Willdan(WLDN) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Willdan Group, Inc.'s unaudited condensed consolidated financial statements for the periods ended September 27, 2019 Condensed Consolidated Balance Sheets Total assets increased to $362.6 million from $300.9 million due to acquisitions, with liabilities also rising Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Sep 27, 2019 | Dec 28, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $0 | $15,259 | | Contract assets | $86,676 | $51,851 | | Goodwill | $103,090 | $97,748 | | Other intangible assets, net | $68,808 | $44,364 | | Total assets | $362,612 | $300,911 | | Liabilities & Equity | | | | Accounts payable | $34,254 | $36,829 | | Notes payable | $103,282 | $70,786 | | Total liabilities | $207,581 | $156,622 | | Total stockholders' equity | $155,031 | $144,289 | Condensed Consolidated Statements of Comprehensive Income Q3 2019 contract revenue grew 64.6% to $117.5 million due to acquisitions, but net income declined to $0.4 million Q3 2019 vs Q3 2018 Performance (in thousands, except per share) | Metric | Q3 2019 | Q3 2018 | | :--- | :--- | :--- | | Contract revenue | $117,494 | $71,386 | | Gross Profit | $34,672 | $23,313 | | Income from operations | $1,295 | $4,913 | | Net income | $416 | $3,311 | | Diluted EPS | $0.04 | $0.35 | Nine Months 2019 vs 2018 Performance (in thousands, except per share) | Metric | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | | Contract revenue | $313,683 | $185,814 | | Gross Profit | $91,756 | $66,003 | | Income from operations | $3,834 | $11,092 | | Net income | $1,639 | $8,829 | | Diluted EPS | $0.14 | $0.95 | Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $8.3 million, while investing activities used $52.1 million for acquisitions Cash Flow Summary - Nine Months Ended (in thousands) | Cash Flow Activity | Sep 27, 2019 | Sep 28, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,289 | $11,569 | | Net cash used in investing activities | ($52,130) | ($3,673) | | Net cash provided by (used in) financing activities | $28,582 | ($5,639) | | Net (decrease) increase in cash | ($15,259) | $2,257 | - Cash paid for acquisitions, net of cash acquired, was a significant use of cash at $46.5 million for the nine months ended September 27, 2019[20] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies and financial results, highlighting the impact of recent acquisitions, segment reporting, and new debt facilities - The company operates in two segments: Energy, providing energy and sustainability consulting, and Engineering and Consulting, offering civil engineering, construction management, and financial consulting services[30] - On July 2, 2019, the company acquired Onsite Energy Corporation for a maximum aggregate purchase price of $26.4 million in cash, contributing $4.8 million in Q3 2019 revenue[72][77] - On March 8, 2019, the company acquired The Weidt Group's energy practice for $22.1 million in cash, contributing $3.5 million in Q3 2019 revenue[78][86] - The acquisition of Lime Energy in November 2018 for $122.4 million contributed $40.8 million in revenue during Q3 2019[88][94] - On June 26, 2019, the company entered into a new Credit Agreement providing a $100.0 million Term A Loan, a $50.0 million Delayed Draw Term Loan, and a $50.0 million Revolving Credit Facility[108][109] - Subsequent to quarter end, on October 28, 2019, the company acquired Energy and Environmental Economics, Inc. (E3, Inc.) for up to $44.0 million, funded by a $27.0 million draw on its Delayed Draw Term Loan[162][167] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting revenue growth from acquisitions offset by declining net income due to higher costs and amortization Results of Operations Q3 2019 consolidated revenue increased 64.6% to $117.5 million due to acquisitions, but operating income and net income significantly declined Q3 2019 vs Q3 2018 Results Summary (in thousands) | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Contract Revenue | $117,494 | $71,386 | 64.6% | | Gross Profit | $34,672 | $23,313 | 48.7% | | Income from Operations | $1,295 | $4,913 | (73.6)% | | Net Income | $416 | $3,311 | (87.4)% | - The increase in Q3 revenue was primarily due to incremental revenue from the acquisitions of Onsite Energy, The Weidt Group, and Lime Energy[238] - The decrease in Q3 operating income was primarily attributable to higher amortization expenses from recent acquisitions and a shift in project mix towards services with higher subcontractor costs[241][249] Liquidity and Capital Resources Liquidity relies on cash from operations and credit facilities, with $97.5 million Term A Loan and $5.0 million Revolving Credit Facility outstanding - As of September 27, 2019, the company had $97.5 million outstanding on its Term A Loan and $5.0 million outstanding on its $50.0 million Revolving Credit Facility[266] - Cash flows from operating activities decreased to $8.3 million for the first nine months of 2019 from $11.6 million in the prior-year period[268] - Investing activities used $50.4 million in cash, primarily for the acquisitions of The Weidt Group and Onsite Energy[269] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk from variable-rate debt, partially hedged by a $35.0 million interest rate swap at 2.47% - The company is subject to interest rate risk from its variable-rate Term A Loan, Revolving Credit Facility, and Delayed Draw Term Loan[292] - To hedge against interest rate fluctuations, the company entered into a $35.0 million notional interest rate swap agreement, fixing the rate at 2.47% on that portion of its debt until January 2022[294] - A hypothetical one percentage point increase in the effective interest rate would increase annual interest expense by approximately $1.0 million[295] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 27, 2019, while integrating controls of acquired businesses - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 27, 2019[298] - The company is in the process of integrating the internal controls of the recently acquired Lime Energy, The Weidt Group, and Onsite Energy[299] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to ordinary course claims and lawsuits, with management expecting no material adverse effect on financial statements - The company is subject to claims and lawsuits arising in the ordinary course of business, typical for the engineering and consulting industry[301] - Management does not expect the ultimate liability from current legal proceedings to have a material adverse effect on its financial statements[303] Item 1A. Risk Factors No material changes to risk factors were reported for the quarter, consistent with the prior Annual Report on Form 10-K - No material changes to risk factors were reported for the quarter[304] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On September 4, 2019, the company issued 53,102 common shares to two Onsite Energy executives in an unregistered private placement - The company issued 53,102 shares of common stock to two executives of Onsite Energy on September 4, 2019, as part of a private placement[305][307] Item 5. Other Information This section details the October 28, 2019, acquisition of E3, Inc. for up to $44.0 million, funded by cash, stock, and earn-out payments - On October 28, 2019, the company acquired E3, Inc., an energy consulting firm[310] - The total consideration is up to $44.0 million, including $27.0 million cash upfront, $5.0 million in stock, and a potential $12.0 million earn-out[310] - The acquisition was financed with a $27.0 million borrowing under the company's Delayed Draw Term Loan[316]