Investment Community Conference Call Today
at 5:30 p.m. Eastern Time
Willdan Group, Inc. (“Willdan”) (NASDAQ: WLDN), a provider of
professional technical solutions, today reported financial results
for its third quarter ended September 29, 2017 and updated its
previously provided targets for fiscal year 2017.
Third Quarter 2017 Highlights
- Total contract revenue of $69.0
million, an increase of 18% over prior year
- Organic revenue growth (as defined
below) was 16% in the third quarter
- Income from operations of $4.2 million,
an increase of 37% over prior year
- Diluted earnings per share of
$0.31
For the third quarter of 2017, Willdan reported total contract
revenue of $69.0 million and net income of $2.9 million, or $0.31
per diluted share. This compares with total contract revenue of
$58.7 million and net income of $2.5 million, or $0.28 per diluted
share, for the third quarter of 2016. An increase in Willdan’s
effective tax rate from 18% to 31% as a result of the absence of a
renewal of the Section 179D tax deductions resulted in earnings per
share increasing at a lower rate than operating income.
“We see positive trends across Willdan as a result of our
disciplined focus on expanding into new geographies, new customers
and new programs with existing customers,” said Tom Brisbin,
Willdan’s Chairman and Chief Executive Officer. “It’s a good year.
We have won all of our recompetes this year. The new acquisition of
Integral Analytics is doing well as demonstrated by the Hawaiian
Electric press release on October 19, 2017. The number of
opportunities is accelerating due to our new capabilities and
geographies.”
Third Quarter 2017 Financial Highlights
Total contract revenue for the third quarter of 2017 was $69.0
million, an increase of 17.6% from $58.7 million for the third
quarter of 2016. That increase was primarily due to continuing
strong demand for our services in the Energy Efficiency Services
and Engineering Services segments. The revenues for those segments
for the third quarter of 2017 increased 19.2% and 16.1%,
respectively, from the third quarter of 2016. Also included in our
total contract revenue and contract revenue in our Energy
Efficiency Services segment for the third quarter of 2017 was
incremental contract revenue of $0.5 million attributable to the
acquisition of Integral Analytics, Inc. (“Integral Analytics”) that
we completed on July 28, 2017. As the economy continues to grow,
utility customers and governmental agencies continue to see demand
from their constituents for a greener, more productive supply of
energy and investment in governmental infrastructure. Organic
revenue growth was 16% in the third quarter. Organic revenue growth
is calculated as revenue generated by Willdan and its acquisition
targets in the applicable period of the current year divided by the
revenue generated by Willdan and its acquisition targets in the
same period of the prior year.
Direct costs of contract revenue were $48.7 million for the
third quarter of 2017, an increase of $6.1 million, or 14.5%, from
$42.6 million for the third quarter of 2016. The increase was
primarily due to the expanded revenue base from new contracts
commencing during the quarter in the Energy Efficiency Services
segment.
Revenue, net of subcontractor services and other direct costs
(see “Use of Non-GAAP Financial Measures” below), for the third
quarter of 2017 was $31.7 million, an increase of 19.5% from $26.5
million for the third quarter of 2016.
Total general and administrative expenses for the third quarter
of 2017 increased 23.3% to $16.1 million, from $13.1 million for
the prior year period, due primarily to the need for increased
staffing in support of the continuing growth in our Energy
Efficiency Services and Engineering Services segments, as well as
an expansion of business development, M&A and other expenses
aimed at accelerating growth and control.
Net income for the third quarter of 2017 was $2.9 million, or
$0.31 per diluted share, as compared to net income of $2.5 million,
or $0.28 per diluted share, for the third quarter of 2016. The
effective tax rate for the third quarter of 2017 was 30.9% compared
to only 18.2% in the same period of 2016. The increase if the
effective tax rate is primarily due to the expiration of tax
deductions for energy efficiency projects in commercial buildings
under Internal Revenue Code 179D. The deductions were utilized in
2016 but have not been available in 2017.
The growth in revenue and improvement in project profitability
enabled EBITDA (see “Use of Non-GAAP Financial Measures” below) to
increase 45% to $5.8 million for the third quarter of 2017, as
compared to $4.0 million for the third quarter of 2016. EBITDA as a
percentage of revenue, net of subcontractor services and other
direct costs, was 18.3% in the third quarter of 2017, as compared
with 14.9% for the third quarter of 2016. EBITDA as a percentage of
contract revenue, or EBITDA margin, was 8.4% in the third quarter
of 2017, as compared to 6.8% for the third quarter of 2016.
Nine Months 2017 Financial Highlights
Total contract revenue for the nine months ended September 29,
2017 was $209.2 million, an increase of 38.1% from $151.5 million
for the nine months ended September 30, 2016. $15.3 million of the
increase was attributable to the acquisition of substantially all
of the assets of Genesys Engineering, P.C. (“Genesys”) that we
completed on March 4, 2016 and incremental contract revenue of $0.5
million attributable to the acquisition of Integral Analytics that
was completed on July 28, 2017. The remaining increase was
primarily due to new projects and new customers in the Energy
Efficiency and Engineering segments, which increased 48.6% and
17.9%, respectively, from the nine months ended September 30,
2016.
Direct costs of contract revenue increased 46.7% to $152.5
million, or 72.9% of revenue, for the nine months ended September
29, 2017, compared to $103.9 million, or 68.6% of revenue, for the
nine months ended September 30, 2016. $14.0 million of the increase
in direct costs resulted from the acquisition of substantially all
of the assets of Genesys, which also accounts for most of the
increase in direct costs as a percentage of revenues, as Genesys’
projects tend to have a significantly higher percentage of
equipment and subcontractor costs than much of the rest of
Willdan’s business mix.
Revenue, net of subcontractor services and other direct costs,
for the nine months ended September 29, 2017 increased 18.1% to
$90.3 million, compared with $76.4 million for the nine months
ended September 30, 2016.
Total general and administrative expenses for the nine months
ended September 29, 2017 were $46.0 million, an increase of 18.7%
from $38.7 million for the prior year period, primarily due to an
increase in general and administrative expenses to support the
growth of the Energy Efficiency Services segment.
Net income for the nine months ended September 29, 2017 was $8.8
million, or $0.97 per diluted share, as compared to net income of
$6.7 million, or $0.79 per diluted share, for the nine months ended
September 30, 2016. Income tax expense was $1.8 million for the
nine months ended September 29, 2017, as compared to $2.0 million
for the nine months ended September 30, 2016.
The growth in revenues enabled EBITDA to grow 26.9% to $14.5
million for the nine months ended September 29, 2017, compared with
$11.4 million for the nine months ended September 30, 2016. EBITDA
as a percentage of revenue, net of subcontractor services and other
direct costs, was 16.1% for the nine months ended September 29,
2017, as compared with 15.0% for the nine months ended September
30, 2016.
Liquidity and Capital Resources
Willdan reported $5.6 million in cash and cash equivalents at
September 29, 2017, as compared to $22.7 million at December 30,
2016. The decrease in cash and cash equivalents was primarily due
to cash paid for the acquisition of Integral Analytics of $15.0
million, payments of $4.9 million for contingent consideration and
notes payable related to our prior acquisitions and $1.8 million
for purchases of equipment and leasehold improvements, which was
partially offset by cash proceeds from stock option exercises and
sales of common stock under our employee stock purchase plan of
$2.6 million and cash provided by operations of $2.0 million.
Outlook
Willdan updated the following financial targets for fiscal year
2017:
- Total contract revenue of $255 - $265
million
- Diluted earnings per share of $1.12 -
$1.18
- Effective tax rate of approximately 40%
for the remaining quarter
- Diluted share count of 9.25 million
shares
- Depreciation of $1.6 million
- Amortization of $2.7 million
Over the long-term, Willdan continues to target both organic and
acquisitive revenue growth of greater than 10%, resulting in total
revenue growth of greater than 20% per year.
Conference Call Details
Chief Executive Officer Thomas Brisbin and Chief Financial
Officer Stacy McLaughlin will host a conference call today,
November 2, 2017, at 5:30 p.m. Eastern/2:30 p.m. Pacific to discuss
Willdan’s financial results and provide a business update.
Interested parties may participate in the conference call by
dialing 888-394-8218 and providing conference ID 5266745. The
conference call will be webcast simultaneously on Willdan’s website
at www.willdan.com under Investors: Events and the replay will be
archived for at least 12 months.
The telephonic replay of the conference call may be accessed
following the call by dialing 888-203-1112 and entering the
passcode 5266745. The replay will be available through November 16,
2017.
About Willdan Group, Inc.
Willdan provides professional technical and consulting
services to utilities, public agencies and private industry
throughout the United States. Willdan’s service offerings span
a broad set of complementary disciplines that include energy
efficiency and sustainability, engineering and planning, financial
and economic consulting and national
preparedness. Willdan provides integrated technical
solutions to extend the reach and resources of its clients and
provides all services through its subsidiaries specialized in each
segment. For additional information,
visit Willdan’s website at www.willdan.com.
Use of Non-GAAP Financial Measures
“Revenue, net of subcontractor services and other direct costs,”
a non-GAAP financial measure, is a supplemental measure
that Willdan believes enhances investors’ ability to
analyze our business trend and performance because it substantially
measures the work performed by our employees. In the course of
providing services, Willdan routinely subcontracts various
services. Generally, these subcontractor services and other direct
costs are passed through to our clients and, in accordance with
U.S. generally accepted accounting principles (“GAAP”) and industry
practice, are included in our revenue when it is our contractual
responsibility to procure or manage these activities. Because
subcontractor services and other direct costs can vary
significantly from project to project and period to period, changes
in revenue may not necessarily be indicative of our business
trends. Accordingly, Willdan segregates costs from revenue to
promote a better understanding of our business by evaluating
revenue exclusive of costs associated with external service
providers. A reconciliation of contract revenue as reported in
accordance with GAAP to revenue, net of subcontractor services and
other direct costs is provided at the end of this news release.
EBITDA is a supplemental measure used by Willdan’s management to
measure its operating performance. Willdan defines EBITDA as net
income (loss) plus interest expense (income), income tax expense
(benefit), interest accretion and depreciation and amortization.
EBITDA is not a measure of net income (loss) determined in
accordance with GAAP. Willdan believes EBITDA is useful because it
allows Willdan’s management to evaluate its operating performance
and compare the results of its operations from period to period and
against its peers without regard to its financing methods, capital
structure and non-operating expenses. Willdan uses EBITDA to
evaluate its performance for, among other things, budgeting,
forecasting and incentive compensation purposes.
EBITDA has limitations as an analytical tool and should not be
considered as an alternative to, or more meaningful than, net
income (loss) as determined in accordance with GAAP. Certain items
excluded from EBITDA are significant components in understanding
and assessing a company’s financial performance, such as a
company’s costs of capital, as well as the historical costs of
depreciable assets. Willdan’s definition of EBITDA may also differ
from those of many companies reporting similarly named measures.
Willdan believes EBITDA is useful to investors, research
analysts, investment bankers and lenders because it removes the
impact of certain non-operational items from its operational
results, which may facilitate comparison of its results from period
to period. A reconciliation of net income as reported in accordance
with GAAP to EBITDA is provided at the end of this news
release.
Willdan’s definition of Revenue, net of subcontractor services
and other direct costs, and EBITDA may differ from other companies
reporting similarly named measures. These measures should be
considered in addition to, and not as a substitute for, or superior
to, other measures of financial performance prepared in accordance
with GAAP, such as contract revenue and net income.
Forward-Looking Statements
Statements in this press release that are not purely historical,
including statements regarding Willdan’s intentions,
hopes, beliefs, expectations, representations, projections,
estimates, plans or predictions of the future are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995, including statements regarding Willdan’s
targets for fiscal year 2017 and the expected benefits of Willdan’s
recent acquisition of Integral Analytics. The forward-looking
statements involve risks and uncertainties including, but not
limited to, the risk that Willdan will not be able to
expand its services or meet the needs of customers in markets in
which it operates. It is important to note
that Willdan’s actual results could differ materially
from those in any such forward-looking statements. Factors that
could cause actual results to differ materially include, but are
not limited to, Willdan’s failure to execute on existing projects,
inability to integrate recent acquisitions, including its recent
acquisition of Integral Analytics, a slowdown in the local and
regional economies of the states where Willdan conducts
business, Willdan’s inability to successfully implement its tax
strategy and the loss of or inability to hire additional qualified
professionals. Willdan’s business could be affected by a
number of other factors, including the risk factors listed from
time to time in Willdan’s SEC reports including, but
not limited to, the Annual Report on Form 10-K filed for the year
ended December 30, 2016 and the Quarterly Reports on Form 10-Q
for the quarters ended June 30, 2017 and September 29, 2017.
Willdan cautions investors not to place undue reliance on the
forward-looking statements contained in this press
release. Willdan disclaims any obligation to, and does
not undertake to, update or revise any forward-looking statements
in this press release.
WILLDAN GROUP, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 29, December 30, 2017
2016 Assets Current assets: Cash and cash equivalents
$ 5,603,000 $ 22,668,000 Accounts receivable, net of allowance for
doubtful accounts of $516,000 and $785,000 at September 29, 2017
and December 30, 2016, respectively 36,084,000 30,285,000 Costs and
estimated earnings in excess of billings on uncompleted contracts
27,188,000 18,988,000 Other receivables 1,778,000 699,000 Prepaid
expenses and other current assets 2,831,000 2,601,000
Total current assets 73,484,000 75,241,000 Equipment and leasehold
improvements, net 5,360,000 4,511,000 Goodwill 40,056,000
21,947,000 Other intangible assets, net 11,145,000 5,941,000 Other
assets 807,000 707,000 Total assets $ 130,852,000 $
108,347,000
Liabilities and Stockholders’ Equity Current
liabilities: Accounts payable $ 23,048,000 $ 17,395,000 Accrued
liabilities 17,755,000 19,049,000 Contingent consideration payable
777,000 1,925,000 Billings in excess of costs and estimated
earnings on uncompleted contracts 7,102,000 8,377,000 Notes payable
1,276,000 3,972,000 Capital lease obligations 307,000
334,000 Total current liabilities 50,265,000 51,052,000 Contingent
consideration payable 8,205,000 2,537,000 Notes payable 1,500,000
2,074,000 Capital lease obligations, less current portion 177,000
210,000 Deferred lease obligations 650,000 714,000 Deferred income
taxes, net 3,626,000 1,842,000 Total liabilities
64,423,000 58,429,000 Commitments and
contingencies Stockholders’ equity: Preferred stock, $0.01
par value, 10,000,000 shares authorized, no shares issued and
outstanding — — Common stock, $0.01 par value, 40,000,000 shares
authorized; 8,764,000 and 8,348,000 shares issued and outstanding
at September 29, 2017 and December 30, 2016, respectively 88,000
83,000 Additional paid-in capital 50,043,000 42,376,000 Retained
earnings 16,298,000 7,459,000 Total stockholders’
equity 66,429,000 49,918,000 Total liabilities and
stockholders’ equity $ 130,852,000 $ 108,347,000
WILLDAN GROUP, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 29, September 30, September
29, September 30, 2017 2016
2017 2016 Contract revenue $ 69,007,000
$ 58,660,000 $ 209,191,000 $ 151,516,000
Direct costs of contract revenue (inclusive of directly
related depreciation and amortization): Salaries and wages
11,425,000 10,421,000 33,594,000 28,753,000 Subcontractor services
and other direct costs 37,310,000 32,134,000
118,881,000 75,161,000 Total
direct costs of contract revenue 48,735,000
42,555,000 152,475,000 103,914,000
General and administrative expenses: Salaries and
wages, payroll taxes and employee benefits 8,691,000 7,825,000
26,092,000 23,035,000 Facilities and facility related 1,235,000
1,039,000 3,478,000 2,978,000 Stock-based compensation 896,000
268,000 1,992,000 732,000 Depreciation and amortization 1,053,000
742,000 2,896,000 2,308,000 Other 4,214,000
3,178,000 11,548,000 9,694,000
Total general and administrative expenses 16,089,000
13,052,000 46,006,000 38,747,000
Income from operations 4,183,000
3,053,000 10,710,000 8,855,000
Other income (expense): Interest expense (23,000 ) (43,000 )
(88,000 ) (137,000 ) Other, net 18,000 —
56,000 2,000 Total other
expense, net (5,000 ) (43,000 ) (32,000 )
(135,000 ) Income before income taxes 4,178,000 3,010,000
10,678,000 8,720,000 Income tax expense 1,292,000
548,000 1,839,000
1,990,000 Net income $ 2,886,000 $ 2,462,000 $
8,839,000 $ 6,730,000 Earnings per share:
Basic $ 0.33 $ 0.30 $ 1.03 $ 0.82
Diluted $ 0.31 $ 0.28 $ 0.97 $ 0.79
Weighted-average shares outstanding: Basic 8,730,000
8,308,000 8,580,000 8,181,000 Diluted 9,248,000 8,720,000 9,138,000
8,516,000
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Nine Months Ended
September 29, September 30, 2017
2016 Cash flows from operating activities: Net income $
8,839,000 $ 6,730,000 Adjustments to reconcile net income to net
cash provided by operating activities: Depreciation and
amortization 2,976,000 2,314,000 Deferred income taxes, net
1,784,000 2,556,000 Loss on sale/disposal of equipment 26,000 3,000
(Recovery of) provision for doubtful accounts (98,000 ) 92,000
Stock-based compensation 1,992,000 732,000 Accretion and fair value
adjustments of contingent consideration 779,000 (139,000 ) Changes
in operating assets and liabilities, net of effects from business
acquisitions: Accounts receivable (5,061,000 ) 5,148,000 Costs and
estimated earnings in excess of billings on uncompleted contracts
(8,200,000 ) (7,956,000 ) Other receivables (1,071,000 ) (1,918,000
) Prepaid expenses and other current assets (167,000 ) (335,000 )
Other assets 44,000 56,000 Accounts payable 5,408,000 1,760,000
Accrued liabilities (3,340,000 ) 5,246,000 Billings in excess of
costs and estimated earnings on uncompleted contracts (1,812,000 )
2,469,000 Deferred lease obligations (64,000 ) (9,000
) Net cash provided by operating activities 2,035,000
16,749,000 Cash flows from investing activities:
Purchase of equipment and leasehold improvements (1,826,000 )
(1,386,000 ) Cash paid for acquisitions, net of cash acquired
(14,603,000 ) (8,857,000 ) Net cash used in investing
activities (16,429,000 ) (10,243,000 ) Cash flows
from financing activities: Payments on contingent consideration
(1,659,000 ) (1,285,000 ) Payments on notes payable (3,270,000 )
(3,083,000 ) Principal payments on capital lease obligations
(323,000 ) (411,000 ) Proceeds from stock option exercise 1,751,000
164,000 Proceeds from sales of common stock under employee stock
purchase plan 830,000 209,000 Net cash
used in financing activities (2,671,000 ) (4,406,000
) Net (decrease) increase in cash and cash equivalents (17,065,000
) 2,100,000 Cash and cash equivalents at beginning of period
22,668,000 16,487,000 Cash and cash
equivalents at end of period $ 5,603,000 $ 18,587,000
Supplemental disclosures of cash flow information: Cash paid during
the period for: Interest $ 88,000 $ 137,000 Income taxes 2,142,000
2,046,000 Supplemental disclosures of noncash investing and
financing activities: Issuance of notes payable related to business
acquisitions $ — $ 4,569,000 Issuance of common stock related to
business acquisitions 3,099,000 2,228,000 Contingent consideration
related to business acquisitions 5,400,000 — Other payable for
working capital adjustment 1,881,000 — Other receivable for working
capital adjustment — 604,000 Equipment acquired under capital
leases 263,000 186,000
Willdan Group, Inc. and
Subsidiaries Reconciliation of GAAP Revenue and “Revenue,
Net of Subcontractor Services and Other Direct Costs”
(Non-GAAP Measure) Three Months Ended
Nine Months Ended September 29,
September 30, September 29, September
30, 2017 2016 2017 2016 Contract
revenue $ 69,007,000 $ 58,660,000 $ 209,191,000 $ 151,516,000
Subcontractor services and other direct costs 37,310,000
32,134,000 118,881,000 75,161,000 Revenue, net
of subcontractor services and other direct costs $ 31,697,000 $
26,526,000 $ 90,310,000 $ 76,355,000
Willdan
Group, Inc. and Subsidiaries Reconciliation of GAAP Net
Income to EBITDA (Non-GAAP Measure)
Three Months Ended Nine Months Ended
September 29, September 30, September
29, September 30, 2017 2016
2017 2016 Net income $ 2,886,000 $ 2,462,000 $
8,839,000 $ 6,730,000 Interest expense 23,000 43,000 88,000 137,000
Income tax expense 1,292,000 548,000 1,839,000 1,990,000 Interest
accretion(1) 498,000 168,000 779,000 278,000 Depreciation and
amortization 1,106,000 742,000 2,976,000
2,308,000 EBITDA $ 5,805,000 $ 3,963,000 $ 14,521,000 $
11,443,000
_____________________________
(1) Interest accretion represents the imputed interest on
the earn-out payments to be paid by us in connection with our
acquisitions of Abacus Resource Management Company, Economists.com,
LLC, Integral Analytics and substantially all of the assets of 360
Energy Engineers, LLC.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171102006798/en/
Willdan Group, Inc.Stacy McLaughlinChief Financial
OfficerTel: 714-940-6300smclaughlin@willdan.comorInvestor/Media
ContactFinancial Profiles, Inc.Tony RossiTel:
310-622-8221trossi@finprofiles.com
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