Q3 2022 Willdan Group Inc Earnings Call

Welcome to the Golden Goose third quarter 2022 conference calls I will now turn the call over to Al Oh Kestrel.

It is investor Relations you may begin.

Thank you Missy and good afternoon, everyone and welcome to will then group's third quarter fiscal 2022 earnings call.

Joining our call today are Tom Brisbin.

Chairman of the Board and Chief Executive Officer, Jim Murray, Chief Financial Officer, and Mike Bieber President.

Call today builds on our earnings release, we issued after market close today.

We find the earnings release and will that Investor reports that accompanies today's call.

Releasing stock information section of our Investor Relations website.

All right.

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Management will review prepared remarks, and then we will 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.

Meaning of the private Securities Litigation Reform Act of 1995.

Forward looking statements involve certain risks and uncertainties.

Now it's important to note that the company's future results.

Differ materially and.

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 limited to the annual report on Form 10-K 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.

<unk> 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.

We believe enhance investors' ability to analyze the business trends and performance. Our non-GAAP measures include net revenue adjusted EBITDA and adjusted EPS.

I'll now turn the call over to Tom Brisbin for that.

Well, Dan as chairman and CEO .

Thanks, Al and good afternoon, everyone. Our third quarter shows progress on many fronts revenue earnings and cash flow were all up as projected the business overall is good or bad.

She has had gotten past the COVID-19 and restart problem.

Have factored in the delayed our supply chain, we have collaborated well with Pacific gas and electric San Diego gas and electric and southern California gas on the startups and negotiation of the California Island programs.

We are in discussions with southern California Edison to address challenges with these contracts. We have proposed changes that will benefit SCE will then and stakeholders stakeholders to deliver energy savings.

We are affirming our guidance for 2022 that net revenue growth would be greater than 10% and EBITDA margin would be greater than 10% for the third quarter. We saw the inflection point that we've been waiting for for the second half third quarter net revenue was up 8% over the prior year EBITDA margin for the third quarter was 30.

<unk>, 5%, our organic net revenue growth rate was 8% in the third quarter, which is the sixth straight quarter for organic growth.

Within the energy segment, our energy consulting engineering and design build businesses are contributing strong topline revenue <unk> has doubled over the last three years is working with many of the leading jurisdictions on the clean energy transition.

Was given a boost by the inflation reduction Act.

We're looking at how it can create synergy with our cities engineering practice and the clean energy transition.

I've previously talked about the New York L. L 97 de Carbonization plan for their 4000 buildings. We are also working on Denver, Philadelphia, and Boston helped them with de Carbonization primary primarily electrified clean heat.

Our two largest utility contracts are doing well Los Angeles Department of water and power is adding new measures and expect continued growth in the fourth quarter and next year, we're still working together on catch up from the call. It Covid pause and we expect growth in this contract Con Edison suspended the clean <unk> program.

In the second quarter, because they successfully ran out of money.

They are officially re launched this program in the fourth quarter. We have participated in a significant way we manage the program for approximately half their accounts. We expect this heat pump program electrification to be important going forward kind of as the making this pivot to electrification. We also see this with <unk>.

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Firstenergy and other clients is through the startup phase and doing well, we expect the program to grow over time. We also won a recompete with one of our significant southeast utilities. This was very important to US we have had this contract since 2013.

We are now running multifamily programs for four new for four New York I O. U's. These are programs for low and moderate income families as.

As we look at this transition to electrification, we can see that our performance engineered group is also doing well with the New York City housing authority also notice nature by helping them convert buildings. So the tenants controller. He was elected with electric infrared panel.

Again this is good for the tenants and de Carbonization.

Our design build unit, who has joined this work has a strong backlog and they are now profitable coming out of Covid. They won $60 million worth of work in the third quarter with dormitory authority of the state of New York are.

Our engineering segment is doing well with strength across both municipal engineering and financial services.

Engineering continues to grow some of our newest assignments include Florida, and Texas, Although we're just getting a foothold there for the city of Inglewood, California, We're doing fleet electrification electric vehicle infrastructure planning.

The California cities are not saying are now thank you how about how to electrify. We are again looking to pivot with the clean energy economy.

In terms of the inflation reduction act, we are tracking at assisting cities given the breadth of the provisions of the Bill. This has been an important topic of conversation with our clients many of which are state and local government and nonprofit entities. That's released in August 2022, we have done a tremendous amount of financial.

Bill, including the provisions around energy and climate tax incentives, we are focused on the opportunities that align with our customer base relationships that will that has built over the last six years as a trusted advisor here in California.

Summary, we built revenue in our Haynesville about in the third quarter, we successfully resolved the major issues with three of the four.

California, I O U's to the mutual benefit of the I O U's will down and outside stakeholders, we're still negotiating with etsy and Theres some progress, but no resolution the rest of the company is performing well once again I want to take a moment to thank the entire will that team for their dedication and outstanding execution.

I also want to recognize them.

<unk> support of our customers and long term stockholders I would like to turn the call over to Kevin for our financial discussion.

Thanks, Tom and good afternoon, everyone.

Gross revenues for the third quarter increased by 23, 5% over the prior year's Q3 to 121 4 million, while net revenue net of some contractors materials and other direct costs increased eight 2% to $58 9 million.

The increased revenue included increases in construction management, California, IOU programs, and engineering and consulting revenues, partially offset by lower revenues from direct install projects and software licensing.

Gross profit for the third quarter of 2022 was $37 5 million or 39% of revenue compared to $38 1 million or 38, 8% of revenue in the same period a year ago.

The lower gross profit margin was primarily due to the higher mix of construction management revenues lower software revenues and higher costs associated with the building of revenue backlog for new California IOU programs.

G&A costs for the quarter were $38 3 million for Q3 of 2022 up four 3% compared to the prior year, while gross revenues were increasing 23, 5%.

Interest expense was $1 4 million for the quarter compared to 937000, a year ago due to an increase in average borrowings outstanding under our credit agreement and the higher average interest rates.

The loss before income taxes was $1 5 million compared to income before tax of 600000 for Q3 of 2021.

The income tax benefit for Q3 of 2022 was $1 5 million compared to a tax benefit of 0.2 million for Q3 of 2021.

The resulting net profit with $76000 for the current quarter compared to a net profit of 840000 reported for Q3 of 2021.

Adjusted EBITDA was $8 million for the quarter compared to $10 1 million a year ago and the adjusted earnings per share was 42 cents for Q3 of 2022 compared to adjusted earnings of 53 per share in 2021.

For the nine months to date.

Gross revenue increased 28% to $315 9 million, while net revenue increased eight 2% to $162 million grew.

Gross profit of $100 4 million or 31, 8% of revenue was down slightly from $101 1 million a year ago.

General and administrative expenses increased one 1% for the nine months to $112 1 million for the period, while gross revenue was increasing 28%.

The reported net loss for the first nine months of 2022 was $8 million compared to a loss of 7.45 million for the same period of 2021.

The year to date adjusted EBITDA was $11 5 million for 2022 versus $18 1 million in 2021.

Adjusted earnings per share was 51 for the current year.

<unk> to <unk> 99, a year ago.

I'm happy to report the cash flows from operations continued to improve and were a positive $8 1 million for the third quarter, bringing the total for the year to $4 5 million provided.

Compared to cash used of $1 7 million in 2021.

Year to date capital expenditures were $7 1 million compared to $4 9 million in 2021.

Principal payments on our term loans and earn out payments, resulting from successful acquisition performance were offset by the $20 million drawdown of the delayed draw term loan, resulting in cash used in financing activities of $12000 to date in 2022 compared.

With cash used of $17 1 million in 2021.

The net decrease in cash was $2 4 million for the first nine months of 2022 compared to a decrease in cash of $23 6 million for the same period last year.

The credit agreement with our five bank syndicate has been amended.

On the other things the agreement and then the minimum adjusted EBITDA threshold and the related total leverage ratio for the remainder of the extended covenant relief period, which extends through March 31 2023.

It also increases the interest rate on borrowings during the remainder of that period and the mens maximum borrowings under the revolving credit facility to $10 million. We do not expect these changes to prevent the company from meeting its obligations for achieving its goals.

For fiscal 2022, we continue to expect minimum net revenue growth of 10% over 2021 with a minimum adjusted EBITDA margin of 10% of net revenue.

We expect to provide 2023 guidance when we report our fourth quarter and FY 2022 results in March of 2023.

Operator.

Not prepared to answer your question.

For lung cancer.

One on your telephone keypad again to ask.

Good question Paul.

One on your telephone keypad.

Okay.

One moment for the quarter.

Thanks.

Yes.

Okay.

Okay.

Yeah, Great question is going to come from Chip Moore.

Alright.

Your line is open.

Thanks for taking the question.

So how does that relate to.

I apologize.

If you've covered some of this but.

<unk> really been a lot of focus on the California, IOU business right in recent history.

Nice to see some constructive resolutions there on implementation, but but.

If I think about we will be in the company is really about.

More than just those contracts.

Yes, maybe.

Step back and think about the electrification opportunity, Iran. Some of those drivers over say next three to five years can you maybe just speak to how you're uniquely positioned and really value.

About that opportunity and what it could mean for you.

We're trying to decide who should answer that question chip I'm point as Mike pointed to me.

Maybe bullet point.

Okay.

Yes.

Well I don't know how much of the presentation that you were hurt but.

Yes, we think let your patient is going to shape the direction for many of the ious.

California Ious.

When they pivot I mean, so far we've seen a little from G&A.

We're just getting a little start at SCE.

We see.

Within the state.

Kind of conflict between getting off the gas at getting an electricity for some of the I O U's or both.

So New York is pivoted quite a bit.

And I think the future will be for saving energy and electrify.

And so we're getting early starts with some of these I owe us and Youre right.

We've been talking about it very recently is our future really with.

Just California IOU.

<unk> is because of the strength of what will that headsets, we went through it.

If you run through our work with cities electrify on you around the world through our performance contracting group, that's doing work like nature large schools universities and what they're trying to do we get off of gas and other fuels.

And Eagle.

Throughout all of the other contracts.

We're going to see a lot of change and we're pivoting really well. So thanks for the question Chip did I Miss anything.

No I think that covers it good to hear.

And like the positioning of the group.

I'll hop in queue.

Thats helpful. Thanks.

I don't know is there a few other another question.

I can't see the screen it doesn't matter.

Although a reminder.

Ask your question.

Sorry, one on your telephone keypad.

I asked the question one on your telephone keypad.

That's what I thought there were any more question chip.

In summary, we billed revenue and earnings momentum in the third quarter, we successfully resolved the major issues with three of the four California ious to the mutual benefit of the ious, well down and outside stakeholders there.

Rest of the company is performing well.

Oh I forgot.

I forgot the part about backing off.

So thank you all.

Once again I want to take a moment to thank the entire world and team for their dedication and outstanding execution. I also want to recognize the ongoing support of our customers and long term stockholders I would like to turn the call.

Over to you.

Zales.

That concludes our call operator.

Okay.

You may now disconnect.