Willdan Group Inc (WLDN) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Willdan Group Inc. second-quarter 2013 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, August 8, 2013.

I would now like to turn the conference over to our host, Mr. 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 second quarter ended June 28, 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 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 Form 10K annual report for the year ended December 28, 2012 filed on March 26, 2013, the quarterly report on Form 10-Q for the quarter ended March 29, 2013 filed on May 9, 2013, and the quarterly report on Form 10-Q for the quarter ended June 28, 2013 filed today.

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 second quarter ended June 28, 2013. Tom will then give color on operations and an outlook for the balance of 2013. We will then conclude the call with questions and answers.

In our second quarter of 2013, we generated $20.5 million of revenue, we earned income from operations of $718,000. We posted diluted earnings per share of $0.09. We provided cash flow from operations of $1.4 million and on a trailing three-month basis, our days sales outstanding was 79 days, down six days from our first quarter and 40 days from the same period last year.

Our second-quarter revenue was down 13% or $3 million to $20.5 million from $23.5 million in our same period last year. On a sequential basis, our revenue was down 4% or $889,000 from $21.4 million in our first quarter.

On a net revenue basis, which is revenue minus direct pass-through cost, our net revenue was $15.2 million, up $2.8 million or 23% from $12.3 million in the same period last year.

On a segment basis, our Engineering Services segment contributed $8.7 million or 42% of our second-quarter revenue. Our Energy Efficiency Services segment contributed $8 million or 39% of our second-quarter revenue. Our Public Finance Services segment contributed $2.6 million or 13% of our second-quarter revenue and our Homeland Security Services segment contributed $1.2 million or 6% of our second-quarter revenue.

Our income from operations for the second quarter was $718,000 as compared to a loss from operations of $19.6 million which included $15.2 million in goodwill impairment charges for the same period last year.

Our second-quarter performance reflects delays in the deployment of certain energy efficiency programs in Southern California. We anticipate these and other programs to ramp up in the second half of 2013.

In our second quarter of 2013, our total direct costs were $11.4 million or down 33% from $17.1 million in the second quarter of 2012. This is primarily attributable to lower passthrough costs of $5.8 million or 52%.

Our total salaries, wages and salary-related expenses were $11.1 million in our second quarter of 2013, down 6% from $11.8 million in our second quarter of 2012. Our total G&A expenses were down 22% or $2.4 million in our second quarter of 2013 as compared to our second quarter of 2012. This excludes the 2012 goodwill impairment charge of $15.2 million.

For the second quarter, we posted net income of $688,000 or $0.09 per share as compared to a net loss of $17 million or $2.27 per share in our second quarter of 2012.

From a balance sheet perspective, at June 28, 2013, we had cash and cash equivalents of $8.5 million. This balance compares to $10.4 million at the end of our first quarter and cash and cash equivalents of $5.5 million in our second quarter of 2012. As previously stated, we generated cash flow from operations of $1.4 million in our second quarter as compared to $1 million in our first quarter and $1.7 million in our second quarter last year.

In our second quarter of 2013, we repaid the $3 million outstanding on our line of credit. At June 28, 2013 and today, we have no outstanding borrowings on our line of credit. Our working capital and our stockholders' equity were $14.4 million and $18.6 million respectively.

Further financial and business 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 second-quarter revenue declined relative to last year. Consistent with last quarter, lower revenue in our Energy business was the primary reason for the decline. I am pleased to report that our Energy programs did ramp up in the second quarter and this bodes well for a return to revenue growth and higher levels of profitability in the second half of the year.

With the exception of energy, all of our business lines generated revenue gains in the second quarter and all reported positive cash flow and earnings for the quarter.

I will now provide an update on each of our business lines. I'll begin with Energy where we have a number of new wins to report. First, we won contracts for pilot programs in connection with the new water energy nexus program from a major Southern California utility. This program is focused on saving energy through water conservation measures. These pilot programs are strategically important to us since participation in pilot programs is how we won our initial large utility contracts. We also won additional energy efficiency audit contracts with SDG&E as well as some contract extension as the result of exceeding our goals on the Washington state program.

Last quarter, I mentioned that we were expecting a new contract with schools in California. It took far longer than we expected but we did recently win the Southern California Edison contract. We are in contract negotiations now and expect to begin work on this program in September.

The 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 at schools through Senate Bill 39. $500 million of the $2.5 billion is expected to come out in the spring of 2014 and we are preparing for that now.

We are currently targeting about $200 million of the $500 million at this time, which represents the top 20 to 25 school districts in the state. There will be competition from ESCOs, such as Johnson Controls, Honeywell and Siemens for this work but we feel we will be pretty well positioned here since we are already working in these school districts through the utilities and many of the same school districts will get grants from the state as well.

All told, our energy business is on solid ground. We have learned that timing will always be an issue in this business and while we cannot control that, we are executing well on these contracts.

Now, turning to our Engineering business. Revenue in this business increased by about 5% in the second quarter. For the first time in six years, we are hiring people to work for cities on infrastructure and development. So far, we have hired 11 new people and we expect to see continued growing demand for this type of work.

The long anticipated project start on the first segment of California's high-speed rail project is still scheduled to take place this summer, as of now September. We are in talks with the prime contractor on this project and we expect to be assigned work in Fresno which will begin in September. For Willdan, this is a very exciting professionally and as a growth area for our business.

As I mentioned last quarter, our Financial Services business is gaining momentum due to new key hires we made in both DC and Florida. In a very short time, the team has built a sizable backlog of work in several states. We are pleased with this progress and anticipate continued momentum.

Our Homeland Security business was up more than 10% in the second quarter. Our backlog in this business is solid and includes a number of good targets including training at the DHS level, Marine Corps and transportation-related work like our New York MTA.

Overall, we are pleased with where things stand across all of our businesses. We are entering the second half of 2013 with good momentum and solid backlog. We expect to see revenue growth and improved profitability in the back half of the year.

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

Thank you. (Operator Instructions). Al Kaschalk, Wedbush Securities.

Good afternoon, everybody.

Hello.

Thanks for the detail and nice job on the quarter in terms of performance. It looks like you've got the cost structure in line and the mix of business going in the right direction.

I guess what I want to start -- Tom, you talked about -- can you clarify what you said about the high-speed rail? That's now a September time frame?

Yes, the contract has been signed with a prime contractor, Tutor Perini-Parsons. We are a subcontractor to that joint venture. We have a nice part of it. It's unknown as to what all that means to anybody right now but we will be assigned to work in Fresno where it's starting and we've met with Parsons and we look forward to a really good relationship with that team. I mean we are really excited about that project getting going.

Is there any concern or should there be any concern about the timing of the start? Is it definitely September or how are you taking steps in terms of getting the right people or enough people?

We have the right people already. We are going to be moving them -- we have them both in Fresno and we are going to be taking them from other parts of the Central Valley. We have them in Sacramento, we have them in Southern California. We have an existing office now in Fresno, we always have and we will just be staffing that up. We will not make any moves until we get a notice to proceed. The contract is signed with the prime and the prime is waiting for the notice to proceed. We think that will come from our latest information with a start-up in September.

Your information you expect to get is when?

The contract is signed. Now all the high-speed rail authority has to do is give a notice to proceed and we go.

Okay.

And we are expecting that in September.

So how do you think again about resources? I know the California loves to have unemployment high but --

What does that mean?

Well, what I'm getting at is your utilization has definitely I think improved.

Yes.

I don't believe you have people sitting around waiting for work, Tom. And so my question is for lack of a better word, how do you protect your profitability and the Company's profitability on that without the elevation maybe or escalation in wages to get people?

Well, as far as utilization, we are not going to put people on the Fresno job until we have an executed contract saying we will pay you for it. So we will move seven -- we are anticipating seven to 10 people in Fresno. And we will have to hire seven to 10 new people to make up the work that they will be leaving to go work on the high-speed rail. So that's how that works. So we will be adding -- it's not going to affect utilization.

With regards to rates, we are starting to for the first time since the recession increase our rates. We are going to our customers and putting in a new rate schedule but we are seeing some increases.

Umm.

Does that answer your question, Al?

No, it does and like I said, I have not heard you talk about problems with utilization rates and I assume this is targeted to be decent profitability relative to other project opportunities. I know it is an excellent marketing contract but I assume it's a fairly healthy profitability?

I won't say that because working for one of the most -- it's a very competitive bid. I'm sure you've seen it and it's a very demanding job. For us, if we prove ourselves to be an engineer who delivers to the prime contractor, Tutor Perini, I think we will do just fine.

It's a tough contract, it's a great opportunity for Willdan, it's a one in a lifetime opportunity for Willdan. This project will go for some 20 years and all we have to do is prove that we are a great designer in these local communities where this alignment is going to go through. I think we will be fine.

Are you willing to share if you have -- can you refresh my memory what type of -- when this thing is running? I don't mean the rail, I mean the project, what type of revenues the Company would expect?

The only thing I can tell you is we are starting with seven to 10 people. If we do well, we hope to increase over time. If we don't do well, we will probably be fired.

Okay.

That's kind of how it goes. I mean this is a design build, tough contract. We've got to deliver. There's 100 engineering firms out there wanting to do the work. We are lucky enough to be on the winning team with a starting position.

And then I just want to clarify the school contracts that you've won. I was confused by the $200 million of $500 million.

Yes, we won a school contract with SCE. When I was reading that, I was a little confused. So I understand now. So we just won a -- we rewon, it was a re-compete, for energy efficiency in schools administered by Southern California Edison. We did about $9 million on it over the past 18 months and in around the end of 2012, the re-compete came out. We thought we'd get started back in the spring. We didn't win it and get negotiating until now and we probably won't start until September. So that program and the amount of it will be somewhere between $5 million and $10 million that we are anticipating. That program is with SCE, Southern California Edison.

In addition to that program, Senate Bill 39 has generated $2.5 billion over the next five years to do energy efficiency in schools which is very similar to almost identical to what the utilities are doing only on a much broader range. We just work for Southern California Edison. This is statewide for all school districts in the state.

$500 million a year will be given to the schools to improve energy efficiency. The money instead of going to the utilities will go to the individual school districts. So we have to market each individual school district in the state. Given that we already work for a lot of them in Southern California with the utilities, we see it as a competitive advantage. We are targeting 20 to 25 of the top school districts in the state of which many we are already working with and they represent about $200 million of the $500 million in 2014. Does that help you?

That helps a lot. And then my final question if I may, historically, we haven't talked a lot about backlog. But in your prepared remarks, you mentioned it a couple times. So are you at a spot where you are feeling good about what's developing on your backlog?

Yes. We never stopped marketing through that recession especially in Energy and even Engineering. It was tough, Homeland was tough and Financial was tough.

So coming out of this, if we are coming out of it, we have backlog in each of the four areas. Now we are focused on profitability and growing those businesses. I think -- I didn't know if this thing would ever going to get to this point but we may be there now. We have a healthy backlog.

I will ask one more question and then just hop back in the queue. Kimberly has done a great job on the balance sheet here so now you've got all this cash, no debt. And I don't hear a lot of need necessarily maybe in terms of funding some of these contracts or maybe you do. Can you just talk about maybe the next couple of quarters out how investors may think about how you deploy some of this cash?

Well, if you recall when we amended the credit agreement with Wells Fargo, we cashed collateralized that so there's $5 million that is in a secured account. So yes, we do have free cash flow and we are looking at ways to deploy that rather than just sitting on the cash, it might need tuck-in acquisitions, it might be unique characteristics with contracts. We are evaluating ways to use that to improve operations and profitability. We are not just sitting on it.

Right. So the $5 million --

Al, I would like to sit on it for at least a quarter, okay, it feels pretty good.

Yes, no, I was remiss about the $5 million (inaudible) collateral. That was necessary and obviously that helps folks feel comfortable but at some point I am sure you'll be able to remove that over time.

Okay, fair enough. Thanks for taking all of my questions and nice job on the quarter.

Thank you.

Thanks a lot, Al. I don't think there's any further questions so I would like to thank all of you for participating on our call today and your continued interest in Willdan. So thanks and have a good day.

Thank you. Ladies and gentlemen, this concludes our conference call for today. If you would like to listen to replay of today's conference call, please dial 303-590-3030 or 1-800-406-7325 and enter access code 4633799. We thank you for your participation and you may now disconnect.