Williams Industrial Services Group Inc.

Shawn Severson - Luis Manuel Ramírez - Chief Executive Officer, President, Acting President of the Services Division and Director Raymond K. Guba - Chief Financial Officer and Senior Vice President

Chase Jacobson - William Blair & Company L.L.C., Research Division Robert Labick - CJS Securities, Inc. Joseph Mondillo - Sidoti & Company, Inc.

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

Great. Thanks, Rob, and good morning, everyone.

We certainly appreciate your time today for our third quarter 2014 results conference call. And here with me today are Luis Manuel Ramírez, President and CEO; and Randy Guba, Chief Financial Officer.

Luis and Randy will be reviewing the results of the quarter and also provide a review of the company strategy and outlook. If you do not have the slides that accompany the discussion, they can be found along with our earnings release on the company's website at www.globalpower.com.

The Safe Harbor statement is noted in full on the slide -- Slide #2. As you may be aware, we 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 the 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 on other documents filed by the company with the SEC.

These documents can be found at the company's website or at sec.gov. So with that, let me turn it over to Luis to begin.

Please go ahead, Luis.

Thank you very much, Shawn, and thank you very much for joining us on our call today. As you know, we released our results last night, and all of you have seen them today.

So I'd like to go over some of the highlights on Page 4 of our presentation. So we're very pleased with the third quarter results and the momentum that we've generated throughout the year for the rest of the year.

Our consolidated revenue increased 32% year-over-year with all 3 business segments posting solid gains over last year. Our adjusted EBITDA grew 127% to $10.9 million, and our adjusted EBITDA margins expanded 310 basis points to 7.5%.

We continue to have strong backlog and orders performance, with quarterly orders at $123.9 million. Our backlog at 14 17 -- sorry, $417 million, down 4%, but mostly due to timing of new contracts, which we're starting to see come through in this quarter.

Earnings per share ended at $0.26 versus $0.06 last year with overall year-to-date earnings per share at $0.31 versus $0.03 at the same time last year. Our commercialization activities continue to yield positive momentum as we drive incremental orders on integrated products and services solutions across our portfolio.

And as you know, from the beginning of the year and the end of last year, we've been focusing a tremendous amount of our time and efforts internally on leaning out processes and improving the productivity of the operations so we can continue to expand our margins. On Page 4.

You'll see third quarter results. Consolidated revenues were at $145 million versus $110 million the same period last year.

This was driven by 3 factors. Nuclear Services delivered 39% growth, which is driven mostly by the completion of several large fixed-price projects.

Our Energy Services business continues to benefit from the Hetsco acquisition that we did last year. And we also saw our adjusted EBITDA reflect the revenue mix and improvement of productivity, cost disciplines and the continued view that we're going to focus on margin expansion as we go forward.

So now I would like to hand it over to Randy, so he can talk to you on all the details of the financial quarter.

Thank you, Luis, and good morning, everyone. Please turn to Slide 7, where you can see the Product Solutions third quarter results.

Revenue was up about 6% over last year's third quarter on growth realized by our Auxiliary Products sales. The revenue growth in our Auxiliary Products group was driven by increased commercial efforts.

Our Electrical Solutions product line revenues were down year-over-year due to project timing. The pie chart shown here depicts third quarter revenue broken out by market.

As you can see, the power generation market continues to be the largest revenue source for this segment. Gross profit decreased by $1.5 million, and gross margin as a percentage of sales was down from 24.3% in the third quarter of last year to 20.4%.

Note that, however, the 2013 acquisition of IBI had a onetime favorable impact on gross margin and is a primary driver in the 390-basis-point decrease in the gross margin percentage in 2014. Excluding the Q3 '13 impact of favorable job close-outs from the IBI acquisitions, the Product Solutions gross margin increased 144 basis points in the 3Q '14 period as compared to last year.

Turning to Slide 8. You can see that Energy Services revenue was up by approximately $12 million.

The revenue increase is primarily the result of continued strong performance from the midstream natural gas infrastructure segment. Hetsco contributed $5.5 million of revenue in the third quarter of 2014.

Gross profit improved by $1.4 million. The gross margin as a percentage of sales was down due to primarily to lower-margin project work booked late last year coupled with $400,000 loss related to a previously disclosed single fixed-price contract, which is now completed.

The pie chart on the top right quadrant with revenue by market served continues to illustrate the diversification of the revenue sources for Energy Services. The most notable item on the chart is the 24% from the oil and gas end markets, up from 21% in the prior quarter.

We continue to gain traction in the midstream natural gas infrastructure segment, driven by our integrated commercial sales approach across the segments. Turning to Slide 9.

Nuclear Services revenue was up due to completion of a large fixed-price project during the quarter, which contributed $16.9 million of revenue. The project mix chart in the upper-right corner depicts the structure of our contracts currently.

As you can see, cost-plus contracts continue to account for the majority of the work performed, but the percent revenue contributed from the cost-plus contracts decreased from 92% in the prior quarter to 72% in the current quarter. This is in accordance with our strategic plan where we are working to increase the percentage of work that is performed under the more lucrative fixed-price contracts capitalizing on our execution capability.

Our improved gross margin as a percentage of sales during this quarter was a result of our solid execution on these types of contracts. On Slide 10.

We have a summary of our consolidated results for the third quarter compared to the prior year. Improved gross profit is the result of higher revenue when compared to the prior year's third quarter.

Total operating expenses for the quarter were $18.5 million, down 2.6% compared to the prior period. As a percentage of sales, operating expenses declined to 12.8% from 17.3% last year.

Our earnings per share for the quarter were up $0.20 from the prior year's third quarter to $0.26 per share. Turning to Slide 11.

We see several metrics demonstrating the strength of our balance sheet. At the end of September, we had nearly $11 million in cash and long-term debt of $45 million, representing approximately 14% of total capitalization.

As required by normal working capital fluctuations, we borrowed $36 million and repaid $22 million during the quarter. We used $15.5 million of cash for operating activities in the quarter, and we paid $1.6 million back to our shareholders as dividends.

Our stockholders equity was essentially flat at $279 million. Capital expenditures were $2.2 million for the first 9 months of 2014.

However, we still anticipate 2014 to be in the range of about $10 million as we invest in our ongoing growth, margin expansion opportunities and IT systems infrastructure. On Slide 12.

We are reiterating our 2014 full year guidance for revenue between $525 million and $550 million. We continue to see stronger penetration in the power generation and oil and gas markets, which when combined with a full year of revenue of the IBI acquisition, drive our expectation for improvement in Products Solutions revenue in 2014.

The full year contribution from our Hetsco acquisition is expected to lead to improved Energy Services revenue, and the Nuclear Services business is expected to be impacted by fewer outages in 2014, driving our expectation that revenue will be down modestly in the segment year-over-year. Now in the beginning of the year, we said that we were expecting moderate improvement in gross margin between 20 to 30 basis points when compared to our 2013 gross margin of 17.6%.

And we said that operating expenses as a percentage of revenue were expected to be -- to decline by about 30 to 40 basis points from the 15.1% in 2013. At this point, we still believe we're going to get to the guidance that we provided both from the top and the bottom line.

However, we think we'll probably get there with a little bit less operating gross profit and a little bit less operating expenses, which will be offsetting. So just same place, but we'll just see a little bit different in geography.

That concludes my prepared remarks, and with that, I'll turn it back to Luis.

Thank you very much, Randy. On Page 14, you'll see the consolidated backlog results for the quarter.

We've continued to build backlog momentum since last year when we combined the efforts on our sales and commercial operations to go after solutions and broader market opportunities. The backlog at $417 million is down from $434 million in the same quarter of 2014.

However, we're seeing backlog build up again, and we expect to have all the backlog to deliver the rest of the year. Combined, also, we still see strong performance from the Energy Services teams, as well as the Auxiliary Products teams as they deliver products and build more project backlog for next year.

On Page 15. You can see that our plans and our outlook remain pretty much the same, as Randy mentioned.

Our business realignment that we put in place back in 2013 is really showing results this year. We've started to demonstrate value from the new alignment as well as go after more diversified customers and market segments.

In addition to that, we've continued to expand our addressable markets, and we'll continue to focus on the growth in the infrastructure space here in the U.S. and the broader-term global energy space that we see developing around power generation in some of the developing markets.

Our productivity measures continue to be very important to the growth of our EBITDA and our margins as we go forward. We've completed another 4 lean events this year with more planned later on.

We've continued to perform improvements in our process for delivery and also in capacity creation of our existing facilities. When you go to Page 16.

You'll see the priorities for the year. They've been very consistent.

We wanted simplification. We wanted stable operations.

We wanted streamlined processes and the continued focus on value-added solutions. But more importantly, we wanted to continue to build on the execution that we committed to deliver for the year.

So as we continue to focus on execution for the fourth quarter, we look forward to continued performance and momentum that we built over the quarter and over the last 2 years. Thanks very much.

And now I'd like to open it up for any questions.

Good to see that some of these initiatives are starting to show up in the results.

Thanks very much. We're very excited about the quarter.

I guess, the one thing that I was hoping you could talk more about is maybe the balance sheet and cash flow. Understanding that timing affects working capital, the receivables increased pretty significantly in the quarter.

I think they're up $41 million. And at the same time, I noticed that the U.S., the domestic cash balance is quite low.

So I was just hoping you could maybe talk a little bit more about what's going on there.

Yes, absolutely.

And particularly -- yes, also on the context of how you're going to meet the CapEx requirement for almost $8 million in the fourth quarter.

Yes. No, great questions.

We ended up seeing a fairly significant pickup in revenues in the third quarter. And actually the way the timing of that worked out is we got a very large impact or increase in September.

We actually had $33 million increase revenues in September year-over-year. So that obviously goes into the receivables as we've got payment terms that are generally 30 to 60 days for most customers.

So that's what's driving the receivables. We are expecting a strong fourth quarter in order to be able to meet the guidance that we've been giving.

Obviously, you do the math and you can figure that we're going to have a stronger fourth quarter than we had the third quarter. So that's what's driving some of the investment for the rest of the cash, if you will, in terms of WIP.

So that's what's kind of driving the balance sheet. You can see we've had an increase in debt to $41 million, which is funding that.

We do expect strong collections beginning in the fourth quarter from the third quarter that we're booking, but more likely in the first quarter after the second half of this year winds down. Relative to the capital expenditures, we actually have spent some time this year.

I know we talked about it during the investors call or the investors meeting that we had out in New York some time ago. I spoke about some of the work that we're doing, looking at the infrastructure of the business and the IT infrastructure of the business and putting together a development plan to get us to where we need to be able to scale the business, have the intelligence -- business intelligence that we need real time and generate some back office productivity.

We have completed that review, and we did review it with our board yesterday, and we are planning on moving ahead this year with the beginning spend of that. So that's kind of a back-end-loaded, if you will, initiative that we will be using.

And as we do our projections we just by the nature of the business, the natural timing of the spend for the non-IT-related projects, let's say, just happen to kind of roll up towards the back end of the year.

Okay. That's helpful.

And I guess, Luis, my other question, just if you could give us your take on the markets given the change in oil price and the general macro concerns and if you think that there's any above-average risk of shipment delays in your backlog given what's going on in the market.

Yes, great. Well, obviously, like everyone else in our space, we're all looking at the market data very closely the last few weeks.

And for the time being, we haven't seen a slowdown in any of the projects that we've been looking at for the next year. And certainly, we don't do any real work on the offshore side.

So the immediately -- the immediate concern I would have had would have been what's going on with the offshore market. We're not really playing in that market today.

We're playing mostly on the onshore piece of process, industries, for midstream services and then there's all sorts of infrastructure projects that we've also been doing over the last couple of years now since we went into that market. So it seems to be stable at the moment.

We have been watching the price of crude, as well as the price of natural gas. I'm more interested to see what happens in the price of natural gas here in the shorter to medium term to see if that has an impact, but at the moment, we haven't seen any real impact yet.

It stands to reason that at some point, a cycle that's been running fairly hot over the last 2 years is going to experience some slowness for 1 or 2 quarters, and that's expected, but I don't see that yet being a long-term situation. But like everyone else, I'm looking at that and I'm remaining cautiously optimistic that the markets will continue to serve us well.

But the good news for our business is that we're more diversified than that -- today than we were 2 years ago. So we actually have the ability to do commercial construction work with our energy -- Electrical Solutions business.

We also have other projects -- commercial projects that we do along the energy space that are not just related to the oil and gas side. So the good news for us is that we're still more diversified than we were 2 years ago, but we're going to continue to look at it.

And obviously, as we put our growth plans together for '15, which we'll be doing here in the next few weeks, and we come out with our fourth quarter results, we're going to come back with some more color on what we think is going to happen, and certainly, I'll present that to all of you.

Okay. And just one more if I could.

Is there any update on the supply chain issues in Electrical Solutions? I know you said it would take a little bit of time to play out or to fix itself.

So just, if there's any update there.

Yes. It seems that for the rest of the year, we've got the backlog to deliver our commitment, and we've got the supply chain to deliver the commitment.

So at least for this year, I think that's stabilized, and we haven't really seen that continue into next year so far. I think a lot of the bumpiness was kind of towards the middle of this year when there was a tightness in the market there.

But I think that right now, for what we see in our business, I think we're in good shape for the rest of the year here.

It seems like, obviously, you're on track for the year. And just to go to Randy's last comments in the guidance, I was wondering if you could just expand a little on the gross margin.

Is it a mix of business change? Or has there been other pressures on that, that are going to cause that to be slightly below your prior expectations?

It's a little bit of both. We obviously have had that issue with the fixed-price project that we've been talking about, which is having an impact on Energy Services business.

And then we are -- have been seeing a little bit lower margin work in that particular segment than we have typically seen, which we do expect to reverse. And, of course, in Products Solutions, we've got again a wide range of products that have very different gross margins.

So depending on how the mix kind of rolls out, that can impact the overall gross profit. So -- and the other thing is Nuclear Services, we've had a nice pickup in margins, particularly for the quarter relative to completion of a good fixed-price job.

So that's good execution that's happening there. And it's really more just as you're figuring out where you think you're going to be at the beginning of the year and then by the time you get 3 quarters into actuals, you have another look at the geography and you kind of figure out what's going to work then.

We've been doing a lot of work on the operating cost side, and we're trying to be more productive. And we've certainly been working to take cost out where we can.

We've had a bunch of success with that as well. So I think that's kind of what's driving the geography.

I would say that we've also been very happy with a lot of the results we've achieved with some of the projects that we've been working on. In our BMEX [ph] business, for example, we -- down in Mexico, the manufacturing facility.

We've had some great success in kind of restructuring and re-engineering that business, as well as engineering improvements in our filter houses, and so we're seeing some nice improvements there. And so we're working towards improving the gross profits.

But at this point, we just think the geography will be a little bit different, but we're on our numbers for the top and the bottom line.

Okay, great. And then just -- yes, you mentioned the Analyst Day earlier this year.

Expanding some things you said back then, could you just give us an update on the geographic expansion, I guess particularly, in Electrical Solutions, Auxiliary Products and Energy Services? You discussed different opportunities.

Just globally speaking, where do we stand on that? How does that look for 2015, et cetera?

Sure. We've got 3 activities that we've been doing this year.

About a couple of months ago now, we closed an agreement in the Middle East in Dubai with a company that we partnered with. They're based in Dubai, but they do work throughout the region.

And we're going to use the Energy Services business, including the Hetsco platform, so the brazed aluminum welding repair business. We're going to be moving some people over there, having equipment over there and also quoting jobs.

We now have a sales force that's been assigned to go after some of the local business there. So that process has kicked off already, and we're in the process right now of completing the planning for next year as we officially launch it.

But it's official now in terms of our agreements being signed, and we are now starting to hire and move forward with that process. The second place that we're working on is at the BMEX [ph] site that Randy just mentioned.

As you know, that site has been primarily dedicated to work for filter house construction, stacks and things that we built out of our Auxiliary Products business, the old Braden platform. We now have also started to work down there.

We actually did 2 successful projects earlier in the last 12 to 18 months with the electrical business as a starting point. And next year, we're going to put down a formal sales activity.

We just hired a sales leader that will start selling in the Mexican market, and we also will now be producing product for that electrical business out of the facility that we have down there, which has been upgraded as well. I think you remember we did a CapEx investment last year, which completed this year, around building a new paint booth and putting a new roof over the blasting facility.

In the past, we were doing that work outside, and whenever the weather would change, we would have an issue completing work on time, and that was part of our quality issue that we were facing there last year. So all those things have now been put in place.

And we have what we think is a fairly good world-class type of facility there that will start to produce more products for us for the other businesses. And then the third activity that we're working on right now is the activity that we started last year around what we're doing with the Houston market.

And we've got a couple of things going there, which we'll be prepared to talk about more during the next quarter call. But we think that by the end of the year, we'll have a dedicated plan for how we're going to work in that market with some local presence.

And also, how we're going to build product there as well for some of the local projects that we see happening around the Gulf region. But we continue to see over the long term, that region continues to be an important region, I think, for what we want to go after in the oil and gas space, and that's something that we're going to continue to focus on.

So those are basically the 3 areas. And as we look at our long-range business plan, we expect that those 3 efforts are going to generate some great incremental organic growth for us in the future.

Okay, great. That was very insightful.

Last one, I'll get back in queue. If you could just -- the balance sheet's obviously still very strong, working capital fluctuations you discussed already aside.

Could you give us an update on your acquisition priorities or thoughts for 2015? I know this year was integrate and work and then there was potential to look for something new in 2015.

What's your thinking on that now?

Look, I continue to believe -- in order for me to build good value solutions with products and services, we've got to continue to invest in new technologies. And it's something that we've had a lot of conversations about strategically with our teams.

And even recently, with our board, we did a session over the last few days with our board, where we sat down and did a strategic session and think about what are some things that could derail us in the future and what are some things that we could be doing that could help strengthen our position. And one of the things that we constantly talk about is the need to bring in more technology.

So I'm very enthusiastic right now about a couple of opportunity that we have in the pipeline that we are looking at. And we're likely, as we've told you, we wanted to take a little breather and integrate things and get things back on a strong footing, which we believe we are seeing now and we believe that 2014 is the base year for our business case going forward.

So we're going to continue to do that. But we are excited about some spaces that would complement bolt-on acquisition opportunities for the Energy Services business, as well as the Products business that we have.

So those are -- we're going to continue to look at those 2 areas and in those relevant adjacent areas, but we're going to take a look at that. And as soon as we have some more movement on that, we'll certainly let you all know.

First question is on SG&A. You guys have done a really good job at reining in SG&A, despite having to go through these productivity initiatives.

And I thought it was going to be much higher for the year. And even you guys sort of seem like it's going to come in below your guidance.

It's growing much less than the top line. Can you just expand on that?

In terms of productivity initiatives, anything that was supposed to hit there? Is everything hitting there that you expected?

Just expand on that maybe.

I would say part of the reduction, if you will, in SG&A was discretionary, that we elected not to do some projects, particularly in our techs area, that we had originally planned on doing, and we will probably do next year. And so there's a little bit of a timing, a little bit of discretionary activity happening there.

I would say that, as we think about SG&A across the business, we are keeping a strong eye on the minimal increases in SG&A as we scale the top line and the gross profit of the company. You'll certainly have inflation.

We've got labor, and you got 3% inflation every year just on labor. So it's not going to be flat, but it's certainly not going to grow at the rate that we're expecting the top line and the gross profit line to grow.

The other thing, longer term, that we think we can get leverage out of is when we get these systems that we're talking about in place, that'll give us an opportunity to further consolidate the back office and look at options to be able to further reduce the footprint, if you will, and the cost of the back office. I don't view that as being huge or dramatic, but I do think it's going to allow us to leverage better, take a little bit more cost out maybe over time and really not have to add a lot of cost as we grow the top line.

And in particular, as we do acquisitions, we are finding that we're able to pull their back office into what's going to be 2 kind of centralized groups. There's going to be the products and the services back office.

And we're having 2 because they're different in terms of how they operate. And you really -- it doesn't really make much sense to have a single ERP for both, or at least it's not cost effective.

So long -- short answer -- or long answer to the short question, I would expect SG&A to -- as we invest in techs to go up a little bit from that area. We have some discretionary areas, but generally speaking, we're going to keep SG&A low single-digit kind of growth.

And, Joe, on your productivity question, I think we mentioned a lot -- we're talking a lot about BMEX [ph] this morning because when we started the year, we've started the year with -- BMEX [ph] was at a much higher labor rate, and we had a lot of other cost in there that we were able to go after this year and really generate some true productivity. So one of the things that we're going to do as we go forward is that we're going to see net productivity every year.

And some of the productivity that we're going to get, we're going to use to self-fund some of these improvements that Randy has been talking about, so we're going to be balancing that a little bit, but as you'll see -- but as you saw in the results in the quarter and you'll see, I think, based on our guidance for the year, we're really starting to see real benefit there as well. So we're using some of the SG&A investment to go after productivity.

That shows up in the gross margin line, but as we no longer need that or no longer require that, we move that to some other activity. So I think we're finally balanced there.

I would say when I got here 2 years ago, and even most of last year, it was a very different situation. I don't think we even knew how to spell the word productivity in this business.

So we now do that, and I think that's definitely part of our game plan going forward. And we want to continue to see SG&A as a percent of sales for sure go down and then, as Randy mentioned, as we grow our top line and bottom line, SG&A will always be a much slower growth rate than that.

The additional costs that you were taking on this year related to productivity improvements, where is that -- what line is that hitting for the most part?

For the most part, it's cost of sales. We've been doing some work in the BMEX [ph] area, for example, and it's really engineering work as we re-engineered the, let's say, the example, the filter house.

And the engineering that goes into that has been incurred this year, and we've been actually seeing about a 1-year payback on that. So we've been pretty happy about that.

And of, course, that's the gift that keeps on giving and as we grow volume there, we'll continue to reap the benefits of that. And in other areas, we've just been able to do productivity initiatives with just a base load of people whether it's SG&A people or billable people that -- Electrical Solutions, for example, just good lean events.

It's just taking the existing people that we have and spending a couple of days on lean initiatives and then getting them back to work.

So that brings me to my next question, which just in terms of the gross margin, specifically, I guess, on Products, but also Energy Services, a little bit lower than I was expecting. Is that large -- is that more so because of what you're spending on productivity?

Or is there also a product mix issue there? If you could expand on those 2 segments' gross margins.

Yes. I mean, the Products Solutions business, you recall we mentioned it last year.

We had a bit of an artificial lift with IBI. We had bought the business and they had some favorable job closeouts that spiked the profitability there to the level that we're at.

Without that, it was about a 19% 2013 gross margin. So we actually picked up from 19% to 20.4%, primarily from increased inlet systems, lower discounts and kind of mix in the aftermarket.

So that's the year-over-year. If you take that IBI impact out, I also will say, as we've said in the past, that business has got products that have margins in low double digits, all the way up to very healthy double-digit margins.

And really depending on where we are with the mix of sales, you can have dramatic range in gross profit on average. On the Energy Services side, again, we had some disappointing results from that one project that we had talked about in the first half.

We had another $400,000 adjustment, if you will, or lost contracts that we recorded in the quarter. If you take that out, that's brings the 13.9% in September of this year up to 16.2%, and that's lower than last year's 18.9%, primarily because couple of things.

We've had some lower-margin work, and then we had some work that was a bundled work with our Braden business that had pass-through work -- profits. So it tends to press the margins there a little bit.

So I think on the last call, we asked if you still think you can achieve sort of a run rate of around roughly speaking 18% at that segment. Is that still sort of the goal or a possibility?

I would say, absolutely. I think we're just with that particular business, again, we had some lessons learned from that one project.

That project is done. We're completed with it.

We're not going to see any more pain from there. We had some good lessons learned from it that we've been able to put some best practices in place and corrective actions in place.

So we're very happy with those changes. And then, we're continuing to look to bid and win good work -- good margin work and execute at levels that we would expect to get better margins in.

Okay. And then just going back to Products.

The order book or the backlog that you have there, how does the gross margin compare within the backlog compared to sort of the 19%, 20% gross margin, excluding the IBI inflation look like?

I would say, overall, it's consistent.

Okay. So you're not -- you haven't yet seen maybe benefits from pricing or benefits from volume or anything like that in terms of the order book?

No, we're not seeing any of that [ph].

So, I guess, the environment just has to get a bit stronger for pricing leverage or anything like that for you to see sort of the improvement in gross margin there.

No. I think as we increase our aftermarket penetration in that business, I would expect to see a pickup in gross profits.

And as we continue to work on some of the productivity initiatives that we have in that business, I would expect to see some improved gross margins even if the top line price doesn't grow.

Okay. And then lastly, the Nuclear segment.

That was a big driver of the results in the third quarter, and you're guiding to a similar top line for the fourth quarter, which is very considerable growth for the back half of the year. Going into the year and even in the first half of the year, you guys were very cautious given the weakness within that U.S.

nuclear end market. Could you just update us on your sort of thoughts on what you're seeing?

Are we starting to finally see sort of a rebound or if it was just sort of a lumpy-type project work that fell in the back half of the year? Or just give us your thoughts on what's going on there.

I would say that a couple of things have happened. One, we're benefiting from the investment in the commercial resources that we put in place that's helped us go out and get some project work.

As you saw in the numbers, 75% of Nuclear today is fixed-price work compared to 90%, historically. That's by design.

And we want to go after more project work because it's better-margin work and because we've demonstrated that we can execute in projects like that. So we're very happy about that.

We're very bullish about that. I think we're looking at the nuclear market with an optimistic view that despite the fact that the industry is going to be flat that we can get some more project work and get some more margins.

It's certainly not without risks. There's always risk that you can lose a contract you had out there.

So it's not going to be a panacea, per se, but we think we had a good quarter. We know we had a good quarter, and we would expect to continue to execute in the nuclear space well.

I think, Joe, the other thing I'll tell you. Because we spent a lot of time with our customers over the last 18 months, assessing that -- when all the nuclear customer consolidation happened a few years ago, one of the things that wasn't clear at that point was the impact that, that was going to have on how some of these sites were being operated.

And as you know, with the price of natural gas and all the other factors that we've seen economically, it's been much more difficult to manage a nuclear site with costs going up to 5% a year, and the rates don't go up to fund that. So I think the approach that we've taken with a few of our key customers is to really work with them to try to understand how we can actually improve the budgetary process that we use for targeting outage work.

And how we manage the labor in a consistent way, so that we don't experience cost overruns on their side, but also, we start to see some productivity in terms of the outage execution. And as we do that better, we're also finding -- there's also, it's also creating opportunities to do other projects as well.

And I think that whole mindset is one of the things that's been creating some of the positive momentum in our business. And so we are -- we want -- our commercial leadership wants to have win-win solutions, win for our customers and win for our business.

And it's a new attitude that we didn't have, I think, prior to this last year. So I think that's sending some nice business our way.

And we are also being much more proactive and trying to secure business beyond those sites that were east of the Mississippi. We've been doing work in other states and starting to expand our outlook that way.

So there's absolutely work there to go do, and I think we're starting to win some of that work.

Okay. So in terms of the gross margin there in that business, lately, it's been 13% to 14%.

But given sort of the initiatives that you're taking with the commercial projects and such, can we sort of start to look at this business as more of a 14% to 15% or maybe even a 15%-plus? Or how are you looking at gross margins with that extra initiative?

I wouldn't go there just yet. I think we benefited from a good quarter and a close-out of a project.

So that's -- I'll call a bit more lumpy. Again, 75% is still fixed-price, lower-margin, lower-risk jobs.

So at this point, I would characterize it more as a lumpy quarter than a trend.

I had a question. I was wondering if you could talk a little bit maybe more about the gas-fired power turbine market?

GE recently brought down their order guidance for this year. And is there -- what are you seeing as far as -- as you look out to '15 there?

And then also, maybe if you could comment about the petrochemical buildout on the Gulf Coast? It seems like a lot of these projects, bigger projects, are just now getting into the field, and how you see that impacting your business in '15.

Thank you very much, Marty. I think for the power gen business, what we saw over the last few months is what you said.

Obviously, OEMs have started to come out with their projections. What we are seeing in our business is that, as I mentioned a couple of times in the past, every year is a little bit different mix for us.

Sometimes, we're seeing more projects from one OEM versus another. I'd say this next year we're seeing a lot more projects coming from Siemens.

And so that's helping us balance our outlook for the year. And that's how we're thinking about it as well.

So we're trying to win our fair share, of course, from all the OEMs and work with them to try to do that. But we do see a lot of more projects in the pipeline right now with Siemens.

And so I'm not sure that the overall market is growing, but I think that the work that we're doing is to try to win our fair share from the existing markets -- projects that we see so that we can continue to see more growth in our Projects business, in our Products business. So that's what we're seeing there right now.

I do think that, that slowdown or that outlook is going to probably change eventually. But for the next couple of years, I kind of feel the same way, that it's going to be kind of flattish in terms of total growth, but we probably have a chance to win more business both on the new projects side and also even on some of the aftermarket work that we're starting to see, as we retrofit older sites with equipment and things like that.

On the petrochemical buildout that started here in the last couple of years in the Gulf region, obviously, those projects are now starting to really take off. And I see 2 to 3 years of projects there that certainly are having a positive impact on the business today.

And, obviously, we're all looking to see what's going to be the effect of any change in natural gas prices or crude prices and how that might impact future projects. But I certainly believe that the ones that are already underway are going to continue to be built out, and we're certainly seeing business from those projects today.

I just have a follow-up question. One of the things that was mentioned regarding the gross margin, especially at the product side of the business, was aftermarket opportunity.

And at your Investor Day earlier this year, you mentioned the possibility of upwards of $200 million of -- a new revenue stream of opportunity. Could you just update us on where we're on that and how fast can that come?

Yes, I think what we were thinking about was over the longer term 3 to 5 years, but we are seeing some opportunities manifest. What we've been doing this year is we hired some additional inside sales people to go -- to start selling more.

And we also put together a small team that's been focusing on this. We have won some projects, as you know.

We did a few projects, one where they're not showing, and a few others this year that were actually quite important for our development of that market. So we've been putting our feet in the water this year mostly.

Our plan right now is to have a dedicated business unit team next year on this whole topic so that they can start to actually not just make the sales efforts, but also investing in how we deliver that to the customer, to the end customer, because it is a different model for delivery than what we typically do for our large-scale product businesses. So that's something that we are investing in.

And we plan on launching that as a separate product line within that segment early next year.

Well, again, thank you very much for your support. We are pleased with the results of the quarter.

Obviously, the momentum for the year has been good, and we want to continue to focus on that momentum into the fourth quarter. As Randy mentioned, we're committed to the guidance that we gave you earlier this year.

And we're also going to continue to work on our plans for '15 and beyond. We should be giving you more color on that during the next quarterly review.

And I appreciate your support and help, and thanks for joining us today. And we look forward to talking to you in the near future.