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World Energy Solutions Announces Q2 Financial Results

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

Financial Highlights (All figures are in US dollars; comparisons of performance are made between Q2 2013 results and Q2 2012 results, unless otherwise noted.)

Revenue

  • Revenue for the six-month period was up 19% to $16.6 million
  • Quarterly revenue increased 10% to $7.9 million

Backlog

  • Total backlog plus deferred revenue rose 18% to $51.2 million
  • Annualized backlog increased 10% to $23.9 million

Operating Results

  • Cash flow from operations was $0.6 million, or $0.05 per share, for the quarter; $1.2 million, or $0.10 per share, for the six-month period
  • Gross margins in the quarter improved to 73%, up from 70%
  • Net loss for the quarter was ($1.7) million or ($0.14) per share

Liquidity and Balance Sheet

  • Deferred revenue increased $0.7 million during the quarter to $7.0 million
  • Retired $0.5 million in debt to SVB in the quarter
  • Cash and cash equivalents were $2.2 million at quarter end

"Overall, I am pleased with our execution this quarter and our performance over the first half year, where we grew revenue 19 percent and generated $0.10 per share in cash flow from operations," said Phil Adams, CEO of World Energy Solutions. "Our second quarter delivered the most revenue we've seen in a second quarter – traditionally our seasonally slowest quarter. We had many successes which underscore the attractive fundamentals of our business. We had strong new bookings in our Energy Procurement segment; our Northeast Mid-Market team experienced its first successes up-selling auction deals; and cross-selling activity amongst our Energy Efficiency Services and Mid-Market groups continued to increase. In addition, we had more than half a million dollars in deals due to close in the quarter slip to Q3 and since close.

"While I am encouraged by these developments, this is clearly a transitional quarter for us. This is the second quarter where we continue to work through the effects of a revenue recognition policy change that defers revenue from certain mid-market deals to future quarters while incurring in-period expense. That said, we remain bullish on our business and know from experience that as we continue to execute the GAAP numbers will follow."

Financial Review

Year-to-Date 2013

Revenue for the six months ended June 30, 2013 rose 19% over the same period last year to $16.6 million, as Energy Procurement grew 21%. This reflects continued execution in the Company's retail product line, including the acquisition of NEP in Q4 2012. Energy Efficiency Services increased 4%, as we completed more projects covered by the four utility efficiency programs in 2013 as compared to 2012 and capitalized on cross-sell opportunities.

Gross margins were 74% for the six months ended June 30, 2013 compared to 72% 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% as a result of increased revenue with costs only slightly increasing over the six-months ended June 30, 2012. Energy Efficiency Services gross margins were 15% compared to 27% for the six-months ended June 30, 2012, reflecting a low contribution margin on a large municipal project completed during the period and increased payroll costs associated with additional personnel in 2013 compared to 2012 as we hired in advance of expected revenue growth in the second half of 2013. Operating expenses as a percentage of sales increased 2% to 85% as the increase in costs exceeded the growth in revenue. The increase in operating expenses was primarily due to higher payroll, commissions and amortization of intangible assets related to the NEP acquisition and general headcount increases in the Company's sales, marketing and back office operations. As a result, the Company's operating margin remained at (11)% and EBITDA* margin was 1% for both periods.

Q2 2013

Revenue for the three months ended June 30, 2013 rose 10% over the same period last year to $7.9 million, as Energy Procurement grew 19%. This reflects continued execution in the Company's base business, including the acquisition of NEP in Q4 2012. Energy Efficiency Services declined 27%, as several projects completed at or near quarter end did not get utility approval until the third quarter due to a change in one utility's close out procedures. These projects will be reflected in the Company's third quarter results.

Gross margins were 73% for the quarter ended June 30, 2013 compared to 70% 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 2% to 82% as a result of increased revenue with costs only slightly increasing over Q2 2012. Energy Efficiency Services gross margins were 9% compared to 27% in Q2 2012, reflecting a low contribution margin on a large municipal project completed during the quarter and increased payroll costs associated with additional personnel in Q2 2013 as we hired in advance of expected revenue growth in the second half of 2013. Operating expenses as a percentage of sales increased 8% to 89% as the increase in costs exceeded the growth in revenue. The increase in operating expenses was primarily due to higher payroll, commissions and amortization of intangible assets related to the NEP acquisition and general headcount increases in the Company's sales, marketing and back office operations. As a result, the Company's operating margin declined 5% to (16)% and EBITDA* margin was (3)% compared to (1)% in the prior year quarter. As revenue continues to grow and the Company works through the effects of its mid-market revenue recognition policy change, the Company expects operating margins to improve, reflecting the inherent leverage in its model.

At June 30, 2013, the Company had cash and cash equivalents of $2.2 million, compared with $3.3 million at December 31, 2012 and $2.1 million at March 31, 2013. The increase in cash and cash equivalents during the quarter was primarily due to $0.6 million of cash flow from operations which was substantially offset by $0.5 million of principal payments on long-term debt. Cash flow from operations for the six months ended June 30, 2013 increased $0.3 million, or 30%, compared to the same period in 2012. The Company continues to maintain its $2.5 million line-of-credit and has not borrowed against that facility to date.

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 June 30, 2013 included commodity backlog of $43.5 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, August 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) 517-2458 (domestic) or 1 (847) 413-3538 (international) and enter passcode 6462953#. 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, net interest and income tax expense as these are essentially fixed amounts that cannot be influenced by management in the short term. In addition, management believes it is useful to exclude share-based compensation as this is not a cash expense.

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 income 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 income to EBITDA and adjusted EBITDA is shown below:

Three Months Ended Six Months Ended
June 30, June 30,
2013 2012 2013 2012
GAAP net loss $ (1,654,155) $ (917,022) $ (2,611,040) $ (1,700,086)
Add: Interest expense 277,397 98,263 480,134 187,707
Add: Income taxes 131,305 22,500 262,610 50,000
Add: Amortization of intangibles 974,758 698,894 1,949,516 1,458,141
Add: Amortization of other assets 8,506 8,734 17,013 21,671
Add: Depreciation 55,070 49,520 110,739 103,070
Non-GAAP EBITDA (deficit) $ (207,119) $ (39,111) $ 208,972 $ 120,503
Non-GAAP EBITDA per share $ (0.02) $ — $ 0.02 $ 0.01
Add: Share-based compensation 146,323 79,903 292,309 199,444
Non-GAAP adjusted EBITDA (deficit) $ (60,796) $ 40,792 $ 501,281 $ 319,947
Non-GAAP adjusted EBITDA per share $ (0.01) $ — $ 0.04 $ 0.03
Weighted average diluted shares 11,982,656 11,928,460 12,050,866 11,952,420
Reconciliation of Free Cash Flow
for Three Months Ended June 30,
Reconciliation of Free Cash Flow
for Six Months Ended June 30,
2013 2012 2013 2012
Net cash provided by operating activities $ 581,728 $ 1,449,660 $ 1,247,125 $ 957,394
Net cash provided by operating activities per share $ 0.05 $ 0.12 $ 0.10 $ 0.08
Less: Purchases of property and equipment (65,023) (244,527) (74,239) (276,142)
Free cash flow $ 516,705 $ 1,205,133 $ 1,172,886 $ 681,252
Free cash flow per share $ 0.04 $ 0.10 $ 0.10 $ 0.06

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. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "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. 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
June 30,
Six Months Ended
June 30,
2013 2012 2013 2012

Revenue

$ 7,935,657

$ 7,185,199
$ 16,593,139 $ 13,978,606

Cost of revenue

2,144,455

2,158,485
4,377,606 3,981,898

Gross profit

5,791,202

5,026,714
12,215,533 9,996,708

Sales and marketing expenses

4,890,347

3,718,771
9,868,428 7,532,954

General and administrative expenses

2,167,021

2,104,202
4,228,694 3,979,239

Operating loss

(1,266,166)

(796,259)
(1,881,589) (1,515,485)
Interest expense, net
(277,397)

(98,263)
(480,134) (187,707)

Other income

20,713

13,293 53,106

Loss before income taxes

(1,522,850)

(894,522)
(2,348,430) (1,650,086)
Income tax expense 131,305 22,500 262,610 50,000

Net loss

$ (1,654,155)

$ (917,022)
$ (2,611,040) $ (1,700,086)
Net loss per common share – basic and diluted $ (0.14) $ (0.08) $ (0.22) $ (0.14)

Weighted average shares outstanding – basic and diluted

11,982,656

11,893,365
11,974,428 11,880,669
SUMMARY OF CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2013
Assets
Cash and cash equivalents $ 2,191,478
Trade accounts receivable, net 7,005,602
Other current assets 2,704,064
Property and equipment, net 604,828
Goodwill 16,167,834
Intangible and other assets, net 17,739,637
Long-term portion of deferred tax asset 5,690,370
Total assets $ 52,103,813

Liabilities and stockholders' equity
Accrued commissions $ 1,443,132
Accounts payable and accrued liabilities 7,803,403
Deferred revenue and customer advances 2,421,488
Notes payable and current portion of long-term debt 3,960,127
Total current liabilities 15,628,150
Deferred revenue and customer advances, and other liabilities 4,580,805
Long-term debt 7,430,223
Stockholders' equity 24,464,635
Total liabilities and stockholders' equity $ 52,103,813

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 Susan Forman Dian Griesel Inc. (212) 825-3210 sforman@dgicomm.com or In Canada: Craig Armitage The Equicom Group (416) 815-0700 x278 carmitage@equicomgroup.com

Source:World Energy Solutions, Inc.