Q1 2022 Willdan Group Inc Earnings Call
Ladies and gentlemen, and welcome to the welding group first quarter 2022 earnings Conference call. Our call today is Alan Katz Chalk V. P of Investor Relations. Mr. Castle. Please go ahead.
Thank you Mary good afternoon, everyone and welcome to the World and groups first quarter fiscal 2022 earnings call.
Joining our call today are Tom Brisbin chairman of the board.
Chief Executive Officer, Kim early Chief Financial Officer, and Mike Bieber President.
The call today builds on our earnings release, we issued after market close today.
You may find the earnings release, and the well will be on Investor report that accompanies today's call and the press release.
Stock information section of our Investor Relations website, IR, Todd will down Dot com.
Management will review prepared remarks, and we will.
That open the call up to your questions statements made in the course of today's conference call.
<unk> answers 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 is important to note that the companys 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 listed from time to time in the company's SEC reports.
Excluding but not limited to the annual report on Form 10-K.
The year ended December 31, 2021.
Company cautions investors not to place undue reliance on the forward looking statements made during the course of this conference call.
<unk> disclaims any obligation and does not undertake to update or revise any forward looking statements made today.
In addition to GAAP results. We will then also provides 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.
Tom I'll now turn the call over to you.
Thanks, Al and good day everyone.
We spoke just 60 days ago and the burning question Dan was why do we return to pre Covid result.
First quarter is on our plan, which reflects lower profitability, but it is what we projected.
We ramped up heavily southern California programs, and our revenue and those programs is not covering our cost yes, we are.
Reaffirmed our guidance in both our press release.
<unk> financial script that Neil here.
We expect the second half to accelerate and get us pre COVID-19 results.
California programs, our new for our customers.
This outsourcing of their programs has taken extensive resources.
Processes and procedures are changing.
The two programs with just in the gas and the electric three with Southern California, Edison, One with Southern California gas company and.
One with San Diego gas and electric.
And one with Los Angeles Department of water and power.
All at different states.
A lot of the new ramp ups are post COVID-19 restart.
It is a challenge, but our team is experienced capable and up to the challenge. We all know what are you most accelerated each week with sale.
Engineering information and gave projects at the point of revenue recognition.
These are five year program.
And individual projects take time.
Revenue recognition is contractually changed it better for milestone payments to project completion. That's why we are investing extensively in the startup phase.
We are confident.
Sticking with our forecast for the year.
Beyond the California, Ious, we see a nice ramp up in the Los Angeles Department of water and power program.
Our wedding new measures such as refrigeration.
To put in the program.
This would give our salespeople are much more yourself rather than just sliding.
We also see our software business with integral analytics doing well both in delivery and pipeline are.
Our New York City housing Authority Nitro project before.
Performance engineering, and our policy consulting groups are all doing well.
New business.
Includes a win a recompete for multifamily in New York, and Ohio, and Ohio utility for IAG software.
Our performance Engineering group has won two new jobs with California cities.
We always thought well then long history, with California cities would be synergistic with a clean energy economy.
That day is here and we will grow with time.
On that note our civil engineering business is doing very well.
One of those times when building is booming.
Maybe everyone wants to get their projects require significant headwinds occur and thats just speculation on it.
The limitation for Sim Civil engineering today is growing faster excuse me the limitation for civil engineering growing faster is qualified people, saying for our policy group III.
Our programs have not been immune to the disruption in the supply chain and overall cost inflation.
In terms of supply chain.
The biggest challenge remains the delivery of materials and equipment at job sites, where there is more complex equipment.
The delivery schedule headwinds remain.
Cost escalation.
As significant.
Continuing to collaborate with our customers and work with our suppliers to manage this environment.
From a labor perspective, we're essentially at full strength to execute the work for 2022.
This includes the 150 people, we're carrying to operate the California utility programs.
In closing our focus now is on execution.
We have to work the market is good.
Now we need to grow our ramp our revenue come to costs, we have invested in the startup of new contracts and restarting due to the COVID-19 impact.
We are confident the second half of this year will show, our regenerative products shifting to pre COVID-19 profitability.
Kevin.
Thanks, Tom and good afternoon, everyone gross revenue for the first quarter increased by 16, 1% to 91 8 million, while net revenue net of subcontractors materials and other direct costs increased four 6% to $50 2 million for the first quarter.
The increased revenue was derived primarily from the resumption of the Covid suspended program and increased construction management activities, partially offset by lower software licensing due to a particularly strong period a year ago.
Gross profit of 31 4 million for Q1 of 2022 was down slightly from $32 1 million a year ago, primarily due to the lower software revenues and California, IOU startup costs in the current year.
These were the primary factors behind the reduction in gross profit margins from 46% to 34, 1% in Q1 of 2022.
G&A costs for Q1 of 2022 were $37.0 million an increase of 647000.
Or about one 8% higher than a year ago.
This was driven primarily by higher professional service and recruiting costs, partially offset by lower stock compensation and facility related expenses.
Interest expense was 313000 lower than a year ago due to lower average borrowing levels during the quarter, resulting in a loss before income taxes of $6 2 million in Q1 of 2022 compared to a loss of $5 $2 million in Q1 of 2021.
The income tax benefit for Q1 of 2022 was $2 4 million compared to a tax benefit of $1 5 million or 2021 or.
The higher benefit was primarily attributable to additional facility energy efficiency deductions derived from projects completed in prior years.
As a result, the net loss of $3 8 million in Q1 of 2022 was consistent with the $3 8 million loss reported a year ago.
EBITDA was $2 3 million or four 7% of net revenue compared to $4 7 million or nine 7% of net revenue a year ago, reflecting the change in the mix of revenues and the startup costs for the new California IOU programs are.
Our adjusted earnings per share were <unk> <unk> per share for Q1 of 2022 compared to 22 per share in 2021.
The impact of the start up phase of the California, IOU programs was to reduce the adjusted EBITDA for the current quarter by $2 1 million and the adjusted earnings per share by 12 cents per share.
On the balance sheet reductions in receivables and liabilities since year end reflects the changing mix of revenues combined with the increased demand for working capital related to the resumption of our utility programs that were suspended and the startup costs associated with the California IOU programs.
Cash used in operations was $7 8 million for the quarter while.
Capital expenditures were $2 1 million, primarily for software development and it related equipment.
Scheduled principal payments on our term loans and earn out payments, resulting from successful acquisition performance used approximately $14 2 million in cash.
In Q1, and as previously disclosed we amended our credit agreement with our five bank consortium to better match, our expected cash flows and related to covenant metrics with our expected growth related working capital needs in 2022.
Looking ahead, we continue to expect net revenue and adjusted earnings per share to grow by approximately 20% over 2021, and adjusted EBITDA grew by about 50%. We estimate our effective tax rate will be approximately 25% for the year and weighted average shares outstanding.
Be approximately $13 4 million.
We expect Q2 to begin to show a significant increase in revenue and earnings over Q1 and for those increases to continue in each subsequent quarter as we ramp up the new utility programs and expand construction management activities.
Operator.
Not prepared to answer your questions.
Great, ladies and gentlemen, if you'd like to ask a question. Please press star one again to get in line to ask a question. Please press star one one moment, while we wait for questions.
Okay.
Alright, and our first question is coming from Craig Irwin.
Good evening and thanks for taking my questions.
I wanted to start with the California energy efficiency contracts.
Can you maybe update us on the number of employees that you have.
<unk> in place that are doing the early work for these projects.
How does this compare to I guess, the 150 more or less than you had at the end of last quarter.
And can you approximate the expense burden in the quarter. So if we were to maybe take that out what is it.
This would look like and do you expect to grow the number of employees here.
Over the course of 'twenty two.
Before they get productive in the backend of the year.
Our still have 150 Craig.
<unk> expense was 12 <unk> converted to EBITDA $2 1 million $2 1 million for the quarter Craig.
And I wouldn't expect a whole lot of growth in the head.
Between now and yet ended the year.
Sure.
Excellent excellent. So then.
Seven cents.
What it really been comparable to about 19 pre COVID-19 is that a fair assessment.
Correct correct.
Alright once again, if you have a question just press star one and we do have a question now all of this is coming from Marc Riddick go ahead.
Okay.
Hi, good evening.
Yes.
So I wanted to go over the.
The commentary that you had earlier around the updates around the credit.
Our facility and sort of how everything sort of lines up with the visibility.
Especially following the.
And when we last spoke to as you mentioned about a couple of months ago.
Certainly there was.
Greater grew.
Greater expectation as far as your own internal ability to sort of have that visibility on the timing and having the matching of.
Financing needs. It certainly seems as though that appears to be in place and the commentary in the press release talked about a 12 month timeframe. I was wondering if you could talk about maybe how much wiggle room, you might have there and if there is any situation that we should be thinking about that could sort of throw that off a little bit.
Okay.
I assume youre talking about wiggle room within the covenants within the agreements is that correct Thats correct Thats correct, yes.
Got a pretty significant margin that should be comfortable for us. We certainly don't have any expectation of a violating.
Those numbers.
The revised covenants under the agreement are based on.
Leverage ratios and they change with each quarter and also a minimum EBITDA number.
Both of which we should comfortably be able to remain in place.
That was.
Part of the reason for making the amendment, which just to adapt to the timing.
And make sure that.
The dose that we had plenty of.
Legal room as you call it under those agreements.
Sure.
Okay, Great and then switching gears, so I understand Mark again, just as a reminder, we do have the $50 million.
Part of the reason that we restructured the way we did was to make sure we had $50 million worth of that full line of credit available to us.
Okay excellent. Thank you.
Wanted to talk a little bit about the.
As far as if you did need to add heads.
Are there any particular areas that you think you might need to add or do you feel as though you're kind of where you want to be by sort of specialization or or or should we expect to see maybe more of a pickup in certain areas later in the year.
Thanks, Tom about M&A.
Are you talking about head count or M&A spin.
Specifically.
I was talking specifically about head count.
Okay.
We're where we need to be right now.
And probably for the next two quarters.
On an average basis.
In Q4, we will need to resume hiring again.
Four to continue the ramp up into 2023 for the California programs as well as some.
Early work.
We're being very successful at and construction management and performance engineering going into 2023, but we should be good for the next six months revenue in that fourth quarter.
I will cover the expense.
Sure. Yes revenue is also expected to be up quite a bit in the fourth quarter. That's when we'll start recognizing the revenue.
From the work that we're doing now actually in the California IOU program. So profitability should be good in the fourth quarter, we won't see that phenomenon that happened this quarter, where we don't have revenue to cover the head count costs.
Okay.
Alright, we have a follow up question now from Craig Irwin.
Yes, it was a little aggressive getting cut off before thank you.
Second part of my my original question was.
I just wanted to confirm that there was no.
Energy efficiency revenue from the California.
In the quarter, you have talked about roughly $50 million this year.
Is that still the expectation since your guidance just to reiterate.
We had less than $1 million in revenue for the quarter.
About 800000 for the quarter so de Minimis.
Yes.
Some number around $50 million is a good number Chris.
Perfect perfect. So.
Second thing I wanted to ask you about is led DWP.
So I know that.
It's been a real headache for everyone.
It has left some money that I believe is available in the Lake DWP budget.
Where they might be able to move faster.
Oster.
Some of the energy efficiency opportunities that <unk> been considering.
Can you talk about early DWP.
<unk> funds.
What is the potential maybe to pull that down this year and how.
How do you see overall productivity.
Shaping back up it led DWP is this is it still likely to be.
Key profit driver for you in 'twenty two.
So first the contract has been very good thus.
Thus far this year the team has done a very good job of.
Ramping up thus far into the year, we are still in discussions with the clients about what we call new measures or I'll, just say additional scope to the contract. So I don't have.
The conclusion of those negotiations right now for you Craig but were in back and forth discussions about what they would like to add to the program what that means for the program and how we would roll that out so hopefully we'll have something more for you.
And the next call.
Understood understood.
Can you maybe update us on national grid.
You guys have been winning some interesting contracts across the country over the last couple of quarters not just in California.
National grid.
Starting to take shape does that have some of the same issues of supply chain and contracting that you've seen in California, or maybe are the dynamics are a little different.
And do you see similar opportunities.
Potentially.
Realizing over the next couple of quarters.
Okay.
So that is a small energy efficiency contract that we are just starting up I just happen to get an update yesterday about it the contracts ramping up but it's very small in comparison with the California IOU contracts.
We have been very successful in the state of New York, but that work and so that is another utility we've added.
It's going well.
Contracts going well.
Excellent excellent and then I know you guys are always a little bit shy in answering this question, but there is another phase of water beyond the California energy efficiency contracts that have been awarded.
Can you maybe just.
Give a little color on what you think.
Would need to happen to see those come to light as far as the potential contracting.
I know there is a regulatory timeline.
But those aren't always followed.
What should we look for as external observers.
The key items for that to potentially come to the table.
Yeah.
Okay.
We're looking at each other to any of US know what the PUC you guys do.
Hi, Matt.
Asking you to breakout the Chris Crystal Ball, Tom I know I know Todd.
Okay. So a wild guess.
I don't know I guess if.
If every contract was maxed out in five years.
Looked like it was going to be maxed out probably around 23 24.
Sure.
They might expand it say theres more market.
But this is bigger than ever so.
I don't think theyre going to make that decision until 'twenty three 'twenty four.
That's just a while ago.
Okay.
That makes that makes quite quite a lot of sense that does make quite a lot of sense. So then.
Other general question, how would you say your visibility is taking shape.
The overall level of activity in the space I mean, your stock has been sort of on us on a decline over the last few months, but I would expect with Covid sunsetting.
And the customers getting back to work.
The visibility for you is actually improving.
Particularly given that you are in your customers' offices and seeing them regularly.
What can you share with us I don't know if there are any metrics or our details.
That would.
Help with the investor confidence in your visibility.
That is most likely this disconnect questions yourself.
We mentioned last quarter that we now have about $1 $2 billion in backlog.
We measure backlog is that if you have an MSA that you've had for 30 years you only record a year of revenue. So we think that's reasonably representative of our business.
$2 billion is significantly larger than our run rate. So it's a couple of years of work.
We're looking at right now in addition to that a lot of that is utility work, but.
It has been robust in the civil engineering business and in the performance and generic business, where we go into primarily the mush market and perform work for municipalities that business has been strong.
We have is that business alone this year, we will do.
Over $150 million in revenue.
So.
Visibility has never been better for Wilbur we've never been in this situation before.
Right correct there is a disconnect.
And then last question, if I may integral analytics software business.
You bought <unk>.
And you've continued to invest in this because in a very close relationship with the commission is out there and the solution that <unk> brings to <unk>.
To your partners to your customers.
Can you maybe talk a little bit about.
What youre learning organically from that business that helps inform the energy efficiency.
<unk> and engineering side of the business.
And.
Is there is there is a little bit of a spending cycle on a recovery.
How would you expect that to impact the release rate of contracts.
Given that there is potential for a number of fairly large infrastructure projects to.
To be green lighted open over the next day.
Yourself.
Well.
If you look across the country there is EV.
And the concept of electrification.
So.
The utilities are faced with loan growth.
Predictions, we've been anywhere from 1% to 3% for many years.
We're looking at 3% to 5% or more.
And that growth rate of they can't handle I think goes last time buys Opex 2000 32014.
Okay.
So.
The impact on the grid, just going to get worse.
They need more power to service the EV and electrification.
So where are you going to go.
Solar.
Or when are used less so.
Those are your options.
Or more.
We haven't got there yet.
What do you say Craig.
Is that what youre, saying.
Hey, Greenest megawatts, one never units right, that's what Jim Rogers from Duke and what I'm, saying is to say, yes, and I've always I've always agreed with him right. That's why I was so eager to cover you guys a few years ago and it's a tremendous.
Rewards.
The commitment from the utility industry. It's just told me it's been a frustration for all of us so.
Okay, that's pretty clear.
But the low growth I mean are you seeing it with the evs in electrification.
You cover UBS.
The EV market is growing faster than expected here in the U S not as fast this year.
And.
It brings a whole host of problems to the infrastructure that people don't anticipate so.
Your customers I can imagine would have greater.
Need for solutions like <unk> and your services to plan around that.
And.
I was kind of hoping I had my fingers crossed that you would say that.
It's cheaper to plan properly using package like I E.
That is to spend the one.
Billion or multibillion.
A multibillion dollar projects.
Yes.
And.
That's going to be a pretty favorable.
No.
Proposition some of these commissioners.
Well, Craig I forgot that part of your question I guess, so caught up in thinking about how the utilities are looking at that.
That's exactly what's going on in IAA.
I mean today Tomorrow and the next day as we're getting those set of questions in.
And Theyre planning side of the IAA software.
So sorry about that I talk more about load growth.
And just kind of assumed debt.
They're going to have more need for planning.
That is the answer.
We have a question now from Marc Riddick.
Go ahead again.
Thank you I just wanted to add some of my questions are were covered there I just wanted to follow up on one of the things that took place during the pandemic was you know the.
The the direct install impact wasn't of course, just in California, but also in New York.
If you could talk a little bit about how that ended up being molding coming out because in the case of New York things opened up a lot faster than it did in California, right and so just wanted to sort of talk about maybe what youre seeing direct install and in New York since since that opened and maybe what that pacing has been like and is it sort of in line with with what your expectations.
And to a lesser extent has that given any sort of greater visibility into how.
What's taking place in that way.
Yes, Mark the direct console business in New York addresses the smallest of small businesses. So there was a grave concern that those businesses were more economically impacted during COVID-19.
Actually happened was that the utilities reacted.
And typically increase their incentives.
Move energy efficiency projects forward.
Poor economic situation.
So the net result to our business.
Was much less impact of really almost no impact due to COVID-19 because of the additional subsidies that utilities, we are willing to contribute.
Now at this point.
Since we're mainly through Covid and utilities are reducing those incentives, but we're seeing demand increase and so the business has been pretty predictable in New York There has not been much volatility due to the change in economic conditions.
Excellent. Thank you.
We have no further questions at this time I'll go ahead and turn the call over to Tom Brisbin.
Well I'd just like to thank everyone for joining us today and.
We will be talking to you in about another 90 days.
Thanks, a lot.
Ladies and gentlemen, thank you for joining US you may now disconnect.
Okay.