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Willdan Group Reports Fourth Quarter and Fiscal Year 2019 Results

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

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 27, 2019 and provided its financial targets for fiscal 2020.

Fourth Quarter 2019 Summary

  • Consolidated contract revenue of $129.4 million, an increase of 49.7%
  • Net revenue of $61.0 million, an increase of 51.8%
  • Diluted earnings per share of $0.27, an increase of 145.5%
  • Adjusted diluted earnings per share of $0.97, an increase of 59.8%
  • Adjusted EBITDA of $13.8 million, an increase of 110.4%

Fiscal Year 2019 Summary

  • Consolidated contract revenue of $443.1 million, an increase of 62.8%
  • Net revenue of $199.5 million, an increase of 42.9%
  • Diluted earnings per share of $0.41, a decrease of 60.1%
  • Adjusted diluted earnings per share of $2.27, an increase of 9.7%
  • Adjusted EBITDA of $37.7 million, an increase of 48.4%

For the fourth quarter of 2019, Willdan reported consolidated contract revenue of $129.4 million and net income of $3.2 million, or $0.27 per diluted share. This compares with consolidated contract revenue of $86.4 million and net income of $1.2 million, or $0.11 per diluted share, for the fourth quarter of 2018. For the fourth quarter of 2019, Net Revenue, defined as revenue, net of subcontractor services and other direct costs (see "Use of Non-GAAP Financial Measures" below), was $61.0 million, an increase of 51.8% compared to the same period in fiscal year 2018.

"This quarter was by far the strongest performance in Willdan’s history," said Tom Brisbin, Willdan’s Chairman and Chief Executive Officer. "We continued to ramp up our business in Q4 and completed 2019 with 62.8% revenue growth over last year. As we execute on large market opportunities in California and New York, utilize the synergies we’ve created through our recent acquisitions, and leverage our expanded geographic presence and breadth of services, we believe we are well positioned for continued growth through fiscal 2020 and beyond."

Fourth Quarter 2019 Financial Highlights

Consolidated contract revenue for the fourth quarter of 2019 was $129.4 million, an increase of 49.7% from $86.4 million for the fourth quarter of 2018. Consolidated contract revenue for the Energy segment was $112.8 million for the fourth quarter of 2019, an increase of 66.7% from the fourth quarter of 2018, which was primarily due to incremental revenue from the acquisitions of Lime Energy Co. ("Lime Energy"), The Weidt Group Inc. ("The Weidt Group"), Onsite Energy Corporation ("Onsite Energy"), and Energy and Environmental Economics, Inc. ("E3, Inc."), collectively referred to as "the acquisitions". Contract revenue for the Engineering and Consulting segment was $16.6 million, a decrease of 11.4% from the fourth quarter of 2018, primarily due to lower subcontracted revenue.

Net Revenue for the fourth quarter of 2019 was $61.0 million, an increase of 51.8% from $40.2 million for the fourth quarter of 2018. The increase was primarily due to incremental revenue from the acquisitions. Net Revenue in the Energy segment was $47.1 million for the fourth quarter of 2019, an increase of 84.5% over the same period last year. Net Revenue in the Engineering and Consulting segment was $13.9 million for the fourth quarter of 2019, a decrease of 5.2% over the same period last year.

Direct costs of contract revenue were $86.2 million for the fourth quarter of 2019, an increase of 44.9%, from $59.5 million for the fourth quarter of 2018. The increase was primarily related to incremental direct costs from the acquisitions.

Total general and administrative expenses for the fourth quarter of 2019 was $37.7 million, an increase of 49.0% from $25.3 million for the fourth quarter of 2018, driven primarily by increased costs related to personnel, facilities, and amortization expenses as a result of our recent acquisitions.

Interest expense was $1.3 million for the fourth quarter of 2019, compared to $0.6 million for the fourth quarter of 2018. The increase in interest expense was primarily attributable to debt incurred to finance the acquisitions.

We recorded an income tax expense of $1.2 million in the fourth quarter of 2019, compared to income tax benefit of $0.1 million for the prior year period. The income tax expense recorded for the fourth quarter of 2019 was primarily attributable to incremental income before taxes from our operations.

Net income for the fourth quarter of 2019 was $3.2 million, or $0.27 per diluted share, as compared to net income of $1.2 million, or $0.11 per diluted share, for the fourth quarter of 2018. The increase in operating performance was primarily driven by lower direct costs of contract revenue, measured as a percentage of contract revenue. Adjusted Net Income (see "Use of Non-GAAP Financial Measures" below) for the fourth quarter of 2019 was $11.5 million, or $0.97 per diluted share, as compared to Adjusted Net Income of $6.7 million, or $0.61 per diluted share, for the fourth quarter of 2018.

Adjusted EBITDA (see "Use of Non-GAAP Financial Measures" below) was $13.8 million for the fourth quarter of 2019, an increase of 110.4% from $6.6 million for the fourth quarter of 2018.

Fiscal Year 2019 Financial Highlights

Consolidated contract revenue for fiscal year 2019 was $443.1 million, an increase of 62.8% from $272.3 million for fiscal year 2018. Consolidated contract revenue for the Energy segment was $370.7 million for fiscal 2019, an increase of 88.3%, which was primarily due to incremental revenue from the acquisitions. Consolidated contract revenue for the Engineering and Consulting segment was $72.4 million, a decrease of 4.0% from fiscal 2018, primarily due to lower subcontracted revenue.

Net Revenue for fiscal 2019 was $199.5 million, an increase of 42.9% from $139.6 million for fiscal 2018. The increase was primarily due to incremental revenue from the acquisitions. Net Revenue in the Energy segment was $142.9 million for fiscal 2019, an increase of 73.7% over the same period last year. Net Revenue in the Engineering and Consulting segment was $56.6 million for fiscal 2019, which remained consistent with the same period last year.

Direct costs of contract revenue were $308.1 million for fiscal 2019, an increase of 71.9%, from $179.3 million for fiscal 2018. The increase was primarily as a result of the increased use of subcontractors and higher material content in projects associated with the acquisitions.

Total general and administrative expenses for fiscal 2019 was $125.6 million, an increase of 56.6% from $80.2 million for fiscal 2018, driven primarily by increased costs related to personnel, facilities, and amortization expenses as a result of our recent acquisitions.

Interest expense was $4.9 million for fiscal 2019, compared with $0.7 million for fiscal 2018. The increase in interest expense was primarily attributable to debt incurred to finance the acquisitions.

We recorded an income tax benefit of $0.2 million for fiscal 2019, compared to income tax expense of $2.1 million for the prior year period. The income tax benefit recorded for fiscal 2019 was primarily attributable to various tax deductions and tax credits.

Net income for fiscal 2019 was $4.8 million, or $0.41 per diluted share, as compared to net income of $10.0 million, or $1.03 per diluted share, for fiscal 2018. The decrease was primarily driven by higher intangible amortization. Adjusted Net Income (see "Use of Non-GAAP Financial Measures" below) for fiscal 2019 was $26.7 million, or $2.27 per diluted share, as compared to Adjusted Net Income of $20.2 million, or $2.07 per diluted share, for fiscal 2018.

Adjusted EBITDA (see "Use of Non-GAAP Financial Measures" below) was $37.7 million for fiscal 2019, compared to $25.4 million for the fiscal 2018.

Balance Sheet

Willdan reported $57.5 million in accounts receivable, net at December 27, 2019, as compared to $61.3 million at December 28, 2018. The reduction in accounts receivable, net was due to high conversion from accounts receivable to cash. Cash flow from operations was $11.6 million during fiscal 2019, compared with $7.6 million during fiscal 2018.

Financial Targets

Willdan provided the following financial targets for fiscal 2020:

  • Net Revenue* of $215 million to $230 million
  • Adjusted Diluted EPS* of $2.47 to $2.60
  • Effective tax rate of approximately 17%
  • Diluted share count of 12.0 million shares
  • Depreciation of approximately $4.1 million
  • Amortization of approximately $13.0 million
  • Stock-based compensation of approximately $19.8 million
  • Interest expense of approximately $4.5 million

*See "Use of Non-GAAP Financial Measures" below.

The financial targets above do not include the effects of any transaction(s) that have not been completed as of the date of this press release. 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 5, 2020, 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 888-204-4368 and providing conference ID 9767312. 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 9767312. The replay will be available through March 19, 2020.

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 2020 as reported in accordance with GAAP to targeted Net Revenues for fiscal 2020, 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 of predicting the subcontractor services and other director costs that are subtracted from contract revenues in order to derive Net Revenues. While subcontractor costs have increased recently, subcontractor costs can vary significantly from period to period. Subcontractor costs and other direct costs have been 52.8% and 55.0% of contract revenue for the quarter ended December 27, 2019 and fiscal year 2019 and 53.5% and 48.7% for the quarter ended December 28, 2018 and fiscal year 2018, respectively.

"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, each net of tax, is a non-GAAP financial measure.

"Adjusted Diluted EPS," defined as net income plus stock-based compensation, intangible amortization and transaction costs, each 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, net income and diluted EPS.

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 year 2020, Willdan’s ability to capitalize on increased energy efficiency spending in large markets and expected benefits from the acquisitions. 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 adequately complete projects in a timely manner, Willdan’s ability to compete successfully in the highly competitive energy services market, changes in state, local and regional economies and government budgets, Willdan’s ability to win new contracts, to renew existing contracts and to compete effectively for contracts awarded through bidding processes, Willdan’s ability to successfully integrate its acquisitions, including its acquisitions of Lime Energy, The Weidt Group, Onsite Energy, and E3, Inc., and execute on its growth strategy, Willdan’s ability to make principal and interest payments as they come due and comply with financial and other covenants in its credit agreement, 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 27, 2019, 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

(in thousands, except par value)

 

 

 

 

 

 

 

 

 

 

December 27,

 

December 28,

 

 

2019

 

2018

Assets

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,452

 

 

$

15,259

 

Accounts receivable, net of allowance for doubtful accounts of $1,147 and $442 at December 27, 2019 and December 28, 2018, respectively

 

 

57,504

 

 

 

61,346

 

Contract assets

 

 

101,418

 

 

 

51,851

 

Other receivables

 

 

4,845

 

 

 

1,893

 

Prepaid expenses and other current assets

 

 

6,254

 

 

 

5,745

 

Total current assets

 

 

175,473

 

 

 

136,094

 

Equipment and leasehold improvements, net

 

 

12,051

 

 

 

7,998

 

Goodwill

 

 

127,647

 

 

 

97,748

 

Right-of-use assets

 

 

22,297

 

 

 

 

Other intangible assets, net

 

 

76,837

 

 

 

44,364

 

Other assets

 

 

16,296

 

 

 

2,386

 

Deferred income taxes, net

 

 

9,312

 

 

 

12,321

 

Total assets

 

$

439,913

 

 

$

300,911

 

Liabilities and Stockholders’ Equity

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

34,000

 

 

$

36,829

 

Accrued liabilities

 

 

67,615

 

 

 

37,401

 

Contingent consideration payable

 

 

5,155

 

 

 

3,113

 

Contract liabilities

 

 

5,563

 

 

 

5,075

 

Notes payable

 

 

13,720

 

 

 

8,572

 

Finance lease obligations

 

 

375

 

 

 

320

 

Lease liability

 

 

5,550

 

 

 

 

Total current liabilities

 

 

131,978

 

 

 

91,310

 

Contingent consideration payable

 

 

4,891

 

 

 

1,616

 

Notes payable

 

 

116,631

 

 

 

62,214

 

Finance lease obligations, less current portion

 

 

191

 

 

 

224

 

Lease liability, less current portion

 

 

18,411

 

 

 

 

Deferred lease obligations

 

 

 

 

 

724

 

Other noncurrent liabilities

 

 

533

 

 

 

534

 

Total liabilities

 

 

272,635

 

 

 

156,622

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000 shares authorized, no shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.01 par value, 40,000 shares authorized; 11,497 and 10,968 shares issued and outstanding at December 27, 2019 and December 28, 2018, respectively

 

 

115

 

 

 

110

 

Additional paid-in capital

 

 

132,547

 

 

 

114,008

 

Accumulated other comprehensive loss

 

 

(396

)

 

 

 

Retained earnings

 

 

35,012

 

 

 

30,171

 

Total stockholders’ equity

 

 

167,278

 

 

 

144,289

 

Total liabilities and stockholders’ equity

 

$

439,913

 

 

$

300,911

 

 

WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

 

December 27,

 

December 28,

 

December 27,

 

December 28,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

129,416

 

 

$

86,438

 

 

$

443,099

 

 

$

272,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs of contract revenue (inclusive of directly related depreciation and amortization):

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages

 

 

17,806

 

 

 

13,230

 

 

 

64,485

 

 

 

46,588

 

Subcontractor services and other direct costs

 

 

68,393

 

 

 

46,240

 

 

 

243,641

 

 

 

132,693

 

Total direct costs of contract revenue

 

 

86,199

 

 

 

59,470

 

 

 

308,126

 

 

 

179,281

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages, payroll taxes and employee benefits

 

 

20,136

 

 

 

13,373

 

 

 

66,303

 

 

 

45,248

 

Facilities and facility related

 

 

2,499

 

 

 

1,513

 

 

 

8,568

 

 

 

5,600

 

Stock-based compensation

 

 

3,964

 

 

 

1,831

 

 

 

12,112

 

 

 

6,262

 

Depreciation and amortization

 

 

3,719

 

 

 

2,768

 

 

 

15,027

 

 

 

6,060

 

Other

 

 

7,370

 

 

 

5,804

 

 

 

23,600

 

 

 

17,030

 

Total general and administrative expenses

 

 

37,688

 

 

 

25,289

 

 

 

125,610

 

 

 

80,200

 

Income from operations

 

 

5,529

 

 

 

1,679

 

 

 

9,363

 

 

 

12,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,301

)

 

 

(625

)

 

 

(4,900

)

 

 

(700

)

Other, net

 

 

162

 

 

 

54

 

 

 

193

 

 

 

90

 

Total other expense, net

 

 

(1,139

)

 

 

(571

)

 

 

(4,707

)

 

 

(610

)

Income before income taxes

 

 

4,390

 

 

 

1,108

 

 

 

4,656

 

 

 

12,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax (benefit) expense

 

 

1,188

 

 

 

(93

)

 

 

(185

)

 

 

2,131

 

Net income

 

 

3,202

 

 

 

1,201

 

 

 

4,841

 

 

 

10,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on derivative contracts

 

 

84

 

 

 

 

 

 

(396

)

 

 

 

Comprehensive income

 

$

3,286

 

 

$

1,201

 

 

$

4,445

 

 

$

10,030

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.28

 

 

$

0.11

 

 

$

0.43

 

 

$

1.08

 

Diluted

 

$

0.27

 

 

$

0.11

 

 

$

0.41

 

 

$

1.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

11,357

 

 

 

10,662

 

 

 

11,162

 

 

 

9,264

 

Diluted

 

 

11,913

 

 

 

11,217

 

 

 

11,766

 

 

 

9,763

 

 
...

WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

Year Ended

 

 

2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

4,841

 

 

$

10,030

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

15,472

 

 

 

6,211

 

Deferred income taxes, net

 

 

(209

)

 

 

(2,890

)

(Gain) loss on sale/disposal of equipment

 

 

(8

)

 

 

(12

)

Provision for doubtful accounts

 

 

1,051

 

 

 

470

 

Stock-based compensation

 

 

12,112

 

 

 

6,262

 

Accretion and fair value adjustments of contingent consideration

 

 

(302

)

 

 

(1,426

)

Changes in operating assets and liabilities, net of effects from business acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

11,627

 

 

 

3,177

 

Contract assets

 

 

(34,598

)

 

 

(11,539

)

Other receivables

 

 

(2,714

)

 

 

4,081

 

Prepaid expenses and other current assets

 

 

(343

)

 

 

(154

)

Other assets

 

 

(6,520