Willdan(US:WLDN)2019-11-01 04:33Financial Data and Key Metrics Changes - Total contract revenue for Q3 2019 increased by 65% to $117.5 million from $71.4 million in Q3 2018, driven by growth in the Energy segment and contributions from recent acquisitions [6][7] - Net revenue rose by 47.1% to $50.8 million from $34.5 million in the same quarter last year [7] - Adjusted EBITDA for Q3 2019 was $11.6 million, an increase of 63.3% from $7.1 million in Q3 2018 [14] - Net income for Q3 2019 was $400,000 or $0.04 per diluted share, while adjusted net income was $7.6 million or $0.65 per diluted share [13] Business Line Data and Key Metrics Changes - Within the Energy segment, net revenue increased by 81% [8] - The Engineering and Consulting segment's net revenue remained consistent with the same period last year [8] - Direct costs of contract revenue were $82.8 million, up 72.3% from $48.1 million in the prior year, representing 70% of total contract revenue compared to 67% previously [9] Market Data and Key Metrics Changes - Organic growth was reported at -11% for the quarter, with a 4% reduction attributed to software sales through Integral Analytics and 6% due to California investor-owned utilities slowing down [19][20] - The company expects organic growth to return to over 10% in 2020 as California contracts are anticipated to start [20] Company Strategy and Development Direction - The company is focusing on expanding its capabilities and services beyond traditional energy efficiency, including HVAC and controls, which is seen as a positive development for future organic growth [24] - The acquisition of Energy and Environmental Economics (E3) is expected to enhance strategic planning and provide visibility into future energy policies [27][31] - The company is ramping up program expansions with major clients, including Con Edison and LADWP, and is optimistic about future profitability [19][32] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment in organic growth but remains confident in the pipeline and future opportunities, particularly in California [20][32] - The company has reduced its financial guidance for fiscal 2019 due to slower earnings ramp but expects continued growth in the fourth quarter [16][32] - Management highlighted the importance of cash generation and maintaining a leverage ratio of around 2 to 2.5 times EBITDA for future investments [62] Other Important Information - General and administrative expenses increased to $33.4 million from $18.4 million, primarily due to higher salaries and wages from recent acquisitions [10] - The company incurred $1.3 million in interest expense in Q3 2019, significantly higher than $22,000 in the same period last year, due to debt from acquisitions [12] Q&A Session Summary Question: What held back the ramp of new projects in the quarter? - Management revised guidance downwards due to performance issues in the first three quarters, but expects a ramp in the fourth quarter driven by increased budgets from clients like Con Edison [37][38] Question: What is the outlook for organic growth? - Management indicated that both lumpier deals and California's progress are necessary for achieving the 10% organic growth target [39] Question: Can you provide details on the E3 acquisition? - Management has known E3 for over 2.5 years and expects strong synergy and contributions to revenue from this acquisition [43][44] Question: What is the impact of intangible amortization expense? - The increase in intangible amortization expense is related to purchase price allocation from acquisitions, and it is included in adjusted EPS calculations [47][48] Question: What is the revenue expectation for E3 in Q4? - The revenue contribution from E3 in Q4 is expected to be minimal due to the timing of the acquisition, but integration is not anticipated to be disruptive [63][64] Question: Are there contracts in California EE procurements currently in negotiation? - Management indicated that decisions from utilities are pending, and no contracts have been finalized yet [68]