Q1 2021 Willdan Group Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the welding group first quarter fiscal year 2021 Conference call. Today's conference is being recorded at this time I turn the conference over to Al cash Chalk. Please go ahead.
Thank you Keith good afternoon, everyone and welcome to all day and groups first quarter 2021 earnings call joining our call today are Tom Brisbin, Chairman of the Board and Chief Executive Officer, Jim Earley, Chief Financial Officer, and Mike Bieber President.
The call today on our earnings release, we issued after market close today.
You may find the earnings release and as well their Investor report that accompanies this call in the investors section of our web.
Website will day on Dot com.
Management will review prepared remarks, and we will then open the call up to your questions.
Statements made in the course of today's conference call, including answers to your questions, which are not purely historical are forward looking statements within the meaning of the private Securities Litigation Reform Act of 995.
Forward looking statements involve certain risks and uncertainties and it's important to note that the companys future results.
For materially from those in any such forward looking statements.
Factors that could cause actual results to differ materially and other risk factors are listed from time to time in the company's SEC reports, including but not moving to the annual report on form 10-K for the year ended January one 2021 day.
The company cautions investors not to place undue reliance on the forward looking statements made during the course of this conference call will they have disclaims any obligation and does not undertake to update or revise any forward looking statements made today.
In addition to GAAP results. We'll then also provide non-GAAP financial measures that we believe enhance investors' ability to analyze the business trends and performance. Our non-GAAP measures include net revenue adjusted EBITDA and adjusted EPS guidance.
After Toms prepared remarks, Ken will provide the financial review.
I'll take your question Tom over to you.
Thanks, Al and good afternoon, everyone during.
During our call. This afternoon, we will highlight our Q1 results and give an update on the current operating environment.
Before we begin I want to thank Stacy Mclaughlin for her 10 years of service it will debt, including the last five years as our Chief Financial Officer.
Stacy Stacy the baskets for future career.
We'd also like to welcome Kimberly as well as new Chief Financial Officer, Kim has been working closely with the executive management team at World assets 2015.
It's been an excellent name will then financial planning forecasting operations review and reporting processes.
Previously served as Chief financial Officer of various will then subsidiaries.
We're excited to have Jim as our Chief Financial Officer.
During this call one year ago.
We were Oh.
Addressing the global pandemic.
I noted that extraordinary times creates opportunity for change.
We have made changes to the way, we work and live we've learned to be more agile and respond to changing market condition.
For example, we can live with less real estate costs.
For the coming better cash flow managers can.
Communications have improved due to a virtual meeting.
No planes trains automobiles, thus reducing travel costs.
Facing a threat to day together made us stronger.
We took action on changes because of necessity that will benefit all down long term and during this pandemic, we won more work than ever.
We certainly demonstrated this in the first quarter.
Very strong operational progress by leveraging our recent cost reductions unique software technologies and continued cost containment.
So no no since March.
Talk to you.
Not too long ago include during the first quarter integral analytics signed another software license and continues to have a robust pipeline of software opportunities.
Well that's policy experts a three in our engineering groups. Just finished a de carbonization plan for New York City. We worked closely with the New York City budget office, providing a pathway for all of New York City buildings to comply with local low 97.
Local low 97 is a very aggressive de carbonization plan.
All cities will follow.
Vacation in New York City buildings, nearly for thousands of them, which include hospitals schools courthouses.
<unk> et cetera.
They all must need very aggressive goals over the next 15 years.
We just finished in other plants for the city of Philadelphia to address these gas systems.
They are just beginning a study with the state of Massachusetts Other Nash.
Gas systems. This is all evidence that de carbonization is moving and we'll debt is working on these very important assignments.
COVID-19 restrictions impacted the first quarter, but temporary suspensions are being lifted and reopening are expected to continue into the early part of the third quarter in late March our direct install program had fully resolved.
The Los Angeles Unified School District program restarted at the end of April.
The small business program with Los Angeles Department of water and power remains delay.
We're optimistic that the small business program in Los Angeles County.
Zone by June 2021 that all of our programs will be fully operational.
In terms of the California, Ajay efficient energy efficiency contracts ordered it will that the public utility Commission recently approved a $100 million P journey stay wide new construction program.
We've also been awarded a 12 million dollar Southern California gas contract, we expect the California Public Utility Commission the commission to provide their ruling for remaining contracts announced by the California Ious over the next few months.
California, IOU programs are expected to ramp in the second half of 2020 one as a reminder, the energy efficiency contracts.
Awarded in December of 2020, only represents about 30% of the outsourcing that to California Ious have done.
Outsource why 100% of their energy efficiency services by 2025 as mandated by the CPUC.
We've also been awarded new utility work in the northeast pending final approvals.
Customers are actively conducting procurements in 'twenty, one 2021 as climate change goals and pathway for de Carbonization continues.
By the mid term of this year, we are positioned to produce double digit organic growth.
On behalf of our board of Directors management and shareholders, we would like to thank our employees, our GAAP and customers for their continued dedication and hard work during this pandemic.
I also want to thank our teams for their commitment to developing and implementing effective protocols to keep our employees safe and projects running.
The health and safety of our employees.
As a high priority and your continued resiliency and dedication are greatly appreciate it I will now turn the call over to Ken to discuss our financial results in more detail Tim.
Thanks, Tom and good afternoon, everyone I'm glad to have the opportunity to speak to all of you to day I'm honored to be named as the new CFO, we'll Dan and to be given the opportunity to continue to work together for this management team.
Since joining will then more than five years ago I've been excited by the growth opportunities facing the company as well as the energy and dedication of our people and the pursuit of a sustainable future.
Looking forward to meeting many of you in the future and talking more about well debt.
Now onto our financials, our first quarter results were better than we had expected but reflect some other headwinds we continue to experience from the COVID-19 pandemic.
Gross revenues were down 25% compared to a year ago, but net revenues net of.
Sub contractors for materials and other direct costs were off only 3%.
Subcontractor and other direct costs declined from 53% of gross revenues a year ago to 39 percentage in 2021 due to the reduced percentage of revenue derived from our direct install and construction management activities, while software revenue increase.
SG&A costs were $2 6 million or 7% lower in Q1, 2021 compared to a year ago.
Our efforts at cost containment, the additional software licensing and margin improvement in our direct install activities led to the first quarter loss from operations being cut in half from $8 3 million a year ago to $4 2 million in Q1 of 2021.
Adjusted EBITDA more than tripled from $1 3 million in Q1 of 2020 to $4 7 million in 2021.
Our adjusted earnings per share improved from a loss of 13 per share a year ago to a positive <unk> 22 per share in 2021.
We're pleased to report the improvement in operating results. Despite the challenges we encountered as Tom mentioned, our first quarter results were impacted by the temporary suspension of our direct install programs due to COVID-19 related factors the.
The impact of those programs suspension accounts for the lion's share of the reduced revenue in comparison to the prior year along with the fact that Q1 of 2021 was the traditional 13 weeks compared to 14 weeks in 2020.
As the pandemic continues we will continue to focus on margin improvement and cost containment.
From a balance sheet free cash flow perspective results have also been positive.
Our quarter end cash balance was $25 million compared to $12 million, a year ago, and our $50 million line of credit remains untouched, our net debt, which refers to total funded debt less the cash on hand has been reduced by $30 million over the past four quarters.
Cash flow from operations was $5 6 million in Q1 of 2021.
Share to $16 5 million in 2020, which benefited from a much sharper contraction in working capital requirements than in the current year due to the across the board its extensions a year ago.
The current quarter cash flows were impacted by an increase in our DSO from 82 days at year end to 94 days at the end of March. This was primarily due to some temporary billing delays and a few of our projects being financed through on bill financing from a utility.
Those projects were completed and have now been paid and our billing processes are back to normal which will aid in returning net DSO measure to historic levels.
We're pleased to report that we've been able to amend our bank agreements to extend our covenant relief period through Q1 of 2022.
Our leverage and minimum EBITDA covenants and effective in the third quarter adjusted the LIBOR floor rate down from zero point, 75% to zero percent.
This amendment that facilitates our planned ramp up in working capital requirements related to the expected restart of the led DWP program and the ramp up of the new California IOU contracts in the second half of this year.
It also reduces our interest expense in the second half of the year, we expect interest expense for the full year to be comparable to 2020, depending on the steepness of our second half revenue ramp.
Overall, we're satisfied our Q1 results reflect continued progress in improving our operating results and our balance sheet.
And positions us well for growth in the second half for the year.
I will now return to the operator for questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad for using a speakerphone. Please make sure.
Your mute function is turned off to let your signal to reach our equipment star one for questions. We'll pause a moment to give everyone an opportunity to signal for questions.
Okay.
Yeah.
We will take our first question from Craig Irwin with Roth Capital Partners. Please go ahead. Please go ahead.
Thank you good meeting.
Good evening everybody.
Yes.
For multiple good news items in there.
Tonight So that's.
That's really nice to see.
I don't know what I want to start with I guess integral analytics right.
We're now writing writing contracts again.
Has something changed for our customers to just start actually executing these contracts I know they are probably facing some challenges for their their longer term forecasting and some of the pinch points in the grid.
All things that integral analytics helps them directly address.
Maybe was there something that happened at the commission or something that happened to externally that help move this forward that that might move the sort of broader opportunity mix that you guys have been chasing.
To more rapidly convert.
Yeah.
Craig this contract and the ones in our pipeline are a result of long term trends towards a higher degree of <unk> in the mix for these utilities.
As the utilities adopt <unk> in their groups become more complicated like in the case of <unk>.
Got a lot of solar and wind.
This is the logical solution for them so I wouldn't.
This has been a slow change this has taken us several years and where <unk> got highly yard concentrations that is a perfect environment for this type of solution.
Understood understood so perfect environment hopefully translates to.
Additional awards before too long so.
Yes, we all we all want that to happen second question I wanted to ask is.
EBITDA margins were surprisingly strong.
We all know that you are carrying a little bit of expense for for led DWP.
And.
I guess, that's more of a good news we can talk about but can you can you maybe talk.
Talk us through the EBITA margin strength in the quarter.
What's going well for you, that's allowing you to tap.
Outperform there.
Yes.
Two things one it was pretty good performance on the base business.
Good performance, a little better than we expected with the existing deep existing direct and salt programs that are running.
That being on both the east coast and the West Coast assets. In addition to that on top of good performance I'd say across the board. We did have the adder of for software license occurring in March that was the <unk> announcement that you saw in the press release.
Those two things contributed to a pretty good quarter.
Excellent and then if we could talk a little bit more about led DWP.
How do you see people probably coming back to work for led DWP is this something you have been in discussions with the utility around how you how you would do this.
You know, what's what's sort of the range of scenarios, we're looking at here.
Can you help us frame out the impact for the second half of the year.
Hmm.
Uh huh.
What we do.
The unions, who do a lot who do the installs.
Audit and led DWP territory.
Are chomping at the bit to start.
So coming back to work for them.
They are just sitting in cash.
Caged animal.
Want to go.
Our people in a similar situation our audit teams.
A lot of them, who have been furloughed, our starting guidance.
San Diego on our standard.
San Diego gas and electric work, so that they can get up and running and that new contract and then there are.
Our in place ready to go and everybody from the June switchover to come back to L. A so we're fortunate that way.
Work staffs, all in place and you're right, we are carrying a load for that.
But.
I don't see any.
Bad things that could happen or prevent us from going full out to you Mike no. At this point the client has asked us for a detailed health and safety plan.
Got it.
So good luck.
Excellent. So can you remind us how big they were for you in 2019.
And is it possible for us to reach sort of a run rate consistent with that by the back into the air or maybe it's the growth in there.
Given the enthusiasm for energy efficiency in this economy.
Yes, Greg 2019 is really not a valid comparison because the programs growth. Since then so theres two parts of the contract. The USD portion of the contract is $15 million per year.
Oh that restarted in April and we do it.
Back to extend all of that this year.
The second part of the contract is.
Led DWP direct install program.
I think net to starting in June is $66 million a year and the wildcard is how much do we do this year.
Conservatively, we could say.
Over $20 billion can we do a lot more than that we don't know yet that is still a wildcard.
In discussions with the clients about so budget, though is not a limitation. So in discussions right now on that we don't have the answer.
So I mean is it fair to assume that really you know safety is the gating factor.
That's what.
<unk> 20 plus revenue.
Israeli bank team for for second half I mean for the potential potential flush there is.
If the vaccinations everybody's getting now are.
Or at least somewhat effective somewhat.
Hence the safety.
What will allow you to flush and activity into the back end of the year.
Got it that's exactly right.
We'll take our next question for Moshe Qatari with Wedbush. Please go ahead.
Hey, Thanks, So nice a nice results good results guys.
I noticed that you didn't provide guidance for the year and I get it we still don't have full visibility but.
I'm, assuming some of that visibility is back.
And then are there any specific call outs for you that you know for us to make can you make any specific call outs on the next few quarters.
You know June maybe the second half for us to kind of use to be able to kind of build our model anything on on some of the metrics that we track will be helpful. Thanks, I'll start with debt.
Yes Moshe.
First with respect to guidance.
We would look to resume guidance when we have visibility on a start date for led DWP. We don't actually have a start date, yet we're just estimating June one.
And we get some visibility on when the commission would approve for three large SCE contracts that's material because it's roughly two thirds of the total volume of working with the California IOU work.
So when we get clarity on those two.
Consider reissuing guidance.
Second point was.
Those are the variables. We don't know how should we include you in on the second half rather than take that on a public call I think it's probably better if we work with you on your model after the call if that's okay Moshe.
Oh sure sure of course.
And then as a follow up.
You can talk a bit about how we'll then is getting prepared for structurally and in terms of the infrastructure and delivery.
To be able to kind of process. All this work that's coming through maybe you can talk about recruiting project managers all the things that you need to have in place to be able to kind of process. All this work that's coming through and obviously on time on budget and.
That obviously will be.
Critical in order for you to to continue to.
Get incremental work on some of those vehicles.
While we have okay.
I've said on previous calls, we're fortunate that were California coffee.
We have.
Many many of the employees in place.
We have historically worked on these utility programs. So we do have past experience past April.
We're also although.
One could look at it is we like it all at once that's not true.
<unk> Public program started first then San Diego gas and electric small business. One second so we are really ramping up.
Even though the teams in L, a or waiting for SCE or shifting to other programs to work.
As we wait for SCE to move so they're getting experience in helping us with the startups.
And finding people as of right now has not been an issue even though you see on the news a lot but people are hard to find we are.
Fortunately that a lot of people want to work on sustainability, they want to work on energy efficiency they come here to learn it.
Then.
Help us with our programs and help utilities they believe that.
And we have a lot of really good people.
That's right now around 50 people were staffed up.
To perceive we think file number might be around 90.
So.
That ramp up from 50 to 90 will probably be over six month period maybe.
A little longer.
Alright, that's helpful.
Okay.
And then the the my final question is gonna be that some of the other emerging opportunities out of California, and maybe you can talk about that and maybe the timing for proposal activity and an.
Awards et cetera. Thanks.
Yeah.
So we did a press release gotcha, okay. Okay.
Nobody was in our earnings releases and the earnings release.
So.
We did get an additional contract.
Yeah, what we thought we would so without all for I O U's, we have a contract with us.
And.
The last one with socal gas to do energy efficiency.
And we.
We do have proposals in many many places other California.
There will be a transition.
From a pure energy efficiency two during doing more E plus D R plus storage plus renewables and we've already submitted proposals and how that.
Affects the grid and as Mike said.
Integral analytics work will be more and more important.
On how these D r's affected grid, so we're seeing utilities, making that shift.
And we are submitting proposals.
You go across the country the same things taking place.
We still see a lot of activity in the north east.
In the Midwest So.
We are we are slammed with.
Opportunity.
And there's no shortage of that motion.
Understood. Thanks.
Yeah.
We will take our next question for Marc Riddick with Sidoti. Please go ahead.
Hello, Good afternoon.
I'm wondering if you could bring I was wondering if you could bring us up to date, we talked a little bit about this I believe at the end of the last call, but what if you could bring us up to date on the other.
The acquisition pipeline and sort of your you know.
Obviously, there's been quite a lot you've been working on.
I recall correctly.
Considering we're just beginning to sort of you know.
Get our toe back into looking at some opportunities day I was wondering if you could sort of discuss maybe.
If so how would that process is looking like and how you're feeling about the prioritization and valuations that are out there.
So Kevin and I are actually the people, who typically look at those and.
The market is still very fractured theres a lot of opportunities.
Of our deals are curated internally there are sub contractors or partners people. We work with we've got a good pipeline of those in addition to that.
Those that choose to go to an investment banker.
There is no shortage of those either theres quite a few we see them every week crossing our desk. So there are deals we would like to do.
Now we have amended our credit facility, which gives us a little more flexibility along that right.
I would not look for an acquisition.
Certainly before.
In the next quarter or so but over the next.
Three for five quarters, I will get back in that game and we've got some good companies that we would like to add to our capabilities.
Okay. That's certainly encouraging and then I wanted to just shift gears and see if we can sort of bring us up to speed on how you're feeling about maybe some of the initial things that you're seeing or some of the lease.
Hearing about the funding environment for you.
Your your key customer and a prospect groups out there whether it's you know just improving sentiment or actual progress on funding availability that they could lead to new business wins for the company.
We're gonna give this question Kimberly.
Again. This is your first question yeah, well that's great. Thanks for thanks for asking that.
Yeah.
I think the view is pretty optimistic.
Thank you.
The mis municipal environment has been.
Surprisingly strong for us.
And we are.
Turning to see pretty strong funding within within that piece.
You know, we do a fair amount with.
Our school programs hospital programs.
I think the funding from the infrastructure bills.
<unk> is contemplating.
And the age that they're giving to state and local governments.
There's going to be positive.
For us.
Also you know the.
The idea of funding additional improvements to the grid.
The transmission lines.
All positive signs for us.
So I think when we look at funding mechanisms.
Both in terms of cash being supplied from the government surprisingly strong to US are also financing sources lots of interest in financing sources looking to finance.
Energy.
Efficiency improvements and as well as generation facility. So so we don't think funding is going to be an issue.
For when we're looking forward.
And then one last yes.
I can't do it at a question.
That's us.
It was outstanding job and I agree with your password.
The first one.
So we gave up.
So far so good I think I think we're in pretty good share.
Uh huh.
One last one for me if I could I was sort of thinking about the the timeframe.
I guess, maybe they had been prior conversations and discussions around kind of how you're imagining your own real estate needs in a post pandemic environment was wondering if you had any updated thoughts on on learnings and sort of kind of where your where your thinking is currently.
<unk>.
We've just got a number with you on the board.
And it could be more could be less but right now we've got a number on the board that we think will be 50% less real estate.
The concept of hotel and for Us being a service industry.
People are numbers being thrown out how many days a week do they want to come into work.
We're somewhere between two and three.
So that would pretty much appreciate about 50% if we hotel.
So those are the things where for.
Our board.
That's the way, it's working right now.
Okay, great. Thank you very much.
Wait wait wait wait wait you may want to know so most of our leases are two to three years, we have somewhat.
For five but on average it's about a three year duration, so we share that.
Reduction in cost for over a two to three year period.
And my hope for.
Excellent.
Thank you.
And ladies and gentlemen, as a reminder, star one for questions or comments. Please star one.
Well pause a moment to assemble the queue.
We will take our next question from Craig Irwin with Roth Capital Partners.
Thank you so the most important question is really.
Upcoming solicitations right you guys didn't impeccable job and what was put out to bid looking backwards.
And looking forward there are.
Publicly posted solicitation timelines.
I definitely identifying different pieces for different utilities that are up for bid.
It looks like SCE has a fairly.
Heavy.
<unk> been scheduled this year with contract negotiations.
In the second half.
PGD looks mostly done but.
San Diego gas also gets very busy later on this year.
Looks like they have a large chunk of their business yet to award both in late 'twenty, one 2021 and 'twenty two.
And then obviously socal gas.
In.
Depending 'twenty one 'twenty two.
I guess this is probably going to slip into 'twenty, two given given timelines, but what do you feel about the opportunity.
To bid on these upcoming programs are they a natural fit for your capabilities do.
Do you have any sort of feeling of a rough <unk>.
Scope that you would like to bid for you could possibly bid for.
This calendar year and next year.
Yeah.
Craig right now in California.
Yeah.
If we give excellent performance and we delivered.
We won't have to worry about.
Bid.
Uh huh.
Performance is everything at this point.
So I think that question out next year next year, we'll wait on that and we're totally focused on delivering the goals for the utilities as they have now worked into it.
And that utilities will make a decision.
If we've got a plus performance through why stick with a day plus performance, where do we want to go somewhere else.
So.
Right now it's purely outperformer.
Hi.
California.
California experienced will transfer across the country.
California has done something that no other states done yet.
That makes complete sense, but can you maybe frame out for us or are we looking at a similar dollar value.
As to what you've captured now as what might be available over the next couple of years.
Yes, but I would not say if you look at the dollar value I would say that it's not going to come from California.
Might be some increase for different types of programs.
But.
But if you wanted to repeat what we did in California, It would come from several states.
Understood that debt.
That makes sense, thank you and congratulations on a solid quarter.
Thanks, Craig.
We will take our next question for Moshe Qatari with Wedbush. Please go ahead.
Hey, Thanks, just a follow up can we get an update on the pipeline for Integra analytics.
Is there a way to kind of quantify the T. C V and then.
What sort of opportunities are there out there at this point are you bidding for.
Yeah.
Here's how I'd describe it.
You've got a number of contracts, but here's how I agree if we signed one more contract for this year.
A new additional contracted new additional utility that's.
<unk> performance was pretty good pretty good performance. If we signed two more this year, that's a performance and if we signed any more than that.
Josh we're getting overloaded work so.
Good pipeline, that's how I'd describe it.
Okay and are is there any.
Are you, indicating I think.
Alluded to on the call that the sales cycles are contracting or the decisions are kind of coming through much quicker than what we've seen in the past maybe you could talk a bit about that.
I would say that the sales cycles are the same day, which is frustratingly long.
They are taking one to two years to decide.
Uh huh.
Yes.
The pipeline that we're now realizing a year or two ago. So those that work that we did over the last 12 months is paying off now that's the contracts that we're working on and negotiated with customers right now.
Thanks.
As a reminder, star one for questions, we'll pause a moment to assemble the queue.
It appears we have no further questions in the queue I would like to turn the conference back to your speakers for any additional or closing remarks.
Thanks, everyone and thanks for your continuing interest and will then so we'll see you in about 90 day.
Thanks, again, ladies and gentlemen, this does conclude today's conference. We appreciate your participation you may now disconnect.
Yeah.
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Yes.
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