Good day, and welcome to the Willdan Group First Quarter 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Tony Rossi with Financial Profiles. Please go ahead.

Thank you, Kathy. Good afternoon, everyone, and thank you for joining us to discuss Willdan Group's financial results for the first quarter ended April 3, 2020. 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 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 10-K for the year ended December 27, 2019, 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 add my welcome to those joining us on today's call. I'll start with an overview of our income statement, and then discuss our balance sheet. As we indicated in the press release issued last month, our financial results have been impacted by the quarantines in New York and California that have temporarily suspended most of the work on our direct install program in those states. Total contract revenue for the first quarter of 2020 increased 15.5% to $106 million from $91.8 million from the first quarter of 2019. The increase was driven by growth in both the energy and engineering and consulting segments. Net revenue, defined as contract revenue minus subcontractor services and other direct costs, was $49.6 million, an increase of 21.4% from $40.8 million in the year ago quarter. Within the energy segment, net revenue increased by 28.2%, which was due to the contributions of our recent acquisitions. Within the engineering and consulting segment, net revenue increased 8.4%, which was entirely attributable to organic growth. Direct costs of contract revenue were $75.3 million for the first quarter of 2020, an increase of 14.4% from $65.9 million in the same period last year. The increase was primarily related to the growth in contract revenue, resulting from both our organic growth and our recent acquisitions. Our direct costs of contract revenue was 71% of our total contract revenue in the first quarter, up from 67% in the fourth quarter of 2019, but down from 72% in the same period of the prior year. The difference in each period primarily reflects changes in the mix of work and the degree to which subcontractors are utilized. General and administrative expenses for the first quarter were $39 million compared to $26.2 million for the prior year period. The increase was primarily driven by higher personnel facilities and amortization expense resulting from our recent acquisitions. As announced last month, we have taken a number of actions to reduce our expense levels, while our revenue is impacted by the COVID-19 pandemic. These actions include placing approximately 300 employees on unpaid furlough, decreasing all non-critical spending for travel, capital expenditures, and other discretionary expenses, temporarily reducing capped wages for salaried employees, and suspending cash fees paid for our Board of Directors. These actions should result in a lower level of general and administrative expenses in the second quarter of 2020. We generated an operating loss of $8.3 million for the first quarter of 2020, compared to an operating loss of $234,000 in the first quarter of 2019. Adjusted EBITDA was $1.3 million for the first quarter of 2020, compared with $4.7 million dollars for the first quarter of 2019. We incurred $1.5 million in net interest expense in the first quarter of 2020, compared to $1.1 million in the same period last year. The increase was due to the debt utilized to finance our recent acquisitions. During the quarter, we recorded income tax benefit of $1.6 million, which was attributable to various tax deductions and credits. We had a net loss in the first quarter of 2020 of $8.2 million or $0.71 per diluted share, compared with a net loss of $417,000 or $0.04 per diluted share in the same period last year. On an adjusted basis, our net loss was $1.5 million or $0.13 per diluted share. The most significant adjustment from our GAAP net income was stock-based compensation and intangible amortization, which are both non-cash items. Turning to the balance sheet and cash flow from operations. We started the year with a heavy emphasis on cash collection, particularly from some of our large utility customers. In the quarter, these efforts were very successful. At April 3, 2020, accounts receivable net and contract assets totaled $123.3 million, a decrease of $35.6 million or 22.4% from December 27, 2019. In the first quarter, we generated strong cash flow from operations. We had $16.5 million in cash flow from operations, an increase of 55% from the same period last year. As of April 3, 2020 we had $126.7 million outstanding on our total credit facility and $66 million remain available within our credit facility. On May 6th, 2020, we finalized amendment with our lending group that we feel provides enough financial covenant cushion for the next five months. The amendment temporarily changes the interest rates for borrowing under the Company's credit facility, provides additional flexibility within our debt covenants, and makes other temporary modifications. The terms of our credit facility amendment will be provided in the 10-Q. This will have the effect of increasing our interest expense to approximately $6 million for the year, up from our previous estimate of $4.5 million. As of today, we have a cash balance of approximately $25 million. On April 16, we withdrew our financial targets for fiscal 2020, due to the uncertainty resulting from the COVID-19 pandemic. When the economy reopens and we have greater visibility on the resumption of activity on our Direct Install program, we would look to resume issuing financial targets. I'd now like to turn the call over to Tom.

Thanks. Stacy, and good afternoon, everyone. First, I would like to thank all our employees. The COVID-19 pandemic has caused rapid change and financial sacrifice for all. For the first quarter, all indicators were on target. We had a slow January, February was ramping quickly, and the first weeks of March were headed to a record quarter. The remainder of March fell off drastically. Even with the work temporarily suspended, we had 1% organic growth for the quarter. Let's now get to more detail on the pandemic effects to our business. We've been fortunate that 60% of work can be performed from home. Our energy efficiency Direct Install business, approximately 40%, is temporarily impacted, especially in the New York and California markets. This business requires direct interface with the customer, primarily the small business customer. Willdan's objective is to protect the physical health of our employees and the financial health of the Company through this pandemic. We have taken many actions to balance revenue with costs. None of our work has been lost because of the pandemic. It has been paused, and must still be completed within the framework of our long-term utility contracts. In many states, work has continued at a reduced level. We are looking at restarts now, even in parts of New York and California. Now, let's get a little bit more specific so our shareholders can understand where we are today. Let's first address the revenue least impacted. As stated, 60% of our business is professional services that can be done from home or has been deemed essential, because they are engineering or construction management. Of course, there are interruptions in this revenue stream due to logistics and/or stops and starts. We estimated initially that this interruption was less than 20%. Today, it is about 10% for 60% of our revenue. For example, initially we had major projects for the Dormitory Authority for the State of New York stopped, but within two weeks, they were deemed essential because schools, hospitals, dormitories must operate or be repaired. Many school districts that were doing infrastructure and energy upgrade had a very short pause. In less than two weeks, it was rapidly decided. Now as an ideal time to do the upgrades because construction will not interrupt empty schools or empty buildings in general. Now, let's turn to the most impacted part of our business, which is the small to medium energy efficiency upgrades. This is where we make commercial buildings more energy efficient using lighting, heating, and cooling technology. Generally, the paybacks are less than two years, and greatly help commercial businesses reduce their operating costs. This is the perfect time to reduce operating costs, and due to the shelter in place restrictions, we cannot make sales or enter the facilities. Therefore, 40% of our revenue has been reduced by 80%. There is a spectrum of reactions from New York City, Washington State being the most impacted, to the Chicago suburbs and Utah where there was less change. Across the spectrum of effect, we saw a very quick response to stopping work, about two weeks, within two weeks. Then there were workarounds. Small at first, such as virtual audits, owners signing releases to protect utilities, and working in open spaces. Then two weeks ago, more workarounds, such as Los Angeles Unified School District, LAUSD, started operating the schools while empty. Los Angeles should be commended for working on their greenhouse gas goals in a safe manner during the pandemic. In the last two to four weeks, we have seen many small workarounds. L.A. considered a major start. These workarounds our really everyone's effort to go back to work. The discussions have gone from stop to workaround. Today, this discussion is how do we start. The when varies from mid-May to early June. No predictions here, just cautious optimism. As the economy looks to rebound from the effects of Coronavirus, energy efficiency in general and energy efficiency for small businesses specifically are being discussed as key components to a recovery strategy. Many utilities have already increased incentives, some to 100% of project costs, in order to help restart the economy. This will take the paybacks on their projects to zero. Federal legislation under consideration includes multiple programs for the states, local governments, and utilities with funds to drive energy efficiency recovery. One program has provided as much as $6 billion to offset small business costs for participation. While COVID-19 has had a significant impact on our short-term revenue and earnings, it is important to reiterate that it does not impact the total amount of revenue that we will earn on our projects and programs, just the timing. We have had no program cancellations or changes in the scope of activity. As restrictions are lifted, we expect to resume work and recognize all of the revenue we have under contract. It will just be pushed out to later quarters. In addition, we do not see any meaningful impact on the funding for our programs. 60% of our revenue comes from the utility, and there will be no impact to funding in this area. 10% of our revenue comes from commercial customers, and this point, we are actually seeing more funding being allocated. Our largest commercial customer is AT&T, and they are increasing their spend on energy efficiency programs. 30%, or the remaining revenue, comes from state and local government. During this period, we saw 8% organic growth in our civil engineering segment, which is primarily local government. Due to COVID-19 our cities outsource more work. Despite the impact of the crisis, we continue to see a very healthy pipeline of new business opportunities. It appears our customers are utilizing their time at home to work at getting their RFPs out, and we have continued to win new programs at a steady rate. We recently won $21.1 billion to build a design-build project at two school districts in Colorado. These projects will make the schools more energy efficient, upgrade the building infrastructure, and enhance the educational environment with improved air, light quality, and new smart classroom technologies. We also recently won a major new assignment from AT&T to make their 1,700 central offices across the country more energy efficient and reliable. This project will help us build a track record in the industrial market, which is 30% larger than the commercial market, and represents significant growth opportunities in the years ahead. In terms of the California procurements, the schedule for the awards remains on track. PG&E, San Diego Gas and Electric, and Southern California Edison continue to be in active negotiations, but we can't provide any more details other than that. We can tell you they're working towards meeting their deadline of making awards that would bring the level of outsourced programs up to 25% by the end of June. Our playbook for 2020 hasn't changed. We are primarily focused on organic growth this year. Given the amount of work we have in the pipeline and the California procurement opportunities, we believe that's where our focus should be. In 2021, we'll look to resume our acquisition activity and take advantage of some of the new opportunities. While the current environment is certainly challenging, we remain bullish about the long-term opportunities we will get. Reducing operating costs, sustainability, resiliency, upgrading building infrastructure, reducing greenhouse gas, will not be a casualty of the pandemic. The trend towards electrification continues, and once the economy opens up again, we believe that there will be even more demand for our services. With that, we can take questions.

[Operator Instructions]. We will take our first question from Craig Irwin with ROTH Capital Partners.

Good evening, and thanks for taking my questions. I hope you're all well.

We are.

So first thing I want to ask you…

We are socially distancing.

Yes. Social distancing, yes. That's a good thing you have a great big boardroom table there, so lots of room to social distance. As we look down the runway, 2020, it's obvious it's going to be a difficult year. This is, just looking at the stock, it wasn't that long ago that we were trading between $35 and $40 share. Now in the low $20s. A lot of this is already reflected. But the real question is sort of how long for that backlog that you've been building for a long time to really reconvert? So can you help me understand, your first quarter was obviously impacted by COVID. But the impact in the second quarter is going to be more significant. And then if we're a believer in sort of the swoosh-shaped recovery, where the third quarter would definitely be up from the second and the fourth quarter may even be higher than the first, how do we factor this? I mean, is this consistent with your own thinking? And any color you can provide to help us shape out the impact on Willdan's operations over the next couple of quarters.

There were several parts to that, Craig.

Of course.

Of course. I guess it appears -- if you look at L.A., I mean, they're doing schools, they're doing community colleges, they're opening up parks and recs. They're opening up areas very rapidly. If we look at New York, all but New York City, like upstate New York, are opening up. Most of the country is opening up. So we are optimistic that by early June, at the worst, we will be going back. Now, backlog is only growing because the work has to still be done. We have those long-term contracts that we still have to make goal line by the end. So they all know that -- what happens? Will we get another spike? Will New York City stay closed down longer? I don't know. You had some other questions in there. Did you track them, Mike?

Just one other question was how long will the trough last? And essentially, the bottom of the trough has likely already occurred because programs have already started restarting, as Tom mentioned. Over the last few weeks, we've got a number of restarts, and we expect more restarts, quite a few more actually, next week. So the bottom of the trough was actually about a week or two ago. And so, revenue's been picking up since then, as we open projects.

Craig, was there more to that question? Like do you want to know the rates of recovery?

Well, I kind of -- first is the farther we recover, we have to know how far down we go and set our expectations correctly, right? So maybe can you share with us approximately how much revenue was off in the month of April versus the average revenue production in the first quarter? Were we talking about a teens or maybe a 20% reduction, or was it off more significantly, given the way that COVID hit the bridge for everything, and then we have to figure out how to get people out there and working?

First, let me address it for the first quarter, and we probably just sat on around $10 million of gross revenue in the first quarter, which impacted profit $4 million to $5 million in the first quarter, okay. This quarter depending on when we ramp back up and how quickly things open we will be losing $25-plus million of gross revenue that we would have recognized otherwise. But the relative profit impact this quarter will be much less than it was last quarter because our cost cutting measures have taken effect and we're already seeing that. So it won't be [indiscernible] obviously, this quarter. We are starting to see acceleration of revenue over the past couple of weeks as I mentioned and June looks to be, we've got a lot of backlog so the question is, how quickly can you ramp up in June? Does that answer your question?

Yes, it does. As the services type business in engineering and technical services business compensation is a large part of the expense base so your actions there were pretty significant. I understand the relative impact. That will make sense to investors. Changing the subject. Everybody wants to own your stock for the energy efficiency programs coming down the pipe in California. The utilities themselves have published numbers about where and when and how much they expect to give out. Obviously, you're in negotiation for certain programs and can't say too much. Some of those programs are supposed to have awards this summer now and others and maybe back-ended of summer into the fall. Is it a fair assumption to say that these probably do get pushed and we're really looking more like the fall for activity given that utilities are not the best at keeping timelines in the first place? Is that a fair expectation?

For the first time, I would say utilities are right on schedule. PG&E and SPG&E are moving very quickly to make their deadline. We are very happy with the back and forth with that. SCE is coming along and as I said in the scripted remarks the furloughs seem to be helping that. We've never been more on target, Craig.

That is fantastic news and consistent with something I think the Wall Street Journal reported not too long ago that all of us in this environment seem to be working three, four more hours a day than we would have in a normal environment. See now the utilities are obviously benefitting from that too so that's a very positive thing. On track for this summer, that's great. So then can we talk the magnitude of potential orders?

Wait, Craig, before anything check on revenue, on track for contract award by July 1st. Then you see a promo and then we are expecting actually beginning work in the fourth quarter.

Understood. That makes sense, but the magnitude of the scope that you're negotiating for or that you've submitted for, where we could see a decision this year, can you update us on what the total scope is you're looking at?

Not at this time. It's really a very sensitive time now because negotiations have stalled.

Okay. So there are other contractors that are going for this and even though you are the biggest and have the longest track record, others will aggressively pursue that business. Is that what we should understand?

That's fair. That's what is going on.

Okay. Opportunities outside of California which has been something that sort of come on the table off the table over the last couple of quarters. Duke, for example, expanded quite a bit for you. I know there was a potential opportunity in New York State. Can you maybe update us on any potential elephants out there outside of California in the energy efficiency space? Maybe this efficiency of the utility side on the contract award process help some of those projects. What should we be thinking about potential opportunities?

In the engineering world, we are looking at finally cracking the code in New York with NYCHA, the New York City Housing Authority. That's more of design and construction management work to redo how many buildings do they have? 10,000, I don't know. Some unbelievable number but as we gave the press release, we were one of the four selected and that's moving along which, that's a whole new business for us, which is pretty exciting. They have really taken all parts of Willdan as they explain it. They do the roadmap and then we propose on the actual implementation of that roadmap for cities. They have the full service from top strategic thinking all the way through implementations paying dividends and you'll see that hopefully, in the near future. The other big elephant is electrification. If our customers have to get rid of natural gas and electrify everything they do from hot water and the heat, we're in a very good position to go from why into HVAC to all electrification in that customer base for the utility and non-utility driven customers. I think those are some elephants.

In your prepared remarks, you mentioned AT&T. I had one of your shareholders asking about AT&T just this last week. Can you maybe give a little bit of color about the potential growth there? Have you been seeing growth with AT&T before this COVID situation materialized? Do you expect now that new accommodations are there to work on facilities in this environment even though social distancing is in effect that we can continue to see AT&T and customers like AT&T grow for Willdan in next couple of quarters?

Hey, Craig. We've had a long-standing MSA within a subgroup [Phonetic] of AT&T through our onsite acquisition. But the workflow has been relatively low since onsite joined us and AT&T made its first major award last week. And we were -- wanted just a couple of contractors. It's going to be -- the task force is not an issue, it's going to be a major growth over the next Q2, Q3 and Q4. We're looking at $5-ish million plus of incremental revenue this year and maybe double that or more next year. There's a lot of work to be done with AT&T. So you see it ramp up in the performance.

Yeah, that's positive momentum. Anything else you would call out for Onsite? Obviously that's a good that's executing right now. Any other customers you can talk about?

That's on their industrial side and they're are also doing very well on the utility side, the LCR contract and that work is actually continued through the COVID crisis. So we're doing well.

Excellent. Well, congratulations on the progress. Everybody knows this environment is a challenge and Willdan seems to be stepping right up to meet it head on. So, stay well. Thank you.

Thanks, Craig.

[Operator Instructions] We will take our next question from Jed Dorsheimer with Canaccord Genuity.

Hi, thanks for taking my question or questions, I guess. First one, you'd touched on a little bit, but maybe just ask a different way. If I look at the load balancing or the need for load balance with respect to C&I versus residential, load shifts from this pandemic or potentially a shift from virtualization in kind of a work from home trend. Is that -- could you quantify or help frame what that does in terms of opportunity from a utility perspective?

We'll decide who should answer that. I think, Mike should answer that you didn't [Indiscernible]

No, although and those what the long-term effects will be and how long this will last. The short-term impact and what utilities are telling us right now is that they want to incentivize C&I basis you described it, the small commercial customers immediately coming out of this pandemic in for the restart. That's what they actually told us. There may be a longer-term load shift away from C&I toward residential and that's what you're pointing to. But none of our customers right now are focused on that. They are focused on restarting the commercial work in the short term and they're doing that to increase incentives to small businesses as Tom mentioned. So in the other longer-term shift, but they have to longer conversation, we haven't heard that directly from the utilities yet, and it would be speculation.

Got it.

So their load problem is really load growth due to the electrification and transportation. So I don't think there's really distributed amongst residential, commercial, industrial and they have a 20% plus problem with load growth. So energy efficiency and demand response, going to be a more and more important to I don't think they take care to get it.

And that's it. Probably a good segue into my next question which you had mentioned the 10,000 buildings in New York and cracking that code. When I ran a division for our company that sold into that market, I know LL88 was a pretty good opportunity, but one that wasn't adhered to in terms of the sub-metering. So I'm curious, is that shifted where there is enforcement of some of the local laws that are driving some of that opportunity for you or is it something else that's, that's kind of driving the energy efficiency in New York and Manhattan, in particular?

Yeah, the overall LL, the New York LL97, I believe, to get New York compliant with the greenhouse gas goals which kind talking about where E3 its critical, because they are the ones that create the pathway for the State of New York and New York City. And then the rest will then write down through the guys who are working on the actual engineering and construction. I've heard the nature housing, they are the ones on the ground doing the engineering as well as the West of Willdan, it is in New York during the smaller buildings. I mean New York right now is looking at their all-in New York City on 4,000 buildings how to get it to be compliant with LL97. So yes, I would say, regulatory is driving and based on greenhouse gas.

Got it. So, New York is, so on the regulatory side, there is a level of enforcement, which would seem to be a shift from other local laws that, that have been put out there in the, in the past, in the past. I know that most of the REITs in the property owners would look for compliance as a function of trying to sell the value prop to the tenants which was mixed at best, but it sounds like there has been a shift in the New York area with respect to regulatory compliance.

There is a shift in that they've put these goals out there and the only discussion they had on how they're going to meet them. So they are trying to figure it out. As your (inaudible) shows, they don't like to get there.

Yeah, but either way, it sounds like that should be positive for, for your business.

Well, yes, I mean we see New York City more when we see lights moving. So yes.

I don't think we have any more further questions, so we'd like to thank you all today for participating. Have a safe, I would say, day, week, hopefully less than a month going forward, and thanks for your interest in Willdan.

And that concludes today's presentation. Thank you for your participation. You may now disconnect.