MYR Group Inc (MYRG) 2010 Q3 法說會逐字稿

Good morning, everyone. And welcome to the MYR Group third 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 third 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 you can go to the Company's website at www.myrgroup.com where a copy is available under the Investor Relations tab.

Also, a replay of today's call will be available until Monday, November 15th, 2010 at eleven fifty-nine p.m. Eastern Time by dialing 800-642-1687 or 706-645-9291 and entering conference ID 20142113.

Before we begin, I want to remind you that this discussion may contain certain 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 10-K for the year ended December 31st, 2009 subsequent to 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 third quarter 2010 conference call to discuss financial and operational results. I'll provide a brief summary of the 2010 third quarter results before turning the call over to Marco Martinez, our CFO, for a more detailed financial review. Following Marco's analysis, I will provide a little more information on our outlook for the industry.

As you saw in our press release, MYR's revenue decreased 5.7% for the third quarter of 2010 as compared to the same period of 2009. Gross profit margin for the third quarter of 2010 declined to 11.2% from 12.8% in the third quarter last year. Lower year-over-year revenues and gross margin are primarily attributable to a decrease in revenues from a few large T&D projects, as well as an overall decrease in revenue and margins from our C&I business.

Earnings per diluted share decreased $0.09 to $0.19 for the 2010 third quarter compared to the same quarter last year. Although we experienced a decrease in revenue and profitability in the third quarter we are generally satisfied with our results given the current difficult economic and market conditions. As you know, we operate in two broad market segments, Transmission and Distribution, or T&D, and Commercial and Industrial, or C&I. Those two segments are further broken down into many submarkets depending upon the end customer.

The T&D market is really the tale of two markets. The first is the market for distribution and small project work. This market remains very weak as utilities continue to defer work waiting for their electricity sales to increase and, or rate relief from their public service commissions. It should come as no surprise to you who follow the utility industry that many of our T&D customers saw a drop in industrial and commercial load when the economy fell into recession. The need for system maintenance and upgrade has not gone away, it's just being deferred.

We are as confident as ever about the long-term investment strategy of our T&D core business. Our business model relies on outsourcing increasingly becoming more attractive to utilities over the long term versus the utilities hiring new employees to self-perform the work as their workforce reaches retirement.

The other tale to the T&D market is large transmission projects. Here the picture is quite different. The bidding activity for large projects is as robust as we've seen for decades. Our estimating staff has been working lots of overtime since early summer trying to keep-up with the bidding activity on these major projects. So far, there have been relatively few awards announced on these major projects. However, we expect that to change dramatically over the next few months as the utilities and other transmission developers complete evaluation of bids and negotiate definitive contracts with their chosen contractors.

We remain hopeful of winning our fair share of these large transmission awards. Keep in mind that construction of these major projects will be spread over several years. Also be mindful that there will likely be a couple of quarters of lag from the announcement of any award until the successful contractor performs any meaningful construction and reflects any revenue on its books.

We are confident that many of these projects will come to fruition soon, and we're confident in our ability to win our share of these awards. We continue to invest in the specialty equipment and tooling to perform these big jobs, as well as recruit and train people to man the work.

Before turning the call over to Marco, I would like to say a couple things about are C&I work. As you know, the majority of our C&I work is performed in Colorado and Arizona, virtually all of our work is in large commercial, industrial, and Government sectors of these two regional markets. Over the past several months we have seen a slow-down of bidding activity in this segment. That does not mean the flow of bidding activity has totally dried up, it just means there are fewer opportunities to normal and the competition for these opportunities is intense.

We are fortunate to be a leading player in the submarkets for electrical construction of facilities for healthcare, wastewater treatment, Government office buildings, large manufacturing, data centers, high tech projects, and SMART highway work. We are glad not to be dependent on the residential and small commercial market.

We believe the economy will bounce back in Colorado and Arizona, and when it does we will be well positioned to capitalize on that growth. In the meantime we need to be extra smart with our bidding, reduce our operating and overhead costs as low as possible, and manage our work and contractual obligations carefully.

Now, Marco will provide the detail of our third quarter 2010 financial results, and then I'll be back to provide some additional insight on current market conditions and our perspective for the future of MYR. After that, there will be an opportunity for you to ask questions. So, with that, Marco, please begin?

Thank you, Bill. And good morning, everyone.

Yesterday after the market closed we announced our 2010 third quarter and first nine months quarter results. As Bill indicated earlier, we are pleased with our overall results given the market conditions, even though we experienced a decrease in revenues and gross margins in the third quarter of 2010 compared to the third quarter of 2009.

During the quarter we continued to see increased competition in bidding projects in both our T&D and C&I segments, which has pressured our overall margins. Our revenues for the third quarter of 2010 were $152.8 million, a decrease of $9.3 million or 5.7% lower than the third quarter of 2009.

For the 2010 third quarter our T&D segment revenues decreased about $800,000 to $118.2 million and our C&I segment revenues decreased $8.5 million to $34.6 million as compared to the third quarter of 2009.

Within our T&D segment we recorded revenues of $78.5 million for transmission and $39.7 million for distribution during the third quarter of 2010. For the third quarter of 2009 we recorded revenues of $90.4 million and $28.6 million for transmission and distribution, respectively.

In the third quarter of 2010 transmission revenues decreased $11.9 million or 13.2%, while distribution revenues increased $11.1 million or 38.9% as compared to the third quarter of 2009. Overall our distribution market remained soft, with increased competition. The increase in our distribution revenues simply reflects that we have taken some market share from other contractors, as we have stated on our prior calls.

Transmission revenues were down in the T&D segment, mainly as a result of a decrease in revenues from a few large transmission projects being executed in the third quarter of 2010 as compared to the third quarter of 2009. This decrease was partially offset by period-over-period increase in revenues generated from distribution projects. The majority of the increase in distribution revenues in the third quarter of 2010 was a result of increased spending on smaller projects in one of our regions compared to the third quarter of 2009.

The decrease in consolidated revenues in the third quarter of 2010 compared to the third quarter of 2009 was mainly attributable to a reduction in revenues generated from a few large T&D projects, as well as an overall reduction in revenues from the C&I segment. Storm revenues in the third quarter of 2010 and 2009 were minimal.

Gross profit in the third quarter of 2010 decreased to $17 million or 11.2% of revenues compared to $20.7 million or 12.8% of revenues for the third quarter of 2009. The decrease in gross profit margin as a percentage of revenues was mainly the result of negative margin impact resulting from a combination of pricing pressure from increased competition in both segments of our business and some lower productivity levels on a few large transmission projects as compared to prior contract estimates.

Third quarter SG&A expenses decreased 12.4% to $11 million compared to $12.6 million in the third quarter of 2009. The decrease was primarily due to a net decrease in profit sharing and other employee related compensation and benefit costs. This decrease in SG&A was partially offset by a $600,000 increase in expenses related to an unfavorable outcome in a lawsuit against one of our subsidiaries.

EBITDA, which is a non-GAAP financial measure and is reconciled to the GAAP measures in our press release, decreased to $10.2 million in the third quarter of 2010 compared to $11.5 million in the third quarter of 2009.

And the provision for income taxes was $2.2 million for the three months ended September 30th, 2009 with an effective tax rate of 27.2%, compared to $1.9 million for the three months ended September 30th, 2010 with an effective tax rate of 32.6%. The increase in our overall effective tax rate for the three months ended September 30th, 2010 as compared to the same period of 2009 was mainly due to the differences in discrete tax adjustment items recorded during each quarter. The discrete tax adjusted items recorded during the third quarter of 2009 was a tax benefit of approximately $900,000, related to discrete tax items upon the completion of our 2008 income tax returns.

The only material discrete tax adjustment recorded during the third quarter of 2010 was the recognition of approximately $300,000 in increased state tax benefit and certain Federal tax credits upon the completion of our 2009 income tax returns. In addition to the discrete tax adjustments the 2010 period also benefitted from the impact of reducing our annualized estimate of provision for income taxes from 39% to 38.5% before discrete items during the current quarter.

Third quarter 2010 net income was $3.9 million or $0.19 per diluted share compared to second quarter 2009 net income of $5.8 million or $0.28 per diluted share. Now, for the first nine months of 2010 we reported revenues of $441.9 million, which represents a decrease of $16 million or 3.5% as compared with the first nine months of 2009. Our T&D segment reported revenues of $328.8 million for the first nine months of 2010, a decrease of 4.3% over the same period of 2009. Our C&I segment reported revenues of $113.1 million for the first nine months of 2010, a decrease of 1% over the same period of 2009.

The overall decrease in our consolidated revenues for the first nine months of 2010 was mainly the result of a decrease in revenues from smaller projects in both reporting segments and a decrease in revenues from a few large transmission projects. These decreases were mostly offset by an increase in revenues generated from a few large C&I projects. Storm revenues for the first nine months of 2010 and 2009 were minimal and did not have a significant impact to our operating results.

Consolidated gross profit decreased 13.5% from $56.5 million for the first nine months of 2009 to $48.9 million for the first nine months of 2010. The decrease in gross profit was primarily attributable to an overall reduction in contract margins on smaller T&D projects of approximately $6 million, which was partially offset by a net increase of approximately $400,000 in contract margin impacts from larger projects in both reporting segments period over period.

SG&A expenses decreased approximately $3.3 million or 9.2% to $32.6 million for the first nine months of 2010. The decrease related primarily to a few items, the elimination of a $1.6 million severance liability as a result of the amendment employment agreements for executive officers in March of 2010 and an overall reduction in profit sharing and other employee related benefit costs. As a percentage of revenues SG&A decreased from 7.8% the first nine months of 2009 to 7.4% for the same period of 2010.

For the first nine months of 2010 net income was $10 million or $0.48 per diluted share compared to net income of $13 million or $0.63 per diluted share in 2009. EBITDA for the first nine months of 2010 was $28.6 million or 6.5% of revenues compared to $30.4 million or 6.6% of revenues for the first nine months of 2009.

As Bill indicated, we continued to invest in equipment and manpower development in anticipation of increased T&D infrastructure spending across the United States. In the first nine months of 2010 from a cash flow perspective we purchased $12.1 million of equipment compared to $20.3 million for the same period of 2009. We anticipate that our investments in capital expenditures for the full year of 2010 will be less than our total capital expenditures in 2009. However, we anticipate that our capital expenditures in the fourth quarter will significantly increase compared to each of the three quarters of 2010.

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 and additional property and equipment substantially through internal cash flows and cash on hand. Furthermore, we believe purchasing equipment as opposed to leasing will continue to reduce our long-term equipment costs, which should allow us the opportunity to improve contract margins.

Total backlog at September 30th, 2010 was $195.1 million consisting of $115.6 million in the T&D segment and $79.5 million in the C&I segment. T&D backlog at September 30th, 2010 decreased 32.4% compared to backlog at September 30th, 2009. C&I backlog at September 30th, 2010 decreased 1.4% compared to September 30th, 2009. The decrease in backlog comparing the third quarter of 2010 to the third quarter of 2009 was primarily related to the 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 September 30th, 2010.

Total backlog at September 30th, 2010 was $4.5 million lower than the $199.6 million reported in the prior quarter ending June 30th, 2010. By segment we had a decrease of $8.5 million or 6.9% in our T&D backlog, which was offset by an increase of $4 million or 5.3% in our C&I backlog compared to the backlog reported as of June 30th, 2010. We reported T&D backlog of $115.6 million as of September 30th, 2010, of which we estimated $3.6 million will not be recognized in the next 12 months. In the C&I segment we reported $79.5 million of backlog as of September 30th, 2010, all of which we estimate will 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 may count one or more years.

Moving to the balance sheet, our stockholders equity increased from $174.1 million at yearend of 2009 to $186 million at September 30th, 2010. At September 30th, 2010 we had approximately $39.2 million in cash and cash equivalents and $30 million in debt. We maintain a debt to total capitalization ratio of 13.9%, 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 31st, 2012. We have a $15 million letter of credit outstanding under the credit facility, leaving $60 million available. The combination of cash and cash equivalents and available credit under our facility provides us with approximately $99.2 million in total liquidity which can be used for organic growth or other investment opportunities.

We are very focused on maximizing the utilization of our assets, which has resulted in an asset turnover ratio of approximately two 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, and specialized fleet, safety record, and our national presence puts us at a competitive advantage to continue benefitting from the expected infrastructure build out by our customers.

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

Thanks, Marco.

I'd like to expand on my earlier comments about how we see our business developing in the near future. As I mentioned on our second quarter conference call, we have seen a few major transmission projects delayed due to permitting issues and, or lower peak load forecasts by independent regional system operators, like PJM. Generally speaking, these projects have not been cancelled but rather they have had their targeted in-service dates extended. On the flip side there have been some new projects added to our radar screen that were not visible last year.

We continue to see positive movement on approvals for project sitings in the Midwest, Texas, Northeast, and the West. This movement has triggered a significant increase of large project bidding activity over the last few months.

The first four projects making up the CapX2020 work in Minnesota were bid in last quarter and are still under evaluation. These four projects total about 640 miles of new 345 lines and 69 miles of new 230 lines.

The rest of the Midwest has also experienced brisk bidding activity for major transmission work. That includes places, like North Dakota, Kansas, and Oklahoma.

The 2,400 mile 345 build out associated with the CREZ work in Texas remains on track, and some of those bid opportunities are already in the market. Encore and lower Colorado Authority have started some of their projects in Texas. The other six CREZ transmission developers will likely make their contractor selections later this year or early next year, with most construction starting in 2011. Given our utility construction performance in Texas, relationships with the participants, and resource capabilities we believe MYR is well positioned to win a portion of the CREZ work.

The Eastern U.S. has also had some significant new transmission lines planned over the next few years in places, like Connecticut and New Jersey, New York, Pennsylvania, Maine, and Virginia. For the most part these big transmission projects are moving forward as expected.

Rounding out the country, our industry could see major awards in the West this year for discrete 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 to two Federal transmission utilities, on a Bonneville Power Administration, or BPA, and Western Area Power Administration, or WAPA. 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 first section of the Southwest Intertie Project in Nevada is an example of how some big transmission projects are being developed and funded. In October the Department of Energy announced a $350 million conditional loan guarantee for the first 235 miles of this 500 kV line known as One Nevada Transmission Line. The line will be jointly owned by NV Energy, a traditional investor owned utility and an LS Power Subsidiary, called Great Basin Transmission. This 500 kV line will ultimately be about 500 miles in length.

Another example of a public, private venture for large transmission is WAPA's nonbinding agreement between WAPA and TransWest Express to potentially acquire a 50% stake in the TransWest Express Transmission Project. This is a 725-mile proposed DC line which will deliver energy from Wyoming to electric utilities in Arizona, Nevada, and California.

Across the country we continue to see opportunities in the renewable energy market. While the proposed Federal renewable electricity standard has not passed yet in Congress we currently have 29 states plus the District of Columbia with renewable standards and another seven states with renewable goals.

The U.S. solar market grew about 36% in 2009, and is expected to continue growing at a rapid pace with some predicting potential tenfold growth by 2019. MYR Group is focused on delivery systems of this type of generation.

According to the U.S. Energy Information Administration's October 2010 short-term outlook electricity consumption in our country is estimated to rise approximately 5% in 2010 after declining in both 2008 and 2009. Their forecast for 2011 shows flat KWH usage as compared to 2010 levels, which benefitted from extreme temperatures, more extreme temperatures than normal in 2010.

Virtually all forecasters expect increased electricity consumption over the long term as our economy becomes increasingly dependent on modern convenience made possible by electricity. As many of you are aware, maintenance and upgrade projects that utilities have deferred because of the economic slowdown can only be deferred for so long, especially when electricity consumption growth returns.

Specifically as it relates to transmission, the Edison Electric Institute forecasts that investor-owned electric utilities will increase their investment in transmission from about $9.7 billion in 2010 to approximately $12.3 billion in 2013.

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've said in the past, our focus on healthcare, Government office buildings, research centers, SMART highway work, data centers, mining, wastewater treatment facilities have 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 as the economy rebounds and various T&D and C&I 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 utilities and C&I clients.

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

(Operator instructions.)

And our first question comes from Adam Thalhimer with BB&T Capital Markets.

Good morning, guys.

Good morning.

Hey, Adam.

Bill, I'm sure you've heard the rumor that you guys were the low bidder on One Nevada. Would you care to comment on that, that it's done?

Adam, we are in discussions with the folks at NV Energy and LS Power, but I don't have any further comment to make on that at this time.

Okay, and is your backlog as it looks today any different than it was at the end of September?

At the end of September of last year, or is that --

Well, I guess just figure today kind of early to mid October, is the backlog any change since September 30 of this year?

Well, I mean we're consistently just seeing normal projects that we typically have, small and large, but nothing different.

Okay, and then a last question for me, as it relates to the Virginia job, Bill and Marco, how has that progressed versus your expectation in terms of profit? And when is that expected to complete?

The project has progressed well. It's expected to complete in June of 2011. We've had a good fall weather-wise in Virginia, and I know you're located in that area. So it is progressing well. We're -- have men on both the Meadow Brook to Loudoun piece, which is part of the Trail Project, and we're well into construction on the Carson-Suffolk Project, which is in the southern part of the State, so I'd say both are progressing well.

Okay. Thanks for your time.

Our next question comes from Jeff Beach with Stifel Nicolaus.

It's Nathan Johns in for Jeff. Good morning.

Hi.

I was hoping you could give us a bit more color on the $2.3 million lower gross margin that you called out as a combination of pricing and execution issues, what was pricing, what was execution, and where those things fell?

Well, when you look at the third quarter I think we have in the queue projects greater than $10 million, we had a reduction in margins of roughly $1.2 million. And then on projects, what we consider of smaller value of less than $3 million we had roughly $1.1 million of writedowns. And those could be associated to weather productivity, it could be change orders that we haven't received execution on so we're incurring the costs and until we get those change orders we won't recognize any profits associated with it.

Okay, but and there's no greater color you can give on what you were separating into execution versus pricing on those, out of that $2.3 million?

No, we really can't do that. We don't track that. Certainly there has been pricing pressure. Of course, a lot of the projects that we're running through our financial statements today were projects that were bid in the end of 2009 and early 2010 when the market was really contracting. So, but we do not try to sort out and slice and dice it that finely. We've had some underperforming projects that we've had to recognize, and we continue to deal with very tight margins in our business.

Okay, and then in the C&I segment you had a very strong bookings quarter in the second quarter, which doesn't seem to have ramped up revenues yet. Can you talk about the duration of that backlog and when we should expect to see a ramp-up from the projects booked in the second quarter?

Well, typically our backlog continues to burn, like historically anywhere from three to six months. We might have been awarded some work in the second quarter that they're still mobilizing on and hopefully in the fourth quarter you'll start to see some of that come to fruition.

And, the last one for me, we've been hearing many utilities forecasting a fairly substantial increase in distribution spending over the next year or two. Can you talk about what you're hearing from your customers and what your outlook in the distribution market is in the short to medium term?

On the distribution side, you know, we've got a mix of both, those that are apparently going to ramp-up their distribution spending in 2011, and we've got some that are expecting tighter spending in 2011 versus 2010. So I don't think at this stage I'd be able to predict which one is going to outweigh the other one. But we definitely have clients and prospects going in both directions.

Okay, thank you very much.

Our next question comes from the line of Carter Shoop from Deutsche Bank.

Good morning. A clarification to start-off. Are you the only transmission contractor currently in discussions with NV Energy and LP Power for One Nevada?

I don't have anything more to report on that, Carter.

And then in regards to the competitive pricing environment can you talk about how it's changed versus three months ago, and then how you see it playing out over the next one to two years? You know, can we get back to a pricing environment similar to 2008 levels within one to two years?

I would think that is very possible. Long-term margin opportunities with the influx of all these big transmission projects I think could get significantly better, but as we sit here today it's still very tight but it could change substantially in the next six months.

And what about the pricing environment versus just three months ago? Any notable change?

Well, I guess three months ago or six months ago we didn't have as many of these big transmission jobs. I don't think there's been any change in the distribution pricing, maybe the C&I pricing has weakened a little bit, the small project T&D work has not changed. But we -- six months ago we didn't have a whole bunch of large transmission jobs, so those bigger transmission jobs are ones that we think we're particularly well positioned for, there's not quite as much competition for those because not every family-owned business can be bidding those. So the mix of opportunities that you have a chance to bid since we've had more large projects, there's probably some improvement.

Okay, that's helpful. And then can you discuss what storm revenue was in the quarter? It looks like distribution related revenue was up 26% versus the June quarter, how much of that had to do with an increase in storm revenue?

Carter, it's very minimal in comparison to 2009. The most of that distribution revenues is just the fact that our customers in the Northeast had spent a little bit more on distribution than they did the previous quarter.

And then last question on the C&I side, you guys sounded a little bit more cautious on that market versus a quarter ago. Bookings were down sequentially but still at a relatively healthy clip relative to what you've been doing in the past six to eight quarters. Is your commentary more a reflection of the bidding activity you see right now and you'd expect bookings to start to slow-down in the December quarter, or am I misreading your commentary?

I don't know that you're misreading it. We have seen a slow-down in bidding activity in the last 90 days. Whether that's a temporary aberration I can't predict. I'm certainly hopeful that it bounces back here in the next 90 days, but in the last 90 days we have not had as many opportunities either number or dollar weighted as what I think we were seeing six months ago, but it could be a temporary aberration.

Is there a way to quantify the slow-down? I mean are you seeing the bidding activity get cut in half versus three to six months ago, by a quarter, any kind of commentary would be helpful?

I don't have any quantification. It just doesn't feel as strong.

Okay. Thank you very much.

Our next question comes from Steve Sanders with Stephens.

Hi, guys.

Morning, Steve.

Thanks for all the color on the transmission projects. We've obviously seen delays in bids being submitted and we've seen delays from the award to the construction. You guys seemed pretty convinced that over the next few months we're going to see the logjam break. So I just wanted to see if you could maybe address what are the potential risks that a significant percentage of these projects continue to get shifted to the right? And if it happened, why would it happen?

Of course, there's always risk in this business. There could be some kind of restraining order if somebody, you know, some regulatory proceeding gets some injunction where you're prohibited from moving forward. I don't anticipate that but I've been involved in utility regulation long enough where I know there are opportunities for people to throw-in lawsuits and cause things to get sidetracked for awhile.

But I think a lot of the projects that we've been tracking, they've been battling with regulators and adversarial groups, and I think a lot of those battles are behind them, and I guess I expect them to move forward. Certainly the owners of these projects or the developers of the projects are spending a lot of money, and still these projects are going to happen. Certainly we're investing a lot of money in estimating this work, and they're spending a lot of money in preliminary planning and permit applications and acquiring right-of-way, and so they're proceeding as these projects are go projects.

Okay. Okay, and then you've been making the investments in the equipment and the people over the last couple of years, how should we think about your capacity for large jobs? Does it kind of feel like there's going to be a bit of a flood of projects over the next couple of years, so where do you stand in terms of capacity versus maybe a few years ago?

Well, we definitely feel a lot better about our position capacity wise, as we've suggested on prior quarterly calls that we're trying to get our self in a position where we can handle three or four of these big jobs simultaneously. And the nature of these jobs, many of them are still being broken down into segments. The overall project may add-up to $75 million but they may split it up into three or four pieces. And while you may get the initial piece of that and no commitment on their part to give you pieces two, three, and four, but you're certainly well positioned. They're better positioned than anybody else to get that follow-on. So our capacity we've been gearing all along to be able to handle three or four of these big projects.

And I know many of the queries we get from analysts trying to define was that $100 million or greater or $50 million, what do you define it, and it's really quite dependent upon whether the job has a lot of subcontractor costs or material costs. Some of our work does and that inflates the revenue that would flow through our books. In other cases there's less subcontracting cost, less material, and an example might be if the owner decided to directly contract for the foundations and right-of-way clearing. Most times they leave that as part of our scope, sometimes they don't, and that's a significant part of the overall project cost. Same way on materials, in some cases we're providing the poles and the wire and the insulator and all the hardware, in other cases the client is providing that stuff. That has a lot to do with the dollar value.

As we look at big projects it is how much is it going to take in the way of manpower and equipment, and you could have a project that's going to have $30 million of revenue could require more of those MYR provided resources than a project that's $100 million project. So it's pretty hard to generalize on the total value.

Okay. Okay. Thanks very much for that color. And then two other quick ones, as you look at the bidding activity on the larger projects does it feel like the margin potential in those -- on those projects is comparable to what we've seen in kind of the '08 or '09 time period when things were a bit better? And then the last question is a follow on the C&I, is it Arizona more than Colorado? Is it healthcare more than Government? Is there any additional color you can shed on some of the weakness you're seeing there?

Well, the first part of your question I think the margins on these bigger transmission opportunities I think quite possibly I certainly expect it to be in the 2008 range. I expect it to get better than 2008 because I don't think 2008 was all that fantastic, and there certainly wasn't the number of large projects in the market in 2008 as what's the case here in the second half of 2010.

In terms of your C&I question, Colorado feels better than Arizona. There are certainly opportunities in both markets. Both of them were hard hit with the recession, but I think Colorado feels a little better to me than Arizona. I can't really judge in terms of by type of facility, be it healthcare or wastewater treatment, because both of those markets have those types of facilities, and we have great teams of people that do hospital work, that do wastewater work, so I guess I don't really have any shading to provide there.

Okay. Thank you very much.

Our next question comes from Craig Irwin from Wedbush Securities.

Thank you, gentlemen. Most of my questions have been pretty thoroughly answered, but the one thing I'd really like to ask is gross margin and backlog, is there any material difference between the gross margin or the average gross margin in your backlog and recent execution over the last couple quarters?

Well, we don't really report on the margin in backlog. That's certainly information that we have but -- and it fluctuates a lot, you get in our case you had a significant project and it may have a higher than normal margin or higher than what the average is. Conversely, it could add a significant project that has a lower margin than the average. So we -- it does fluctuate up and down, but I don't think we necessarily see any trends in it.

In general we have provided our commentary around there is a lot of pressure on the margins considering all the competition that's ongoing right now, so.

Okay, then a slightly different way to get at what I wanted to understand is when you're bidding work right now is the priority to maintain capacity and maintain utilization of your existing fleet, your existing workforce, or are you looking for improved pricing in the projects that you're bidding in the market right now today?

That's an excellent question, and we approach that regionally. There are some areas of the country where we may have equipment and manpower, good manpower sitting, and we want to hold on to those people. We could be more aggressive to accept lower margins, all other things being equal in that little regional market.

Conversely there are areas of the country where we're fully loaded. We've got all the work we need for the quality of manpower we can find. There are some areas of the country where there's a shortage of people. And in those cases we try to add a little more margin in our bids to reflect that. So it's, you know, we're a national player but what we really are is a player that competes in a whole bunch of regional markets.

Great, understood, understood. And then one of the things that's very clear to investors is that you've done an excellent job preserving profitability during the down cycle, and wringing out cost. Can you comment on the overall level of capacity that you've preserved? I mean how quickly can you flex back-up your workforce and your overall execution capability if the market was to really flex-up in the next several quarters?

Well, we think we can flex-up to handle significantly more work. Certainly part of it, let's say back to when the Company went down the public Company path, I think we're pretty much where we need to be on those public Company costs. Certainly we're going to still incur some costs, and there's some things that we want to do as a public Company that we're not fully where we want to be. But I think a lot of our overhead cost being a public Company, are understood and already reflected in our numbers. So I think that overhead cost can be ramped up.

The -- some of our operations, you know, we've really asked our employees to tighten their belt. We've not been, you know, giving out lots of raises and lots of bonuses, as our business has declined. I definitely would expect as our business ramps up, assuming we're successful and generating some significantly greater profits there'd be a higher component of that shared with employees. So our business, we can tighten our belt, and we think it is scalable when things get better.

Great. So it sounds like really for earnings and then gross margins to recover what you need is a little bit more participation on the side of the market. And observing load growth, three quarters of nicely positive load growth. We haven't had that since 2007, and I assume the utilities are scrambling to figure out how they're going to accommodate peak loads and setting new peaks across the country. Can you comment sort of whether or not you're discussions with utilities are indicating 2011 will be a much bigger year for the geographies that you serve, where you could see better utilization sort of across the industry? Is this something that's consistent with your conversations?

I think to answer another question, there are some customers we talk to that are expecting a nice increase in their spending on distribution and small projects, others are preparing us for a reduction over what we've had this year. So I think I'm not in a position to say which one would be more dominant than the other. But there are some utilities that are, you know, we've gone about two-and-a-half years where the utilities have really pulled back on their distribution spend, and we've had two-and-a-half years where there have not been any significant storms to really test their systems.

So I think some of our customers are on borrowed time in terms of maintaining and improving their systems, and when it gets exposed is when they have stress either in the form of storms that test the physical part of the system or high demands where they start popping transformers because they haven't changed them out and upgraded them as the load has grown. So I think some of our customers are on borrowed time in terms of spending money on their systems.

Okay. Thank you. Thanks for taking my questions.

Our next question comes from the line of William Bremer with Maxim Group.

Good morning, gentlemen. Nice quarter while you've been blocking and tackling awaiting these contracts to be awarded.

Thank you.

First question, on bookings, let's go to the T&D area, can you sort of give us the break-down of the percentage to transmission versus distribution? I mean we had a very nice sequential increase here.

I don't have that broken down by those categories, but overall bookings for T&D were $109.7 million, and C&I was at $38.5 million.

Okay, and also just a little housekeeping question, what type of tax rate going forward should we be utilizing?

You probably should use 38.5% is the right number.

And into '11?

38.5%.

Okay, great. That's all I've got.

Okay.

Our next question comes from the line of [Justin Hach] with Robert W. Baird.

Good morning, guys. Just last couple questions here. So I guess the first one is just to kind of help us think about what the universe looks like out there. Can you quantify in addition to the One Nevada Line how many projects have you specifically bid that are within your large projects universe that you're talking about you're expecting awards on within the next several months?

Well, there are more than five that we've bid, and some of these projects are not discrete projects, necessarily. Some of the projects, as I indicated earlier, are broken down into segments and whoever might be selected for that they may not give all of those segments to one contractor, they may reduce it down to actually retaining two or three contractors, and then maybe go to another round of bidding, or they may make awards and allocate the work among the contractors. But there are more than five opportunities that I would say we'd consider very significant.

Okay, and then consistent with your commentary of the lag between award and revenue recognition, say things shake-out the way we're hoping it will and you do get an award announcement or two here before the end of the year, would it be fair to assume that there wouldn't be any revenue contribution on that until probably 2Q or even 3Q of '11?

I think that would probably be the baseline, a couple of quarters for the project to get ramped up. There are some that are more construction ready than others, where you could conceivably have some revenue in the quarter following the announcement, and some have more planning and engineering to do than others. But I think on average a couple of quarters before you're going to start to see any significant revenue, but very project specific.

Great, and just another question, it's housekeeping, but do you have a figure for what's your backlog would have been ex the Dominion burn this quarter?

No.

Okay, all right. Thank you.

Our next question comes from the line of [Sagar Park] with KeyBanc Capital Markets.

Sagar Park on behalf of Tahira Afzal. Most of my questions have already been answered, but just one on again the C&I settling, you said there was a slow-down in (inaudible) in Arizona. With that, the type of competitors that have been coming in, large competitors, small competitors from, you know, which regions of the U.S. have they been coming from, and impact on margins?

Well, the competitors they're both -- there's some new ones that are sizable players that are in other regions of the country that have not been in Colorado and Arizona, so we've seen some well funded competitors come into our market. But probably more than that in terms of impacting the margin we've seen would be small operators dealing with residential construction and commercial construction now trying to move-up the food chain and tackle larger projects. So we've seen both. Some sizable new competitors come into a new region, but probably affected more by these family-owned businesses moving out of residential into large commercial.

Great, great. Thank you, and one more, you said there's five projects in the transmission side that you guys are seeing significant opportunities that you've bid on. How many more are in your pipeline that you would see as a significant opportunity going forward?

I don't have a number, there are a number of projects behind [basis].

Sounds great. Thank you very much.

Our next question comes from John Braatz with Kansas City Capital.

Good morning, gentlemen. Two questions. Bill, you had mentioned that you think you're in a position to handle three to four large transmission projects today given the investments you have made. How would that compare to maybe 2007, 2008?

Probably double the capacity.

Okay. Okay, all right. And then, secondly, talking a little bit about renewals, renewables, excuse me, the environment in Washington is a little bit different today than it was two months ago or a month ago, and when you look at natural gas prices you can maybe draw the conclusion that natural gas could be a fuel of choice for utility companies. What are you seeing out there in terms of wind energy? Are there any projects being tabled, cancelled? And when you look at your opportunities out there does wind really make a difference at this time or is it just likely to see that, are we likely to see wind not be much of a, at least at this point, part of the utility spending projects?

I think wind is, you know, it's a measureable affect today, but I think it has the potential of growing significantly. It has not been what I'd consider strong in 2010, and I don't -- from like turbine manufacturers I expect 2010 may not have been as strong as like 2008. But there are a lot of projects on the drawing board that are coming.

The sales cycle on doing renewables, you do a lot more budgeting for the developers always, and not all of them come to fruition, so it takes quite a significant effort to estimate all the wind work and solar work as they've worked their way through permitting and funding. So I think both of them are great markets to be in, and I'm glad we're in them and, but it does take a lot of effort, for every one that comes out the door and is finalized there are probably two or three that are still staying in the developmental stage.

Okay, all right. Thank you very much, Bill.

Our next question comes from Dan Mannes from Avondale.

Good afternoon, everybody.

Hi, Dan.

A couple of quick follow-up questions and maybe taking a different tact in terms of bidding activity. Rather than the number of projects could you talk about maybe the dollar value of the bids outstanding on large projects and maybe contrast that to where that was the last quarter or two?

It's substantially greater. I don't have the numbers. What we're looking at, Dan, is the number of skilled manpower and we're looking at the number of wire setups it takes to do the work, and that includes a lot of component equipment and tooling to do it. So that's the constraining thing.

And, as I tried to explain earlier, a $50 million project could be more demanding on us than a $200 million project depending upon to what extent you've got material and subcontractors. So as we look at our resources it's not what is your capacity to do $100 million jobs, it is how many people, skilled people does it take to do the job, and how much specialty equipment, and that's the resources that we're trying to manage.

Okay, just making sure I understand completely. But going back to sort of the relative value of what's outstanding, and I just given your tone about your optimism about potential awards coming out, I'm trying to contrast the bidding activity now versus maybe optimism in late '08 about potential. I don't know if you can talk about maybe a different tone by the utilities or maybe the difference it is between when a bid actually comes out versus what you're expecting them to come out? Are there scenarios where bids are submitted and yet the projects don't move forward, or is that more the rarity, you know, something like a Susquehanna or Roseland? I'm asking kind of a roundabout question, but it just certainly feels different.

That's kind of a roundabout question. I guess I just think that there's substantially more projects in the market today than 2008 by multiple.

And that's what supports your optimism about the awards?

It supports my relative optimism. I don't think in 2000 to 2008 there was never more than four or five of these big projects in any of those years. Now, I think there could be a doubling, tripling, a quadrupling of the number of opportunities out there.

And by that just if the aggregate side, as well as where it is in the bidding process, versus things just being talked about?

Right.

Got it. And then the last thing I wanted to ask is on the competitive environment there are a handful of people who've talked about over time their involvement in large bidding, in the large product bidding. Have you seen any increase in people trying to get involved or is it still basically the same cast of characters?

There are some new folks trying to get in.

Okay, got it. Thanks.

And our next question is a follow-up, Jeff Beach from Stifel Nicolaus.

Hi, I was just wondering if you could tell me into which segment the $0.6 million dollar (inaudible) charge went into? And ex that charge SG&A was down about the same amount. Was that due purely to reducing (inaudible)?

Is the $0.6 million related to a lawsuit, is that what you're referring to?

Yes.

That was in (inaudible) SG&A.

So it didn't fall into either T&D or C&I on an operating level?

Not the costs associated with that, that got booked to SG&A.

Okay, and the sequential reduction in SG&A absent that cost?

It's just associated with the profit sharing and the compensation costs and other benefits that we adjusted for the quarter.

Okay. Thank you.

(Operator instructions.)

And I'm showing no further questions in the queue. And I'd like to turn it over to our speakers for any closing remarks.

Well, this is kind of an exciting three months, quarter for us, as you hopefully can pick-up from the call. I'd like to thank everybody for participating on the call. We're obviously excited about the opportunities for our two markets. We've got a great Management Team, supported by a lot of really dedicated employees, and certainly we appreciate all of their hard work and commitment to our Company.

Also appreciate the stockholders for their continued support. I know this investment theme hasn't always produced as immediate results as what I think some would hope, but I think you will be rewarded in the long term.

I don't have anything further to add. Look forward to talking to you next quarter.

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.