Willdan Group Reports Fourth Quarter and Fiscal Year 2018 Results

Investment Community Conference Call Today at 5:30 p.m. Eastern
Time

ANAHEIM, Calif.–(BUSINESS WIRE)–Willdan Group, Inc. (“Willdan”) (NASDAQ: WLDN), a provider of
professional technical and consulting services, today reported financial
results for its fourth quarter and fiscal year ended December 28, 2018
and provided its financial targets for fiscal 2019.

Fiscal Year 2018 Highlights

  • Consolidated Contract Revenue of $272.3 million
  • Net Revenue of $139.6 million, an increase of 14.9% over prior year
  • Net Income of $10.0 million
  • Diluted earnings per share of $1.03, including Lime transaction costs
    and new shares issued
  • Adjusted diluted earnings per share of $2.07, above 2018 guidance of
    $1.98 to $2.03

Fourth Quarter 2018 Highlights

  • Consolidated Contract Revenue of $86.4 million
  • Net Revenue of $40.2 million
  • Net Income of $1.2 million
  • Diluted earnings per share of $0.11, including Lime transaction costs
    and new shares issued
  • Adjusted diluted earnings per share of $0.61
  • Adjusted EBITDA of $6.6 million, an increase of 23.2%

For the fourth quarter of 2018, Willdan reported consolidated contract
revenue of $86.4 million and net income of $1.2 million, or $0.11 per
diluted share. This compares with consolidated contract revenue of $64.2
million and net income of $3.3 million, or $0.36 per diluted share, for
the fourth quarter of 2017. Fourth quarter 2018 results include $0.9
million of transaction costs associated with the acquisition of Lime
Energy, Inc. (“Lime Energy”) and approximately 2 million new shares
issued to help fund the transaction. For the fourth quarter of 2018, Net
Revenue, defined as revenue, net of subcontractor services and other
direct costs (see “Use of Non-GAAP Financial Measures” below), was $40.2
million, up 29.2% compared to the same period in fiscal year 2017.

“We completed fiscal 2018 with a strong quarter that included the
completion of our acquisition of Lime Energy,” said Tom Brisbin,
Willdan’s Chairman and Chief Executive Officer. “With our expanded
scale, geographic presence and client base, we enter 2019 well
positioned to capitalize on large markets such as California, New York
and New Jersey. Lime Energy has performed well, is collaborating
effectively, and we expect continued growth from them in 2019. Our
pending acquisition of The Weidt Group also positions us to grow our
presence in key Midwestern states. The Weidt Group is looking forward to
cross selling their new construction energy efficiency and software to
Willdan’s existing 70 plus Investor Owned Utility (“IOU”) client base.
As the transportation fleet electrifies and green house gas becomes more
important, all users of energy will be seeking smarter solutions.
Willdan is building a company to provide these solutions.”

Fourth Quarter 2018 Financial Highlights

Consolidated contract revenue for the fourth quarter of 2018 was $86.4
million, an increase of 34.7% from $64.2 million for the fourth quarter
of 2017. Contract revenue for the Energy segment was $67.7 million for
the fourth quarter of 2018, an increase of 48.0%, which was primarily
due to the contributions from Lime Energy (acquired on November 9, 2018)
and an increase in data analytics revenue, partially offset by a
reduction in subcontracted pass-through revenue. Contract revenue for
the Engineering and Consulting segment was $18.7 million, an increase of
1.7% from the fourth quarter of 2017.

Net Revenue for the fourth quarter of 2018 was $40.2 million, an
increase of 29.2% from $31.1 million for the fourth quarter of 2017. The
increase was primarily due to the contributions from Lime Energy, a ramp
up in new programs within the Energy segment replacing high revenue and
high pass-through costs projects with lower revenue and lower
pass-through costs projects, and an increase in data analytics revenue.
Net Revenue in the Energy segment was $25.6 million for the fourth
quarter of 2018, an increase of 43.3% over the same period last year.
Net Revenue in the Engineering and Consulting segment was $14.6 million
for the fourth quarter of 2018, an increase of 10.2% over the same
period last year.

Direct costs of contract revenue were $59.5 million for the fourth
quarter of 2018, an increase of 34.6%, from $44.2 million for the fourth
quarter of 2017. The increase was primarily related to the growth in
contract revenue resulting from the acquisition of Lime Energy,
partially offset by reduced pass-through subcontractor expenses related
to certain Energy segment projects.

Total general and administrative expenses for the fourth quarter of 2018
was $25.3 million, an increase of 48.9% from $17.0 million for the
fourth quarter of 2017, driven primarily by increased costs largely
related to personnel added through the acquisitions of Lime Energy, and
transaction costs associated with the acquisition of Lime Energy.

Interest expense was $0.6 million for the fourth quarter of 2018,
compared with $23,000 for the fourth quarter of 2017. The increase in
interest expense was attributable to debt utilized to finance the
acquisition of Lime Energy.

The Company recorded an income tax benefit of $0.1 million in the fourth
quarter of 2018, compared to a benefit of $0.3 million for the prior
year period. The income tax benefit was primarily attributable to
deductions for stock options and disqualifying dispositions and an
additional energy efficient commercial building deduction recognized in
the fourth quarter of 2018.

Net income for the fourth quarter of 2018 was $1.2 million, or $0.11 per
diluted share, as compared to net income of $3.3 million, or $0.36 per
diluted share, for the fourth quarter of 2017. Adjusted Net Income (see
“Use of Non-GAAP Financial Measures” below) for the fourth quarter of
2018 was $6.3 million, or $0.61 per diluted share, as compared to
Adjusted Net Income of $4.8 million, or $0.53 per diluted share, for the
fourth quarter of 2017.

Adjusted EBITDA (see “Use of Non-GAAP Financial Measures” below) was
$6.6 million for the fourth quarter of 2018, an increase of 23.2% from
$5.3 million for the fourth quarter of 2017.

Fiscal Year 2018 Financial Highlights

Consolidated contract revenue for fiscal 2018 was $272.3 million, a
decrease of 0.4% from $273.4 million for fiscal 2017. Consolidated
contract revenue for the Energy segment was $196.8 million for fiscal
2018, a decline of 1.4% from $199.6 million for fiscal 2017, which was
primarily attributable to the substantial completion of certain large
construction management projects with high pass-through subcontractor
costs, partially offset by the contribution of Lime Energy. Consolidated
contract revenue for the Engineering and Consulting segment was $75.4
million for fiscal 2018, an increase of 2.3% from $73.7 million for
fiscal 2017.

Net Revenue for fiscal 2018 was $139.6 million, an increase of 14.9%
from $121.4 million for fiscal 2017. The increase was primarily due to a
ramp up in new programs within the Energy segment with lower
pass-through costs replacing projects with higher pass-through costs,
the contribution of Lime Energy, and an increase in revenue from data
analytics. Net Revenue in the Energy segment was $82.3 million for
fiscal 2018, an increase of 24.1% from $66.3 million for fiscal 2017.
Net Revenue in the Engineering and Consulting segment was $57.3 million
for fiscal 2018, an increase of 3.8% from $55.2 million for fiscal 2017.

Direct costs of contract revenue were $179.3 million for fiscal 2018, a
decrease of 8.8%, from $196.7 million for fiscal 2017. The decrease was
primarily due to the substantial completion of certain large
construction management projects with high pass-through subcontractor
costs, partially offset by direct costs associated with revenue from
Lime Energy.

Total general and administrative expenses for fiscal 2018 was $80.2
million, an increase of 27.3% from $63.0 million for fiscal 2017, driven
primarily by an increase in salaries and wages and employee benefits
resulting from the personnel added in the Lime Energy acquisition, as
well as an increase in stock-based compensation.

Interest expense was $0.7 million for fiscal 2018, compared with $0.1
million for fiscal 2017. The increase in interest expense was
attributable to debt utilized to finance the acquisition of Lime Energy.

Income tax expense was $2.1 million for fiscal 2018, compared to $1.6
million for fiscal 2017. The effective tax rate for fiscal year 2018 was
17.5%, as compared to 11.4% for fiscal year 2017. The increase in the
year-over-year effective tax rate for fiscal 2018 and the difference
between the tax expense recorded and the expense that would be recorded
by applying the federal statutory rate was primarily attributable to
increased state taxes, decreased deductions for stock options and
disqualifying dispositions and the impact of the Tax Act recognized in
2017, partially offset by energy efficient commercial building
deductions recognized in 2018 and increased research and development
credits.

Net income for fiscal 2018 was $10.0 million, or $1.03 per diluted
share, as compared to net income of $12.1 million, or $1.32 per diluted
share, for fiscal 2017. Adjusted Net Income (see “Use of Non-GAAP
Financial Measures” below) was $22.3 million, or $2.07 per diluted
share, for fiscal 2018, compared with $17.5 million, or $1.84 per
diluted share, for fiscal 2017.

Adjusted EBITDA (see “Use of Non-GAAP Financial Measures” below) was
$25.4 million for fiscal 2018, an increase of 15.6% from $22.0 million
for fiscal 2017. Adjusted EBITDA as a percentage of Net Revenue, was
18.2% for fiscal 2018, as compared with 18.1% for fiscal 2017.

Balance Sheet

Willdan reported $15.3 million in cash and cash equivalents at December
28, 2018, as compared to $14.4 million at December 29, 2017. The
increase in cash and cash equivalents was primarily due to
cash proceeds from an equity offering of $56.4 million and borrowings
under Willdan’s new credit facilities of $70.0 million related to the
acquisition of Lime Energy, which was offset by cash paid for the
acquisition of Lime Energy.

Outlook

Willdan has provided the following financial targets for fiscal 2019:

  • Net Revenue* of $180 to $200 million
  • Adjusted Diluted EPS* of $2.35 – $2.45
  • Effective tax rate of approximately 24%
  • Diluted share count of 11.7 million shares
  • Depreciation of approximately $4.5 million
  • Amortization of approximately $7.6 million
  • Stock-based compensation of approximately $11.9 million

*See “Use of Non-GAAP Financial Measures” below.

The financial targets do not include the effect of any transaction that
has not been completed as of this date. Over the long-term, Willdan
continues to target both organic and acquisitive Net Revenue growth of
greater than 10%, resulting in total Net Revenue growth of greater than
20% per year.

Conference Call Details and Investor Report

Chief Executive Officer Thomas Brisbin and Chief Financial Officer Stacy
McLaughlin will host a conference call today, March 7, 2019, 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
888-254-3590 and providing conference ID 7731627. 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 7731627. The
replay will be available through March 21, 2019.

An Investor
Report
containing supplemental financial information can also be
accessed on the home page of Willdan’s investor relations website.

About Willdan Group, Inc.

Willdan is a nationwide provider of professional technical and
consulting services to utilities, government agencies, and private
industry. Willdan’s service offerings span a broad set of complementary
disciplines that include electric grid solutions, energy efficiency and
sustainability, engineering and planning, and municipal financial
consulting. For additional information, visit Willdan’s website at www.willdan.com.

Use of Non-GAAP Financial Measures

“Net Revenue,” defined as contract revenue as reported in accordance
with GAAP minus subcontractor services and other direct costs, is a
non-GAAP financial measure, Net Revenue is a supplemental measure
that Willdan believes enhances investors’ ability to analyze Willdan’s
business trends and performance because it substantially measures the
work performed by Willdan’s employees. In the course of providing
services, Willdan routinely subcontracts various services. Generally,
these subcontractor services and other direct costs are passed through
to Willdan’s clients and, in accordance with U.S. generally accepted
accounting principles (“GAAP”) and industry practice, are included in
Willdan’s revenue when it is Willdan’s contractual responsibility to
procure or manage such subcontracted 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 Willdan’s business trends. Accordingly, Willdan segregates
subcontractor services and other direct costs from revenue to promote a
better understanding of Willdan’s business by evaluating revenue
exclusive of subcontract services and other direct costs associated with
external service providers. A reconciliation of Willdan’s contract
revenue as reported in accordance with GAAP to Net Revenue is provided
at the end of this press release. A reconciliation of targeted contract
revenue for 2019 as reported in accordance with GAAP to targeted Net
Revenues for 2019, which is a forward-looking non-GAAP financial
measure, is not provided because Willdan is unable to provide such
reconciliation without unreasonable effort. The inability to provide a
reconciliation is due to the uncertainty and inherent difficulty
predicting the subcontractor services and other director costs that are
subtracted from contract revenues in order to derive Net Revenues.
Subcontractor services and direct costs typically range between 55% and
58% of Willdan’s contract revenues.

“Adjusted EBITDA,” defined as net income plus interest expense, income
tax expense, stock-based compensation, interest accretion, depreciation
and amortization, transaction costs and gain on sale of equipment, is a
non-GAAP financial measure. Adjusted EBITDA is a supplemental measure
used by Willdan’s management to measure Willdan’s operating performance.
Willdan believes Adjusted 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 Adjusted EBITDA to evaluate its performance for,
among other things, budgeting, forecasting and incentive compensation
purposes.

Certain items excluded from Adjusted EBITDA are significant components
in understanding and assessing a company’s financial performance, such
as a company’s costs of capital, stock-based compensation, as well as
the historical costs of depreciable assets. A reconciliation of net
income as reported in accordance with GAAP to Adjusted EBITDA is
provided at the end of this press release.

“Adjusted Net Income,” defined as net income plus stock-based
compensation, intangible amortization and transaction costs is a
non-GAAP financial measure. “Adjusted Diluted EPS,” defined as net
income plus stock-based compensation, intangible amortization and
transaction costs, net of tax, all divided by the diluted
weighted-average shares outstanding, is a non-GAAP financial measure.
Adjusted Net Income and Adjusted Diluted EPS are supplemental measures
used by Willdan’s management to measure its operating performance.
Willdan believes Adjusted Net Income and Adjusted Diluted EPS are useful
because they allow Willdan’s management to more closely evaluate and
explain the operating results of Willdan’s business by removing certain
non-operating expenses. Reconciliations of net income as reported in
accordance with GAAP to Adjusted Net Income and diluted EPS as reported
in accordance with GAAP to Adjusted Diluted EPS are provided at the end
of this press release.

Willdan’s definitions of Net Revenue, Adjusted EBITDA, Adjusted Net
Income and Adjusted Diluted EPS have limitations as analytical tools and
may differ from other companies reporting similarly named measures or
from similarly named measures Willdan has reported in prior periods.
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, as
amended, including statements regarding Willdan’s targets for fiscal
2019, Willdan’s ability to capitalize on increased energy efficiency
spending in large markets and expected benefits from Willdan’s pending
acquisition of The Weidt Group. All statements other than statements of
historical fact included in this press release are forward-looking
statements. These 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. Important factors that could cause
actual results to differ materially from its expectations include, but
are not limited to, Willdan’s ability to compete successfully in the
highly competitive energy efficiency services market, changes in state,
local and regional economies and government budgets, Willdan’s ability
to win new contracts, to renew existing contracts (including with our
three primary customers and the two primary customers of recently
acquired Lime Energy) and to compete effectively for contracts awarded
through bidding processes, Willdan’s ability to successfully integrate
its acquisitions, including its recent acquisition of Lime Energy, and
execute on its growth strategy, Willdan’s ability to make principal and
interest payments as they come due and comply with applicable financial
maintenance covenants, and Willdan’s ability to obtain financing and to
refinance its outstanding debt as it matures.

The above is not a complete list of factors or events that could cause
actual results to differ from Willdan’s expectations, and Willdan cannot
predict all of them. All written and oral forward-looking statements
attributable to Willdan, or persons acting on its behalf, are expressly
qualified in their entirety by the cautionary statements and risk
factors disclosed from time to time in Willdan’s reports filed with the
Securities and Exchange Commission, including, but not limited to, the
Annual Report on Form 10-K filed for the year ended December 28, 2018,
as such disclosures may be amended, supplemented or superseded from time
to time by other reports Willdan files with the Securities and Exchange
Commission, including subsequent Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q or Current Reports on Form 8-K. 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)
   
 
December 28, December 29,
2018 2017
Assets
Current assets:
Cash and cash equivalents $ 15,259,000 $ 14,424,000
Accounts receivable, net of allowance for doubtful accounts of
$442,000 and $369,000 at December 28, 2018 and December 29, 2017,
respectively
61,346,000 38,441,000
Contract assets 51,851,000 24,732,000
Other receivables 1,893,000 1,833,000
Prepaid expenses and other current assets   5,745,000   3,760,000
Total current assets 136,094,000 83,190,000
Equipment and leasehold improvements, net 7,998,000 5,306,000
Goodwill 97,748,000 38,184,000
Other intangible assets, net 44,364,000 10,666,000
Other assets 3,311,000 826,000
Deferred income taxes, net   12,321,000  
Total assets $ 301,836,000 $ 138,172,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 36,829,000 $ 20,826,000
Accrued liabilities 37,401,000 23,293,000
Contingent consideration payable 3,113,000 4,246,000
Contract liabilities 5,075,000 7,321,000
Current portion of notes payable 8,572,000 383,000
Current portion of capital lease obligations   320,000   289,000
Total current liabilities 91,310,000 56,358,000
Contingent consideration payable 1,616,000 5,062,000
Notes payable 63,139,000 2,500,000
Capital lease obligations, less current portion 224,000 160,000
Deferred lease obligations 724,000 614,000
Deferred income taxes, net 2,463,000
Other noncurrent liabilities   534,000   363,000
Total liabilities   157,547,000   67,520,000
 
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;
10,968,000

and 8,799,000 shares issued and outstanding at December 28, 2018
and December 29, 2017, respectively

110,000 88,000
Additional paid-in capital 114,008,000 50,976,000
Retained earnings   30,171,000   19,588,000
Total stockholders’ equity   144,289,000   70,652,000
Total liabilities and stockholders’ equity $ 301,836,000 $ 138,172,000
 
 
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
       
 
Three Months Ended Year Ended
December 28, December 29, December 28, December 29,
2018 2017 2018 2017
 
Contract revenue $ 86,438,000   $ 64,161,000   $ 272,252,000   $ 273,352,000  
 
Direct costs of contract revenue (inclusive of directly related
depreciation and amortization):
Salaries and wages 13,230,000 11,149,000 46,588,000 44,743,000
Subcontractor services and other direct costs   46,240,000     33,038,000   132,693,000   151,919,000  
Total direct costs of contract revenue   59,470,000     44,187,000   179,281,000   196,662,000  
 
General and administrative expenses:
Salaries and wages, payroll taxes and employee benefits 13,373,000 10,442,000 45,248,000 36,534,000
Facilities and facility related 1,513,000 1,146,000 5,600,000 4,624,000
Stock-based compensation 1,831,000 782,000 6,262,000 2,774,000
Depreciation and amortization 2,768,000 1,053,000 6,060,000 3,949,000
Other   5,804,000     3,557,000   17,030,000   15,105,000  
Total general and administrative expenses   25,289,000     16,980,000   80,200,000   62,986,000  
Income from operations   1,679,000     2,994,000   12,771,000   13,704,000  
 
Other income (expense):
Interest expense, net (625,000 ) (23,000 ) (700,000 ) (111,000 )
Other, net   54,000     42,000   90,000   98,000  
  (571,000 )   19,000   (610,000 ) (13,000 )
Income before income taxes 1,108,000 3,013,000 12,161,000 13,691,000
 
Income tax expense   (93,000 ) (277,000 )   2,131,000   1,562,000  
Net income $ 1,201,000   $ 3,290,000   $ 10,030,000   $ 12,129,000  
 
Earnings per share:
Basic $ 0.11   $ 0.38   $ 1.08   $ 1.42  
Diluted $ 0.11   $ 0.36   $ 1.03   $ 1.32  
 
Weighted-average shares outstanding:
Basic 10,662,000 8,689,000 9,264,000 8,541,000

Diluted

11,217,000 9,231,000 9,763,000 9,155,000
 

Contacts

Willdan Group, Inc.
Stacy McLaughlin
Chief Financial
Officer
Tel: 714-940-6300
smclaughlin@willdan.com

Or

Investor/Media Contact
Financial Profiles, Inc.
Tony
Rossi
Tel: 310-622-8221
trossi@finprofiles.com

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