MYR Group Inc (MYRG) 2011 Q3 法說會逐字稿

Good morning, everyone, and welcome to MYR Group Third-Quarter 2011 Earnings Results Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Philip 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 earnings results for 2011, 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 www.MYRgroup.com, where a copy is available under the Investor Relations tab. Also, a replay of today's call will be available until Tuesday, November 15, 2011, at 11.59 PM Eastern time, by dialing (855) 859-2056 or (404) 537-3406 and entering conference ID 19116676.

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 risk 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 quarterly report on Form 10-Q for the third quarter of 2011 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 2011 Conference Call to discuss financial and operational results. I'll provide a brief summary of the 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 some additional information on our outlook for the industry. And, at the end, we'll welcome any questions you may have.

I'm pleased to report we experienced revenue growth in both of our business segments during the third quarter of 2011, compared to the same quarter last year. This revenue growth, all of which was organic, translated to higher gross profit dollars, EBITDA, and earnings per share. Our earnings grew in spite of a lower gross margin percentage, which we will discuss later. Additionally, we increased our backlog slightly from what we reported last quarter.

Diluted earnings per share were $0.20 for the third quarter of 2011, which represents a 5.3% increase over the third quarter of 2010. EBITDA for the quarter was 14.2% higher on a year-over-year basis. Revenue increased $57.7 million, or 37.8% in the third quarter of 2011, compared to the same period in 2010. We experienced revenue growth on both sides of our Transmission and Distribution business, as well as in our Commercial and Industrial business.

On the T&D side of our business, we saw revenue growth of 44.5% during the third quarter on a year-over-year basis. The increase in revenue was mostly driven by several large transmission projects. Distribution revenues also increased, compared to the same quarter last year. This was a result of greater volume of storm work in the third quarter of 2011, as compared to third quarter last year.

Revenues for our C&I segment for 2011 third quarter increased by 14.7% as a result of increases in revenue on several projects. Gross profit increased to $19.8 million in the third quarter, from $17 million in the same quarter last year, which represents an increase of 16.3%. Gross profit as a percentage of revenue decreased to 9.4% for the quarter, compared to 11.2% for the same quarter last year.

The majority of our decrease in gross profit margin, quarter over quarter, was due to a significant increase in insurance expense largely attributable to an increase in our self-insurance reserves related to the development of a few claims from prior years. As Marco will outline later, these higher insurance reserves adversely impacted our gross margin by approximately 1.1%

Gross margin was also impacted by the under-utilization of certain fleet assets during the first two months of the third quarter. As you know, we are in the early stages of construction on several large transmission projects. As we ramp up construction on a typical transmission project, we tend to use our specialty equipment less and rely more heavily on subcontractors for road building, right-of-way clearing, and foundation installation. Once our subcontractors get a good start on their work, we begin ramping up for the scope of work we normally self-perform. That includes framing and setting the structures and installing the conductor. Until all phases of construction get rolling in earnest, some of our specialty equipment may be under-utilized.

With the anticipated influx of transmission work in the next five to 10 years, we continue to believe it is essential to secure specialty transmission equipment and tooling before the start of construction. Some of this equipment and tooling is in scarce supply, and manufacturing lead times for new equipment can be six months to a year. Also, we continue to believe our strategy of purchasing this specialty equipment, versus leasing, should benefit margins and improve our competitiveness over the long term.

Total backlog at September 30, 2011, increased to $721.4 million, from $195.1 million at September 30, 2010. Most of this growth was related to several large projects were awarded late in 2010 and in the first half of 2011. This quarter's backlog still does not include any revenues for the CapEx 2020 work in Minnesota or the Electric Transmission Texas projects. For both CapEx 2020 and ETT, MYR Group was selected as one of the contractors to perform part of the very large scope of work. These projects were not included in backlog as of June 30, 2011, or September 30, 2011, because the scope of work has not yet been defined, and therefore does not meet our backlog criteria.

Our utility distribution and C&I businesses remained soft in the third quarter. As a result, we experienced continuing margin pressure in these markets with more contractors competing for fewer available projects in order to keep their labor and equipment resources busy. We expect overall gross margin in the next few quarters on utility distribution projects to remain under pressure until utilities start experiencing sustained load growth on their systems, and/or are granted rate relief from their public service commissions. Our C&I business depends on the overall pace of activity in Colorado and Arizona, where there is no pent-up demand for construction services due to under-investment over the years, as may be true for our T&D business.

As Marco will discuss later, our Distribution business did perform some storm work in the third quarter that contributed to revenues and margins. In the T&D segments, where revenues grew 44.5% during the 2011 third quarter, compared to the same quarter last year, we provide a full range of services across the country. Along with major large transmission projects, we execute hundreds of small-project work orders during the year, consisting of transmission, substation, and distribution projects. We also continue to market our renewable business, which includes underground collection facilities and solar panel installation, as well as transmission and substation construction for interconnection of these projects to the grid.

We believe bidding activity for major new transmission projects and related upgrades should continue to be strong over the next few years, and we remain optimistic regarding the long-term opportunities in these markets. We remain confident about our long-term investment in our distribution and small-project markets, and we continue to believe the outsourcing of services, as opposed to the utility's hiring employees to self-perform the work will become increasingly more attractive to utilities over the long term. Outside contractors should comprise a larger percentage of the overall T&D workforce in the future, primarily due to contractors' flexibility to ramp up their work force up and down.

On the C&I side of the business, where revenues grew 14.7% in the third quarter of 2011, compared to last year, the majority of the work continued to be performed in Colorado and Arizona. Most of our work within this segment is in the large commercial, industrial, and government sectors of those two regional markets. Overall, we believe our investment in people and equipment resources over the last several years has positioned us well to increase our backlog as we continue to bid on near- and long-term projects.

Now, Marco will provide details on the 2011 third-quarter and the first nine-months financial results. 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 opportunity for you to ask questions. So, Marco, please begin.

Thank you Bill, and good morning, everyone. Yesterday, after the market closed, we announced our 2011 third-quarter results. Our revenues for the third quarter of 2011 were $210.5 million, an increase of $57.7 million, or 37.8%, as compared to the third quarter of 2010. For the 2011 third quarter, our T&D segment revenues increased $52.6 million, or 44.5%, to $170.8 million. In our C&I segment revenues increased by $5.1 million, or 14.7%, to $39.7 million, as compared to the 2010 third quarter.

The majority of the increase in overall revenues was the result of an increase in revenues from several large transmission projects over $10 million in contract value, coupled with small increase in revenue from distribution work and an overall increase in C&I project revenues. The increase in distribution revenues for the third quarter of 2011 was largely due to increased storm work, which contributed approximately $12.7 million to revenues in the three months ended September 30, 2011, compared to $3.4 million for the three months ended September 30, 2010. We anticipate that the distribution market will remain soft until we see greater economic recovery.

Gross profit in the third quarter of 2011 increased to $19.8 million, or 9.4% of revenues, compared to $17 million, or 11.2% of revenues, for the third quarter of 2010. The increase in gross profit was primarily due to higher contract volume, which was partially offset by an increase in insurance expense over the prior-year period of approximately $2.3 million. The increase in insurance expense was largely attributable to an increase in insurance reserves related to the development of a few claims from prior years. Gross profit as a percentage of revenues, or gross margin, was negatively affected by the need to increase self-insurance reserves, which reduced our gross margin by approximately 1.1%. Gross margin was also negatively affected by the under-utilization of certain fleet assets at the beginning of the quarter.

At the beginning of the third quarter, we were in the early construction stages of several of our large transmission projects, which, as Bill mentioned earlier, generally require lower utilization of our fleet assets, and greater use of subcontractor services for clearing right-of-way, building access roads, and installing foundations. Our fleet utilization began to increase later in the third quarter, once those large transmission projects progressed further into full construction. Equipment utilization can easily impact gross margin 50 to 150 basis points, or even more, from one period to the next.

Third-quarter SG&A expenses increased to $13.5 million, compared to $11 million in the third quarter of 2010. The higher SG&A costs in the third quarter of 2011 were primarily due to higher expenses related to the increase in number of support personnel and increases in group medical insurance costs and other employee-related compensation and benefit expenses. Our SG&A as a percentage of revenues improved to 6.4% in the third quarter of 2011, as compared to 7.2% in the same quarter of last year.

EBITDA, which is a non-GAAP financial measure and is reconciled to the GAAP measures in our press release, increased to $11.7 million in the third quarter of 2011, compared to $10.2 million in the third quarter of 2010. The provision for income taxes was $2.3 million for the three months ended September 30, 2011, with an effective tax rate of 35.3%, compared to $1.9 million for the three months ended September 30, 2010, with an effective tax rate of 32.6%. We recorded discrete tax adjustments during the 2010 period for the recognition of approximately $0.3 million and increased state tax benefits and certain federal tax credits, which resulted in the lower effective tax rate. The third-quarter 2011 net income was $4.2 million, or $0.20 per diluted share, compared to third-quarter 2010 net income of $3.9 million, or $0.19 per diluted share.

Now shifting to our first nine-months 2011 results, revenues increased $104.2 million, or 23.6%, to $546.1 million, compared to $441.9 million for the first nine months of 2010. Revenues increased by $99.8 million in the T&D segment and by $4.4 million in the C&I segment. Storm work in the distribution market contributed approximately $23.7 million in the nine months ended September 30, 2011, compared to $12.8 million for the nine months ended September 30, 2010.

Gross profit as a percentage of sales for the first nine months of 2011 increased to 11.2%, compared to 11.1% in the first nine months of 2010. The increase in gross margin performance in the first nine months of 2011 was primarily due to increase in contract margins on transmission projects of approximately $4 million as a result of increased productivity levels, cost efficiencies, added work, and effective contract management.

The large transmission projects, which generated about average margins in the nine-month period ended September 30, 2011, were substantially completed in the second quarter of 2011. The increases in gross margin were largely offset by a decrease in gross margin on C&I projects, increased insurance expense in the third quarter, and the under-utilization of certain fleet assets.

Selling, general, and administrative expenses increased to $41.2 million for the first nine months of 2011, from $32.6 million for the first nine months of 2010. The increase was primarily due to expenses related to additional support personnel, increases in group medical insurance expense, and increases in other employee-related compensation and benefit costs in the first nine months of 2011. As a percentage of revenues, these expenses increased to 7.5% for the nine months ended September 30, 2011, from 7.4% for the nine months ended September 30, 2010. EBITDA increased to $34.2 million for the first nine months of 2011, compared to $28.6 million for the same period of 2010. Meanwhile, our first nine months of 2011 net income and diluted earnings per share grew by 24% and 22.9%, respectively, as compared to the first nine months of 2010.

During the first nine months of 2011, we increased our investment in equipment and tooling in anticipation of start of several large projects. For the first nine months of 2011 we spent $34.2 million for the purchase of equipment, compared to $12.1 million for the same period of 2010. We expect that our capital expenditures in 2011 will be approximately $40 million, which is higher than our 2010 capital spending, mainly to satisfy our equipment needs related to commencement of several large projects.

As mentioned on previous calls, our capital 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 spending to ensure that we will have sufficient specialty transmission equipment capacity to grow our business. Our goal remains to be the contractor of choice for large scale transmission projects, as well as for bread-and-butter small capital and maintenance projects.

We continue to be selective on spending for distribution equipment, as well as for equipment for our C&I business, as those markets remain soft. As you know, our C&I business does not require any significant investment for equipment and tooling, as is the case for our T&D business. We plan to fund our investments in additional property and equipment through internal cash flows, cash on hand, and draws against our bank revolver.

Total backlog as at September 30, 2011, was $721.4 million, consisting of $657.4 million in the T&D segment and $64 million in the C&I segment. T&D backlog at September 30, 2011, increased 468.8% compared to backlog at September 30, 2010. C&I backlog at September 30, 2011 decreased 19.5% compared to September 30, 2010. The increase in total backlog was primarily related to several large transmission projects that were awarded last year. Our backlog does not include projects awarded to the Company unless there's an actual contract or work order to perform a specific scope of work. As Bill mentioned in his commentary, the awards with ETT for CREZ work and the CapEx 2020 projects are not included in our September 30, 2011, backlog as a result.

Total backlog at September 30, 2011, was $4.5 million higher than the $716.9 million reported in the prior quarter ended June 30, 2011. By segment, we had an increase of $11.3 million, or 1.7%, in our T&D backlog, and a decrease of $6.8 million, or 9.6%, in our C&I backlog, compared to backlog reported as of June 30, 2011. 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 burned as projects are completed.

MYR's method of calculating backlog may differ from methods used by other companies. For instance, we count 90 days of backlog from our master service agreements, while some contractors may count one or more years of MSA work and backlog. The timing of our contract awards and the duration of large projects can significantly affect MYR's backlog at any point in time, and may not accurately represent the revenues MYR expects to realize during any period. Therefore, it should not be viewed or relied upon as a stand-alone indicator of future results.

Moving to the balance sheet, our stockholders' equity increased to $209.3 million at September 30, 2011, from $192.7 million at year-end 2010. At September 30, 2011, we had approximately $17.5 million in cash and cash equivalents, which was down $45.1 million from December 31, 2010. The reduction in our cash position over the last nine months was due primarily to three factors -- $33.3 million of the net cash outflows from investing activities, primarily the result of purchasing property and equipment; $7 million of negative cash flows from financing activities, which included some early debt retirement; and $4.7 million of negative cash flow from operating activities, attributed mostly to the increase in transmission activity and distribution storm work in the last few months of the third quarter.

We typically experience higher operating capital needs in the early stages of projects when cash is being used to recruit and train personnel, and to buy equipment, tooling, supplies, and other project costs. As the project progresses, the working capital needs typically stabilize or decrease as cash flow from customers begins to meet or exceed cash outlay for operating expenses.

We had bank debt of $20 million at September 30, 2011, consisting of $10 million of current maturities under a term loan and a $10 million borrowing under our $75 million revolving credit facility. There was also $17.2 million in letters of credit outstanding against the credit facility, leaving $47.8 million available. Our credit agreement, which encompasses the term loan and the revolving credit facility, matures on August 31, 2012. We have already commenced discussions with our banks on refinancing and expect to have that refinancing completed prior to maturity of the current arrangement.

The combination of cash, cash equivalents, and available credit under our facility provides us with approximately $65.3 million in total liquidity, which can be used for organic growth or other investment opportunities. Our debt-to-capitalization ratio was 8.7%, which we believe is lower than some of our peers. We are focused on maximizing the utilization of our assets, which has resulted in an asset turnover ratio of approximately two times on a trailing 12-month basis. We believe our asset turnover ratio compares favorably to others in our industry.

In summary, we believe our strong balance sheet gives us an advantage over many of our competitors when pursuing new work, when financing the best equipment and tooling available, and when investing in our employees. 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 MYR's development going forward. While we're focused on the start up of several large new projects, and making sure we have the skilled workforce, equipment, and tooling necessary to execute the work, we also continue to bid on new projects which strategically fit our parameters and core competencies. Winning the work is only part of the challenge. Now we need to execute that work safely and consistent with the productivity assumptions used when we bid the work. Marketing, estimating, resource development, project execution, and safety are the keys to MYR's long-term profitability.

Current and prospective clients continue to make progress with regard to obtaining regulatory approvals on large transmission projects in the Midwest, Texas, Northeast and the West. Our customers' progress overcoming these regulatory hurdles should provide us with many opportunities for bidding large projects over the next few years to replace the projects currently under way.

With the possible exception of the Southeast, the market for major new transmission projects remains strong across the country. In the Midwest, where we are headquartered, we expect significant new work in Illinois, Indiana, Iowa, Minnesota, Michigan, Nebraska, Ohio, the Dakotas, Kansas, and Wisconsin. We expect these lines to be billed by traditional investor-owned utilities, utility-affiliated transmission companies, often referred to as transcos, and by project-financed transmission developers.

In the states of Texas and Oklahoma, we see great opportunities for MYR. The 2,400-mile CREZ build-out in Texas has received most of the publicity in this region. Obviously, this is an important opportunity for MYR, as we have been awarded work for both CTT and ETT. What has probably received less attention are the other projects being planned in ERCOT and SPP regions. We see this area as being a fertile market for MYR for many years to come.

The eastern US should continue yielding opportunities as significant new transmission lines, which are planned over the next few years, move forward in the New England area, Connecticut, New York, New Jersey, Pennsylvania, Virginia, West Virginia, and Maryland.

There are also a number of major projects in various stages of development throughout the western United States, involving reliability and transporting renewable energy from Wyoming and Montana to major load centers in the southwestern US. That includes the northern part of the SWIP 500 KB line, which would add another 250 miles and make the total line about 500 miles in length. It also encompasses the Trans-West Express Transmission Project, which includes a 725-mile proposed DC line delivering renewable energy from Wyoming to electric utilities in Arizona, Nevada, and California.

We expect to see ongoing bidding activity with Bonneville Power Administration, or BPA, and the Western Area Power Administration, or WAPA, over the next several years, and we continue to be optimistic about being awarded some of these projects.

There've been recent federal efforts on several fronts to move new transmission development forward. One is the FERC Order 1000, passed last July to establish a number of reforms in planning, cost allocation, and non-incumbent development. There is an ongoing analysis about the rules implications to all stakeholders in the industry, and there will likely be vigorous debate. Dozens of organizations, including the Coalition for Transmission Policy, have filed re-hearing requests with FERC to provide clarity on several issues and to define benefits.

Public utility transmission providers are required to make compliance filings with FERC within 12 months after the rule's effective date of July 21, 2011. We will better understand the implications of the rule as we see how FERC acts on these compliance filings. We remain hopeful the outcome will be a net positive in the long run for enhancing progress of much-needed transmission development and encouraging development of renewable generation.

Additionally, in early October, the Obama administration announced the creation of an inter-agency rapid response team for electric transmission projects, or RRTT as it is known, to streamline the permitting and review process for electric transmission projects. It includes coordinating statutory permitting review, consultations, schedules, and processes among federal and state agencies, as appropriate, through integrated federal planning.

Their goal is involving inter-agency conflicts and ensuring all involved agencies are fully engaged in meeting timelines. Seven transmission projects have been selected as the focus for the response team's streamlining efforts. These efforts are located in the Northeast, Midwest, and West, and have a combined estimated total cost in excess of $9 billion.

We continue to see opportunities in the renewable energy market in both wind and solar. Growth is more rapid in states with renewable portfolio standards established, which includes 29 states plus the District of Columbia and Puerto Rico, and another eight states have renewable goals. We are monitoring how the potential expiration of the production tax credit at the end of 2012 may affect wind projects as we finish 2011 and enter the new year.

The Edison Electric Institute forecast 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. This does not include additional transmission investment from independent system transmission developers and public power entities.

Now, I'd like to shift the focus to our C&I business. As I mentioned earlier, although projects are still being bid, there remains excess capacity within the C&I industry, as more contractors are pursuing available work, which continues to place pressure on margins. However, our focus continues to stay on healthcare, government office buildings, research centers, smart highway work, data centers, mining, and wastewater treatment, which makes us somewhat less susceptible to the slow economic recovery at the national level.

We remain focused on all of our existing markets and executing our strategic plan to drive growth, increase profits, and create value for MYR shareholders. Finally, we continue to monitor and make adjustments to our cost structure in an effort to ensure MYR remains one of the lowest-cost and highest-value providers in the industry. A 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 and high-quality customer service and on-time execution will ensure MYR remains a valued partner for 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).

Justin Hauke, Robert W. Baird

Good morning guys, thanks for taking my question. I wanted to ask a little bit about the T&D margin. If you x-out the insurance reserve, it looks like it was flat to slightly up. Maybe up 20 basis points, year over year. I understand the amount of subcontractor work that is coming through. But, given the amount of volume increase that you had plus the storm contribution, which was a little bit higher margin. Were the margins were in line with what you were expecting, or were they a little light?

I think the margins were in line with what we were expecting. First, as we build our estimates, as we reported previously, we are unable to mark up our subcontractors and material components as we put together the bid as much as we would mark up our own manpower and equipment, but once we put our bid together and have a weighted average margin, that's the way we recognize the revenue. So in these early stages, as we're incurring costs for subcontractors, that doesn't mean we're driving our revenue recognition at a different profit margin than later in the job when we would be self-performing more of the work. The only time we would adjust the margin is if it looks like the overall project is doing better or worse than expected. I would say the margins are pretty much in line with our expectations.

And typically we probably will take a really hard look at that, somewhere like 40% or 45% into these large projects. So keep that in mind.

Okay, maybe I can ask it a little bit different. You made a couple of comments, Marco, I think, actually two of them. The first one was, I think you said equipment under-utilization can impact margins by 50 to 150 basis points or more. Then I think you also made the comment that the first two months of the quarter, your fleet was more under-utilized as you were mobilizing on these contracts than it was as you exited the quarter. Could you quantify maybe what the equipment under-utilization impact was to margins this quarter, or maybe talk about what the margins were in September as you exited, in T&D?

Yes, and I think the 50 basis points to 150 basis points is the range that it was impacted for the quarter. That's kind of the way I would look at it.

I think that guidance, we, as you know, are not forecasting revenues or providing guidance on margins, but we are trying to give you some indication with how powerful that equipment utilization can be on our business. It is a significant factor, and we tried to give you some direction with that 50- to 150-basis point range.

No. That's very helpful actually. Then, my last one on the storm work. I was a little surprised when you say it was only slightly more profitable because it was under MSAs. Maybe I don't understand the way storm work is usually done, but I thought that normally, storm work was done under MSAs, because that was the way you could mobilize quickly, because the contracts were already in place. Was there something different about how you mobilized this quarter or am I thinking about that wrong?

The MSAs themselves gives you the manpower, the equipment available to go to any location for these storm restoration services. Typically, what has happened in the past is that these storm contracts that we enter into, they're not part of the alliances. The storm work that we did this quarter so happened to be part of our alliance agreements with a particular customer in the east. The revenues and profit margins that were generated were done at those alliance agreement rates.

Got it, thank you very much.

Steve Sanders, Stephens Inc.

Good morning, guys. Just a follow-up question on the margins. Maybe kind of a big-picture question. I think, Bill maybe you could give us the puts and takes as it relates to getting back to the peak margins you saw in 2008 and 2009. Clearly you've got some headwinds on C&I, you've got some inefficiencies and absorption issues early in these projects. But you've also got what should be a healthier mix of transmission work. So if we think about the opportunity to get back to those peak margins, could you just give us a little insight into how you are thinking about it over the next year or so?

First I would go back and review the transcript and the press release on those quarters back in 2008, 2009. There were some unusual things that positively affected our financial performance. We quantified those in those releases and reported them to you. So, that was -- a lot of positives things happened in 2008 both on closing out a couple of large projects, as well as an unprecedented level of storm work at what turned out to be a very high margins. Certainly we would like to get back to those margins we reported during that timeframe. We wanted to make investors know at that time that there were some unusual things that happened that positively affected us.

In terms of going forward, the margins, I think we're hopeful that the margins will get stronger as more and more projects are led, and utilities and others see the value that an MYR can bring to their project. So we're optimistic that there is some potential to improve our margins. As the market gets firmer -- there has been some changes since the summer, where it was, I think, much more of a seller's market in the last 90 -- or maybe not 90 days -- the last 60 days there has been some tightening of the markets, which has benefited contractors like MYR and others that are in this business.

Okay that's helpful. Then a couple of quick follow-ups. Can you give us a sense of the timing on the contracts of with CapEx 2020 and ETT, just kind of finalizing the scope? Then the follow-up would be, as it relates to M&A, would you be looking to expand on the C&I side, given that we've had a couple of tough years, and there may be some properties out there at reasonable prices, or should we think about your focus continuing to be much more on T&D, or companies related to that?

Our focus, would remain on T&D. We do have an opportunity to look at a lot of pitch books each month from the bankers that are marketing small T&D contractors, as well as C&I contractors, so there's no shortage of opportunities to look at. But we want to be very selective because we are so comfortable and confident that our core business and the opportunity to grow it organically is so good.

Okay. And then timing on CapEx or ETT?

As far as CapEx and ETT, certainly don't expect anything, any revenue recognition, in the fourth quarter on those. There is a tremendous amount of planning taking place that includes us. In fact, in the case of ETT, we're actually doing some minimal work just putting together lay-down yards, receiving materials. So we are doing some minimal work under a very small work order for that. But that work, is not likely to get started until, mid- or maybe even the third quarter of 2012. The ETT, same thing, a lot of planning going on. That work is not going to start until 2012 either.

Okay, thanks very much.

Min Cho, FBR Capital Markets

Congratulations on continued backlog growth and strong organic revenue growth this quarter.

Thanks, Min.

A couple of quick questions, you had strong booked to bill of one, despite your strong revenue in the quarter. Can you talk a little bit about what areas, obviously it's probably in the T&D market, but anything more specific about where the new awards came from in the quarter?

Yes, we had some -- obviously no large projects where we put out a press release. We picked up a number of nice substation projects that tie into transmission work. We had some small to mid-size transmission projects. So it's obviously not one single project that allowed us to actually grow our backlog a little bit. But certainly our substation capabilities -- most people don't think of that so much when they think about MYR, but that's a very important part of our business.

Excellent. Also I know that Hurricane Irene obviously led to some stronger-than-expected storm revenue. Was there any negative impact to some of your projects, because of all the rain in the east coast?

The only negative impact we would have is if, as you are releasing crews from another project in another area of the country, typically they take all of their distribution, equipment, and tooling with them and you're able to charge the utility that has the storm damage for that.

To the extent you leave equipment behind, like would probably be the case with transmission equipment if you move crews off of the transmission job to help on storm restoration, so there'd be some negative impact for that, because the utility that's affected by it, they're not getting any value and they're not going to pay for that equipment that's left behind. In terms of negative, that would not be a huge factor, but it is something we watch. I don't think we've been seeing any of our projects adversely affected in terms of being able to ultimately meet original schedules. We have not experienced that, fortunately.

Okay. Then in your answer to a prior question, you mentioned CapX2020 work probably wouldn't start until mid-3Q, mid to 3Q 2012, are you talking specifically about the St. Cloud to Alexandria project, or do you expect more awards out of CapX2020 in that time?

Not really prepared to comment on which project. We definitely expect to have more than one project out of the CapX2020 work at this stage. There, certainly Quanta is involved, and a lot pre-planning. They're actually doing some construction on the [Pimigee] job. The other three lines, and those lines can be broke up into segments. There really hasn't been a final determination by the utilities that make up CapX2020 on who's going to get that work. Certainly we'd like to go after all three of them.

Okay, two quick questions for Marco. Marco, could you give us your current headcount versus what it was at the end of 2010? Also, the insurance expense that you took this quarter, is that ongoing, or is that one-time in nature?

I'll have to get back to you, Min, on the headcount. I don't have that number available. As far as the insurance expense I would look at that as a one-time incident. I wouldn't look at that as being normal.

Okay, excellent. Thank you, good luck.

I like to expand upon the insurance question. Each month we charge an insurance cost each man-hour we work. So if we work 1 million man-hours in a period, we have developed a factor for our self-insurance claim experience. We charge that to the job as an estimate. Then as the quarter closes, and we look at that internal pot of money, we compare that to what we really need to have as a self-insurance reserve on the books and we make an adjustment. More often than not, that's either neutral or a slight positive.

This particular quarter was unusual. We had a couple of claims from a couple of years ago that developed where we had to set aside more money. So that is an exercise we go through every quarter. We create a pool of internal insurance dollars, and each quarter we true it up to see how much do we really need based upon our actuarial studies that we look at. So that's the process for truing up insurance reserves.

Great, thank you.

Adam Thalhimer. BB&T Capital Markets

Thanks, good morning Bill and Marco. I want to make sure I have the number right for the insurance issue you were just talking about, I think Bill you said it was 110 basis points to gross margin?

Right, the impact.

The impact in the quarter, right? Okay. You talked about in your prepared comments a couple of the initiatives out of Washington, out of the administration, to accelerate some of these larger transmission projects. I've been watching that unfold, I've been kind of skeptical about that. Is that the right way to approach it, or do you think it might actually have a real impact on some of these larger projects?

Adam, I tend to be skeptical like you. Until I see these projects actually get permitted. I think it is definitely not a negative, I think it's a positive to get all these federal agencies to contact their counterparts in state government to move these projects along, but it's too early to tell whether that is going to have any real effect or not.

Okay. I get asked a lot about the economy and would a recession impact the transmission cycle. Where do you guys stand on that issue?

We remain bullish on transmission development. We've experienced in the last few months, some of the equipment that we thought would be available for rent is not available for rent today. So, that's probably the best barometer I have is the availability of the specialty equipment to rent. And right now it's not very available.

The other thing, too is the labor market seems to be tightening up quite a bit, so that's a pretty good indicator of the industry, and how bullish it's going to be.

Was that what you are talking about? I think you made a comment about, Bill, you said in the last 60 days things are tightened up and you've gotten some pricing power, was that related to the labor tightness?

It's related to both. Pricing power, that may be too strong a word, I'm just saying labor, we've had to put provide for more per diem's and more overtime and more incentives to attract labor. On the equipment front, it's just certain specialty pieces of equipment aren't available for rent. From my perspective, it validates our strategy of buying a high percentage of the specialty wire equipment and the big aerial devices you need to install it.

Sure.

I guess one other indicator I would probably have people look at is backlog on the contractors, whether it's continuing to increase. Those are other signs that they could take a look at, as far as how bullish it is.

Okay thanks very much guys.

Tahira Afzal, KeyBanc Capital Markets

Good morning gentlemen. As I read through utility transcripts coming out of this earnings season, there seems to be less focus on really what's happening in DC and expedited projects et cetera, but more so on FERC incentive rates. My first question was in regards to FERC incentive rates, whether your sponsors are bringing that up, or whether from what you've heard from your sponsors -- there could be some sensitivity in timing to projects if some of those rates come into question?

We have not seen many of our utility executives say that if FERC reduces the incentive our the premium return on equity that is going to destroy this market. Certainly it is a factor, but we have not had many of our utilities say that without the premiums at the current level, they would not go forward. I have not heard that. I'm sure if you've read utility transcripts, you're more knowledgeable than we would be. I read a few of them. I read a lot of the industry press on where some of those initiatives are going. But if you've read transcripts from 25 utilities, third-quarter close, you've got more information than I do.

Fair enough, and they're never very exciting. Number two, the question is, really in regards to ETT, or your contract there. Could you elaborate a bit in terms of the ramp of that particular project, in particular as you go into 2012? And then I just have last one follow-up.

Well, I don't know that I have anything more to add. We don't expect it to get going until the first part of 2012, and I'm sure it will ramp up slow. They're doing a lot of planning, a lot of right-of-way acquisition, getting engineering done, getting materials secured. That project, we are not providing any significant materials ourselves. So the folks at ETT are working very hard to get this thing moving, but in terms of coming into our part of the food chain on the installation, that's not going to happen for a little while.

Got it. My last question, and I know, Bill, you sort of hate giving commentary on this, but when I look at 2012 EPS estimates industry, there's a wide disparity. It seems to be driven really along margin assumptions. Clearly as utilization picks up, you are going to start to see margins come back. I guess any commentary you can provide to help us in how we should be looking at that trajectory. Should we be assuming it bounces right back to sort of peak levels on the transmission side, because you have change orders of completions that could potentially help as you go into 2012? Or should we assume a very gradual build-up into the next few years?

Thanks, there were about 10 questions implied there. In terms of more guidance on margin, I really don't have anything more to add, Tahira. In response to one of the earlier questions, I think it would be wrong to go back to 2008 and look at that without looking at what was driving the 2008 margins. Certainly, most of -- a good portion of what will run through our income statement in 2012 is already booked, based upon awards. Certainly we will continue to be bidding work that will be let in the next quarter or couple of quarters that will impact 2012. I'm hopeful those margins will be a little stronger than what they are today. But, time will tell on that.

In terms of pickups on large jobs. We look at all of our big jobs each month as we close the job. As Marco reported, it's not until we're 40% or 50% into the job would we be recognizing any positive developments, if in fact there were any positive developments. On the negative side, if a project is underperforming, we're probably scrutinizing those even more carefully to make sure that if we have a job that may fall into a loss situation, that we address that promptly. So, a lot of these jobs, we are going to carry them at the margin we estimated until we get well into the job and have better information.

Thank you very much.

William Bremer, Maxim Group.

Good morning Bill, good morning Marco. You referenced the last 60 days. Can you give us a handle? The booking's quite stable and over one this quarter. Are you starting to see a little bit better of a pricing environment at this time?

We've seen a couple of small projects where there haven't been as many competitors as what we would have seen, let's say, four or five months earlier. So I think a lot of contractors that are capable of doing this work, have a lot on their plate. So, we've seen some signs of that. Whether that's going to continue or not, I think, not really able to say one way or the other on that.

Okay. Then going into fiscal 2012, can you give us an idea of how many large-scale projects you will be working on simultaneously as we enter the new year?

Well, we have a bunch of them. Certainly the Maine work will be continuing, the work in Nevada will be continuing. CTT work is starting to ramp up now, it will be continuing. We certainly expect the ETT work to get started later in the year. We expect the CapX work. We've got some fairly good-sized work in the Great Plains that would still be going on at that period in time. The work in West Virginia for Dominion has ramped up and that will be continuing. So there's not going to be any shortage of things to work on.

Exactly my point. So is this the most that you've ever, in terms of the history of MYR, given its short of time history, being public, I should mention. Is this the most ever in terms of simultaneous large-scale projects that you'll be working on going into a new year?

Certainly during Marco and my reference point. Marco's been here 13 years and I've been here 12 years. We've never seen anything like this. That doesn't mean some of our predecessor companies back in the 1950s and 1960s and 1970s, there was a lot of transmission built during that time period. And my guess is, our companies, plural, has seen this kind of activity, but you got to back 40 years to see it.

Right. Then Marco, just a little housekeeping. Can you give us a little bit color on a tax rate we should be using going forward here? We've had some significant swings. Just trying to get a sense of where should we be putting the tax rate, maybe the end of this year and then into 2012?

I would use an average of 38.25% as the rate.

Okay gentlemen, thanks for the color, I appreciate it.

Jeff Beach. Stifel Nicolaus

Good morning, Bill and Marco. You gave us an idea, the status of CapX2020 and EET. Some of the other projects, the large ones, can you run through a couple of them and tell us if you're still in a ramp-up, and give us an idea on some of them of when you might hit some sustainable longer-term steady construction revenues?

Sure. The central Maine work has pretty much fully ramped up. We have a sizable workforce in Maine working on those projects. I see that continuing, maybe growing a little bit further. I believe we've got all of the equipment that we need in Maine to perform that work, so that I'd say is fully ramped up. The Mountain Storm work for Dominion is now fully ramped up. That work has just got to that stage. That project is going to have several ramp-ups and ramp-downs as they work around multiple outages. So, right now it's fully ramped up. The work in Nevada is approaching a full ramp-up. We are starting wire work on that project, all the other activities down the right-of-way are close to full ramp-up. So those would be some of them I could comment on.

Okay. Then, you gave us enough information to figure out how strong this ramp-up in the third quarter and the transmission revenues you generated in the third quarter was up huge over the second quarter. This ramp-up of these few large projects is a fraction of that. So, this strong third quarter, is that a large number of small- to medium-sized projects that are kicking in and giving you this growth?

That's a big part of it. So, our normal, what we refer to as bread and butter, small- to medium-size transmission projects. They haven't stopped. We are trying to provide the manpower and the specialty equipment to perform all of those works, to serve our long-standing clients. Plus we are trying to do all of these large projects. So, that bread-and-butter work has been strong, so it has continued, and we certainly want to take care of those clients as well.

Lastly, if you were going to take all of these large projects and the pace at which they have been awarded, and compare that to the small to medium activity, would you say both sides of this market are similarly strong?

Yes, I would.

All right, thank you.

Dan Mannes, Avondale.

Good morning. A couple of follow-up questions. I know Tahira was asking about 2012, I wanted to maybe go a little shorter term. I don't know if you can give us any color on how to think of Q4 versus Q3, given the ramp-up of large projects but potentially with a reduction in storm work and some seasonality. Can you maybe, I know you don't give guidance, but can you talk us through how to maybe think about how that will play out a little bit?

Well, I wouldn't say there is necessarily a shortage of storm work in the northeast, if you live in places like Connecticut and Massachusetts. I think it is fair to assume that we have attempted to market our services to deal with that snowstorm that hit about 10 days ago. There will be some storm work that we and others will benefit from in the fourth quarter. Whether it will be at the same level as the Irene-related work, not really prepared to comment on that. But we will have some storm work.

As you look at, or as we look at the fourth quarter, believe me, we are really busy. We are busy on handling these large projects and we are busy handling the bread-and-butter work for our normal utility customers. One thing that I think you know, in the summer, a lot of the circuits cannot be taken out of service to be worked on. So there is always an influx, starting in September, as the utilities can give us outages for all of these small and mid-size projects. So normally, the last four months of the year are good on the transmission side as we are able to get outages from our customers to perform our work. So, we're very busy on the big projects, as well as the small ones.

Just a couple of other things to keep in mind, Dan. The fourth quarter, you've got a little bit more holidays coming into play there. People want to take some time off, so maybe a little bit slower. Some of our customers tend to look at what their budgets were for the fiscal year, and either increase their spending or decrease their spending depending on where they're at, so that can impact it as well.

I also should add, you don't have as much daylight in the fourth quarter. It gets -- the sun doesn't come up very early and it goes down quickly. We're the type of business you can't work in the dark very well. So, that is a negative. But certainly there's going to be a lot of work performed in the fourth quarter.

So is it fair to say, there's obviously some normal seasonality where maybe you'd see a reduction in productivity in the fourth, but perhaps given the storm work and given the ramp of these big projects that may be less visible this year than in the past? Is that another way of saying it, or am I overstating that?

I think it is a reasonable way to look at it.

Okay real quick on insurance. Can you talk about, was that one specific claim, was it a grouping of claims around a specific incident? Can you give us a little more color on what that relates to? It seemed like kind of a large number.

Actually, it relates to three claims that are a couple of years old.

Those three claims are completely unrelated?

Totally unrelated. A couple of them involve employees. One involves the public. They're events that happened a couple of years ago.

Okay. Then the last thing, working capital, and I think Marco mentioned this. It did look like AR kicked up a pretty decent amount. Is that because of a large project start up? Is that because of a higher amount of subcontracting? If you could just give us a little more color, because working capital is a little bit weaker than we would have thought.

It definitely is -- a large piece of that is attributed to AR kicking up and the timing of the collection of those invoices, so we should be okay.

Okay.

I think also on this storm work, those tend to be kind of cost-plus kind of arrangements. They tend to be slower to get paid than the normal work. So that would be a piece of it. We're going through the audit process with the utilities where we worked on the Irene work to make sure that we get paid. By its nature, that doesn't come in quite as quickly as they normally are.

Got it. No, that's helpful, thanks.

Thank you, I'm showing no further questions in the queue, I'll hand the call back to Management for closing remarks.

I'd like again to thank everybody for your ongoing support and interest in the Company. We're excited about the opportunities in all of the markets that we're in, and that includes the C&I and distribution markets that we think have a good place for our Company to be. I don't have anything further. We look forward to working with you going forward, and I'm sure we will be speaking next quarter. Thank you.

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