MYR Group Inc (MYRG) 2012 Q2 法說會逐字稿

Good morning everyone and welcome to the MYR Group second quarter 2012 earnings results conference call. Today's conference is being recorded. At this time for openings 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. I would like to welcome you to the MYR Group conference call to discuss the Company's second quarter results for 2012 which were reported yesterday. Joining us on today's call are Bill Koertner, President and Chief Executive Officer and Paul Evans 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 sends you a copy or you can go to MYR'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 Tuesday, August 14th, 2012 at 11.59 pmeastern time by dialing 855-859-2056 or 404-537-3406 and entering conference ID 9959450.

Before we begin, I want to remind you that this discussion may contain Forward-looking statements. Any such statements are based on information available to MYR management as of this date and MYR assumes no obligation to update any such Forward-looking statements. These Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the Forward-looking statements.

Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the Company's Form 10-K for the year-ended December 31st, 2011,the Company's Quarterly Report on Form 10-Q for the second quarter of 2012, and in yesterday's press release.

Certain non-GAAP financial information will be discussed on the call today. A reconciliation of this non-GAAP information to the most comparable GAAP measure is set forth in yesterday's press release. With that said, let me turn the call over to Bill Koertner.

Good morning everyone. Welcome to our second quarter 2012 conference call to discuss financial and operational results. I will provide a brief summary of the second quarter and first half results before turning the call over to Paul Evans, our CFO for a more detailed financial review.

Following Paul's discussion, I will provide some additional information and an outlook for the industry. I am pleased to report record revenues, EBITDA, gross profit and earnings-per-share for the second quarter of 2012. Revenues grew to $260.4 million in the second quarter of 2012 from $185.3 million in the second quarter of 2011 an increase of 40.5%.

All of this growth was achieved organically as MYR is not made an acquisition for several years. Gross margin for the second quarter of 2012 increased to 11.5%, an increase of 100 basis points over the second quarter of 2011 which was the result of improved execution of our work and higher utilization of our fleet assets. Diluted earnings-per-share were $0.45 for the second quarter of 2012 compared to $0.18 for the same quarter of last year.

This represents growth of 150%. The transmission side of our business continues to experience unprecedented growth as we continue to execute work under contract and pursue new opportunities as they come to market.

Today many large projects are being divided into smaller segments forbidding an award as opposed to a single award for the entire line. ITC and MPPD's 225-mile keyed toline and the three big CapEx 20/20 lines which total 632 miles are examples of big projects being split into smaller individual line segments for bidding.

This trend in sourcing strategy is likely to continue, and it will effect backlog reporting, especially for companies like MYR who do not count a project in backlog until a signed contract is in place for a specific scope of work. We expect the market for transmission projects of all sizes will continue to significantly expand over the next several years. Based upon actual spending from investor-owned utilities the Edison Electric Institute estimates that actual and planned transmission investments will be approximately $13.7 billion in 2013 and $13.5 billion in 2014.

We also follow two other sources for transmission-spending forecasts. The Working Group for Investment in Reliable and Economic Electric Systems or WIRES for short, and the Bradle Group. Both of these information sources forecast transmission spending in the range of $12 billion to $16 billion per year through 2030. We have seen an increase in bidding activity in the second quarter of 2012 compared to the first quarter of 2012 and expect this to continue throughout the year.

Most of the increase in bidding activity in the second quarter relates to small to medium-sized transmission projects. As is always the case, we target project opportunities that best fit our resources, and that we believe should provide us the opportunity to earn attractive operating margins consistent with current market dynamics. We expect the business environment for our distribution business and C&I segments to continue to be challenging, albeit we have seen some positive bidding signs in the second quarter of 2012.

In some regions of the countries customers remain extremely cautious in their spending due to concerns on the overall economy. As a result, margins are pressured as compared to historical levels due to the competitive environment, and we expect this will continue through 2012.

On August 1, MYR Group's Board of Directors authorized the Company to repurchase up to $20 million of its outstanding common stock. We are committed to creating long-term value for our stockholders and believe the decision to purchase common shares will further that objective without compromising our ability to grow the business.

Now Paul will provide details on the second quarter and first half 2012 financial results, and then I will be back to provide some additional insight on current market conditions and our perspective for the future of MYR. After that there will bean opportunity for you to ask questions. So with that, Paul, please begin.

Thank you, Bill, and good morning everyone. Yesterday after the market closed, we announced our 2012 second quarter results.

As Bill mentioned, our revenues for the second quarter of 2012 were a record $260.4 million, which represented a $75.1 million increase over the same period in 2011.

On a percentage basis 2012 second quarter revenues increased 40.5% over the 2011 second quarter. From a segment standpoint and compared to the 2011 second quarter T&D revenues increased $76.1 million to $215.8 million.

And C&I revenues decreased $1 million to $44.6 million. To give some historical perspective on how our business has changed in the second quarter of 2008, 47.4% of our revenues came from transmission.

By contrast for the second quarter of 2012 transmission revenues represented 72.1% of our total revenues. Focusing on the T&D segment revenues were $187.6 million for transmission and $28.2 million for distribution in the second quarter of 2012.

This compares to $98.1 million for transmission and $41.6 million for distribution for the second quarter of 2011.

The second quarter 2012 increase in transmission revenues primarily related to a number of large transmission awards in late 2010 and early 2011 that were in various stages of their respective construction cycles during the quarter. Lower distribution revenues related to a decrease in storm work of about $5.6 million and a decrease in work under our Master Service Agreements.

Our C&I segment revenues decreased by 2.3% in the second quarter of 2012 from the second quarter of 2011. Our gross profit in the second quarter of 2012 increased to $30.1 million from$19.5 million in the second quarter of 2011.

And our gross profit as a percentage of revenues increased to 11.5% versus 10.5% in the second quarter of 2011. The increase in gross margin was primarily due to improved overall project margins on small- and medium-sized projects in both segments and improved utilization of fleet assets.

On a sequential basis, second quarter 2012 gross margin increased to 11.5% from 10.9% in the first quarter of 2012 and 10.5% in the fourth quarter of 2011 reflecting better execution on our jobs and improved utilization of our fleet assets.

Second quarter 2012 SG&A expenses were $14.5 million compared to $13.7 million in the second quarter of 2011. The increase was primarily due to higher employee compensation and benefit costs related to greater employee headcounts.

Our SG&A as a percentage of revenues declined to 5.6% in the second quarter of 2012 compared to 7.4% in the second quarter of 2011.

Second quarter 2012 EBITDA increased to $21.8 million or $1.03 per diluted share compared to second quarter 2011 EBITDA of $10.6 million or $0.51 per diluted share.

Our provision for income tax increased $5.9 million in the second quarter of 2012 compared to $2.1 million in the second quarter of 2011.

Our effective tax rate increased to 38.2% versus 36.3% in the second quarter of 2011.

This increase was associated with certain discrete tax adjustments and state income taxes that benefited the second quarter of 2011. Second quarter 2012 net income was $9.5 million or $0.45 per diluted share compared to second quarter 2011 net income of $3.7 million or $0.18 per diluted share.

Shifting to our first half 2012 results, revenues increased $165 million or 49.2% to $500.6 million compared to $335.6 million for the first half of 2011.

Despite higher gross margins as a percentage of sales for the second quarter of 2012, gross margin as a percentage of sales for the first half of 2012 decreased to 11.2% compared to 12.2% in the first half of 2011.

The stronger gross margin performance in the first half of 2011 was primarily due to a few large transmission projects which experienced above average margins of about $5.8 million in the first three months of 2011 when they were in the final stages of completion. EBITDA increased to $37.7 million or $1.79 per diluted share for the first half of 2012 compared to $22.6 million or $1.08 per diluted share for the first half of 2011.

Meanwhile, first half 2012 net income of $15.7 million represents an increase of 91.6% of net income of $8.2 million in the first half of 2011. Diluted earnings-per-share improved to $0.74 for the first six months of 2012, up from $0.39 per diluted share for the first six months of 2011.

In the first half of 2012, we invested an additional $20.4 million in property plant and equipment compared to $22.8 million in the first half of 2011.

We believe our strategy to invest in equipment and tooling will result in better execution on current projects and position us to capture additional business in the coming years. Total backlog at June 30th, 2012 was $543 million consisting of $464.2 million in the T&D segment and $78.8 million in the C&I segment. T& D backlog at June 30th, 2012 decreased 28.2% compared to June 30th, 2011.

The decrease in our T&D backlog was primarily due to ongoing construction in several large transmission projects. C&I backlog at June 30th, 2012 increased to 11.2% compared to C& I backlog at June 30, 2011.

As we have discussed on previously calls, some of our revenue never flows through our quarterly backlog reporting. This is because the award of the project as well as the execution of the work can all take place within the quarter.

In addition, as Bill mentioned, most of the CapEx 20/20 work on the Brookings and Fargo lines that we anticipate performing over the next few years is not included in our backlog due to the way individual line segments will be awarded over time, and how we account for our backlog. Our backlog only includes projects that have a signed contract or an agreed upon work order to perform work on mutually accepted terms and conditions. This may be different than how other companies report backlog.

Moving to the balance sheet, stockholders' equity increased to $233 million at June 30th, 2012 from $215.7 million at December 31, 2011. On June 30th, 2012, we had approximately $24.3 million in cash and cash equivalents and $147.8 million in availability under our five-year credit facility.

Our cash balance declined $9.7 million from December 31, 2011 primarily due to a $27.3 million increase in our accounts receivable as a result of increased revenue and increased retainages in our large projects and our continued investment in fleet equipment and tooling.

The decline was largely offset by an increase in cash from other operating activities. As of June 30th,2012, we had approximately $17.2 million in letters-of-credit outstanding under the credit facility and $10 million in revolving loans outstanding under the credit facility. In our first quarter call, we discussed the possibility of a share repurchase program.

As Bill mentioned, our Board has now approved a program which becomes effective on August 10, 2012 and will remain in effect for one year. We may repurchase up to $20 million in shares. Repurchases will be funded using available liquidity.

In conclusion, we believe our strong balance sheet gives us an advantage over many of our competitors to acquire new equipment and tooling, to invest in our workforce, to return additional value to our shareholders through share repurchases, and to consider strategic acquisitions. Now I will turn the call back to Bill for a discussion on the overall industry.

Thanks, Paul. While our construction management teams continue to work on several large projects in various stages of construction, our estimating teams have been hard at work evaluating and pricing projects throughout the country.

As noted earlier, we see ample opportunities for continued growth in transmission construction of all sizes throughout the US including new lines and upgrades and associated substation work. We monitor a variety of information sources on transmission spending projections. They all point to a very bright long-term future for reliable service providers like MYR.

Our large projects group and our regional district offices have been extremely busy these last few months responding to RFI's and RFPs on a number of large discrete transmission projects as well as new alliance type arrangements. To better focus our efforts, we like to break the overall transmission market down by transmission planning regions. All regions have in common the fact that little money was spent on new transmission and system upgrades for 20 to 30 years.

This has led to reliability concerns and has prompted increased scrutiny from the North American Electric Reliability Corporation or NAERC. Bottom-line, it has resulted in a significant number of new lines in system upgrades across the country. While there some things in common with all of the planning authorities there are also differences among them given regional, economic, political and regulatory influences.

As we target opportunities across the country, we try to be mindful of these differences because they can affect the sourcing strategies by utilities and developers within these regions. Take the Midwest Independent System Operator or MISO for instance. This region is highly focused on identifying multi value projects in the region.

We believe this bodes well for big transmission operators like Amron, ATC, ITC, Mid American, Duke and Excel and some others that operate in the region. We are a major player in the Midwest and view these projects as a great opportunity for us. All of the planning authorities are being impacted by the EPA's mercury and air toxic standards or MATS.

However, no area appears to be more effected than PJM by the new standards. These standards will likely result in substantial power plants retirements around the country by the end of 2015. As a result of plants closings, we expect increased spending in electric transmission in order to deliver new power resources to the region to support the electric grid.

Since last November, PJM has already approved awards of $2.5 billion in transmission system improvements. The PJM region includes 60 million people in 13 states and the District of Columbia. The upgrade projects will range from simple equipment replacements to new substations as well as rebuilding of existing transmission lines or the building of new lines to maintain reliable electric supplies.

On a dollar basis over half of the improvements will be in the state of Ohio. Southern Company which operates in the circ region of the southeast it announced in mid-June that it may need to perform as much as $700 million of transmission work as a result of the new EPA rule. These are just a couple of examples of the regions where the new EPA rules are likely to drive new transmission investment.

Obviously, other regions and utilities across the country will also be affected by the new MAT standards. On other calls, we have discussed the drivers of transmission investment in regions governed by other ISOs and RTOs. We also see these regions as great opportunities for MYR even though the drivers of the new transmission investment might be a little different versus the factors affecting MISO and PJM.

All of out are undoubtedly familiar with FERC order 1,000. Compliance with this new rule is set to be required in October of this year. This order should help new transmission development move forward across the country and contribute to a robust transmission market for projects of all sizes for several years to come.

These opportunities should be available in the competitive transmission market through traditional utilities, independent transmission companies like ITC and ATC, and various partnerships of both as the needs for reliability of our nation's grid become more clearly defined and cost allocations and benefits are clarified. We will continue to track and monitor announcements by other utilities and planning authorities as they work through assessing the final rule and understanding the implications to generation and transmission upgrade needs.

We anticipate that the resulting decision and plans will result in even greater transmission opportunities over the next few years for MYR. Distribution demand remains steady yet we believe that economic conditions are still causing some of our customers to delay or reallocate their capital spending program. As a result, competition remains strong.

Now I would like to shift over to our C&I business. As mentioned earlier on this call, bidding activity has increased in some of our areas. Nonetheless excess capacity remains within the C&I industry as both large and small contractors pursue the available work.

Although our margins within this segment increased during the second quarter of 2012 compared to last year, they are still below historical levels. Our C&I market focus continues to be on healthcare, government office building, research centers, smart highway work, data centers, mining and wastewater treatment.

This makes us somewhat less susceptible to the slow economic recovery at the national level. As always, we remain focused on creating value for MYR shareholders. We continue to monitor and make adjustments to our cost structure in an effort to ensure MYR remains one of the lowest cost, highest value providers in the industry.

We believe that our cost structure coupled with our steady focus on our market will position MYR to maximize its potential as a greater number of T&D and C&I projects move forward. We believe that our commitment to safety, high-quality customer service, and ontime execution will ensure MYR remains a valued partner for utilities and C&I clients. That is it for now. As always thank you for your interest and support, and now I would like to turn the session over for your comments and questions.

(Operator Instructions). Our first question is from Tahira Afzal with KeyBanc Capital. You may begin.

Thank you. And good morning gentlemen, and congratulations on an exceptional quarter.

Thanks, Tahira.

I guess my first question is in regards to really utilization on your electric transmission side. If you could provide some color to the extent you can on really how you see your equipment utilization (inaudible) right now and as you look to your regions where regions are still soft and whether (inaudible) uptake and probably pick up the most.

Okay. There are really two things that are important from a utilization perspective. One would be the utilization of the human side of the business. We have got a local of skilled workers and in some areas of the country the labor market is extremely tight for skilled resources.

Texas would be an example of that, but there are also other areas where the market gets -- is really tight. There are a few other areas where that is not the case and they are actually men still on the books which is the term the unions use to identify the people waiting to be called out from the union hall to be assigned work. So we do not have any satisfactions or try to quantify that.

We just keep track of it and as we bid work we are mindful of it. Sometimes we have to put extra money in our bid to provide incentives to attract people and that is a very dynamic situation that we are pretty good at managing, but it is definitely a challenge. On the equipment side that is the other scarce resource. We have done I think a fairly good job of anticipating the demand coming.

We have not had to turn down any work because we did not have the big transmission equipment and tooling to perform the work. So that is a constant balancing job.

Certainly we do not want to have fixed assets and the cost of those fixed assets sitting on our books if we do not have ahome for them. So right now, we feel pretty comfortable with where we are. As we mentioned on the call, our utilization of equipment assets has been pretty goodthe last couple of quarters. Contrast that to maybe the second and third quarter of 2011 where we had acquired fleet assets in anticipation of what we saw coming in 2012, but we could not immediately put it to work. We needed to buy this equipment and get it outfitted. So as compared to last year, our fleet utilization is higher, but we do not report any fleet utilization numbers, but it is something that is a monthly balancing job to make sure we have got the right equipment but not too much equipment.

Thank you, Bill. And the second question I had was l really in terms of cash allocation. Clearly you are seeing some of the sort of dividends of your measured bidding activity and good execution now flowing through, and we can as a consequence see that projects you are working on are now have bring cash.

So as you look forward and you see cash coming in how would you build yourself and your team-like to allocate that money going forward? Is the priority going to continue to be towards shareholder return or do you also see like you need to invest in other aspects of your business an perhaps expand to other verticals?

Well, whatever we do is aimed at shareholder return. So whether that be buy equipment and tooling, be that considering acquisition, or be that returning capital to shareholders in the form of a stock buyback or a dividend or something like that. All of our actions are aimed at trying to enhance shareholder value. So as time passes, and we assess the market opportunity, we certainly are -- our approach has been to focus on internal organic growth probably more so than many of the peer companies that we are compared to. And we think that has been a good strategy and clearly as evidenced by the revenues we have produced in the last couple of quarters. We have had some success at producing organic growth. So we -- as far as cash going forward the bogey is always to -- measured in terms of what is in the best interest of shareholders and that could be buying more equipment, tooling, could be an acquisition, or it could be returning cash to shareholders in the form of a buy back or a dividend.

Got T thank you very much and great quarter again, folks.

Thank you. Our next question is from Jeff Beach with Stifel Nicolaus. You may begin.

Yes. Good morning Bill and Paul. Congratulations also.

First question, I thought a standout in your numbers was the significant decline in your corporate expense and the very small increase in SG&A year-over-year or sequentially. Can you talk about where some of the cost reductions or other measures that you have taken have held down that number to what I think is probably the best I have seen in a couple of years?

Jeff, let me start with that and then maybe Paul will be able to add to it. We told you and others that there is leveraging of our SG&A costs. So as our revenues go up, certainly we expect SG&A to go up. But proportionately, we expect it not to grow as rapidly. So I think we are seeing some of that.

We are very focused on trying to control overhead costs and that continues even though we are experiencing pretty substantial revenue growth. I do not know. Paul do you have anything moreon the SG&A side?

No. I mean, Jeff obviously we want to leverage our SG&A, and while we have added some headcount we are at a place right now where we can certainly handle the revenues where they are at and probably a further increase in revenues. So certainly from my part of the organization, I feel pretty good about the headcount that we have.

One other thing, Jeff. I think now we pretty much got ourselves positioned on the Sarbanes compliance. We took the Company public in 2008, and we had to ramp up and do some things to be a public company and comply with all of the rules and regulations. I think we have -- not that we will not have additional expenses in that regard, but I think we have largely got the base put in place to be a public company and that took a couple of years to get that done.

Alright. Thank you. And as a follow-up. Can you just comment a little more on the weaker revenues in distribution? Distribution industry-wide seems to be maybe as weak.

Is this your focus on transmission and are you transferring shifting assets into transmission from distribution? Can you talk a little bit about what is happening there?

Great question. Will, Jeff. As you I know remember back a couple years ago, we were actually showing growth in distribution business whereas many of our peers were showing a reduction.

At that time, we said we did not think the market was growing, but we were taking some market share away from some competitors. Well, that same thing is happening here. We have chosen not to dive quite as low on trying to retain and build distribution spending as maybe some of our competitors. It is still a good business. I think it still has a great long-term outlook, but we have lost some market share on the distribution side.

Alright. Thank you.

Thank you. Our next question is from Adam Thalami with Bb& t Capital Markets. You may begin.

Good morning guys. Nice quarter.

Good morning, Adam.

I wanted to ask about the large transmission jobs and you said -- which is good you saw a nice pickup in small to mid-sized bidding opportunities in Q2 versus Q1. I mean, Bill, what would you say the chances are in the next three months we come in and see a press release from you guys announcing a $100 million plus transmission job?

Well, it is definitely possible. There are a couple of big jobs that are pending and some that we expect to be bid. So it is definitely a possibilities. As far as a probability, I would not venture to make a probability assignment, but it is possible.

Okay. Then I also wanted to ask about your operating margin in T& D. 5.7%, really good performance. I am just curious what the puts and takes were to get it that number, and whether you think that is a sustainable level going forward?

Paul, you want to try to answer that?

Adam, I think where we are at it reflects that we are executing on our plan. We have said this for sometime that we will do that, and you are seeing those results now. As I look at it I look at it all the way sort of gross margin I look all the way down do net income. I mean we are in a good place right now. We are sort of hitting our stride on some large jobs. It is true that smaller to medium sized jobs are doing quite well. So, for the near-term you have probably got a good number.

Okay.

One other thing I would add, Adam. In the quarter we resolved some outstanding change orders. We do not recognize change order revenue until they are highly probable of coming to pass. So some of those require months, quarters, sometimes they hang out there even for a year. We were able to resolve some of those that had a positive effect on margin as well.

Okay. Good. Thanks, Bill.

Thank you. Our flex question is from Craig Irwin with Wedbush Securities. You may begin.

Morning, gentlemen, and I will say my congratulations again on the impressive quarter. Last quarter you talked about some procurement revenue in the quarter basically where you were buying material for execution on some of your large projects. Can you update us as far as whether or not that was a material contribution to top line this quarter and may bescope it out for us as far as where it is likely to head over the next few quarters?

Well, it definitely did contribute to the second quarter as well as the first quarter. Whether it will be an ongoing thing or not that certainly depends upon the mix of new contractswe secure. Some of them have virtually no procurement. Some of them have virtually no subcontractor component. Others have significant material and significant subcontractor. So I am really not in a position to speculate on what the nature of future awards will look like, but it is definitely a possibility that there will be material and subcontractor costs in that. But it really is very dependent on - - very project-specific dependent.

Okay. And a lot of construction companies will actually break out for you numerically what their pass-through or procurement revenue contributes to the top line. Is that something that you might be able to do or can you give us an approximate range, an approximate side of the contribution in the past couple quarters?

We have not done that in the past, and I do not think we would probably be doing it in the future. And as far as pass-through we, hopefully, are not pass-throughing anything. Whatever we might have in the way of material that would be under our scope or a subcontractor be under our scope there better be some margin on top of that. So we are not in the business of just trading dollars.

Okay. But then the margin would be well below the corporate average, is that fair?

The margins -- we do not mark those things up as much unless there is some risk that we might be taking where there might be a gap between our contract with our client and our subcontract with the material provider or the subcontractor. So we do assess the risk, and if there is risk inherent in that, we would mark it up higher, but if it is a very generic kind of thing with very limited risk, the markup would not be that great.

Great. My next question is about your bookings on the transmission distribution side. Can you share with us the approximate contribution of smaller projects in there and maybe confirm for us whether or not there are any pieces of some of the larger projects specifically CapEx 20/20 that might have contributed to your Q2 bookings on the T&D side?

Let me start with that and then Paul can jump in. Our primary focus is on generating profits for shareholders, not managing backlog, and I know we have a different definition of backlog than many of our peers. So managing backlog and trying to levelize it is not a primary objective.

Certainly we need backlog to create revenues, but our focus is on producing results, profits for shareholders. In terms of these larger projects that would flow through backlog, we tried to highlight in our prepared remarks that we do have a small amount of backlog related to these larger projects, but it really is not that significant.

Great. Sorry, Paul.

I was just going to add to that. Craig, we just don't look at our book-to-bill on small, medium and large sized projects. We look at in totality for T&D and then in totality for C&I.

Okay. And then CapEx 20/20 was there another segment for that line in there or another large project potentially contributing?

In our backlog there is only a small amount for CapEx 20/20 at this time, and it is sort of- - I will go back to my prepared remarks. Given the way that contract has been broken up into small pieces. I mean we feel pretty good about getting that work, but nonetheless additional segments have not been signed at this time.

Okay. Then is it fair to understand that you will see a shift in the overall contribution from the transmission side towards smaller projects over the next handful of quarters or should we expect the larger projects to continue to make up the majority of your transmission revenue over the next couple quarters?

Not real positive what to expect there. Maybe just talk about these projects that are driven by these EPA rules. As we have seen the list of projects that the utilities have that will be effected, there are a whole bunch of small to mid-sized projects, but there are also three or four good sized projects that make that up.

The NEARC reliability work most of that ends up being smaller system upgrade projects. I am not aware of any big megaproject that might result in an announcement. Maybe you would have an announcement on some kind of an alliance arrangement. But I see a good steady mix of small and medium-sized projects as well as some big projects. I do not see, as we have discussed on other calls in the second half of 2010 and the first quarter or first half of 2011, there just happened to be a bunch of big project awards announced during that period, and I do not see that as being repeated and there will continue to be large project awards. But as far as concentrated in a nine month or 12 months period, that is probably not likely.

Great. And then last question if I may. So it sounds like we are moving on to faster booking burn projects in general and those obviously will have an implication as far as what gets photographed at the end of the quarter for backlog. So that what end up being shared with investor really is a backlog number rolling everything up. Can you maybe provide us more of an explanation as far as how and why we might not see these as completely showing up in your backlog given that they are fairly quick to complete on the smaller side?

I really do not have anything more to elaborate on that. Paul, you have anything in your mind?

Craig, I would sort of go back to my prepared remarks. Some of these projects will sign them within the quarter and the work is well under way in that same quarter, and it does not really extend too much on into the next quarter. Snd so that is why we talked about that. I do not think there is really anything more to add to that.

Great. Thank you for taking my questions.

Thank you. Our next question is from Andrew Wittmann with Robert W. Baird. You may begin.

Morning, guys.

Morning, Andrew.

I had a couple questions here. Specifically, I wanted to understand a little bit about your hit rate on your bidding and proposal activity. How that is that been trending just relative it recent history, up/down? Can you just kind of give us a sense about your success pattern there?

Well, if you look at a short period of time like a quarter, you might find a very high hit rate or you might get skunked for a quarter. We certainly do not look at it month by month or quarter by quarter. Judge it on the long-term. I think our success rate is pretty consistent with long-term patterns, certainly the big projects there are perhaps fewer competitors there. May be our ratio might be a little bit higher than on the small projects where you go to a bid meeting with 10 or 15 other contractors, but our success rate is pretty consistent with what its run in the past.

But specifically in distribution I just want to make sure this is clear. You mentioned that you were losing some market share, but was that a conscious choice because you are not willing to chase price, or is that just been a market you are going away from because you are focusing on other things?

It was a conscious choice. We could have retained the market share had we really discounted our prices, and ultimately we need to generate enough margin on our distribution business to afford to replace the equipment, and we are not in thecharitable business here.

We are trying to allocate our capital where we think it does our shareholders the most good. And in the last couple of years we just have not chosen to go quite that low on the margin to try to hold market share on distribution. The distribution market is a good long-term market, and I see us being a big player in it. These distribution alliances typically are bid every three years or so. There are some that bid last year, there are some that are bidding this year. So as market conditions change , so it returns to something that is more attractive, more consistent with the risk of the business, we would hope to build that back up.

That makes a lot of senseMaybe a final question here. Just if you could kind of go around the horn a little bit on some of your larger projects, specifically the online is always a good one to gets an update on. Kind of where are we there and maybe some of your other larger projects that maybe the grudge work that you are doing or remain?

Sure. Let me start with the online project. There was a news release put out by NV Energy sometime ago, a month, six weeks ago. announcing a delay in that project. And it indicated that it was likely to be delayed until the end of the year. It also discussed cost increases that would be caused because of the delay as they deal with some of the engineering issues on the towers. Our expectation is the project will get ramped back up, but probably not until the end of the year and that is dependent upon the regulators approving the application that is not before them.

So it probably- - I think they are now believing that the project will get completed by the end of 2013. And probably not a lot of work with the structures or the wire will take place this year. We have continued to build roads, deal with environmental issues to move plants. We have installed foundations. We have installed anchors. So a lot fop the activities other then setting the structures and the wire work have continued, but we have done virtually nothing on the structures or the wire. So that is where I see the Nevada project. The other projects are all generally on schedule. They all have their unique challenges. The Texaswork has its challenges. The main work has it challenges. The work we are doing in West Virginia they all have challenges, but I think we are doing a fairly good job of keeping up with the schedules on them.

I will leave it there. Thanks you.

Thank you. Our next questions from Alex Rygiel with FBR. You may begin.

Thanks. Good morning Bill and Paul. Nice quarter.

Thanks Alex.

Bill, could you comment a little bit on what you think your market share is inside the CapEx 20/20 program to date?

Do not have a percentage. The one 2/30 line typically is referred to the bid-mid gee line. A competitor performed that work. The two projects that are out now are the Fargo and the Brookings line. We are doing some work on small segments of those lines. They have by no means all been awarded to us. We are in discussions with pricing on individual segments. So it's -- this is one much like the key-to-work where they are divvying it up into 20-mile pieces or 70-mile pieces, and we certainly hope to earn our fair share of that work. It is largely a function of performance. The project called the Lacrosse Project there's been some -- a lot of pre planning on that, but to my knowledge as far as any awards to any contractor that I am not aware of if there is anything.

Can you give us an update on Keyta phase 2? Has that started yet.

Yes. The Keyta work in Northern Kansas is progressing well. That should all be done by the end of the year.

And then lastly, is the margin profile of your distribution business today lower than last year?

I do not know that it is any different. Do you have anything on that, Paul?

I do not think there is anything that would sort of jump out at us to give you an answer one way or the other.

One thing I am sure is obvious to you. A lot of the contractors including us as we perform distribution work, you are trying to make a guesstimate as to how much storm work that will lead to. Some contractors are willing to discount the baseline distribution work in order to have distribution crews in distribution equipment ready to run off to some storm. If I knew with certainty what kind of storms were going to occur between now and the end of the year that is a huge driver of the margins on distribution work. Certainly in the month of July all of the line contractors picked up some distribution work due to some storms, but I do not believe it is anything out of the ordinary at this point.

And one last question. Some of your customers breaking up larger transmission jobs into projects that are 20 or 30 miles long. Are they doing this because of permitting challenges or are they doing this because they are getting a better price from the contractors?

I would say it is mostly the former. They don't have the right of way secured or they do not have the permits or they do not have the material. I think that is what is driving it. I do not think anybody that I have heard strategizing, if we break it up into smaller pieces, we will get better prices from the contractors. I don't think that is their motivation. It is more just not trying to get a head of themselves because if they make a commitment to a contractor and then have to delay the job because the permits did not get issued or the material did not get issued, they are opening themselves up for change orders and they try to avoid any unnecessary change orders.

Perfect. Thank you very much.

Thank you. Our next question is from William Bremer with Maxim Group. You may begin.

Good morning, Bill. Good morning, Paull. Very nice execution this quarter. Can we go right into the pricing? The bookings that you are receiving now versus say the first quarter are they better in terms of pricing? The pricing of the backlog is it better at this point?

I do not know. We do not look at it that way, William. Each job we bid we assess the risk where you look at how well it fits us strategically, but we do not have a statistic that says well, in this quarter our bidding was averaged X percent and this period it averaged Y percent. We do not look at it that way. We try to assess each individual project, assess the risks of the project, assess how well it fits us and assign what we think is a reasonable margin to it.

All right. Okay. Can you give us a sense of how much book and burn you realized this quarter to get a sense of how quickly you guys can turn projects? I mean how material was it to the second quarter?

Paul you wanna - -

Well, I do not know if that is a -- Bill, if that is a number that we put out to folks. Can you maybe ask it in a different way. So I can better understand what you are getting at.

How many projects were not in your backlog as of the first quarter that you were able to realize in the second?

I do not think I have that number available to give to you, Bill.

Okay. And -- well, maybe you guys could help me out in terms of your substation work during the quarter. How much of that impacted the T&D segment?

We do not break that out. Our substation work has been strong with significant regional player doing substation work, but we do not break that out. It is pretty consistent with how it has been running in the past.

Okay. The SG&A very, very impressive as well as your corporate expense line. Should we make the assumption that there has been some structural changes with the Company?We have not seen it this low for many shall many quarters and given the incremental $20 million top line of the second quarter. For modeling purposes how do we look at expenses going forward at this point?

I do not think you should assume there have been any structural changes. We continue to grant raises to employees. We continue to see higher employee benefit expenses. So we are seeing higher costs. Just we benefit from the fact that we are able to leverage the business. The more revenues the more margin on projects we can generate and try to keep a handle on our SG&A costs, but we have not had layoffs or salary freezes or anything that I think you might consider structural.

And then, Bill, to my last question and I appreciate the color. The resolved change orders. Can you give us a sense of how that affected this second quarter? I mean are we talking about -- can you give us some type of magnitude on that figure?

It is a few million, and as we incur the costs in prior quarters for the change order work, we just recognized the cost with no revenue or margin to cover it, and then when we are able to resolve a change order, then that revenue and that margin comes in. It is not a huge number, but it is a couple million.

And, Paul, where would that be categorized? Where is that placed?

It flows rights into our gross margin. When we have more topline revenues when we actually get a sign off on a change order.

But it does not affect SG&A?

Only as a percentage of revenues it would.

Rights. So that is what I meant. It doesn't affect the SG&A of $14.5 million? There is not like a couple million benefit there then?

No.

No.

Okay. Okay. Thank you, gentlemen.

Thank you John Rogers of D.A. Davidson. You may begin.

Hi. Good morning.

Good morning, John.

Morning, John.

Just, Bill, I do not know whether you can distinguish here, but your comments on the market for transmission implied to upgrade for reliability purposes. How much of the workout there potentially out there is associated with changes in the sources of power, gas switching versus the alternative energy projects and some of the delays there as well?

I would say thus far very little. These rules are in place new an all the utilities are trying to figure out the impact of them. Certainly there have been a few coal fire plants shuts down, but nowheres near the number of shutdowns that we expect.

So as they shutdown these plants, they need to compensate in some manner because many of those plants were located in load centers and the range ever options the utility has is to put a new plants in that same load center and I guess they can put a gas plants there if they had the room and they had available gas supplies, or as an alternative they could spend money on their transmission system to bring in power from further away than what the system is built today. But I do not think we have seen much of that occur already.

I think a lot of it is coming and certainly there is the possibility that some of these standards could get delayed and, I do not know the impact of the election this fall, but I suppose that could have an impact, too. But it is not just the standard. With what has happened to natural gas prices the gas plants are now very economical as base-load generation.

Okay. And thanks for the color. Just as a follow-up given the strength in the market activity and not only for you and others, but are there any equipment issues or specialty skills shortages I mean besides the electricians that are out there?

Well, we can never have enough of good equipment operators. We I think have some really good ones in our Company and this equipment is very sophisticated. And so that would be a skill set in addition to the folks that do the line work. So that is kind of on the field level. We are also always also looking at good estimators, good job cost accountants, good schedulers kind of managing the contractual issues that are increasingly important because the nature of our customer is more sophisticated than what it would have been 10 or 15 years ago where you do not have program managers.

A lot of the jobs today have program managers that require a higher sophistication to feed them all the information that they need.

Okay. Thank you. Congratulations on the quarter.

Thank you. Our next question is from Jeff Beach with Stifel Nicolaus. You may begin.

Yes. As a follow-up do you have capacity or are you pursuing work in Canada?

We have not pursued any work to date that is a -- something that we look at and, we have been looking at it for a year or more, but right now we are not bidding work in Canada.

Alright. Thank you.

Thank you. I am showing no further questions at this time. I would now like to turn the conference back over to MYR Group for closing remarks.

Well, I appreciate everybody being on the call. We are definitely excited about the opportunities for our industry and think we are in a great position to capitalize on them. I would be remiss if I did not thank our management team and our employees. Obviously, they are the ones that are producing the results that Paul and I get to report on, and they have been working very hard and the long hours under some very difficult conditions.

I would also like to thank our shareholders and the Southside analysts who follow the Company. You are very important to us. Obviously, this business requires a lot of capital and you have been Johnny on the spot to provide us the capital, and we definitely appreciate that. So with that I will close the call and look forward to talking to everybody next quarter.

Ladies and gentlemen, this concludes today conference. Thank you for your participation and have a wonderful day.