MYR Group Inc (MYRG) 2013 Q2 法說會逐字稿

Good morning, everyone, and welcome to the MYR Group, Inc. second quarter 2013 annual results conference call. Today's conference is being recorded. At this time for opening remarks and introductions I would like to turn the conference over to Mr. Philip Kranz, of Dresner. Please go ahead, sir.

Thank you, and good morning, everyone. I'd like to welcome you to the MYR Group, Inc. conference call to discuss the company's second quarter and first half results for 2013. Which were reported yesterday. Joining us on today's call are Bill Koertner, President and CEO, Paul Evans, VP and CFO, and Rick Swartz, SVP and COO.

If you did not receive yesterday's press release, please contact Dresner Corporate Services at 312-726-3600 and we will send you a copy. Or you can go to www.myrgroup.com where a copy is available under the Investor Relations tab. Also, a replay of today's call will be available until Wednesday August 14, 2013, at 11.59 PM eastern time. By dialing 855-859-2056 or 404-537-37406 and entering conference ID 17297213.

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

Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the Company's annual report on Form 10-K for the year ended December 31, 2012, and and the Company's quarterly report on form 10-Q for the second quarter and first half 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 second quarter and first half 2013 conference call, to discuss financial and operational results. I will start by providing a brief summary of the second quarter results, then turn the call over to Paul Evans, our CFO, for a more detailed financial review. Following Paul's discussion, Rick Swartz, our COO will provide an overall industry outlook and discuss what we see as some of MYR's opportunities. I will then conclude with some closing remarks, and open up the call for your comments and questions.

We are pleased to report another quarter of solid results. Including higher contract margin, EBITDA, and operating cash flow, compared to the second quarter of last year. Our results benefited from solid execution in the field, and effective contract administration. Our highly skills work force, extensive fleet of equipment, commitment to safety, strong balance sheet, and disciplined bidding approach remain the key ingredients to our long term success.

Revenues were $213.9 million for the quarter, which was lower compared to the same period last year, largely due to reductions in subcontractor, and material costs from several large projects. Paul will discuss this in more detail later.

Gross margins however for the second quarter of 2013 increased to 14.6%compared to 11.5% for the second quarter of 2012, an increase of about 310 basis points. 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.

EBITDA increased to $22.5 million for the second quarter of 2013,compared to $21.8 millionfor the second quarter of 2012.

Over the last 12 months, our return on equity was 15%, compared to 12.7% for the prior 12 month period. We believe these results compare favorably to our peer group. Our gross margin for the first half of 2013 was 14.1%compared to 11.2% for the same period in 2012.

First half 2013 EBITDA was $40.8 million compared to $37.7 million in the first half of 2012, an increase of 8.2%. We also improved year-over-year diluted earnings per share in the first half to $0.76 in 2013, from $0.74 in 2012. Looking forward, we remain very optimistic about our long term growth prospects in both our T&D and C&I markets.

Now Paul will provide details on second quarter and first half 2013 financial results.

Thank you, Bill. Good morning, everyone. Yesterday we announced our 2013 second quarter and first half results. Our revenues for the second quarter of 2013 were $213.9 million which represented a $46.5 million decrease compared to the same period in 2012. On a percentage basis, 2013 second quarter revenues decreased 17.9%, over the 2012 second quarter. To put this decrease in perspective, second quarter 2012 revenues increased $75.1 million, or 40.5% over second quarter 2011 revenues.

Material and subcontractor costs comprised approximately 28% of total contract costs in the second quarter of 2013, compared to approximately 47% in the second quarter of 2012.

The amount of subcontractor and material costs as a percentage of overall project costs continues to be highly variable from project to project, depending on the client and the project requirements. From a segment standpoint, and compared to the 2012 second quarter, T&D revenues decreased $41.8 million to $174 million. C&I revenues decreased $4.7 million to $39.9 million.

Focusing on the T&D segment revenues were one $147.9 million for transmission, and $26.1 million for distribution, in the second quarter of 2013. This compares to $187 million for transmission and $28.2 million for distribution in the second quarter of 2012.

Transmission revenues decreased in the second quarter of 2013, as compared to the second quarter of 2012, even though we worked slightly more man hours in the second quarter of 2013 than in the same period last year. On a few large transmission projects, there was substantially less material being installed, and less subcontractor work being done in the second quarter of 2013, then in the same quarter last yearwhich resulted in less revenue for the quarter.

Material and subcontractor costs in our T&D segment comprised approximately 24% of total contract cost in the second quarter of 2013, compared to approximately 47% in the second quarter of 2012. In the second quarter of 2013, revenues from our transmission business were 69.1% of total revenues, compared to 72.1% in the second quarter of 2012.

C&I segment revenues decreased by 10.6%, to $39.9 million in the second quarter of 2013, from the second quarter of 2012. Primarily due to a decrease in revenue on projects with contract values greater than $3 million.

Material and subcontractor costs in our C&I segment comprise approximately 42% of total contract costs in the second quarter of 2013, compared to approximately 45% in the second quarter of 2012. Overall gross profit in the second quarter of 2013, increased to $31.3 million from $30.1 million in the second quarter of 2012.

Our gross margin increased to 14.6% verses 11.5% in the second 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 included less material and subcontractor costs and the labor and more of the Company's equipment costs on a relative basis.

Approximately 130 basis points of the increase in gross margin was due to improved contract margins on several large transmission projects as a result of increased productivity levels, cost efficiencies, additional work, and effective contract management. On a sequential basis our gross margin has increased in each of the last seven quarters to 14.6%, in the second quarter of 2013, from 9.4% in the third quarter of 2011.

As our margins benefited from better execution on our projects and improved labor and fleet utilization, for the remainder of 2013, we expect overall gross margins to be in the range of 13% to 14%.

Second quarter 2013 SG&A expenses were $16.1 million compared to $14.5 million in the second quarter of 2012. The increase in SG&A was primarily due to increase in employee compensation, medical insurance, and fringe benefits related to the increased number of personnel to support operations.

SG&A as a percentage of revenues increased to 7.6%, in the second quarter of 2013,compared to 5.6% in the second quarter of 2012.

Second quarter 2013 EBITDA increased 3.4% to $22.5 million, or $1.05 per diluted share. From $21.8 million, or $1.03 per diluted share in the second quarter of 2012. Our provision for income taxes declined to $5.7 million in the second quarter of 2013, compared to $5.9 million in the same quarter of 2012.

Our effective tax rate of 37.6% is slightly below the 38.2% in the second quarter of 2012. Second quarter 2013 net income of $9.5 million was consistent with the second quarter of 2012.

Shifting to our first half 2013 results. Revenues decreased $85.4 million or 17.1%, to $415.3 million, compared to $500.6 million for the first half of 2012. The majority of the decrease was the result of lower material and subcontractor costs associated with large transmission projects.

Our overall gross profit in the first half of 2013, increased to $58.6 million from $56.2 millionin the first half of 2012. And our gross margin increased to 14.1%, verses 11.2% in the first half of 2012.

The increase in both the gross profit and gross margin in the first half of 2013 was primarily due to better project execution, higher equipment utilization, and the underlying mix of contract components. Which included less material and subcontractor costs and more of the Company's labor and equipment costs on a relative basis.

EBITDA increased to $40.8 million or $1.94 for the first half of 2013, compared to $37.7 million or $1.79 per diluted share in the first half of 2012.

Meanwhile, first half 2013 net income of $16.4 million represented an increase of 4.3% verses net income of $15.7 million in the first half of 2012. Diluted earnings per share improved to $0.76 per share for the first six months of 2013, up from $0.74 per share for the first six months of 2012.

We invested $21.9 million in property plant equipment in the first half of 2013, compared to $20.4 million in the first half of 2012. We continue to expect that our capital spending in 2013 will be similar to our 2012 capital spending.

Total backlog at June 30, 2013, was $474.5 million consisting of $357.9 million in the T&D segment, and $116.6 million in the C&I segment.

Total backlog at June 30, 2013 increased $7.4 million compared to the $467.1 million reported at March 31, 2013. Total backlog increased $1 million, or .3% while C&I backlog increased $6.4 million or 5.8% compared to the last quarter.

Moving to the balance sheet, stockholders equity increased to $274 million at June 30, 2013, from $254.7 million at December 31, 2012.

As Bill mentioned, our return on equity for the last 12 months ended June 30, 2013 was 15%, as compared to 12.7% for the prior year period. We believe ROE is one of the best overall financial measures because it relates net income to the equity that shareholders have invested in our company.

At June 30, 2013 we had approximately $37.6 million in cash and cash equivalence. No outstanding funded debt, and $155.3 millionin availability under our credit facility. Our cash balance increased $17.8 million from December 31, 2012, as cash from our operating activities and stock based awards offset cash used on our continued investment and fleet equipment and tooling.

As of June 30, 2013, we had approximately $19.7 million in letters of creditoutstanding under the credit facility. We did not repurchase any shares in the first half in 2013 under our $22.5 million share repurchase program, which expires on August 29, 2014.

In conclusion, solid executions on our jobs resulted in higher gross profit, gross margin percentage, and EBITDA for the second 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 COO, who will provide a overall industry outlook, in our view of MYR's opportunities.

Thank you, Paul. And good morning, everyone. As our project teams remain focused on executing work and managing contracts our T&D, and C&I estimating teams continue to evaluate and price a steady flow of projects that are coming to market.

While we continue to see nationwide opportunities in transmission projects of all sizes, bidding activity for large projects has slightly decreased compared to the level we have seen over the past several years. However, we see a potential increase as we head into 2014.

The fundamental drivers for large project development, continue to be the need for delivery and renewable resources as well as mitigating rising power cost due to congestion. Although there are significant projects in the planning and development stages, construction starts for these projects are difficult to predict.

Additionally, we have seen an increase across the country, in small to medium sized opportunities in transmission construction and upgrade work. This activity is largely driven by [inaudible] mandates to ensure bulk power systems reliability,and the need to integrate a changing mix of generating sources resulting from the EPA mercury air toxic standards rulings. All of these drivers point to apromising outlook for MYR Group, with nationwide opportunities in both the immediate and long term.

During our last couple of calls we highlighted opportunities in the northwestern, mid western, and great plains regions of the US. Today I would like to comment on the outlook for opportunities in the western, and southwestern regions.

We believe that the western transmission market has been strongand anticipate it will increase significantly over the next several years. The long awaited gateway west project, which include more than 800 miles of new 500 KV, and 200 miles of 230 KV transmission, should start coming up for bid next year.

We anticipate other large projects will come to market beginning in the next few years. That should provide ample bidding opportunities for MYR. Examples of some of these large projects include the Idaho Power, Boardman to Hemingway, a 500 KV line consisting of 300 miles, and the TransWest Express a 725 miles, 600 KVDC line out of Wyoming.

Moving on to the far western US, we believe the California market for transmission and distribution projects will remain strong over the next several years. Recently, Southern California Edison announced that they will permanently retire the San Onofre nuclear operating facility.

We believe this recent development, along with the continued push to achieve a renewable portfolio standard of 33%, by the year 2020, will spur the need for additional transmission substation, and distribution projects in California, to alleviate congestion, and to deliver reliable electricity from other sources of generation.

As you know, MYR is currently constructing the Nevada online transmission project. Consisting of 235 miles of new 500 KBline. This project is scheduled for completion at the end of the year.

We believe our recent experience and success to date on that project bodes well for MYR as we seek to serve additional clients and developers in this area. Additionally, we have crews performing transmission, substation, and distribution work in most of the western states on projects of various sizes.

We believe our significant presence in the area of this country coupled with our long history and strong client relationships position MYR to continue to win work in this market region. In the southwest, we are well positioned for future transmission activity, as we are completing the 230 miles of 345 cross Texas, transmission line at the end of 2013.

We believe that our work on this project will allow us to capitalize on additional opportunities related to smaller to mid sized projects for inner connection and integration of renewable resources to the CREZ backbone throughout the state of Texas. We believe that the market for smaller to mid size projects in Texas, should prove productive for years to come.

We continue to monitor positive trends in our industry, such as the possible ITS [inaudible]merger, the implementation of [inaudible] order 1,000, and its relation to transmission build out, and the continued need to integrate a changing generation mix throughout the country.

Additionally, there has been press related to potential roll backs of the renewal portfolio standards, or RPS,during the 2013 legislative session, no state has lowered an existing standard to date, and in fact, three states, Nevada, Colorado, and Minnesota, have increased their RPS standards.

Moving on to the distribution side of our business, we are seeing signs of recovery, and believe this trend should continue. On this front, several utilities are adding contractor crews to augment their internal operation, and maintenance crews.

After a number of years of deferred spending we believe customers and utilities will need to make sustained investments to their systems for proper maintenance, and viability requirements. We believe the utilities in California will significantly increase distribution spending activity over the next several years.

An example of this projected increase in distribution activity is the recent announcement by Southern California Edison, that they plan to replace 35,000 poles annually through 2020 as part of their infrastructure upgrade program.

Now I'd like to shift over to our C&I business. Again, as the USeconomy continues to rebound, we see steady improvement and increased momentum in bidding activity. Significantly, we have noticed strength in two of our key markets,both the health care and data center businesses.

Although competition is intense, we remain one of just a handful of electrical contractors in the Arizona and Colorado markets with the expertise, experience, resources, and safety records to execute larger, more complex, commercial and industrial projects. As an industry leader in the large project niche, we believe we are well positioned to win these type of opportunities, as they come to market.

In closing we see ample opportunities in the markets we serve, as well as opportunities outside of the geographical footprint we are in today. Our strong management, experienced operational teams, and financial strength give us the tools to continue to expand our business over the next several years.

Thank you to everybody for your time. I will now turn it back to Bill Koertner who will provide us with closing comments.

Thank you for the update, Rick. As Rick and Paul have discussed we are encouraged by the opportunities that future olds for MYR, as we believe several markets are poised for continued growth, due do increase needs and requirements. We see no shortage of work going forward, including large transmission projects which points to a healthy future for MYR for many years to come.

As always, our objective is to enhance shareholder value, over the long term. Although to date, our growth has been completely organic, we continue to explore acquisition opportunities that might enhance shareholder value.

As we look at potential acquisitions it is important that we stay focused and disciplined, just like we do with our bidding, new work, and executing projects. MYR in its subsidiaries have a long history of successful project bidding, execution, and financial performance, while responding to various cycles in the industry.

We intend to remain a market leader and know that to do that we can't take our eye off the ball. Continued improvement and innovation in the areas of safety, quality, productivity, customer service, schedule assurances, and risk taking are necessary in order to exceed our clients expectations, to be considered the employer of choice and attract the very best talent available.

That's it for now. On behalf of Paul, Rick, and myself, and the rest of the management team, I would like to thank you for joining us today, and as always, thank you for your interest and support. Operator, we're now ready for questions.

Thank you. (Operator Instructions) Our first question is from Tahira Afzal, from KeyBanc. Your line is open.

Hi, this isSagar An in for Tahira.

You show, speaking of margins, the best margins we have seen for you and your team, on recent record that we can remember. Were there any positive one time items that hit that? They is a lot of worry that you are doing it in the CREZ that's winding down, as you mentioned. I just wanted to see if there's anything that benefited the quarter?

There wasn't anything related to a project close out in the margin this time.

So just solid execution across the board?

Yes. Solid execution, good contract management, we just continue to do a great job.

Looking at large project opportunities or just the T&D space in general, how would you describe pricing and margins now and the opportunities that you guys are seeing out there in the bid pipeline verses maybe what you saw three or four years ago? Or has pricing improved over a three or four year timeframe in the study or has it gone down?

I would say it's probably maintained. It might have slightly gone down with award over some of the larger projects that are out there right now.

I'd like to maybe add something, to that. We have said on many calls, when all of the CREZ work was bid, that overwhelmed the market, or at least the market in Texas, and as we indicated many times we don't see a CREZ two coming. We see a lot of solid work in Texas, but a major event like that, where there's 2,400 miles of work in one place, all having to be completed in basically 2 to 2.5 years, that probably drove up the market, we see the margin opportunities as being good. Pretty normal, but we don't see the impact of what CREZ had on some of the bidding during that timeframe.

Rick, you mentioned the C&I business, steady improvement, steady increase in bidding activity. When do we really start seeing pricing come through in that marketplace? Is it the end of this year? First half of 2014?Or does it get pushed even more?

We are open to see that improvement. It's still coming off the economic down fall that we are all in. We are still not seeing that fully rebound back, but we are seeing strong improvement. So we keep pricing it accordingly, and trying to enhance our margins every chance we get.

And what's leading to the opportunity for the better pricing? Is it residential contractors that might have came into your market going back to the housing side, or what's the main reason that we are seeing there?

Well, it's one thing is additional work in the marketplace. We are seeing additional projects come out that are probably higher skill level than what it takes some of these smaller contractors that came into the marketplace. So I would say our reputation, our work force, our safety record, all that allows us to be well positioned in the future.

Sounds great, thank you.

The next question is from Adam Thalhimer, from BB&T Capital Markets.

The kind of modest slow down you saw in large mission, and bidding activity, is that seasonal at all?

I would say it's probably not seasonal. It's probably just due to the permitting of a lot of the large projects that are out there right now. What we are seeing an increase is in probably the smaller and mid size is projects. We are seeing a very good increase on that, and it looks like the forecast of those projects are looking to continue.

And then I guess the investors have the concern that if there's a slow down in large transmission that the cycle is over but it sounds like from your comments that there is still really good work, it is just a timing issue?

Yes.

And then on the C&Isegments, you referenced one job that had higher costs in the quarter that impacted the margin there, what's the status of that job?

That project is pretty well complete. That one had some design and engineering issues. That caused the time line to be compressed and our productivity and efficiencies were impacted during the last quarter. So we continue to pursue additional dollars for those impacts, but our numbers don't reflect any of those dollars or potential upside dollars. Okay.

And Rick, what do you think the right margin is for that segment? Is it still kind of a 5% margin business?

It could be slightly higher than that.

Okay. Great, thank you very much.

Thank you, Adam.

Your next question is from Andrew Whitman, from Robert W. Baird. Your line is open.

I wanted to get a sense on projects rolling off, projects rolling on. With some of the CREZ work winding down, can you talk about how you are redeploying those people, or if you have the ability to redeploy those people immediately, or how the phasing goes as we move into the back half of the year and into early next year?

Currently, as those projects are winding down we do have places for those people, as I said the small to mid size projects are coming to market. We are being successful on quite a few of those projects. We haven't seen a decline in our man power counts. Our equipment resources are staying busy, so we are able to redeploy those. As of this time we don't see any concern at all.

Great. So then as you are looking at the small and mid size opportunity set out there, is it your sense that over the next couple of quarters we'll continue to see this stable backlog, and trend there, or do you believe that there's enough actually to kind grow the backlog as you win your share?

I think we see enough to at least stabilize. We are doing everything we can to push it to the growth side, and we see that potential there.

Great. And a final bookkeeping question. Was there unusual storm contribution, or can you give us the storm contribution for the quarter, just for our records?

I don't think there was anything that really stood out in the quarter relating to storm work.

All right, thank you very much, guys.

Our next question is from Alex Rygiel from FBR Capital Markets. Your line is open.

First of all, thank you for the additional guidance you provided on the call. But secondly, could you comment a little bit on the mix of materials and subcontract costs that are embedded in your backlog right now? Is it a similar mix of maybe what you have reported over the last three to six months?

I think it would be hard for me on this call just to say the number, but it is fair to say that there's less material in subcontractor dollars in our backlog today than there was a year ago. Or there was two years ago.

Okay. That's helpful. And then Paul, or Bill, can you also comment on how the revenue mix shift that's played out in the last since months could now lead to maybe an opportunity as it relates to mining cash on your balance sheet?

Would you elaborate on what you mean by mining cash on your balance sheet?

Yes, I noticed that your day sales outstanding spiked a little bit over the last 18 months. Which I suspect corresponds with an increase in materials pass through. And I was curious if you would anticipate seeing your DSO'sdecline back to more traditional levels over the next three to six months, as your revenue mix shift changes. And if you can quantify that opportunity that you see in the mining cash off your balance sheet?

I'll start, if Paul has something more he can add. I take the last several years and average that, and that would be my guess going forward. There's nothing fundamentally different about 2013 in our expectations for 2014. From what we had in historical periods. It does spike up and down, and as you know, that is a snapshot, a date, in the quarter. It could vary significantly within the quarter. I guess the way I look at it is taking a period like five years and you have 20 quarters, and nothing fundamentally has changed on that.

I'll add to what Bill is saying. I think one way that you should look at it and maybe others on the call, if you are looking at AR and you're talking day sales outstanding, it is true that our AR has grown. It is also true that our under billing is declined, and it's also true that we are in a better over bill position. So if you net those three numbers together, you will see an improvement there. And where that improvement manifested itself is in a higher cash balance, and a higher PPE account. So we do track DSO,we look at that, obviously we want to have a low number, and we think relative to our peers we are doing better than they are from a cash management standpoint, but we do think about that so thank you for raising that point.

Thank you, nice quarter.

Thank you.

Our next question is from Dan Manis, from [inaudible]. Your line is open.

A couple follows up first, as it relates to back order in the quarter, we were pleased to see it stabilized at least on the T&D front. Can you indicate, were there any material large contract awards during the quarter? Or were you able to replace the roll off of large projects almost completely with smaller projects?

No, Dan we replaced the roll off with small and medium sized projects.

Got it. So Rick mentioned maybe a slow down on large project bidding in the near term, that said, as far as we can tell, you haven't had a large contract in some time, so even in perhaps a slowing environment, my read is it isn't going to take multiple big wins for you to be able to grow back log especially if you're already seeing some growth on the small side. Am I reading that right? Or do you feel like you need to win big jobs to get this going, or multiple big jobs?

Well, we definitely would like to put a couple of large jobs in back log. We certainly have the capability to successfully bid them, and manage them, and manage the risks associated with them. But, whether we will be able to accomplish that that's yet to be determined. But that's certainly what we would like to have. Several large jobs in our backlog, to supplement all of the bread and butter small, and mid size jobs that we have.

Sure. And to your point on the execution, I think when we go back in time and look at some of the concerns the street had, including us, in 2010 and 2011, clearly you have proved you have executed pretty well on these, and this has played out, so kudos on that. Just a couple more real quick ones here. You talked a lot about the market environment, including potentially in California as much on distribution as on transmission. Can you talk about your current position in California, and maybe your opportunity to organically grow there? I haven't seen that as a market of strength for you.

We have not done a lot of work in California recently. And some of that is because we had so much other work in other parts of the country. But we have bid work in California, we have been successful in California, and we do see that as an opportunity for us.

But as much on the distribution side, do you currently have [inaudible] with the large utilities in California, if not, what would it take for you to get there?

We do not have any MSA currently with California utilities, and I guess to get there, obviously, all of the utilities including the ones in California constantly are rebidding these MSA agreements, trying to bring new players in to compete against the incumbent players and that's true in California, and it's also true in other parts of the country.

It's fair to say, number one, that's an opportunity to extend in that way, not just large project, but more broadly speaking, and I'm certainly guilty of this, we have focused on the large project opportunity, but do you see a lot of other areas of the country where maybe you are not participating on the distribution and small transmission side, that maybe you can expand to similar to the discussion on California?

Well, there are probably a few other areas of the country where we are not as strong as we would like to be. As we have discussed on the call, we don't do a lot of distribution work, in the southeast. It's dominated by non union players, and our non union operation is more focused on doing substation work, and transmission work. So that's not an area that we're strong, but certainly would be one that we would have some interest in.

Got it, thanks a lot for the color.

And this question is from John Brads, from City Capital. Your line is open.

Paul, you had mentioned that when you look at your cash flow, your net over and under billings was very positive for the fist half of the year. Are you doing anything differently, or do you think that can be sustained and even generate more cash flow from your net billings?

I don't know if we are doing anything different, I think we are just doing a good job at what we do. And it is my expectation that we sustain that.

All right. And then secondly, your forecast for the gross margins in the second half, a little bit less than in the second quarter. Is that because the mix of your subcontract and labor is changing, or do you expect that maybe the project execution can't be quite as strong in the second half? Or is there a mix issue?

No, I think it is on the contrary. We have done in the past quarters including this one, where we try and highlight what we will consider as nonrecurring, and so we say there's 130 basis points that as a result of what we did on a number of projects as we try and have you take that out, so if we took that out, so where you are at 14.6, you back out 1.3, you are at 13.3, so then what I told you through the rest of the year, we are comfortable we will come between 13% to 14%. Not including any one time type events.

All right, thank you very much.

Our next question is from Steven Fosey, from Stifel Nicolaus. Your line is open.

First question is you guys referenced that there was no large project awards in the quarter, so is it safe to assume that there's still some work associated with the V plan and CAPEX 2020work still available, and is that something that you guys are actively pursuing?

Yes, we are in both of those. We are currently performing work on both projects the V plan and the CAPEX, and CAPEX has several projectsout for bid right now in addition to the work we're performing.

The MDP projects in the Midwest, you have previously referenced that as a total spend of $5 billion, over many years. I think some of that work has been awarded some of that in the quarter as well. So, two questions. Is that work still being pretty competitively bid? And is the remaining scope of that work something that you guys are actively pursuing as well?

On the remaining scope portion, yes, we will actively pursue all work associated with that, that's something that's right in basically our backyard. It is work we want to go after. And on your other question, yes, a portion of that work was awarded to another contractor.

Okay, great, thank you. And I guess lastly, do you have any commentary on the FERC announcement of the recommendation to lower the New England base rate couple hundred basis points? Do you feel like that's going to have any near term or longer term impacts on the industry? Does it have any read-through's for some of the other rate cases in other areas of the country?

We have obviously read about that, and some of the industry press, and certainly it would be a factor. But as we have talked to utilities, I don't think the allowed return is the sole reason why they like transmission investment. The predictability of the regulated transmission business where they get equipment rate base, they get recognition that if there is a stranded investment, because of a project got canceled, because of markets changing and whatever, that they get recovery of that.

So what has made transmission an investment attractive, is the allowed return, the predictability of that return, and the fact that if the market abruptly changed they still get a recovery of their capital. It's not a positive, but I think there are lots of other positives still in place, and as we talked utilities I think they would still, all of the things mean equal, like to invest more money in their transmission system.

Okay, great, thank you.

(Operator Instructions). And the next question is from Andrew Whitman, from Robert W Baird. Your line is open.

On capital allocation, I just wanted to get your sense, in the last couple of quarters it sounds like you have talked more about M&A about being part of the strategy, but the share repurchase of that is still out there as well, and stock doesn't appear particularly expensive. I just wanted to get your thoughts on the priorities between those two events, and also with the CAPEX spend as well.

Okay. Well, it is certainly as you note, our cash balance has increased a little bit here, in the last couple of quarters. All of those options acquisitions, organic growth, and maybe some new markets, share repurchases, further investment in the equipment, these are all topics that our management team and board discussed. And bottom line, the bogie is returning capital to shareholders. We wouldn't want to take on some really marginal new project, or an acquisition, that we didn't honestly feel that was at least as good an investment of shareholder money as returning to capital to them. These are all active topics that the management and the board are discussing every quarter.

Got it, thanks that's all I had.

And the last question is from William Bremer, from Maxim Group. Your line is open.

Good morning, gentlemen, most of my questions have answered. Can you remind us what the level of the MSAs are within your backlog? And then, Rick, what is the current running of capacity in T&D at this time?

On the fist thing, I don't know we break out or have ever broken out how much MSA dollars are in our backlog. I can't offer that up to you today. And then the other question, I'll turn it to Rick, but if you are asking about our labor utilization, I'll let Rick also answer. Labor utilization in theory should be 100%, or you are not doing your job correctly. On fleet utilization, obviously we want the highest percentage, but we never offer the percentage out into the marketon that, but obviously we look for the highest levels possible.

Okay. It was worth a try on both fronts thank you.

Okay.

Thank you, we have no more questions thank you, I would like to turn the conference over to Bill Koertner, President and CEO,for closing remarks.

I would like to thank everybody for participating in our call, we look forward to these every quarter, because it gives us a lot of good insight as to what is on your mind. I don't have anything else, so I look forward to next quarter's call.

Ladies and gentlemen, this does conclude today's conference, you may now disconnect. Everyone have a great day.