Willdan Group, Inc. Aktie

Thank you. Greetings! Welcome to the Wilden Group Second Quarter Fiscal Year 2026 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Al Kashalk. Thank you, you may begin.

Thank you, Cleo. Good afternoon, everyone, and welcome to Will Dan Group's second quarter 2026 earnings call. Joining our call today are Mike Beaver, President and CEO, and Kim Early, Executive Vice President and CFO. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides, all of which are available on our website. Please note that year-over-year commentary or variances on revenue, adjusted EBITDA, and adjusted EPS discussed during our prepared remarks. or on an actual basis unless otherwise specified. We will make forward-looking statements about our performance. statements are based on how we see things today. While we may elect to update these forward-looking statements at some time in the future, we We do not undertake any obligation to do so.

As described in our SEC filings, actual results may differ materially due to risk and uncertainties. With that, I'll hand the call over to Mike, who will begin on slide two.

Thanks, Al, and good afternoon to everyone on the call. We had a very strong second quarter, capping a strong first half, and continuing the momentum we built across the business. Demand remains healthy. Execution was strong, and we delivered significant growth in both revenue and profitability. In the second quarter, contract revenue increased 33% year-over-year to $231 million. Net revenue grew 23% to $117 million. And adjusted EBITDA increased 51% to a record $33 million in the quarter. App earnings per share increased 53%, even faster, to $1.58.

And adjusted earnings per share increased 38% to $2.07. All those growth metrics are on top of strong performance we had a year ago. Overall, the business is performing well. We're seeing strength across all of our customer groups, but commercial demand, in particular, is accelerating and expanding our addressable market. AI is adding to electric load growth and is also improving Will-Benz productivity to help us solve clients' more complex problems. With a strong first half behind us and good visibility into the remainder of the year, we're raising our full-year financial targets. On slide three, when I became CEO at the beginning of 2024, I talked about our strategy to significantly increase our presence in the commercial market.

We believed then that a broader customer base would add stability, create new growth opportunities, and support higher margins. Thank you. That strategy has worked well, and commercial revenue has now added a third leg to the stool. currently about a quarter of our business and is helping create more balanced, consistent results. Importantly, this growth complements our strong utility and government business. The largest part of our commercial revenue is for electricity at data centers and is the fastest growing part of Will Day. As another data point, revenue from our APG acquisition, which is commercially focused, is projected to nearly triple this year over last, to roughly $75 million. The commercial market also gives us another channel to deploy our engineering, software, procurement, and energy management capabilities. We believe that broadens our addressable market and strengthens WLDAN's long-term growth profile.

On slide four, this slide shows how that diversification is taking shape across our customers, contracts, and services. We now serve a broader mix of utilities, public agencies, and commercial clients. We balance recurring program work with project-based engagements, and our services now span advisory, engineering, software, implementation, and ongoing energy management. This balance matters because it reduces our dependence on any single customer type or service line, allows us to participate across more of the energy investment life cycle, and positions us to pursue larger and more complex opportunities. Burton Energy is a good example of how we're extending that strategy. So on the next slide, slide five. Burton is performing well right out of the gate.

It had the characteristics we'd look for in all acquisitions, a strong management team, differentiated capabilities, strong client relationships, and meaningful cross-selling opportunities with the rest of the company. Since closing on May 4th, we've focused on converting to Wield NCRP system, customizing customer continuity, and cross-selling. We're pleased with the early progress, including new customer relationships with Walgreens, Carter's, and Five Below, all since May. Burton adds significant expertise in building HVAC and energy controls technology. It also adds a new line of business in commercial energy procurement. Burton is already involved in two WLDAN utility programs, and we're particularly optimistic about cross-selling Burton's commercial experience with WLDAN's broader technical capabilities. Next, on slide six, we've had another strong stretch of contract wins, and here are six notable examples since our last earnings call.

For the Los Angeles Department of Water and Power, LADWP, we were awarded a $110 million solar streetlight contract expansion through the existing Commercial Direct Install Program. This project combines energy efficiency, resiliency, and public infrastructure. It removes street light load from the LEDWP power grid, providing additional capacity while also increasing public safety. We hope that programs like this could be launched in major metro areas across the country. We're also awarded a $53 billion central plant upgrade for the City College of New York. Energy projects like these are core competencies of Wildance, especially for the municipal, utility, school, and hospital, or MUSH market. Since the last call, we were awarded a new five-year, $49 million energy efficiency contract with the Southern California Regional Energy Network, or SoCalREN. supporting the public sector on resiliency.

The California RENs are assuming a larger role from traditional investor-owned utilities in the energy efficiency space. and we have a number of future opportunities with the RENs that are even larger in scope and funding than this contract. We were also awarded a $31 million renewable biogas cogeneration and microgrid project, $15 million battery energy storage project in Texas, and a $6 million substation project in Illinois. Taken together, these wins demonstrate three trends received. Customers trust us with larger projects, the customer base continues to broaden, and the solutions we deliver are becoming more complex. Each quarter, we try to step back and look at the broader forces shaping electricity markets and will then its opportunity. So on the next slide, slide seven, electricity providers are confronting several major challenges at the same time. load growth due to rapidly changing or rapidly growing demand, continued pressure on affordability rates, and an increasing need for reliability. These challenges are closely connected and they're intertwined.

Utilities are being asked to add capacity, modernize the grid, and improve reliability while limiting the impact on customer rates. That requires more sophisticated planning, investment, and execution. Demand is already straining generation and grid capacity in certain circumstances and locations. while data center development is adding permitting and interconnection pressure in several markets. At the same time, substantial capital needs are placing pressure on rates and utility returns, making energy efficiency and distributed resources increasingly valuable. Extreme weather and wildfires are also raising outage risk and disrupting grid operations, especially in the western U.S. This environment aligns well with Wilden's capabilities. We help customers evaluate trade-offs, plan investments, improve efficiency, and implement solutions across the grid and behind the meter.

So the next big question is, how are the customers responding? On slide eight, utilities and hyperscalers alike are responding with the increased investment in large-scale battery storage. Battery storage is important because it adds flexibility to the power system. It can help manage peak demand, support intermittent renewable generation, improve resiliency, and provide backup power for critical facilities. Batteries are also rapidly dispatchable power, available to the grid in milliseconds and ideally suited to AI learning model electricity load spikes. These batteries complement, and sometimes they can replace, the need for gas peaker plants, which require 5 to 15 minutes to spool up compared to the milliseconds for batteries. We're seeing a growing pipeline of battery storage opportunities, often as part of larger projects that combine planning, engineering, controls, renewable generation, and microgrid capabilities. That increasingly complex, multidisciplinary work is a good fit for us.

Finally, on slide 9, as we've mentioned, the largest growth in electricity demand is due to data centers. This growth is occurring throughout the U.S., and speed to power is the primary factor determining where data centers will be located. Accordingly, there are a lot of opportunities in Texas, and Wheel-N already has a number of projects underway there. Several studies have shown that, to date, data center load growth has reduced the public's electricity bills. However, more grid investment will be required to accommodate future AI load growth. So, WLDAN is involved in studies across the country that inform these decisions and help ensure data centers continue to pay their fair share. We believe the convergence of power load growth, affordability, and reliability will create opportunities for Wilt End for years to come. we do seem to be right now at the right place at the right time.

I'm very pleased with our performance throughout the first half of the 2026.

job of the WillDAT team. Kim, now over to you. Thanks, Mike, and good afternoon, everyone. We delivered another quarter of strong financial performance driven by healthy underlying demand, disciplined execution, and continued growth across all our markets. Another quarter of record profitability, strong cash flows, and a healthy balance sheet positions us well to capitalize on the opportunities ahead. Turning to our second quarter results on slide 11. Contract revenue increased 33% year over year to $231 million, while net revenue grew 23% to $117 million. While our Burton acquisition contributed strongly to the growth, the organic growth rate and net revenue was 18% year over year, reflecting the higher revenues from data centers, battery storage projects, and the continued health of our utility and municipal infrastructure businesses.

Higher volume and strong execution drove gross profit dollars up 28% year over year. The gross margin declined 150 basis points, reflecting a shift in the mix of revenues toward performance engineering and commercial project revenue, which carry a heavier load of equipment and subcontractors. But despite the lower gross margin, adjusted EBITDA increased 51% to a record $33 million from the quarter, representing a record 28.2% adjusted EBITDA margin on net revenue. 28.2% is the highest quarterly margin in the company's history. Note that while our commercial projects often carry a lower gross margin, they also carry a lower overhead rate, and resulting higher adjusted EBITDA margin on net revenue. Also note that G&A expenses increased 20% year over year, but declined to 29.3% of contract revenue versus 32.6% in the second quarter of 2025. salary and benefit costs grew consistent with the acquisitions and the growth core revenues. Stock compensation expense increased 51% as a result of higher stock prices compared to a year ago, and non-cash charges for the amortization of intangibles derived from acquisitions grew by 27%. interest expense was 50% lower than a year ago, reflecting the lower leverage in our strong cash flows. Netting all of the above, pre-tax income grew by 88% to $19.1 million for the second quarter of 2026, compared to $10.2 million in the year-ago period. we recognized a $5.3 million tax benefit for the quarter.

So on the bottom line, net income increased 58% to $24.3 million or $1.58 per diluted share on a gap basis compared to 15.4 million or $1.03 per diluted share diluted shares in the prior year. Adjusted earnings per share increased 38% to $2.07 per share this quarter compared to $1.50 a year ago. It was a very good quarter. Turning to our year-to-date results on slide 12. the first half of 2026, contract revenue is up 19% to $386 million year-over-year, while net revenue increased 16% to $210 million. Excluding the impact of the extra week in the first half of 2025, contract revenue increased 23% and net revenue increased 21%. First half gross margin increased 30 basis points year over year to 39.0%, reflecting strong operating performance across the business. Adjusted EBITDA rose 41% to $51.1 million, or 24.4% of net revenue for the six months, and adjusted earnings per share grew 39% to $2.98 per share.

Gap earnings per share for the first half was $2.13, up 57% from $1.36. All are record numbers from the six-month period. To provide a broader perspective beyond quarterly variability, let's turn to slide 13. While quarterly results can be influenced by the timing of various project phases, acquisitions, and revenue mix, our trailing 12-month results better illustrate the underlying earnings power and sustained growth of the business. Over the past 12 months, contract revenue and net revenue each increased 18% to $742 million and $394 million, respectively. Adjusted EBITDA grew 36%, twice as fast as revenues, to $94.3 million. And adjusted earnings per share increased 60% to $5.76.

Earnings have been growing faster than revenues due to increased productivity in project management and continuing operating leverage as G&A costs are growing more slowly than revenue and AI adoption aids efficiency. On slide 14, I'd like to remind you of the long-term adjusted EBITDA margin target we introduced last quarter. We continue to see a clear path to achieving margins in the high 20 percent range as larger and more complex projects, growth in our commercial business, AI-enabled productivity and the scalability of our operating platform support continued margin expansion over time. Our adjusted EBITDA margin was 28.2% for Q2, demonstrating the goal as achievable given the right mix of revenues. The quarter also reflects some acceleration of revenues that will impact the second half of the year, and thus we do not expect that margin to hold throughout the year. Nonetheless, 2026 will show a significant expansion of the adjusted EBITDA margin to an estimated 25% for the year, from 21.8% in 2025. We continue to see opportunities to further expand margins as we grow and realize the synergistic benefits of collaboration with our newer acquisitions.

Turning from earnings to cash generation in the balance sheet on slide 15. Cash flow provided from operating activities was $71 million over the last 12 months, with $62 million in free cash flow, or $4.04 per share. continue to expect strong cash flow from operations and believe we can convert more than 70% of adjusted EBITDA into free cash flow on an annual basis. Those future cash flows will continue to be aided by the $34 million in deferred tax assets on our balance sheet generated by the 179D deductions and other tax benefits. The 179D provision may have sunset at the end of June, but we'll continue to enjoy the cash flow benefit of those incentives for years to come. We ended the quarter with $33 million in net debt, and a net debt to trailing 12-month adjusted EBITDA ratio of 0.3 times, modestly higher than the modestly higher than year-end after deploying $50 million in cash for recent acquisitions. We repaid $10 million of the $30 million drawn under our revolver in May for the Burton acquisition, and thus had $80 million available at quarter end under our $100 million revolver. also had $50 million available, but undrawn from our delayed draw term facility, and $35 million in cash, giving us $165 million in total available liquidity at quarter end. Given our expected earnings for the remainder of the year, and absent any further acquisitions, we would expect the revolver to be fully repaid by year-end and continuing to provide us low leverage and high liquidity with significant capacity to support continued organic growth and strategic acquisitions.

We continue to explore opportunities to expand the depth and breadth of our services and accelerate growth through acquisition. Now to slide 16. Based on our strong performance for the year, we're raising our full year 2026 financial targets. We now expect net revenue to be in the range of $415 to $430 million, adjusted EBITDA in the range of $103 million to $107 million, and adjusted diluted earnings per share between $5 and $5.15. This outlook assumes approximately 15.9 million diluted shares outstanding at year-end and a 0% effective tax rate for the year. Taken together, we believe these results demonstrate the strength of our operating model and reinforce our confidence in both the near-term outlook and long-term growth strategy. Before we open the call for questions, I'd like to close on slide 17 with a few thoughts that reinforce why we remain confident in our outlook. We're on track to deliver another year of double-digit growth, supported by continued margin expansion and strong cash flows.

We're excited by the commercial expansion, collaboration, and momentum we're seeing from our recent acquisitions of APG, Compass, and Burton, which continues to grow. to broaden our growth opportunities while complementing our strong utility franchise. We're also increasingly leveraging AI across the business to enhance productivity and deliver more complex customer solutions. And we believe we're still in the early stages of realizing its long-term potential. Finally, our balance sheet remains a competitive advantage. With low leverage and significant liquidity, we're well-positioned to continue to invest in organic growth, pursue strategic acquisitions, and create long-term shareholder value. With that, I'll turn the call back to the operator, and we'd be happy to take your questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. keys. One moment while we pull for questions. Our first question is from Craig Irwin with Roth Capital Partners.

Please proceed.

with your question. Andrew Arn for Craig. Congrats on the strong results. First question from me. Can you kind of talk about the ramp of the LADWP project in the second quarter and then kind of how that plays out in the back half of the year? And then secondly, how the new project extension wind kind of just changes the overall outlook for the project.

Sure. Well, the project was already ramping up from the beginning of this year, and we said it wasn't going to hit the full run rate until probably early next year. And And then we got this expansion of the existing contract, another $110 million. We already have authorization to proceed on half of that $110 million. The big question is, as you mentioned, how does it ramp up? We probably could have been even more aggressive with our outlook if we knew the answer to that, but it is going to ramp up through the Q3, the balance of Q3, and we've got to think run into Q4 and probably the early part of 2027, we don't really know at this point. It's too early to tell exactly what the Q3 contribution is going to be. So we were appropriately conservative, but in fact, we were not. It's a great outlook, and there may even be more opportunity behind this for further expansion.

So that contract's going to ramp up and could be our largest customer in 2027. It's looking like it might be.

Great. Well, appreciate the caller there. And then second from me, just on the Burton cross-selling opportunities, are you guys kind of seeing traction in both directions, or is this something where you're taking an approach and going in one direction, selling well-danced services to their clients or vice versa?.

versa? Yes, no. With Burton, it's definitely bi-directional. We've been in to see several of their large clients, and there's opportunities to provide new wheeled-in services to some of those existing relationships. I've been a part of some of those discussions. And likewise, we've already brought Burton into two utility programs. on the East Coast and the West Coast because they have specific HVAC capabilities we didn't have before. It's going both ways and it looks good early.

on. Great. Well, thanks for taking my questions and congrats on the continued progress.

Thank you. Our next question is from Tim Moore with Clear Street. Please proceed with your question.

Thanks and congratulations on the continued organic growth and the acquisition integration success that's coming along quite nicely as as the Los Angeles solar retrofit wind expansion. That was good to hear the commentary because I always ask about the ramp up in Los Angeles every quarter. You know, actually I have a geographic diversification question for you. You know, you've been so, you know, California is your backyard. You've been in New York for a long time. You're going more into Texas and, you know, Florida, you know, EPG stuff. Yes. I'm just kind of curious, you know, what kind of directs the geographic diversification? Is it mostly data centers driven and battery storage? If you can just give us a little color on maybe, you know, how you expand in a different state that's not, you know, New York or California.

Yes.

Sure. Great question. And we just finished our ops meeting talking about that. We've set up permanent offices and really hubs that we'll operate from in Florida. Now Georgia, North Carolina, Kentucky, and Texas. Those are all new locations in the last 18 months. But you are absolutely right. From a project perspective, these data centers are being built around the country. So for the first time, you know, we're performing projects in New Mexico and Montana, and some in Utah. The data centers are all over the country, coast to coast.

So it's giving us the opportunity to gain experience and hire people around the country where we didn't have as much of a presence, especially in sort of the breadbasket, the middle part of the country, those Midwestern states.

That's really helpful, Collier. Thanks for naming all those other states and those hubs. It's really interesting. My only other question was really around consultants and talent allocation. I know you had a lot of consultants this year. Can you maybe talk to us a little bit about how you make the trade-off if you have to on accepting a new project or advisory for a new customer that's not a data center customer versus kind of servicing your current long-tenured customers, if you're getting to the point where you have some labor shortages, which you might not, but I'm just kind of curious.

Yes, on the study sector, we actually have a group that is focused on commercial customers within our study practice. It's run by a person named Kush Patel, and he focuses exclusively on commercial customers. The utility customers have separate teams, and they do cross-collaborate. They sit in the same office, but they're separate teams studying slightly different problems. We have not seen what I'll call labor shortage. shortages on either of those areas, but labor is tight. I'll say that for the experienced superstar, prices are certainly going up, salaries are going up, and we continue to hire.

That's great. That's really helpful insight and good to hear about no label shortages and your continued cross-selling. That's it for my questions. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. participants using speaker equipment may be necessary to pick up your handset before pressing the star keys. Our next question comes from Steven Warrafting.

with Web Bush Securities. Please proceed with your question. All right, good evening, guys. Thanks for taking the questions. Congrats on the quarter. I kind of want to talk first about the guide itself. Just because we know that you'd like to be a little bit conservative with the metrics whenever it comes to either the net revenue or the EBITDA or EPS. But it seems like these numbers are a little bit overly conservative. I mean, this quarter you beat by about $15 million on the top line, beat on EBITDA by about $10 million, and then the EPS was a pretty significant beat. but the raise in the guide wasn't that sizable. So can you break down the guidance a little bit further? Is there kind of a lack of visibility, or is there anything that you can really touch on about the guidance? Yes.

Yes, Stephen, and by the way, congratulations for taking over as our lead analyst over at Wedbush. Thank you. We scratched our head on this one a little bit because we don't know how quickly LADWP will ramp up over the next six months. That was the biggest variable. that we looked at. We have a couple other projects also that really drive the answer to that question. So you're right, we did guide towards the more conservative area, but it looks really good. And whether we get the work done over the next six months or in the first part of 2020, all are possible. It's probably going to happen that way, and it looks really good.

It's a good pipeline of work. Kim, do you want to talk to the spread between Q3, Q2, I'm thinking? Yes, so.

So Q3 and Q4 are probably going to look something similar to Q2. Q2 did benefit to some extent that we had some stronger out performance and we'll call it acceleration out of a couple of our utility programs and we were making good progress on some of our performance contracting activities that we originally forecasted would drag into the third and fourth quarter. So I think we're seeing a little bit of acceleration there. into the second quarter and the third and fourth quarters should both be fairly robust may not be quite as strong as what Q2 was, but they're both going to remain good. But as Mike said, you know, we're being somewhat conservative because we still have a lot of variables there.

Okay, got it. Thank you for the color. And then just talking a little bit more about the tax line, just because, Kim, you mentioned that the once of a 9D is going to be something that you benefit from for the foreseeable future. I think you mentioned a few years on the transcript. But when we're thinking about the guidance for the tax rate, a 0% guidance would imply that the second half of the year is going to see a tax rate of around 20% from an income tax expense perspective. So can you break that down a little bit more? Because in the first quarter, we actually saw that move in the right direction from that 10% initial guide to 0%. why not guide it to closer to another negative 10% if you're going to continue to see those benefits?.

Yes, well, from a P&L standpoint, there's, you know, that benefit expires at the end of June. And so we'll get a little bit of carryover because it does apply to projects that were started before the end of June, but it won't apply to any other projects from that point forward. So you're right, the second half of the year is going to have a positive income tax expense. We have to recognize all of the potential in the quarter that we've got it in terms of the 17090 credit this quarter, but in the second half of the year, it's going to be a tax rate somewhere between 15 and 20%. And the tax benefits we're saying that are going to carry forward is from a cash standpoint. So we're out of the ability to carry it back, but it does carry forwards. So we won't be sending any checks to the government anytime soon because we've got that significant deferred tax balance there.

Okay, I appreciate the time, guys. This now concludes our question and answer session. I would like to turn the floor back over to Mike Beaver for closing comments.

Great. Well, thank you for your interest in Will, Dan, and we'll speak to you next quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a wonderful day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings, and welcome to the Willdan Group First Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I would now like to turn the conference over to your host, Al Kaschalk, Vice President. Please go ahead, sir.

Thank you, Terry. Good afternoon, everyone, and welcome to Willdan Group's First Quarter 2026 Earnings Call. Joining our call today are Mike Bieber, President and Chief Executive Officer; and Kim Early, Executive Vice President and Chief Financial Officer. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides, all of which are available on our website.

Please note that year-over-year commentary or variances on revenue, adjusted EBITDA and adjusted EPS discussed during our prepared remarks are on an actual basis unless otherwise specified. We will make forward-looking statements about our performance. These statements are based on how we see things today. While we may elect to update these forward-looking statements at some point in the future, we do not undertake any obligation to do so. As described in our SEC filings, actual results may differ materially due to risks and uncertainties.

With that, I'll hand the call over to Mike, who will begin on Slide 2.

Thanks, Al, and good afternoon to everyone on the call. We had a strong start to 2026, continuing the momentum we've been building with solid execution and expanding margins across the business. In the first quarter, normalized for that extra week we had last year in Q1, contract revenue grew 10%, net revenue grew 17% and adjusted EBITDA increased 35% year-over-year. Overall, the business is performing well, and we remain at the center of several long-term energy trends that are driving growth.

With a solid Q1 behind us and good visibility on what we believe will be a very strong performance over the next few quarters, we have improved visibility on 2026 compared to our last quarterly call. That is all before the announcement of our latest acquisition. On Monday of this week, we closed the acquisition of Burton Energy Group, which I'll discuss next.

On Slide 3. Burton Energy Group is a trusted adviser, serving mainly Fortune 500 customers throughout the United States. Willdan has been working with Burton for more than 10 years under our Con Edison program and elsewhere around the country. Burton brings a highly complementary set of capabilities, including energy management, energy efficiency and energy procurement services. They help manage the energy at more than 60,000 client sites. Burton expands our capabilities in energy cost management and procurement, deepens our relationships with large enterprise clients and adds a high percentage of recurring revenue to our business, usually contracted under multiyear agreements. Burton generated approximately $103 million in contract revenue, $15 million in net revenue and $7 million in EBITDA in 2025.

The acquisition is expected to be accretive to our margin, earnings and EPS this year '26. Burton opens an almost entirely new market to Willdan with Fortune 500 clients. We're excited to welcome the Burton team, and we're particularly optimistic about the cross-selling opportunities with this group since we've known them for so long.

On Slide 4. When I became CEO at the beginning of 2024, I talked about our strategy to significantly expand into the commercial sector. We described then that we believe diversification would add long-term stability and would provide Willdan with the opportunity to earn higher margins. These pie charts show that in 2024, commercial revenue was 7% of our business. 2 years later, on a full year pro forma basis after Burton, commercial revenue is expected to be about 25% of revenue this year. The diversification has also contributed to our higher margins and to the reset of our long-term margin targets that Kim will present in a few slides.

On Slide 5. This chart shows that Burton is headquartered outside Atlanta, Georgia and helps fill in Willdan's presence in the Southeastern and Midwestern states. With Burton, Willdan now has active projects in all 50 states. We now have permanent offices in 26 of the 50 states plus a presence in Puerto Rico and Canada.

Next on Slide 6. We've used this triangle diagram before to show that in problem solving, upfront analysis of a client's problem leads to the engineering of a solution and then to the program management of the solution implementation. Burton's services fall into all 3 categories. Burton often starts with the study of a client's energy usage, energy costs and carbon generation. That usually results in the design of a program that helps lower cost, improve resilience and achieve a client's unique objectives. Burton will usually manage the teams of contractors that will address a client's energy usage to achieve that client's objectives. Each of these phases of work is usually conducted through multiyear contracts that lead to the long-term client engagements of more than 10 years.

On Slide 7. We've had another solid stretch of contract wins, and here are a few examples since our last earnings call. For Southern California Edison, SCE, we received a 2-year extension and another $100 million of funding for our commercial energy efficiency program. This expansion would extend the program through the end of 2027. For the Dormitory Authority of the State of New York, DASNY, we won a $54 million project to upgrade the central plant at a college in New York City. I'm very pleased that we were awarded the $27 million 3-year New York Accelerator program. This is a new contract, which has been held for many years by one of our strongest competitors. We started pursuing this contract several years ago, and we're able to win this key program, which helps the city of New York accelerate the decarbonization of buildings in the city, a very cool win.

Next, we were awarded Ciro One project in Puerto Rico, a $24 million battery energy storage system. This project is one of several on the island designed to help improve power grid resiliency in Puerto Rico, a major issue there. And lastly, we were awarded 2 small contracts with National Grid for New York City and Long Island to implement small business energy efficiency programs. It was a good quarter for New wins, and our pipeline of opportunities continues to grow.

On Slide 8. Each quarter, we try to take a step back and look at macro changes to electricity demand and its effect on the grid and Willdan's market. We've talked a lot about how AI is driving a long-term increase in electricity demand due to new data centers. Previously, we presented some of our work for the state of Virginia, the largest data center market in the world.

Recently, we studied electricity demand increases across the Western U.S., so I'll present a few highlights from those studies. Work like these keeps Willdan at the very forefront of trends in the energy markets, helping us to navigate this period of rapid change. Slide 8 shows a few examples of electricity demand across the Western U.S. On the left of the slide, in the Pacific Northwest, the scale of the new electricity generation is insufficient to meet forecasted demands by 2030. To the right, the Southwestern U.S. needs 25 gigawatts. California alone needs 20 gigawatts of additional generation capacity by 2030. The growth in electricity demand is largely driven by new data centers.

On Slide 9, this slide from the same study shows that in the Northwestern U.S., when you take into account retiring electricity generation, the pace of new generation will increase by 4 to 5x the pace of historical generation development. The sum of integrated resource plans, IRPs indicates that most of this electricity is forecasted to come from solar, wind and battery storage given the supply chain constraints around gas turbines. This more complex future generation stack complements Willdan's capabilities.

The sustained load growth and increased investment are driving long-term demand for grid infrastructure, engineering and energy solutions, areas where Willdan is well positioned. As we've mentioned before, energy efficiency is one of the most quickly available, least cost electricity resources. We believe these trends will drive our business for years to come.

Overall, we're pleased with our performance to start the year. Operational strength and the addition of Burton set Willdan up to have what we believe will be another very strong year.

As Kim will detail, we are now anticipating that we will grow adjusted EBITDA by 26% to 32% year-over-year, an outstanding result. Kim, over to you.

Thanks, Mike, and good afternoon, everyone. We delivered a strong start to 2026, exceeding expectations with solid performance across our businesses and continued margin expansion. Strong underlying demand for our services and greater productivity in our utility programs and performance engineering projects drove higher profitability in the quarter.

Slide 11 shows the key metrics for the quarter. Contract revenue increased 2% year-over-year to $155 million, while net revenue grew 8% to $92 million for the quarter. But as a reminder, the first quarter of 2025 included an additional week. Excluding this impact, contract revenue grew 10% year-over-year and net revenue 17%, reflecting the continuing continued health of the business.

An improvement in gross margins was the key driver behind the 25% increase or 35% when 2025 is normalized in adjusted EBITDA over the prior year. The $18.1 million in adjusted EBITDA was a first quarter record and represented 19.6% of net revenue. Expense control and a 2026 tax benefit versus the smaller tax expense in the prior year enabled adjusted earnings per share to increase 44% over last year's first quarter to $0.91 per share compared to $0.63 in 2025.

To provide a little more detail on the components of the earnings improvements, our gross margin expanded to 40.7%, up from 37.8% in the prior year, reflecting the expanding volume, improved productivity and a favorable service mix as we continue to focus on quality and profitability. The improved margin performance was derived from productivity improvements in sales and reduced costs under our utility programs and further aided by margin improvements in our performance contracting projects, including those from the acquisition of APG a year ago.

G&A expenses increased 10% year-over-year or 19% when normalized for the additional week in 2025, primarily reflecting higher noncash charges for the amortization of intangibles derived from acquisitions of $1 million as well as stock compensation increases reflecting the higher stock price compared to a year ago, up $1.3 million. Salary and benefit costs also increased consistent with the acquisitions and the growth of core revenues and earnings, while interest expense was $1 million lower than a year ago, reflecting the lower leverage from our strong cash flows.

Thus, our pretax income grew by 40% to $7.3 million for the 13-week first quarter of '26 compared to $5.2 million in the 14-week period a year ago. We recognized a $1.3 million tax benefit in the quarter compared to a $500,000 tax expense in 2025. The tax benefit was driven by Section 179D energy efficiency deductions and discrete items related to stock-based compensation. So on the bottom line, net income increased 82% to $8.5 million, 96% when normalized or $0.55 per diluted share on a GAAP basis compared to $4.7 million or $0.32 per diluted share in the prior year. And again, adjusted earnings per share increased 44% to $0.91 per share this quarter compared to $0.63 a year ago. Earnings were very good with solid growth and improving margins in what historically has been our weakest quarter of the year.

Turning to cash flow and the balance sheet on Slide 12. Cash flow used in operating activities was $24 million in the quarter compared to a positive $3 million in the prior year. On a trailing 12-month basis, cash flow from operations was a positive $52 million, which would have been $18 million higher should one client have paid us 2 weeks earlier. From a free cash flow perspective, we used approximately $1.71 per share in the quarter but generated $2.81 per share on a trailing 12-month basis. We continue to expect strong cash flows from operations, aided by the carryforward of $28 million in deferred tax assets on our balance sheet generated by the 179D deductions and other incentives to offset future tax liabilities well into 2027 and beyond.

On a long-term basis, we would expect free cash flow to exceed 70% of our adjusted EBITDA on an annual basis. We ended the quarter with $28 million of unrestricted cash to net against the $48 million outstanding under our term loan, resulting in a 0.2x leverage ratio of net debt to adjusted EBITDA over the trailing 12 months. There were no borrowings outstanding on our $100 million revolving credit facility at the end of the quarter. But subsequent to year-end or quarter end, we drew $30 million on the revolver to fund a portion of the Burton acquisition, which would increase the leverage ratio to 0.6x.

Given our expected earnings for the remainder of the year, we would expect the revolver to be fully repaid by year-end and continue to provide us low leverage and high liquidity with significant expansion capacity under the $100 million revolver and the $50 million delayed draw term loan facility to support continued organic growth and strategic acquisitions.

Turning to Slide 13. Last year, we exceeded our long-held goal of delivering adjusted EBITDA in excess of 20% of net revenue. Based on our recent performance and the underlying drivers in the business, including improved productivity, favorable revenue mix and additional operating leverage, we are now raising our long-term margin goal to expect the adjusted EBITDA to net revenues margin to be in the high 20s. We'll continue to focus on the volume, productivity and cost control efforts required to achieve that goal as we continue to grow the business.

Now to Slide 14. Based on our strong start of the year, we're raising our full year 2026 financial targets. I'll note that the increase in guidance is roughly double the Q1 beat plus the expected contribution of Burton, reflecting the strength of our core business. We now expect net revenues to be in the range of $410 million to $425 million, adjusted EBITDA in the range of $100 million to $105 million and adjusted diluted earnings per share between $4.90 and $5.05. This outlook assumes approximately 15.9 million diluted shares outstanding at year-end and a 0% effective tax rate for the year, reflecting the higher expected pretax income and reduced estimates of discrete tax benefits derived from stock compensation.

And on Slide 15. It was a strong start to FY '26, fueling our optimism for continued growth and expanding margins. The acquisition of Burton a few days ago further fuels that optimism, expanding our addressable markets and creating numerous opportunities for collaboration and cross-selling. We continue to enjoy low leverage and high liquidity even after this investment, and we are raising our guidance and increasing our goal for adjusted EBITDA margins. It was a good quarter.

Operator, we're now ready to take questions.

[Operator Instructions] And our first question will come from Craig Irwin with ROTH Capital Partners.

Congratulations on a strong quarter here. Mike, I wanted to start off the top by asking if you could help us with maybe a little bit more color on why your fundamental profitability levels are going up, right? You're raising your base EBITDA guidance targets and raising your guidance for this year on that as well. Clearly, there's things that are working for you. I know you've had a number of initiatives internally at the company to improve profitability. We're also seeing an environment where reserve margins are likely to fall.

So your customers will look pretty desperate to stop brownouts and other problems that you prevent with your services. How would you help us understand what the opportunity is? And is this really just a first step? Is there potential room in the future for this number to keep moving higher?

Yes, Craig. If you look back 5 years ago, we wouldn't have thought this possible. But we're performing very well, and we've got a lot of confidence that we'll be able to get this into the high 20s. If you just model out our guidance for this year, we'll be potentially north of 24% already this year. So there's really 4 things that are driving it. Number 1 is growth and back office cost absorption. We've been able to control costs as we grow the business, especially on the back office at a fraction of the rate of the growth rate of the company. So that's number 1. We need to keep growing.

Number 2, you're right, energy demand plays a part in this. The price of energy is going up. Resources are becoming more constrained. So the value of our services are going up to those customers who need us. The third is probably that we've moved up the value chain. We've got a much more differentiated set of services that we provide compared to 5 years ago. And that continues to go in the right direction. The last thing is probably the percentage of commercial work. The state and local tends to be the lowest margin opportunity. And when that was almost 50% of the business several years ago, there just wasn't that kind of opportunity to grow north of 20% and now there is. With, I'll call it, a balanced portfolio of the 3 customer groups and commercial being 25% now, we have the opportunity to drive margins. Those customers tend to want the solution immediately like yesterday, but they are willing to pay for that, unlike government customers that take a little more modest approach to schedules. So those are the 4 things driving it. And we think this reset of expectations for margins is very achievable. We're going to make good progress on that this year.

Fantastic. So I wanted to ask about APG and the setup that you have providing services building power blocks primarily for data centers. This business, you've talked about it growing extremely quickly, potentially doubling this year. Is there any update or any color you can give us on specific wins in there, new customers, diversification? What should we look for over the next couple of quarters as you scale that business?

That has been a good acquisition. They are doing outstanding. Yes, they're going to more than double. They might even approach tripling this year. They're just performing outstanding. And it's already work we've won and are executing, and we're really looking towards the pipeline of '27 and '28 right now. The biggest thing driving that is a few big power blocks for large data centers. Those tend to be confidential projects. So that's why you haven't seen them announced. But the biggest project that APG has going and what's going to drive the next couple of quarters for them and really most of the year is a very large data center located in the Southwestern United States, where we're providing the substation, essentially, the interconnect and all of the power blocks.

So there are several more projects in the pipeline that look just like that. They've also diversified. They were the ones that won the battery storage project down in Puerto Rico. So they do that type of work. That's good as well. It's been very good. Mount SAC was a great collaboration. We announced that project. That was with the rest of Willdan. It's been one of the most synergistic acquisitions that we've made because of their level of collaboration with the rest of the company.

Excellent. Last question, if I may. Amber and her team at E3 have incredible visibility on demand, demand for services like Willdan's and the overall outlook for CapEx for utilities and commercial infrastructure for power. It's interesting that you guys are buying Burton that you've tucked them into the team. And obviously, this is something similar in character to the core of your business. Do you see the Northwest as maybe a new frontier for Willdan, something that could potentially be as interesting or as substantial as your work on the West Coast and the East Coast, where you generate quite a large portion of your revenue?

I don't -- I wouldn't really focus on the Northwest so much as that happened to be a study of all of the Western states, the Northwest being a particular focus area. It also covered California. It was a regional study that we did. So we just pointed that out as new data that all points to what we're seeing across the country, which is that the demand for electricity is increasing. In some cases, we're not keeping up with that demand. So CapEx is going to have to go up substantially. How do you do that in an equitable way without raising rates? Rates are going up across the country. And so it's a complex equation that's happening all across the United States. I wouldn't single out the Northwest more than in other places, though.

Well, that's good to hear, it's broad-based. Congrats on another solid quarter. I'll hop back in the queue.

[Operator Instructions] We'll go next to Tim Moore with Clear Street.

Very impressive EBITDA growth and margin in the seasonally low quarter despite one last week last year. And despite probably not benefiting from the Los Angeles Water & Power award yet, I enjoyed your head fake of conservative guidance in late February. Can you just update us maybe on the timing or visibility for maybe when the Los Angeles Water & Power contract might kick in? I mean that's quite a large contract, I don't know, maybe $16 million of gross revenue a quarter run rate. Any visibility on when that might start? And is that part of your recent guidance upgrade?

It didn't really drive the guidance upgrade that much. We had a very small contribution in Q1, but we did have revenue for the first time in a while. That's going to increase pretty substantially in Q2, but it's still a small number. We have bigger expectations for the back half of this year. I would characterize it as sort of the first inning of a ball game. We're ramping up the program. Every week is better than the previous. In addition to all that ramp-up, though, there are some future opportunities we hope to share with the group that may drive that contract even larger. We haven't nailed that down yet, but the customer is discussing those with us.

So the ball is rolling. It's not driving current results nor did it really drive the upgrade of our forecast, but we think there may be more to come there.

That's very helpful color. To have that in your back pocket and it seems like it will be more of a contributor for next calendar year as it ramps up and maybe play some catch-up on that 5-year contract. Just switching gears. If you can maybe just share a little color on how many months did you evaluate or negotiate maybe the Burton Energy Group? And maybe if you can just provide a little color on your acquisition funnel. I mean you have so much liquidity and barely any net debt. It seems like you could absorb a few more acquisitions over the coming quarters. Just any thoughts on that? I know you're still really focusing a bit more on the commercial side for targets?

Well, Burton was extremely deliberate in their discussions with us. It took a long time. We were in detailed discussions with them for, I'm thinking, I don't know, 7 or 8 months, something like that, took a long time, and we got to the right spot. So we're very pleased with the Burton deal. We had known that company for more than 10 years. And when they decided that they wanted to make a move and potentially sell the company, they called us, in fact, even though we had known them.

So we very much appreciate them for doing that. We've respected Burton for a long time. And sometimes what happens with our teaming partners and people we're working with out in the industry, they know what we're after. And when the time is right, sometimes we get that call and they come to us. That's what happened with Burton. And it's characteristic of something we're also seeing in our pipeline. We're one of the few strategic buyers out there in this marketplace. We're competing with a lot of private equity that often will pay more. And some of these groups that we're working with won't sell to private equity at any price. They want to go with a strategic partner like Willdan. And so that makes us a buyer of choice.

And if you look at our pipeline right now of what we're evaluating for the back half of the year and into next year, that's the case. I'd point to the same focus areas that we've had. Electrical engineering is hard to find. It's also very expensive. It's being bid up. But boy, we'd sure like to have it. And the success we've had in electrical engineering with APG demonstrates that we're willing to move into that space. Commercial, more commercial would be helpful. We're looking at that in our core services, but we're getting to a point where that's more balanced with the other areas. And the front end of our business is still undersized. We would love to have more science and front-end evaluation work, more data analytics, more software, very differentiated solutions, we're looking there as well. So those are still 3 of the focus areas.

That's great, Mike. And I think you kind of beat me a little bit to my next question. I'm just trying to think about what you would maybe -- you and Kim think about maybe as a limiter to organic growth. I mean, you mentioned all the states you're in. I mean you're definitely largely in California and New York, and you got some Florida and Texas and some other good scale. I mean there's just high demand for what you offer, and you're really the go-to consultants and experts on this, especially with E3 and everything else you have. Is there any kind of limitation now on really accepting more large contracts that would start in the next 12 months?

We always hate to say that labor is going to limit our ability to grow organically. And I don't think it is in a big area. There are some niches where we're hiring. And we're looking for people, just go to our website. That area around APG, our electrical engineering and construction management that's very specialized there needs to significantly increase its workforce. But I wouldn't say it's a constraint point at this point. Would you?

No, I don't see that as a constraint. And the pipeline of opportunities that our various business units are pursuing is pretty robust. So I don't see a cap on what that potential might be. But when you're dealing with large programs and large projects, timing is everything and exactly predicting how that and when that might occur is more difficult. But we don't have a limitation on resources or even supply chain at this point that really is going to limit that potential.

That's really good granularity. That's it for my questions. Congratulations on all the terrific progress.

And this now concludes our question-and-answer session. I would like to turn the floor back over to Mike Bieber for closing comments.

Great. Well, thank you for your interest in Willdan, and we look forward to speaking with you next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Greetings, and welcome to the Willdan Group Fourth Quarter and Fiscal Year 2025 Financial Results Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Al Kaschalk, Investor Relations. Please go ahead, sir.

Thank you, Rochelle. Good afternoon, everyone, and welcome to Willdan Group's Fourth Quarter 2025 Earnings Call. Joining our call today are Mike Bieber, President and Chief Executive Officer; and Kim Early, Executive Vice President and Chief Financial Officer.

Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides, all of which are available on our website. Please note that year-over-year commentary or variances on revenue, adjusted EBITDA and adjusted EPS discussed during our prepared remarks are on an actual basis unless otherwise specified.

We will make forward-looking statements about our performance. These statements are based on how things we see today. While we may elect to update these forward-looking statements at some point in the future, we do not undertake any obligation to do so. As described in our SEC filings, actual results may differ materially due to risks and uncertainties.

With that, I'll hand the call over to Mike, who will begin on Slide 2.

Thanks, Al. We closed 2025 with record financial performance and strong momentum across our business. For 2025, both contract and net revenue grew greater than 20%, led by our energy work. Adjusted EBITDA grew 40%, and yearly margins expanded to above our 20% target for the first time in 2025. Strong EPS growth allowed us to generate $71 million of free cash flow, and we are now in a net cash position.

In 2025, organic net revenue growth was 17% and was largely driven by expansion with existing customers. Electric load growth has returned to the United States after about 15 years of stagnation. Artificial intelligence and data centers are accelerating electricity demand at a scale not seen in recent years. To a lesser extent, transportation and building electrification and increased domestic manufacturing are also contributing to electricity demand growth. Our utility customers are confronting a grid that must manage more power, more intermittency and more complexity than ever before.

At the same time, affordability has moved to the forefront. As infrastructure investment increases, regulators must balance reliability, decarbonization and cost containment, increasing the need for smarter planning and cost-effective execution. Many studies have shown that energy efficiency usually increases rates slightly but drives down bills for participants because you're using less energy and thus, improves affordability. The dynamic plays directly into where Willdan operates, and the results reflect strong execution, which fuels our positive long-term outlook.

On Slide 3. Let me step back for a moment and remind everyone how our business is structured and where we're seeing demand. Willdan delivers a broad range of energy and infrastructure solutions to utilities, state and local governments and commercial customers. On the left side of the slide, approximately 85% of our revenue comes from the Energy segment with the remaining 15% from Engineering and Consulting.

On the right side, activity remains healthy across all customer groups. Our utility customers represent about 41% of revenue and continue to perform well. These programs are typically 3- to 5-year contracts funded through rate payer mechanisms, which provide strong visibility and recurring revenue. Importantly, we're seeing program sizes usually grow over time as energy efficiency becomes recognized as a system resource.

State and local governments account for approximately 48% of revenue and remains a steady source of growth. Most of this work is supported by user fees and municipal bond funding, both of which remain stable.

Commercial customers have rapidly grown to 11% of revenue, with most of that activity tied to power for data centers. AI-driven load growth is creating meaningful infrastructure and energy optimization needs, and we're helping these clients navigate grid constraints, design solutions and meet aggressive power requirements. Commercial customers represent the most fertile business environment we serve, and we plan to continue intentionally increasing our capabilities offered to the commercial sector. Taken together, this mix reflects a diversified, durable business supported by long-term contracts, relatively stable funding sources and growing demand across multiple end markets.

On Slide 4. Our upfront policy, forecasting and data analytics work informs our strategy and helps us navigate market change. We operate at the intersection of consulting services, engineering and program management, helping clients plan for new load, design infrastructure upgrades, manage grid complexity and implement cost-effective energy solutions. In our upfront work, we are seeing particular demand for studies on the impacts of electricity load growth, and that work grew more than 50% organically year-over-year.

As I mentioned in prior earnings calls, those market changes led us to the APG acquisition. That provides power engineering solutions to commercial customers, including data centers and hyperscalers. We expect that work to more than double in 2026, and we are growing that backlog into 2027 and 2028 now because they're long-term contracts.

In other parts of engineering, we saw strong execution and growth with both commercial and municipal customers. In program management, we performed above our plan on utility programs and building energy programs for cities. Demonstrating this model in an example, I'll walk through what we are doing around data centers.

First, we work with both hyperscalers and government regulators to optimize the siting and mitigate the electric load impacts of data centers. Our consulting work for Amazon noted in our December press release is an example of this, along with our studies for the states of Virginia, Michigan and California. Next, we work for data center developers to design and manage the construction of substations that power new data centers, which enable AI. I'll provide you some examples of that in a moment. And finally, as Willdan has done for more than 10 years, we provide energy efficiency optimization for data center operators, mostly through long-term master service agreements.

On Slide 5. We have a strong pipeline of opportunities that we are converting into contracts, and the pipeline is solid heading into 2026. Importantly, our average contract size has continued to grow, fueling the overall growth of Willdan. Here are just a few examples we converted since our last conference call. For the city of San Diego, we recently signed a $112 million energy efficiency program that will help save electricity at municipal infrastructure owned by the city. This program is about 2 years in duration and addresses a wide range of civic buildings and other infrastructure that uses electricity. This follows a similar $97 million win with Alameda County, California we announced last quarter.

For Mt. San Antonio College, we were just awarded an exciting new contract that demonstrates how acquisition integration can provide larger scale and more effective client solutions. This $49 million brand-new project is an integrated microgrid resiliency project. Within Willdan, it will involve the legacy civil engineering group collaborating with several previously acquired energy groups to deliver a comprehensive energy solution to the college over the next 2 years.

Next, for Menlo Digital, one of America's largest data center developers and a large customer of ours, we are now breaking ground on a $38 million project to design and manage the construction of an interconnect substation that powers a new data center in Phoenix, Arizona. For SOLV Energy, we signed a $4.5 million integrated distributed energy resource, or DER, project in Utah.

And finally, we signed a smaller confidential LoadSEER software license in Q4. LoadSEER is our flagship long-term utility forecasting software.

On Slide 6. This slide highlights what we continue to see in the data center market, sustained growth in electricity demand. There is currently an estimated 35 gigawatts of active data center construction in the U.S. While it's unlikely every announced project will ultimately be built, the broader trend is clear. Demand for power from digital infrastructure remains durable and is expected to extend at least through the end of the decade.

Importantly, this isn't just about megawatts. It's about complexity. Data center load growth is driving transmission upgrades, distribution system expansion, interconnection challenges and increasing reliability requirements. Virginia and the more rural states of Texas, Georgia, Arizona, Tennessee and Wisconsin are all experiencing rapid growth in energy demand from data centers. This dynamic plays directly to Willdan's strengths from power system engineering and grid modernization to targeting energy efficiency and load optimization solutions. As electricity demand grows, utilities and commercial customers need technically advanced partners to plan, design and optimize the system. That's exactly where we operate.

On Slide 7. We continue to see energy efficiency evolve in ways that reinforce its strategic importance within tomorrow's power grid. There is increasing focus on capacity-driven and locational efficiency programs. Targeted efficiency and nonwire solutions are now delivering measurable distribution level value directly supporting grid planning and load management.

Next, affordability is now a nationwide concern. Utilities and regulators are attempting to mitigate customer bill impacts, and energy efficiency remains one of the most cost-effective and immediate tools to reduce customer bills while accommodating load growth.

Next, grid modernization is accelerating. Advanced metering infrastructure and AI-enabled analytics are improving measurement, targeting and performance optimization, further integrating planning studies and efficiency into core systems operations.

Finally, reliability has become more of a year-round concern than just the historical concern of summer peaking. Now winter and summer grid events reinforce the role of efficiency as a dependable system resource.

Willdan is well positioned today and plans to further increase our capabilities through key hires and acquisitions. I want to mention that we have a particularly robust acquisition pipeline entering 2026 that will better enable us to serve customers in the future.

Kim, over to you.

Thanks, Mike, and good afternoon, everyone. Turning to Slide 11 (sic) [ Slide 9 ]. For the fourth quarter of 2025, contract revenue increased 21% to $174 million, and net revenue grew 13% to $89.5 million for the quarter. Adjusted EBITDA also increased 13% compared to the prior year, totaling $20 million for the quarter, and adjusted earnings per share more than doubled to $1.57, which is $1.23 on a GAAP basis, aided by exceptional tax deductions from energy efficiency incentives under Section 179D.

The quarter benefited from broad-based growth across our service lines and contributions from recent acquisitions. Margins remained solid as we maintained strong execution and cost discipline. Fiscal 2025 as a whole reflects the trajectory and strength of our operating model, as noted on Slide 10.

Fiscal 2025 was a record year for Willdan. Consolidated contract revenue grew 21% to $682 million, and net revenue grew 23% to $365 million for the year. Again, the growth was broad-based across our segments, service lines and customer base and was aided by contributions from our acquisitions. Of the 23% growth in net revenue, 17% was organic and 6% was from acquisitions.

Importantly, our revenue growth translated into meaningful profitability expansion as well. Gross profit increased 26.1% to $256 million, and gross margin expanded to 37.5% from 35.8% in the prior year, reflecting growth and productivity gains in our program management and consulting services in both segments as well as success in reducing direct costs associated with delivering those services.

General and administrative expenses increased with the growth, including investments in talent and technology, incentive compensation tied to performance, and acquisition integration. But the resulting operating leverage helped adjusted EBITDA increase 40% year-over-year to $79.5 million. Net interest expense decreased by 26% to $5.7 million for 2025, primarily due to lower debt levels, combined with a lower interest rate spread derived from reduced leverage ratios.

We also benefited from the interest income derived from consistently high cash balances. And more significantly, we recorded an income tax benefit of $12.6 million as a result of the 179D deductions and the impact of the higher stock valuation, thereby adding to our bottom line and resulting in an effective tax rate benefit of 31.4% compared to a tax rate expense of 15.4% in 2024.

As a result, net income more than doubled to $52.6 million for the year or $3.49 per diluted share on a GAAP basis compared to net income of $22.6 million or $1.58 per share in 2024. Adjusted earnings per share increased to $4.89 per share compared to $2.43 in the prior year. Revenue growth and margin expansion propelled these strong results.

Turning to the balance sheet and liquidity on Slide 11. We generated $80 million in cash flow from operations as continued improvements in working capital levels supplemented the strong earnings and $71 million in free cash flow or $4.69 per share in 2025. We invested $9 million in CapEx, primarily for proprietary software development and used $36 million for acquisitions. We also reduced borrowings by $40 million under our credit facility and had only $49 million in outstanding debt at year-end.

We ended the year with $66 million of unrestricted cash and a net positive cash position of $17 million, the first time since 2017 and effectively 0 leverage compared to the 0.3x EBITDA at the end of 2024. In addition, we continue to maintain full availability under our $100 million revolving credit facility, resulting in total available liquidity of $216 million at year-end. This provides meaningful financial flexibility as we move into 2026. Our capital allocation priorities remain consistent: reinvest in the business to support organic growth and pursue accretive acquisitions that expand and enhance our capabilities and geographic reach.

Turning to Slide 12. Over the past 4 years, our growth profile has been both durable and increasingly profitable. Gross revenue and net revenue grew at compound annual rates of 18% and 16%, respectively, while adjusted EBITDA expanded at a 30% compounded annual rate.

And on Slide 13, we've demonstrated the ability to expand margins over time through disciplined execution and productivity improvements, favorable mix and prudent cost management. The 21.8% margin in 2025, for the first time, exceeded our long-term goal of a 20% EBITDA margin. We expect the 2026 margin to also exceed that 20% target.

On Slide 14, we provide our financial guidance for 2026. These targets assume no future acquisitions. We expect net revenue in the range of $390 million to $405 million, adjusted EBITDA in the range of $85 million to $90 million and adjusted earnings per share in the range of $4.50 to $4.70 per share. These targets assume a full year effective tax benefit of approximately 10% and 15.8 million diluted shares outstanding. These numbers exclude any future acquisitions, though we expect to make acquisitions during the year, and our guidance will be updated accordingly.

In summary on Slide 15, fiscal '25 was a record year marked by continued growth and margin expansion. We entered 2026 with a strong balance sheet and ample liquidity to support strategic growth. We are positioned at the center of growing energy and infrastructure markets with a robust M&A pipeline to enhance scale and capabilities.

With that, operator, we are ready to take questions.

[Operator Instructions] And we'll take a question from Craig Irwin with ROTH Capital Partners.

So I'll start off the top by, I guess, asking about the thing that I think is affecting aftermarket trading, right? Your EPS guide of $4.50 to $4.70 is fantastic, but it is below the $4.93 last year. When I look at the tax rate that you're guiding us to a 10% benefit, that compares to negative 31% last year. So there's obviously quite a difference in the 179D assumption for 2026. This doesn't impact EBITDA. But can you maybe walk us through what your assumptions are for 179D in 2026, how this worked so very well for you last year? And is there a potential for us to see 179D maybe become more favorable for you over the course of the year?

Yes. Thanks, Craig. Well, the first big assumption is that consistent with the One Big Beautiful Bill, the 179D is set to expire at the end of June for this year. So that inability to carry that through to the end of the year means that we can only take advantage of that through projects that are started within the first 6 months of 2026, so that's the single biggest factor there.

There's also a little bit of a shift in just the work that we're doing from the Clark County School District. So we have a lot of school buildings within that school district to the shift into work we're doing for Alameda County and San Diego, which will involve fewer buildings, which are really the source of a lot of those 179D deductions that we got. So the main driver is just the assumption that the 179D provision is not being renewed as of the end of June and secondarily, that there's just fewer buildings in some of the projects that we're doing that would qualify.

Understood. That makes complete sense. So my next question is about the EBITDA growth, right? So for the trailing 4 quarters, your EBITDA growth has been between 67% and 190% year-over-year, really just absolutely crushing it. So when I look at this, I know your markets are helping in a big way, but I kind of have a suspicion that Willdan is humming on all cylinders, that there's certain significant operating improvements that are happening at the company that might be improving the fundamental profitability of the company moving forward. Can you maybe unpack for us any of these operational changes that might be taking place? I know you're conservative in your guide and you give us numbers that you firmly believe in. But how should we look at the potential for your initiatives on profitability and performance as contributors over the course of the next year?

Yes, Craig. First, we expect margins to continue to be above 20%, that long-term target. We achieved that this year. And in our guidance, midpoint's squarely above 20% again. It's actually a little improvement over this year. So that improvement continues, and the big structural change is -- over the last 5 years, is that we've moved up the value scale and are able to charge more for the work that we do.

The second is the back-office cost absorption of the scale itself. As we've grown the company, corporate costs are not growing at nearly the rate of the top line. So we think that's going to continue, and it's reflected in our guidance. You're right. I look back on last year's guidance, and our long-term expectations for investors are overall to grow 15% to 20% top line and bottom line. And I think by the end of the year, we'll be right there, if not better.

And that's exactly what we did in '25. We've got the same playbook for '26. We'll come in with appropriately conservative guidance at the beginning of the year. We know that you want us to beat and raise. And we think this positions us well. So I think it looks good for '26.

Excellent. Last question if I may. So you guys are winning in data center, right? Why? Because you bring the right resources to the customer quickly and they can rely on Willdan to execute the project impeccably. But you've historically done the same thing for utilities and utility demand seems to be going up because of the reserve margins that are falling across the country, right? Load growth is becoming a big problem. Do you see potential for continued request for accelerated project completion that tends to drive margins upward over the next couple of years? I mean is this a theme that you're seeing more predominantly across your utility customer base?

It is, Craig. You're absolutely right that utilities are being squeezed now. Generation is not necessarily keeping pace with the demand for that electricity. And so yes, energy efficiency is the cost-effective resource. They're trying to get as much out of those programs as they can get. And that's why you've seen those programs grow over time.

If you look back over 2025, 17% organic growth, there wasn't any single big win that drove that. It was mostly expansion from those long-term customer relationships, many of which are utilities, as you pointed out. That's exactly what we're seeing, and that trend is continuing.

Great. Well, congratulations on another really solid quarter, Mike. Impressive.

And next, we'll move to Tim Moore with Clear Street.

Congratulations just on the hard effort and the great execution throughout the year. You really harnessed the tailwinds and scale benefits. It came through and all beat, raise stocks still have momentum. So one thing I just want to follow up -- actually, 2 questions. If I recall properly from last year, year before actually, the fourth quarter of 2024, that Los Angeles Department of Power and Water contract wasn't, I think, in the 4Q '24 revenue. Did it ramp up meaningfully in this December quarter? I know you were lapping kind of not much contribution from the year ago period.

On a percentage basis, it ramped up materially, but its contribution was very small in dollars actually for the Q4. That program is ramping up, though. We're not going to see -- we'll see improvement in Q1 over Q4, but the big ramp-up for LADWP is in Q2 of this year, and it's actually right around the corner. We've got the amendments that we needed in place, the changes to the contracts, the contracting community's ready for it. And I think you'll see a material contribution to that contract starting Q2 of this year. And then it goes on for the next 4 years.

That's good. I think I was modeling $7 million to $8 million maybe a quarter. Maybe it will be higher. I know it was -- it could be higher than the original terms that phased down before renewal. So that's helpful. And Mike, I wanted to check something actually, if I heard correctly in your call, I mean, I'll just look at the transcript. But did you mention that you thought data centers could double in 2026 for revenue? Or was I mishearing the end market?

No, we were talking specifically about the APG acquisition that does that type of substation design and construction management for those data centers, and we are expecting that to more than double for us this year. A lot of those projects, though, are 2 or more years in duration, so we're actually building backlog into '27 and '28. This is going to be a long-term trend.

That's great. I mean it seems like it could be about 20% of your revenue by the end of the year from data centers related if it does double. I mean, I imagine it would. Does that make sense, it could be maybe 20%? I mean, I know APG gets some AT&T before that, but it seems like you could get to 20% data centers.

It will certainly grow from 11% year-over-year. I don't know where we'll end up. We mentioned it's the most robust area we're serving. And in addition, I'll mention, we're looking at acquisitions that specifically expand our capabilities to the commercial customers overall. We want to diversify in that direction. So we'd like to catalyze and drive that number up even further into the 20s.

Great. Great. And one last question is related to just the thread you just started. You did that Compass Municipal Advisors acquisition that really kind of gets you into the financing side, helps agencies and develop new projects. Is that a little bit different of a business model for you? I mean, is the margin higher because of the financing tie-in for that?

We have a financial services group, and we have -- for probably 15 or more years at Willdan, we don't talk about it a lot, but it's a legacy activity that we provide primarily for communities in the western half of the U.S. A lot of the work is in California, Texas, a little bit in Florida, so that was a geographic expansion of that group. We currently didn't serve any of the customers in North and South Carolina and Kentucky. So you're right. That can be a higher-margin business, and we see great cross-selling opportunities between that upfront financing work, particularly for school districts and the other things that we provide for those schools like energy efficiency.

Thank you. That will conclude the question-and-answer session. And this does conclude today's teleconference. You may now disconnect your line.

Greetings, and welcome to the Willdan Group Third Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to your host, Al Kaschalk. Please go ahead, Al.

Thank you, Kevin. Good afternoon, everyone, and welcome to Willdan Group's Third Quarter 2025 Earnings Call. Joining our call today are: Mike Bieber, President and Chief Executive Officer; and Kim Early, Executive Vice President and Chief Financial Officer.

Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides, all of which are available on our website. Please note that year-over-year commentary or variances on revenue, adjusted EBITDA and adjusted EPS discussed during our prepared remarks are on an actual basis.

We will make forward-looking statements about our performance. These statements are based on how we see things today. While we may elect to update these forward-looking statements at some point in the future, we do not undertake any obligation to do so. As described in our SEC filings, actual results may differ materially due to risks and uncertainties.

With that, I hand the call over to Mike, who will begin on Slide 2.

Thanks, Al, and good afternoon. The third quarter of 2025 marks another milestone in Willdan's growth. In the third quarter, we continued to execute very well, delivering results that exceeded the Street expectations and our own forecasts across all key metrics.

Against a strong Q3 last year, net revenue grew by 26% year-over-year, driven by an outstanding 20% organic growth rate. 2025 will mark the fourth consecutive year that we've produced double-digit organic growth. Margins also continued to expand in Q3, concurrently with significant investments for our future, with electric load growth expected to increase over the next decade, driven by data centers and electrification. Willdan's unique capabilities and execution position us well to sustain long-term growth. As a result, we are again raising our full year financial targets, which Kim will present a little later.

Turning to Slide 3. Willdan delivers a broad range of energy and infrastructure solutions to utilities, commercial customers and state and local governments. On the left side of the slide, the Energy segment makes up about 85% of our revenue, while our Engineering and Consulting work makes up about 15%.

On the right side, demand remains healthy across all customer groups. The 15% of work for commercial customers is mostly centered around electricity usage at data centers, where AI-driven load growth is creating significant demand. Willdan is helping technology clients navigate energy constraints, optimize infrastructure and meet aggressive power requirements.

Our Utility business makes up about 41% of revenue and continues to perform well. Most of our utility contracts are 3 to 5 years in duration, funded by rate payer fees and continue to provide a strong foundation of recurring revenue. The size of our long-term utility programs is generally increasing across the country as energy efficiency can be viewed as a power resource.

Work for state and local governments makes up 44% of revenue and continues to grow organically at a double-digit pace. Demand from our government customers remains solid, and the outlook is positive. Most of our government work is funded through user fees and municipal bonds, which have remained healthy.

On Slide 4. Our upfront policy, forecasting and data analytics work informs our strategy and helps us navigate market change. In our upfront work, we see particular demand for studies on the impacts of electricity load growth, and that work is growing at about 50% organically year-over-year.

Those market changes led us to the APG acquisition that provides Power Engineering solutions to data center clients, hyperscalers and other commercial customers. I'm pleased to report that APG is collaborating very effectively with the rest of Willdan and has already won record backlog that we expect will propel more than 50% growth by APG in 2026.

In other parts of Engineering, we saw strong execution and growth with both commercial and municipal customers. In Program Management, we performed above our plan on utility programs and building energy programs for cities. Demonstrating this model in an example, we are hired by technology hyperscalers to identify the optimal sites for data centers. We then provide clients, consulting, engineering and project management to supply the electricity that powers those centers.

The new generation of data centers usually requires high-voltage power, often hundreds of megawatts with a dedicated utility scale substation and utility interconnect. After a data center is built, Willdan provides energy optimization inside the data center as we have done for many years. Each step with the customer informs the next step. This model extends across all of our service lines.

On Slide 5. We have a strong pipeline of opportunities that we are converting into contracts, and the pipeline remains solid heading into 2026. Here are just a few examples we converted since our last conference call. For Alameda County, California, we won a 2-year $97 million project to design and implement energy and infrastructure upgrades at county infrastructure throughout San Francisco's East Bay.

For a confidential client, we won 2 substations for solar storage projects worth a combined $21.7 million in Oregon and Georgia. For a confidential client in Texas, we won a $14 million substation project for a solar energy storage system and a $7.8 million greenfield substation project. In Utah, we won a $3.6 million project to expand an existing substation. And I'll note that projects 2 through 5 on the table were all led by our recent APG acquisition. They're doing very well.

On Slide 6. In early October, Willdan's E3 subsidiary published new research on electricity load growth. This research forecasts between 0.7 terawatt hours and 1.2 terawatt hours of U.S. electricity load growth over the next 10 years. The drivers are broad-based and extend well beyond the data center load growth now often talked about to include new industrial demand, electric vehicles and the electrification of building systems. The colors on the bar chart depict the relative proportions of load growth drivers. This load growth is transforming electricity markets from a one static landscape into a dynamic long-term growth market.

On Slide 7. Looking globally, this map demonstrates that current data center electricity load expressed in gigawatts is by far the greatest in the United States right here. The map also puts into perspective just how large Northern Virginia data center electricity load is compared to anywhere else in the world. We've previously talked about our landmark study for Virginia on the impacts of this load, which has led to several more similar studies for data center developers and utilities.

Willdan is in the right market at the right time and is building the right set of capabilities to help clients navigate electricity load growth. Utilities are also investing to enhance reliability and flexibility as more distributed resources come online, requiring significant modernization of aging infrastructure. Together, these forces are driving one of the largest infrastructure investment cycles in decades, and Willdan is well positioned to help utilities and communities navigate this transformation.

I'm very pleased with the way our team is performing. Now Kim, over to you.

Thanks, Mike, and good afternoon, everyone. Our Q3 results reflect another quarter of significant year-over-year improvement, continuing a trend that began in early 2022.

Turning to Slide 8. For the third quarter of 2025, contract revenue increased 15% year-over-year to $182 million, while net revenue grew 26% to $95 million. The recent acquisitions brought 6% of that growth, yielding an organic growth rate of 20% for the quarter.

Growth was broad-based across both segments, led by continued strength in utility programs and double-digit gains in planning and construction management as well as continuing municipal demand, geographic expansion and new contract wins. Gross profit for the quarter grew 30% to $67.1 million, up from $51.6 million last year, driven by the revenue growth and solid project execution. Altogether, higher revenues, favorable gross margin and effective cost control drove a 91% increase in pretax income to a record $14.3 million for the quarter.

We reported a 4% income tax rate for the quarter compared to 2% for the same period last year. So net income thus rose to $13.7 million, up 87% from the $7.3 million we reported in Q3 of 2024. Adjusted EBITDA reached another new quarterly record of $23.1 million or an adjusted EBITDA margin of 24% of net revenue and up 53% from what was an excellent performance in the quarter a year ago. GAAP diluted earnings per share increased 77% to $0.90 per share while adjusted earnings per share was up 66% to $1.21 for the quarter compared to $0.73 a year ago. Broad-based growth and excellent execution drove a record quarter.

Now to Slide 9. For the 9 months of 2025, contract revenue was up 20% year-over-year to $508 million, while net revenue increased 27% to $275 million. $14 million of the net revenue growth came from acquisitions over the past year, yielding organic net revenue growth of 21% year-to-date.

Gross profit increased 31% to $193 million, up from $148 million last year. Pretax income grew 77% to $29.7 million. The discrete tax benefits from stock option exercises and 179D energy efficiency deductions allowed for a $4.2 million tax benefit year-to-date and thus a net income of $33.9 million or $2.26 per diluted share through the 9 months. Adjusted EBITDA rose 52% from $39.1 million in 2024 to $59.5 million or an adjusted EBITDA margin of 21.6% of net revenue, and adjusted earnings per share nearly doubled to $3.34 per share. All are record numbers for a 9-month period. We are on track to exceed our goal of 20% adjusted EBITDA margin in 2025.

Slide 10 outlines our balance sheet and cash flow metrics. We ended the quarter with only $16 million in net debt after deploying $33.4 million cash for the recent acquisitions. This brings our trailing 12-month leverage ratio down to 0.2x adjusted EBITDA compared to 0.3x at year-end 2024. Free cash flow for the first 9 months was $34 million, consistent with the $33 million generated for the same period in 2024. On a trailing 12-month basis, our free cash flow was $65 million or an impressive $4.34 per share.

We had all $100 million available to draw under our revolving credit facility and an available but undrawn $50 million delayed draw term loan plus $33 million in cash on the balance sheet, giving us $183 million in total available liquidity at quarter end. Our healthy balance sheet, expanded credit facility and consistent operating performance provide us with the financial flexibility to pursue targeted acquisitions and expand capabilities in strategic markets, all while maintaining prudent leverage.

Turning to Slide 11. This slide reflects the 20-plus-percent compound annual growth in revenue we've been able to achieve over the past 15 quarters and the even more enviable growth in the adjusted EBITDA over the same period. The lines reflect the ebbs and flows of our diversified portfolio of projects across sequential quarters, but the clear trend across the nearly 4-year period is up and to the right. This record of sustained improvements has been enabled by the strong execution by our management team in a growing market.

We've been able to grow and diversify our service offerings to satisfy the increasing demand from utilities, governments and commercial clients to adapt to the new environment.

On Slide 12, building on this multiyear record of performance improvements, we're raising our financial targets for 2025. Net revenue for the full year 2025 is now expected to be between $360 million and $365 million, and adjusted EBITDA is now expected in the range of $77 million to $78 million. Adjusted diluted earnings per share is projected to be between $4.10 and $4.20 per share based on an estimated tax benefit of 10% and 15.2 million shares outstanding. These targets do not include the impact of any future acquisitions.

Wrapping up on Slide 13. We're proud of the results we've been able to deliver, and we're excited about the potential for the future as we continue to win new contracts and expand existing ones. Organic net revenue growth of 20% for the third quarter, the successful completion of recent acquisitions and excellent free cash flow conversion attest to the record-setting performance for the quarter and the year-to-date.

Our performance and confidence in the future support raising our 2025 financial targets. With low leverage and an experienced and motivated management team, we are well positioned in dynamic and growing markets, and we have an active pipeline of strategic acquisition opportunities.

Operator, we're now ready to take questions.

[Operator Instructions] Our first question is coming from Craig Irwin from ROTH Capital Partners.

So I should start by saying congratulations, another really just amazing quarter. Mike, in the last few quarters, you've been growing close to double the targeted growth rate that you've had for the last several years. I wanted to ask if you could maybe talk a little bit about what's lifting this customer demand. How do you plan for the capacity to serve these opportunities?

And the profitability is clearly there. Do you get more picky or more choosy about how you service these customers? Or do you see this as something that can maybe be an opportunity for you to continue over the next number of quarters?

That's a big question, Craig. Thanks. Well, first, the market is good. You know that. Electricity prices are rising. Demand for electricity is increasing. So the market is good. But there's something else going on.

Our own performance within that marketplace has improved pretty substantially over the last couple of years, as you mentioned. We're more effective at cross-selling, especially with new acquisitions that we bring in than we ever have been before, and that has led to tens of millions of dollars of new revenue that we had never seen before in our cross-selling evolution, I'll put it.

Culturally, we've become much better at that. And APG and the list of their wins sort of epitomizes that. They've been excellent collaborators. We've got a great pipeline. And they're hoping to accelerate and catalyze our growth into 2026. You saw that on the new wins. So that's what's going on.

I can't provide you a detailed forecast for 2026. We won't do that until March of this year, but we have been -- we normally guided the Street towards high single-digit organic growth rates. And you're right, we've been about double that now for a little while. We're going to do our best to make it as reasonably high as we can.

You mentioned becoming selective. And in certain instances, we have become selective with those projects. We can afford to do so at this point, especially in our commercial work for data centers, where we're choosing to work with certain mid-tier developers that we have very close relationships with, we're working effectively with and it's a good business environment. It's not competitive. It's directly negotiated work, and we are becoming more selective in that area.

Understood. And I'm guessing that you might be referring to APG, which bridges into my next question. So the work that APG is executing the work they're winning -- the data center work is some of the most exciting projects that Willdan is completing right now.

Can you maybe talk about the ability for other areas of Willdan to supplement the capabilities at APG and the execution capacity there? And is this something that is improving employee utilization and just general resource utilization for the company?

Yes, sure, Craig. Well, first, our upfront consulting work that we do, particularly for the hyperscalers is feeding into our information that we know where the new data centers are going into. That's useful. And on the back end of that, the work that we had been doing to make energy efficient or make data centers more energy efficient, we've been doing that work for a long time is useful in our knowledge of working around that environment. So all of those groups are collaborating pretty well. We're also even getting our civil engineering group involved in certain projects. So that's sort of what the landscape looks like right now.

Okay. And then last question, if I may. Other companies in the service sector are talking about difficulty sourcing employees. Can you talk about the Willdan workforce? How flexible is the workforce that you've assembled over the last several years? Are you able to develop people up to fill these needs, these opportunities? And do you see this as an impediment to your growth?

We don't see it as an impediment to growth. Actually, we see ourselves as the employer of choice. We have not had major impediments in hiring employees. And I just saw today that our employee count for the first time has reached over 1,800. We're hiring. And I think we're doing a very effective job of hiring and retaining key employees. I'll note that we [ have ] had 0 turnover in our senior management team over the last more than 2 years. We haven't lost a single person. So no, it's not a major impediment. Look at our website if you're interested.

Well, congrats again on another really solid quarter.

[Operator Instructions] Our next question is coming from Tim Moore from Clear Street.

Mike and Kim, congratulations on the continued execution and optimizing your funnel to really cross-sell and benefit from this low-power secular theme. So my first question is really more about risk management and balancing that. It's a good problem to have to be growing organically as fast as you have in the last few quarters and seemingly for next year. So can you maybe just give us a little color on -- we know you hired a lot more consultants this year.

We know the employee count is up a lot. You're getting inbound inquiries also through your project managers. But just wondering how you kind of think about accepting larger projects and program management and just making sure that you're staffed without maybe having to pay overtime or on-site costs or actual travel and hotels for maybe a project that if you're jumping around. Just -- can you give us some color on that to really keep the margin up there?

Sure. Great question. We don't often get it from investors, but it's what we spend most of our time on day in and day out, Kim and I, on this risk management idea. You're right that you need to look -- when you're growing organically at 20-plus-percent, you need to look at the leading indicators to make sure that you're delivering effectively for those clients. And we look at everything from quality to health and safety to other factors, and we review them every week with every operating unit.

The leading indicators look good, and we're not seeing issues that might say that we're taking on too much risk or growing too quickly. But we are growing quickly, and we're keeping our eye on that and keeping our eyes wide open. That's how I would describe it.

Kim, do you have anything to add?

Yes. The only thing I would add to that, Tim, is that these larger scale projects take a while to develop. And it's not necessarily a big surprise to us when we finally get awarded a project. It's not like we're waiting for some envelope to be opened at the end of a process, and we don't know what's going to happen there.

We are working on these -- developing these projects for quite a long period of time, and we can see them coming and we can get a pretty good feel from these clients that we may be in position to win. So we're able to look ahead and plan effectively as well as to what those risks are and how can we get those staffed and how can we make sure we're prepared to execute when the project finally does get awarded.

Yes. Kim is right and points out correctly that a lot of these start out as T&M consulting projects. We're developing the project for months in advance. We're doing all of the engineering, and we may, with the client decide to, convert it to a fixed price or fixed unit price contract later on, but we're mitigating our risks significantly by working closely with the client upfront in planning.

That's terrific color. I'd realize that a big renewal like the Los Angeles Water and Power Department won, it's pretty well planned out. Just curious about the new first-time ones, and that's really helpful.

My only other question is, as you cross-sell APG more that's early innings, E3 software, civil engineering cross-selling, I'm just wondering, does your team -- and maybe Kim you can speak to this, do you prefer smaller bolt-on acquisitions? Or can you really tackle something that's maybe $100 million-plus target and integrate it well and still be able to cross-sell it well without maybe taking some staff power off of the cross-selling team that's in the rest of the business as you kind of really look at commercial electrical engineering or maybe interconnection?

Yes. I think we've got a pretty effective systems and communication devices, I guess, that we use for the cross-selling activity. And so it's pretty efficient for us as we bring in these bolt-on acquisitions to establish that kind of cross collaboration. But we're definitely prepared to be able to handle $100 million kind of size group.

Just culturally, we fit that way. Our tools are kind of designed to make sure that we'll be able to cross-collaborate without significant barriers on those projects. So we definitely keep our eye open for those kinds of opportunities, and we plan for that kind of potential acquisition as well.

And whenever you make acquisitions of those size, the leadership on both sides of the fence, our side and the company that's being acquired, the management teams are usually pretty anxious to get to know each other and to find out what the others are doing and how can we work together on that. And that's probably the most exciting piece to most of our team. So we're prepared to do that for sure.

Our next question today is coming from Richard Eisenberg, a private investor.

Yes. Congratulations on a great quarter. On the last call, you talked about a potential $100 million contract with the State of New York. Is that still in negotiation phase? Do you expect to close that?

We have several large contracts in New York that we're pursuing. And yes, we remain very optimistic that we're going to be successful on one, if not several of those opportunities. And I think they're going to help drive 2026 growth.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Well, thank you all for attending, and we look forward to speaking with you soon. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.