Good day, everyone, and welcome to the Willdan Group Inc.’s First Quarter 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tony Rossi from Financial Profiles. Please go ahead sir.

Thank you, Priscilla. Good afternoon, everyone, and thank you for joining us to discuss Willdan Group's financial results for the first quarter ended April 1, 2016. With us today from Management are Chief Executive Officer, Thomas Brisbin; Chief Financial Officer, Stacy McLaughlin; and Mike Bieber, Senior Vice President of Corporate Development. Management will review prepared remarks, and will then open up the call 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 Form 10-K for the year ended January 1, 2016 and subsequent quarterly reports on Form 10-Q. 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 made today. On today’s call, in addition to GAAP financial results, Willdan will also be providing 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 EBITDA. We believe revenue net of subcontractor costs allows for an improved measure of the revenue derived from the work performed by our employees. EBITDA is a supplemental measure of operating performance, which removes the impact of certain non-recurring income and expense items from our operating results. GAAP reconciliations for both of these non-GAAP measures are included at the end of the earnings release we issued today. With that, I would now turn the call over to Chief Financial Officer, Stacy McLaughlin. Stacy?

Thanks Tony. I’d like to add my welcome to those joining us on today’s call. I’ll start with an overview of our income statement, then our balance sheet and finally our guidance. Total contract revenue for the first quarter of 2016, increased 1.8%, to $33.9 million, from $33.3 million for the first quarter of 2015. Genesys Engineering, the firm we acquired on March 4, 2016, contributed $3.9 million in contract revenue for the first quarter of 2016. By segment, including both organic and acquisitive revenue, Energy Efficiency Services increases 0.4% to $19 million; Engineering Services contract revenue increased 4.2% to $11.3 million; revenue from Public Finance Services increased 11.9% to $3 million; and Homeland Security Services revenues decreased 25.3% to $685,000 in the quarter. Revenue net of subcontractor costs was $25 million, unchanged from the year ago quarter. Direct costs of contract revenue were $20.3 million for the first quarter of 2016, compared with $19.8 million in the same period last year. Genesys Engineering accounted for $3.4 million of the direct costs in the first quarter of 2016. Excluding the impact of Genesys, the direct cost of contract revenue decreased by approximately $2.9 million, as an increase in direct costs associated with Engineering Services was offset by a decrease in direct costs associated with Energy Efficiency Services. General and administrative expenses for the first quarter were $11.8 million compared to $10.9 million for the prior-year period. The increase in G&A was primarily related to an increase in Professional Services. As a percentage of total contract revenue, our G&A expenses were 34.8% compared with 32.6% in the first quarter of 2015. The increase in this ratio was primarily attributable to higher G&A in the Energy Efficiency Services business due to a delay in the commencement of a significant contract. Operating income…

Thanks, Stacy, and good afternoon, everyone. Our performance in the first quarter was consistent with our expectations, with growth in our Engineering and Public Finance segments helping to offset this difficult year-over-year comparison in the Energy Efficiency business. We made steady improvement as we moved through the quarter with March being a very strong month of activity and giving us excellent momentum going into the second quarter. Moving to the performance of our individual segments. In the first quarter of last year, the Energy Efficiency business benefited from additional funding in our ConEd contract to address specific load pockets in Brooklyn and Queens. This year with the ConEd contract ramping back up throughout the quarter, our contract revenues in Energy Efficiency were down year-over-year on an organic basis. We finalized our 2016 contract with ConEd during the first quarter. The value of the contract is $32.8 million. We recognized approximately $6 million of revenue related to this contract in the first quarter and we expect the activity on the contract to increase as we move through the year. We continue discussions to expand our scope of activity in the second half of 2016, including more programs targeting customer segments such as the Brooklyn Queens area, small business, direct install program and the 100 kW to 300 kW range and multifamily housing. So there is potential upside to the contract later this year and we are keeping staffing levels at an appropriate level to manage the increased scope of activity. We also expanded our relationship with Puget Sound Energy to include a new two-year $2.8 million lodging direct install program. This builds upon our existing small business direct install program with Puget Sound that has been very successful. As we've consistently seen, when you demonstrate that you have the knowledge and…

Thank you. [Operator Instructions] We’ll go first to Al Kaschalk from Wedbush Securities. Your line is open.

Hi. Good afternoon, everybody.

Hi Al.

I guess, I want to start with the guidance commentary and the number of moving parts that you have, which a lot of them seem positive, that you would maybe be in a position - is it early in the year that you don't want to modify or move to midpoint of that guidance? Could you just talk a little bit about the nature of - the amount of activity you're seeing and why that doesn't translate into revised financial guidance?

You're exactly right, Al. It's early in the year. We don't want to get ahead of ourselves, but we've got good trends in the business. We were on plan for Q1, and we've got a number of new contracts that are ramping up throughout the year. So as we get better visibility coming into the second half, it's possible we can revise upward. But at this point that’s premature, so we've stayed appropriately conservative.

To address this, but the Energy Efficiency program’s slow start to the year. What was the factors behind that, or what did I not tick up on in your prepared remarks?

Yes, the start-up of the ConEd contract, I'm going to try to the say this ‘14 to ‘15 was not a new contract. It was just a rollover. So we went into ‘15. We had a lot of activity in the first-half and it ramped down because the new contract was going to be put in place. Although we knew the new contract was going to be put in place, it was not negotiated until - it was not officially negotiated until the early part of this quarter. We had notice to proceed. We had all that in place. So we ramped down through ‘15 and now at the beginning of ‘16, the contract is in place and we are ramping back up. And as I said, Al, the first quarter is a $6 million. The rest of the year will burn the remaining part of the $32 million or $33 million. And as Mike alluded to, as we get more visibility into the second half, on mods or other areas that will be added to ConEd New York, we’ll update.

Okay, very helpful. And then on that same line of thought as things are ramping, could you just address or talk about whether it’s utilization rate or billable [ph], just a little bit more details around the operational part of the business?

Utilization is improving, so revenue was coming up. You'll see margin improve into the second quarter as Stacy said in her remarks. We expect margins to improve also, because we are better are absorbing our back-office cost. So, all of the metrics are headed up into the right compared to the first quarter metrics.

Okay. And then that margin discussion was around 8%. Is that what we talked - the commentary was?

Yes, it was, Al.

Okay. Finally, thanks for the details on the balance sheet. It looked a little scary there in terms of the size of the build-up in AR. But what I think I heard you say is that you collected nearly $15 million of what was outstanding. Could you talk where cash balance stands today or where are you sitting with cash?

As for the $15 million, that was the amount of Genesys’ AR in our total AR balance.

Okay.

Not what we've collected since year-end, if that's what you were referring to.

Well, what is the accounts receivable balance? You've done a fair amount of collection efforts in this month of April, and I'm just curious what that $34 million number looks like? I thought you had said you moved down a few days, but have you - where does that balance stand, I guess, today is what I'm trying to get at.

We are down right now to 73 days for our DSO and we average about 300k a day.

Okay.

That could probably increase slightly because of Genesys. But that should give you an estimate of what our collection has been since the end of Q1.

Is Genesys slower paying customer base?

They were prior to the acquisition but they have also been putting effort towards the collection of their AR and they have been billing sooner which has been allowing them to collect sooner to be more in line with our DSO figures.

Very good. I'll hop back in queue. Thanks a lot.

Thanks, Al.

[Operator Instructions] We’ll go next to Ryan Cassil with Seaport Global. Your line is open.

Hi. Good afternoon, everyone.

Hi, Ryan.

I want to go back to the ConEd contract. So it sounds like that got ironed out late Q1 or the early Q2. So we should we expect that, that ConEd is ramping here in the second quarter or does that start more materially in the second half?

No, it started in March, the third month of first quarter, we’ll be ramping up. So we are at $6 million after the first quarter, and we’ll be ramping up to complete the $33 million by the end of the year.

Okay, great. And then - sorry for missing your remarks, but from the release you say you won other significant contracts under negotiation. Can you give any more color on those contracts, maybe the size and scope, if not anything else?

Not at this time. We will have - I'll be able to release information we believe on two or three of them over the next 30 to 60 days.

Okay. And does - maybe I’ll ask you this way. Do you come into any constraints with some of these wins on your human capacity or human capital as you would ramp up some of these projects or contracts?

Human capital is an issue that we are you addressing, finding the right people to put in the right places. Constraint, no. It’s just - when you grow, it's always an issue though. So we are actually ahead in the curve and hiring on some of these new ones I mentioned and that we've got people identified, teams identified so that when they do start we are ahead on the staffing issue.

Okay, great. And then on Genesys, could you talk a little bit about what that business is growing, maybe relative to the legacy business and how the integration is going there? A little more color would be great.

Genesys came to us with a very strong backlog, good pipeline into 2016. And they’ve additionally won several new contracts since they joined us. Genesys is growing much faster than the legacy business of Willdan, and we’re able to combine our capabilities with Genesys. We actually started that before the acquisition was closed to win new contracts which we’ll be talking more about, as Tom alluded to, in the next 60 days or so.

Okay. So the combination there is helping you win some of those that you were talking about before?

They are. Integration is going very well actually. Genesis has been a smooth transaction and a smooth transition. So we'll be moving their accounting system onto Willdan’s later this year. Everything is going well.

Okay, great. And then on the microgrids opportunity, it sounds like two potential customers intend to proceed, regardless of how the study goes. Could you just frame that maybe from a financial perspective and then again just on a strategic perspective, how that positions you guys in the future?

Well, New York Prize is going to give phase one, $5 million - $1 million. Phase three is $5 million per site. So if we can move two of them, it's not real - I've always said this is not a financial play, this is strategic. But let's say you move into the more design phase and then you go into approve phase where it goes $5 million, that's just become a matching fund - it's not even a matching fund, it’s incentive to municipalities. So we estimate if we get to actually design construct which maybe, I don't know, six months, 12 months, 18 months, we thought things would be moving faster but it could go as high as $20 million, $30 million per project for a municipality. So right now if we go to phase two, it’s a $1 million per site. If you go to phase three, $20 million to $30 million per site.

And phase three would be a couple of years down it sounds like?

No, I don’t think couple of years. I hope not.

Okay.

I hope not.

Okay. All right. Thanks guys. Appreciate it.

Thanks, Ryan.

Thank you. And we'll take a follow-up question from Al Kaschalk with Wedbush Securities. Your line is open.

Tom, could you maybe just clarify on the microgrid aspect. I think you said two potential are now doing a self-development of self-deployment. Can you maybe just add some color around why that’s - ramping is not - we should view that in a more constructive view than maybe it comes across?

More what view?

Constructive.

Constructive view. So the Department of Defense, every base in the nation is looking at microgrids. In both California and New York, the PUC or rather New York for the PUC here in California, here it’s California Energy Commission are looking at funding to help cities put in microgrids. Microgrids is nothing more than a combination of renewable energy, battery storage and distributed generation. The purpose is for communities that lose their power often. So the idea is both California and New York are moving this forward to have the cities become more resilient. This idea has been on the table for 10 to 15 years. We are now seeing money being spent by the California Energy Commission in the State of New York on studies. We see the Department of Defense putting in pilot programs. So our objective is to get some of the early municipalities under our belt, so that when funding increases, battery storage becomes more available, renewables become more available. We’ll be there to provide the cities with complete solution, and that city can either be a municipal, states or Department of Defense type facility. Does that help, Al?

It helps. And I guess it doesn't - by definition I guess it shrinks your opportunity side of two potential parties or clients or relationships are going out on doing on their own. They are basically competitors...

When I said doing on their own, I don’t mean doing on their own away from us. Hang on. There are doing - they are going to fund it on their own with us. Boy, I missed that part completely.

All right. I just wanted to make sure that I understood your comments earlier.

We are excited that they are willing to proceed on their own away from state funding and proceed with us.

And does that - if they are funding on their own, does that maybe increase the likelihood that you see opportunities versus waiting for the government?

Wait for different government and waiting for municipal versus the state. But the municipality, if they can be very clear - and they are looking at grant money from the Department of Energy and other areas to help fund them, so they are excited enough about to proceed forward and the reason I mentioned is we'll be proceeding with them.

Okay. Finally - well, probably too early unless you have a crystal ball. Do you have any concern if we start to get into the election process here in one or two of them likely candidates are taking more favorable position relative to the other? Does that help or hurt this part of the business, or is that too small to worry about?

I’d say no effect.

Okay, great. Okay. Thank you for your time.

Thanks, Al.

Thank you. We'll move now to Andrew Gordon from Zeke LP. Your line is open.

Hi. Good afternoon, guys. Congrats on the recent contract wins. Great to see all that progress.

Thanks.

I wanted to just ask you, would you mind clarifying the timeline for when you expect to recognize revenue from the three contract wins? I think you had color in the release for San Diego, but I wasn't as clear on Elk Grove and Puget Sound.

Elk Grove is going on and it was a contract we won six years ago. And so all this is an extension of five more years. So the revenue was running at about $15 million a year. It will continue to run at about $15 million per year for five more years.

Okay.

San Diego Gas & Electric, the LCR one, does not start until 2017, first part of 2017. And we'll see revenue there. Other wins that we said might impact the second half, we will be announcing over the next 30 to 60 days and we will also give an update on what we expect to see in revenue from it in the second half.

Okay. And Puget Sound?

Puget Sound wasn't existing contract. They added on and consolidated, and the contract value initially - maybe help me. The $2.8 million is lodging, but how much was the base that we had announced? Was it $7 million something? I think it was $7.5 million and they added $2.8 million on, so it's $10 million and that's over three years.

Got it.

And you'll have to go back, Andrew. The announcement on the original $7.5 million was announcement about six months ago?

Four.

Four months ago. Yes.

Okay.

So that’s how...

Okay. Great. Yes, thank you for the color. Appreciate it.

And I’m showing we have no further questions at this time. I'd like to turn the call back to management for any closing remarks today.

Okay, thank you. I would like to thank all of you for participating on our call today and for your continued interest in Willdan. Have a great day. Thank you.

This does conclude today's conference. Thank you for your participation. You may disconnect at any time.