Welcome to the Willdan Group Third Quarter 2016 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tony Rossi. Please go ahead, sir.

Thank you, Lynn. Good afternoon, everyone, and thank you for joining us to discuss Willdan Group's financial results for the Third Quarter ended 30th September 2016. With us today from Management are Chief Executive Officer, Thomas Brisbin, Chief Financial Officer, Stacy McLaughlin, and Mike Bieber, President of Willdan Group. Management will review prepared remarks, and we 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 10K for the year ended 1st January 2016 and subsequent Quarterly Reports on Form 10Q. The company cautions investors not to place undue reliance on the forward-looking statements made during the course of this conference call. Willdan Group disclaims any obligation and does not undertake to update or revise any forward-looking statements made today. In addition to GAAP Financial Results, Willdan also provides 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 nonrecurring 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 will 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 Third Quarter of 2016 increased 75% to $58.7 million from $33.5 million for the Third Quarter of 2015. Genesis Engineering, the firm we acquired in March 2016, contributed $16.2 in contract revenue for the Third Quarter of 2016. By segment, including both organic and acquisitive revenue, Energy Efficiency Services increased 136% to $42 million, Engineering Services contract revenue increased 11.4% to $12.9 million. Revenue from Public Finance Services decreased 2.6% to $3.2 million, and Homeland Security Services revenue decreased 31.7% to $567,000 in the quarter. For the purposes of calculating our organic growth in the quarter, we are including the revenue generated by Genesis Engineering that exceeds the revenue recorded in the same period of the prior year. In the Third Quarter of 2015, Genesis generated $7.7 million in total contract revenue. The year-over-year difference of $8.5 million is used for the calculation of our organic growth. Since the acquisition, we have won joint programs where all of the revenue is being reported under the Genesis Legal Entity. Thus, the growth in Genesis Revenue is reflective of our organic business development efforts and is counted in our organic revenue. Net revenue, defined as contract revenue minus subcontractor services and other direct costs was $26.5 million, an increase of 30.6% from $20.3 million in the year-ago quarter. Direct costs of contract revenue were $42.6 million for the Third Quarter of 2016, compared with $21 million in the same period last year. Genesis Engineering accounted for $14.7 million of the direct costs in the Third Quarter of 2016. Excluding the impact of Genesis, the direct…

Thanks, Stacy, and good afternoon, everyone. We had another good quarter. Execution on our current programs and winning new work continued to build a foundation for strong growth in the years ahead. On a year-over-year basis, we had strong growth in revenue and profits. Both energy efficiency and engineering were the primary drivers. Willdan's organic growth was 30% year-to-date and 42% for the Third Quarter. Moving to the performance of our individual segments, I will start with Energy Efficiency. As Stacy stated, on a year-over-year basis, Energy Efficiency revenue was up 136%. Similar to last quarter, the largest contributor to our revenues were major utilities, Con Edison, San Diego Gas and Electric, Southern California Edison, Puget Sound and Universities. We continue to see excellent results from our joint business development efforts with Genesis. We recently won a program with the New York City Housing Authority in which the combined experience and expertise of Willdan and Genesis was a key factor in the award. Genesis also continues to build on its roster of college and university clients and added two new projects during the Third Quarter that will contribute to our revenue in Q4 and 2017. The success in delivering for our utilities continues to open up growth opportunities. During the Third Quarter, we were awarded a new three-year, $35 million contract by PacifiCorp to implement its small business Direct Install an Oil & Gas Energy Efficiency Program in Utah. This is a significant increase in the size of the Energy Efficiency Programs currently being implemented in Utah. We are seeing modest revenue from this program as it ramps up in the second half of 2016, and then it will make a larger contribution in 2017. This office has already brought in another significant piece of business by winning a $1.2…

[Operator Instructions]. We'll go ahead and take our first question from Al Kaschalk from Wedbush Securities. Please go ahead. Your line is open.

First of all, Tom, you, you provided some good color on the utilities, and I'm wondering about some of the other opportunities outside of utilities that can continue to build your backlog. Can you comment on any recent developments there that you may have?

Well, with the acquisition of Genesis 360 and Abacus, you know, we call them the end-users because people like hospitals, universities, hospitality, and the people we serve under utilities, the performance contracting business is poised to grow. I mean, Genesis is growing, 360 is growing, and Abacus will be growing, and they will be feeding not only off their, you know, usual business but the combined efforts of the, let's call it clients we serve through utilities. So, we see the end user of electricity -- hospitals, I'll say again, universities, schools, data, data centers -- we see performance contracting through our performance contracting acquisitions growing.

But, now we have a small election coming up next week. Have you seen any slowdown in work being let out or opportunities to bid just across the board in general? You have enough to work on, but I'm just wondering about filling that backlog.

I would say no matter what happens, it will not affect this market. That's a pretty strong statement, I understand, but this, this is not being driven by politics. It's being driven by the need to reduce the amount of electricity we use.

And then, I'd be remiss, or you may be remiss if you didn't talk about the microgrid. I didn't hear any comments during the prepared remarks. Maybe I missed it, but any update there would be great. Thank you and good luck.

No update at this point. I can, I can say that California is behind New York. We have submitted three new proposals into California for microgrid activity. I think, if I was to make a statement, California is going to come on very quickly in the microgrid world.

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

Just to start out here, you, you mentioned that in California, the outsource initiative to be, you know, 60% or more. Could you just refresh us on what that, where that currently stands? Is it 50%, or can you just help us with that, you know, metric there?

The PUC, yeah, the PUC on the special tax that we all pay collects about $1.8 billion from the rate payers, which they distribute to the utilities. Right now, about 20% is outsourced to contractors. We would be considered a contractor, and the PUC just mandated that at least 60% plus -- they used words as high as 100% -- must go to contractors. So you could take that anywhere from a three-fold to a five-fold increase of energy efficiency services being performed by contractors in California.

And what would you say that number is now? Is there a way to kind of compare what it was?

It's 20% now.

20%?

20%, and, yeah, but the PUC mandated, mandated at least 60, and they're hoping for 100.

Do you think the opportunity for you guys -- you've been expanding from small business. You've been running multi-family, commercial, industrial -- where do you think the biggest opportunities are? Does it continue in that small business, or is it more broad-based? And could you maybe talk also to, to how the multi-family ramp is going with Con Edison there? I know it's early innings, but any thoughts there, as well, would be great.

The ramp on multi-family is going very well. We have no issues. We're delivering ahead of target. So, with regards to where the future is, I would say it's going to be a combination of commercial and industrial for the utilities. We have no intentions at this time to go into residential, so that really leaves commercial and industrial, and those are the programs that we want to follow with utilities. So, I think for Willdan, we need to get deeper into the industrial markets. Our commercial segments and commercial would be like hospital schools. The larger industrial would be like oil and gas refining, and we have just won a few programs in that area.

And those are typically the larger contracts versus the small business?

Not necessarily. They're, the end users are larger users of electricity, so, there's a potential for greater savings. So, generally the amount per user, in terms of savings is higher. The dollars are higher, so you're seeing fewer customers with higher dollars.

Okay. Got it. Could you just talk about the market landscape a bit. You guys have been winning, and, and it's showing up in your growth rates and your, and your award rates. Could, could you just talk about the competitive landscape and what you're seeing out there. I know there's a number of smaller private guys and, you know, a larger competitor that has presence in the business. Any changes in that landscape that you think you're benefitting from, or is there just the plethora of work that, you know, is rising tide with all those?

I don't know that "plethora of work" would be a good way to look at it. We see stiff competition everywhere. We've been very fortunate in not only retaining our incumbencies but taking work from others, and I would have to say it comes down to the simple thing of providing excellent service. So, we focus very hard on doing A+ work for our customers, and that translates to -- I won't say easier -- but it certainly is a lot easier to win other work with other utilities if we performed A+ for the ones we have. Take that as the number one thing.

And I guess, you, you kind of touched on my next question. You know, now that you're, you're ramping up these new contracts, you're spreading out geographically and perhaps sort of, you know, strengthening new organizational structure. The business addresses it, but sort of the execution risk as you get bigger and broader and more spread out. I mean, how are you thinking about that from, from sort of an on-the-ground execution standpoint.

Our new President wants to answer that question.

I think I was assigned that question. Execution is always a risk. We're very focused on it right now. As we grow with these types of growth rates, we're recruiting lots of new people right now. We're training new people. So, we're very focused on that. We haven't had any missteps right now. We don't have any large problem projects right now, so cross our fingers and knock on wood. You know, we need to keep a focus on that. It's an issue that we're focused on, but we've been able to execute well thus far.

We do have one question that did just actually queue. We'll take it from Tom Koch from Trancoso.

I hope you can hear me. I have a question. Back in September, it looks like, Con Ed reached a settlement with the New York PSC and a number of other parties regarding an increase in Energy Efficiency spending, rate-based Energy Efficiency spending -- I'm just reading something here -- It looks like a new $99 million will be spent from 2017 to 2019. Can you expand upon that a little bit?

Well, we read it also. Con Ed, Con Ed has read it also, and they are thinking about it, on how to deliver it, and we have put it into our programs. If they want to ramp us up, they will be able to. They don't, I, I don't think for the beginning of 2017, maybe even through 2017, they're looking at anything other than maybe a 25% increase in what they're doing now, and they're looking at significant increases in '18 and '19 relative to that rate case paper that was presented. The one I saw was in September. Usually it goes back to March. They may have put out a more recent one.

September.

September, yeah. The September, 19th September one?

Yes. So, so can you talk, what, what areas, and, and is that going to go directly to your programs, not your programs? What can you say about that.

It will go -- well, I can't say for Con Ed. Con Ed is going to have to decide what programs it goes to, but at the current pace we're at, we represent about 50% of the portfolio of Con Ed in energy savings or energy efficiency, so they have the choice to put more into C&I rather than small business or multi-family, and I don' know how they're going to distribute it at this point in time, but they've got a lot. If, if they decide to ramp up to meet those goals, they're going to have to put it somewhere. They haven't told us yet. I mean, that is like September. This is October, the 1st of November. So, we're six weeks into that, that publication.

Okay, great. Another thing I was going to ask you on is regarding NIPA. Lots of articles and press about NIPA spending money in Energy Efficiency, some different programs they have, some of them very significant. I don't remember the names of them off the top of my head, but can you give us an update as to what the, what your current kind of business is with them and what the outlook is over the next several years?

I think they awarded 18 contracts back about six, seven months ago, of which Willdan was awarded two of them. We have received some task orders under them, so we are playing in the NIPA market as well as NYSERDA, and we are aware of what NIPA is doing. So far, it hasn't ramped up to anything close to a Con Ed type program, but we're in it. That's all I can tell you.

So, are you regarding, are you talking about this Build Smart New York program?

Under, under NIPA? or NYSERDA?

No, NIPA.

I can't tell you which task orders we've been given. We were given an engineering one and an energy efficiency on.

Okay.

It's probably all 18 contracts are under the Build New York Smart -- whatever it's called.

Yes, I mean, there just seemed to be lots of articles about -- Here's another one --$10 million of NYSERDA announces $10 million for Industrial Energy Efficiency. Funding supports clean energy projects. Large to medium-sized industrial facilities. Anyway, so nothing specific there that you can talk about?

No.

So, Tom, when you, you, you know, you talk about this, you guys having this pretty strong foundation for growth going into 2017, we know the project s you've already announced. You said there are a few smaller programs running off, so how do we try to size up what 2017 could be looking like based on what you are currently signed up to work on, and -- I know these roll-outs take kind of a life of their own, but, as far as timing -- What's, what's kind of a reasonable? Are, are you going to talk about this at some point? Kind of like what we're looking at into next year? I mean, I understand there's growth, but it's a little hard to figure out the magnitude.

Haven't we set a minimum target for bankroll of what?

10%.

10%, so, publicly, we've stated that we will grow at least 10%. Obviously, if these programs ramp up, we hope to do better, but that's where we are. So, we believe we have the backlog of the contracts to grow 10% right now, at least.

Okay. Fair enough. One other thing, regarding California, when, when you talked about this increase in the PUC mandates to increase outsourcing, what, what area, are those, what areas, what type of programs?

It, it's across the board. Let's just take SCE for example. Southern California Edison runs about 120 energy efficiency programs. We do not know which ones they're going to outsource, how much they're going to outsource. All we know... or how, how they're going to do it. So, they're dealing with that right now. All we know is the PUC had mandated you have to go from 20% to at least 60 plus. So we positioned well that, you know, to capture at least what we have, or, or at least, if they go three-fold, we hope to do at least three-fold.

Yes, so you're RFP team's going to be going full-bore here in the next year.

Yes, we've been at it pretty hard for the last year, and it's going to be another year of the same thing.

Thank you, and at this time we have no further questions. I'd like to turn our program back over to Management for any additional or closing remarks.

Hi, I have one here somewhere. Let's see. I'd like to thank all of you for participating in our call today and for your continued interest in Willdan, and have a great day. Thank you.

Thank you, and this does conclude today's program. Thank you for your participation. You may disconnect your line at any time, and have a wonderful.