Value Investors Club / WILLIAMS INDUSTRIAL SE G INC (WLMS)

Description

Thesis

There is exhaustion and then there's EXHAUSTION. Williams Industrial is the old Global Power, a company that filed for bankruptcy in 2006, emerged in 2007, and has stubbed every one of its ten toes in the ensuing thirteen years: an acquisition spree ---->overlevered balance sheet---->businesses that didn't complement one another---->egregiously expensive capital---->management turnover---->problems filing timely financials---->jettisoning heretofore acquired assets--->and here we are. We believe that the company has had a hard reset and is finally poised to fulfill it's potential. Backed by an anchor shareholder with a long history of value creation, we are comfortable underwriting this capital-lite business at less than 5x '20 EBITDA.

Valuation

S/O: 19.05mm

Shares to be issued in the rights offering: 5.38

Proforma s/o: 24.4

Market Cap at 1.37: 33.4mm

9/30 Net debt: 35.3mm

Cash to be received in the rights offering: 7mm

Proforma net debt: 28.3mm

Proforma EV: 61.7mm

'20 EBITDA guidance: 13-15mm

EV/EBITDA: 4.1-4.7x

Backlog: 490mm

Company Description (from 9/30 10Q)

Effective June 29, 2018, Global Power Equipment Group Inc. changed its name to Williams Industrial Services Group Inc. (together with its wholly owned subsidiaries, “Williams,” the “Company,” “we,” “us” or “our,” unless the context indicates otherwise) to better align its name with the Williams business. Since March 19, 2019, the Company’s stock has traded on the OTCQX® Best Market under the ticker symbol “WLMS.” Williams has been safely helping plant owners and operators enhance asset value for more than 50 years. The Company provides a broad range of construction, maintenance and support services to customers in energy, power and industrial end markets. The Company’s mission is to be the preferred provider of construction, maintenance, and specialty services through commitment to superior safety performance, focus on innovation, and dedication to delivering unsurpassed value to its customers.

The company helps with both the design and construction of nuclear facilities but also in the decommissioning stages. They are an asset-lite 'expert' in the maintenance of the plants-including how to take scheduled downtime, how to modify plants that are still in use, and how to run the plants in the safest and most efficent manner more generally. The most recently announced US and Canadian projects have included:

https://www.georgiapower.com/company/plant-vogtle.html

https://www.nrc.gov/info-finder/reactors/wb2.html

https://www.world-nuclear-news.org/Articles/Canadian-nuclear-projects-bring-economic-benefits

About 85% of their work is cost plus while the remainder is fixed. The third link is worth reading as Canada has generally been more accepting of nuclear energy and there are billions of awards in the pipeline.

Financials

WILLIAMS INDUSTRIAL SERVICES GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except share and per share data)	2019		2018		2019		2018
Revenue	$	56,862	$	53,467	$	178,980	$	144,563
Cost of revenue		50,906		43,255		157,150		121,154

Gross profit		5,956		10,212		21,830		23,409

Selling and marketing expenses		63		397		468		1,299
General and administrative expenses		5,091		7,529		16,327		21,645
Restructuring charges		—		1,436		—		3,661
Depreciation and amortization expense		77		192		225		633
Total operating expenses		5,231		9,554		17,020		27,238

Operating income (loss)		725		658		4,810		(3,829)

Interest expense, net		1,511		3,622		4,504		7,397
Other (income) expense, net		(485)		(339)		(1,153)		(844)
Total other (income) expense, net		1,026		3,283		3,351		6,553

Income (loss) from continuing operations before income tax		(301)		(2,625)		1,459		(10,382)
Income tax (benefit) expense		62		215		141		720
Income (loss) from continuing operations		(363)		(2,840)		1,318		(11,102)

Loss from discontinued operations before income tax		(54)		(10,619)		(175)		(14,522)
Income tax (benefit) expense		(97)		17		(845)		(666)
Income (loss) from discontinued operations		43		(10,636)		670		(13,856)

Net income (loss)	$	(320)	$	(13,476)	$	1,988	$	(24,958)

Basic earnings (loss) per common share
Income (loss) from continuing operations	$	(0.02)	$	(0.16)	$	0.07	$	(0.61)
Income (loss) from discontinued operations		—		(0.58)		0.04		(0.76)
Basic earnings (loss) per common share	$	(0.02)	$	(0.74)	$	0.11	$	(1.37)

Diluted earnings (loss) per common share
Income (loss) from continuing operations	$	(0.02)	$	(0.16)	$	0.07	$	(0.61)
Income (loss) from discontinued operations		—		(0.58)		0.03		(0.76)
Diluted earnings (loss) per common share	$	(0.02)	$	(0.74)	$	0.10	$	(1.37)

Rights Offering

The company was hamstrung from bidding new work by its tight liquidity-customers simply weren't comfortable awarding sizeable projects to a company with limited working capital. As such (and hopefully as a prelude to a refinance) the company announced a rights offering whereby existing holders would receive a right to purchase .28 shares of stock at $1.30 (derived by taking a 15% discount to the trailing 25 day vwap). There is a standard over-subscription privilege and Wynnefield Capital has agreed to fully backstop the offering. The subscription period ends on March 2nd and shares are anticipated to be distributed on March 11th.

Recent Refinancing and future optionality

The company has been forced to pay astronomically high interest rates on its revolver and term debt these past few years while it was working through its non-filing status. They recently increased their revolver from 10mm to 25mm (L+600) and have a 35mm term loan that is L+1000. We would expect the company to refinance their capital structure as expediently as possible as the credit metrics don't match the onerous terms.

Share ownership from 2019 proxy

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

	Common Stock Beneficially Owned
Name of Beneficial Owner	Number of Shares (#)	Percentage of Class (%)(1)
Greater than 5% Holders:
Nelson Obus(2)	3,690,517	19.4	%
Emancipation Management LLC(3)	3,090,898	16.3	%
Wax Asset Management, LLC(4)	2,322,118	12.2	%
Tontine Asset Associates, LLC(5)	1,735,291	9.1	%

Directors, Nominees and Named Executive Officers:
Charles Macaluso(6)	136,789	*
David A. B. Brown(6)	118,702	*
Steven D. Davis	—	—
Robert B. Mills(6)	131,315	*
Nelson Obus(2)(6)	3,690,517	19.4	%
Tracy D. Pagliara(7)	217,603	1.1	%
Timothy M. Howsman(7)(11)	35,218	*
Charles E. Wheelock(7)	20,748	*
Craig E. Holmes(8)(10)	218,799	1.2	%
Erin Gonzalez(8)(11)	27,326	*
Directors, Director Nominees and Executive Officers as a Group (8 persons)(9)	4,350,892	22.9	%

Summary

Williams is an orphaned security with a long history of disappointing investors. The core business always sounded promising but was shrouded by non-core businesses that were losing money, reporting issues that caused lengthy periods of financial opacity, and an over-levered balance sheet. We believe we are finally at the point where investors will get a clean look at what should be a cash-generative service business, run by an experienced management team, presided over by a seasoned value investor with lots of skin in the game. The undemanding entry multiple should provide a comfortable margin of safety.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Company refinances their expensive capital structure and increased free cash flow accretes to equity holders
Company is able to fully compete for business once the rights offering is complete
Company uplists from the pink sheets

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			2020	2021
Price:	1.37	EPS	0	0
Shares Out. (in M):	24	P/E	0	0
Market Cap (in $M):	33	P/FCF	0	0
Net Debt (in $M):	28	EBIT	0	0
TEV (in $M):	62	TEV/EBIT	0	0