Willdan Group, Inc. (WLDN) is a leading provider of professional, technical, and consulting services in the energy and infrastructure sectors. With a rich history spanning over five decades, the company has established itself as a trusted partner for utilities, private industry, and public agencies at all levels of government.
Company History and Evolution
Willdan's origins can be traced back to 1964, when it was founded to serve public agencies in communities with populations ranging from 10,000 to 300,000 people. Over the years, the company has undergone significant transformation, expanding its service offerings and geographic footprint. In 2008, Willdan began providing energy efficiency services, and through organic growth and strategic acquisitions, its client base has grown to include investor-owned and other public utilities, as well as substantial energy users in government and business.
Current Operations
Today, Willdan operates through a nationwide network of 54 offices across 22 states, the District of Columbia, the Commonwealth of Puerto Rico, and Canada. The company serves a majority of the largest investor-owned electric utilities and over half of the largest municipal utilities in the United States. Willdan's business with public agencies is concentrated in California, New York, and Arizona, but it also serves special districts, school districts, and a wide range of public agencies and private industry throughout the U.S.
Business Segments
Willdan's broad portfolio of services operates within two financial reporting segments: Energy and Engineering and Consulting.
Energy Segment
The Energy segment provides specialized, innovative, and comprehensive energy solutions to businesses, utilities, state agencies, municipalities, and non-profit organizations. Willdan's experienced engineers, consultants, and staff help clients realize cost and energy savings by tailoring efficient and cost-effective solutions to assist in optimizing energy spend. The company's energy services include comprehensive audit and surveys, program design, master planning, demand reduction, grid optimization, benchmarking analyses, design engineering, construction management, performance contracting, installation, alternative financing, measurement and verification services, and advances in software and data analytics for long-term planning.
In fiscal year 2024, the Energy segment accounted for 84% of Willdan's consolidated contract revenue. Within the Energy segment, 40% of the revenue was generated from unit-based contracts, 47% was from fixed price contracts, and 18% was from time-and-materials contracts. The Energy segment serves a diverse customer base, with 54% of the revenue coming from utility clients, 38% from government clients, and 8% from commercial clients. Geographically, 43.9% of the Energy segment's revenue was derived from California, and 23.6% was from New York.
Engineering and Consulting Segment
The Engineering and Consulting segment provides civil engineering-related construction management, building and safety, city engineering office management, city planning, civil design, geotechnical, material testing and other engineering consulting services to clients. The company's engineering services include traffic, bridges, rail, port, water, and other civil engineering projects. Additionally, the segment provides economic and financial consulting to public agencies and supplements the engineering services with expertise and support for various financing techniques that public agencies utilize to finance their operations and infrastructure.
In fiscal year 2024, the Engineering and Consulting segment accounted for 16% of Willdan's consolidated contract revenue. Within the Engineering and Consulting segment, 67% of the revenue was generated from time-and-materials contracts, 21% was from unit-based contracts, and 12% was from fixed price contracts. The segment serves primarily government clients, which accounted for 92% of the revenue, while the remaining 8% was from commercial clients. Geographically, the Engineering and Consulting segment has a strong presence in California and New York, similar to the Energy segment.
Key Milestones and Challenges
The company has faced various challenges and milestones throughout its history. In 2006, Willdan Group, Inc. was formed to serve as a holding company for the expanding subsidiary operations. A significant acquisition occurred in 2016 when the company acquired substantially all of the assets of Genesys Engineering, P.C., which strengthened its power engineering capability in the northeastern U.S. and increased client exposure and experience with universities. In 2018, Willdan adopted ASU No. 2016-2, Leases (Topic 842), which required the recognition of the net present value of future lease payments as right-of-use assets and lease liabilities on the balance sheet, impacting the company's financial reporting. More recently, Willdan weathered the COVID-19 pandemic, which affected its operations and financial performance in 2021 and 2022, but the company has since demonstrated resilience and rebounded.
Financials
In fiscal year 2024, Willdan reported contract revenue of $565.80 million, up 10.9% from the previous year. Net revenue for the year increased 9.9% to $296.3 million. The company's net income for the year was $22.6 million, up from $10.9 million in the prior year, and its adjusted EBITDA grew 24.2% to $56.8 million.
Willdan's strong financial performance in 2024 was driven by several factors, including a 10% increase in net revenue from its Energy segment and an 11.3% increase in net revenue from its Engineering and Consulting segment. The company's gross profit margin expanded slightly to 35.8% from 35.2% in the previous year, and its operating expenses grew at a slower pace than its revenue, resulting in a 24.2% increase in adjusted EBITDA.
For the most recent quarter (Q4 2024), Willdan reported revenue of $144.06 million, which represented a 7.5% decrease year-over-year. This decrease was primarily due to softer contributions from the Energy segment, partially offset by increased contract revenue from the Engineering and Consulting segment. Net income for Q4 2024 was $7.69 million, lower than the previous year due to higher general and administrative expenses.
Liquidity
The company's cash flow generation was impressive in 2024, with cash flow from operations reaching $72.1 million, up 83.8% from the previous year. Willdan's free cash flow for 2024 was $63.66 million, or $4.49 per share, further strengthening its balance sheet and providing the company with ample resources to invest in future growth initiatives.
As of December 27, 2024, Willdan's liquidity position remained strong. The company had cash and cash equivalents of $74.16 million and an available $50 million revolving credit facility, with no amounts borrowed. The company's debt-to-equity ratio stood at 0.46, while its current ratio and quick ratio were both 1.71, indicating a healthy short-term liquidity position.
Future Outlook
Looking ahead, Willdan's outlook for 2025 remains positive. The company has provided guidance for net revenue in the range of $320 million to $330 million, adjusted EBITDA between $63 million and $67 million, and adjusted earnings per share between $2.70 and $2.85. This guidance suggests the company expects to continue its strong momentum in the coming year and is well above the current consensus street estimates. These targets assume a 16% tax rate and 15.1 million shares outstanding, and do not include any potential future acquisitions.
It's worth noting that Willdan significantly exceeded both the Street consensus estimates and their own expectations for 2024, with contract revenue up 11% and adjusted EBITDA up 24% year over year. GAAP EPS nearly doubled year over year, and adjusted EPS was up 39% in 2024.
Competitive Advantages
Willdan's success is attributable to its diversified service offerings, strong customer relationships, and strategic acquisitions. The company has been proactive in expanding its capabilities, particularly in the areas of energy efficiency, sustainability, and infrastructure development. Recent acquisitions, such as Enica Engineering and Alternative Power Generation (APG), have bolstered Willdan's expertise in key areas like electrical engineering and data center solutions.
Market Drivers
One of the key drivers of Willdan's growth is the increasing demand for energy efficiency, sustainability, and infrastructure modernization services. As the world transitions towards a more sustainable and electrified future, the need for Willdan's services has become increasingly critical. The company's focus on providing comprehensive, innovative, and proven solutions to improve efficiency, resiliency, and sustainability in energy and infrastructure has positioned it well to capitalize on these market trends.
The U.S. energy services market is expected to grow at a compound annual growth rate (CAGR) of approximately 8-10% over the next 5 years. This growth is driven by increasing demand for energy efficiency, renewable energy, and grid modernization services from utilities, government agencies, and commercial/industrial customers. Willdan is well-positioned to capitalize on these industry trends given its comprehensive service offerings and geographic presence.
Risks and Challenges
However, Willdan is not without its risks. The company operates in a highly competitive and fragmented market, and it faces challenges such as supply chain constraints, labor shortages, and the potential for project delays or cancellations. Additionally, Willdan's reliance on a limited number of large customers and the potential for changes in government policies and regulations could impact its business.
Geographic Performance
Willdan primarily serves clients in the United States, with 43.9% of 2024 consolidated contract revenue coming from California and 23.6% coming from New York. The company has a small presence in Canada and Puerto Rico, but international operations are not material to its overall performance.
Human Capital
As of December 27, 2024, Willdan employed approximately 1,760 people, including licensed engineers, architects, planners, energy specialists, and other technical professionals. The company believes it attracts and retains highly skilled personnel through competitive compensation and benefits programs, as well as by offering challenging assignments in a dynamic work environment.
Conclusion
Despite the risks and challenges, Willdan's strong financial performance, diversified service offerings, and strategic growth initiatives suggest that the company is well-positioned to continue its trajectory of success. As the demand for energy efficiency, sustainability, and infrastructure modernization services continues to grow, Willdan appears poised to play a pivotal role in shaping the future of these critical sectors. With a solid balance sheet, strong cash flow generation, and a positive outlook for 2025, Willdan Group, Inc. remains an attractive option for investors interested in the energy and infrastructure consulting space.