MYR Group Inc (MYRG) 2008 Q4 法說會逐字稿

Good day and welcome to the MYR Group fourth quarter 2008 earnings results conference call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Mr. Philip Kranz. Please go ahead, sir.

Thank you. Thank you and good morning, everyone. I'd like to welcome you to the MYR Group conference call to discuss the Company's fourth quarter and year-end results for 2008, which were reported yesterday.

Joining us on today's call are Bill Koertner, President and Chief Executive Officer, and Marco Martinez, Vice President and Chief Financial Officer.

If you did not receive yesterday's press release, please contact my firm at 312-726-3600 and we will send you a copy, or you can go to www.myrgroup.com, where our copy's available under the Investor Relations tab. Also, a replay of today's call will be available until Friday, March 20th, 2009 at 11:59 PM Eastern Time by dialing 888-203-1112, or 719-457-0820, and entering the conference ID number of 2467730.

Before we begin, I want to remind you that this discussion may contain forward-looking statements. Any such statements are based upon information available to MYR management as of this date, and MYR assumes no obligation to update any such forward-looking statements.

These forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from forward-looking statements. Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the Company's Form 10K for the year ended December 31st, 2008 filed yesterday, and in yesterday's press release.

With that said, let me turn the call over to Bill Koertner. Please go ahead.

Good morning, everyone. Welcome to our fourth quarter and year-end 2008 conference call to discuss financial and operational results. As most of you know, the Company began trading on the NASDAQ Global Market on September 9th under the symbol MYRG. We believe this listing has fostered broader interest in MYR Group from both institutional and individual investors.

Yesterday we filed our Form 10K Annual Report for 2008. We were pleased to be able to file our 10K a couple of weeks earlier than the March 31 due date for first-time public companies. We expect that our Proxy Statement and Annual Report will be disseminated to stockholders at the end of this month.

I'd like to provide a brief overview of the 2008 year-end results before turning the call over to Marco Martinez, our CFO, for a more detailed review.

As you saw in our financial release, MYR had an outstanding fourth quarter and full year. Gross profit, income from operations, net income and earnings per share for 2008 all increased substantially over 2007, even after adjusting the 2007 numbers to exclude the charges related to the 144-A offering last year.

EBITDA was about $51 million for the year, which represents a 48.3% increase over our 2007 adjusted EBITDA amount. A reconciliation of EBITDA to GAAP net income is provided in our press release.

Return on equity improved as it reached 18% this year, using the 2007 stockholder equity base as the denominator in that calculation. These outstanding results were achieved by increasing the contract margins on our work, managing our overhead costs, and maintaining an asset turnover ratio of about 2 times.

We remain positive about the long-term outlook for both our T&D and C&I markets, although we do believe 2009 will be a challenging year for our nation, and our industry, in light of the current economic downturn.

We, along with everyone else, are paying close attention to the developments in the capital markets and the effect they have on the overall economy, including electric infrastructure spending. Those developments had little, if any, effect on our fourth quarter and year-end results.

As many of you know, MYR is a national provider on the T&D side of our business, and a regional C&I provider in Colorado and Arizona. We maintain a diverse customer base in both of those markets, which we believe will continue to serve us well long term.

Marco will now provide detail on the fourth quarter and year-end financial results, and then I'll be back later to provide some insight on current market conditions and our perspective for the future of MYR. After that, there'll be an opportunity for you to ask your questions.

So with that, Marco, are you ready to begin?

Thank you, Bill. Thank you for joining us this morning. As Bill previously mentioned, the Company had an outstanding fourth quarter and a year-to-date result.

Our revenues for the fourth quarter increased 5% in the T&D segment, and decreased 15.4% in the C&I segment over the 2007 period. T&D segment revenues improved due to an increase in storm restoration services, partially offset by the timing of large transmission projects that were in full production during the fourth quarter of 2007 and completed in 2008.

Our C&I segment revenues decreased in the fourth quarter due to a reduction in large contract work as compared to the 2007 fourth quarter.

In the fourth quarter gross profit improved 28.5% from $19.2 million in the 2007 period to $24.7 million in the 2008 period. And gross profit margin increased year-over-year from 12.3% in the 2007 fourth quarter to 16.1% in the 2008 fourth quarter.

Operating income, excluding corporate SG&A, increased 43.8% in the 2008 fourth quarter over the 2007 fourth quarter, with an improvement of 34.6% in the T&D segment and 67.8% in the C&I segment.

The improvement in gross profit and operating income in the 2008 fourth quarter resulted from continued improvement in job performance on several large projects; storm restoration services that resulted in additional gross profit for the period. Several of the large projects that saw improved margins in the fourth quarter are now substantially complete.

Additionally, we reported fourth quarter 2008 net income of $7.6 million, or $0.37 per diluted share, compared to a fourth quarter 2007 net loss of $11.8 million, or a loss of $0.70 per diluted share.

The fourth quarter of 2007 results include one-time offering-related charges of $26.5 million, or $16.5 million after tax, related to our private placement of common stock in December of 2007.

Comparing the fourth quarter of 2008 with the same period of 2007, excluding these one-time charges, net income improved by 62% percent and diluted earnings per share increased by 32.1%.

T&D contract margins improved in the 2008 fourth quarter and was positively impacted by better execution of managing our operating costs, storm restoration work, and a few large projects with improved job performance that helped to increase the contract margins.

Additionally, C&I contract margins improved in the 2008 fourth quarter as we did an outstanding job of managing production labor, material procurement process, equipment utilization and tooling costs on our projects.

EBITDA in the 2008 fourth quarter was $14.8 million compared to $11.8 million in the same period of 2007, as adjusted for the offering-related charges incurred in 2007, for an increase of 25.8% period-over-period.

Fourth quarter SG&A expenses increased to $13.1 million in the 2008 period from $10.2 million in the 2007 period. The increase relates primarily to additional support staff, annual salary increases and year-end profit sharing and bonus expense.

We continued to focus on our capital expenditure program, which we are purchasing as opposed to leasing more of the specialty equipment needed for our T&D work. For the fourth quarter of 2008, we purchased $8.7 million in capital expenditures. We believe this is an effective way of reducing our equipment costs over the long term, which should help to increase our contract margins.

For the year ended 2008, net income was $23.6 million or $1.14 per diluted share, as compared to a net loss of $3.2 million or a loss of $0.19 per diluted share for 2007.

2007 includes offering-related charges of $26.5 million, or $16.5 million after tax as previously discussed. Excluding these expenses in 2007, the improvement represents a year-over-year growth rate of 78.4% for net income and a 42.5% for diluted earnings per share.

Gross profit margin increased year-over-year from 11.4% to 14.6% of revenue due to several reasons. In 2008 we generated incremental $12.3 million in gross profit due to strong performance resulting in increased margins on several large projects that are now substantially complete, and we had a significant increase in storm related restoration services as a result of hurricane and ice storm activity.

Additionally, we experienced a lower equipment cost resulting from our reduced reliance on operating leases and short-term rentals to finance our fleet of construction equipment, as previously discussed.

For year-end 2008, EBITDA was $51 million, or 8.3% of revenues, which compares to adjusted EBITDA of $34.4 million, or 5.6% of revenues in the year ending 2007. As a reminder, adjusted EBITDA for the 2007 year excludes the one-time offering-related charges

SG&A expenses were 8.2% of revenues for the 2008 period compared to 7.5% in 2007. The overall increase in SG&A was primarily due to additional support staff, increased compensation expenses, and other incremental costs as a result of being a public company.

Cash flows from operations for year-end 2008 were $38.8 million compared to $16.7 million in 2007. As a result, our cash balance increased to $42.1 million at year-end, while long-term debt remained unchanged at $30 million.

Stockholders' equity increased from $130.9 million at December 31st, 2007 to $155.4 million at December 31st, 2008.

In 2008 we invested $30.2 million in capital expenditures, fully funded by our cash flows from operations, and we will continue to invest in property and equipment to enhance our fleet and execute our strategy of reducing our reliance on operating leases and short-term equipment rentals.

Total backlog at December 31st, 2008 was $316 million, consisting of $243.4 million in the T&D segment and $72.6 million in the C&I segment. T&D backlog at December 31st, 2008 increased 81.8% compared to backlog at December 31st, 2007, largely attributed to the Dominion project valued at $107 million.

C&I backlog at December 31st, 2008 decreased 12.2% compared to December 31st, 2007. The decrease in C&I backlog was attributed to the completion of a few major projects that have not yet been fully replaced, as we have seen some market pressure and an increase in competitive bidding in this segment of our business.

Backlog will continue to fluctuate as awarded new work offsets projects being completed. We continue to market and bid new work to compensate for backlog being reduced as projects are completed. We count 90 days of backlog from our alliance agreements, while many of our peers count one or more years of alliance business, even though we understand many of those alliance agreements can be cancelled on relatively short notice.

We are very pleased with our strong balance sheet position and our 2008 results, especially in light of our overall economic environment. We believe our financial strength, industry experience, specialized fleet, safety record and our national presence puts us at a competitive advantage to continue being awarded future work by our current and our prospective customers.

Now, I'll turn the call back to Bill for a discussion of operations. Bill?

Thanks, Marco.

As you know, MYR has not provided revenue and earnings guidance as a relatively new public company. That may change down the road, but it will not change for 2009. So, my comments will be more general in nature.

Fitting activity slowed some in the fourth quarter across both our T&D and C&I markets. Our customer base reacted to the credit crisis by reevaluating their spending plans, and some projects were cut or delayed. In our business there is a lag from when projects are bid and awarded until actual construction begins and revenue is recognized. Therefore, these cuts and delays will be felt by contractors like us throughout 2009.

Contract margins from new work also came under pressure in the fourth quarter due to increased competition for the work that was available. And that's true in both of our market segments.

Thus far in 2009, we have seen some brisk bidding activity in the T&D space, especially on large transmission projects. However, many of these projects are months or even years off before actual construction begins. We continue to receive a number of RFIs and RFPs, asking us to submit our qualifications and pricing for transmission, substation and distribution work.

A number of the projects we proposed on in late 2008 and early 2009 are still under evaluation. These include alliance's projects in the early planning stages, and discrete projects of various sizes. Some are traditional construction-only type contracts, and others are more on the order of EPC-type contracts. The pricing structures vary as well, from lump sum to unit prices, to time and equipment or time and material pricing structures.

With a strong history of T&D construction in Texas, we believe MYR is well positioned to win a portion of the 2,400-mile build-out of the Texas Competitive Renewable Energy Zone, or CREZ work. As we heard in July, the CREZ routes were defined and approved by the Texas Public Utilities Commission. The value of this work is estimated at about $5 billion over the next several years.

On January 29th the Public Utility Commission of Texas approved a scenario for transmission service providers, awarding segments of those lines with various dollar value assigned to each. MYR has proposed its qualifications to all of the major participants in the CREZ build-out. While much of the construction may not break ground until 2010 or beyond, contract awards and preconstruction services are anticipated later this year for at least some of the work.

Another example of major transmission work moving forward to support the green power initiatives is the recent approval of the $1.9 billion Sunrise Powerlink Project in California. This contract will likely be awarded in the next year, with construction to begin in 2010. MYR Group has proposed its qualifications for this project and has a good history of transmission experience in this area.

The overall renewable energy support from the Obama Administration, and specific provisions of the stimulus package, all bode well for the renewable industry and contractors like MYR, who will build the associated collector systems, substations and transmission facilities to connect the renewable energy source to the grid.

The one-year extension of the production tax credits for wind farm projects in late 2008 was extended an additional three years with the new stimulus package. Additionally, a 30% investment tax credit on qualified energy property may be selected in lieu of the production tax credits. And there will be some loan guarantees related to renewable energy available.

There are also two federal transmission utilities named for direct funding of transmission system upgrades, with a total value of about $6.5 billion. Those include Bonneville Power Administration and Western Area Power Administration.

Opportunities associated with this funding should start in the near term. MYR has a long history of performance with both of these entities, and we believe we are well positioned for these future opportunities.

Across the nation we continue to focus on our core utility client base for transmission upgrades and additions to support system reliability, energy demand growth and renewable generation sources wanting access to the power grid.

Our utility customers are not immune from the events in the capital markets, as evidenced by recent utility stock price declines, several dividend cuts by large utilities, and higher borrowing spreads against treasuries.

However, this group of customers tends to be somewhat more resilient to adverse capital markets than non-utility developers of projects. As regulated entities, the traditional utilities have cost recovery mechanisms for building new transmission, and generally have better access to capital.

Now, I'd like to shift the discussion to our C&I business. As Marco reported earlier, our C&I group had an outstanding year in 2008 and made a great contribution to MYR's overall results. While our C&I business remains steady, our backlog is down 12.3% as compared to last year, as Marco has discussed.

The overall Commercial and Industrial markets have seen a slowdown due to the recession and tight capital markets. However, we believe our market focus makes us somewhat less susceptible to these uncertain financial times.

We continue to target healthcare research centers, smart highway work, beta centers, mining, wastewater treatment and other government facilities. Over the long term, we anticipate these markets will also be beneficiaries of the Obama Administration's infrastructure stimulus package.

While our industry faces many challenges due to the current economic conditions, our long-term outlook remains positive. Our nation continues to need new transmission and other electrical infrastructure projects to compensate for 20 years of neglect by the federal government and various states as they sorted through deregulation.

This underinvestment, coupled with the stimulus package and many state mandates to bring on renewable generation and reduce carbon emissions, should create significant opportunities long term for MYR, who has historically focused on transmission.

In summary, we believe that the industry is still in the early stages of a long-term construction cycle for transmission. It may be more gradual in ramping up than many expected, but it could also extend longer than many anticipated.

We believe the new administration and policies will support actions needed to move forward on strengthening the national electric grid and ensuring a reliable energy delivery system.

We are working hard to position MYR to be a partner of choice for the utilities that are taking action to ensure access to reliable resources, and for those making their power delivery strategy a reality.

We're also working hard to improve our margins by focusing on operating efficiencies, better contract management and better cost management.

That's it for now. As always, thank you for your interest and support. And now, I'd like to turn the session over for your comments and questions.

Thank you. (OPERATOR INSTRUCTIONS.) We will take our first question from Jeff Beach with Stifel Nicolaus.

Good morning, Bill and Marco. Congratulations on a great quarter.

Thank you.

Thanks, Jeff.

Two questions. First, in the past I think two conference calls, you've quantified the amount of storm work and, in addition, incremental storm work and also given a rough idea of the impact on profits. And then, you've also done the same on your, I guess the way I term it, unusual profitability on a few large projects.

Could you help us with those numbers in the fourth quarter, and also talk about where you are with storm work so far during the first quarter of this year?

Hey, Jeff. Total storm revenues for the year were roughly about $43.2 million. I think what we reported, incremental profits associated with that year-to-date is roughly $6.1 million. And in the third quarter we reported $3.4 million, so that'll put you at about $2.7 million for the fourth.

We're speaking incremental profit margins here, too, so there's assumptions that are going into those numbers so they're based on management's best estimates and assumptions. And as far as large projects, incremental profits associated with that, that's roughly about $0.5 million.

And how about in the first quarter? How are the storm revenues running so far?

We have had some crews out on storm work in Missouri and (inaudible). I don't have any numbers for you, Jeff, but there has been some storm work but not of great significance.

Okay. The second question. Four quarters in a row now you've reported just outstanding profit margins, if you take out the storm work because of a few successful completions of large projects in both segments. So, after four quarters it becomes less unusual.

Can you talk about the margins in your backlog? Do you have some projects that can continue to deliver outstanding results like this in your backlog of business right now?

Hey, Jeff, just as far as the numbers are concerned, if you look at the operating margins for 2008 in the T&D business, we've reported 10.35%. If you back out these exceptions, you're going to get an adjusted gross profit -- or operating margin at $36.7 million giving you 8.2%.

And for the C&I business it's just kind of the same thing. We reported operating profit at $16.6 million. You back out these exceptions you're at $13.8 million. So, you're going from an operating margin of 9.8% down to 8.2%.

And Jeff, in terms of margin and backlog, I think our historic margin is probably still a pretty good guestimate of backlog, or the margin in our current backlog. Although, as I reported, competition heated up a little bit in the fourth quarter. And there's probably been some tightening of the margins in our backlog.

Alright. Thank you very much.

And we will take our next question from Jim Larkins with Wasatch.

Good morning. I may have missed some of these numbers, or perhaps they're in the K that I haven't been able to get to yet. But could you give the operating income by segment for the fourth quarter?

Sure. Fourth quarter, the T&D was $108 million. C&I was $45.2 million.

And that was the revenue. And could you give the operating profit?

Sure. For T&D it's 11 -- or $12 million, roughly. And for the C&I group it's $5.7 million.

Okay, great. And then, can you give us some numbers that would help us to understand where you are in terms of owned vehicles and maybe crews or employees, just to kind of understand where your capacity has gone over the past couple of quarters?

Well, we still are a year, year and a half away from what I'd consider kind of catch-up on the spending. We are buying most of the specialty transmission equipment. We are continuing to lease a lot of light duty pickup trucks. And as you can imagine, we use a lot of pickup trucks for various activities.

But in terms of unit count, percentage owned versus percentage leased, I don't have a number for you on that, Jim. But we are making significant progress to buy what we think makes sense to buy.

And you've been -- and so, you're about two and a half years -- you've been doing this for about two and a half years now, right?

Right.

This increased capital spending? Okay. And where do you stand in terms of employee count?

It's a little under 3,000, but roughly around 3,000 employees.

And that goes up and down depending upon the mix of projects. As a project like for instance the Dominion work that we're ramping up on, we're obviously adding a lot of employees there. We've got other projects that are coming down and we're laying off people there. So, it will fluctuate significantly from week to week or month to month.

Okay. Very good. Thank you for the additional information.

And we will take our next question from Rob Young with Wm. Smith.

Hey. Good morning, guys.

Hi, Rob.

Hi, Rob.

I was just hoping you could quantify the lag time between new projects coming in from the utilities and how quickly that translates into construction work. Is there just kind of a metric for that?

Well, it depends on obviously the project and the utility. The traditional construction-only kind of award, that would probably be a month to two months from when the award is granted until construction would begin. If it's an EPC contract, it could be six to eight months before anything happens on the right-of-way.

And some of these large projects like CREZ, it could be more than a year from the point at which they pick the contractor or the team that they want to work with on particular segments of that, until there would be any revenue flowing through a contractor's income statement. So, it varies pretty significantly.

And it probably has stretched out a little bit as our customer base, both the investor/owned customers and the developers, the financing component that many of them used to take for granted has gotten more difficult. So, that has in a couple of cases added some time on when they made tentative awards until they were able to give us our notice to proceed on construction. So, I guess my point is it's not getting any shorter.

Okay. And in regards to the financing component, you mentioned that the cost of those CapEx by the utilities is increasing. Is there any opportunity, given the federal focus behind these utilities' expenditures, is there any opportunity for some government backing, where they would possibly guarantee some of that debt and so that those rates come down a little bit to tighten the spread?

I think there are opportunities. There are many committees being formed and subcommittees being formed in Washington on how to implement some of this stimulus spending that's been initiated. I know my company has been asked to provide input to some of those efforts. And we would certainly, and I'm sure our customers would certainly welcome the option of having some federal backing of these projects.

But this stimulus package is so new. And the regulations and how the application process is going to work, and what the criteria for which ones get approved and which ones don't get approved. There's just a tremendous amount of unknown that still exists.

Okay. And then just quickly to follow-up on some questions relating to gross margin, specifically. Looks like you came in around the 14.6% level for fiscal year '08 and around 11.4% as an average for fiscal year '07.

Looking at forward margins for '09, where in-between that spread should we kind of be modeling toward? I mean, is it roughly half? I mean, you talked about how it's getting a little bit more competitive. I mean, should we be modeling a little bit closer to that 11.4% or to the 14.6%?

Well, the first thing I'd do is to make the adjustments, but what we're pointing out, there's been unusual margin pickup due to the storm work.

Right.

The closeout of those of these large projects. So, I would certainly encourage you to be thinking about that as to whether or not that'd be repeatable or not.

And I indicated that I think the margins have tightened up on bidding. That's particularly true in our Commercial and Industrial market. It's also true on distribution work and it's also true, I think, on substation work, so--. But you're going to have to pick where you think is most likely.

Okay. And then just lastly, relative to CapEx expectations for '09, are you anticipating relatively flat or slightly increased CapEx relative to the total for '08?

A similar spend. We are very confident of the long-term transmission build-out, and we're spending money for some of the additional specialty equipment that we think we need.

So, we are proceeding with our capital expenditure plan. That is something that clearly gets reviewed every quarter. And if there are significant developments, positive or negative, we have the ability to adjust up and down. But we are initiating orders for a significant amount of transmission equipment.

Okay, perfect. Well, that's all I have. And congratulations again on a good quarter.

Thanks, Rob.

Thanks.

We will take our next question from Jon Braatz with Kansas City Capital.

Good morning, gentlemen. A couple questions. I read a report the other day where utility budgets look like their capital budgets are being cut about on average 10%. Can you talk a little bit about what you're seeing begin cut? I mean, are these budgets being cut in the generation and maybe might not be affecting you? Is it more in distribution and less in transmission? Can you provide a little bit of sense of what's -- where things are being cut and expanded in the utility budgets?

Well, typically the utilities that put out those announcements, and I've seen several that are in aggregate greater cuts than 10%. I've heard some 20% and 30% cuts. Certainly heard a number in the 10% area, too.

As we have conversations with those utilities, they typically don't disclose which components are being cut the most, the greatest. But my sense is the transmission expenditures are holding up better than either distribution spending or power plant spending.

Okay. Is the transmission spending, is it new lines being constructed or renovation and maintenance, or do you have a sense in that regard?

There's clearly a lot of both. I'm sure the renovations, what most laypeople would consider a renovations, a utility might be capitalizing that. And as they would be budgeting it, it would be considered part of their capital as opposed to the maintenance spend.

But there's a strong mix of both renovation kind of projects, where you might be taking out a 138 line and replacing it with a 345 circuit, something like that, going down the same right-of-way. And there are some brand new circuits that are also being added.

Do your competitors that may have more of a focus in the distribution segment, are they able to effectively compete and move over to the transmission side when the distribution side might be a little bit weaker? And indeed, I guess the question is, specifically on the transmission side, is that where you've seen margin pressure in terms of the bidding activity?

There is some ability to migrate over. And it's distribution contractors seeing that business being cut back, trying to do more in the transmission area. So, we have seen some new participants. We've also seen some GCs get into the substation work that we've not seen before.

And on the Commercial and Industrial side, it's just kind of moving up the pecking order. The residential market is dead, as everybody knows. So, some of those contractors are moving into the small commercial market, neither of which has any impact on us. But then, some of the small commercial guys moving into the large commercial and that does have an impact on us.

Right.

So, there is -- people are scrapping around to find work for their men and equipment.

Okay. One final question. On the projects that you discussed that had some good margins this year, obviously there might be some good fortune involved, but what generally produces those better than expected margins? Is it -- did you have some favorable weather or what might be behind that?

Most of it is just good sound execution.

Okay.

If you bid work, we're assuming a certain level of cost, a certain number of man hours, a certain amount of the equipment cost. And if we can get the job done with fewer man hours, that puts more profit in our pocket. So, it's very important that we have outstanding field supervision and field execution. That's where the biggest difference can be made.

Okay. Do the field crews themselves profit from that better execution?

Yes.

Okay. Alright. Thank you very much.

Take care.

And we will take our next question from Tahira Afzal with Keybanc.

Good morning, gentlemen. Congratulations on a good quarter.

Thank you, Tahira.

I have a couple of questions. Number one, wanted to start with, just elaborate a bit on the competitive landscape. At a recent conference you pointed to and alluded to a name, several engineers you were looking to work with, and GCs. One of them you mentioned was URS.

If I look at CREZ, the opportunity there, and if I'm looking at Sunrise Link, are there large opportunities where you would be partnering more with an engineer, or how should we be thinking about this?

Well, I think there are more and more projects that seem to be going the EPC route. So, it'll be more important than ever that MYR line itself up with different engineering partners. We're not exclusive to anyone. We try to pick a partner for a particular project that will give us the greatest change of being successful. And by successful I mean both winning the work and executing the work.

So, we have I think a great track record of being a good partner for those engineering firms to team up with. And we think there's going to be more of that type of work.

Fair enough. Thanks. And then, as I'm looking at the C&I business, and I look back over the last several years, it's -- your ramp-up has been pretty strong. So, you've gone from let's say operating income in that segment of $5 million to $10 million to close to $17 million.

How should we look at 2009, given that you do have some backlog visibility? Should we be looking at it going back to the $10 million level, $5 million level, or something in-between all of those?

It's going to be very difficult to duplicate this past year in the C&I market. So, I would think you'd want to back that down.

Right. So I mean, would the $10 million you saw in '07 be kind of doable do you think?

I don't want to coach you into a number. I just would back off of 2008.

Got it. Okay. If I'm looking at the distribution side, would that be relatively -- obviously, that's weak. But would it be relatively less weak as you're looking at it right now?

Yes. I think the C&I business would be the work to come under most pressure, then the distribution work would be under considerable, but maybe not quite as much pressure.

And the distribution business is highly a function of the storm work, not only -- that just -- if we get a big ice storm or something, all of a sudden that market tightens up for not only people that's going to do the ice storm work, but it tightens up the rest of the market.

Right.

So, if there are no hurricanes or no major ice storms, that is going to be a very tough market for contractors in the distribution area.

Got it. So I mean, if you look at maybe the second half of '09, perhaps on the T&D side you might see it as a little more challenging just because you'll be facing tougher comps?

Yes. I definitely think 2009 is going to be more challenging all the way around, particularly in the C&I and the distribution end.

Got it. Okay. And then Bill, given your experience on the utility side, as we look at the CapEx needs they have, all the areas that they have to spend, if you do see a carbon tax coming on, and it seems like there might be more stringent SOx and NOx commissions compliance rules coming back in, do you think it cuts out of any of the T&D spending? And so, would it potentially put more pressure on the distribution side?

I don't know about the distribution side. I guess if there is a carbon tax, I'm not sure that's the best public policy. I think we need all forms of generation, nuclear power, coal, gas, oil, and I certainly support the renewables like wind and solar.

But if you end up with a legislation that only provides incentives for renewables, that's probably going to be the best scenario for a transmission contractor. Because most of those renewable generation sources are in areas that have very little existing transmission. So, from a selfish standpoint, that would probably be the best thing for our business.

Right. Okay. And one last question, Bill. If I look at BPA, WAPA, you mentioned some of that work might start off in the near term. Would I expect this work to ramp up slowly?

Given the -- if you put in contracts, the loan guarantees combined for these two companies of your funds is close to $6.5 billion in context of the $10 billion or so spent on transmission. Would we expect only a trickle-in right now and really the material ramp to be more in 2010, or would we see something more material in the near term?

I wouldn't think you'd see much in the way of anything material in 2009. I'm not sure BPA and WAPA have designated -- first of all, I'm not sure they fully understand what's been approved for them. And they probably haven't fully allocated it to individual projects.

Some of the projects that will be probably receiving money are in varying stages of right-of-way access and engineering. And some of them might be sooner than others. And I expect they will be focusing on those that are more shovel-ready than those that nothing's started in terms of right-of-way access or design.

Fair enough. Thank you very much.

Okay. Thanks, Tahira.

Thank you.

And we will take our next participant, Davis Paddock with AIM Investments.

Good morning, guys. Thanks for taking my call. My first question, just a couple clean-up numbers. If I back into it, are corporate expenses around $6 million, below $6 million?

Corporate expenses. Hold on here.

On your segment EBIT disclosure.

So, you're talking about quarterly--.

Q4, yes.

It is $6 million and year-to-date you're looking at $22.9 million.

Okay. And you mentioned your 2008 storm sales were $43 million. What was that in Q4?

Roughly around $13 million. $13.2 million, I believe.

Okay. And what is the, as your best guess, kind of the timing for the Texas CREZ to -- where are they in their process in terms of handing out awards?

I would think some awards will be announced within the next 90 days. Some of the CREZ utilities are further along in terms of their RFI, RFP process than others. So, I do think you'll probably see some announcements in the next 90 says. That doesn't necessarily mean there are going to be contractors out doing any work a month after that, but I think there will be some announcements within 90 days and then you'll see others announced over months after that.

And you mentioned it could take up to a year after awards. Is that a financing issue? Why is it -- why could it take that long?

Well, the routes haven't been totally finalized. So, you have to finalize your exact route, which means you've got to get permits. And once you get all the regulators' approval -- and this is not just the state. In many cases you've got counties and townships and water control districts and airports and railroads, highway departments you've got to deal with.

And once you get all of those permits in place, you're simultaneously lining up right-of-way access, where you're approaching the land owners with access for the lines, as well as access to the lines.

And you're also working with the design firm to engineer it. And once they engineer the structure design, then you can submit the order to the folks that make the towers and they begin fabricating the towers. And the contractor comes along once all of that's in place and there's enough materials to get started. So, some of those processes can go on simultaneously, but some of them are sequential.

And I guess my question is, isn't a lot of that siting and permitting typically done before the project is approved? Is that unusual that those types of activates would be taking place after the project is bid out?

Well, some of the work--.

--On the siting and permitting side.

Well, what you don't want to do is spend a lot of money on engineering and buying material and then find out the project gets revised or cancelled. So, I'm sure some of the parties are willing to spend some money without all of those approvals in place, but that's probably pretty limited. You want to know that the project is real and you're not going to get hung up in some lawsuit over a permit.

Okay. And then on the BPA and WAPA federal utilities, it sounds like some projects they may have, they've already done some work on in terms of siting and permitting and going forward, and then in others they haven't. Do you have any sense for what types of projects are further along the path and may be more shovel-ready, as you referred to?

I don't have that information.

Okay. Okay. That's all I have. Thanks, guys.

We will take our next question from Steven Gambuzza with Longbow Capital.

Good morning.

Good morning.

Hi, Steve.

Can you tell me what your -- the total amount of work you did in the renewables area was in 2008 on the revenue line?

About $50 million.

$50 million. And was that the -- when you talk about your split with transmission versus distribution in 2008, would that be considered transmission or distribution?

It'd be transmission.

Do you think that'll be directionally higher in 2009 than 2008?

I think it's going to get higher long term. Hopefully it'll be higher in 2009 as well, but that -- the fundamentals with both the work driven by renewables is probably the best fundamentals of any of the businesses we're in.

Okay. The way you guys report backlog, where you only provide a quarter of work under MSAs in the backlog that you report, it's different than a lot of the other companies report.

I was wondering, would that lead to kind of explain some of the sequential decline in backlog that you'd experience, just given the seasonality of the business in that in the third quarter, the second or third quarter, when you're looking forward a quarter, you might have more work expected under MSAs than you might in the fourth quarter looking to the first quarter?

No, I don't think that would explain that. I mean, the backlog going down from like the third quarter to the fourth quarter, it's largely driven by project additions, as well as how rapidly you're burning the backlog.

But the fact that -- it's not driven significantly up or down by brand new alliances or any alliances that have been terminated. Which is really the difference between us and some of our competitors, where we count 90 days of revenues in our backlogs for those alliance agreements. And they've been a very steady source of business. It's just we don't forecast them out as far as maybe some others might.

And the $243 million of year-end backlog in T&D includes approximately $100 million of Dominion revenues?

Yes.

And that will be completed over the next three years. Is that right?

It'll go into 2011.

'09, '10, '11. Will it be -- how would you describe the burn rate of that project in terms of percentages in '09, '10 and '11? Is it even or is it front-end or back-end loaded?

It's very heavily loaded in the first two years, but there is work in the third year.

Okay. So, it's -- would you say you might do half this year, or a quarter of it this year, or--?

I wouldn't say. I don't know. I don't have most of that information.

Okay. And I guess looking in past years, just looking at kind of year-end backlog in T&D, it's generally been kind of 30% to 40% of the following year's revenue. Would you expect that relationship to kind of hold this year?

That's not a relationship that we really focus on. We're looking forward and not trying to predict it on what we've historically done. It's not a benchmark that we really monitor.

I guess just given the -- it would just seem that, given the backlog, I mean, backlog must have a very important implication on this year's revenue. And given that backlog was up 82% versus last year, I'm just trying to get some sense for the order of magnitude of what that means for this year's revenue in T&D.

When you look at our backlog, our backlog historically has burned on average three to six months in relation. Obviously, you're going to have to back out these large projects that we're talking about, like the Dominion. Our C&I group also has projects that go over a year in duration so those need to be backed out.

We realize that the backlog for us has to be replenished to continue on a path that we've been over the last several years. And as Bill indicated, 2009 is going to be a challenge to do that. And so, with that said, when you look at backlog, obviously you can look at it and say they've got to win new work in 2009.

Okay. Thank you very much.

Alright.

And we will take our next question from Min Cho with FBR.

Hi, Bill, Marco. How are you?

Hi, Min.

Just a couple questions left here. First of all, there are several Canadian transmission projects that have been approved and seem to be moving forward. Can you remind us if you do work in Canada and if that is an opportunity for you going forward?

We haven't done work in Canada for a long time. We would consider that under the right circumstances. But in recent years we've done very little work in Canada.

Okay. And then just finally, historically you've talked about growing your business mostly through organic means. Obviously, given the current environment there has to be some players there who maybe aren't able to get the proper bonding or financing at this point. Any thoughts or any change in thoughts in terms of your acquisition strategy?

No. I think we still think growing the business organically is the best strategy for us, but it's not exclusive. We get pitch books, probably two a week, from contractors being for sale. And once in a while we follow up on them and if it was the right opportunity we would certainly pursue it. But it's not our core philosophy that we have to have acquisitions to make our business plan.

That's it. Thank you. And congratulations and good luck in 2009.

Thank you.

And we will take our next questioner, John Rogers with D.A. Davidson.

Hi. Good morning.

John.

Hi, John.

I just wanted to follow-up for a second on some of the questions about alternative or wind power. The push that we're seeing for new transmission projects that's coming out of the -- I guess the Obama Administration and others, are most of those projects related to moving power around, or is it new generation that's driving it?

And I guess as part of that, the growth that we're expecting over the next couple of years, do we need to see announcements on new generation to get there?

Well, I think you need to see new wind farms being approved. And obviously, that is new generation.

Right.

There's still a fair amount of need for just good reliability because of 20 years of underinvestment. So, there's a significant amount of transmission required that's pretty much independent of renewables.

But then, there are many projects that the justification is part because of reliability and failure to invest in the past. And the justification is new renewables coming online. So, it's not just black and white--.

--Right--.

--Transmission project is because of renewables and this one is because of reliability.

Okay. But--.

There also is -- I know you know there's a need to move to some power from The Plains to the urban areas in the East. And we need a much bigger backbone than what's been built to date. And so, I think that would be kind of the super highway to attach some of these rural highways to.

Okay. And the new wind farm projects, have they -- because you hear some reports about it slowing and others that, with the tax incentives, that there's more work out there. What is your sense of the pacing of this relative to where we've been running, especially in 2008? The new generation which ultimately would create the transmission opportunities. I mean, you said you expect--.

--There's -- the level of stimulus has just got a lot greater.

Okay.

But you also need people who can utilize all those tax benefits. So, just standing production tax credits, or giving investment tax credits in lieu of, you've got to have owners for tax purposes that have big federal income tax liabilities that can use all of these credits to offset.

And some of those owners for tax purposes, they've gotten fewer and far between because of what's happened in the economy. Certainly, a lot of the big financial houses were major participants. And not too many of them have much capacity to utilize tax benefits. So, that needs to get sorted out.

Okay. Okay. Thank you. And just one follow-up on the C&I side. Is that business more dependent on new construction or some of these incentives or programs to improve efficiency? Is that segment a benefit to that or would it be?

I think it would benefit. I think we would benefit particularly from the highway spend. We do some traffic work that rolls up under our Commercial and Industrial group to the extent you're widening highways, putting in new traffic control and loan control devices. That would be an opportunity for a contractor. And as you widen roads and put in new interchange, that oftentimes means moving utility poles around to accommodate it. So, that would benefit our T&D business.

So, I do think our C&I business for some of these energy control devices, we are very good at installing those, as well as the traffic. And I think there's some stimulus money for water treatment facilities, and that's another area of expertise for us.

Okay. Great. Thank you.

Okay. Thanks, John.

We will take our next question from Tom Spiro with Spiro Capital.

Good morning.

Hey, Tom.

Hi, Tom.

On the siting question, I was curious whether there had been any developments, regulatory, judicial, statutory of late that we ought to think about as a ways to make siting a little bit easier?

I'm sure you've been reading the Wall Street Journal about some of the legislative initiatives that are being discussed that would give FERC greater control. Those haven't been enacted yet, but it does seem that there's a fair amount of political support to make some changes in that area, which would have the potential of streamlining the siting process and put pressure on the states to enact things, or to approve things before the federal government would take it over.

I've read a number of articles suggesting there's lots of enthusiasm at the federal level, but relatively little enthusiasm for those initiatives at the state and local level. Is that a fair characterization?

Yes. I don't think the states' rights people are anxious to have the federal government take over.

And I would suggest that whatever the federal fair value accomplishes will at least be subject to some kind of judicial challenge over a period of time, would it not?

I would think there would be probably a potential for a state right challenge, that does FERC in fact have this authority. I mean, I'm out of my realm. That's legal stuff. But I don't think it will go unchallenged.

Well, thanks much and good luck.

Okay. Thanks.

We will take our next question from Rob Young with Wm. Smith.

Hi. Just a quick follow-up. With regards to the changed landscape with the utility expenditures and their cost, has there been any changes that you've seen relative to contract type for fiscal year '09?

No. I don't think we've seen that although, the bigger the projects, the more likely it is you'll see this EPC form of contract. But I haven't seen anything that has to do with -- that relates to the financing issues the utilities are having.

Right. I was talking a little bit more of a fixed cost versus retirement of equipment or unit price or the cost-plus type contract. Is that landscape changing at all?

Well, the bigger the project, it probably means the less likelihood that it's fully designed. And if you want to have a hard money, lump sum job, the project has to be fully designed. So, you put out a bid package that has all the details that a contractor can bid on.

So, the bigger the projects the less likely that they're fully designed, which probably means some of these other pricing structures, target pricing, unit pricing, various forms of cost-plus are more likely.

Okay.

Hey, Rob, just looking at '08 and '07 fixed price type of contracts kind of held steady. So, from '07 and '08 they really didn't change much as far as a percentage for our business.

Okay, perfect. Thank you.

At this time we have no further questions. I will now turn the call over to Mr. Bill Koertner for any additional or closing comments.

Well, I'd like to thank everybody for participating in the call. We're very excited with the opportunity in our energy delivery markets. And want to thank our management team and our employees and our vendors for all the hard work. And certainly thank our customers for the confidence that they've shown in our company.

I don't have anything further. We look forward to working with you going forward on our next conference call.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.