Q3 2021 Willdan Group Inc Earnings Call
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Tom I'll turn the call over to you.
Thanks Al and good afternoon, everyone. During our call. This afternoon I will provide an update on the current operating environment and Kim will review, our Q3 financial results.
Our third quarter results were ahead of expectations.
Led DWP.
Start date was June 21.
Then we had three months of ramp up in our results. We also received a notice to proceed on all our California, IOU that the investor owned utility contracts.
With the largest being southern California Edison on September 15.
We're in the process of ramping are starting all of our California utility contract.
Allergy differentiation in the market.
We have a big challenge before us delivering these massive California IOU program.
We know we can do it where.
We're confident based on our nation wide experience lessons learned over the past 15 years.
Data management capability exceptional people experienced in covenant incumbent seeming partners and the desire to be the best firm in the nation.
We expect less than $10 million in the fourth quarter and can we get started with the new California IOU program.
Turning to the lead DWP program the team Dillard strong financial results.
I am happy to report that the.
Last week, one month into the fourth quarter operations that led DWP and return to our pre pandemic run right.
As we discussed last quarter.
DWP did not spend on budget for energy efficiency services for approximately.
Emily 15 months.
We continue to advance discussions with our clients on how to invest the unused program over the next over the near term.
Which would be additional to our base program.
Thank you to all the staff, who have been instrumental in the restart and a team that has developed our viewpoint online platform to expedite work to improve efficiency as well as lower our overall costs related to this program.
We expect that led DWP team to meet the challenges of a rapidly growing program.
We are encouraged by our growing list of opportunity that.
The diversity of our capability and across selling collaboration.
<unk> the contract capacity the double digit organic growth over the next three years.
Org in Massachusetts are entrusted will then.
Transition to a clean energy economy in summary.
Emerging a stronger post pandemic comment company.
We do not lose any capability for contract value.
We actually gained substantial market share now, we must deliver and get back to the growth rates that are shareholders expect.
Thanks, Thank you to our employees and our shareholders for their continued support I will now turn the call over Jim's discuss off our financial results.
Yep.
Thanks, Tom and good afternoon, everyone. Overall, we had a very good Q3 with revenue earnings and cash flows exceeding expectations as we focused on execution.
$149 7 million.
The change in the mix of revenue sources accounts for the different trajectories of gross and net revenue through the first nine months of the year. The gross revenue reductions in our construction management activities translate to smaller reductions in our net revenue due to the higher sub contracting materials content.
While the gross revenue increases from utility programs and advisory services have lower pass through expenses, and therefore translate to a far higher increase in net revenue.
Mix of revenue also accounts for the majority of the 640 basis point improvement in gross margin year to date when compared to the same period in 2020.
Higher gross profit was partially offset by a five 3% increase in G&A costs versus a year ago.
Yeah.
Our $50 million line of credit and $20 million of available delayed draw term loans remained unused at quarter end. We do expect however, the restart of the led DWP program and the commencement of the new SCE programs in Q4, we will expand our working capital requirements and <unk>.
Results in some usage of the line in Q4.
We would expect to continue to use the line until cash flows from the expanding revenue begin to catch up in the second half of 2022.
Operator, we're now prepared to answer questions.
Thank you.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad and if you're using a speaker phone. Please make sure your mute function and all sort of like a signal to reach our equipment again press star one to ask a question for just a moment to allow everyone an opportunity to signal for questions.
And we will go first to Craig Irwin of Roth capital.
Thank you. Your line is open. Please go ahead.
Hi, I apologize I was on mute so.
Thank you for taking my questions and congratulations on another really solid results here.
So Tom.
Gosh, it was probably three or four years ago.
There was a major budget flush in the fourth quarter.
You know your customers had under spent during the year.
Okay scope of work now I know you've been conservative about what you said there given that you're still you know you haven't really started to burn that the the revenue that has the opportunity to captured already.
But can you maybe just sketch it out for us to give us an idea roughly how active you see your big teams being and you know maybe if you're not comfortable with a dollar value maybe a.
[noise] proportionate measure that that kind of indicates to us.
What's available versus what's already been contracted what would be really helpful for for people looking at the future.
[noise], what's available in wrong during the pandemic.
Because.
Schedules.
And parts of the schedules are still the same so they're trying to attack more.
On what's available and Celeste hi.
So our budget is actually wrong.
So the question I think.
How much sleep pattern to them.
Three or four years that we have left.
Some cases five years.
But.
You want to add to that.
Okay.
Well all of the.
[noise] projects I've started first of all.
We'll start to ramp in queue for you'll see a little bit of that.
The major in Congress next year, and I would say that it's likely each of the next each of the next four quarters in 2022 will be progressively greater than the earlier a quarter. So.
Q for maybe our largest exiting 2022 and that will continue to grow into 2023.
Very likely so you know that the run rate just for the California IOU programs has to average.
$150 million of incremental revenue over the next four and a half years. So to the extent, we do let's say less than 100 billion next year. So that means we have to be up around $200 million in 2022.
Hit over milestones further than that Craig it's difficult to break down at this point.
But we will breakdown for investors as we get back to guidance in March of 2022, with the announcement of our fourth quarter and provide a pretty detailed outlook and what we think it's gonna look like at that point.
Since we're just getting started right now we're gonna wait a couple of months to do that.
Understood. So maybe can you just give us a couple of.
On the specific opportunity for new projects, new contracts not the contracts with you if you've ever had one.
[noise]. So when we went to the script chair, Greg what we've tried to demonstrate.
What what's going on in the other parts of the country.
And we gave you a 90 million dollar example.
Or.
Just call it housing multifamily housing in New York City.
Whether it is about this is just one unit.
And they want to revamp how.
Buildings are heated cool.
And the first award.
She was public holidays facilities in New York City will that is one of those $90 million.
So that's no.
I also talked about a new energy contract has been signed but we can announce yet.
In the mid Atlantic part of $24 million.
But what is also exciting.
Is.
What we're doing in New York City, and the state on helping them how did decarbonized. So we're not only helping them with.
Called the path.
The formula, but the rest of the World and is also working at all the buildings for model.
There were also then during the design and the upgrade.
So that we tried to give it a little flavor of other state.
But then as you go back to California, and like I said, we're going to pick out around twice remained in place and a 23. This is I just keep rambling.
For three years.
And.
And he said the left where you are now than what we're gonna do later.
So.
What comes.
As you know better than I do of Craig.
They've only officers are source about a third in California.
So.
We'll be back in California going after more if we do well on delivering for the next couple of years. So.
Huge opportunity.
Growing and.
In this area of let's call it.
I don't know electrification grid modernization renewables whatever term you want to put on it.
I guess you just want me to repeat visit all the time cause that'd be a softball question from them, but.
[laughter].
[laughter].
Yeah. He gave me you gave me what I wanted I know you're kind of shy about about about saying.
No one thirties done there's two thirds out there, but that's really what what industrious one understand so thank you just another couple of very quick quick questions. If I may labor is a hot subject or a lot of companies investor insurance watching closely particularly.
On the services side right.
You guys navigated well to put up the results you gave us.
Can you talk a little bit about the labour capacity.
And your confidence in having sufficient labor to execute on the on the revenue ramp.
We've been a very.
Very good attractor of talent during this.
Period, and we have ramped up effectively.
Higher.
100, new people, new faces in California and.
And even more across other parts of the company attracting talent has not been an issue to us Craig to my surprise actually.
People want to come to work. It will then we have a lot of work and a lot of job openings and we're acquiring in hiring a lot of talent.
<unk> one piece to it is coming at some escalation.
People are quoting anywhere from 5% to 7% escalation on labor rates, we're seeing the same thing occurring.
Passing that along to our clients and escalation and Ah.
Contracts for the most part allow us to do that so labor is coming at a higher costs.
But.
It hasn't been a restriction on growth.
That's that's that's that's really excellent and then last one if I may another company instead of an ecosystem not not such a direct competitor [noise].
It's gone out there and and that themselves you know basically a billion dollar E. P C contract.
Massive pain in the in the business model for them to build that you know these these massive energy storage facilities, where they really don't have a ton of experience you know.
It was liquidated damages, if they're late and all sorts of other terms.
No.
You guys aren't gonna surprise us with any any any changes to the business model or or you know fundamental you know.
Sure Shane and what you're doing to try and chase revenue H E E.
The initiatives that you have that you've communicated can we expect needs to be the ones that drive auto and and consume your time over the next number of years.
No changes in business model, it's working.
Perfect Love It. Thank you guys hey, congratulations on the on the strong results.
And we'll go to Orange question from Kemp more with you.
Hey, good evening, everybody. Thanks for taking the question nice to have a lot of things to talk about.
Wondered Tim can start.
On the software side I think in the past it last for you factored in some wins for I E and the plan.
Just wondering.
Thinking about queue for any margin implications and a bigger picture you know Tom you you talked about this new you'd find platform can you expand on that and what that brings.
Cause you can have both a I a viewpoint okay.
So.
I did exactly what we thought they were going to do in Q3, two new small software licenses, we do not expect further software licenses in queue for that would just be upside they've had a great year and then a great contributor to the bottom line and more to come in 2002.
22, so they did a great job.
Yeah.
<unk> has launched an led DWP, it's been two years in development, we've taken all of the proprietary technologies across the company that had been acquired and invented it at will in and put them in one platform to be able to manage these large utilities programs with it's called viewpoint internally.
It has a customer facing portal it allows subcontractors to log on and see where they are on their programs also and it integrates technologies that integral.
Analytics has building modeling from the White group and many other software technologies into one platform. This has never been done before and it's working great at led Uwp were about a month into the launch and it's gone just like we expected so we're going to roll it out across the company.
Good to hear.
Maybe one more on the new 90 million contract in in New York City.
Nice when I assume that's the multifamily opportunity reference last quarter, maybe you can talk about.
Get on it already but potential for that to grow.
The federal stimulus or things like this it seems relatively early days so just curious.
Blind for those type of of wins.
No that's all separate and one is utilities type contract for multifamily.
And one is a another state authority for buildings and building complexes and multifamily. So they are separate they are to win.
And.
Look at a diagram here on the board that might put up and there is overlap and we can see synergies between them that will really helps a lifetime I expand on any of that well.
Well these customers have different objectives and many problems in common we run both major programs and there's an opportunity to combine what we're doing in those programs and better serve these customers. So we're going to work on that Tonight actually.
Really.
There are two new great wins, and they will contribute substantially to revenue and profitability over the next three years.
I think the market for it.
Unlimited I mean, we.
But could never keep up with it for across the country on how to tackle the hi.
Hi, rise multifamily type housing projects and what the recall cities with.
Infrastructure that is anywhere from 50 to 75 years old.
I mean, the heating and cooling in the individual units I mean his alma.
Yeah, No I remember when you open your window right.
Yeah.
You go through right.
New York and everybody's got their window opened a regulated industry.
Great Great that's great to hear congrats on the momentum but to see.
Forward to watching it here thanks.
Thanks to.
And one with our next question from our critic of Fidelity.
Hi, good evening wanted to.
A lot of questions have already been answered. So I just wanted to sort of circle to to another area and I was thinking about the potential that you could share or acquisition appetite going forward, if they're really some some targets that might make some sense or some services that are trying to get you in and if it's anything that is I know we certainly.
I have a lot of airplane already by the wondering if he's in it.
Spending the time on that.
It's likely Mark that we will wait until mid next year to complete acquisitions.
We're already starting to work on our next batch, we're resuming the pipeline and a pipeline looks really good.
Some of the areas, we're looking at right now.
Clued software and technology and the energy space.
They include electrical engineering.
And planning in the space.
Some energy policy consulting that we'd like to add and some geographic presence in new England. So those are just for areas that we're evaluating there are a number of this is a very fractured market. So this will go on for some time.
Or all private companies were directly negotiating with directly talking with and we often work with them for several years, that's how they come to us so the pipeline looks good.
Don't expect anything to be announced until mid next year, but we're talking.
Mmk, that's actually very encouraging the here and then I guess a second.
Part for me would be around the the schooling.
Going in to make sure you and I appreciate you actually showing that you're you're looking at going back to being an issue isn't guidance only once you get through the process. Early next year I think that's that's very encouraging I was sort of thinking about the landscape of I know you mentioned the higher labor costs.
Of that range I was wondering if you also had an update on the folks that you were talking about hiring by the end of the year. I think you were shooting for about 100 by the end of the year and could you give an update as to where you are there or if that.
That goalposts well.
Moved at all thanks.
To the most part completed that hiring.
We've done a good job of it we have a lot of brand new employees that have just joined wheeled in.
Places, where still hiring include upstate New York and the Midwest, but California generally has been filled out and done a great job.
It's very encouraging thank you.
And it reminds me of the Star one if you have a question at this time I will go to my country Wedbush.
Hey, Thanks, Let me add my congratulations on the strong application I have a couple of follow ups and let's go back for a second to the California contract.
Vertically when I'm looking at my numbers I'm, assuming contribution gross revenue contributions go from 20 million. This year, maybe 75 million next year, and then maybe somewhere in that 150 and 23 then.
That.
Are these kind of you know reasonable expectations based on what you're thinking right now.
[noise] reasonable expectations should we execute them, we can beat them. So yeah.
Okay, Okay, good and then.
I believe in a discussion of what happens to margins when some of these contracts mature.
And I'm assuming.
Fully expecting margins to be accretive bombed the world by a couple of hundred basis points does that make sense.
Over the next three years, yes, as we ramp up and we should start to see some of that even in the back half of next year. Yeah. Okay. Okay. Good and then going back to tangle analytics.
Not sure did you disclose how much revenue to be generated from the operation This quarter and how much you know you know how praetor that was too funny.
We did not we generally don't breakout individual software deals Moshe.
Can tell you there were two small deal signed in the quarter and that's what we expected.
We've signed what I'll call three new.
Agencies or Iou's up this year and.
That adds to I think three we sold last year.
In total for the year integral analytics will do $10 million in revenue.
And as you know their cost basis is about 6 million Bucks. So you can do the math on that they had a great year and are forming a great pipeline coming into 2022.
Alright, it's helpful and then you're delivering.
Some of that also has a staff.
SAS model.
And I believe that was.
Specifically targeting maybe small municipalities.
Maybe talk about your success, there and how much traction have you had especially the living in it you know and SaaS model versus the older kind of legacy mall.
We're just starting that strategy and we were able to carve out small pieces of these contracts.
Building that software is a solution or annuity revenue. It was $2 million last year I don't know, we're going to exit this year with something less than $3 million, it's still a small number moshe.
And it's really are.
We're building a pipeline of those opportunities to sell into 2022.
Because the sales process is normally longer than 12 months. So we started this earlier in the year and we're seeing more and more of those opportunities we would like to target and this is a new area of business for US as you mentioned the R.
Or the.
Municipal utilities out there the largest of which is silly DWP. These utilities don't have profit motive, they're trying to lower the cost basis for their.
Utility clients and this software is absolutely vital and helps them lower that cost basis better.
Better planning and better execution of Capex. So that's the market, we're targeting and we're filling the pipeline with those.
Helpful. Thanks.
And then of course, there are no further questions at this time I will now turn the call over to Tom person for any additional or closing comments.
We just like to thank everyone for joining us today and.
Have a good way for the weekend and take care.
And so this concludes today's call. Thank you for your participation you may now disconnect.
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