ANAHEIM, Calif.--(BUSINESS WIRE)--Aug 2, 2018--Willdan Group, Inc. (“Willdan”) (NASDAQ: WLDN), a provider of professional technical and consulting services, today reported financial results for its second quarter ended June 29, 2018.

Second Quarter 2018 Highlights

Total Contract Revenue of $59.8 million Net Revenue of $34.3 million Net Income of $3.3 million Diluted earnings per share of $0.36 Adjusted diluted earnings per share of $0.50 Cash flow from operations of $10.8 million

For the second quarter of 2018, Willdan reported total contract revenue of $59.8 million and net income of $3.3 million, or $0.36 per diluted share. This compares with total contract revenue of $71.8 million and net income of $3.3 million, or $0.36 per diluted share, for the second quarter of 2017. For the second 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 $34.3 million, up 13.7% compared to the same period in fiscal year 2017.

“We executed well in the second quarter and delivered strong year-over-year growth in Net Revenue and Adjusted Diluted EPS,” said Tom Brisbin, Willdan’s Chairman and Chief Executive Officer. “All of our major energy efficiency programs are performing well and we saw the ramp-up in revenue that we expected from Integral Analytics, our provider of energy data analytics software. Our current revenue mix and new business pipeline reflects a broader range of work as we continue to diversify both geographically and by project type. In addition, this quarter we generated $10.8 million in cash flow from operations and a 21.3% adjusted EBITDA net margin, both company records.”

“In addition to our traditional energy efficiency services and engineering work, we are seeing more opportunities for projects related to microgrids, fuel cells, and natural gas load pockets. Advancements in technology and policy are transforming the global electricity system, and we believe we are well positioned to help utilities, businesses and governments make the transformation. The electrification of our transportation systems will place a greater demand on the electric grid, and change when and where electricity is needed. Use of renewables and battery storage will increase, generating two-way power flow that transacts with the grid, creating significant new engineering and market challenges.”

Second Quarter 2018 Financial Highlights

Total contract revenue for the second quarter of 2018 was $59.8 million, a decrease of 16.7% from $71.8 million for the second quarter of 2017. Contract revenue for the Energy segment was $41.7 million for the second quarter of 2018, a decline of 22.3%, which was primarily attributable to the reduction in pass-through subcontractor costs, for which the Company receives little or no margin. Contract revenue for the Engineering and Consulting segment was $18.1 million, relatively unchanged from the second quarter of 2017.

Net Revenue for the second quarter of 2018 was $34.3 million, an increase of 13.7% from $30.2 million for the second quarter of 2017. The increase was primarily due to a ramp up in new programs within the Energy segment replacing high revenue and high pass-through cost projects with lower revenue and lower pass-through cost projects, as well as revenue contributed from Integral Analytics and Newcomb Anderson McCormick, Inc. (“NAM”), two firms acquired over the past year. Net Revenue in the Energy segment was $20.2 million for the second quarter of 2018, an increase of 21.8% over the same period last year. Net Revenue in the Engineering and Consulting segment was $14.0 million for the second quarter of 2018, an increase of 3.8% over the same period last year.

Direct costs of contract revenue were $36.7 million for the second quarter of 2018, a decrease of 30.9%, from $53.0 million for the second quarter of 2017. The decrease was primarily due to reduced pass-through subcontractor expenses related to certain Energy segment projects.

Total general and administrative expenses for the second quarter of 2018 was $19.0 million, an increase of 33.3% from $14.2 million for the second quarter of 2017, driven primarily by the employees and offices added through the acquisitions of Integral Analytics and NAM, an increase in salaries and wages as a result of rate changes and an increase in stock-based compensation.

Income tax expense was $0.9 million in the second quarter of 2018, compared to $1.2 million for the prior year period. The quarter over quarter decrease of $0.4 million, or 28.8% is due to a reduction in the corporate tax rate for 2018.

Net income for the second quarter of 2018 was $3.3 million, or $0.36 per diluted share, as compared to net income of $3.3 million, or $0.36 per diluted share, for the second quarter of 2017. The increase in operating performance was offset by higher non-cash stock-based compensation expense.

Adjusted EBITDA (see “Use of Non-GAAP Financial Measures” below) was $7.3 million for the second quarter of 2018, an increase of 16.6% from $6.2 million for the second quarter of 2017. Adjusted EBITDA as a percentage of Net Revenue, was 21.3% in the second quarter of 2018, as compared with 20.7% for the second quarter of 2017.

Adjusted Net Income (see “Use of Non-GAAP Financial Measures” below) was $5.0 million for the second quarter of 2018, an increase of 26.6% from $3.9 million for the second quarter of 2017. The increase in Adjusted Net Income was primarily due to higher operating performance and a lower effective tax rate, as compared to the second quarter of 2017. Adjusted Diluted EPS (see “Use of Non-GAAP Financial Measures” below) for the second quarter of 2018 was $0.50, an increase of 22.0% from $0.41 for the second quarter of 2017.

Six Months 2018 Financial Highlights

Total contract revenue for the six months ended June 29, 2018 was $114.4 million, a decrease of 18.4% from $140.2 million for the six months ended June 30, 2017. Contract revenue for the Energy segment was $79.1 million for the six months ended June 29, 2018, a decline of 23.9% from $103.8 million for the six months ended June 30, 2017. The decrease was primarily attributable to the reduction in pass-through subcontractor costs, for which the Company receives little or no margin. Contract revenue for the Engineering and Consulting segment was $35.4 million for the six months ended June 29, 2018, a decline of 2.7% from $36.3 million for the six months ended June 30, 2017.

Net Revenue for the six months ended June 29, 2018 was $64.8 million, an increase of 10.6% from $58.6 million for the six months ended June 30, 2017. The increase was primarily due to a ramp up in new programs within the Energy segment replacing high revenue and high pass-through cost projects with lower revenue and higher margin projects, as well as revenue contributed from Integral Analytics and NAM, two firms acquired over the past year. Net Revenue in the Energy segment was $36.6 million for the six months ended June 29, 2018, an increase of 16.9% from $31.3 million for the six months ended June 30, 2017. Net Revenue in the Engineering and Consulting segment was $28.2 million for the six months ended June 29, 2018, an increase of 3.4% from $27.3 million for the six months ended June 30, 2017.

Direct costs of contract revenue were $71.7 million for the six months ended June 29, 2018, a decrease of 30.8%, from $103.7 million for the six months ended June 30, 2017. The decrease was primarily due to reduced pass-through subcontractor expenses related to our Energy segment work.

Total general and administrative expenses for the six months ended June 29, 2018 was $36.5 million, an increase of 22.0% from $29.9 million for the six months ended June 30, 2017, driven primarily by the employees and offices added through the acquisitions of Integral Analytics and NAM, an increase in salaries and wages as a result of rate changes and an increase in stock-based compensation.

Income tax expense was $0.6 million for the six months ended June 29, 2018, compared to $0.5 million for the six months ended June 30, 2017. For both six month periods the difference between the tax expense recorded and the expense that would be recorded by applying each year’s federal statutory rate was attributable to various tax deductions.

Net income for the six months ended June 29, 2018 was $5.5 million, or $0.60 per diluted share, as compared to net income of $6.0 million, or $0.66 per diluted share, for the six months ended June 30, 2017. The decrease was primarily due to an increase in non-cash stock-based compensation.

Adjusted EBITDA (see “Use of Non-GAAP Financial Measures” below) was $11.8 million for the six months ended June 29, 2018, an increase of 20.0% from $9.8 million for the six months ended June 30, 2017. Adjusted EBITDA as a percentage of Net Revenue, was 18.2% for the six months ended June 29, 2018, as compared with 16.7% for the six months ended June 30, 2017.

Adjusted Net Income (see “Use of Non-GAAP Financial Measures” below) was $8.2 million for the six months ended June 29, 2018, an increase of 17.0% from $7.0 million for the six months ended June 30, 2017. The increase in Adjusted Net Income was primarily due to an increase in Net Revenue, as compared to the six months ended June 30, 2017. Adjusted Diluted EPS (see “Use of Non-GAAP Financial Measures” below) was $0.86 for the six months ended June 29, 2018, an increase of 11.7% from $0.77 for the six months ended June 30, 2017.

Balance Sheet

Willdan reported $11.2 million in cash and cash equivalents at June 29, 2018, as compared to $14.4 million at December 29, 2017. The decrease in cash and cash equivalents was primarily due to net cash used in financing and investing activities of $3.8 million and $3.5 million, respectively, offset by net cash provided by operating activities of $4.0 million. The net cash used in financing activities was primarily payments of contingent consideration related to our prior acquisitions and the net cash used in investing activities was primarily cash paid for an acquisition, net of cash acquired.

Outlook

Willdan reaffirmed its financial targets and updated its amortization target for fiscal year 2018:

Total Net Revenue of $130 - $140 million Adjusted Diluted EPS 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 $3.1 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, August 2, 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 8413254. 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 8413254. The replay will be available through August 16, 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-based compensation. 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 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 acquisitions of Integral Analytics, Inc. and NAM. 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 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 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 29, 2017 and the Quarterly Report on Form 10-Q for the quarter ended June 29, 2018. 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.

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