KSW Reports Q1 Earnings

From the company's press release, after today's close ("KSW, Inc. Reports First Quarter 2009 Results"):

LONG ISLAND CITY, N.Y.--(BUSINESS WIRE)--KSW, Inc. (NASDAQ: KSW - News) today reported financial results for the first quarter of 2009.

Total revenue for the first quarter of 2009 was $19,706,000 as compared to $20,491,000 for the first quarter of 2008. Net income was $287,000 for the first quarter of 2009 as compared to net income of $840,000 for the first quarter of 2008. This represents earnings per share of $.05 per share (basic and diluted), for the first quarter of 2009 as compared to an earnings per share of $0.13 per share (basic and diluted), for the first quarter of 2008.

As of March 31, 2009, the Company’s backlog was approximately $38,300,000, which does not include the Mt. Sinai Center for Science & Medicine Project, which is currently estimated to have a value between $58 and $61 million. KSW has been notified that the Owner has approved the Company as the trade manager for the construction phase of the project. However, the final contract value has yet to be determined and contract documents have not yet been executed. The March 31, 2009 backlog also does not include two upper west side contracts, which were terminated by the Owner in March 2009. The Company, with the help of union concessions, was able to negotiate new agreements for the completion of those two projects^[1].

Chairman of the Board, Floyd Warkol, commented: “Our first quarter revenue and income were impacted by the economic recession and credit crunch, which directly resulted in the cancellation of several large projects. However, our cash position remains strong, and we have aggressively begun bidding on public sector work, where opportunities for new work should expand under the Federal Government’s stimulus program.”

I'll be interested in seeing what the company's balance sheet looks like when it files its 10-Q for the first quarter.

^[1]The press release doesn't offer a dollar amount for these two UWS projects, but I wonder if this is the $8.5 million in business KSW corporate counsel Jim Oliviero mentioned in our previous conversation, which we noted in a post at the end of March (KSW Update):

$8.5 million of [the backlog] was terminated by a developer. Oliviero explained that the developer was attempting to negotiate lower costs with the unions, and KSW was hopeful about getting the project back on the backlog if that can be done.

I left a voice mail with Oliviero today and will ask him this if I hear back from him tomorrow.

KSW Update

I spoke with Jim Oliviero today, the corporate counsel for KSW, Inc. (Nasdaq: KSW), to get some clarification on a couple of items in the 10-K the company filed earlier this week. The first item was the company's backlog. The company had a backlog of $62.5 million as of December 31st, but between then and March 6th, $8.5 million of it was terminated by a developer. Oliviero explained that the developer was attempting to negotiate lower costs with the unions, and KSW was hopeful about getting the project back on the backlog if that can be done. Another $9 million of the backlog won't be recognized as revenue until next year, as the projects its associated with won't be completed until then. So the backlog at this point represents about $45 million in potential revenue for 2009 (assuming no other projects are delayed or canceled). Revenues in 2008 were about $93 million.

I also asked Oliviero about this note on the 10-K:

In addition, at December 31, 2008, the Company held marketable securities totaling $1,223,000, a decrease from the $1,892,000 balance at December 31, 2007.

Often "marketable securities" refers to Treasuries, but in this case it refers to equity mutual funds, marked down to their value as of the end of last year. In addition, the company had cash and cash equivalents totaling $16,611,000 at the end of last year, so, given the company's current market cap of $14,840,000 it's trading for less than its cash.

Perritt's Annual Reports

Last week I received the hard copy of the annual reports for Perritt's MicroCap Opportunities Fund (maximum market cap $750 million) and its Emerging Opportunities Fund (maximum market cap $350 million), dated October 31^st, 2008. Perritt tends to own a lot of stocks in its funds (~100 names), but the annual reports highlighted a few representative ideas. Below are two of them.

From the MicroCap Opportunity Fund:

Northwest Pipe is a leader in the manufacturing of high-pressure steel pipe used in water infrastructure applications including wastewater, hydro-electric power and drinking water systems. The company currently has $235 million in backlog, and earnings have grown in excess of 30 percent annually during the past five years. The growth driver for the company is the need to update water infrastructure in this country. Many of the nation’s current water pipes are made of cast-iron and were installed over a century ago. A ruptured water pipe costs far more to replace than a scheduled pipe replacement.

The Perritt annual report listed the market cap for Northwest Pipe (Nasdaq: NWPX) at $235 million, as of 10/31/08. At Friday's close it was about $383 million, presumably buoyed by expectations of infrastructure spending by the incoming Obama administration.

The annual report for the Emerging Opportunities Fund listed two groups of representative stocks, a "value" group representing stocks trading for less than their liquidation values, and a "growth" group listing attractively valued growth stocks. Below was one of the representative stocks from the growth group:

KSW, Inc. (KSW) furnishes and installs heating, ventilating, and air conditioning (HVAC) systems and process piping systems primarily in New York. The company is benefiting from a strong maintenance and replacement cycle related to the commercial building boom of the late 1970s and early 1980s. This growth in maintenance and replacement revenue is offsetting the decline in multi-unit residential revenues. In the third quarter of 2008 the company reported revenue and earnings growth in excess of 20% and 30%, respectively. The company’s fully financed backlog is currently $141 million not including two large hospital projects announced in October 2008.

Again, that was as of 10/31/08. As of Friday's close, KSW, Inc. (Nasdaq: KSW) had a negative enterprise value, so it would presumably fit in Perritt's value category today.

A Note on KSW

In a post at the end of October ("KSW Update"), I mentioned that the company's general counsel, Jim Oliviero, had mentioned to me that KSW (Nasdaq: KSW) was still keeping an eye out for potential acquisitions. I had that post in mind when I learned recently about a small HVAC company on sale through a business broker. After speaking with the broker, I called Mr. Oliviero last Friday to see if KSW was still exploring potential acquisitions. Oliviero said KSW is not looking for acquisitions right now, and instead, given the uncertainty stemming from the financial crisis, is holding onto its cash, which increases its ability to get bonded for new projects.

The image above, of one of KSW's current projects, the cardiovascular center at New York Presbyterian Hospital, is from KSW's website.