Executive Summary / Key Takeaways

• Willdan Group is strategically positioned to capitalize on the "new era of structural load growth" driven by AI-powered data centers, electrification, and industrial reshoring, transforming electricity markets into a dynamic long-term growth sector.
• The company delivered exceptional financial performance in Q3 2025, with net revenue up 26% year-over-year (20% organic growth) and adjusted EBITDA surging 53% to a record $23.1 million, achieving a 24% adjusted EBITDA margin.
• Strategic acquisitions, particularly Alternative Power Generation (APG), have significantly expanded Willdan's electrical engineering capabilities for data centers, creating a fastest-growing revenue stream projected at 10-15% of 2025 revenue.
• Willdan's proprietary software, including the AI-integrated LoadSeer and new data center siting tools, provides a key technological differentiator, enhancing efficiency and speed to market for clients.
• Management has consistently raised its full-year 2025 guidance, now expecting net revenue between $360 million and $365 million and adjusted EBITDA between $77 million and $78 million, reflecting strong execution and a robust project pipeline.

Powering the Future: Willdan's Strategic Blueprint in a Transforming Energy Landscape

Willdan Group, Inc., founded in 1964, has evolved into a leading provider of professional, technical, and consulting services, specializing in energy solutions and government infrastructure across the United States. The company's core mission is to enhance efficiency, resiliency, and sustainability for utilities, private industry, and public agencies. This mission is more critical than ever as the U.S. enters a "new era of structural load growth," a profound shift transforming electricity markets into a dynamic, long-term growth sector. This surge is primarily fueled by the explosive demand from AI-powered data centers, the widespread electrification of buildings and transportation, and the reshoring of industrial manufacturing. Experts forecast between 0.7 and 1.2 terawatt hours of U.S. electricity load growth over the next decade, with overall electricity demand projected to increase by 50% by 2050.

Willdan's strategy is to meet this demand through an integrated model that combines upfront policy and data analytics, specialized engineering, and program management, often catalyzed by strategic acquisitions. The company's foundational strengths lie in its long-term utility contracts, robust funding from public agencies, and a trusted reputation built over decades. These elements provide a stable revenue base and enable Willdan to engage in complex, high-impact projects.

A key differentiator for Willdan is its technological prowess. The company is actively integrating artificial intelligence into a new version of its LoadSeer software, expected in the first half of 2025. This AI-powered tool will feature predesigned load forecasts and load curves, simplifying operations for smaller municipal utilities that may lack extensive engineering staff. Furthermore, in Q2 2025, Willdan rolled out new proprietary software specifically designed to help clients site data centers. This innovative tool is a significant differentiator, offering minimized interconnect times, lower power and land option costs, and faster speed to market. These technological advancements contribute directly to Willdan's competitive moat, enhancing its efficiency, market positioning, and ultimately, its financial performance.

In the competitive landscape, Willdan carves out a niche in specialized energy services for public agencies and utilities. While larger, more diversified firms like AECOM (ACM) and Jacobs Engineering (J) offer broader infrastructure and engineering services, Willdan's focused expertise in areas like energy efficiency audits, grid optimization, and alternative financing provides a unique value proposition. Willdan's organic growth rate, driven by effective cross-selling, has consistently outpaced many competitors. The company's target of a 20% adjusted EBITDA margin is considered "best-in-class performance" in its industry, indicative of a highly differentiated customer solution. In the burgeoning commercial data center market, Willdan is becoming selective, engaging in "directly negotiated work" with mid-tier developers, a testament to its strong relationships and specialized capabilities. However, Willdan's smaller scale and dependency on public sector contracts present vulnerabilities compared to the global reach and diversified revenue streams of its larger rivals. Regulatory requirements and the need for specialized expertise serve as significant barriers to entry, helping Willdan defend its market position.

Strategic Evolution and Robust Performance

Willdan's recent history is marked by a series of strategic acquisitions that have significantly enhanced its capabilities and market reach. The 2016 acquisition of Genesys Engineering, P.C., strengthened its power engineering in the northeastern U.S. More recently, in October 2024, Willdan acquired Enica Engineering, PLLC, an energy efficiency firm, followed by Alpha Inspections, Inc. in January 2025, which expanded its civil engineering presence in the southeast. A pivotal move was the March 2025 acquisition of Alternative Power Generation, Inc. (APG) for up to $43.50 million. APG brought specialized utility-scale electrical engineering expertise in areas such as substation design, interconnects, microgrids, and data center electricity. This acquisition directly addresses a strategic gap and aligns with Willdan's goal of expanding its commercial client base.

The integration of these acquisitions has been highly effective, fostering significant cross-selling opportunities. APG, for instance, is collaborating effectively with other Willdan units and has already secured a record backlog, projected to drive over 50% growth in 2026. This integrated model is evident in Willdan's work with technology hyperscalers, where it provides end-to-end solutions from optimal data center site identification, through consulting, engineering, and project management for high-voltage power supply, to post-construction energy optimization. The combined data center offering, encompassing upfront planning, APG's electrical engineering design, and Willdan's legacy energy efficiency work, is estimated to constitute 10% to 15% of the company's 2025 revenue, making it the fastest-growing area.

Willdan's financial performance reflects the success of its strategic initiatives and operational excellence. For the third quarter ended October 3, 2025, consolidated contract revenue increased 15% year-over-year to $182.0 million, with net revenue growing 26% to $95.0 million. This was driven by an impressive 20% organic growth rate, marking the fourth consecutive year of double-digit organic expansion. Gross profit for the quarter rose 30% to $67.1 million, expanding the gross margin to 36.9% from 32.6% in the prior year, primarily due to a favorable revenue mix.

Operating income saw a substantial 71.3% increase to $14.9 million. Adjusted EBITDA reached a new quarterly record of $23.1 million, representing a robust 24% adjusted EBITDA margin, up 53% from Q3 2024. Diluted GAAP EPS increased 77% to $0.90 per share, while adjusted diluted EPS was up 66% to $1.21.

For the nine months ended October 3, 2025, consolidated contract revenue grew 20.4% to $507.9 million. The Energy segment, comprising approximately 85% of revenue, saw its contract revenue increase 21.3% to $427.7 million, driven by increased demand for energy efficiency and electrification services, higher construction management, and planning and advisory consulting revenues, alongside contributions from recent acquisitions. The Engineering and Consulting segment, representing about 15% of revenue, increased 15.9% to $80.1 million, benefiting from strong client demand and the Alpha acquisition.

The company's liquidity and capital resources are robust. As of October 3, 2025, Willdan had $33.10 million in unrestricted cash and cash equivalents and total available liquidity of $183 million, including an undrawn $100 million Revolving Credit Facility and a $50 million Delayed Draw Term Loan.

Cash flows provided by operating activities for the nine months ended October 3, 2025, were $40.90 million, primarily from increased earnings.

The trailing 12-month leverage ratio stood at a conservative 0.2x adjusted EBITDA. This strong financial position provides the flexibility to pursue targeted acquisitions and expand capabilities while maintaining prudent leverage.

Outlook, Guidance, and Risk Assessment

Willdan's management has expressed strong confidence in its future trajectory, reflected in consistently raised financial targets for 2025. The company now expects full-year 2025 net revenue to be between $360 million and $365 million, with adjusted EBITDA projected in the range of $77 million to $78 million. Adjusted diluted earnings per share is forecast to be between $4.10 and $4.20, based on an estimated tax benefit of 10% and 15.2 million shares outstanding. These targets explicitly exclude the impact of any future acquisitions. The outlook for 2026 is also positive, supported by a robust pipeline of new opportunities, including several large contracts in New York and emerging opportunities with California Regional Energy Networks (RENs).

A significant driver for future revenue is the re-awarded and expanded $330 million, five-year Los Angeles Department of Water and Power (LADWP) contract, which restarted in July 2025. While material contributions are not expected until Q4 2025, this program is anticipated to become one of Willdan's largest annual revenue streams. Other notable wins include a $97 million project for Alameda County, California, for energy and infrastructure upgrades, and several substation projects for data centers and solar storage totaling over $43 million, largely led by the APG acquisition.

Despite the optimistic outlook, Willdan faces several risks. Customer concentration remains a factor, with the top 10 customers accounting for 54.8% of consolidated contract revenue in Q3 2025. Two customers, Southern California Edison (EIX) and Clark County School District, alone contributed 26.8% of consolidated contract revenue in Q3 2025. While historically resilient to inflation, the company has experienced higher material costs and supply chain delays, with material and equipment costs representing 25% to 30% of contract value in some segments. The potential impact of tariffs is being proactively managed through flexible contract terms and alternative supplier identification. Furthermore, the repeal of the Section 179D energy-efficiency building deduction for property construction after June 30, 2026, could increase the company's effective tax rate closer to 20% from 2027 onwards. However, management believes the company is relatively insulated from a broad economic slowdown due to the stable funding sources of its utility and public agency clients.

Conclusion

Willdan Group, Inc. stands at a pivotal juncture, poised to capitalize on the profound transformation of the U.S. energy landscape. The company's deep expertise in energy solutions and government infrastructure, coupled with its strategic expansion into the high-growth data center market through targeted acquisitions like APG, forms a compelling investment thesis. Willdan's commitment to technological differentiation, exemplified by its AI-integrated LoadSeer and innovative data center siting software, reinforces its competitive moat and enhances client value.

The consistent outperformance against guidance, robust organic growth, and expanding profitability margins underscore Willdan's operational excellence and the effectiveness of its integrated business model. While customer concentration and potential tariff impacts warrant monitoring, the company's strong balance sheet, ample liquidity, and proactive risk management strategies provide a solid foundation. As the demand for electricity continues its structural ascent, Willdan's specialized capabilities and strategic vision position it as a key enabler of efficiency, resiliency, and sustainability, offering a promising trajectory for discerning investors.