World Energy Solutions Announces Q3 Financial Results

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WORCESTER, Mass., Nov. 8, 2013 (GLOBE NEWSWIRE) -- World Energy Solutions, Inc. (Nasdaq:XWES), a leading energy management services firm, today announced financial results for the three and nine months ended September 30, 2013.

Financial Highlights (All figures are in US dollars; comparisons of performance are made between Q3 2013 results and Q3 2012 results, unless otherwise noted.)

Revenue and Backlog

  • Quarterly revenue increased 15% to $8.7 million
  • Revenue for the nine-month period was up 17% to $25.3 million
  • Annualized backlog increased 16% to $24.0 million
  • Total backlog grew 19% to $45.9 million

Operating Results

  • Gross margins in the quarter improved from 65% to 74%
  • Energy procurement gross margins were 84%
  • Energy efficiency services gross margins were 24%
  • Net loss in the quarter was $(0.6) million, or $(0.05) per share
  • EBITDA increased $0.6 million to $0.8 million
  • Free cash flow more than doubled to $0.8 million, or $0.07 per share, for the quarter, and nearly doubled to $2.0 million, or $0.17 per share, for the nine-month period

Liquidity and Balance Sheet

  • Cash and cash equivalents were $2.5 million at quarter end
  • Deferred revenue increased $0.4 million during the quarter to $7.4 million
  • The Company retired $0.5 million in debt to SVB in the quarter

"I am quite pleased with our execution this quarter, posting results that demonstrate tangible progress from Q2," said Phil Adams, CEO of World Energy Solutions. "The recovery that we predicted would begin in Q3 has in fact taken place as we work through a change in revenue recognition policy in our mid-market business.

"Compared to Q2, we grew third quarter revenue by 10%, pared our net loss by nearly two-thirds, increased free cash flow by 63% and grew EBITDA by more than $1 million. In addition, our total backlog – the amount of revenue to be recognized and cash to be received by the Company based on contracts in force as of September 30th – now stands at $45.9 million.

"Based on these improving results, the strong performance of our sales team, and the inherent leverage in our business model, we forecast double-digit revenue growth and a return to profitability in fiscal year 2014."

Financial Review

Q3 2013

Revenue for the three months ended September 30, 2013 rose 15% over the same period last year to $8.7 million, as Energy Procurement revenue grew 30% and Energy Efficiency Services revenue declined 27%. This increase in Energy Procurement revenue reflects 9% organic growth in the Company's base business and the acquisition of NEP in Q4 2012.

Gross margins were 74% for the quarter ended September 30, 2013 compared to 65% for the same period last year, reflecting a greater mix of higher margin procurement revenue in 2013 compared to 2012. Energy Procurement gross margins increased 3% to 84% as the Company continues to enhance its technology platform to improve processes and drive scalability. Energy Efficiency Services gross margins were 24% compared to 22% in Q3 2012, reflecting improved contribution margins on the projects completed during the quarter. The Company's operating margin improved 4% to (2)% and EBITDA* margin was 10% compared to 3% in the prior year quarter. As revenue grows and the Company works through the effects of the change to its mid-market revenue recognition model, the Company expects operating margins to continue to improve, reflecting the inherent leverage in its model.

Year-to-Date 2013

Revenue for the nine months ended September 30, 2013 rose 17% over the same period last year to $25.3 million, as Energy Procurement grew 24% and Energy Efficiency Services decreased by 11%. The increase in Energy Procurement reflects continued execution in the Company's retail product line and the acquisition of NEP in Q4 2012.

Gross margins were 74% for the nine months ended September 30, 2013 compared to 69% for the same period last year, reflecting a greater mix of higher margin procurement revenue in 2013 compared to 2012. Energy Procurement gross margins increased 3% to 83%. Energy Efficiency Services gross margins were 18% compared to 25% for the nine months ended September 30, 2012, reflecting a low contribution margin on a large municipal project completed during the period and increased payroll costs associated with additional personnel. The Company's operating margin improved to (8)% and EBITDA* margin was 4% compared to 2% in the same period in the prior year.

At September 30, 2013, the Company had cash and cash equivalents of $2.5 million, compared with $3.3 million at December 31, 2012 and $2.2 million at June 30, 2013. The increase in cash and cash equivalents during the quarter was primarily due to $0.8 million of free cash flow, which enabled the Company to grow its cash position while paying down $0.5 million of principal against its long-term bank debt. Free cash flow for the nine months ended September 30, 2013 was $2.0 million, or $0.17 per share, an increase of $1.0 million, or 98%, compared to the same period in 2012. The Company continues to maintain a $2.5 million line-of-credit and has not borrowed against that facility.

Note: Backlog relates to contracts in force on a given date representing transactions between bidders and listers on our platform related to commodity brokerage assuming listers consume energy at their historical usage levels or deliver credits at expected levels. Total backlog represents the commission that the Company would derive over the remaining life of those contracts. Annualized backlog represents the commission that the Company would derive from those contracts within the 12 months following the date on which the backlog is calculated. Total and annualized backlog at September 30, 2013 included commodity backlog of $45.2 million and $23.3 million, respectively. In addition, total and annualized backlog include contracted management fees between World Energy and energy consumers for energy management and auction administration services of $0.7 million that are expected to be received over the following 12-month period. These management fees can be terminated within 30 days per the terms of the contracts.

Conference Call & Webcast

World Energy will hold a conference call today, November 8, 2013, at 10:00 a.m. (ET) to discuss its financial results and other corporate developments. To access the conference call by telephone, dial 1 (888) 517-2485 (domestic) or 1 (847) 413-3615 (international) and enter passcode 7869381#. A replay will be available two hours after the completion of the call, and for one month following the call, by dialing 1 (888) 843-7419 for domestic participants or 1 (630) 652-3042 for international participants, and entering passcode 9895528# when prompted. Participants may also access a live webcast of the conference call through the investor relations section of World Energy's website, www.worldenergy.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. An archived replay of the webcast will be available for 30 days.

* Non-GAAP Financial Measures

World Energy provides all information required in accordance with GAAP and also provides certain "non-GAAP financial measures." A non-GAAP financial measure refers to a numerical financial measure that is included in (or excluded from) the most directly comparable financial measure calculated and presented in accordance with GAAP in the Company's financial statements. World Energy provides EBITDA, adjusted EBITDA and free cash flow as additional information relating to our operating results. These non-GAAP measures exclude expenses related to share-based compensation, depreciation related to our fixed assets, amortization expense related to acquisition-related assets and other assets, interest expense on bank borrowings, notes payable to sellers and contingent consideration, interest income on invested funds and notes receivable, and income taxes.

Management believes it is useful to exclude depreciation, amortization, share-based compensation, net interest and income tax expense as these are essentially fixed amounts that cannot be influenced by management in the short term. Management defines free cash flow as net cash provided by operating activities less capital expenditures. Management defines capital expenditures as purchases of property and equipment, which includes capitalization of internal-use software development costs.

Management uses these non-GAAP measures for internal reporting and bank reporting purposes. World Energy provides these non-GAAP financial measures in addition to GAAP financial results, because management believes that these non-GAAP financial measures provide useful information to certain investors and financial analysts in helping them to better understand the Company's operating results and underlying operational trends. They also provide a consistent basis for comparison across accounting periods.

These non-GAAP financial measures are not prepared in accordance with GAAP. These measures may differ from the GAAP information, even where similarly titled, used by other companies and therefore should not be used to compare the Company's performance to that of other companies. There are significant limitations associated with the use of non-GAAP financial measures. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net loss prepared in accordance with GAAP.

Whenever World Energy reports non-GAAP financial measures, a reconciliation of the non-GAAP financial measure to the most closely applicable GAAP financial measure will be made available. Investors are encouraged to review these reconciliations to ensure they have a thorough understanding of the reported non-GAAP financial measures and their most directly comparable GAAP financial measures. Reconciliation of GAAP net loss to EBITDA and adjusted EBITDA is shown below:

Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
GAAP net loss $ (592,298) $ (545,155) $ (3,203,338) $ (2,245,241)
Add: Interest expense, net 253,822 86,917 733,956 274,624
Add: Income taxes 142,555 22,500 405,165 72,500
Add: Amortization of intangibles 974,759 618,228 2,924,275 2,076,369
Add: Amortization of other assets 8,507 8,833 25,520 30,504
Add: Depreciation 56,373 55,443 167,112 158,513
Non-GAAP EBITDA $ 843,718 $ 246,766 $ 1,052,690 $ 367,269
Non-GAAP EBITDA per share $ 0.07 $ 0.02 $ 0.09 $ 0.03
Add: Share-based compensation 142,925 120,175 435,234 319,619
Non-GAAP adjusted EBITDA $ 986,643 $ 366,941 $ 1,487,924 $ 686,888
Non-GAAP adjusted EBITDA per share $ 0.08 $ 0.03 $ 0.12 $ 0.06
Weighted average diluted shares 12,068,220 11,946,504 12,076,880 11,945,177
Reconciliation of Free Cash Flow
for Three Months Ended
September 30,
Reconciliation of Free Cash Flow
for Nine Months Ended
September 30,
2013 2012 2013 2012
Net cash provided by operating activities $ 919,136 $ 408,315 $ 2,166,261 $ 1,365,709
Net cash provided by operating activities per share $ 0.08 $ 0.03 $ 0.18 $ 0.11
Less: Purchases of property and equipment (54,728) (70,281) (128,967) (346,423)
Less: Capitalization of internal-use software development costs (24,046) (24,046)
Free cash flow $ 840,362 $ 338,034 $ 2,013,248 $ 1,019,286
Free cash flow per share $ 0.07 $ 0.03 $ 0.17 $ 0.09

About World Energy Solutions, Inc.

World Energy Solutions, Inc. (Nasdaq:XWES) is an energy management services firm that brings together the passion, processes and technologies to take the complexity out of energy management and turn it into bottom-line impact for the businesses, institutions and governments we serve. To date, the Company has transacted more than $40 billion in energy, demand response and environmental commodities on behalf of its customers, creating more than $2 billion in value for them. World Energy is also a leader in the global carbon market, where its World Energy Exchange® supports the Regional Greenhouse Gas Initiative (RGGI), the first mandatory market-based regulatory program in the U.S. to reduce greenhouse gas emissions. For more information, please visit www.worldenergy.com.

This press release contains forward-looking statements which involve risk and uncertainties. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "forecasts," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The Company has based these forward-looking statements on its current expectations and projections about future events, including without limitation, its expectations of backlog and energy prices. Although the Company believes that the expectations underlying any of its forward-looking statements are reasonable, these expectations may prove to be incorrect and all of these statements are subject to risks and uncertainties. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections or expectations prove incorrect, actual results, performance or financial condition may vary materially and adversely from those anticipated, estimated or expected. Such risks and uncertainties include, but are not limited to the following: the Company's revenue and backlog are dependent on actual future energy purchases pursuant to completed procurements; the demand for the Company's services is affected by changes in regulated prices or cyclicality or volatility in competitive market prices for energy; the potential impact on the Company's historical and prospective financial results of a change in accounting policy may negatively impact its stock price; and other factors outside the Company's control that affect transaction volume in the electricity market. Additional risk factors are identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 and subsequent reports filed with the Securities and Exchange Commission. The forward-looking statements made in this press release are made as at the date hereof. Readers are cautioned not to place undue reliance on forward-looking statements as actual results could differ materially from the forward-looking statements expressed in this press release. Forward-looking statements are provided for the purpose of presenting information about management's current expectations relating to the future, and readers are cautioned that such statements may not be appropriate for other purposes. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, other than as required by securities laws.

WORLD ENERGY SOLUTIONS, INC.
SUMMARY OF CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
Revenue $ 8,738,557 $ 7,605,854 $ 25,331,696 $ 21,584,460
Cost of revenue 2,243,875 2,632,913 6,621,481 6,614,811
Gross profit 6,494,682 4,972,941 18,710,215 14,969,649
Sales and marketing expenses 4,875,985 3,638,961 14,744,413 11,171,915
General and administrative expenses 1,817,996 1,769,718 6,046,690 5,748,957
Operating loss (199,299) (435,738) (2,080,888) (1,951,223)
Interest expense, net (253,822) (86,917) (733,956) (274,624)
Other income 3,378 16,671 53,106
Loss before income taxes (449,743) (522,655) (2,798,173) (2,172,741)
Income tax expense 142,555 22,500 405,165 72,500
Net loss $ (592,298) $ (545,155) $ (3,203,338) $ (2,245,241)
Net loss per common share – basic and diluted $ (0.05) $ (0.05) $ (0.27) $ (0.19)
Weighted average shares outstanding – basic and diluted 12,007,667 11,904,469 11,985,629 11,888,660
SUMMARY OF CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2013
Assets
Cash and cash equivalents $ 2,518,377
Trade accounts receivable, net 7,108,011
Other current assets 2,474,407
Property and equipment, net 603,183
Goodwill 16,167,834
Intangible and other assets, net 16,794,992
Long-term portion of deferred tax asset 5,617,565
Total assets $ 51,284,369
Liabilities and stockholders' equity
Accrued commissions $ 1,492,563
Accounts payable and accrued liabilities 7,449,733
Deferred revenue and customer advances 3,378,824
Notes payable and current portion of long-term debt 3,960,127
Total current liabilities 16,281,247
Deferred revenue and customer advances, and other liabilities 4,041,931
Long-term debt 6,940,191
Stockholders' equity 24,021,000
Total liabilities and stockholders' equity $ 51,284,369

CONTACT: For additional information, contact: Jim Parslow World Energy Solutions, Inc. (508) 459-8100 jparslow@worldenergy.com or Dan Mees World Energy Solutions, Inc. (508) 459-8156 dmees@worldenergy.com or In Canada: Craig Armitage The Equicom Group (416) 815-0700 x278 carmitage@equicomgroup.com

Source:World Energy Solutions, Inc.