Executive Summary / Key Takeaways

• Willdan Group is strategically positioned to capitalize on the accelerating energy transition and unprecedented electric load growth driven by electrification, reshoring, and AI data centers, leveraging its integrated service offerings and specialized technology.
• The company delivered record first quarter 2025 results, with consolidated contract revenue up 24.4% year-over-year and adjusted EBITDA increasing 31%, demonstrating strong operational execution and operating leverage.
• Recent strategic acquisitions, including APG for electrical engineering and Alpha Inspections for municipal services, are expanding capabilities, diversifying the customer mix towards higher-margin commercial clients (especially data centers), and contributing to growth.
• Management has raised its full-year 2025 financial guidance, projecting net revenue between $325 million and $335 million and adjusted diluted EPS between $2.75 and $2.90, signaling confidence in continued momentum and pipeline strength.
• While facing potential risks from tariffs on equipment and customer concentration, Willdan's strong balance sheet, enhanced credit facility, robust free cash flow generation, and focus on flexible contract terms provide financial flexibility and resilience.

The Electrification Imperative: A Structural Tailwind for Willdan

Willdan Group, Inc. operates at the nexus of critical societal shifts: the urgent need for energy efficiency, decarbonization, and the burgeoning demand for electricity. As a provider of professional, technical, and consulting services to utilities, private industry, and public agencies, Willdan has built a business model designed to help clients navigate complex energy and infrastructure challenges. Its history, marked by strategic growth and capability expansion, including the early acquisition of Genesys Engineering to bolster power engineering in the Northeast, has laid the groundwork for its current focus on the energy transition.

The landscape Willdan operates within is undergoing a profound transformation. After decades of relatively flat electricity demand, the U.S. is experiencing a return to significant load growth. This structural shift, expected to drive a 50% increase in U.S. electricity demand by 2050, is fueled by the electrification of transportation and buildings, the reshoring of industrial manufacturing, and, perhaps most notably, the explosive growth in electricity consumption by data centers powering artificial intelligence. This unprecedented demand creates a fertile ground for Willdan's integrated service offerings spanning planning, software, energy efficiency, and engineering.

Central to Willdan's strategic response is its differentiated technological capability, particularly within data analytics and grid planning. The company's LoadSeer software, for instance, is a key asset in helping utilities and municipalities understand and plan for changing load shapes and resource needs. Recognizing the increasing complexity and scale of this challenge, Willdan is nearing the release of a significant enhancement to LoadSeer, integrating artificial intelligence into its API. This next-generation version is designed to be quicker to deploy and scalable beyond large investor-owned utilities, offering predesigned load forecasts and shapes that can be utilized by smaller co-ops and municipalities without requiring extensive engineering staff. The AI integration also provides computational power for complex scenarios previously difficult to model. This technological edge in data analytics, enabling capabilities like enhanced energy efficiency audits and grid optimization, provides a quantifiable benefit to clients and strengthens Willdan's competitive moat, contributing to pricing power and customer loyalty.

In the competitive arena, Willdan faces a diverse set of rivals, ranging from large, diversified global infrastructure firms like AECOM (ACM) and Jacobs Engineering (J) to more specialized environmental and engineering consultants like Tetra Tech (TTEK) and mechanical/electrical service providers like EMCOR Group (EME). While larger competitors benefit from scale, potentially leading to lower operating costs per unit and faster innovation cycles due to higher R&D investment, Willdan distinguishes itself through its specialized expertise in energy efficiency and its integrated service model. Willdan's adjusted EBITDA margins (16.9% in Q1 2025) demonstrate superior profitability compared to many larger rivals (ranging from approximately 8% to 14%), reflecting the value of its niche focus and operational efficiency. Its strong revenue growth rate (24.4% in Q1 2025) also outpaces the growth seen at many competitors, indicating effective capture of market opportunities. However, Willdan's smaller scale can result in higher operating costs per unit and it may lag in the speed of technological innovation compared to rivals with larger R&D budgets. The company strategically positions itself by leveraging its deep regulatory expertise, particularly in states like California and New York, and its ability to deliver quantifiable performance gains in energy reduction and grid optimization, fostering strong relationships with utility and government clients.

Performance Reflecting Strategic Alignment and Operational Strength

Willdan's recent financial performance underscores the effectiveness of its strategy in capturing market demand. The first quarter of fiscal year 2025 marked a record period for the company across key metrics. Consolidated contract revenue surged to $152.4 million, a robust 24.4% increase compared to the same period in the prior year. This growth was broad-based, with the Energy segment reporting a 25.3% increase in revenue to $126.2 million, driven by strong demand for energy efficiency and electrification services under utility programs, as well as higher construction management and consulting revenues. The Engineering and Consulting segment also saw significant growth, with revenue rising 20.2% to $26.1 million, reflecting increased client demand for municipal services.

Profitability metrics demonstrated operating leverage. While gross profit increased 21.6% to $57.7 million, the gross margin slightly decreased to 37.8% from 38.7% in the prior year, primarily due to changes in the revenue mix, including a higher proportion of subcontractor services in the Energy segment. However, general and administrative expenses grew at a slower pace (20.4%) than net revenue, rising to $50.6 million. This increase in G&A was primarily driven by higher personnel costs (salaries, wages, benefits, incentive compensation), increased stock-based compensation due to new grants at a higher stock price, and higher depreciation and amortization from recent acquisitions, but the slower growth relative to revenue indicates improved efficiency. The resulting income from operations increased significantly by 31.2% to $7.0 million. Net income saw an even more substantial increase of 59.3% to $4.7 million, benefiting from the operational improvement and a lower effective tax rate (9.8% in Q1 2025 vs. 25.1% in Q1 2024), influenced by discrete tax benefits related to stock compensation deductions and energy efficiency building deductions. Adjusted EBITDA, a key profitability metric, rose 31% to $14.4 million, representing a healthy 16.9% of net revenue.

Operational details highlight the company's execution capabilities. Willdan serves a diverse client base, though it maintains a degree of customer concentration. In Q1 2025, the top 10 customers accounted for 53.8% of consolidated contract revenue. Specific large clients like Clark County School District and Southern California Edison each contributed over 10% individually and 24.1% combined to consolidated revenue in the quarter. The company's success in securing large, multiyear contracts is evident in recent wins, including the expanded $330 million, five-year contract with the Los Angeles Department of Water and Power (LADWP), which is expected to become one of Willdan's largest annual programs once it ramps up significantly in the latter half of 2025. Other notable wins, such as the $30 million City of Fairfield contract and the $18 million Paramount Unified School District contract, demonstrate the company's ability to leverage existing relationships and cross-sell services.

Strategic acquisitions have played a vital role in expanding capabilities and contributing to recent performance. The acquisitions of Enica Engineering (October 2024), Alpha Inspections (January 2025), and Alternative Power Generation (APG) (March 2025) collectively contributed $6.0 million in revenue and $1.1 million in income from operations in Q1 2025. These deals are strategically important, particularly the APG acquisition, which adds critical utility-scale electrical engineering expertise directly relevant to the booming data center market. This move aligns with Willdan's stated intent to increase its exposure to the commercial technology sector, which is forecasted to comprise 15% of 2025 revenue on a pro forma basis, double the percentage of the prior year. This diversification is expected to add stability and potentially higher profit margins.

Financial Strength and a Confident Outlook

Willdan's financial health provides a solid foundation for continued growth and strategic investment. The company has demonstrated strong free cash flow generation, reporting $40 million over the trailing twelve months ending April 4, 2025, equating to a robust $2.74 per share. This cash generation has contributed to a strengthened balance sheet and improved liquidity. As of April 4, 2025, Willdan held $38.4 million in unrestricted cash and cash equivalents.

The company has also proactively managed its debt structure. As of April 4, 2025, net debt stood at $49 million, resulting in a modest total leverage ratio of 0.8 times adjusted EBITDA. Recognizing the need for increased financial flexibility to pursue strategic acquisitions and support growth, Willdan amended and restated its credit facility on May 5, 2025. The new agreement expands the total borrowing capacity to $200 million, including a $100 million revolving credit facility, a $50 million Term Loan A, and a new $50 million Delayed Draw Term Loan, while extending the maturity date to May 5, 2030. This enhanced facility, combined with ongoing cash flow generation, provides ample resources to fund future strategic initiatives, including potential acquisitions, while maintaining a conservative leverage profile.

Based on the strong start to the year and continued momentum, management has raised its financial targets for fiscal year 2025. The company now expects net revenue to be in the range of $325 million to $335 million, adjusted EBITDA between $65 million and $68 million, and adjusted diluted earnings per share in the range of $2.75 to $2.90. These targets assume a full-year effective tax rate of approximately 16% and do not include the impact of any potential future acquisitions, suggesting potential upside if the company successfully executes on its M&A pipeline. Management's rationale for the increased guidance is rooted in the better-than-expected Q1 performance, the robust pipeline of opportunities, and the confidence in the team's ability to execute on existing and newly awarded contracts, including the significant LADWP program ramp-up expected in the latter half of the year.

While the outlook is positive, investors should remain mindful of potential risks. The company's reliance on a relatively small number of large customers, while providing significant revenue, also presents concentration risk. Delays or changes in these key contracts could impact financial results. The increasing use of specialized equipment in projects exposes the company to potential risks from tariffs and supply chain disruptions, which could lead to price increases or project delays, although Willdan is implementing mitigation strategies like flexible contract terms and seeking alternative suppliers. Inflationary pressures could also indirectly impact demand if they lead utility clients' customers to defer energy efficiency investments. Furthermore, while Willdan believes its funding sources (user fees, municipal bonds) offer some resilience, a broad economic slowdown could still impact business activity. Litigation risk, inherent in the engineering and consulting professions, is managed through insurance, but adverse outcomes, though not currently expected to be material, remain a possibility.

Conclusion

Willdan Group is successfully navigating the dynamic energy and infrastructure landscape, leveraging its specialized expertise, integrated service model, and strategic acquisitions to capitalize on the powerful tailwinds of electrification and load growth. The company's record first quarter performance and upwardly revised 2025 guidance underscore its operational strength and the significant opportunities ahead, particularly in the burgeoning data center market where its enhanced electrical engineering capabilities and developing AI-integrated software offer a distinct competitive edge. While customer concentration and potential tariff impacts warrant monitoring, Willdan's strong financial position and strategic focus on high-growth, high-value areas position it favorably. For investors seeking exposure to the accelerating energy transition, Willdan presents a compelling narrative of a company executing effectively on its strategy, demonstrating profitability, and poised for continued growth, supported by a robust pipeline and the strategic flexibility afforded by its healthy balance sheet.