Willdan's Q3 2025 Earnings Call: Contradictions Emerge on Acquisition Strategy, Capacity, Tax Credit Impact, and Economic Risk Assessments

Date of Call: November 6, 2025

Financials Results

• Revenue: $95.0M net revenue, up 26% YOY (contract revenue $182M, up 15% YOY)
• EPS: $0.90 GAAP diluted EPS, up 77% YOY; $1.21 adjusted EPS, up 66% YOY (from $0.73)
• Gross Margin: Gross profit $67.1M, up 30% YOY (from $51.6M)
• Operating Margin: Adjusted EBITDA margin 24% of net revenue (adjusted EBITDA $23.1M), up 53% YOY

Guidance:

• Full-year 2025 net revenue now expected to be $360M–$365M.
• Full-year adjusted EBITDA now expected to be $77M–$78M.
• Adjusted diluted EPS projected at $4.10–$4.20, based on an estimated tax benefit of ~10% and ~15.2M shares outstanding; targets exclude impact of future acquisitions.

Business Commentary:

* Revenue Growth and Organic Expansion: - Willdan Group reported a strong year-over-year increase in net revenue by 26%, driven by an outstanding 20% organic growth rate. - The growth was attributed to significant investments in future capabilities, expanding margins, and an increase in electric load growth driven by data centers and electrification.

• Utility and Government Work:
• The Utility business, accounting for 41% of revenue, continues to perform well, with most contracts lasting between 3 to 5 years and funded by ratepayer fees.
• State and local government work, at 44% of revenue, is growing organically at a double-digit pace, supported by healthy user fees and municipal bonds.

• Upfront Policy and Analytics Work:
• The upfront policy, forecasting, and data analytics work has seen a significant increase in demand, growing at about 50% organically year-over-year.

• This growth is attributed to studies on the impacts of electricity load growth and new market changes, such as the APG acquisition.

• Acquisitions and Integration:

• Recent acquisitions contributed 6% to the year-over-year growth in net revenue, with the APG acquisition expected to drive more than 50% growth by 2026.
• The effective integration of acquisitions, particularly APG, has led to record backlog and is expected to propel future growth.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • CEO: 'continued to execute very well, delivering results that exceeded the Street expectations'; CFO: 'record quarter', 'we are raising our 2025 financial targets'; management highlighted sustained organic growth, expanding margins, and strong pipeline/backlog.

Q&A:

• Question from Craig Irwin (ROTH Capital Partners, LLC, Research Division): What's lifting customer demand, how are you planning capacity to serve opportunities, and are you becoming more selective in wins?
  Response: Demand is driven by a strong electricity market plus improved cross-selling—notably via APG—which is accelerating growth and allowing Willdan to be selective on commercial/data-center projects while scaling capacity.

• Question from Craig Irwin (ROTH Capital Partners, LLC, Research Division): Can other Willdan units supplement APG's capabilities and improve employee/resource utilization?
  Response: Yes—upfront consulting, energy-efficiency and civil engineering teams are collaborating with APG, feeding deals and improving cross-functional utilization.

• Question from Craig Irwin (ROTH Capital Partners, LLC, Research Division): Is sourcing employees a constraint to growth and can you develop staff to meet demand?
  Response: No—headcount exceeds 1,800, hiring and retention are strong, and senior management turnover has been zero for over two years, so workforce is not an impediment.

• Question from Tim Moore (Clear Street): How do you manage risk and staffing to avoid margin erosion while growing organically at 20%+?
  Response: They use weekly operational reviews and leading indicators, plus long development runways on large projects, enabling forward planning, appropriate staffing and margin preservation.

• Question from Tim Moore (Clear Street): Do you prefer smaller bolt-on acquisitions or can you integrate $100M+ targets and still cross-sell effectively?
  Response: They can handle both; systems, communication and culture support efficient integration and cross-selling for bolt-ons and $100M+ acquisitions.

• Question from Richard Eisenberg (Private Investor): Is the potential ~$100M State of New York contract still in negotiation and do you expect to close it?
  Response: They are pursuing several large New York opportunities, remain optimistic about winning one or more, and expect such wins to help drive 2026 growth.

Contradiction Point 1

Acquisition Strategy and Impact on Growth

It involves differing statements regarding the focus on bolt-on acquisitions versus larger acquisitions and their impact on company growth, which could influence investor decisions and market confidence in the company's growth strategy.

Does your team prefer smaller bolt-on acquisitions or consider larger targets over $100 million? - Tim Moore(Analyst)

2025Q3: Willdan is prepared to handle $100 million acquisitions, with effective systems and communication tools for cross-selling. Leadership is usually eager to collaborate, and Willdan plans for larger acquisitions. - Creighton Early(CFO)

Are there projects or awards over $100 million that could be booked in the next couple of quarters? - Craig Irwin(ROTH Capital Partners, LLC, Research Division)

2025Q2: We continue to be very excited about the outlook for our acquisition pipeline as we have multiple opportunities to continue to further enhance our ability to execute on these opportunities, these opportunities are going to be both large and small, the small will be complementary to the large. - Michael Bieber(CEO)

Contradiction Point 2

Capacity and Selectivity in Project Servicing

It involves the company's approach to capacity management and selectivity in servicing customers, which can impact operational efficiency and revenue growth.

What is driving the increase in customer demand, and how do you plan to scale capacity to meet these opportunities? Are you becoming more selective in serving these customers? - Craig Irwin(ROTH Capital Partners, LLC, Research Division)

2025Q3: While being selective in certain commercial work, overall growth will remain high. - Michael Bieber(CEO)

Can you provide details on the two acquisitions in the quarter and their alignment with strategic focus? - Craig Irwin(Analyst)

2025Q1: We are not seeing any of those [capacity and labor force constraints] issues at all, and we feel really good about our ability to execute through the balance of the year. - Michael Bieber(CEO)

Contradiction Point 3

Impact of Tax Credit Elimination

It involves differing statements regarding the impact of the elimination of the Section 179D tax credit on Willdan's tax rate and business.

Is the potential $100 million contract with the State of New York still in negotiation, and do you expect to close it? - Richard Eisenberg (Private Investor)

2025Q3: The elimination of the tax credit will significantly impact the tax rate. Without the credit, Willdan's tax rate could increase from the current 15% to around 20% starting in 2027. - Creighton Early(CFO)

What impact will the termination of the Section 179D tax credit have on Willdan's tax rate? - Paul Strigler (Satori Capital)

2025Q2: The elimination of the tax credit will significantly impact the tax rate. Without the credit, Willdan's tax rate could increase from the current 15% to around 20% starting in 2027. - Creighton Early(CFO)

Contradiction Point 4

Economic Risk Assessment

It pertains to the company's assessment of economic risks, which is crucial for strategic planning and investor confidence.

How does Willdan view labor shortages as a barrier to growth? - Craig Irwin(ROTH Capital Partners, LLC, Research Division)

2025Q3: Willdan sees itself as an employer of choice, with no major hiring or retention issues. - Michael Bieber(CEO)

Can you address the impact of tariffs and economic slowdown on your business model? - Tim Moore(Analyst)

2025Q1: While tariff risks have not had immediate impact, Willdan and its clients monitor potential price increases in specialized equipment. - Michael Bieber(CEO)

Contradiction Point 5

Customer Demand and Capacity for Growth

It involves differing perspectives on the ability to meet increasing customer demand with the company's existing capacity, which could impact growth strategies and investor confidence.

What's driving the increase in customer demand, and how are you planning capacity to meet these opportunities? Are you becoming more selective in how you service these customers? - Craig Irwin(ROTH Capital Partners)

2025Q3: The market is good with rising electricity prices and demand. Willdan's performance has improved significantly, especially in cross-selling, which has led to tens of millions in new revenue. - Michael Bieber(CEO)

What are your thoughts on overall market trends over the next few years? - Craig Irwin(ROTH Capital Partners)

2024Q4: We are seeing strong growth in data center load growth for AI, electrification of vehicles, and utility-scale solar and wind. Our early acquisitions expanded capabilities to serve these needs. - Michael Bieber(CEO)