UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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WILLDAN GROUP, INC.
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
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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 management’s 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, which represented 84% of our consolidated revenue in fiscal year 2023; |
● | our reliance on work from our top ten clients, which accounted for 53% of our consolidated contract revenue for fiscal year 2023; |
● | changes in state, local and regional economies and government budgets; |
● | our ability to win new contracts, to renew existing contracts and to compete effectively for contracts awarded through bidding processes; |
● | our ability to make principal and interest payments on our outstanding debt as they come due and to comply with the financial covenants contained in our debt agreements; |
● | our ability to manage supply chain constraints, labor shortages, rising interest rates, and rising inflation; |
● | our ability to obtain financing and to refinance our outstanding debt as it matures; |
● | our ability to successfully integrate our acquisitions and execute on our growth strategy; and |
● | our ability to attract and retain managerial, technical, and administrative talent. |
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 disclosed elsewhere in this Quarterly Report on Form 10-Q, and under Part I, Item 1A. “Risk Factors”, “Management’s 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 29, 2023, as such disclosures may be amended, supplemented or superseded from time to
1
time by other reports we file with the Securities and Exchange Commission, including subsequent Annual Reports on Form 10-K, 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 Quarterly Report on Form 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.
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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 29, | ||||
2024 | 2023 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Restricted cash | | | |||||
Accounts receivable, net of allowance for doubtful accounts of $ |
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Contract assets |
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Other receivables |
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Prepaid expenses and other current assets |
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Total current assets |
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Equipment and leasehold improvements, net |
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Goodwill | | | |||||
Right-of-use assets | | | |||||
Other intangible assets, net | | | |||||
Other assets |
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Deferred income taxes, net | | | |||||
Total assets | $ | | $ | | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | | $ | | |||
Accrued liabilities |
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Contract liabilities |
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Notes payable |
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Finance lease obligations | | | |||||
Lease liability | | | |||||
Total current liabilities |
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Notes payable, less current portion | | | |||||
Finance lease obligations, less current portion |
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Lease liability, less current portion | | | |||||
Other noncurrent liabilities | | | |||||
Total liabilities |
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Commitments and contingencies | |||||||
Stockholders’ equity: | |||||||
Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) | ( | ( | |||||
Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
See accompanying notes to Condensed Consolidated Financial Statements.
3
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 29, | September 27, | September 29, | |||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Contract revenue | $ | | $ | | $ | | $ | | ||||
Direct costs of contract revenue (inclusive of directly related depreciation and amortization): | ||||||||||||
Salaries and wages |
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Subcontractor services and other direct costs |
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Total direct costs of contract revenue |
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Gross profit |
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General and administrative expenses: | ||||||||||||
Salaries and wages, payroll taxes and employee benefits |
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Facilities and facility related |
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Stock-based compensation |
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Depreciation and amortization |
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Other |
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Total general and administrative expenses |
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Income (Loss) from operations |
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Other income (expense): | ||||||||||||
Interest expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Other, net |
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| |
| |
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Total other expense, net |
| ( |
| ( |
| ( |
| ( | ||||
Income (Loss) before income taxes |
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Income tax (benefit) expense |
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Net income (loss) | | | | | ||||||||
Other comprehensive income (loss): | ||||||||||||
Unrealized gain (loss) on derivative contracts, net of tax | ( | — | ( | — | ||||||||
Comprehensive income (loss) | $ | | $ | | $ | | $ | | ||||
Earnings (Loss) per share: | ||||||||||||
Basic | $ | | $ | | $ | | $ | | ||||
Diluted | $ | | $ | | $ | | $ | | ||||
Weighted-average shares outstanding: | ||||||||||||
Basic |
| |
| |
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Diluted |
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| |
| |
See accompanying notes to Condensed Consolidated Financial Statements.
4
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Earnings |
| Total | ||||||
Balance at December 29, 2023 |
| $ | $ | $ | ( | $ | $ | ||||||||||
Shares of common stock issued in connection with employee stock purchase plan |
| | | | — | — | | ||||||||||
Shares of common stock issued in connection with incentive stock plan | | — | | — | — | | |||||||||||
Shares used to pay taxes on stock grants |
| ( | ( | ( | — | — | ( | ||||||||||
Issuance of restricted stock award and units | | | ( | — | — | — | |||||||||||
Stock-based compensation expense |
| — | — | | — | — | | ||||||||||
Net income (loss) |
| — | — | — | — | | | ||||||||||
Net unrealized gain on derivative contracts | — | — | — | | — | | |||||||||||
Balance at March 29, 2024 |
| $ | $ | $ | ( | $ | $ | ||||||||||
Shares of common stock issued in connection with incentive stock plan | | | | — | — | | |||||||||||
Shares used to pay taxes on stock grants |
| — | — | ( | — | — | ( | ||||||||||
Issuance of restricted stock award and units | | — | — | — | — | — | |||||||||||
Stock-based compensation expense |
| — | — | | — | — | | ||||||||||
Net income (loss) |
| — | — | — | — | | | ||||||||||
Net unrealized gain on derivative contracts | — | — | — | | — | | |||||||||||
Balance at June 28, 2024 |
| $ | $ | $ | ( | $ | $ | ||||||||||
Shares of common stock issued in connection with employee stock purchase plan |
| | | | — | — | | ||||||||||
Shares of common stock issued in connection with incentive stock plan | | | | — | — | | |||||||||||
Shares used to pay taxes on stock grants |
| ( | — | ( | — | — | ( | ||||||||||
Issuance of restricted stock award and units | | — | — | — | — | — | |||||||||||
Stock-based compensation expense |
| — | — | | — | — | | ||||||||||
Net income (loss) |
| — | — | — | — | | | ||||||||||
Net unrealized gain on derivative contracts | — | — | — | ( | — | ( | |||||||||||
Balance at September 27, 2024 |
| $ | $ | $ | ( | $ | $ |
See accompanying notes to Condensed Consolidated Financial Statements.
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Accumulated | |||||||||||||||||
Additional | Other | ||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | ||||||||||||||
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Earnings |
| Total | ||||||
Balance at December 30, 2022 |
| $ | $ | $ | — | $ | $ | ||||||||||
Shares of common stock issued in connection with employee stock purchase plan |
| | | | — | — | | ||||||||||
Shares used to pay taxes on stock grants |
| ( | — | ( | — | — | ( | ||||||||||
Issuance of restricted stock award and units | | | ( | — | — | — | |||||||||||
Stock-based compensation expense |
| — | — | | — | — | | ||||||||||
Net income (loss) |
| — | — | — | — | | | ||||||||||
Balance at March 31, 2023 |
| $ | $ | $ | — | $ | $ | ||||||||||
Shares of common stock issued in connection with incentive stock plan | | — | | — | — | | |||||||||||
Shares used to pay taxes on stock grants |
| ( | — | ( | — | — | ( | ||||||||||
Issuance of restricted stock award and units | | — | — | — | — | — | |||||||||||
Stock-based compensation expense |
| — | — | | — | — | | ||||||||||
Net income (loss) |
| — | — | — | — | | | ||||||||||
Balance at June 30, 2023 |
| $ | $ | $ | — | $ | $ | ||||||||||
Shares of common stock issued in connection with employee stock purchase plan |
| | | | — | — | | ||||||||||
Shares of common stock issued in connection with incentive stock plan | | — | | — | — | | |||||||||||
Shares used to pay taxes on stock grants |
| ( | — | ( | — | — | ( | ||||||||||
Issuance of restricted stock award and units | | — | — | — | — | — | |||||||||||
Stock-based compensation expense |
| — | — | | — | — | | ||||||||||
Net income (loss) |
| — | — | — | — | | | ||||||||||
Balance at September 29, 2023 |
| $ | $ | $ | — | $ | $ |
See accompanying notes to Condensed Consolidated Financial Statements.
6
WILLDAN GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended | ||||||
September 27, | September 29, | |||||
| 2024 |
| 2023 | |||
Cash flows from operating activities: | ||||||
Net income (loss) | $ | | $ | | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||
Depreciation and amortization |
| |
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Other non-cash items | | | ||||
Deferred income taxes, net |
| |
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(Gain) loss on sale/disposal of equipment |
| ( |
| ( | ||
Provision for doubtful accounts |
| |
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Stock-based compensation |
| |
| | ||
Changes in operating assets and liabilities, net of effects from business acquisitions: | ||||||
Accounts receivable |
| |
| ( | ||
Contract assets |
| ( |
| | ||
Other receivables |
| ( |
| | ||
Prepaid expenses and other current assets |
| ( |
| | ||
Other assets |
| |
| ( | ||
Accounts payable |
| |
| | ||
Accrued liabilities |
| |
| ( | ||
Contract liabilities |
| |
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Right-of-use assets |
| ( |
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Net cash (used in) provided by operating activities |
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Cash flows from investing activities: | ||||||
Purchase of equipment, software, and leasehold improvements |
| ( |
| ( | ||
Proceeds from sale of equipment | | | ||||
Cash paid for acquisitions, net of cash acquired | — | ( | ||||
Net cash (used in) provided by investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Payments on contingent consideration |
| — |
| ( | ||
Payment on restricted cash | — | ( | ||||
Payments on notes payable | ( | ( | ||||
Payments on debt issuance costs | — | ( | ||||
Borrowings under term loan facility and line of credit | — | | ||||
Repayments under term loan facility and line of credit | ( | ( | ||||
Principal payments on finance leases |
| ( |
| ( | ||
Proceeds from stock option exercise |
| |
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Proceeds from sales of common stock under employee stock purchase plan |
| |
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Cash used to pay taxes on stock grants | ( | ( | ||||
Net cash (used in) provided by financing activities |
| ( |
| ( | ||
Net increase (decrease) in cash, cash equivalents and restricted cash |
| |
| ( | ||
Cash, cash equivalents and restricted cash at beginning of period |
| |
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Cash, cash equivalents and restricted cash at end of period | $ | | $ | | ||
Supplemental disclosures of cash flow information: | ||||||
Cash paid (received) during the period for: | ||||||
Interest | $ | | $ | | ||
Income taxes |
| |
| ( | ||
Supplemental disclosures of noncash investing and financing activities: | ||||||
Equipment acquired under finance leases | | |
See accompanying notes to Condensed Consolidated Financial Statements.
7
WILLDAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND OPERATIONS OF THE COMPANY
Willdan Group, Inc. (“Willdan” or the “Company”) is a provider of professional, technical and consulting services to utilities, private industry, and public agencies at all levels of government. As resource and infrastructure needs undergo continuous change, the Company helps organizations and their communities evolve and thrive by providing a wide range of technical services for energy solutions and government infrastructure. Through engineering, program management, policy advisory, and software and data management, the Company designs and delivers trusted, comprehensive, innovative, and proven solutions to improve efficiency, resiliency, and sustainability in energy and infrastructure.
The Company’s broad portfolio of services operates within
The accounting policies followed by the Company are set forth in Part II, Item 8, Note 1, Organization and Operations of the Company, of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2023. In the opinion of management, all adjustments necessary to fairly state the Condensed Consolidated Financial Statements have been made. All such adjustments are of a normal, recurring nature. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These Condensed Consolidated Financial Statements and related notes thereto should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2023. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.
Fiscal Years
The Company operates and reports its annual financial results based on
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. 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 consolidated financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified in the condensed consolidated financial statements to conform to the current year presentation.
8
WILLDAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
2. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Pronouncements Recently Issued
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 amends the rules on income tax disclosures to require entities to disclose specific categories in the rate reconciliation, the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and income tax expense or benefit from continuing operations (separated by federal, state, and foreign). In addition, ASU 2023-09 requires entities to disclose their income tax payments to international, federal, state, and local jurisdictions, among other changes. The amendments can be applied on a prospective basis although retrospective application is permitted. The amendments are effective for the annual reporting periods beginning after December 15, 2024, with early adoption permitted. The Company is currently
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 expands segment disclosure requirements through enhanced disclosures related to significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”), a description of other segment items by reportable segment, and any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The amendments are effective for the fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently
In October 2023, the FASB issued ASU No. 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative” (“ASU 2023-06”). ASU 2023-06 amends U.S. GAAP to reflect updates and simplifications to certain disclosure and presentation requirements referred to FASB by the SEC. The targeted amendments incorporate 14 of the 27 disclosures referred by the SEC into codification. Each amendment in ASU 2023-06 is effective on either the date on which the SEC’s removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or on June 30, 2027, if the SEC has not removed the requirements by that date. The Company does
9
WILLDAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
3. REVENUES
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
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, usually, 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 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. The Company also derives revenue from software licenses and professional services and maintenance fees. In accordance with ASC 606, the Company performs an assessment of each contract to identify the performance obligations, determine the overall transaction price for the contract, allocate the transaction price to the performance obligations, and recognize the revenue when the performance obligations are satisfied. The Company utilizes the residual approach by which it estimates the standalone selling price by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract. The software license revenue is typically recognized at a point in time when control is transferred to the client, which is defined as the point in time when the client can use and benefit from the license. The software license is delivered before related services are provided and is functional without services, updates, or technical support. Related professional services include training and support services in which the standalone selling price is determined based on an input measure of hours incurred to total estimated hours and is recognized over time, which usually is the life of the contract.
10
WILLDAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
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. Segmented contracts may comprise up to approximately
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.
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WILLDAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
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.
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WILLDAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
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. 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
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.
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. As of September 27, 2024 and December 29, 2023, contract assets included retainage of approximately $
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WILLDAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
4. SUPPLEMENTAL FINANCIAL STATEMENT DATA
Restricted Cash
The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows:
September 27, | December 29, | |||||
| 2024 |
| 2023 | |||
(in thousands) | ||||||
Cash and cash equivalents | $ | | $ | | ||
| |
| | |||
Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows | $ | | $ | |
Under certain utility contracts, the Company periodically receives cash deposits to be held in trust for the payment of energy incentive rebates to be sent directly to the utility’s end-customer on behalf of the utility. The Company acts solely as the utility’s agent to distribute these funds to the end-customer and, accordingly, the Company classifies these contractually restricted funds as restricted cash. Because these funds are held in trust for pass through to the utility’s customers and have no impact on the Company’s working capital or operating cash flows, these cash receipts are presented in the condensed consolidated statement of cash flows as financing cash inflows, “Receipt of restricted cash”, with the subsequent payments classified as financing cash outflows, “Payment of restricted cash.”
Equipment and Leasehold Improvements
September 27, | December 29, | |||||
| 2024 |
| 2023 | |||
(in thousands) | ||||||
Furniture and fixtures | $ | | $ | | ||
Computer hardware and software |
| |
| | ||
Leasehold improvements |
| |
| | ||
Equipment under finance leases |
| |
| | ||
Automobiles, trucks, and field equipment |
| |
| | ||
Subtotal |
| |
| | ||
Accumulated depreciation and amortization |
| ( |
| ( | ||
Equipment and leasehold improvements, net | $ | | $ | |
Included in accumulated depreciation and amortization is $
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WILLDAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Unaudited)