KSW Claws Back

Long time readers may recall that we noted that shares of KSW Mechanical Services (Nasdaq: KSW), Inc. plummeted last December when two projects comprising about 40% of its backlog were put on hold in the same week. On Monday, KSW announced that the larger of those two projects has been resumed.

Readers may also recall this post from March, where we noted that KSW's corporate counsel Jim Oliviero mentioned the company was competing for a World Trade Center project. Yesterday, the company announced it had been awarded this contract. The company predicted in its press release that its backlog would total $129 million as of the end of this quarter. Before the drop last December, the company's backlog totaled $139 million.

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.

KSW Update

Yesterday KSW, Inc. (Nasdaq: KSW) filed an 8-k and issued a press release regarding its 2008 results, "KSW Reports Record 2008 Profits and Revenue". Excerpt:

Net income for 2008 increased by 16% to $4,239,000, or $.68 per share (basic) and $.67 per share (diluted), compared to 2007 net income of $3,662,000, or $.59 per share (basic and diluted).

Revenues in 2008 increased by 20% to $93,027,000, as compared to $77,266,000 in 2007.

As of December 31, 2008, the Company’s backlog was approximately $62,500,000.

The release didn't break out 4Q numbers, but after backing out the previous three quarters' earnings I get earnings of $1,004,000 or about 16 cents per share for 4Q 2008, a sequential drop from 3Q's $1.3 million in earnings.

I spoke with KSW's corporate counsel Jim Oliviero today. He said that the company was focusing more on government work and hoped to position itself to benefit from some of President Obama's stimulus money. He said that KSW was going to bid on two government projects this spring -- a pollution plant in Queens and a part of the Port Authority's new World Trade Center. The value of the Queens contract would be about $40 million, and the value of the WTC project is estimated at between $25 million and $60 million. KSW should know by the end of April whether it wins either of those projects.

I also asked Oliviero about the long-anticipated Second Avenue subway project currently under construction in Manhattan. He said that at this state of the project (tunnel boring) there isn't much role for an HVAC contractor, but KSW would consider bidding on the construction of the stations when the project gets to that point.

Based on the current share price of $2.05 and 3Q balance sheet data, KSW is currently trading for about a third less than its net cash (the 10-k showing year-end balance sheet data should be filed within a couple of weeks).

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.