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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 September 27, 2024

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

14-1951112

(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: (800424-9144

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

WLDN

The Nasdaq Stock Market LLC

(Nasdaq Global Market)

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

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

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

Large accelerated filer 

Accelerated filer

Non-accelerated filer 

Smaller reporting company

Emerging growth company

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

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

As of October 30, 2024, there were 14,124,865 shares of common stock, $0.01 par value per share, of Willdan Group, Inc. issued and outstanding.

i

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.

2

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

$

53,106

$

23,397

Restricted cash

Accounts receivable, net of allowance for doubtful accounts of $1,465 and $866 at September 27, 2024 and December 29, 2023, respectively

 

63,109

 

69,677

Contract assets

 

104,236

 

93,885

Other receivables

 

2,359

 

1,169

Prepaid expenses and other current assets

 

5,329

 

3,888

Total current assets

 

228,139

 

192,016

Equipment and leasehold improvements, net

 

28,955

 

27,097

Goodwill

131,144

131,144

Right-of-use assets

14,366

12,465

Other intangible assets, net

26,541

31,956

Other assets

 

3,447

 

4,949

Deferred income taxes, net

14,661

15,961

Total assets

$

447,253

$

415,588

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

38,007

$

33,193

Accrued liabilities

 

58,521

 

54,129

Contract liabilities

 

15,202

 

13,183

Notes payable

 

10,137

 

8,452

Finance lease obligations

1,175

1,186

Lease liability

5,509

4,537

Total current liabilities

 

128,551

 

114,680

Notes payable, less current portion

81,757

88,979

Finance lease obligations, less current portion

 

1,453

 

1,184

Lease liability, less current portion

10,593

9,758

Other noncurrent liabilities

938

1,142

Total liabilities

 

223,292

 

215,743

Commitments and contingencies

Stockholders’ equity:

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

 

 

Common stock, $0.01 par value, 40,000 shares authorized; 14,117 and 13,682 shares issued and outstanding at September 27, 2024 and December 29, 2023, respectively

 

141

 

137

Additional paid-in capital

 

195,168

 

185,795

Accumulated other comprehensive income (loss)

(807)

(664)

Retained earnings

 

29,459

 

14,577

Total stockholders’ equity

 

223,961

 

199,845

Total liabilities and stockholders’ equity

$

447,253

$

415,588

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

$

158,252

$

132,738

$

421,737

$

354,418

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

Salaries and wages

 

24,088

 

21,856

 

69,247

 

63,568

Subcontractor services and other direct costs

 

82,563

 

67,454

 

204,667

 

165,508

Total direct costs of contract revenue

 

106,651

 

89,310

 

273,914

 

229,076

Gross profit

 

51,601

 

43,428

 

147,823

 

125,342

General and administrative expenses:

Salaries and wages, payroll taxes and employee benefits

 

25,876

 

23,805

 

78,449

 

68,606

Facilities and facility related

 

2,381

 

2,303

 

7,231

 

7,200

Stock-based compensation

 

2,020

 

1,244

 

5,355

 

4,064

Depreciation and amortization

 

3,716

 

4,190

 

10,937

 

12,518

Other

 

8,934

 

8,049

 

25,368

 

22,629

Total general and administrative expenses

 

42,927

 

39,591

 

127,340

 

115,017

Income (Loss) from operations

 

8,674

 

3,837

 

20,483

 

10,325

Other income (expense):

Interest expense, net

 

(1,934)

 

(2,437)

 

(6,031)

 

(7,110)

Other, net

 

763

 

879

 

2,293

 

1,392

Total other expense, net

 

(1,171)

 

(1,558)

 

(3,738)

 

(5,718)

Income (Loss) before income taxes

 

7,503

 

2,279

 

16,745

 

4,607

Income tax (benefit) expense

 

157

 

713

 

1,863

 

1,712

Net income (loss)

7,346

1,566

14,882

2,895

Other comprehensive income (loss):

Unrealized gain (loss) on derivative contracts, net of tax

(678)

(143)

Comprehensive income (loss)

$

6,668

$

1,566

$

14,739

$

2,895

Earnings (Loss) per share:

Basic

$

0.53

$

0.12

$

1.08

$

0.22

Diluted

$

0.51

$

0.11

$

1.05

$

0.21

Weighted-average shares outstanding:

Basic

 

13,930

 

13,462

 

13,753

 

13,357

Diluted

 

14,358

 

13,709

 

14,130

 

13,563

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

 

13,682

$

137

$

185,795

$

(664)

$

14,577

$

199,845

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

 

86

1

1,401

1,402

Shares of common stock issued in connection with incentive stock plan

19

281

281

Shares used to pay taxes on stock grants

 

(32)

(1)

(778)

(779)

Issuance of restricted stock award and units

62

1

(1)

Stock-based compensation expense

 

1,390

1,390

Net income (loss)

 

2,942

2,942

Net unrealized gain on derivative contracts

434

434

Balance at March 29, 2024

 

13,817

$

138

$

188,088

$

(230)

$

17,519

$

205,515

Shares of common stock issued in connection with incentive stock plan

86

1

855

856

Shares used to pay taxes on stock grants

 

(6)

(6)

Issuance of restricted stock award and units

13

Stock-based compensation expense

 

1,945

1,945

Net income (loss)

 

4,594

4,594

Net unrealized gain on derivative contracts

101

101

Balance at June 28, 2024

 

13,916

$

139

$

190,882

$

(129)

$

22,113

$

213,005

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

 

78

1

1,435

1,436

Shares of common stock issued in connection with incentive stock plan

92

1

1,287

1,288

Shares used to pay taxes on stock grants

 

(12)

(456)

(456)

Issuance of restricted stock award and units

43

Stock-based compensation expense

 

2,020

2,020

Net income (loss)

 

7,346

7,346

Net unrealized gain on derivative contracts

(678)

(678)

Balance at September 27, 2024

 

14,117

$

141

$

195,168

$

(807)

$

29,459

$

223,961

See accompanying notes to Condensed Consolidated Financial Statements.

5

Accumulated

Additional

Other

Common Stock

Paid-in

Comprehensive

Retained

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Earnings

    

Total

Balance at December 30, 2022

 

13,296

$

133

$

177,718

$

$

3,651

$

181,502

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

 

92

1

1,391

1,392

Shares used to pay taxes on stock grants

 

(7)

(124)

(124)

Issuance of restricted stock award and units

108

1

(1)

Stock-based compensation expense

 

1,533

1,533

Net income (loss)

 

932

932

Balance at March 31, 2023

 

13,489

$

135

$

180,517

$

$

4,583

$

185,235

Shares of common stock issued in connection with incentive stock plan

2

7

7

Shares used to pay taxes on stock grants

 

(4)

(64)

(64)

Issuance of restricted stock award and units

17

Stock-based compensation expense

 

1,287

1,287

Net income (loss)

 

397

397

Balance at June 30, 2023

 

13,504

$

135

$

181,747

$

$

4,980

$

186,862

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

 

91

1

1,386

1,387

Shares of common stock issued in connection with incentive stock plan

9

31

31

Shares used to pay taxes on stock grants

 

(1)

(17)

(17)

Issuance of restricted stock award and units

44

Stock-based compensation expense

 

1,244

1,244

Net income (loss)

 

1,566

1,566

Balance at September 29, 2023

 

13,647

$

136

$

184,391

$

$

6,546

$

191,073

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)

$

14,882

$

2,895

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

Depreciation and amortization

 

10,937

 

12,518

Other non-cash items

459

511

Deferred income taxes, net

 

1,300

 

1,196

(Gain) loss on sale/disposal of equipment

 

(13)

 

(63)

Provision for doubtful accounts

 

806

 

194

Stock-based compensation

 

5,355

 

4,064

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

Accounts receivable

 

5,762

 

(6,335)

Contract assets

 

(10,351)

 

4,530

Other receivables

 

(1,190)

 

3,306

Prepaid expenses and other current assets

 

(1,441)

 

1,175

Other assets

 

1,456

 

(4,993)

Accounts payable

 

4,814

 

3,922

Accrued liabilities

 

3,910

 

(2,658)

Contract liabilities

 

2,019

 

2,821

Right-of-use assets

 

(94)

 

1,029

Net cash (used in) provided by operating activities

 

38,611

 

24,112

Cash flows from investing activities:

Purchase of equipment, software, and leasehold improvements

 

(6,074)

 

(7,583)

Proceeds from sale of equipment

29

68

Cash paid for acquisitions, net of cash acquired

(1,600)

Net cash (used in) provided by investing activities

 

(6,045)

 

(9,115)

Cash flows from financing activities:

Payments on contingent consideration

 

 

(4,000)

Payment on restricted cash

(10,679)

Payments on notes payable

(190)

(1,463)

Payments on debt issuance costs

(1,114)

Borrowings under term loan facility and line of credit

105,000

Repayments under term loan facility and line of credit

(5,625)

(111,000)

Principal payments on finance leases

 

(1,064)

 

(951)

Proceeds from stock option exercise

 

2,425

 

38

Proceeds from sales of common stock under employee stock purchase plan

 

2,838

 

2,779

Cash used to pay taxes on stock grants

(1,241)

(205)

Net cash (used in) provided by financing activities

 

(2,857)

 

(21,595)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

29,709

 

(6,598)

Cash, cash equivalents and restricted cash at beginning of period

 

23,397

 

19,485

Cash, cash equivalents and restricted cash at end of period

$

53,106

$

12,887

Supplemental disclosures of cash flow information:

Cash paid (received) during the period for:

Interest

$

5,301

$

8,025

Income taxes

 

1,203

 

(3,154)

Supplemental disclosures of noncash investing and financing activities:

Equipment acquired under finance leases

1,322

652

See accompanying notes to Condensed Consolidated Financial Statements.

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Table of Contents

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 two financial reporting segments: (1) Energy and (2) Engineering and Consulting. The interfaces and synergies between these segments are important elements of the Company’s strategy to design and deliver trusted, comprehensive, innovative, and proven solutions for its customers.

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 52 or 53-week periods ending on the Friday closest to December 31. The Company operates and reports its quarterly financial results based on the 13-week period ending on the Friday closest to June 30, September 30, and December 31 and the 13 or 14-week period ending on the Friday closest to March 31, as applicable. Fiscal year 2024, which ends on December 27, 2024, will be comprised of 52 weeks, with all quarters consisting of 13 weeks each. Fiscal year 2023, which ended on December 29, 2023, was comprised of 52 weeks, with all quarters consisting of 13 weeks each. All references to years in the notes to consolidated financial statements represent fiscal years.

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.

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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 evaluating the impact this update will have on its Consolidated Financial Statements.

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 evaluating the impact this update will have on its Consolidated Financial Statements.

  

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 not believe the amendments in ASU 2023-06 will have a material impact in any of the Company’s current disclosures.

 

 

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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 two reportable segments and the types of contracts that each most commonly enters into for revenue generating activities.

Segment

Contract Type

Revenue Recognition Method

Time-and-materials

Time-and-materials

Energy

Unit-based

Unit-based

Software license

Unit-based

Fixed price

Percentage-of-completion

Time-and-materials

Time-and-materials

Engineering and Consulting

Unit-based

Unit-based

Fixed price

Percentage-of-completion

 

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

Many of the Company’s fixed price contracts involve a high degree of subcontracted fixed price effort and, 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.

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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 2.0% to 3.0% of the Company’s consolidated 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.

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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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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 no allocation of these costs is made to direct costs of contract revenue. No allocation of facilities costs is made to direct costs of contract revenue. Other companies may classify as direct costs of contract revenue some of the costs that the Company classifies as general and administrative costs. The Company expenses direct costs of contract revenue when incurred.

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

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

Retainage, included in contract assets, represents amounts withheld from billings to the Company’s clients pursuant to provisions in the contracts and may not be paid to the Company until specific tasks are completed or the project is completed and, in some instances, for even longer periods. As of September 27, 2024 and December 29, 2023, contract assets included retainage of approximately $18.9 million and $14.3 million, respectively.

 

 

 

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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

$

53,106

$

23,397

Restricted cash

 

 

Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows

$

53,106

$

23,397

 

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

$

4,501

$

4,379

Computer hardware and software

 

50,070

 

44,594

Leasehold improvements

 

3,551

 

3,382

Equipment under finance leases

 

6,969

 

6,139

Automobiles, trucks, and field equipment

 

3,551

 

3,373

Subtotal

 

68,642

 

61,867

Accumulated depreciation and amortization

 

(39,687)

 

(34,770)

Equipment and leasehold improvements, net

$

28,955

$

27,097

 

Included in accumulated depreciation and amortization is $1.1 million and $1.3 million of amortization expense related to equipment held under finance leases for the nine months ended September 27, 2024 and for fiscal year 2023, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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