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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 March 29, 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

 

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report).

 

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 Select 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 May 5, 2019, there were 11,126,933 shares of common stock, $0.01 par value per share, of Willdan Group, Inc. issued and outstanding.

 

 

 

 


 

Table of Contents

WILLDAN GROUP, INC.

FORM 10-Q QUARTERLY REPORT

 

TABLE OF CONTENTS

 

 

 

 

 

 

Page

 

 

 

PART I. FINANCIAL INFORMATION 

 

4

 

 

 

Item 1. Financial Statements (unaudited) 

 

4

 

 

 

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

 

31

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

 

44

 

 

 

Item 4. Controls and Procedures 

 

45

 

 

 

PART II. OTHER INFORMATION 

 

46

 

 

 

Item 1. Legal Proceedings 

 

46

 

 

 

Item 1A. Risk Factors 

 

46

 

 

 

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

 

46

 

 

 

Item 3. Defaults upon Senior Securities 

 

46

 

 

 

Item 4. Mine Safety Disclosures 

 

46

 

 

 

Item 5. Other Information 

 

46

 

 

 

Item 6. Exhibits 

 

47

 

2


 

Table of Contents

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 acquisition of Lime Energy and execute on our growth strategy, 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 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.

 

3


 

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

    

March 29,

    

December 28,

 

 

 

2019

 

2018

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,061,000

 

$

15,259,000

 

Accounts receivable, net of allowance for doubtful accounts of $457,000 and $442,000 at March 29, 2019 and December 28, 2018, respectively

 

 

44,959,000

 

 

61,346,000

 

Contract assets

 

 

58,050,000

 

 

51,851,000

 

Other receivables

 

 

2,589,000

 

 

1,893,000

 

Prepaid expenses and other current assets

 

 

4,929,000

 

 

5,745,000

 

Total current assets

 

 

121,588,000

 

 

136,094,000

 

Equipment and leasehold improvements, net

 

 

9,573,000

 

 

7,998,000

 

Goodwill

 

 

110,509,000

 

 

97,748,000

 

Right-of-use assets

 

 

12,564,000

 

 

 —

 

Other intangible assets, net

 

 

50,227,000

 

 

44,364,000

 

Other assets

 

 

3,651,000

 

 

3,311,000

 

Deferred income taxes, net

 

 

12,252,000

 

 

12,321,000

 

Total assets

 

$

320,364,000

 

$

301,836,000

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

36,763,000

 

$

36,829,000

 

Accrued liabilities

 

 

32,615,000

 

 

37,401,000

 

Contingent consideration payable

 

 

1,906,000

 

 

3,113,000

 

Contract liabilities

 

 

4,831,000

 

 

5,075,000

 

Notes payable

 

 

8,100,000

 

 

8,572,000

 

Finance lease obligations

 

 

435,000

 

 

320,000

 

Lease liability

 

 

4,139,000

 

 

 —

 

Total current liabilities

 

 

88,789,000

 

 

91,310,000

 

Contingent consideration payable

 

 

1,729,000

 

 

1,616,000

 

Notes payable

 

 

75,389,000

 

 

63,139,000

 

Finance lease obligations, less current portion

 

 

282,000

 

 

224,000

 

Lease liability, less current portion

 

 

9,452,000

 

 

 —

 

Deferred lease obligations

 

 

 —

 

 

724,000

 

Other noncurrent liabilities

 

 

729,000

 

 

534,000

 

Total liabilities

 

 

176,370,000

 

 

157,547,000

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

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

 

 

 —

 

 

 —

 

Common stock, $0.01 par value, 40,000,000 shares authorized; 11,126,000 and 10,968,000 shares issued and outstanding at March 29, 2019 and December 28, 2018, respectively

 

 

111,000

 

 

110,000

 

Additional paid-in capital

 

 

114,348,000

 

 

114,008,000

 

Accumulated other comprehensive loss

 

 

(219,000)

 

 

 —

 

Retained earnings

 

 

29,754,000

 

 

30,171,000

 

Total stockholders’ equity

 

 

143,994,000

 

 

144,289,000

 

Total liabilities and stockholders’ equity

 

$

320,364,000

 

$

301,836,000

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4


 

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WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

March 29,

 

March 30,

 

 

 

    

2019

    

2018

    

 

 

 

 

 

 

 

 

 

 

Contract revenue

 

$

91,793,000

 

$

54,595,000

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Salaries and wages

 

 

14,910,000

 

 

10,998,000

 

 

Subcontractor services and other direct costs

 

 

50,948,000

 

 

24,069,000

 

 

Total direct costs of contract revenue

 

 

65,858,000

 

 

35,067,000

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses:

 

 

 

 

 

 

 

 

Salaries and wages, payroll taxes and employee benefits

 

 

15,744,000

 

 

10,025,000

 

 

Facilities and facility related

 

 

1,772,000

 

 

1,209,000

 

 

Stock-based compensation

 

 

1,817,000

 

 

1,064,000

 

 

Depreciation and amortization

 

 

2,654,000

 

 

1,064,000

 

 

Other

 

 

4,182,000

 

 

4,192,000

 

 

Total general and administrative expenses

 

 

26,169,000

 

 

17,554,000

 

 

(Loss) income from operations

 

 

(234,000)

 

 

1,974,000

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,121,000)

 

 

(23,000)

 

 

Other, net

 

 

11,000

 

 

10,000

 

 

Total other expense, net

 

 

(1,110,000)

 

 

(13,000)

 

 

(Loss) income before income taxes

 

 

(1,344,000)

 

 

1,961,000

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit

 

 

(927,000)

 

 

(242,000)

 

 

Net (loss) income

 

$

(417,000)

 

$

2,203,000

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

Loss on cash flow hedge valuations

 

$

(219,000)

 

$

 —

 

 

Comprehensive (loss) income

 

$

(636,000)

 

$

2,203,000

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.04)

 

$

0.25

 

 

Diluted

 

$

(0.04)

 

$

0.24

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

10,974,000

 

 

8,753,000

 

 

Diluted

 

 

10,974,000

 

 

9,185,000

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

5


 

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WILLDAN GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Accumulated

 

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Other Comprehensive

 

 

 

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Loss/Gain

    

Retained Earnings

    

Total

 

Balances at December 29, 2017

 

8,799,000

 

$

88,000

 

$

50,976,000

 

$

 —

 

$

20,141,000

 

$  

71,205,000

 

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

 

30,000

 

 

 —

 

 

616,000

 

 

 —

 

 

 —

 

 

616,000

 

Shares of common stock issued in connection with incentive stock plan

 

32,000

 

 

1,000

 

 

278,000

 

 

 —

 

 

 —

 

 

279,000

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,064,000

 

 

 —

 

 

 —

 

 

1,064,000

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,203,000

 

 

2,203,000

 

Balance at March 30, 2018

 

8,861,000

 

$

89,000

 

$

52,934,000

 

$

 —

 

$

22,344,000

 

$  

75,367,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Accumulated

 

 

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Other Comprehensive

 

 

 

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Loss/Gain

    

Retained Earnings

    

Total

 

Balance at December 28, 2018

 

10,968,000

 

$

110,000

 

$

114,008,000

 

$

 —

 

$

30,171,000

 

$  

144,289,000

 

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

 

28,000

 

 

 —

 

 

749,000

 

 

 —

 

 

 —

 

 

749,000

 

Shares of common stock issued in connection with incentive stock plan

 

21,000

 

 

 —

 

 

291,000

 

 

 —

 

 

 —

 

 

291,000

 

Unregistered sales of equity securities and use of proceeds

 

(66,000)

 

 

(1,000)

 

 

(2,515,000)

 

 

 —

 

 

 —

 

 

(2,516,000)

 

Issuance of restricted stock award and units

 

175,000

 

 

2,000

 

 

(2,000)

 

 

 —

 

 

 —

 

 

 —

 

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,817,000

 

 

 —

 

 

 —

 

 

1,817,000

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(417,000)

 

 

(417,000)

 

Loss on cash flow hedge valuations

 

 —

 

 

 —

 

 

 —

 

 

(219,000)

 

 

 —

 

 

(219,000)

 

Balance at March 29, 2019

 

11,126,000

 

$

111,000

 

$

114,348,000

 

$

(219,000)

 

$

29,754,000

 

$  

143,994,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 29,

 

March 30,

 

 

    

2019

    

2018

    

Cash flows from operating activities:

 

 

 

 

 

 

 

Net (loss) income

 

$

(417,000)

 

$

2,203,000

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,739,000

 

 

1,101,000

 

Deferred income taxes, net

 

 

69,000

 

 

(126,000)

 

Gain on sale/disposal of equipment

 

 

(25,000)

 

 

 —

 

Provision for doubtful accounts

 

 

27,000

 

 

96,000

 

Stock-based compensation

 

 

1,817,000

 

 

1,064,000

 

Accretion and fair value adjustments of contingent consideration

 

 

111,000

 

 

338,000

 

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

 

 

 

 

 

 

 

Accounts receivable

 

 

18,043,000

 

 

17,747,000

 

Contract assets

 

 

(5,765,000)

 

 

(16,796,000)

 

Other receivables

 

 

(696,000)

 

 

(152,000)

 

Prepaid expenses and other current assets

 

 

918,000

 

 

495,000

 

Other assets

 

 

(315,000)

 

 

(98,000)

 

Accounts payable

 

 

(127,000)

 

 

(5,206,000)

 

Accrued liabilities

 

 

(5,799,000)

 

 

(6,592,000)

 

Contract liabilities

 

 

(396,000)

 

 

(863,000)

 

Deferred lease obligations

 

 

 —

 

 

62,000

 

Right-of-use assets

 

 

303,000

 

 

 —

 

Net cash provided by (used in) operating activities

 

 

10,487,000

 

 

(6,727,000)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of equipment and leasehold improvements

 

 

(1,929,000)

 

 

(144,000)

 

Proceeds from sale of equipment

 

 

35,000

 

 

 —

 

Cash paid for acquisitions, net of cash acquired

 

 

(21,800,000)

 

 

 —

 

Net cash used in investing activities

 

 

(23,694,000)

 

 

(144,000)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Payments on contingent consideration

 

 

(1,205,000)

 

 

(2,622,000)

 

Payments on notes payable

 

 

(472,000)

 

 

(383,000)

 

Borrowings under term loan facility and line of credit

 

 

14,000,000

 

 

 —

 

Repayments under term loan facility and line of credit

 

 

(1,750,000)

 

 

 —

 

Principal payments on finance leases

 

 

(88,000)

 

 

(90,000)

 

Proceeds from stock option exercise

 

 

291,000

 

 

279,000

 

Proceeds from sales of common stock under employee stock purchase plan

 

 

749,000

 

 

616,000

 

Unregistered sales of equity securities and use of proceeds

 

 

(2,516,000)

 

 

 —

 

Net cash provided by (used in) financing activities

 

 

9,009,000

 

 

(2,200,000)

 

Net decrease in cash and cash equivalents

 

 

(4,198,000)

 

 

(9,071,000)

 

Cash and cash equivalents at beginning of period

 

 

15,259,000

 

 

14,424,000

 

Cash and cash equivalents at end of period

 

$

11,061,000

 

$

5,353,000

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest

 

$

965,000

 

$

23,000

 

Income taxes

 

 

 —

 

 

36,000

 

Supplemental disclosures of noncash investing and financing activities:

 

 

 

 

 

 

 

Other working capital adjustment

 

 

579,000

 

 

 —

 

Loss on cash flow hedge valuations

 

 

(219,000)

 

 

 —

 

Equipment acquired under finance leases

 

 

261,000

 

 

162,000

 

 

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

 

March 29, 2019
(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. 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 unregistered sales of equity securities and use of proceeds. This amount is presented as a reduction of additional paid-in capital as we are repurchasing shares of our common stock from employees to satisfy tax withholding obligations incurred in connection with the vesting of restricted stock.

 

Nature of Business

 

Willdan Group, Inc. and subsidiaries (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, economic and financial consulting and national preparedness and interoperability. 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, Willdan Financial Services and Willdan Homeland Solutions 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

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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 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 March 29, 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 six 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, Willdan Financial Services and Willdan Homeland Solutions. 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. Willdan Homeland Solutions provides national preparedness and interoperability services and communications and technology solutions. 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.

 

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The increase in contract assets and decrease in contract liabilities for the three months ended March 29, 2019 were primarily attributable to normal business operations.

Off‑Balance Sheet Arrangements 

The Company does not have any off‑balance sheet financing arrangements or liabilities. Finally, 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 will be 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 exceed 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 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

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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 estimates of variable consideration and determination of whether to include estimated amounts in the 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

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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 costs are included in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive (loss) 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 (loss) 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.

 

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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 March 29, 2019 and December 28, 2018, contract assets included retainage of approximately $5.3 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 three months ended March 29, 2019:

 

 

 

 

 

 

 

 

 

 

 

Contract Type

    

Energy

    

Engineering and
Consulting

    

Total

Time-and-materials

 

$

4,255,000

 

$

13,058,000

 

$

17,313,000

Unit-based

 

 

56,872,000

 

 

3,571,000

 

 

60,443,000

Fixed price

 

 

13,565,000

 

 

472,000

 

 

14,037,000

Total

 

$

74,692,000

 

$

17,101,000

 

$

91,793,000

 

 

 

 

 

 

 

 

 

 

Client Type

 

Energy

 

Engineering and
Consulting

 

Total

Commercial

 

$

9,195,000

 

$

1,298,000

 

$

10,493,000

Government

 

 

8,862,000

 

 

15,671,000

 

 

24,533,000

Utilities

 

 

56,635,000

 

 

132,000

 

 

56,767,000

Total

 

$

74,692,000

 

$

17,101,000

 

$

91,793,000

 

 

 

 

 

 

 

 

 

 

Geography

 

Energy

 

Engineering and
Consulting

 

Total

Domestic

 

$

74,692,000

 

$

17,101,000

 

$

91,793,000

 

 

 

 

 

 

 

 

 

 

Goodwill

 

Goodwill represents the excess of costs over fair value of the assets acquired. The Company completes its annual testing of goodwill as of the last day of the first month of its fourth fiscal quarter each year to determine whether there is impairment. Goodwill, which has an indefinite useful life, is not amortized, but instead tested for impairment at least annually or more frequently if events and circumstances indicate that the asset might be impaired. Impairment losses for reporting units are recognized to the extent that a reporting unit’s carrying amount exceeds its fair value.

 

Fair Value of Financial Instruments

 

The Company uses the three-tier hierarchy of fair value measurement, which prioritizes the inputs. These tiers include: Level 1 (the highest priority), defined as observable inputs, such as quoted prices in active markets, Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3

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(the lowest priority), defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.  

 

The Company’s financial instruments consist primarily of cash, cash equivalents, accounts receivable, contract assets, other receivables, prepaid expenses and other current assets, accounts payable, accrued liabilities and contract liabilities, and approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment.

 

The carrying amounts of other noncurrent assets and contingent consideration are discounted to their present value because the time between the origination of these instruments and their expected realization or payment is greater than one year.

 

The carrying amounts of derivative financial instrument is valued based on Level 2 inputs.

 

The carrying amounts of debt obligations approximate their fair values since the terms are comparable to terms currently offered by local lending institutions for loans of similar terms to companies with comparable credit risk.

 

On January 31, 2019, the Company entered into an interest rate swap agreement that the Company designated as cash flow hedge to fix the variable interest rate on a portion of the Term Loan Facility under its Credit Facilities. The interest rate swap agreement total notional amount of $35.0 million, has a fixed interest rate of 2.47% and expires on January 31, 2022. For further discussion of this derivative contract, see Note 13 “—Derivative Financial Instruments” below.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Liquidity

 

As of March 29, 2019, the Company had $11.1 million of cash and cash equivalents. The Company’s primary source of liquidity is cash generated from operations. In addition, as of March 29, 2019, the Company had a $70.0 million term loan with $68.3 million aggregate principal amount outstanding and a $30.0 million revolving credit facility with BMO, each maturing on October 1, 2023 (see Note 7 “—Debt Obligations” below). As of March 29, 2019, $14.0 million of borrowings were outstanding under the revolving credit facility with $2.7 million in letters of credit issued and $13.3 million available for borrowing under the revolving credit facility. The Company believes that its cash and cash equivalents on hand, cash generated by operating activities and funds available under its current line of credit will be sufficient to finance its operating activities for at least the next 12 months.

 

Adoption of New Accounting Standards

 

Statement of Cash Flows

 

In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods beginning after December 15, 2017. ASU 2016-15 provides for retrospective application for all periods presented. Effective December 30, 2017, the Company adopted ASU 2016-15 and the impact did not have a material effect on the Company’s condensed consolidated financial statements.

 

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Stock Compensation

 

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of current stock compensation recognition standards to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 became effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Effective December 29, 2018, the Company adopted ASU 2018-07 and the impact did not have a material effect on the Company’s condensed consolidated financial statements.

 

Recent Accounting Pronouncements

 

Intangibles-Goodwill and Other

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), which eliminates the requirement to compare the implied fair value of reporting unit goodwill with the carrying amount of that goodwill (commonly referred to as Step 2) from the goodwill impairment test. The new standard does not change how a goodwill impairment is identified. The Company will continue to perform its quantitative and qualitative goodwill impairment test by comparing the fair value of each reporting unit to its carrying amount, but if the Company were required to recognize a goodwill impairment charge, under the new standard the amount of the charge would be calculated by subtracting the reporting unit’s fair value from its carrying amount. Under the prior standard, if the Company were required to recognize a goodwill impairment charge, Step 2 required us to calculate the implied value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination and the amount of the charge was calculated by subtracting the reporting unit’s implied fair value of goodwill from its actual goodwill balance. The new standard is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted, and should be applied prospectively from the date of adoption. The Company has elected to adopt the new standard for future goodwill impairment tests at the beginning of the fourth quarter of 2019 because it significantly simplifies the evaluation of goodwill for impairment.

 

Proposed Accounting Standards

 

A variety of proposed or otherwise potential accounting standards are currently being studied by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, the Company has not yet determined the effect, if any, that the implementation of such proposed standards would have on its condensed consolidated financial statements.

 

 

 

2.           BUSINESS COMBINATIONS

 

Acquisition of The Weidt Group

 

On March 8, 2019, the Company acquired substantially all of the assets and liabilities of The Weidt Group Inc.’s (the “Weidt Group”) energy practice division. The Company believes the acquisition will expand its presence in the upper Midwest and better position the Company to help utilities make their grids more resilient. Pursuant to the terms of the Asset Purchase Agreement, dated March 8, 2019, by and among the Company, WES and The Weidt Group, WES will pay a maximum aggregate purchase price of $22.4 million, subject to working capital adjustments, to be paid in cash. The Weidt Group’s financial information is included within the Energy segment. The Company expects to finalize the purchase price allocation with respect to this transaction during the first quarter of 2020.

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The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion into new markets. The Company estimates that the entire $12.8 million of goodwill resulting from the acquisition will be tax deductible. Consideration for the acquisition includes the following:

 

 

 

 

 

    

Weidt Group

Cash paid

 

$

21,800,000

Other working capital adjustment

 

 

579,000

Total consideration

 

$

22,379,000

 

The following table summarizes the preliminary amounts for the acquired assets recorded at their estimated fair value as of the acquisition date:

 

 

 

 

 

 

    

Weidt Group

Current assets

 

$

2,317,000

Non-current assets (1)

 

 

25,000

Equipment and leasehold improvements, net

 

 

198,000

Right-of-use assets

 

 

1,730,000

Current lease liability

 

 

(245,000)

Non-current lease liability

 

 

(1,533,000)

Liabilities

 

 

(674,000)

Backlog

 

 

600,000

Customer relationships

 

 

3,800,000

Tradename

 

 

500,000

Developed technology

 

 

2,900,000

Goodwill

 

 

12,761,000

Net assets acquired

 

$

22,379,000

 

(1)

Excluded from non-current assets are equipment and leasehold improvements, net, customer relationships, tradename, developed technology, backlog and goodwill.

The following unaudited pro forma financial information for the three months ended March 29, 2019 and March 30, 2018 assumes that acquisition of all the assets and liabilities of The Weidt Group occurred on December 30, 2017 and that acquisition of all the outstanding shares of Lime Energy Co. occurred on December 31, 2016 as follows:

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 29,

 

March 30,

In thousands (except per share data)

    

2019

    

2018

Pro forma revenue

 

$

94,120

 

$

92,454

 

 

 

 

 

 

 

Pro forma (loss) income from operations

 

$

(288)

 

$

1,597

Pro forma net (loss) income (1)

 

$

(437)

 

$

541

 

 

 

 

 

 

 

(Loss) earnings per share:

 

 

 

 

 

 

Basic

 

$

(0.04)

 

$

0.05

Diluted

 

$

(0.04)

 

$

0.05

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

Basic

 

 

10,974

 

 

10,766

Diluted

 

 

10,974

 

 

11,198

 

(1)

Adjustments to pro forma net income include income from operations, amortization and interest expenses.

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This pro forma supplemental information does not purport to be indicative of what the Company’s operating results would have been had the acquisition of Weidt Group transaction occurred on December 30, 2017 and may not be indicative of future operating results.

There were $0.2 million in acquisition related costs associated with The Weidt Group that were included in other general and administrative expenses in the condensed consolidated statements of comprehensive (loss) income for the three months ended March 29, 2019.

During the three months ended March 29, 2019, the acquisition of Weidt Group contributed $0.9 million in revenue and $0.1 million in income from operations.

Acquisition of Lime Energy

On October 1, 2018, the Company, through two of its wholly-owned subsidiaries, WES and Luna Fruit, Inc., a Delaware corporation and wholly-owned subsidiary of WES (“Merger Sub”), entered into an agreement to acquire all of the outstanding shares of capital stock of Lime Energy Co. (“Lime Energy”), pursuant to an agreement and plan of merger dated October 1, 2018 (the “Merger Agreement”), by and among WES, Merger Sub, Lime Energy, and Luna Stockholder Representative, LLC, as representative of the participating securityholders of Lime Energy. The Company believes the addition of Lime Energy’s capabilities will significantly expand and diversify its client base within the energy efficiency services market and geographic presence across the United States. The Company expects to finalize the purchase price allocation with respect to this transaction during the fourth quarter of 2019.

On November 9, 2018, the Company completed the acquisition and, pursuant to the Merger Agreement, Merger Sub was merged with and into Lime Energy, with Lime Energy surviving as a wholly-owned indirect subsidiary of the Company. The aggregate purchase price paid in the acquisition was $120.0 million, exclusive of closing holdbacks and adjustments. A portion of the purchase price was deposited into escrow accounts to secure certain potential post-closing obligations of the participating securityholders. The Company paid the purchase price for the acquisition using a combination of cash on hand (including $50.0 million of the $56.4 million in net proceeds received from the Company’s equity offering in October 2018) and proceeds from the Company’s borrowings under its Term Loan Facility (see Note 7 “—Debt Obligations” below).

The acquisition was accounted for as a business combination in accordance with ASC 805. Under ASC 805, the Company recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated to goodwill. Goodwill represents the value the Company expects to achieve through the operational synergies and the expansion into new markets. The Company estimates that the entire $57.5 million of goodwill resulting from the acquisition will not be tax deductible. Consideration for the acquisition includes the following:

 

 

 

 

 

 

    

Lime Energy

Cash paid

 

$

122,376,000

Other working capital adjustment

 

 

63,000

Total consideration

 

$

122,439,000

 

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The following table summarizes the preliminary amounts for the acquired assets and liabilities recorded at their estimated fair value as of the acquisition date:

 

 

 

 

 

 

    

Lime Energy

Current assets (1)

 

$

45,401,000

Non-current assets (2)

 

 

13,847,000

Cash

 

 

1,090,000

Equipment and leasehold improvements, net

 

 

1,892,000

Liabilities

 

 

(33,603,000)

Customer relationships

 

 

19,400,000

Tradename

 

 

5,970,000

Developed technology

 

 

10,200,000

Backlog

 

 

730,000

Goodwill

 

 

57,512,000

Net assets acquired

 

$

122,439,000

 

(1)

Excluded from current assets is cash

(2)

Excluded from non-current assets are equipment and leasehold improvements, net, customer relationships, tradename, developed technology, backlog and goodwill.

No acquisition related costs associated with Lime Energy were included in other general and administrative expenses in the condensed consolidated statements of comprehensive (loss) income for the three months ended March 29, 2019.

The following unaudited pro forma financial information for the three months ended March 29, 2019 and March 30, 2018 assumes that acquisition of all the outstanding shares of Lime Energy occurred on December 31, 2016 and that acquisition of all the assets and liabilities of The Weidt Group occurred on December 30, 2017 as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 29,

 

March 30,

In thousands (except per share data)

    

2019

    

2018

Pro forma revenue

 

$

94,120

 

$

92,454

 

 

 

 

 

 

 

Pro forma (loss) income from operations

 

$

(288)

 

$

1,597

Pro forma net (loss) income (1)

 

$

(437)

 

$

541

 

 

 

 

 

 

 

(Loss) earnings per share:

 

 

 

 

 

 

Basic

 

$

(0.04)

 

$

0.05

Diluted

 

$

(0.04)

 

$

0.05

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

Basic

 

 

10,974

 

 

10,766

Diluted

 

 

10,974

 

 

11,198

 

(1)

Adjustments to pro forma net income include income from operations, amortization and interest expenses.

This pro forma supplemental information does not purport to be indicative of what the Company’s operating results would have been had the acquisition of Lime Energy transaction occurred on December 30, 2017 and may not be indicative of future operating results.

During the three months ended March 29, 2019, the acquisition of Lime Energy contributed $36.6 million in revenue and $0.2 million in loss from operations.

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Acquisition of Newcomb Anderson McCormick

 

On April 30, 2018, the Company, through its wholly-owned subsidiary, WES, acquired all of the outstanding equity interests of Newcomb Anderson McCormick, Inc. (“NAM”). NAM is an energy engineering and consulting company with offices in San Francisco and Los Angeles that provides clients with mechanical engineering expertise and comprehensive energy efficiency programs and services. Pursuant to the terms of the Stock Purchase Agreement, dated April 30, 2018, by and among the Company, WES and NAM, WES will pay NAM shareholders a maximum purchase price of $4.0 million, subject to potential earn-out payments plus working capital adjustments, to be paid in cash. In connection with the Company’s Credit Facilities (as defined herein), as of October 8, 2018, the earn-out payments to NAM shareholders became subject to certain subordination provisions in favor of BMO, as the Company’s senior secured lender, under the Credit Facilities.  The Company expects to finalize the purchase price allocation with respect to this transaction during the second quarter of 2019. NAM’s financial information is included within the Energy segment.

 

3.           GOODWILL AND OTHER INTANGIBLE ASSETS

 

As of March 29, 2019, the Company had $110.5 million of goodwill, which primarily relates to the Energy segment and the acquisitions within this segment of The Weidt Group, Lime Energy, NAM, Integral Analytics and Abacus Resource Management Company (“Abacus”) and substantially all of the assets of Genesys and 360 Energy Engineers, LLC (“360 Energy”). The remaining goodwill relates to the Engineering and Consulting segment and the acquisition within this segment of Economists.com, LLC. The changes in the carrying value of goodwill by reporting unit for the three months ended March 29, 2019 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 28,

 

Additional

 

Additions /

 

March 29,

 

Reporting Unit

    

2018

    

Purchase Cost

    

Adjustments

    

2019

 

Energy

 

$

96,999,000

 

$

12,761,000

 

$

 —

 

$

109,760,000

 

Engineering and Consulting

 

 

749,000

 

 

 —

 

 

 —

 

 

749,000

 

 

 

$

97,748,000

 

$

12,761,000

 

$

 —

 

$

110,509,000

 

 

The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets with finite useful lives as of March 29, 2019 included in other intangible assets, net in the accompanying condensed consolidated balance sheets, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 29, 2019

 

December 28, 2018

 

 

 

 

 

 

 

Gross

 

Accumulated

 

Gross

 

Accumulated

 

Amortization

 

 

    

Amount

    

Amortization

    

Amount

    

Amortization

    

Period (yrs)

    

Backlog

 

$

3,114,000

 

$

2,202,000

 

$

2,514,000

 

$

2,155,000

 

0.1

-

5.0

 

Tradename

 

 

10,801,000

 

 

3,513,000

 

 

10,301,000

 

 

3,118,000

 

2.5

-

6.0

 

Non-compete agreements

 

 

1,420,000