Michael Bieber - President & CEO: Kim Early - EVP & CFO:

Greetings, and welcome to the Willdan Group Third Quarter 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Al Kaschalk. Thank you, Al. You may begin.

Thank you, Julian. Good afternoon, everyone, and welcome to Willdan Group's third quarter 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 year-over-year commentary on variances on 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. 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 risks and uncertainties. With that, I'll hand the call over to Mike.

Thanks, Al. We had a record third quarter, exceeding consensus estimates and our own expectations. Contract revenue was up 19% organically and adjusted EBITDA was up 50% year-over-year. Adjusted EPS doubled and GAAP EPS was up more than 4 times year-over-year. During Q3, all lines of business were strong. We continue to do a good job of converting revenue into free cash flow. Through three quarters, we have generated $2.30 of free cash flow per share, an outstanding result. I'm proud of the team's consistent excellent performance. Given our year-to-date results and our continued momentum, we are raising our full year financial targets, which Kim will expand on later. We are confident in Willdan's growth trajectory as we support our clients in meeting critical energy and efficiency and decarbonization goals. Demand for electrical power is rising, along with a heightened focus on energy security and expanded grid investments. On Slide 3. Willdan helps transition communities to clean energy and a more sustainable future. For the first time, we are now over 1,700 employees, comprised mostly of scientists, engineers and technical professionals. We have 53 offices across North America and help clients avoid emissions of 7.8 million metric tons of greenhouse gases. Willdan's work is a significant contributor to U.S. greenhouse gas reductions, particularly in the densely populated coastal states. Commercial customers comprised 7%, government customers are now 50% and utilities are 43% of our revenue. Demand for our services with all three customer groups is healthy. Our work for commercial customers has largely been related to energy usage at data centers. AI-driven load growth is providing Willdan with many new commercial opportunities to help technology clients navigate electricity constraints. We would like to add additional acquisitions that strengthen our capabilities with commercial customers. Our work for government clients is growing…

Thanks, Mike, and good afternoon, everyone. Slide 8 shows our key metrics for our third quarter performance. We delivered $158 million in contract revenue, up 19%; and net revenue, net of subcontractors and material of $76 million, an increase of 16%. Adjusted EBITDA increased 50% over the prior year to $15.2 million as we benefited from higher utility revenues and project management activities, as well as G&A expenses, which increased at a slower pace than our revenue growth. With reduced net interest costs and an exceptionally low tax rate, our adjusted earnings per share nearly doubled to $0.73 per share. The third quarter results were favorably impacted by growth in municipal engineering, project management revenues and expanded utility program management revenue. Lower leverage and higher cash balances reduced net interest costs and discrete impacts related to building energy incentives and stock-based compensation aided in lowering the effective tax rate for the quarter to only 2%, driving a substantial bottom line improvement for that quarter compared to last year. Turning to Slide 9. For the nine months to date, we generated $422 million in contract revenue and $217 million in net revenue, up 19% and 15%, respectively. The revenue mix resulted in a slightly lower gross profit margin versus last year. But higher activity from our construction management projects, expanded utility programs and higher municipal engineering services resulted in a 38% increase in adjusted EBITDA to $39.1 million for the nine months compared to $28.2 million last year. The increased adjusted EBITDA, reduced net interest expense and the lower effective tax rate, enabled adjusted earnings per share to grow by 79% to $1.70 per share. From a balance sheet perspective on Slide 10. Our net debt balance at the end of the quarter was $39 million, down from $75 million at…

[Operator Instructions] And our first question comes from Craig Irwin, ROTH Capital Partners.

Hi. Good evening. Thank you for taking my questions. So Mike, first, I should say congratulations, another really solid quarter here. Most investors right now are looking to next week and the uncertainty around policy in North America. Energy policy could pivot away from renewables, or maybe a little bit more enthusiasm could be seen actually across the federal customer base and the states as well in the other potential outcome. Can you maybe project for us the sensitivity of Willdan to federal policy? Or do you see more of an impact from state policy and state support for different programs? And if we did see a change in administration, is there may be an incremental opportunity on some of the consulting work that you do as grid planning and renewables planning maybe takes a different path?

Yes, Craig. Great question, and timely. We have always said that state policy dominates the type of work that we do. And it actually dominates most of the electricity decisions made in the United States right now. So the public utility commissions in those states make those types of decisions. With regard to federal policy, we've sort of seen this show before. Business was good under the Trump administration and business was good under the Biden-Kamala Harris administration. So we've seen them both business was healthy under both. You're right, though. The dominant amount of policy fluctuations we see really affect at the state level and not the federal level.

Excellent. So my next question is another big picture question. Rising energy prices are something on all state governors' minds, right? If they're Republican or Democrat, really doesn't matter. Energy costs are pressuring consumers. Are you seeing any change in attitudes around utility commissions as far as holding utilities accountable for the implementation of their energy efficiency programs and efforts to control prices, particularly given the very strong load growth that we're seeing from AI and data center demand?

Yes. It's a big issue with the public utility commissions. For the first time, we've seen a number of rate cases that were not approved by the PUCs. We've seen that around the country, where rates were proposed to increased and the PUC pushed back. We've also seen increased focus on saving electricity, as you mentioned. The importance of electrical efficiency becomes more valuable as electric prices rise. So places like California, as an example, now have electricity prices just behind Hawaii. They're the second-highest in the nation right now. And so the value of energy efficiency in California increases. We're seeing that around the country as well.

Okay. And then my last question, if I may. I know it's a little tricky to -- when you haven't put out guidance for '25, right? But everybody is going to be scratching their heads and saying you had well over 10% growth in '24. And you've always been careful in the way you give guidance and spoken pretty much consistently about a growth outlook that I think is achievable. Is it possible we see something north of 10% growth in '25 on an organic basis? I mean, is there potential for similar results, similar growth, in net revenue for '25 to what we actually saw reported in '24 -- or it looks like we'll see reported in '24, I guess, as a way to clarify.

I'll stick with the answer that we've been providing all year long, which is, if you're modeling 2025, assume a high single-digit organic growth rate, 7%, 8%, 9%. It seems more reasonable. We haven't changed our tune on that. Having said that, yes, it's possible that we could exceed that. We'll enact guidance really five months from now in early March of next year. So we haven't done the bottoms-up yet. We don't quite know exactly what that looks like. So we'll stick with our answer of high single-digit organic growth rate. I think that's a more reasonable assumption and gives us a chance to beat that as we have all year this year. It's been a great year. We're on a tear, and we're doing exceptionally well.

Well, I look forward to a continuation of this trend, and congratulations. It's just another really solid quarter.

Our next question comes from Jay McCanless, Wedbush Securities.

Hey, good afternoon. Thanks for taking my question. The first one, I was wondering if you guys could delve a little more into the Florida and Texas comments you made about halfway through the prepared comments. And knowing especially in Florida, where they're still trying to rebuild, I guess, maybe could you size up those opportunities? And what parts of those different states you're talking to at this point?

Yes, great question, Jay. To put this in context, five years ago, between Florida and Texas, I want to say we had maybe 10 employees at Willdan working. Today, that number is in excess of 50 and it's our fastest-growing area. We are hiring in both of those states. There's enormous growth at the state and local level for the services that we provide. Work around Texas, providing work around the state. And in Florida, most of that's in Northern Florida right now, up around the Orlando area. We're doing a bit of work in Florida under framework contracts to help rebuild after the last two hurricanes. We're seeing some opportunities there under existing contracts that we already had in place with several of the cities there. It's a relatively small part of the business right now, but it's rapidly growing, and we're hiring in those states.

That's great. And then maybe talk also about the -- apologies, I'm not pronouncing this correctly, but the Enica acquisition. What other types of acquisitions might be on the horizon? And I think you said for Enica, this helps expand your opportunities in commercial. Is that kind of the line you want to be heading down? Is more opportunities there, especially with AI and which you talked about with some of the data warehouse centers coming online and requiring more power?

Yes. Another great question, Jay. We're really happy that the Enica team has joined us. 7% of our revenue right now is focused on the commercial sector. It's underweighted in our portfolio. We'd like to further diversify by increasing that commercial area. Enica will help with that by a percentage or 2. We would like to add other acquisitions that focus specifically on the data center opportunities we're seeing. And we've got a good pipeline of those. So more news to come on that. It's an area of investment, one of the several areas we'd like to invest in. It's front of mind, though, because that's only 7% of the business, and we're seeing enormous opportunity there with some of the big tech players and the work that's done around providing power to these large data centers.

Great. And then could you talk to -- and congrats on raising the guidance. Just maybe again walk through what you're thinking in terms of where that revenue is -- the revenue growth is going to come from? Is it mostly going to be on the government side? Or maybe just give us a little more depth there on how those targets are moving up, please.

State and local has actually been the standout in terms of customer segments thus far. I think that's going to continue. We're also going to have a very strong quarter this year in Q4 with utility revenue. Kim, can you think of anything else there?

No, that's -- I think that's right. It's pretty broad-based. We have remained growing faster in that state and local government side, where we're working directly for the cities, both in terms of the engineering work that we're doing and the energy efficiency work that we're doing in the buildings. So it has been a standout. But it's pretty broad-based across all of our customer base.

Okay, great. That’s all I had. Thank you.

[Operator Instructions] Okay. Well, if there are no further questions at this time, I would like to turn the floor back to Mike Bieber for closing remarks.

Great. I just want to thank everyone for following us and being a shareholder of Willdan. We'll talk to you when we announce our Q4 earnings, and that will be in March of next year, along with our 2025 guidance at that point. So talk to you then.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.