What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-07 · 174 added, 135 removed, 617 unchanged (33% of the section changed)

6 unchanged sentences

Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 1,957 and $ 2,127 at April 2, 2021 and January 1, 2021, respectively

Accounts receivable, net of allowance for doubtful accounts of $ 1,990 and $ 2,127 at July 2, 2021 and January 1, 2021, respectively

Contract assets

26 unchanged sentences

Common stock, $ 0.01 par value, 40,000 shares authorized;

12,508 and 12,160 shares issued and outstanding at April 2, 2021 and January 1, 2021, respectively

12,713 and 12,160 shares issued and outstanding at July 2, 2021 and January 1, 2021, respectively

Additional paid-in capital

9 unchanged sentences

Three Months Ended

Six Months Ended

Contract revenue

36 unchanged sentences

Balance at April 3, 2020

Shares of common stock issued in connection with incentive stock plan

Issuance of restricted stock award and units

Stock-based compensation expense

Net unrealized gain on derivative contracts

Balance at July 3, 2020

Comprehensive

8 unchanged sentences

Balance at April 2, 2021

Shares of common stock issued in connection with incentive stock plan

Shares used to pay taxes on stock grants

Issuance of restricted stock award and units

Stock-based compensation expense

Net income (loss)

Net unrealized gain on derivative contracts

Balance at July 2, 2021

See accompanying notes to Condensed Consolidated Financial Statements.

3 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

16 unchanged sentences

Right-of-use assets

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

10 unchanged sentences

Proceeds from sales of common stock under employee stock purchase plan

Shares used to pay taxes on stock grants

Cash used to pay taxes on stock grants

Restricted Stock Award and Units

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

5 unchanged sentences

(Gain) loss on cash flow hedge valuations, net of tax

Other working capital adjustment

Equipment acquired under finance leases

28 unchanged sentences

Actual results could differ from those estimates.

Management’s Plans in Response to Covid-19

The coronavirus (“Covid-19”) pandemic has resulted in governmental authorities around the world implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or total lock-down orders and business limitations and shutdowns (subject to exceptions for certain essential operations and businesses).

The Covid-19 outbreak and restrictions intended to slow the spread of Covid-19 have caused economic and social disruption on an unprecedented scale.

The full extent to which Covid-19 impacts the Company’s operations will depend on future developments, which are highly uncertain, including, among others, the duration of the

WILLDAN GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

pandemic, resurgences of Covid-19 and variants, the availability, effectiveness and public acceptance of FDA-approved Covid-19 vaccines, and the actions taken, especially those by governmental authorities, to contain its spread or treat its impact.

Health and Safety

In response to the Covid-19 pandemic, the Company has taken and will continue to take temporary precautionary measures intended to help minimize the risk of Covid-19 to its employees, including requiring the majority of its employees to work remotely, suspending non-essential travel and restricting in-person work-related meetings.

The Company expects to continue to implement these measures until it has determined that the Covid-19 pandemic is adequately contained for purposes of its business, and may take further actions as government authorities require or recommend or as it determines to be in the best interests of its employees, customers, business partners and third-party service providers.

Financial Position and Results of Operations

The Covid-19 pandemic and efforts to limit its spread negatively impacted the Company’s operations during its fiscal year 2020 and continued to impact the Company, albeit to a lesser extent, during the first quarter of fiscal year 2021.

Impact of Covid-19

The coronavirus (“Covid-19”) pandemic and efforts to limit its spread negatively impacted the Company’s operations during its fiscal year 2020 and continued to impact the Company, albeit to a lesser extent, during the first half of fiscal year 2021.

In California and New York, the states in which the Company has historically derived a majority of its revenue, mandatory shutdown orders were issued in March 2020.

1 unchanged sentence

In California, phased re-openings began in May 2020, followed by periods of curtailments as a result of resurgences of Covid-19 cases, and subsequent re-openings.

As a result, the most significant pandemic related impacts to the Company’s business are now occurring in California to its direct install business as re-openings are still in progress .

In addition, as of May 5, 2021, though some of the Company work has been suspended, none of its contracts have been cancelled.

In the Energy segment, the Company has experienced a negative impact on its direct install programs that serve small businesses as a result of restrictions put in place by governmental authorities that required temporary shutdowns of all “non-essential” businesses which resulted in a significant portion of the Company’s direct install work on these programs being suspended for varying periods of time during fiscal year 2020 and continuing in California through the Company’s first fiscal quarter of 2021.

WILLDAN GROUP, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As a result, the most significant pandemic related impacts to the Company’s business occurred in California to its direct install business.

During the last week of June 2021, the Company’s largest program for the Los Angeles Department of Water and Power (“LADWP”) resumed, which was the Company’s last program suspended due to Covid-19.

In addition, as of August 4, 2021, none of the Company’s contracts have been cancelled due to Covid-19.

During non-Covid-19 impacted years, such as fiscal year 2019, the Company derived approximately 40 % of its gross revenue from its direct install programs that serve small businesses and 60 % from the Company’s other programs.

7 unchanged sentences

The Company believes that its financial position is sufficiently flexible to enable it to maneuver in the current economic environment.

WILLDAN GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Asset and liability valuation and other estimates used in preparation of financial statements

As of April 2, 2021, the Company did not have any impairment with respect to goodwill or long-lived assets, including intangible assets.

As of July 2, 2021, the Company did not have any impairment with respect to goodwill or long-lived assets, including intangible assets.

Because the full extent of the impact of the Covid-19 outbreak and efforts to slow its spread are unknown at this time, they could, under certain circumstances, cause impairment and result in a non-cash impairment charge being recorded in future periods.

Changes to the estimated future profitability of the business may require that the Company establish an additional valuation allowance against all or some portion of its net deferred tax assets.

WILLDAN GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Impact on Clients and Subcontractors and Other Risks

1 unchanged sentence

Some of these customers could experience significant budget shortfalls for the current year and beyond as a result of the measures taken to mitigate the Covid-19 pandemic and/or revenue shortfalls as a result of reduced economic activity.

Although none of the Company’s contracts with governmental or public agencies were materially modified during its fiscal year 2020 or during its first fiscal quarter of 2021, these potential budget deficits could result in delayed funding for existing contracts with the Company, postponements of new contracts or price concessions.

Further, most of the Company’s clients are not committed to purchase any minimum amount of services, as the Company agreements with them are based on a “purchase order” model.

Although none of the Company’s contracts with governmental or public agencies were materially modified during its fiscal year 2020 or during its first half of fiscal 2021, these potential budget deficits could result in delayed funding for existing contracts with the Company, postponements of new contracts or price concessions.

Further, most of the Company’s clients are not committed to purchase any minimum amount of services, as the Company agreements with them are based on a “purchase order” or “master service agreement” model.

As a result, they may discontinue utilizing some or all of the Company’s services with little or no notice.

In addition, the Company relies on subcontractors and material suppliers to complete a substantial portion of our work, especially in its Energy segment.

In addition, the Company relies on subcontractors and material suppliers to complete a substantial portion of its work, especially in its Energy segment.

If the Company’s significant subcontractors and material suppliers suffer significant economic harm and must limit or cease operations or file for bankruptcy as a result of the current economic slowdown, the Company’s subcontractors and material suppliers may not be able to fulfill their contractual obligations satisfactorily and the Company may not have the ability to select its subcontractors and material suppliers of choice for new contracts.

5 unchanged sentences

While Covid-19 has had, and the Company expects it to continue to have, an adverse effect on its business, financial condition and results of operations, the Company is unable to predict the extent or duration of these impacts at this time.

Health and Safety

In response to the Covid-19 pandemic, the Company has taken and will continue to take precautionary measures intended to help minimize the risk of Covid-19 to its employees, including requiring the majority of its employees to work remotely, suspending non-essential travel and restricting in-person work-related meetings.

WILLDAN GROUP, INC.

55 unchanged sentences

For unit-based contracts, the Company recognizes the contract price of units of a basic production product as revenue when the production product is delivered during a period.

Revenue recognition for software licenses issued by the Energy segment is generally recognized at a point in time, utilizing the unit-based revenue recognition method, upon acceptance of the software by the customer and in recognition of the fulfillment of the performance obligation.

Certain additional performance obligations beyond the base software license may be separated from the gross license fee and recognized on a straight-line basis over time.

Revenue for amounts that have been billed but not earned is deferred, and such deferred revenue is referred to as contract liabilities in the accompanying condensed consolidated balance sheets.

To determine the proper revenue recognition method for contracts, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined contract should be accounted for as one performance obligation.

With respect to the Company’s contracts, it is rare that multiple contracts should be combined into a single performance obligation.

This evaluation requires significant judgment and the decision to combine a group of contracts or separate a single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

Contracts are considered to have a single performance

The Company also derives revenue from software licenses and professional services and maintenance fees.

In accordance with ASC 606, the Company performs an assessment of each contract to identify the performance obligations, determine the overall transaction price for the contract, allocate the transaction price to the performance obligations, and recognize the revenue when the performance obligations are satisfied.

The Company utilizes the residual approach by which it estimates the standalone selling price by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract.

The software license revenue is typically recognized at a point in time when control is transferred to the client, which is defined as the point in time when the client can use and benefit from the license.

The software license is delivered before related services are provided and is functional without services, updates, or technical support.

Related professional services include training and support services in which the standalone selling price is determined based on an input measure of hours incurred to total estimated hours and is recognized over time, usually which is the life of the contract.

WILLDAN GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, which is mainly because the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability.

With respect to the Company’s contracts, it is rare that multiple contracts should be combined into a single performance obligation.

Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts, which is mainly because the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability.

The Company may enter into contracts that include separate phases or elements.

14 unchanged sentences

The Company estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on assessments of legal enforceability, the Company’s performance, and all information (historical, current and forecasted) that is reasonably available to the Company.

Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment.

As a significant change in one or more of these estimates could affect the profitability of the Company’s contracts, the Company reviews and updates the Company’s contract-related estimates regularly through a company-wide disciplined project review process in which management reviews the progress and execution of the Company’s performance obligations and the estimate at completion (EAC).

As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule and the related changes in estimates of revenues and costs.

Management must make assumptions and estimates

WILLDAN GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

regarding labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer, among other variables.

Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, the performance of subcontractors, and the availability and timing of funding from the customer, among other variables.

The Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method.

17 unchanged sentences

No allocation of facilities costs is made to direct costs of contract revenue.

Other companies may classify as direct costs of contract revenue some of the costs that the Company classifies as general and administrative costs.

The Company expenses direct costs of contract revenue when incurred.

Included in revenue and costs are all reimbursable costs for which the Company has the risk or on which the fee was based at the time of bid or negotiation.

No revenue or cost is recorded for costs in which the Company acts solely in the capacity of an agent and has no risks associated with such costs.

Other companies may classify as direct costs of

WILLDAN GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

contract revenue some of the costs that the Company classifies as general and administrative costs.

The Company expenses direct costs of contract revenue when incurred.

Included in revenue and costs are all reimbursable costs for which the Company has the risk or on which the fee was based at the time of bid or negotiation.

No revenue or cost is recorded for costs in which the Company acts solely in the capacity of an agent and has no risks associated with such costs.

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon a review of all outstanding amounts on a quarterly basis.

4 unchanged sentences

Retainage, included in contract assets, represents amounts withheld from billings to the Company’s clients pursuant to provisions in the contracts and may not be paid to the Company until specific tasks are completed or the project is completed and, in some instances, for even longer periods.

At April 2, 2021 and January 1, 2021, contract assets included retainage of approximately $ 5.7 million and $ 6.2 million, respectively.

In addition to the above, the Company derives revenue from software licenses and professional services and maintenance fees.

The software license is delivered before related services are provided and is functional without services, updates, or technical support.

As of July 2, 2021 and January 1, 2021, contract assets included retainage of approximately $ 5.0 million and $ 6.2 million, respectively.

WILLDAN GROUP, INC.

4 unchanged sentences

From time to time, in connection with factoring agreements, the Company sells trade accounts receivable without recourse to third party purchasers in exchange for cash.

During the three months ended April 2, 2021, the Company sold trade accounts receivable and received cash proceeds of $ 7.2 million.

During the six months ended July 2, 2021, the Company sold trade accounts receivable and received cash proceeds of $ 8.0 million.

The discounts on the trade accounts receivable sold were $ 0.8 million and were recorded within “Other, net” in other income (expense) in the condensed consolidated financial statements.

During the three months ended April 3, 2020, the Company did not sell any trade accounts receivable.

During the six months ended July 3, 2020, the Company did not sell any trade accounts receivable.

Equipment and Leasehold Improvements

7 unchanged sentences

Equipment and leasehold improvements, net

Included in accumulated depreciation and amortization is $ 0.1 million and $ 0.6 million of amortization expense related to equipment held under finance leases in the three months ended April 2, 2021 and fiscal year 2020, respectively.

Included in accumulated depreciation and amortization is $ 0.3 million and $ 0.6 million of amortization expense related to equipment held under finance leases for the six months ended July 2, 2021 and fiscal year 2020, respectively.

Accrued Liabilities

1 unchanged sentence

Accrued subcontractor costs

Employee withholdings

Accrued bonuses

Employee withholdings

Compensation and payroll taxes

9 unchanged sentences

The Company tests for impairment, at a minimum, on an annual basis or earlier when certain events or changes in circumstances indicate that goodwill may more likely than not be impaired.

The Company evaluated the current economic impact caused by the Covid-19 pandemic to assess a potential impairment of goodwill and noted that it does not believe it is more likely than not that goodwill was impaired as of April 2, 2021.

Intangible Assets

April 2, 2021

January 1, 2021

18 unchanged sentences

The interest rate swap agreement total notional amount of $ 35.0 million, has a fixed annual interest rate of 2.47 % and expires on January 31, 2022.

As of April 2, 2021, the effective portion of the Company’s interest rate swap agreement designated as a cash flow hedge before tax effects was $ 0.5 million, of which no amounts were reclassified from accumulated other comprehensive income to interest expense in the three months ended April 2, 2021.

As of July 2, 2021, the effective portion of the Company’s interest rate swap agreement designated as a cash flow hedge before tax effects was $ 0.4 million, of which no amounts were reclassified from accumulated other comprehensive income to interest expense in the six months ended July 2, 2021.

The Company expects to reclassify $ 0.3 million from accumulated other comprehensive loss to interest expense within the next twelve months.

3 unchanged sentences

Balance Sheet Location

April 2, 2021

January 1, 2021

4 unchanged sentences

Other noncurrent (liabilities) assets

The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on other comprehensive income (loss) were $ 0.2 million and $ 0.4 million of the three months ended April 2, 2021 and April 3, 2020, respectively

The accumulated balances and reporting period activities for the three months ended April 2, 2021 related to reclassifications out of accumulated other comprehensive loss are summarized as follows:

The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on other comprehensive income (loss) were $ 0.2 million and $ 0.3 million , respectively, for the three and six months ended July 2, 2021 as compared to $ 0.4 million for the six months ended July 3, 2020.

The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on other comprehensive income were not material for the three months ended July 3, 2020.

WILLDAN GROUP, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The accumulated balances and reporting period activities for the periods below related to reclassifications out of accumulated other comprehensive loss are summarized as follows:

Gain (Loss) on

9 unchanged sentences

Balances at April 2, 2021

Other comprehensive loss before reclassifications

Amounts reclassified from accumulated other comprehensive income:

Income tax benefit (expense) related to derivative instruments

Net current-period other comprehensive loss

Balances at July 2, 2021

WILLDAN GROUP, INC.

12 unchanged sentences

Credit Facilities

On June 26, 2019, the Company and certain of its subsidiaries entered into an Amended and Restated Credit Agreement (as amended by the First Amendment, dated as of August 15, 2019, and the Second Amendment, dated as of November 6, 2019, the “Credit Agreement”) with a syndicate of financial institutions as lenders and BMO Harris Bank, N.A.

On June 26, 2019, the Company and certain of its subsidiaries entered into an Amended and Restated Credit Agreement (as amended by the First Amendment, dated as of August 15, 2019, the Second Amendment, dated as of November 6, 2019, and the Third Amendment, dated as of May 6, 2020, the “Credit Agreement”) with a syndicate of financial institutions as lenders and BMO Harris Bank, N.A.

(“BMO”), as administrative agent.

1 unchanged sentence

The Company’s obligations under the Credit Agreement are guaranteed by its present and future domestic subsidiaries, with limited exceptions.

Prior to the Third Amendment (as defined below), the Credit Agreement required the Company to comply with certain financial covenants, including requiring that the Company maintain a (i) total leverage ratio (the “Leverage Ratio”), defined as the ratio of total funded debt to Adjusted EBITDA (as defined in the Credit Agreement), of at least 3.50 to 1.00 through December 31, 2020, and 3.25 to 1.00 thereafter and (ii) fixed charge coverage ratio (“FCCR Ratio”), defined as the ratio of Adjusted EBITDA less Unfinanced Capital Expenditures (as defined in the Credit Agreement) to Fixed Charges (as defined in the Credit Agreement), of not less than 1.20 to 1.00, in each case tested quarterly.

Prior to the Third Amendment to the Amended and Restated Credit Agreement, dated as of May 6, 2020 (the “Third Amendment”), the Credit Agreement required the Company to comply with certain financial covenants, including requiring that the Company maintain a (i) total leverage ratio (the “Leverage Ratio”), defined as the ratio of total funded debt to Adjusted EBITDA (as defined in the Credit Agreement), of no more than 3.50 to 1.00 through December 31, 2020, and 3.25 to 1.00 thereafter and (ii) fixed charge coverage ratio (“FCCR Ratio”), defined as the ratio of Adjusted EBITDA less Unfinanced Capital Expenditures (as defined in the Credit Agreement) to Fixed Charges (as defined in the Credit Agreement), of not less than 1.20 to 1.00, in each case tested quarterly.

Pursuant to the Third Amendment, during the period from May 6, 2020 until July 2, 2021 (the “Initial Covenant Relief Period”), the maximum Leverage Ratio was increased and the covenant to maintain a minimum FCCR Ratio was replaced with a covenant to maintain a minimum Adjusted EBITDA (as defined in the Third Amendment).

The Credit Agreement also contains other customary restrictive covenants including (i) restrictions on the incurrence of additional indebtedness and additional liens on property, (ii) restrictions on permitted acquisitions and other investments and (iii) limitations on asset sales, mergers and acquisitions.

1 unchanged sentence

Subject to certain exceptions, borrowings under the Credit Agreement are also subject to mandatory prepayment from (a) any issuances of debt or equity securities, (b) any sale or disposition of assets, (c) insurance and condemnation proceeds (d) representation and warranty insurance proceeds related to insurance policies issued in connection with acquisitions and (e) excess cash flow.

The Credit Agreement includes customary events of default.

WILLDAN GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Third Amendment to the Credit Agreement

On May 6, 2020, the Company entered into the Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”) which, among other things, amends or suspends certain covenants contained in the Credit Agreement from May 6, 2020 until the earlier of (i) July 2, 2021 and (ii) the last day of the fiscal quarter in which the Company delivers an irrevocable election to terminate the covenant relief granted by the Third Amendment (the “Covenant Relief Period”).

The Third Amendment increases the maximum Leverage Ratio the Company is permitted to maintain during the Covenant Relief Period and replaces the covenant to maintain a minimum FCCR Ratio during the Covenant Relief Period with a requirement to maintain a minimum Adjusted EBITDA (as defined in the Third Amendment).

During the Covenant Relief Period, no further delayed draw term loans may be borrowed under the Credit Facilities and the Company is prohibited from engaging in share repurchases or making any Permitted Acquisitions (as defined in the Credit Agreement).

Additionally, during the Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company may not exceed $ 7.0 million, and the Company is prohibited from making any earn-out payments if, after giving effect to such earn-out payment, the Company’s liquidity would be less than $ 5.0 million or the aggregate amount of all earn-out payments made by the Company during the Covenant Relief Period would exceed $ 7.0 million.

As part of the Third Amendment, borrowings under the Credit Agreement bear interest (A) from March 5, 2020 until the date of the Third Amendment, at a rate equal to one-month LIBOR plus 2.0 %, (B) from the date of the Third Amendment until the date the administrative agent receives the Company’s financial statements for the quarter ended July 3, 2020, at a rate equal to one-month LIBOR, plus an applicable margin of 2.50 % and (C) at all other times during the Covenant Relief Period, at a rate equal to either, at the Company’s option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5 % or one-month LIBOR plus 1.00 % or (ii) one-month LIBOR, in each case plus an applicable margin ranging from 0.125 % to 1.50 % with respect to Base Rate borrowings and 1.125 % to 2.50 % with respect to LIBOR borrowings, depending on the Leverage Ratio;

provided, that one-month LIBOR shall not be less than 0.75 % during the Covenant Relief Period.

During the Covenant Relief Period, the Company will pay a commitment fee for the unused portion of the Revolving Credit Facility and the delayed draw term loan facility, which ranges from 0.15 % to 0.45 % per annum depending on the Leverage Ratio, and fees on the face amount of any letters of credit outstanding under the Revolving Credit Facility, which range from 0.84 % to 2.50 % per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and the Leverage Ratio.

As of April 2, 2021, the Company was in compliance with all covenants contained in the Credit Agreement, as amended by the Third Amendment.

Other Debt Agreements

Insurance Premiums

The Company’s annual commercial insurance policy protection package renews in the fourth quarter of every year.

From time to time, the Company will finance insurance premiums by entering into unsecured notes payable with insurance companies.

During the Company’s annual insurance renewals in the fourth quarter of its fiscal year ended January 1, 2021, the Company elected to finance its insurance premiums for the 2021 fiscal year with a note payable bearing interest at an annual rate of 2.75 % , payable in monthly principal and interest installments of $ 0.2 million through August 2021.

As of April 2, 2021 and January 1, 2021, the unpaid balance of the financed premiums totaled $ 0.6 million and $ 1.1 million, respectively.

Pursuant to the Third Amendment, during the Initial Covenant Relief Period, no delayed draw term loans could be borrowed under the Credit Facilities and the Company was prohibited from engaging in share repurchases or making any Permitted Acquisitions (as defined in the Credit Agreement).

Additionally, during the Initial Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company could not exceed $ 7.0 million, and the Company was prohibited from making any earn-out payments if, after giving effect to such earn-out payment, the Company’s liquidity would be less than $ 5.0 million or the aggregate amount of all earn-out payments made by the Company during the Initial Covenant Relief Period would exceed $ 7.0 million.

As part of the Third Amendment, borrowings under the Credit Agreement bore interest (A) from March 5, 2020 until May 6, 2020 (the date of the Third Amendment), at a rate equal to one-month LIBOR plus 2.0 %, (B) from May 6, 2020 until the date the administrative agent receives the Company’s financial statements for the quarter ended July 3, 2020, at a rate equal to one-month LIBOR, plus an applicable margin of 2.50 % and (C) at all other times during the Initial Covenant Relief Period, at a rate equal to either, at the Company’s option, (i) the highest of the prime rate, the Federal Funds Rate plus 0.5 % or one-month LIBOR plus 1.00 % or (ii) one-month LIBOR, in each case plus an applicable margin ranging from 0.125 % to 1.50 % with respect to Base Rate borrowings and 1.125 % to 2.50 % with respect to LIBOR borrowings, depending on the Leverage Ratio;

provided, that one-month LIBOR shall not be less than 0.75 % during the Initial Covenant Relief Period.

During the Initial Covenant Relief Period, the Company paid a commitment fee for the unused portion of the Revolving Credit Facility and the delayed draw term loan facility, which ranged from 0.15 % to 0.45 % per annum depending on the Leverage Ratio, and fees on the face amount of any letters of credit outstanding under the Revolving Credit Facility, which range from 0.84 % to 2.50 % per annum, in each case, depending on whether such letter of credit was a performance or financial letter of credit and the Leverage Ratio.

The Credit Agreement includes customary events of default.

Fourth Amendment to the Credit Agreement

On April 30, 2021, the Company entered into the Fourth Amendment to the Amended and Restated Credit Agreement (the “Fourth Amendment”).

The Fourth Amendment extends the Initial Covenant Relief Period from July 2, 2021 to and including the earlier of (i) April 1, 2022 and (ii) the last day of the fiscal quarter in which the Company delivers an irrevocable election to terminate the covenant relief granted by the Fourth Amendment (the “Second Covenant Relief Period,” and together with the Initial Covenant Relief Period, the “Amended Covenant Relief Period”).

The Fourth Amendment also (A) establishes the minimum Adjusted EBITDA thresholds for the remainder of the Amended Covenant Relief Period, (B) increases the maximum Leverage Ratio the Company is permitted to maintain through the fiscal quarter ending on April 1, 2022, (C) removes the previous prohibition during the Initial Covenant Relief Period on the Company’s ability to make delayed draw term loan borrowings, (D) removes the previous prohibition during the Initial Covenant Relief Period on the Company’s ability to make Permitted Acquisitions (as defined in the Credit Agreement) and to purchase, redeem or otherwise acquire the Company’s common stock, in each case, subject to certain conditions, and (E) increases the maximum amount of earn-out payments the Company is permitted to make during the Amended Covenant Relief Period from $ 7.0 million to $ 17.0 million, provided that the Company’s liquidity would not be less than $ 10.0 million after giving effect to such earn-out payment.

Additionally, during the remainder of the Amended Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company may not exceed $ 15.0 million.

Pursuant to the Fourth Amendment, borrowings under the Credit Agreement will bear interest at all times other than during the Initial Covenant Relief Period, at either a Base Rate or LIBOR, each as defined in the Credit Agreement, at the Company’s option, and in each case plus an applicable margin, which applicable margin will range from 0.125 % to 1.25 % with respect to Base Rate borrowings and 1.125 % to 2.25 % with respect to LIBOR borrowings, depending on the Leverage Ratio;

provided, that LIBOR cannot be less than 0.00 %.

WILLDAN GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Software Agreements

The Company has also financed, from time to time, software costs by entering into unsecured notes payable with software providers.

During the fiscal year ended December 28, 2018, the Company elected to finance its IBM software costs of $ 0.2 million with a note payable bearing interest at an annual rate of 4.656 %, payable in monthly principal and interest installments of $ 6,000 through November 2021.

As of April 2, 2021, and January 1, 2021, the unpaid balance related to the IBM software agreement totaled $ 38,000 and $ 57,000 , respectively.

Utility Customer Agreement

In connection with the acquisition of substantially all of the assets of Onsite Energy, the Company assumed a contract dispute settlement agreement between Onsite Energy and one of its utility customers dated December 20, 2018 (the “Utility Customer Agreement”) where Onsite Energy agreed to pay $ 1.7 million, bearing interest at an imputed annual rate of 4.332 %, payable in quarterly principal and interest installments through June 2021.

As of April 2, 2021 and January 1, 2021, the unpaid balance of the Utility Customer Agreement totaled $ 0.8 million.

under the Revolving Credit Facility, which will range from 0.84 % to 1.688 % per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and the Leverage Ratio

As of July 2, 2021, the Company was in compliance with all covenants contained in the Credit Agreement, as amended by the Fourth Amendment.

Other Debt Agreements

The Company’s other debt agreements are related to financed insurance premiums, a financed software agreement, and a utility customer agreement and are immaterial to the Company’s Condensed Consolidated Financial Statements.

WILLDAN GROUP, INC.

9 unchanged sentences

Additionally, all of our month-to-month leases are cancelable by the Company or the lessor, at any time, and are not included in our right-of-use asset or lease liability.

As of April 2, 2021, the Company had no leases with residual value guarantees.

As of July 2, 2021, the Company had no leases with residual value guarantees.

Typically, the Company has purchase options on the equipment underlying its long-term leases.

20 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

Operating lease cost

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Finance Leases

Rent expense for the three months ended April 2, 2021 and April 3, 2020 was $ 1.8 million and $ 1.9 million, respectively.

Rent expense was $ 1.8 million and $ 3.6 million for the three and six months ended July 2, 2021, respectively, as compared to $ 1.9 million and $ 3.8 million for the three and six months ended July 3, 2020, respectively.

WILLDAN GROUP, INC.

2 unchanged sentences

The following is a summary of other information and supplemental cash flow information related to finance and operating leases:

Three Months Ended

Six Months Ended

(in thousands)

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Operating leases

The following is a summary of the maturities of lease liabilities as of April 2, 2021:

The following is a summary of the maturities of lease liabilities as of July 2, 2021:

(in thousands)

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Under the defined contribution plan, the Company may make discretionary matching contributions to employee accounts.

The Company made matching contributions of $ 0.9 million during the three months ended April 2, 2021 and April 3, 2020.

During the six months ended July 2, 2021 and July 3, 2020, the Company made matching contributions of $ 1.3 million and $ 0.9 million, respectively.

Variable Interest Entities

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In addition, the Company concluded there is no noncontrolling interest related to the consolidation of Genesys because the Company determined that (i) the shareholder of Genesys does not have more than a nominal amount of equity investment at risk, (ii) WES absorbs the expected losses of Genesys through its deferral of Genesys’s service fees owed to WES and the Company has, since entering into the administrative services agreement, had to continuously defer service fees for Genesys, and (iii) the Company believes Genesys will continue to have a shortfall on payment of its service fees for the foreseeable future, leaving no expected residual returns for the shareholder.

As of April 2, 2021, the Company had one VIE — Genesys.

As of July 2, 2021, the Company had one VIE — Genesys.

WILLDAN GROUP, INC.

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The Company’s two segments are Energy and Engineering and Consulting, and the Company’s chief operating decision maker, which continues to be its chief executive officer, receives and reviews financial information in this format.

There were no intersegment sales during the three months ended April 2, 2021 and April 3, 2020.

There were no intersegment sales during the three and six months ended July 2, 2021 and July 3, 2020.

The Company’s chief operating decision maker evaluates the performance of each segment based upon income or loss from operations before income taxes.

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(in thousands)

Fiscal Three Months Ended April 2, 2021

Fiscal Three Months Ended July 2, 2021

Contract revenue

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Segment assets (1)

Fiscal Three Months Ended April 3, 2020

Fiscal Three Months Ended July 3, 2020

Contract revenue

5 unchanged sentences

Segment assets (1)

Fiscal Six Months Ended July 2, 2021

Contract revenue

Depreciation and amortization

Interest expense, net

Segment profit (loss) before income tax expense

Income tax expense (benefit)

Net income (loss)

Segment assets (1)

Fiscal Six Months Ended July 3, 2020

Contract revenue

Depreciation and amortization

Interest expense, net

Segment profit (loss) before income tax expense

Income tax expense (benefit)

Net income (loss)

Segment assets (1)

(1) Segment assets are presented net of intercompany receivables.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables provides information about disaggregated revenue by contract type, client type and geographical region:

Three months ended April 2, 2021

The following tables provide information about disaggregated revenue by contract type, client type and geographical region:

Three months ended July 2, 2021

Engineering and

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Geography (3)

Three months ended April 3, 2020

Six months ended July 2, 2021

Engineering and

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Geography (3)

Three months ended July 3, 2020

Engineering and

(in thousands)

Contract Type

Time-and-materials

Utilities (2)

Geography (3)

WILLDAN GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Six months ended July 3, 2020

Engineering and

(in thousands)

Contract Type

Time-and-materials

Utilities (2)

Geography (3)

(1) Amounts may not add to the totals due to rounding.

(2) Includes the portion of revenue related to small business programs paid by the end user/customer.

(3) Revenue from the Company’s foreign operations were not material for the three months ended April 2, 2021 and April 3, 2020.

(3) Revenue from the Company’s foreign operations were not material for the three and six months ended July 2, 2021 and July 3, 2020, respectively.

Geographical Information

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states, the District of Columbia, and Canada.

Revenues from the Company’s Canadian operations were not material for the three months ended April 2, 2021 nor the three months ended April 3, 2020.

Revenues from the Company’s Canadian operations were not material for the three and six months ended July 2, 2021 nor the three and six months ended July 2, 2020.

Customer Concentration

For the three and six months ended July 2, 2021, the Company’s top 10 customers accounted for 48.4 %, and 46.2 %, respectively, of the Company’s consolidated contract revenue.

For the three and six months ended July 3, 2020, the Company’s top 10 customers accounted for 45.3 %, and 46.6 %, respectively, of the Company’s consolidated contract revenue.

For the three and six months ended July 2, 2021, the Company had no individual customer that accounted for more than 10% of its consolidated contract revenues.

For the three months ended July 3, 2020, the Company derived 12.7 % of its consolidated contract revenue from one customer, Los Angeles Department of Water and Power (“LADWP”).

For the six months ended July 3, 2020, the Company derived 26.3 % of its consolidated contract revenue from two customers, LADWP and Dormitory Authority-State of New York (“DASNY”).

On a segment basis, the Company had individual customers that accounted for more than 10% of its segment contract revenues.

For the three and six months ended July 2, 2021, the Company derived 11.5 % and 10.9 %, respectively, of its Energy segment revenues from one customer, Consolidated Edison of New York, and it derived 13.9 % and 15.8 %, respectively, of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove.

For the three and six months ended July 3, 2020, the Company derived 28.3 % and 32.3 %, respectively, of its Energy segment revenues from two customers, LADWP and DASNY, and it derived 20.6 % and 20.1 %, respectively, of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove.

WILLDAN GROUP, INC.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Customer Concentration

For the three months ended April 2, 2021 and April 3, 2020, the Company’s top 10 customers accounted for 48.7 %, and 58.1 %, respectively, of the Company’s consolidated contract revenue.

For the three months ended April 2, 2021 and April 3, 2020, the Company had no individual customer that accounted for more than 10 % of its consolidated contract revenues.

For the three months ended April 3, 2020, the Company derived 29.2 % of its consolidated contract revenue from two customers, Los Angeles Department of Water and Power (“LADWP”) and Dormitory Authority-State of New York Dormitory Authority-State of New York (“DASNY”).

On a segment basis, the Company had individual customers that accounted for more than 10% of its segment contract revenues.

For the three months ended April 2, 2021, the Company derived 10.3 % of its Energy segment revenues from one customer, Consolidated Edison of New York, and it derived 17.8 % of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove.

For the three months ended April 3, 2020, the Company derived 45.3 % of its Energy segment revenues from three customers, LADWP, DASNY and Duke Energy, and it derived 19.5 % of its Engineering and Consulting segment revenues from one customer, the City of Elk Grove.

The Company’s largest clients are based in California and New York.

For the three months ended April 2, 2021 and April 3, 2020, services provided to clients in California accounted for 34.3 %, and 44.0 %, respectively, of the Company’s contract revenue and services provided to clients in New York accounted for 22.1 % and 20.4 %, respectively, of the Company’s contract revenue.

For the three and six months ended July 2, 2021, services provided to clients in California accounted for 34.8 % and 34.5 %, respectively, of the Company’s contract revenue and services provided to clients in New York accounted for 21.6 % and 21.8 %, respectively, of the Company’s contract revenue.

For the three and six months ended July 3, 2020, services provided to clients in California accounted for 44.9 %, and 44.6 %, respectively, of the Company’s consolidated contract revenue, and services provided to clients in New York accounted for 14.8 %, and 17.9 %, respectively, of the Company’s consolidated contract revenue.

WILLDAN GROUP, INC.

13 unchanged sentences

As a result, the Company recorded a valuation allowance in the amount of $ 86,000 at the end of fiscal year 2018 related to California net operating losses.

As of April 2, 2021, the Company assessed all available positive and negative evidence available to determine whether, based on the weight of that evidence, there was a change in judgment related to the utilization of deferred tax assets in future years.

The Company concluded that as of April 2, 2021, the valuation allowance for the Company’s deferred tax assets was appropriate in accordance with ASC 740.

Consequently, there was no change to the valuation allowance during the three months ended April 2, 2021.

For the three months ended April 3, 2020, the Company did not have a change in the valuation allowance.

As of July 2, 2021, the Company assessed all available positive and negative evidence available to determine whether, based on the weight of that evidence, there was a change in judgment related to the utilization of deferred tax assets in future years.

The Company concluded that as of July 2, 2021, the valuation allowance for the Company’s deferred tax assets was appropriate in accordance with ASC 740.

Consequently, there was no change to the valuation allowance during the six months ended July 2, 2021.

For the six months ended July 3, 2020, the Company did not have a change in the valuation allowance.

For acquired business entities, if the Company identifies changes to acquired deferred tax asset valuation allowances or liabilities related to uncertain tax positions during the measurement period and they relate to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period adjustment, and the Company records the offset to goodwill.

3 unchanged sentences

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.

As of April 2, 2021, the Company has no t recorded a liability for uncertain tax positions.

Based on the Company’s estimates and determination of an effective tax rate for the year, the Company recorded an income tax benefit of $ 1.5 million for the three months ended April 2, 2021, as compared to an income tax benefit of $ 1.6 million for the three months ended April 3, 2020.

During the three months ended April 2, 2021, the difference between the effective tax rate and the federal statutory rate was primarily attributable to state taxes, the recognition of tax deductions related to the vesting of performance-based restricted stock units, nondeductible executive compensation, research and development tax credits, and the commercial building energy efficiency deduction.

For the three months ended April 3, 2020, the difference between the effective tax rate and the federal statutory rate is primarily

As of July 2, 2021, the Company has no t recorded a liability for uncertain tax positions.

Based on the Company’s estimates and determination of an effective tax rate for the year, the Company recorded an income tax benefit of $ 3.7 million and $ 5.1 million for the three and six months ended July 2, 2021, respectively, as compared to an income tax benefit of $ 0.1 million and $ 1.7 million for the three and six months ended July 3, 2020, respectively.

During the three and six months ended July 2, 2021, the difference between the effective tax rate and the federal statutory rate was primarily attributable to state taxes, excess tax benefit on stock compensation, nondeductible executive compensation, research and development tax credits, the commercial building energy efficiency deduction, and additional benefits provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R.

WILLDAN GROUP, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

attributable to state taxes, the recognition of tax deductions related to the vesting of performance-based restricted stock units, nondeductible executive compensation, research and development tax credits, and the commercial building energy efficiency deduction .

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act (H.R.

748) which includes a number of provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

For the three and six months ended July 3, 2020, the difference between the effective tax rate and the federal statutory rate was primarily attributable to state taxes, the recognition of tax deductions related to the vesting of performance-based restricted stock units, nondeductible executive compensation, research and development tax credits, and the commercial building energy efficiency deduction.

On March 27, 2020, President Trump signed into law the CARES Act, which includes a number of provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

Under ASC 740, the effects of new legislation are recognized upon enactment.

Accordingly, the effects of the CARES Act have been incorporated into the income tax provision computation for the three months ended April 2, 2021 and April 3, 2020.

The Company deferred the employer side social security payments for payroll paid for 2020.

These provisions did not have a material impact on the income tax provision.

Accordingly, the effects of the CARES Act have been incorporated into the income tax provision computation for the three and six months ended July 2, 2021 and July 3, 2020.

During the three months ended July 2, 2021, the Company recognized a $ 0.8 million tax benefit related to the net operating loss carryback provisions of the CARES Act.

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA 2021) which included a number of provisions including, but not limited to the extension of numerous employment tax credits, the extension of the Section 179D deduction, enhanced business meals deductions, and the deductibility of expenses paid for with Paycheck Protection Program (PPP) loan funds that are forgiven.

Accordingly, the effects of the CCA have been incorporated into the income tax provision computation for the three months ended April 2, 2021.

Accordingly, the effects of the CCA have been incorporated into the income tax provision computation for the three and six months ended July 2, 2021.

The extension of the energy efficiency building deduction under Section 179D resulted in the continuation of this additional benefit for the Company.

On June 10, 2021, the Company received notice from the State of New York indicating that the Company’s 2017, 2018, and 2019 state tax returns are under examination.

As of July 2, 2021, the Company is unable to determine the impact of the examination as the audit is in progress.

WILLDAN GROUP, INC.

7 unchanged sentences

Three months ended

Six months ended

(in thousands, except per share amounts)

4 unchanged sentences

Earnings (Loss) per share:

For the three months ended April 2, 2021 and April 3, 2020, the Company reported a net loss, and accordingly, all outstanding equity awards have been excluded from such periods because including them would have been anti-dilutive.

For the three and six months ended July 2, 2021 and July 3, 2020, the Company reported a net loss, and accordingly, all outstanding equity awards have been excluded from such periods because including them would have been anti-dilutive.

WILLDAN GROUP, INC.

15 unchanged sentences

SUBSEQUENT EVENTS

Fourth Amendment to the Credit Agreement

On April 30, 2021, the Company entered into the Fourth Amendment to the Amended and Restated Credit Agreement (the “Fourth Amendment”).

T he Third Amendment established a covenant relief period from May 6, 2020 to July 2, 2021 (the “Initial Covenant Relief Period”).

Additionally, during the remainder of the Amended Covenant Relief Period, the aggregate amount of all capital expenditures made by the Company may not exceed $ 15.0 million.

provided , that LIBOR cannot be less than 0.00 %.

The Company will also pay a commitment fee for the unused portion of the Revolving Credit Facility and the delayed draft term loan facility, which will range from 0.15 % to 0.40 % per annum depending on the Leverage Ratio, and fees on the face amount of any letters of credit outstanding under the Revolving Credit Facility, which will range from 0.84 % to 1.688 % per annum, in each case, depending on whether such letter of credit is a performance or financial letter of credit and the Leverage Ratio.

In accordance with ASC Topic 855, Subsequent Events, the Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued.

As of August 5, 2021, there were no subsequent events required to be reported.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements