[Abrupt Start] December 28, 2018. With us today from management are Thomas Brisbin, Chairman and Chief Executive Officer; Stacy McLaughlin, Chief Financial Officer; and Mike Bieber, President of Willdan Group. Management will review prepared remarks and will then open up the call to your questions. Statements made in accordance with 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 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 December 28, 2018, 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 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 net revenue, adjusted EPS and adjusted EBITDA. We believe net revenue allows for an improved measure of the revenue derived from the work performed by our employees. Adjusted EPS and adjusted EBITDA are supplemental measures of operating performance, which removes the impact of certain expense items from our operating results. GAAP reconciliations for all 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 have 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 fourth quarter of 2018 increased 34.7% to $86.4 million from $64.2 million for the fourth quarter of 2017. The increase was driven by growth in our Energy segment, primarily related to the contributions from our recent acquisitions, Lime Energy and NAM, as well as an increase in data analytics from Integral Analytics. These increases were partially offset by the impact of reduced pass-through subcontractor costs in our Energy segment that we've recognized at little to no margin. This has decreased the total amount of contract revenue running through our income statement. Net revenue, defined as contract revenue minus subcontractor services and other direct costs, was $40.2 million, an increase of 29.2% from $31.1 million in the year ago quarter. In the quarter, net revenue was slightly above our guidance range. Within the Energy segment, net revenue increased by 43.3%. Within Engineering and Consulting segment, net revenue increased by 10.2%. Net revenue organic growth was 6% in the fourth quarter. Direct costs of contract revenue were $59.5 million for the fourth quarter of 2018, an increase of 34.6% from $44.2 million in the same period last year. The increase was primarily related to the growth in contract revenue resulting from the Lime Energy and NAM acquisitions. This offsets the lower pass-through subcontractor expenses we saw in certain Energy segment projects. Our direct costs of contract revenue were 68.8% of our total contract revenue in the fourth quarter of 2018, roughly equivalent to the same period of the prior year. General and administrative expenses for the fourth quarter were $25.3 million compared to $17 million…

Thanks Stacy, and good afternoon, everyone. We completed fiscal year 2018 with another good quarter. From an operating standpoint, our revenue, earnings and EBITDA exceeded expectations. On a net revenue basis, both segments were up double digits compared to the fourth quarter of last year. Engineering and Consulting was up 10%, while Energy was up 43%. Net revenue for the quarter was up 29%. The strong growth in Energy reflects the ramp up of new programs and the contribution of our recent acquisitions. Organic growth in net revenue was 8% for the full year. The most significant event in the quarter was the completion of the Lime Energy acquisition. The integration has gone very smoothly and the teams are effectively working together on a recompete efforts in both California and New York. We believe that the additional skill sets and experience that Lime provides will be very beneficial to our efforts on these California and New York opportunities. In addition, Lime Energy is the LADWP, Los Angeles Department of Water and Power, incumbent and the contract is expected to increase, so that's a good sign for potential organic revenue growth. There are approximately 3,000 municipal utilities across the country. Lime has an outstanding track record with both municipal and IOUs. When combined with our large geographic footprint, we have competitive advantages that will help us capture more municipal opportunities in the years ahead. The Willdan team currently serves 18 of the Top 25 IOUs in the nation. Our marketing and new business development efforts continue to produce good results. I want to highlight a few of our most recent program wins. We recently won a SoCalGas Direct Install Program on public and private schools. This is a gas efficiency program. We are seeing more gas programs emerging, because the overall…

[Operator Instructions] We'll take our first question from Moshe Katri with Wedbush Securities.

First, I want to talk a bit about - maybe go over about - on calendar year 2019 guidance. A couple of things here. First, the net revenue growth here, the way I see it, it seems pretty conservative below the historical growth rates, organic growth rates for both Willdan and Lime. Maybe you can talk a bit about that. And then, does the net revenue guidance include the revenue contribution from The Weidt acquisition? And then maybe you also talk about the non-GAAP EBITDA margin assumptions for the year?

This is Mike. I'll take those, I think, in the order that you asked them. Number one, you're right. Organic growth based on the midpoint of our guidance is in the mid-single digits right now. We typically start out the year with, what I'll call, appropriately conservative guidance. And if we do a little better than that, so be it, we'll raise guidance throughout the year if that happens. So that's where the midpoint of guidance is. It also assumes no new California procurements that are contributing new revenue in 2019. On the next piece, our revenue guidance does not include any contribution from The Weidt Group, that's true of both revenue and EPS. We'll update guidance next quarter, assuming that closes in the next month. So, that's not included in guidance.

And margin?

Margin. EBITDA margin assumption. Just as I believe we talked with you last time, we believe EBITDA margins will continue to improve in 2019 into the low-20s, I think you're modeling around 21% right now, as I remember, something like that is reasonable assumption.

And then also a couple of follow-ups on guidance. So, remind us which part of the net revenue guidance for the year is already booked? If I remember correctly, visibility is pretty high, so that number should be pretty high. And then maybe you can also give us some assumptions for Q1, that's coming up, net revenues, EPS, and what should we look for in terms of the margins?

For Q1, we have modest expectations just because we are ramping up two of our largest programs, LADWP and Duke Power. They were relatively slow in January and February and are ramping up very quickly in March. So we've got pretty modest expectations for Q1 and we'll have a very strong Q2, it looks like. So that's EPS and expectations for Q1. What was your other question, Moshe?

Well, if you can talk a bit about - if you can give us some sort of a range for net revenues, that will be helpful for Q1, obviously it will be good if we get some feel on that? And then also talk about visibility in terms of how much of your - looking at your net revenue guidance for the year is already booked.

Yes. We have not historically given quarterly guidance. And so, I don't want to step out of what we've normally done and give you a range for Q1 on net revenue. But I can tell you that in any given year, and that's true, this year we have about 10 months of funded and authorized work and that's true again this year. So we're worth walking into the year with a very strong pipeline and a very strong book of already contracted work.

So just to follow-up, you're talking about a strong pipeline and obviously you don't provide a number in terms of bookings. Are we - can you just give us a kind of a description in terms of looking at your pipeline today versus a year ago. Is it up substantially? Is there anything unusual about the pipeline in terms of growth? And then maybe you can talk a bit about the nature of the pipeline in terms of some of the nature of the work, the new work that's coming on board.

So, California is finally moving, Moshe. We submitted, I believe, it's a 11, they're called abstracts, so the addressable market for us in California is probably about $700 million per year. We've probably addressed about $350 million per year with these submittals or the 11 abstracts. We still have a few more to go. They are now considering who they invite back to write a proposal and we're very confident that we will be writing proposals for the next four months and then we will know what happened by the end of the year. So far staying on schedule.

Okay. All right.

We have heard the San Diego Gas & Electric and all is good. So, California is the big mover, right now. Then we go to New York and New York's - Mike said some about the pipeline looks good as we see a lot of pressure on the New York to double the amount of energy efficiency, they do where we are an incumbent under a recompete, which we feel good about. So we expect those goals to go up. So between California, New York and if New Jersey get started by the end of the year, first of next year, that pipeline is really, really big. I mean, these numbers of 5%, 6% organic growth will be taken care of for years to come.

Understood. And so if California is about $700 million, how much can you quantify New York and New Jersey in total?

New York - New Jersey would be probably - these are just guess numbers, because now we're talking to the whole world, but probably around $250 million a year. New York would increase by $50 million a year.

And our next question comes from Chip Moore with Canaccord.

Maybe you can start with The Weidt Group, maybe you talked about some of the things they bring in terms of new services and software capabilities, maybe you can expand on that. And then in terms of accretion targets, does that include any cross-selling? How are we thinking about that?

Well, I'll address some and then Mike can address some. We're really new to these guys. I mean, they were here this way, they presented to the operations in the Board. They work for about 10 utilities in the Midwest and they do new construction. So they help people before they build, do it right, which is a whole new program for everything we do across the nation. So Weidt Group is really excited about some of the service to the other 70 utilities we work for across the nation. Here in California, for example, there is an entire program called New Construction State-Wide. We would have not submitted on this probably $5 million to $8 million per year procurement without The Weidt Group. This would have not even been on our list to consider. So that is an example of an opportunity that's about six months ahead of us in California. The other thing they do is they have software. The one that we're pretty excited about is a better ways to do an energy audits and it's - they call it virtual audit, it's a software program that they've been using. So we think we can incorporate that into our utility programs across nation, also to make us more competitive against other people doing this. Did I miss anything, Mike?

You asked about accretive synergy and we never put synergy into our accretion or our forecasts. So the things that Tom mentioned are upside in case we can cross-sell those programs.

And is there a sense of there, sort of, organic CAGR over recent history?

They've been upper single digits for each of the last five years. I think their exact number is about 7% over the last five years organic growth.

And I think you called out higher sales for Integral in the quarter. I know it's a little bit lumpier in a longer sales cycle, but maybe you can talk about what drove that and the pipeline and outlook for that piece of the business?

Yes. Integral Analytics had a good fourth quarter. They increased their revenue, I think, more than 50% year-over-year. The pipeline looks very good coming into 2019. They have some major contract opportunities, which are even far larger than the largest contracts we looked at last year in their pipeline for 2019. So it looks good and they're very busy.

That's good to hear. Maybe one last one for me. Good to hear that PG&E business is moving forward. Can you talk about any potential impact to the larger RFPs from PG&E? Is that a potential for a little push out, I mean I know we're talking 2020 anyways, but how should we think about that? Thanks, guys.

So we've been waiting seven years for this process to begin and now there's bankruptcy in front of us, so I wouldn't be at all surprised if they get a few months behind. That's so sarcastic, so yes, I would expect PG&E to probably fall two to four months behind.

[Operator Instructions] Next, we'll go to Craig Irwin with ROTH Capital Partners.

First one, Tom, is actually a clarification on Chip's last question. So previously PG&E seem to be quite far ahead of their peers in California as far as getting the RFPs out there. Can you maybe share with us if the two to four months behind means that we have a shift to two to four months or that that early start that they had is eaten up and then we end up two to four months behind the actual schedule where they're supposed to be making their selections?

Well, what actually happened was in the state, San Diego Gas & Electric came up first, Southern California Edison came up second, and PG&E's was third. So they actually went in the latest, they were due - they went in around January 15th, where San Diego Gas & Electric went in November. So if - wherever you read, they - we're going to be out first, they came out latest. And then, with regards to where the delay sits in their printed schedule, I was referring to, maybe two to four months. San Diego Gas & Electric just printed their schedule for proposals and awards staying on schedule. We hope to see the same for SCE soon. That's why I'm booting PG&E maybe two to fourth months, because of bankruptcy. Does that help you, Craig?

Maybe, because...

What do you want to know specifically?

No, it's - in the working groups, obviously all of my clients know that I've been participating in the California Energy Efficiency working groups, they did discuss PG&E being very early. I think we're probably just looking at a definitional difference as far as where they were in the process. I think a lot of the documentation they got out was early, but maybe some of the final documents they got to you are on a different timeline. It doesn't really matter, because everybody is expecting the utilities to be late, because all utilities pretty much always are. But this is not material, this story. So we can actually move on. The more - probably more relevant question, more pertinent question is, love this Weidt Group acquisition. Can you maybe talk to us a little bit about the cash flow generation expectations for Willdan with Lime in 2019? How do you see the capacity to be able to do additional acquisitions like The Weidt Group? And how many other companies like this with these fantastic customer lists, interesting geographies, differentiated services that are potential targets for you over the next couple of years?

Mike and Stacy are discussing that answer. I think you're right on documentation, I think PG&E did say they come up first. I'm just telling you what actually happened.

Got it.

Back to the procurement. So I believe your - I think you summarized that nicely. So, Mike?

Craig, I'll answer your question in terms of leverage ratio, because that's the way the banks look at it. We came out of the Lime transaction with a leverage ratio of less than 2.5 and we get to pro forma new acquisitions who are profitable and successful like The Weidt Group into those. So from a leverage ratio standpoint, we're going to stay around that 2.5 number and then come down by the end of the year. So to go straight to your question, can we do more acquisitions like this? Yes, absolutely. The banks are very supportive of that and so as our expanded credit facility.

Then if we can touch on a question that people had been concerned about, particularly in December, the overall market conditions in California seem to be seeing a little bit of turbulence, particularly on the municipal and sort of local government side, you have had growth in the engineering consulting business, it seems that you are looking at some modest growth in that this year. Can you maybe talk about the puts and takes for growth in that business in 2019? Do you expect this to be a driver or all of us that are focused on really the energy efficiency side, should we just stay focused there and expect this business just to make money but not drive the model going forward?

I think engineering with the cities has potential to increase above their growth rate. I'll give you some examples that really - so for Santa Monica, we just signed the design and installation of 70 charging stations. So they're actually cross-selling from us, from the Energy Group, not from us but from the Energy Group their services. That was true for Culver City's microgrid as well, which include a lot more than charging stations. And we're seeing this in street lights and other things. So as long as the housing and building market stay the same, we would expect them to stay the same or increase a little bit, but we're getting closer to adding in an extra service into what they do for cities. So, I can't quite quantify it yet, but we don't expect them to go down, we don't expect them to improve immensely, but we could find an opportunity that could improve them - all from where they are now, 5%, 6% organic growth?

Yes, low single digits.

We could probably add 3%, 4% on there, if we could start to sell a new service to them.

Does having LADWP as a customer now add to your ability to capture on the traditional engineering side?

We work for most of the cities in LADWP. In LA County, engineering, I think there is 77 cities in LA County and Willdan Engineering works for 70 of them. So you would think between what we're doing on energy efficiency and there's - I should also point out, there's a about - in LADWP, under SCPPA, there's about 13 other municipal utilities we could work for. So we're trying to get our hands around that to see how that all works together. But we have LA County cover rather well both on the civil engineering side and the energy efficiency side. How do we make it work better is our challenge.

And can you possibly list for us 2019 RFPs where you think that individual project awards could be - maybe north of $25 million or $30 million? I mean, are there several of those that you can point to in 2019 or is it a fairly select list?

Do you think any of our competitors are listening?

Yes. Of course, they are. But they all know the list too, right? It's just...

So I'll just name a few. San Diego Gas & Electric has a commercial program, both small and large. Southern California Edison has a commercial program. They have an industrial program, they got a public sector program. PG&E has commercial, industrial, public sector, multifamily. Those are all add up to a lot of money. You go to New York, non-pipes, non-wires. You go to New Jersey, direct install. Where else...

So then last question, if I may. It seems like a pretty exciting time to be in energy efficiency. The technology is being adopted, you've mentioned charging stations, microgrids you're obviously a leader in at least implementing projects where others are falling down. Where do you see the most interesting novel activity happening for you? Are you seeing a greater technology content on projects? Do you feel now there is a widening gap between the leaders in the market and the smaller competitors that want to serve this market, maybe do so in a much more focused geographic manner?

I think, let's look at the State of California and we could look at New Jersey, we could look at New York. Historically, there were 130 contracts, maybe 80 smaller contractors just in California. We're seeing consolidation where they're bigger contracts and they want one contractor to team with the others to provide the service to the utility. Utilities have to downsize the number of employees, so they can't be managing a 130 contracts, so that trend is very big right now for Con Ed, New York, I would say that exist. If we manage about 70% of the portfolio, Con Ed manages other 30%. New Jersey is also going in that direction. I can say for some of our competitors, I won't mention their names or where they work, they also have large administration programs. So I think consolidation is a big factor. With regards to your question on technology, we are preparing for a technology move where we believe all the engineering capabilities and software capabilities that we are putting together will benefit us as utilities migrate and need their customers to become more energy efficient, they need their customers to get to zero net energy over the next 10 years, maybe 15. As you know, Craig, California came out and said no greenhouse gas by 2045. When we have meetings with our customers, they go, what do you mean? There is going to be no combustion, no greenhouse gas. Nobody believes it. Then New York came out and they lowered about five years and set by 2040, that's only 20 years away, where we have to be off of combustion. If you factor in electrifying everything we use natural gas for and you factor in transportation and you factor in get rid of nukes and coal, oh my god, I mean that's a lot of energy efficiency work. That's...

As I said, an exciting time to be in the energy efficiency. So, congratulations on the strong quarter. We look forward to continued solid execution. Thanks.

[Operator Instructions] And now we have a follow-up from Moshe Katri with Wedbush Securities.

Actually I have two follow-ups, just I'll take another try on looking at Q1 and the actual guidance. Maybe directionally you can help us. Do you think net revenues will be down sequentially, that's number one. And then number two, you mentioned ongoing efforts on the integration side with Lime, maybe talk a bit about where do you see the opportunities for the integration or getting some sort of a cost synergy here? And then when do we see or when do we expect Lime to get our centerfold financial system? Thanks.

Yes. I can take it in order of what you asked. Yeah. I think that sequentially from Q4 to Q1, we'll probably see a decline in net revenue. I think that's logical. In terms of Lime cost synergy, we can buy benefits and insurance more cheaply than they could under their prior ownership. So you're seeing that in part of our 2019 guidance. Those are relatively small numbers, the bigger number is in ability to cross-sell with Lime. And Tom mentioned California is right on the horizon. We think that we can capture some of that upside in 2020. In terms of Lime on our accounting system, we are actually having ongoing meetings with them now. We've transferred some of the data onto our ERP system and that'll probably happen in Q3 or Q4 in this year in terms of completing that process, but we've already begun the process at this point.

And as there are no further questions, I'll turn the call back over to our speakers for closing comments.

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

And that concludes today's conference call. We thank you for joining.