Greetings, and welcome to the Willdan Group Fourth Quarter and Full Year 2022 Financial Results Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Al Kaschalk of Investor Relations. Please proceed.

Thank you, Latania. Good afternoon, everyone, and welcome to Willdan Group's Fourth Quarter and Fiscal Year 2022 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 is built on our earnings release we issued after the market closed today. You may find the earnings release and the Willdan investor report that accompanies today's call in the press release and Stock Information section of our Investor Relations website found at ir.willdan.com. Management will review prepared remarks, and we will then 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 is important to note that the company's future results could materially differ from those in any such forward-looking statements. Factors that could cause the 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 December 31, 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. I'll now turn the call over to Tom Brisbin, Willdan's Chairman and CEO.

Thanks, Al, and good afternoon, everyone. We believe 2022 was the end of the negative headwinds associated with COVID and the start-up of the California IOU programs. As stated previously, we expected the second half of 2022 to show an upward trend and it did. The results reported for the fourth quarter were net revenue up 25%, profit up 52%, organic growth up 25%. We have begun our trend back to a growth company that we were before COVID. Let's first talk about why we are optimistic about 2023. For the first time, since the 1970s, the U.S. federal government has passed legislation in energy to inject nearly $370 billion in the form of tax credits and loans to facilitate a faster clean energy transition via the Inflation Reduction Act. This will result in trillions of dollars of new clean energy investments over the next decade and will have a direct and longer lasting impact on our fundamental lines of business. The beginning of this funding is industry sometime this quarter. To take full advantage of federal incentives, we are already consulting with utilities and cities on using these federal programs and are picking our utility programs to be able to stack federal and utility incentives together to make them more successful. Every state and utility are trying to maximize the amount of federal incentives for their customers. We have the successful engineering and financial services practice focused on cities. We are seeing a rapid growth in the number of cities that are also focused on maximizing benefits. We have a unique opportunity to bring our energy and infrastructure business to benefit these customers. This natural synergy between our lines of business is all incremental to our base case forecast. We are fortunate that we have been positioned for this…

Thanks, Tom, and good afternoon, everyone. Our Q4 performance reflected increasing momentum of gross revenue up by 23% and net revenue up 25% over the prior year. The numbers were driven by a surge in revenue under our California IOU programs as well as higher T&M revenues from energy planning services and our Engineering and Consulting segment. Gross profit also increased 24%, consistent with the revenue growth to $43.1 million for the quarter. As a percentage of gross revenue, gross profit margin increased 40 basis points, reflecting the change in the mix of revenues. Our revenues and gross profits were up more than 20%. G&A expenses grew at a significantly lower rate than revenue. Lower stock-based compensation partially offset higher wages and salaries, while interest expense increased to $2.1 million for the quarter on higher borrowing and higher average interest rates. Our reported pretax income for Q4 was $2.2 million, up 350% from $480,000 a year ago. The net loss of $425,000 in 2022 compared to a net loss of $890,000 for Q4 of 2021. Adjusted EBITDA was up 25% to $11.8 million for the quarter. Adjusted earnings per share was $0.36 compared to 47% in Q4 of 2021 due to the lower tax benefit and a higher diluted share count. For the full year, gross revenue increased 21% and net revenue increased 12%. The significant increase in construction management activities was the primary factor behind the higher gross revenue and the differential in gross and net revenue growth rates. Such activities have a higher percentage of subcontracted services and material content, which lead to a much smaller net revenue increase. 2022 also reflects higher revenues from engineering and consulting, partially offset by lower software licensing and direct install revenue. Gross profit in 2022 increased 6% to $143.6 million for…

[Operator Instructions]. Our first question comes from Craig Irwin with Roth.

It's Andrew on for Craig. Just a quick 1 for me. You guys alluded to it in your comments. Can you just provide some more details on the Integra Analytics backlog. I know you guys have been optimistic of a few contracts being inked in the near future, but I understand it's a long sales cycle. So any additional color there would be great.

Sure, Andrew. This is Mike. We did not think any of those deals in Q4. So the results were of new major software contracts. The pipeline of opportunities has never looked better. We submitted a number of proposals and are in a number of discussions with customers right now, and we're optimistic that we're going to have a very good first half of this year.

Our next question comes from Chip Moore with E.F. Hutton.

Some -- a lot of great insight on some of the positive momentum you're seeing there in the prepared remarks. In -- about guidance, maybe you can talk about visibility there. You touched on about sort of the progression moving through the year, but particularly as it relates to California IOU programs and particularly the SCE contract amendment. Help us with that. I guess it's my first.

We're trying to decide who should answer that question. Get a little bit more specific on what you want to know about SCE's amendment.

Any more detail you can provide on it. But really, what I was trying to get at was just around visibility on the guidance and conservatism potential for upside. You talked about the pipeline, I guess, for instance, what are you baking in on software deals, for example?

Yes. Chip, this is Mike. We have almost all of the work that we expect to contribute in 2023, either under contract or in firm backlog. It looks very good from that perspective. In addition, we continue to submit new proposals and see a number of new opportunities, which might provide us upside if we're successful in winning those and starting to execute in the year. So that -- from that perspective, it looks very good coming into 2023. And we're carrying Q4's momentum into, as Tom mentioned, that we've already seen it in the first months of this year. So that perspective, it looks good. We have been -- we've tried to factor down significantly any contribution from software in the year. We have -- I won't say that we have completely factored out, but we've been very conservative with our estimates on new software licenses to contribute to guidance. Having said that, the pipeline looks very strong for and we're optimistic that even the first half of this year looks very good.

Perfect. That's very helpful color. Appreciate it, Mike. And then I guess my other question is more on the civil engineering side that's been, I think, like you said, your rock very resilient. Curious there, I guess, 2 questions. First, any concerns on the broader macro environment and it seems like more -- you're seeing more opportunity related to energy transition and IRA funding. So curious about what you're seeing there, sort of those synergies and any potential to maybe expand that business outside some of your traditional California markets given those tailwinds over time.

Yes. We have not seen the effect of whether or not we're in a recession or a recession is coming yet. We ask ourselves every day, what will '23 be. As I said, we haven't seen it yet to offset, though, we are thinking just like you said, that this energy intersection at the cities of the IRA and our lines of business like with E3 does may if we do see a recession and effect on our civil engineering business may be offset by the ramp-up in energy. That's what we're talking amongst ourselves. That's all I can tell you. I mean it's an unknown at this point.

Yes. No, that's fair.

Counterintuitive, they had a very strong Q4 and are entering 2023, the first couple of months better than ever. So it has not translated into any sort at all right now.

That's helpful. And maybe if I sneak 1 in, I think, back to as it relates to IRA and some of the tailwinds. I think you mentioned the growth you're seeing at E3 and how they're sort of your leading indicator on future direction? Just maybe expand on that and maybe where some of that direction might be?

Well, this clean energy economy, transition, grid modification whatever you want to call it, climate change, E3 is the leading, let's call it technical consulting for probably in the nation. I mean, they are the ones that they call these calls, where is the world going, how do I get there? And they are betting a lot on this electrification. We've got to reduce our EE, energy efficiency. We have to electrify. They see this money as being enough as you stack it on the utility sets and settle money enough to get the market to move to a clean energy economy. Now that is a 10-year deal. And where do we fit into that and how do we capture that is what we're working on. And we like where we are. I mean we like working for the utilities, the private sector, the cities. And we have probably a deep understanding of where this transition is going because of what E3 does, and I call it the practice we've been doing for the last 6, 7, 8 years. It's really got us a lot smarter. We understand the customers what they need, and there's a lot of confusion in the market what it means. I mean, they get called on by the vendors selling them up in every minute on how to get better, cheaper, faster, less carbon. So we're ready for it. I won't say completely right, but we're in pretty good shape.

[Operator Instructions]. Our next question comes from Marc Riddick with Sidoti.

So I was wondering if you could touch a little bit about the -- what we should be thinking about sort of how the amendment would -- is there sort of any lumpiness into sort of where those changes would appear throughout the year. As well as then as a follow-up, I know that there had been the hiring ramp up going into everything through the year, most of which was done early in '22. Should we be thinking about anything different as far as any headcount changes that may come from that? Or are you kind of where you need to be with the human capital there?

Marc, the amendment has been signed is finalized with SCE. And there should be no lumpiness associated with it actually, just the opposite, it should remove the lumpiness out of those contracts. So a pretty steady, slow ramp throughout the year on the California IOU work. Likewise, on hiring across the company, pretty slow, steady hiring throughout the year. not any major obstacle that we have to face in 2023.

Okay. Great. And then as far as the time frame as to maybe what you might be seeing as far as a pickup in some of the potential pipeline from the funding environment on state and local government levels. Could you talk a little bit about maybe is there a type of -- are there any changes in the types of projects that you're seeing? Or are there any particular ones that are kind of at the forefront of picking up demand relatively sooner rather than later relative to some of the other services that you may provide?

On state and local, what we've actually seen is a lot of energy efficiency work for stable local governments. We do that work in our performance engineering group and they're entering this year with record backlog and a lot of momentum with cities that are trying to invest in upgraded infrastructure and energy efficiency. The IRA money, we think, will be a future catalyst to that group of customers, but we haven't actually received a contract that is funded by IRA money. That is future growth opportunity for us right now. We have a number of discussions with customers trying to figure out how to access that money and best put it to use. But that is not what we're currently seeing right now. It's a future opportunity for us in 2023.

Great. And then 1 last thing for me. I was sort of curious as to whether or not -- now this may be a question, so forgive me, but I was sort of curious as to whether or not you've seen any weather impacts on the business. I know we've seen some historical weather challenges -- I wasn't sure if there was anything that would have had any impact on maybe what you've seen at least through the -- at the end of the last year and maybe through the beginning of this year with some of the historical components that we've seen this year?

Some of our people who go scan a lot can get into the resorts, but no. There's been no impact from the

At this time, I would like to turn the call back to Tom Brisbane for closing comments.

I'd just like to thank everybody for tuning in, and we expect good results in the first quarter, and we'll see you in about 90 days.

Thanks a lot, everyone.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation, and have a great day.