Willdan Group, Inc. (WLDN) Earnings

Management highlights

- Overall Q2 Performance * Delivered strong revenue and profitability growth: contract revenue up 33% YoY to $231 million, net revenue up 23% YoY to $117 million, adjusted EBITDA up 51% YoY to a record $33 million, GAAP EPS up 53% YoY to $1.58, and adjusted EPS up 38% YoY to $2.07. * First half FY2026 results are all record levels: contract revenue up 19% YoY to $386 million, net revenue up 16% YoY to $210 million (21% organic growth after adjusting for an extra week in H1 2025), adjusted EBITDA up 41% YoY to $51.1 million, adjusted EPS up 39% YoY to $2.98. * Trailing 12-month adjusted EBITDA grew 36% YoY to $94.3 million, twice as fast as revenue growth, driven by productivity gains and operating leverage. - Strategic Progress * Commercial market expansion strategy is delivering results: commercial revenue now provides a third diversified revenue stream alongside the legacy utility and government segments, creating more balanced and consistent results. Commercial demand is accelerating, expanding the company's addressable market. * Recent acquisition of Burton Energy (closed May 4, 2026) is performing well early, with strong cross-selling traction already observed. Burton adds building HVAC, energy controls expertise and a new commercial energy procurement line of business, and has already been added to two existing Wilden utility programs. * Geographic diversification is advancing: new permanent hubs have been established in Florida, Georgia, North Carolina, Kentucky, and Texas over the past 18 months, with data center demand driving new project activity across the U.S., including new markets in the Midwest and Mountain regions. - Operational Highlights * Won multiple large new contracts since the last earnings call, including a $110 million LADWP solar streetlight expansion, a $53 million central plant upgrade for City College of New York, a $49 million five-year energy efficiency contract with SoCal REN, a $31 million renewable biogas cogeneration/microgrid project, a $15 million Texas battery storage project, and a $6 million Illinois substation project. * The company's diversified business model now balances recurring program work and project-based engagements, spanning advisory, engineering, software, implementation, and ongoing energy management, reducing single-customer or service dependency and enabling pursuit of larger, more complex projects. * AI is being leveraged across the business to improve productivity and enable delivery of more complex customer solutions, with the company still in the early stages of realizing long-term AI benefits. - Balance Sheet & Cash Flow * Ended Q2 with $33 million in net debt, a net debt to trailing 12-month adjusted EBITDA ratio of 0.3x, and $165 million in total available liquidity, providing significant capacity for organic growth and strategic acquisitions. The revolver is expected to be fully repaid by year-end absent additional acquisitions. * Targets annual conversion of over 70% of adjusted EBITDA to free cash flow, with $34 million in deferred tax assets from 179D energy deductions providing ongoing cash flow benefits.

Guidance

- Management raised full-year 2026 financial guidance from prior levels, driven by strong first half performance and healthy demand. The new targets are: net revenue of $415-$430 million, adjusted EBITDA of $103-$107 million, and adjusted diluted EPS of $5.00-$5.15, assuming 15.9 million diluted shares outstanding and a 0% full-year effective tax rate. - The guidance is intentionally conservative, primarily due to uncertainty around the timing of the ramp-up of the expanded LADWP contract; any work not completed in 2026 will shift into early 2027, and the full contract could become Wilden's largest customer account in 2027. - Q2 saw some revenue acceleration from projects originally forecasted for H2 2026, so Q3 and Q4 2026 are expected to be fairly robust but not as strong as Q2's outperformance. - Full-year 2026 adjusted EBITDA margin is projected to reach ~25%, representing significant year-over-year expansion, and the company reaffirms its long-term target of adjusted EBITDA margins in the high 20% range.

Segment performance

The company has three core customer segments: utility, government, and commercial. As of Q2 FY2026, the commercial segment accounts for 25% of total revenue, and is the fastest growing segment. Commercial segment revenue from the APG acquisition is projected to nearly triple year-over-year to ~$75 million in FY2026. Organic net revenue growth across all segments was 18% year-over-year in Q2, driven by data center, battery storage, and continued strength in utility and municipal infrastructure businesses. No separate absolute financial results are provided for the utility and government segments in the call transcript.

Risks & headwinds

- Uncertainty around the timing of project execution, particularly for large new contracts like the LADWP solar streetlight expansion, creates near-term visibility challenges that require conservative guidance. - Labor markets for experienced industry talent remain tight, with rising salary costs for top-tier employees, though the company has not faced material labor shortages that would limit project execution to date. - Electricity markets face overlapping structural challenges: rapid demand growth from AI and data centers is straining generation and grid capacity, adding pressure to permitting and interconnection processes, while substantial required grid investment is pushing up customer rates and pressuring utility returns. - Extreme weather and wildfires in the Western U.S. increase outage risk and disrupt grid operations for the company's customers.

Analyst Q&A

• Q: The analyst asks for details on the ramp-up timeline for the expanded LADWP contract, how it will impact H2 2026 results, and how the new extension changes the overall project outlook. /

  A: The original LADWP project was already ramping at the start of 2026, with full run rate originally expected in early 2027. Half of the $110 million expansion has authorization to proceed, and the expansion will ramp through Q3 2026, continuing into Q4 2026 and early 2027. Exact Q3 contribution is still unclear, so management took a conservative approach to guidance. The contract could make LADWP Wilden's largest customer in 2027, with potential for further expansion in the future.

• Q: The analyst asks whether cross-selling opportunities with the recent Burton acquisition are bidirectional, and how the integration progress looks. /

  A: Cross-selling is already occurring in both directions. Wilden is able to offer its full suite of energy solutions to Burton's existing commercial customer base, which already includes new relationships with Walgreens, Carter's, and Five Below. Burton has also already been added to two existing Wilden utility programs, bringing specialized HVAC and energy control capabilities Wilden did not have prior to the acquisition. Early progress on cross-selling is very positive.

• Q: The analyst asks what drives Wilden's recent geographic expansion into new states outside its core California and New York markets, and how expansion works in these new regions. /

  A: Geographic expansion is primarily driven by the national spread of new data center development, which is creating energy project opportunities coast-to-coast, including new markets in the Midwest and Mountain regions. Over the past 18 months, Wilden has established new permanent operational hubs in Florida, Georgia, North Carolina, Kentucky, and Texas, and is hiring local talent to deliver projects in these new markets as opportunities arise.

• Q: The analyst asks why guidance was not raised more meaningfully after a strong Q2 beat, and whether there is limited visibility or other factors driving the conservative outlook. /

  A: The primary source of uncertainty is how quickly the expanded LADWP contract will ramp in H2 2026. Q2 also saw acceleration of some utility program and performance contracting work that was originally forecasted to come in H2 2026. Management intentionally guided conservatively due to these timing variables, regardless of whether work is completed in 2026 or 2027, the overall project pipeline remains strong.