Good day. And welcome to the Willdan Group Third Quarter Fiscal Year 2021 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Al Kaschalk, VP, Investor Relations. Please go ahead, sir.

Thank you, Jenny. Good afternoon, everyone, and welcome to Willdan Group's third quarter 2021 earnings call. Joining our call today, are Tom Brisbin, Chairman of the Board and Chief Executive Officer; Kim Early, Chief Financial Officer; and Mike Bieber, President. The call today builds on our earnings release we issued after market close today. You may find the earnings release and the Willdan investor report that accompanies today’s call in the Stock Information section of our website willdan.com. Management will review prepared remarks, and then we will open the call up to your questions. Statements made in the course of today’s conference call, including answers to your questions, 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’s 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 1st, 2021. The Company cautions investors not to place undue reliance on the forward-looking statements made during the course of this conference call, Willdan disclaims any obligation and does not undertake to update or revise any forward-looking statements made today. In addition to GAAP results, we’ll then also provide non-GAAP financial measures that we believe enhance investors’ ability to analyze the business trends and performance. Our non-GAAP measures include net revenue, adjusted EBITDA and adjusted EPS. Tom, I'll turn the call over to you.

Thanks, Al. And good afternoon, everyone. During our call this afternoon, I will provide an update on the current operating environment and Kim will review our Q3 financial results. Our third quarter results were ahead of expectations. LADWP start date was June 21st, then we had three months of wrap up in our results. We also received in August PUC on all our California IOU that the Investor Owned Utility contracts. -- Southern California Edison on September 15. We are in the process of ramping or starting all of our California Utility Contracts. We have no contracts that have any COVID-19 restriction other than state and local health and safety requirement. All are fully authorized to proceed and funding is in place. We expect meaningful revenue from the California IOU contracts in Q1 of next year as we continue to ramp up to the fourth quarter. Our Engineering and Consulting segment continues to deliver steady performance in growing demand. We are growing organically at 5% in 2021 imparted. -- Collaboration efforts with our Energy segment. Our Software business at Integral Analytics had two new small licenses in Q3. Software revenue is still small overall at about $10 million in 2021, they have become a meaningful profit contributor to Willdan. Additionally in Q3, we successfully launched our internally developed software platform, Viewpoint. Viewpoint contains the best of Willdan's proprietary technology on a single platform to manage utility program. Approximately 10% of our workforce is now software programmers and this will further add to Willdan's technology differentiation in the market. We have big challenge before us wherein these massive California IOU programs. We know we can do it, we are confident based on our nationwide experience, lessons learned over the past 15 years, data management capability, exceptional people, experienced incumbent teaming partners…

Thanks, Tom. And good afternoon, everyone. Overall, we have very good Q3 with revenue earnings in cash flows exceeding expectations as we're focused on execution. Gross revenue for the third quarter was $98.3 million, a decline of $6.2 million or 5.9% from the same quarter a year ago while net revenue, net of subcontractors, materials and other direct costs was $54.5 million for the quarter, an increase of $3.5 million or 6.8% compared to the Q3 in 2020. The diverging directions for growth in net revenue are a result of the shift in the mix of revenue to the increased revenue from LADWP and other utilities was offset by lower construction management revenue. The construction management activities generate significantly smaller net revenue as a percentage of gross and thus the reduction in gross revenue is significantly greater than the reduction in net revenues. The decline in construction management revenue is a result of project completions earlier in the year not yet being fully offset by the startup of new projects despite the strong backlog of new contract. G&A costs were $3.6 million or 11% higher in Q3, 2021, compared to the year-ago quarter reflecting increased staffing, professional services, and travel charges as we work startup the new California IOU contract and other organic expansion opportunities. The higher SG&A costs were partially offset by the higher margins and net revenue resulting in adjusted EBITDA for the quarter of $10.1 million for the quarter compared to an $11.0 in Q3 of 2020. The adjusted EBITDA margin for the quarter was 18.6% of net revenue. Our adjusted earnings per share were $0.53 per share for Q3 of 2021 compared to $0.68 per share in 2020. Nearly all the difference in adjusted earnings per share is accounted for by tax deduction in credits realized…

Thank you. [Operator Instructions] And we will go first to Craig Irwin of Roth Capital. Craig, your line is open, please go ahead.

Hi, I apologize, I was on mute. Thank you for taking my questions and congratulations on another really solid results here. So Tom, gosh it was probably three or four years ago, there was a major budget flush in the fourth quarter. Your customers had underspent during the year and really wanted to keep up with their energy efficiency priorities. Now, I know this environment we've been through in the last two years now is a strange one. It's very difficult to predict and accountable budgets now are not necessarily sort of what marked at the front end. But can you maybe talk us through how a budget flush might work. And is this in and around with possibility for the fourth quarter for Willdan?

Normally, that has happened. But given the fact that we're coming out of COVID, I would temper those spot that we see kind of a steady state sort of in the fourth quarter. So, it's not so much with the bureaucracy of the contract COVID any more, it's really they start up and selling to a customer base that has come in out of COVID as a let's say medium rate. So, I will temper those spots this year. Okay, Craig?

That absolutely does. So, or even execution which everybody's trying to guessing their way in front of your quarters, that this second most common question from the investors is the outlook for the area, the IOU bid schedule for 2022 and the potential scope of work. Now, I know you've been conservative about what you've said there to and then you still you haven’t really started to burn the revenue that that is the opportunity captured already. But can you maybe just sketch it out for us give us some idea roughly to how is it you see your bid teams being and maybe if you're not comfortable with a dollar value, maybe a proportionate measure that kind of indicates to us what's available versus what's already been contracted. What would be really helpful for people looking at the future?

What's available has grown during the pandemic. Because it's been delayed in with schedules. The end points of the schedule were still the same, so they're trying to pack more or what's available into less time. So, our budgets have actually grown. So, the question I think is how much we pack into the three or four years that we have left in all of it, in some case it's five years. But Mike, you want to add to that part of I guess whole question?

Well, all of the new projects have started first of all. Was start to ramp in Q4, you'll see a little bit of that but the major impact is next year. And I would say that if likely each of the next four quarters in 2022 will be progressively greater than their earlier quarter. So, Q4 maybe our largest exit in 2022 and that will continue to grow into 2023; very likely so. That the run rate just for the California IOU programs has that average a $150 million of incremental revenue over the next 4.5 years. So, to the extent we do let's say less than a $100 million next year that means we have to be up around $200 million in 2022, take it over milestones. Further than that, Craig, is difficult to break down at this point but we will break down for investors as we get back to guidance in March of 2022 with the announcement of our fourth quarter and provide a pretty detailed outlook of what we think is going to look like at that point. But since we're just getting started right now, we're going to wait a couple of months to do that.

Understood. So, maybe can you just give us a couple of sentence on the specific opportunity for new projects, new contracts, not the contracts that you have already won.

So, when we went through the scripture, Craig, what we tried to demonstrate was what's going on in the other parts of the country and we gave you a $90 million example or just call it housing multi-family housing in New York City where there is about this is just one unit and they want to revamp how the buildings are heated/cooled. And a first award through public holiday facilities in New York City, Willdan has won was $90 million. So, that's new. I also talked about a new energy contract that's been signed but we can't announce yet. A mid-Atlantic part of $24 million. But what is also exciting is what we're doing in New York City and the States on helping them how to decarbonize. So, we're not only helping them but we call the passive -- the forming of that, the rest of Willdan is also working in all the buildings that to model them, they've also been doing the design and the upgrade. So, that's we're trying to give you a little flavor of other states but then if you go back to California and I might have would have pick out around '23 maybe the end of '23. This going to just keep ramping for three years. And as we said, the less we do now the more we got to do later. So, then what comes as you know better than I do Craig, and how they want to outsource a source about a third in California. So, we'll be back in California going after more if we do well on delivering for the next couple of years. So, there's huge opportunity growing in this area, let's call it I don’t know, electrification, grid modernization, renewables, whatever term you want to put on it. In case you just want me repeat this you know every time, this might be a soft ball question from him but.

Sort of an ideology, you gave me. You gave me what I wanted, I know you're kind of shy about saying 1/3rd is done, there's 2/3'rds out there. But that's really what investors want to understand. So, thank you. Just another couple of very quick questions if I may. Labor is a hot subject or lot of companies investors who're watching closely particularly on the services side, right. You guys have navigated well to put up the results you gave us. Can you talk a little bit about the labor capacity and your confidence in having sufficient labor to execute on the revenue ramp?

We've been a very good attractor of talent during this period and we have ramped up effectively. We hired about a 100 new people new faces in California and even more across other parts of the company. Attracting talent has not been an issue to us, Craig, to my surprise actually. People want to come to work at Willdan, we have a lot of work and a lot of job openings and we're acquiring and hiring a lot of talent, that's piece one. Piece two, it is coming at some escalation. People are quoting anywhere from 5% to 7% escalation on labor rates. We're seeing the same thing occurring. We are passing that along to our clients in escalation and our contracts will for the most part allow us to do that. So, labor is coming at a higher cost but it hasn’t been a restriction on growth.

That's really excellent. And then, last one if I may. Another company sort of in ecosystem not such a direct competitor has gone out there and got themselves basically a $1 billion EPC contract, massive pivot in the business model for them to build these massive energy storage facilities where they really don’t have a lot of experience. It would liquidated damages if their laid, and all sorts of other terms. You guys are not going to surprise us with any changes to the business model or fundamental shifts in what you're doing to try and change revenue and that the initiative that you have that you communicated, can we expect these to be the ones to drive model and consume your time over the next number of years?

No changes in business model, it’s working.

Alright thanks, love it, thank you guys. Many congratulations on the strong results.

And we'll go to our next question from Chip Moore of EF Hutton.

Hey, good evening everybody. Thanks for taking the question. Nice to have a lot of good things to talk about. We had yes we had a good start. Maybe on the software side, I think in the past last quarter you've factored in come wins per IA in the plan. Just wondering how we should be thinking about Q4, any margin implications. In the bigger picture, Tom, you talked about this new unit work side platform. Can you expand on that and what that brings?

And Mike, could you can hit both IA, anything, this is Viewpoint.

Okay. So, in IA, IA did exactly what we thought they were going to do in Q3. Two new small software licenses. We do not expect further software licenses in Q4 that were just the upside. They've had a great year and been a great contributor to the bottom line and more incumbent 2022. So, they're doing a great job.

Yes.

Viewpoint has launched on LADWP, it's been two years in development. We've taken all of the proprietary technologies across the company that have been acquired and invented at Willdan and put them in one platform to be able to manage these large utility programs with it's called Viewpoint internally. It has a customer facing portal, it allows contractors to log on and see where they are on their programs also. And it integrates technologies that Integral Analytics has, building modeling from the White Group and many other software technologies into one platform. This has never been done before and it's working great at LADWP. We're about a month into the launch and it's going just like we expect it. So, we're going to roll it out across the company.

Great, good to hear. Maybe one more on the new $90 million contract in New York City. Nice win. I assume it has the multi-family opportunity reference last quarter. Maybe we can talk about I think you've sort of given it out already but potential for that to grow with federal stimulus or things like this. It seems relatively early day, so just clearly some on pipeline for those network book wins.

No, I sort of separate them. One is a utility type contract for multi-family and one is another state authority for buildings and building complexes in multi-family. So, they are separate, they are two wins. And I'm looking at a diagram here on the board that Mike put up and there is overlap and we can see synergies between them that will really help. So Mike, you want to expand on any of that?

Well, these customers have different objectives and many problems in common. We run both major programs and there is an opportunity to combine what we're doing in those programs and better serve these customers. So, we're going to work on that tonight, actually. They are two new great wins and they will contribute substantially to revenue and profitability over the next three years.

And I think the market for it is just unlimited. I mean, we could never keep up with it for across the country and how it tackle the high-rise multi-family type housing projects and what we would call cities with infrastructure that's anywhere from 50 years to 75 years old. I mean, the heating and cooling and the individual units, I mean is endless.

Yes. I know I remember we need just open your window right to get it, you know.

You go through New York, right, you go through New York and everybody's got their window opened up regulate the heat.

That's right.

That's it.

Great. Great to hear, congrats on the momentum, good to see. Look towards to watching and hear. Thanks.

Thanks, Chip.

We'll now move to our next question from Marc Riddick of Sidoti.

Hey, good evening. I wanted to -- my wanted questions have already been answered. So, I just wanted to sort of circle to another area in those thinking about the potential if you could share our acquisition appetite going forward if there really some targets that might make you some sense or some services that are attracted to you and if that's anything that you've I know you've certainly had a lot and you've played already but wondering if you can just I don’t know spend any time on that?

Yes. It's likely, Marc that we will wait until mid-next year to complete acquisition but we're already starting to work on our next batch. We're resuming the pipeline and the pipeline looks really good. Some of the areas we're looking at right now include software and technology and the energy space. They include electrical engineering and planning in these space. Some energy policy consulting that we like to add and some geographic presence in New England. So, those are just four areas that we're evaluating, they are a number, this is a very fractured market. So, this will go on for some time. These are all private companies, we're directly negotiating it, directly talking with and we often work with them for several years, that's how they come to us. So, the pipeline looks good, don’t expect anything to be announced until mid-next year but we're talking.

And good, that's very encouraging to hear. And then, I guess a second part from me would be around the then it's going into next year. And I appreciate you actually showing that but you're looking at going back to being and just to resume guidance going, once you get to the process early next year. I think that's very encouraging. I was sort of thinking about the landscape of I know you're mentioning a higher labor cost of that range. I was wondering if you also had an update on the folks that you're talking about hiring by the end of the year, I think you're shooting for about a 100 by the end of the year. Could you give an update as to where you are there or if that goal post well has moved at all? Thanks.

We've to the most part completed that hiring. We've done a good job of it. We have a lot of brand new employees that have just joined Willdan. Places we're still hiring include upstate New York and the Midwest but California generally has been filled up and done a great job.

Very encouraging. Thank you.

[Operator Instructions] And we'll go to Moshe Katri of Wedbush.

Hey, thanks. And my congratulations on those joint execution. I've a couple of follow-ups and let's go back for a second to the California contracts. So, hypothetically when I'm looking at my numbers, I'm assuming contribution gross revenue contributions going from $20 million this year maybe $75 million next year and then maybe somewhere in that 150 in '23. Does that are these kind of reasonable expectations this all you're seeing right now?

They're reasonable expectations, if we execute we can beat them, so yes.

Okay. Okay, good. And then, I believe we had a discussion of what happens to margins when some of these contracts mature and I'm assuming are we still expecting margins to be accretive down towards by a couple of 100 basis points, does that make sense?

Over the next three years, yes. As we ramp up and we should start to see some of that even in the back half of next year, yes.

Okay. Okay, good. And then, going back to Integral Analytics, I'm not sure, did you disclose how much revenues we generated from the operation this quarter and how much how accretive it was to earnings?

We did not, we generally don’t breakout the individual software deals, Moshe. I can tell you there were two small deals signed into the quarter and that's what we expected. We've signed what I'll call three new agencies or IOUs up this year and that adds to I think three we sold last year. In total for the year, Integral Analytics will do about $10 million at revenue. And as you know, they're cost basis is about $6 million. So, you can do the math on that. They had a great year and therefore make a great pipeline coming into 2022.

That's helpful. And then, you're delivering some of that also as a SaaS -- in a SaaS model. And I believe that was specifically targeting maybe small municipality. Maybe talk about your success there and how much traction have you had especially building them in it in a SaaS model versus the older kind of legacy mode?

We're just starting that strategy and we were able to carve out small pieces of these contracts. You are building that software as a solution or annuity revenue, it was $2 million last year, I don’t know, we're going to exit this year with something less than $3 million, it's still a small number, Moshe. And it's really our -- we're building a pipeline of those opportunities to still into 2022 because the sales process is normally longer than 12 months. So, we started this earlier in the year and we're seeing more-and-more of those opportunities we would like to target. And this is a new area of business for us as you mentioned. The municipal utilities out there, the largest of which is LADWP. These utilities don’t have profit motive, they're trying to lower their cost basis for their utility clients. And this software is absolutely a vital and helps them lower that cost basis to better planning and better execution of CapEx. So, that's the market we're targeting and we're filling the pipeline with those.

Okay. Thanks.

And it appears there are no further questions at this time. I will now turn the call over to Tom Brisbin for any additional or closing comments.

We just like to thank everyone for joining us today. And have a good week the weekend and take care.

And so this concludes today's call. Thank you, for your participation. You may now disconnect.