Willdan Group, Inc. (WLDN) Q2 2027 Earnings Call Transcript

Greetings. Welcome to the Wilden Group Second Quarter Fiscal Year 2026 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 during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Al Keshalk. Thank you. You may begin.

Thank you, Cleo. Good afternoon, everyone, and welcome to Will Dan Group's second quarter 2026 earnings call. Joining our call today are Mike Bieber, President and CEO, and Kim Early, Executive Vice President and CFO. 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 year-over-year commentary or variances on revenue, adjusted EBITDA and adjusted EPS discussed during our prepared remarks are on an actual basis unless otherwise specified. We will 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 time 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, who will begin on slide two.

Thanks, Al, and good afternoon to everyone on the call. We had a very strong second quarter, capping a strong first half and continuing the momentum we built across the business. Demand remains healthy, execution was strong, and we delivered significant growth in both revenue and profitability. In the second quarter, contract revenue increased 33% year-over-year to $231 million. Net revenue grew 23% to $117 million, and adjusted EBITDA increased 51%. to a record $33 million in the quarter. Gap earnings per share increased 53% even faster to $1.58, and adjusted earnings per share increased 38% to $2.07. All those growth metrics are on top of strong performance we had a year ago. Overall, the business is performing well. We're seeing strength across all of our customer groups, but commercial demand, in particular, is accelerating and expanding our addressable market. AI is adding to electric load growth and is also improving Willden's productivity to help us solve clients' more complex problems. With a strong first half behind us and good visibility into the remainder of the year, we're raising our full year financial targets. On slide three, when I became CEO at the beginning of 2024, I talked about our strategy to significantly increase our presence in the commercial market. We believed then that a broader customer base would add stability, create new growth opportunities, and support higher margins. That strategy has worked well, and commercial revenue has now added a third leg to the stool. It's currently about a quarter of our business and is helping create more balanced, consistent and results. Importantly, this growth complements our strong utility and government business. The largest part of our commercial revenue is for electricity at data centers and is the fastest growing part of Will Bank. As another data point, revenue from our APG acquisition, which is commercially focused, is projected to nearly triple this year over last for roughly $75 million. The commercial market also gives us another channel to deploy our engineering, software, procurement, and energy management capabilities. We believe that broadens our addressable market and strengthens WillDAN's long-term growth profile. On slide four, this slide shows how that diversification is taking shape across our customers, contracts, and services. We now serve a broader mix of utilities, public agencies, and commercial clients. We balance recurring program work with project-based engagements, and our services now span advisory, engineering, software, implementation, and ongoing energy management. This balance matters because it reduces our dependence on any single customer type or service line, allows us to participate across more of the energy investment lifecycle, and positions us to pursue larger and more complex opportunities. Burton Energy is a good example of how we're extending that strategy. So on the next slide, slide five, Burton is performing well right out of the gate. It had the characteristics we look for in all acquisitions, a strong management team, differentiated capabilities, strong client relationships, and meaningful cross-selling opportunities with the rest of the company. Since closing on May 4th, we've focused on converting to Willden's ERP system, customer continuity, and cross-selling. We're pleased with the early progress, including new customer relationships with Walgreens, Carters, and Five Below, all since May. Burton adds significant expertise in building HVAC and energy controls technology. It also adds a new line of business in commercial energy procurement. Burton is already involved in two WILDAN utility programs, and we're particularly optimistic about cross-selling Burton's commercial experience with WILDAN's broader technical capabilities. Next on slide six, we've had another strong, and here are six notable examples since our last earnings call. For the Los Angeles Department of Water and Power, LADWP, we were awarded a $110 million solar streetlight contract expansion through the existing commercial direct install program. This project combines energy efficiency, resiliency, and public infrastructure. It removes streetlight load from the LADWP power grid, providing additional capacity while also increasing public safety. We hope that programs like this could be launched in major metro areas across the country. We're also awarded a $53 million central plant upgrade for the City College of New York. Energy projects like these are core competencies for Wildance, especially for the municipal, utility, school, and hospital or mush market. Since the last call, we were awarded a new five-year, $49 million energy efficiency contract with the Southern California Regional Energy Network. or SOCAL REN, supporting the public sector on resiliency. The California RENs are assuming a larger role from traditional investor-owned utilities in the energy efficiency space. And we have a number of future opportunities with the RENs that are even larger in scope and funding than this contract, a $31 million renewable biogas cogeneration and microgrid project, a $15 million battery energy storage project in Texas, and a $6 million substation project in Illinois. Taken together, these wins demonstrate three trends received. Customers trust us with larger projects, the customer base continues to broaden, and the solutions we deliver are becoming more complex. Each quarter, we try to step back and look at the broader forces shaping electricity markets and will then use opportunity. On the next slide, slide seven, electricity providers are confronting several major challenges at the same time. Load growth due to rapidly changing or rapidly growing demand, continued pressure on affordability rates, and an increasing need for reliability. These challenges are closely connected and they're intertwined. Utilities are being asked to add capacity, modernize the grid, and improve reliability while limiting the impact on customer rates. That requires more sophisticated planning, investment, and execution. Demand is already straining generation and grid capacity in certain circumstances and locations. While data center development is adding permitting and interconnection pressure in several markets. At the same time, substantial capital needs are placing pressure on rates and utility returns, making energy efficiency and distributed resources increasingly valuable. Extreme weather and wildfires are also raising outage risk and disrupting grid operations. This environment aligns well with Willden's capabilities. We help customers evaluate trade-offs, plan investments, improve efficiency, and implement solutions across the grid and behind the meter. So the next big question is, how are the customers responding with the increased investment in large-scale battery storage? Battery storage is important because it adds flexibility to the power. It can help manage peak demand, support intermittent renewable generation, improve resiliency, and provide backup power for critical facilities. Batteries are also rapidly dispatchable power, available to the grid in milliseconds, and ideally suited to AI learning model electricity load spikes. These batteries complement, and sometimes they can replace, the need for gas peaker plants, which require 5 to 15 minutes to spool up compared to the milliseconds for batteries. Growing pipeline often is part of larger projects that combine planning, engineering, controls, renewable generation, and microgrid capabilities. That increasingly complex, multidisciplinary work is a good fit for us.

Slide 9.

As we've mentioned, the largest growth in electricity demand is due to data centers. This growth is occurring throughout the U.S., and speed to power is the primary factor determining where data centers will be located. Accordingly, there are a lot of opportunities in Texas, and Willem already has a number of projects underway there. Several studies have shown that, to date, data center load growth has reduced the public's electricity bills. However, more grid investment will be required to accommodate future AI load growth. So, Wildan is involved in studies across the country that inform these decisions and help ensure data centers continue to pay their fair share. We believe the convergence of power load growth, affordability, and reliability will create opportunities for Will Dan for years to come. We do seem to be, right now, at the right place. I'm very pleased with our performance throughout the first half of the 2026. Good job, the Will Dan team.

Kim, now over to you. Thanks, Mike, and good afternoon, everyone. We delivered another quarter of strong financial performance, driven by healthy underlying demand, disciplined execution, and continued growth across another quality balance sheet positions as well to capitalize on the opportunity. Turning to our second quarter, retract revenue increased $33 million to $231 million, while net revenue grew 23% to $117 million, contributing strongly to the growth. The organic growth rate in net revenue was 18% year-over-year, reflecting the higher revenues from data centers, battery storage projects, and the continued health of our utility and municipal industry. Higher volume and strong execution drove gross profit dollars up 28%. This margin declined 150 basis points, reflecting a shift in the mix of revenues toward performance engineering and commercial project revenue, which carry a heavier load of equipment. But despite the 51% to a record $33 million from the quarter, representing a record, this 28.2% is the highest quarterly margin in the company's history. Note that while our commercial projects often carry a lower gross margin, they also carry a lower overhead rate. Also note that G&A expenses increased 20% year over year, but declined to 29.3%. I'd like to remind you of the long-term adjusted EBITDA margin target for a continued from operating sunset that seems approximately 15.9 million to 0% effective. Before we open the call for questions, I'd like to close on slide 17 with a few thoughts that reinforce why we continued margin from our recent acquisitions of, with low leverage and significant liquidity, we're well positioned to continue to invest in our strategic acquisitions and create long-term shareable.

With that, I'll turn the call back to the operator, and we'd be happy to take your questions.

Thank you.

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. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment while we pull for questions. Our first question is from Craig Irwin with Roth Capital Partners.

Please proceed with your question.

Hey, guys. It's Andrew on for Craig. Congrats on the strong results. First question from me, can you kind of talk about the ramp of the LIDWP project in the second quarter and then kind of how that plays out in the back half of the year. And then secondly, how the new project extension win kind of just, you know, changes the overall outlook for the project.

And we said it wasn't going to hit full run rate until, you know, probably early next year. And then we got this expansion of the existing contract, another $110 million. We already have authorization to proceed on half of that $110 million. The big question is, as you mentioned, how does it ramp up? We probably could have been even more aggressive with our outlook if we knew the answer to that. But it is going to ramp up through the Q3, the balance of Q3, and we think run into Q4 and probably the early part of 2027. We don't really know at this point. It's too early to tell exactly what the Q3 contribution is going to be. So, we were appropriately conservative, but it's a great outlook, and there may even be more opportunity behind this for further expansion. So, that contract's going to ramp up and could be our largest customer in 2027.

It's looking like it might be.

Well, appreciate the caller there. And then second from me, just on the Burton cross-selling opportunities, Are you guys kind of seeing traction, you know, in both directions, or is this something where you're taking an approach and going in one direction, you know, selling willed-in services to their clients or vice versa?

Yeah, no, with Burton, it's definitely bi-directional. We've been in to see several of their large clients, and there's opportunities to provide new willed-in services to some of those existing relationships. I've been a part of some of those discussions. And likewise, we've already brought Burton into two utility programs on the East Coast and the West Coast because they have specific HVAC capabilities we didn't have before.

It's going both ways, and it looks good early on. Well, thanks for taking my questions, and congrats on the continued progress.

Thank you. Our next question is from Tim Moore with Clear Street.

Please proceed with your question.

Thanks, Indra. Yeah, congratulations on the continued organic growth and the acquisition integration success. It's coming along quite nicely as the Los Angeles solar retrofit win expansion. That was good to hear the commentary because I always ask about the ramp up in Los Angeles every quarter. You know, I actually have a geographic diversification question for you. You know, you've been so, you know, California's your backyard. You've been in New York for a long time. And you're going more into Texas and, you know, Florida, you know, EPG stuff. I'm just kind of curious, you know, what kind of directs the geographic diversification? Is it mostly data centers driven and battery storage? If you can just give us a little color on maybe, you know, how you expand in a different state that's not, you know, New York or California.

Sure. Great question. And we just finished our – we've set up permanent offices and really hubs that we'll operate from in Florida, now Georgia, North Carolina, Kentucky, and Texas. Those are all new locations in the last 18 months. But you are absolutely right. From a project perspective, these data centers are being built around the country. So for the first time, you know, we're performing projects in New Mexico and Montana, some in Utah. the data centers are all over the country, coast to coast. So it's giving us the opportunity to gain experience and hire people around the country where we didn't have as much of a presence, especially in sort of the breadbasket, the middle part of the country, those Midwestern states.

That's really helpful, Collar. Now, thanks for naming all those other states and those hubs. It's really interesting. My only other question was really around, you know, consultants and talent allocation. I know you had a lot of consultants, you know, this year. Can you kind of just maybe talk to us a little bit about how you make the tradeoff, if you have to, on, you know, accepting a new project or advisory for a new customer, you know, that's not a data center customer versus kind of servicing your current long-tenured customers, you know, if you're getting to the point where you have some labor shortages, which you might not. But I'm just kind of curious.

Yeah, on the study sector, we actually have a group that is focused on commercial customers within our study practice. It's run by a person named Kush Patel, and he focuses utility customers have separate teams, and they do cross-collaborate. They sit in the same office, but they're separate teams studying slightly different problems. We have not seen what I'll call labor shortages on either of those areas, but labor is tight. I'll say that, you know, for the experienced superstar, prices are certainly going up, salaries are going up, and we continue to hire.

That's great. That's really helpful insight and good to hear about no labor shortages. And if you continue cross-selling, that's it for my questions.

As a reminder, 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. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our next question comes from Steven Warrafting with WebBush Securities.

Please proceed with your question. all right good evening guys thanks for taking the questions uh congrats on the quarter i kind of want to talk first about the guide itself um just because we know that you'd like to be a little bit conservative with the metrics whenever it comes to either the net revenue or the ebitda or eps but it seems like these numbers are a little bit overly conservative i mean this quarter you beat by about 15 million on the top line beat on ebitda by about 10 million and then the eps was a pretty significant beef, but the raise in the guide wasn't that sizable. So, can you break down the guidance a little bit further? Is there kind of a lack of visibility, or is there anything that you can really touch on about the guidance?

Yes, Stephen. And, by the way, congratulations for taking over as our lead analyst over at Woodbush. Thank you. And we scratched our head on this one a little bit because we don't know how quickly LADWP will ramp up over the next six months. That was the biggest variable that we looked at. We have a couple other projects also that, you know, really drive the answer to that question. So you're right. We did guide, you know, towards the more conservative area, but it looks really good, you know. And whether we get the work done over the next six months or, you know, in the first part of 27, all are possible. It's probably going to happen that way, and it looks really good. It's a good pipeline of work. Kim, do you want to talk to the spread between Q3, Q2, I'm thinking?

So, you know, Q3 and Q4 are probably going to look something similar to Q2. Q2 did benefit to some extent that we had some stronger outperformance and we'll call it acceleration out of a couple of our utility programs. And we were making good progress on some of our performance contracting activities that, you know, we originally forecasted would drag into the third and fourth quarter. So I think we're seeing a little bit of acceleration into the second quarter. And the third and fourth quarters should both be fairly robust, may not be quite as strong as what – but as Mike said, you know – Okay, got it.

Thank you for the color. And then just talking a little bit more about the tax line, just because, Tim, you mentioned that the 1-7-9-D is going to be something that you benefit from for the foreseeable future. I think you mentioned a few years on the transcript. But when we're thinking about the guidance for the tax rate, a 0% guidance would imply that the second half of the year is going to see a tax rate of around 20% from an income tax expense perspective. So can you break that down a little bit more? Because in the first quarter, we actually saw that move in the right direction from that 10% initial guide to 0%. Why not guide it to closer to another negative 10% if you're going to continue to see those benefits?

Yeah, well, from a P&L standpoint, it appears at the end of June, before the end of June, but it won't apply to any. So you're right, the second half of the year is going to have a positive income tax. The $170.90 credit of the year, it's anytime soon.

Okay, I appreciate the time, guys.

This now concludes our question and answer session.

I would like to turn the floor back over to Mike Beaver for closing comments.

Well, thank you for your interest in Willman, and we'll speak to you next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference.

Please disconnect your lines and have a wonderful day.