Williams Industrial Services Group Inc.

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

John Deysher - Pinnacle Capital Management John Walthausen - Walthausen & Company

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

On the call with me are Co-Presidents and Co- CEOs, Craig Holmes and Tracy Pagliara; and Chief Financial Officer, Erin Gonzalez. Craig and Erin will lead the call with prepared comments after which we will take questions.

We released after the close of market yesterday, our third quarter 2017 financial results and filed the 10-Q for the period as well. 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. If you open the slide deck, I will review the Safe Harbor regarding forward-looking statements.

As you are aware, we may make some forward-looking statements during the formal discussions as well as during the Q&A session. 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 is stated here today.

These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed with Securities and Exchange Commission. You can find those documents on our website or at 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 as a substitute for results prepared in accordance with GAAP. We've provided reconciliation of the non-GAAP measures to comparable GAAP measures in the tables that accompany yesterday's release and slides for your information.

So with that, I will now turn the call over to Craig to begin. Craig?

Thanks Deb, and good morning. I also want to welcome everyone to the call.

It's only been six short weeks since we last provided a quarterly update on our business. It is great that we're clearly making progress bringing our SEC filings current following the extremely long comprehensive and complicated restatement process.

Our reported result showed Mechanical Solutions business as discontinued operations since the segment was held for sale at the end of the third quarter and was successfully sold in October. The process could evaluate strategic alternatives for our Electrical Solutions segment remains active and we are diligently pursuing a favorable outcome to the process.

However as I mentioned in December, we can't guarantee when or if an acceptable strategic alternative will be available for the Electrical Solutions segment. Further, we cannot comment today on any specifics regarding our discussions with interested parties or the status of any potential transaction.

However, we are moving the process forward as quickly as we can and we will provide updates in the future as required. Now let's talk about our operations.

Across both of our segments we now have experienced management which is leading motivated teams focused on our core values and profitable growth. While our Electrical Solutions results for 2017 had been disappointing overall, our Idaho and Indiana operations continue to perform well and they showed good progress improving the time limits of deliveries and the quality of their products.

In both the Idaho and Indiana facilities, we have experienced teams and proven processes which allow those facilities to consistently deliver profitable projects. Unfortunately during the third and fourth quarters, the Houston facility continue to incur significant losses on several large complex projects.

As Erin will discuss further, these losses have been accrued in the third quarter results. On a positive note, the projects causing the bottleneck in the Houston facility are now substantially complete.

As we exit 2017, we need to remember the Koontz-Wagner brand is well recognized in the industry. We continue to have positive long-term relationships with a variety of bluechip customers and we serve a broad and diverse set of end markets.

These factors together with the completion of the problem projects in Houston position our Electrical Solutions segment to improve performance in 2018. Our largest business is by far our Services business.

Performance in the second and third quarters of 2017 has been strong and we are receiving gross margins trim back to low to mid teen levels we have seen in prior years. Since our last call, the Georgia Public Service Commission issued us approval for the rate recovery of the cost of construction on the nuclear reactors at plant Vogtle Units 3 and 4.

And since then, construction activity has ramped up quickly. The LLC in which we participate with Vogtle has added thousands of skilled craft labor and we have separately ramped up for supervisory and administrative support services, we provide.

In addition, we are continuing to directly work for the plant owners on several other significant projects associated with the continued construction at the site. At this point, fourth quarter performance for services is also expected to be strong and this segment is well positioned going into 2018.

As we discussed last month, our services business has been a great business over a long period due to its highly respected reputation in the industry diversified, service offerings, broad geographic reach, experienced management team, as well as its nuclear and industrial expertise. Let me ramp up by saying, the last three years have been very challenging for the organization.

Tracy and I have been impressed with the stamina and determination of our team during this difficult period. We we're driving forward to execute on our plan to improve our operations, reduce corporate overhead.

And we continue to focus on developing and leveraging the talent that has enabled us to come this far. So with that, let me turn it over to Erin for further review of our financial results.

Thank you. Erin.

Thank you, Craig and good morning, everyone. During today’s conference call, we will discuss the financial results for our third quarter of 2017 and we’ll follow the presentation slides provided.

Details of our results for the nine months ended September 2017 can be found in the Form 10Q which we filed yesterday. As Craig mentioned, the Mechanical Solutions business was sold in October of 2017, as a result it is reported as discontinued operations for the period reported and I will be focusing my comments on continuing operations which consist of services, electrical solutions and corporate.

I will start with revenue and gross profit on slide 3 and 4. For the third quarter of 2017 consolidated revenue declined $15.4 million and consolidated gross profit declined by $10.4 million.

The quarter over quarter results were impacted by two relatively significant changes in our continuing operations since the third quarter of 2016. Those changes are the divestiture of Hetscoin January 2017 and the closing of our Chattanooga facility in the third quarter of 2016.

Revenue for our services segment was $39 million, a decline of $8.3 million compared with the third quarter of 2016. The primary driver of the decrease was a divestiture of Hetscowhich accounted for $6.3 million of the decrease.

The $1.9 million decline in services gross profit was directly the result of the Hetsco divestiture which accounted for a $2 million reduction. The services gross profit margin was 12.2% compared with 14.1% for the prior year period.

Notably we recognize $5.1 million of zero margin revenue, associated with estimated lost contracts during the 2017 third quarter, which had a 180 basis point negative impact on the gross margin percentage. Excluding that impact, our gross margins for this quarter would have been 14%.

Revenue for our Electrical Solutions segment decreased $7.1 million, of which $5.8 million was due to the loss of a major customer, following the closure of our Chattanooga plant. Additionally, the timing of project completions along with some delays experience at our Houston facility had an unfavorable impact on revenue of $1.3 million.

Electrical solutions gross profit decreased $8.5 million to a loss of $5.9 million. The majority of the decline in gross profit was related to a $7.4 million accrual for estimated losses on certain contract for the quarter compared to a $1 million accrual in the prior year period.

We incurred the liquidated damages due to missing delivery date and also realize operating inefficiencies on certain projects, particularly in our Houston Texas facility which accounted for $7.2 million of the $7.4 million accrual. Lower revenue accounted for about $2 million of the declining gross profit.

Please turn to Slide 5. Looking at our operating expenses for the third quarter of 2017,we made progress with cost reductions and expense management.

We reduced the labor expense component of both our selling and marketing expenses and general and administrative expenses. By $400,000 and $600,000 respectively.

Additionally bank fees decreased by $400,000 and restatement related expenses decreased $500,000. However, those significant decreases were partially offset by a $1.3 million increase in severance expense.

On Slide 6, we have summarized our operating loss. The company incurred a $14.4 million operating loss on continuing operations in the third quarter of 2017.

Now, I’ll recap these results by segments. Operating income for our services segment was down a modest $200,000 on a $1.9 million decrease in gross profit.

Operating expenses for the segment were down $1.1 million as a result of the Hetsco divestiture, and $700,000 due to the reorganization of the Williams' business unit. Our $8.6 million operating loss in Electrical Solutions was driven by the Houston facilities estimated loss contract that was closed.

At our corporate level, operating expenses increased $600,000 due to the previously discussed severance expense increase which was partially offset by a $500,000 decrease in restatement expenses. Slide 7 provides a summary of our adjusted EBITDA.

The greater loss on adjusted EBITDA from continuing operations was directly attributable to the Electrical Solutions performance. Some of the notable EBITDA adjustments were related to restatement expenses, severance cost and interest expense.

On Slide 8 we've summarized the progress we have made with respect to our new credit facility and other liquidity matters. As communicated on prior calls, we entered into a $45 million senior secured term loan with an affiliate of Centre Lane Partners.

The terms are shown here on the slide and the term loan expires in December 2021. In August, we amended that facility and added a $10 million first-out term loan, which expires in September, 2018.

The $10 million first-out term loan was fully repaid in October 2017 with a portion of the sales proceeds from the Mechanical Solutions business divestiture. The boards in the lower portion of the slide summarize related events covered on previous calls.

In third quarter of 2017 our operations including discontinued operations used $19 million of cash. As of January 26, 2018 the outstanding balance on our Centre Lane term debt was $25.4 million.

Our cash position as of the same date was $17.1 million which included $11.6 million of restricting cash to cover our cash collateralized letters of credit and escrows related to the divestitures of Hetsco and Mechanical Solutions. We have been managing our cash position very carefully.

We discussed our opportunities for 2018 and beyond on Slide 9. First, as previously mentioned, we are evaluating strategic alternatives for the Electrical Solutions business.

Successful completion of this initiative could provide us with further liquidity and the ability to further reduce our debt. What's next is our initiative to secure a new asset base lending facility.

This could allow us to release the restriction we currently have on $9.4 million of our cash, which is primarily the security for our outstanding letters of credit. Also I want to note that we may pursue our refinancing of our existing term loan under a more favorable terms tending the successful outcome of our Electrical Solutions strategy.

From an operational standpoints, our priority is to focus our resources on our Services segment. Our momentum is building and our opportunity pipeline is developing nicely, with both existing and new customers.

We have identified opportunities to further diversify and grow this business into new markets. We believe our operational strength provides us with a competitive advantage particularly for nuclear decommissioning work.

While we have already significantly reduced our corporate and operating cost base, we have identified further opportunities to better align our cost structure with the current and anticipated future revenue environment. Finally, we continue to estimate that we will file our 2017 Form 10-K by the April 2, 2018 due date.

Operator, we can now open the lines for questions.

A couple of quick questions, one is -- was there any other noise in the third quarter besides the severance expense of $1.3 million, were there any related to Braden or other expenses that will not be occurring going forward?

The only other thing I would point out are the lost contract accruals in Koontz-Wagner.

$7.4 million was it? Okay.

So no other non-recurring expenses besides a severance. Okay, good.

Regards to comment of aggressively reducing corporate and other operating costs, can you give us a feel for the amount that you’re targeting there?

Yes, we're targeting a structure with our going forward business corporate expenses in the $4 million to $6 million range. So we have quite large reductions that we are working on executing.

$4 million to $6 million per year.

That’s correct.

But from an operating perspective, all of the operations fixed at this point especially Koontz-Wagner, I mean restarting 2018 with a clean slate on both businesses going forward or are there still issues that need to be resolved?

Sure. And this is Craig.

So, from an operational perspective, Koontz-Wagner the vast majority, we had a handful of projects that we were working on, that were causing a backlog and bottleneck in the Houston facility. Those projects have been shipped.

So as of the end of the year, we were still working on two --those final projects are out of the Houston facility, so the backlog, the bottleneck has been fixed. So as we go into 2018, we do really – we are better positioned to be able to handle the production load and the backlog that we have there more effectively and efficiently.

We'll have more work to do to determine the final cost associated with the problem projects that were shipped most recently. But if we go into 2018 we expect, we wouldn’t expect to have the types of losses that occur due to the operational issues that we saw in 2017.

So, as you think about KW business, we actually have good practices procedures in two out of the three plants. The third plant was – the production was ramped up quickly.

The schedule wasn't defined as clearly as it should have been from a production and manufacturing perspective, but that fact is behind us. And then relative to services, you’re asking a general question about the business, and services business as you can see the last couple quarters results have been very consistent with what we expect.

The difficult project they had earlier in the year is not effecting our business going forward.

So on KW, we're not making any negative accruals going forward, is that fair?

We're not expecting any. We believe that we've made all the accruals that are necessary, relative to these are the products that are -- have been recently shipped.

We certainly be a better position to update you and the rest of the investors more completely when we do our next filing.

And I guess finally, as you probably saw Brookfield bought the Westinghouse assets earlier this year, and I'm just curious how you feel about that? What impact that might have on your business going forward?

Obviously, they helped built a lot of those nuclear plants, I'm just curious how much of a threat they might be on the decommissioning side?

From a couple perspectives, one is buying the working house assets we think increases - increases reliability of the remaining receivable we have from Westinghouse and as you probably could see in our disclosures of $2.5 million.

It’s $2.3 million that we have outstanding with [West Tech right now.

And then, yes, we've worked with Westinghouse and partnered with them in the past we think that we’ll continue to have partnership opportunities with Brookfield going forward. We’re still kind of accessing how they are going to participate in the industry.

We have pretty good line of services that make our offerings somewhat unique compared to what they would be able to offer but we're certainly keeping close eye on them as they digest the recent acquisition.

Yes, I’m just trying to get a little bit of better fix on the situation with the problem project ahead of Houston. You said that again in your presentation you called it substantially complete.

Now you're saying that they're shipped but I guess as the customers giving you indication that they've accepted the product that have been shipped and do this carry what sort of warranties - do those projects carry?

That's good question John, and I didn’t mean to be vague in my comments. One of the projects that was shipped, we shipped to location and we recognized that we still have three or four weeks worth of work to do from an installation and finalization perspective, not unusual so that was the project is out of Huston facility and the bottleneck associated there with has been relieved.

That's a good factor. We still have a little bit more work to do on one of those projects.

The other projects before they are shipped, they would typically go through very detailed quality control and final testing that involves typically our customer, the customer's customer and our own employees. So our experience has been that there is limited warranty work once these projects are shipped.

So wea're optimistic that the quality control and testing procedures have been thorough and we’re optimistic that we won't experience any significant warranty work on any of these projects that caused us the backlog issue that we’re talking about in Houston.

The one project that you talked about, under installation now has a fewer more weeks is that the giant part of what’s going on or are the other ones of real substance that would be worth diving a little bit deeper into?

It’s one of our handful of projects and it’s not particularly bigger than the others. In fact it’s probably on the small side of large projects, so the more significant projects have been completed, tested and delivered.

And accepted by the clients?

And accepted, correct.

So there basically well what I said in the fourth quarter and the first quarter that tax revenue that’s booked on a year system?

Yes, we book revenue when we ship the product generally with KW as a completed contract revenue recognition.

And when I look at the scope of the receivables compared to where the revenues are, besides the Westinghouse receivable started - are there receivables that are being disputed or having promise collecting for one reason or another that we should be aware?

No, not necessarily. We did mention in our Form 10-Q that we did some work earlier in the year that related to disputed change orders.

And so that's a process we’re working through with those customers and ultimate we didn't recognize any revenue related to that and - so we're working through that process, so that would be the one thing that I would note to bring to your attention related to potential receivables in the future. But all of our other receivables that we have on the books should be collectible.

Well, I mean if you didn't book some of these revenues, there wouldn’t be receivables, right?

Right.

Post to the third quarter, if you’ve recognized --would have recognized as revenue?

Yes, that’s correct. We'll recognize as revenue, and to the extent the settlements reached, we will also collect the cash related to that settlement.

Well, thank you. It doesn't surprise me that there weren't a lot of questions.

It was fairly recently when we completed that last call and last update for investors and we want to continue to let our investors know that we are available to answer any questions that come up in the future. Let me conclude by saying that, we recognize that we have more work to do here at, Global Power.

We are making nice progress on several important fronts. The management team and all our Global Power Associate’s are working together with a common set of goals and core values to improve performance.

I would like to thank all of our investors for your continued patience and support. And I thank the team here at Global Power for all the hard work.

Thanks again and have a good day.