Q4 2020 Willdan Group Inc Earnings Call
Yes.
Please standby of the one we're about to begin.
Good day, everyone and welcome to the Willden group fourth quarter and fiscal year, 2020 Conference call. Today's conference is being recorded and that this.
Time, I'd like to turn the conference over to Al Katz, Vice President Investor Relations. Please go ahead Sir.
Okay.
Thank you Tory and good afternoon, everyone and welcome to the operating groups fourth quarter and fiscal year 2020 earnings call.
Joining our call today are Tom Brisbin, Chairman of the board and Chief Executive Officer and <unk>.
And Hoffman, Chief Financial Officer, and Mike Bieber President of the World.
The call today builds on our earnings release, we issued after market close today.
And you can find the earnings release and the blowdown of Investor report that accompanies today's call and the investors section of our welding and the Dot Com website.
Management will review the prepared remarks and.
And with that I'll turn the call up to your questions.
Statements made and of course of today's conference call, including the answer to your questions, which are not purely historical are.
Forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 the.
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 and any such forward looking statements.
Factors that could cause actual results to differ materially and other risk factors are listed from time to cash.
And in the company's SEC reports.
And that to them and to the annual report on form 10-K filed from the year ended December 27, 2019 and <unk>.
Subsequent quarterly reports on form 10-Q, two equally quarterly report on form 10-Q filed for the quarter ended April 30.
2020.
Company cautions investors not to place undue reliance on the forward looking statements.
And during the course of this conference call.
The other half disclaims any obligation and does not undertake to update or revise any forward looking statements made today and.
In addition to GAAP results. We'll then also provide non-GAAP financial measures.
And we believe enhance investors' ability to analyze the business trends and perform.
Earnings.
Our non-GAAP measures include net revenue.
Adjusted EBITDA and adjusted EPS.
We believe that net revenue is defined as revenue net of subcontractor services and other direct costs and allows for an improved measure of the revenue derived from the work performed by our employees.
Adjusted EPS and adjusted EBIT of ours.
Supplemental measures of operating performance.
Which removes the effects of the certain expenses and expense items from our operating results.
GAAP reconciliations for all of these non-GAAP measures are included at the end of.
The earnings release, we issued today.
We expect to file the form 10, a day next week.
Stacy will provide the financial discussion and will be followed by Tom After management's prepared remarks, we'll take your questions Stacy over to you.
Thanks.
I'll start with the free free cash of the heartbeat.
From the fourth quarter and exposure.
The reaction.
The statements and then discuss our balance sheet.
The other crop business environment and did not materially change during the fourth quarter. The small business program from the Los Angeles as far as water and power Alley AWP remains the second despite COVID-19.
Additionally, the seasonally weak.
Unfortunately, the chemistry.
Third quarter fourth quarter consolidated net revenue decreased only <unk>, 5% sequentially from the third quarter.
The fourth quarter overall of Iraqi but go ahead of time.
And frankly.
Total contract revenue for the fourth quarter of 2020 decreased 25, 1% the $96 $9 million from $129 $4 million for the fourth quarter of 2019 and <unk>.
Increase is primarily due to the COVID-19 related to expansion of <unk>.
The small business program within the other segment net revenue was $58 million.
The 8% decline from $61 million from the year ago quarter, while net revenue and our engineering and consulting segment decreased two 5% net.
The revenue.
<unk> decreased 29%.
Direct costs of contract revenue of 62 4 million from the fourth quarter of 2020 and increase of 27, 6% from $86 $2 million and the same period last year the day.
Increase was primarily as a result of the decreased contract revenue from our Covid related suspension of our early DWP program, partially offset by additional direct costs of contract revenue related to our acquisition of <unk>.
For all of general and administrative expenses from the fourth quarter were $42 million from.
The $37 7 million for the prior year period.
Net increase and general and administrative expenses was primarily due to an increase of indicated consideration for any of the real alloy.
Rerecording of tax benefit of $1 $9 million for the fourth quarter compared to the tax expense of $1 $2 billion. During the same period a year ago.
The increase.
And this is primarily attributable to our loss before income tax.
We had net loss and the fourth quarter of 2000 $24 million of 33 cents per diluted share compared with net income of $3 three of those.
For 2007 cents per diluted share of the same period last year.
Fourth quarter of fiscal year 2020, adjusted diluting earnings per share from 46, and a decrease of 52, 6%. The most significant adjustments from our GAAP net income or interest accretion related to increased and contingent consideration stock based compensation and pants and my observation, which are all non cash items.
The adjusted EBITDA was eight 6 million the highest for the fourth quarter of 2020 or 15, 9% of as a percentage of net revenue.
I will now provide a recap of the fiscal year 2020 financial results. Firstly this was your 2019.
For fiscal year 2020 consolidated contract revenue was $391 million the decrease of 11, 8% over the prior year revenue and of our energy segment declined 12, 6% due to COVID-19 related to expansion of our direct install program, which was offset by 31 two line.
The incremental contract revenue generated from state and local government project.
And $22 million of incremental revenue from the acquisition of energy and environmental economics of the them.
And the three and onsite energy preparation and Austin, Dallas and the on site.
Contract revenue and our engineering and consulting segment decreased 7%, primarily due to decrease the subcontractor revenue.
And it was the reduction of clinical work related to one of our customers.
Net revenue was $194 5 million a decrease of two 5% and fiscal year, 2020 compared to 2019.
Net revenue for our direct install program for small businesses and our energy segment decreased three 9% and.
The result of the fitness expenses, resulting from COVID-19 pandemic of effort, while net revenue and our engineering and consulting segment increased one 1%.
Direct cost of the contract revenue decreased $46 $5 million or 15% and fiscal year 2020 compared to fiscal year 2019.
Direct costs of Comcast revenue decreased as the result of decreased contract revenue from our direct install program and our energy segment, partially offset by increased interest costs related to increases in the contract revenue generated from state and local government.
In addition, there were $7 $9 million of incremental direct cost of the contract revenue related to the acquisition of <unk> and on site.
Total general and administrative expenses for fiscal year, 'twenty, and 'twenty with $145 6 million and increase of $29 or $15 90 per cent compared to fiscal year of 2019.
The net increase in general and administrative expenses was primarily attributed to the addition of prior acquisition somebody with increases in stock based compensation and tangible asset amortization and other corporate general and administrative expenses, partially offset by our cost saving measures instituted in response to COVID-19.
The 19.
We reported a tax benefit of $5 2 million for fiscal year, 2020 compared to the tax benefit of $2 million for fiscal year 2019 the.
The increase of the tax benefit and is primarily attributable to our loss before income tax and reduce the energy efficient commercial of filling the actions otherwise known as one of the New Nike Inc.
In December of 2021, 70, and 90 with Pat permanently, which will improve the company's cash flow and go forward basis.
We have the net loss of $14 $5 million or $1.23 per diluted share and fiscal year, 2020 compared with net income of $44 $8 million or 41 cents per diluted share for fiscal year 2019.
Fiscal year, 2020 adjusted diluted earnings per share was $1 30 day and was the best wall Street's consensus estimate.
Adjusted EBITDA was $28 $1 million.
Turning to the balance sheet and cash flow from operations. We entered 2020 focus on improving our cash flow and the emphasis on cash collection, particularly from some of our large utility customers and see.
The end of the fiscal year, 2020, we had $28 $4 million of cash and cash and equivalents, our cash increased by $22 $9 million since the end of fiscal year 2019.
For fiscal year, 2020, we generated a record level of 47 and $30 and your cash flow from operations.
By comparison and fiscal year 2019, we generated $11 $6 million of cash flow from operations.
I would like to thank the efforts of the accounting and operations teams and diligently working hard to manage cash flow throughout the year. This wasn't outstanding results.
And January for 'twenty, and 'twenty, one total debt was $114 million, including $113 million outstanding on our credit facility, we have no borrowings under our revolving credit line with $15 million available.
Net debt and finance debt less cash dropped $28 $4 million.
During the year of $104 $4 million down to $75 $6 million at the end of Q4.
We anticipate resuming the formal yearly guidance of the company's largest program and do a full activity, they're seeing the L. A DWP direct install program that's.
And this contract gets funded of $66 million per year, and and our internal plan and we're presuming. The this program with you in early summer.
Secondly, we are expecting approximately $40 million of the revenue to come from our view of California, IOU program and 2021 and most of this revenue was expected to be recognized in the fourth quarter. The.
California out of the new programs are expected to contribute $250 million of revenue and 2022 and continue to grow into 2020 three.
Most of the remaining work and out of classes and secured for 2021 and Covid restrictions are already beginning to lift and California, providing and increasing confidence this year.
Now I'd like to turn the call over to Tom.
The second Stacy and good afternoon, everyone.
Sort of call. This afternoon, we will highlight of our fiscal year of 2020 activity.
And an update of the bell.
All of them and some.
And trucks on the year ahead.
The forward, yes, it would be fair to say that real bad and send the right space at the right time.
And that space and sustainability.
We believe the market is just beginning and we will continue to grow.
We help our customers save of electrons water and natural gas.
All required it could be more sustainable now, let's look at the 2020.
Yeah.
First I would like to thank all of our employees 2020 of it wasn't the extraordinary year due to the COVID-19 pandemic.
He has the change how we do business and it was financial sacrifice for all our employees resiliency and dedications have been greatly appreciate it.
When COVID-19 struck and early March we were tracking tool of record quarter and here that with Covid and then.
And with Covid and about 40% of net business slowed or kind of to a halt.
The 40% was primarily our utilities the consulting business.
And so its customers across the nation with energy efficiency.
We interface daily with commercial and industrial and multifamily and public sector customers reactivate conduct sales and installations and the construction of infections and our customers' locations.
Customer interface, the character of rapid halt and.
The utilities and cities and states of Lockdown to prevent the spread of COVID-19.
Fortunately the 60 per cent of our work was not affected by the lockdown and all.
The employees were able to work from home.
And should also be thought of it that most of our state and local work was identified as essential.
We took immediate action to limit the effect of the corporate financial impact.
As the company with rest of our cost from declining revenues.
To reduce costs, we have furloughs and layoffs.
Salary reduction and.
Board fees suspension and suspension of 401, K basketball and.
And stop and all discretionary spending.
We also took measures to ensure the health and safety of our employees.
We kept the hot and we kept the health benefits and plate for all except layoffs.
Basic and amended our credit agreement, the providing increased flexibility under our debt covenants through the second quarter of 2021.
Starting in the second quarter and and continuing through the end of 2020, and we saw many projects with zone and shelter and place total walks out of the order of business limitations of the Lipton and scaled back.
That's by the end of the year, we were down 3% net revenue from 2019, and only 12% down from our budget.
And I'd like to point out the no contracts of the castle and the old budgets reduce and all cases the work with all of my voice.
Despite the impact of COVID-19 customers actively conducted procurements and <unk>.
2020, we want a record amount of new work.
The synergy of our acquisition was the key factor along with past performance.
After two years of negotiation, the California, I always use the word will then six California energy efficiency contracts totaling $781 billion or approximately 88 per cent of what we bid on.
The California IOU contracts are expected to have an average duration of four to five years the.
Programs are expected to ramp and the second half of 2021 with grab and expected to occur in the years three and four additional.
The additional budget is likely to go to the programs that can ramp.
Execute project milestone and deliver required thing.
Good day, it's only represents 25 per cent of the outsourcing of.
Of the California, Ious have done and a bunch of outsource or higher percent of the energy efficiency services by 2025 as mandated by the California Public Utilities Commission.
Yes.
And 2020, and we took a major step and providing capabilities as an organization and we were successful.
For example, and New York City, we leveraged our utility and government policy and relationships to win.
The competitive contracts and developed an action plan from the city of New York Government operation.
The contract was in response to the most ambitious local climate laws and the United States and Leverages, our ability to develop policy and bottles and pathways for the carbonization.
Our success and the new construction program for all California, either U line.
Average robots collective capabilities, including the 2019 the acquisition of the likelihood of prior.
Prior to our acquisition the wider group performed approximately 10% of all new construction work and the United States.
And 2021.
And then we'll be involved and 100% of the new construction, excluding residential and California through the new utility contracts.
California will lead the way on new construction and in order to meet the aggressive climate goals.
And the municipal.
Floodwall County School District 70.
<unk> will then is the design of the contractor for fulfill the improvements will then will provide the engineering and construction management to update and 19 schools and for district buildings contract value of its $76 million over two years.
Lastly, and integral analytics and and robust pipeline of the software opportunities and this year.
And then the pandemic.
Reg ratio and justice came to the forefront.
Triggered by the deaths of Georgia, Florida.
And the summer of 2020, our employees and establish road bans diversity equity and inclusion of working group group.
Because of the <unk> working group.
So and that's group is focused on recruitment.
<unk> culture.
The partnerships and community engagement with employees suppliers, and subcontractors and reflecting the communities where everything and work.
We believe we will better serve our communities.
We issued our inaugural sustainability report in January 2021.
And will that sustainability is our business and our climate mitigation efforts are increasingly important to our customers and other key stakeholders. Our goal is to facilitate and more efficient and rapid transition to a clean and clean energy economy by of mitigating carbon emissions and buildings.
Transportation and power production.
Our experience of providing climate many of you.
And Roadmaps with Progressive States, such as California, New York, and Hawaii, and help us build of diverse and highly synergistic set of capabilities. We believe we are aligned with the country. The transition to a net zero of come one benefit of no more cup of Doctor dioxide and everything.
Moving from the atmosphere by 2015.
2005th.
And the drink of water.
We expect continued impact and the first half of 2020 one there's a lot of Los Angeles Department of waterfall of remains delays.
Small business program, and Los Angeles County, and continues with the closure of restrictions.
And in place since late March 2020.
We now expect this program to resume by July one and 2021 the.
And the Los Angeles Unified School District program could resume earlier than July one helping to ease the burden of the L. A DWP restrictions.
In terms of the IOL use.
And the CPUC to provide the rulings and the four remaining contracts and now it's by the California I always use over the next 90 day.
I'd behalf of our board of directors management, and shareholders and we'd like to thank our employees and customers for their dedication and hard work during this pandemic.
I also want to thank our teams and their commitment to developing and implementing effective protocols to keep our employees safe and projects run at the <unk>.
Health and safety of our employees is our first priority and we are proud of our complement of accomplishments joining the extraordinary here.
The transfer of reducing carbon emission continues and once the economy opens up again, we believe that there will be even more demand for our services.
We are positioned to group double digit organic growth for the next couple of years. Operator, we are ready to begin the question and answer session.
Thank you if you'd like to ask the question at this time you may signal of list by pressing star one on your telephone keypad.
And they're using a speaker phone. Please make sure you and your assumption is turned off price signals from each of US once again Thats star one to ask the question well pause for just a brief moment.
We will take our first question from Marsh country with Wedbush Securities.
Yeah, Thanks, operator, and Hello, everyone and hope everyone.
And that's a healthy and safe and congrats on the very strong bookings are a.
Through last year.
So.
You know we were waiting for the bookings to come through and it seems that you were able to do it really well.
In terms of some of those.
Competitive wins.
You know the Big question now is how does the translates into the financials for the second half.
Appreciate the color about double digit growth during the next few years, but you know.
And we get some more clarity on how cute through Q3 and Q4 could look like.
Especially given the fact, the visibility looks better.
So well done as a whole thanks a lot.
Sure Moshe this is like.
And we said that we expected at around 40 million of revenue and the back half of the year because of the most would be in the fourth quarter. The.
We will book revenue on these contracts is the.
We won't actually record revenue and so about 75 to 90 days. After we do the work. So that's the reason.
And we're wrapping up the contracts right now and the ramp up will occur in Q2, but we recognize the revenue for that ramp up in the Q3 and then as we continue to ramp up one of the contracts for instance starts at the beginning.
And at the end of Q3, we will be recording revenue until Q4. So you know if I can.
The split the 40 million the statistic, yes, maybe.
12 million or so in Q3 and the balance of the Q4 something like that.
And we'll move on and take our next question from Craig Irwin with Roth Capital Partners.
Good evening and thanks for taking my questions.
And you can really start with the discussion of this.
Stimulus.
Closed and.
And there's a lot of sort of the.
Back room, and conversations going on right now of lot of people at the senior talking.
Quietly to their contacts of across the country. So almost anything we ask all of them we get.
What do you think.
And the probability is that you'll see fairly heavy spending and.
And the energy efficiency services the harvest abatement.
Which is.
The areas that you're focused on it sounds like there's a tremendous amount of activity the company.
That is true and there's a lot of talk.
We are we have.
One of our executive Vice President of the fully committed and working with lobbyist in Washington, all of that and I'm sure of the legislation.
Yes.
Oh I said.
Climate change at the forefront energy efficiency at the forefront.
So we are actively engaged and that type of activity.
Great and how much gets here and when.
I don't know, but.
It's a hot topic and that's all I can really say.
Understood understood.
The other thing that was kind of hoping for.
And update on and physical analytics right. This is the business, where you know what.
And it's when it's coming along but it's where the producers.
The piece of it it took the profitability of the program.
Update us on any changes and the pipeline for robotics.
Are you seeing the southeast.
Some of these contracts within and out there now I guess from more than two years.
Each forward are you seeing customers coming in and for them.
Integration of revenue debt.
The points of probable future line.
License.
So license agreements and signatures whatever you want to call them.
There was the would really give us visibility on.
And some of it's chunky high profit revenue materialize.
Sure It is the market.
We said and I said, we've got a robust pipeline and we do kind of get into 2020 one.
There's a lot of large clients that we've been talking with for a number of years of that.
The much more interest and ready to sign this year for whatever reason, there's a lot more activity than there was last year.
You know the conversations of actually go on within the group how do we get all of this work done.
And I guess and 2021, that's out of our pipeline. So it looks really good.
So anything more than that until our press releases come out and so where we're at.
For the spot right now for 2020 one.
Understood understood and then just looking at the of the P&L for the quarter.
And the general and administrative expenses to break out and several line items and one of them is the labeled other.
And that was up materially with the $4 $7 million year over year to 12, five one day.
Can you maybe help us understand what's in that line item and and.
Why does.
Such significant growth there well one of the revenue growth and it's been up.
The tepid given the.
Given the Covid headwinds.
I think Stacy and the increase there is related to an increase and the earn out of our contingent consideration for each of our analytics and the California.
That's why are the big jump from Q.
For 2019 and Q4 timeframe.
So if we were going to take the earn out out of.
Out of out of earnings to get from an adjusted number.
A lot of a lot of analysts do you think is the right way to do things.
What is the approximate size of the earn out of contribution in there.
Is this really something like $4 7 million.
And that would mean on the on an operating basis would have been absolutely fantastic.
Yeah, it's actually the earn out one of the increase it makes sense and the other route.
The 6 million, which is then offset price.
And other smaller items with it yes.
And not.
Some of that increase the turn out in Q4, we would have also had positive GAAP earnings.
Wow Okay.
And that's a big deal.
Thank you.
No I guess the court of what's really different from those of us.
Paying attention so thanks for taking my questions.
Thank you.
And I think and everyone's Taiwan, and if you have a question or comment well move next to Marc Riddick with Sidoti.
Hey, good evening.
And I'm wondering if you could.
Wonder if you could talk a little bit about it and I appreciate all the detail of that you've given on the and <unk>.
Multiple fronts, but particularly some of the awards the awards that you're going to be doing the testing.
And so a lot of items that had been delayed as well as California of wanted to talk a little bit of bump how debt.
And the play as to visibility of the labor needs and and how we should think about maybe bad debt mixes of Oh.
And we should expect to see sort of stuff.
The second half as far as.
The alpha.
So part of it.
Contract awards in the light.
With respect of labor, we are hiring and.
And we look to add more than 50 people learn how we can sell.
Several per week over the last few weeks, so look for those metrics to go up.
The labor availability has not been the major issue for US we have been able to effectively recruit and hire so that's been good for us.
Did you have anything else because we couldn't we couldn't understand if youre breaking up a little bit on the latter part of your question Mark.
And what's the mix of of the labor might look like I guess for the first half since you're going to be ramping up to the words that we will be doing that type of beyond so I'm sort of thinking about Oh, we each day is it reasonable to expect the increase in the mix of sub contractor.
And needs or do you think you're going to be hiring and the muscle and some of that more of that to be the terminal.
We do have a lot of current commitments to subcontractors debt, where incumbent and set all joined our team and it's the big plus because they can hit the ground running to deliver the savings goals. So I imagine the subcontract and during.
During the startup phase would be higher than when they level.
Level off I can say 60, maybe 70% there on the ground waiting to start.
And that takes away of that helps us a lot because we don't have to carry those costs and startup.
And Rick and hire people.
And over the next three to six months to fill in and bring it down to about 50% of subcontract level.
And within that subcontract the level, we also have and the vehicles and we're fortunate to have.
Minority business enterprise the already out of the team. So we're not expecting the very difficult startup.
And Mark those percentage as Tom just stated we're just a result of of the incremental California work and also the portfolio overall.
Okay. That's very helpful. And then it was nice to see and addition to be the learnings really snow day.
And the motive.
The new business wins I was wondering if you could talk a little bit about it and this might be a bit squishy, but I was wondering if you could talk about the.
The whether it's inbound or or how we should think about increased interest from your customer groups over the last few weeks, while taking into consideration the fun.
And in the environment, which as of June just the beginning of the year from as far as the government funding availability and now of course with the plan.
Yes.
Thank you.
I think of your mix of Covid with the excitement of increased funding and you come out of about neutral.
That's where we are.
So we could get excited about funding and the customer develop the comment the same day.
Uh huh.
But you also have the unveiling of the Covid itself.
I'll ask a consensus of the bike and Stacy.
And about neutral.
They're worried about neutral.
Okay.
Yeah.
The unknowns are great on both sides.
Iraq gas versus Covid.
Right.
Thank you.
Next we have of fallout from Moshe <unk> with Wedbush Securities.
Hey, Yeah. Thanks, just a follow up looking at the second half. Thanks for the color of the next few quarters.
What should we look for in terms of the EBITDA margin for Q3, and Q4, and then and that respect I'm looking at the next year stable up down I mean, obviously you have to ramp.
I'm, assuming you will have to hire more people.
And just the right way to look at it in terms of early startup costs and and while you're ramping some of those new deals could actually pressure margins or how should we look at it.
Yeah.
Most of the it's a great question.
We don't know the final answer which is why we kind of given your guidance and I'll give you the variables and it's the story of <unk>.
And the potential of L of DWP ramping up and the second half of the year, which will improve margins significantly for the company.
Versus the ramp up of California work, which is actually more ex so youre right the brand.
And possible depressed margins overall.
Overall the way the our model works is that you should expect EBITDA as a percentage of net revenue to be of the mid to high teens for the back half of the year and out of higher end of Q3, and four of them probably Q1 and.
And that's sort of similar to what you saw this year.
But those of the variance.
Thanks.
And just from comes from the minus Taiwan at the other question or comment on the next to Richard Robinson of private Investor.
Good afternoon, and thank you for taking my call.
One of the acquisition pipeline and looked like and those will doesn't have any plans to expand the overseas and Mr.
Thank you.
Richard where are you from that.
The top mantra I don't say Montreal.
Are you involved and they all kind of yeah. [laughter] are you going to open the door to the life of the Canada.
I'd be glad to let the week [laughter].
Mike you want to comment on that that's true.
Sure.
The acquisition pipeline actually looks good and we suspend the discussions.
And just last year.
We have recently started to restart those discussions.
And so the pipeline looks good.
We do not have any short term plans to range of international acquisition, However longer term as we grow the company through 500 million of into the billions of dollars Mark.
And look towards those international markets for further expansion and Canada, just the very likely place to go.
Small operation and Canada, Canada, right now just a few people.
And do something probably less than one percentage of our revenue right. Now is overseas, it's been increasing slowly so that would be our strategy.
Thank you very much thank you.
And thank you everyone Star one of the other question or comment that star lines of possibly from women.
Yeah.
We have no further questions and our Q1 and I'll turn it back over to you for any final or additional comments.
Yes, we have no more of a further question and thank you very much of a join US today and 2021, we all hope will be a and that make free year.
And I get better the business in the Gulf of better and we're looking forward to a much better year for fashion.
Everyone that concludes our conference call for today. Thank you all for your participation you may now disconnect.
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Yeah.
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Once again, everyone. Thank you from your participation today and the call has concluded you may now disconnect.
Yeah.
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