Willdan Group, Inc.

Greetings and welcome to the Will Dan Group's fourth 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. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce our host, Al Kastrock. Thank you, you may begin.

Thank you, Matt. Good afternoon, everyone, and welcome to Will Dan Group's fourth quarter and fiscal 2024 earnings call. Joining our call today are Mike Bieber, President and Chief Executive Officer, and Kim Early, Executive Vice President and Chief Financial Officer. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides, all of which are available on our website. Please note that your over-year commentary or variances on revenue, adjusted EBITDA, and adjusted EPS discussed during our prepared remarks are on an organic basis. We'll make forward-looking statements about our performance. These statements are based on how we see things today. 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. As described in our SEC filings, actual results may differ materially due to risk and uncertainties. With that, I'll hand the call over to Mike. Thanks, Al.

We had a strong finish to a record year in 2024, significantly exceeding the street consensus estimates and our own expectations. For 2024, contract revenue was up 11% and adjusted EBITDA was up 24% -over-year. Gap EPS nearly doubled -over-year and adjusted EPS was up 39%. Execution and performance across all lines of business were strong, leading to a record level of free cash flow. For 2024, we generated $4.49 per share of free cash flow, an outstanding result 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.Dan's unique capabilities in the market and our consistently solid execution have all come together to fuel a positive long-term outflow coming into 2025. On slide three, Will.Dan 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 government customers. With the acquisition announced today, we have about 1,800 employees, comprised mostly of scientists, engineers, and technical professionals. We now have 54 offices across North America and have helped clients avoid emissions of 12.5 million metric tons of greenhouse gases. I've talked about wanting to expand our commercial services as well as add electrical engineering capabilities. The Enica acquisition in Q4, serving bio-pharma, and the APG acquisition we announced today, both overwhelmingly serve the commercial technology sector. Calculated on a pro-forma basis, our commercial customers now comprise 15% of our revenue, double the percentage of last year. State and local government customers are now 44%, and utilities are now 41% of our revenue. Demand for our services with all three customer groups is healthy. Our work for commercial customers is now largely related to electricity usage at data centers. AI-driven load growth is providing Will.den with many commercial opportunities to help technology clients navigate electricity constraints. We would like to continue adding acquisitions that strengthen our capabilities with commercial customers. Our work for state and local government clients is growing organically at a high single-digit pace, is strong, and the outlook is positive. Will.den has almost no work directly with the federal government or funded by the federal government. The recent federal spending cuts have had almost no impact to our backlog or our outlook, because our state and local government work is funded primarily through user fees and bonds. Our work for utilities is primarily under multi-year contracts, is funded by user fees,

and

remains robust.

On to slide four. Our upfront policy and data analytics work informs Will.den's

strategy. 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. Those market changes have led us to acquisitions that provide solutions to these clients. In engineering, we saw strong geographic expansion in Florida and Texas and continued demand from Southwestern city customers. In program management, we performed above our plan on utility programs and building energy programs for cities. Since Q3, we've completed three acquisitions, totaling about $50 million in 2024 annual revenue, and the diagram shows where they expand our engineering and program management capabilities. I'll talk more about these capabilities

in later slides. On slide five. We've had a great

string of new wins since the last call. In fact, Will.den successfully won all of our major recompete in 2024. Today, we announced winning the expanded recompete with the Los Angeles Department of Water and Power, LADWP. The new $330 million five-year contract delivers more complex energy efficiency measures to a broader set of commercial and government clients within LADWP territory. The new contract will become among our largest programs at Will.den on an annual basis. I'll note that due to the recent timing of this award and ramp up, we don't expect significant revenue from the LADWP program until the back half of this year. Next, we were awarded three new California energy efficiency programs outside of our traditional investor-owned utility base. The first two are with regional energy networks, or RENs, which are groups of public entities that band together and form a collective entity providing energy services and savings. For the Los Angeles County Regional Energy Network, SoCal REN, we won a $15 million commercial energy program. And for the Central California Rural Regional Energy Network, or CCREN, we were awarded a new $6 million program for energy efficiency and regulatory support. We are attracting more opportunities this year from California REN customers. For the South Coast Air Quality Management District, we won a $10 million new multifamily and small business energy program. We were also awarded new contracts with Sonoma County and South Lake Tahoe. Coming into 2025, our pipeline of new opportunities around the country is robust. On slide six. From 1970 until 2005, the U.S. saw decades of higher electric load growth, followed by 15 years of mostly flat load growth. The U.S. has now returned to higher load growth again. And this is creating exciting new opportunities for WillDan. We believe we'll help drive our growth for years to come. I've mentioned that experts are uncertain about the future speed and scale of this load growth, but there is now widespread consensus that higher load growth will occur and has already begun. In the most current forecast data, the electricity consumed by data centers powering AI will be the largest load growth driver, the coral-colored block on this slide. WillDan is now in the center of discussions about how to meet this load growth. Data centers will be followed by light and medium-duty electric vehicles, the green blocks on the slide. Three shoring of industrial manufacturing facilities in the U.S. and the electrification of buildings, the blue blocks. On slide seven. In January, we completed 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 for WillDan. Turning to slide eight. We added new

technical expertise with the acquisition of Alternative Power Generation, or APG, that we announced this morning. APG helps fill a strategic gap that WillDan customers have been asking for, expertise in utility-scale electrical engineering. I've personally known the APG manager team for many years, and they are well-respected in the industry as experts in substation design, interconnects, microgrids, and data center electricity. Most of their work today powers new large-scale data centers, although in years past, their work has powered other industries and utility customers. These are all highly specialized electrical engineering areas that complement WillDan's technical strengths in mechanical engineering, energy efficiency, and grid planning. APG's customers today are all commercial, which is consistent with our strategy to expand our commercial client base. APG generated approximately $37 million of revenue in 2024. We're excited to be adding APG and believe the combined skill set is exactly what commercial data center owners want. WillDan now offers upfront data center planning and consulting, APG's detailed electrical engineering design, and then WillDan'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, probably the fastest growing area. Slide nine on the left depicts our current actual versus our pro forma customer mix. Diversifying this mix towards commercial technology customers should add long-term stability, and commercial customers generally provide higher profit margins. On the right side of the slide, many years ago, we laid out a goal of 20% operating margin, measured as adjusted EBITDA divided by net revenue. All COVID impacted 21 and 22 results, I'm proud of our progress toward our goal. A 20% EBITDA margin in our industry represents best in class performance and is associated with a highly differentiated customer solution. In 2025, WillDan estimates that it will be around that 20% margin goal. We plan to add even more capabilities to future acquisitions in the quarters ahead. Kim, over to you.

Thanks Mike, and good afternoon everyone. Our fourth quarter provided a very strong finish to an exciting and productive year, resulting in a record setting performance for the company. I'll provide a brief review of the fourth quarter beginning on slide 10. Keep in mind that the fourth quarter of 2023 benefited from some exceptional opportunities we experienced last year to over deliver 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 in net revenue, and 3 million of adjusted EBITDA, which of course significantly impacts the comparison of the two periods. Despite the appearance that the 2024 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, a 29% increase in adjusted EBITDA, and a 19% increase in adjusted earnings per share for the fourth quarter of 2024 compared to the prior year. Turning to slide 11, 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, with solid growth across our service lines and substantially all of it organic. Double digit percent increases in building solutions activities, utility programs, and municipal civil engineering services were the primary factors behind the higher revenues. If adjusted for the Q4 exceptional opportunities in 2023, the revenue growth would reflect even stronger organic growth of approximately 14% year over year. Gross profit in 2024 increased 13% to $203 million, and gross margin expanded slightly to .8% from .2% a year ago, driven by the improved performance in our program management activities and the increased activities and mix of business in our engineering and consulting segment. G&A expenses grew about 9%, closely tracking the 9% increase in headcount, but less than the 10% net revenue growth. 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. All this helped drive a 24% increase in the just city with Don 2024 over 2023 to 56.8 million. 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 .4% compared to .1% in 2023, resulting in net income of 22.6 million, or gap earnings per share of $1.58, versus net income of 10.9 million, or 80 cents per share in 2023. Adjusted earnings per share was $2.43 per share, up 39% over the $1.75 a year ago. The lower tax rate in 2024 reflects the expanded energy efficiency incentives, as well as other discrete reductions related to stock options. From a balance sheet and cashflow perspective on slide 12, we generated $72 million in cashflow from operations and $64 million, or $4.49 per share, in free cashflow in 2024. This impressive cashflow 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. We expect to invest this liquidity in future cashflows to enhance our growth and to expand our service capabilities in strategic markets through acquisitions. Our financial position is strong, and our outlook remains positive, despite the uncertainty of the current economic environment and the impact of the delay in the restart of our new LEDWP energy efficiency contract. Thus, slide 13 provides our financial guidance for 2025. We're expecting net revenue in the range of $320 to $330 million, with adjusted EBITDA in the range of $63 to $67 million, and adjusted earnings per share in the range of $2.70 to $2.85 per share. These targets assume a 16% tax rate and 15.1 million shares outstanding, and does not include any potential future acquisitions. Note that these targets are well above the current consensus street estimates.

For more

detail on our financial results, you can access this presentation, our press release, and our 10K on the investor page of our website. Operator, we're now prepared to take questions.

Great, thank you. At this time, we will be conducting a question and answer session. If you'd 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. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question here is from Craig Irwin from Wealth Capital Partners. Please go ahead.

Good evening, and congratulations on another really solid result here tonight. Nice, Frank. Thank you. So Mike, I wanted to start off by asking about the LEDWP contract, the renewal and expansion of the contract. Can you comment a little bit about the linearity of this contract? Are there any potential startup issues as we look at 25? Is this something that becomes a bigger book of business over the five years, or does this have a potential chunky step up in activity this year?

Sure. There's not big startup concerns we have about this program because it is a recompete. We've operated this contract for many years before. It's the third, fourth time we've won this recompete. I'll note, though, that activity on the contract stopped in December, so we're gonna have to re-ramp it back up here in the spring of this year. We don't yet have notice to proceed, as we've just been awarded the contract, and it's been finalized and ratified. So we expect to get notice to proceed 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. Beyond that, though, it should be a more linear program. It's roughly $65 million a year. Because we've got some ramp up, we'll have a little bit more to spend maybe next year than this year, and it's a great program. The other thing about it is that it adds more complex measures, which we wanted and the LEDWP needed. So it's a different contract from that perspective. Complex measures, you pump out water heaters, other measures that address a wider group of customers than we previously had access to. It's a great program, and it's gonna become one of our largest.

Excellent, that's great to hear. So I wanted to ask a little bit about the rents. So we've talked about this on and off over the last couple years, and it's nice to see the orders coming through. Can you maybe just remind us where the funding for these rents come from? Who drives the accountability of the project activity? Where are they administered from? And who are the ultimate constituents?

Yep, sure. The funding comes from the same surcharge on your electricity bill that I've talked about in the past, which funds most of the energy efficiency in the state of California. It's also the source of funding for the IOUs. The rents are made up, ironically, in some part, by the IOUs themselves. They choose to band together. In the case of SoCal rent, that's exactly the case. So the rents 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 and bureaucracy and administrative requirements that the IOUs are asked to jump through. So they're simpler contracts. Each of these two rent contracts is a time and materials contract. And we do a wider range of service as well. We provide everything from regulatory support to technical consulting and the management of the different programs themselves.

Excellent. My third question, if I may. This past couple months have been a lot of investor questions about the presidential transition, the change in administration, and the potential impact on business activity at Wilden. Can you comment about how you see the change in administration impacting your business activity, your broader sort of funnel at the fun end, and whether or not some of these big strategic initiatives that President Trump is pushing have the potential to accelerate activity in different areas of your business?

Greg, we haven't seen much change from what I said the last quarter when we were asked this question coming into the presidential election. 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. That's because of the nature of the work that we do, which is primarily driven by state and local governments and 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 we just haven't seen impacts like that. The other thing I'll mention in tariffs, we worked hard during COVID to put in place language in our contracts that allowed us to pass on supply chain escalations to customers. And that's gonna benefit us this time around with tariffs or the potential of tariffs this time, because now most of our long-term contracts already have that kind of language in 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. That's good to hear. Well, congrats again on some really strong performance here.

Thank

you.

Thank you. As a reminder, if you'd like to ask

a question, it is star one. And our next question here is from Tim Moore from Clear Street, please go ahead.

Thanks. And Mike, your tone and enthusiasm was a refreshing change to more than half the earnings of all I've listened to over the last couple of weeks. You know, just maybe my first question, clearly low growth and electrification is an obvious enduring theme for the next several years. You know, just within government, within those customers and market, I mean, are there any two to three programs jumping out, gaining a lot more frequency or implementation over the last couple quarters, or at least incoming inquiries? I'm just wondering what maybe is more trending within government?

The California programs

have expanded because I mentioned, oh, probably a year and a half ago, the consumption of electricity in California has gone up and they're looking for additional sources of electricity or likewise, you know, additional energy efficiency that has the same effect on the grid. So that's a broad trend that has translated into, you know, a lot more demand for the programs that we operate within California. That's one I can point to. The same thing though is happening in part in New York where certain pockets, they call them load pockets, are also seeing the same demand for additional electricity. Those programs have grown. The other thing I'll say is, you know, our upfront study work, trying to help customers navigate new load growth data centers, different constraints 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. We're 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 and construction management of substations that power these data centers. So those are the areas I point to.

That's terrific. And my other question is, just any update on software cross-selling and does APG have its own embedded software or are you gonna be introducing yours to their suite?

We're going to be introducing ours. They don't have any software right now and that introduction was yesterday so it's brand new to them. We think that's a great opportunity to cross-sell. And you asked about software cross-selling, that's been solid as well. The work that E3 and IA are doing upfront to support these different grid planning efforts is a good market.

Thanks, that's it for my questions and I appreciate it. Our next question is from Richard Eisenberg, a private investor, please go ahead.

Good afternoon, Mike and congratulations on a great quarter and a great year. Thanks, Richard. You're welcome. Has artificial intelligence been integrated yet into your software and what are the opportunities for Will Dan to expand into Europe? Thanks again, Mike.

We're working hard to roll out the integration of AI into a new version of LoadSeer and we believe that'll be ready in the first half of this year. The new version of LoadSeer is also simplified in that it requires smaller engineering staff to manage and run it. 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 pre-designed load forecasts and load curves, load shapes that utilities, smaller utilities can use and they don't need a staff 30 electrical engineers to power it. So that is primed to come out this year in the first half. It's a good opportunity and we're already looking to cross sell that towards our municipal relationships throughout the country. You mentioned Europe. We currently have no presence in Europe and very little presence outside of the United States. We have got five or six people in Calgary, a little bit of presence in Puerto Rico, hardly any international exposure whatsoever. In the short term Richard, Europe and work outside of America is not our focus. Eventually we may consider moving outside with an acquisition that places us there, but there is so much opportunity in the United States right now. We're focused on the US market, probably all of this year and the next several years.

Okay, thanks Mike, thanks again. And have a great 2025.

Once again, if you'd like to ask a question, it is star one. And if there are no further questions, I'd like to turn the floor back to management for closing comments.

Great, thank

you. We'll wrap this up in 30 minutes. Thank you for being shareholders and being interested in Wheel Day. I know that in years past, business has not been as robust and we're enjoying some of the best business opportunity the company has ever seen right now. We're on fire and we're enjoying it over

here. Expect more throughout the year, thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.