Q4 2019 Earnings Call
Good day, everyone welcome to the Willdan Group fourth quarter 2019 Conference call. Today's conference is being recorded at this time I'd like to turn things over to Tony Rossy financial profiles. Please go ahead.
Thank you Kelly and good afternoon, everyone and thank you for joining us to the Scottsville then group's financial results for the fourth quarter ended December 27 2019.
With us today for management or Thomas President, Chairman, and Chief Executive Officer, Casey Mcglaughlin, Chief Financial Officer, Mike Bieber President of Golden Group.
Management will be prepared remarks, we'll then open up the cold or your questions statements made in the course of today's conference call, which are not purely historical are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Forward looking statements involve certain risks and uncertainties and it's important to note that the company's future results could differ materially from those in any such forward looking statements.
Factors that could cause actual results to differ materially and other risk factors are lifted from time to time. The company. So if you see reports, including but not limited to the form 10-K for the year ended December 27th 2019. Some subsequent quarterly reports on form 10-Q.
The company cautions investors not to place undue reliance on the forward looking statements made during the course of this conference call.
Willdan group disclaims any obligation and does not undertake to update or revise any forward looking statements made today.
Addition to GAAP financial results will be it also provides non-GAAP financial measures that we believe it hurts investors ability to analyzer business trends in performance.
Non-GAAP measures include net revenue adjusted EPS and adjusted EBITDA.
Well Weve net revenue allows for improved measure the revenue derived from the work performed by our employees.
Definitely be asked it adjusted EBITDA or supplemental measures of operating performance.
The impact of certain expense items from our operating results.
Conciliations for all of these non-GAAP measures were included at the end of the earnings release, we issued today.
With that I'd now like to turn the call the Chief Financial Officer season, the Boston sticky.
Thanks, Tony I'd like to send my welcome to those joining us on today's call I'll start with an overview of our income statement than our balance sheet and finally our guidance.
The Q4 2019 results were by far the strongest result in the company's history.
Total contract revenue kind of fourth quarter of 2019 increased 49.7% to $129.4 million from $86.4 million for the fourth quarter 2018, the increase was driven by growth in our energy segment.
Net revenue declined in contract revenue minus subcontractor services and other dropped call wouldn't $61 million, an increase of 51.8% from $40.2 million in New York go quarter within the energy segment net revenue increased by 84.5% within the engineering concern.
Tilting segment net revenue declined 2%.
Direct cost of contract revenues were $86.2 million, it's got the fourth quarter of 2019, an increase of 44.9% from $59.5 million and the same period last year. The increase was primarily related to the growth in contract revenue.
Our direct cost the contract revenue were 67% of our total contract revenue in the fourth quarter down from 70% in the third quarter of 2019 and 69% in the same period of the prior year a decrease from both periods reflects a slight decrease in the use of subcontractors and the recent quarter.
General and administrative expenses for the fourth quarter were $37.7 million compared to $25.3 million for the prior year period. This increase is consistent with the percentage growth in contract revenue.
We generated operating income of $5.5 million for the fourth quarter 2019, compared to operating income of $1.7 million in the fourth quarter of 2018.
Adjusted EBITDA was $13.8 million for the fourth quarter 2019, an increase of 110% from $6.6 million for the fourth quarter 2018.
The adjusted EBITDA margin as a percent of net revenue was 22.7% compared to 16.4% in the prior year period.
We incurred $1.3 million in net interest expense in the fourth quarter 2019, compared to $625000 and same period last year.
The increase was due to the debt utilized to finance our recent acquisition.
During the fourth quarter, we recorded income tax expense of $1.2 million, reflecting an effective tax rate of 27.1%.
Net income for the fourth quarter of 2019 was up 145.5% from 11 cents per diluted share in the prior year to 27 cents per diluted share in the current year.
First quarter excuse me.
This represents net income of $3.2 million in the fourth quarter compared to $1.2 million in the same period last year.
On an adjusted basis, our net income that was $11.5 million or 97 cents per diluted share.
This represents an increase of 60% year over here.
Significant adjustments from our GAAP net income of stock based compensation and intangible amortization. Both of these items are noncash and are not a result of the increased performance within the operating segment.
For fiscal year 2019 consolidated contract revenue was $443.1 billion, an increase of 62.8% over the prior year.
Net revenue was $199.5 million an increase of 42.9%.
Adjusted diluted earnings per share was $2.27.
Increase of 9.7%.
Adjusted EBITDA was $37.7 million for the here an increase of 48.4%.
Turning to the balance sheet and cash flow from operations.
We have $57.5 million an accounts receivable that at December 27th 2019 down from $61.3 million at December 28, 2018.
Full year, our cash flow from operations was $11.6 million, an increase of 54% from $7.6 million in the prior fiscal year.
As of December 27, 2019, we had $130 million outstanding on our total credit facility.
It's like $70 million available within our credit facility as well as an additional 100 million dollar accordion.
Turning to our outlook I would like to provide our financial targets for physical 2020. These targets do not include the assumption of any revenue from new contracts to be awarded through the California, I would you procurement process for any future acquisition.
For the full year, we expect net revenue to range between $217 million and $230 million.
Adjusted diluted EPS to range between $2.47 and $2 in 60 cents.
And effective tax rate of approximately 17%, which I will discuss further.
Diluted share count of 12 million shares depreciation of approximately $4.1 million amortization of approximately $13 million.
Stock based compensation of approximately $19.8 million and interest expense of approximately $4.5 million.
In December 2019, Congress renewed 179, D and energy efficiency tax deduction.
Deduction applies to projects where will that it's the engineered record. The project is fully constructed and the client is a non taxpaying entity.
For instance, well downs work, making publicly owned infrastructure more energy efficient golf into this category.
Has the effect of lowering the company's cash taxes paid by several hundred basis points. This benefit will exist throughout 2020.
As we've talked about before software sales volume can change on adults materially.
Her 2020 guidance, we're assuming that our software business breaks, even which represents approximately $4.5 million and use software license revenue.
For purposes of modeling our adjusted EBITDA distribution throughout the year is expected to be around 10% in Q1 around 25% in Q2.
Around 35% in Q3 and around 30% in Q4, I'd now like to turn the call over to Tom.
Great. Thanks, and good afternoon, everyone, we executed well in the fourth quarter and deliver harvest level revenue burdens.
Organic net revenue in the core jumped at 9%.
Before your organic growth was positive <unk> percent.
But in organic growth was driven by expression of existing energy efficiency programs.
The core and XL software contract, which was sites in December.
First I would like to make some general observations.
New York Public Service Commission and also on January Twond. She was a generally generate for certain 20 twond.
Early 2 billion. Additionally, children allergies.
20 Twond fund.
Also we commissioned real fluids 1.3 billion of existing energy efficiency, resulting in over 3 billion for E energy efficiency.
Building electrification through 2025.
Currently 68% all what to customers.
Sure our utility that has a climate goals.
We believe this focus will progress from gold study showing progress.
We are all screen farm Blackwater Brookfield global infrastructure partners.
Germany capital seeking clean energy investments.
Oh electrification is a growing technology or simply saying fuel switching from natural gas to electricity.
Currently, California is 40% renewable that's generating less greenhouse gas emissions, we see the demand for T ball park heating cooling and warrant.
<unk>.
This trend is good for wasn't well down because we just signed this technology for our customers electrification also applies to vehicles what shaggy.
Excuse me, we're charging infrastructure is needed.
Our higher software is valuable in assessing worthies charging stations should go on the grid.
More customers will use distributed energy resources.
Less powerful in the wholesale mark against that it's a little them because worked it was always to go beyond energy efficiency to solar batteries installation.
Zillions. He will also become more important looking like California, Florida is an earthquake nor kirkland flaws.
Recently, Tennessee tornadoes.
Five years ago, there were almost zero so those installations.
Total battery storage is up 230% year over year.
And U.S. behind the meter known as the customer is off the heart of 38% from last year.
One of the compared to last it kind of left good continues with consolidation.
That's great interest in this market like private equity and you know nationals.
Unfortunately that most of our acquisitions or companies that we have worked with no well.
Interesting rules between countries.
Recognized and use the driving force for the merger.
And reverse chronological order or acquisitions of each week houses himself.
I'm, sorry, industrial energy engineering, the white construction lawn small business energy efficiency, hi, they did or whether it's in the past history says three cents.
Genesis mechanical electrical.
Energy engineering.
Capabilities several offers to propose.
When contracts were not possible just through the three years ago, it's been a good year for positioning and winning I have a few new business pilot.
And civil Engineering, we want the Recompete for Westlake village.
Which would know held for certain partners and company.
We expand into Indiana, Illinois in Kansas.
We've added several new cities in California as well.
The financial services.
We're now registered with the sisters abstract submission the sport advisors.
We want our first advisor contract with the city of Lynnwood, California.
Chronicle electrical engineering group.
In the northeast, we want 300000 additional permission from Yale University.
Also got no direct to customer for schools colleges JP Morgan Regenerons, Didnt know real too Im sure. Its its name a few.
I say significant announcement nitrate, New York City housing authority.
And now it's five under 4 million dollar contract.
Well that was warm fourth wrong selected to address logistical.
Primarily energy usage and stuff for plant upgrades they will demonstrate.
In the Midwest in West.
[laughter] perfect northwest is back and growing with your work or design build projects such as the California, Apart real General services President school of public holidays and.
In Colorado are doing well.
Industrial engineering.
Please 11 17 megawatts.
For Southern California Edison.
Their local capacity requirement.
4 million for ATM fees central offices.
He also worked it out small class I was cheap recovery, but.
Remember.
Industrial is this is about 30% larger than commercial which is that our business for many years. We're just beginning this initiative.
Collaboration with strong for industrial for both utilities and direct to customer throughout the company.
I mean, your children state and municipal markets, we want to conduct small business.
For the fourth column.
He's been extended for Comdata multi family.
We want Puget sound energy for the third time.
That's a hard since C D commercial break bulk program for the third and Tom One New York's National grid, CDIY program, where we want it and that's been extended for the fourth.
We want like circuits kind of pay for performance older. One encore such was for the second time.
With regards to smaller projects.
Excuse me, a London, Turkey Spark campus is going well also Massachusetts, the minimum commitment microgrid projects.
We just got started with Ah that's easily Jones pilot.
And also consumers energy were smart energy industry.
We've all gotten zoo you'd be infrastructure contracts in California cities, a Fairfield rose a little and to work.
For our new construction programs, we've won Duke energy through 2022.
Focus on energy, Wisconsin to 2023.
Okay. So energy from 20 to one three and Midamerican energy is 2.1 for.
Many of these contracts we held for over 15 to 20 years.
Collaboration with new construction software.
They presented and men will then utility customers.
Healthy consulting and we've been adding staff and geography, such as Calgary, New York is Boston.
They do a lot of high product flow hope I work, such as privatization most fancy Cooper in South Carolina.
They also gone pilot password for more services, such as Maryland and men.
Like frustration are building standards from California.
New York, New York's North of should see or Joe cover electrification, we'll know they've also been system on buyer policy Shaw.
They also had a three year contracts for the California, If you see for their rolling energy plentiful with her.
Data analytics.
Xcel energy book, that's the largest software license ever XL is the leading multi state utility with goals.
100% renewable energy, we've also added Austin energy.
We've been recognized by the Pacific Northwest National Laboratory, and the electric power researchers to that Rolls here. Our software is the leading low and distributed energy resource planning application for utilities.
Collaboration all know utilities and has done a central.
I apologize for this exhaustive list, but we have added massive capabilities and we're integrating collaborating and winning.
We have the right attitude, we're winning as a team.
Our people see the benefits of having more to offer clients.
We have worked hard and 29 to a subway these capabilities and putting together a cohesive story on the benefits to our customers.
Going forward, we see these capabilities as is central to compete nationally.
Now to California.
I will point I always use are climbing moving juniors sort of gets elected that's gone through abstract proposal.
And interviews glass oral presentation.
They have moved to active negotiation, we expect work with at least.
Industrial public Apostolic commercial to start the second half of this year.
After the southern California, Edison has progressed through abstracts and proposals.
California Public utility Commission good all I'll use.
Magic to be 40% outsource by the end of 20 Twond.
San Diego gas electric is through abstracts proposals and the end of.
Negotiations have started.
Felicia completions is anticipated by the second half between 20.
We are optimistic with her progress so far.
I'm not put any new California revenue in our 2020 forecast because of passed away.
And conservative.
Our focus in 2020 will be our delivery collaboration and winning we'd have a great team everyone is focused on making well down the dominant player in the U.S. market.
We have executed well as you can see our result, our forecast shows continued growth in 2020 with that we can take your questions.
Thank you at this time, if you do have a question Lisa most by pressing star one I can that will be star one for questions. We'll hear first today from more shake categories with Wedbush Securities.
Hi, Thanks, guys nice quarter.
And first Ah different it sounds a bit sunbirds, maybe you can talk a bit about what the longest library revenues.
Quarter, obviously small numbers maybe books.
Contracts and then dotcom Bucks.
Can we saw some for the revenue contribution from April.
Moshe could you you are really garbled I don't know who was just to us or everyone. On the phone is your way you could ask that question again, and we probably understood about 30% of it.
There's not any better.
Keep talking.
Okay again, what were the largest a dual ivor the revenue upside for the quarter.
Maybe if you can go through some will be individual contracts will be helpful. But nothing about contacts with the revenue contributions from all the aid or the core.
Yes.
Most of this is mark.
We got some.
Some contract expansions on the East Coast few most of our utility programs, including Con Edison some of the programs in upstate New York They contributed strongly in the quarter.
That was true on the west coast in some programs.
In places like Rocky Mountain, where we've had a good quarter as well.
Sometimes in these programs utilities could be carlington towards the end to be are they push in additional funds. So that happened examples that I just scared.
So utility programs broadly in Q4 were very good strong.
Direct to customer programs were also strong.
Good work it definitely was very good in the quarter.
On software sales, we didn't breakout and won't be breaking out specific contribution from I read in the quarter, but Tom mentioned good software.
[noise] award that happened in December with XL energy that was the only one day.
Before and we've got a good pipeline of those opportunities moving into 2020.
Okay understood and then you spoke a bit about the the quarterly numbers how should we interpret what we should look for in terms of dot contributions for the.
By quarterly for the year.
Generally how should we model rather meaningful for the next quarters in calendar 2000.
[laughter].
No revenue should revenue and EBITDA should follow the proportion so approximately speaks he laid out in her script.
We can if you want we can talk after the call about out your particular model for 2020, if you'd like.
Okay. Okay and then follow question you know obviously you spoke about the though the California Award it seems that.
All the three utilities seem to be moving along do you believe that work that out that's about 40% Monday by year end is that we're watching we were going to and then how do you feel about your capabilities in terms of delivery.
On the so you know pretty large pipeline that's coming through.
They have to be sign by December 31st 2020.
They have quite two of them I believe like.
Our July 1st.
I have to be side. This is Pete Judy.
And then you got to lessen sector kept to outsource 25%.
By July 1st.
2020.
So.
We expect to see revenue for sure.
Not for sure nothing for sure.
Uh huh.
And the last after 2020.
And that 40% doesn't start until 2021.
It was one more part your question.
Well I'd be pleased how do you feel about your ability to deliver once these guys. Once the these complex outside and 82 off.
Execute.
Yeah. The good thing is that.
For PGT and sandy or gas electric.
We've been incumbents and our team and some people in Columbus.
And we're ready to hit the ground and deliver.
So these are.
A team both companies.
You know delivered for the past 10 to 15 or.
Understood. Thank you.
And again for questions that have star one at this time I hear next from Craig Irwin with Roth Capital Partners.
Good evening and thanks for taking my questions.
So our 9% organic organic growth for me in the fourth quarter, its a pretty nice sharp rebound to your tier long term.
Right.
Can you maybe describe whether or not there were elements in there that might not repeat in the first half 2020.
Or.
Ours, there specific items that there were one time and a you know that we need to flatten out of our models or should we look for sort of a normalization back to the 10% growth over the next few quarters.
Yes, correct.
Stacy mentioned the ramp that we expect to out 2020.
So overall organic growth can move around between quarters.
We would expect it to be.
What we've got an easier comp in Q1, so I think that we for the full year should expect a single digits types of organic growth for the full year.
And that May persist two all four quarters as Tom mentioned the upside to that is used in Q3 in Q4 can you give somebody's, California words, which now that looks world and looks likely and we see revenue even 2020 that would be upside that we've not included in our forecast.
Okay. So you're talking about awards, which I like when we look at the update given last week five to four major I'll use.
He had several contracts that they indicated that there are already in negotiation for a first half award.
Adds did San Diego gas and electric.
Hi, Dart usually means that.
The vendor spend selected and that yeah, barring any any unforeseen disagreements but the selected vendor we'll get the award.
Do you have anything that you can share with us about contract negotiations that word or you know maybe a good bread crumbs for the potential awards around the middle of this year and so we use these items are wrapped up.
I wouldn't say for P., Julie and San Diego gas and electric.
We have taken.
One two maybe three firms active negotiation.
And that would be unwise for us to say.
Whether or not we're in that group because.
Uh huh.
That would put us in the core negotiating position.
Understood.
Sure well actually are well aware of.
Active negotiations both in San Diego and PGM me.
And Uh huh.
We are optimistic.
It was the parents promo with.
Good certainly so are we that's that's good that's really good to hear. So then just circle up on integral analytics I should say congratulations for the excel.
Award during the quarter that was a very nice win.
Can you maybe frame out for us the the range of scenarios for IP.
In 2020, you were very specific in excluding software licenses from your.
Ah from your guidance.
But.
It's quite possible, but you do book.
Software revenues in 2020, and even possibly in each quarter. So.
You know can you maybe frame out for us the scope of what you're looking at that could be awarded.
And given that it's not in your guidance are you likely to press release, even smaller awards that are in the range or potentially half million or less.
These are potentially come out over the course should be here.
Craig just to clarify column in Stacy script, we said, we expect to software business it was to break even.
Not means that we don't expect additional licenses to breakeven they have to book.
Approximately four and a half million dollars a new software sales to breakeven that is what he was assumed in our guidance and that is consistent with what Stacy said in her script.
However, if you pointed out you're right you do have a pipeline.
Far in excess of that.
That would indicate revenue for the year of around six and a half million dollars when they get around $8 million revenue. This year. So they would actually have to decline from their current run rate.
To give that guidance number so there's upside there because that's what we're pointing out to investors.
The sized deals range anywhere from you know I have $2 million to multi million dollar type contracts and so that's a pretty wide range of possibilities.
Accordingly, you're right, we will announce significant contract sales awards, you get visibility how we're progressing throughout the year.
Okay. That's been a point of clarification, my understanding was 54 and a half million dollars revenue.
It was primarily maintenance contracts on existing installs.
And then some let's see.
Consulting and pre installation activities that go with customers getting ready to potentially.
Go forward with me for like Sunscreen, Yeah.
It's a small spend for them and an opportunity to really see what's capable.
Before they Ah Hey, right the big ticket.
Cfos office.
And my I might've missed understanding you're missing characterizing that well nice when I'm sure that and do you have annual renewals of your from your.
Maintenance agreements that I expect would be in place across the existing installed base.
No because four and a half million dollars. Craig is in addition to that what I'll call annuity type revenue that you talked about the annuity type revenue is you know $2 million to $3 million for you.
That is continuing.
Into 2020, just like it didn't 2019 no change there and then you addition to that they need to book about four and a half a million dollars in new software sales.
Last question along this line I understand you may have hired actually couple of people want to integral in analytics, which from our side looks like youre pretty constructive.
Rather than taking cost out sort of going going into right direction. You know can you confirm that you maybe have hired a couple of people in there.
To provide sales support and some of the other.
That would help this business delivering 2020.
Yeah, we have expanded the sales force Vicki talked about that earlier with you and so.
They're off to construct issue [noise].
That's what we want.
That's excellent that's excellent.
Just to go back to California energy efficiency solicitations.
No I'm Cafs calls you've talked about the arm the total scope.
Thank you you big for has anything changed materially there over the last no small number of months or are we still looking basically the same contracts, while we wait for the new RFP process used to actually get going in a 2020.
Yes.
You are so are you talking about the state wide stuff.
Yeah, I mean, I do a different utilities have different a different buckets are putting things and me. They moved these buckets around twice now. So this is a third time.
You know like I say, he just got their.
Local public sector and agricultural for local customer programs and you know and then they have their their public programs in their cost cutting programs you know and that also referenced much later this year and that's just an example of what the point utilities are doing.
So.
Oh, let's say I see.
The ones that were on the table that we bid on now we're commercial industrial and multifamily and were very much where the public will be coming probably.
A middle of next year.
In contrast to that public came up from P. June [laughter].
And Uh huh.
We're in for that so.
And San Diego gas and electric by the industrial public or multifamily has come out.
Yeah, well the other three years you notice I don't speak anything about residential so we.
Do not plan to bid on any residential.
And then there's this other element of.
The state, which are called state wide, which are being in each utility demand given the lead. So we're looking at new construction for example.
He has really that's where the white group and then we submitted an abstract.
And that's as far as I've gotten on that.
But there's also higher ad.
There is prison.
It is community colleges.
They might even go a stay colleges.
I can't remember a codes and standards all are being considered statewide programs were well took one utility needed rather than splitter four ways of Mark.
None of those jobs.
Oh.
Understood and my last question of before I jump back into that new construction featuring.
Yep.
Thank you Tom last question before I jump back into queue.
California is not the only only place where there's there's good things happening right. There's multiple other geographies across country. You know you think that if you were at a book maybe get 50 or 100 million Dollar award the California is most likely to deliver first or is there potential for us to see a you know.
Similar size projects from other geography.
That you, obviously, you're not naming specifically for competitor creatures.
I think California go first.
We were looking at a couple other states that are powerful I'm ready [laughter] Walmart [laughter].
So the only other things that could happen is with the new New York legislation you know when the income but for all the major utilities in the northeast, which is a big advantage. That's why kind of read the opening statement about New York story.
They are.
Between two exits reacting programs.
We are the income but for con Ed.
Ah National grid.
Good morning.
Mm central hogs, and again due to the reason I started off.
The presentation with that and shows how much of a new York hold we have.
The two stage is likely to either increase budgets or awarding new contracts will be New York in California, where our greatest president preferences.
Well, we're also prepared for the other thing will be coming on line.
Do you have a timeline for new York or potentially or making a decision or is that also kind of open to us to variance.
Decisions made how long it takes to get the procurement what they do about we don't have any information.
Congratulations on solid core and thanks again for taking my questions.
Thanks.
And with all other question, others I would like to.
Turn things back to management.
Okay, well. Thank you all for attending the call today, and we look forward to see you next time.
And that will conclude today's conference again, thank you all for joining us.
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