Willdan Group Inc (WLDN) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Willdan Group Inc. fourth-quarter 2012 conference call. During today's presentation, all parties 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 26, 2013.

And I would now like to turn the conference over to Nii Tetteh, Business Analyst. Please go ahead.

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 28, 2012.

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 filed for the year ended December 28, 2012.

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 28, 2012. Tom will comment on operations. We will then open the call up for questions and answers. Tom will then provide closing remarks.

In our fourth quarter of fiscal 2012, we generated revenue of $22.9 million, down 24% from $30 million last year. We posted diluted earnings per share of $0.04; income from operations was $1.2 million as compared to $347,000 last year. Cash provided by operations was $0.7 million and on a trailing three-month basis, our days sales outstanding was 87 days, down four days from the previous quarter and down 29 days from the same period last year.

As stated, our fourth-quarter 2012 revenue was $22.9 million, down $7.1 million or 23.5% from $30 million in the same period last year. On a sequential basis, our revenue was up $1.4 million or 6.5% reported in our third-quarter 2012. Our fourth-quarter 2011 was favorably impacted by contract wind downs and incentives primarily in our New York energy practice.

For fiscal 2012, our revenue was $93.4 million as compared to $107.2 million in fiscal 2011.

For fiscal 2012, our segments were comprised as follows. Our Engineering Services segment represented 36% of our contract revenue as compared to 32% in fiscal 2011. Our Energy Services represented 49% of our contract revenue as compared to 54% in fiscal 2011. Our Public Finance Services represented 11% of our contract revenue as compared to 9% in fiscal 2011 and our Homeland Security Services represented 4% of our contract revenue as compared to 5% in 2011.

For the year, our Engineering and Public Finance Services segment revenue was slightly up. In our fourth quarter of 2012, our total direct costs were $13.4 million or down 28.9% compared to our fourth quarter in 2011. This is primarily attributable to lower subcontracting costs of approximately $4.9 million. In our fourth quarter of 2011, there was an emphasis in completing installation services which in 2011 were completely subcontracted.

Our G&A expenses were down 23% or $2.5 million in our fourth quarter of 2012 as compared to our fourth quarter of 2011. In 2012 and continuing into 2013, we are focused on reducing our indirect costs primarily indirect labor facilities and other areas where we have some discretion.

For the fourth quarter of 2012, we realized $1.2 million in income from operations as compared to $347,000 in the fourth quarter of 2011. For the 12 months, we realized a loss from operations of $19.3 million, which includes the second-quarter goodwill impairment charge of $15.2 million in fiscal 2012 as compared to income from operations of $3.4 million in fiscal 2011.

For the fourth quarter of 2012, we posted an after-tax net income of $300,000 as compared to a net loss of $779,000 in the fourth quarter of 2011. For the full year, we posted a net loss of $17.3 million as compared to net income of $1.8 million in 2011. For the fourth quarter of 2012, we posted a diluted earnings per share of $0.04 as compared to a loss per share of $0.11 in the fourth quarter of 2011.

For the full year, we posted loss per share of $2.37 in 2012 as compared to diluted income per share of $0.24 in 2011. Again, this includes the impact of the Q2 goodwill impairment charge.

From a balance sheet perspective, at December 28, 2012, we had cash and cash equivalents of $10 million. This balance compares to $3 million at December 30, 2011 and $9.2 million at the end of our third quarter.

We had $3 million in outstanding borrowings on our $5 million revolving line of credit at December 28, 2012. We continue dialogue with the bank on modifying the current terms and maturity. An 8-K will be filed at such time if agreements are finalized. Further disclosures are in our 10-K.

Our working capital and stockholders' equity at December 28, 2012 were $13.1 million and $17.4 million respectively. For further information please refer to our Forms 8-K and 10-K filed earlier today.

Thank you and I'd like to now turn it over to Tom for his remarks.

Thanks, Kim, and good afternoon. Our fourth quarter was profitable but down in revenue. The primary reasons for the decline in revenue were the energy contracts in California and New York. Energy has been undergoing re-competes and project startups. We expect energy projects to be fully ramped up by the end of the second quarter.

The New York contract is ramping up after the effects of Hurricane Sandy. We continue to win contracts both from the Midwest and the South as well as the East and the West.

Engineering was profitable in the fourth quarter. This is unusual but we continue to control costs as the economy shows some signs of recovery. We do see an increase in building permits. This is the first time I have said this in five years. We hope the recovery continues.

Homeland will continue to be flat and slightly profitable. We have placed some individuals in an outsourced position and we see more activity in the cities. California cities are still struggling with their costs; therefore outsourcing is still a viable option.

Financial Services has made progress winning new consulting work in several states outside of California. The success has offset the slow erosion of our base business due to the lack of construction.

Again, let me restate our revenue was down primarily due to the Energy contracts. Energy is very dependent on New York and New York should ramp up through the second quarter. We are still optimistic about Energy and the core Willdan businesses. Based on what we see now, we expect 2013 to be relatively flat. We have bids out on a number of engineering and energy projects which could provide some upside if we win them.

That said, our primary focus is on driving as much profitability as possible from the business we have in hand.

With that, I would now like to open the call to your questions. Operator, could you please poll for questions?

(Operator Instructions). Al Kaschalk, Wedbush Securities

Good afternoon, Tom and Kimberly.

Hello.

Tom, just on the overall comment, the flat you are referring to, is that revenue? It sounds like maybe the bidding activity has picked up a little bit.

The flat was in revenue was my comment, yes.

Okay. And your CFO continues to hound us about cash flow and improving cash flow so I assume with cost controls you should be able to pick up a little bit on cash flow?

That is our focus.

Okay. Second, I wanted to go maybe a little deeper here on some of the opportunities that you are looking at. We've heard in the past about the highway transportation, light speed rail, etc. Can you give us an update on some of those activities?

We are on a high speed rail team. The bid or the announcement should be -- we hear two weeks every two weeks but I would say within 30 days. There are going to be four awards. The first one is going to be announced in about 30 days. We are teamed for -- on the same team throughout the awards. There's basically three strong competitors. We believe we are on -- I believe we are on the strongest.

So even if we don't win that first one that's coming out in a couple weeks, throughout the rest of this year, they will be awarding the other three contracts. And Al, that refers to they are going to start in the middle of the state and then build towards LA and build towards San Francisco. So the middle one is going to be awarded first.

Okay.

I am fairly confident, I give it 90%, 95% that when all the awards are made, we will be on a winning team. Because there's only -- well, I guess there's three primary bidders for three contracts.

Is this a scenario, Tom -- very helpful on the color -- but is this a scenario where the four awards could be distributed each to one of the three competitors?

Yes, they have been clear in some of their conferences that and they've said -- you can't guarantee it -- but they have said that no one will get more than one.

Okay.

Does that answer your question, Al?

Yes, just trying to understand if you don't -- (multiple speakers)

If you don't win the first one, you go for the second one. If you don't win the second one, you go for the third one. If you don't win the third one, I'm not saying when you get down to the end, they finally hand you one but we are on a good enough team that we don't expect to be there.

Okay. And are all of these, Tom, on the same size dollar wise or at least your share? I guess your share is unchanged but are the contract projects still similar dollar value and what time frame or period would this last?

They may start out at $2 billion, the first award and it may go down to $1.5 billion the next two. They are not exactly the same size. They decrease a little bit as they award. In the world we live in, that number we still [can't] deal with though.

And would you be a 10% share on that size or how --?

No, no. That's the total construction -- let's say it's $2 billion in construction costs, the contractor generally gets about 90% of it. So that's quickly $1.8 billion going to the contractor. We are an engineering firm so there's $200 million left of which even if we had 10% of $200 million, that would be $20 million over three years and that would be great for our engineering work. Does that help you?

Yes, yes. So your line of work would be about a three-year period if you were to be successful here?

Well, if we were successful, we did a great job and the project is slated to go on for 40 years. So I would expect to continue to do engineering work along that alignment for a long, long time. And the part that we are handling for these major engineering firms is the local engineering which would be the great separations type thing, rerouting utilities, working on the irrigation as it goes through the Central Valley, they cross over irrigation constantly.

And then in the cities, it will be doing the local city work both traffic and platforms and that kind of stuff.

Right.

So the big engineering firm is dealing with the rail, rail alignment and that type of thing. We are dealing with the local stuff.

Okay. Second, the business has generally had some benefit from issuance of bonds by public agencies. Where is that environment and perhaps more importantly relative to your business opportunities, are there any particular bond issuance you are looking for or waiting for?

No. I'm not quite sure what bond you are following.

No specific one, Tom, just in general. I'm trying to get at the health of the municipalities and if there's some recovery here given the legacy exposure to California.

I don't see any recovery for the cities, any bailout that they've got in mind. For us, that's not there. I thought you meant in terms of building construction what we do in special assessment districts and the floating bonds for infrastructure. That's what we are counting on to come back. But in terms of bonds for the cities with the loss of redevelopment, they haven't really got a solution for that today.

Since you are much smarter than I, can you elaborate on the timing on the infrastructure bond issuance?

That depends on when housing comes back. When we build subdivisions or commercial real estate, that's the work for the permitting, the construction management, inspection, building and safety, the formation of the special assessment districts, the bonding of that, then the collecting of the revenue to pay for the bond. That was the Willdan bread-and-butter.

And as you know as well as I know, that's been a long 5.5 years since this thing crashed and I only talked to my guys yesterday and they said they are actually seeing a bit of a pickup in building permits. My comment to that was that's the first time they've said that in the 5.5 years we've been on this phone.

Right. And so how much after building permits are up do you start to benefit or potentially benefit as a Company?

We start benefiting right away on the review of the building permits.

Okay. All right, one final question. Kimberly, on -- it doesn't appear that the bank discussions are interfering with the business at all. Is that fair and how would you describe the time frame or what length of time do we have until we see a revision to the bank documents?

We have ongoing dialogue with the bank and we have some -- a framework as to what we are going to put together and there have just been some scheduling conflicts to get to resolution but we have not had any interruption at this stage.

Okay, very good. Thanks for the time.

(Operator Instructions). And I'm showing no further questions in the queue. Please continue.

Thanks everyone for participating and thank you all and have a great day.

Ladies and gentlemen, this does conclude our conference for today. If you would like to listen to a replay of today's conference, please dial 800-358-3474 or 303-590-3030 with access code 4599738. Thank you for your participation. You may now disconnect.