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World Energy Solutions Announces Q3 Financial Results

WORCESTER, Mass., Nov. 10, 2014 (GLOBE NEWSWIRE) -- World Energy Solutions, Inc. (Nasdaq:XWES), a leading energy technology and services firm, today announced financial results for the three and nine months ended September 30, 2014.

Financial Highlights (All figures are in US dollars; comparisons of performance are made between Q3 2014 results and Q3 2013 results, unless otherwise noted.)

Revenue and Backlog

  • Quarterly revenue grew 13% to $9.9 million
    • Energy procurement revenue for the quarter grew 6%
    • Energy efficiency services revenue rose 49%
  • Revenue for the nine-month period increased 14% to $28.8 million
  • Annualized backlog stood at $23.9 million
  • Total backlog declined 4% to $44.2 million

Operating Results

  • Adjusted EBITDA* climbed to a record $1.4 million, up from $0.8 million
  • Net loss decreased to ($0.1) million, or ($0.01) per share, from ($0.6) million, or ($0.05) per share
  • Non-GAAP adjusted net income was $0.3 million, or $0.02 per share, which excludes $0.4 million in merger-related costs
  • Gross margins in the quarter fell slightly to 73% from 74%, reflecting the increased contribution of energy efficiency services revenue to total revenue
    • Energy procurement gross margins increased to 88% from 84%
    • Energy efficiency services gross margins decreased to 21% from 24%
  • Free cash flow for the quarter was $0.7 million

Liquidity and Balance Sheet

  • Cash and cash equivalents were $2.8 million at quarter end, a 60% increase from December 31, 2013
  • The Company commenced principal payments against its long-term debt

"This is clearly an exciting time for World Energy as evidenced by our strong quarterly performance and the recently announced agreement with EnerNOC," said Phil Adams, CEO of World Energy Solutions. "Our Q3 results underscore the strength of our business model, which reliably generates profit and cash. Not only did we post another quarter of double-digit organic revenue growth, highlighted by the second best revenue quarter in our history, but we also achieved record adjusted EBITDA.

"Against this backdrop, we have attracted the attention of EnerNOC, which entered into an agreement to acquire World Energy last week. This move further validates our reputation as a technology leader in the energy management space. Our software-based auction platform continues to demonstrate significant value to participants in the retail energy sector and is poised to deliver significant synergies and cost savings to customers as part of EnerNOC's energy intelligence software platform."

Financial Review

Q3 2014

Revenue for the three months ended September 30, 2014 increased 13% to $9.9 million as revenue from both segments increased compared to the same period last year. Energy procurement revenue rose 6%, reflecting increased transaction activity from our auction, mid-market and wholesale customers as well as an increase in revenue recognized from previously deferred items. Energy efficiency services grew 49% as our rebuilt Massachusetts sales team continued to deliver an increase in the number of projects and average project size completed during the third quarter of 2014.

Gross margins decreased 1% to 73%, reflecting the increased contribution of energy efficiency services revenue to total revenue. Energy procurement gross margins increased to 88%, from 84%, reflecting a decrease in payroll due to our continued integration, automation, and reorganization efforts to improve processes and drive scalability. Energy efficiency services gross margins decreased to 21%, from 24% in the same period last year, due to the completion of one low-margin project completed during the quarter. Operating expenses as a percentage of sales decreased to 72%, from 76% in the same period last year, primarily resulting from the growth in revenue. Operating expenses increased primarily due to $0.4 million of costs incurred related to our recently announced proposed merger with EnerNOC. Our operating margin improved to 1% as compared to (2%) in the same period last year, and adjusted EBITDA* margin was 14% compared to 10% in the prior year quarter. Non-GAAP adjusted net income was $0.3 million, or $0.02 per share, for the three months ended September 30, 2014 compared to a net loss of ($0.6) million, or ($0.05) per share in 2013.

At September 30, 2014, we had cash and cash equivalents of $2.8 million compared to $1.7 million at December 31, 2013 and $2.3 million at June 30, 2014. The increase in cash and cash equivalents during the quarter was primarily due to free cash flow of $0.7 million for the quarter, which was partially offset by principal payments against our long-term bank debt. Free cash flow decreased from the same period last year as improved net income, adjusted for non-cash items, was offset by increases in accounts receivable and capitalized software costs, and a decrease in deferred revenue. The Company continues to maintain a $2.5 million line-of-credit with Commerce Bank and has not borrowed against this facility.

Year-to-Date 2014

Revenue for the nine months ended September 30, 2014 rose 14% over the same period last year to $28.8 million as revenue from both segments increased over the same period last year. Energy procurement increased 9%, reflecting increased transaction activity from our auction and mid-market customers, as well as increased revenue recognized from previously deferred items. These increases were partially offset by a decrease in gas transaction activity as increased commodity prices during the first quarter delayed contracting decisions by listers. Energy efficiency services increased 41% as our rebuilt Massachusetts sales team continued to deliver increased revenue in the NSTAR territory in Massachusetts during 2014. Gross margins were 75% for the nine months ended September 30, 2014 compared to 74% for the same period last year, reflecting an increase in both segments. Energy procurement gross margins increased to 87%, from 83%, primarily resulting from a decrease in payroll resulting from our continued integration, automation, and reorganization efforts to improve processes and drive scalability. Energy efficiency services gross margins increased to 20%, from 18% in the same period last year, due to improved contribution margins on projects completed during the first nine-months of 2014. Operating expenses as a percentage of sales decreased to 75%, from 82% in the same period last year, as the growth in revenue exceeded the increase in costs. The increase in operating expenses was primarily due to increased legal and consulting costs related to costs associated with our proposed merger with EnerNOC and the shareholder action in the first quarter of 2014. Overall, the Company's operating margin improved to 1%, and adjusted EBITDA* margin was 12% as compared to 4% for the same period last year.

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, 2014 included commodity backlog of $43.3 million and $23.0 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 $0.9 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 10, 2014, at 5:00 p.m. (ET) to discuss its financial results and other corporate developments. To access the conference call by telephone, dial 1 (800) 774-6070 (domestic) or 1 (630) 691-2753 (international) and enter passcode 8871616#. A replay will be available two hours after the completion of the call, and for three months following the call, by dialing 1 (888) 843-7419 for domestic participants or 1 (630) 652-3042 for international participants, and entering passcode 8871616# 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 Non-GAAP net income (loss), adjusted EBITDA and free cash flow as additional information relating to our operating results. These non-GAAP measures exclude expenses related to the proposed merger of the Company with EnerNOC, 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 income taxes.

Management believes it is useful to exclude expenses related to the proposed merger, depreciation, amortization, 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 non-GAAP adjusted net income (loss), adjusted EBITDA and Free cash Flow is shown below:

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
GAAP net loss $ (149,339) $ (592,298) $ (341,514) $ (3,203,338)
Add: Non-recurring transaction costs 405,807 -- 488,807 --
Non-GAAP adjusted net income (loss) 256,468 (592,298) 147,293 (3,203,338)
Add: Interest expense, net 196,010 253,822 594,306 733,956
Add: Income taxes 36,844 142,555 11,844 405,165
Add: Amortization of intangibles 844,701 974,759 2,616,046 2,924,275
Add: Amortization of other assets 11,947 8,507 37,959 25,520
Add: Depreciation 48,927 56,373 153,923 167,112
Non-GAAP adjusted EBITDA $1,394,897 $843,718 $3,561,371 $1,052,690
Non-GAAP adjusted EBITDA per share $0.11 $0.07 $0.29 $0.09
Weighted average diluted shares 12,580,375 12,068,220 12,464,823 12,076,880
Reconciliation of Free Cash Reconciliation of Free Cash Flow
Flow for Three Months Ended for Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Net loss $ (149,339) $ (592,298) $ (341,514) $ (3,203,338)
Non-cash adjustments 1,208,873 1,301,625 3,431,588 3,942,762
Net loss adjusted for non-cash items 1,059,534 709,327 3,090,074 739,424
Changes in operating assets and liabilities (207,869) 209,809 (1,070,617) 1,426,837
Net cash provided by operating activities $851,665 $919,136 $2,019,457 $2,166,261
Net cash provided by operating activities per share $0.07 $0.08 $0.16 $0.18
Less: Purchases of property and equipment (12,329) (54,728) (72,039) (128,967)
Less: Capitalization of internal-use software development costs (141,777) (24,046) (225,499) (24,046)
Free cash flow $697,559 $840,362 $1,721,919 $2,013,248
Free cash flow per share $0.06 $0.07 $0.14 $0.17

Notice to Investors

The tender offer described herein has not yet been commenced. The description contained in this press release is neither an offer to purchase nor a solicitation of an offer to sell securities of the Company. At the time the tender offer is commenced, EnerNOC and its wholly owned subsidiary intend to file a Tender Offer Statement on Schedule TO containing an offer to purchase, forms of letters of transmittal and other documents relating to the tender offer, and the Company intends to file a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the tender offer. Investors and stockholders of the Company are strongly advised to read the Tender Offer Statement on Schedule TO, including the offer to purchase, form of letter of transmittal and other documents related to the tender offer, and the Solicitation/Recommendation Statement on Schedule 14D-9 that will be filed by the Company, and other relevant materials when they become available, because these materials contain important information regarding the tender offer. Stockholders of the Company will be able to obtain a free copy of these documents (when they become available) and other documents filed by the Company or EnerNOC with the SEC at the website maintained by the SEC at www.sec.gov. In addition, the Schedule TO and related exhibits, including the offer to purchase, forms of letters of transmittal, and other related tender offer documents may be obtained (when available) for free by contacting the Company at 100 Front Street, Worcester, MA 01608.

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. 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, 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: whether the acquisition will be consummated; whether the Company will obtain a superior proposal; 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.

WORLD ENERGY SOLUTIONS, INC.
SUMMARY OF CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Revenue $9,917,639 $8,738,557 $28,831,029 $25,331,696
Cost of revenue 2,669,066 2,243,875 7,101,185 6,621,481
Gross profit 7,248,573 6,494,682 21,729,844 18,710,215
Sales and marketing expenses 4,767,475 4,875,985 14,163,226 14,744,413
General and administrative expenses 2,399,892 1,817,996 7,313,006 6,046,690
Operating income (loss) 81,206 (199,299) 253,612 (2,080,888)
Interest expense, net (196,010) (253,822) (594,306) (733,956)
Other income 2,309 3,378 11,024 16,671
Loss before income taxes (112,495) (449,743) (329,670) (2,798,173)
Income tax expense (36,844) (142,555) (11,844) (405,165)
Net loss $ (149,339) $ (592,298) $ (341,514) $ (3,203,338)
Net loss per common share – basic and diluted $ (0.01) $ (0.05) $ (0.03) $ (0.27)
Weighted average shares outstanding – basic and diluted 12,421,143 12,007,667 12,309,029 11,985,629
SUMMARY OF CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2014
Assets
Cash and cash equivalents $2,756,332
Trade accounts receivable, net 7,995,230
Other current assets 2,246,553
Property and equipment, net 479,496
Goodwill 16,167,834
Intangible and other assets, net 13,563,966
Long-term portion of deferred tax asset 7,236,903
Total assets $50,446,314
Liabilities and stockholders' equity
Accrued commissions $1,666,733
Accounts payable and accrued liabilities 5,111,966
Deferred revenue and customer advances 4,678,249
Notes payable and current portion of long-term debt 1,117,904
Total current liabilities 12,574,852
Deferred revenue and customer advances, and other liabilities 2,343,597
Long-term debt 8,613,790
Stockholders' equity 26,914,075
Total liabilities and stockholders' equity $50,446,314

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.