Willdan Group Reports First Quarter 2019 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 first quarter ended March 29, 2019.

First Quarter 2019 Summary

  • Consolidated contract revenue of $91.8 million, an increase of 68.1%
  • Net revenue of $40.8 million, an increase of 33.8%
  • Net loss of $0.4 million, or $0.04 per diluted share
  • Adjusted diluted earnings per share of $0.22
  • Adjusted EBITDA of $4.7 million
  • Cash generated from operations of $10.5 million
  • Increasing Net Revenue and Adjusted EPS guidance

For the first quarter of 2019, Willdan reported consolidated contract
revenue of $91.8 million and a net loss of $0.4 million, or $(0.04) per
diluted share. This compares with consolidated contract revenue of $54.6
million and net income of $2.2 million, or $0.24 per diluted share, for
the first quarter of 2018. For the first 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 $40.8 million, up
33.8% compared to the same period in fiscal year 2018.

“Our first quarter results were impacted by a lower level of activity
with two of our largest clients as we completed negotiations for program
expansions,” said Tom Brisbin, Willdan’s Chairman and Chief Executive
Officer. “We are raising our targets for net revenue and adjusted
diluted EPS for 2019. The combined capabilities and geographic presence
of Willdan and Lime Energy is having the positive impact on our business
development efforts that we expected. We have the largest pipeline of
work in our history and we continue to make good progress in executing
on our long-term vision for Willdan and adding new skill sets,
technologies, and experience that we believe will enhance our ability to
generate profitable growth in the years ahead.”

First Quarter 2019 Financial Highlights

Consolidated contract revenue for the first quarter of 2019 was $91.8
million, an increase of 68.1% from $54.6 million for the first quarter
of 2018. Contract revenue for the Energy segment was $74.7 million for
the first quarter of 2019, an increase of 100.0%, which was primarily
due to incremental revenue from the acquisitions of Lime Energy, Newcomb
Anderson McCormick (“NAM”), and The Weidt Group. Contract revenue for
the Engineering and Consulting segment was $17.1 million, a decrease of
0.9% from the first quarter of 2018 primarily due to normal quarterly
fluctuations in the level of services provided.

Net Revenue for the first quarter of 2019 was $40.8 million, an increase
of 33.8% from $30.5 million for the first quarter of 2018. The increase
was primarily due to incremental revenue from the acquisitions of Lime
Energy, NAM, and The Weidt Group. Net Revenue in the Energy segment was
$26.9 million for the first quarter of 2019, an increase of 64.8% over
the same period last year. Net Revenue in the Engineering and Consulting
segment was $13.9 million for the first quarter of 2019, a decrease of
1.8% over the same period last year.

Direct costs of contract revenue were $65.9 million for the first
quarter of 2019, an increase of 87.8%, from $35.1 million for the first
quarter of 2018. The increase was primarily related to incremental
direct costs from the acquisitions of Lime Energy, NAM and The Weidt
Group.

Total general and administrative expenses for the first quarter of 2019
was $26.2 million, an increase of 49.1% from $17.6 million for the first
quarter of 2018, driven primarily by increased costs largely related to
personnel added through the acquisitions of Lime Energy, NAM, and The
Weidt Group.

Interest expense was $1.1 million for the first quarter of 2019,
compared with $23,000 for the first quarter of 2018. The increase in
interest expense was primarily attributable to debt incurred in the
fourth quarter of 2018 to finance the acquisition of Lime Energy.

The Company recorded an income tax benefit of $0.9 million in the first
quarter of 2019, compared to an income tax benefit of $0.2 million for
the prior year period. The income tax benefit recorded in the first
quarter of 2019 was primarily attributable to various tax deductions and
tax credits.

Net loss for the first quarter of 2019 was $0.4 million, or $(0.04) per
diluted share, as compared to net income of $2.2 million, or $0.24 per
diluted share, for the first quarter of 2018. Adjusted Net Income (see
“Use of Non-GAAP Financial Measures” below) for the first quarter of
2019 was $2.4 million, or $0.22 per diluted share, as compared to
Adjusted Net Income of $4.2 million, or $0.45 per diluted share, for the
first quarter of 2018.

Adjusted EBITDA (see “Use of Non-GAAP Financial Measures” below) was
$4.7 million for the first quarter of 2019, an increase of 3.6% from
$4.5 million for the first quarter of 2018.

Balance Sheet

Willdan generated $10.5 million in cash flow from operations in the
quarter, compared to cash used in operations of $6.7 million in the
quarter last year.

Willdan reported $11.1 million in cash and cash equivalents at March 29,
2019, as compared to $15.3 million at December 28, 2018. The decrease in
cash and cash equivalents was primarily due to net cash
used in investing activities, partially offset by net cash provided by
operating and financing activities.

Financial Targets

Willdan has increased its Net Revenue and Adjusted Diluted EPS financial
targets for fiscal 2019 to the following:

  • Net Revenue* of $185 to $205 million
  • Adjusted Diluted EPS* of $2.40 – $2.50
  • Effective tax rate of approximately 24%
  • Diluted share count of 11.7 million shares
  • Depreciation of approximately $4.5 million
  • Amortization of approximately $8.5 million
  • Stock-based compensation of approximately $11.9 million
  • Interest of approximately $4.5 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, May 2, 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
866-575-6539 and providing conference ID 5979139. 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 5979139. The
replay will be available through May 16, 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. While
subcontractor costs have increased recently, subcontractor costs can
vary significantly from period to period. We expect that subcontractor
costs will be higher for the remainder of fiscal 2020 than fiscal 2019
as a result of our recent acquisitions and the shift in projects in our
Energy segment. For recent periods, subcontractor costs and other direct
costs have been 48.7% of contract revenue for fiscal year 2018 and 55.5%
and 44.1% of contract revenue for the three months ended March 29, 2019
and March 30, 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 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
acquisitions of Lime Energy and 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 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 The Weidt Group, 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)

   
 
March 29, December 28,
2019   2018
Assets
Current assets:
Cash and cash equivalents $ 11,061,000 $ 15,259,000
Accounts receivable, net of allowance for doubtful accounts of
$457,000 and $442,000 at March 29, 2019 and December 28, 2018,
respectively
44,959,000 61,346,000
Contract assets 58,050,000 51,851,000
Other receivables 2,589,000 1,893,000
Prepaid expenses and other current assets   4,929,000     5,745,000
Total current assets 121,588,000 136,094,000
Equipment and leasehold improvements, net 9,573,000 7,998,000
Goodwill 110,509,000 97,748,000
Right-of-use assets 12,564,000
Other intangible assets, net 50,227,000 44,364,000
Other assets 3,651,000 3,311,000
Deferred income taxes, net   12,252,000     12,321,000
Total assets $ 320,364,000   $ 301,836,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 36,763,000 $ 36,829,000
Accrued liabilities 32,615,000 37,401,000
Contingent consideration payable 1,906,000 3,113,000
Contract liabilities 4,831,000 5,075,000
Notes payable 8,100,000 8,572,000
Finance lease obligations 435,000 320,000
Lease liability   4,139,000    
Total current liabilities 88,789,000 91,310,000
Contingent consideration payable 1,729,000 1,616,000
Notes payable 75,389,000 63,139,000
Finance lease obligations, less current portion 282,000 224,000
Lease liability, less current portion 9,452,000
Deferred lease obligations 724,000
Other noncurrent liabilities   729,000     534,000
Total liabilities   176,370,000     157,547,000
 
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;
11,126,000

and 10,968,000 shares issued and outstanding at March 29, 2019 and
December 28, 2018, respectively

111,000 110,000
Additional paid-in capital 114,348,000 114,008,000
Accumulated other comprehensive loss (219,000 )
Retained earnings   29,754,000     30,171,000
Total stockholders’ equity   143,994,000     144,289,000
Total liabilities and stockholders’ equity $ 320,364,000   $ 301,836,000
 

WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER
COMPREHENSIVE INCOME

(Unaudited)

   
Three Months Ended
March 29, March 30,
2019   2018  
 
Contract revenue $ 91,793,000   $ 54,595,000  
 
Direct costs of contract revenue (inclusive of directly related
depreciation and amortization):
Salaries and wages 14,910,000 10,998,000
Subcontractor services and other direct costs   50,948,000     24,069,000  
Total direct costs of contract revenue   65,858,000     35,067,000  
 
General and administrative expenses:
Salaries and wages, payroll taxes and employee benefits 15,744,000 10,025,000
Facilities and facility related 1,772,000 1,209,000
Stock-based compensation 1,817,000 1,064,000
Depreciation and amortization 2,654,000 1,064,000
Other   4,182,000     4,192,000  
Total general and administrative expenses   26,169,000     17,554,000  
(Loss) income from operations   (234,000 )   1,974,000  
 
Other (expense) income:
Interest expense, net (1,121,000 ) (23,000 )
Other, net   11,000     10,000  
Total other expense, net   (1,110,000 )   (13,000 )
(Loss) income before income taxes (1,344,000 ) 1,961,000
 
Income tax benefit   (927,000 )   (242,000 )
Net (loss) income $ (417,000 ) $ 2,203,000  
 
Other comprehensive income
(Loss) gain on cash flow hedge valuations $ (219,000 ) $  
Comprehensive (loss) income $ (636,000 ) $ 2,203,000  
 
(Loss) earnings per share:
Basic $ (0.04 ) $ 0.25  
Diluted $ (0.04 ) $ 0.24  
 
Weighted-average shares outstanding:
Basic 10,974,000 8,753,000
Diluted 10,974,000 9,185,000
 

WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

   
Three Months Ended
March 29, March 30,
2019   2018  
Cash flows from operating activities:
Net (loss) income $ (417,000 ) $ 2,203,000
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Depreciation and amortization 2,739,000 1,101,000
Deferred income taxes, net 69,000 (126,000 )
Gain on sale/disposal of equipment (25,000 )
Provision for doubtful accounts 27,000 96,000
Stock-based compensation 1,817,000 1,064,000
Accretion and fair value adjustments of contingent consideration 111,000 338,000
Changes in operating assets and liabilities, net of effects from
business acquisitions:
Accounts receivable 18,043,000 17,747,000
Contract assets (5,765,000 ) (16,796,000 )
Other receivables (696,000 ) (152,000 )
Prepaid expenses and other current assets 918,000 495,000
Other assets (315,000 ) (98,000 )
Accounts payable (127,000 ) (5,206,000 )
Accrued liabilities (5,799,000 ) (6,592,000 )
Contract liabilities (396,000 ) (863,000 )
Deferred lease obligations 62,000
Right-of-use assets   303,000      
Net cash provided by (used in) operating activities   10,487,000     (6,727,000 )
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (1,929,000 ) (144,000 )
Proceeds from sale of equipment 35,000
Cash paid for acquisitions, net of cash acquired   (21,800,000 )    
Net cash used in investing activities   (23,694,000 )   (144,000 )
Cash flows from financing activities:
Payments on contingent consideration (1,205,000 ) (2,622,000 )
Payments on notes payable (472,000 ) (383,000 )
Borrowings under term loan facility and line of credit 14,000,000
Repayments under term loan facility and line of credit (1,750,000 )
Principal payments on finance leases (88,000 ) (90,000 )
Proceeds from stock option exercise 291,000 279,000
Proceeds from sales of common stock under employee stock purchase
plan
749,000 616,000
Unregistered sales of equity securities and use of proceeds   (2,516,000 )    
Net cash provided by (used in) financing activities   9,009,000     (2,200,000 )
Net decrease in cash and cash equivalents (4,198,000 ) (9,071,000 )
Cash and cash equivalents at beginning of period   15,259,000     14,424,000  
Cash and cash equivalents at end of period $ 11,061,000   $ 5,353,000  
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 965,000 $ 23,000
Income taxes 36,000
Supplemental disclosures of noncash investing and financing
activities:
Other working capital adjustment 579,000
Accumulated other comprehensive loss (219,000 )
Equipment acquired under finance leases 261,000 162,000
 

Willdan Group, Inc. and Subsidiaries

Reconciliation of GAAP Revenue to Net Revenue

(Non-GAAP Measure)

   
 
Three Months Ended
March 29, March 30,
Consolidated 2019 2018
Contract revenue $ 91,793,000 $ 54,595,000
Subcontractor services and other direct costs   50,948,000   24,069,000
Net Revenue $ 40,845,000 $ 30,526,000
 
 
Three Months Ended
March 29, March 30,
Energy segment 2019 2018
Contract revenue $ 74,692,000 $ 37,332,000
Subcontractor services and other direct costs   47,780,000   20,999,000
Net Revenue $ 26,912,000 $ 16,333,000
 
 
Three Months Ended
March 29, March 30,
Engineering and Consulting segment 2019 2018
Contract revenue $ 17,101,000 $ 17,263,000
Subcontractor services and other direct costs   3,168,000   3,070,000
Net Revenue $ 13,933,000 $ 14,193,000
 

Willdan Group, Inc. and Subsidiaries

Reconciliation of GAAP Net Income to Adjusted EBITDA

(Non-GAAP Measure)

   
Three Months Ended
March 29, March 30,
2019   2018  
Net (loss) income $ (417,000 ) $ 2,203,000
Interest expense 1,110,000 23,000
Income tax benefit (927,000 ) (242,000 )
Stock-based compensation 1,817,000 1,064,000
Interest accretion(1) 110,000 338,000
Depreciation and amortization 2,739,000 1,101,000
Transaction costs(2)   218,000      
Adjusted EBITDA $ 4,650,000   $ 4,487,000  

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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