World Energy Solutions Announces Q4 and Full-Year 2013 Financial Results

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WORCESTER, Mass., March 31, 2014 (GLOBE NEWSWIRE) -- World Energy Solutions, Inc. (Nasdaq:XWES), a leading energy management services firm, today announced financial results for the fourth quarter and fiscal year ended December 31, 2013.

Financial Highlights (All figures are in US dollars and compare the fourth quarter and annual 2013 results to the corresponding periods in the prior year.)

Revenue and Backlog

-- Annual revenue grew 9% to $34.7 million

  • Energy procurement grew 18% to $28.9 million
  • Energy efficiency services declined 21% to $5.8 million

-- Q4 revenue decreased 8% to $9.3 million, reflecting the decline in energy efficiency services revenue

-- Backlog grew to record levels

  • Annual backlog increased to $24.9 million
  • Total backlog improved to $47.5 million

Operating Results

-- EBITDA*

  • Increased 40% to a record $2.3 million for the year
  • Decreased $30,000 to $1.2 million in Q4

-- Free cash flow

  • $2.9 million, or $0.24 per share, for the year
  • $0.9 million, or $0.08 per share, for Q4

-- Net income (loss)

  • ($2.3 million), or ($0.19) per share, for the year
  • $0.9 million, or $0.07 per share, for Q4, reflecting a tax benefit within the quarter

-- Gross margins for the year improved to 73%

  • 84% in Energy procurement, a 3% increase
  • 19% in Energy efficiency services, an 8% decrease

Liquidity and Balance Sheet

  • Cash and cash equivalents at year end were $1.7 million, down from $3.3 million in 2012, as the Company paid $4.7 million in acquisition and debt obligations in 2013
  • Deferred revenue increased $2.1 million to $7.5 million for the year
  • In December 2013, the Company refinanced its credit facility with Commerce Bank

"World Energy showed great tenacity and resolve in 2013 to drive the Company forward while addressing a revenue restatement resulting from the GSE acquisition, the integration of GSE, NES and NEP, and a rising commodity-price environment," said Phil Adams, CEO of World Energy Solutions. "From an operating perspective, we saw double-digit growth in our procurement segment, gross margins improve, free cash flow remain strong, and EBITDA and backlog reach record levels. While efficiency results were substantially below plan due to personnel issues, we have bolstered, reorganized, and reenergized the team, and have seen performance improvement emerge in Q4, and extend into Q1 2014.

"Innovation through software development is a significant part of our strategy. We are quite proud that our World Energy Exchange® recently won a Product of the Year Award from Environmental Leader. As part of our integration efforts, we are extending our Exchange's capabilities into the mid-market, enabling sealed bid auctions into that customer segment with the ultimate goal of creating a self-serve platform for the brokerage community. We also launched Q, our automated audit and proposal generating tool, aimed at improving the productivity of our efficiency team.

"Looking ahead, we aim to drive increasing volumes through our Exchange through technology advances and more active engagement of our channel strategy. We anticipate double-digit revenue growth, with EBITDA scaling over 40% for the full year."

Financial Review

Full Year 2013

Revenue for the year ended December 31, 2013 rose 9% over the same period last year to $34.7 million, as Energy procurement grew 18% to $28.9 million and Energy efficiency services decreased by 21% to $5.8 million. The increase in Energy procurement reflects continued execution in the Company's retail product line and the acquisition of NEP in Q4 2012. The decrease in Energy efficiency services reflects the turnover of the Massachusetts sales team that occurred in 2013.

Gross margins were 73% for the year ended December 31, 2013 compared to 68% 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%. Energy efficiency services gross margins were 19% compared to 27% for the year ended December 31, 2012, reflecting increased payroll costs associated with additional personnel. The Company's operating margin was (5)% for both periods and EBITDA* margin was 7% compared to 5% in the prior year.

During 2013, the Company paid $4.7 million in acquisition and debt obligations. These payments were funded by $2.9 million of free cash flow generated by the Company in 2013 and cash on hand of $1.6 million. As a result, cash and cash equivalents decreased to $1.7 million at December 31, 2013 compared with $3.3 million at December 31, 2012. At December 31, 2013, the Company has substantially retired all of its acquisition-related obligations. There are two acquisition-related obligations remaining that are scheduled to be retired in the first half of 2014. Free cash flow for the year was $2.9 million, or $0.24 per share, a decrease of $0.5 million compared to the same period in 2012, reflecting the change in the Company's revenue-recognition policy for its mid-market group and its decision to implement a bookings bonus program to offset the effect of that change on the Company's mid-market sales reps. The Company has a $2.5 million line-of-credit with Commerce Bank and has not borrowed against this facility.

Q4 2013

Revenue for the three months ended December 31, 2013 decreased 8% over the same period last year to $9.3 million, as Energy procurement grew 3% and Energy efficiency services declined 34%.

Gross margins were 71% for the quarter ended December 31, 2013 compared to 66% for the same period last year, reflecting a greater mix of higher margin procurement revenue in the quarter. Energy procurement gross margins increased 3% to 86% as the Company continues to integrate operations, enhance its technology platform to improve processes and drive scalability. Energy efficiency services gross margins were 21% compared to 30% in Q4 2012, reflecting increased staffing levels in anticipation of executing an increased number of projects in 2013. The Company's operating margin remained relatively constant at 2% and EBITDA* margin was 13% compared to 12% in the prior year quarter.

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 December 31, 2013 included commodity backlog of $46.8 million and $24.2 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, March 31, 2014 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) 517-2458 (domestic) or 1 (847) 413-3538 (international) and enter passcode 6744440#. 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. The reconciliation of GAAP net loss to EBITDA and adjusted EBITDA is shown below:

Three Months Ended Twelve Months Ended
December 31, December 31,
2013 2012 2013 2012
GAAP net income (loss) $883,916 $7,535,933 $(2,319,422) $5,290,692
Add: Interest expense, net 347,798 272,451 1,081,754 547,075
Add: Income tax benefit (1,028,239) (7,551,636) (623,074) (7,479,136)
Add: Amortization of intangibles 974,758 945,728 3,899,033 3,022,097
Add: Amortization of other assets 10,510 11,785 36,030 42,289
Add: Depreciation 54,562 58,722 221,674 217,235
Non-GAAP EBITDA $1,243,305 $1,272,983 $2,295,995 $1,640,252
Non-GAAP EBITDA per share $0.10 $0.11 $0.19 $0.14
Non-GAAP EBITDA Margin 13% 12% 7% 5%
Add: Stock-based compensation 164,320 146,216 599,554 465,835
Non-GAAP adjusted EBITDA $1,407,625 $1,419,199 $2,895,549 $2,106,087
Non-GAAP adjusted EBITDA per share $0.12 $0.12 $0.24 $0.18
Non-GAAP adjusted EBITDA Margin 15% 14% 8% 7%
Weighted average diluted shares 12,117,983 12,057,083 12,081,650 11,958,689
Reconciliation of Free Cash Flow
for Three Months Ended

December 31,
Reconciliation of Free Cash Flow
for Twelve Months Ended
December 31,
2013 2012 2013 2012
Net cash provided by operating activities $969,518 $2,420,839 $3,135,779 $3,786,548
Net cash provided by operating activities per share $0.08 $0.20 $0.26 $0.32
Less: Purchases of property and equipment (25,157) (57,483) (145,374) (403,906)
Less: Capitalization of internal-use software development costs (34,404) (58,450)
Free cash flow $909,957 $2,363,356 $2,931,955 $3,382,642
Free cash flow per share $0.08 $0.20 $0.24 $0.28

About World Energy Solutions, Inc.

World Energy Solutions, Inc. (Nasdaq:XWES) is an energy technology and services firm transforming energy procurement and energy efficiency for commercial, industrial, institutional, government and utility customers. The Company's award-winning, cloud-based auction platform, the World Energy Exchange®, its team of energy experts, and a network of more than 500 suppliers and 300 channel partners form an ecosystem that enables customers to minimize their total cost of energy. To date, World Energy has transacted over $40 billion in energy, demand response and environmental commodities, creating more than $2 billion in value for its customers. 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, and its expectations in growth in revenue, operating results, operating margins, and free cash flow. 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 Twelve Months Ended
December 31, December 31,
2013 2012 2013 2012
Revenue $9,345,419 $10,194,377 $34,677,115 $31,778,837
Cost of revenue 2,695,110 3,454,546 9,316,591 10,069,357
Gross profit 6,650,309 6,739,831 25,360,524 21,709,480
Sales and marketing expenses 4,683,366 4,310,808 19,427,779 15,482,723
General and administrative expenses 1,768,243 2,178,932 7,814,933 7,927,889
Operating income (loss) 198,700 250,091 (1,882,188) (1,701,132)
Interest expense, net (347,798) (272,451) (1,081,754) (547,075)
Other income 4,775 6,657 21,446 59,763
Loss before income taxes (144,323) (15,703) (2,942,496) (2,188,444)
Income tax benefit 1,028,239 7,551,636 623,074 7,479,136
Net income (loss) $883,916 $7,535,933 $(2,319,422) $5,290,692
Net income (loss) per common share – basic and diluted $0.07 $0.63 $(0.19) $0.44
Weighted average shares outstanding – basic 12,034,784 11,938,435 11,998,019 11,901,172
Weighted average shares outstanding – diluted 12,117,983 12,057,083 11,998,019 11,958,689

SUMMARY OF CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 2013
Assets
Cash and cash equivalents
Trade accounts receivable, net
Other current assets
$1,725,136
7,738,141
1,794,526
Property and equipment, net 573,778
Goodwill 16,167,834
Intangible and other assets, net 15,881,063
Long-term portion of deferred tax asset 7,198,984
Total assets $51,079,462
Liabilities and stockholders' equity
Accrued commissions $1,567,839
Accounts payable and accrued liabilities 6,059,856
Deferred revenue and customer advances 3,546,380
Notes payable and current portion of long-term debt 977,712
Total current liabilities 12,151,787
Deferred revenue and customer advances, and other liabilities 3,924,803
Long-term debt 9,522,288
Stockholders' equity 25,480,584
Total liabilities and stockholders' equity $ 51,079,462

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.