Williams Industrial Services Group Inc.

Deborah Pawlowski - IR Craig Holmes - Co-President, Co-CEO Erin Gonzalez - CFO Tracy Pagliara - Co-President and Co-CEO

Jon Braatz - Kansas City Capital

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

On the call with me are our Co-President and Co- CEOs Craig Holmes and Tracy Pagliara and our key Financial Officer, Erin Gonzalez. Craig and Erin are going to lead the call with prepared comments and Tracy is here to help us as we get into question session.

We've released after the close of market yesterday, our fiscal 2016 financial results and filed our 2016 10-K which in addition to the usual information regarding the year includes the three quarters of 2016. You can find these documents on our website at www.globalpower.com.

You will also find on our website the slides that will accompany today's conversation. So, if you turn to Slide 2 of the slide deck, I will review the Safe Harbor and cautionary note regarding forward looking statement.

As you are aware, we make some forward-looking statements during the formal discussions as well as during the Q&A. These statements apply to future events which are subject to risks and uncertainties, as well as other factors that could cause 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 with other documents filed with Securities and Exchange Commission. These documents can be found on our website or sec.gov.

During today's call, we will also discuss some non-GAAP financial measures, we believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or the substitute for results prepared in accordance with GAAP.

We've provided reconciliation of the non-GAAP measures, comparable GAAP measures in a table accompanying the release as well as in the slides for your information. So, with that, I will turn the call now over Craig to begin.

Craig?

Thanks Deb and good morning everyone. I want to welcome everyone to the call, I know I have spoken to many of you before, I'm excited to be here with my Co-CEO Tracy Pagliara and our new CFO, Erin Gonzalez.

Tracy and Erin both have broad and deep knowledge about our company, Tracy and I firmly believe that as co-CEOs we can accomplish twice as much, twice as fast as either of us could on our own. We're on a quest here at Global Power as we work to position our company with adequate liquidity for future growth and profitability.

We're committed to aggressively addressing our company's operational challenges while improving customer relationship, attracting new customers and entering new markets. At the same time, we need to establish a stronger foundation for our organization, for our employees, our customers and our investors.

We're putting the right people, in the right position, cutting cost and generating liquidity. While we have hired highly capable people from other organization, we also have great talent throughout our company.

In 2016, we filled key leadership positions in our services segment through internal promotion. In 2017 in our products businesses we elevated new leaders with multiple years of operational, commercial experience within our company.

The leaders of our services and products businesses have great experience and insight regarding the rich history and success of our premier brand, Braden, CFI, Koontz-Wagner, IBI Power and William. They share a passion to honor that history to build stronger businesses, our customers respect these leadership team and know they will deliver on commitment.

Here at the corporate, Tracy, Aaron and Chip Wheelock, our new General Council, all bring multiple years of experience into their new roles. We believe that promoting from within reduces turnover and builds an esprit de corps and a sense of shared destiny throughout our company.

As we integrated our new people with our experienced people, who have a strong base of institutional knowledge, we can quickly accelerate the implementation of improvement. Throughout the company, we have embraced the culture centered around our core values of safety, integrity, excellence and result.

I firmly believe that a common culture built on these core values is critical to success. As we look at our businesses, revenue for 2016 was in line with what we had provided in our preliminary expectations in March.

The decline from year-to-year was mostly related to the services segment which included the loss of an MNC contract in 2015 and the completion in early 2016 of construction and restart project at a nuclear facility. Our US product businesses are focused on working to simplify processes, enhance engineering and project management with new technology while also being selective with new orders to ensure we can deliver quality products on time.

Our mechanical solutions segment is making good progress, it is a long cycle business where a year or more can pass between the bid date and delivery date for certain orders. Our European based business had an outstanding year in 2016, driven by order force industry's leading diverter dampers and a significant aftermarket project in the Middle East.

Our US based mechanical solutions business has effectively recovered two key OEM customer relationships which were lost in prior years. We’ve been off the blacklist for filter houses in the systems that both of these OEMs since late 2016 and early 2017 and today, we’ve been awarded one new filter house order from these recovering relationships and we’re currently seeing an increase in additional opportunities.

Our mechanical solutions segment is a great long-term business. As mentioned in the press release, we have decided to evaluate strategic alternatives for this business including the potential sale of the entire segment.

I’ll talk more about this in a few minutes, but first I’d like to provide a quick update on our other businesses. Our electrical solutions segment has newly appointed leadership with deep operational knowledge and long-standing customer relationships within the business.

The backlog across our three plants remains strong, but we have struggled building large complex control houses in Houston. We do believe our investment in the engineering and manufacturing processes for these complex products will differentiate us and put us in a strong position to grow this product line going forward.

Our standard control houses and enclosure businesses and our South Bend and Caldwell manufacturing plants, continue to be good products delivering solid margin. Our Houston operations have also been impacted by Hurricane Harvey.

While we did not suffer major physical damage, we did shutdown operations for a little over a week, because you couldn’t travel safely in the area and we needed to allow our employees time to begin to deal with any damage to their homes and property. We believe the organizational changes and product investments we’re making in this business should lead to an improved 2018.

Our services segment which is our largest, has done a good job of retaining customer relationships and renewing contract. One of our customers TVA, renewed its services agreement for another five years with our GUBMK partnership.

We received approximately 33% of the earnings of that entity, we also provide fast to provision and craft labor to the partnership. Even though we lost Southern Nuclear MMC contract in 2015, we continue to have a very positive relationship with Southern and we've done significant project work in connection with the construction of the Vogtle 3 and 4 nuclear sites in Georgia.

As you may have heard, Southern and the other owners of Vogtle recently announced their desire to continue construction and we're optimistic that still of our work at Vogtle 3 and 4 could increase significantly this next year. The prime contractor has been selected and Williams is expected to have a significant role in the construction going forward assuming required regulatory approvals are received.

In division, we're diversifying and winning another new contract. We recently won two new contracts worth $20 million from one of our Florida based customers and we just won our decommissioning project.

At a macro level, the markets we serve across our three segments continue to be very encouraging, clean, efficient natural gas is still the power gen, fuel of choice worldwide. We're well position for new construction, maintenance and decommissioning projects at nuclear plants as well as construction and maintenance services at fissile fuel plants and other industrial complexes.

Our electrical solutions segment serves a broad set of customers and diverse market including mid-stream oil and gas, power generation, data centers among others, across all three of our segment our geographic footprint is clearly a differentiator and a strong competitive advantage. Now let me talk a little bit more about strategy.

As I mentioned earlier we're evaluating the strategic alternatives for our mechanical solutions segment. The business has been making progress but we've concluded that our employees and customers would benefit from a new owner with higher available investment capital.

We do believe our shareholders will also benefit from having sales proceeds available to pay down debt and improve the overall capital structure of Global Power. We retained an investment bank to help us with this process but we obviously can't guarantee when or if an acceptable alternative will be available.

While we can't answer detailed questions, or provide additional information at this time, we will provide updates as future information becomes available. So, with that, let me turn it to Erin to further review our financial result.

Thank you, Craig and good morning, everyone. During today's conference call, we will cover our 2016 financial results in detail and will generally follow the presentation part provided.

Towards the end of this call I will provide some high level 2017 preliminary estimates but we still have more work to do before we can share the detailed results of our first and second quarter of 2017. Let me start with revenue and gross margins as summarized on Slide 8 and 9.

In our mechanical solutions segment, 2016 revenue declined by $10.6 million of which $6.2 million were related to the sale of TOG in July of 2016. While our Braden Europe business had a record year in 2016, driven by large diverter and aftermarket orders, our US business continued to be impacted by lower backlog and quality and on time delivery issues stemming from prior periods.

Despite lower revenue in 2016, Mechanical Solutions gross profit was up $6.8 million in 2016 because of better project executions and reduced warranty expense and liquidated damages. In our Electrical Solutions segment, revenue decreased by $17.5 million which reflects $7.9 million of lower control house sales.

Revenue in 2015 benefited from an $9.9 million multiunit generator enclosure shipment. Electrical Solutions gross profit was up $3.2 million in 2016 resulting from reduced operational inefficiencies in our [indiscernible] plant and lower warranty expenses.

As expected, our services revenue declined in 2016, $142.3 million revenue reduction was a result of $65.1 million loss of [molecular] maintenance and modification contract in 2015, for wind down of construction and support services related to the restart activities as a customer nuclear plant and the timing of another customer nuclear average schedule. Despite the decline in revenue services gross margin increased by 1.5% percentage points in 2016.

Please turn to slide 10. Looking at 2016 operating expenses we have made strides in reducing cost to better align with current levels of revenue.

We reduced selling and marketing expenses by $2.6 million related to lower bad debt expense, commissions, travel and recruiting expenses. We also reduced G&A expenses by $6.5 million by lowering compensation expenses and maintaining a strong cost discipline.

In 2016, we also benefited from a $7.6 million reduction of restatement cost. Several significant non-recurring items were included in total operating cost in 2015 and 2016.

In 2015, operating cost included $47.8 million in impairment expenses and a $3.2 million Braden purchase gain that did not occur in 2015. In 2016, $10.7 million was included in operating costs so the net loss associated with the palm and the pending hector sales and the net sales lease back.

On slide 11 we summarized our net operating losses. The company incurred a $33.7 million operating loss in 2016, this loss decreases meaningfully when you add back the nonrecurring items included in 2016 operating cost and the expenses associated with the restatement.

As of note quickly, that the improvements in gross profit percentages and cost containment measurably reduce the operating loss of our product segment. Strong management in our services segment enabled us to achieve an $8.3 million operating income before considering the loss for the pending sale of Hetsco despite a significant decrease in revenues.

As we have discussed in March, adjusted EBITDA was slightly positive in 2016, some of the adjustments were related to liquidity initiatives including the loss on the sale of TOG for loss on Hetsco asset assets held for the sale and the net loss on the sale leaseback. On Slide 14, we've summarized our current debt and liquidity position, in 2016 we generated $17.0 million in cash from our liquidity initiatives and reduced debt at $24.7 million.

In January of 2017 we sold our Hetsco business for $20.2 million in net proceeds which we used to pay down debt. Since the announcement of the restatement in May 2015 we were no longer in compliance with various governance of our loan agreement and no incremental borrowings were available under our revolver.

We refinanced our debt in June 2017 for the $45 million term loan credit facility that expires in December 2021. We expanded that line in August 2017 by $10 million which has a maturity date of September 30, 2018.

This is not an expensive debt; the interest rate is LIBOR plus 9% paid in cash plus 10% payable in time or PIK interest. Our PIK interest were increased by 5% annually on January 1, 2018 if we do not make a $25 million principal payment.

Our cash position as of September 5, 2017 was $29.3 million which includes a $14.0 million restricted cash, to cover our cash [indiscernible] letters of credit and escrows related to the sale of TOG and Hetsco We have been carefully managing our cash position. Our current liquidity initiatives are summarized on Slide 15.

Our first priority is to find ways for each of our three segments to generate more top line revenue and keep a razor-sharp focus on project execution, as Craig mentioned, we are also evaluating strategic alternatives for our mechanical solutions segment which includes [during] the segment. The proceeds from a potential sale will be used to pay down debt and improve our liquidity position.

We’re also working to sell non-core assets including our manufacturing facility in Mexico and our office facility in the Netherlands. We have several other initiatives in process to continue to lower expenses.

We're integrating information systems, flattening the organization and tightly controlling cost in our operations while reducing cost to corporate. We're also actively trying to reduce our restricted cash balance and continue to repatriate cash from our foreign subsidiaries to fund our U.S.

operations. Our objective is to improve our liquidity so we can refinance, with some more favorable debt structure as soon as possible.

Please turn to Slide 16, for an overview of our preliminary estimates for the first half of 2017. Our belief is that 2017 is a turnaround year.

Preliminary first half of 2017 revenue was down approximately $60 million from first half of 2016. If we're successful in our strategic efforts, we aim to have a significantly better 2018.

As summarized on Slide 17, our goal are to grow our revenues within our businesses by increasing scope with our current customers and working for new growth opportunities, focus on improving our operations, project management and gaining customers loyalty in our product segment and aggressively perusing our liquidity initiatives. We believe that all of these efforts will position us to refinance our debt with a lower cost and a more flexible structure.

Regarding our 2017 reporting, our goal is to file our first three quarters of 2017 by the end of the year and to be timely in filing our 2017 Form 10-K next year. In summary, our objectives are to advance our efforts with mechanical solutions, improve electric solutions, operations and performance while continuing the excellent progress our services segment is making.

Our goal is to get current with our filings and refinance our debt. Operator, we can open the call for questions.

Hi, good morning it’s [Pete] for Bob. Is there anything you can talk about as far as the strategic alternatives for mechanical solutions?

Two real questions, anything you can comment as far as how far along you are in the process? And in terms of if it is a sale, can you kind of touch on what the bidder would be getting, i.e what is the proprietary advantages for someone to buy that rather than try to do it on their own?

Hi, this is Tracy Pagliara, I’ll answer those questions for you. We’re not in a position to comment about the process other than to say that we’re moving forward as quickly as possible to complete it.

The Mechanical Solutions segment is comprised of our Braden businesses which include Braden North America and Braden Europe and CFI. We’re bullish on these businesses, that have premier brands and rich histories, long standing blue-chip customer base, best in class product offerings including our Braden Europe diverter damper product, talented and long tenured employees, strong and respected leaders.

As Craig mentioned, we’ve begun to see the rebound in the North American business with our customer base. We’ve also successfully restructured the Braden North America and CFI businesses.

We haven’t established international footprint in those businesses with what we believe are great geographic expansion opportunities. The businesses are tied to the growing natural gas power generation end markets and we also think that there is a good aftermarket perpetual.

So, overall, we think these are very nice businesses and are attractive to any number of potential buyers.

And guess you can’t say much, but if there were to be a sale, any comments on what liquidity would look like after and more importantly, do you think there would be an opportunity to refinance if a sale were to get done?

Absolutely. So, our goal is if we were to sell our mechanical solutions segment that we would use the proceeds to significantly pay down debt and also to improve our liquidity position.

We believe that with that successful pay down in debt, as we go into 2018 we would be able to at that time, seek out a new facility that would be a lot less expensive and provide more flexibility for the company.

Great thanks and then just two more quick ones for me, in terms of the electrical solutions business, what would you think is the kind of the broad stroke steps necessary to get that business back to now getting the margins back to where they once where?

Sure, this is Craig, in the electrical solutions business that’s continued to be a good business and we're actually seeing nice results at two out of our three factories, in Houston, we did pay down some larger more complex orders that resulted in a bottleneck where it is taking us longer and costing us more to complete those project that we organically anticipated. We expected to be through that bottleneck this year, so I do expect that we'd be able to see margins in that business return to more normalized level as soon as 2018.

Great and jumping to the services side, I know you talked about that a bit on the call but how does the backlog look now, anything you comment there and is there an ability to extend that in two additional areas that you're not currently in?

Good question, so in the press release we actually did address 2017 trends in the backlog, we are seeing it down slightly since year end. I think as we sit here today, we're continuing to make good progress on a variety of branch, we sent out a press release earlier today, highlighting a very significant contract extension and some new contracts, contracts extension with [TBN] and some new contracts with our customer JVA.

We're also as I noted in my comments, excited about the opportunity of Vogtle 3 and 4, those are huge projects, the owners have concluded that they do want to move forward with those projects, there is public service commission approvals, they are required, we expect that to be a positive approval and we're just excited about how our scope of work in that, as those two construction sites could expand into 2018 and beyond. We have a variety of other initiatives that we're working on throughout our services organization, one of which is decommissioning, I mentioned we have our first decommissioning order, got good relationships with our management team and decommissioning companies out there, we’re building our relationships with those companies, we’re building our track record with respect to executing those orders and quite honestly we believe our skill set and I know our skill set is perfect to help in decommissioning efforts across the country, we're excited about that as well.

And certainly, in other industrial segments outside of power generation, oil and gas, other paper, textile, other industrial complexes, we have a great skill set to provide specialty services and construction and fabrication work in those industries as well.

And I think that touched on a lot of it, is there anything more globally in terms of new bidding activities that we should be looking out for?

Globally you're still referencing our services organization?

No, just overall.

Sure. Well we do have a global footprint across our products, our products businesses we had a presence in our European based business and both that and our US based Mechanical Solutions businesses do have significant relationships with customers and do have a history of delivering projects worldwide.

I think as Tracy mentioned a minute ago as we look at the mechanical solutions business and its focus on natural gas power generation, we are seeing natural gas power generation as a fuel of choice literally worldwide. So, we see some great momentum in our international businesses there during 2016 and we expect that to continue over the long-term.

Craig or Tracy, can you refresh my memory? How much are your revenues I guess maybe just in a service segment is related to the nuclear industry.

And regarding the decommission contract award that you received, can you give us a sense of how large it is and what particular activity within the scope of the entire decommissioning in project, what exactly you’re doing. And is that something that can be enlarged and broadened so to speak?

Yeah. So, this is Craig.

So, our focus on nuclear related projects is certainly a big part of that business. In 2016, it was a little bit over half of our revenues, that’s down a little bit from 2015.

I think what you’ll see as you look at our customer, our largest customer disclosures and things like that is that we’re diversifying our work across different industries and across different customers at a level that we haven’t been able to achieve in the past. So, I think it’s good to diversify focus on non-nuclear type projects, but the decommission work is an area that we are like I said qualified for, I think our skill set in working around nuclear facilities definitely translates well into the decommission state.

So, yes, the type of work that we’re talking about, where we’re getting involved in fabrication and construction on a nuclear build certainly the deconstruction is part of the work that we would do on a decommissioning side. So, hopefully that...

Okay. Are you part of -- are you sort of a subcontractor on a larger work and on a decommissioning project are you specifically the contractor of choice on one on that particular job?

Yes, our decommissioning work today has been limited, it’s an area where we’ve initiated a focus, we’ve hired, hired personnel and leaders that are familiar with that, very familiar with the participants within that business. Today, we are subcontracting with some of the companies that are actually more the prime contractors associated with those efforts, but it is a good, I think it’s a good foothold and a good chance to prove that we do have the skill set necessary to work effectively in that industry.

I know there is a number of [indiscernible] plants that are scheduled for decommissioning, is the scope of your work depended upon additional projects, additional plans being decommissioned or is there work you could do on existing decommissioning projects?

Existing decommissioning projects as well as future products, future plants that are decommissioned, we're working on existing decommissioning projects today.

Is there a lot scheduled to be decommissioned, let's say over the next three or four years? I'm not sure [indiscernible] is.

Right and there have been, I would say a lot, there have been multiple plants decommissioned within the last few years, we expect that to continue over the next several years.

Regarding Braden in the prepared remarks you mentioned, Europe had a record year but US continues to suffer from quality, control and long-time delivery issues. This seems to be an ongoing issue at Braden and I think was possible for some of your customer attrition in past year, what's the status of that?

Is issue actually fixed or why is it taking so long to solve that fundamental problem?

That’s a great question, I appreciate that, these are problems that did originate in prior years. And the way those issues manifest themselves in our current revenues and most recent revenues is that, as you lose backlog related to those large customers, that reduced backlog rolls through your revenues over the next few years.

So, we're still on the tailwind of the effect of those issues. I think the bigger point to make at this point though is the fact that we have regained the confidence of those two OEMs and it was a long deliberate process, over course of a year or more to go into those organizations, that didn’t know the improvements we're making, the technology that we're deploying and how we were addressing the problems of the past and basically, tell them what we're doing to do and showing them what we did as the OEMs come out, really audit our procedures and our processes and remove us from the black list.

That occurred in last 2016 and early 2017 for those two OEMs. We have had opportunities to bid on multiple projects.

I would say that the end markets where those OEMs are focused, natural gas, power generation, market is cyclical, it is a cyclical business, I think we have seen 2017 is somewhat slow from an end market prospective, but it is a longer-term trend with respect to natural gas and natural gas power generation are encouraging and positive. But we have seen, so we're making progress, we actually bid on projects for those of those OEMs, we’ve got one rather significant filter house and this was just in our backlog and then we are continuing to bid on additional projects, in fact we've submitted a bid last Friday.

So, we're encouraged by the activity, encouraged by the opportunity, but we do recognize to your point that these are long cycle businesses and it does take a while for those recovered relationships to show up in our P&L.

Okay, great. So, the fundamental issues have been addressed at this point.

Correct, they have been addressed and corrected.

Okay. Fair enough.

Secondly, I think in the prepared remarks you said one of the focus is to reduce cost at the corporate level. And I’m wondering what’s the go forward run-rate for corporate overhead at this point excluding any kind of nonrecurring event that might be anticipated?

Yes, so what we’re focusing on at corporate is the flat in the organization, so we’re challenging our employees to take on more responsibilities. And we’ve already started that process in 2017.

We would expect our corporate run-rate to be significantly less than it has been in the past as we wind down the impacts of the restatement as we can see that those numbers were fairly significant over the last few years. But obviously we’ve published our 2015 and restated prior periods earlier this year.

We will continue to receive in expenses in 2017, but since that ever winding down we do expect corporate expenses to decrease significantly in 2017 and over.

Okay. What level of corporate overhead would you be satisfied with in terms of dollars on a go forward basis?

I would think at this point probably around $10 million to $15 million.

$10 to $15 million.

A lot of that will depend on the portfolio companies, we had in our profitability. We recognize that we do need to meter our cost relative to our revenues and overall profitability.

We’ve been challenged as we bound to do turnarounds on our products, our US based product businesses, to do that as well as going through the restatement process, a lot of cost is there I mentioned associated with that. I think there is the other, the goal is to build a longer-term financial model that does deliver bottom line profit and doing whatever it takes across our SG&A, our cost of goods sold as well as our corporate cost in order to get there.

Yeah, because even at the high end of that range $15 million that still close to $1 a share on a pre-tax basis?

Right, right.

So, to the extent you could cut that substantially and close to the bottom line, I mean of course your net income could go up by an equivalent amount, it just seems high for us looking at it from the outside.

Yeah. Absolutely, we are absolutely committed to reducing corporate cost.

Okay. Great.

And I guess the final question, in terms of the sale of the Mexican operation and the Mexican plant and the Holland office building. Mexico has been for sale for a while, kind of what’s the status of that.

And is the Holland building on the market and if those -- both those properties sell what would your anticipated proceeds be?

Right, this is Tracy. Thanks for that question, we are in the final stages of negotiating definitive agreement to sell Mexico.

The Holland property is still on the market, we have some interested parties, but during August in Europe a lot goes on, so we're still waiting to hear back. Combined we think, we will get somewhere in the range of 3 million to 4.5 million for both properties when we saw both of them.

It sounds like Mexico will probably be sold this year and Holland what's your timetable there do you think?

Well Mexico I agree with that this year, Holland as soon as possible, but nice thing about that business is that facility is not going to be as complicated to sell as manufacturing facility in Mexico. So, we're working as hard as possible to get it does this year, we will just have to see how the current level of interest comes to fruition.

In the vast majority of that 3 million to 4.5 million is Mexico.

Is Mexico, yes.

All of the vast, okay, the 3.5 million to 4.5 million is Mexico.

Yes.

Good. That’s encouraging.

Great, thanks for answering my questions.

Hi I want to thank everybody for joining the call this morning. We think we have a very good business model here at Global Power.

We have a lot of flexibility built into our business model we can monitor and manage our cost as we ramp up revenues in both our mechanical solutions and our services business as we outsource manufactures and we rely on the union house and craft labor, pools of employees as our opportunities increase. So, it’s a very flexible business model, we recognized that we have more work to do and we recognize that we do, we are seeing some nice progress, we do have confidence in the actions we're taking.

Management team and other members of the global team are working together with their common set of goals and core values that I mentioned earlier, our goal is to return to growth and profitability in 2018. I thank all of our investors for your patience and support, I thank the team here at Global Power for all your hard work.

Thanks again have a great day.