going to have see how that plays out.

I think that's right. The only thing I'd add to that, we talked about Middle East being a very active market in that space for the last several quarters, at least recently.

We have seen more projects destined for North America in that space. So I don't think we've seen enough to call it a trend.

But in terms of the mix, we've seen more order flow coming in for North American projects than what we saw probably 90 days ago.

How about in terms of the sort of coal -- anti-coal type regulation? Could you talk about what your thoughts are on how much that's going to affect things, and sort of what the timing is?

Do you know what it could be?

We've seen earlier this year, we saw Southern Company announced that they're going to shut down several plants in their region. And we've also been reading a few others like that.

It really depends on the IPPs that are still out there, these individual plant owners that are out there who may still be in that region, and we have seen some movement there. We have heard from some customers that they are starting to take the files out and take -- get some ideas for new construction.

But I think right now, what I see is the same thing that you see. It still seems to be really dependent on power generation demand increasing more than anything.

And the coal-fired plants will be retired. I think we're launching a business as a part of our energy services business called lifecycle services, we're going to be focusing on that work as well.

So I think we -- we that, that's still an opportunity for us on the other side as well. So we're looking at that.

But I think until there's more clarity from the administration on how they're going to enforce their EPA rules, that's going to continue to be a question for us.

And then in terms of the Products Division now, with IBI, say, a full year of revenue, what is sort of the breakout look between legacy gas power business and the electrical housing? The percent of...

I think. We're still -- so the auxiliary products for natural gas turbines, Joe, are still going to be a higher scale, at least in the near-term.

That's going to be the majority of the revenues for our Products segment. In terms of does that ever switch?

That's the function, if the OEM utility scale turbines markets continued to decline, obviously, then our package control housing unit could represent more than 50% of revenues. But with the new configured Products Division and the acquisition of IBI, I still would expect auxiliary products to comprise more than 50%, maybe even more than 60% of our annual revenues at the moment.

Okay. So it's maybe 60-40, 65-35?

That's probably a good barometer. And based on the timing of when we see demand for new natural gas power turbine power plants and the growth we're seeing in oil and gas, that mix could change, but I think that's a fair run rate for kind of where we're at right now.

Okay, great. And then the reorganization plan.

I understand what the possibility in terms of top line synergies. But I believe in the press release, you mentioned a possible cost savings.

How significant is this going to be? And I guess maybe by the end of the year, we might be able to quantify that?

Yes, I think we're -- that's sort of -- our plan is to quantify that in the next 2 to 3 months. We are working on that right now.

I think it'll be significant for us. I think it'll create the productivity that we hope to create with those programs, and that realignment will create the capacity for us to grow.

That's really the plan. We said earlier that we're going to grow our margins over the next 3 to 5 years, 2 ways.

It's going to be through simplification and cost-out and through acquisition. So next year, we'll do a lot more on the simplification side.

So I guess my first question relates to the legacy Products business. Obviously, as we've seen in times past, some of the shipments can be privy to delay.

I just wanted to ask about your visibility there and your confidence in the shipments going out in the fourth quarter, or what risks are there that they may be pushed out a little bit?

Well, Paul, I think on our last call we were really expecting second half earnings to be the key driver for the full year earnings. Now the shape of that has changed a bit for reasons that you're exactly asking about and it's just timing of shipments expected in our auxiliary products.

Some of those have slipped from September into October driven primarily from customer requests. In terms of overall risks, if something slips out of '13 into '14, it's no higher or lower than it's been every other year.

I don't recall what we've got slotted to ship in the back half of December. But it's not -- there's no significant movements or systemic risks that we're experiencing today that we don't have every year in terms of the timing of the movements of these projects.

Okay, that's very helpful. I guess also in second quarter, your cash generation was strong.

And I just wanted to know obviously, a lot of things are in flux, adding IBI, Hetsco. But what are your -- some of your working capital and cash flow expectations here over the back half, and maybe looking forward as well?

So I think on the last call, we were estimating cash flow from us, for the full year kind of north of $35 million. So I think we're still in that $35 million to $40 million range.

We had strong cash generation in the second quarter, primarily from the collection of receivables from fourth quarter '12 and first quarter '13 shipments. So I don't see material deviations from that as we sit here today.

Right. That's really helpful.

And one more. This one is for Luis.

Luis, you've been there at Global Power now just over a year. And I guess, speaking broadly, obviously, you've touched upon the reorganization and some of the details will still be coming.

Was the plan for you, maybe in the back of your mind, or perhaps the evidences helps [ph] you earlier in the process. Was the plan always for you and your view to do a bunch of acquisitions than take a time-out to reorganize business?

Or is this something that just kind of grow organically as you were going through your evaluation of Global Power, its markets, its products and where some of the growth opportunities might be?

No, I think this was more a grow organically, the latter. I mean, when we started 1 year ago, now 13 months ago, the business was very focused on a very narrow set of end customers, and we had a narrow set of products and services offerings.

And when we started to do the acquisitions, it was -- the intent was to expand our markets and expand our product and services opportunities to help us to balance better the flows and the cycles that we see in our core business. And as we did that over the last few months, now we have several locations, we have more business units, we have more complexity, it was a natural time to really go back and say, "Okay.

Now, let's take a timeout." Let's realign for the market because the markets have changed and some of the business models are evolving, and really think about how we can do this in a much more efficient way now that we have the scale question kind of under control.

So that's what we have been doing. It was a natural kind of evolution.

And it is deliberate now that we're looking at productivity and cost-out programs and other things that are going to help to expand our margins for next year because now we have, I'll say, a good base for that. But the goals are the same for us.

We're going to still do acquisitions in the future. But for now, I think that timeout is the right thing for our business.

Absorb it, grow it and make sure that we've got a position for efficient growth, not just for growth, and that's the goal of the business.

That's certainly very helpful color. One more, if I could tack on to the end of that.

Are there any particular risks or things that you have in the back of your mind over the next couple of years as far as what Global Power can do in this realignment? What are the various risks that you seeing to your execution of this program and -- as of now or the next few quarters and into the next couple years?

I think the biggest risk of any plan is always having the right horses, having the right people to do it and making sure those people stay for the long run. So we're making sure that as we take a look at the realignment, we're also taking a look at skills and people and leadership and things like that to make sure that we've you got the right horses in play.

And you can never have good enough people, and that's one of the challenges with any business and that's what we're focusing on the internal side, is making sure we got that covered. But if I lose any sleep at night, it's always going to be around that.

I just have a few follow-up questions, if you will. So the Products Division, in terms of the SG&A cost that you saw in the second quarter, they seemed -- excluding the onetime acquisition-related cost, it seems pretty low.

Is there anything specific driving that? And if not, it's -- off-hand, it seems like the second half sort of implied guidance seems a little high in SG&A, but maybe I'm looking at it a little off.

Yes, so in the quarter, Joe, we had higher amortization from the prior-year acquisitions. So that's a net increase.

But what we really had is we took some cost out of our organic business that was largely offset with the incremental run rate from prior year's acquisitions. So within the quarter, the Products OpEx was more or less flat compared to the prior year.

Oaky. And then the IBI and Koontz, I was wondering, any cost-saving synergies related with those 2?

That's one thing we're going to take a look at in terms of our footprint. Right now, I don't see a lot of natural ones, but we are looking at the manufacturing processes.

One thing that -- we were just there this week and toured and they've made tremendous progress on the integration, everything is working well. But we think that we need to do a little capital investment and some lien work to get the production processes that we use at a more efficient way.

And that's something that we'll probably see as part of our plan that we talked about for next year, is some work around that. But the other piece of that business, they're growing.

In fact, again, the capacity question has been a big one for us to deal with as we've been growing the business. And with the acquisition of IBI, what it's really given us is 2 more outpost and more access to market than what we had before.

So I see that business continuing, but we are going to take a look at the way, the flow, the workflow, how we do things in the manufacturing side to help us achieve some productivity there.

Okay. And then, just lastly, the Services business.

I missed how the sort of legacy, I guess, organic orders, so excluding the Hetsco, how did that perform? And how are you looking at this possible benefit from increased regulation maybe related to Fukushima?

How is that looking down the pipeline?

So Joe, on the -- within the quarter -- so Hetsco was acquired April 30. So within that quarter, the lion's share of the revenues are going to be our organic business.

I think Hetsco contributed directionally $3 million of revenue in the current -- in the second quarter. And the order activity is very much the same thing.

Those Q2 orders for the Services Division were around $83 million. Again, directionally $80 million of that came from our organic business, with the balance coming from Hetsco.

A lot of Hetsco business, probably 50%, is very short-term cycle emergency repair work. So half of their business, you're going to see the traditional backlog fabrication projects.

But more than half their business really will hit backlog in a reporting period. They did a phone call, they've deployed welders to do emergency repair work.

It actually hits revenue and never really runs through the quarter end backlog. So that's a little bit -- their backlog, as a percentage of the revenues, is going to be kind of a lower percentage than what I would say is our organic business has been.

Okay. And then, could you talk about the possible increasing of regulation?

Or is there any benefit that you may see from that?

So we're starting to actually to see our first order activity of real Fukushima modifications come through. And we haven't yet closed those deals.

But we suspect that they're going to be something that we'll talk about in the coming quarters. And we think that, that's starting to now become a reality for sure.

So that will happen. As I mentioned earlier, on the nuclear side, there's still a huge amount of cost pressure out there with the operators.

Their costs are going up 5% a year. Their demand for energy is not going up that much.

And so they're starting to -- again, they're looking for ways to improve and get more productive. So the Fukushima modifications are coming.

We're starting to see them and we're starting to see more activity there than we have seen in previous quarters.

And just a follow-up on that. So what is your sort of long-term, I guess, maybe 2-, 3-year annual, I guess, top line growth expectations in that segment?

In the nuclear segment?

In the Services, just overall, I guess.

Overall, I'd like to see our business doing double-digit growth every year in Services. I'd say before we did the acquisitions, we had less opportunity for organic growth and then the new acquisitions and the new configuration of energy services.

We actually have a tremendous opportunity for organic growth now, both by geographic growth, as well as by Services growth in adjacent markets. So we're pretty excited about that business.

But right now, the plan for us is to continue to invest in those businesses that are going to see that kind of growth rate over the next 2 to 3 years.

Thanks very much for joining us today. As we said, we're going to be coming out in the next few months with more detail on our simplification plans and what the impacts of that will be for our business.

The goals remain the same. We want to grow margin and expand margin over the next 3 to 5 years through simplification and through acquisition.

And as we've said earlier, we're going to take a time out from acquisitions and make sure we're getting more work on that simplification side right now. So I appreciate all of you, and thanks very much.

We look forward to talking to you again soon.