Willdan Group Reports Second Quarter 2014 Financial Results

Reports 31.6% Revenue Increase and 8th Consecutive Quarter of Profitability

Investment Community Conference Call Today at 5:00 p.m. Eastern Time

ANAHEIM, Calif.--()--Willdan Group, Inc. (“Willdan”) (NASDAQ: WLDN), a provider of professional technical and consulting services, today reported financial results for its second quarter ended June 27, 2014, and provided a business update.

For the second quarter of 2014, Willdan reported total contract revenue of $27.0 million and net income of $1.9 million, or $0.25 per diluted share. For the six months ended June 27, 2014, total contract revenue was $49.7 million and net income was $3.2 million, or $0.43 per diluted share.

“We are reporting our eighth consecutive quarter of profitability with revenue growth from each of our business segments,” said Willdan’s Chief Executive Officer Tom Brisbin. “In the first half of the year, net income increased to $3.2 million, or $0.43 per diluted share, from net income of $1.1 million, or $0.15 per diluted share, for the same period last year.

“Our outlook is for continued profitable growth supported by our expanded service offering, geographic reach and a better economic environment,” he added. “We are winning new contracts and increasing our services with existing customers based on the quality of our work and program management capabilities. We also see opportunities to grow our business through tuck-in acquisitions and have a strong balance sheet to capitalize on this strategy.”

Second Quarter 2014 Financial Highlights

Total contract revenue for the second quarter of 2014 increased 31.6% to $27.0 million from $20.5 million for the second quarter of 2013. The revenue growth was due primarily to an increase of $5.7 million in contract revenue from the Energy Efficiency Services segment to $13.7 million in the second quarter of 2014, due to an increase in the direct installation of energy efficiency measures from the energy efficiency audits in New York and California. Contract revenue for the Engineering Services segment increased by $0.9 million to $9.5 million as a result of greater demand for building and safety, and construction management services. Contract revenue for the Public Finance Services segment was $2.7 million and was $1.1 million for the Homeland Security Services segment.

Net income for the quarter ended June 27, 2014 increased by $1.2 million, to $1.9 million, or $0.25 per diluted share, from net income of $0.7 million, or $0.09 per diluted share, for the quarter ended June 28, 2013.

Revenue, net of subcontractor costs, for the second quarter of 2014 increased 24% to $21.2 million from $17.1 million for the second quarter of 2013.

Direct costs of contract revenue were $16.3 million for the second quarter of 2014, compared with $11.4 million for the second quarter of 2013. The $4.9 million increase resulted primarily from increased demand for the energy efficiency, sustainability and renewable energy services of Willdan Energy Solutions, which generally utilizes a higher percentage of subconsultants than Willdan’s other subsidiaries.

Total general and administrative expenses for the second quarter of 2014 increased by 4.7% to $8.7 million compared with $8.3 million for the prior year period.

Six Months 2014 Financial Highlights

Total contract revenue for the six months ended June 27, 2014 increased 18.6% to $49.7 million from $41.9 million for the six months ended June 28, 2013. The increase was due primarily to a $6.1 million increase in contract revenue for the Energy Efficiency Services segment due to an increase in the direct installation of energy efficiency measures from the energy efficiency audits in New York and California. Contract revenue for the Engineering Services segment increased by $1.5 million to $18.4 million as a result of greater demand for the building and safety, and construction management services of our Engineering Services segment. Contract revenue from the Public Finance Services segment was $5.2 million and was $2.0 million from the Homeland Security Services segment.

Net income for the six months ended June 27, 2014 increased by $2.1 million, to $3.2 million, or $0.43 per diluted share, from net income of $1.1 million, or $0.15 per diluted share, for the six months ended June 28, 2013.

Revenue, net of subcontractor costs, for the six months ended June 27, 2014 increased 18% to $39.7 million from $33.6 million for the six months ended June 28, 2013.

Direct costs of contract revenue were $29.5 million for the six months ended June 27, 2014, as compared to $23.5 million for the six months ended June 28, 2013. The $6.0 million increase resulted primarily from increased demand for the energy efficiency, sustainability and renewable energy services of Willdan Energy Solutions, which generally utilizes a higher percentage of subconsultants than Willdan’s other subsidiaries and an increase in personnel costs of $1.2 million.

Adjusted EBITDA (as defined below) was $3.5 million for the six months ended June 27, 2014, compared with $1.5 million for the six months ended June 28, 2013.

Total general and administrative expenses for the six months ended June 27, 2014 decreased by 2% to $16.9 million from $17.2 million for the prior year period, due primarily to lower facilities and facility related expenses.

       
Three Months Ended Six Months Ended
June 27,     June 28, June 27,     June 28,
In thousands (except per share data) 2014 2013 2014 2013
Revenue $ 26,970 $ 20,496 $ 49,656 $ 41,881
 
Income from operations 1,941 718 3,253 1,175
Interest income 1 2 3 5
Interest expense (3 ) (50 ) (7 ) (77 )
Other, net 18 10 67 25
Income tax expense (benefit) 64 (8 ) 108 41
Net income $ 1,893 $ 688 $ 3,208 $ 1,087
 
Earnings per share:
Basic $ 0.26 $ 0.09 $ 0.43 $ 0.15
Diluted $ 0.25 $ 0.09 $ 0.43 $ 0.15
 
Weighted average shares outstanding:
Basic 7,405 7,353 7,401 7,336
Diluted 7,661 7,401 7,517 7,383
 

Liquidity and Capital Resources

Willdan reported $12.1 million in cash and cash equivalents at June 27, 2014, as compared to $8.1 million at December 27, 2013. Willdan's primary sources of liquidity are cash generated from operations and a revolving line of credit with BMO Harris Bank, N.A., which matures on March 24, 2016. In connection with the new credit facility entered into during the first half of 2014, no cash amounts are restricted as of June 27, 2014 as compared to $5.0 million at December 27, 2013. Cash flows provided by operating activities were $4.4 million for the six months ended June 27, 2014, compared with $2.0 million for the six months ended June 28, 2013.

Outlook

Willdan is affirming its three-year financial and operational targets announced on June 20, 2014, as follows:

  • Contract revenue growth of up to 15% per year (organic and acquisitive growth combined)
  • Gross margin of 40% to 45%
  • Adjusted EBITDA margin of 5% to 10%
  • Accounts receivable days outstanding of 70 to 75

Use of Non-GAAP Financial Measures

"Revenues, net of subcontractor 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, we routinely subcontract various services. Generally, these subcontractor costs are passed through to our clients and, in accordance with GAAP and industry practice, are included in our revenue when it is our contractual responsibility to procure or manage these activities. Because subcontractor services can vary significantly from project to project and period to period, changes in revenue may not necessarily be indicative of our business trends. Accordingly, we segregate 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 U.S. Generally Accepted Accounting Principles (GAAP) to revenues, net of subcontractor costs is provided at the end of this news release.

Adjusted EBITDA is a supplemental measure used by Willdan's management to measure its operating performance. Willdan defines Adjusted EBITDA as net income plus net interest expense, income tax expense (benefit), depreciation and amortization, goodwill impairment and other non-recurring income and expense items occurring in such period. Willdan believes Adjusted EBITDA is useful to investors, research analysts, investment bankers and lenders because it removes the impact of certain non-recurring income and expense 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 U.S. GAAP to Adjusted EBITDA is provided at the end of this news release.

Willdan's definition of Revenue, net of subcontractor costs and Adjusted 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 U.S. GAAP, such as contract revenue and net income.

Conference Call Details

Chief Executive Officer Thomas Brisbin and Chief Financial Officer Stacy McLaughlin will host a conference call today, August 7, 2014, at 5:00 p.m. Eastern Time/2:00 p.m. Pacific Time, to discuss Willdan's financial results and provide a business update.

Interested parties may participate in the conference call by dialing 888-567-4387 (719-457-2085 for international callers). When prompted, ask for the “Willdan Group, Inc., Second Quarter 2014 Conference Call.” The conference call will be webcast simultaneously on Willdan’s website at www.willdan.com under Investors: Events.

The telephonic replay of the conference call may be accessed approximately two hours after the call through August 21, 2014, by dialing 888-203-1112 (719-457-0820 for international callers). The replay access code is 5891096. The webcast replay will be archived for 12 months.

About Willdan Group, Inc.

Celebrating its 50th year of business, Willdan provides outsourced professional technical and consulting services to public agencies, public and private utilities, and commercial and industrial firms throughout the United States. Willdan benefits from well-established relationships, industry-leading expertise and a solid reputation for delivering projects on time and on budget. The company's service offerings span a broad set of complementary disciplines that include engineering and planning, energy efficiency and sustainability, financial and economic consulting, and national preparedness. Willdan has crafted this set of integrated services so that, in the face of an evolving environment—whether economic, natural, or built—Willdan can continue to extend the reach and resources of its clients. For additional information, visit Willdan's website at www.willdan.com.

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. The forward-looking statements involve risks and uncertainties including, but not limited to our ability to expand our service offerings and geographic reach, continue to win new contracts and locate and successfully complete acquisition opportunities. 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, a slowdown in the local and regional economies of the states where Willdan conducts business 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 27, 2013. 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
 
      June 27,       December 27,
2014 2013
(unaudited)
Assets
Current assets:

Cash and cash equivalents, including restricted cash of $0 and $5,000,000 at June 27, 2014 and December 27, 2013, respectively

$ 12,105,000 $ 8,134,000
Accounts receivable, net of allowance for doubtful accounts of $532,000 and $385,000 at June 27, 2014 and December 27, 2013, respectively 12,221,000 13,167,000
Costs and estimated earnings in excess of billings on uncompleted contracts 13,023,000 9,635,000
Other receivables 449,000 212,000
Prepaid expenses and other current assets 1,239,000 2,377,000
Total current assets 39,037,000 33,525,000
Equipment and leasehold improvements, net 889,000 691,000
Other assets 646,000 333,000
Deferred income taxes, net of current portion 3,688,000 3,688,000
Total assets $ 44,260,000 $ 38,237,000
 
Liabilities and Stockholders’ Equity
Current liabilities:
Excess of outstanding checks over bank balance $ 1,419,000 $ 1,473,000
Accounts payable 5,085,000 3,957,000
Accrued liabilities 7,141,000 5,808,000
Billings in excess of costs and estimated earnings on uncompleted contracts 2,670,000 2,247,000
Current portion of notes payable 115,000 517,000
Current portion of capital lease obligations 180,000 129,000
Current portion of deferred income taxes 3,688,000 3,688,000
Total current liabilities 20,298,000 17,819,000
 
Capital lease obligations, less current portion 292,000 85,000
Deferred lease obligations 44,000 120,000
Total liabilities 20,634,000 18,024,000
 
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: 7,461,000 and 7,375,000 shares issued and outstanding at June 27, 2014 and December 27, 2013, respectively

74,000 74,000
Additional paid-in capital 34,859,000 34,654,000
Accumulated deficit (11,307,000 ) (14,515,000 )
Total stockholders’ equity 23,626,000 20,213,000
Total liabilities and stockholders’ equity $ 44,260,000 $ 38,237,000
 
 
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
    Three Months Ended     Six Months Ended
June 27,     June 28, June 27,     June 28,
2014 2013 2014 2013
 
Contract revenue $ 26,970,000 $ 20,496,000 $ 49,656,000 $ 41,881,000
 
Direct costs of contract revenue (exclusive of depreciation and amortization shown separately below):
Salaries and wages 7,003,000 6,129,000 13,205,000 11,972,000
Subconsultant services and other direct costs 9,296,000 5,309,000 16,292,000 11,500,000

Total direct costs of contract revenue

16,299,000 11,438,000 29,497,000 23,472,000
 
General and administrative expenses:
Salaries and wages, payroll taxes and employee benefits 5,014,000 4,948,000 9,932,000 10,486,000
Facilities and facilities related 1,125,000 1,149,000 2,187,000 2,337,000
Stock-based compensation 52,000 38,000 93,000 88,000
Depreciation and amortization 102,000 127,000 205,000 276,000
Lease abandonment, net 13,000
Other 2,437,000 2,078,000 4,489,000 4,034,000
Total general and administrative expenses 8,730,000 8,340,000 16,906,000 17,234,000
Income from operations 1,941,000 718,000 3,253,000 1,175,000
 
Other income (expense), net:
Interest income 1,000 2,000 3,000 5,000
Interest expense (3,000 ) (50,000 ) (7,000 ) (77,000 )
Other, net 18,000 10,000 67,000 25,000
Total other income (expense), net 16,000 (38,000 ) 63,000 (47,000 )
Income before income taxes 1,957,000 680,000 3,316,000 1,128,000
 
Income tax expense (benefit) 64,000 (8,000 ) 108,000 41,000
Net income $ 1,893,000 $ 688,000 $ 3,208,000 $ 1,087,000
 
Earnings per share:
Basic $ 0.26 $ 0.09 $ 0.43 $ 0.15
Diluted $ 0.25 $ 0.09 $ 0.43 $ 0.15
 
Weighted-average shares outstanding:
Basic 7,405,000 7,353,000 7,401,000 7,336,000
Diluted 7,661,000 7,401,000 7,517,000 7,383,000
 
 
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
      Six Months Ended
June 27,       June 28,
2014 2013
Cash flows from operating activities:
Net income $ 3,208,000 $ 1,087,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 205,000 310,000
Lease abandonment expense, net 13,000
Loss (gain) on sale of equipment 2,000 (6,000 )
Provision for doubtful accounts 191,000 162,000
Stock-based compensation 93,000 88,000
Changes in operating assets and liabilities:
Accounts receivable 755,000 4,282,000
Costs and estimated earnings in excess of billings on uncompleted contracts (3,388,000 ) (381,000 )
Other receivables (237,000 ) 27,000
Prepaid expenses and other current assets 1,138,000 560,000
Other assets (313,000 ) 9,000
Accounts payable 1,128,000 (3,543,000 )
Changes in excess of outstanding checks over bank balance (54,000 ) (370,000 )
Accrued liabilities 1,333,000 (196,000 )
Billings in excess of costs and estimated earnings on uncompleted contracts 423,000 140,000
Deferred lease obligations (76,000 ) (150,000 )
Net cash provided by operating activities 4,408,000 2,032,000
 
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (330,000 ) (86,000 )
Proceeds from sale of equipment 11,000

Net cash used in investing activities

(330,000 ) (75,000 )
 
Cash flows from financing activities:
Payments on notes payable (402,000 ) (459,000 )
Borrowings under line of credit 266,000
Repayments on line of credit (3,266,000 )
Principal payments on capital lease obligations 183,000 (66,000 )
Proceeds from stock option exercise 84,000
Proceeds from sales of common stock under employee stock purchase plan 28,000 37,000
Net cash used in financing activities (107,000 ) (3,488,000 )
Net increase (decrease) in cash and cash equivalents 3,971,000 (1,531,000 )
Cash and cash equivalents at beginning of the period 8,134,000 10,006,000
Cash and cash equivalents at end of the period $ 12,105,000 $ 8,475,000
 
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 7,000 $ 81,000
Income taxes 20,000 155,000
 
Supplemental disclosures of noncash investing and financing activities:
Equipment acquired under capital lease obligations $ 334,000 $ 7,000
 
 
Willdan Group, Inc. and Subsidiaries
Reconciliation of GAAP Revenue and "Revenue, Net of Subcontractor Costs"
 
           
Three Months Ended Six Months Ended
In thousands June 27,
2014
   

June 28,
2013

    Change June 27,
2014
    June 28,
2013
    Change
$     % $     %
Contract revenue $ 26,970,000 $ 20,496,000 6,474,000 32 $ 49,656,000 $ 41,881,000 7,775,000 19
Subcontractor costs 5,783,000 3,438,000 2,345,000 68 9,977,000 8,243,000 1,734,000 21
               
 

Revenue, net of subcontractor costs

21,187,000 17,058,000 4,129,000 24 39,679,000 33,638,000 6,041,000 18
 
 
Willdan Group, Inc. and Subsidiaries
Reconciliation of GAAP Net Income to Adjusted EBITDA
 
The following is a reconciliation of net income to Adjusted EBITDA:
       
Six Months Ended
June 27, June 28,
In thousands 2014 2013
Net income $ 3,208 $ 1,087
Interest income 3 (5 )
Interest expense (7 ) 77
Income tax expense 108 41
Lease abandonment, net 13
Depreciation and amortization 205 310
Loss (gain) on sale of assets (2 ) (6 )
Adjusted EBITDA $ 3,515 $ 1,517

Contacts

Willdan Group, Inc.
Stacy McLaughlin
Chief Financial Officer
Tel: 714-940-6300
smclaughlin@willdan.com
or
Investor/Media Contact
Financial Profiles, Inc.
Tel: 310-478-2700
Moira Conlon: mconlon@finprofiles.com
Jody Cain: jcain@finprofiles.com

Release Summary

Willdan Group Reports Second Quarter 2014 Financial Results

Contacts

Willdan Group, Inc.
Stacy McLaughlin
Chief Financial Officer
Tel: 714-940-6300
smclaughlin@willdan.com
or
Investor/Media Contact
Financial Profiles, Inc.
Tel: 310-478-2700
Moira Conlon: mconlon@finprofiles.com
Jody Cain: jcain@finprofiles.com