Q4 2024 Willdan Group Inc Earnings Call
Speaker Change: Greetings and welcome to the Wellband Group 4th Quarter and Full Year 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Mark: As described in our SEC filings actual results may differ materially due to risks and uncertainties with that I'll hand, the call over to Mark.
al: Thanks Al.
Mark: We had a strong finish to a record year in 2024 significantly exceeding the street consensus estimates and our own expectations for 2020 for contract revenue was up 11% and adjusted EBITDA was up 24% year over year.
Mark: GAAP EPS nearly doubled year over year, and adjusted EPS was up 39%.
Mark: Execution and performance across all lines of business were strong leading to a record level of free cash flow.
Mark: For 2024, we generated $4 49 per share of free cash flow and outstanding results for any public company with our latest acquisition announced this morning, we've transformed our technical capabilities to serve the commercial data center market.
Electric load growth will dance unique capabilities in the market and are consistently solid execution all come together to people who are positive long term outlook going into 2025.
Mark: On slide three.
Mark: We will then provides a wide range of energy and infrastructure solutions, we provide solutions for the electric power grid solutions to electric utilities and solutions to commercial and local customers.
Mark: But the acquisition announced today, we have about 1800 employees comprised mostly of scientists engineers and technical professionals. We now have 54 offices across North America.
Mark: Help clients avoid emissions at $12 5 million metric tons of greenhouse gases.
Mark: I've talked about wanting to expand our commercial services as well as add electrical engineering capabilities.
Mark: The acquisition in Q4, serving Biopharma and the ACG acquisition, we announced today, both overwhelmingly serve the commercial technology sectors.
Mark: Calculated on a pro forma basis, our commercial customers now comprise 15% of our revenue.
Mark: What percentage of last year.
Mark: State and local government customers are now 44%.
Mark: Utilities are now 41% of revenue.
Mark: Demand for our services with all three customer groups is healthy.
Mark: Our work for commercial customers is now largely related to electricity usage and data centers.
Mark: Driven load growth is providing <unk> with many commercial opportunities to help technology clients navigate electricity constraints, we would like to continue adding acquisitions that strengthen our capabilities commercial customers.
Mark: Our work for state and local government clients is growing organically at a high single digit pace.
Mark: Strong and the outlook is positive.
Mark: We will then has almost no work directly with the federal government or funded by the federal government.
Mark: The recent federal spending cuts have had almost no impact to our backlog or our outlook because of our state and local government work is primarily funded primarily.
Mark: Merely through user fees and bonds.
Mark: Our work for utilities is primarily under multiyear contracts.
Mark: And remains robust.
Mark: On to slide four.
Mark: Our upfront policy and data analytics work informs will that strategy.
Mark: In our upfront work, we are seeing particular demand for integrated resource planning and asset valuation on projects often associated with data center electricity load.
Mark: Those market changes have led us to acquisitions that provide solutions to these clients.
Mark: In engineering, we saw strong geographic expansion in Florida, and Texas and continued demand from southwestern city customers.
Mark: And program management, we performed above our plan on utility programs and building energy programs for cities.
Mark: Since Q3, we completed three acquisitions totaling about $50 million in 2024 annual revenue.
Mark: In the diagram shows where they expand our engineering and program management capabilities.
I'll talk more about these capabilities in later slides.
Mark: On slide five.
Mark: We've had a great strength of new wins since the last call.
Mark: In fact, we'll then successfully won all of our major re competes in 2024.
Mark: Today, we announced expanded Recompete with the Los Angeles Department of water and power.
Mark: Pete.
Mark: The new $330 million five year contract deliveries more complex energy efficiency measures to a broader set of commercial and government clients within DWP territory.
Mark: The new contract will become among our largest programs.
Mark: On an annual basis.
Mark: I'll note that due to the recent timing of this award and ramp up we don't expect significant significant revenue from the led DWP program until the back half of this year.
Mark: Yes.
Mark: Next we were awarded three new California energy efficiency programs outside of our traditional investor owned utility base.
Mark: First two are with regional energy networks with rents, which are groups of public entities that band together and form a collective entity, providing energy services and savings.
Mark: For the Los Angeles County, Regional Energy network, So Cal brand.
Mark: One a $15 million commercial energy program.
Mark: And for the Central California Rural Regional Energy network or Cc Ren.
Mark: We were awarded a new $6 million program for energy efficiency and regulatory support.
Mark: We are tracking more opportunities this year from California rent customers.
Mark: For the South Coast Air Quality Management District, we won a $10 million multifamily and small business energy program.
Mark: We were also awarded new contracts with Sonoma County in South Lake Tahoe coming into 2025, our pipeline of new opportunities around the country is robust.
Mark: On slide six.
1970 until 2005.
Mark: U S saw decades of higher electric load growth, followed by 15 years, but mostly flat load growth.
Mark: The U S has now returned to higher load growth again.
Mark: And this is creating exciting new opportunities for will that we believe will help drive our growth for years to come.
Mark: I've mentioned that experts are uncertain about the future speed and scale of this load growth.
Mark: There is now widespread consensus at higher load growth will occur and has already begun.
Mark: And the most current forecast data the electricity consumed by data centers powering AI will be the largest load growth driver.
Colored block on this slide.
Mark: We will then as now in the center of discussions about how to meet this slow growth.
Mark: Data centers will be followed by light and medium duty electric vehicles, the green blocks on the slide three.
Mark: Re shoring of industrial manufacturing facilities in the U S and the electrification of buildings the blue blocks.
Mark: On slide set.
Mark: Yeah.
Mark: In January we complete.
Mark: The acquisition of a small engineering business in Central Florida Alpha inspections. This transaction expands our civil engineering presence in the southeast which has been an area of strong organic growth four wheel that.
Mark: Turning to slide eight.
Mark: We added new technical expertise with the acquisition of alternative power generation.
Mark: Our APG that we announced this morning.
Mark: Atg helps fill a strategic gap that will then customers have been asking for expertise in utility scale electrical engineering.
Mark: Firstly on the ACG management team for many years and they are well respected in the industry as experts in substation design Interconnects micro grids and data center electricity.
Mark: Most of their work today powers, new large scale data centers, although in years' past their work is powered other industries and utility customers.
Mark: These are all highly specialized electrical engineering areas that complement will then technical Straits, and mechanical engineering energy efficiency and great planning.
Mark: Apg's customers today are all commercial which is consistent with our strategy to expand our commercial client base.
<unk> generated approximately $37 million of revenue in 2024.
Mark: Excited to be adding APG and believe the combined skill set is exactly what commercial data center owners.
Mark: We will then now offers upfront data center planning and consulting.
Mark: <unk> detailed electrical engineering design, and then well Dan's legacy data center resiliency and energy efficiency work. This combined data center offering is estimated to be 10% to 15% of our revenue in 2025.
Mark: Probably the fastest growing area.
Mark: Slide nine on the left.
Mark: Pixar current actual versus our pro forma customer mix.
Mark: Diversifying this mix towards commercial technology customers should add long term stability and commercial customers generally provide higher profit margins.
Mark: On the right side of the slide.
Mark: Many years ago, we laid out a goal of 20% operating margin measured as adjusted EBITDA divided by net revenue.
Mark: All COVID-19 impacted 'twenty, one 'twenty two results I'm proud of our progress toward our goal.
Mark: A 20% EBITDA margin in our industry represents best in class performance and is associated with a highly differentiated customer solutions.
Mark: In 2025, we will then estimates that it will be around that 20% margin goal.
Mark: Planning to add even more capabilities to future acquisitions in the quarters ahead.
Ken: Ken over to you.
Ken: Thanks, Mike and good afternoon, everyone.
Ken: Fourth quarter provided a very strong finish on an exciting and productive year, resulting in a record setting performance for the company.
Ken: I'll provide a brief review of the fourth quarter, beginning on slide 10, Keith.
Ken: Keep in mind that the fourth quarter of 2023 benefitted from some exceptional opportunities we experienced last year.
Ken: Did a liver target quantities on some of our utility programs as we shared at that time. We estimated these exceptional opportunities contributed approximately $20 million in contract revenue $15 million and net revenue and $3 million of adjusted EBITDA, which of course significantly in.
Ken: <unk> is a comparison of the two periods.
Ken: Despite the appearance at the 2024th quarter was relatively flat with or slightly lower than 2023, when adjusting for those exceptional opportunities. The comparison would reflect a 20% increase in net revenue at 29% increase in adjusted EBITDA, and a 19% increase and adjust.
Ken: And earnings per share for the fourth quarter of 2024 compared to the prior year.
Ken: Turning to slide 11.
Ken: In terms of the full year 2024 was a record year across all our key metrics contract revenue increased 11% over 2023 to a record $566 million and net revenue increased 10% to $296 million.
Ken: With solid growth across our service lines and substantially all of it organic.
Ken: Double digit percent increases in building solutions activities utility programs.
Ken: It's all civil Engineering services were the primary factors behind the higher revenues.
Ken: If adjusted for the Q4 exceptional opportunities in 2023, the revenue growth would reflect even stronger organic growth of approximately 14% year over year.
Ken: Gross profit in 2024 increased 13% to $203 million and gross margin expanded slightly to 35, 8% from 35, 2% a year ago driven by the improved performance in our program management activities and the increased activities in mix of business.
Ken: Our engineering and consulting segment.
Ken: G&A expenses grew about 9% closely tracking the 9% increase in head count, but less than 10% net revenue growth higher.
Ken: Higher stock based compensation was partially offset by lower intangible amortization from previous acquisitions and wage related and other G&A expenses were consistent with the revenue growth.
Ken: All of this helped drive a 24% increase in adjusted EBITDA in 2024 over 2023 to $56 8 million.
Ken: Interest expense decreased by 17% to $7 8 million for 2024, primarily due to the lower interest rate spread from lower leverage levels and income tax expense was $4 1 million or an effective tax rate of 15, 4% compared to 25, 1% in 2000.
Ken: 23.
Ken: Resulting in net income of $22 6 million or GAAP earnings per share of $1 58 versus net income of $10 9 million or 80 cents per share in 2023.
Ken: Adjusted earnings per share was $2 43 per share up 39% or $1 75, a year ago.
Ken: The lower tax rate in 2024 reflects the expanded energy efficiency incentives as well as other discrete reductions related to stock options.
Ken: From a balance sheet and cash flow perspective on slide 12, we generated $72 million in cash flow from operations.
Ken: $4 million or $4 49 per share and free cash flow in 2024.
Ken: This impressive cash flow strengthened our balance sheet, adding $50 million to our cash balance and when combined with our untapped $50 million line of credit provided us $124 million in total liquidity at the end of the year.
Ken: We expect to invest this liquidity and future cash flows to enhance our growth and to expand our service capabilities in strategic markets through acquisitions.
Ken: Our financial position is strong and our outlook remains positive. Despite the uncertainty of the current economic environment and the impact of the delay and the restart of our new led DWP energy efficiency contract.
Ken: Slide 13 provides our financial guidance for 2025.
Ken: We're expecting net revenue in the range of $320 million to $330 million with adjusted EBITDA in the range of $63 million to $67 million.
Ken: And adjusted earnings per share in the range of $2 70 to $2 85 per share.
Ken: These targets assume a 16% tax rate and $15 1 million shares outstanding and does not include any potential future acquisitions.
Ken: Note that these targets are well above the current consensus Street estimates.
Ken: For more detail on our financial results you can access the squeeze in patients our press release, and our 10-K on the Investor page of our website.
Ken: Operator, we're now prepared to take questions.
Speaker Change: Great. Thank you.
Speaker Change: We will be conducting a question and answer session if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: Start to remove yourself from the queue.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing Mr. Keith.
Speaker Change: One moment, please can we poll for questions.
Speaker Change: Our first question here is from Craig Irwin from Roth Capital Partners. Please go ahead.
Craig Irwin: Hi, good evening, congratulations on another really solid results here Tonight.
Thanks, Greg.
Speaker Change: Thank you so Mike I wanted to start off by asking about the.
Speaker Change: L. A DWP contract the renewal and expansion of the contract can.
Speaker Change: Can you comment a little bit about the linearity of this kind of this contract.
Speaker Change: Are there any potential startup issues.
We look at a 25.
Is this something that becomes a bigger book of business over the five years or.
Speaker Change: Does this does this have potential chunky a step up in activity this year.
Speaker Change: Sure.
Speaker Change: There's not big startup.
Speaker Change: <unk>, we have about this program because it is a recompete. We've operated this contract for many years before it's.
Speaker Change: The third and fourth time, we've won this recompete.
Speaker Change: I'll note, though that activity on the contracts stopped in December so we're going to have to re ramp it back up here.
Here in the spring of this year, we don't yet have noticed to proceed as we've just been awarded the contract and it has been finalized and ratified.
Speaker Change: So we expect to get notice to proceed each soon and we'll be ramping that up in the first half of this year Craig That's why I said, we don't expect much revenue in the first half of this year from the contract.
Speaker Change: Beyond that though it should be a more linear program.
Speaker Change: Roughly $65 million a year, because we've got some ramp up will have a little bit more to spend maybe next year than this year and.
Speaker Change: It's a great program. The other thing about it is that it adds more complex measures, which we wanted and the.
Speaker Change: Led DWP need it so.
Speaker Change: So it's a different contract from that perspective complex measures heat pump water heaters other measures that address a wider group of customers that we previously that had access to it's a great program and it is going to become one of our largest.
Speaker Change: Excellent that's great to hear.
Speaker Change: I wanted to ask a little bit about the rents. So we've talked about this on and off over the last couple of years and it's nice to see the orders coming through.
Speaker Change: Can you maybe just remind us the funding for these rents come from them.
Speaker Change: Who drives the accountability of the project activity.
Or are they administered from and who are the ultimate constituents.
Speaker Change: Yes sure.
Speaker Change: The funding comes from the same the surcharge on your electricity Bill that I've talked about in the past, which funds most of the energy efficiency and the state of California. It's also the source of funding for the Iot use.
Speaker Change: The rents are made up ironically in some parts.
Speaker Change: Oh use themselves they choose to band together in the case of Socal ran that's exactly the case.
Speaker Change: So the Rins band together and do different types of energy efficiency that is overseen directly by the PUC. It also does not have some of the constraints that.
Speaker Change: And bureaucracy and administrative requirements that the Io use our apps to jump through so theyre simpler contracts. Each of these two <unk> contracts is a time and materials contract.
Speaker Change: And we do a wider range of service as well, we provide everything from regulatory support.
Speaker Change: Technical consulting and management of the different programs themselves.
Speaker Change: Excellent then my third question.
Speaker Change: This past couple of months have been a lot of investor questions about the presidential transition the change in administration and the potential impact on business activity. It will then.
Can you comment about.
How you see the change in administration impacting your business activity your broader sort of final at the front end.
Speaker Change: And whether or not some of these big strategic initiatives that president Trump is pushing.
Speaker Change: Have the potential to accelerate activity in different areas of your business.
Speaker Change: Okay.
Speaker Change: Craig.
Speaker Change: We haven't seen much change from what I said at the last quarter. When we were asked this question coming into the presidential election.
Speaker Change: What do you think a change in administration will do the answer is not much and what we've seen thus far is not much.
Speaker Change: That's because of the nature of the work that we do which is primarily driven by state and local governments and.
Speaker Change: Local activities I mentioned federal funding cuts that have decimated the engineering community have had almost no impact in fact less than a 1% backlog impact to us really no change in our outlook whatsoever. So.
Speaker Change: We just haven't seen impacts like that the other thing I'll mention is tariffs we've worked hard during COVID-19 to put in place language in our contracts that allowed us to pass on supply chain escalations to customers and that's going to benefit us this time around with tariffs or the <unk>.
Speaker Change: Potential of tariffs this time, because now most of our long term contracts already have that kind of language, where we can if they occur pass that cost through so we don't see the change in administration, having much impact to our business at all right now.
Speaker Change: That's good to hear well congrats again on some really strong performance here. Thank you.
Speaker Change: Thank you.
Speaker Change: As a reminder, here if you'd like to ask a question. It is star one.
Tim Moore: And our next question here is from Tim Moore from Clear Street. Please go ahead.
Tim Moore: Thanks, Mike Youre, telling him enthusiasm was a refreshing change to more than half the earnings calls I've listened to over the last couple of weeks.
Tim Moore: No just maybe my first question clearly low growth in electrification.
Tim Moore: And during theme for the next several years.
Tim Moore: And just within the government within those customers end market.
Tim Moore: I mean are there any two to three programs jumping out gaining a lot more frequency where implementation over the last.
Tim Moore: Couple of quarters or at least incoming inquiries I'm just wondering what maybe is more trending with the government.
Tim Moore: Hum.
Tim Moore:
Tim Moore: The California programs have expanded because I mentioned.
Tim Moore: So probably a year and a half ago.
Tim Moore: The consumption of electricity in California has gone up and Theyre looking for additional sources of electricity or likewise additional energy efficiency. If it has the same effect on the grid.
Tim Moore: So that's a broad trend that has translated into.
Tim Moore: A lot more demand for the programs that we operate within California, That's one I can point to.
Tim Moore: The same thing though is happening.
Speaker Change: Yes in part in New York.
Speaker Change: There are certain pockets they call them load pockets are also seeing the same demand for additional electricity.
Those programs have grown to the other thing I'll say is you know our upfront study work trying to help customers navigate new load growth data centers.
Speaker Change: Different print strict strengths. They have on the grid has also picked up there is a lot of planning work a lot of consulting work that is going on right now and that's why we really wanted to pick up APG.
Speaker Change: Not able to follow through on that consulting work, we know where the projects are and now with APG. We can follow those trends through and actually provide the detailed electrical engineering.
Speaker Change: And <unk>.
Speaker Change: Construction management Substations that power. These data centers. So those are the areas I'd point to.
Speaker Change: That's terrific and my other question is just any update on software cross selling and did it does <unk> have its own embedded software or are you going to be introducing errors to other suite.
Speaker Change: We're going to be introducing hours, they don't have any software right now.
Speaker Change: The introduction was yesterday, so it's brand new to them.
Speaker Change: We think that's a great opportunity to cross sell.
Speaker Change: And you asked about software cross selling.
Speaker Change: That's been solid as well the work that <unk> and I are doing upfront to support these different grid planning efforts.
Speaker Change: It's a good mark.
Speaker Change: Thanks, that's it for my questions and I appreciate it.
Speaker Change: Our next question is from Richard Eisenberg, a private Investor. Please go ahead.
Speaker Change: Hi.
Speaker Change: But as Mike and congratulations on a great quarter and a great year.
Mike Youre: Thanks Richard.
Richard Eisenberg: Youre welcome.
Mike Youre: Has artificial intelligence, it's been integrated yet into your software and what are the opportunities for <unk> to expand into Europe. Thanks again, Mike.
Richard Eisenberg: Mhm.
Richard Eisenberg: We're working hard to rollout.
Richard Eisenberg: The integration of AI into a new version of load sphere, and we believe that'll be ready in the first half of this year.
Richard Eisenberg: The new version of loads here is also simplified and that it requires a smaller engineering staff to manage and run it.
Richard Eisenberg: We're designing it more for more simplified operations like municipal utilities or smaller cities and the new AI powered version of this will have.
Richard Eisenberg: <unk> designed load forecasts and load curve slowed shapes that utilities smaller utilities can use and they don't need to staff 30, electrical engineers powered so that.
Richard Eisenberg: As prime to come out this year in the first half that's a good opportunity and we're already looking to cross sell that towards our municipal relationships throughout the country.
Speaker Change: You mentioned Europe.
Speaker Change: We currently have no presence in Europe, and very little presence outside of the United States, We have got.
Speaker Change: Five or six people in Calgary.
Speaker Change: Little bit of presence in Puerto Rico hardly any international exposure whatsoever.
Speaker Change: In the short term Richard Europe and work outside of America is not our focus.
Speaker Change: Eventually we may consider moving outside with an acquisition that places is there, but there is so much opportunity in the United States right now.
Speaker Change: We're focused on the U S market, probably all of this year in the next several years.
Mike Youre: Okay. Thanks, Mike Thanks again.
Speaker Change: Have a great 2025.
Speaker Change: Once again, if you'd like to ask a question. It is star one.
Speaker Change: And if there are no further questions I'd like to turn the floor back to management for closing comments.
Speaker Change: Great. Thank you.
Speaker Change: We'll wrap this up in 30 minutes, thank you for being shareholders and being interested in will data I know that.
Speaker Change: Years past.
Speaker Change: Business has not been as robust and we're enjoying some of the best business opportunity. The company has ever seen right now.
Speaker Change: We are on fire.
Speaker Change: And over here expect more throughout the year. Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
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