MYR Group Inc (MYRG) 2013 Q1 法說會逐字稿

Good morning, everyone, and welcome to the MYR Group first quarter 2013 earnings result conference call. (Operator Instructions). At this time for opening remarks I would like to turn the conference over to Mr. Philip Kranz of Dresner. Please go ahead, sir.

Thank you. Good morning, everyone. I would like to welcome you to the MYR Group conference call to discuss the Company's first quarter results for 2013 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; and Rick Swartz, Senior Vice President and Chief Operating 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 please go to myrgroup.com where a copy is available under the Investor Relations tab. Also, a replay of today's call will be available until Wednesday, May 15, 2013, at 11.59 PM Eastern Time by dialing (855) 859-2056 or (404) 537-3406 and entering conference ID 30867334.

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

Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the Company's Form 10-K for the year ended December 31, 2012, the Company's quarterly report on Form 10-Q for the first quarter of 2013 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 first quarter 2013 conference call to discuss financial and operational results. We are varying the format of our first quarter call to include our Rick Swartz, our Chief Operating Officer. Rick has been in the COO position for a couple of years, also serves as President of several of our operating companies. I will start by provide a brief summary of the first quarter results and then turn the call over to Paul Evans, our CFO for a more detailed financial review, following Paul's discussion Rick will provide an overall industry outlook and discuss what we see as MYR's opportunities. I will then conclude with closing remarks and open the call up for your comments and questions.

We posted a strong first quarter of 2013 with higher contract margin, EBIDTA and earning per share compared to the first quarter of last year. Our financial performance was made possible by solid project execution and high utilization of speciality fleet equipment and tooling. Revenues were down for the quarter compared to last year, largely because of the cost component mix of our contract cost which included much less subcontractor and material costs. Paul will discuss that in more detail later.

Gross margin for the first quarter of 2013 increased to 13.6% compared to 10.9% for the first quarter of 2012 an increase of 270 basis points. In addition to the factors just mentioned, overall contract margins benefited from improved performance on a few large projects due to higher productivity levels, cost efficiencies, additional work and effective contract management. Diluted earning per share were $0.32 for the first quarter of 2013 compared to $0.29 for the same quarter of last year. EBIDTA increased to $18.4 million for the first quarter of 2013 compared to $16 million for the first quarter of 2012, an increase of 14.8%. Over the last 12 months our return on equity increased to 15.7% compared to 10.1% through the prior 12 month period. We believe this compares favorably to our peer group.

Looking forward we remain bullish on the long-term outlook for both of our business segments. Now Paul will provide details on first quarter of 2013 financial results. Rick will then provide some additional insight on current market conditions and our perspective for the future of MYR. After that, I will provide some closing remarks, and there will be an 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 the 2013 first quarter results. Our revenues for the first quarter of 2013 were $201.3 million which represented a $38.9 million decrease over the same period in 2012. On a percentage basis 2013 first quarter revenues decreased 16.2% over the 2012 first quarter. To put this decrease in perspective, first quarter of 2012 revenues increased $89.9 million or 59.8% over first quarter 2011 revenues.

We have talked on past calls about the impact the contract cost component specifically material and subcontractor costs have on our revenues. With this in mind, material and subcontract costs comprised approximately 30% of the total contract costs in the first quarter of 2013, compared to approximately 44% in the first quarter of 2012. For the full year 2012 approximately 43% of contract costs related to material and subcontractor costs. The amount of subcontractor and material costs as a percentage of overall project costs is highly variable from project to project depending on the client and individual projects.

From a segment standpoint and compared to the 2012 first quarter T&D revenues decreased $44.5 million to $160.5 million. C&I revenues increased $5.6 million to $40.8 million.

Focusing on the T&D segment,revenues were $130.5 million for transmission and $30 million for distribution in the first quarter of 2013. This compares to $171.6 million for transmission and $33.4 million for distribution for the first quarter of 2012. Transmission revenues decreased in the first quarter of 2013 as compared to the first quarter of 2012 even though we worked slightly more man hours in the first quarter of 2013 than in the same period last year . Equipment usage was up from the year earlier period.

On a few large transaction projects there was substantially less material being installed and less subcontractor work being done in the first quarter of 2013 than in the same quarter last year, which resulted in less revenue for the quarter. Material and subcontractor costs in our T& D segment comprised approximately 27% of the total contract costs in the first quarter of 2013,compared to approximately 43% in the first quarter of 2012. Our transmission business comprised 68% of our revenues in the 12 months ended December 31, 2012, compared to 59.2% in 2011. In 2008 transmission revenues represented just 45.6% of our total revenues. This shift in business mix was mainly due to increased activity in the transmission system upgrades over the last few years and our success in winning several large multi year transmission projects. In the first quarter of 2013 revenues from transmission business were 64.8% of our total revenues.

Distribution revenues decreased in part due to lower levels of storm work in the first quarter of 2013 compared to the first quarter of 2012. We saw continued improvement in our C&I segment in the first quarter of 2013. C&I segment revenues increased by 15.8% to $40.8 million in the first quarter of 2013 from the first quarter of 2012, primarily due to increase in revenue on projects with contract values greater than $3 million. Material and subcontractor costs in our C&I segment comprised approximately 40% of the total contract costs in the first quarter of 2013, compared to approximately 47% in the first quarter of 2012.

Our overall gross profit in the first quarter of 2013 increased to $27.3 million from $26.1 million in the first quarter of 2012. And our gross profit as a percentage of revenue increased to 13.6% versus 10.9%in the first quarter of 2012. The increase in gross margin was largely due to better project execution, higher equipment utilization and the underlying mix of contract cost components , which including less material and subcontractor cost and more labor and equipment. Approximately 100 basis points of the increase in gross margin was due to improved contract margins on a few large transmission projects as a result of increased productivity levels, cost efficiencies, additional work and effective contract management.

On a sequential basis our gross margins has increased in each of the last six quarters to 13.6% in the first quarter of 2013 from 9.4% in the third quarter of 2011. As our margins have benefited from better execution on jobs and improved utilization of our fleet assets.

First quarter 2013 SG&A expenses were $16 million compared to $15.9 million in the first quarter of 2012. SG&A as percentage of revenue increased to 8% in the first quarter of 2013 compared to 6.6% in the first quarter of 2012. First quarter 2013 EBIDTA increased 14.8% to $18.4 million or $0.86 per diluted share from $16 million or $0.76 per diluted share in the first quarter of 2012.

Our provision for income taxes increased to $4.3 million in the first quarter of 2013 compared to $3.8 million in the same quarter of 2012. Our effective tax rate of 37.9% was consistent with 38% in the first quarter of 2012.

First quarter 2013 net income increased 12.1% to $7 million or $0.32 per diluted share compared to first quarter 2012 net income of $6.2 million or $0.29 per diluted share. We invested $12.5 million in property, plant and equipment in the first quarter of 2013 compared to $8.3 million in the first quarter of 2012. We expect that our capital spending in 2013 will be similar to our 2012 capital spending. We believe our strategy to invest in equipment and tooling will continue to result in better execution on current projects and help position us to capture additional business in the coming years.

Total backlog at March 31, 2013, was $467.1 million consisting of $356.9 million in the T&D segment and $110.2 million in the C&I segment . Total backlog at March 31, 2013, decreased $30.5 million compared to the $497.6 million reported at December 31, 2012. T&D backlog decreased $18.8 million or 5%, while C&I backlog decreased $11.7 million or 9.6% period over period.

Moving to the balance sheet. Stock holder equity increased to $263.6 million at March 31, 2013, from $254.7 million in December 31, 2012. As Bill mentioned, our return on equity for the last 12 months ending March 31, 2013, was 15.7% as compared to 10.1% for the prior year period.

We believe ROE is one of the best overall financial measures because it relates net income to the equity shareholders have invested in the Company. At March 31, 2013, we had $21.3 million in cash and cash equivalents, no outstanded funded debt and $155.3 million in availability under our credit facility. Our cash balance increased $1.5 million from December 31, 2012, as cash from operating activities and stock based awards offset cash used in our continued investment in fleet equipment and tooling. As of March 31, 2013, we had approximately $19.7 million in letters of credit outstanding under the credit facility.

Although we are not repurchased any shares to date under our share repurchase program, which became effective in August 2012, our Board of Directors approved an extension of our share repurchase program through August of 2014 and increased the size of the program to $22.5 million. We expect to fund any repurchases under the program using available liquidity.

In conclusion, solid execution on jobs resulted in higher gross profit, EPS and EBIDTA for the first quarter of 2013. With our strong balance sheet we believe we are well capitalized for organic growth as well as for possible strategic acquisitions. I will now turn the call over to Rick Schwartz, our Chief Operating Officer, who will provide an overall industry outlook and our view on the opportunities available to MYR.

Thanks, Paul, and good morning everyone . Our project teams continue to focus on executing work and managing contracts. Our estimating teams in both our T&D and C&I market segments are evaluating and pricing a steady flow of projects. We continue to see nationwide opportunities in transmission projects of all sizes. These opportunities are largely driven by reliability mandates; new lines and upgrades to accommodate a changing mix of generation sources resulting from EPA mercury and air toxics standards ruling; potential need for new lines and interconnects to delivery renewable resources; and economic issues surrounding the cost of power due to congestion. All of these drivers point to a promising outlook for MYR Group. With nationwide opportunities in both the immediate and long-term.

On our last call Bill highlighted some of the industry announcements regarding spending on transmission infrastructure in the Northeastern United States. Today I would like to spend some time discuss activity in the Midwestern and Great Plains Region. While industry activity remains strong nationwide and we remain optimistic that we will win our fair share of work in all regions of the country,there are several reasons why we feel MYR is uniquely positioned to capture future projects in the nation's mid section.

In the Midwest MISO's MVP or Multi-Value Project portfolio represents approximately $6.5 billionin electrical grid infrastructure investment that is expected to relieve conjestion issues, enable the delivery of least cost energy to consumers, improve system reliability and delivery renewable resources throughout the region. As cited in the January 2012 MISO report the 17 proposed MVP projects primarily consist of new construction and upgrades of existing transmission lines that will be located throughout Illinois, Iowa, Indiana, Michigan, Minnesota, Missouri, North Dakota and South Dakota and Wisconsin. While a few MVP projects are already under contraction, the majority are still in various stages of development; permitting and bidding. We expect the entire portfolio to be completed between now and 2020.

In the Great Plains Region Southwest Power Pool or SPP recently announced the release of 2013 transmission expansion plan reports, which identifies a total of 439 up greats that will be needed in order to assure system reliability and low cost power to SPP's eight state region over a 20 year planning horizon. The report includes over 1,800 miles of 345-kV transmission projects that are in various phases of planning and permitting and construction.

Aside from the MVP and SPP priority projects numerous additional opportunities exist among a wide variety of customers and utility located throughout the Midwest and Great Plains Region. Our strong existing and historical presence in both regions is only part of the reason we feel MYR is well positioned to capture a portion of these projects over the next several years. Not only have we constructed hundreds of transmission, distribution and substation projects throughout these regions since the start of the Company in 1891, we are currently performing a significant number of small and mid-size projects for several clients such as AEP and Xcel energy within both regions.

From a large project standpoint we are constructing portions of the CapX2020 Group 1 projects throughout southwest Minnesota and the first segment of ITC's V-Plan project located throughout eastern and western Kansas. We also recently completed construction on ITC's Spearville to Axtell or 345 transmission line which is part of the Kansas Electric Transmission Authority or KETA project.

These projects have allowed us to retain a strong continuity of project management teams and crews who will gain valuable experience working together. We believe that over time, our crews will continue to show improvement in the areas of safety, productivity and efficiency, similar to trends that we have seen with other crews that have work together over long durations. We expect that the continuity should give us an additional edge as we compete for future projects. Additionally we anticipate the relationship and experience we have established with the clients should provide us with an additional long-term opportunities on the CapX2020 and V-Plan projects that remain e outside the scope of contract for projects currently under construction.

Although the potential opportunities we have been speaking about describe opportunities through 2020 we see significant opportunities in these regions over a much longer term. For example, in late 2012, ITC submitted the Great Plains Expansion Project plan to SPP, which represents the planned development of five projects that are slated to begin in 2017 and continue for several years. The planned scope consisted more than 2,700 miles of new transmission throughout Arkansas, Iowa, Kansas, Missouri, Nebraska, Oklahoma and Texas. To put this in perspective, the entire MVP portfolio consists of 2,300 miles.

Moving on to the Distribution side of our business. We are slowly beginning to see signs of recovery and we feel this trend should continue. After a number of years of deferred spending, customers and utilities will need to make sustained investments on their systems for proper maintenance and reliability requirements, which should be further stimulated as the economy and the U.S. housing markets continue to rebound.

Now I'd like to shift over to our C&I business. Again, as the U.S. economy slowly rebounds, we have begun to see gradual improvements and increased momentum in bidding activity. Specifically, we've noticed an increase in private development, both in the expansion of existing facility and greenfield construction.

Although competition remains strong and continues to create pressure on our margins, we believe we are one of only a handful of contractors in the Arizona and Colorado markets with the expertise, experience, resources and safety record to execute larger more complex electrical projects such as large healthcare, government, commercial mining and wastewater treatment facilities. Additionally our experience in smart highway work and data center continue to define us as a regional expert. Being an industry leader in this large complex project niche positions us favorably to win these type of opportunities as they come to market.

In conclusion, there are many reasons to remain optimistic about the future of our Company. Thanks to everyone for your time today. I'll now turn the call back to Bill Koertner, who will provide us with some closing comments.

Thank you for the update, Rick. As Rick and Paul have discussed, we are encouraged by the opportunities the future holds for MYR as we believe several markets are poised for continued growth due to increased needs and requirements.

I would like to close with a few comments about strategy and risk. As Rick discussed, we see no shortage of work going forward including large transmission projects. There may not be a second wave of (Inaudible) projects in Texas like in the last couple of years, but there should be plenty of work for MYR and its competitors for many years to come.

As always our objective is to maintain and increase shareholder value over the long-term. One of the keys to accomplish that is to stay focused and disciplined in our bidding. There are more nontraditional transmission developers in the market today than ever before. In addition to the credit risk this introduces, the contract structures included in many RFPs from both these nontraditional developers as well traditional utility clients often include greater legal risks than contractors have accepted in the past. It is important for companies like MYR to fully understand and price those risk factors. If we are successful in earning the award, we need to administer contracts with potentially more onerous legal provisions as well as manage the physical construction of the project.

Now with respect to acquisitions. MYR has not been a very acquisitive Company in recent years preferring to grow organically if possible. We have looked at a few acquisitions recently and will continue to do so going forward. I believe there will be no shortage of target companies in the market in the future. However as with bidding work, it is important that we stay focused and disciplined with targeting acquisitions, pricing and negotiating deal structures, performing due diligence and ultimately integrating any company we might buy.

We are seeing private equity increasingly attracted to the ENC space bidding for engineering firms and contractors. These private equity sponsors as well strategic buyers are armed with plenty of bank financing at very low rates and on attractive terms. This has had the effect of pushing valuations for acquisitions to higher levels than historical trading ranges.

MYR and its subsidiaries have been in business a long time and have seen the industry go through many cycles. We intend to remain a market leader and know that to do that we can't take our eye off the ball. This applies to safety, quality, productivity,customer service, meeting schedules as well as risk taking. We want to meet our clients' needs and we also want to be considered the employer of choice in attracting the very best talent available.

That is it for now . On behalf of Paul, Rick and myself, I would like to thank you for joining us, and as always thank you for your interest and support. I will turn the session over for your comments and questions.

(Operator Instructions). Our first question comes from Tahira Afzal of KeyBanc Capital Markets. Please go ahead.

Good morning. This is actually Saagar on for Tahira.

Hi, Saagar. How are you?

Doing great. Thank you . First off, you mentioned that the decrease in revenue, you've gone through that quite a bit in terms of why revenue decreased year-over-year in the transmission business. Could you also walk us through how many large projects you are working on in 1Q 2013 versus large projects in 1Q 2012, so we can see the change year-over-year there?

Rick, you want to take that?

We haven't seen -- the number of our large projects continue to be the same. We haven't finished any of our major projects. As Bill said in previous calls, we need work. Our backlog is not completely filled for the end of this year or in the next year. So we are continuing to look for work, but we haven't finished any major projects over that period of time

So outside of the procurement differences year-over-year, what was all the reason then for the revenue decrease?

Primarily, it was related to lower subcontracted materials. The reason I went through the efforts to put the percentages out is for folks like yourself to mathematically derive a similar number that I have derived. And so that's at an absolute we talked about on our distribution side that we had lower storm revenues, but we have never held ourselves out as a Company that derives a lot of its revenues from storm work. What you saw at the first part of last year, we had projects that we were taking in a lot of materials and just performing a lot of oversight of subcontractor work. As we worked through some of those larger projects, it shifted to more of our labor and equipment.

That makes sense. Last question from me. In terms of the competitive environment, in terms of the bidding environment out there, some of your peers out there have been winning medium to large size projects that they have been announcing. What is the difference and why are they winning them versus you guys? Is it geographic positioning, is it pricing, any more color on that would be helpful. Thank you.

Let me start off with that, and then I'll ask Rick to comment, because he is more directly involved in the market. Obviously, I am not aware of exactly the selection process each client goes through. We bid work, propose our qualifications, propose our pricing, propose the markup to the legal contracts that they submit with the bids. I'm not privy to what our competitors are submitting in the way of pricing, as well as markups to contracts. Ultimately, I think the two primary drivers on selection is price and risk-taking. And that risk taking is not just an inherent risk like weather and those kind of things that are always there.

There is a lot of risk in some of the contracts in terms of what I refer to more as real risk, like liquidated damages, extended warranty provisions, consequential damages. There are lots of risk factors that MYR, as well as all of our competitors, need to evaluate and decide which of those risk we want to take, which ones we are not prepared to take, and those that we are prepared to take we need to make sure that we have adequate pricing in our overall price to cover that risk-taking. So again, not in the head of any of our clients to make these selections, but I think it boils down primarily to price and risk-taking.

And just to add onto that. From the clients we talked to, the information we get back, it's down to those two items primarily, and we have got a long history of tracking our costs, knowing how we attack projects and what that risk is. And we price it accordingly as we see it. And we do everything we can to remain competitive, but we are not in the heads of our competition.

And, Rick, a quick follow-up to that. When do you see the market tightening to the degree where the pricing and the risk doesn't become an issue to the extent it has over the last 6 to 18 months in terms of what your competitors are bidding?

Again, I can't say from a competitive standpoint of who competes against us. I can't say what their appetite or what their level is to fill up. We monitor our equipment resources, we look at our manpower out there and we look at the availability in the markets we are going into or the geographic areas and we assess that on every bid we do. Again, I can't answer how our competitors look at it.

Thank you very much.

Our next question comes from Adam Thalhimer of BB&T Capital Markets. Please go ahead.

Thanks. Good morning, guys.

Good morning, Adam.

You know like you said, Paul, you had some nice EPS and EBIDTA growth in the quarter. The draw down in backlog, how long can you maintain growth rates, given the draw down in backlog, or is that not the right way to look at it?

It is true that our backlog declined quarter over quarter not that much. Of course we focus on book-to-bill and we seek to have a 1 or higher every quarter. That didn't happen in Q1. Do we see continued growth? Absolutely we see continued growth. We see that our labor hours are up, we see our equipment is up and we continue to invest in specialty equipment. It would be hard for me to say how many months that continues or how many years. It would be hard to say, Adam.

Just because backlog is down doesn't mean you are not overly concerned?

I don't think we are that concerned. Obviously we want to continue to win additional work and fill up where we have opportunities to take on more work and we believe we do have the ability to take on more work and we are looking for those things. We are very measured in what we do. As Bill said, we are not going to do this without considering the risks that maybe some others out there are taking on today.

I think that is a good thing. I can appreciate that. Last question from me, I just wanted to ask about M&A. And you talked pretty extensively about this, which I appreciate as well. Are there any end markets that you might be interested in where their evaluations are a little bit more reasonable, maybe, say, something like gas, distribution or something a little outside of your traditional core competencies?

Adam, I think, as we have reported on prior calls, as we have looked at acquisitions, vertical integration has been something that has appealed to us, expanding in some regions where we are not currently a player or maybe not a significant player that would have appeal to us getting into other markets like the gas, construction. We have also looked at that. So I guess, at the right valuation, the right risk profile, we would be interested in all of those things.

Okay. That is helpful. Thank you, Bill.

Our next question comes from Dan Mannes with Avondale. Please go ahead.

Good morning, everyone.

Hello, Dan.

A couple follow-ups. First on the mix in terms of subcontractor revenue. I think we have looked at this. I think the biggest piece, if I remember right is CTT. When you look at your existing backlog, does it more correspond to the Q1 2013, and should we think going forward that you are going to maintaining a lower level of subcontractor and material revenue?

Dan, I don't know if we'll put out that number or what is the contract mix in our current backlog, and the reason I say that is we take on work that is available out there to us, whether it be work that we are doing more self-performing or EPC-type work. We are a function of what the market offers. So we could pick up a contract next month that is an EPC-type contract, and that percentage could end up in our backlog can greatly change. So what I tried to tell everybody last year is I gave the range and I said we are trending towards the higher end of the range. And then, obviously, on this call, I talked about more precise percentages. It goes between that range, three (Inaudible). It could, by the end of the year, be higher than what it is today.

Given the current constitution of your backlog as you know it today, would you say the current backlog is more weighted toward the high or low end of that range?

I would say the current backlog is probably weighted to the lower end of that range.

Got it. The second follow-up is on the M&A front. Bill mentioned the fact that some PE firms with fairly low cost of debt have been aggressively bidding up. I want to put that in the context of MYR, where your stock is probably one of the cheapest of the specialty contractors. How do you square that, given the attractive prices, perhaps, being paid for other contractors?

I am not quite sure what you mean by squaring that. We certainlyaware of these other transactions that have taken place at very high multiples. Whatever measure you use. EBIDTA, earnings, book value, tangible book value. There have been some deals done at high multiples. The banks have changed a lot since 2008 and 2009 and credit is very available at very low interest rates, but more so than the interest rate I think is the looseness of the credit market. That has fueled a lot of these acquisitions not only by private equity firms but also some strategic buyers.

As far as squares that with MYR, I don't always understand why we are valued at our multiple and how somebody else is valued at their multiple and why somebody would pay a very high multiple for maybe a company that is not that large and doesn't have a lot of history. I guess that is beyond me to figure out what everybody is paying for these companies. Our focus is on running our business, producing solid fundamental growth and over time that will be recognized. That has always been recognized in the past. I feel it will be recognized again. As you point out today our stock is a little out of favor.

I guess the final follow-up on that would be, you guys are clearly optimistic on the long-term future of the Company, and at the same time you increased your buy back of Smidgen. Any thoughts on being more aggressive there especially in the context of not having actually execute on the buy back in the past year since it has been in place?

Obviously, the fact we just changed it means our Board just had a discussion about that and we recast ourself going forward. That is something that is reviewed each quarter with our Board. I am not suggesting it is going to change. It is something that we are very conscious of and think our stock is an attractive long-term investment.

Got it. Thank you very much.

Our next question comes from Noelle Dilts of Stifel. Please go ahead.

Hi, good morning.

Good morning, Noelle.

Given the shift we have seen in the industry, in terms of how projects are awarded to smaller pieces of the larger projects coming out over time, could you just provide an update on if you picked up any additional pieces of work on the CapX 2020 job? And then any update on the ITC V-Plan, if you think additional sections of that work could be awarded over the next few months?

Over the next quarter, on the ITC V-Plan, that project, we continue to do some pricing exercises and look at that and have discussions with the client. We see that as a good potential for us, moving forward, for the next segment of that project. On the CapX work, currently, on one of the segments, we are progressing into the next segment. Kind of have a starter PO on that side to move out and start hauling structures and assembling some of them, so that one is progressing towards the same result of getting the entire, hopefully, that entire segment is what we are looking for.

Could you just comment because we have seen this change, could you comment on once you are working on a job and you have mobilize your crews and equipment there how difficult would it be for another company to come in and pick up some of the additional pieces of that work? Do you think it is difficult from an economical standpoint?

Yes. Bill said it in the past on many calls. I think he has gone into a little detail on that. Once you are on site you have crews working with that customer, you have the mobilization covered, you have management in place that is a substantial cost on any project. It gives you a competitive advantage for sure. Does it stop somebody from coming in and buying the work? Not necessarily. We feel it gives us a strong competitive advantage.

Thank you.

Our next question comes from William Bremer of Maxim Group. Please go ahead.

Good morning, gentleman.

Good morning, Bill.

Could you give us a sense of what percentage of capacity you are currently running at in terms of transmission at this time?

You mean capacity in the context of our fleet?

Exactly.

I'll answer this way, Bill, we keep on investing in specialty, equipment to grow our capacity. And we said in the past we could take on additional work, and I don't think we've ever said, percentage. That wouldn't really make a lot of sense. I can't determine what the percentage I want it to be. But we are seeing that, we are using our equipment more this year than we did last year.

Okay. The reason why I asked, operating margins up 10 spots 4 for the first quarter, that is pretty solid, all in all. It looks as though you are operating efficiently there. Just trying to get a sense on if we are operating at 65% or 70%, maybe there is upside to that figure going forward. Correct me if I am wrong. It seems as though that your backlog year-over-year pricing is actually less? I just want to confirm that.

I don't know how you would derive that to say what it is. One, I know we haven't put that number out. Two, I hope you would appreciate the growth in our gross margin through time. I don't know how you draw that observation, Bill.

Okay. Let me ask it a different way. How do you foresee operating margins throughout 2013 going forward?

I think they are going to be similar to what we are seeing over the last few quarters.

Okay. Then your book-to-bill on transmission definitely below 1.0,that is the goal at least to get the (Inaudible). You have had five consecutive quarters of declining in backlog. Maybe subsequent to the quarter what have you guys been seeing? Are there some near term material potential contracts that we are just in the final stages on?

Bill, we are an active bidder. I don't think we would put out specifically, we have a pending bid in this state and we think we are our chances are good. I don't think we have ever put that out. We have had that question asked of us in the past specifically on certain projects, and I don't think that is some information we will put out. Rest assured if we win some of our pending bids we will let people know.

And then similar question on C&I. Your book-to-bill was quite low there, and it has been definitely gravitating well above 1.0 last few quarters. Is this just timing, in your opinion, or what are you seeing in that particular market for C&I?

We've got a favorable trend. You are looking at a point in time on the book-to-bill. If you look at the trend of C&I over the last year, it is definitely favorable.

And in the markets we are in we are seeing more activity as we said in our script.

All right, gentlemen. Thank you.

Our next question comes from Justin Hauke of Robert W. Baird. Please go ahead.

Good morning, guys. I guess just a modeling question. I appreciate you don't give guidance, but thinking of this big picture here. If you look at on a net revenue basis your revenue is basically flat. Gross profit dollars are basically flat. You mentioned storm being headwind. Obviously 2012 was a near record storm year. I guess I am trying to think, canearnings grow in 2013 given the backlog is down and some of these, at least it sounds like near term opportunities with V-Plan and what not are more following on work to what you are doing now. Can you help us think about the directionally the path of earnings for 2013?

Well, Justin, let's just talk about what we've given folks like yourself. I told you now the past year percentage and the way to think about that. We have told you, in our presentation, we say, on average, what we do on storm revenues. I wouldn't characterize storm in Q1 as a headwind. Again, we are not like some of our competitors that set up their business to make a lot of money off of storm work. But what else have we given you? We told you our CapEx levels, we tell you our tax rate, we tell you SG&A and nominal dollars.

So I think, for you, what that really remains is what is your view on our labor and equipment growth, and then your view on what do you see is our opportunities for additional business throughout the year. So overall, provided we see continued growth in our labor equipment, and we can do what we do, and we do it in a safe and profitable manner, we see 2013 as a positive year for us.

Okay. And then I guess maybe another question on your gross margins, you have talked about on a total reported revenue gross margins being in the 12% to 15% range, do you have a target that you look for on a net revenue basis that maybe we can use to think about if the past year contribution normalizes here?

Well, the answer to that is no, we don't look at it that way. But let's go back to your 12% to 15%. I'm not sure I have ever said that our gross margin is 12% to 15%. I think what we might have said in the past is that the margin opportunity on some transmission job is between 12% to 15%, the contract margin, but we have never said that for the Company, that is the way to think about our gross margin.

Okay. And then, the last question. Can you give us what the actual storm contribution was this quarter?

I don't have that available to me, and I don't think we have ever put that out in nominal dollars quarter-for-quarter. We did it for Q4, obviously, to deal with Sandy, we did mention how that impacted our overall gross margin, but I'm not sure if we have actually given the dollars

I think last year you said it was $1 million in 1Q 2012, so, I guess, I'm just wondering how it's down this year or if it is, maybe it's similar?

I know the number, but I don't think we said it was $1 million for Q1 of 2012. It is down, but the way to think about it, Justin, is, take some comfort in what we've put in our corporate presentation. We lay out a 7-year average, for your modeling purposes that is the way you should think about it. Now how you slice and dice that, over the four quarters, that's your call.

Okay. That is helpful. Thank you.

Our next question comes from Craig Irwin of Webush Securities. Please go ahead.

Good morning gentlemen. There have been a lot of questions about backlog already, but I just wanted to clarify and maybe see if you can confirm my understanding from the prior questions. So it sounds like the pass-through content in your backlog today is at the bottom-end of the range. So on a relative basis versus a year ago, there is potential for greater gross margin in backlog on a percentage basis. And my question is, can you comment whether or not you believe the gross margin in backlog, on an absolute basis, would be materially better than the negative 27% backlog number we have year-over-year? And anything else you can help us to understand that would be useful.

Let's talk about when you say negative 27%, can you just shed some more light on that where you're driving that number?

Total backlog.

So the decline in backlog. Yes, it is true. There is less after cost in our backlog today than there was a year ago. And what we've also said, the tendency is, we have, on a job, more labor and equipment, because we bid that at a higher level than we would normally do on materials and subs. The tendency is that we could see higher margins from that work.

Okay. But then the comparison to the year ago, is there anything you might be able to share with us as far as, proportionately, how much of the delta that might consume?

I would have to put pen to paper to answer your question. Off the top of my head I don't have an answer for you.

Okay. Then my second question was related to the productive revenue. So you shared with us pass-through revenue, and you were very specific in your press release saying material and subcontractor costs in the T&D segment. So that allowed us to go and calculate the productive revenue, including the profits, and do a calculation on the profitability in the segment based on that productive revenue. Now over the past several quarters, you've talked about small T&D projects being materially more profitable for MYR Group.

But when we look at the operating margin on that productive revenue, there really is no material change, year-over-year, even though the understanding is that you're executing on a much greater mix of these small T&D projects. So I wanted to see if maybe you could respond to that analysis, and help us understand if this was really just a first quarter phenomenon? And what you see, as far as pricing differential, looking at sort of the productive revenue comparison?

Productive revenue is not a term I'm that familiar with. But what I get a sense you're saying, and I think there's a belief out there from some of our analysts that we earn no margin with materials and subcontractors. That is not true, That is not how percentage of completion accounting works. We make a margin on everything that runs through our books.

How we bid work is we'll put a higher margin on our labor and equipment and a lower margin on materials and subs. All those come together to create the aggregate contract margin. Once you have that established, as the project moves forward and costs are incurred, you apply that aggregate contract margin to derive what is your revenue. So all of our revenue is productive. Some is more productive

Okay. That is actually a point of clarification I really wanted to touch on. So in your press release, again, you say material and subcontractor costs in the T&D segment, and then you give us the numbers of 43% and 27%. So that is cost excluding the gross margins associated with that activity, correct?

That is just the cost.

So then if we look at the revenue excluding the pass-through and include all of the profit in the segment, all of the profit gives us a profit margin on productive revenue and really the profitability year-over-year is not seeing the benefit of the mixed shift.

I don't think that is the case, Craig. You continue to isolate saying we don't earn any margins on materials and subs. What I said is we do earn a margin on that, but the tendency of that piece of cost tends to drag down our overall contract margins.

Then is maybe there a potential clarification to what you say in the press release that we should look at?

No, I think the press release is fine. I have gone to great lengths to lay out these percentages to really just lead folks like yourself making an assumption on what is the year look like for additional work for us and what is your thoughts and how that manifests itself is what do you think about our labor and equipment growth.

Thanks. You have made that quite clear in many of the preceding questions. Thanks again for taking my questions.

Our next question comes from Cory Mitchell of D.A. Davidson. Please go ahead.

Good morning.

Good morning, Cory.

Thanks for providing that overview on upcoming bidding opportunities. Can you talk a little bit about the outlook for more near term bidding opportunities maybe through the next few quarters compared to what you guys were seeing this time last year.

I think it is geographically driven. We are seeing -- it seems to change around and on a regular basis we are seeing increased activity in a lot of areas. But in some areas we are also seeing some increased competition. There is nothing out there we don't go after. But I think it is both regional market, and specific time based. It changes, monthly.

(Operator Instructions). Our next question comes from Deborah Ziskin of Charter Oak PartnersPlease go ahead.

You've been through a lot of this stuff, and I just want to clarify to make sure I understood it. So when you gave the 27% for this year for the revenues for the T&D, and the -- I guess, actually, I'm thinking in terms of the backlog. If you had the same percentages, which I know you are not saying you had, but if it was 27% from materials and subcontractor this year versus 43% last year, I backed it out, I did the math that you had suggested, and the backlog, with a higher margin with labor and equipment, I got to be $260 million versus last year's $213 million. So that's actually up 22%; is that correct?

Without having running that calculation myself it would be hard for me to answer that for you. I would love to answer it. I would have to perform that calculation myself.

I thought you were actually walking us through that to tell that is what --

You have asked it in the context of a different way. What I told folks in the past is a way to think about I have given it from high end. We have given the range of 30% to 45% of pass-through costs. This time around I took that discussion further to say in the T&D here is the percentage, here is what it was last year, and then the C&I. What you have done is you have taken that percentage and you have taken it isolated it in the backlog, isolated out what part of our backlog is related to T&D. I need to go through that math myself. I can't do it on this call.

Okay. It seems fairly dramatic in terms of while on the surface, the backlog number is looking down, if you look at the quality of it, it looks like it's gone way up.

Yes. I would say that the quality that is probably another way to look at it. If you looked at our backlog, a lot of the growth, and then the decline, in some ways is related to a lot of pass-through costs going into our backlog. If you backed that out of it and you looked on a longer time frame, you'll see a nice, steady increase in our backlog. Why? You see labor hours up for about a long period of time. Why? You see our equipment utilization and we continue -- and we've invested a lot of money over the last few years in that, and we still have a high levels of equipment utilization.

Thank you.

With no further questions, I would now like to turn the conference over to the MYR Group for any closing remarks.

I would like to thank everybody for participating on the call. We are very excited about the opportunities in our T&D and C&I markets. We have a strong management team and employee base, and I would like to thank them for their hard work and thank our stockholders for their continued support. I don't have anything further. We look forward to speaking with everyone on our next call.

Ladies and gentlemen, this does concludes today's conference. You may all disconnect and have a wonderful day.