Good day and welcome to the Willdan Group Incorporated Second Quarter 2015 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Nii Tetteh. Please go ahead.

Thank you. Good afternoon everyone and thank you for joining us to discuss Willdan Group's Financial Results for the second quarter ended July 3, 2015. With us today from management are Chief Executive Officer, Thomas Brisbin; Chief Financial Officer, Stacy McLaughlin. Management will review prepared remarks, and we will then open the call up to your questions. Statements made in the course of today’s conference call, which are not purely historical, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve certain risks and uncertainties, and it is important to note that the company’s future results could differ materially from those in any such forward-looking statements. Factors that could cause actual results to differ materially and other risk factors are listed from time to time in the company’s SEC reports, including but not limited to, the Annual Report on Form 10-K filed for the year ended January 2, 2015. The company cautions investors not to place undue reliance on the forward-looking statements made during the course of this conference call. Willdan Group Inc disclaims any obligation and does not undertake to update or revise any forward-looking statements that made today. With that, I will now turn the call over to Chief Financial Officer, Stacy McLaughlin. Stacy?

Thanks, Nii. I’d like to add my welcome to those joining us on today’s call. In addition to GAAP financial results, we'll then also provide non-GAAP financial measures that we believe enhance investors’ ability to analyze our business trends and performance. Our non-GAAP measures include revenue net of subcontractor costs and adjusted EBITDA. We believe revenue net of subcontractor cost allow us for an improved measure of the revenue derived from the work performed by our employees. Adjusted EBITDA is a supplemental measure of operating performance which removes the impact of certain non-reoccurring income and expense items from our operating result. GAAP reconciliations for both of these non-GAAP measures are included at the end of the earnings release we issued today. We had another strong quarter of year-over-year growth in revenue and EBITDA driven by strong organic growth, as well as the contribution Abacus and 360 Energy, the two acquisitions we completed in January. I'll start with an overview of our income statement, then our balance sheet and finally our guidance. Total contract revenue for the second quarter of 2015 increased 36.3% to $36.8 million, from $27 million for the second quarter of 2014. Abacus and 360 Energy contributed $7.7 million in contract revenue for the second quarter of 2015. Willdan’s organic growth rate was 13.3% for the second quarter of 2015. From an organic standpoint, the increase in total contract revenue reflects greater demand for Willdan’s Energy Efficiency and Engineering Services. Willdan’s acquisitive revenue growth rate was 23% by segment. Revenue from energy efficiency services grew 57.2% to $21.5 million. Engineering Services contract revenue increased 20.8% to $11.5 million. Revenue from Public Finance Services increased 12.4% to $3 million and Homeland Security Services revenue declined by approximately $300,000 to $700,000 in the quarter. Revenue, net of subcontractor costs increased…

Thanks, Stacy. And good afternoon, everyone. 2015 is off to a good start and we continue to make excellent progress in the second quarter. On today's call I will provide an update on each of our business segments. Energy Efficiency. Energy Efficiency Services continues to be a key contributor to our strong results and as Stacy mentioned our revenues were up 57% in the second quarter. From time to time, we still get asked if the demand for Energy Efficiency is correlated to the price of oil, I'll say it again, it is not. Over the past year the price of crude has dropped by roughly 50%. Throughout the price decline we are seeing a steady increase in a number of business development opportunities, resulting in a strong overall growth we are seeing our Energy Efficiency segment. Legislation, that will limit the use of coal, will create a greater demand for energy efficiency over the next 15 years. The more significant development this quarter was the award of another energy efficiency program from the Southern California utility. This program are second with this utility, will focus on reducing energy usage in small and medium non-residential facilities. The program has an initial budget of $7.5 million through June 2016. Our utility customers have on average 20 different programs focused on reducing energy usage across specific industries, ranging from multi-family housings, to hospitals, hotels, data centers and small businesses to name a few. We are focused on being a preferred a partner to our large utility clients across all these business segments. To that point, our initial program with the Southern California utility focused on reducing energy usage for their hotel customers. This program has been extremely successful surpassing the targeted goals. When the program for small and medium non-residential facilities was…

Thank you. [Operator Instructions] And we will take our first question from Andrew Gordon with Zeke LP.

Hey, Thomas, Stacy, congrats on another solid quarter and thanks for taking my questions.

Thank you, Andrew. What is the question?

So the first thing I wanted to ask about is legislation both on a local and a national level. I approved from an industry contact that intensify the legislation in New York has led to Con Ed experimenting with increasing some subsidies for direct install work above the 70% level that we had formerly been made aware of. So I am just curious if is any truth to that and what benefit you might be seeing or expect to see?

We have not heard that, we had our operating review yes, two days ago. Our guys were in, nobody brought it up. But if it’s true, it will help. How is that Andrew?

Okay. Good enough. I…

So it’s true. If it’s true, what you're saying is the customer will have to pay less, right?

Yes.

It’s going around the California, California got to the point that the customer paid nothing for some of the measures…

Yes.

Because the cost sell and outrage [ph] was so much, it didn’t make sense.

That’s what I've heard. I've heard its going to nothing for certain New York customers, but…

Well…

You would know better than I would…

We've talked about it with Con Ed, NYSERDA and New York for probably 5 years, but I have not heard that made the decision.

Okay. The other question on legislation was I heard you mentioned that the recent legislation around the Clean Energy plan sets up nicely for the longer term for you business. I am curious though if you foresee any sort of acceleration in demand response work over the immediate term as you utilities maybe try to position themselves early on?

I think so. I mean, we'll be able to talk more by the end of year some programs where energy efficiency is really becoming very important to the utilities, very important. It was something that was forced on it before, but with the shut down of coal it’s a necessity. Is that fair?

Sure.

Okay.

The next question I want to ask you was, so congrats on that win in Southern California, can you give any guidance on how much should that revenue expect to achieve in the back half of 2015?

We've started it at $7.5 million, I think that ends in June, 2016. I would probably put a little bit of crude line, we see probably most of it in '16, but I would say 20% of it in '15. That’s a guess.

Only 20%, okay.

Okay, 25%. We're just starting the…

I was – I am just, I am trying to – what I am trying to get at is, if you – I was expecting it will be, I was thinking maybe if were a half then it would be hard to see how you wouldn’t surpass the high end of your guidance very…

Well…

If its less than that, then it makes, I guess I understand it, although it still seems to me – I guess, a related follow up question is, I think I've heard you state in different occasions or in the past two earnings calls, the January acquisitions were possibly at run rate of $20 million or possibly at $25 million, so you got $7.7 million this quarter, I understand its seasonal. But what's the current annual run rate do you think that’s the most fair for where they currently are before you see that ramp up in the order activity?

To be clear, I don’t think I've ever said 25, I've stuck to 20…

Okay, you didn’t have, maybe it was miswritten in the transcript.

You got a transcript saying …

No, I am saying, it was Seeking Alpha transcript that I thought I'd seen 25.

Mike's got an answer for you though on how things are looking with…

They are growing. And you'll see that in our 10-K or 10-Q.

Sure.

So, or we'll see more than 20s is his question Mark, do you want go there?

Not yet.

Not yet. Maybe by the third quarter Andrew, we'll have a better number for you for the rest of the year.

Okay.

The third quarter, second lead into the third and the first couple of months of the fourth are generally the stronger.

Sure.

For these two businesses.

Yes.

So I have a better handle at the end of the third.

Okay. I also wanted to ask you, have you set up share repurchase facility and related to that, you have your net cash balance is almost nearly 20% of the market cap, your business Con Ed I think is gone considerably better with every say contact win, and legislation and the stocks being going down, I am just wondering are you willing and able to get more opportunistic with repurchases?

I've stated before order is priority is acquisition, second would be stock repurchase, third would be dividend. Our current agreement with the bank does not have the covenant to allow stock repurchase. But I can also tell you we're working on it with the bank to remove that covenant.

Okay.

So that are dividend indication what we're thinking about with your question.

Sure. I think that’s it from me. Yes. Thank you, again and congrats on a great quarter.

Thanks, Andrew.

We will now go to Al Kaschalk with Wedbush Securities.

Good afternoon, everybody.

Hi, Al.

Hi, Al.

Just to clarify on this energy efficiency contract with the Southern Cal utility, it was awarded for I guess, in July or June I forget timeframe, why is it so back ended, back half loaded in terms of their fiscal year?

Well, it’s a start up of a new contract, and as we guys get the sales force out, you're going to make the sales, gradually energy audits [ph] you got to get approvals, and you're starting from ground zero. Any ramp up of this type of contract is generally three months. You could say Con Ed, New York which is the largest one in the country to ramp up is one year. So three months to ramp up, then we hit our stride hopefully fourth quarter and that leaves 78% of it for first part of '16.

Right…

That’s pretty typical of it, I hope there is any contract.

Yes. That’s the nature of my question, I didn’t think it was that far off of your historical contracts and in particular this type of contracts, so that’s great. On the re-compete, when do those, so you're good through the end of the calendar year or is it through the June of '16, when do you start to revisit these re-compete opportunities and what kind of dollar level are we talking?

We don’t anticipate any changes. We don’t exactly know, we always think its good news that they extend them. But how long they can extend we're anticipating in end of '16 for our major utilities. But if they came back next summer and said, we're going to go another year, that’s good for us.

Right.

I can't – I don’t have an answer, we don’t know

Okay.

Beyond next - second half of next year.

The second half of next that the contract work is not needed to be re-competed through the end of June of '16 is that…

In the calendar they may go, and the contract term they may extend, we don’t think we we'll see any re-competes until next summer.

Okay.

That is all I know right now.

Great.

We have no definitive answer on any of them.

Okay. Now let’s go back and revisit I guess say the gross margin but it obviously provides us the data point to think through this pass through activity that has increased, what – how much of revenue are we talking here and what is the result of because I thought we had anniversaried a lot of this pass through?

Hi, Al. Over the quarter, our subcontractor revenue increased and it has a lower margin than the work performed by our internal employees and therefore decreased our gross margin.

Right and I understand that, what I was trying to get is how much revenue now is more in the subcontract subject to being subcontract now and therefore has this pass through versus 100% of it not being just self perform?

I would say it’s about the same as our revenue net of subcontractor cost, so for Q2 that was around $26.9 million and for the year-to-date it was $51.9 million or $52 million.

Okay. But…

We have the detail on the end of the earnings release as well.

Okay. I’ll follow-up offline. But I’m just trying to understand how much is it work that came on from 360 and Abacus that’s caused thus the increase or is there new work that you won that in terms of going forward it may be consistent with the first one or two quarters of this year. But I’m just trying to appreciate how we should think about the gross margin line?

The increase is related to the acquisitions of Abacus and 360, they do use a higher percentage of subcontractors than the rest of the energy group does, as well they have – they are very busy in the summer months because the schools being out they do a lot of – lot more job. So we would expect the increase during these quarters.

Got it. Thank you very much.

You’re welcome.

We will now go to J.D. Padgett with ALMAK Capital.

Yes. Hi, just a couple quick ones. Once Stacy I thought you said the acquisition revenue was…

J.D? Hello, moderator?

Sorry about that. Mr. Padgett I guess he got off the line. If you could please re-prompt we'll go ahead and go now to Wyatt Carr with Monarch Bay Securities.

He is there - he is back in the queue. Let’s see if we can get him back on.

Perfectly, fine, one moment please.

Hello?

Mr. Padgett, you’re back on with us.

Hello, can you hear me?

Yes.

We’re able to hear you now perfectly.

Okay, perfect. Yes, I can hear you. Thank you.

Sorry about that?

Strange. Couple of quick ones for me, Stacy I thought you said acquisition revenue was $7.7 million is that right?

Correct.

Okay. And then did you say excluding that revenues grew something like 13% year-over-year my math was just coming up a some little different and I just wanted to double check I wasn’t doing something wrong?

Year-over-year consolidated was 36.3% and 23% was related to acquisitive growth.

Okay. So the $7.7 million on the base last year of like 27 would be what, like 28 or 29 points of growth? Am I looking at that right?

What’s your question, tell your question again? You want to know how much was organic?

Yes I was getting excluding acquisitions growth was more like 8% or some like that I think?

I think we had 13%.

Yes.

So, that number do you want to work.

Either way I just want to go with the right one was to look at?

We started the acquisition growth after the first quarter, you started after the - depends on when you started, so we had about $1.2 million, $1.3 million of organic growth from the acquisitions of what we modeled them at and they help you to get to the 30%.

Okay. So you’re including a little organic unlike on what you did with the combined business. Okay.

Right.

It makes sense. And then the confidence about some of the utility programs is that when we look at Con Ed in the context of that comment is that something we should expect Con Ed to be similar revenue run rate in 2015 to what they did in 2014 which I think was about $27 million or is that kind of winding down a little bit is the contract – current contract matures or what is your expectation around that?

We think that will be flat from where we are right now.

Okay.

We have no indication of less, we have no indication of more with regards to that contract. We do know they are coming out, that is why I commented with other programs that they are closing out early and that will be chasing that will imply it could potentially grow 2016.

Okay. But for this year and what you've seen through the first half it is kind of tracking on pace with the $27 million from Con Ed that you did last year?

Yes.

Hopefully there is some opportunities to do better than that.

Yes.

Okay. And the other question from me had to do with the optimism about some of the new programs and some of stuff in the pipeline, why have you not taken the opportunity to maybe raise the revenue guidance for this year, seems like if you just kind of flat line from where you are at now, you’re in the middle of the range and hopefully there is some seasonality that is helping in September and some new programs that are layering on like the Southern Cal program, just trying to understand are there some other things that you’re trying to build in some hedge around or how you’re thinking about that?

I would say we’re hedging around, we've got, I think as of this week in the review of the rest of the year, the top five of that is still looking where we are, if some good things happen we could exceed it, but we are not going to put them in front.

Right. Okay, hopefully at some point people begin to realize the value in the stock is you guys are sure executing well and can’t understand the non-confirmation by the – so keep up the good work.

I think that’s our only choice.

Absolutely.

And that’s what we intend to do. So, thanks J D. We lost Wyatt in whatever happened with the phones.

We will now go to Wyatt Carr with Monarch Bay Securities.

Okay.

Hi Tom, hi Stacy and hi, Mike. Just a couple of questions on your remarks, you talked about the winning eight of the eight awards that you bid on in New York on the program said that the revenues were not material yet, this is Phase 1 so when would you expect to see some material revenues there and when does Phase 2 start kicking in?

Phase 2 will go to about probably the first of the year that will be – one out of the feasibility study, we won eight, $100,000 each. There are about 80 cities that got $100,000. If the city is selected to go forward with Phase 2 which is a design that is about a $1 million, if – likes the design and they say okay we want to go ahead with implementation, they are going to seed that city and I say or incentivize that city with $7 million. I would say those decisions probably on the $7 million will be made by the end of 2016 factoring in it takes six months to make a decision on anything.

Okay.

So we will be done with feasibility at the end of this year, we will know if we get selected for the $1 million and that will take probably six months and by the end of 2016, they will be awarding probably $7 million to cities to go into design construction.

Okay. And you mentioned that there are near term ops in Illinois, Maryland, and California. California’s static [ph] program, where are they in that program?

Did you read that or did we tell you that on one of our call?

I read that.

I can’t remember. You read that? Yes we are pretty excited about that one. It has been talked about now, so just like New York if you go out, you get your partners accounting which is very good for Willdan because we know or work with most of the cities accounting and then you submit and the submission will go in, in December, November, December last part of this year and then just like New York prize are going to probably take I don’t know 50, 60, 70 cities in California we have no idea, I think there is $70 million to the feasibility study.

Okay, that sounds good.

It is good because it’s our hometown. New York [indiscernible] I shouldn’t say that.

I’m wondering are you seeing anything in the EES in the Chicago area?

Yes on microgrid or energy efficiency in general?

In microgrid.

Yes Con Ed, yes Con Ed is looking at three or four sites in that territory,

Okay. A – Thomas Brisbin: The only operating microgrid, fully operating microgrid in the country is Con Ed sponsored come [indiscernible] Chicago that had also a Department of Energy and that is the Campus of Illinois Institute of Technology and that’s why Galvin Center and Dr. Shahidehpour around board with well down because it is the most advanced microgrid in the United States and commented before that.

Okay, Stacy in the past you had guided some, some kind of goals has to EBITDA margin gross margin do you have any kind of guidance you can give us there? A – Thomas Brisbin: She is working on. A – Stacy McLaughlin: How do I - we haven’t provided any guidance for EBITDA margin this year unlike last year.

Okay, would you say that there is people upside in the kind of EBITDA margin you reported in recent? A – Stacy McLaughlin: Can you repeat your question? Sorry I didn’t hear you.

Is there upside to the kind of EBITDA margins that you reported this quarter? A – Stacy McLaughlin: Yeah there is in Q2 we had 8.9% margin and we expect our growth to exceed our revenue growth in that as well.

Okay. A – Thomas Brisbin: Answer is yes. Why as you said yes?

Thanks. I got it. Thank you very much and congratulations. A – Stacy McLaughlin: Thanks, Wyatt.

And we’ll now go to [indiscernible]

Hi, can you hear me? A – Thomas Brisbin: We can.

Thank you for taking my question and congratulations on a solid quarter. I think you might help some of us who are stumbling with the gross margin shift as you ramp up that part of your mix if you could, let us know if you expect improvement there. And I guess may be if its possible to part out how much of the declining gross margin came from the mix shift versus the acquired companies that will be helpful or alternatively whether if we look at the combined organic company now going forward we can expect directional improvement in the gross margin that would be helpful too. And then my second question is you will had, I think shared some public long term targets for the business I wondered if you are reiterating those today and if those what those are? Thank you. A – Thomas Brisbin: On the first question regarding gross margin its essentially entirely due to the newly acquired companies and the fact that they have higher sub contractor cost especially in the summer months during the construction season so we’d expect a similar gross margin probably next quarter. I think it’s the new normal for Willdan. however as Stacy mentioned that doesn’t affect the operating margin or the EBITDA margin at the end of the day because we’re expecting to see higher EBITDA margin for Willdan overall and you’ve seen that in the numbers compared 2015 to 2014.

Yeah, I love to see that EBITDA margin I’m glad to target as even higher than what you’ve realized. But I guess if I’m struggling on is in the press release you mentioned that part of the increase in the sub contractor costs is a function of the acquisitions and then there is also a component that is has increased primarily because of increased demand for the energy efficient see services. So may be another way to look at this is you gave us the revenue growth net of sub contractors can you give us a gross margin net of subcontractors or if you can break it down to that level, can you help us understand whether the gross margin is going to be flat or down in that revenue segment? And I can follow up offline if this is too challenging to do on off the cuff. A – Thomas Brisbin: We can follow up offline calculate that. But in general if our energy efficiency work for the utilities outpaces and grows faster than performance contracting, the gross margin should claim back up. I think a little bit of confusion and I see it is that, we had a lot of subcontracting on – let's just use Con Ed and New York and we said we want to self perform and we reduce some amount of subcontracting which we have and then one comes a couple acquisitions that have a lot of subcontracting again it effects the gross margin so they are separate types of subcontracting. There is utility subcontracting and the performance subcontracting and we need to separate that and we can get to a number for you but not on the phone.

Okay, great. I'll circle back on that and just on the long term target front are those targets out there and what are they currently?

I assume you’re talking about our deck that we put off investor deck.

I may be though, I just can’t remember what I saw, I just remember a nice revenue target that was out there a few years and I don’t remember exactly the source of that? A – Thomas Brisbin: The source of the one for this year is 135 to 145 are you speaking how far out.

Then whatever is out there I thought there might be a five year target I can look back and try to figure out exactly when I saw? A – Thomas Brisbin: In the investor deck that we gone on the road within as public it’s on our thing. We’ve shown, we’d like to grow 10% exquisitely and 20% organically over the next five years is that’s what’s you are referring too. If you take that its puts you in about a $500 million range five years from now.

Okay, may be that’s it. A – Thomas Brisbin: I think that’s may be…

Okay, again congrats and thank you. A – Thomas Brisbin: Okay. Thank you. A – Stacy McLaughlin: Thanks.

And there are no further questions at this time. I would like to turn the call back to Mr. Tom Brisbin for any additional or closing remarks.

I'd like to thank all of you for participating on a call today and for your continued interest in Willdan and have a great day. Thank you.

Ladies and gentlemen this does conclude today’s conference. We thank you for your participation.