Williams Industrial Services Group Inc.

Shawn M. Severson - Managing Director, The Blueshirt Group LLC Luis Manuel Ramirez - President, Chief Executive Officer & Director Raymond Kershaw Guba - Chief Financial Officer & Senior Vice President

Bob J. Labick - CJS Securities, Inc.

Chase A. Jacobson - William Blair & Co.

LLC Jon Braatz - Kansas City Capital Associates George Walsh - Gilford Securities

Thank you, and good morning, everyone. We certainly appreciate your time today for fourth quarter and full year 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's 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 number two.

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.

The risks and uncertainties and other factors are provided in the earnings release as well as other documents filed by the company with the SEC including the 10-K filed this morning. These documents can be found at the company's website at sec.gov.

So with that, let me turn it over to Luis to begin. Please go ahead, Luis.

Thank you very much for joining us this morning. As we start the discussion today, I'd like to have you go to page four of our presentation, the year in review.

As all of you know, 2014 was a pivotal year for Global Power. We achieved target revenue and also grew our EBITDA 25%.

We also simplified the business, leveraging functional expertise and streamlining the organization where appropriate. Our Lean programs delivered new productivity, capturing $7 million of net productivity both from improvements that we've made in our B-Mex operation in Mexico, our Lean design for manufacturing and other process improvements across the portfolio.

We also reduced our ERPs and consolidated back office functions across the organizations settling on two platforms, one for our services business and for our product business, and we'll talk about that shortly about investments we're making there this year, to improve those two systems. We continue to reinvest in the business.

With new product development, we designed a new filter house. It was a process that started back in 2013, and started to yield real benefits both to customers and to the manufacturing process that we used to improve.

We also developed more capacity and developed new efficiencies, investing in our Hetsco facility in Indianapolis and recently, purchasing the Siemens business down in Houston, Texas, that will help improve capacity for Electrical Solutions business. In addition to that, we also expanded our customer base and continue to do so in the NatGas and Equipment Services markets, delivering higher value solutions for our customers and also ultimately capturing higher wallet share as we can see from the revenue results.

On page five, this is our overview over the end markets that we serve. As we set out to do this new process and strategy for the company back in 2012, one of the challenges that we've set for ourselves was to expand our customer base, and also expand the products and services capabilities of our operations, so we could serve markets beyond just power generation.

As you can see from the pie charts on the top of the page, in 2014, the revenue that we generated of $538 million was broken out 70% in the traditional power gen markets where we serve both end products and our auxiliary products and also in Nuclear Services. But in addition to that, we now have 30% of our portfolio coming from oil and gas and industrial and infrastructure projects respectively.

So we started to make real progress in diversifying and expanding our customer base as well as improving the capacity of our customers' products and services. And despite the headwinds, we were able to grow revenue between 2012 and 2014, 16%.

On page six, you can see the full year of 2014 results. Our consolidated revenues, up 11% in line with management expectations and also driven mostly through our reenergized commercial team, investments that we made at the end of 2013 to make sure that we were going after the appropriate markets and serving our customers and different segments.

Our EPS is consistent with expectations at $0.65, driven also by product impacts and project mix impacts and an unusually low tax rate last year that doesn't repeat in 2014. So overall, solid financial results for 2014.

Now I'd like to hand it over to Randy Guba so he can explain to you more of the details around our performance. Thank you.

Randy?

Thank you, Luis, and good morning, everyone. Please turn to slide eight, where you can see Product Solutions' full year 2014 results.

Revenue was up 6.8% over last year on growth realized by our Electrical Solutions and Auxiliary Products sales. The revenue growth in our Electrical Solutions group was primarily the results of including a full year of IDI revenue in 2014 as opposed to six months in 2013.

The revenue increase in our Auxiliary Products group was driven by increased commercial efforts. The pie chart shown here depicts 2014 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 $2.1 million and gross margin as a percentage of sales was down from 22.7% last year to 20.3% in 2014.

The year-over-year margin decline was primarily driven by a decrease in the Electrical Solutions group gross profit attributable to inefficiencies from capacity constraints at one of our factories. Turning to slide nine, you can see that Energy Services' revenue was up by approximately 69%.

The revenue increase was primarily driven by midstream oil and gas market project work, our alliance contracts, and Hetsco construction and fabrication products (sic) [projects]. Gross profit improved by $5 million and gross margin as a percentage of sales was up 90 basis points.

The year-over-year margin improvement was largely attributable to Hetsco revenue mix coupled with higher margin project work in the year. The pie chart in the top-right quadrant illustrates the diversification of revenue sources for Energy Services.

The most notable item on the chart is the 21% from the oil and gas end markets. We continue to gain momentum in the midstream natural gas infrastructure segment, driven by our integration and commercial sales approach across the segments.

Turning to slide 10, Nuclear Services' revenue was up due to the completion of a large fixed-price project in the year, which contributed $23 million of revenue. Gross profit improved $2.9 million year-over-year and gross margin was up 60 basis points.

Our gross margin improved as a percentage of sales during the year as we achieved operational efficiencies. On slide 11, we have a summary of our consolidated results for 2014 compared with the prior year.

Higher gross profit resulted from improved margins in our Energy Services and Nuclear Services segments, partially offset by lower margin at our Product Solutions segment. Total operating expenses for the year were $74.7 million, up 1.8% when compared to last year.

As a percentage of sales, operating expenses declined to 13.8% from 15.1% last year. Adjusted EBITDA from continuing operations increased approximately 25% to $30.2 million from $24.1 million last year.

Adjusted EBITDA margin improved by 60 basis points to 5.6% in 2014. Turning to slides 12 and 13, we have a summary of our consolidated results for the fourth quarter of 2014 compared to the prior year.

Revenue increased 23% from $174 million over last year as both Nuclear and Energy Services business segments posted solid growth. Gross profit was 27.4%, or 15.8% of sales compared to 20.8% last year.

The decline in gross margin was driven by the inefficiencies due to capacity constraints at one of our factories and mix related to growth at our lower margin projects. Total operating expense for the quarter were $19 million, down 1.2% from last year.

As a percentage of sales, operating expenses declined to 11% from 13.6% last year. Adjusted EBITDA from continuing operations was $10.4 million in the fourth quarter compared to $13.5 million in the prior quarter.

Adjusted EBITDA margin as a percentage of sales declined by 350 basis points to 6%. Turning to slide 14, we see several metrics demonstrating the strength of our balance sheet.

At the end of December, we had nearly $9 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 $99 million and repaid $77 million in 2014.

We used $9.7 million of cash for operating activities in the year and we paid $6.3 million back to our shareholders as dividends. Our stockholders' equity was $281 million.

Capital expenditures were $7.6 million in 2014. We anticipate 2015 to be in the range of about $10 million as we invest in our ongoing growth margin expansion and IT systems infrastructure.

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

Thank you very much, Randy. If you go to slide 16, you can see the backlog performance.

At the end of 2014, we ended the year with about $389.4 million of backlog. The Energy Services business continues to focus on midstream and oil and gas market project work and about 100% is expected to convert into revenue in 2014.

On the Product Solutions segment, pipeline for the new projects and equipment is robust entering 2014 with approximately 89% expected to convert in 2015. In Nuclear Services, outages declined for the year, approximately 84% expected to covert in revenue in terms of backlog.

However, we also expect to focus more on delivering projects and aftermarket work to help to offset some of the reductions in outages. On page 17, is our 2015 guidance for the year.

In 2015, we anticipate consolidated revenues to deliver between $550 million and $600 million. Product business will be driven by an improvement in market penetration and power generation in energy markets.

Our services business will continue to grow through our industrial and Hetsco businesses. Gross margin improvement as a percent of revenue will be 20 basis points to 30 basis points from 16.9% in 2014.

SG&A as a percent of sales is expected to be flat in 2014 as compared to 2015. This morning, we heard some good news that we won $50 million of new orders in the Nuclear business and a press release should be coming out soon on that.

In 2015, we also expect to progress in a similar fashion to 2014 with the second half strong relative to the first half. I would also like to point out that the first quarter will have some headwinds, compared to last year's first quarter, specifically the first quarter will be impacted by timing of backlog in Auxiliary Products and incremental costs related to the recently announced Siemens acquisition.

If you go to page 18 of the slide deck, our key initiatives for 2014 will continue to be simple and clear, we continue to drive organic growth between 5% and 10%, expanding our aftermarket and electrical products division. We expect to deliver net productivity gains of $3 million to $4 million, with positive contributions by lower cost of quality, better design for quality, better back office consolidation and supply chain results, offsetting inflation, price and other investments.

We will also continue to expand our business along the energy value chain, both organically and inorganically. And very important for the future play, we will continue to drive free cash flow across the organization.

Our play is the same, to deliver earnings growth in 2015. Thank you very much.

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

Good morning. Can you hear me?

Good morning.

Hi. Great.

I just wanted to start, last call we talked a little bit about three areas of targeted organic growth including Middle East, Mexico and then Houston you're going to talk about as well. I know that was actually quite a while ago, and there's been a big change in the macro environment.

Given the lower prices of commodities, can you just update us on those three targeted areas for growth?

Sure. Last year around the September timeframe, we set up an agreement in the Middle East with a company there to deliver us long-term market coverage as we tried to expand our services offerings in the region.

We saw opportunities both in the Hetsco part of our business with brazed aluminum welding and we also saw opportunities with the aftermarket. We also have a sales person, that's today headquartered out of Egypt who is also working together with that resource in the Middle East to develop a longer term market play there.

We still see that as a very viable part of our business segment. As you know, we have a lot of installed base through our Braden business out there and now also through the Hetsco relationships that we have in the region.

So we still expect that to be part of our organic growth strategy over the next couple of years, and we're spending lot of time with John Durkee, the leader of our Products business and also Ross Marcoot, our new leader for Services to deliver those opportunities in the commercial side. In terms of the Houston market, as you saw, we announced fairly recently that we had just purchased a business from Siemens that specializes in delivering and building electrical houses in that marketplace.

It was a very important part of our strategy to be close to the Gulf of Mexico, and it continues to be. We do a lot of projects that are in the midstream and the downstream side of the oil and gas segment, whether it's in pipeline build outs or refinery work, et cetera.

So, that continues to be part of our long-term strategy and we see continued proposal activity on the electrical side going into the share in a very robust level, so we expect that that will continue to provide us with organic opportunities there. And in Mexico, we just recently finished coordination between our electrical business and the Mexico facility to start building some equipment down there for our electrical business, particularly where we do work on the electrical generation side.

We do some projects in the data center business, we've manufactured some tanks and some other equipment that goes together with the diesel turbines, uses backup power for that part of the industry. And we're actually launching that this year and production is starting this year in Mexico for that market as well.

So, we've kind of launched these things in the last few months as we've been closing out the year and now starting the year. And we feel pretty excited that these organic activities should yield some positive growth as we think about the next couple of years.

Hey, Todd (sic) [Bob], I'd also mention that part of the Middle East opportunities for us you recall we've been talking about in our Auxiliary Products business the aftermarket segment that we're looking to grow, that's also going to be an area that's ripe for growing the aftermarket in the Middle East.

Okay. That was fantastic.

Thank you. And then shifting gears a little bit, just you mentioned I guess in your prepared remarks and the release that Products Solutions your gross margins were behind expectations and you identified a plant and some inefficiencies there.

With that being identified, why aren't we seeing a little bit greater gross margin recovery in 2015 in your guidance? Are you being conservative?

Are there other headwinds or what's kind of baked into there or how long will it take to fix?

I'd say that that when you look at 2015, we've got mix issues that impact the overall gross profit margin rate. I think that there is certainly some – in the guidance that we've given you, there's obviously some caution reflected in terms of what's going to happen in the marketplace in 2015 and that's kind of why the range of the revenue is where it is.

We do think Products Solutions is going to be back to where it needs to be and we do think that the guidance and the direction that we've given you is where we're going to be at this point in time; a lot of unknowns for 2015.

Right. Got it.

Okay. Last one and I'll get back in queue.

You highlighted this on the third quarter call that the strong revenue growth would eat up some working capital in Q4. Could you just give us some expectations for the recovery that working capital or free cash flow – cash from operations in 2015 and where you are looking right now in terms of CapEx for 2015?

We actually had a pretty strong December in terms of shipments and billings and just shipments without billings that impacted both the receivables and the cost in excess of billing. And that made up a bunch of working capital, as we had expected.

We expect that to turn around in first quarter and we are seeing that as expected. The capital expenditure estimate for the year for 2015 is going to be $10 million.

As you may recall, we have a covenant max of $10 million. We actually came in a little bit under where we thought we'd be this year at the $8 million figure that we resulted.

But given the growth initiatives that we have going forward, including some of the IT infrastructure projects that we're working on right now, we're going to be spending about the $10 million in 2015.

Great. Thanks very much.

Yep.

Thank you.

Hi. Good morning.

Good morning, Chase. How are you?

Good. So following up on the working capital question and the improvement that you expect to see, can you talk about the location of your cash balance and particularly what your outlook is for U.S.

cash, how you are going to work on that in 2015?

Yeah. Most of the cash, it's really split between U.S.

and Europe and we only have about $10 million of cash in hand at the end of the quarter and that's basically where it is right now. What was the other part of your question?

So I guess just with the working capital expected to improve, should that be mostly U.S. cash that's coming in in 2015?

A fair amount of the cash has been historically over in Europe. We have actually put some tax strategies in place that have allowed us to repatriate some of the cash that's been sitting in Europe as a return on investment effectively, so not a taxable event.

We did that beginning of this quarter and we pulled back about $10 million from Europe and we've been able to use that to pay down some debt. We do have capacity to be able to do more of that in the future up to a certain limit that we have of investment basically in Europe.

So I feel pretty good about the working capital. We're only $45 million drawn on the revolver.

We've got $10 million back from Europe with the opportunity to pull more back as liquidity permits. So I think from a liquidity standpoint, we are in a very solid position for 2015.

Again, we've been able to have a good first quarter in terms of recovering some of the investment in fourth quarter that we had, and I think as we said in third quarter, we expected that was going to happen anyway.

Okay. And looking at the Products business on the auxiliary equipment, gas turbine shipments haven't really grown at all over the last five years or so.

But you did grow this year or you have a better outlook for 2015. Is there a buildup of demand for aftermarket services there and can you just expand a little bit on how Global Power is positioned there.

You talked about it a little bit, but if you could just expand on that, with your new commercial strategies and such, that would be helpful?

Sure. As you know, we spent the last year evaluating some of that marketplace.

We started working after it, and we think about aftermarket for our business, it actually has two components to it. One is coming from the Auxiliary Products business where we have an installed base of equipment that's out and over 4,000 plants around the world.

And then we also have part of that business where we do filters and parts that go into the product. And then we have retrofit opportunities to change out aging equipment and replace it with newer or better designed equipment for better performance today.

Last year, as you know, we started to talk about (23:33) opportunities and we had a couple of customer opportunities there which we're still working on today and have yielded some really great work across our company. The other piece of our business that benefits from the aftermarket is the Services business on the energy side.

We have performed erection commissioning work and maintenance work on some of the sites, as well as a part of the retrofit opportunity. So John Durkee, the leader of our Products business and Ross, I mentioned earlier, Marcoot, who run our Services business, have actually spent some time putting together kind of a commercial strategy and we now have some sales teams that we've put in place on the Products side that will help to promote that strategy and the Middle East venture that we mentioned earlier, we have now hired a full time resource there through this partnership and we have another resource in Egypt that's helping us to also go to go visit customer sites in that part of the region.

So we think that this is a really important part of our organic growth strategy and we also feel that this strategy will yield some great results and also at higher margins as we go through that. So I believe we're starting to see some projects, last year we wanted to get to at least $50 million of proposals out there and we were able to achieve that goal.

And this year, I think, we're starting to see some of those proposals materialize into real projects. So, I think it's going to be an important component of our organic growth strategy going forward and we expect that that will be a nice solid business for us in a couple of years as we go out to that marketplace.

Okay. And last question is on the gross margin, we appreciate the color that you gave on the productivity gains on slide 18, but when you look at the gross margin outlook for 2015, you did mention price as an offset, how tough is competition right now, maybe if you could just kind of compare it to 6 months or 12 months ago, what you're seeing in light of the lower oil and gas CapEx?

Yeah. I'd probably say that the pricing has gotten a lot more pressurized, if you will, in particularly in the Nuclear business.

We're seeing some renegotiation of contracts that have had some pricing pressure that we haven't seen in the past. And then of course pretty much in the industrial side, it's always been a price market that we operate in.

So those are really probably the bigger impacts that we're seeing.

Okay. Thank you.

You're welcome.

Good morning, gentlemen.

Good morning.

Good morning, Jon.

On the Nuclear side, I just saw your press release, $50 million order, can you talk a little bit about the timing and the margin profile you just had mentioned that – Randy you just mentioned that margins were being "pressurized a little bit." Can you talk a little bit about the timing of the revenues of this order and sort of the margin profile compared to the consolidated margins in that business?

I think most of this is going to be executed this year. The margins, we typically pick up margins when we do work and can gain some productivity on the project-related work.

So at this point, I would say that they're mostly reflective of kind of the run rates that we've been seeing. And we would go into these projects, as expected, to see if we can be able to pickup margins going forward and extra project work.

Okay. Randy, is more of it second half as opposed to the first half?

Mostly, yeah.

Okay. All right.

Secondly, what can you tell us a little bit about the Siemens acquisition, some of the financial details and what it might have cost you and sort of the revenue expectations and again, sort of the margin profile of that piece of business?

I would say that the margins are going to be fairly consistent with what we've been seeing in the rest of our Electrical Solutions business. I would say that that in picking this business up, it was sitting in a captive, that it wasn't able to leverage the complete revenue capabilities that the shop was able to do because of it being part of a captive.

And so part of what we're going to be doing in buying this business is giving ourselves kind of immediate access to some volume to go outside of the single customer, if you will, which is going to be able to give us some opportunities to be able to drive volume. It was a pretty good value for us.

You'll see, when first quarter Q comes out, that we paid under $10 million for it. It fits nicely within our portfolio and is one where we can execute very effectively and also access Houston.

You may recall, we've made the point in the past that in that business it's particularly important to be close to your customer. And we've had many conversations with customers that have said this order would have been yours if you guys were here.

Yeah.

So we've actually got a facility now. We are very excited about it.

It's already been integrated. It's actually been a pretty aggressive integration for us from day one.

We actually had all payroll on our operating systems. And so we've basically fully integrated from day one.

And we expect to see revenues initially maybe in the $20 million to $30 million range over time, but we do think that that's an opportunity that can grow in the future if necessary if there's some expansion capacity opportunities that, if we want to make some investments in capital, we could further expand the capabilities there. But step one is really a good solid integration.

We want to make sure that we get it right. We're putting the business over without trying to drive a whole lot more top line through it.

We want to make sure that we get operational control over it. We want to get the integration done thoughtfully and we're actually kind of holding off on immediate orders taken in Houston so that we can make sure that we do this thoughtfully.

Okay. Good.

One last question. Obviously the oil and gas industry is sort of in a state of flux, CapEx spending being cut back.

I know you're insulated a little bit being in the midstream area, but have you seen any work that you were expecting that has been delayed, postponed, anything in that regard?

Not directly with anything that we were already working on or working on for this year. What we have seen is a couple of projects in Louisiana that were supposed to start happening in the next couple of years and I think – diesel conversions and things like that – and I think those have been stopped or postponed, but they're out more a couple of years.

At this point, we're still feeling that the market is there to complete the projects that we started and so we're still seeing that same kind of perspective. But if we see something different, we'll certainly make sure that you guys know about that.

Okay. Thanks, Luis.

That's all.

Thank you.

Luis, back into June of last year, at your meeting in New York, a major theme was the management team you had at that point and the depth of management that you had. And about six months later, I see that you've done some reorganization within the firm.

So, one, could you go into part of the reasoning or what went on there? And two, in the announcement versus the team that was shown in New York, I'm not entirely clear about – I mean I know who is there, but who is not there and what kind of changes there were, because it seemed like you had an impressive bench at that point.

And also, like I say, the reasons for the change, are they market driven relative to what's going on in energy pricing or other factors or are they more internal? Thank you.

Thank you, George. Well, thanks very much for your comment.

We're always looking at the portfolio and trying to find ways to make it a simpler portfolio both for customers and for internal purposes. And over the course of last year, we looked at the services businesses and continued to expand our commercial offerings.

And one of the guys we brought in there was a new services sales leader who has really helped to reenergize that whole team. And in the process of doing that, we also found some opportunities to maybe do some better shared services activities across the organization where we can benefit from having common processes and systems around the organization.

So that really is kind of the nature of that change. So Ross coming into the business is really a guy who knows both the nuclear side and also the entire energy side, having worked in both industries for at least one half of his career and one in the other.

So we're really excited about the change there and the improvement there, and also I think the drive forward there to grow nuclear beyond just the normal customer base that we've had has also put a lot of pressure on and improving our execution and something that we're spending a lot of time on working on today. In terms of the Product business, that's kind of natural evolution as well.

We wanted to – now that we've got about seven manufacturing sites in the business, when I got here we only had really one and a half, I'd say. We need the benefit from having more functionalization in manufacturing and supply-chain, something that we were talking about last year and something that helped us to kind of accelerate that process this year.

So we still have the teams running electrical commercially. We still have a team for the other parts of our business and products and we feel pretty excited about that.

But that was a shift kind of just to simplify and to also make sure that we had maybe a better process to drive more synergies across the organization and that's really all there is to it.

Okay. Thanks.

Thanks, George.

Well, thank you very much for being here on this call today. In closing, I would like to thank all of you and we're really excited about our 2014 performance and are looking forward to updating you on our next first quarter 2015 progress in May.

Have a great day and looking forward to seeing you soon.

Thank you.