MYR Group Inc (MYRG) 2009 Q4 法說會逐字稿

Good morning, everyone, and welcome to MYR Group's fourth-quarter and year-end 2009 earnings results conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Mr. Philip Kranz of Dresner Corporate Services. 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 fourth-quarter and full-year 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 www.myrgroup.com where a copy is available under the Investor Relations tab.

Additionally a replay of today's call will be available until Tuesday, March 23, 2010 at 11:59 PM Eastern time by dialing 800-642-1687 or 706-645-9291 and entering passcode ID 55052623.

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 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, 2009, which was filed with the Securities and Exchange Commission yesterday, March 15, and in yesterday's press release.

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

Good morning, everyone. Welcome to our fourth-quarter and full-year 2009 conference call to discuss financial and operational results. I will provide a brief overview of the 2009 fourth-quarter and full-year 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 was a challenging year for the national economy, our customer base and for electrical contractors such as MYR. As you saw in our press release, our full-year revenues grew 2.4% over last year with all of that growth being organic. Net income in the 2009 full-year period did not reach levels achieved in 2008, which was one of MYR's most profitable years ever owed in part to significant storm restoration business in 2008.

We are generally pleased with our performance in 2009, particularly in consideration of the economic environment and a reduction in the volume of storm-related work this past year. For the full year of 2009, MYR produced revenues of $631.2 million, EBITDA of $40.8 million, and diluted earnings per share of $0.83.

Importantly, we ended the year in a strong financial position, which included cash of $37.6 million, minimal debt and the availability of $60 million under our long-term revolving credit facility. Given our continued profitability and strong balance sheet, we believe MYR remains well positioned to capitalize on future growth opportunities.

We anticipate that the first half of 2010 will be particularly challenging as many of our customers have adjusted their capital and maintenance spending programs to align with the current economic activity in their end markets. Reduced utility spending has put pressure on contract margins for contractors in the transmission and distribution sector. MYR and our competitors have been willing to accept lower contract margins in this market in order to keep labor and equipment resources busy.

There are some who preliminary signs that the economic environment is improving. Our bidding activity appears to have stabilized recently albeit at levels below those of 18 months ago, and the competition for work is greater. This could impact our margins and backlog going forward.

Our longer-term outlook has not changed. We believe transmission spending will increase over the long term as investor-owned electric utilities, cooperatives and municipalities make up for lack of infrastructure spending in the past. This catchup, combined with the need to integrate renewable generation into the electric power grid, should bode well for transmission spending for many years to come.

As you know, we operate in two broad segments -- Commercial and Industrial, or C&I, and Transmission and Distribution, or T&D -- and in several submarkets under these two segments. The majority of our C&I work in Colorado and Arizona and is dependent upon commercial, industrial and government spending.

From the last half of 2009 to present, we have seen some signs of stabilization in these two regional markets. Some of the additional C&I work being bid is directly or indirectly due to the federal stimulus package. We have seen reasonably strong bidding activity in health care, manufacturing, data centers and other high-tech projects plus federal government-funded projects like roads and wastewater treatment facilities.

On the T&D side, distribution spending was weak in the fourth quarter of 2009, and this sluggishness continues in 2010. Utilities have reduced their spending in response to the loss of industrial and commercial electric load on their systems and the weak housing market. We cannot predict how long the weak distribution market will continue.

In addition, we have seen some utilities pullback distribution projects traditionally performed by outside contractors to give the projects to their internal workforce to avoid laying off their own employees. Most utilities perceive it is easier to hire and fire contractors than it is to expand and contract their own employee workforce. That should work in our favor of contractors like us when the economy improves because many utilities will be reluctant to hire new employees when work picks up.

Transmission and renewable spending has also been hurt by the economic conditions, but it appears that there may be some increased activity during 2010 at least on the bidding front. A number of large transmission projects were delayed in 2009 due to reduced regional peak load forecasts by independent system operators, regulatory delays and financing uncertainty. While that is true, a number of big projects appear to be moving forward with bid solicitations already on the street were expected to be released in the next few months. This will eventually lead to a firmer market for contractors like MYR with the skilled labor and equipment resources available to be put to work. As we have said before, we believe we are well positioned to bid and execute these larger projects.

Marco will now provide details on the fourth-quarter and full-year 2009 results, and then I will be back to provide some additional insights 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, and good morning, everyone. Yesterday after the market closed, we announced our 2009 fourth-quarter and 2009 year-to-date results. As Bill indicated earlier, we are pleased with our results given the challenging economic environment. Our growth and consolidated revenues in the fourth quarter and year-to-date for 2009 was driven primarily by our T&D segment.

Our revenues for the fourth quarter of 2009 increased 15.8% in the T&D segment and 6.3% in the C&I segment over the 2008 fourth-quarter period. In our T&D segment, transmission revenue increased 38.9%, and distribution revenues decreased 21% compared with the fourth quarter of 2008. Our increase in T&D revenues in the fourth quarter of 2009 were mainly due to an increase in revenues on larger T&D projects, contracts with values greater than $10 million, which were partially offset with a decrease in revenues on smaller T&D projects less than $3 million in contract value.

Our C&I segment revenues increased slightly by 6.3% from $2.8 million the fourth quarter of 2009. Gross profit in the fourth quarter of 2009 decreased to $19.4 million or 11.2% of revenues compared to $24.7 million or 16.1% of revenues for the fourth quarter of 2008. The decrease in gross profit and operating income in the fourth quarter of 2009 compared to the fourth quarter of 2008 was primarily the result of significantly more storm restoration services in the 2008 period. Storm work carried a higher-margin and resulted in incremental gross profit of approximately $2.7 million during the fourth quarter of 2008.

In addition, several large projects experienced improvement in job performance in the fourth quarter of 2008 that resulted in additional gross profits. Furthermore, during the fourth quarter of 2009, the Company experienced some margin deterioration due to performance issues on certain contracts that resulted in a reduction in gross margins of approximately $3.1 million.

The fourth-quarter SG&A expenses decreased to $12.5 million in the 2009 period from $13.1 million in the 2008 period. The decrease related primarily to a decrease in profit sharing and other incentive compensation accruals offset by annual salary increases and other incremental employee benefit costs. EBITDA is a non-GAAP financial measure and is reconciled to GAAP measures in our press release. EBITDA in the 2009 fourth quarter was $10.5 million compared to $14.8 million the same period of 2008.

Fourth-quarter 2009 net income was $4.3 million or $0.21 per diluted share compared to fourth-quarter 2008 net income of $7.6 million or $0.37 per diluted share. For the full year of 2009, we reported revenues of $631.2 million, an increase of $15.1 million or 2.4% compared with the full year of 2008. All of that increase was organic as no acquisitions were made during the year.

Specifically the T&D segment reported revenues of $468.7 million for the full year of 2009, an increase of 4.9% over the same period of 2008. Our C&I segment reported revenues of $162.4 million for the full year of 2009, a decrease of 4% over the same period of 2008. The 2009 increase in revenues is mostly due to increased activity from a few large T&D projects and contract for values greater than $10 million. This increase was partially offset by a reduction in revenues from all our T&D projects of less than $3 million in contract value. Reduced storm restoration services and reduced revenues in the C&I segment compared to the same period of 2008.

Consolidated gross profits decreased 15.8% from $90.2 million for the full year of 2008 to $75.9 million for the full year of 2009. The decrease in gross profit was primarily attributed to significantly greater volume of activity and storm restoration services for the 2008 period, which carried a higher-margin resulting in incremental gross profit of approximately $6.1 million.

Additionally, for the full year of 2008, the Company experienced strong performance and increased margins on a few large contracts that resulted in approximately $6.2 million in incremental gross profit. Furthermore, during the full year of 2009, we experienced competitive market pressures in both segments of our business, some performance issues on certain contracts. This resulted in lower overall margins and an increase in the estimated cost to complete on certain contracts that resulted in a reduction to gross margins of approximately $5.5 million.

Selling, general and administrative expenses decreased approximately $2.2 million or 4.3%, $48.5 million in 2009. The decrease related primarily to a decrease of profit sharing and other incentive compensation accruals offset by annual salary increases and other incremental employee benefit costs.

As a percentage of revenues, SG&A decreased from 8.2% for the year ended December 31, 2008 to 7.7% for the year ended December 31, 2009. For the full year of 2009, net income was $17.2 million or $0.83 per diluted share compared to net income of $23.6 million or $1.14 per diluted share. EBITDA for the full year of 2009 was $40.8 million or 6.5% of revenue compared to $51 million or 8.3% of revenues for 2008. Net income for the full year of 2009 benefited from several discrete tax benefits that reduced our effective tax rate to 35.4% compared to 39.6% for the full year of 2008.

We continue to invest in equipment and manpower development in anticipation of increased T&D infrastructure spending across the United States. We have made investments in capital expenditures of approximately $28 million in 2008, $29.7 million in 2009, most of which was spent to prepare for our anticipated opportunities for our T&D business. Our C&I business is much less capital-intensive. We plan to continue investing in additional property and equipment, which will be substantially through internal cash flows and cash on hand. Our investment strategy is based on our belief that transmission spending will increase over the next several years.

Furthermore, we believe purchasing versus leasing will reduce our long-term equipment costs and should allow us the opportunity to improve contract margins.

Total backlog at December 31, 2009 was $204.4 million, consisting of $133.2 million in the T&D segment, $71.2 million in the C&I segment. T&D backlog at December 31, 2009 decreased to 35.3% compared to backlog at December 31, 2008. C&I backlog at December 31, 2009 decreased 1.9% compared to December 31, 2008. The decrease in backlog between 2008 and 2009 was primarily related to contract completion process and resulting revenue recognition of new significant projects that were awarded during the latter half of 2008.

Our 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 methods used by other companies. Timing of contract awards and the duration of large projects can significantly affect MYR's backlog. For example, we count 90 days in backlog from our master service agreements, while some companies make count one or more years.

Moving to the balance sheet, our stockholders equity increased from $155.4 million at the end of 2008 to $174.1 million at December 31, 2009. We believe our strong balance sheet gives us the competitive edge over many of our competitors for pursuing new work, financing the best lead equipment in the industry, and investing in our employees.

At December 31, 2009, we have approximately $37.6 million in cash, $30 million in debt, and maintain a debt to total capitalization ratio of 14.7%, 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 [$60] million available. The combination of cash and available credit under our facility provides us with approximately $97.6 million 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 an 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 the expected infrastructure buildout by our customers.

Now I will 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 near future.

As mentioned earlier, we have seen a few major transmission projects defer due to permitting issues and/or lower peak load forecasts by independent regional system operators. Generally speaking these projects have not been canceled; they have just seen their target and service dates extended. This includes the 275 mile Allegheny AEP Pass project, about 150 miles of the MAPP projects, and some major transmission work in Florida.

We have also seen the start dates for some smaller transmission line, distribution and C&I projects pushed further into the future. However, we have also seen other big transmission line projects move forward. In the West our industry could see major awards this year for discrete projects and/or alliance agreements in California, Nevada, Utah and Washington state. Some of these projects relate to federal funding or loan guarantees being funneled through two federal transmission utilities, Bonneville Power Administration and Western Area Power Administration. The BPA and WAPA federal set-asides are valued at approximately $6.5 billion in total. MYR Group has a long history of solid performance with both of these public power entities, and we are hopeful of winning our share of the work.

The rest of the transmission work in the West is being sponsored by traditional investor-owned utilities, private developers or munis. The Southwest Intertie Project in Nevada is an example of how some of these big transmission projects are being developed and funded. This 500 kV line will ultimately be about 500 miles in length with the first 235 miles of the line expected to be jointly funded by NV Energy, a traditional investor-owned utility; Great Basin Transmission, an LS Power affiliate; and WAPA.

We also anticipate movement this year in major transmission work in the central part of the United States from North Dakota and Minnesota on the North down to Texas on the South with significant work planned for all states in between. I will highlight a couple of projects in both ends of that region.

As we noted on our last call, the CapX2020 work in the upper Midwest received a certificate of need approval in April of 2009 to construct three projects consisting of approximately 650 miles, the 345 kV line in Minnesota and Wisconsin. Construction activity could start later this year on some of those projects. Another exciting opportunity for MYR is the Competitive Renewable Energy Zone or CREZ work in Texas. This 2400 mile, 345 kV buildout generally remains on track with certificate of need applications for priority projects already on file or expected to be filed in the next few months.

Encore, the old Texas Utilities Company, and the Lower Colorado [Power] Authority have already started some of their projects. The other six CREZ transmission developers are a year or so behind, but they will likely make their contractor selection later this year. While much of the actual construction for most of the CREZ work may not break ground until late 2000 or into 2011, preconstruction services are anticipated later this year at least for some of this work. Given our history of utility construction in Texas and relationships with participants, we believe MYR is well positioned to win a portion of this work.

The East Coast will also see some major work coming out for bid this year in places like New Jersey, Pennsylvania and Maine. Also, across the country we continue to see opportunities in the renewable energy markets with the support of incentives from federal tax incentives and renewable portfolio standards in many states. The renewable market took a temporary pause for 2009 due to 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 renewable bidding. We have definitely seen more renewable activity this year as to compare it to early last year when the market was in a near paralysis state.

According to the 2009 long-term reliability assessment by the North American Electric Reliability Council, power generation capacities from wind and solar are expected to almost increase tenfold in 2009 to 2018. Significant investment will be made in the transmission grid to integrate that new generation into the nation's power grid. This bodes well for companies like MYR who have the expertise, reputation and resources to manage large complex transmission and substation projects associated with renewables.

Now I would like to shift the focus to our C&I business. Although projects are still being bid, there are more contractors pursuing 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 made us somewhat less susceptible to the recession at the national level. Over the long term, we anticipate these markets will be beneficiaries of infrastructured stimulus package. In fact, as I mentioned earlier, we have seen an increase in the bidding activity in our C&I segment due to federal 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 producers in the industry. The low expense 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 culminate. Additionally our focus on safety, high quality customer service, and on-time execution will ensure MYR remains a valued partner for our utility customers and C&I clients.

That is it for now. As always, thank you for your interest and support, and now I would like to turn the session over for your comments and questions.

(Operator Instructions). Carter Shoop, Deutsche Bank.

I wanted to ask a first question on Dominion. I was curious how much of that original $107 million contract is still left there and if you still expect that to be concluded in mid-2011?

We do still expect it to be concluded in 2011. I don't think we have -- approximately it is the Meadow Brook/Loudoun line is somewhere in the 50% completion stage. The Carson to Suffolk line is just getting started.

Is it safe to then conclude that less than half of that has been recognized in revenue?

We don't give out specific numbers on any particular project. But it is safe to assume that the project has been going on schedule, and we anticipate it to finish in two and a half years. So typically with projects of that magnitude, you're going to have mob and de-mob. So you might have a little bit to recognize earlier in the project and later in the project, but somewhere in between it is a steady recognition.

That is very helpful. Thanks. And when we think about the outlook, obviously 2009 was a very difficult year for yourself and your competitors. But in the fourth quarter of 2009, you are actually able to show 13% increase in revenue. You are talking about the first half of 2010 also being very challenging. I assume you are looking for a meaningful deceleration, but I'm just trying to better quantify your view on how soft things can get. I mean are we going to see a step function down in the first half of 2010 versus 2009 or kind of a consistent trends?

Well, we have not put out any revenue or earnings guidance. So I have to read into that statement we think the first half is going to be really challenging.

Okay. And the last question for you. When you talk about the bidding activity stabilizing, is that kind of at 4Q levels, or are you talking about it stabilizing after 4Q levels?

Bidding levels have started to pick up in the fourth quarter and that continues. I think in fourth quarter there were very few big projects out on the street. So I think we will see more big projects come out this year certainly than if you attempt to annualize the fourth-quarter bidding activity pace.

Matt Tucker, KeyBanc Capital Markets.

I have a few questions on behalf of Tahira Afzal. Clearly there is a lot of transmission activity going on in the West and a lot related to renewables. I believe last year you guys restructured your salesforce a bit to kind of focus on those opportunities. Can you give us an update on what kind of traction you have been getting and if that reorganization is living up to your expectations to date?

Well, it definitely confirms what we did in August when we reorganized I think to keep pace with the big opportunities that are already on the street and about to be on the street. That would have been very difficult for our regional district offices to have served those well. So I think we definitely did the right thing to set up a large project group, as well as a special-purpose renewable group. And time will tell how successful we are with those. But the first thing you got to do is get the work, and we needed to realign our marketing group in order to give ourselves a better chance to win some of this work.

And then it looks like your gross margins were impacted a bit this quarter on some increases in estimated costs to complete and is something that you have seen earlier on in 2009 as well. Could you talk a little bit about what has contributed to that and what you are doing to address it, and were there any items in the fourth quarter there that could trickle over into having some effect on the first quarter as well?

Well, when we see some margin deterioration, could be in some cases it is weather-related. Certainly it has been a very unusual period of time for lots of areas in the country. In some cases we have got grounds to ask our clients for relief because of the unusual circumstance. Whether that will be granted, in many cases you don't find out until you get to the end of the project.

We have had some performance issues, too, with the productivity of our labor not being as great as what we anticipated when we bid the work. So obviously that is a management problem, and we are addressing that and in some cases have made some changes. There have been some contracts management issues that we have not done as good a job on as we should have. So you can experience margin deterioration for a lot of reasons, and over time I think we have proven that we more often than not have positive experience by managing things well. But there are periods and we have gone through one here where we did not manage things as well as we should have.

Okay. Thanks and then just one last one if I could. Just on the outlook for the electric distribution market, what in your view -- what are the swing factors that could determine whether or not you see a recovery this year?

Well, probably the biggest swing factor is to see what happens with several of these pending rate cases that our clients and others have filed with the regulators. Until the regulators start granting some of the rate relief that the utilities need, things are probably still going to remain tight for quite a while. Of course, you will have -- I'm assuming we will have a normal storm season.

Certainly there was people still out of power in the northeast right now. So that would be a positive for distribution contractors. But that is kind of -- I don't think anybody wants to depend on upon storm work. If it happens, you try to take advantage of it and capitalize it. But the real fundamentals we need our utility customers to get healthier, and that is going to involve getting some rate relief from the regulators or pretty significant cost cutting on the part of the utility.

Adam Thalhimer, BB&T Capital Markets.

Congratulations on a great quarter. Bill, maybe you can talk a little bit about the -- all this large transmission work that could start to move forward in 2010. What kind of margins would you anticipate you would get on that work?

Margin is going to depend a lot on how big the project is, where it is located, whether it is going to be packaged with the contractor responsible for material and engineering and permitting or whether it is going to be construction only. If it is construction only, then we are providing manpower and equipment resources. That would be our core competency, and we would look to mark that up greater than -- we have got a lot of subcontractor costs and material costs. But I think we are going to be in a tight pricing market for some time to come. I do see that eventually changing when a number of these big projects get bid and let and people start committing the resources to existing work, and then I see the market getting more contractor-friendly. But we are not in that right now.

You mentioned -- I appreciate that -- then you mentioned the rate cases and wanting to see your utility customers get a little healthier. Can large transmission move forward if the status quo continues for utilities with ROEs falling? I mean do we need to see ROEs pickup before some of the large work moves forward or not?

I don't think it is so much a function of the ROE. I think the ROE is quite adequate to attract the capital. What you need is more the fundamental driver is utility, or the electric loads on the utilities system, have to put the existing transmission grid in a state of some stress. So the independent system operators like PJM and MISO and all of the system operators were there -- they are the ones that are kind of calling the shots on the need for transmission. So until there is new generation coming on or load stressing the system, that is what is really driving the investment. I think we already have the financial incentives. The allowed rate of return, I think, is adequate to encourage the investment. It is just is there the demand for it?

Okay. And then lastly, do you think Q4 '09 will be the bottom for margins?

I would not speculate on that. I don't know.

Jeff Beach, Stifel Nicolaus.

Earlier, Bill, when you were mentioning large transmission projects moving ahead in the West across the entire Midwest, as well as the Northeast, and talked about potentially more renewable projects and other things coming, without giving away too much competitive strategy, there seems to be an awful lot of projects spread across the country, a lot of renewable projects coming. You did not mention smart grid. I don't know if you have looked at and are targeting some of the smart grid projects. But how are you -- are you picking and choosing and trying to focus on some specific customers with concentrated effort to win among some of these various markets, or are you bidding on broadly a higher percentage of the opportunities coming?

Well, we are trying to be strategic in how we approach it. We are not going to be bidding all of the projects. We are going to be aggressively going after those that we think are the best fit for us. Putting together estimates and just lobbing in bids is not a great return on your investment. You need to have some strategic focus behind it as to which ones you should go after that you have the best opportunity on. There are lots of factors that enter into why we think certain markets were better positioned than others. Ultimately a big part of that is the labor and management that we have in a particular area.

So we will be doing focus bidding, but generally we are going to be bidding on most of these big projects that are coming up. There will be some that we will probably take a pass on, but generally we will be bidding them.

And are you targeting any specific renewable projects as well as smart grid awards that are out here?

On the renewables side, I would not say we are necessarily targeting specific projects, but we are targeting specific developers and general contractors. We want to get plugged in to whatever opportunities they have on their plate. So I think it would be more on the order of targeting the developer or the client as opposed to a specific project.

On the smart grid stuff, we don't see our Company being a major beneficiary of that. There will be some opportunities for us, but a lot of that work I think is going to be controlled by the manufacturers of the devices that will be installed. There will be some of it where that will be unbundled and will be bid separately. But I don't believe for our Company that is going to be a significant source of business.

Right. And then my last question, regarding the drop in the backlog from the third quarter of '09 to the fourth quarter specifically in T&D, did you become more conservative and pull down your estimate of the amount of MSA work going into your backlog? Is that part of the lowered backlog at the end of the year?

Jeff, no. It is calculated the same way we always calculated the previous quarters.

What Marco is saying, we look at our experience over the last few months and are projecting that forward, so the methodology has not changed. If our customer spend has gone down, that would be reflected in our estimate of the next three months.

Steve Gambuzza, Longbow Capital.

I think a couple of questions on some of the numbers in the opening comments. For changes in estimated costs to complete contracts, the number was $5.5 million for the full year of 2009?

That is correct.

Okay. That represents kind of an adjustment to the anticipated profits on the balance of the contracts extended to 2010 and beyond, correct?

That represents margin loss on the large contracts. There was obviously increasing cost that resulted in margins going down $5.5 million is what we are saying.

Okay. I guess what I'm trying to get at is that you recognized the full -- all of the expected costs that are going to be incurred in future quarters in the current quarter?

No, on percent complete accounting, if you have got a project that you think is going to be a loss overall, you got to book all of the loss. But if you have got a project because your performance is not what you expected if you bid it at 12% and now it's coming in at 10%, it is still a profitable contract overall. You true it up. So, as you go into future periods, you're going to be booking that at 10% as opposed to 12%. So the $5.5 million would be a kind of a catchup to that point in time.

Okay. And what was the storm -- the total gross margin from storm work in the fourth quarter of 2009?

We didn't report any incremental storm profits in the fourth quarter of 2009.

Versus 2008 essentially?

Right.

Okay. But you use --

(multiple speakers) 2008 it was $2.7 million.

That was a positive variance versus 2007, right?

Right.

And you are just saying you did not actually break out what it was in 2009 versus 2008?

It was very minimal and we did not report that.

Meaning it was -- the absolute level was somewhat similar to what it was in 2008?

It was not significant enough for us to report in the fourth quarter.

There was very minimal storm work in the fourth quarter of 2009.

Overall we had in 2008 for the year $43 million roughly versus $50.6 million I believe in 2009.

Those are revenue dollars you just quoted?

Yes.

Okay. Thank you. Have you noticed any -- in terms of the bidding opportunities that you are looking at, in terms of the bonding requirements or other risk sharing proposals that you are being asked to assume in these bidding opportunities, are you finding that there are certain multiple situations you are uncomfortable with the risk sharing or the bond requirements?

There is some -- we don't want to bet the Company on any one single project. So when you look at bonding requirements, some might require letters of credits or very onerous insurance requirements. All of those things we would be looking at, and our intent is not to bet the Company on any one project.

Have those terms and conditions changed meaningfully over the last couple of quarters? Have they gotten -- has it been relatively constant? I think there was the change in one direction or another.

They probably have gotten somewhat more onerous as it has become more of a client-driven environment. They can be pretty aggressive on demanding terms and conditions. They think if it was more a contractor-friendly environment, they might not be successful in pushing those terms and conditions onto contractors. But right now we are in kind of a buyers market.

Okay. And then finally, you have been noting pricing pressure for several quarters now. And I guess my question is, did things get incrementally worse in the fourth quarter, or do you find that you just kind of bouncing along the same kind of low level with really no sequential change? And you have talked about the first half of 2010 as being particularly challenging. Should we infer that your margins in backlog now are lower than what they were three or six months ago around that statement?

I would not make that connection. We definitely need some work. Our backlog is down, and we are aggressively pursuing some projects to build our backlog. But I don't think that the market is really any different today in terms of pricing than what it was in the fourth quarter.

William Bremer, Maxim Group.

I think you guys addressed the gross margins. Let's scale down to the SG&A. I think you did very well execution this quarter. Given the other comps in your space and the seasonality factors and the weather conditions that we had, I think you performed quite well. It looks as though you took out probably north of about $0.5 million of SG&A. Is that a good run-rate that we should be using going forward? It definitely looks as though you guys did some restructuring there.

No, I would not -- I guess I would not bid around that. That was mostly the result of reduction of bad debt reserves in 2009 that we adjusted in the fourth quarter. So I would not say that would be a trend.

Okay. Regarding storm restoration, we realized it was quite minimal in the fourth quarter. The market today in the storms that we have had in the last few weeks, can you give us an idea of the deployment of your crews? Have you had to slow down any of your Transmission and Distribution projects because of the storms, or have you been able to deploy additional crews out in the space to capture some of this business?

We do have some men working storms right now. We contact all of our clients in other areas that are unaffected to see if they would release our crews so they could pursue the storm work and get the customers that are out of power back in power. In some cases our utility clients will release our crews; in some cases they will not. I don't think we are in a situation where we have any hard money transmission jobs or distribution jobs that we are losing men to pursue the storm work and getting ourselves behind the 8-ball on those projects. So our marketing -- all of our available resources but I don't think we have been adversely affected, as I said, by losing manpower on key hard money work.

Will Gabrielski, Broadpoint.

Most of my questions have been asked and answered a few times. But on MSAs, since you guys use a 90-day rolling forecast and estimate in your backlog, when you're looking at the 2010 maintenance budgets from some of your bigger customers, how do you see that progressing through the year based on what you know today? Can you give that kind of visibility or leadtime?

On the MSA agreements, we do talk to our customers about the work they have coming up. I think most of our backlog is based upon historicals. What did they do in the last three months or last six months. We are not trying to speculate on what they told us on our last marketing call. We are looking pretty much at historically what work has been done under the alliance and project that forward without a lot of tinkering based upon optimism or pessimism.

Okay. The C&I margins, obviously the business has been under pressure, but have we reached a low maybe for margins there, or do you still see pressure coming forward?

There is still pressure. I don't think it is getting any worse, though, so I think the market is very tight right now. But I don't think it is deteriorating further.

Okay. And I noticed your headcount I think was disclosed as up year on year, equipment units up. What would you say you have grown your capacity to do transmission work over the past two years with the big capital push and how would you say are utilized today in percentage terms?

Well, I would not give you a percentage terms because we've never disclosed a number like that. We definitely would add in the $28 or $29 million of capital for the last couple of years. We are in a much better position equipment-wise to man major transmission work than what we would have been two and a half or three years ago. We are continuing to spend money on equipment. So when there is a large 345 or 500 work or 765 work that we have got the iron to be able to perform that work. Right now manpower-wise there is quality manpower available virtually all corners of the country. Not necessarily a lot of availability but there is some. So the equipment and access to the manpower either on the union or nonunion side, I think we have the ability to do the three or four big projects simultaneously that we have communicated to investors all along.

And are you guys seeing right now any small M&A type opportunities or companies that have their backs against the wall where you may be able to go in and pick somebody off?

There are always M&A opportunities out there, and we do look at them periodically. There have been a couple of situations where the banks have pushed smaller contractors into a position of doing something or having their credit facility pulled. But not necessarily a lot, but there have been a few. I would say two or three years ago there were hardly any.

Okay. All right. Thank you very much.

Min Cho, FBR Capital Markets.

A couple of housekeeping questions. Could you tell us what percentage of revenue -- or what percentage of the T&D revenue transmission was versus distribution in the fourth quarter and for the full year?

Sure. Revenues for transmission were 73.7% in the fourth quarter of 2009, 51.4% 2008 for the fourth quarter.

61.4%?

Right. And then for the year year-to-date 75.1% for 2009. 2008 it was 62.9%.

Okay.

Now that is out of the T&D revenue that we disclosed.

Right. Okay. Excellent. Also, Bill mentioned that you have not necessarily seen any increase in pricing pressure on some -- especially on some of your smaller projects, but obviously the revenue was down on the less than $3 million type of transmission contracts. Is that due to fewer projects being bid, or is it due to potentially new competitors entering the market? Can you just talk about some of those smaller projects a little bit?

Well, it is a combination of both; fewer projects and more people chasing what work is available. There are some always new entrants as people go out of business because the bank puts the squeeze on them. That creates an opportunity for a couple of other folks to get in business. And there are always people exiting, always people coming in. So less work, more people chasing the available work.

Okay. And then Bill, you also mentioned that obviously there are some pushouts and large projects, but there are still some that are on track or to be bid and potentially awarded in 2010. But even within the nearer term projects, are you still seeing somewhat of a pushout? Because I thought that some of the projects were supposed to be bid or released earlier on in the year. It sounds like it's more of a kind of end of 2010 timeframe?

It probably has been some pushout. I think as we said a year and a half ago talking about the CREZ work, I think most people including us would have thought more decisions would have been made on CREZ work than have been made. Some of this is the developers of those projects are dealing with the realities of the regulatory climate. So there have been some that have been pushed out.

Okay. And then my final question has to do with your renewable opportunities. Obviously since you set up the renewable group and it is probably been a quarter or so since then, is your outlook for 2010 still about $50 million in renewable revenue, or has that changed at all?

It has not changed.

Jeff Beach, Stifel Nicolaus.

You gave us the 2008 and 2009 CapEx. Can you give us an idea of CapEx plans for 2010 and where you are in the shift to currently own your equipment versus lease it?

Our 2010 plans would be pretty comparable to what we spent last year. Whether we spend that amount of money or not is going to be partially dependent upon what awards if any we get here in the next six or nine months. Some of that equipment we are not just buying equipment to own equipment. We need to have a home for it. So what we have done for planning purposes is comparable to what we spent last year.

And roughly where are you in your ownership of equipment?

We are about there. After 2010 I think the catchup that we embarked upon about four years ago, we will be where we need to be.

I'm not showing any further questions. Would you like to continue with any further remarks?

If I may, I want to kind of address an SG&A question that was raised earlier. We did have some bad debt reserves, but that is out there. But the true drivers of the fourth quarter on SG&A was really the reductions and profit-sharing and other compensation accruals that we had, and we did have some increase in insurance costs that we noted in our filings. So that's really the main driver.

Well, just in closing I would like to again thank everybody for participating on the call. We remain very excited about the opportunities in our industry, and that is not just on the transmission side. We are excited about the opportunities long-term doing distribution as well as the C&I work. I want to thank our management team for all of their hard work and our stockholders for their continued support of the Company. I don't have anything further, and I look forward to talking to all of you in May.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.