Q2 2022 Willdan Group Inc Earnings Call
Good day, and welcome to the Wild &'ished second quarter fiscal year 2021 of Conference call. Today's conference is being recorded. But this time I would like to turn the conference over to Alakash Sharp.
VP Investor Relations. Please go ahead, sir. Thank you, Jenny. Good afternoon, everyone, and welcome to Will Dan Group's second quarter, fiscal 22 earnings call. Joining our call today are Tom Brisbane, Chairman of the Board and Chief Executive Officer, Kim Early, Chief Financial Officer, and Mike Beaver, President.
The call today builds on our earnings release. We issued after market closed today. You may find the earnings release and the Wild End Investor report that accompanies today's call in the press release and stock information section of our investor relations website, bondatir.worldend.com.
Management will review prepared remarks.
And then we'll open the call up to your questions.
Statement 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 Security's Relentication Reform Act of 1995. The forward-looking statements involve certain risk and certainties, and it is important to note that the company's future results could differ materially from those in any such forward-looking statements. In any such forward-looking statements,
Actors that could call as actual results to differ materially and other risk factors are listed from time to time in the company's SEC reports, including but not limited to the end of reporting form 10K filed for the year ended December 31, 2021.
The company cautions investors not to place undue reliance on the forward-looking statements made during the course of this conference call. Weíll then disclaim any obligation and does not undertake, update or revise any forward-looking statements made today. In addition to GAAP results, weíll then also provide non-GAAP financial measures that we believe enhance the investorís ability to analyze the business trends and performance. Our non-GAAP measures include net revenue, adjusted EBITDA and adjusted EPS.
I'll turn the call over to you.
Thanks for now and good afternoon everyone.
The second quarter did not meet our expectation.
We have hit some heaven.
First, the California IOU programs which we will discuss.
Second, Google. We're also faced with some timing issues. I'm soft for life and say all.
Also, COVID supply chain has slowed some contracts.
Give them these headlands a quarter of his week.
We expect to turn the car significantly in a second and a half.
In the second quarter, we make significant progress and streamline the delivery of energy efficiency under these new IOU programs.
We reduce the amount of effort that it takes to receive a pre-installation package approval. This major change will reduce our engineering effort significantly.
and reduce the timetable for delivering projects by two to three months.
We successfully worked with DG&E to enhance the technical support we provide to our architects and building their developers throughout California.
While also will streamline our contract delivery requirements.
We successfully work with SDGNA to improve delivery of energy efficiency.
to small businesses through enhanced co-payments to these economically sensitive customers.
These are first-of-the-kind programs with brand new processes and requirements.
Our IOU customers are learning with us.
This learning curve has resulted in a slower ramp up.
But the changes we in the high-o'-us are now making will result in much better performance of these programs. For the first time in 18 months we are delivering projects that will significantly increase and increase revenue.
Organic growth has improved from 2%, to 5%, to 12% over the last three quarters.
Given what I just said, there are likely concerns out there.
But here's the way we see the rest of the year.
We expect revenue and profit to significantly ramp in the second half.
We are making progress in California.
Our engineering, financial, and energy consulting are all doing extremely well.
I'm gonna go to the housing authority.
NYCHA and our WOTE panels apart from water and power, LADWP programs are also doing well.
We only have the California IOUs.
Charmed in the third quarter and wrapped heavily in the fourth quarter.
Going forward to 2023.
We'll be going forward into 2023. We expect the headwinds to moderate and we will see significant organic growth in revenue and profit. It's better tough to all month.
but we are making progress.
Personally, my confidence has increased significantly because we are, we and our customers are working more closely together.
I would now like to turn the call over to Kim for our financial discussion.
Thanks Tom, and good afternoon everyone.
First revenue for the second quarter increased by 22% over the prior year to $102.6 million, while net revenue, net of subcontractors, materials and other direct costs, increased 11.9% to $52.9 million for the quarter.
The increased revenue was derived primarily from the resumption of the LADWP program and increased construction management revenues.
Gross profit for the quarter was $31.6 million or 30.8 percent of revenue compared to $30.9 million or 36.7 percent of revenue a year ago. The lower gross profit margin was primarily due to the higher mix of construction management revenues, lower software revenues, and higher ramp up costs for new programs in the current Gladiator port.
G&A costs for the quarter were $36.9 million for Q2 of 2022, or 2.8% lower than a year ago.
Lower stock compensation expense more than offset higher salaries and higher professional service and computer related expenses and computer related expenses
Interest expense was slightly lower than a year ago due to lower average interest rates derived from the expiration of a three-year-old interest rate hedge.
The loss before income taxes improved to $5.9 million versus the $8.3 million pre-tax loss in Q2 of 2021. The income tax benefit for the current quarter was $1.7 million compared to a tax benefit of $3.7 million in 2021.
The smaller pre-tax loss and the absence of a one-time CARES Act benefit realized in 2021 resulted in the lower income tax benefit for 2022. The net loss of $4.3 million for Q2 of 2022 was improved from a net loss of $4.6 million reported for Q2 of 2021.
Adjusted EBITDA was 1.2 million for the quarter to compare to 3.3 million in year or go. Reflecting the change in the mix of revenues combined with higher costs versus revenue recognized related to the new California IOU programs. Reconciliation recognized related to the new California IOU programs.
Our adjusted laws with six cents per share were Q2 of 2022, compared to adjusted earnings of 24 cents per share in 2021.
For the six months, gross revenue increased 19.1% to 194.5 million, while net revenue increased 8.2% to 103 million.
The net loss for the first six months of 2022 was 8.1 million compared to 8.4 million for the same period of 2021.
adjusted EVA dial was 3.5 million versus 8 million in 2021.
The vested earnings per share was two cents per share for the current year today, compared to 43 cents a year ago. Compared to 43 cents a share a year ago. Compared to 43 cents a year ago.
On the balance sheet, the reduction in receivables since year end primarily reflects the collection of pass-through incentives from various utilities which were paid to utility customers under energy efficiency programs and account for the bulk of the corresponding reduction in accounts payable over the same period.
The liability side of the balance sheet also reflects the payment of contingent consideration earned by prior acquisitions and the drawdown of the remaining delayed draw term loan in the first quarter of this year.
Passused by operations was 3.6 million for the year of the day 2022, prepared to cash used of 708,000 in 2021. Passused by operations was 3.6 million for the year of the day 2022, and 2.3 million for the year of the day 2022,
Cache will extend the truth for 4.3 million for the first half of 2022, primarily for internal software development.
Scheduled principal payments on our term loans and earn-off payments resulting from successful acquisition performance were offset by a $20 million drawdown of the delayed draw term loan resulting in cash provided by financing activities of $2.4 million for the period compared to cash used of $15.2 million in 2021.
Looking ahead to the remainder of fiscal 2022, we've adjusted our expectations for financial performance.
Our new guidance calls for minimum net revenue growth of 10% over 2021, but the minimum adjust to the down margin of 10% of net revenue.
Operator, we're now prepared to answer questions.
Thank you.
If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Again, for a star I want to ask a question, will Bob's just a moment to allow everyone an opportunity to signal for questions?
And we will go first to chip more with the button.
Good evening. Thanks for taking the question.
I wonder if we could start with the California IOUs. You know, we've been talking about, I think, 50 million or so this year, most of that in the back half. So maybe we could start with that. Where do we see that? And then, Tom, you talked about some streamlining efforts. What are the implications there? Maybe you could talk a bit more about what you're doing. When we think about next year,
How should we think about that ramp with some of these efforts?
Mike has been dealing with this day to day. He's no longer, well, he's still a president, but he's taking his project manager right now because he is into a tech. We could see it into a tech.
andhm
With regards to the 50 streamlining and the third part was...
More social going in next year? Yeah, yeah, the fee that we still think sort of 1,500 to 200 next year. Somebody's efforts. Somebody's efforts. Somebody's efforts. Somebody's efforts.
Yeah.
Alright, Mike's gonna handle this one.
It'll likely be less than 50, and I think we said that last quarter chip also. I don't think it'll come into 50. It'll be less than that this year. It'll still be likely a big number for next year. I don't know whether it's 150. That's a reasonable estimate, I think. It could be below or even above that number for next year. So it'll be a big ramp up. A lot of this year, the revenue you'll start seeing for the first time actually.
Yeah, yeah, yeah. Yeah, go there, Brian .
Do you have any specific questions about screen lining or the processes that we mentioned that we've been working on with our customers?
Yeah, they do do so. I think it's good to do more detail on...
You know, how that will benefit you? You're talking about sort of the learning curve, these are new programs. So just...
How that process played out and
Some of the benefits of some of these actions.
We've been in this now for...
9 months or so.
And we have discovered certain things that don't work in the program, don't work for us and don't work for the IOUs Actual.
And in every case, with each of the three major IOUs we've started with...
This quarter we've made major modifications in the process necessary to deliver these projects. Tom mentioned a few of them, there's a bunch more actually that we've worked on. And it's those process changes that are going to streamline the delivery of energy efficiency to the state of California.
So you'll start to see that Those many of these changes have already been made a few of them We're still in discussions to make but I would say the majority of them have been made at this point
and you'll see that.
You'll see that reflect those financial results.
Okay, got it.
That's helpful. And many on guidance, talking about sort of minimum figures sounds like that some conservatism baked in and you get call out software, the timing potential issues. So maybe two questions there, but just conservatism on that 10%, and then IA.
licensing deals, did something slip or do you have visibility there? It sounds like the pipeline is still strong, but any insights there?
So for guidance, we hate disappointing.
Yeah, we've tried to build in some conservatism there. And that's why we first set a floor for ourselves. We said, at least these minimum. So that's how we approach guidance. We looked a better that. We looked a better that.
On interval analytics and software, we have a very good pipeline of opportunities.
We have not signed what I'll call a major software license in the first half of the year, however
And as you know, with those things yet, you know, they
dropped significant profit to the bottom line. So that does not occur in the first half of this year. We thought, you know, there's a good probability of that it has not happened thus far, but we're still...
I think as confident as ever, we've got a very good pipeline and some large license opportunities out there.
I guess my question is really back to the sort of being conservative. What's the idea on the software side and sort of the back out?
On those floor is not much. I can tell you that.
But we don't expect to deliver that. We expect to deliver some good news here in the back half of the year. As you know, those things are very lumpy. When they come, they come in big chunks. So we just didn't want to pin ourselves down. We said the back half of the year, in terms of timing, I think that's reasonable. But we essentially assumed no incremental software licenses to get to the floors that we mentioned in our guidance. That's what I was getting at. So that would be a nice upside boost, if one of those.
equipment for buildings. But that...
was much less of a headwind.
then California that we mentioned before in the script.
Place caution on that. We had planned for some of that delay, some of the supply chain delay. We saw that. We expect that to continue to be a headwind for some time. It's in projects that require large custom-built equipment, HVAC, chillers, boilers, that kind of thing. The average delay is significant for those big pieces of equipment.
Genesis and other of our units use so That was those were the delays you can see that revenue was you know still pretty good for the quarter We're still expecting that to be the case and that's reflective back that we had planned for some of those delays
Yeah, okay. All right, I'll hop back in a few here. Thanks.
And as a reminder, it is Star 1 if you would like to ask a question at this time.
Neforuns
And we will go next to Mark Riddick with Sedoti.
Good evening.
So I wanted to sort of piggyback on sort of the end of that kind because it seemed as though the net revenue was fairly similar to what we were expecting, I guess, for the second quarter itself. And so it does somewhat indicate, and it's consistently prepared remarks that outside of what you're going through with the IOU execution, it sounds like the rest of the business, it seems as though it's humming along pretty nicely. So maybe we spent a couple of minutes on sort of what you're seeing with.
LADWP and other areas and maybe some of the demand that you're seeing outside of that.
I'm supporting me.
The strongest series of our business are civil engineering.
the energy consulting business and the financial services business. All three of those are well ahead of our internal plan.
They're doing very good. All three are showing strong profitability and growing organically. So those are the strongest parts of the business.
Then you move into other sectors of our energy portfolio. Yeah, LADWP is doing all right. It's a good piece. Most of the other programs are doing pretty well. And most of the other programs are doing pretty well.
Small businesses are sometimes a little challenged, some places, but you're right that any challenges we see are being offset by the upside we're seeing in civil engineering and energy consulting. So that's why you saw the revenue come in reasonably strong. So that's why you saw the revenue come in reasonably strong.
Right, and then I wanted to touch a little bit about the working with the IOUs as there. It didn't seem as though from your remarks that it was necessarily tied to additional talent or head count or anything like that. Am I reading that correctly? Or can you give us sort of an update there as to where you are with hiring or human capital?
and hadn't worked together on these types of programs.
And in every case now, I think, the big change in the quarter has been that in each of these programs we're sitting side by side, day by day, now making the changes that we've needed to make to these programs to make them successful and more efficient. So that was the big change that we tried to convey in the quarter. We're working very well, actually, with each of the IOUs. It's not adversarial. We're recording Masshe Carson during class today and hopefully they'll get better and that's something we'll try to express in the near future. Now I'd hike from Girl athletics with Mike and I think what we're working towards is as a team is to kind of to showcase the original program that we're working towards growing our program and working towards reach early first-001 success, early variance as opposed to having this kind of practice where you're looking to continue your program and process it for the future. Again, this was driven through Governor Skywalker's operation at without Dash 2000 in rescued Georgegat and now it's drivenSupport effective as soon as it gets delivered to Season 1. Think about the pace.
We're on the same page, driving to the same goals to make these programs successful. We just need to make some changes and they're more than willing, they're facilitating those changes with us. So, we're going to make a new program. So, we're going to make a new program.
That's where we are.
Okay, excellent. And then I guess the last thing for me, I was sort of thinking about the – you made mention as to the – as far as ramping into the third quarter or what have you, are there any particular sort of signposts that you are looking at as you go through the quarter? Or are there any particular lumpiness? I don't need to get necessarily too, too granular, but I was sort of thinking about maybe sort of how –
You sort of see that play out in what level of visibility you may have, you know, through the remainder of the year. Thanks.
signposts for Q3.
Well, we have begun, California IOUs first, we have begun building projects now for the first time.
on those programs. The waiting stopped. And so we're going to see that month by month ramp up. We do have good visibility on that. The real question becomes now that we're building projects, how quickly will it ramp from there? So there's a lot of visibility in Q3, less visibility in Q4. The pipeline of sales is ramping up that would contribute to those quick turn projects towards the end of the year. So.
That's where the question is more. Work you for them, Q3. So we'll see internal signposts of that as we build projects each month and actually see revenue drop to the bottom line for the first time.
The other is of course software and that disproportionately affects our profitability.
We are optimistic we have some things that we think are pretty close, but those aren't signed until they're signed. So I don't want to be too speculative on that. As we said, remove those from guidance if they happen. We'll certainly let you know.
and you might see press releases to that effect.
Okay, great. And then the last piece for me is that it seems as though there's a little bit of a amendment on the credit agreement recently. And I wonder if you could just touch a little bit about that. It certainly seems as though the, from a funding environment standpoint, you're, and you're where you need to be, but it's when you can sort of get a little bit of an update there. Thank you.
Yeah, Mark, this is Kim. That amendment, primarily, just gave us more room to on our capital leases. We use capital leases primarily for some of our computer related equipment and software. And our agreement had a $1.5 million limit on that. And we raise that limit.
just to give us more room on the capacity that we could use third party financing for those capital leases instead of running it through our bank agreements. So that's what that amendment had to do with the gold plate.
Okay, great. Thank you very much.
And with no further questions in the queue, I would now like to turn the call over to Tom Brinson for closing remarks.
Well, I'd like to say thank you to everyone who's on call today.
and we look forward to seeing you next quarter.
Have a good day.
And so this concludes today's call. Thank you for your participation. You may now disconnect.
If you're a speaker or presenter, please notify the event specialist. You may be asked to provide a confirmation code, speaker's name or the title of your event. Please be prepared to provide that information. Thank you for calling. May I have a confirmation code? Hi, sure. My name is
If you are a speaker or presenter, please notify the event specialist. You may be asked to provide a confirmation code, speaker's name or the title of your event. Please be prepared to provide that information. Thank you for calling. May I have a confirmation code? Hi, sure. I'm going to confide myself as 6928205. Hello? One moment, ma'am. Okay. Okay. Hello? One moment ma'am. Okay.