Willdan Group Reports Strong Fourth Quarter and Fiscal Year 2017 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 29, 2017
and provided its financial targets for fiscal year 2018.
Fiscal Year 2017 Highlights
-
Total contract revenue of $273.4 million, an increase of 31% over
prior year - Net Revenue was $121.4 million, an increase of 16% over prior year
- Net income of $12.1 million, an increase of 46% over prior year
- Diluted earnings per share of $1.32, an increase of 36% over prior year
Fourth Quarter 2017 Highlights
-
Total contract revenue of $64.2 million, an increase of 12% over prior
year -
Income from operations of $3.0 million, an increase of 11% over prior
year - Net income of $3.3 million, an increase of 110% over prior year
-
Diluted earnings per share of $0.36, an increase of 100% over prior
year
For the fourth quarter of 2017, Willdan reported total contract revenue
of $64.2 million and net income of $3.3 million, or $0.36 per diluted
share. This compares with total contract revenue of $57.4 million and
net income of $1.6 million, or $0.18 per diluted share, for the fourth
quarter of 2016. For the fourth quarter of 2017, Net Revenue, defined as
revenue, net of subcontractor services and other direct costs (see “Use
of Non-GAAP Financial Measures” below), was $31.1 million, up 9.8%
compared to the same period in fiscal year 2016. The increase in
earnings per share was primarily attributable to higher revenue and a
decrease in deferred tax expense. Adjusted Diluted EPS (see “Use of
Non-GAAP Financial Measures” below), which excludes the one-time benefit
from remeasuring deferred tax liabilities as a result of the legislation
commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”)
enacted in December 2017, was $0.22, up from $0.18 in the prior year.
“We had a strong year in 2017, surpassing our long-term 20% growth
targets,” said Tom Brisbin, Willdan’s Chairman and Chief Executive
Officer. “Importantly, through both organic growth and our acquisition
activity, we continue to improve the diversification of our revenue
across geographies, customers, and project types. We anticipate another
positive year in 2018, as a number of significant new programs ramp-up
including our Local Capacity Requirements program for San Diego Gas &
Electric and recent wins from ComEd to expand our energy efficiency work
in Illinois. Through renegotiation and a change in our approach to
executing certain programs, we expect to continue reducing the amount of
equipment pass-through revenue we recognize with little or no margin.
This approach is expected to significantly improve our profit margin in
2018, and we expect to generate another year of strong earnings growth.”
Fourth Quarter 2017 Financial Highlights
Total contract revenue for the fourth quarter of 2017 was $64.2 million,
an increase of 11.7% from $57.4 million for the fourth quarter of 2016.
The increase was primarily due to growth in the Energy Efficiency
Services segment, which increased revenue by 19.4% over the same quarter
of the prior year.
Revenue, net of subcontractor services and other direct costs (see “Use
of Non-GAAP Financial Measures” below), for the fourth quarter of 2017
was $31.1 million, an increase of 9.8% from $28.4 million for the fourth
quarter of 2016.
Direct costs of contract revenue were $44.2 million for the fourth
quarter of 2017, an increase of $4.8 million, or 12.3%, from $39.3
million for the fourth quarter of 2016. The increase was primarily due
to the expanded revenue base from new contracts in the Energy Efficiency
Services segment.
Total general and administrative expenses for the fourth quarter of 2017
increased 10.3% to $17.0 million, from $15.4 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.
We recorded an income tax benefit of $0.3 million in the fourth quarter
of 2017, compared to income tax expense of $1.1 million for the prior
year period. On December 22, 2017, the Tax Act was enacted into law,
which, among other items, lowered the U.S. corporate tax rate from 35%
to 21%, effective January 1, 2018. As a result of the Tax Act, we
recorded a one-time decrease in deferred tax expense of $1.3 million for
the fiscal quarter ended December 29, 2017 to account for the
remeasurement of our deferred tax assets and liabilities on the
enactment date.
Net income for the fourth quarter of 2017 was $3.3 million, or $0.36 per
diluted share, as compared to net income of $1.6 million, or $0.18 per
diluted share, for the fourth quarter of 2016.
The growth in Net Revenue and improvement in project profitability
enabled Adjusted EBITDA (see “Use of Non-GAAP Financial Measures” below)
to increase 24.6% to $5.3 million for the fourth quarter of 2017, as
compared to $4.3 million for the fourth quarter of 2016. Adjusted EBITDA
as a percentage of Net Revenue, was 17.0% in the fourth quarter of 2017,
as compared with 15.0% for the fourth quarter of 2016.
Fiscal Year 2017 Financial Highlights
Total contract revenue for fiscal year 2017 was $273.4 million, an
increase of 30.8% from $208.9 million for fiscal year 2016. The increase
was primarily due to new projects and new customers in the Energy
Efficiency Services and Engineering segments, which increased revenue
40.7% and 9.8%, respectively, from fiscal year 2016.
Direct costs of contract revenue increased 37.3% to $196.7 million, or
71.9% of contract revenue, for fiscal year 2017, compared to $143.3
million, or 68.6% of contract revenue, for fiscal year 2016. The assets
we purchased from Genesys on March 4, 2016 incurred a total of $56.8
million in direct costs of contract revenue for fiscal year 2017, which
also accounts for most of the increase in direct costs as a percentage
of revenue, 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.
Net Revenue for fiscal year 2017 increased 16.0% to $121.4 million,
compared with $104.7 million for fiscal year 2016.
Total general and administrative expenses for fiscal year 2017 were
$63.0 million, an increase of 16.3% from $54.1 million for the prior
fiscal year, primarily due to an increase in general and administrative
expenses to support the growth of the Energy Efficiency Services segment.
We recorded income tax expense of $1.6 million for fiscal year 2017,
compared to income tax expense of $3.1 million for the prior fiscal
year. The effective tax rate for fiscal year 2017 was 11.4%, as compared
to 27.0% for fiscal year 2016. The reduction in the year-over-year
effective tax rate for fiscal year 2017 was primarily attributable to
increased deductions for stock options and disqualifying dispositions
and the impact of the Tax Act, partially offset by energy efficient
commercial building deductions utilized in 2016, which were not
available for use in 2017.
Net income for fiscal year 2017 was $12.1 million, or $1.32 per diluted
share, as compared to net income of $8.3 million, or $0.97 per diluted
share, for fiscal year 2016.
The growth in Net Revenue enabled Adjusted EBITDA to grow 32.8% to 21.8
million for fiscal year 2017, compared with $16.4 million for fiscal
year 2016. Adjusted EBITDA as a percentage of Net Revenue, was 18.0% for
fiscal year 2017, as compared with 15.7% for fiscal year 2016.
Balance Sheet
Willdan reported $14.4 million in cash and cash equivalents at December
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 $5.9 million for contingent consideration and on notes
payable related to our prior acquisitions and $2.2 million for purchases
of equipment and leasehold improvements, which was partially offset by
cash proceeds from stock option exercises and proceeds from sales of
common stock under our employee stock purchase plan of $2.7 million and
cash provided by operations of $11.1 million.
Outlook
Willdan has provided the following financial targets for fiscal year
2018:
- Total Net Revenue of $130 – $140 million
-
Diluted earnings per share before stock-based compensation expense of
$1.95 – $2.05 - Effective tax rate of approximately 23%
- Diluted share count of 9.3 million shares
- Depreciation of approximately $2.0 million
- Amortization of approximately $3.0 million
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 8, 2018, 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
866-548-4713 and providing conference ID 7721987. 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 7721987. The
replay will be available through March 22, 2018.
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 provides professional technical and consulting services,
including comprehensive energy efficiency services, for utilities,
private industry and public agencies throughout the United States.
Willdan’s service offerings span a broad range of complementary services
including energy efficiency and sustainability, engineering,
construction management and planning, economic and financial consulting
and national preparedness and interoperability. 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
“Net Revenue,” 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.
Adjusted EBITDA is a supplemental measure used by Willdan’s management
to measure its operating performance. Willdan defines Adjusted EBITDA as
net income (loss) plus interest expense (income), income tax expense
(benefit), stock-based compensation, interest accretion and depreciation
and amortization. Adjusted EBITDA is not a measure of net income (loss)
determined in accordance with GAAP. 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.
Adjusted 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 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. Willdan’s definition of Adjusted EBITDA may also
differ from those of many companies reporting similarly named measures.
Willdan believes Adjusted 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
Adjusted EBITDA is provided at the end of this news release.
“Adjusted Net Income” is a supplemental measure used by Willdan’s
management to measure its operating performance. Willdan defines
Adjusted Net Income as net income plus stock compensation expense and
impact of state net operating loss carryover minus the tax benefit from
the remeasurement of deferred tax liabilities. Adjusted
Net Income has limitations as an analytical tool and should not be
considered as an alternative to, or more meaningful than, net income as
determined in accordance with GAAP. A reconciliation of net income as
reported in accordance with GAAP to Adjusted Net Income is provided at
the end of this news release.
“Adjusted Diluted EPS” is a supplemental measure used by Willdan’s
management to measure its operating performance. Willdan defines
Adjusted Diluted EPS as Adjusted Net Income divided by the diluted
weighted-average shares outstanding. Adjusted Diluted EPS has
limitations as an analytical tool and should not be considered as an
alternative to, or more meaningful than, diluted EPS as determined in
accordance with GAAP. A reconciliation of diluted EPS as reported in
accordance with GAAP to Adjusted Diluted EPS is provided at the end of
this news release.
Willdan’s definition of revenue, net of subcontractor services and other
direct costs (Net Revenue), Adjusted EBITDA, Adjusted Net Income and
Adjusted Diluted EPS 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 2018
and the expected benefits of Willdan’s 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 ability
to adequately complete projects in a timely manner, 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 its two primary customers) and to
compete effectively for contracts awards through bidding processes and
Willdan’s ability to successfully integrate its acquisitions and execute
on its growth strategy. Willdan’s business could be affected by a number
of other factors, including the risk factors listed 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 30, 2016 and the Quarterly Report on Form 10-Q
for the quarter ended 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) | ||||
| December 29, | December 30, | |||
| 2017 | 2016 | |||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 14,424,000 | $ | 22,668,000 |
|
Accounts receivable, net of allowance for doubtful accounts of $369,000 and $785,000 at December 29, 2017 and December 30, 2016, respectively |
38,441,000 | 30,285,000 | ||
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
24,732,000 | 18,988,000 | ||
| Other receivables | 1,833,000 | 699,000 | ||
| Prepaid expenses and other current assets | 3,760,000 | 2,601,000 | ||
| Total current assets | 83,190,000 | 75,241,000 | ||
| Equipment and leasehold improvements, net | 5,306,000 | 4,511,000 | ||
| Goodwill | 38,184,000 | 21,947,000 | ||
| Other intangible assets, net | 10,666,000 | 5,941,000 | ||
| Other assets | 826,000 | 707,000 | ||
| Total assets | $ | 138,172,000 | $ | 108,347,000 |
| Liabilities and Stockholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 20,826,000 | $ | 17,395,000 |
| Accrued liabilities | 23,293,000 | 19,049,000 | ||
| Contingent consideration payable | 4,246,000 | 1,925,000 | ||
|
Billings in excess of costs and estimated earnings on uncompleted contracts |
7,321,000 | 8,377,000 | ||
| Notes payable | 383,000 | 3,972,000 | ||
| Capital lease obligations | 289,000 | 334,000 | ||
| Total current liabilities | 56,358,000 | 51,052,000 | ||
| Contingent consideration payable | 5,062,000 | 2,537,000 | ||
| Notes payable | 2,500,000 | 2,074,000 | ||
| Capital lease obligations, less current portion | 160,000 | 210,000 | ||
| Deferred lease obligations | 614,000 | 714,000 | ||
| Deferred income taxes, net | 2,463,000 | 1,842,000 | ||
| Other noncurrent liabilities | 363,000 | — | ||
| Total liabilities | 67,520,000 | 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; 8,799,000 and 8,348,000 shares issued and outstanding at December 29, 2017 and December 30, 2016, respectively |
88,000 | 83,000 | ||
| Additional paid-in capital | 50,976,000 | 42,376,000 | ||
| Retained earnings | 19,588,000 | 7,459,000 | ||
| Total stockholders’ equity | 70,652,000 | 49,918,000 | ||
| Total liabilities and stockholders’ equity | $ | 138,172,000 | $ | 108,347,000 |
| WILLDAN GROUP, INC. AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (Unaudited) | ||||||||
| Three Months Ended | Year Ended | |||||||
| December 29, | December 30, | December 29, | December 30, | |||||
| 2017 | 2016 | 2017 | 2016 | |||||
| Contract revenue | $ | 64,161,000 | $ | 57,425,000 | $ | 273,352,000 | $ | 208,941,000 |
|
Direct costs of contract revenue (inclusive of directly related depreciation and amortization): |
||||||||
| Salaries and wages | 11,149,000 | 10,271,000 | 44,743,000 | 39,024,000 | ||||
| Subcontractor services and other direct costs | 33,038,000 | 29,075,000 | 151,919,000 | 104,236,000 | ||||
| Total direct costs of contract revenue | 44,187,000 | 39,346,000 | 196,662,000 | 143,260,000 | ||||
| General and administrative expenses: | ||||||||
| Salaries and wages, payroll taxes and employee benefits | 10,442,000 | 8,049,000 | 36,534,000 | 31,084,000 | ||||
| Facilities and facility related | 1,146,000 | 1,107,000 | 4,624,000 | 4,085,000 | ||||
| Stock-based compensation | 782,000 | 507,000 | 2,774,000 | 1,239,000 | ||||
| Depreciation and amortization | 1,053,000 | 896,000 | 3,949,000 | 3,204,000 | ||||
| Other | 3,557,000 | 4,831,000 | 15,105,000 | 14,525,000 | ||||
| Total general and administrative expenses | 16,980,000 | 15,390,000 | 62,986,000 | 54,137,000 | ||||
| Income from operations | 2,994,000 | 2,689,000 | 13,704,000 | 11,544,000 | ||||
| Other income (expense): | ||||||||
| Interest expense, net | (23,000 | ) | (42,000 | ) | (111,000 | ) | (179,000 | ) |
| Other, net | 42,000 | — | 98,000 | 2,000 | ||||
| Total other expense, net | 19,000 | (42,000 | ) | (13,000 | ) | (177,000 | ) | |
| Income before income taxes | 3,013,000 | 2,647,000 | 13,691,000 | 11,367,000 | ||||
| Income tax expense | (277,000 | ) | 1,078,000 | 1,562,000 | 3,068,000 | |||
| Net income | $ | 3,290,000 | $ | 1,569,000 | $ | 12,129,000 | $ | 8,299,000 |
| Earnings per share: | ||||||||
| Basic | $ | 0.38 | $ | 0.19 | $ | 1.42 | $ | 1.01 |
| Diluted | $ | 0.36 | $ | 0.18 | $ | 1.32 | $ | 0.97 |
| Weighted-average shares outstanding: | ||||||||
| Basic | 8,689,000 | 8,334,000 | 8,541,000 | 8,219,000 | ||||
| Diluted | 9,231,000 | 8,959,000 | 9,155,000 | 8,565,000 | ||||
| WILLDAN GROUP, INC. AND SUBSIDIARIES | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | ||||
| Year Ended | ||||
| December 29, | December 30, | |||
| 2017 | 2016 | |||
| Cash flows from operating activities: | ||||
| Net income | $ | 12,129,000 | $ | 8,299,000 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||
| Depreciation and amortization | 4,082,000 | 3,220,000 | ||
| Deferred income taxes, net | 621,000 | 1,225,000 | ||
| Loss (gain) on sale/disposal of equipment | 27,000 | 4,000 | ||
| (Recovery of) provision for doubtful accounts | (189,000 | ) | 216,000 | |
| Stock-based compensation | 2,774,000 | 1,239,000 | ||
| Accretion and fair value adjustments of contingent consideration | 1,156,000 | 21,000 | ||
|
Changes in operating assets and liabilities, net of effects from business acquisitions: |
||||
| Accounts receivable | (7,412,000 | ) | 1,288,000 | |
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
(5,744,000 | ) | (4,057,000 | ) |
| Other receivables | (1,126,000 | ) | 82,000 | |
| Prepaid expenses and other current assets | (1,096,000 | ) | (519,000 | ) |
| Other assets | 25,000 | (169,000 | ) | |
| Accounts payable | 3,186,000 | 206,000 | ||
| Accrued liabilities | 4,329,000 | 8,409,000 | ||
|
Billings in excess of costs and estimated earnings on uncompleted contracts |
(1,593,000 | ) | 2,159,000 | |
| Deferred lease obligations | (100,000 | ) | (23,000 | ) |
| Net cash provided by operating activities | 11,069,000 | 21,600,000 | ||
| Cash flows from investing activities: | ||||
| Purchase of equipment and leasehold improvements | (2,178,000 | ) | (1,662,000 | ) |
| Proceeds from sale of equipment | — | 15,000 | ||
| Cash paid for acquisitions, net of cash acquired | (14,603,000 | ) | (8,857,000 | ) |
| Net cash used in investing activities | (16,781,000 | ) | (10,504,000 | ) |
| Cash flows from financing activities: | ||||
| Payments on contingent consideration | (1,709,000 | ) | (1,284,000 | ) |
| Payments on notes payable | (4,164,000 | ) | (4,378,000 | ) |
| Proceeds from notes payable | — | 733,000 | ||
| Borrowings under line of credit | 1,000,000 | — | ||
| Principal payments on capital lease obligations | (390,000 | ) | (522,000 | ) |
| Proceeds from stock option exercise | 1,901,000 | 327,000 | ||
|
Proceeds from sales of common stock under employee stock purchase plan |
830,000 | 209,000 | ||
| Net cash used in financing activities | (2,532,000 | ) | (4,915,000 | ) |
| Net (decrease) increase in cash and cash equivalents | (8,244,000 | ) | 6,181,000 | |
| Cash and cash equivalents at beginning of period | 22,668,000 | 16,487,000 | ||
| Cash and cash equivalents at end of period | $ | 14,424,000 | $ | 22,668,000 |
| Supplemental disclosures of cash flow information: | ||||
| Cash paid during the period for: | ||||
| Interest | $ | 111,000 | $ | 179,000 |
| Income taxes | 2,750,000 | 1,875,000 | ||
|
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 | 3,100,000 | 2,228,000 | ||
| Contingent consideration related to business acquisitions | 5,400,000 | — | ||
| Other payable for working capital adjustment | 113,000 | — | ||
| Equipment acquired under capital leases | 294,000 | 373,000 | ||
Contacts
Willdan Group, Inc.
Stacy McLaughlin
Chief Financial
Officer
Tel: 714-940-6300
[email protected]
Or
Investor/Media
Contact
Financial Profiles, Inc.
Tony Rossi
Tel:
310-622-8221
[email protected]
