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Willdan Group Reports Third Quarter 2016 Financial Results

November 4, 2016

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Willdan Group, Inc, a provider of professional technical and consulting services, today reported financial results for its third quarter ended September 30, 2016, and provided a business update.

For the third quarter of 2016, Willdan reported total contract revenue of $58.7 million and net income of $2.5 million, or $0.28 per diluted share. This compares with total contract revenue of $33.5 million and net income of $0.8 million, or $0.10 per diluted share, for the third quarter of 2015. The increase in earnings per share in the third quarter of 2016 was primarily driven by higher total contract revenue, resulting from both organic growth and incremental revenue contributed by the assets of Genesys Engineering P.C. (“Genesys”) acquired in March 2016.

“We delivered another excellent quarter driven by strong demand for our energy efficiency services,” said Tom Brisbin, Willdan’s CEO. “Total contract revenue in our Energy Efficiency Services segment more than doubled over the prior year, as we continue to execute well and deliver energy savings for public utilities, municipalities and universities. Our proven track record has enabled us to expand our geographic presence and win significant new energy efficiency programs in states such as Utah and New Jersey. The expanded capabilities provided by our recent acquisition of the assets of Genesys have significantly improved our business development pipeline, and have already led to several new wins. Organic growth accelerated in the quarter, pushing our year to date organic growth rate to 30%. Based on the volume of new program activity currently ramping up, we expect a strong finish to 2016 and continued growth in the coming year.”

Third Quarter 2016 Financial Highlights

Total contract revenue for the third quarter of 2016 was $58.7 million, an increase of 75.0% from $33.5 million for the third quarter of 2015. The increase was primarily due to higher contract revenue from the Energy Efficiency Services segment, which increased $24.2 million, or 135.7%, from the third quarter of 2015. Total contract revenue for the third quarter of 2016 included $16.2 million of revenue generated by the assets of Genesys, which were acquired in March 2016. Contract revenue for the Energy Efficiency Services, Engineering Services, Public Finance Services, and Homeland Security Services segments was $42.0 million, $12.9 million, $3.2 million and $0.6 million, respectively, in the third quarter of 2016.

Direct costs of contract revenue were $42.6 million for the third quarter of 2016, an increase of 103.1% from $21.0 million for the third quarter of 2015. Included in direct costs of contract revenue for the third quarter of 2016 was incremental direct costs of contract revenue of $14.7 million attributable to the assets of Genesys. Excluding the direct costs of contract revenue attributable to the assets of Genesys, direct costs of contract revenue increased by $6.9 million, primarily as a result of the increase in subcontractor services and production expenses in the Energy Efficiency Services segment.

Revenue, net of subcontractor services and other direct costs, (as defined below) for the third quarter of 2016 was $26.5 million, compared with $20.3 million for the third quarter of 2015.

Total general and administrative expenses for the third quarter of 2016 were $13.1 million, an increase of 19.5% from $10.9 million for the prior year period, due primarily to an increase in general and administrative expenses to support the growth of the Energy Efficiency Services and Engineering Services segments.

Income tax expense was $0.5 million for the third quarter of 2016, as compared to $0.6 million for the third quarter of 2015. The effective tax rate in the third quarter of 2016 was 18.2%, as compared to 44.5% in the same period last year. The difference in the effective tax rate is primarily due to an increase in energy efficient commercial building deductions related to some of the Company’s energy efficiency activities.

Net income for the third quarter of 2016 was $2.5 million, or $0.28 per diluted share, as compared to net income of $0.8 million, or $0.10 per diluted share, for the third quarter of 2015.

EBITDA (as defined below) was $4.0 million for the third quarter of 2016, as compared to $2.0 million for the third quarter of 2015.

Nine Months 2016 Financial Highlights

Total contract revenue for the nine months ended September 30, 2016 was $151.5 million, an increase of 46.3% from $103.6 million for the nine months ended October 2, 2015. The increase was primarily due to higher contract revenue from the Energy Efficiency Services segment, which increased $45.3 million, or 77.8%, from the nine months ended October 2, 2015. Total contract revenue for the nine months ended September 30, 2016 included $35.6 million of revenue generated by the assets of Genesys, which were acquired in March 2016. Contract revenue for the Energy Efficiency Services, Engineering Services, Public Finance Services, and Homeland Security Services segments was $103.6 million, $36.9 million, $9.2 million and $1.9 million, respectively, for the nine months ended September 30, 2016.

Direct costs of contract revenue were $103.9 million for the nine months ended September 30, 2016, an increase of 63.3% from $63.7 million for the nine months ended October 2, 2015. Included in direct costs of contract revenue for the nine months ended September 30, 2016 was incremental direct costs of revenue of $31.9 million attributable to the assets of Genesys. Excluding the direct costs of contract revenue attributable to the assets of Genesys, direct costs of contract revenue increased by approximately $8.3 million, primarily as a result of the growth in subcontractor services and production expenses in the Energy Efficiency Services segment.

Revenue, net of subcontractor services and other direct costs, (as defined below) for the nine months ended September 30, 2016 was $76.4 million, compared with $63.9 million for the nine months ended October 2, 2015.

Total general and administrative expenses for the nine months ended September 30, 2016 were $38.7 million, an increase of 17.9% from $32.9 million for the prior year period, due primarily to an increase in general and administrative expenses to support the growth of the Energy Efficiency Services segment.

Income tax expense was $2.0 million for the nine months ended September 30, 2016, as compared to $2.9 million for the nine months ended October 2, 2015. The effective tax rate for the nine months ended September 30, 2016 was 22.8%, as compared to 42.5% in the same period last year. The reduction in income tax expense for the nine months ended September 30, 2016 was attributable to an increase in energy efficient commercial building deductions for both the 2015 and 2016 tax years. During the nine months ended September 30, 2016, the Company recognized a tax benefit of $0.6 million as a change in estimate related to energy tax deductions earned for the 2015 tax year. Additionally, the Company recognized an increase in energy tax deductions related to some of the Company’s 2016 energy efficiency activities.

Net income for the nine months ended September 30, 2016 was $6.7 million, or $0.79 per diluted share, as compared to net income of $3.9 million, or $0.48 per diluted share, for the nine months ended October 2, 2015.

EBITDA (as defined below) was $11.4 million for the nine months ended September 30, 2016, as compared to $8.4 million for the nine months ended October 2, 2015.

Liquidity and Capital Resources

Willdan reported $18.6 million in cash and cash equivalents at September 30, 2016, as compared to $10.5 million at July 1, 2016. The increase primarily resulted from net income generated in the third quarter of 2016 and strong collections on accounts receivable.

Outlook

Willdan has raised its financial and operational targets for the full year 2016 to the following:

Total contract revenue of $190 - $195 million
Diluted earnings per share of $0.92 - $0.97
Annual effective tax rate of approximately 28%
Conference Call Details

Chief Executive Officer Thomas Brisbin and Chief Financial Officer Stacy McLaughlin will host a conference call today, November 3, 2016, 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 800-723-6498 (785-830-7989 for international callers) and providing conference ID 6805383. The conference call will be webcast simultaneously on Willdan’s website at www.willdan.comunder 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 6805383. The replay will be available through November 17, 2016.

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