Willdan Group Inc (WLDN) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Willdan Group, Inc. fourth-quarter and full-year 2011 conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions)

This conference is being recorded today, Tuesday March 27, 2012. At this time, I'd like to turn the conference over to [Nii Tetteh], Business Analyst. Please go ahead, Sir.

Thank you. Good afternoon, everyone, and thank you for joining us to discuss Willdan Group's financial results for the fourth quarter and full fiscal year ended December 30, 2011. With us today from Management are Chief Executive Officer, Thomas Brisbin, and Chief Financial Officer, Kimberly Gant. Management will review prepared remarks and we will then open the call up to your questions.

Statements made in the course of today's conference call which are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve certain risks and uncertainties and it is important to note that the Company's future results could differ materially from those in any such forward-looking statements. Factors that could cause actual results to differ materially and other risk factors are listed from time to time in the Company's SEC reports including, but not limited to the annual report on Form 10-K to be filed for the year ended December 30, 2011.

The Company cautions investors not to place undue reliance on the forward-looking statements made during the course of this conference call. Willdan Group, Inc. disclaims any obligation and does not undertake to update or revise any forward-looking statements made today. With that, I will now turn the call over to Chief Financial Officer, Kimberly Gant. Kimberly?

Thank you, Nii. I would like to provide you with a brief overview of our financial results for the three months and fiscal year ended December 30, 2011. Tom will discuss recent activities among our service lines. We will then open the call up for questions and answers. Tom will then provide closing remarks.

In our fourth quarter of fiscal 2011 we generated revenue of $30 million, up 51% from $19.9 million last year. Income from operations was $347,000 as compared to $30,000 last year. Cash used in operations was $3.7 million and on a trailing three-month basis our day sales outstanding was 116 days, up 20 days from the previous quarter and up three days from the same period last year.

As stated, our fourth-quarter 2011 revenue was $30 million, up $10.1 million or 51% from $19.9 million in the same period last year. On a sequential basis, our revenue was up $1.4 million or 4.9% reported in our third quarter of 2011. Our fourth quarter is seasonably low given the fact that we have lower utilization of our professional staff which is impacted by three holidays and paid time off. Our fourth-quarter net income was negatively impacted by the need to accrue deferred tax liabilities in the amount of $1.1 million. Throughout the year we had nominal levels of tax accruals due to the net operating losses from previous years. The fourth quarter is when companies conclude their deferred tax assets and liability position.

For the fiscal year 2011, contract revenue was $107.2 million, up 37.6% as compared to $77.9 million in fiscal 2010. This marks the first year in which our revenue exceeded $100 million. In our fourth quarter 2011 our total direct costs were up $7.3 million or 63.7% as compared to our fourth quarter of 2010, of which $6 million was directly related to increases in sub consulting services primarily in our Energy Service line. Our G&A expenses were up 29.9% in our fourth quarter of 2011 as compared to our fourth quarter of 2010. In 2011 and continuing into 2012 we continue to make investments in key hires, business development activities, geographic expansion, and information technology.

For fiscal 2011 we expanded our disclosures on operating segments to report our energy business lines separately from our Engineering Services. For fiscal 2011 our segments were comprised as follows, our Engineering Services represented 32% of our contract revenue as compared to 42% in fiscal 2010. Our Energy Services represented 54% of our contract revenue as compared to 38% in fiscal 2010. Our Public Finance Services represented 9% of our contract revenue as compared to 13% in fiscal 2010. And our Homeland Security Services represented 5% of our contract revenue as compared to 7% in 2010.

For the fourth quarter of 2011 we realize $347,000 in income from operations as compared to $30,000 in the fourth quarter of 2010. Included in G&A expense was a bonus expense accrual of $600,000. This is the first time in over four years that we've had the opportunity to reward our key employees for their hard work during these trying economic times. For the 12 months we realized income from operations of $3.4 million in 2011 as compared to $3.1 million in fiscal 2010.

For the fourth quarter of 2011 we posted an after tax net loss of $779,000 as compared to a net income of $282,000 in the fourth quarter of 2010. For the full year 2011 we posted net income of $1.8 million as compared to $2.7 million in 2010. For the fourth quarter of 2011 we posted a loss per share of $0.11 as compared to diluted earnings per share of $0.04 in fourth quarter of 2010. For the full year we posted diluted earnings per share of $0.24 as compared to $0.37 per share in 2010.

From a balance sheet perspective, at December 30, 2011, we had cash and cash equivalents of $3 million. This balance compares to $6.6 million at December 31, 2010, and $8.3 million at the end of our third quarter. We had $256,000 in outstanding borrowings on our $5 million revolving line of credit at December 30, 2011. Our working capital and stockholders equity at December 30, 2011, were $13.1 million and $34.3 million respectively. For further information, please refer to our Form 8-K filed earlier today. We will file our Form 10-K on Thursday, March 29, 2012, just after market close. Thank you and I will turn it over to Tom for his remarks. Tom?

Good afternoon and thank you, Kim. Top line growth for 2011 showed a significant increase. We are pleased that our service lines have either stabilized or grown. We also believe we have a way to continue growing in all the service lines. It's been a steady improvement for Willdan since the recession hit us badly starting back in 2007, especially given our concentration in California and housing. I would like to talk about each business line and give you as much insight as I can. As you know, we have four major lines of business. Let's address engineering first.

At the end of '06 through '09 we lost about 60% of the engineering business. This was the main business of Willdan. Today we believe the business is stable even given the end of redevelopment agencies in California. We are now at about $34 million and are looking to new markets for growth. Those two markets are -- the primary two markets are outsourcing and transportation engineering.

Outsourcing is developing. We have three outstanding proposals and leads with about 10 cities that are considering some portion of outsourcing. The loss of redevelopment money has put a tighter squeeze on the cities and they are out of options. Historically, Willdan has been their go-to firm in California. We expect to see cities finally start to take action. Transportation engineering is also moving for Willdan. We are teaming up with larger firms and high-speed rail has an RFP on the street. We expect 15% growth in engineering for 2012.

Financial services has had a slight decline over the past four years, but throughout all this has remained profitable. We have not stayed the course, but are looking at new markets to grow in New York and Washington, D.C. Finally, we are looking to leverage our new locations with our existing financial services. Opportunities include energy efficiency financing, government consolidation, public safety consolidation financing, and expanding our consulting practice. We have hired experts on the east coast with more to come.

Homeland grew about 23% this year. We have three outstanding proposals to the Federal Government, any of which could significantly grow our security business. They include training for the Department of Homeland Security, fusion centers in the state of California, and outsourcing 9/11 call centers. We're also getting opportunities to pursue outsourced public safety beyond 9/11 call centers.

The next six months will give us a clear picture on Homeland. Just a note, after five months we finally signed to start work on a $2.9 million training contract for New York Metropolitan Transit Authority. This is the largest transit authority in the United States. Some 30,000 employees will be trained. This is where we wanted to go with our California experience and we leveraged our Energy's New York presence. Energy is responsible for most of Willdan's growth, primarily in the New York area. We acquired Energy in June of '08 at about $8 million a year. They will end 2011 at about $57 million per year.

About $25 million is passed through to electrical subcontractors to buy equipment and install the lighting measures. In 2012, Willdan is creating a new subsidiary to self-perform the pass-through work. This will much improve our margin and help with quality controlled processes. We are beginning this process in New York and expect to expand it to our other regions.

We are waiting to hear on our ConEd re-compete in New York. The proposal, and you may remember this was our biggest contract, the proposal is submitted and we have had negotiations and we are waiting for a notice as to their decisions. We did receive a $9 million modification that extends our current contract through June 30, 2012. We are optimistic but we will not be doing as much work on this contract as we did on the first contract.

There will be multiple awards. To compensate, we have won additional work in New York and New Jersey. We also have outstanding proposals in the New York area that, if successful, will continue to grow energy on the East Coast. We have hired key personnel and use our office in Washington, D.C. to now pursue the Federal Energy Market. This office was initially set up for Homeland Security and is benefiting our Energy practice. We have also set up offices for Energy in Chicago, Houston, and Seattle and won work in all of them with significant opportunities identified in these geographic areas.

In addition to vertical integration, as I referred to self-performing, and geographic expansion, we have built an expertise in data centers. This expertise started in California, then New York and has allowed us to win a contract in Chicago with Commonwealth Edison. Our expertise in California on energy efficiency with schools has allowed us to win a contract with the Tennessee Valley Authority. I should also note we do not expect re-competes for another two years in California, so the contracts we haven't had will be extended -- have in hand will be extended.

We have identified other niche markets in Energy that we are pursuing such as a smart grid, net zero energy, sustainability, and water. It should be clear that we have rapidly left California's housing and financial problems. We will continue this trend with all of our service lines. We are recovering. We must continue to build backlog to give us some cushion, remain focused on margins and cash. We are committed to growing Willdan. Our employees and stockholders will mutually benefit. There is much optimism and excitement that we have weathered the worse and have a plan going forward. I will now answer any of your questions. Thank you.

(Operator Instructions)

Our first question is from the line of Al Kaschalk with Wedbush Securities. Please go ahead.

Hi, guys. This is [Ozzy Bilga] sitting in for Al today. Can you talk about the utilization rates that you've experienced recently? I know you touched on it a little bit, but also focus on where you expect the trend be going for 2012, please?

Our utilization rates in the fourth quarter are seasonably low. They are around 60% to 65% across the board. Our goal is for operations is to exceed 70% to remain profitable and that's what we are always focusing on.

Okay, thanks. And in terms of backlog, can you shed a little more color on the composition of the backlog and how you see that trending going forward as well?

If I go back to when I started, there was no backlog four years ago. In Energy, our backlog is healthy because the California contracts are extended for two more years. Most of our contracts in Energy are multi-year and larger so our backlog in Energy is growing. Our backlog in financial services is annuity-type contracts. Engineering is the one where it is hard to get a handle on backlog because they are on-call type contracts. As it was explained to me, we have two weeks of backlog for the past 40 years and then within Homeland Security we have -- our backlog is declining. That's why I referenced it is very important on the two or three federal contracts that we have outstanding, one of those will cure us for three to five years. So, that's where we stand on backlog. I'm not comfortable with it yet, but I am more comfortable this year than any previous years. So, does that answer your question, Ozzy?

Great. Thanks and congrats on a great year.

Thank you. Our next question comes from the line of Spencer Lehman with Financial West Group. Please go ahead.

Yes. I think you've got a great Company with a good balance sheet and involved in a hot area with energy and energy efficiency in buildings and you've got a good backlog. You've got cash, but of course the stock doesn't do anything and we've had good market for the last couple years and there is sort of an elephant here in the room that nobody is talking about and that's Linda Heil. I'm just curious about when this agreement was made for her to sell 20,000 shares each month, was anything done from the standpoint of trying to place some of that with institutional investors?

There have been discussions with other institutional investors. They need to be one-on-one conversations between the institutional investor and Linda and her financial advisors. The Company cannot guide her in any direction there.

So, at the time this was agreed to, the Company had nothing to say about either buying some stock themselves or talking to brokers or mutual funds or institutional people?

We have guided institutional buyers to her financial advisor either through our Chairman or directly to her financial advisor. We do expect that she's reviewing the situation and we do expect changes in the near future.

I mean you do agree with me, don't you, that it's such a struggle because it is a small Company? Nowadays, small stocks don't get much volume and that's just a really heavy load every month to deal with the 20,000 shares. So, I'm just wondering. I tried calling over there to the firm, I called Kimberly many times and I didn't get a response. I e-mailed you also and so I had some thoughts about I wanted to see what the procedure was to place some of that stock and you are saying that I have to call her direct?

Yes.

Okay. Well, I hope there is something that the firm can do because it really -- everybody sits back and waits until that stock is gone each month. I don't see how you are going to build much momentum that is going to go on for another three years.

Spencer is it?

Yes.

The problem -- or the situation, I won't say it is a problem, the situation is being addressed. What the outcome will be I'm not sure, but it is being addressed.

That's good to hear and that's really all I wanted to find out and that was the premise of my phone call and trying to see if there was something to be done about that. So, I appreciate that.

I will speak openly on the phone here. My CFO's probably going to kill me, but you may want to contact Wedbush and Wedbush can guide you to Linda's financial advisor for more information.

Thank you.

The person at Wedbush's name is Jeremy. I don't have the spelling of his last name but if you call us later we will give you that name. We really can't be giving advice to Linda, but we direct the calls to who we can.

Thank you. (Operator Instructions)

No more questions?

I'm showing no more questions at this time. I'd like to turn the conference back over to Management for any closing comments.

I have no further other than thank you all for participating. We continue to work hard. As I said in my script, it is feeling better than it ever has. We have opportunities. We have direction and we are winning work and we really need -- we have ways to improve margin when I talked about self-performing. We are kind of out of the bad part of what we were into with housing in California. So, thank you for your patience and participation.

Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1(800)406-7325 or (303)590-3030 using the access code 4512338 followed by the pound key. This does conclude the Willdan Group Inc. fourth-quarter and full-year 2011 conference call. Thank you very much for your participation and you may now disconnect.