Tony Rossi - Investor Relations Stacy McLaughlin - Chief Financial Officer Thomas Brisbin - Chief Executive Officer and Chairman of the Board Mike Bieber - President

Al Kaschalk - Wedbush Morgan Securities Ryan Cassil - Seaport Global Securities, LLC Wyatt Carr - Western International Securities

Please stand by, we are about to begin. Good day and welcome to the Willdan Group Fourth Quarter 2016 Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the call over to Tony Rossi, Investor Relations for Willdan Group. Please go ahead, sir.

Thank you, Melissa. Good afternoon, everyone, and thank you for joining us to discuss Willdan Group’s financial results for the fourth quarter ended December 30, 2016. With us today from management are Chief Executive Officer, Thomas Brisbin; Chief Financial Officer, Stacy McLaughlin; 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 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 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 fourth quarter of 2016 increased 82% to $57.4 million, from $31.5 million for the fourth quarter of 2015. Genesys Engineering, the firm we acquired in March 2016, contributed $13.1 million in contract revenue for the fourth quarter of 2016. By segment, including both organic and acquisitive revenue, Energy Efficiency Services increased 141% to $38.3 million, Engineering Services contract revenue increased 27.5% to $15.4 million, revenue from Public Finance Services increased 10.6% to $32 million, and Homeland Security Services revenue decreased 25.4% to $502,000 for 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 fourth quarter of 2015, Genesys generated $11.7 million in total contract revenue. The year-over-year difference of $50.7 million is used for the calculation of our organic growth, which we calculate to be 33.5% in fiscal year 2016. Since the acquisition, we have won joint programs where all of 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 $28.4 million, an increase of 34.8% from $21 million in the year-ago quarter. Direct costs of contract revenue were $39.3 million for the fourth quarter of 2016, compared with $18.4 million in the same period last year. Genesys Engineering accounted for $11.3 million of the direct costs in the fourth quarter of 2016. Excluding the impact of Genesys, the direct costs of contract revenue increased by approximately $9.6 million primarily as a result of the growth in total contract revenue in the Energy Efficiency Services segment and the corresponding increase in subcontractor services and other direct costs. Our direct costs of contract revenue were 68.5% of our total contract revenue in the fourth quarter of 2016, down from 72.5% in the third quarter of 2016. General and administrative expenses for the fourth quarter were $15.4 million compared to $12.7 million for the prior year period. As a percentage of total contract revenue, our G&A expenses were 26.8%, compared with 40.3% in the fourth quarter of 2015. The improvement in this ratio was primarily driven by increased efficiencies and greater operating leverage as we scaled the company. G&A grew 22% quarter-over-quarter, while revenue grew 82% over the same time period, indicating that our back-office costs are growing at a far slower rate than revenue. Operating income was $2.7 million for the fourth quarter of 2016 compared with $456,000 generated in the fourth quarter of 2015. EBITDA was $3.7 million for the fourth quarter of 2016 compared with $1.8 million for the fourth quarter of 2015. EBITDA margin for the fourth quarter was 6.4%, an increase of 70 basis points from the same period in the prior year. Income tax expense was $1.1 million in the fourth quarter of 2016 compared with $210,000 in the same period last year. Our effective tax rate in the fourth quarter of 2016 was 40.7% compared with 35.6% last year. The tax expense recorded in the fourth quarter of 2016 brought us to an effective tax rate of 27% for fiscal 2016, which was essentially in line with our guidance. For fiscal 2017, we are expecting an effective tax rate of approximately 38%. As of now, the 179D Energy Efficiency Tax Deduction that we utilized in 2015 and 2016 has not yet been approved by Congress for 2017. Accordingly, we have not embedded this into our assumption for the effective tax rate in 2017. Although, there is still the possibility that it could be approved. The 38% effective tax rate we are projecting would still be lower than our historical tax rate due to our use of other tax reduction strategies, including R&D tax credits and California state tax planning. Net income for the fourth quarter of 2016 was $1.6 million or $0.18 per diluted share compared to net income of $380,000 or $0.05 per diluted share for the fourth quarter of 2015. We continue to see a significant improvement in our cash flow generation due to the combination of our higher income and lower tax rate. In fiscal 2016, we generated $21.6 million in cash flow from operations, up from $8.1 million last year. Turning to the balance sheet, with our strong cash flow, we have seen a steady buildup in our cash and cash equivalents. We finished the fiscal year with $22.7 million in cash and cash equivalents, an increase of more than $4 million during the fourth quarter and more than $6 million from the year-end of the last fiscal year, despite the use of nearly $9 million for our acquisition activity earlier in the year. The improvement we have made in our collection efforts and cash conversion cycle is resulting in DSOs more consistently in the mid-60s. At the end of the fiscal year, we had DSO of 65 days. As of December 30, 2016, we had no outstanding borrowings under our revolving line of credit, and approximately $1.5 million in loans outstanding under the term loan facility. In January, we negotiated an expansion of our credit facility with BMO Harris Bank. Our new credit agreement consists of a $35 million, three-year revolving line of credit. Subject to satisfying certain conditions described in the agreement, we also have the ability to request that BMO increase the aggregate amount under the revolving line of credit by up to $25 million, although BMO is not obligated to do so. This would increase our total facility size to $60 million. Turning to our outlook for fiscal 2017, we are expecting a full-year revenue to range from $230 million to $245 million, and our diluted earnings per share to range between $1.05 and $1.20. I will note that our diluted EPS forecast is being significantly affected by a higher tax rate and a higher share count in 2017. Our effective tax rate increase from 27% in 2016 to an estimated 38% in 2017, due to the lack of 179D deductions that I’ve already described, negatively impacts EPS by approximately $0.20 in 2017. Likewise, our weighted average diluted share count is expected to rise from $8.6 million in 2016 to $9 million in 2017, driven primarily by the rise in the stock price that has occurred over the last 12 months. This share count increase negatively impacts diluted EPS by approximately $0.05. Without these two non-operational effects, our diluted EPS would be approximately $0.25 higher in 2017. I’d now like to turn the call over to Tom.

Thanks, Stacy, and good afternoon, everyone. We are pleased with our fourth quarter performance. We delivered another quarter of significant year-over-year growth in revenue, earnings per share and EBITDA. We are consistently executing well on our current programs by delivering strong energy savings for our customers. We’re also ramping up our new programs that will make larger contributions in the coming years. With the people, processes and controls we have put in place we are optimistic about our ability to sustain this level of performance and effectively manage our growth in the future. For the full-year 2016, we delivered total revenue growth of 55% and organic revenue growth of 34%. As we have discussed in the past, we are targeting both organic and acquisitive revenue growth of greater than 10%, resulting in total revenue growth of greater than 20% per year. We clearly achieved this target into fiscal 2016, and we are pleased with the resulting impact on our level of profitability. Moving to the performance of our individual segments, I will start with Energy Efficiency. On a year-over-year basis, Energy Efficiency revenue was up 141%, although the fourth quarter tends to be a seasonally slower period, the overall growth we are seeing from new programs help to offset the impact of seasonality. Similar to last quarter the largest contributions - the largest contributors to our revenue were major utilities Con Edison, San Diego Gas & Electric, Southern California Edison, Puget Sound and Universities. Some of the new programs that also started to make contributions in the fourth quarter were the multifamily program for Con Ed and the New York City Housing Authority, NYCHA. We have a new contract with Constellation Energy that addresses energy savings for NYCHA. Our first task order is to address energy reduction using LED lighting at approximately 18 developments or groups of buildings throughout the city. We are also seeing more activity in newer states for Willdan, including New Jersey, Connecticut, Colorado, Missouri, Nebraska, and Utah, where we just executed on a $1 million performance contract for a major hospital network in the fourth quarter. Across the board, we are seeing positive results from collaboration, cross-selling and sharing our best practices; and institutional knowledge among our various officers around the country, and integrating more performance contracting into our customer relationships. With the skills and experiences we have added through our recent acquisitions, performance contracting is now a core competency of the firm and having a positive impact on our ability to expand relationships with existing customers and win programs from new customers. Please note our press release today about Lawrence, Kansas. We expect to see this across many of our cities. Turning to the Engineering segment, revenue was up 27.3% over last year. This caps the strongest performance for our Engineering segment since 2006. We’re seeing strong demand for services in our California and Arizona cities. Our combination of experience and capabilities were exultant in our Engineering segment, winning approximately 70% of the proposals we submitted in 2016. As long as the economy remains healthy in the Western States and construction trends remain positive, we should continue to see steady growth in our Engineering Services revenue. In Public Finance, our revenue was up 10.3% from last year. We are seeing good synergies with our other businesses, as approximately one-third of our Public Finance Services revenue in fiscal 2016 came from utility related projects. And finally, Homeland, we continue to execute on long-term contracts to provide training and exercise services to the cities of Chicago and Santa Ana as well as implementing the FEMA National Exercise Program in the Western United States. Looking ahead, our expectations for 2017, we are well positioned to deliver another year of profitable growth. We are seeing positive market trends with funding for many of our existing programs being increased and more utilities across the country being mandated to increase their energy savings goals. We are continually evaluating the changing landscape in our markets and identifying areas of opportunity to strengthen our ability to continue winning new business. We recently invested a new talent that will help us in two key areas: one, adding more regulatory expertise so that we make sure we understand what utilities need to do in order to comply with new mandates from policymakers; and two, improving our ability to compete for community solar projects. Our existing LCR program with the San Diego Gas & Electric, the largest ever awarded is moving forward and we expect to get a notice to proceed sometime this spring. We expect this program to start to contribute later this year, with a larger impact in 2018 and beyond. Our priority in 2017 is delivering outstanding results on our current programs and winning larger jobs with our existing customers as new programs evolve and get bigger, especially in California as utilities move forward on their mandate to increase the amount of energy efficiency programs that are outsourced from 20% to 60%. We have a stable base of existing programs upon which to build. Earlier this year, we signed a new three-year contract with Con Ed to continue with our largest existing program, and expanding its target end-users to include larger commercial customers. The contract size we announced reflects just the baseline amount. But we are currently negotiating additional modifications similar to the projects that increase the scope of the contract in previous years. We started at 74 megawatt hours and we have already received increases to 81 million megawatt hours - excuse me, 81,000 megawatt hours - let’s just make it 81 million, sorry about that, roughly greater than 12% increase. I got too many zeros I’m looking at. To wrap up, 2016 was a strong year and represented the type and performance that we have been building towards. With the stability we have in existing programs and the pipeline of new programs ramping up, we believe we are well positioned to sustain our momentum, continuing generating profitable growth and create additional value for our shareholders in the years ahead. With that, I would now like to turn the call back to the operator for Q&A.

Thank you. [Operator Instructions] We’ll first go to Al Kaschalk with Wedbush Securities.

Hey, good afternoon and congrats on a great year.

Thanks, Al.

I wanted to understand the strong top-line performance in the fourth quarter was a bit much - couple of $12 million more than what we were modeling. And I don’t know if there was an acquisition in there or a new start of a contract, I heard you say the Genesys piece, but there is something else in there that helped. And I was just wondering if you could articulate that or even if it was relative to your own plans.

Yes, Al. This is Mike. It was actually broad based. While Genesys contributed strongly, we saw good growth from 360. We had the PacifiCorp contract start-up across our energy efficiency programs. They had strong performance and engineering was particularly strong. So it wasn’t from any one place, Al.

Okay. Did you have any - I mean, I’m in a thought it was the weather. We always hear about slowdown. No - people didn’t take vacations this year or didn’t have any much of an impact, or just like you said it was just much broader base and from a lot of different places?

Any slowdown was obviously immaterial to us.

Okay. Fair enough. Tom, you commented that larger contracts with existing customers. I’m just wondering what that means in terms of the organization, what other - is it skill-sets that you need, is it some of the investments you’ve made in people already? What’s necessary as the organization now is clicking well above $200 million in annual revenue?

I don’t think we need to add all that much. There are a few areas on our - in our pipeline of acquisitions that would make key discriminators. But in terms of performing the work, we won the work that’s growing. We have it in-house. What we’re looking at is in California, the work that we’ve been doing is going to go anywhere from 3X to 5X larger, that’s the 20% to 60%. California put out a number of 100% it has to be outsourced. In Illinois, we had proposals in that have just been withdrawn. And they’re going to come out with the new RFP, because they just went 2X, 3X maybe 4X larger after the RFPs went out. New York is looking to scale up anywhere from 50% to 200% over the next two years. So our focus is try to win as much as the work that we’ve been doing with our customers as they expand.

You mentioned the utilities I believe and then some solar projects that are working your way through. Can you talk a little bit about that? I think solar was maybe a newer revenue stream that I’ve heard in the past?

We made a key hire, Dave Buemi, which we announced in a press release about 60 days ago, for community solar where more and more communities are going to get together and put in solar combined with storage to provide their power. So it’s a very large untapped market, which we will see growing over the next 5 to 10 years, where historically solar has been by almost utility providers, this is going to be by communities.

Okay. And then finally on the guidance which looks fairly strong, I heard you about the tax rate. So things will be even better, is there marginal revenue here that’s at a better margin or is it just absolute flowing in the work that you’ve won and announced into the guidance? In other words, is there anything in, in the $230 million to $245 million guide that you have to win yet or is this - a lot of this is already sealed and ready to be worked on?

There is nothing that we have to win yet.

Okay. So it’s all about execution, very good. That’s all I have.

Execution ramping up, yes.

Okay. Thank you.

There is nothing in that guidance, let’s put it that way.

Okay.

Okay.

Thank you. We will next go to Ryan Cassil with Seaport Global.

Afternoon, everyone.

Hi, Ryan.

Tom, you mentioned California, the 20% to 60% increase and even a discussion of going 100% outsourced. And we’ve heard this in the past. Could you talk about, I guess, just the driver behind that and any sense on timing or urgency to ramp that would be helpful?

I’ll talk. Southern California Edison is supposed to come up first in June. And the mandate that the PUC throughout just kind of us a number, they threw out a 100% has to be outsourced. And utilities came back, well, let’s start at 60%. So we expect an RFP in June, SCE we believe will be first, then either SDG&E and PG&E. And at the time those come out from June to probably a year later, we expect to see that three-fold increase.

So all that’s incremental, I guess.

In the side - that’s all incremental to what’s out there now, yes.

Okay, in your guide. Okay. And you mentioned also Illinois. I just wanted to be clear. You guys are rebidding that because of things - the scope of work is getting larger or I just kind of missed what you were saying.

ComEd came out with an RFP, which we responded to. We currently do data centers for them. And they came out with seven programs. I think it was seven, six in addition to data centers. We bid on about four of them. The proposals were in and they cancelled them all, because the Illinois Commerce Commission. And ComEd came back with goals three times greater than what they were talking about four months ago. So they are going to re-procure in about 60 days for larger contracts.

Okay. The nature of your…

Is that clear, Ryan?

Yes. Now, that’s helpful. Can you just talk…

Right now, we are in incumbent - we are incumbent on data centers right now.

Okay, okay. And then, I guess, just thinking, I mean, sounds like you guys have a lot of positive drivers going on. With existing customers, you mentioned new states. Where do you see the bigger growth opportunity, I guess, for incremental upside here in 2017, 2018? Is it from new states ramping or is it these new programs? I guess, which would come first or could they come simultaneously?

I would say, the likelihood of the bigger amount would be California, New York, Illinois. Then you could take a mix of several other states that are coming online with programs like New Jersey, which we were selected in; Connecticut, which we’ve just been selected in. I think we’re trying to get into Massachusetts. We’re looking at Wisconsin. Those other states are starting to come on. So I would say it’s better to probably ramp up or win more, be incremental in the states you have. So I’d split it about 70/30. We could 2X or 3X the stuff we have and win new for about 30%.

Great. And could you say San Diego Gas & Electric had not started yet, so that was not part of the Q4 ramp? I presume what I guess [is Cal stone for a name] [ph].

Correct.

Okay.

I did say that.

Okay, sounds good. And then as I think about just your guidance and really just about margins going forward, subcontractor costs I think were about 50% this year. How do I think about that number going forward? Are you modeling that as down as sort of percent of gross revenue in 2017? I’m just trying to kind of get a feel for where the leverage is in the model based on how you guys see it.

Subcontractor costs we believe as a percent of revenue will go down. I’m looking at Mike. He is shaking his head, that’s okay. He is the modeler. Do you want to add to that, Mike? Does that answer your question, Ryan?

Yes. If you guys want to throw a number out there, I would - as a percent…

Mike, you want to throw a number out there? He is shaking his head, no.

Okay, but what presumably…

You’ll have to try again later.

All right. Presumably though, do you also see the leverage, I guess, on sort of salaries and wages and facilities and related expenses or should we see those staying flat as you sort of build out infrastructure for new contracts, new states, et cetera? Any color there would be helpful, just on how you’re positioning yourselves from what sounds like stronger growth, then did any of those investments maybe offset some of the sort of volume leverage in your outlook?

As a percentage of revenue, we would expect salaries to decrease. As for facilities, expenses, and things along those lines, we don’t open an office until we have a project in that area. So until we need an office, we would not increase those expenses for those areas.

Okay. Okay, sounds good. And then just, I guess, moving to acquisitions, in the past you talked kind of about 10% organic growth target, 10% acquisitive target. Don’t know if we’re still sort of sticking with that here. But I’ve heard you guys talk about sort of focus on technology investments, would it be algorithms to help smooth load for customers in terms of energy consumption? You’ve also talked increasingly about kind of tapping into the water market and the amount of energy that’s consumed there. But if you could just touch on what you’re seeing and where your focuses are that would be great.

Sure. We would like to improve our data analytics capabilities. We think that can be a technology discriminator of going forward. And so we’re looking at few acquisitions in that area. We’re excited about that. Secondly, water is probably a longer-term strategy for us. There is a nexus between energy and water, but that would probably be a longer-term strategy. Electrical engineering is still an area that we would like to add over the next couple of years though.

Okay, okay, sounds good. It sounds like kind of near-term focus is the technology, electrical engineering and then water is further out. Okay, great. And maybe last one for me, if I could slip it in, you mentioned, Tom, acquiring the regulatory expertise to kind of understand the mandates policymakers are making for you. Could you just explain a little bit or expound on what exactly that means, are things getting more complex within or within your obligations to customers or is it just kind of the general evolution of the business? Any kind of color there would be great.

Okay. Regulatory policy at the state level, such as New York REV or the California or Illinois ICC, as they adopt regulations, the one we’re looking for and how it rolls out is how utilities will be paid more for saving more energy. We need to understand that so that when we propose on these things and doing energy efficiency, we understand, A, that they are getting paid for this now. And the second part is can they get paid more by delivering an area such as Loan-pockets [ph]. You probably heard me speak about the Brooklyn-Queens’ demand side management job in New York. I mean, when they talk about New York REV, they talk about BQDM, Brooklyn-Queens Demand Management, where they went out, and I think they publicly said they save 52 megawatts through energy efficiency and other measures to offset a $1-billion-plus infrastructure spend. It was a substation in Brooklyn Queens would have been renewed or rebuilt. But by reducing the power by 52 megawatts they didn’t have to spend $1 billion. So they saved 800-million-plus. So the question is in energy efficiency how do utilities get paid different from what they got before, where they would have gotten, let’s say, 16%, 17%, 18% for their $1 billion infrastructure upgrade. They might have only spent $200 million on energy efficiency to deferred or get rid of it. How do they get the big dollars? That’s all coming from policy. It’s happening in New York. It’s happening in California and Illinois. So we have a policy group led by Dr. Eric Woychik. I hope I said that right. And he is on the cutting edge. He is working on policy for California, and Illinois, and New York, so that we when we’re as the implementers deliver we know what the utility is looking for as well as the public service commissions. Does that help you, Ryan, or is that too complicated?

No, that’s good. That’s okay. I have a very simple brain, but that’s good. And, I guess, the last thing kind of tied on to that. I mean, is there anything at the sort of national level, you hear all these things about the new administration, their plans. Anything that would be a potential risk to you guys from a policy perspective at the federal level or is that not really any - is it not really an issue…

That would be in political, let’s see. How can I answer that question? I can say no and I can give you proof. I think solar created 500,000 jobs, coal 50,000. Solar on steroids, which we’re talking about here, going to future would create 500,000 plus new jobs. Energy efficiency, when it comes to greenhouse gas, California is digging their heels deeper. Without becoming political every time, people try to take steps away, it seems like States dig in and make the regulations tough. So we see no change on the downside and in upside if there is change.

Okay. Great. Thanks.

Now you can maybe help me with that - you can help me with that, Stacy, 179 tax issue if you want politically.

Okay. I’ll leave that as upside. All right, thanks so much. I appreciate it.

All right. Leave it as upside, yeah.

[Operator Instructions] We’ll take a question from Wyatt Carr with Western International Securities.

Tom, and Stacy, and Mike, congratulations, great year. Question, on the share count going forward were most of the earn-outs in the share counts that are in the projection you gave. I think you’re going from 8.5 million to 9 million. Does that include most of the earn-outs and everything?

The earn-outs that we have left, we actually only have one remaining. It is all cash earn out. So the shares that were given for the acquisitions we are at the beginning of 2016, and then again at the beginning of 2015, so they’ve already been included.

Okay, great. And, Tom, you made the comment that in your projections or you guidance that these are contracts that are already in hand, they are done. But do you have any others that are like the New York Housing or University where that is a very sizable contract, but you get that in increments and how much of that have you included in the guidance?

For New York City Housing Authority?

Right.

We got zero in there for guidance.

Okay. So that could be quite accretive to that guidance?

If we do any more work for them, yes.

Okay. And University Housing?

Universities is - University Housing, we got 10% growth.

Okay. The solar, you talked about new hires and some expertise in areas and the ability to compete in solar. Can you go into that a little bit and also what the hiring market is like, are you experiencing shortages?

We are not experiencing shortages, that’s A. What’s going on, there is a little bit more to it, it’s that called Community Choice Aggregation. Communities are getting together to figure out what their alternative is to buying power from or buying all their power from the utility they always deal with. Communities also are getting together to figure out how they can generate and store and be just like a solar developer. So instead of primarily historically whatever, it’s been large investors or utilities developing solar. Now, communities are looking to develop solar. So that’s called community solar, that’s called Community Choice Aggregation, which is where they group together to figure out how to generate their own electricity.

Okay. There was an article recently by San Diego Gas & Electric that they put in one of the biggest storage units in record time in the San Diego County. Does that all figure into the solar picture that you’re talking about?

Yes, I mean, solar - the problem with solar has always been it’s only on during the day. So the problem has been and it’s starting to get solved, it is the cost of battery storage. If they can store in the night and it’s economical, that’s going to solve a lot of problems.

Okay.

To this point it is not been economical. It’s all sun driven, subsidy driven, whatever word you want to use.

Okay. Do you have any kind of EBITDA margin goal? I mean, you increased your EBITDA margin by 70 basis points, up to 6.4%. It has been higher. It’s been lower. Is there a target that you’d like to kind of drive for?

It’s been higher, because we had zero pass through for the construction costs. When we acquired Genesys, we had a lot more pass through of equipment and construction buying boilers and chillers. We are doing that primarily for DASNY and - that’s Dormitory Authority of New York, which did not follow on for mark up on pass through. So that capability was very important to us. We know it’s going to hurt our margin, because of no mark up on the pass through. And we did it anyway, so that’s why it went down. Going forward, we see margin improvement again, because we are not - we have enough capabilities through Genesys, 360 and Abacus across the country that we don’t have to necessarily build on that type of professional services. I mean these guys will continue to grow and they will grow on their space, but it won’t come in and hit us as hard. Is that fair, Mike? You want to add to that? Do you understand why, did I make it clear?

Yes, you did. And also Ryan’s question regarding the subcontracting amount, which you indicated will go down, that also as a favorable impact too.

We have that in the forecast, Mike, subcontracting going down? Ryan didn’t get an answer, and so Wyatt is trying to get an answer. These guys are working together.

It may go down modestly, but it will be of similar proportion to 2016, Wyatt.

Okay.

That’s a pretty good answer. Ryan, yes, if you’re still on I hope you got that.

And so last question is just kind of a housekeeping. You guys have indicated that you were going to - the segment reporting, which you did this quarter, that you’re going to condense some of the groups. Is that coming or is that - or how would that evolve?

Currently, that in-house is still undergoing, so we don’t have the results of that yet.

Okay. But I mean it could be instead of forward reporting groups you might be looking at two or three?

We are looking at fewer than we have now. And we expect to have that for 2017.

We’re looking at two or one, I’d say it, I’d say that, I could say that.

All right, sounds like there is a lot out there. And that - the one question I had is what - on 179D, what do you rate the chances that that will come back in?

I think our best guess is 50-50 at this point. We just don’t know now whether or not that will be approved by congress with the new administration.

All right, but it’s not - you are not including it obviously in the rates you’re using.

Correct.

Okay. Wyatt, it’s always been delayed. It’s always been passed. It’s similar to - solar was delayed, where we’re still going to give incentives, tax, incentives to solar. And they just were re-oped [ph] about end of 16, middle of 16 for five more years. Now, Mike, we were discussing this before the call. Mike says that everybody is waiting to see what Trump does. If he reduces corporate tax to 15% to 20%, this is one of the things that might be killed. But if we get reduced to 15% to 20%, we’ll still be in pretty good shape.

Yes, if we come down from 38% to 20% that would help a lot.

Yes, we won’t notice 179D or whatever.

Okay.

That’s kind of how it’s - that’s what’s holding it back we think.

Got you. Thank you very much and congratulations. Great year.

Thanks, Wyatt.

And that concludes today’s question-and-answer session. I will turn the conference back to Tom Brisbin for any additional or closing remarks.

Okay. Thank you. I would like to thank all of you for participating in our call today. And for your continued interest in Willdan. Have a great day. Bye.

That concludes today’s conference and thank you for your participation.