MYR Group Inc (MYRG) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the MYR Group third-quarter 2009 conference call. Today's conference is being recorded. Now it is my pleasure to turn the conference over to Mr. Philip Kranz from Dresner. Please go ahead, sir.

Thank you and good morning, everyone. I'd like to welcome you to the MYR Group conference call to discuss the Company's third-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 Dresner Corporate Services at 312-726-3600 and we will send you a copy. Or else you can go to the Company's website at www.myrgroup.com, where a copy is available under the Investor Relations tab. Also, a replay of today's conference call will be available until Tuesday, November 17, 2009, at 11.55PM Eastern Time by dialing 888-203-1112 or 719-457-0820 and entering conference ID 9155948.

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 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 10-K for the year ended December 31, 2008, subsequent filings with the SEC, and in yesterday's press release.

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

Good morning, everyone. Welcome to our third-quarter 2009 conference call to discuss financial and operational results. I'll provide a brief overview of the 2009 third-quarter results before turning the call over to Marco Martinez, our Vice President and CFO, for a more detailed review. Following Marco's financial review, I will provide a little more color on the industry outlook.

2009 continues to be a challenging year for the national economy, our customer base and for contractors such as MYR. As you know, we operate in two broad market segments -- commercial and industrial, or C&I; and transmission and distribution, or T&D -- and in several submarkets under those two segments.

Our T&D and C&I customers continue to be under pressure to defer capital and maintenance projects in the near term due to the recession and the tight credit markets. That translates into fewer shovel-ready projects to bid, which means more competition and pressure on margins for the work that is available.

However, we are beginning to see signs that the economy is turning as credit markets begin opening up and federal stimulus spending starts producing some positive effects. As you saw in our press release, our revenues decreased 9.4% in the third quarter of 2009 as compared to the third quarter of 2008. The majority of this decrease in revenues was the result of a reduction in revenues from smaller T&D project and an overall reduction in revenues in the C&I segment for the period. The overall decrease in revenues for the period was partially offset by increases in activity from a few larger T&D project.

As a result of reduced revenues and a reduction in margins, our net income in the third quarter of 2009 decreased approximately 12.8% from third quarter 2008. Earnings per diluted share decreased by $0.04 per share, from $0.32 to $0.28, for the 2009 third quarter compared to the same quarter last year.

Given the current economic climate, we are satisfied with these results. Marco will give you more detail on the numbers in a few minutes and provide some added color behind those results.

As previously mentioned, we operate in two segments, C&I and T&D. The majority of our C&I work occurs in Colorado and Arizona and is dependent on commercial, industrial and government spending, all of which have been adversely affected by the recession.

On a positive note, we do see some signs of stabilization in these markets. In particular, transportation-related spending has increased, mainly due to the government stimulus package. Additionally, we have seen an increase in bidding activity for government projects, and high-tech spending in manufacturing and data center development is also showing some signs of improvement. Lastly, healthcare-related spending has remained relatively stable over the last nine months, despite the economic environment.

On the T&D side, distribution spending continues to be sluggish due to the loss of industrial and commercial load on most utility systems. Some of the cutbacks in distribution spending are also being driven by the weak housing market. The rest of the reduction in distribution spending relates to deferred maintenance, and as we all know, that can only be put off for so long.

In response to a loss of their own revenues, utilities have deferred projects and cut back their contractor workforces to keep their own crews busy. While transmission and renewable spending has also been hurt by the recession, it appears that there may be increased activity starting next year. A number of large transmission projects are moving forward with permitting, which should begin benefiting large transmission contractors like MYR. With some of the most experienced and best employees in the industry, we believe that we are well positioned to bid and execute these larger projects.

As we announced in late August, we realigned our management team in preparation for the expected buildout of large transmission projects and the growing renewable energy market. These management changes are intended to expand MYR's focus on marketing our capabilities to utilities and other developers in order to execute the large fast-track transmission projects expected over the next five to seven years.

We believe these changes will also allow us to continue our focus on our core distribution and substation work, as well as the smaller transmission projects that have been our mainstay for our T&D business. We believe these smaller T&D projects and customer alliance agreement are best managed through our network of regional district offices across the country.

Although the economic conditions have been challenging in our markets, we remain positive about the long-term outlook for both our T&D and C&I segments. MYR stands to be a major beneficiary of federal stimulus spending, and we believe that we will benefit from the movement to expand the use of wind and solar power.

Marco will now provide details on the third-quarter financial results, and then I'll 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 questions.

So with that, Marco, please begin.

Thank you, Bill. Thank you for joining us this morning. As Bill mentioned, 2009 continues to be a challenging year. Our revenues for the third quarter of 2009 decreased 11.4% in the T&D segment and 3.5% in the C&I segment over the 2008 period. In our T&D segment, transmission revenue increased 6.1% and distribution revenue decreased 41.7% compared to the third quarter of 2008.

T&D's segment revenues decreased overall due to a reduction in revenues from smaller distribution projects, which we define as contracts less than $3 million. We also had a reduction in revenues from storm restoration services in the third quarter compared to the 2008 period, which included an unusually large level of storm restoration services. These revenue reductions were partially offset by an increase in revenues from a few large transmission projects, which we define as contracts greater than $10 million.

Our C&I segment revenues decreased 3.5% in the third quarter of 2009, primarily due to the reduced spending by customers, largely caused by the current weak economic environment. I would like to emphasize that despite the decrease in C&I revenues in the 2009 period, we are pleased with the performance of this segment in the face of difficult economic conditions and increased competition.

The third-quarter gross profit decreased 18.1% from $25.3 million in the 2008 period to $20.7 million in the 2009 period, while gross profit margin decreased period over period from 14.1% in the 2008 third quarter to 12.8% in the 2009 third quarter.

Operating income, excluding corporate SG&A, decreased $3.7 million or 31.3% in the 2009 third quarter over the 2008 third quarter. T&D operating income decreased $3 million, while C&I operating income decreased by approximately $700,000. The decrease in gross profit and operating income in the 2009 third quarter was primarily the result of significantly more storm restoration services in the 2008 period, which carried a higher margin and resulted in incremental gross profit of approximately $3.4 million for the 2008 period.

Additionally, in the third quarter of 2008, MYR experienced strong performance and increased margins on a few large contracts that resulted in approximately $1.5 million in incremental gross profit during the period. These large projects in 2008 were not fully replaced by projects with similar margins in the 2009 period.

Forward T&D margins in the 2009 third quarter compared to the 2008 third quarter were mainly due to lower storm restoration services in 2009 third quarter compared to the usually high level of storm services that occurred in 2008. As mentioned, these storm services typically carried higher margins than our normal distribution work. Additionally, we experienced strong performance and increased margins on a few large T&D contracts in the third quarter of 2008 that produced about $800,000 of incremental gross profit. Margins on the 2008 large projects were not fully replaced by projects with similar margins in the 2009 third quarter.

C&I contract margins in the 2009 third quarter were consistent with those experienced in the 2008 third quarter. C&I operating income in both periods benefited from strong performance and increased margins on a few large contracts that resulted in approximately $700,000 and $400,000 in additional gross profit in the third quarters of 2008 and 2009, respectively.

EBITDA is a non-GAAP financial measure and is reconciled to the GAAP measures in our press release. EBITDA in the 2009 third quarter was $11.5 million compared to $14.6 million in the same period of 2008.

Third-quarter SG&A expenses decreased to $12.6 million in the 2009 period from $13.4 million in the 2008 period. This decrease related primarily to a decrease in profit-sharing and other incentive compensation accruals, slightly offset by other higher incremental employee benefit costs.

Provision for income taxes was $5 million for the three months ended September 30, 2008, with an effective tax rate of 43.1%, compared to $2.2 million for the three months ended September 30, 2009, with an effective tax rate of 27.2%. As discussed in our press release, the decrease in our overall effective tax rate for the three months ended September 30, 2009, was impacted by several discrete items in the period that equated to a current-quarter tax benefit of approximately $900,000 or $0.04 per diluted share. In addition, MYR reduced the annualized estimated 2009 provision for income taxes for discrete items from 40% to 39% during the current quarter.

We reported third-quarter 2009 net income of $5.8 million or $0.28 per diluted share compared to third-quarter 2008 net income of $6.6 million or $0.32 per diluted share. When comparing the third quarter of 2009 with the same period of 2008, our net income decreased by $800,000 and our diluted earnings per share decreased by $0.04.

We are continuing our capital expenditure program to strategically position MYR for the transmission work we anticipate in the coming years. During the first nine months of 2009, we invested approximately $16.2 million in capital expenditures compared to $21.4 million for the first nine months of last year.

From a cash flow perspective, we spent $20.3 million during the first nine months of 2009, which included approximately $4.3 million of property and equipment, of which payment was pending at December 31, 2008, compared to $23.5 million for the first nine months of last year. We also have approximately $6 million in purchase commitments on specialty transmission equipment that has a lead time of six to 12 months. This demonstrates our continued confidence in the transmission buildout that we see on the horizon. Furthermore, we believe purchasing versus leasing will reduce our long-term equipment costs, which should allow us the opportunity to improve contract margins.

Total backlog at September 30, 2009, was $251.6 million, consisting of $171 million in the T&D segment and $80.6 million in the C&I segment. T&D backlog at September 30, 2009, decreased 35.4% compared to backlog at September 30, 2008. C&I backlog at September 30, 2009, decreased 7.2% compared to September 30, 2008. The decrease in backlog between 2008 and 2009 was primarily related to the contract completion process and resulting revenue recognition on a few significant projects that were awarded during the third quarter of 2008.

Backlog can significantly 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.

MYR's method of tracking and reporting backlog may differ from the methods used by other companies. The timing of contract awards and the duration of large projects can significantly affect MYR's backlog. For example, we count 90 days of backlog from our master service agreements, while some companies may count one or more years.

Moving to the balance sheet, stockholders' equity increased from $155.4 million at the end of 2008 to $169.6 million at September 30, 2009. We believe our strong balance sheet gives us a competitive edge over many of our competitors for pursuing new work, financing the best fleet equipment in the industry and investing in our employees. As everyone knows, this is very much a people-oriented business, and it is essential that we provide our employees the best tools, equipment, training and supervision available so they can perform at the highest level to serve our customers.

At September 30, 2009, we have approximately $32.2 million in cash, $30 million in debt. We maintain a debt to total capitalization ratio of [50%], which we believe is lower than some of our peers.

We currently have a $75 million long-term credit facility, which does not expire until August 31, 2012. We have a $15 million letter of credit outstanding under the credit facility, leaving $50 million available. The combination of cash and available credit under our facility provides us with approximately $92 million in total liquidity, which can be used for organic growth or other investment opportunities.

We are very focused on maximizing the utilization of our assets, which has resulted in asset turnover ratio of approximately 2 times on an annual basis, which we believe compares favorably to others in our industry.

We continue to believe our financial strength, industry experience, specialized fleet, safety record and our national presence puts us at a competitive advantage to continue benefiting from expected infrastructure buildout by our customers.

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

Thanks, Marco. I would like to come back to my earlier comments about how we see our business developing in the future.

As we reported in our third-quarter 2009 press release, our results in the third quarter of 2008 benefited from an unusually high level of storm work and a few high-performance jobs. In 2009, we had very little storm restoration work, and the high-performance jobs in the third quarter of 2008 were not fully replaced with jobs with similar margins this period.

Also, keep in mind that while the financial crisis unfolded in the fall of 2008, it had little effect on our 2008 third- and fourth-quarter results of operation due to the normal lag between project awards and project execution.

We continue to see a steady level of activity in both our T&D and C&I markets. However, a number of those projects have start dates further into the future. The lack of shovel-ready projects in all of our markets increases the competition for available work as contractors try to keep labor and equipment resources busy. This inevitably puts pressure on margins, especially the smaller and midsize projects. Many of the big, high-profile projects are six (sic) to two years away from getting started.

In the Western United States, we anticipate major projects will move forward in 2010, depending upon regulatory approvals. This includes project in Nevada, Southern California, Utah, Wyoming and Idaho. Activity in the West also includes projects related to federal stimulus package funding for two federal transmission utilities for transmission systems upgrade valued at approximately $6.5 billion in the aggregate. Those include the Bonneville Power Administration and Western Area Power Administration. MYR Group has a long history of performance with both of these public power entities.

As we noted in our last call, Western Area Power Administration received proposals in April for over 100 transmission projects for partnering with WAPA to leverage its lending authority from the stimulus package. While those projects are still being evaluated, the Western Area Power Administration has finalized its first deal for project financing under their transmission infrastructure program, with Tonbridge Power for construction of the Montana to Alberta tieline. This is a 214-mile, 230-kV transmission project to interconnect the electricity markets in Alberta, Canada, with those in Montana. WAPA also announced a preliminary agreement with Great Basin Transmission, an LS Power affiliate, for 500 miles of 500-kV transmission on the Southwest Intertie Corridor in Nevada.

We also anticipate movement in major transmission work in the upper Midwest and Great Plains states. As we noted on our last call, the CapX2020 work in the upper Midwest received its certificate of need approval in April to construct three projects, consisting of 650 miles of 345-kV in Minnesota and Wisconsin. The routing permit process will follow, and construction should get underway in late 2010.

The timing of the Competitive Renewable Energy Zone, or CREZ, work in Texas appears to generally remain on track. We see this as an exciting opportunity for MYR, given our history of utility construction in Texas and the relationship with many of the participants. We believe that MYR is well positioned to win a portion of the 2400-mile, 345-kV buildout of the Texas Competitive Renewable Energy Zone.

The selected participants for CREZ projects are preparing their certificate of need, or CCN, applications. Priority project applications were to be cemented in October. LCRA was granted extensions for their CCN filings on priority projects will delay some of their in-service dates. This was due to requests for alternative routes on some of the transmission lines. Applications for the remainder of the projects are expected to be submitted in early 2010.

While much of the actual construction for most of the CREZ projects may not break ground until 2010 or 2011, contract awards and preconstruction services are anticipated early next year for at least some of this work.

Also, across the country, we continue to see opportunities in the renewable energy market with the support of incentives in the federal stimulus package and the renewable portfolio standards in many states. On October 8, the US Department of Energy announced that it is setting aside up to $750 million out of a $6 billion fund from the stimulus package for new loan guarantee programs to support power plants that use conventional renewable energy technologies. The money is designed to be used to support $4 billion to $8 billion worth of loans for solar, wind, geothermal, biomass and other renewable electric generation.

The new energy bill passed by the House this summer is in the hands of the Senate, which seems to have taken a back seat to healthcare reform until the past few days. A draft bill was released by Senator Boxer on October 23, although there could be other draft versions forthcoming. Once the Senate has agreed on a bill, then a compromise bill will have to be created between the House and the Senate versions.

The Department of Energy has also completed the 2009 electric transmission congestion study that will be released after the approval project process is complete. Congress gave direction for the study asking for attention to the connection between developing high-value renewable resources and transmission-related needs. Specifically, they want to find if there are areas in the country where the development of renewable capacity is being impeded by the lack of transmission systems.

The renewable market took a pause this year with the uncertainty over the availability of project financing. It appears the capital markets are improving for these renewable projects, and we believe 2010 should be a good year for renewables, provided the siting issues can be managed.

Now I'd like to shift the focus to our C&I business. Although projects are still being bid, there are more contractors chasing the available work, which places pressure on margins. As we have said in the past, our continued focus on healthcare, research centers, smart highway work, data centers, mining and wastewater treatment makes us somewhat less susceptible to reductions in the market generally during these uncertain times.

Over the long term, we anticipate these markets will also be beneficiaries of the infrastructure stimulus package. In fact, as I mentioned earlier, we have seen an uptick in highway-related bidding activity due to the stimulus dollars.

We continue to monitor and make adjustments to our cost structure in an effort to ensure that MYR remains one of the lowest-cost providers in the industry. A low cost structure, coupled with a steady focus on our markets, will position MYR to maximize its potential when the economy rebounds and various T&D- and C&I-related projects come to fruition. Additionally, our focus on safety and providing high-quality customer service and meeting client schedules will make sure we remain a valued partner for utilities and our C&I clients.

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.

(Operator Instructions). Carter Shoop, Deutsche Bank.

I wanted to first touch base on some of the early signs that you're seeing that the market is stabilizing. Can you talk a little bit about booking activity in the distribution segment, how that progressed throughout the quarter?

The distribution market is certainly down. There are a number of utilities that are taking advantage of the down market, putting their alliance agreements out for rebid, thinking that they will be able to take advantage of more competitive pricing.

So there continues to be opportunities out there to bid work. And obviously, if it's an incumbent client of ours, it's at risk to us. If it's a prospect where the relationship is now with another contractor, it becomes an opportunity to us.

So there are a number of opportunities out there to bid, and we have seen margins come down on that work. But I haven't seen that really deteriorate much further in the last 90 days. It was soft in the summer, and it remains soft today.

In regards to the MSAs being rebid, are we starting to see that slow down? Do you feel that that headwind is largely behind us in regards to many of the MSAs being rebid, or are we still seeing quite a bit of activity with the utilities trying to renegotiate?

I think it has -- stable now. There was a lot of activity in the summer, early fall. It isn't like you got 20 utilities out there rebidding it, but there are always a couple in the market. And today there remains a couple in the market, taking a fresh look at their distribution alliances.

When we look at bookings for the T&D segment, they are clearly down from 2Q levels, which were abnormally strong. That said, can we talk a little bit about the linearity of bookings throughout the third quarter? How did you see those trend over the past 90 days?

I don't know that it lends itself to linearity, Carter. We are not the biggest contractor in the industry, so an award or one opportunity can really skew the results one way or the other. So I can't say that at the start of the third quarter it was stronger or weaker than the end of the third quarter. It just -- that would be just total speculation on my part.

One last question and then I'll jump back into queue. Can you talk a little bit about SG&A costs on a sequential basis? Looks like they went up about 11% sequentially on a slight decline in sales sequentially. How much of that is related to Sarbanes-Oxley or any kind of compliance associated there?

Carter, as far as public company costs, I think we've disclosed before that we are kind of looking at about $3 million in public company costs. We're probably estimating somewhere like about $2.5 million in public company costs. SG&A in particular went down. When you look from this quarter compared to last quarter, the large decrease in that had to do with compensation accruals that were decreasing, but were offset with some increase in overheads for hiring, for opportunities that we see coming down the pipeline. And Bill talked about a little bit earlier as realignment of the organization with renewables, we've added maybe some few folks on. But overall, SG&A decreased from this quarter over last quarter.

So when I look at it on a sequential basis, the largest increase had to do with the realignment?

No, the realignment was mostly internal. We didn't go out and hire a lot of different people. I can't specifically give you exactly what triggered it at this point, but let me take a look and I can get you that information later.

That would be great. Thank you.

Tahira Afzal, KeyBanc.

If I look at the maintenance activity that essentially has been deferred, how much would you say that that's been deferred by on let's say a year-on-year basis?

I haven't quantified that. Obviously, the cutback in spending isn't just because of deferred maintenance. There are other drivers of it. Some of it is driven by slowdown in housing starts, some of it because of the loss of industrial and commercial load. Therefore, the utilities distribution system is not under as much stress as if that load was on the system. And I just know all three of those factors contribute to the slowdown.

Got it. Okay. So it's difficult to perhaps divide them all up.

Right. Clearly, for at least a year, or probably longer, utilities have been pulling back on their distribution spending, trying to defer everything they can possibly defer. Many of our utility customers have rate cases in the hopper where they have filed with their state commissions asking for rate increases.

And a lot of the communications we have with our clients is things are going to stay really screwed down tight until they get some relief on the rates. In a lot of those rate cases, the regulators have by statute nine months or 12 months in which to act on their rate cases. So until the utilities start seeing some relief, I suspect they're going to keep their spending ratcheted down to the bare bones.

You mentioned two merchant transmission players in particular, LS Power and Tonbridge. And coincidentally, Tonbridge has actually been meeting up with them for lunch today. But could you talk about how the contractual terms and negotiations for merchant transmission companies really differ in terms of [style] versus the more traditional utilities?

Sure. Each one is kind of a unique situation. The challenge to a contractor, like ourselves, bidding on this is to make sure the financing is in place. The last thing I want to do is to start ramping up, buying equipment and tooling, and adding manpower if the financing isn't placed on a project. So that adds an element of risk, if you will.

And it's one where I think the parties that we are talking to on these two opportunities are very substantive entities, have demonstrated their ability to raise project financing dollars. And while I don't necessarily know if they're committed yet, I have confidence that they will get their financing done.

In terms of the contractual structure, since the -- I'll use the word private developers of transmission lines, they are not the traditional utility, which means they don't have purchasing departments or they don't have big groups that can handle purchasing, nor do they have big engineering groups. So in many cases, they will outsource the procurement and engineering. They may package that and outsource it to a party who would provide all of those services, or they may outsource it directly to an engineer or engineering services, and then outsource construction to a contractor like us. And so it depends on the developer's view on the best way to get the project financed and completed.

Got it. And if you look at the potential for outsourcing on the procurement and engineering side, and perhaps your ability to provide that, does that give you an edge in terms of the competitive landscape with these type of clients? Or is it net-net neutral because perhaps they are a little more wary of pricing?

I would say that's a neutral. We do not have internal engineering capabilities. We do have internal purchasing capabilities. On the engineering side, if a developer or utility wants an EPC or a design/build proposal from us, we will always seek out an engineering partner to team with. Some of our competitors have limited internal engineering capabilities, and we have not gone down that road because it potentially could place us competing with someone who we want to partner with.

So we have chosen to largely stay out of the engineering business directly, and if we need engineering as part of a proposal, we will try to align ourselves with one of the best T&D engineering partners out there. So that's how we have approached it. So I don't think that puts us at either a competitive advantage or a disadvantage.

Got it, okay. And then in regards to the MATL Line in particular that Tonbridge has just received the DOE funding for, it seems that a large chunk of that line was originally to be contracted out to MD Resources, and it seems MDU Resources has also indicated they will be building a large chunk of that line. Are you looking at an opportunity within that particular project, or are you looking at potentially some of the other opportunities that Tonbridge is looking at.

I've read the same releases that you probably have, and I think MDU will perform that work. So I would not view that particular opportunity as a great prospect for us. Obviously, until all of the contracts are in place, there could be lots of twists and turns. But I would view MDU as the likely contractor to perform that project.

Great. And then last question, Bill. If you really look at, in terms of timing, the opportunities in terms of some of these larger projects, would you say if you step back and look at the regions, the general sense we're getting is the West Coast is seeing perhaps higher amount of bidding activity in terms of near-term opportunities. Would you agree with that, or do you think it's a little more dispersed?

I think there are more larger projects that are going to come out in the West than in the East. Certainly, there are pockets, like Texas and Minnesota, where I think there's going to be a tremendous amount of work. I also think there's going to be significant work in Kansas and Oklahoma because there is a tremendous wind resource there that needs to be integrated into the grid. But if you get into places like Ohio and Pennsylvania and so forth, there are some large projects in the East. But percentagewise, there are not as many as out West.

Got it, okay. Bill, that was very helpful, and congratulations on a good quarter, given the circumstances.

Jeff Beach, Stifel Nicolaus.

I don't think when you were listing some of the opportunities you talked about the recent $3.4 billion granted to 100 projects. Have you looked at a lot of those smart grid projects to see what kind of opportunities there are, and just generally, if there are some, can you talk about what your workforce would be ideally suited to in that area?

On the smart grid investment, I think probably that's a combination of line work, as well as inside electrical work. So probably in the states like Colorado and Arizona, where we do a significant amount of inside work, that would be the greatest opportunity for us.

The smart grid work in other places, some of it will be the kinds of services that a line contractor would provide, but probably more of it would be more inside electrical work. And a lot of that is probably going to be controlled by the manufacturers of the components that are going to be installed. So as they deliver a turnkey solution, it would be -- they would provide the product and they would line up a contractor or self-perform the installation. So that is probably not as big an opportunity for MYR as you might think for a contractor.

Specifically within that smart grid, some projects have received fundings for some infrastructure for electric cars. In that specific area, is that the kind of work you would be interested in pursuing?

We would look at it, but I think outfitting the commercial buildings, parking garages and so forth, there are going to be a lot of competition for that work that it's harder for us to really demonstrate the value we bring to a project that is not really a sophisticated kind of installation.

All right. The other question I wanted to ask, you made the general statement that the Texas CREZ projects are on track. But I think that there was an anticipation in the first quarter, when the Texas CREZ was approved, that there would likely be some awards in the market before the end of 2009, and you had cited some pushbacks on looking at alternative siting for some of the transmission. But there's a lot of projects, a lot of miles and a lot of operators. Are some of these operators just -- why are some of their work pushed back longer than people thought, and are we getting close to seeing some of that work awarded?

I don't have the answers to all that. I've always been a little more conservative on when some of these projects are going to get underway than maybe some others. Certainly, the bulk of the high-priority projects are under the control of Oncor and LCRA. I know those folks are moving ahead with their projects.

The other parties, the six or seven other parties, are still putting together their applications, talking to a variety of contractors and other suppliers about installing those. But the installation date, I think many of them are timeframes like 2013 and 2014. Until they get their route determined, it's pretty hard to line up a contractor and get a firm price from someone if you don't know the routing of the line.

All right. Thanks, Bill.

William Bremer, Maxim Group.

Marco, I'm not sure if I missed this or not. Could you provide the bookings for the T&D and the C&I segments for the quarter?

Yes. T&D was roughly $57.8 million, and the C&I group was $39.2 million.

How does that compare to 3Q of '08?

T&D was $244 million. C&I was $46 million.

Okay, thank you. And also, can you give us -- has there been any type of pressure on the margins that are actually in backlog right now, specifically on the larger projects?

The margins on the larger projects in backlog are pretty comparable to what they have been running in the past. Where we see the pressure on margins are with smaller and midsized projects. But if you get into opportunities where you're $50 million and higher, there are fewer competitors who can do that to get to over $100 million, even fewer that can do that and demonstrate they have the financial resources. So the margin pressure, the smaller the project, the more pressure on the margins.

Thank you, Bill. Can you just -- and finally, just give us an update on the Dominion project, how that's proceeding, and are we still on schedule there?

The Dominion project remains on schedule. We just completed a key segment of that project. Like a lot of transmission projects, there are different segments, and you have to complete a segment so you can get an outage on another part of the line. So that project remains on schedule.

Okay, gentlemen. Thank you very much.

Rob Young, William Smith & Co.

Just briefly, I imagine that you can't actually quantify it, but you've talked before about the stimulus spending kind of having a negative near-term impact on your revenue growth. Is that still the case, and if so, can you expand on that all?

On I think the last-quarter call, we had said that from the initial onset of the stimulus spending, it was actually a negative to our business, as many projects were being pulled off in order that they could be resubmitted with the stimulus language built into it. I think we are now through that phase, and I would have to say that the stimulus is now producing some net-net benefits, although there are still a couple of projects that are seemingly being delayed because they want to get their application perfect in order to qualify for the stimulus spending.

Okay. And then --

But net-net, (inaudible).

And then those contracts that are essentially having to go through the contract, I guess, [free] language, are they having a positive result in terms of getting that stimulus funding, or do you think that they will have to go back? Is that -- I guess how are those -- what are the results for those contracts as they go into the stimulus funding queue?

I think they are finally working their way through the government approval process, because keep in mind, when the stimulus bill was passed, there weren't people in those jobs at the government that really could tell them exactly what the rules would be. And I think here in the last nine months, the government has made progress on getting its act together, so it can communicate to the parties asking for the money what hoops they've got to jump through to qualify for it. So I think that is -- there's certainly a lot more clarity today than back in the January/February timeframe.

Okay, great. And then relative to the storm work, you mentioned that it had a relatively immaterial effect on Q3 '09. But I think it had about a $17 million impact on Q3 '08. So is that immaterial impact essentially a flat year-over-year revenue growth, if you take out that storm work?

2008 was a big number for us related to storm. In the third quarter of 2009, it's almost very immaterial in comparison. I'm sure you've seen other releases as far as storm activity for this year compared to last, so it's kind of insignificant from our perspective.

Okay, great. And then, on a sequential margin basis, it's gone up. Is that an indication of just overall mix, or is that an indication that this competitive landscape that you're mentioning is freeing up, at least on a sequential basis?

I think on margins, you pull out the storm work that, by itself, I think the margins are down somewhat if you pull that out.

I'm talking more on a Q2 versus Q3 basis for 2009.

I can't answer that; I don't know. I don't think there's any significant difference between Q2 and Q3 as far as available margins, and keep in mind there's always a significant backlog -- or lag, I should say, not backlog. The work that we are executing today was probably bid a year ago or nine months ago. So the margins that we are going to be seeing let's say in the first and second quarter of 2010 will be running through our income statement based upon bids that were awarded now. So there is a lag between when work is bid until when it's executed and run through a contractor's income statement.

Okay. Well, great. That's all I have. Thank you.

John Braatz, Kansas City Capital.

You answered most of my questions, but assuming the economy continues to stay weak and the distribution side of the business stays weak, can we see even increased levels of competitive pressures in your smaller transmission project business and could it even extend into more of the larger, or mid- to larger projects? Or are we sort of at the peak of competitive pressures as you see it?

I think there could be more competitive pressure on the small and midsize projects. Clearly, some of the principally distribution contractors all are aspiring to get into the transmission business. And I think take they would try to do it smartly by going after smaller projects or midsize projects.

I don't think they would be going after a $100 million job, nor do I think the owners of those systems would want to put their marbles in that basket to work with someone who's never done a huge transmission project, because they are -- it takes a lot of expertise to coordinate and build a project like the one we are doing for Dominion.

Let me ask it this way. If business picked up, would you expect some of these distribution players that have been moving towards the transmission side to move back to their distribution business and maybe ease some of the competitive pressures in the small transmission area?

No, I wouldn't expect that they would pull back. I think they see the same thing that I see, that this transmission market is going to be a great place to be for five to seven years. So even if the distribution business healed itself up, I don't think they're going to go away.

Okay. Bill, thank you very much.

Mark Caruso, Millennium Partners. (Operator Instructions).

Min Cho, FBR Capital Markets.

A couple of quick questions for you. It sounds like there's obviously been a pushback on some of these large contract awards on the transmission side, and you even mentioned that CapX2020 could see some construction start in late 2010. Are you expecting -- is there a possibility of any larger projects being awarded before the end of this year? Or do you think it's really a 2010 and beyond opportunity now?

Well, certainly there is a possibility, but I would expect that probably unlikely. But I do expect a number of awards coming in the first quarter.

Okay. And on the renewable and transmission opportunity, obviously we are all hopeful that it will improve in 2010. But are you starting to see an increase in bidding activity today and even versus the last quarter?

Yes. We are seeing -- the pause in renewables I think is over. We are now seeing more activity. It really slowed up in the first quarter and second quarter as all of the developers of these renewables were trying to line up their project financing. So I would say in the last 90 days, we've seen more activity on renewables, and many of them look like real projects that can legitimately get financed.

How much of that opportunity do you think is dependent on some type of energy bill being passed? Or do you think that that would just accelerate and provide incremental opportunity at this point?

I would think it would accelerate and provide incremental opportunity.

Okay. So the projects that you're seeing right now just kind of getting underway in the kind of planning phase are real projects that could get funding outside of any type of a bill being passed?

I think they will -- I believe they can go ahead with the legislation that's already on the books.

Okay. And then finally, a quick question for Marco. Marco, can you tell me what the transmission revenue was during the quarter?

Yes. It was $90.4 million. Distribution was $28.6 million.

Great, thank you. Good luck, guys.

Tahira Afzal.

Just had a couple of follow-ups. Number one, you talked about, correctly, about industrial and commercial really being the incremental impacts on a load [crowed]. As you look out to 2010, would we have to see really a material downtick in both those to really see levels really going even below the levels you are seeing right now?

And then number two, if you look at renewables activity picking up, if you look historically, how much of a lag on the positive or negative have you seen in terms of some of the small interconnection lines that you might be doing on the transmission side to hook up new wind farms in the past, and how do you see that going, going forward, as well?

Let me try to address the first question. The down -- you asked if there would be a further downtick because of further loss of industrial and large commercial load. I don't see that. I guess I am of the belief that the stock market is probably the best leading indicator of economic activity, and the stock market has bounced back. There is a lot of federal stimulus money being thrown at this economy, and I don't see further deterioration in the industrial load. I don't know how it could get much worse than it is today.

So I think there's a greater prospect for upside than there is prospect for further downside on industrial and large commercial load. I'm not sure I understood your question on the renewables and the small transmission line. Would you (multiple speakers) shot at that to make sure I understand your question?

Yes. What I'm trying to assess is when you, in 2008, when there was a lot of wind installations really happening, I guess what type of activities did that translate into in terms of maybe perhaps some of the small interconnection lines on the renewable side for you? And really, that business tend to lag or lead installations coming online?

So, you're trying to contrast 2008, the renewable market for transmission versus today's market for renewable transmission?

Potentially the market in 2010.

2008 versus 2010?

Yes.

I think 2010 has the potential of being at least as strong as 2008 on the renewables. Now, the mix of projects, I think we are hearing a lot of the low-hanging fruit sites where there is a modest amount of transmission, the developers have all kind of picked through those and many of those have been completed. So maybe the big renewable windfarm installations now have greater transmission associated with them to bring them into the grid. So overall, I think 2010 should be as good as 2008.

I mean, it seems like your inclination is, assuming no material relapse in economic conditions, that if I look at perhaps a load growth situation as well as the renewables prospects, maybe some of the smaller transmission-oriented work starts -- sees more upside versus downside at this point.

Could be. I don't really know.

Thanks a lot, Bill and Marco.

Steven Gambuzza, Longbow Capital.

Could you tell us what your renewables revenue was in 2008?

They were around $50 million.

$50 million. And what will it be this year?

It will be less than that. We've had a couple of decent-size projects, but it would be substantially less than that.

But you think it could be something close to what it was in 2008 next year?

Well, we are not giving forward-looking guidance numbers for next year. But with the turnaround that we expect in 2010, we think 2010 would be better than 2009, for sure.

Marco is right. We haven't given that kind of detailed revenue guidance. But clearly, you have to read into the fact that we've set up a renewable group when we reorganized in August, and they'd better produce. We are counting on them to produce. And we think this is a more efficient, effective way of pursuing this market. So we have high hopes for our renewable effort, that that will win us more business than we would have gotten otherwise by trying to market through our regional district offices.

Great. Thanks very much.

Mr. Koertner, we have no further questions, sir. So I'll turn it back to you for closing or additional remarks.

If I may, if I could just maybe clarify a question Carter Shoop asked about SG&A, sequential increase from 7.5% to 7.8%. Looked at the documents; we reported we had an $800,000 reduction in SG&A costs for the quarter, which really tells me that the increase is really attributed to lost revenues for the quarter compared to 2008 quarter.

I'd just like to thank everybody again for participating in our call. We remain very excited about the opportunities in the business, particularly the transmission and renewable market. We want to thank our management team for all of their hard work and our employees and our stockholders for their continued support. I don't have anything further. We look forward to working with you folks going forward in our next conference call. Thanks.

Thank you, Mr. Koertner. Again, ladies and gentlemen, that concludes our conference for today. We thank you all for your participation.