MYR Group Inc (MYRG) 2010 Q2 法說會逐字稿

Good morning, everyone, and welcome to MYR Group's second quarter 2010 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. 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 second quarter results for 2010, 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.

59 PM Eastern Time by dialing 800-642-1687 or 706-645-9291 and entering conference ID 89276886.

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, 2009, subsequent 10-Q quarterly filings to date, and in yesterday's press release.

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

Good morning, everyone. Welcome to our second quarter 2010 conference call to discuss financial and operational results. I'll provide a brief overview of the 2010 second 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 information on my outlook for the industry.

As you saw in our press release, MYR experienced a 13.9% revenue decrease for the second quarter of 2010 compared to the second quarter of 2009. The lower year-over-year revenues are attributable mainly to a decrease in revenues from a few large T&D projects we had in the same period in 2009, as well as an overall reduction in revenues on smaller project work.

All of our financial comparisons with periods -- with prior periods reflect only organic changes in our business as we have not made any recent acquisitions.

As a percentage of overall revenues, gross profit margin increased from 11.5% in the second quarter of 2009 to 11.9% in the second quarter of 2010. Earnings per diluted share decreased $0.06 to $0.16 for the 2010 second quarter, as compared to the same quarter last year.

Although we experienced a decrease in revenues in the second quarter of 2010 compared to the second quarter of 2009, we are pleased with our gross profit as a percentage of revenue, which showed an improvement on a year-over-year basis. This improvement was mostly attributable to increased productivity levels that helped reduce our completion costs on a few large projects as compared to our prior estimates.

We operate, as you know, 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. The majority of our C&I work is in Colorado and Arizona, and is dependent on commercial, industrial and government spending in those areas. Over the past 12 months we have seen some signs of stabilization in these two regional markets.

We are also experiencing reasonably steady bidding activity in our target C&I markets, including healthcare, waste water treatment, government office buildings, manufacturing, data centers, and other high-tech projects. We see some level of economic improvement in some of our markets. We believe that this economic improvement will ultimately drive up electrical demand and result in our C&I and T&D customers increasing their maintenance and capital spending.

Bidding activity for large transmission projects has increased in 2010; however, distribution and small transmission project spending remains weak. And the competition for the distribution and small transmission projects remains intense. We have seem some competitors, new competitors surface in our markets, both regionally and by type of service, in part because the traditional markets served by those contractors are weaker than our own.

We expect to see a pickup in distribution and small transmission projects pending if the economy improves and utilities start to receive the rate relief that I believe they need. Several utilities have cut back on the use of contractors and their own internal construction crews in response to the current economic and regulatory climate. When the work does return to some degree of normalcy, I believe a higher proportion of the work will be outsourced to contractors like MYR than self-performed by utilities, because many utilities will be reluctant to hire new employees.

We remain optimistic about the long-term future of our business, both as it relates to major transmission projects and core distribution and small transmission spending. We are continuing to invest in the quality people and the equipment and tooling needed to win and execute upcoming large-scale projects, as well as those necessary to integrate renewable generation into the electric power grid.

Now, Marco will now provide details on the second quarter 2010 financial 2010 results, and then I'll be back to provide some additional insight on the 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 2010 second quarter results. As Bill indicated earlier, we are pleased with our margin improvement in the second quarter of 2010 compared to 2009, in spite of the overall reduction that we have experienced. However, we continue to see margin pressures when bidding smaller transmission and distribution projects, as well as on bids in our Commercial and Industrial segment.

Our revenues for the second quarter of 2010 were $140.3 million, a decreased of $22.6 million, or 13.9% lower than the second quarter of 2009. For the 2010 second quarter our T&D segment revenues decreased $17.1 million to $107.8 million, and our C&I segment revenues decreased $5.5 million to $32.5 million as compared to the 2009 second quarter.

Within our T&D segment we recorded revenues of $76.3 million for transmission and $31.4 million for distribution during the second quarter of 2010. For the second quarter of 2009, we recorded revenues of $100.8 million and $24.1 million for transmission and distribution, respectively.

In the second quarter of 2010 transmission revenues decreased $24.5 million, or 24.3%, while distribution revenues increased $7.3 million, or 30.4%, as compared to the [first] quarter of 2009.

I know this may sound counterintuitive to what you might expect given Bill's earlier comments about the soft distribution market. However, the increase in our distribution revenues, not margins, simply reflects that we took some market share from a couple of other contractors. Bill is very much on point by saying distribution spending across the country remains weak.

Transmission revenues were down in the T&D segment as a result of a significant decrease in revenues generated from large transmission projects greater than $10 million in contract value, and smaller transmission projects, less than $3 million in contract value, being executed in the second quarter of 2010 compared to the second quarter of 2009.

This decrease was not completely offset by a period-over-period increase in revenues generated from smaller distribution projects. Distribution revenues increased in the second quarter of 2010 as a result of increased spending on smaller projects in one of our regions compared to the second quarter of 2009.

The decrease in consolidated revenues in the second quarter of 2010 compared to the second quarter of 2009 was mainly attributable to significant reduction in revenues generated from a new large T&D project, as well as an overall reduction in revenues on smaller projects in both reporting segments.

Storm revenues in the second quarter 2010 and 2009 were minimal.

Gross profit in the second quarter of 2010 decreased to $16.7 million as compared to $18.8 million for the second quarter of 2009. Despite the decrease in gross profit year over year on a percentage of revenue basis, gross profit increased to 11.9% of revenues in the 2010 second quarter, as to 11.5% of revenues for the second quarter of 2009.

The increase in gross profit margin as a percentage of revenues was mainly due to positive margin impact resulting from increased productivity levels on a few large transmission projects as compared to prior contract estimates. These positive impacts were partially offset by a decrease in overall margins in our C&I segment and on margins of our smaller T&D projects.

Second quarter SG&A expenses decreased 2.8% to $11 million compared to $11.4 million in the second quarter of 2009. The decrease was primarily due to the net decrease in personnel costs, payroll and certain employee benefit costs.

EBITDA, which is a non-GAAP financial measure and is reconciled to the GAAP measures in our press release, decreased to $9.7 million in the 2010 second quarter compared to $10.6 million the second quarter of 2009.

Second quarter 2010 net income was $3.4 million, or $0.16 per diluted share, compared to the second quarter 2009 net income of $4.3 million, or $0.21 per diluted share.

Now, for the first half of 2010. We reported revenues of $289.2 million, which represents a decrease of $6.7 million, or 2.3% as compared with the first half of 2009. Specifically, the T&D segment reported revenues of $210.6 million for the first half of 2010, a decrease of 6.2% over the same period of 2009.

Our C&I segment reported revenues of $78.6 million for the first half of 2010, an increase of 10.2% over the same period of 2009.

The over decrease in our consolidated revenues for the first half of 2010 was mainly the result of a significant decrease in revenues from smaller projects in both reporting segments, partially offset by an increase in revenues from a few large C&I projects.

Storm revenues for the first half of 2010 and 2009 were inline with our historical averages.

Consolidated gross profit decreased to 11% from $35.8 million for the first half of 2009 to $31.9 million for the first half of 2010. The decrease in gross profit was primarily attributable to an overall reduction in contract margins on smaller T&D projects of approximately $4.9 million, which was partially offset by an overall net increase of approximately $1.6 million in contract margin impacts from larger projects period over period.

SG&A expenses decreased approximate $1.7 million, or 7.4%, to $21.6 million for the first half of 2010. The decreased related primarily to the elimination of a $1.6 million severance liability as a result of amending the employment agreements for executive officers in March, 2010. As a percentage of revenues, SG&A decreased from 7.9% for the first half of 2009 to 7.5% for the first half of 2010.

For the first half of 2010 net income was $6.1 million, or $0.30 per diluted share, compared to net income of $7.2 million, or $0.35 per diluted share, in 2009.

EBITDA for the first half of 2010 was $18.4 million, or 6.4% of revenues, compared to $18.9 million for the first half of 2009, which was also 6.4% of revenues.

We continue to invest in equipment and manpower development in anticipation of increased T&D infrastructure spending across the United States. In the first half of 2010 we purchased $7.1 million of equipment, compared to $15 million for the first half of 2009. Given our first half capital expenditures, we're down compared to the prior year period. We anticipate that our investments in capital expenditures for the full year of 2010 will be less than our total capital expenditures in 2009.

Even though our estimated 2010 capital expenditures will be less than 2009, our investment strategy has not changed and is based on our belief that transmission infrastructure spending by utilities will increase over the next several years. We continue to focus our capital expenditures on ensuring that we will have sufficient specialty transmission equipment to be a major player when the build out of major transmission lines starts in earnest.

As you would expect, we have deferred some of our distribution equipment capital spending due to the soft distribution market. We plan on funding our investments in additional property and equipment substantially through internal cash flows and cash on hand. Furthermore, we believe purchasing equipment as opposed to leasing will reduce our long-term equipment costs, which should allow us the opportunity to improve contract margins.

Total backlog at June 30, 2010, was $199.6 million, consisting of $124.1 million in the T&D segment and $75.5 million in the C&I segment. T&D backlog at June 30, 2010 decreased 46.5% compared to backlog at June 30, 2009. C&I backlog at June 30, 2010 decreased 10.6% compared to June 30, 2009.

The decrease in backlog, comparing the second quarter of 2010 to the second quarter of 2009, was primarily related to contract completion process and resulting revenue recognition of a few significant transmission projects that were awarded in the latter half of 2008. These significant projects were not replaced with projects of similar size as of June 30, 2010.

Total backlog at June 30, 2010 was virtually flat compared to the prior quarter ending March 31, 2010. By segment we had a decrease of $18.8 million, or 13.2%, in our T&D backlog, which was offset by an increase of $18.9 million, or 33.4% in our C&I backlog compared to March 31, 2010.

We reported T&D backlog of $124.1 million as of June, 2010, which we estimate $9.7 million will be not recognized in the next 12 months. In the C&I segment we reported $75.5 million of backlog as of June 30, 2010, of which we estimate $1.9 million will not be recognized in the next 12 months.

Our backlog can significantly fluctuate as awarded new work offsets projects being completed. We continue to market and bid new work in an effort 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. 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 make count one or more years.

Moving to the balance sheet, our stockholders equity increased from $174.1 million at year-end 2009 to $181.7 million at June 30, 2010.

At June 30, 2010 we had approximately $44.9 million in cash and cash equivalents, and $30 million in debt. We maintain a debt to total capitalization ratio of 14.2%, 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 equivalents and available credit under our facility provides us with approximately $104.9 million in total liquidity, which can be used for organic growth or other investment opportunities.

We are 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.

In total, we believe our strong balance sheet gives us an advantage over many of our competitors for pursuing new work, financing one of the best equipment fleets in the industry, and investing in our employees.

Furthermore, 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 build out by our customers.

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

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

As I mentioned on our first quarter conference call, over the past few quarters we have seen a few major transmission projects delayed due to permitting issues or a lower peak load forecast by independent regional system operators. Generally speaking, these projects have not been canceled; they have just had their target in-service dates extended.

Public Service Electric and Gas Companies' Roseland-Susquehanna 500 project is the latest project to be delayed. In late July PSE&G announced the in-service date for the line, which pushed out from 2012 to 2014 due to a longer than expected environmental review by the Park Service. This project was actually in the bid evaluation stage when the delay was announced.

On the flip side, we are seeing some positive movement on project siting approvals in recent months in the Midwest, as well as more CCN, or Certificate of Convenience and Necessity, applications being submitted in Texas for the CREZ related work.

The first four projects, making up CapX2020 work in Minnesota have been bid and are currently under evaluation. These four projects total about 640 miles of new 345 kV and 69 miles of new 230 kV transmission lines. The 2400-mile 345 build out associated with CREZ generally remains on track. Encore and Lower Colorado River Authority have already started some of their projects.

The other six CREZ transmission developers are a year or so behind, but will likely make their contractor selections later this year or early next year. Given our history of utility construction in Texas and relationships with the participants, we believe MYR is well positioned to win a portion of this work. As the CCN processes are complete and the lines are approved for construction, we anticipate movement on line siting and projects coming out for bid.

While much of the actual construction of the CRAZ projects may not break ground until very late 2010 or into 2011, preconstruction services are anticipated later this year for at least some of this work.

Additionally, we continue to anticipate movement this year in major transmission work in other regions of the Midwest from North Dakota on the north down through South Dakota, Nebraska, Kansas, Oklahoma, from the center all the way down to Texas.

The Eastern US has had some significant new transmission lines planned over the next five years in places like Connecticut, New Jersey, New York, Pennsylvania and Maine. Some of that work is moving forward as expected, while other projects are being pushed out due to delays with routing and regulatory permitting, such as the PSE&G work.

As noted in last quarter's call, our industry could see major awards in the West this year for discreet projects and/or alliance agreements in California, Nevada, Utah and Washington State. Some of these projects are predicated on federal funding or loan guarantees being funneled through two federal transmission utilities, Bonneville Power Administration, or BPA, and Western Area Power Administration, or WAPA. Both BPA and WAPA federal set-asides are valued at about $6.5 billion in total. MYR has a long history of solid performance with both of these public power entities, and we are optimistic of being awarded some of these projects.

The Southwest Intertie Project in Nevada is an example of how some of these big transmission projects are being developed and funded. The first 235 miles of this 500 kV line currently in the market is expected to be jointly funded by Nevada Energy, a traditional investor-owned utility, and Great Basin Transmission, an LS Power affiliate, and WAPA. The SWIP 500 kV line will ultimate be about 500 miles in length.

Another example of public-private ventures for large transmission is the WAPA non-binding agreement between WAPA and TransWest Express to potentially acquire a 50% equity stake in the TransWest Express transmission project. This is a 725-mile proposed DC line which will deliver renewable energy from Wyoming to electric utilities in Arizona, Nevada and California.

Across the country we continue to see opportunity in the renewable energy market. While the proposed Federal Renewable Electricity Standard has not yet passed, we currently have 29 states, plus the District of Columbia, with renewable standards and another state -- seven states with renewable goals.

The US solar market grew 36% in 2009 and is expected to continue growing at a rapid pace, with some predicting a potential 10-fold growth by 2019. MYR is focused on delivery systems of renewable generation.

According to the US Energy Information Administration Short-Term Energy Outlook Report of July, 2010, total US electricity consumption is expected to rise in 2010 and 2011 after declining in both of the last two years. In fact, the EIA estimates the total consumption of electricity across all sectors during the first half of this year increased by 3.8% from the first half of 2009. Consumption is expected to show similar year-over-year growth of 3.5% during the second half of 2010.

Growth in electricity consumption should return to a more typical growth rate of about 1% to 1.5% on a weather normalized basis in 2011. This could bode well for the future of MYR and the industry since the maintenance and upgrade of projects that utilities have deferred because of the economic slowdown can only be deferred for so long, especially when electricity consumption growth returns.

Now, I'd like to shift the focus to our C&I business. Although projects are still being bid, there remains excess capacity within the industry as more contractors are pursuing the available work, which continues to place pressure on margins.

As we have said in the past, our focus is on healthcare, government office buildings, research centers, smart highway work, data centers, mining, wastewater treatment facilities, and made us somewhat less susceptible to the slow economy at the national level.

Finally, 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. The 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 move forward.

Additionally, our focus on safety, high-quality customer service, and on-time execution will ensure MYR remains a valued partner for our utility and C&I clients.

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

Thank you. (Operator Instructions.) Our first question comes from Andrea Wirth of Robert Baird. Your line is open.

Good morning, gentlemen.

Good morning, Andrea.

Wondering if you could just give us a little bit more color, Bill. You spent a lot of time kind of detailing some of these projects that you're -- that are moving forward, or seem to be moving forward. But in a general sense, how do we think about how much of the work that you're bidding on is driven by reliable concerns versus really just more renewable integration work?

Well, it's pretty difficult to separate the two. I think virtually all of these projects have some of the impetus driven by renewables. Certainly, all the work in Texas is driven by renewables. I think right now there's more wind capacity in Texas than transmission infrastructure to take that energy into the grid. The same thing is true of the work in Minnesota that's now in the market. And I guess also even on the East Coast. I don't think I'm capable of separating which is a renewable project and which is a reliability project. I just think all of them have elements of both.

Okay. And then on the C&I side, just want to dig a little bit more into the bookings there. Can you maybe just give us a little bit of color in terms of what's driving that? And I think it sounded like you're seeing a little bit more on the high-tech project side. Should we maybe infer from that, that maybe margins could be a little bit better on some of those projects despite some of the pricing competition you're seeing just because of the nature of those projects? Just looking for a little bit more color there.

Well, the bigger the project and the more high-tech it is, the chances for better margins increase. Certainly, the big hospital work, not everybody is capable of performing that. Same way with the data centers. Some of those sophisticated government office buildings. So, the bigger and the more complicated the project, generally speaking, it tends to give us a little more opportunity to get paid for the value we bring to the project. So, data centers is a big part of our business. And if you've been in one, they're boxes filled with electrical equipment, so very sophisticated projects. The reliability required for a data center is a step higher than many other facilities. So, those are the projects we really like because we can have a better chance of getting paid for the value we bring.

Hey, Andrea, just a follow-up to Bill there. On the C&I side, fixed price contracts obviously are going to contribute to margin improvements. And I would say that the percentage of fixed price contracts has decreased, both in the T&D and the C&I segments. So, as far as margin improvements, seeing what you saw a couple of years ago on the C&I group, I wouldn't anticipate those kind of margins.

Okay, great. Great. That's very helpful. And then just one little item. Could you give us what Dominion contributed in the quarter?

We don't specifically disclose individual large projects other than to say that Dominion's on schedule. We believe that it'll finish up in the second quarter of 2011 and we're very pleased with the progress we have with Dominion.

Got it. Thank you, guys.

Thank you. Our next question comes from Carter Shoop of Deutsche Bank. Your line is open.

Yes, hi. Carter Shoop from Deutsche Bank. Just a follow-up on the Dominion question. I guess there's two customers that represented over 10% of sales in the quarter and also year to date. Can you disclose who that second customer was?

Let me take a look and I'll let you know here.

And while you're looking up that, can you also give us a sense if that's kind of evenly split between the two? I think combined they represent close to 33% of sales year to date. Is that one customer being 20% and the other one being 10%, or is it pretty evenly split? And when you're looking up that, maybe a question on the C&I business. On the sequential basis it was exceptionally weak. Can you help us understand why it came down so aggressively versus the March quarter?

Marco, I'll try to handle the second question while you check for the customer stat.

Yes.

On the C&I business, we had a project that the margin had to be reduced from where we were carrying it because we weren't experiencing the labor productivity that we had relied on on the estimate. That project is now completed and it was in an area where we -- with all of our work we bid it based upon our assumption on labor productivity. Sometimes the labor surprises us on the upside; other times, it surprises us on the downside.

This particular quarter we had a project that didn't live up to our expectations. And the good news is the project is now completed. But certainly, in the C&I business those margins are under pressure so we have to keep sharpening our pencil on bidding, and that just raises the bogey in terms of our -- the requirement for execution of that work.

Hey, Carton, just to follow-up on the question you had, we don't disclose the individual customers. We do have two customers that make up 33% overall. And I could say that those two customers are in the Northeast part of the country.

And are those relatively evenly split in regards to size, or is one 2X the size of the other?

They're pretty close to each other.

Okay. And then can you talk about order activity thus far in the third quarter? We're about halfway through.

I will talk about that next quarter when we report. Certainly, bidding has been pretty brisk in the last couple months. A couple large projects being bid. As far as major bookings, I can't say that -- if there was a significant booking, obviously we would have disclosed that. So, there have not been any major $100 billion kind of bookings this quarter thus far, but the bidding activity is pretty brisk.

A last question, if I can. I sounds like gross margins in the T&D segment performed better than what you guys were expecting going into the quarter. But with that said, should we expect gross margins, all else being equal, to trend a little bit lower in the third quarter? Or asked another way, would that gross margin a benefit in the Q2, was that a one-time benefit or is that -- there's something sustainable there that we can expect to continue?

Well, certainly, I can say that we're dedicated to trying to improve, but I don't think I would be correct in trying to tell you to assume that going forward. We're certainly committed to trying to achieve the best margins we can in all of our work. We did have some improvement on a couple of projects on the T&D side here in the second quarter, and those projects have -- one case, one is virtually completed. The other one is still ongoing. So, we're hopeful that that will continue, but I don't think it'd be proper to have us give you that kind of forecast.

Okay. Thank you.

Thank you. Our next question comes from Steve Sanders of Stephens. Your line is open.

Hi, gentlemen. This is Zach Larkin on for Steve.

Hi, Zach.

Thanks for taking the call. A quick question. With the increase in bid activity that you guys are talking about, does it seem like the process of getting through these bids is getting back to historic levels, or are you seeing continued delays in RFP processing, project start dates continuing to be pushed out with this new round of activity?

Well, first, the level of bidding that we have seen recently is unprecedented in the 11 years I've been at this company in terms of number of very large projects that are being bid. So, I think there are a lot of big projects in the market. Now, there's also a number of large projects that got deferred.

But if you go back 10 years, or even 5 years ago, a big project was a real rarity. You might see one or maybe two a year. Now, we're seeing multiple large projects being bid. And I think thus far this year we've already had several and anticipate several more large projects being bid here in the second half. So, I think the number of big projects out there hasn't been this great probably since in the late '70s, early '80s.

That's fantastic. And does it seem like the process on moving through those bids is going at a good pace? There's a lot of talk out there about delays due to siting and permitting, but also just projects taking longer than anticipated to get through that bid process.

Well, the project -- the bigger the project, the more complicated it is for the utility to evaluate the bids. So, if you're bidding a couple of hundred mile project that has lots of line segments and lots of under-builds where you'd have lower voltage circuits hanging on those poles, it's a very complicated thing for not only the contractor to bid it, but it's very complicated for the utilities selection team.

And in many cases, some of those selection teams involve people from multiple utilities. So, their job is not easy. They -- I've seen some of the proposals we've submitted and it's volumes of material. And I assume our competitors are submitting volumes of material as well. So, it just takes a lot of -- a longer time for them to do a thorough job of evaluating all the proposals and, as a result, that has probably a longer time period than if you were doing a little $3 million job.

Right. That makes sense. Just one final question then I'll jump back into the queue. But you've talked about your outlook for transmission spending and your positive outlook on that into the future. Do you have a sense or an opinion on whether you think a comprehensive energy regulation is necessary to really get to where you think the infrastructure needs to be?

I try not to be political. I think the state standards on renewables in particular, I think they are helpful to our industry. Probably if there was a federal standard on renewables, obviously it would pick up all of the states. But I don't think the success of our industry is dependent upon a federal renewable energy standard. I think the underpinnings with what's been done at the state level already position us well.

Okay. Thank you very much.

Thank you. Our next question comes from Jeff Beach of Stifel, Nicolaus. Your line is open.

Good morning, Bill and Marco.

Hi, Jeff.

A question on C&I, and then a couple on the T&D. In the C&I part of it, could you quantify for us this write-down of profitability on this one project you referred to? And if not, at least can you give us an idea if this is a multi-period write-down or hit to this quarter that represents two or three quarters' worth of prior book profits?

Jeff, on the C&I side, it was roughly about $1 million adjustment on larger projects. I wouldn't say it's specifically geared towards one, but in total there was about a $1 million adjustment on the C&I group.

Alright, great.

Jeff, as far as our closing process, every month we have a fairly rigorous effort to do cost to completes that, as you know, drive our revenue recognition. And then, at the quarter end they're even more rigorous, a kind of self-examination to make sure we have our cost to complete correct.

If we've got a project that's a 12-month project, it's not unheard of that you get halfway into the project or 70% in the project and you see that you can maybe recognize a little more margin or maybe that you recognized a little more margin than you should have given your current outlook. So, I can tell you we have a rigorous process of doing our monthly and quarterly closes, but it's not perfect.

Okay. Moving -- a couple of questions on the T&D side. You had talked a little bit about Texas CREZ. And two of the big players there have committed already, and it leaves something on the order of, I think, six or seven other groups or entities that are progressing ahead. Can you talk about where they are in this process of permitting? Give us some insight? Or I think I've read that rights-of-way acquisition has been a lengthy hurdle that has delayed things. And are they getting close enough for you to say you think they're -- you could see some awards by the end of this year? Can you just expand a little on that?

I do expect to see some awards by the end of the year. That still doesn't mean that you're necessarily going to see construction crews out cleaning up the right-of-way and starting to haul poles and so forth. I think they will select -- many cases, they're going to select their partners and then involve their partners in planning the project, including some help on the siting of the lines. We think a contractor like MYR brings a good deal of value on the practicality of siting a line from A to B versus A to C, something like that. But I do think a lot of the Certificate of Need applications, once they have been filed and the kind of the regulatory side has commenced, then they get real serious about lining up contracting resources because they want to be ready to go when that CCN application is approved.

Alright, thank you. Also on the large transmission projects, just a couple of things here. Would you care to tell us how many bids are outstanding on projects that I define as over $100 million in total value, not necessarily to you? And along with that, there's a lot of them that look like are pushing towards award right now. And without giving away secrets, your bidding strategy, do you plan to bid across the US on a major number or maybe most of the large transmission projects that'll come up here? Can you give us a little flavor for how you approach this, or do you have a couple of strong relationships you're going to put extra focus on those -- winning those projects?

Well, we're going to be bidding not every project, but the majority of the large projects that I know are on your radar screen. Certainly in some cases we think maybe we have stronger relationships, either with the client or maybe with the labor in a particular market. Some areas we think we might be stronger than others, and I'm sure that's true with our competitors, but we're not limiting our bidding to just those markets.

As this unfolds over the next six months and some of these awards are going to be made, I think there will be some contractors that will remain hungry because they didn't receive any of those awards, or very many. And there are going to be others that may feel a little congested because they've picked up quite a significant amount of work and they're maybe not quite so hungry going forward because they now have projects and backlogs that they need to resource with men and equipment.

So, there's going to be a lot happening in the next six months on this front. So, conceivably six to nine months from now it could be a very different environment for bidding.

Alright. Thank you.

Thank you. Our next question comes from Tahira Afzal of KeyBanc. Your line is open.

Good morning, gentlemen.

Hi.

Hi, Tahira.

Number one question is in regards to your win rate. Has that changed on the large transmission projects? And I know you haven't seen any recently, but would you say it's around the same in terms of the mid-sized ones at least?

As you know, we don't put out a success rate on our bidding, but I'd say it's comparable with our historic experience.

Got it. Okay. And then in regards to the different regions you mentioned -- and that was very helpful to get an idea of where the projects are moving forward and where they're not. It seems Northeast is perhaps a little mixed (inaudible) to medium term in terms of large transmission projects from all the regions that you mentioned. Does that sort of impact the labor pricing within that region, or is there such a high dependency on journeymen for large transmission projects that the pricing will probably remain consistent through all this?

I guess you're referring to the pricing for the labor, or pricing margins available to the contractor, because they're really--.

Labor pricing.

They're both pertinent. In our case, and I'm sure this is true with our competitors, we have some core people that travel with us. If we have work on the East Coast or West Coast or the Midwest, we try to carry a lot of our senior people with us. And I'm sure our competitors do the same. But the local labor that you use to fill out your crews with linemen and operators and apprentices, those typically are filled locally. So, the areas that are short on work, you would expect a lot of labor setting. And in areas that have significant work, it's much closer to full employment. And these travelers, they move to wherever the work and wherever the opportunity is.

Got it. Okay. And the last question is really in relationship to natural gas. And I know if you look at what Xcel Energy just said recently on their call, they are going to be retiring some aging coal power plants and looking to ramp up on natural gas and renewables. As you go across your clientele base on the utility side, have you seen any marginal shift away from renewables towards natural gas?

I think it's on a state by state basis. Colorado's had some legislation enacted at the state level that is unique to Colorado. I don't profess to have that understood in any of the states we deal with. But I know there are initiatives in many of the states that would cause them to want to retire especially their old coal-burning plants. I think that's definitely a trend and I see that continuing and that affecting more and more states.

Okay. Thank you very much, Bill, and good quarter give the circumstances.

Thanks, Tahira.

Thank you. Our next question comes from Liam Burke of Janney Montgomery. Your line is open.

Thank you. Good morning, Bill.

Hi, Liam.

Bill, you talked about the level of budding activity on the large projects being at record -- or extremely high levels. Do you anticipate attraction of more competitors into the space, and would that create any kind of pricing issue?

Yes, I do think there will be some additional competitors. Certainly, there are some distribution contractors that see themselves now as being players on the transmission side of the business. So, I do think if their historic market is down and they see a lot of money being spent on transmission, certainly you would anticipate they would try to get into the business.

I think some may find that this is a different business and there are some challenges with it that, just because you know how to string a distribution line or do something like that, that doesn't necessarily qualify you to do a 345 line or a 500 line. But, I do think there will be new competitors.

And some competitors will move into new regions if -- for instance, if you're a competitor in a state like Michigan that's really been hard hit, those folks might branch out into other states outside of Michigan. So, we're seeing people, new people get into new services and we've seen existing players expand regionally into new regional markets.

Great. Thank you. And Marco, you talked about CapEx being lower year over year, or less than last year. Should I think about the CapEx being more or less deferred into 2011?

Yes. I would -- I guess I would agree with that. We do still anticipate the transmission infrastructure to take place starting 2011 and for a three to five year duration. And as we continue on and move forward to next year, we do anticipate our capital expenditures being somewhat what we've had historically. So, I guess I would say yes.

Okay. Thank you.

Thank you. Our next question comes from Craig Irwin of Wedbush. Your line is open.

Good morning, gentlemen. Thank you for taking my question. The first thing I wanted to touch on was the Dominion line. A lot of questions already been asked here, but I was wondering if you might be able to share with us the approximate percentage of completion on the line right now.

Yes. We don't get into the specifics on any particular project.

Okay. Well, can you confirm that you've moved over to the Carson to Suffolk area of the line and that you're ramping activity on that segment?

Yes, we've moved over to that, but we haven't finished the other project. So, both projects are under construction right now. And we have significant work yet to complete on the Meadow Brook to Loudoun line and we're getting really a good start on the Carson-Suffolk line.

But we are -- I mean, we are still, like I indicated earlier, on schedule to completed based on what we agreed to, so -- and moving fairly well.

Excellent. Excellent. And one of the things I just wanted to drill down to -- into a little bit that I don't think was discussed previously was the sequential increase in C&I backlog. I was wondering if there are any specific larger projects that contributed to that. Obviously, we're well below backlog levels, even from a year ago. But was hoping you might be able to give us a little more color and describe whether or not there are similar things that will continue into the third quarter.

Well, on the C&I side, there are a number of projects that are in backlog now, or that were in negotiations, that maybe part of it is in backlog (inaudible) magnitude of $10 million, $20 million. So, that would be a significant project for our C&I business. And that's the type of project we're very well equipped to handle, and certainly are well equipped to handle projects much bigger than that. But when you get to something in the $20 million range, the competition is more reasonable than if you're dealing with a $1 million C&I project.

But when we look at the C&I group, too, I would probably say that the Colorado market is probably a little bit better for us over the second quarter than it was in the previous quarter, than Arizona was.

Okay. I just wanted -- and then just a follow-up on the geography there. Are you seeing relative strength continue in Arizona and Colorado versus outside of your core served territories, or we should really draw the difference between Arizona and Colorado?

I'd say that the Colorado market is bouncing back a little faster than Arizona, but it's coming back, too. There -- I shouldn't paint a picture that things are bad in Arizona because they're definitely not. And there are several good opportunities in Arizona right now that we're pursuing. But, it just doesn't feel quite as strong as the economic recovery in Colorado.

Great. Thank you, gentlemen, and congratulations on the strong execution. Let's hope the market works with us towards the second half of the year.

Okay. We do, too.

Thank you. Our next question comes from Dan Mannes of Avondale Partners. Your line is open.

Good morning.

Hi, Dan.

Hi, Dan.

A couple quick follow-ups. And I think you've partially addressed this, but as it relates to the bidding activity, can you quantify at all in terms of dollars as opposed to in projects? How much is out there that you're currently bidding on?

It's multiple hundreds of millions of dollars with all these projects that are in the market right now.

And how does that compare to maybe where you were last quarter at this time? Is that up dramatically? Has most of this popped up since then, or are these continuations of bids that you've been working on for several months already?

Well, they were continuations of things -- projects that we have been targeting for months, in some cases years. A couple of them now are actually in the market. So, the fact that it took two years for the utility, or three years, to get everything together to put it out for bid. But we now actually have some real projects out for bid and we anticipate several more real projects coming out for bid the rest of the year.

Great. And then briefly, in terms of your bidding strategy, do you have a capacity in terms of your ability to bid relative to maybe the number of the project managers or from a cost perspective? Are you limited in how many of these things you can even go after, not counting sort of your ability to execute if you won a big bunch of them?

That's an excellent question because we think we've got some of the best estimators in the industry, but we don't have an unlimited number of estimators. So, there is a bit of prioritization when we put our resources on bidding this one, or do we put our resources on bidding another one. And I think it would be inappropriate for us to staff up with estimators to bid everything possibly out there. So, we have discussions with our senior management all the time on allocating what would be a scarce resource. And again, we've got many of the best estimators in this industry, I think, as any competitor, but they're not unlimited and we can't waste them.

And I know I've mentioned on some prior calls we get lots of opportunities with particularly renewable projects to help the project developer put together a loan application to secure funding for his renewable project. And we do support some of those developers. But I don't want to have all of my estimating talent devoted to something that is very iffy, whether they're going to get all of the things in place to go forward with that. So, that's an every week balancing act on how we allocate our estimating talent.

And then does that at all go to some of your commentary on maybe your geographic focus and your relationships? Maybe even some of these large transmission projects maybe are de-emphasized from a bidding perspective given maybe better relationships elsewhere?

Yes, that would be one of the factors, and just our relationship with the client, our relationship with the labor in that area. And the estimating talent that would be familiar with that area. Because certainly moving into a brand new area or one where you don't have a lot of troops on the ground, it's more difficult to estimate and bid that work, too.

Great. It sounds like it's a bit of a high-class problem being able to pick and choose. A last quick question. You mentioned you were actually potentially taking some share on the distribution side and that maybe accounted for an improvement there. Can you talk at all about that opportunity? I mean, is this geographic expansion? I mean, is this price oriented? How do you account for the taking of share in what looks like a bit of a contracting market?

Well, the margins -- I wish I could say that the margins are improving. Certainly we, like everybody else, are trying to keep our distribution equipment and manpower busy. And in a soft market like we're in, that means some discounting. So, we've been aggressive going after the work that we want to hold and secure. So, I wish it was the other way. I wish the market was strong and we were allocating resources. But, we're just trying to put -- to hang onto our good customers and secure some new ones.

There is -- some of your cost structure has gone down. For instance, the used equipment market, the availability of like bucket trucks and things that you might use for distribution equipment is pretty soft. So, there's some good deals out there on used equipment which, if you acquire that equipment, you can reflect those discounted equipment prices and our prices to the client. So, we're constantly looking at lowering our cost structure so we can be more competitive on that kind of work.

Got it. Thanks for the candor.

Thank you. Our next question come from Steve Gambuzza of Longbow Capital. Your line is open.

Good morning.

Hi, Steve.

I had a question on the CapX2020 opportunity which you talked about. I was just wondering, is that something that's getting bid out in pieces? You mentioned there were bids outstanding on it. Is it for the entire project or for just a portion of the project? It sounds like it's a pretty big undertaking.

It is a pretty big undertaking. I indicated there are four major projects. Each one of those has different segments within it. I'm not sure who's -- which competitors are going to be bidding all of the work. Some may bid part of the work. But, it's a fairly healthy undertaking to bid all of that work.

But your comment was that there are bids outstanding on CapX2020. Are there bids outstanding on portions of it or on all of it?

The total package had to be submitted, so everything's in at this point.

Okay. And so, would you expect -- is the anticipation that there will be -- that they will award -- they may make multiple awards, but that they will determine the contracting strategy for the entire project at some point in the near future?

They certainly would have that latitude. I don't know what the -- this is made up of I think 11 or 14 different utilities. There are three utilities that have kind of taken the leadership on it. So, I'm sure there's probably some difference of opinion among those players that make up the CapX2020. So, we're anxious, like I'm sure all of our competitors, to find out what their sourcing strategy is, if they want to put one contract in place with one large contractor, or do they want to diversify? There's definitely pros and cons to it from their end.

Thanks very much.

Thank you. Our next question comes from Min Cho with FBR Capital Markets. Your line is open.

Hi, Bill and Marco. How are you guys?

Hi, Min.

Just a quick -- two quick questions. First, just in terms of the storm activity. And I know that that's not a big portion of your business. But it sounds like Marco said that the first half of the year was fairly insignificant, as it has been in the past. But I know in the third quarter so far we've had, especially up in the Mid-Atlantic, kind of East Coast region, we've had a lot of storms, a lot of power outages. Could third quarter see some increased impact from storm activity?

Well, we don't particularly comment on what's going on in the current quarter, but I'm sure if there's crews out there and we get called upon it'd be in our results. I'm not sure what that impact will be at this point.

Okay.

I don't think, Min, there have been any widespread outages. Certainly, we've had crews out working the storm work I'm sure at someplace in the third quarter, but it's nothing like a major ice storm or a major hurricane. I do expect the hot weather that you've experienced I know in the D.C. area, and certainly this is true in the Midwest where Marco and I live, the electric system is being stressed. So, I'm sure there's some outages triggered with that. But I don't think anything widespread, where you've got a massive call for resources to travel several hundred miles to address the storm damage.

Okay. They just made it sound that way around here, I guess. And also, in terms of your balance sheet, obviously a very strong balance sheet. And I know that you're usually focused on kind of internal growth and equipment purchases as well. But are you finding that -- are you seeing any increased interest in making acquisitions? In other words, is scale becoming an issue on some of these larger project bids?

Well, scale is an issue and I think that's one of our advantages. There are just a few players that have our scale. Obviously, there's one player that has a larger scale than us. But there are a lot of people that do not enjoy the scale that we enjoyed and they're probably somewhat limited in what they can go after with these big projects.

Okay. Alrighty, great. That's it for me. Good luck in the second half of the year.

Okay. Thanks, Min.

Thank you. Our final question comes from Alan Weber of Robotti & Co. Your line is open.

Oh, good morning. Well, good afternoon. A question on the C&I business. When you talked earlier about excess capacity, do you need just an economic recovery to kind of fill up the capacity, or do you see kind of some competitors leaving the market?

Well, on the competitors entering or leave the market, there are some going by the wayside, but there are always new competitors coming in. Certainly, this used equipment market lowers the entry of barrier for people to get into the distribution business because it doesn't cost a lot of money to buy some distribution equipment. What we need is for general economic recovery across the country. That is what we're depending upon, and certainly not depending upon smaller players or less well-capitalized players getting pushed out by their bank.

No, actually, I meant on the C&I business.

Well, the same thing is true on the C&I business. I don't think we're dependent -- we'd like to see general economic recovery, and certainly we'd like it focused on Colorado and Arizona. There's not a work -- enough work for all of the inside wiremen in those two states. We think we have a good market share of those inside wiremen, but there are lots of guys sitting on the books ready to go to work in Colorado and Arizona.

I mean, and the same holds true on the C&I side. The companies that used to do small electrical commercial work are now not doing that kind of work anymore because of the economy. Now, they're kind of going after the higher end type of work that we pursue and that creates additional capacity, additional competition and, ultimately, impacts our margins.

And do you have any plans to expand outside of kind of the Colorado and Arizona markets?

We would look at following a customer outside of a regional market. You're probably not going to see us opening up shop in New York City or something like that. But if we had a customer who really valued our -- the expertise we bring to them, we would consider moving outside of those two states for select project work.

Okay, great. Thank you.

Thank you. I'm showing no further questions at this time.

Okay. Again, I'd like to thank everybody for participating on the call. We're excited about the opportunities in both of our markets. Hopefully, that comes through on the call. We want to thank our strong management team and employee base for all of their hard work and our shareholders for their continued support. And I should add that we really thank all of our good estimating talent for putting together some of these bids that we've been working on. So, that's an important part of our company.

I don't have anything further to add. We look forward to working with you folks going forward and speaking with you again on our next quarterly call.

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.