MYR Group Inc (MYRG) 2009 Q1 法說會逐字稿

Good day and welcome to the MYR Group first quarter 2009 conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. [Philip Krantz]. Please go ahead, Sir.

Thank you and good morning, everyone. I would like to welcome you to the MYR Group conference call to discuss the Company's first quarter results for 2009 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 to [Trenza] at 312-726-3600 and we will send you another copy.

Or you can go to MYR Group's Web site at www.MYRGroup.com, where a copy is available under the Investor Relations tab. Additionally, a replay of today's call will be available until Friday, May 22, 2009 at 11:59 PM Eastern time by dialing 888-203-1112 or 719-457-0820. The pass code to access the call replay is 691-7124.

Before we begin today's call 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 obligations to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the 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 31, 2008, and in yesterday's press release.

With that said let me turn the call over to Bill Koertner.

Bill Koertner. Good morning, everyone. Welcome to our first quarter 2009 conference call to discuss financial and operational results. I will provide a brief overview of the 2009 first quarter results before turning the call over to Marco Martinez, our CFO, for a more detailed review.

As we reported in March, 2009 is turning out to be a challenging year for the national economy, the utility industry and for construction companies like us. Most economic data indicates that we have not yet reached the bottom of this recession. However, there are beginning to be a few positive signs, indicating the recession may be close to its bottom.

Our first-quarter performance reflects this reduced level of economic activity in both our T&D and C&D markets. As you saw in our press release MYR experienced a decrease in revenues, net income and earnings per share for the first quarter of 2009, as compared to the first quarter of last year.

Revenues declined about 3% from last year, and net income and earnings per share were down one $1.9 million and $0.09 per share respectively. The year over year decline in our first quarter financial performance is largely a result of the reduced activity within our C&I group and the continued slowdown in utility distribution work.

Job performance also contributed to the decline in first quarter profitability versus the same period last year. This year we experienced a couple of underperforming jobs whereas, last year, we benefited from higher margins on a few large projects nearing completion. The impact of the underperforming jobs in the current period was about $600,000, net of taxes or about $0.03 per diluted share.

Our C&I work in Colorado and Arizona is dependent on commercial industrial and government spending in those two states, which have both been adversely affected by the recession. Utility distribution spending has also been hurt by the slowdown in housing starts, as well as the financial crunch affecting the capital-intensive utility industry.

I expect many of you followed the utility sector as well as the engineering construction or NEC space we are in. Therefore you know the utility electric sales have not grown recently and in some cases have actually declined, due to the loss of commercial and industrial load.

Utilities have also seen their borrowing costs go up and their stock prices go down. As expected, utilities have responded by cutting or deferring spending across the board on their capital and maintenance projects.

However, I should note that it appears that the transmission and renewable spending has not been as adversely affected as power plant and distribution were. As reported in March, contract margins for new work started coming under pressure last fall. Some projects were dropped or delayed as customers re-evaluated their spending plans in light of the recession.

Additionally, we have seen some tentative project awards pull back to be rebid so our clients can insert new language in their RFPs in an attempt a qualified for federal stimulus spending. Despite the lower results on a quarter over quarter basis, we remain extremely positive about the long-term outlook for both our T&D and C&I markets.

For the most part the projects have not gone away. They have just been deferred. This is particularly true on the transmission side of our business and with (inaudible) hardening distribution work.

Many of those electric circuits were overloaded and or in bad physical shape today. It boils down to spend now or spend more later to fix the aging electric infrastructure in this country. So the still -- the work still needs to be done.

Our industry, and MYR in particular, also stands to be a major beneficiary of federal stimulus spending in the push to expand the use of renewable wind and solar power. We are a national player in the T&D market and a strong regional player in our C&I markets with a diverse customer base in both. This will serve us well going forward.

Marco will now provide details on the first quarter 2009 financial results and then I will be back to provide some insight on current market conditions and our perspective for the future of MYR. After that, there will be an opportunity for you to ask your questions.

So with that, Marco, please begin.

Thank you, Bill. Thank you for joining us this morning. As Bill mentioned before we expect 2009 to be a challenging year. Our revenues for the first quarter of 2009 increased 1.1% in the T&D segment and decreased 12.9% in the C&I segment over the 2008 period.

The T&D segment revenues increased slightly due to an increase in revenues from a few large projects, which were partially offset by a reduction in revenues of smaller projects that were in production in the first quarter of 2009, compared to the first quarter of 2008. Our C&I segment revenues decreased in the first quarter of 2009 due primarily to the completion of large projects that were not offset by new construction starts compared to the first quarter of 2008.

In the first quarter gross profit decreased 15.7% from $20.2 million in the 2008 period to $17 million in the 2009 period, while gross profit margin decreased year-over-year from 14.8% in the 2008 first quarter to 12.8% in the 2009 first quarter.

Operating income excluding corporate SG&A decreased $3.5 million or 25.6% in the 2009 first quarter over the 2008 first quarter with a decrease of the $2.8 million or 27.4% in the T&D segment and $700,000 or 20% in the C&I segment.

The decrease in gross profit and operating income in the 2009 first quarter was primarily attributed to a strong performance, an increase in margins and a few large contracts that contributed approximately $2.1 million in additional gross profit during the first quarter of 2008. Large projects in 2008 have not been replaced by projects with similar margins in the first quarter of 2009.

The remainder of the decrease can be attributed to an increase in estimated cost to complete on certain contracts that resulted in approximately $1 million reduction in gross profit in the 2009 first quarter.

Additionally we reported first quarter 2009 net income of $2.9 million or $0.14 per diluted share compared to the first quarter 2008 net income of $4.8 million or $0.23 per diluted share. Comparing the first quarter of 2009 with the same period of 2008, net income decreased by $1.9 million and diluted earnings per share decreased by $0.09.

T&D margins decreased in the 2009 first quarter as compared to the 2008 first quarter as a result of strong performance and increased margins on a few large contracts that resulted in approximately $1.4 million in additional gross profit during the first quarter of 2008.

2008 large projects have not been replaced by projects with similar margins in the first quarter of 2009. We also had certain contracts experience an increase in estimated cost to complete that have resulted in a reduction to gross profit of approximately $1 million in the first quarter of 2009.

Additionally the C&I contract margins decreased in the 2009 first quarter as compared to the 2008 first quarter as a result of strong performance and increased margins in a few large contracts that resulted in approximately $0.7 million in additional gross profits during the first quarter of 2008.

EBITDA in the 2009 first quarter was $8.2 million compared to $11 million in the same period of 2008.

First quarter SG&A expenses increased slightly to $12 million in the 2009 period from $11.9 million in the 2008 period. This increase relates primarily to additional support staff and salary increases and certain incremental costs related to being a public company. And (inaudible) am very cognizant of its expenses and actively manages its overall cost structure.

We also continue to focus on our capital expenditure program in which we are purchasing as opposed to leasing more of their specialty equipment needed for our T&D work. Where in the first quarter of 2009 we invested approximately $3.6 million in capital expenditures from a cash flow perspective, we spent $7.5 million which included approximately $4.3 million of property and equipment, of which payment was pending at December 31, 2008.

We believe this is an effective way of reducing our equipment cost over the long term, which should help to increase our contract margins.

Total backlog at March 31, 2009, was $294.6 million consisting of $214.2 million in the T&D segment and $80.4 million in the C&I segment. T&D backlog at March 31, 2009, increased 42.3% compared to backlog at March 31, 2008, largely attributed to the $107 million Dominion projects which we announced in October of 2008.

C&I backlog at March 31, 2009 increased 0.1% compared to March 31, 2008. The minimum change in C&I backlog was attributed to market pressure and an increase in competitive bidding in this segment of our business. Backlog will continue to fluctuate as awarded to work offset (inaudible) being completed, continue to market and bid new work to compensate for backlog being refused 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 and we understand many of those alliance agreements can be canceled with relatively short notice.

Moving to the balance sheet, our stockholders equity increased from $105.4 million at the end of 2008 to $158.5 million at March 31, 2009. We are very pleased with our strong balance sheet position and our two 2009 first quarter results especially in light of the overall economic environment. We believe in maintaining a strong balance sheet to give us a competitive advantage against our competitors. We are pursuing more warts; purchasing the best fleet equipment in the industry and hiring the best labor force.

Having a strong balance sheet also gives us the ability to tap the credit markets that will (inaudible) many of our competitors. We have approximately $34 million in cash, $34 million in debt and maintain a low step to total capitalization of 15.9%, which we believe is favorable to many of our peers. We currently have a $75 million long-term credit facility which does not come up for renewal until August of 2012.

We have a $15 million letter of credit outstanding under the credit facility leaving $60 million available for organic growth or investment opportunities.

We are also focused on maximizing our utilization of our assets which has resulted in a fixed asset turnover ratio on an annualized basis of about two times, which we believe is also favorable to some of our competitors. We believe our financial strength, industry experience, specialized fleet, safety record, our national presence puts us at a competitive advantage to continued being awarded ordered future work by our current and prospective customers.

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

Thanks Marco. MYR has not provided revenue and earnings guidance as a relatively new public company. However I would like to expand on my earlier comments about how we see things shaping up going forward.

So far this year we have seen steady bidding activity in the T&D space, especially on transmission projects for utilities and windfarm developers. We continue to receive RFIs and RFPs asking us to submit our qualifications and pricing for transmission, substation and distribution work.

However many of the large projects that we are getting are months or even a year or two off before actual construction begins. A number of the projects we bid in late 2008 and early 2009 are still under evaluation.

These include alliances, projects in the early planning stages and discrete projects of various sizes. Some pending projects are traditional construction only type contracts some and others are more on the order of EPC type awards.

The pricing structures vary from lump sum to unit prices to time and equipment or time and material type pricing structures. The much talked about [Kress] work in Texas remains an exciting opportunity for MYR Group, especially given our strong history of utility construction in Texas.

MYR is well-positioned to win a portion of the 2400 miles 345 KB build out of the Texas competitive renewable energy zone. The selected participants for the Kress projects are preparing their certificate of need or CCN applications, which will be submitted in early October. While much of the actual construction may not break ground until 2010, contract awards and preconstruction services are anticipated later this year for at least some of the work.

In the western United States, along with the approval of the $1.9 billion Sunrise Power Line project in California noted on our last call, we anticipate other major projects to move forward this year and into 2010, depending upon regulatory approvals. We were pleased to see the CapEx 2020 work in the upper Midwest received their certificate of need in April to construct four projects consisting of 700 miles of 345 KV lines in Minnesota and Wisconsin. The routing permits will follow and construction will likely get underway in 2010.

We also anticipate opportunities for MYR Group through its stimulus package allocation of funds for two federal transmission utilities or transmission systems upgrades at the value of about $6.5 billion. Those include [Montaville] Power administration and Western Area Power administration.

MYR and its subsidiaries have a long history of performance for both of these public power entities.

Also we continue to see opportunities in the renewable energy market with the overall renewable energy support from the Obama administration and specific incentives in the stimulus package. I saw a number of you view at the Wind Power Conference in downtown Chicago last week.

Thousands of people attended that conference over a three-day period and one certainly does not get the feeling the wind market is in any recession. However, as everyone knows, tax incentives are only one leg of the three-legged stool that must be in place to support development of renewables like wind. The other two legs are, first, having investors could can efficiently utilize these tax benefits and, second, having our nation's debt and equity capital markets return to some form of normalcy so the projects can be financed.

These other two legs of the stool are still a little wobbly.

Before moving onto our C&I business, I want to give you a brief update on our Dominion 500 KB project which was awarded last year. The project which is located just west of Washington, DC, is doing well. We have a parent number of power set and several miles of conductor already set. The project will continue this year and next and is expected to finish in 2011.

Now I'd like to shift to our commercial and industrial business. Our C&I business has definitely been impacted by the recession. There is still work being bid but there are more contractors chasing the available work which obviously puts pressure on margins.

We believe our focus on healthcare, research centers, smart highway work, data centers, mining and wastewater treatment facilities makes us somewhat less susceptible to these uncertain times. Over the long term, we anticipate these markets will also be beneficiaries of the infrastructure stimulus package.

In fact we have already seen some increases in highway bidding activity due to the stimulus dollars. We have taken steps to reduce our cost structure to make sure MYR has one of the lowest cost structures in the industry. A low cost structure, coupled with a steady focus on our markets, will ensure that MYR will be a major beneficiary when the work picks up.

We will also stay focused on safety, providing high-quality customer service and meeting clients' schedules to make sure we remain a valued partner for utilities and our C&I clients.

That is 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.

(Operator instructions). Tahira Afzal.

Good morning. As I look at it, Bill, you sound a little more positive than you did in the last call. Would that be the right read and would that be because perhaps you are seeing maybe things are still weakening '09, but you are seeing maybe some light on the bidding side?

Maybe it's because I just attended this wind conference last week and definitely some optimism there. We have seen some strong bidding in the last couple of months but as I reported in my remarks, a lot of those projects definitely don't need the shovel ready definition that we have all come to hear about.

But there is a lot of bidding activity going on, but not necessarily anything that is going to have a meaningful impact on 2009.

Got it. And if I were to put in context and, Bill, you've been on the utility side for so long, things like what came out today with First Energy coming in with a weak option and hence, in general there being more signs that electricity demand will stay weak in '09 and perhaps a little bit into 2010.

How do we put that, reconcile that with what you're seeing perhaps on the renewable side, which is going to be very strong? Net net do you take 2010 looks a little brighter than 2009?

Well, don't hold the fact that I work for a utility against me. I -- for everybody on the call I did spend 20 years in the utility business before I joined MYR and I think I have a fair understanding of how a utility works.

I did not see the first energy announcement, but I have followed the industry and certainly our clients very closely. They are doing what's rational. Their sales have declined.

Many of them have a significant portion of their revenues tied to industrial and commercial sales. And as we would expect, those revenues are not as great as what they probably expected six, nine months ago.

On the weather-driven sales on the homeowner side of things, some areas of the country probably benefited from having colder winters or warmer periods that would trigger weather sensitive heating or cooling load. That is kind of spotty depending upon which part of the country you're in, but generally the utility sales in total counting to residential, commercial and industrial I think are down. Which means they've got less money to spend for operating costs and they are taking a row close look at what work that outsource either maintenance work or capital work to contractors like MYR.

Just ask one more question and then I'll jump back in the queue. You know, if you look at the revenue you had in first quarter of the year, it's given everything running a little below the average run rate for the last five quarters, however should we assume there should be a bit of a wrap at least going forward into 2009? or would a dollar -- $133 million be about the run rate that we should be assuming?

And I know you don't provide guidance, but to the extent we should build in any seasonality into the first quarter -- was it the other quarters. It would be helpful,

Bill Koertner. I can't really answer that. I think you're going about it the right way of monitoring our customers and what they are spending and our revenue run rate is going to be a function of what utilities, like First Energy and others are spending. So I really can't give you any guidance there.

Thank a lot.

Operator. Jeff Beach with Stifel Nicolaus.

Good morning. You've been preparing us for higher SG&A, public costs, you've talked or cited in your commentary about more support staff and all of that and yet the SG&A is barely up over a year ago and it's bloat the level of the last three quarters.

Can you describe what is happening in SG&A and, again, I will ask should we expect some higher SG&A ahead than this $12 million level in the first quarter?

Certainly we are doing everything we can to keep our overhead costs down. We've rebid a lot of services trying to find cost savings. We've tried to not hire any more people than we have to, but yet get a quality job done.

So a part of it or most of it is just good cross management on our part. Another part is, we are not accruing quite as many dollars of bonuses because we are down versus where we would like to be and what are some of our goals were based on. So we don't have money and that are like bonus accruals.

Marco Martinez. There probably will be some slight increases as we move forward. Obviously this is going to be the first year our Company is going to be needing to be SOx-compliant and we haven't really been impacted by those costs. So there may be some additional SG&A costs going forward that relates to that.

Still I thought, an excellent job. But moving on, the other question I wanted to ask, your C&I backlog moved up I'll call it decently, from the end of the year into this first quarter and when you do the math there was a pretty good level of bookings.

Can you describe the nature of this? Whether it's a lot of small projects where you had a couple of nice project wins? What are the the margins like in the market right now versus your backlog? Not last year but what's currently in your backlog and in a first quarter like this in a tight market if you're getting good bookings in C&I what happens in the next quarter or two?

Well the backlog is definitely more a major projects driven, none of those projects by themselves would be something that we would disclose, but they are virtually all government funded jobs and the healthcare or other government-supported facility. The debtor margins that were reporting, I [wouldn't] attribute that to higher bidding margins.

It's just we are really focused on executing the work and we are trying to execute the work for lower-cost than what we have else into our estimates. And certainly that is our -- that's always our goal, but you can't always share our investors that we are going to have the superior execution results. But that is certainly where what we're trying to do all the time.

And is the bidding pipeline into C&I looking ahead to the next three and six months as good as what I guess I would observe from the first quarter?

I guess I can't -- I don't know about relative comparison, but there are a number of nice projects in the C&I business. We at this point have not seen one way of stimulus spending helping any of our business.

In fact as we said on March 31, I think the stimulus spending was a net net negative to our Company. I couldn't point to any projects that happen just because of the stimulus number but yet I can point to a couple that were tentatively awarded to us that ended up getting pulled back so they could be repaired with a new stimulus, incentive language built into the RFP, but I do expect our C&I business if you're talking smart highway work, street lighting, healthcare, government facilities, I do think our C&I business will be ultimately a beneficiary of stimulus spending. But we haven't seen any of that yet.

And just to add to that, bidding activity is active in the C&I group, but as I think Bill indicated earlier there is more competition in this segment of our business which is going to impact margins going forward.

We have seen new contractors showing up in Colorado and Arizona that we had never heard of before, coming in from other states that are even more depressed than the two of them. So the more people that show up at bids and the hungrier the people are, that definitely puts pressure on margins that we are experiencing there.

All right. Thanks, that's helpful.

Rob Young with William Smith & Co.

Good morning. Could you just briefly explain some of the commentary that you made regarding that underperforming projects? And just how that relates to going forward?

Well, when we did work, we -- principally all of our costs are driven off the labor productivity. That would include the overhead costs, complete costs, the maintenance if it takes more than ours to do the job than what you anticipate, not only is your labor expense and your benefit expense higher, but all of the other costs associated with doing work, you've got -- you are using more of equipment for longer periods of time. You got overhead people dedicated to the project for longer periods of time and we've had a couple of jobs where the man-hours that we assumed to perform various tasks it ended up requiring more man-hours. It could be for a lot of different reasons.

Weather or we couldn't get outages to perform our work and that's what we really try to manage all the time. We are trying to do better than our assumptions and our bid estimate. And many times they are able to do better than our assumptions, but in the first quarter we had a couple of them where we didn't do as well as what we had assumed in our bid.

Also with respect to the $1 million adjustment that we had for the quarter a lot of that, too, as Bill indicated, could be weather related. It could be delivery of materials. We typically will incur the cost and if there's a potential that there is a change in scope or there's a claim, we will be in discussions with the customer and towards the tail end have discussions with them. And perhaps we can get a little of that back.

But as the contractor and the way we recognize the costs, we will incur the costs until we settle those disputes with the customer.

Great. That's helpful, thank you. Was there any benefit to the P&L on the Dominion project in the quarter?

Yes, yes. We had margins we recognize on the Dominion job.

Okay. Can you quantify at all as to how much that contributed?

We are not giving out specific numbers on that particular project. But we can say that what we did that job for is what we are running at right now.

Okay. And just lastly, mentioned that in certain cases some customers are repeating or redoing the language that they are -- that they have in the agreements with you with regards to putting in various stimulus package language.

What's -- in terms of actually you starting construction, how much time is that adding to the overall S timeline?

It depends on how far the train had left the station on the original solicitation, but when they decide to pull a tentative award back that could add three months, six months or maybe even longer to the ultimate completion of the project.

There it certainly doesn't take that long to put in the language if you know what language is required. But all of the legislation it takes our customers' attorneys a while to figure out what hoops they have to jump through in order to qualify for this money and what kind of criteria they need to be, what language that needs to say, and since it's all very new, it takes some months to figure that out so they can come back to the street with a revised RFP.

Great, appreciate it. Thank you very much. That's all I have.

[Min] Cho. FBR Capital Markets.

Good morning. Couple questions. Bill, you mentioned the margins on the new work that you are seeing is down kind of on a year-over-year basis, but is that across the board or is your transmission -- are your transmission margins actually holding up Okay?

I would say it is across the board, but the transmission margins are holding up better than the margins on distribution and commercial and industrial parts, but I think they've been affected too.

Relative to the price you saw even in the prior quarter, are you starting to see a little bit of stabilization or is there still continued decline?

We are seeing, I guess, stabilization.

Also just in talking to you over the last couple of months, it seems like you are becoming a little bit more positive on potential acquisition opportunities. If we were to see an acquisition this year would it be to increase your size in the current services that you provide? Would it be to acquire more equipment or would you look, even into getting more on the engineering side of it? Side of the opportunity?

The acquisition. Our core strategy is not dependent upon making acquisitions of other operating companies. Certainly, I see lots of companies being for sale and there are more of them for sell today than six months ago. And some of them are more desperate than others, largely because they are getting squeezed by their lenders.

But still our focus is growing the business internally. We would look at acquisitions of other companies, but that is not our core strategy. You say acquisitions of equipment and I view that as differently.

We are going through our capital budget. There is some expenditures because our business is not growing as rapidly as we thought. Last fall when we put our capital budget there are some things that we are cutting out and deferring, but we have not lost any faith in the need for the big transmission, specialty equipment. And we are proceeding to spend and commit those dollars because in many cases there are fairly long lead times on some of that equipment.

So we are still very bullish on the transmission market and the need to have that equipment when the projects start. And on the engineering side, we don't today have any engineering capability and don't have any plans to aggressively go out and buy an engineering company.

And in terms of your opportunity on the transmission. Actually transmission distribution business. Given the stimulus impact on alternative energy and transmission, I understand the path of opportunities there. What are your opportunities and just kind of your thoughts on timing for smart grid?

I have yet to hear anybody really define exactly what smart grid mean. It means different things to different people because I've asked a lot of utilities. Certainly much more sophisticated metering is being contemplated and it has pushed into the home and into the business. But I'm not seeing -- there's a lot of talk about spending money on those controls and those metering systems. But I've not seen any RFDs come out where they are asking for contractors like us to install it yet.

I think it's still the owners of the buildings and the owners of the hospitals and factories and so forth, trying to figure out what it is they might be able to install that would first qualify for the tax incentives and, second, make economic sense for those businesses.

Finally a kind of housekeeping question. Do you have any storm-related revenue this quarter?

Yes, we have storm revenue. We are not a big storm player. We had some storm revenue first quarter of '08. We've had some storm revenue first quarter of '09, but it's not necessarily a significant thing for our Company.

Thank you. Good luck.

John Braut with Kansas City Capital.

Good morning. Most of my questions were answered but Bill, you had mentioned in your commentary that you have a transmission side versus the distribution side. You are seeing less if I quote, if I remember correctly, less of an adverse impact.

Is transmission spending at the utility level, is it still up or is it --? How much of -- can you quantify that statement?

Spending, certainly the activity, the projects out on the street is up. Is it up more than I would have thought six months ago? Not necessarily, but there've been fewer cutbacks of projects.

Not only do you translate it into spending, there's very little spending taking place other than utilities trying to get through all the regulatory hurdles, permitting hurdles; and some cases, they are doing preliminary engineering on projects. But even there until they know the projects a go and they've got regulatory approvals and they've got the ability to finance it, they are cautious on spending money even on those upfront activities.

But the spending part, we are towards the end on the food chain. (Multiple speakers) has to be permitted. Regulatory approvals have to be in place. You have to have the engineering done. You have to have the materials on order and then it comes time for a contractor to install those materials.

Bill, when you look forward, say, two or three years and assuming alternative energy begins to blossom and windfarms grow even more popular, in addition to the regular transmission spending that has to be done to upgrade the grid is your industry prepared for that? Do you have -- does your industry have the capacity to meet all this latent activity that may be on the horizon?

I'm not sure our industry -- our industry does not have those resources in place today. MYR and our competitors are all working hard to develop the people resources as well as get the equipment and tooling in place for the work. And I believe though, we are up to the challenge, assuming the work unfolds in a rational manner which I think it will.

So I think we are up to the challenge, but those resources are not sitting around shares and service centers today just waiting to be called out to go to work.

Right but would you envision the possibility or the potential that as some of these projects begin to ramp up and become more numerous, that your margins on that business could be higher two, three years from now than they currently are? And that there may be higher margins that are possible in that business because of the demand?

Yes, we would anticipate that. But that doesn't really reflect any change in -- from things that I would say in six months ago or a year. Margins are a function of supply and demand and you get a nice increase in demand and it takes a little while for the supply to catch up.

So it happens margins go up and if the reverse phenomena is true, margins go down.

[Steve Emerson with Emerson Investment Group].

Excellent quarter, gentlemen, in light of the status of the world. Are you -- what are you hearing from your industry groups, your lobbyists, your customers as to when there might be visibility on the stimulus bill in your industry? And what kind of timing you think you will be seeing, RFQs and awards. What are you hearing?

I would think there will be more RFIs and RFQs out in the second half of the year than the first half of the year. And we -- our customers, everybody is trying to figure out what the stimulus spending bill means for them. There, unfortunately, aren't very many of these shuffle ready projects in any space, transmission space, smart grid, smart metering.

But I would definitely think that given six, nine months, all of that will have more clarity. And our customers will know better how to plan and, ultimately, we will feed into that.

Okay, so is there -- you've given a very broad time range. Is there any expected more or less an announcement, Okay we are ready or I guess that's impossible to predict in terms of when the projects, the decisions might be made at the federal level --.

I really am not in a position to predict that any better than you. Certainly the projects in Texas while I don't think they are driven necessarily by the stimulus spending, but I would think that would be one market where they are likely to be announcements yet this year, maybe in the next few months. And there are other projects in the West and in the upper Midwest that I would anticipate announcements yet this year.

Okay and due to the stimulus, have the announcements and awards in Texas been stalled a short period of time or a few months?

I don't know that I would say there's a delay that's tied to the stimulus spending. I don't know if any of those utilities are rethinking their projects and saying, it is only a goal if I get federal money to subsidize it. I don't know that to be the case or not to be the case, but certainly all of the developers be it a traditional utility or a non-utility developer they are looking at their balance sheet. They are talking to the credit rating agencies. They are looking at their stock price and as they go into the Board of Directors to talk about spending money, all of those things have to be thought about before they make a commitment.

Got it, thank you.

John Rogers with D.A. Davidson.

Good morning. Just wanted to follow up. You talk about increasing competition in the C&I segment. But on the transmission distribution side, are you seeing now anybody that was formerly working on, say, distribution trying to change some of this transmission work? I know there's different requirements and qualifications involved.

But do you see that shift capacity shifting towards that market at all?

Yes, there are a couple of players that I think are -- have historically been more limited to doing distribution work and underground work that now are trying to earn a portion of this transmission spend. So there are some new players.

What about from a higher level point of view? Some of the largest contractors have indicated that they might have an interest in coming in and general contractor level and trying to organize some of the smaller players in the market to go after some of the large transmission projects. Have you seen that at all?

Yes. There are a couple of players that I would say are in it today and a couple of others that are talking about coming into the market. I think they will come in, trying to do what is wise for them and probably affiliate with some of the established players in coming in with the market.

It is a different market than the ones they are competing in. I think they know that and I think to come in blindly and assume building a transmission line is the same thing as building a power plant or building a refinery, it is [a risk] and how you approach the work is somewhat different.

And what are the implications for MYR in that sort of changing competitive environment? Anything or is it just --?

I don't know what the implications would be to us. I think MYR would be an attractive joint venture partner to team up with with an entity like that here. Clearly we got as much history as anybody in the industry and we've got, I think, some of the very best people in the industry and some of the best equipment.

So I would think we would be very attractive to those big PC type firms that might want to come in.

And it doesn't necessarily then, indicate that we see significantly lower margins going forward or anything like that?

I wouldn't necessarily think so, but I can't really speculate on what form competition is going to take two, three years out.

Sure. Okay, I appreciate your thoughts. Thank you.

(Operator instructions). Will Gabrielski with Broadpoint. (technical difficulties)

Just a couple of questions if you guys don't mind. First on marches. Despite revenue being down a little bit more than I thought in Q1 and the $1 million hit to the gross profit, I think margins have actually held up exceptionally well last few quarters. But in addition to some of the moving parts and one-time items quarter to quarter from the general expectation from here for the rest of the year. Do you guys have any thoughts on that?

No.

Well based on what you're saying between mix and the event and ramp is it fair to assume that we should [see] a level that are higher than Q1 forth the rest of the year? Did you ever take some of the living one-time items?

Not really at liberty. We've had our -- just go back and look at our press releases and conference calls from last quarter and the quarter before that and the quarter before that. We tried to tell the reader what we thought was unusual about that quarter.

So if you go back and look at those historic press releases we said that quarter benefited because -- $1 million -- but because of some fortunate outcome probably be wise to factor that out of that quarter-over-quarter comparison going forward.

So on the project or projects that particularly, specifically led to A, $1 million impact to your gross and Ops income lines. Can you comment in terms of timing of completion on those projects and what your expectations are and how those projects have tracked since the end of Q1?

Some other projects are already completed. None of them are real long duration projects. I would think virtually all of those projects would be done within the next few months.

Normally those jobs are three to six months in duration. So and as Bill said some of them are (inaudible) done already.

Okay, great. A little bit more on the transmission site here in the energy bill that is being marked up and moving through the Senate. When you look at your sort of prospect list of projects, you talk to your customers, how important is that energy bill and that legislation versus how many of these projects are going to go forward because of reliability measures alone versus how many are going to go forward because of wind and kind of the main question really just the energy bill is important to the prospects list of projects you are looking at?

My belief is most other projects are not dependent upon the energy bill. They are dependent upon the utilities being able to get reasonably cross financing so that would certainly apply to all of the reliability work and there is a lot of reliability work to be done, because our industry or the utility industry didn't spend any money for about 20 years.

So that really doesn't have anything to do with the bill that is being debated in Congress today. And I think also the incentives for developers on wind work and solar work, I think most of that is in place. What is open would be things, carbon taxes and penalties and federally mandated renewable standards.

All of those things could provide maybe an even added incentive over what's out there today.

So in your prepared remarks one of the projects you had mentioned was CapEx 2020 and if I'm not mistaken, I think that's the all-encompassing view of that project is actually running through four total states if you put all the pieces together. But obviously cost allocation and citing our big issue.

So when you look at a project like that, what does the project owner do for that or ITC Green Power Express if there is no solution, FERC federal of parties and backstop on cost allocation and citing resolution? Is there a backup plan out there? How comfortable are utilities that they can get these projects going forward and constructed without legislative changes?

It depends on which utility you talk to. I think the threat of potential new federal legislation has already had a positive effect of forcing the states to get serious and doing a better job of granting or considering those applications. Just the fact that there is a threat of federal legislation I think has some positive effect and puts pressure on utilities and other taxing bodies.

If it would have even greater teeth in it, that would be good for utilities and that would be good for suppliers like us if there was mandated federal sliding.

One last one. On the reliability side again. If you -- I think it was the Pet Project that was recently delayed or start up was delayed by a year and part of the reason for that was electricity demand is down today and PJ under six-month assessment on grid congestion and demand is down.

I was thinking push some of these liability projects out. How prevalent has that theme been in the industry in general over the past few months as some of these reliability reports and estimates are updated to reflect lower demand levels?

I read the same news releases that you did where that project was pushed out two years. I think there are other instances in other regions of the country where that same phenomena is happening.

Clearly, the demand for the project is a function of low growth and if the load driven by the industrial and the commercial sector -- if that stays depressed, that will grant at a time for the utilities to install some of those projects. There are others like work that we are doing for Dominion. An area like Northern Virginia is one of the fastest growing areas in the country and their low growth is one of the best.

But it's -- so it's very regional. Region by region specific.

All right, great. Thank you very much.

Tahira Afzal.

Sorry about last question. THE incentive in favorable settlements you got last year that you wanted to mix out. Were they -- should we be doing does as more representative of good execution or more representative of perhaps some sponsors being a little more open and generous last year because the economy was good?

I'm going to have to clarify. You mean our projects where we did better than expected last year, was it a function of superior execution or was it a function of the customers being a little more lenient in granting change orders or --?

That's exactly what I mean.

It's probably mostly about superior execution. Granting change orders that has a lot to do with the strength of your case. If you've got really a strong [fact] situation where you deserve the added compensation of maybe the customer is under somewhat more financial strain and not anxious to pay any more money for it, but if you've got your back in your favor, you still ought to prevail.

That's helpful and last question. On Kress, from the common fee you provided earlier on, are you participating at all in the priorities lines with Encore?

Encore has announced that their application had named another contractor and I've not heard anything to the contrary. We certainly would be supportive of providing added resources to Encore if they wanted them. They obviously know who we are and we have presented our qualifications to them.

I have no reason to believe that at this point though that they made any changes in their sourcing strategy.

Okay so I mean would it be fair to say given your focusing, your commentary focused more on sponsors that still are getting their certifications in place that it will be more outside of the priority nine that you will be participating?

I don't. I really don't know that I can comment one way or the other on that. The priority lines, it isn't just Encore that has priority lines. Their are others. We will be aggressively pursuing all of those opportunities.

But is there a chance with [low] Colorado has already started awarding the contracts there or would it be some of the smaller participants there?

Well there are -- it isn't just Encore and lower Colorado. There are some other very big participants there and we would be looking to do some work with lower Colorado too.

This concludes today's question-and-answer session. At this time I would like to turn the conference back over to Mr. Bill Koertner.

Again, I want to thank everybody for participating in the call. I'm still very positive about the outlook for our industry and our Company and I think we are dealing with some tough economic times right now. But I still remain very positive about the long-term future of the Company and, again, thank everybody for participating on the call and all of you have a great weekend.

This concludes today's conference. Thank you for your participation.