Q1 2025 Willdan Group Inc Earnings Call
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Jimmy Fallon Jimmy Fallon Elton John Jimmy Fallon
Greetings and welcome to the World Bank Group first quarter fiscal year 2025 financial results Conference call.
This time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Kim Irby: The year-over-year increase was primarily due to increased wage and incentive costs consistent with the earnings growth, as well as higher stock-based compensation resulting from the increase in stock price. Intangible amortization expenses increased by $600K, reflecting the impact of our recent acquisitions, while interest expense decreased by $300,000 to $1.8M on our reduced leverage. The growth in revenues in the discipline cost control resulted in a 32% increase in pre-tax income and a favorable 9.75% effective income tax rate resulted in net income of $4.7 million for the first quarter of 2025, up 59% from the $2.9 million Q1 2024 bottom line.
You require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Speaker Change: I'll turn the conference over to Al Schopp. Thank you you may begin.
Al Schopp: Thank you, Matt Good afternoon, everyone and welcome to <unk> group's first quarter 2025 earnings call.
Speaker Change: Joining our call today are Mike Sievert President.
Tim Murphy: Chief Executive Officer, and Tim Murphy, Executive Vice President and Chief Financial Officer.
Tim Murphy: Our conference call remarks will include both GAAP and non-GAAP financial results.
Tim Murphy: Reconciliations between GAAP and non-GAAP measures.
Tim Murphy: It can be found in today's press release.
Tim Murphy: And then the presentation slides all of which are available on our website.
Tim Murphy: Please note that year over year commentary on variances or variances or on revenue adjusted EBITDA and adjusted EPS discussed during our prepared remarks, Brian and organic basis, we will make forward looking statements about our performance. These statements are based on how we see things today.
Kim Irby: The favorable income tax rate was a result of discrete benefits from divesting of stock compensation in the quarter, as well as the expected energy efficiency tax incentive. We continue to expect a full year tax rate of approximately 16%. Adjusted EBITDA was $14.4 million or 16.9% of net revenue, up 31% compared to $11.0 million in the first quarter of 2024. Gap earnings per share were $0.32, up from $0.21 per share a year ago, while adjusted diluted earnings per share increased 58% to $0.63 per share compared to $0.40 a year ago. This was a record first quarter for Willdan in terms of contract revenue, net revenue, adjusted EBITDA, and earnings.
Tim Murphy: While we may elect to update these forward looking statements at some point in the future we do not undertake any obligation to do so.
Tim Murphy: Described in our SEC filings and actual results may differ materially due to risks and uncertainties.
Mike Sievert: With that I will hand, the call over to Mike who will begin on slide two.
Mike Sievert: Thanks Al.
Mike Sievert: We had a strong start to 2025 delivering record first quarter results for revenue adjusted EBITDA and EPS, we surpassed both analysts' expectations and our internal forecast contracted net revenue each grew 24% year over year adjusted EBITDA was 31%.
Kim Irby: On slide 9, we present some key balance sheet and cash flow metrics that reflect the continued strength of our financial position. Net debt was $49 million at quarter end after deploying $32 million in cash for two acquisitions. Total leverage was a modest 0.8 times adjusted EBIT debt. Free cash flow with $40 million over the trailing 12 months, or a robust $2.74 per share. We ended the quarter with $38 million in cash and access to an undrawn $50 million line of credit, resulting in total liquidity of $88 million at that time.
Mike Sievert: GAAP diluted EPS increased 52%.
Mike Sievert: Adjusted diluted EPS was up 58%.
Mike Sievert: These comparisons were all against a strong Q1 last year.
Mike Sievert: Performance was strong across all business lines driven by consistent execution.
Mike Sievert: In the quarter, we completed two more acquisitions that extend our geography.
Speaker Change: Our electrical engineering capabilities.
Speaker Change: As electric load increases will then differentiated capabilities and consistent execution position us well for long term growth.
Speaker Change: Earlier this week, we extended our credit facility from $150 million to $200 million.
Speaker Change: A key milestone to scale our business.
Speaker Change: Turning to slide three.
Kim Irby: Turning to slide 10. Earlier this week, we amended and restated our credit agreements, expanding it to $200 million to enhance financial flexibility, reduce costs, and extend our maturity by five years. The new structure includes a $100 million revolver, under which we've drawn $38 million. The new term loan A has been reduced to $50 million and supplemented by an additional $50 million delayed draw term loan feature, which remains unused at this time. The term loan A will be amortized at $2.5 million per year over the five-year term. Interest rate spreads over SOFR or PRIME were generally reduced by 25 basis points with the spread varying depending on the leverage ratio for any given quarterly period.
Speaker Change: We will then deliver a broad range of energy and infrastructure solutions to utility customers.
Speaker Change: State and local governments calculated on a pro forma basis for 2025, our commercial customers are forecasted to comprise 15% of our revenue.
Speaker Change: As a percentage of last year.
Speaker Change: State and local government customers are forecasted to be 44%, while utilities are forecasted to be around 41% revenue.
Speaker Change: Demand remains healthy across all customer groups are commercial work is increasingly centered around electricity usage of data centers.
Speaker Change: AI driven loan growth is creating significant demand.
Speaker Change: We will then yourself and technology clients navigate energy constraints optimized infrastructure and meet aggressive power requirements, we see strong momentum in this area and intend to pursue acquisitions that further expand our capabilities and relationships with commercial customers.
Kim Irby: The expanded and extended credit facilities, along with future cash flows, provide the resources necessary to drive growth and expand our service capabilities in strategic markets through acquisitions while maintaining a strong balance sheet and conservative leverage.
Speaker Change: Our utility business continues to perform well.
Speaker Change: Most of our utility contracts are multiyear in nature funded by ratepayer fees and continue to provide a strong foundation of recurring revenue.
Kim Irby: On slide 11, based on our strong performance to start the year, we're raising our 2025 financial targets. We now expect net revenue for the year to be in the range of $325 to $335 million, adjusted EBITDA in the range of $65 to $68 million, and adjusted diluted earnings per share in the range of $2.75 to $2.90 per share. These targets do not assume any future acquisitions.
Speaker Change: On the public sector side, our work for state and local governments continues to grow organically at a double digit pace demand remains solid and the outlook is positive.
Speaker Change: It's worth noting that will then has minimal exposure to direct federal contracts, where federally funded programs as a result.
Speaker Change: Recent federal spending.
Speaker Change: The impact on our backlog and near term visibility.
Speaker Change: As I said last quarter most of our public sector work is funded to user fees and municipal bonds, which have remained stable.
Unknown Shareholder: Operator, we're now ready for questions. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Before I start, please remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the War eyeshadow.
Speaker Change: Last week, we released our 2020 for sustainability report highlighting meaningful progress, notably we all clients avoid about 100 times the GHT emissions at the company.
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Speaker Change: Our energy segment makes up more than 80% of our revenue while the legacy hardware business makes up the remainder.
Speaker Change: We work out of 55 offices across North America and in this quarter was 1700 70 employees, primarily scientists engineers and technical.
Unknown Shareholder: War Rolling Stone.
Craig Irwin: First question is from Craig Irwin and Roth Capital Partners. Please go ahead. Good evening and congratulations on another strong quarter and thank you for taking my question.
Speaker Change: On slide four.
Speaker Change: Alright first policy of data analytics work informs will then strategy and helps us navigate market change in our upfront work, we're seeing particular demand for integrated resource planning and asset valuation of projects associated with data center electricity.
Michael Bieber: I'm Mike. The top question on investors' minds these days is actually tariffs. And I might have missed it, but I don't think you mentioned tariffs as far as the impact on Willdan. It's creating a lot of confusion out there, but it sounds like your customer base is already committed to the projects, and I'm going to guess that most of the equipment they're using is not at risk. Can you just address the tariff issue for us and tell us what you understand? Sure, great. And you may have joined just a little late. On page six of the slide deck, it specifically addresses tariffs.
Speaker Change: Those market changes, let us acquisitions that provide solutions to these clients.
Speaker Change: In engineering, we saw strong execution and growth, particularly with municipal customers.
Speaker Change: Program management performed above our plan, our non utility programs and building energy programs for cities.
Speaker Change: This model to work for the last 25 years performed upfront financial planning and on cost saving legendary.
Speaker Change: City of Fairfield, California.
Speaker Change: And then in Q1, we were awarded a new $30 million program management energy savings and modernization contract.
Michael Bieber: So we go over that again. Yeah, really, you mentioned the risk is in the equipment that we specify on our projects. We're looking for price escalation hasn't occurred yet, but you know, it could, as possible along with project delays, if the equipment just becomes too expensive to be economical. What we're doing about it is searching high and low for alternative equipment sources. Most of our suppliers have already front loaded equipment over the past quarter, and we have most of the equipment we need for the relations that we have this year, because they front loaded and purchased that already.
Speaker Change: Charging station solar rays central plant another electric infrastructure upgrades.
Speaker Change: On slide five.
Speaker Change: We have a strong pipeline of opportunities that we are converting into contracts. You are just a few examples we converted since our last conference call.
Vince: I already talked about the city of Fairfield, California example, Vince.
Vince: And so the Paramount Unified School District, that's another example of cross sell.
Vince: We wanted to $18 billion.
Vince: Management contract for solar arrays of EV charging stations.
Vince: National grid in Massachusetts, we were awarded a new multi billion dollars multiple award contract, providing energy efficiency services to small business at the Warner School District, we were awarded a new $11 million contract.
Craig Irwin: We don't know what's going to happen next year at this point. We're also inserting more flexible contract terms where we can in all of the new contracts that address tariffs specifically. We haven't seen any short term impact thus far, but it may be too early. That's what we found great. Excellent, excellent.
Vince: We were also awarded an important recompete to provide the California public utility Commission CPUC with integrated resource planning.
Craig Irwin: And my next question is around the return to secular load growth, right? So it hasn't really found its way into your evaluation. But, you know, Willdan seems like, you know, a really important part of the solution. When, you know, transmission lines take many years to actually site and construct, a new generation faces tremendous, you know, Republican administration for construction. And, you know, the idea of brownouts and blackouts is highly unappealing to different utility commissioners. You know, can you say what the tempo of conversation is with your your customers, both both utilities and state and local government?
Vince: Sport.
Vince: That $9 $8 million award supports analysis of the resources.
Vince: Necessary to achieve California ISO is required.
Vince: On the last call I mentioned with the extended recently with the Los Angeles Department of water and power L. A DWP.
Vince: The new $330 million five year contract delivered more complex energy efficiency measures to a broader set of commercial and government clients.
Vince: We don't expect significant revenue from the led DWP program until the fourth quarter of this year, but ultimately we will become one of our largest programs.
Vince: On slide six.
Vince: From $19 70 to 2005, the U S experienced several decades of sustained electric load growth followed by 15 years relative flatness.
Michael Bieber: And, you know, how you're partnering with them to frame the long-term solution set both for, you know, Things that you can execute quickly in a matter of months or years versus some of these other competing solutions that are much longer duration in gestation. The market was good with just electrification driving load growth, and that was really the status of the world about 12 to 18 months ago. It was a very healthy market then, and they were talking about load growth for the next 25 years just based on the electrification of buildings and the transportation networks, EVs and other things.
Vince: We're seeing a return to meaningful loan growth, marking a structural shift in the energy landscape.
Vince: Shift is creating significant new opportunities for <unk> and.
Vince: And we believe it will be a powerful tailwind for our business in the years ahead.
Vince: Key drivers include the electrification of cities buildings and transportation.
Vince: The re shoring of industrial manufacturing and.
Vince: The rapid rise in electricity demand from data centers towers.
Vince: Electricity demand in the U S is expected to increase by 50% between now and 2050.
Speaker Change: We spent a fair amount of effort this quarter discussing and preparing for the uncertainty created by tariff risks.
Vince: This new uncertainty has had little immediate impact.
Michael Bieber: Then, about 12 months ago, the conversation changed with AI and data centers piling on top. A lot of the high-growth scenarios that had been modeled during those early days aren't even possible, likely, in the short-term because there's not enough generation, there's not enough high-voltage transmission, you can't site these facilities quickly enough. So, customers have backed off those extreme-growth scenarios and now we're seeing, you know. two plus percent growth per year, something like that, which is significant in the electric space. When you consider this is likely a long-term trend, it's likely over the next 25 years.
Vince: However, we and our clients are watching carefully for price increases in the specialized equipment, we use on our projects.
Vince: We are inserting more flexible contract terms with their customers.
Vince: And we are working to identify alternative product suppliers it could be cost effective.
Vince: Risks persist.
Vince: If a recession occurs we will then should be better positioned than most due to our client funding sources.
Vince: But we would not likely be immune to a horizon slowdown.
Vince: Turning to slide seven.
Vince: Congrats on the left depicts the strong margin execution. The team has delivered over the last five years several years ago, we laid out a goal of 20% operating margin.
Vince: Sure Dan as adjusted EBITDA divided by net revenue.
Michael Bieber: So there's conversations with all of our major customers about updating their forecasts, updating their capex spending. The lead times for new generation have become even longer, especially around gas turbines. So all of that is happening at once. Often part of the energy stack is energy efficiency as well, which was sort of our legacy market. So we're building a company that tries to serve those customers in all of those. Excellent.
Vince: We've significantly improved our operating margin over the last five years, reflecting disciplined execution more efficient cost absorption and a shift towards higher value work.
Vince: 20% EBITDA margin in our industry represents best in class performance and is associated with a highly differentiated customer solutions.
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Vince: This year, we'll then estimates that it will be around that 20% margin goal.
Vince: Q1 is typically our lowest margin quarter. So we're right on track for this year.
Craig Irwin: Then last question, if I may. You know, the last couple of years, you guys have been pretty conservative around guidance. And I don't think I've ever seen you raise guidance in your first quarter, given that it's your seasonally sort of lowest quarter as you start the year. It's got to be some really interesting things or high confidence things that you're looking at. You know, can you talk about, you know, what it is that has you be more confident now than maybe in prior years, even though you have you have executed very well over the last couple years?
Vince: On the right and reflected over the same five year period, we've continued to increase revenue per employee.
Vince: Reflecting higher productivity and the growing value our teams are delivering to clients.
Vince: This consistent improvement alongside our expanding operating margin other sources scalability of our model and the strength of our operating leverage as we grew up Jim over to you.
Jim: Thanks, Mike and good afternoon, everyone.
Jim: On slide eight we delivered a strong start to the year exceeding expectations as our teams continued to execute at a high level.
Michael Bieber: And are there are there elephants out there? Are there things out there that could work to the plus side for you as, as we look at, you know, potential continued strength in in the building business book? Well, Q1 came in above our own internal forecast. It was just very strong. And it wasn't any one area, it was across We're just performing very well. And some of our customers are looking at upsizing the size of contract that we have on these legacy programs. So with that already completed, Craig, we just thought it was the right thing to do.
Jim: We also completed two additional strategic acquisitions, while expanding and extending our credit facilities.
Jim: With low leverage and strong liquidity, we are well positioned to invest in future growth.
Jim: In the first quarter of 2025 contract revenue increased 24% year over year to 152 million.
Jim: The acquisitions of MFS Alpha inspections and APG.
Jim: <unk> 6.0 mailing into the contract revenue in the quarter.
Jim: Net revenue also grew 24%.
Unknown Shareholder: And in good conscience, we needed to race estimates, you know, modestly, which we did. That's what we attempted. Even taking into account, you know, some of the tariff risks, maybe in the fourth quarter or something like that, we're just, we've got a great book of business right now and customers that want to expand our programs. So that's why we did it. Great. Well, congratulations on another strong quarter. I'll go ahead and hop back in the queue. As a reminder, if you'd like to ask a question, it is star one. us. Some more from clear Thanks.
Jim: $85 million, the recent acquisitions brought 6% of that growth.
Jim: 14th week week in the quarter represents another 6% increase resulting in an apples to apples organic growth rate of 12% for net revenue in the quarter.
Jim: Contract revenue growth was strong in both of our segments revenue at our energy segment Rose, 25% led by double digit increases in program construction management activity and continued strength in utility programs.
Jim: Engineering and consulting segment revenues increased 20%, reflecting strong client demand.
Unknown Shareholder: Organic growth was very strong, even excluding the extra week in the quarter and obviously the pulling out the acquisition contribution that was impressive. So yeah, I just thought, you know, you mentioned it was very broad-based. Growth Drivers.
Jim: Geographic expansion.
Jim: While gross profit increased 22% over the period over the prior year G&A expenses increased only 20% in the quarter compared to the 24% net revenue growth, reflecting the operating leverage we've been experiencing as we grow.
Michael Bieber: Are there, just thinking about the opposite side of the spectrum, you know, I'm kind of curious, are there any pockets or end markets or consulting engagement types where maybe you're seeing any type of slowdown in demand since late last year or anything maybe not as compelling or accelerating? Just kind of curious, you know, on the opposite end. Tim, I can't think of any headwind we've seen in the actual operations. Can you? No, not significant ones. No, a little less in the permitting field on a few places, but nothing worth mentioning, really. No, no, the major risk out there, Tim, is, you know, equipment risks and tariffs.
Jim: The year over year increase was primarily due to increased wages and incentive costs consistent with the earnings growth as well as higher stock based compensation, resulting from the increase in stock price.
Jim: Tangible amortization expenses increased by 600, K, reflecting the impact of our recent acquisitions, while interest expense decreased by 300000 to $1 8 million on our reduced leverage.
Jim: The growth in revenues and the disciplined cost control resulted in a 32% increase in pre tax income and a favorable 975% effective income tax rate resulted in net income of $4 7 million for the first quarter of 2025 up 59% from the $2 9 million.
Michael Bieber: No one knows how that will occur. But the rest of the business is doing just very well across That's really helpful.
Michael Bieber: And just out of curiosity, have you ever, I mean, this might be more of a, you know, project calculation, but I mean, have you ever kind of on these larger contracts, let's call them, you know, 100 million plus, you know, multi year contracts, I mean, equipment, if you're kind of quantified how much equipment is of that, I mean, we're talking like equipment 10% of the project cost, something like that. So I mean, tariffs went drastically. hurt you or harm you, you know, some price escalators in there. Yeah, I think in the parts of our business where we're really working through the installation of equipment and I think material and equipment costs are probably 25 to 30% of what the overall contract value would be.
Jim: Q1, 2020 for Bottomline.
Jim: The favorable income tax rate was a result of discrete benefits from the vesting of stock compensation in the quarter as well as the expected energy efficiency tax incentives.
Jim: We continue to expect our full year tax rate of approximately 16%.
Jim: Adjusted EBITDA was $14 4 million or 16, 9% of net revenue up 31% compared to 11 point out $1 million in.
Jim: In the first quarter of 2024.
Jim: Yeah earnings per share were <unk> 32 cents up from 21 per share a year ago, while adjusted diluted earnings per share increased 58%.
Michael Bieber: Something like that. That's the exposure there. Okay. That's helpful. And that's over multi-year contracts, you know, such as the five-year with the... Yeah, that's right, that's right.
Jim: 63 per share compared to <unk> 40, a year ago.
Jim: This was a record first quarter for well Dan in terms of contract revenue net revenue adjusted EBITDA and earnings.
Unknown Shareholder: And then just on that Los Angeles Department of Water and Power, you know, it was, you know, we talked about it last time we reported, you know, it was a great renewal, but, you know, the timing of the renewal is, you know, there's a gap, you know, definitely in the first half of the year. So now you're saying you think that's really going to start ramping in the fourth quarter. So how should we think about, I mean, the momentum is really good in the rest of the business, and it clearly, you know, overpowered any, whatever the sales gap would have been in the March quarter, whether it was 7 or 8 million, something like that.
Jim: On slide nine we present, some key balance sheet and cash flow metrics that reflect the continued strength of our financial position.
Jim: Net debt was $49 million at quarter end after deploying $32 million in cash for two acquisitions.
Jim: Total leverage was a modest zero eight times adjusted EBITDA.
Jim: Free cash flow was $40 million over the trailing 12 months or a robust $2 74 per share.
Michael Bieber: So should we just not, you know, things are going just so well, it's not even a blip there. You know, the way that that renews and the timing of the start gap. Tim, I think you pointed out the biggest concern we probably had in Q1. Without our biggest program up and running, you know, what was the result going to be? And we blew right through that. We overcame that headwind and posted, as you mentioned, 12% organic growth on a normalized basis. Even better than that. So, um... You know, that just shows the strength of the business.
Jim: We ended the quarter with $38 million in cash and access to an undrawn $50 million line of credit, resulting in total liquidity of $88 million at that time.
Jim: Turning to slide 10.
Jim: Earlier this week, we amended and restated our credit agreements to expand and get to $200 million to enhance financial flexibility reduced costs and extend our maturity by five years.
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Jim: The new structure includes a $100 million revolver under which we've drawn $38 million.
Michael Bieber: We were concerned about it also.
Jim: New term loan a has been reduced $50 million in.
Michael Bieber: We had no revenue for LADWP in the quarter, and I don't think we're gonna have any in Q2 either, or certainly not much. But by Q4, we've now received notice to proceed. We're working through the administrative hurdles of ramping up such a big program. And, you know, I think that by the end of the year, we'll start to see some real momentum, especially going into 2026, that things should be cracked up.
Jim: And supplemented by an additional $50 million delayed draw term loan feature which remains unused at this time.
Jim: The term loan a will be amortized at $2 5 million per year over the five year term.
Jim: Interest rate spreads over Super Prime we're generally reduced by 25 basis points with a spread vary depending on the leverage ratio for any given quarterly period.
Unknown Shareholder: That's terrific.
Unknown Shareholder: And I've got one last question.
Jim: The expanded and extended credit facilities, along with future cash flows provide the resources necessary to drive growth.
Unknown Shareholder: You know, the APG, the Alternative Power Generation Acquisition, seemed amazing and, you know, really increased your sales exposure to data centers. If I remember correctly, maybe you might have 10 to 15 percent now. I mean, it's probably the bulk of the commercial exposure you have.
Jim: And our service capabilities in strategic markets through acquisitions, while maintaining a strong balance sheet and conservative leverage.
Michael Bieber: I was just wondering, you know, have you thought about integrating the two, you know, from your previous kind of maybe data center exposure team, you know, with the APG team? Or are you going to keep them kind of separate? I'm just wondering if we're going to be cross-selling or really kind of working together to really grow that business even faster. They started cross selling before we closed the transaction. They're in close communication. We're not going to physically merge them, but we don't need to. We've already compared the customer lists. We're already probably executing projects at this point between the two groups.
Jim: On slide 11 based on our strong performance to start the year, we're raising our 2025 financial targets. We now expect net revenue for the year to be in the range of $325 million to $335 million.
Jim: Adjusted EBITDA in the range of $65 million to $68 million and adjusted diluted earnings per share in the range of $2 75 to $2 90 per share.
Jim: These targets do not assume any future acquisitions.
Speaker Change: Operator, we're now ready for questions.
Michael Bieber: So that's exactly the strategy.
Speaker Change: Great. Thank you we will now be conducting a question and answer session.
Unknown Shareholder: That's terrific.
Unknown Shareholder: Thanks, and that's it for my questions.
Speaker Change: To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line isn't the question Keith.
Unknown Shareholder: As a final reminder, if you'd like to ask a question, it is star one.
Speaker Change: Let me first start to move yourself into Q.
Michael Bieber: If there are no further questions, I'd like to turn the floor back to Mike Bieber for any closing comments. I just want to thank our customers, employees, and investors for their interest in Willdan. We've got several upcoming investor conferences, so we'll see some of you in person soon. Otherwise, we'll talk to you next quarter. Thank you.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Speaker Change: One moment please poll for questions.
Speaker Change: First question is from Craig Irwin from Roth Capital Partners. Please go ahead.
Speaker Change: Greetings and welcome to the World Bank Group first quarter fiscal year 2025 financial results Conference call.
Craig Irwin: Good evening.
Speaker Change: Actually sometimes another strong quarter and thank you for taking my questions.
Speaker Change: All participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Craig Irwin: Mike.
Unknown Shareholder: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your
Craig Irwin: Tough question on investors' minds these statements actually tariffs.
Craig Irwin: And I might've missed it but I don't think you mentioned <unk>.
Al Comstock: Turn the conference over to Al Comstock. Thank you you may begin.
Craig Irwin: As far as the impact on <unk> spending a lot of confusion out there, but it sounds like your customer base is.
Al Comstock: Thank you, Matt Good afternoon, everyone and welcome to <unk> group's first quarter 2025 earnings call.
Craig Irwin: All right.
Craig Irwin: So the projects and.
Craig Irwin: How many guests that most of the equipment. They are using it is.
Mike Sievert: Joining our call today are Mike Sievert President.
Craig Irwin: Not at risk can you just addressed.
Tim Murphy: And Chief Executive Officer, and Tim Murphy, Executive Vice President and Chief Financial Officer.
Craig Irwin: Just the tariff issue for us.
Craig Irwin: Tell us what you understand this.
Tim Murphy: Our conference call remarks will include both GAAP and non-GAAP financial results.
Craig Irwin: Okay.
Craig Irwin: Sure Greg.
Speaker Change: They have joined just a little late on page six of the slide deck, it's specific to address tariffs. So we go over it again.
Reconciliations between GAAP and non-GAAP measures can be found in today's press release.
Tim Murphy: And on the presentation slides all of which are available on our website.
Craig Irwin: Yes.
Craig Irwin: Really you mentioned the risk is in the equipment that we specify on our projects.
Tim Murphy: Please note that year over year commentary on variances are variances or.
Craig Irwin: We're looking for price escalation hasnt occurred yet but.
Tim Murphy: Revenue adjusted EBITDA and adjusted EPS discussed during our prepared remarks are on an organic basis, we will make forward looking statements about our performance. These statements are based on how we see things today.
Craig Irwin: It could.
Craig Irwin: Possible along with project delays at the equipment just becomes too expensive.
Craig Irwin: Economical what we're doing about it is.
Tim Murphy: While we may elect to update these forward looking statements at some point in the future we do not undertake any obligation to do so.
Craig Irwin: Searching find load for alternative equipment sources, most of our suppliers have already frontloaded equipment over the past quarter and we have most of the equipment, we need for installations that we have this year, we can say frontloaded purchased that already.
Tim Murphy: As described in our SEC filings and actual results may differ materially due to risks and uncertainties with that I will hand, the call over to Mike who will begin on slide two.
Craig Irwin: We don't know what's going to happen next year at this point, we're also in search more flexible contract terms.
Mike Sievert: Thanks Al.
Mike Sievert: Had a strong start to 2025 delivering record first quarter results for revenue adjusted EBITDA and EPS.
Craig Irwin: Where we can and all the new contracts that address tariffs specifically, we haven't seen any short term impact thus far but it may be cheaper.
Mike Sievert: Surpass both analysts' expectations and our internal forecast contracted net revenue each grew 24% year over year adjusted EBITDA rose, 31% GAAP diluted EPS increased 52%.
Greg: That's that's what we got with Greg.
Craig Irwin: Excellent excellent.
Speaker Change: My next question is around the return to secular load growth right.
Craig Irwin: Is it really found its way into your valuation.
Mike Sievert: Adjusted diluted EPS was up 58%.
But you know, we'll then seems like.
Mike Sievert: These comparisons were all against a strong Q1 last year.
Craig Irwin: A really important part of the solution.
Mike Sievert: Performance was strong across all business lines driven by consistent execution.
Craig Irwin: When a transmission line take many years to actually site and construct.
Mike Sievert: In the quarter, we completed two more acquisitions that expanded our geography, and our electrical engineering capabilities.
Craig Irwin: New generation faces tremendous.
Craig Irwin: You know environmental hurdles, you know, even even in a Republic administration.
Mike Sievert: As electric load increases will then differentiated capabilities and consistent execution.
Craig Irwin: For construction and.
Craig Irwin: You know the idea of brownouts and blackouts as highly appealing to a different utility commissions.
Mike Sievert: And as well for long term growth.
Mike Sievert: Earlier this week, we extended our credit facility from $150 million to $200 million.
Craig Irwin: Can you say what the tempo of conversation is with your customer, it's both both utilities and state and local government.
Mike Sievert: A key milestone to scale our business.
Mike Sievert: Turning to slide three.
Mike Sievert: We will then deliver a broad range of energy and infrastructure solutions to utilities customers.
Craig Irwin: And you know, how you're partnering with them to.
Craig Irwin: The frame the long term solution set both.
Mike Sievert: State and local governments calculate on a pro forma basis for 2025, our commercial customers are forecasted to comprise 15% of our revenue.
Craig Irwin: Things that you can execute quickly in a matter of months or years freshness.
Craig Irwin: Some of these other competing solutions that are that are much longer duration and and gestation.
Mike Sievert: Double the percentage of last year.
Mike Sievert: State and local government customers are forecasted to be 44%, while utilities are forecasted to be around 41% of our revenue.
Craig Irwin: The market was good with just electrification driving load growth and that was really the status of the world.
Mike Sievert: Demand remains healthy across all customer groups.
Mike Sievert: Our commercial work is increasingly centered around electricity usage of data centers.
Craig Irwin: About 12 to 18 months ago, It was a very healthy market.
Mike Sievert: AI driven load growth is creating significant demand.
Craig Irwin: They were talking about loan growth for the next 25 years, just based on the electrification of buildings in the transportation networks.
Mike Sievert: We will then yourself and technology clients navigate energy constraints optimized infrastructure and meet aggressive power requirements, we see strong momentum in this area and intend to pursue acquisitions that further expand our capabilities and relationships with commercial customers.
Craig Irwin: Thanks.
Craig Irwin: Then about 12 months ago.
Craig Irwin: The conversation changed with AI and data centers.
Craig Irwin: Highly on top of lots of high growth scenarios, where just that had been modeled during that it's early days.
Mike Sievert: Our utility business continues to perform well.
Mike Sievert: Most of our utility contracts are multi year in nature funded by ratepayer fees and continue to provide a strong foundation of recurring revenue.
Craig Irwin: Are they even possible likely in the short term because there's not enough generation, there's not enough high voltage transmission you can't strike these facilities quickly enough.
Mike Sievert: On the public sector side, our work for state and local governments continues to grow organically at a double digit pace demand remains solid and the outlook is positive.
Craig Irwin: So customers have backed off those extreme growth scenarios and now we're seeing.
Mike Sievert: It's worth noting that will that has minimal exposure to direct federal contracts, where federally funded programs as a result recent.
Craig Irwin: Two plus percent growth per year, or something like that which is significant in the electric space.
Craig Irwin: When you consider this is likely a long term trend it's likely over the next 25 years. So there's conversations with all of our major customers about updating their forecasts updating their capex spending.
Mike Sievert: Recent federal spending cuts have had little impact on our backlog and near term visibility just like I said last quarter.
Mike Sievert: Most of our public sector work is funded through user fees and municipal bonds, which have remained stable.
Craig Irwin: The lead times for new generation have become even longer especially around gas turbines.
Mike Sievert: Last week, we released our 2020 for sustainability report highlighting meaningful progress, notably weak.
Craig Irwin: So all of that is happening at once and.
Mike Sievert: Our clients avoid about 100 times the GHT emissions at the company.
Craig Irwin: Often part of the energy stack is energy efficiency, as well, which was sort of our legacy markets. So we're building a company that tries to serve those customers in all of those ways.
Mike Sievert: Our energy segment makes up more than 80% of our revenue while the legacy hardware business makes up the remainder.
Mike Sievert: We work out of 55 offices across North America, and this quarter was <unk> hundred 70 employees, primarily scientists engineers and technical professionals.
Speaker Change: Excellent and then last question if I may.
Speaker Change: You know the last couple of years, you guys have been pretty conservative around guidance and.
Mike Sievert: On slide four.
Speaker Change: I don't think I've ever seen you raised guidance in your first quarter given that it's your seasonally lowest quarter as you start the year.
Mike Sievert: Our upfront policy and data analytics work informs will then strategy and helps us navigate market change.
Mike Sievert: Our upfront work, we're seeing particular demand for integrated resource planning and asset valuation on projects associated with data center electricity load.
Speaker Change: It's got to be some really interesting things are high confidence things that you're looking at.
Speaker Change: Can you talk about what.
Speaker Change: It is it has to be more confident now than maybe in prior years, even though you have you have executed very well over the last couple of years.
Mike Sievert: Those market changes that led us to acquisitions that provide solutions to these clients.
Mike Sievert: In engineering, we saw strong execution and growth, particularly with municipal customers.
Speaker Change: And are there other elephants out there are there things out there that could work to the plus side for U S.
Mike Sievert: Program management performed above our planned on utility programs and building energy programs for cities.
Speaker Change: As we look at that you know potential continued strength in our in the buildings business book.
Mike Sievert: This model to work for the last 25 years, we performed upfront financial planning and on cost Civil engineering.
Speaker Change: Yeah.
Speaker Change: Q1 came in above our own internal forecast. It was just very strong and it wasn't any one area. It was across the board.
Speaker Change: City of Fairfield, California.
Speaker Change: And in Q1, we were awarded a new $30 million program management energy savings and modernization contract.
Speaker Change: Or just performing very well.
Craig Irwin: Some of our customers are looking at upsizing the size of the contract that we have on these legacy programs. So with that already completed Craig. We just thought it was the right thing to do in good conscience, we needed to raise.
Speaker Change: EV charging station solar arrays central plant another electric infrastructure upgrades.
Speaker Change: On slide five.
Speaker Change: We have a strong pipeline of opportunities that we are converting into contracts. You are just a few examples we converted since our last conference call.
Speaker Change: Estimates.
Speaker Change: Modestly, which we did and that's what we attempted to do.
Speaker Change: Even taking into account some of the tariff risks maybe in the fourth quarter or something like that.
Speaker Change: Already talked about the city of Fairfield, California example.
Speaker Change: Then to the Paramount Unified School District, that's another example of cross sell.
Speaker Change: We're just we've got a great book of business right now.
Speaker Change: Customers that want to extend expand our programs. So that's why we did.
Speaker Change: We wanted to $18 billion design and management contract for solar arrays, and EV charging stations.
Speaker Change: Great well congratulations on another strong quarter I'll go ahead and hop back in the queue.
Speaker Change: For National grid in Massachusetts, we were awarded a new multi billion multiple award contract, providing energy efficiency services to small business and.
Speaker Change: As a reminder, if you'd like to ask a question. It is star one.
Speaker Change: And for Warner School District, we were awarded a new $11 million contract.
Speaker Change: Next question is from Sam Moore from clear Street. Please go ahead.
Speaker Change: We were also awarded an important recompete to provide the California public utility Commission CPUC with integrated resource planning technical support.
Speaker Change: Organic growth was very strong even excluding the extra week in the quarter and obviously the <unk>.
Speaker Change: The acquisition contribution that was impressive.
Speaker Change: I just thought you know you mentioned it was very broad based.
Speaker Change: That $9 $8 million award supports analysis of our resource staff necessary to achieve California ISO is required.
Speaker Change: Growth driver.
Speaker Change: Are there just thinking about the opposite side of the spectrum.
Speaker Change: I'm kind of curious are there any pockets of end markets or.
Speaker Change: On the last call I mentioned, the expanded Recompete with the Los Angeles Department of water and power led DWP.
Speaker Change: Consulting engagement types, where maybe you're seeing any type of slowdown in demand since late last year or anything maybe not.
Speaker Change: The new $330 million five year contract delivered more complex energy efficiency measures to a broader set of commercial and government clients. We.
Speaker Change: As a compelling or accelerating just kind of curious on the opposite.
Speaker Change: We don't expect significant revenue from the led DWP program until the fourth quarter of this year, but ultimately think it will become among our largest programs.
Speaker Change: Yeah.
Jim: Jim I can't think of any.
We've seen in the actual operations can you know not significant one.
Jim: A little less in the permitting a field in a few places, but but nothing worth mentioning.
Speaker Change: On slide six.
Speaker Change: From $19 70 to 2005, the U S experienced several decades of sustained electric load growth followed by 15 years relative flatness.
Jim: No the major risk out there Tim is equipment risks and tariffs no one knows how that will occur.
Speaker Change: We're seeing a return to meaningful loan growth, marking a structural shift in the energy landscape.
Got it.
Jim: The rest of the business is doing just very well across the board.
Jim: That's really helpful and just out of curiosity, if you ever I mean, it might be more of a.
Speaker Change: This shift is creating significant new opportunities for we'll Dan and we believe it will be a powerful tailwind for our business in the years ahead.
Project.
Jim: Calculation, but I mean have you ever kind of on the larger contracts, let's call it 100 million plus.
Speaker Change: Key drivers include the electrification of cities buildings and transportation.
Jim: Are your contracts I mean equipment, if you kind of quantified how much equipment is of that I mean are we talking like equipments.
Speaker Change: The shortage of industrial manufacturing and.
Speaker Change: The rapid rise in electricity demand from data centers powering AI.
Jim: 10% of the project cost something like that so any tariffs.
Electricity demand in the U S is expected to increase by 50% between now and 2015.
Jim: Drastically.
Jim: Hurts, you or harm your price escalators in there.
Speaker Change: We spent a fair amount of effort this quarter discussing and preparing for the uncertainty created by carefully.
Speaker Change: Yes, I think in the parts of our business, where we're really working through the installation of equipment.
Speaker Change: This new uncertainty has had little immediate impact on Wilton.
Jim: Yeah.
Speaker Change: However, we and our clients are watching carefully for price increases in the specialized equipment. We use on our projects. We are inserting more flexible contract terms with our customers and we are working to identify alternative product suppliers that could be cost effective.
Jim: I think material and equipment costs are probably 25% to 30% what are the overall contract value would be something like that that's the exposure there.
Jim: Okay.
Jim: Helpful and Thats over multiyear contracts such as the five year with it.
Speaker Change: Tariff risks persist.
Jim: Los Angeles ordering patterns.
If a recession errors will then should be better positioned than most due to our clients' funding sources.
Jim: Yeah, that's right that's right.
Jim: Then just on the Los Angeles Department of water and power you know it was you know we.
Speaker Change: But we would not likely be immune to a variety of an op slowdown.
Jim: Talked about it.
Jim: The last time, you reported it was a great renewal, but you know the timing of the renewal is theres a gap definitely in the first half of the year.
Speaker Change: Turning to slide seven.
Speaker Change: The graph on the left depicts the strong margin execution. The team has delivered over the last five years several years ago, we laid out a goal of 20% operating margin measured as adjusted EBITDA divided by net revenue.
Jim: So now you're saying you think thats really going to start ramping.
Jim: In the fourth quarter.
Jim: So how should we think about I mean, the momentum is really getting the rest of the business and it clearly.
Speaker Change: We've significantly improved our operating margin over the last five years, reflecting disciplined execution more efficient cost absorption and a shift towards higher value work.
Jim: Overpower any whatever the sales gap would've been the March quarter, whether it was seven or $8 million something like that.
Jim: So should we just not.
Jim: Things are going just so well and it's not even a blip.
Speaker Change: The 20% EBITDA margin in our industry represents best in class performance and is associated with a highly differentiated customer solutions.
Jim: Yes.
Jim: That renews in the timing of the start.
Jim: Got it.
Jim: Yeah.
Jim: Jim Thank you.
Jim: You pointed out the biggest concern we probably have had in Q1 without our biggest program up and running what was the results going to be an.
Speaker Change: This year, we'll then estimates that it will be around that 20% margin goal.
Speaker Change: Q1 is typically our lowest margin quarter. So we're right on track for this year.
Jim: It blew right through that we overcame that.
Speaker Change: On the right and reflected over the same five year period, we've continued to increase revenue per employee.
Jim: And posted as you mentioned, 12% organic growth on a normalized basis, even better than that.
Jim: So.
Speaker Change: Flexing higher productivity and the growing value our teams are delivering to clients. This.
Jim: That gives this shows the strength of the business. We were concerned about and also we had no revenue for DWP in the quarter.
Speaker Change: This consistent improvement alongside our expanding operating margin other sources scalability of our model and the strength of our operating leverage as we grow Jim over to you.
Jim: And I don't think we're going to have any in Q2, either or certainly not much but by Q4. We have now received notice to proceed we're working through the administrative.
Jim: Thanks, Mike and good afternoon, everyone.
Jim: On slide eight we delivered a strong start to the year exceeding expectations as our teams continued to execute at a high level.
Jim: Hurdles of ramping up such a big program.
Jim: I think that by the end of the year, we will start to see some real momentum, especially going into 2026.
Jim: We also completed two additional strategic acquisitions, while expanding and extending our credit facilities.
That should be picked up.
Jim: With low leverage and strong liquidity, we are well positioned to invest in future growth.
Jim: Terrific and I've got one last question then.
Jim: The AP G. The alternative power generation acquisition seem to amazing.
Jim: In the first quarter of 2025 contract revenue increased 24% year over year to $152 million.
Jim: <unk>.
Jim: Increase your sales exposure to data centers, if I remember correctly, maybe you might have turned to.
Speaker Change: Acquisitions of Anika Alpha infections and APG.
Jim: <unk>, 15% now I mean, it's probably the bulk of the commercial exposure you have I was just wondering have you thought about integrating the two from your previous kind of maybe data center exposure team.
Speaker Change: <unk> 6.1 million to the contract revenue in the quarter net.
Speaker Change: Net revenue also grew 24% to $85 million. The recent acquisitions brought 6% of that growth and our 14th week week in the quarter represents another 6% increase resulting in an apples to apples organic growth rate of 12% for net revenue.
Jim: With the Atg team are you going to keep them kind of separate I'm just wondering if.
Jim: Can be cross selling or really kind of working together to really grow that business even faster.
Jim: They started cross selling before we close the transaction they are in close communication.
Speaker Change: <unk> in the quarter.
Jim: Physically merged them, but we don't need to.
Speaker Change: Contract revenue growth was strong in both of our segments revenue in our energy segment Rose, 25% led by double digit increases in program construction management activity and continued strength in utility programs.
Jim: You've already compared the customer lists we're already.
Speaker Change: Bob will be executing projects at this point between the two groups that's exactly the strategy.
Jim: That's terrific thanks, and that's it for my questions.
The engineering and consulting segment revenues increased 20%, reflecting strong client demand and continued geographic expansion.
Speaker Change: As a final reminder, if you'd like to ask a question. It is star one.
Speaker Change: There are no further questions I'd like to turn the floor back to Mike <unk> for any closing comments.
Speaker Change: While gross profit increased 22% over the period over the prior year G&A expenses increased nearly 20% in the quarter compared to the 24% net revenue growth, reflecting the operating leverage we've been experiencing as we grow.
Speaker Change: I just want to thank our customers employees and investors for their interest and we'll Dan you've got several upcoming investor conferences. So we will see some of you in person soon otherwise we will talk to you next quarter.
Speaker Change: The year over year increase was primarily due to increased wages and incentive costs consistent with the earnings growth as well as higher stock based compensation, resulting from the increase in stock price and.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Speaker Change: Okay.
Speaker Change: Intangible amortization expenses increased by 600, K, reflecting the impact of our recent acquisitions, while interest expense decreased by 300000 to $1 8 million on our reduced leverage.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Sure.
[music].
Speaker Change: The growth in revenues and the disciplined cost control resulted in a 32% increase in pretax income and a favorable 975% effective income tax rate resulted in net income of $4 7 million for the first quarter of 2025 up 59% of the $2 9 million.
Speaker Change: Q1, 2020 for Bottomline.
Speaker Change: The favorable income tax rate was a result of discrete benefits from the vesting of stock compensation in the quarter as well as the expected energy efficiency tax incentives we.
Speaker Change: We continue to expect our full year tax rate of approximately 16%.
Speaker Change: Adjusted EBITDA was $14 4 million or 16, 9% of net revenue up 31% compared to $11 million in the first quarter of 2024.
GAAP earnings per share were <unk> 32.
Speaker Change: Up from 21 per share a year ago, while adjusted diluted earnings per share increased 58% to 63 per share compared to <unk> 40, a year ago.
Speaker Change: This was a record first quarter for well Dan in terms of contract revenue net revenue adjusted EBITDA and earnings.
Speaker Change: On slide nine we present, some key balance sheet and cash flow metrics that reflect the continued strength of our financial position.
Speaker Change: Net debt was $49 million at quarter end after deploying $32 million in cash for two acquisitions.
Speaker Change: Total leverage was a modest 0.8 times adjusted EBITDA.
Speaker Change: Free cash flow with $40 million over the trailing 12 months or a robust $2 74 per share.
Speaker Change: We ended the quarter with $38 million in cash and access to an undrawn $50 million line of credit, resulting in total liquidity of $88 million at that time.
Speaker Change: Turning to slide 10.
Speaker Change: Earlier this week, we amended and restated our credit agreements expanding exited $200 million to enhance financial flexibility reduced costs and extended our maturity by five years.
Speaker Change: The new structure includes a $100 million revolver under which we have drawn $38 million.
Speaker Change: The new term loan a has been reduced to $50 million.
Speaker Change: And supplemented by an additional $50 million delayed draw term loan feature which remains unused at this time.
Speaker Change: The term loan a will be amortized at $2 5 million per year over the five year term inter.
Speaker Change: The interest rate spreads over sofa or prime we're generally reduced by 25 basis points with a spread vary depending on the leverage ratio for any given quarterly period.
Speaker Change: The expanded and extended credit facilities, along with future cash flows provided the resources necessary to drive growth and expand our service capabilities in strategic markets through acquisitions, while maintaining a strong balance sheet and conservative leverage.
Speaker Change: On slide 11.
Speaker Change: Our strong performance to start the year, we are raising our 2025 financial targets. We now expect net revenue for the year to be in the range of $325 million to $335 million adjust.
Speaker Change: Adjusted EBITDA in the range of $65 million to $68 million and adjusted diluted earnings per share in the range of $2 75.
Speaker Change: To $2 90 per share.
Speaker Change: These targets do not assume any future acquisitions.
Speaker Change: Operator, we're now ready for questions.
Speaker Change: Great. Thank you we will now be conducting a question and answer session.
Speaker Change: 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: Maybe first start moving stuff into Q4.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up the handset before pressing the certainties.
Speaker Change: One moment, please while poll for questions.
Speaker Change: First question is from Craig Irwin from Roth Capital Partners. Please go ahead.
Craig Irwin: Good evening and congratulations on another strong quarter and thank you for taking my question.
Speaker Change: Mike.
Speaker Change: Tough question on investors' minds these statements actually tariffs.
Speaker Change: And I might've missed it but I don't think you mentioned <unk>.
Speaker Change: As far as the impact on <unk> spending a lot of confusion out there, but it sounds like your customer base is.
Speaker Change: Alright.
Speaker Change: So the projects and.
Speaker Change: How many guests that most of the equipment they are using us.
Speaker Change: Not at risk can you just.
Speaker Change: Has the tariff issue for us.
Speaker Change: Tell us what you understand the mismatch.
Speaker Change: Yeah.
Speaker Change: Sure Greg and he May have joined just a little late on page six of the slide deck, specifically addresses tariffs. So when we go over it again.
Speaker Change: Yes.
Speaker Change: Really you mentioned the risk is in the equipment that we specify on our projects.
Speaker Change: We're looking for price escalation hasnt occurred yet.
It could as possible along with project delays at the equipment just becomes too expensive to be economical what we're doing about it is.
Speaker Change: Searching high and low for alternative equipment sources, most of our suppliers have already frontloaded equipment over the past quarter and we have most of the equipment, we need for the installations that we have this year, but can say frontloaded and purchase set already.
Speaker Change: We don't know what's going to happen next year at this point, we're also in search more flexible contract terms.
Speaker Change: Where we can in all of the new contracts that address tariffs specifically, we haven't seen any short term impact thus far but it may be to work.
Speaker Change: That's why we kept it Greg.
Speaker Change: Excellent excellent.
Speaker Change: My next question is around the return to secular load growth right. So it hasnt really found its way into your valuation.
But.
Speaker Change: We'll then seems like.
A really important part of the solution.
Speaker Change: When.
Speaker Change: Transmission lines take many years to actually site and construct.
Speaker Change: New generation and faces tremendous.
Speaker Change: Environmental hurdles, even even in a Republican administration.
Speaker Change: Construction and.
Speaker Change: The idea of.
Speaker Change: Brownouts and blackouts as highly on appealing to different utility commissions.
Speaker Change: Can you say, what the tempo of conversation is.
Speaker Change: With your customer, it's both both utilities and state and local government.
Speaker Change: And.
Speaker Change: How you are partnering with them too.
Speaker Change: The frame the long term solution set both.
Speaker Change: Things that you can execute quickly in a matter of months or years for instance.
Speaker Change: Some of these other competing solutions that are much longer duration.
Speaker Change: In gestation.
The market was good with just electrification driving load growth and that was really the status of the world.
Speaker Change: About 12 to 18 months ago, It was a very healthy market.
Speaker Change: They were talking about load growth for the next 25 years, just based on the electrification of buildings in the transportation networks with Evs and other things.
Speaker Change: Then about 12 months ago.
Speaker Change: The conversation changed with AI and data centers.
Speaker Change: Highly on top a lot of the high growth scenarios, we're just.
Speaker Change: Been modeled during the early days.
Are they even possible likely in the short term because there's not enough generation, there's not enough high voltage transmission you can't cite these facilities quickly enough.
Speaker Change: So customers have backed off those extreme growth scenarios and now we're seeing.
Speaker Change: Two plus percent growth per year, or something like that which is significant in the electric space.
Speaker Change: When you consider this is likely a long term trend it's likely over the next 25 years. So there's conversations with all of our major customers about updating their forecasts updating their capex spending.
Speaker Change: The lead times for new generation have become even longer especially around gas turbines.
Speaker Change: So all of that is happening at once and.
Speaker Change: Often part of the energy stack is energy efficiency, as well, which was sort of our legacy market. So we're building a company that tries to serve those customers in all of those ways.
Speaker Change: Excellent and then last question if I may.
Speaker Change: The last couple of years, you guys have been pretty conservative around guidance and.
Speaker Change: Yes, I don't think I've ever seen you raised guidance in your first quarter given that it's your seasonally lowest quarter as you start the year.
Speaker Change: It's got to be through.
Speaker Change: Really interesting things are high confidence things that youre looking at.
Can you talk about.
Speaker Change: It is it has to be more confident now than maybe in prior years, even though you have you have executed very well over the last couple of years.
Speaker Change: And are there either elephants out there are things out there that could work to the plus side for you.
Speaker Change: As we look at.
Speaker Change: Potential.
Speaker Change: <unk> strength in that.
Speaker Change: We are building the business book.
Speaker Change: Well Q1 came in above our own internal forecast. It was just very strong and it wasn't any one area. It was across the board.
Speaker Change: We're just performing very well.
Speaker Change: Some of our customers are looking at upsizing the size of contract that we have on these legacy programs. So with that already completed Craig. We just thought it was the right thing to do and in good conscience, we needed to raise est.
Speaker Change: Estimates.
Speaker Change: Modestly, which we did and that's what we attempted to do.
Speaker Change: Even taking into account some of the tariff risks maybe in the fourth quarter or something like that.
Speaker Change: We're just we've got a great book of business right now and customers that want to extend expand our programs. So that's why we did.
Speaker Change: Great well congratulations on another strong quarter I'll go ahead and hop back in the queue.
Speaker Change: As a reminder, if you'd like to ask a question. It is star one.
Speaker Change: Next question is from Sam Moore from clear Street. Please go ahead.
Speaker Change: Organic growth was very strong even excluding the extra week in the quarter and obviously the.
Speaker Change: Pulling out the acquisition contribution that was impressive.
Speaker Change: You mentioned it was very broad based.
Speaker Change: Growth drivers.
Speaker Change: Just thinking about the opposite side of the spectrum.
Speaker Change: It was kind of curious are there any pockets of end markets or.
Speaker Change: Consulting engagement types, where maybe you're seeing any type of slowdown in demand since late last year or anything maybe not.
As a compelling or accelerating just kind of curious on the opposite.
Speaker Change: Jim I can't think of any headwinds we've seen in the actual operations can you now not significant one.
A little less in the permitting.
Speaker Change: And in a few places, but but nothing worth mentioning.
Speaker Change: No the major risk out there TM is equipment risks and tariffs no one knows how that will occur.
Speaker Change: But the.
Speaker Change: The rest of the business is doing just very well across the board.
Speaker Change: That's really helpful and just out of curiosity, if you ever I mean, it might be more of a.
Speaker Change: Project.
Speaker Change: Calculation of about I mean have you ever kind of on the larger contracts, let's call it $100 million plus.
Speaker Change: Your contracts.
Speaker Change: Equipments, if youre kind of quantified how much equipment is of that I mean are we talking like equipments.
Speaker Change: 10%.
Speaker Change: Cause something like that so I mean tariffs and drastically.
Speaker Change: Hurts, you or harm you some price escalators in there.
Yes, I think in the parts of our business, where we're really working through the installation of equipment.
Speaker Change: Yeah.
Speaker Change: I think material and equipment costs are probably 25% to 30% of what.
Speaker Change: The overall contract value would be something like that that's the exposure there.
Speaker Change: Okay. That's helpful and that's over multiyear contracts such as the five year with it.
Speaker Change: Los Angeles ordering pattern.
Speaker Change: Yes, that's right that's right.
Speaker Change: And then just on the Los Angeles Department of water and power.
Speaker Change: We talked about it.
Speaker Change: The last time, you reported is a great renewal, but the timing of the renewal is there is a gap definitely in the first half of the year.
Speaker Change: So now Youre, saying, you think thats really going to start ramping.
Speaker Change: In the fourth quarter.
Speaker Change: So how should we think about I mean, the momentum is really getting the rest of the business and it clearly.
Speaker Change: Overpower any whatever the sales gap would've been the March quarter, whether it was seven or 8 million something like that.
So should we just not.
Speaker Change: Things are going to sell it and it's not even a blip.
Speaker Change: Yes.
Speaker Change: That that renews in the timing of the start.
Speaker Change: No.
Speaker Change: Jim I think you pointed out the biggest concern we probably had in Q1 without our biggest program up and running what was the results going to be and we blew right through that we overcame.
Speaker Change: Headwinds.
Speaker Change: Posted as you mentioned, 12% organic growth on a normalized basis, even better than that actually so.
Speaker Change: That gives us shows the strength of the business. We were concerned about and also we had no revenue for early DWP in the quarter.
Speaker Change: And I don't think we're going to have any in Q2, either or certainly not much but by Q4. We have now received notice to proceed we're working through the administrative.
Speaker Change: Hurdles of ramping up such a big program.
Speaker Change: I think that by the end of the year, we will start to see some real momentum, especially going into 2026.
Speaker Change: It should be cranked up.
Speaker Change: That's terrific and I've got one last question then.
Speaker Change: The AP G. The alternative power generation acquisitions seem to amazing and it really.
Speaker Change: <unk> <unk>.
<unk> increased your sales exposure to data centers, if I remember correctly, maybe you might have turned to <unk>.
Speaker Change: 15% now I mean, it's probably the bulk of the commercial exposure you have I was just wondering have you thought about integrating the two from your previous kind of maybe data center exposure team.
Speaker Change: With the ETE team are you going to keep them kind of separate I'm just wondering if you can.
Speaker Change: Can be cross selling or really kind of working together to really grow that business even faster.
They started cross selling before we closed the transaction they are in close communication youre not to.
Speaker Change: Physically merged and but we don't need to.
Speaker Change: We've already compared the customer lists.
Speaker Change: <unk> already.
Speaker Change: Executing projects at this point between the two groups. So that's exactly the strategy.
Speaker Change: That's terrific thanks, and that's it for my questions.
Speaker Change: As a final reminder, if you'd like to ask a question. It is star one.
Mike Sievert: If there are no further questions I'd like to turn the floor back to Mike <unk> for any closing comments.
Speaker Change: I just want to thank our customers employees and investors for their interest and we'll then you've got several upcoming investor conferences. So we will see some of you in person soon otherwise we will talk to you next quarter. Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.