Good day, and welcome to the Willdan Group First Quarter 2017 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Tony Rossi of Financial Profile. Please go ahead.

Thank you, Elise. Good afternoon, everyone, and thank you for joining us to discuss Willdan Group's financial results for the first quarter ended March 31, 2017. With us today from management are Chairman and Chief Executive Officer, Thomas Brisbin; Chief Financial Officer, Stacy McLaughlin; 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 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-Q for the year ended December 30, 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 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 us 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 first quarter of 2017 increased 102% to $68.4 million from $33.9 million for the first quarter of 2016. Genesys Engineering, the firm we acquired in March 2016, contributed $22 million in contract revenue for the first quarter of 2017. By segment, including both organic and acquisitive revenue, Energy Efficiency Services increased 164% to $50.1 million. Engineering Services contract revenue increased 27.7% to $14.4 million. Revenue from Public Finance Services increased 8.3% to $3.2 million and Homeland Security Services revenue decreased 9.1% to $623,000 in the quarter. For the purposes of calculating our organic growth in the quarter, we are including the revenue generated by Genesys Engineering that exceeds the revenue recorded in the same period of the prior year. In the first quarter of 2016, Genesys generated $3.9 million in total contract revenue. The quarter-over-quarter difference of $25.6 million is used for the calculation of our organic growth, which we calculate to be 60% in the first quarter of 2017. Since the acquisition we have won joint programs where all the revenue is being reported under the Genesys legal entity. Thus, the growth in Genesys revenue is reflective of our organic business development efforts and is counted in our organic revenue growth. Net revenue, defined as contract revenue minus subcontractor services and other direct costs was $28.5 million, an increase of 28.3% from $22.2 million in the year-ago quarter. Direct costs of contract revenue were $50.7 million for the first quarter of 2017 compared with $20.3 million in the same period last year. Genesys Engineering accounted for $16.1 million of incremental direct cost…

Thanks, Stacy, and good afternoon, everyone. As Stacy indicated we're off to good start in 2017 and we expect a good year. The results demonstrate that we are in good position for continued growth. Our pipeline of opportunities is growing and the type of work that we can respond to is diversifying. We are winning and executing new types of work. For example, going way back some 50 years ago when we were doing civil engineering for cities in Southern California. 8 years ago, we started in energy efficiency. Energy efficiency now represents approximately 75% of our revenue. This energy efficiency work, originally type work for Southern California utilities, has now expanded nationwide for over 30 utilities and some 50 different programs. Through our recent acquisitions, we now provide electrical and mechanical engineering. This allows us to take on a city, university or hospital's complete engineering requirements as we reflected in our announcement on Lawrence, Kansas last quarter. We can also provide energy savings guarantees to a customer, known as performance contracting. We can now handle complex mechanical and electrical systems for any building, campus or community. At Illinois Institute of Technology, we're just getting started evaluating a campus cogen facility that may be used as a distributed energy for the IIT campus microgrid, as well as a planned adjacent microgrid. Together, this would constitute a community microgrid. We were also selected for a California Energy Commission CCEC grant for the air quality management board campus in Southern California. Again, we will be looking at energy efficiency, renewable, storage and generation. 2 additional awards for the State of California will have us looking at similar methods to reduce energy consumption for all publicly office releasing the state. We are building a company to address the modernization of the grid, enabling…

[Operator Instructions] Our first question comes from Ryan Cassil with Seaport Global. Please go ahead.

I guess, maybe just like to get an update on any new projects you guys started in the first quarter? And how those are going? Just trying to understand the drivers behind the accelerated growth again, and I know there was a couple of projects teed up like San Diego Gas & Electric, etcetera, so curious if those have started? And how they're going?

Well, I'll add and Mike will add a few. The ones that I can think of Salt Lake City, PacifiCorp, Con Edison, multifamily housing, probably, Genesys University. I would probably also look at 360, which one?

NYCHA.

NYCHA, New York City Housing Authority, a lighting contract. Any other significant ones. Those are all pretty significant.

360 Lawrence, Kansas.

Lawrence, Kansas got started. So although we announced those wins probably last year. They're beginning to ramp up.

Okay. SDG&E you didn't mention, is that one still on the come, I guess, in terms of ramping up?

SDG&E I did mention when I said -- maybe I didn't mention it clear. Let me go back. I called it the LCR contract, local capacity requirement, and that one was the one that we announced probably just about a year ago and through negotiations, the announcement said about $90 million award for, I think it was six years -- five or six years? six years. And our first project is just coming online in the second quarter of this year. So that one is just -- we signed the contract probably couple of months ago, maybe this quarter or this year. I called it LCR. I thought -- we said our LCR, local capacity recruitment, contract with San Diego Gas & Electric is just getting started, that was that $90 million work.

Okay, great. So I mean, I guess, your growth rate kind of answers my question here, but any issues sort of ramping up all of these new awards all at -- seemingly at the same time? How are you guys feeling from an infrastructure or capacity standpoint as all this work ramps?

Okay. Right now, so I'll say not yet. But Mike, you want to add to that? Mike doesn't want to add to that. We're -- of course they're all difficult ramping up. We're standing on top on it, I think, better than when we were 2 years ago. Mike is doing a good job making sure that there is no operational issues and that if we're behind on targets, we meet with clients and have -- make sure we meet them within our first year of ramp up. And as of right now, everything is on schedule.

Okay, great. And I guess, as I look at the guidance, it -- I look at the growth rates, so the implied growth rate through the end of the year, imply things normalize. You start lapping some tougher comparison sure. But it seems like the business has so much momentum. Is there a bit of conservatism being applied here at this point?

We are early in the year. We just finished our first quarter. First quarter was outstanding. And we'll see how the year progresses. Our projects are subject to both delays and acceleration. So that's how we looked at the second guidance.

Sure. No, I appreciate it. And maybe just could you update us on some of the opportunities that you're seeing out there to the extent you can talk about them. I know, Stacy mentioned an increase in bidding opportunities. You guys have talked about Illinois sort of pulling their proposal, because they were increasing the scope of it so much, it had to be rebid. Could you talk about maybe that one? Are there any other new opportunities that have arisen that you might want to share with us?

Sure. We can go kind of across the country. There's hospitals in Texas. Illinois is still -- they haven't decided if they're going to pull back or go forward now with what they have or they might modify. So it's still moving forward. The IIT campus one is new and that gets us into the Illinois Commerce Commission approved funding for a microgrid right next to the Illinois Institute of Technology and the cogen facility we're working on will power potentially both microgrids. And New York, New Jersey, Massachusetts all around the Northeast there are additional programs. Con Ed is coming out with new programs. What's happening a little bit in the Northeast for Con Ed is, like Brooklyn-Queens that's why I mentioned it, they are targeting new load pockets. So instead of Brooklyn-Queens they are attaching new names to them, and they are wanting to know how to reduce the amount of electricity in specific areas. And that's exactly what San Diego Gas & Electric is how to reduce load-specific areas. We're also looking at in California, as I mentioned, the CEC grants for the air quality board. There are other CEC grants coming on microgrids that we're pursuing. We're, for the first time, looking at a federal pursuit. Can't tell you how that will turn out. That's probably, they usually have long decision times. What have I missed Mike, anything?

California.

California. California is still deciding what they want to do. We've heard June. We've heard August for an RFP. We've heard they want to do something before the end of the year. We are prepared. We are ready, our programs are still continuing. But we are looking forward to the re-compete, because as I said earlier, they're mandated go from 20% outsourcing to 60%. So the pipeline is full, I mean, we're writing, I think Stacy alluded to our marketing expenses are up, and we've got many opportunities, we're not just writing proposals, we're writing proposals that we can win, so.

And for California I mean, is that expected to be split across multiple players in the market? Or could you potentially win an outsized piece of that or all of that? What's the landscape look like on that front?

We will not win all of that. It will be split amongst multiple awards in different program. So you will look at residential, commercial, industrial, the public sector, you look at ag. They've about, right now, 120 programs. We think they may consolidate down to 5 to 10. There is a lot of talk about that because everybody wants to keep what they have. But they're looking at consolidation. But even if they consolidate, there will be multiple winners and multiple programs, which is fine with us. I mean, they're going to grow by a factor of 3.

Okay, great. You mentioned the high subcontractor cost in the quarter. Is there a way to think about that in the remainder of the year sort of a target that we can thing about?

We think it's going to hover around 50, 50 for the next two quarters at least. It's tough to see into Q4 and Q1 of next year. But at least for the next couple of quarters probably hang around 50, 50. It was up above that at 58% this quarter.

Okay. So normalizes a bit, but I think it's little up year over year last year, that's just mix of some of the work you guys have going on right now, I presume. Is that fair?

That's correct.

[Operator Instructions] Our next question comes from John Quealy from Canaccord Genuity. Please go ahead.

First question in terms of the $240 million to $250 million guide on the top line, can you just remind us in terms of visibility? What's contracted and awarded in that number?

Practically all of it. Yes.

Okay. In terms of the cash flow profile. So Q1 obviously doing a lot of work and using some cash. Talk about the cash flow cadence, if you will, moving to the rest of the year seasonality? And then a follow on to that, folks, is dry powder. What are you thinking of with the cash on hand plus what you'll generate in obviously that you have available to draw down in terms of M&A potential?

For cash flow operations, we've typically in the first quarter, as I mentioned, have a used in position, just with the holidays and the increase in amount of work. Additionally, we have an increase in AR and our cost and access of billings, which help kind of bring that down. As we progress throughout the year, we go back into a positive operating situation with our cash. And that's been the case with the past, I think that I have here, 4 years.

Yes. And Stacy any estimate our guestimate on CFO for the full year. I mean, in last year was about 22ish or something like that. And then what sort of dry powder you're thinking about in terms of size of M&A, and you look at that pipeline?

John, we haven't guided on free cash flow for the year, but it should be good. We're looking for cash flow that's similar to last year. We've got about $20 million in the bank right now, and we've got $35 million in borrowing capacity without expanding, plus another 25% in the accordion. We need it because we're -- $25 million in accordion. We need it, we're looking at a number of M&A opportunities right now. And so, it's likely that over the next little period of time, we'll start to run into a net debt position as we make acquisitions and use our credit facility.

Okay. That's helpful. And then lastly, in terms of -- thanks for all the detail on the pipeline and potential target business. Talk about -- are you seeing any major pressures on wage inflation or subcontractor availability, talk about as you're expanding especially in energy filling out those relationships with sub-cons and how that's working for you?

Wages are going up, not as fast as revenue, but wages are going up, and we're able to thus far to pass those along to our clients. Sometimes there is a delay in that, in that you might sign a one-year contract where you can't escalate until a certain period within a given contract year. But we're able to pass on the escalated wage costs in our contracts. In terms of subcontractors, we are using those quite a bit as we ramp up these large contracts that Tom mentioned. We're relying heavily on subcontractors to allow us to ramp that quickly. In future years or periods, we may be able to put some of that work in-house, once we get to a more steady run rate on some of the new contracts.

Thank you. It appears we have no further questions at this time. I'll turn it back to management for any additional or closing remarks.

Okay. I'd 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.

That concludes today's conference. We appreciate your participation. You may disconnect at any time, and have a great day.