wldn_Current_folio_10Q

Table of Contents

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 27, 2019

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to          

 

Commission file number 001-33076

 

WILLDAN GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

14-195112

(State or Other Jurisdiction of
Incorporation or Organization)

 

(IRS Employer Identification No.)

 

 

 

2401 East Katella Avenue, Suite 300
Anaheim, California

 

92806

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (800) 424-9144

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

WLDN

The Nasdaq Stock Market LLC

(Nasdaq Global Market)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

 

Accelerated filer ☒

 

 

 

Non-accelerated filer ☐

 

Smaller reporting company ☐

 

 

Emerging growth company ☐

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

As of October 30, 2019, there were 11,316,457 shares of common stock, $0.01 par value per share, of Willdan Group, Inc. issued and outstanding.

 

 

 

 

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WILLDAN GROUP, INC.

FORM 10-Q QUARTERLY REPORT

 

TABLE OF CONTENTS

 

 

 

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION 

 

5

 

 

 

Item 1. Financial Statements (unaudited) 

 

5

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

39

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

 

57

 

 

 

Item 4. Controls and Procedures 

 

57

 

 

 

PART II. OTHER INFORMATION 

 

58

 

 

 

Item 1. Legal Proceedings 

 

58

 

 

 

Item 1A. Risk Factors 

 

58

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

 

58

 

 

 

Item 3. Defaults upon Senior Securities 

 

59

 

 

 

Item 4. Mine Safety Disclosures 

 

59

 

 

 

Item 5. Other Information 

 

59

 

 

 

Item 6. Exhibits 

 

61

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q (this “10-Q”) contains statements that constitute forward-looking statements as that term is defined by the Private Securities Litigation Reform Act of 1995, as amended. These statements concern our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition, which are subject to risks and uncertainties. All statements other than statements of historical fact included in this 10-Q are forward-looking statements. These statements may include words such as “aim,” “anticipate,” “assume,” “believe,” “can have,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “likely,” “may,” “objective,” “plan,” “potential,” “positioned,” “predict,” “should,” “target,” “will,” “would” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events or trends. For example, all statements we make relating to our plans and objectives for future operations, growth or initiatives and strategies are forward-looking statements.

These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our managements beliefs and assumptions. We derive many of our forward-looking statements from our own operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that predicting the impact of known factors is very difficult, and we cannot anticipate all factors that could affect our actual results.

All of our forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from our expectations. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to:

·

our ability to adequately complete projects in a timely manner,

·

our ability to compete successfully in the highly competitive energy services market,

·

changes in state, local and regional economies and government budgets,

·

our ability to win new contracts, to renew existing contracts (including with our three primary customers and the two primary customers of Lime Energy Co. (“Lime Energy”) and to compete effectively for contracts awarded through bidding processes,

·

our ability to successfully integrate our acquisitions, including our acquisitions of Lime Energy, The Weidt Group Inc., Onsite Energy Corporation, and Energy and Environmental Economics, Inc. (“E3, Inc.”) and execute on our growth strategy,

·

our current expectations with respect to preliminary estimated adjustments to record our assets and liabilities at their respective estimates of fair values under acquisition accounting,

·

our ability to make principal and interest payments on our outstanding debt as they come due and comply with financial and other covenants in our Credit Agreement (as defined herein), and

·

our ability to obtain financing and to refinance our outstanding debt as it matures.

 

The above is not a complete list of factors or events that could cause actual results to differ from our expectations, and we cannot predict all of them. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements and risk factors disclosed in this 10-Q and under Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 28, 2018, as such disclosures may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission, including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and public communications. You should evaluate all forward-looking statements made in this 10-Q and otherwise in the context of these risks and uncertainties.

Potential investors and other readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on any forward-looking statements we make. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are not guarantees of

3

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future performance or developments and involve known and unknown risks, uncertainties and other factors that are in many cases beyond our control. Except as required by law, we undertake no obligation to update or revise any forward-looking statements publicly, whether as a result of new information, future developments or otherwise.

 

4

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PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

    

September 27,

    

December 28,

 

 

 

2019

 

2018

 

Assets

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 —

 

$

15,259

 

Accounts receivable, net of allowance for doubtful accounts of $555 and $442 at September 27, 2019 and December 28, 2018, respectively

 

 

51,960

 

 

61,346

 

Contract assets

 

 

86,676

 

 

51,851

 

Other receivables

 

 

4,934

 

 

1,893

 

Prepaid expenses and other current assets

 

 

4,817

 

 

5,745

 

Total current assets

 

 

148,387

 

 

136,094

 

Equipment and leasehold improvements, net

 

 

11,690

 

 

7,998

 

Goodwill

 

 

103,090

 

 

97,748

 

Right-of-use assets

 

 

12,767

 

 

 —

 

Other intangible assets, net

 

 

68,808

 

 

44,364

 

Other assets

 

 

9,771

 

 

2,386

 

Deferred income taxes, net

 

 

8,099

 

 

12,321

 

Total assets

 

$

362,612

 

$

300,911

 

Liabilities and Stockholders’ Equity

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

34,254

 

$

36,829

 

Accrued liabilities

 

 

45,937

 

 

37,401

 

Contingent consideration payable

 

 

1,573

 

 

3,113

 

Contract liabilities

 

 

5,938

 

 

5,075

 

Notes payable

 

 

8,220

 

 

8,572

 

Finance lease obligations

 

 

529

 

 

320

 

Lease liability

 

 

4,194

 

 

 —

 

Total current liabilities

 

 

100,645

 

 

91,310

 

Contingent consideration payable

 

 

1,235

 

 

1,616

 

Notes payable

 

 

95,062

 

 

62,214

 

Finance lease obligations, less current portion

 

 

230

 

 

224

 

Lease liability, less current portion

 

 

9,726

 

 

 —

 

Deferred lease obligations

 

 

 —

 

 

724

 

Other noncurrent liabilities

 

 

683

 

 

534

 

Total liabilities

 

 

207,581

 

 

156,622

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value, 10,000 shares authorized, no shares issued and outstanding

 

 

 —

 

 

 —

 

Common stock, $0.01 par value, 40,000 shares authorized; 11,317 and 10,968 shares issued and outstanding at September 27, 2019 and December 28, 2018, respectively

 

 

113

 

 

110

 

Additional paid-in capital

 

 

123,588

 

 

114,008

 

Accumulated other comprehensive loss

 

 

(480)

 

 

 —

 

Retained earnings

 

 

31,810

 

 

30,171

 

Total stockholders’ equity

 

 

155,031

 

 

144,289

 

Total liabilities and stockholders’ equity

 

$

362,612

 

$

300,911

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 27,

 

September 28,

 

September 27,

 

September 28,

 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

117,494

 

$

71,386

 

$

313,683

 

$

185,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct costs of contract revenue (inclusive of directly related depreciation and amortization):

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages

 

 

16,145

 

 

11,233

 

 

46,679

 

 

33,358

 

Subcontractor services and other direct costs

 

 

66,677

 

 

36,840

 

 

175,248

 

 

86,453

 

Total direct costs of contract revenue

 

 

82,822

 

 

48,073

 

 

221,927

 

 

119,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages, payroll taxes and employee benefits

 

 

15,761

 

 

11,125

 

 

46,167

 

 

31,875

 

Facilities and facility related

 

 

2,250

 

 

1,492

 

 

6,069

 

 

4,087

 

Stock-based compensation

 

 

4,107

 

 

1,705

 

 

8,148

 

 

4,431

 

Depreciation and amortization

 

 

5,788

 

 

1,117

 

 

11,308

 

 

3,292

 

Other

 

 

5,471

 

 

2,961

 

 

16,230

 

 

11,226

 

Total general and administrative expenses

 

 

33,377

 

 

18,400

 

 

87,922

 

 

54,911

 

Income from operations

 

 

1,295

 

 

4,913

 

 

3,834

 

 

11,092

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,257)

 

 

(22)

 

 

(3,599)

 

 

(75)

 

Other, net

 

 

 2

 

 

17

 

 

31

 

 

36

 

Total other expense, net

 

 

(1,255)

 

 

(5)

 

 

(3,568)

 

 

(39)

 

Income before income taxes

 

 

40

 

 

4,908

 

 

266

 

 

11,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax (benefit) expense

 

 

(376)

 

 

1,597

 

 

(1,373)

 

 

2,224

 

Net income

 

$

416

 

$

3,311

 

$

1,639

 

$

8,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on derivative contracts

 

$

(42)

 

$

 —

 

$

(480)

 

$

 —

 

Comprehensive income

 

$

374

 

$

3,311

 

$

1,159

 

$

8,829

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

0.37

 

$

0.15

 

$

1.00

 

Diluted

 

$

0.04

 

$

0.35

 

$

0.14

 

$

0.95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

11,217

 

 

8,844

 

 

11,097

 

 

8,798

 

Diluted

 

 

11,789

 

 

9,343

 

 

11,714

 

 

9,283

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

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WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Accumulated

 

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Other Comprehensive

 

 

 

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

(Loss)/Gain

    

Retained Earnings

    

Total

 

Balances at December 29, 2017

 

8,799

 

$

88

 

$

50,976

 

$

 —

 

$

20,141

 

$  

71,205

 

Shares of common stock issued in connection with employee stock purchase plan

 

30

 

 

 —

 

 

617

 

 

 —

 

 

 —

 

 

617

 

Shares of common stock issued in connection with incentive stock plan

 

32

 

 

 1

 

 

278

 

 

 —

 

 

 —

 

 

279

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,064

 

 

 —

 

 

 —

 

 

1,064

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,203

 

 

2,203

 

Balance at March 30, 2018

 

8,861

 

$

89

 

$

52,935

 

$

 —

 

$

22,344

 

$  

75,368

 

Shares of common stock issued in connection with incentive stock plan

 

11

 

 

 —

 

 

61

 

 

 —

 

 

 —

 

 

61

 

Shares used to pay taxes on stock grants

 

(15)

 

 

 —

 

 

(442)

 

 

 —

 

 

 —

 

 

(442)

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,662

 

 

 —

 

 

 —

 

 

1,662

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,315

 

 

3,315

 

Balance at June 29, 2018

 

8,857

 

$

89

 

$

54,216

 

$

 —

 

$

25,659

 

$  

79,964

 

Shares of common stock issued in connection with employee stock purchase plan

 

35

 

 

 —

 

 

682

 

 

 —

 

 

 —

 

 

682

 

Shares of common stock issued in connection with incentive stock plan

 

 8

 

 

 —

 

 

136

 

 

 —

 

 

 —

 

 

136

 

Restricted Stock Awards

 

21

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,705

 

 

 —

 

 

 —

 

 

1,705

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,311

 

 

3,311

 

Balance at September 28, 2018

 

8,921

 

$

89

 

$

56,739

 

$

 —

 

$

28,970

 

$  

85,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Accumulated

 

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Other Comprehensive

 

 

 

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

(Loss)/Gain

    

Retained Earnings

    

Total

 

Balance at December 28, 2018

 

10,968

 

$

110

 

$

114,008

 

$

 —

 

$

30,171

 

$  

144,289

 

Shares of common stock issued in connection with employee stock purchase plan

 

28

 

 

 —

 

 

749

 

 

 —

 

 

 —

 

 

749

 

Shares of common stock issued in connection with incentive stock plan

 

21

 

 

 —

 

 

291

 

 

 —

 

 

 —

 

 

291

 

Unregistered sales of equity securities and use of proceeds

 

(66)

 

 

(1)

 

 

(2,515)

 

 

 —

 

 

 —

 

 

(2,516)

 

Issuance of restricted stock award and units

 

175

 

 

 2

 

 

(2)

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,817

 

 

 —

 

 

 —

 

 

1,817

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(417)

 

 

(417)

 

Net unrealized loss on derivative contracts

 

 —

 

 

 —

 

 

 —

 

 

(219)

 

 

 —

 

 

(219)

 

Balance at March 29, 2019

 

11,126

 

$

111

 

$

114,348

 

$

(219)

 

$

29,754

 

$  

143,994

 

Shares of common stock issued in connection with incentive stock plan

 

77

 

 

 1

 

 

231

 

 

 —

 

 

 —

 

 

232

 

Shares used to pay taxes on stock grants

 

(9)

 

 

 —

 

 

(346)

 

 

 —

 

 

 —

 

 

(346)

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

2,224

 

 

 —

 

 

 —

 

 

2,224

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,640

 

 

1,640

 

Net unrealized loss on derivative contracts

 

 —

 

 

 —

 

 

 —

 

 

(219)

 

 

 —

 

 

(219)

 

Balance at June 28, 2019

 

11,194

 

$

112

 

$

116,457

 

$

(438)

 

$

31,394

 

$  

147,525

 

Shares of common stock issued in connection with employee stock purchase plan

 

34

 

 

 —

 

 

991

 

 

 —

 

 

 —

 

 

991

 

Shares of common stock issued in connection with incentive stock plan

 

14

 

 

 —

 

 

334

 

 

 —

 

 

 —

 

 

334

 

Issuance of restricted stock award and units

 

22

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Unregistered sales of stock

 

53

 

 

 1

 

 

1,699

 

 

 —

 

 

 —

 

 

1,700

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

4,107

 

 

 —

 

 

 —

 

 

4,107

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

416

 

 

416

 

Net unrealized loss on derivative contracts

 

 —

 

 

 —

 

 

 —

 

 

(42)

 

 

 —

 

 

(42)

 

Balance at September 27, 2019

 

11,317

 

$

113

 

$

123,588

 

$

(480)

 

$

31,810

 

$  

155,031

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements

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WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 27,

 

September 28,

 

 

    

2019

    

2018

    

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

1,639

 

$

8,829

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

11,624

 

 

3,391

 

Deferred income taxes, net

 

 

(285)

 

 

(1,460)

 

Gain on sale/disposal of equipment

 

 

(5)

 

 

(17)

 

Provision for doubtful accounts

 

 

256

 

 

317

 

Stock-based compensation

 

 

8,148

 

 

4,431

 

Accretion and fair value adjustments of contingent consideration

 

 

(540)

 

 

(713)

 

Changes in operating assets and liabilities, net of effects from business acquisitions:

 

 

 

 

 

 

 

Accounts receivable

 

 

13,491

 

 

19,492

 

Contract assets

 

 

(20,221)

 

 

(18,252)

 

Other receivables

 

 

(3,004)

 

 

1,518

 

Prepaid expenses and other current assets

 

 

1,060

 

 

78

 

Other assets

 

 

(336)

 

 

(78)

 

Accounts payable

 

 

(5,836)

 

 

(1,960)

 

Accrued liabilities

 

 

1,164

 

 

(1,672)

 

Contract liabilities

 

 

705

 

 

(2,320)

 

Deferred lease obligations

 

 

 —

 

 

(15)

 

Right-of-use assets

 

 

429

 

 

 —

 

Net cash provided by operating activities

 

 

8,289

 

 

11,569

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of equipment and leasehold improvements

 

 

(5,636)

 

 

(720)

 

Proceeds from sale of equipment

 

 

45

 

 

41

 

Cash paid for acquisitions, net of cash acquired

 

 

(46,539)

 

 

(2,994)

 

Net cash used in investing activities

 

 

(52,130)

 

 

(3,673)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Change in excess of outstanding checks over bank balance

 

 

(1,514)

 

 

 —

 

Payments on contingent consideration

 

 

(1,381)

 

 

(3,768)

 

Payments on notes payable

 

 

(1,371)

 

 

(383)

 

Payments on debt issuance costs

 

 

(749)

 

 

 —

 

Borrowings under term loan facility and line of credit

 

 

105,000

 

 

 —

 

Repayments under term loan facility and line of credit

 

 

(72,500)

 

 

(2,500)

 

Principal payments on finance leases

 

 

(338)

 

 

(321)

 

Proceeds from stock option exercise

 

 

858

 

 

476

 

Proceeds from sales of common stock under employee stock purchase plan

 

 

1,740

 

 

1,299

 

Shares used to pay taxes on stock grants

 

 

(2,862)

 

 

(442)

 

Proceeds from unregistered sales of equity

 

 

1,699

 

 

 —

 

Net cash provided by (used in) financing activities

 

 

28,582

 

 

(5,639)

 

Net increase (decrease) in cash and cash equivalents

 

 

(15,259)

 

 

2,257

 

Cash and cash equivalents at beginning of period

 

 

15,259

 

 

14,424

 

Cash and cash equivalents at end of period

 

$

 —

 

$

16,681

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

 

$

3,314

 

$

75

 

Income taxes

 

 

2,247

 

 

2,061

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

Loss on cash flow hedge valuations, net of tax

 

 

(480)

 

 

 —

 

Contingent consideration related to business acquisitions

 

 

 —

 

 

943

 

Other payable for working capital adjustment

 

 

 —

 

 

698

 

Equipment acquired under finance leases

 

 

 —

 

 

281

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

1.           BASIS OF PRESENTATION, ORGANIZATION AND OPERATIONS OF THE COMPANY

 

Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments, which consist of only normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the consolidated results for the interim periods presented. Willdan Group, Inc. and its subsidiaries (the “Company”) operates and reports its quarterly financial results based on the 13-week period ending on the Friday closest to March 31, June 30 and September 30 and the 13 or 14-week period ending on the Friday closest to December 31, as applicable, with consideration of business days. Results for the interim periods are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2018.

 

The condensed consolidated statement of stockholders' equity includes repurchases of shares of our common stock from employees to satisfy tax withholding obligations incurred in connection with the vesting of restricted stock or performance stock units, which amount is presented as a reduction of additional paid-in capital and common stock.

 

Nature of Business

 

The Company is a provider of professional technical and consulting services to utilities, private industry, and public agencies at all levels of government. The Company enables its clients to realize cost and energy savings by providing a wide range of specialized services without having to incur and maintain the overhead necessary to develop staffing in-house. Such services include energy and sustainability, engineering, construction management and planning and economic and financial consulting. The Company operates its business through a nationwide network of offices spread across 24 states and the District of Columbia. Its clients primarily consist of public and governmental agencies, including cities, counties, public utilities, redevelopment agencies, water districts, school districts and universities, state agencies, federal agencies, a variety of other special districts and agencies, private utilities and industry and tribal governments. The Company’s business with public and private utilities is concentrated primarily in California, New York and North Carolina and its business with public agencies is concentrated in California, New York and Arizona.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Willdan Group, Inc. (“WGI”) and its wholly-owned subsidiaries, Willdan Energy Solutions (“WES”), Willdan Engineering, Willdan Infrastructure, Public Agency Resources and Willdan Financial Services and their respective subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

The Company accounts for variable interest entities in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation. Under ASC 810, a variable interest entity (“VIE”) is created when any of the following criteria are present: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entitys equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entitys equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting

9

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WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

rights. If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entitys economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE. In accordance with ASC 810, the Company performs ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE.

 

As of September 27, 2019, the Company had one VIE—Genesys Engineering, P.C. (“Genesys”). Pursuant to New York law, the Company does not own capital stock of Genesys and does not have control over the professional decision making of Genesys’ engineering services. The Company, however, has entered into an administrative services agreement with Genesys pursuant to which WES, the Company’s wholly-owned subsidiary, will provide Genesys with ongoing administrative, operational and other non-professional support services. The Company manages Genesys and has the power to direct the activities that most significantly impact Genesys’ performance, in addition to being obligated to absorb expected losses from Genesys. Accordingly, the Company is the primary beneficiary of Genesys and consolidates Genesys as a VIE.

 

Management also concluded there is no noncontrolling interest related to the consolidation of Genesys because management determined that (i) the shareholder of Genesys does not have more than a nominal amount of equity investment at risk, (ii) WES absorbs the expected losses of Genesys through its deferral of Genesys’ service fees owed to WES, and the Company has, since entering into the administrative services agreement, had to continuously defer the service fees for Genesys, and (iii) the Company believes Genesys will continue to have a shortfall on payment of its service fees for the foreseeable future, leaving no expected residual returns for the shareholder.

 

Segment Information

 

WGI is a holding company with five wholly-owned subsidiaries. The Company presents segment information externally consistent with the manner in which the Companys chief operating decision maker reviews information to assess performance and allocate resources. WGI performs administrative functions on behalf of its subsidiaries, such as treasury, legal, accounting, information systems, human resources and certain business development activities, and earns revenue that is only incidental to the activities of the enterprise. As a result, WGI does not meet the definition of an operating segment. The Company’s two segments are Energy and Engineering and Consulting. The Company’s principal segment, Energy, consists of the business of its subsidiary, WES, which offers energy and sustainability consulting services to utilities, public agencies and private industry. The Company’s Engineering and Consulting segment includes the operation of the Company’s remaining direct subsidiaries, Willdan Engineering, Willdan Infrastructure, Public Agency Resources and Willdan Financial Services. Willdan Engineering provides civil engineering-related construction management, building and safety, city engineering, city planning, geotechnical, material testing and other engineering consulting services to its clients. Willdan Infrastructure, which was launched in fiscal year 2013, provides engineering services to larger rail, port, water, mining and other civil engineering projects. Public Agency Resources primarily provides staffing to Willdan Engineering. Willdan Financial Services provides economic and financial consulting to public agencies. See Note 11 “—Segment Information” for segment information for the current and prior period.

 

Contract Assets and Liabilities

 

Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-completion method of revenue recognition. Contract assets include unbilled amounts typically resulting from revenue under long-term contracts when the percentage-of-completion method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer and right to payment is not unconditional. In addition, contract assets include retainage amounts withheld from billings to the Company’s clients pursuant to provisions in the contracts. Contract liabilities consist of advance payments and billings in excess of revenue recognized and deferred revenue.

 

10

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WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The increase in contract assets and contract liabilities for the nine months ended September 27, 2019 were primarily attributable to our recent acquisitions and normal business operations.

Off‑Balance Sheet Arrangements 

The Company does not have any off‑balance sheet financing arrangements or liabilities. In addition, the Company does not have any majority‑owned subsidiaries or any interests in, or relationships with, any special‑purpose entities that are not included in the condensed consolidated financial statements. The Company has, however, entered into an administrative services agreement with Genesys pursuant to which WES, the Company’s wholly-owned subsidiary, will provide Genesys with ongoing administrative, operational and other non-professional support services. The Company manages Genesys and has the power to direct the activities that most significantly impact Genesys’ performance, in addition to being obligated to absorb expected losses from Genesys. Accordingly, the Company is the primary beneficiary of Genesys and consolidates Genesys as a variable interest entity.

Contract Accounting

 

The Company enters into contracts with its clients that contain various types of pricing provisions, including fixed price, time-and-materials and unit-based provisions. The Company recognizes revenues in accordance with ASU 2014-09, Revenue from Contracts with Customer, codified as ASC Topic 606 and the related amendments (collectively, “ASC 606”). As such, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenues when (or as) the Company satisfies a performance obligation.

 

The following table reflects the Company’s two reportable segments and the types of contracts that each most commonly enters into for revenue generating activities.

 

 

 

 

Segment

Contract Type

Revenue Recognition Method

 

Time-and-materials

Time-and-materials

Energy

Unit-based

Unit-based

 

Software license

Unit-based

 

Fixed price

Percentage-of-completion

 

Time-and-materials

Time-and-materials

Engineering and Consulting

Unit-based

Unit-based

 

Fixed price

Percentage-of-completion

 

Revenue on the vast majority of the Company’s contracts is recognized over time because of the continuous transfer of control to the customer. Revenue on fixed price contracts is recognized on the percentage-of-completion method based generally on the ratio of direct costs incurred-to-date to estimated total direct costs at completion. The Company uses the percentage-of-completion method to better match the level of work performed at a certain point in time in relation to the effort that will be required to complete a project. In addition, the percentage-of-completion method is a common method of revenue recognition in the Company’s industry.

 

Many of the Company’s fixed price contracts involve a high degree of subcontracted fixed price effort and are relatively short in duration, thereby lowering the risks of not properly estimating the percent complete. Revenue on time-and-materials and unit-based contracts is recognized as the work is performed in accordance with the specific rates and terms of the contract. The Company recognizes revenues for time-and-materials contracts based upon the actual hours incurred during a reporting period at contractually agreed upon rates per hour and also includes in revenue all reimbursable costs incurred during a reporting period. Certain of the Company’s time-and-materials contracts are subject to maximum contract values and, accordingly, when revenue is expected to meet the maximum contract value, these contracts are generally recognized under the percentage-of-completion method, consistent with fixed price contracts. For unit-based contracts, the Company recognizes the contract price of units of a basic production product as revenue when

11

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WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

the production product is delivered during a period. Revenue recognition for software licenses issued by the Energy segment is generally recognized at a point in time, utilizing the unit-based revenue recognition method, upon acceptance of the software by the customer and in recognition of the fulfillment of the performance obligation. Certain additional performance obligations beyond the base software license may be separated from the gross license fee and recognized on a straight-line basis over time. Revenue for amounts that have been billed but not earned is deferred, and such deferred revenue is referred to as contract liabilities in the accompanying condensed consolidated balance sheets.

 

To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined contract should be accounted for as one performance obligation. With respect to the Company’s contracts, it is rare that multiple contracts should be combined into a single performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate a single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, which is mainly because the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability.

 

The Company may enter into contracts that include separate phases or elements. If each phase or element is negotiated separately based on the technical resources required and/or the supply and demand for the services being provided, the Company evaluates if the contracts should be segmented. If certain criteria are met, the contracts would be segmented which could result in revenues being assigned to the different elements or phases with different rates of profitability based on the relative value of each element or phase to the estimated total contract revenue.

 

Contracts that cover multiple phases or elements of the project or service lifecycle (development, construction and maintenance and support) may be considered to have multiple performance obligations even when they are part of a single contract. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using the best estimate of the standalone selling price of each distinct good or service in the contract. For the periods presented, the value of the separate performance obligations under contracts with multiple performance obligations (generally measurement and verification tasks under certain energy performance contracts) were not material. In cases where the Company does not provide the distinct good or service on a standalone basis, the primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which the Company forecasts the Company’s expected costs of satisfying a performance obligation and then adds an appropriate margin for the distinct good or service.

 

The Company provides quality of workmanship warranties to customers that are included in the sale and are not priced or sold separately or do not provide customers with a service in addition to assurance of compliance with agreed-upon specifications and industry standards. The Company does not consider these types of warranties to be separate performance obligations.

 

In some cases, the Company has a master service or blanket agreement with a customer under which each task order releases the Company to perform specific portions of the overall scope in the service contract. Each task order is typically accounted for as a separate contract because the task order establishes the enforceable rights and obligations, and payment terms.

 

Under ASC 606, variable consideration should be considered when determining the transaction price and estimates should be made for the variable consideration component of the transaction price, as well as assessing whether an estimate of variable consideration is constrained. For certain of the Company’s contracts, variable consideration can arise from modifications to the scope of services resulting from unapproved change orders or customer claims. Variable consideration is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company’s estimates of variable consideration and determination of whether to include estimated amounts in the

12

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WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

transaction price are based largely on assessments of legal enforceability, the Company’s performance, and all information (historical, current and forecasted) that is reasonably available to the Company.

 

Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the Company reviews and updates the Company’s contract-related estimates regularly through a company-wide disciplined project review process in which management reviews the progress and execution of the Company’s performance obligations and the estimate at completion (EAC). As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule and the related changes in estimates of revenues and costs. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer, among other variables.

 

The Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the full amount of estimated loss in the period it is identified.

 

Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new rights or obligations or changes the existing enforceable rights or obligations. Most of the Company’s contract modifications are for goods or services that are not distinct from existing contracts due to the significant integration provided in the context of the contract and are accounted for as if they were part of the original contract. The effect of a contract modification that is not distinct from the existing contract on the transaction price and the Company’s measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

 

For contract modifications that result in the promise to deliver goods or services that are distinct from the existing contract and the increase in price of the contract is for the same amount as the standalone selling price of the additional goods or services included in the modification, the Company accounts for such contract modifications as a separate contract.

 

The Company includes claims to vendors, subcontractors and others as a receivable and a reduction in recognized costs when enforceability of the claim is established by the contract and the amounts are reasonably estimable and probable of being recovered. The amounts are recorded up to the extent of the lesser of the amounts management expects to recover or to costs incurred.

 

Billing practices are governed by the contract terms of each project based upon costs incurred, achievement of milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue recognized using the percentage-of-completion method of revenue recognition.

 

Direct costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wages that has been incurred in connection with revenue producing projects. Direct costs of contract revenue also include production expenses, subcontractor services and other expenses that are incurred in connection with revenue producing projects.

 

Direct costs of contract revenue exclude that portion of technical and nontechnical salaries and wages related to marketing efforts, vacations, holidays and other time not spent directly generating revenue under existing contracts. Such

13

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WILLDAN GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

costs are included in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive income. Additionally, payroll taxes, bonuses and employee benefit costs for all Company personnel are included in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive income since no allocation of these costs is made to direct costs of contract revenue. No allocation of facilities costs is made to direct costs of contract revenue. Other companies may classify as direct costs of contract revenue some of the costs that the Company classifies as general and administrative costs. The Company expenses direct costs of contract revenue when incurred.

 

Included in revenue and costs are all reimbursable costs for which the Company has the risk or on which the fee was based at the time of bid or negotiation. No revenue or cost is recorded for costs in which the Company acts solely in the capacity of an agent and has no risks associated with such costs.

 

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon a review of all outstanding amounts on a quarterly basis. Management determines allowances for doubtful accounts through specific identification of amounts considered to be uncollectible and potential write-offs, plus a non-specific allowance for other amounts for which some potential loss has been determined to be probable based on current and past experience. The Company’s historical credit losses have been minimal with governmental entities and large public utilities, but disputes may arise related to these receivable amounts. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.

 

Retainage, included in contract assets, represents amounts withheld from billings to the Company’s clients pursuant to provisions in the contracts and may not be paid to the Company until specific tasks are completed or the project is completed and, in some instances, for even longer periods. At September 27, 2019 and December 28, 2018, contract assets included retainage of $5.2 million and $6.7 million, respectively.

 

Disaggregation of Revenue

 

The following tables provides information about disaggregated revenue of the Company’s two segments Energy and Engineering and Consulting, by contract type, client type and geographical region for the nine months ended September 27, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

    

Energy

    

Engineering and
Consulting

    

Total

 

    

(in thousands)

Contract Type

 

 

 

 

 

 

 

 

 

Time-and-materials

 

$

10,154

 

$

42,624

 

$

52,778

Unit-based

 

 

188,388

 

 

10,719

 

 

199,107

Fixed price

 

 

59,420

 

 

2,378

 

 

61,798

Total

 

$

257,962

 

$

55,721

 

$

313,683

 

 

 

 

 

 

 

 

 

 

Client Type