UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) November 8, 2017
WILLBROS GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 1-34259 | 30-0513080 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
4400 Post Oak Parkway, Suite 1000, Houston, Texas 77027
(Address of Principal Executive Offices) (Zip Code)
(713) 403-8000
(Registrants Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. | Results of Operations and Financial Condition. |
On November 8, 2017, Willbros Group, Inc. (the Company) issued a press release announcing third quarter 2017 results. A copy of the press release dated November 8, 2017, is attached as Exhibit 99.1 to this Form 8-K.
On November 9, 2017, the Company participated in a telephone conference call relating to the press release. A transcript of the conference call is attached as Exhibit 99.2 to this Form 8-K.
This information is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be filed for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
(d) | The following exhibits are furnished herewith: |
99.1 | Press release dated November 8, 2017, issued by the Company. |
99.2 | Transcript of the Companys November 9, 2017 conference call. |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
WILLBROS GROUP, INC. | ||||||||
Date: | November 14, 2017 | By: | /s/ Jeffrey B. Kappel | |||||
Jeffrey B. Kappel | ||||||||
Senior Vice President and Chief Financial Officer |
3
Exhibit 99.1
|
Willbros Reports Third Quarter 2017 Results
| Increased focus on growing Utility T&D business with exit of US Mainline Pipeline business; no impact on Facilities, Pipeline Integrity or Lineal businesses |
| Term Loan amendment increases covenant flexibility |
| Company to host conference call at 9am CT on November 9, 2017 |
HOUSTON, TX, November 8, 2017 Willbros Group, Inc. (NYSE: WG) today reported an operating loss of $27.8 million in the third quarter of 2017 compared to an operating loss of $6.3 million in the third quarter of 2016. Revenue in the third quarter of 2017 totaled $240.8 million, an increase of $13.3 million sequentially and compares to $174.8 million in the third quarter of 2016. Operating results for the third quarter of 2017 include $13.0 million of losses on three pipeline projects in the Oil & Gas segment and margin erosion in the Utility T&D segment on two projects plus customer volume reserves totaling $8.4 million.
For the third quarter of 2017, the Company reported a loss from continuing operations of $32.7 million, or $(0.52) per share, compared to a loss from continuing operations of $10.7 million, or $(0.17) per share, in the third quarter of 2016. Adjusted EBITDA from continuing operations was $(23.5) million for the third quarter of 2017 compared to $0.3 million for the third quarter of 2016.
For the nine months ended September 30, 2017, loss from continuing operations was $51.6 million, or $(0.83) per share, compared to a $29.7 million loss from continuing operations, or $(0.49) per share, for the nine months ended September 30, 2016. Adjusted EBITDA from continuing operations was $(27.0) million for the nine months ended September 30, 2017 compared to $3.7 million for the nine months ended September 30, 2016.
On November 6, 2017, the Company reached agreement with its lender to borrow an additional $15 million under its Term Loan and to amend the associated financial covenants. This amendment provides for a covenant holiday for the third and fourth quarter of 2017 and less stringent covenants for all of 2018.
Michael J. Fournier, President and CEO, commented, The operating loss in the third quarter is a disappointment. While we may recover some of the project cost overruns through future change orders, these operating results required us to enhance our liquidity and seek covenant relief from our lender. Further, the risk profile we have experienced with our U.S. mainline pipeline business is not sustainable. Thus, we intend to exit this business and are in exclusive discussions with a potential buyer. These actions do not impact our U.S. facilities, pipeline integrity or Lineal businesses.
We will be assessing options to refinance our debt agreements during the first half of 2018 and we are pursuing a strategic process to accelerate expansion of our Utility T&D business.
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1 of 4 CONTACT: Stephen W. Breitigam SVP Investor Relations Willbros 713-403-8172 |
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Included in this press release are certain non-GAAP financial measures, including Adjusted EBITDA from continuing operations and Covenant EBITDA from continuing operations. A related reconciliation of each of these non-GAAP measures is included in the accompanying schedules.
Backlog
At September 30, 2017, the Company reported total backlog of $741.3 million, a decrease of $67.3 million from the June 30, 2017 balance. Twelve month backlog of $543.9 million at September 30, 2017 reflects a small decrease from the $546.9 million reported at June 30, 2017. A substantial portion of the total backlog decline is attributable to the expiration of existing multi-year MSA contracts. We will rebid these MSAs as they come up for renewal but we do not include these new contracts in backlog until they are signed.
Segment Operating Results
Utility T&D
The Utility T&D segment reported revenue in the third quarter of $129.9 million, down $21.8 million, or 14%, sequentially and primarily due to reduced transmission work in our Chapman business unit. Driven primarily by lower revenue, margin erosion on two discrete projects and recognition of a volume reserve triggered by receipt of a new customer forecast for 2017 services, the segment generated an operating loss of $7.5 million in the third quarter of 2017 compared to operating income of $11.0 million in the second quarter of 2017.
Oil & Gas
For the third quarter of 2017, the Oil & Gas segment reported revenue of $75.3 million, up 54% sequentially as the mainline pipeline and Lineal businesses operated at high activity levels throughout the quarter. Three projects were located in the same area and hampered by weather and terrain issues, along with other operating issues. Losses on these projects contributed to an operating loss of $14.8 million for the segment in the third quarter of 2017.
Canada
Canada reported revenue of $35.6 million for the third quarter of 2017, an $8.9 million increase when compared to the second quarter of 2017. Revenue in the maintenance business has returned to near historical levels towards the end of the third quarter while activity associated with our industrial and pipeline construction businesses remain depressed. The segment operated at near break-even status as it reported an operating loss of $0.3 million in the third quarter of 2017.
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2 of 4 CONTACT: Stephen W. Breitigam SVP Investor Relations Willbros 713-403-8172 |
|
Liquidity and Debt
Total liquidity (defined as cash and cash equivalents plus revolver availability) at September 30, 2017 was $48.8 million, a decrease of $1.8 million from the end of the second quarter of 2017. Cash and cash equivalents totaled $31.3 million at September 30, 2017. During the third quarter of 2017 we borrowed $12 million under the revolving credit facility, plus an additional $17 million on November 6, 2017, to support our working capital and operating needs. The revolving credit facility expires in August 2018.
At September 30, 2017, the principal amount due on our Term Loan remained unchanged from the prior quarter at $92.2 million. With the recent amendment to our Term Loan, the principal balance will increase to $107.2 million.
Guidance
Jeff Kappel, Willbros Chief Financial Officer, commented, We are reaffirming revenue guidance for 2017 to range between $850 million to $900 million, excluding the Tank Services business. For 2018, we anticipate revenue to range between $750 million and $825 million, excluding the U.S. Mainline Pipeline and Tank Services businesses.
Conference Call
In conjunction with this release, Willbros has scheduled a conference call, which will be broadcast live over the internet, on Thursday, November 9, 2017 at 10:00 a.m. Eastern Time (9:00 a.m. Central Time).
What: | Willbros Third Quarter 2017 Earnings Conference Call | |
When: | Thursday, November 9, 2017 - 10 a.m. Eastern Time | |
How: | Live via phone - By dialing 1-844-850-0544 (U.S. Toll Free), 1-855-669-9657 (Canada Toll Free) or 1-412-317-5201 (International) a few minutes prior to the start time and asking for the Willbros Group, Inc. call. | |
Live over the internet - By logging on to the website at the following address:
http://www.willbros.com. The webcast can be accessed from the investor relations home page. |
A replay will be available through November 16, 2017 and may be accessed by calling 1-877-344-7529 (U.S. Toll Free), 1-855-669-9658 (Canada Toll Free) or 1-412-317-0088 (International) using Replay Access Code 10114025. Also, an archive of the webcast will be available shortly after the call on www.willbros.com.
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3 of 4 CONTACT: Stephen W. Breitigam SVP Investor Relations Willbros 713-403-8172 |
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Willbros is a specialty energy infrastructure contractor serving the oil and gas and power industries with offerings that primarily include construction, maintenance and facilities development services. For more information on Willbros, please visit our web site at www.willbros.com.
This announcement contains forward-looking statements. All statements, other than statements of historical facts, which address activities, events or developments the Company expects or anticipates will or may occur in the future, are forward-looking statements. A number of risks and uncertainties could cause actual results to differ materially from these statements, including unanticipated accounting or other issues regarding any material weaknesses in internal control over financial reporting; inability of the Company or its independent auditor to confirm relevant information or data; unanticipated issues that prevent or delay the Companys independent auditor from completing its review of financial statements or that require additional efforts, procedures or review; the untimely filing of financial statements; pending and potential investigations and lawsuits; the identification of one or more issues that require restatement of one or more other prior period financial statements; ability to remain in compliance with, or obtain additional waivers or amendments under, or refinance, the Companys existing loan agreements; ability to dispose of businesses and assets in a timely manner at reasonable valuations; the existence of other material weaknesses in internal control over financial reporting; contract and billing disputes; availability of quality management; availability and terms of capital; changes in, or the failure to comply with, government regulations; the promulgation, application, and interpretation of environmental laws and regulations; future E&P capital expenditures; oil, gas, gas liquids, and power prices and demand; the amount and location of planned pipelines; development trends of the oil and gas, and power industries; as well as other risk factors described from time to time in the Companys documents and reports filed with the SEC. The Company assumes no obligation to update publicly such forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law.
SCHEDULES TO FOLLOW
###
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4 of 4 CONTACT: Stephen W. Breitigam SVP Investor Relations Willbros 713-403-8172 |
WILLBROS GROUP, INC.
(In thousands, except per share amounts)
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Income Statement |
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Contract revenue |
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Oil & Gas |
$ | 75,284 | $ | 33,100 | $ | 146,748 | $ | 147,174 | ||||||||
Utility T&D |
129,906 | 106,422 | 397,097 | 313,066 | ||||||||||||
Canada |
35,583 | 35,355 | 88,275 | 107,343 | ||||||||||||
Eliminations |
| (56 | ) | | (290 | ) | ||||||||||
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240,773 | 174,821 | 632,120 | 567,293 | |||||||||||||
Operating expenses |
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Oil & Gas |
90,050 | 37,483 | 172,284 | 158,193 | ||||||||||||
Utility T&D |
137,381 | 102,160 | 392,804 | 299,584 | ||||||||||||
Canada |
35,879 | 35,696 | 93,625 | 106,229 | ||||||||||||
Unallocated Corporate Costs |
5,252 | 5,857 | 15,691 | 22,098 | ||||||||||||
Eliminations |
| (56 | ) | | (290 | ) | ||||||||||
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268,562 | 181,140 | 674,404 | 585,814 | |||||||||||||
Operating income (loss) |
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Oil & Gas |
(14,766 | ) | (4,383 | ) | (25,536 | ) | (11,019 | ) | ||||||||
Utility T&D |
(7,475 | ) | 4,262 | 4,293 | 13,482 | |||||||||||
Canada |
(296 | ) | (341 | ) | (5,350 | ) | 1,114 | |||||||||
Unallocated Corporate Costs |
(5,252 | ) | (5,857 | ) | (15,691 | ) | (22,098 | ) | ||||||||
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Operating loss |
(27,789 | ) | (6,319 | ) | (42,284 | ) | (18,521 | ) | ||||||||
Non-operating expenses |
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Interest expense |
(3,817 | ) | (3,564 | ) | (10,972 | ) | (10,433 | ) | ||||||||
Interest income |
8 | 12 | 23 | 443 | ||||||||||||
Debt covenant suspension and extinguishment charges |
| | | (63 | ) | |||||||||||
Other, net |
21 | 2 | 2 | | ||||||||||||
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(3,788 | ) | (3,550 | ) | (10,947 | ) | (10,053 | ) | |||||||||
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Loss from continuing operations before income taxes |
(31,577 | ) | (9,869 | ) | (53,231 | ) | (28,574 | ) | ||||||||
Provision (benefit) for income taxes |
1,132 | 792 | (1,665 | ) | 1,146 | |||||||||||
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Loss from continuing operations |
(32,709 | ) | (10,661 | ) | (51,566 | ) | (29,720 | ) | ||||||||
Loss from discontinued operations net of provision for income taxes |
(1,496 | ) | (1,325 | ) | (1,508 | ) | (3,836 | ) | ||||||||
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Net loss |
$ | (34,205 | ) | $ | (11,986 | ) | $ | (53,074 | ) | $ | (33,556 | ) | ||||
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Basic loss per share attributable to Company shareholders: |
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Continuing operations |
$ | (0.52 | ) | $ | (0.17 | ) | $ | (0.83 | ) | $ | (0.49 | ) | ||||
Discontinued operations |
(0.02 | ) | (0.02 | ) | (0.02 | ) | (0.06 | ) | ||||||||
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$ | (0.54 | ) | $ | (0.19 | ) | $ | (0.85 | ) | $ | (0.55 | ) | |||||
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Diluted loss per share attributable to Company shareholders: |
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Continuing operations |
$ | (0.52 | ) | $ | (0.17 | ) | $ | (0.83 | ) | $ | (0.49 | ) | ||||
Discontinued operations |
(0.02 | ) | (0.02 | ) | (0.02 | ) | (0.06 | ) | ||||||||
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$ | (0.54 | ) | $ | (0.19 | ) | $ | (0.85 | ) | $ | (0.55 | ) | |||||
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Cash Flow Data |
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Continuing operations |
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Cash provided by (used in) |
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Operating activities |
$ | (22,574 | ) | $ | (5,290 | ) | $ | (21,557 | ) | $ | (8,232 | ) | ||||
Investing activities |
591 | 1,888 | 2,280 | 6,639 | ||||||||||||
Financing activities |
11,962 | (2,349 | ) | 9,152 | (8,570 | ) | ||||||||||
Foreign exchange effects |
641 | (308 | ) | 1,055 | 620 | |||||||||||
Discontinued operations |
(575 | ) | (408 | ) | (1,056 | ) | (7,030 | ) | ||||||||
Other Data (Continuing Operations) |
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Weighted average shares outstanding |
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Basic |
62,310 | 61,640 | 62,105 | 61,258 | ||||||||||||
Diluted |
62,310 | 61,640 | 62,105 | 61,258 | ||||||||||||
Adjusted EBITDA from continuing operations(1) |
$ | (23,501 | ) | $ | 331 | $ | (26,954 | ) | $ | 3,659 | ||||||
Purchases of property, plant and equipment |
806 | 628 | 2,132 | 2,528 | ||||||||||||
Reconciliation of Non-GAAP Financial Measures |
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Adjusted EBITDA from continuing operations (1) |
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Loss from continuing operations |
$ | (32,709 | ) | $ | (10,661 | ) | $ | (51,566 | ) | $ | (29,720 | ) | ||||
Interest expense |
3,817 | 3,564 | 10,972 | 10,433 | ||||||||||||
Interest income |
(8 | ) | (12 | ) | (23 | ) | (443 | ) | ||||||||
Provision (benefit) for income taxes |
1,132 | 792 | (1,665 | ) | 1,146 | |||||||||||
Depreciation and amortization |
4,643 | 5,385 | 14,600 | 16,694 | ||||||||||||
Debt covenant suspension and extinguishment charges |
| | | 63 | ||||||||||||
Stock based compensation |
587 | 868 | 2,121 | 3,269 | ||||||||||||
Restructuring and reorganization costs |
(91 | ) | 308 | 535 | 4,587 | |||||||||||
Accounting and legal fees associated with the restatements |
240 | 4 | 617 | (42 | ) | |||||||||||
Fort McMurray wildfire related costs |
| | | 523 | ||||||||||||
(Gain) loss on disposal of property and equipment |
(1,112 | ) | 83 | (2,545 | ) | (2,851 | ) | |||||||||
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Adjusted EBITDA from continuing operations(1) |
$ | (23,501 | ) | $ | 331 | $ | (26,954 | ) | $ | 3,659 | ||||||
Gain on disposal of property and equipment, normal course of business |
1,112 | 124 | 2,545 | 3,181 | ||||||||||||
Changes in project loss provision |
3,936 | 1,470 | 487 | 828 | ||||||||||||
Letter of credit fees |
421 | 349 | 1,237 | 1,047 | ||||||||||||
Provision for bad debt |
60 | 66 | 178 | 106 | ||||||||||||
Exit of Tank Services |
85 | 773 | 1,230 | 3,152 | ||||||||||||
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Covenant EBITDA from continuing operations(2) |
$ | (17,887 | ) | $ | 3,113 | $ | (21,277 | ) | $ | 11,973 | ||||||
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September 30, 2017 |
June 30, 2017 |
March 31, 2017 |
December 31, 2016 |
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Balance Sheet Data |
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Cash and cash equivalents |
$ | 31,294 | $ | 41,249 | $ | 36,693 | $ | 41,420 | ||||||||
Working capital |
56,620 | 84,033 | 75,756 | 89,323 | ||||||||||||
Total assets |
400,553 | 382,108 | 366,285 | 363,036 | ||||||||||||
Total debt |
100,927 | 88,179 | 87,466 | 89,189 | ||||||||||||
Stockholders equity |
86,295 | 118,624 | 118,614 | 135,137 | ||||||||||||
Backlog Data (3) |
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12 Month Backlog by Reporting Segment |
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Oil & Gas |
$ | 159,213 | $ | 116,366 | $ | 87,750 | $ | 28,827 | ||||||||
Utility T&D |
329,531 | 355,480 | 362,749 | 349,998 | ||||||||||||
Canada |
55,127 | 75,051 | 77,918 | 41,041 | ||||||||||||
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12 Month Backlog |
$ | 543,871 | $ | 546,897 | $ | 528,417 | $ | 419,866 | ||||||||
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12 Month Backlog exclusive of Exited Services |
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12 Month Backlog, as reported |
$ | 543,871 | $ | 546,897 | $ | 528,417 | $ | 419,866 | ||||||||
U.S. Mainline Pipeline Construction Services 12 Month Backlog |
47,123 | 58,097 | 45,084 | 5,434 | ||||||||||||
Tank Services 12 Month Backlog |
21,099 | 26,351 | 28,813 | 15,189 | ||||||||||||
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12 Month Backlog, exclusive of Exited Services |
$ | 475,649 | $ | 462,449 | $ | 454,520 | $ | 399,243 | ||||||||
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Total By Reporting Segment |
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Oil & Gas |
$ | 159,213 | $ | 116,366 | $ | 87,750 | $ | 28,827 | ||||||||
Utility T&D |
459,417 | 540,876 | 605,706 | 656,838 | ||||||||||||
Canada |
122,644 | 151,336 | 158,999 | 106,793 | ||||||||||||
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Total Backlog |
$ | 741,274 | $ | 808,578 | $ | 852,455 | $ | 792,458 | ||||||||
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Total Backlog exclusive of Exited Services |
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Total Backlog, as reported |
$ | 741,274 | $ | 808,578 | $ | 852,455 | $ | 792,458 | ||||||||
U.S. Mainline Pipeline Construction Services Total Backlog |
47,123 | 58,097 | 45,084 | 5,434 | ||||||||||||
Tank Services Total Backlog |
21,099 | 26,351 | 28,813 | 15,189 | ||||||||||||
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Total Backlog, exclusive of Exited Services |
$ | 673,052 | $ | 724,130 | $ | 778,558 | $ | 771,835 | ||||||||
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(1) | Adjusted EBITDA from continuing operations is defined as income (loss) from continuing operations before interest expense, income tax expense (benefit) and depreciation and amortization, adjusted for items broadly consisting of selected items which management does not consider representative of our ongoing operations and certain non-cash items of the Company. Management uses Adjusted EBITDA from continuing operations as a supplemental performance measure for comparing normalized operating results with corresponding historical periods and with the operational performance of other companies in our industry and for presentations made to analysts, investment banks and other members of the financial community who use this information in order to make investment decisions about us. |
Adjusted EBITDA from continuing operations is not a financial measurement recognized under U.S. generally accepted accounting principles, or U.S. GAAP. When analyzing our operating performance, investors should use Adjusted EBITDA from continuing operations in addition to, and not as an alternative for, net income, operating income, or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Because all companies do not use identical calculations, our presentation of Adjusted EBITDA from continuing operations may be different from similarly titled measures of other companies.
(2) | Covenant EBITDA from continuing operations is a non-GAAP measure that conforms to the definition of Consolidated EBITDA in the Companys 2014 Term Credit Agreement which includes certain special items. Management uses Covenant EBITDA from continuing operations to determine the Companys compliance with certain financial covenants under the 2014 Term Credit Agreement. |
(3) | Backlog is anticipated contract revenue from uncompleted portions of existing contracts and contracts whose award is reasonably assured. Master Service Agreement (MSA) backlog is estimated for the remaining term of the contract. MSA backlog is determined based on historical trends inherent in the MSAs, factoring in seasonal demand and projecting customer needs based on ongoing communications. Backlog is not a term recognized under U.S. GAAP; however, it is a common measurement used in our industry. |
Exhibit 99.2
Willbros Group, Inc.
Q3 2017 Conference Call
November 9, 2017, 10:00 AM Eastern
CORPORATE PARTICIPANTS
Steve Breitigam - Senior Vice President, Investor Relations
Michael Fournier - President and Chief Executive Officer
Jeff Kappel - Senior Vice President and Chief Financial Officer
1
PRESENTATION
Operator
Good day, ladies and gentlemen, and welcome to the Willbros Group Third Quarter 2017 Conference Call. All participants are currently in listen-only mode, and should you need assistance, please signal a conference specialist by pressing the * key followed by 0.
After todays presentation, there will be an opportunity to ask questions. To ask a question, you may press * and then 1 on your touchtone phone. To withdraw your question, please press * and then 2. Please also note that this event is being recorded.
I would now like to turn the conference over to the Senior VP of Investor Relations, Mr. Steve Breitigam. Please go ahead, sir.
Steve Breitigam
Good morning, folks, and thank you for joining us today. Speaking today will be Mike Fournier, President and Chief Executive Officer, and Jeff Kappel, Senior Vice President and Chief Financial Officer.
This conference call is being broadcast live over the internet and is also being recorded. An archive of the webcast will be available shortly after the call on our website, Willbros.com. A replay will also be available through the phone number provided in the company press release announcing this call. The information reported on this call speaks only as of today, November 9, 2017, and time-sensitive information may no longer be accurate at the time of any replay.
Comments today contain forward-looking statements. All statements, other than statements of historical facts which address activities, events, or developments the company expects or anticipates will or may occur in the future are forward-looking statements. A number of risks and uncertainties could cause actual results to differ materially from these statements. These risk factors are described in the companys documents and reports filed with the SEC. The company assumes no obligation to publically update such forward-looking statements, whether as a result of new information, future events, or otherwise.
This presentation contains non-GAAP numbers. Reconciliations and related information are in our press release dated November 8, 2017, and on our website.
Now, Ill turn the call over to Mike Fournier, President and CEO.
Michael Fournier
Thanks, Steve. Yesterday we announced two strategic decisions. First, we are focusing our attention on growing our Utility T&D business. This business has performed well, producing quality earnings with an expanding customer base. Weve grown our top-line revenue and expanded into new areas despite minimal capital investment.
Secondly, we announced that we intend to exit the US Mainline Pipeline business upon completion of our active projects. For a number of reasons, this business has not been profitable over the last several years. We believe that the resources of the company could be better deployed to grow our Utility T&D business and reinforce our remaining Oil and Gas and Canadian operations. In support of this new strategic direction, we have obtained the support of our term loan provider with an agreement to provide $15 million of additional liquidity and covenant amendments.
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Starting first with our UTD segment.
Year-over-year third quarter revenue grew in our UTD segment by $23.5 million to $129.9 million. While succeeding in offsetting the historical Q3 seasonal revenue downturn, project execution issues on the additional revenue and an unanticipated volume discount resulted in an operating loss of $7.5 million for the quarter compared to an operating income of $4.3 million in Q3 of 2016.
In terms of actions, our high voltage transmission group is adjusting its organizational structure to expand operational oversight of large projects outside our traditional client base, and we have limited our scope of supply on renewable energy projects. I believe this will mitigate the risk of future project losses while supporting revenue growth. We also have a strategy of working with our client to mitigate the impact of volume discounts going forward.
With all of that being said, I believe we can support continued revenue growth with improved operating results as we shift additional focus and resources to the Utility T&D segment.
Moving to our US Oil and Gas businesses.
Our Facilities operating unit had a slow start through the first half of the year but is working at capacity today with solid backlog through Q1 of 2018 and bid opportunities further into 2018. Our Pipeline operating unit is executing work in Pennsylvania this year on three projects. The bulk of field construction on all three projects has taken place in Q3. All three have encountered significant change in conditions. Most notably, the amount of rain, which impacts work on steep slopes, and turnover of personnel as a result of increased activity levels in the region have impacted these projects.
Our Lineal business unit encountered similar problems with a project they executed in Q3.
Of these four projects, three are in a loss position as of September 30. We incurred $13.0 million in losses on these three projects during the third quarter. Well be mechanically complete on two of the projects in Q4 of 2017 with the third active project scheduled to be complete in early Q1 of 2018.
Through September 30, 2017, the US Mainline Pipeline operating unit executed approximately $62.8 million of revenue and an operating loss of $13.8 million. Thus, we intend to exit this business and are in exclusive discussions with a potential buyer for this business.
We continue to bid facility projects and continue to see strong opportunities in this business. Our facilities business has had a positive performance over the past three years; maintains a low fixed cost structure; and this work has a reasonable project risk profile. We also continue to execute small pipeline projects through our Lineal business unit in the Northeast.
Our Canadian operations were flat in Q3, and we do not foresee substantial change in Q4. Outlook for 2018 sees improved opportunities. Our pipeline maintenance business in the Fort McMurray area is seeing its baseload maintenance work return to normal levels after some disruptions earlier in the year. We also see some improvement in opportunities for our industrial construction services group.
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Now, Im going to hand off to Jeff to walk us through the financials. I will then speak to further actions we are taking to reset our performance.
Jeff Kappel
Thanks, Mike, and good morning.
I would like to begin with a discussion of our consolidated operating results for the quarter.
In the third quarter of 2017, we recorded an operating loss of $27.8 million on contract revenue of $240.8 million compared to operating income of $400,000 on contract revenue of $227.4 million in the second quarter of 2017. The operating loss in the quarter was primarily driven by $14.8 million in Oil and Gas and $7.5 million in Utility T&D, as Mike previously discussed. The remaining operating loss for the quarter is attributable to a small Canadian operating loss of $300,000 and $5.2 million of corporate costs.
Our operating results for the third quarter of 2017 include $13.5 million of contract revenue and a small operating loss of $100,000 related to the Oil and Gas segments Tank Services business, which is held for sale as of September 30, 2017. We expect to finalize the sale of this business in the fourth quarter. Our third quarter operating results also include revenue from US Mainline Pipeline business of $36.0 million and an operating loss of approximately $11.1 million.
I would like, now, to give an update on liquidity and an overview of our term loan amendment.
Our total liquidity at September 30, 2017, was approximately $48.8 million, which is composed of $31.3 million of cash and $17.5 million of revolver availability. In the third quarter of 2017, we borrowed $12.0 million against our revolver to support anticipated working capital needs.
On November 6, 2017, we amended our term credit agreement to access additional liquidity and obtain covenant relief. As part of this amendment, we reached an agreement to increase our term loan balance to $107.2 million with the additional $15.0 million to be received in November of 2017. We also extended our covenant holiday through December 31, 2017 and added more flexibility to our 2018 covenant, including a modification method for calculating covenant EBITDA, which excludes our third quarter 2017 results.
As part of the amendment, our interest rate on the term loan will increase 2% and beginning September 30, 2018, interest will increase an additional 1.0% per quarter through maturity. Our repayment fee due at maturity, or at the time of any prepayment, increased from 5% to 9%.
In addition, certain dates changed related to our makewhole arrangement. Under the amendment, if we prepay our term loan by September 30, 2018, we must also pay a makewhole equal to the present value of all interest payments from that date through June 15, 2019. If we prepay our term loan after September 30, 2018, the makewhole amount extends through the maturity of the term loan, which is December 15, 2019.
In addition, we drew $17 million from our ABL on November 6, 2017. We expect to meet our future liquidity and capital resource needs through the above actions, coupled with cash-on-hand plus projected future cash flows from operations through improved operational performance. In addition, we are evaluating our options to extend, modify, or refinance our ABL credit agreement, which expires in August 2018, and also, accelerating the refinancing of our term loan.
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TAXES
In the third quarter of 2017, we recorded a tax provision of approximately $1.1 million which is primarily related to a reduction of a benefit on our Canadian lawsuit and other discrete items. At September 30, 2017, we have valuation allowance of $87.1 million against our tax assets, which is due primarily to net operating losses. We anticipate not paying any or making any provisions for US taxes in 2017.
Now BACKLOG
At September 30, 2017, we reported 12-month backlog of $543.9 million, which is a decrease of $3.0 million from June 30, 2017. The decrease is primarily attributable to the work off of discrete projects in our UTD and Canada segments in the third quarter, partially offset by an increased workload in our Oil and Gas segment. At September 30, we reported total backlog of $741.3 million, which is a decrease of $67.3 million from June 30. This decrease is primarily the result of the work off of existing MSAs in our Utility T&D segment, which are subject to renewal options in future years. MSA work included in backlog extends only through the life of the contract. We intend to pursue the renewal of these MSAs upon expiration. The decrease is also partly attributable to the previously discussed decrease in discrete projects in Utility T&D in Canada, partially offset by the increase in discrete projects in Oil and Gas. Included in the Oil and Gas segment is backlog of approximately $21.3 million related to our Tank Services business, which is classified as held for sale and $47.1 million of US Mainline Pipeline projects.
Now onto GUIDANCE
Revenue is expected to range between $850 million and $900 million for the year ended December 31, 2017, excluding the Tank Services business. Included in the $850 million is $105 million of revenue related to the US Mainline Pipeline business.
Now, onto our preliminary 2018 outlook, revenue is expected to be between $750 and $825 million, excluding US Mainline Pipeline and Tank Services, with revenue increasing at both Utility T&D and Canada. Utility T&D revenues are expected to approximate 70.0% of our consolidated revenues.
Now, Ill hand back to Mike for additional remarks.
Michael Fournier
Thanks, Jeff. While expensive, we are taking additional $15.0 million of debt to bolster confidence in liquidity levels through 2017 and to support workload in 2018. Covenant relief gives us the opportunity to deploy resources to grow revenue in our Utility T&D business units, broaden our service line in Canada, and support our remaining Oil and Gas business units as we shift out of pipeline operations.
We will focus in Q4 on laying the groundwork to refinance our debt agreements. As Jeff indicated, we have capacity in place for $750 million to $825 million of revenue in 2018, excluding our US Mainline Pipeline and Tank Services businesses. I believe we are in position to achieve this with $195 million of backlog for Q4 of 2017 and $346 million for 2018 as of September 30.
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In the short-term, well be focusing on completion of our pipeline projects, executing on our backlog to produce positive operating results in support of refinancing our debt in 2018 and improving our strategic position.
Operator, well now turn it back to you for Q&A.
QUESTION AND ANSWER
Operator
Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, you may press * and then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press * and then 2.
And todays first question comes from Tahira Afzal of KeyBanc Capital Markets. Please go ahead.
Tahira Afzal
I know theres always some weather issues, etc., that do impact these pipe projects. I know, when I look back to my notes, you guys have been more cautious through the terms and the risks associated with stuff like that. Was there anything that was really outside that really caused this to be a bigger problem than you thought? Any more color around that would be very helpful.
Michael Fournier
Tahira, let me try to answer that one. First off, I dont view this as execution issues. I visited all three of those project sites on a number of occasions. The project teams are very strong. The performance in the field is very strong under the conditions that theyre operating under. Weve done work in that region in the past. Inevitably, theres lessons learned from every project that you execute.
But, I think my message here is the project teams were performing at a very high level. The clients are very satisfied with the work were doing. I talked in earlier calls about the difficulty of the work in that part of the country. We recognized and have said before, technically, its a more difficult terrain to work in. As such, we also said that theres higher margins available.
What were seeing is certainly the volatility, the impact on operating conditions that, in this case, higher than normal rains, which not only will shut you down on the day that it is raining but also make it very difficult to work and maintain traction for your equipment on the steep grades that we deal with there. And, ultimately, can make a significant change to your actual execution plan on the project in terms of how much work you are able to do in what we call a production line manner versus how much you have to go back and do on a discrete activity level.
What you can conclude from that is, if were in a production line manner, were very efficient. If we have to go back and take on pieces of work in discrete fashion, were not near as efficient. So, weve got caught up in that.
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But, the other maybe bigger issue is the notion that every analyst report you read talks about the activity level in the pipeline space in general. And what were seeing, at least in the space that were dealing in--and were not dealing in the space where youre multiple spreads committed to projects 6-9 months in advance, where youre looking at large-diameter work and contract values in excess of $100 million.
Clearly, some folks are making good money in that area and, I believe, have a different risk profile in terms of the level of risks they are taking compared to what weve had to take on and other contractors who are competing in these mid-sized contract levels where there seems to be an iteration of bids, its never a single bid in a war. You go through a round of refinements that inevitably grinds the price down. And the level of risk in terms of permit risk, weather risk, that is shouldered by the contractor is what, ultimately, has driven us to the decision that we cant get the right return for that level of risk, and if we tried to build that into the bids, were not competitive.
So, thats a long-winded answer to how we arrived at the decision. But, hopefully, that clarifies for you and allows you to tie back to what we said previously about this space.
Tahira Afzal
Yes, it does help, so thank you for all of that. My follow-up question to that would be, as you look across the businesses that remain within Willbros, what has complexities that are pretty similar, so that we dont see these issues with some of whats remaining? I would like to get a sense of that.
And especially in transmission right now, theres a little bit of a lull. But, it seems things are picking up again. If there a siphoning of the labor force there, how do you manage for that going forward?
Michael Fournier
Certainly, the closest resemblance in terms of execution and risk on the Utility T&D side would be the transmission side of the business. The distribution side, its all unit-rate work, small crews. Every day, you can calculate what revenue versus what your cost was for a crew.
So, we view that as very low-risk; well, not time and material work. We do take productivity work. Its very easy to measure, adjust, determine which contracts are good contracts is how we characterize it.
The transmission space, again, we do a lot of transmission work that is small work order, so less than $1 million where, again, your exposure is limited. Even if youve priced it wrong, youre just not sitting there with a lot of exposure in terms of duration of the project or, ultimately, how many dollars are at stake. So, the larger transmission projects, and for us those range in the $25 to $30 million range, those pose a higher degree of risk. We do a lot of those sized projects within our MSA structures. But, as Ive mentioned in my script here, we start to branch out beyond our MSAs and bid discrete projects in the transmission substation work, and we stumbled on one of those projects. Not that the project is in a loss position, but we just didnt realize the gross margin we were expecting to achieve. And, ultimately, it woke us up to the fact that we need to provide a higher degree of project management structure to extend out beyond our MSA client. And so weve made that change.
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Resource-wise, for us, a big push on why were trying to execute transmission work outside of our MSAs is to overcome the seasonal slowdown that we see, primarily in Q3. So, for us, it isnt an issue of having the resources. Our issue is weve got the resources. Theyre busy in Q2. Theyre busy in Q4. We look for work to keep them employed in Q3.
So, we dont view the workforce risk in transmission as an immediate concern. Obviously, we would get concerned if we had projects that push back into Q4 that weve taken on in Q3. All of that issue we have to worry about in terms of workforce leveling. But, I dont view that as a particularly large risk today.
Ultimately, even on the larger transmission projects, the total crew sizes compared to the pipeline space--a big project in the transmission space is 200 people; a big project in the pipeline space is 400-450 people. So, theyre still at a smaller scale and less exposure, I believe, than our pipeline work.
Tahira Afzal
This is pretty helpful, Mike. Ill jump back in the queue.
Operator
Tahria, we have no questions in the queue if you would like to continue.
Tahira Afzal
Thats great. I guess the timeline for a sale of the pipe business would be very helpful to get an idea about.
Michael Fournier
I cant say much. In the script, I said we are in discussions with a buyer. My focus today is stability on the projects that are active in the field and providing a future for the folks that have performed well for us in their execution of their work. So, I dont think folks should view this as a large material transaction at this point in time.
Tahira Afzal
Mike, as you mentioned in your commentary, the Mainline Pipeline space has been doing well. It looks like its going to tie into next year and the year after. So, has there been notable interest in your divestment?
Michael Fournier
I would say the pipeline space is very selective in terms of who is willing to get involved in the risk level thats associated with that. I see it when I attend various analyst conferences. Everyone has a large interest in the engineering space. They view that as low risk. The distribution space, again, risk levels are low. But, its a very narrow group of folks that are interested and able to take the level of risk that comes along with pipelines. So, Ill characterize it as its a very narrow list of options there.
Tahira Afzal
It seems like people who already are in the space perhaps or are very well vertically-integrated in this.
Michael Fournier
I dont think I can comment any further at this point.
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Tahira Afzal
I think Im pushing my luck here, but thats fine. Mike, if you look into next year, lets say you have this business divested shortly. When do we start to see free cash flow head the right way for yourselves going forward?
Jeff Kappel
I think beginning in Q1 of 2018 we should see that.
Michael Fournier
So, I think twofold. We start seeing free cash flow then. Obviously, as we work off the pipeline backlog, we will pay back down our ABL. We see the heavy workload does come off in Q4. The facilitys workload, as I mentioned, carries on in Q1, and I think theres some strong opportunities to carry on profitably in that area.
The Canadian business, that one, obviously, weve hung in there for two years now in that market with the exception of one pipeline job up there, which now kind of gets taken out of the equation going forward. We do see the maintenance business coming back. We do see some expenditures happening in the oil sands in our area in terms of projects that involve either new pipelines or relocations within the oil sands mines. And that, again, has been very profitable work for us, historically, and so we see that as, actually, a very good opportunity in 2018. So, I believe that business starts pulling more weight as we go into 2018 as well.
Tahira Afzal
And, Mike, on that front, theres been a little more news flow on the--and I hope Im pronouncing it properly--the Duvernay shale play in Canada. And Chevron and some major company is looking to invest there.
Is that something youre hearing a bit of noise in, or is it too early in terms of development for yourselves?
Michael Fournier
Is that the Montney?
Tahira Afzal
Not the Montney. Its actually another one. But, I dont know if Im pronouncing it properly, so I want some help from you guys.
Michael Fournier
So, I would say those types of plays, we see them as opportunities for industrial construction services. So, as with our Oil and Gas facilities group, think of this as compressor station, pump station, measuring-type opportunities that we continue to play in. Those ones, typically, we see the open shop contractors up in that part of the country as very competitive, and were a CLAC-affiliated union operator up there. So, thats the only caveat Ill put around that.
Where we seem to be having success with our facilities group are smaller MSA-type opportunities where youre generally de-bottlenecking facilities. Again, the risk profile is low. Its less lumpy. The issue is youre biting off the work in small chunks. So, its taken us a while to have enough of a base in terms of contracts to build any sort of significant revenue there.
But, again, in 2018, we have a clear path to increased revenues in that area.
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Tahira Afzal
I think its pronounced the Duvernay shale play, D-U-V-E-R-N-A-Y. But, Ill forward you the article.
Michael Fournier
Okay. So, typically, those ones, the opportunity is takeaway capacity on the pipeline side. So, were bowing out of that. For us, it would be facilities. And, certainly, Im sure our people in Canada are on top of that.
Tahira Afzal
And the last question for me is more on the tank side, Mike. We have seen a lot of export terminals and junction staging terminals being suggested in Texas and, really, more widespread even throughout the US. Any thought on that as an opportunity set for yourselves going forward?
Michael Fournier
So, two-fold, certainly, our tank businesses were held for sale. Thats one of the appeals is that there continues to be, I believe, a strong market for tank construction. But, more importantly, for us, our facilities business that I referred to in our Oil and Gas, thats a central piece of their revenue stream. In fact, today, I think we have, of our Oil and Gas backlog, $60-$70 million of that is terminal work. So, this is the large manifolds and field-run piping that gathers from the tanks themselves and redistributes either to the dock or to the refineries.
So, we play a strong part in that market in the Houston, Texas region. The only caveat Id put around those ones Tahira is, its kind of lumpy. Theyre great when the projects are there, and were doing two of them today, concurrently, and then I think its maybe nine months before we see the next one. And so we have to infill around that terminal work with compressor station, and pump station, and metering-type work.
And, again, were active up in Missouri, actually, on some of that type of work today to infill. And, ultimately, as I made reference in the script, theres not a lot of fixed cost associated with that type of business. You rent the cranes. You lease the excavators. So, it is a strong part of the opportunity profile going forward for us.
Tahira Afzal
Mike, if you look at Edison Electric, they had the big EI conference that just happened. And you see a lot of utilities talk about the capital plans going forward. There seems to be incremental excitement about electric distribution for many reasons.
And I would love to get a sense from you. Is that business you think, once youve folded through all of this stuff, that you could muscle your way into further? It seems to have a better risk profile, more consistent regarding revenues. I would love to get your thoughts on that.
Michael Fournier
When I refer to redeploying the company resources into Utility T&D, certainly, theres an aspect of growing transmission activity, particularly in Q3, to load level for us. But, the remainder of that focus is on above-ground/below-ground distribution, electrical distribution buildout.
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And, in the past, Ive talked about the fact that weve hived off and created our Southeast business unit. That is almost exclusively above-ground/below-ground electrical distribution. And Ive made reference in the past that our limitation there isnt opportunities with clients. We could put additional crews on client systems today. Our constraint is qualified workforce and the rate at which we can train and bring that workforce on.
So, going forward, were going to double-down on the resources that we put into recruitment training and equipment supply to build that out. And, as you say, its generally unit-rate, sometimes time and material. Every day, you can look at the profitability of your crew.
So, I absolutely concur that is an area that people should be excited about. It continues to be a growing market for us and often involved, at least in the areas were operating in, some discrete project work as well around what we call hardening-type scopes, where utility companies are moving their above-ground. In some cases, theyre moving above-ground to below-ground in terms of their electrical distribution. In some cases, its just strengthening their pole structures and whatnot against storms.
So, we think were in the right areas of the country in terms of the loop from Virginia down through Florida and over into Texas. And were slowly working our way back east to west there and infilling as we see opportunities to pick up MSAs.
Operator
Thank you very much, ladies and gentlemen. If you wish to ask a question, please press * and 1.
Our next question is from Noelle Dilts of Stifel. Please go ahead.
Noelle Dilts
I dialed in a couple minutes late, so I apologize if I missed any of this. And Tahira asked a lot of good questions, so I dont have too many here.
But, first of all, when we think about the sale of the pipeline assets and business, first, how are you ensuring that the key folks stay on to help you finish up these projects and stay on through the sales process? And then, given that youve mentioned it is a pretty limited group of buyers, what would be the plan if a sale is not coming through at the price youre looking for?
Michael Fournier
So, the biggest ability for us to retain and keep our personnel focused on the projects is to provide an opportunity for them and a place to go upon completion of the work. So, we are working diligently at trying to move an opportunity forward to completion here. I indicated in the script that we are working with a potential buyer, and so we believe thats really the key to retention.
I mentioned to Tahira, people should not look at this being significant material in nature in that its a very limited population of folks that are interested in the level of risk thats associated with the pipeline business. Generally, it comes down to people that already know the business.
Noelle Dilts
OK, got it. And then, again, this is maybe expanding a little bit on Tahiras question, and you mentioned it somewhat in the script. But, as you look out now at the remaining businesses youre in, the core of your business, and maybe where you think the growth and profitability will come from moving forward, can you just touch on what we, as investors, should think of as most important, and then, talk a little bit about the transmission market and where you see the key opportunities moving forward?
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Michael Fournier
So, for me, when I look at the T&D business, theyve done a great job at laying out what we call the MSA framework on the distribution side to grow that side of the business. And we previously have put infrastructure in place in terms of our Southeast business unit, or what we call our WTD West, which is our historical distribution out of Fort Worth and our WTD East that works in the Virginia up into the Baltimore area.
So, I think Johnny Priest and his team have laid out a good infrastructure. Theyve got MSA contracts in place. The issue is how do we grow those distribution businesses without stumbling? And the key in those businesses is how you onboard people, train them, execute the work safely.
More and more, our clients in that space are evolving with respect to their expectations around safety performance, and we appear to be one of the few companies that is mature enough in our HSE processes that were differentiated in our performance. And thats what utilities are looking for. But, weve got to self-manage ourselves not to get out too far in front of ourselves, you can only grow so quickly there.
So, with this shift in direction, were certainly going to put more emphasis on the growth there. This probably means more people involved in recruitment, more people involved in training and sourcing equipment to support that.
And we certainly acknowledge that we stumbled on the transmission side and our renewables project execution in Q3. I talked about the additional operational management infrastructure required to execute transmissions projects. And, in the case of the renewables, we took on EPC risk and weve pulled ourselves back to procurement and construction only until we get more comfortable with our ability to assess and quantify design risk.
So, I think what you should be looking for is continued growth in our distribution. And well speak in future quarters to distinguish the levels of revenues that were running through distribution compared to transmission. And you will see us continue to grow our transmission project work. But, were going to pace ourselves and ensure we have the management infrastructure in place to support that growth.
Operator
Thank you very much. Ladies and gentlemen, a final reminder, if you wish to ask a question, please press * and then 1.
Let me pause a moment to see if we have any further questions.
CONCLUSION
Operator
Sir, it would appear that we have no further questions. Do you have any closing comments?
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Michael Fournier
Sure, thank you, Chris. So, yesterday, we announced what I believe is a transformational step in the direction the company needs to take to produce positive and sustainable operating performance. While this is a significant departure from our historical roots, I sincerely believe that, over time, it provides the right platform to deliver value to our shareholders.
And with that, Id like to thank you for attending our call and thank you for the questions. Have a good day.
Operator
Thank you very much, sir. Ladies and gentlemen, that will conclude this conference call, and you may now disconnect your lines.
Willbros Group
Thursday, November 9, 2017, 10:00 AM Eastern