Willdan Group Inc (WLDN) 2013 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Willdan Group first-quarter 2013 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, Thursday, May 9, 2013. At this time I would 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 first quarter ended March 29, 2013. 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 10-K annual report for the year ended December 28, 2012, filed on March 26, 2013, and the quarterly report on Form 10-Q for the quarter ended March 29, 2013, filed today, May 9, 2013.

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 our first quarter ended March 29, 2013. Tom will then give an operational overview. We will conclude the call with questions and answers.

In our first-quarter 2013 we generated revenue of $21.4 million. We earned income from operations of $457,000.

We posted diluted earnings per share of $0.05. We provide cash flow from operations of $1 million. And on a trailing three-month basis, our days sales outstanding was 85 days, down 2 days from our fourth quarter and 48 days from the same period last year.

Our first quarter's revenue was down 16% or $4.1 million to $21.4 million, from $25.5 million in the same period last year. On a sequential basis our revenue was down 7% or $1.6 million, from $22.9 million in our fourth quarter.

On a net revenue basis, which is revenue minus direct pass-through costs, our net revenue was $15.2 million, up $1 million or 7% from $14.2 million in the same period last year.

On a segment basis our Engineering Services segment contributed $8.2 million or 38% of our first-quarter revenue. Our Energy Efficiency Services segment contributed $9.9 million or 47% of our first-quarter revenue. Our Public Finance Services segment contributed $2.3 million or 11% of our first-quarter revenue. And our Homeland Security Services segment contributed $948,000 or 4% of our first-quarter revenue.

Our income from operations for the first quarter was $457,000 as compared to a loss from operations of $2.3 million in the same period last year. Our first-quarter performance reflects a seasonal ramp down in certain energy efficiency programs. We anticipate ramping up the new programs and renewed programs by the end of our second quarter.

In our first quarter of 2013, our total direct costs were $12 million, or down 30% from $17.2 million in the first quarter of 2012. This is primarily attributable to lower pass-through costs of $5 million or 45%.

Our total salaries, wages, and salary-related expenses were $11.4 million in our first quarter, down 8% from $12.4 million in our first quarter of 2012. Our G&A expenses were down 16% or $1.7 million, as compared to -- were down 15% or $1.7 million as compared to our first quarter of 2012.

For the first quarter, we posted net income of $399,000 or $0.05 per basic and diluted share, as compared to a net loss of $1.4 million or $0.19 per share in our first quarter of 2012.

From a balance sheet perspective, at March 29, 2013, we had cash and cash equivalents of $10.4 million. This balance compares to $10 million at the end of our fourth quarter, and cash and cash equivalents of $5 million in our first quarter of 2012. As previously stated, we generated cash flow from operations of $1 million in our first quarter, as compared to $666,000 in our fourth quarter of 2012, and cash used in operations of $824,000 in our first quarter of last year.

We had outstanding borrowings of $3 million on our $5 million revolving line of credit at March 29, 2013. Our credit facility matured on April 1, 2013. We extended our credit facility to April 1, 2014, and received waivers for the covenant violations in previous periods.

Our working capital and our stockholders equity were $13.6 million and $17.8 million, respectively. Further financial business and credit amendment details can be found in our Forms 8-K and 10-Q filed earlier today. I will now turn it over to Tom.

Thanks, Kim, and good afternoon. As expected, our first-quarter revenue declined relative to last year. I am pleased to report that our first quarter was profitable and that each one of our business segments turned a profit.

Consistent with last quarter, lower revenue in our Energy business was the primary reason for the decline. Over the past few quarters a number of our major Energy contracts were recompeted and had ramped down.

This had impacted our revenue for the past three quarters. Fortunately, we have been successful in the recompete process, and we continue to expect that our Energy projects will be fully ramped up by the end of the second quarter.

In addition to Con Ed ramping up, our win with NYSERDA has opened a significant opportunity for Willdan. This contract will provide services for buildings in the state of New York.

We also have new contracts with data centers in Ohio and Illinois and are waiting for a new contract for a schools energy efficiency program in California. This schools program with SCE is especially important, given that California is allocating $2.5 billion of funding over the next five years to energy efficiency through Senate Bill 39.

Our Energy business has also expanded its service lines to include HVAC, refrigeration, medical labs, and healthcare facilities.

As Kim noted, our legacy Energy contracts included a high level of pass-through, also known as subcontractor cost, which resulted in no margin contribution to Willdan. Going forward, we are self-performing installation services, or what the subcontractors were doing, and believe this will give us both better project control and margin. All told, we remain confident that our Energy business will be a critical contributor to growth, both near and longer term.

Now turning to our Engineering business, over the past few years this business was sustained primarily by an increase in outsourced staff positions as budget-constrained cities in California struggled to find cost-effective and efficient ways to staff city departments. In the first quarter, our Engineering business also benefited from the increase in building permits and the ongoing recovery of the residential housing market. We expect this business to undergo a slow but steady return.

During the downturn we also entered the transportation market and currently bidding on a number of exciting transportation projects. We are part of the winning team on California high-speed rail.

We expect this project to start in the second half of the year. It is getting a lot of press, and I know you have probably all read about it.

Last year we continued to diversify our financial services business in terms of both geographies we serve and the services we provide. We made key hires in Washington, DC, and Florida, and won nearly $2 million worth of work with these new hires and locations. We expect this trend to continue.

Our Homeland Security business was flat in the first quarter, although profitable. And we were just notified of a win for San Diego that is significant for Homeland Security.

Looking across our business lines and considering the economic recovery thus far, we believe that all of our businesses are positioned for profitability in 2013. Energy services remain a key driver of growth in the US as the nation continues to move toward energy independence, and Willdan is well positioned to play a key role in this continuing trend. We also expect our other businesses to benefit from what appears to be a long-awaited but sustained economic recovery.

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

(Operator Instructions) Al Kaschalk, Wedbush Securities.

Good afternoon, Tom, Kimberly. Congratulations on the strong profitability. Obviously had some top-line headwinds that you are aware of, but delivering on the margin, and cash flow was a good sign to see. So, what are you going to do for us lately? Ha ha.

No, but going forward, if you could take a look at the Engineering business and share with us how much of that is tied towards this building permits and how much is it -- call it other?

I will put it in three groups. There is a little bit in some increased building, there is a little bit in outsourcing, and there is a little bit in the transportation engineering market.

The biggest change for the second half of 2013 will be in the transportation, we expect. We have won a contract with Alameda Corridor East, significant project for us on a grade separation.

And we won a contract -- well, we didn't win it; we were part of the winning team that won the high-speed rail contract. That was in the papers at about $1 billion, but it translates to us far, far, far less. We are a subcontractor to the Tutor Perini team -- Tutor Perini/Parsons.

So, transportation engineering I think will contribute the most in 2013. And as building continues to pick up, that would be second. And outsourced positions would be third.

Okay. So as a mix of revenue, though, Tom, are you saying that those are the components for the growth, but if you look at the pie of revenue today --

On Engineering?

Yes, on Engineering, how much of that is building permit related or outsourcing?

Probably about -- well, don't combine the two now. Do you want one or you want the other?

Building permits would be in our building and safety; that's part of the business. That is probably about $7 million out of the $30 million, $33 million. Outsourced positions is probably another --

Would it be better to take you from a corporate level and just say how much exposure do you have today to -- how much revenue do you have today from outsourcing of staff positions related to building permits? How much -- historically you had a much higher percentage, and where do you think that will be as you move out here, given the strengths you have had and wins in these other areas?

We don't expect any exposure anymore to either outsourced positions or building permits. We are seeing a slight, slight increase.

We have seen -- I always said it was falling like a knife for the first three years, and then it was rumbling along the bottom for the next two. But it's stopped rumbling along the bottom and there is now a slight increase. So I don't see exposure in that.

Well, exposure is obviously leveraged both ways. But this is the positive turn, so I was just trying to get a snapshot.

I would say a positive turn in the three areas I described, which were -- that is what is building permits, outsourced positions, and the transportation engineering market. I would expect positive trends upward in all three In 2013.

Did I hear correctly that you actually have two contract wins on the transportation side and both of those are to commence in the back half of '13?

Yes. Well, one of them I said was the high-speed rail thing, which you have probably read about in the papers; and who knows whether or not it will really start. It is supposed to start in June.

We are a subcontractor On the winning team. We are pretty excited about that. In fact, we're real excited about that.

The only risk on that is does it ever start. But I can't guess that.

The other one is a larger job with a larger firm we have teamed with, and it is a grade separation. It is bigger work for Willdan, and we have been successful.

That is where we have been going and we have won -- previously we had work with MTA, OCTA. We have been building towards this, to do more transportation engineering. Because if California has anything that went on during the recession, it's transportation engineering, and we are going to continue to try to stay in that.

And by those two wins, I mean those contract vehicles, if they start spending money on them, we have won it and we should do well.

Okay. With the one, with the grade separation, that one didn't sound like it is more visible, definitive in terms of a start date. When do you expect to start hiring or adding people to the payroll?

Well, it is more like when do we start work on it. I wouldn't say start hiring any people. I don't have an answer for you on that today, Al.

Okay. All right. On the Energy Efficiency side, you set us up for this, for the past three quarters on the, quote, negative and the recompete and then the successful recompete now. When do these contracts start? Are these July 1 build? Or when do these -- you tail down to June, and then we ramp up fully for the third quarter, or (multiple speakers) --

Yes, I think I said we will be fully ramped up by the end of the second quarter. So that puts you right around June. We should be going full steam ahead.

One more if I may. Profitability was good. Does that -- should we read into that that utilization or billable headcount was up sequentially and at a level that you are happy with? Maybe not satisfied with but you're at least happy with.

It is one of our areas of focus, of converting indirect labor into having higher utilization. So converting to direct labor and then reducing indirect labor costs.

So yes. Sequentially, utilization is up slightly, and we are focusing on continuing to increase that.

Thank you.

Jeremy Zhu, Wedbush Securities.

Hi, guys. Congratulations on a good quarter. Al has got a couple of my questions asked already. But continuing on that utilization question, what is your utilization today and what is your maximum utilization?

If Kim wants to give that number out, Jeremy, she may; but we don't give it out.

Right.

Maybe rephrase that question. How close are you to your max utilization, I guess?

We still have room to go.

A significant amount of room or a little bit of room?

Well --

How about a 10% margin would be maxed out?

Okay, and on the self-performing side, I guess, how much margin improvement to you expect from that?

Well, anything above zero is good. We had zero when our subcontractors were doing it, and we are anticipating at least a 10% margin on self-perform.

10% margin?

And currently we are self-performing in New York and in the state of Washington. And we are -- we have a strategy for continuing that into the state of California. We are not currently self-performing in the state of California, but we anticipate to be able to do that by the end of the year, if not sooner.

Last question. Now you have -- basically a number of your business segments are ramping up at the same time, hitting full cylinders. How much seasonality is in your business now? Between a good quarter and a bad quarter, would that still make a big difference to you?

We just went through the worst seasonality, which was the fourth quarter and the first quarter. And I believe -- I don't remember -- but I believe over the past five years it is the first time we were profitable in the fourth quarter; and I think it is the first time in the first quarter.

On a normalized basis, yes.

Yes. So the seasonality part of our business is fourth is tough, first it is tough. Now I think the question is, will we get out of that trend?

I think Energy will help immensely getting out of that trend. The only problem left on that one, on seasonality, is we do see a downturn on self-install, bad weather on the East Coast, which is December, January, February. But that -- I think Energy will get us through that in the future.

And Energy Efficiency is nearly 50% of our business right now. So one thing that we -- one trend that we do see is, when these programs end they typically and in the December time frame; and the new awards are slow to get awarded. I mean we saw that with Con Ed. We are seeing that with some other California programs, too.

Typically they were three-year programs. Now we are seeing two-year programs.

So as Tom mentioned, it is December -- or the fourth quarter and the first quarter are where we see the most seasonal impacts, not only with the weather back East but with holidays, vacations, and the utilization of our direct employees.

That's great. Thank you very much. That's it.

(Operator Instructions)

Okay, I would like to thank all of you for participating on our call today, and for your continued interest in Willdan. Thank you and have a great day.

Thank you, sir. Ladies and gentlemen, if you would like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 using the access code of 461-7586 followed by the pound key.

This does conclude the Willdan Group first-quarter 2013 conference call. Thank you very much for your participation. You may now disconnect.