Thomas Brisbin knows first-hand the agony and thrill of a roller coaster ride on Wall Street.
After he was named chief executive of Anaheim-based engineering firm Willdan Group in early 2007, its stock plummeted almost 90% to nearly $1 during the 2008 financial crisis.
“That hurt, but it could be looked at as a great benefit,” he remembered recently at Willdan’s Anaheim headquarters. “It forced us to do something different. It forced us into a business that we would not have moved into were it not for the recession.”
Before the crisis, the firm focused on engineering work for California cities.
Willdan acquired an energy efficiency consultancy and started helping utilities to advise customers on reducing energy consumption. The move paid off big time when the company’s stock price began a remarkable 30-bagger run in 2012.
The company’s revenue has almost tripled since from $93 million to a projected $250 million to $260 million this year. Brisbin is shooting for 20% annual sales growth.
“They are designing the smart grid of the future,” said Wedbush analyst Moshe Katri. “They are a pure-play for professional, technical services in the utility sector in the energy efficient industry. They’re creating a lot of disruption.”
Wedbush has an outperform rating with a $40 target price.
“They are growing the topline 20% annually, and they’ll probably have 20% EPS growth, which easily supports a $40 price,” Katri said. “The numbers have been very impressive. They have multiple tailwinds to the story.”
Surviving 2008
Willdan Group, established in 1964, takes its name from a combination of the first names of founders William Stookey and Dan Heil, both of whom have died. Over the years, it’s won engineering contracts from about 400 of California’s 470 cities, Brisbin estimated. It’s worked on structural bridge retrofits, interstate freeway improvements, and flood-control projects.
The company went public in 2006, a few months before Brisbin was hired. It suffered along with the rest of the real estate building industry in the financial crisis, when its revenue fell 22% from $79 million in 2007 to $62 million in 2009 and it laid off about a quarter of its workforce, leaving it with 466 employees.
“When the subprime bubble burst, we got hit really hard,” Brisbin said. “It was the worst recession Willdan had ever faced.”
When he decided to seek a new industry to enter in order to diversify, he foresaw that the federal government would emphasize energy independence due to his knowledge of forthcoming federal policy. So in 2008, Willdan bought Intergy Corp., a consulting firm in energy and water conservation. The move paid off when it won a $75 million contract in 2009 from Consolidated Edison Inc., which provides electricity to much of the New York City region.
“We won the largest energy efficiency contract in the nation,” he said. “From there, we started our energy efficiency business in a big way.”
Around the same time, it won a $10 million a year contract to provide public works services to Elk Grove, a city near Sacramento. The recession in the building industry ended in 2012, and sales started to recuperate, but till then, the two contracts helped the company survive, Brisbin said.
$1T Market
Nowadays, Willdan employs 821 people in 25 offices and plans to hire 50 to 100 annually in the coming years. It has 200 active projects and 1,000 clients.
The energy efficiency unit generated 68% of its 2016 revenue, up from 49% in 2014. By contrast, its engineering unit fell to 25% of revenue last year from 38% in 2014.
The energy conservation business presents a big opportunity with its $40 billion to $50 billion in annual sales. The grid modernization that’s been under way may cost well over $1 trillion, Brisbin said.
“If you look at the modernization of the grid, what the utilities are faced with is how we will generate, transmit and distribute energy in the future. We are trying to be the consultants for that transformation, and that is interesting.”
He said his firm can help companies, homes and universities reduce energy costs about 25% to 40% by recommending new systems for lighting, cooling and heating. It can also help them generate electricity through solar or other methods. He said it’s advised 700 hotels.
Rivals like giants Johnson Controls and Honeywell International Inc. have an inherent conflict of interest when providing services because they’ll often recommend their own equipment.
“For a business owner, how do you know which is the best equipment to put in?” Brisbin said. “We don’t want to manufacture equipment. We want to be the technical knowledge that knows which company is best. We’re equipment-agnostic.”
In January, it won a $75 million contract from ConEd, whose market presents it with the potential of 270,000 additional companies to advise. In March, it won a $10.9 million contract from the city of Lawrence, Kan. to make 40 city buildings energy efficient. Early this month, it was awarded two contracts of $60 million each from the state of California to help it reduce energy and water consumption by 20%.
“Any industry that is going through disruption needs an expert consultant to cope with the changes that are happening,” analyst Katri said. “This is where [Willdan] has a critical role.”
Sensitive Utilities
In California, customers pay a 3% tax that utilities use to encourage customers to lower usage. Brisbin said the tax generates about $1 billion a year, 20% of which utilities give to contractors. He said he believes that may rise to 60%, benefitting contractors like Willdan.
It’s a sensitive area for utilities because they are in effect encouraging customers to use less of their products, and utilities may lose revenue as a result, Willdan said.
“Just think if you’re the utility and everybody is now taking control of their own generation,” Brisbin said. “They may put in solar panels, a battery or generators running on natural gas. It takes the customer off the grid. Now you get a community that wants to do it, and then a city or a campus. You see a lot of campuses looking at micro-grids where they can generate and distribute, independent of the utilities.”
Largest Property Owner
Willdan’s next opportunity may be the federal government, which Brisbin said is “the largest property owner in the world,” and whose agencies and military bases own thousands of buildings.
“They are all in desperate need of an upgrade” to their energy systems, he said.
Half of the company’s 20% planned annual revenue growth would be organic, the other half through acquisitions. Brisbin said he’s buying companies to complement Willdan’s products, not for revenue. In August, the company acquired Integral Analytics Inc. to obtain “a state-of-the-art software app” to map the power grid.
A 20% growth rate implies the firm may top $1 billion in eight years. It might come faster if Brisbin makes a large acquisition, he said. He added that the company hasn’t received a buyout offer.
The acquisitions are one reason the share count has risen from 4.9 million when he took over to 8.9 million. Shares are often given to encourage owners of acquired companies to “get on the same page as we are.”
If stock moves over the past five years are any indication, it might be a roller coaster worth the ride.