World Energy Solutions Announces Q1 Financial Results

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WORCESTER, Mass., May 8, 2014 (GLOBE NEWSWIRE) -- World Energy Solutions, Inc. (Nasdaq:XWES), a leading energy management services firm, today announced financial results for the first quarter ended March 31, 2014.

Financial Highlights (All figures are in US dollars and compare the first quarter 2014 results to the corresponding period in the prior year, unless otherwise noted.)

Revenue and Backlog

  • Quarterly revenue grew 10% to $9.5 million, a record for Q1
    • Energy procurement revenue rose 7%
    • Energy efficiency services revenue increased 25%
  • Backlog remained stable due to the unusually high pricing environment
    • Annualized backlog ticked up 0.4% to $23.9 million
    • Total backlog declined 0.1% to $43.8 million

Operating Results

  • EBITDA grew 82% to $0.8 million
  • Net loss decreased 48% to ($0.5) million, or ($0.04) per share, and included more than $0.03 per share in one-time legal and other costs related to a shareholder action
  • Gross margins improved to 76%
    • Energy procurement gross margins ticked up to 87%
    • Energy efficiency services gross margins declined 2% to 18%

Liquidity and Balance Sheet

  • Cash flow from operations was $0.9 million, up 34%
  • Free cash flow was $0.8 million, up 28%
  • Cash and cash equivalents were $2.6 million, a 23% increase
  • Subsequent to quarter end, the Company retired the last of its seller-note and earnout obligations for the NEP and GSE Consulting acquisitions.

"The themes we outlined several weeks ago on our 2013 year-end earnings call are playing out as previewed, resulting in Q1 performance that continues a trend of recovery and improvement, highlighted by solid revenue growth and increasing cash generation," said Phil Adams, CEO, World Energy Solutions.

"These achievements all occurred against the backdrop of rising energy commodity prices, which caused many of our customers to delay energy-contracting decisions in the quarter, temporarily curbing backlog growth. Subsequent to quarter end, we have seen an uptick in transaction activity due to a combination of moderating prices and customers accepting the current pricing environment as a 'new normal.'

"Based on our Q1 performance, and visibility into our 2014 sales pipeline and revenue backlog, we continue to anticipate double-digit organic growth in 2014, while raising our view on EBITDA growth from 40% to 60%."

Financial Review

Revenue for the three months ended March 31, 2014 increased 10% to $9.5 million, as revenue from both segments increased over the same period last year. Energy procurement increased 7%, reflecting increased revenue in our retail product line from both our auction and mid-market customers. These increases were partially offset by decreases in wholesale and natural-gas transaction activity within the quarter as increases in commodity prices resulted in delayed contracting decisions by listers. Energy efficiency services grew 25% as our reorganization of the Massachusetts sales team in 2013 resulted in increased revenue in the NSTAR territory in Massachusetts during the quarter.

Gross margins improved to 76% compared to 74% in the same period last year, reflecting an increase in Energy procurement margins. Energy procurement gross margins increased 4% to 87%, reflecting our continued integration efforts to improve processes and drive scalability. Energy efficiency services gross margins declined 2% to 18% due to slightly lower contribution margins on projects completed in the first quarter of 2014. Operating expenses as a percentage of sales decreased 2% to 79% as the growth in revenue exceeded the increase in costs. The increase in costs was primarily related to legal and other costs resulting from the shareholder action in the first quarter of 2014. Our operating margin improved 65% to (3)%, and EBITDA* margin was 8% compared to 5% in the prior year quarter.

At March 31, 2014, we had cash and cash equivalents of $2.6 million compared to $1.7 million at December 31, 2013 and $2.1 million at March 31, 2013. The increase in cash and cash equivalents during the quarter was primarily from free cash flows of $0.8 million during the quarter. As of March 31, 2014, we have substantially retired all of our acquisition-related obligations. We made the final $0.5 million Seller note payment to NEP on April 1, 2014, and on April 4, 2014, we settled all outstanding earnout claims with GSE for 200,000 shares of common stock. Free cash flow was $0.8 million for the quarter, or $0.07 per share, an increase of 28% over the same period last year. The Company continues to maintain a $2.5 million line-of-credit with Commerce Bank and has not borrowed against this 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 March 31, 2014 included commodity backlog of $43.1 million and $23.2 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, May 8, 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) 517-2513 (domestic) or 1 (847) 619-6533 (international) and enter passcode 9354319#. 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 March 31,
2014 2013
GAAP net loss $ (497,780) $ (956,885)
Add: Interest expense, net 200,397 202,737
Add: Income taxes 63,000 131,305
Add: Amortization of intangibles 926,645 974,758
Add: Amortization of other assets 13,565 8,507
Add: Depreciation 52,911 55,669
Non-GAAP EBITDA $ 758,738 $ 416,091
Non-GAAP EBITDA per share $ 0.06 $ 0.03
Non-GAAP EBITDA margin 8% 5%
Add: Stock-based compensation 161,903 145,986
Non-GAAP adjusted EBITDA $ 920,641 $ 562,077
Non-GAAP adjusted EBITDA per share $ 0.07 $ 0.05
Non-GAAP adjusted EBITDA margin 10% 6%
Weighted average diluted shares 12,295,629 12,077,901
Reconciliation of Free Cash Flow for Reconciliation of Free Cash Flow for
Three Months Ended March 31, Twelve Months Ended March 31,
2014 2013 2014 2013
Net cash provided by operating activities $ 891,772 $ 665,397 $ 3,362,153 $ 4,944,211
Net cash provided by operating activities per share $ 0.07 $ 0.06 $ 0.28 $ 0.41
Less: Purchases of property and equipment (41,458) (9,216) (177,616) (381,507)
Less: Capitalization of internal-use software development costs (11,078) (69,528)
Free cash flow $ 839,236 $ 656,181 $ 3,115,009 $ 4,562,704
Free cash flow per share $ 0.07 $ 0.05 $ 0.26 $ 0.38

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 $45 billion in energy, demand response and environmental commodities, creating more than $3 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, 2013 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.

Three Months Ended March 31,
2014 2013
Revenue $ 9,520,353 $ 8,657,482

Cost of revenue



Gross profit



Sales and marketing expenses



General and administrative expenses



Operating loss


Interest expense, net


Other income (expense)


Loss before income taxes


Income tax expense 63,000 131,305

Net loss

$ (497,780)

$ (956,885)
Net loss per common share – basic and diluted $ (0.04) $ (0.08)

Weighted average shares outstanding – basic and diluted



March 31, 2014
Cash and cash equivalents $ 2,578,970
Trade accounts receivable, net 7,439,892
Other current assets 1,850,376
Property and equipment, net 558,052
Goodwill 16,167,834
Intangible and other assets, net 15,020,889
Long-term portion of deferred tax asset 7,147,984
Total assets $ 50,763,997
Liabilities and stockholders' equity
Accrued commissions $ 1,597,493
Accounts payable and accrued liabilities 5,214,365
Deferred revenue and customer advances 4,438,499
Notes payable and current portion of long-term debt 1,255,165
Total current liabilities 12,505,522
Deferred revenue and customer advances, and other liabilities 3,727,793
Long-term debt 9,244,835
Stockholders' equity 25,285,847
Total liabilities and stockholders' equity $ 50,763,997

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.

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