Willdan Q2 FY2026 earnings: Energy demand drives 23.5% net revenue growth

Willdan Group (Nasdaq: WLDN) reported fiscal Q2 2026 contract revenue of $231.0 million, up 33.2% year over year, while GAAP diluted EPS rose 53.4% to $1.58 from $1.03. Non-GAAP net revenue increased 23.5% to $117.2 million, and adjusted EBITDA rose 50.6% to $33.0 million, led by Energy segment demand and improved operating leverage. First-half cash conversion was less favorable, but the company raised its FY2026 financial targets.

Core earnings data

Contract revenue grew faster than net revenue because subcontractor services and other direct costs increased more rapidly. Willdan defines net revenue as contract revenue excluding those largely pass-through costs, making it a closer measure of work performed by its employees.

Profit growth outpaced net revenue growth. Operating income increased about 67%, while adjusted EBITDA margin measured against net revenue expanded by approximately 5.1 percentage points.

Gross margin was approximately 37.9% of contract revenue, down from 39.4%. In contrast, operating margin increased to about 8.5% from 6.8%, showing that higher gross profit dollars and operating leverage more than offset the lower reported gross-margin percentage.

Business and segment performance

Energy was the main growth engine, accounting for about 95% of the consolidated increase in net revenue. Engineering and Consulting remained positive but grew at a much slower rate.

Management said consolidated net revenue growth included 18% organic growth, compared with reported growth of 23.5%. It attributed demand primarily to energy solutions and also cited growth in the commercial business as a contributor to margin expansion.

Pass-through costs diluted gross margin, but operating leverage lifted earnings

Subcontractor services and other direct costs increased approximately 44.9% to $113.8 million, faster than contract revenue. These costs represented about 49.3% of quarterly contract revenue, compared with 45.3% a year earlier, explaining why contract revenue grew faster than net revenue and why gross margin on reported revenue declined.

The earnings picture below gross profit was more favorable. Gross profit increased about 28%, while general and administrative expenses rose approximately 19.8%. That gap helped operating income grow about 67%, while adjusted EBITDA reached 28.2% of net revenue, up from 23.1%. Management attributed the improvement to favorable business mix, operating leverage and commercial business growth.

Profitability, cash flow and the balance sheet

Quarterly net income exceeded pretax income because Willdan recorded a $5.3 million income-tax benefit. The comparable quarter also included a similar $5.3 million benefit, so the year-over-year increase in net income primarily reflected higher operating profit and lower net interest expense rather than a larger tax benefit.

Cash conversion moved in the opposite direction from earnings during the first half. Six-month operating cash flow fell to $19.5 million from $28.7 million even as year-to-date net income increased to $32.9 million from $20.1 million. Accounts receivable absorbed $12.1 million of cash after contributing $16.9 million in the prior-year period, while contract assets used $27.1 million compared with $18.1 million previously. Approximate free cash flow after equipment and software purchases was $15.8 million, down from $24.2 million.

Willdan spent $50.5 million in cash on acquisitions during the first half. Cash and cash equivalents declined to $34.9 million from $65.9 million at the start of the fiscal year, while total notes payable increased to approximately $67.2 million from $48.5 million. The company also had $4.3 million of restricted cash at quarter-end. The fiscal 2026 first half contained one fewer week than the comparable fiscal 2025 period; normalized cash-flow figures were not provided.

FY2026 guidance

Willdan said it raised its fiscal 2026 financial targets following the quarter, although the release did not provide the previous ranges. The updated targets point to continued net revenue and adjusted earnings growth through the remainder of the year.

The targets assume 15.9 million diluted shares, a 0% effective tax rate and no future acquisitions. Willdan also maintained long-term goals of 15%-20% annual growth in revenue and net revenue, including acquisitions, and an adjusted EBITDA-to-net-revenue margin in the high-20% range.

Management perspective

President and CEO Mike Bieber linked demand to customer investments intended to address growing electricity consumption while improving grid reliability, resilience and affordability. Management’s decision to raise FY2026 targets reflects its view that these energy-related opportunities can continue supporting growth, although the release did not quantify the expected contribution from individual customers or projects.

Recent insider transactions

The supplied insider data categorized activity over the past six months as 202,670 shares purchased across 21 transactions and 72,667 shares sold across three transactions, for a net 130,003 shares acquired. That purchase category includes transactions such as stock awards and option exercises, so it should not be treated as equivalent to open-market buying.

The latest individual transactions with disclosed monetary values involved CEO Michael A. Bieber exercising options and selling shares in May 2026. These records describe the transactions but do not, by themselves, establish management’s view of the company’s valuation or outlook.

Risks investors should monitor

• Working-capital conversion: Operating cash flow declined despite substantially higher net income because receivables and contract assets absorbed more cash. Continued working-capital expansion could limit cash available for other uses.
• Subcontractor and project-mix variability: Subcontractor and other direct costs grew faster than contract revenue, widening the gap between contract revenue and net revenue and reducing gross margin measured against reported revenue.
• Dependence on Energy segment growth: Energy generated nearly all of the quarterly net revenue increase, while Engineering and Consulting net revenue grew only about 4.2%. A slowdown in energy-related demand would therefore have an outsized effect on consolidated growth.
• Acquisition and balance-sheet execution: Acquisition spending contributed to lower cash and higher debt during the first half. Realizing the expected benefits while integrating acquired operations remains important to future returns and cash flow.
• Guidance assumptions: FY2026 adjusted EPS guidance assumes a 0% effective tax rate and no additional acquisitions. Results could differ if either assumption changes.

Summary

Willdan’s fiscal Q2 2026 results were driven by rapid Energy segment growth, favorable business mix and operating leverage, allowing operating income and adjusted EBITDA to rise faster than net revenue. Higher pass-through costs reduced reported gross margin, while first-half working-capital needs caused cash flow to lag earnings. The main follow-up points are execution against the raised FY2026 targets, continued energy demand, margin sustainability and improved conversion of earnings into operating cash flow.