MYR Group Inc (MYRG) 2013 Q3 法說會逐字稿

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

Thank you, and good morning, everyone. I'd like to welcome you to the MYR Group conference call to discuss the Company's third-quarter results for 2013, which were reported yesterday. Joining us on today's call are Bill Koertner, President and Chief Executive Officer; 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 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 November 13, 2013, at 11.59 PM Eastern Time by dialing 855-859-2056 or 404-537-3406 and entering conference ID 86063300.

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, 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, the Company's quarterly report on Form 10-Q for the third quarter and first nine months 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 third-quarter 2013 conference call to discuss financial and operational results. I'll start by providing a brief summary of the third 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 Chief Operating Officer, will provide an overall industry outlook and discuss what we see as MYR's opportunities. I will then conclude with some closing remarks and open the call up for your comments and questions.

We experienced another solid quarter of financial performance resulting in higher gross margin and cash generation. We recorded a legal reserve of $2.3 million in connection with ongoing litigation during the quarter. Excluding the effects of this legal reserve, net income and earnings per share would've exceeded a comparable quarter last year by approximately $1 million, or $0.04 a share. Our results benefitted from solid execution in the field and effective contract administration.

Revenues were $232.9 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, and a $7.9 million decrease in storm work compared to the same quarter last year. However, gross margins for the third quarter of 2013 increased to 13.9%, compared to 11.8% for the third quarter of 2012. This represents 210 basis points.

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 cost, and more of the Company's labor and equipment cost on a relative basis.

Excluding the effects of the legal reserve of $2.3 million, EBITDA for the third quarter of 2013 increased to $22.7 million, compared to $20.7 million for the third quarter of 2012, an increase of nearly 10%.

Looking at 2013, the nine-month period, gross margin was 14%, compared to 11.4% in the same period in 2012. Again, excluding the effects of the legal reserve, nine-month 2013 EBITDA was $63.6 million, and earnings per share were $1.21, compared to EBITDA of $58.4 million and EPS of $1.15 in the same period of 2012. Paul will discuss our financial results in more detail in a little bit.

Looking forward, we are optimistic about our long-term growth prospects in both our T&D and C&I markets. We are exploring some new regional markets where we have had limited or no presence historically. If we expand into these markets, it could come through organic means or through acquisitions or asset purchases like the one we completed in Alaska during the quarter.

Reflective of our favorable long-term outlook for our markets, we continue to invest in equipment and tooling to improve our competitive position and grow our businesses. To support our substantial investment in equipment, we recently opened a new fleet manufacturing and maintenance facility.

Our experienced management team, skilled work force, history of successfully completing projects, extensive fleet of specialty equipment, and our strong balance sheet provides MYR with a strong resume and the flexibility to further capitalize on future growth opportunities. Now Paul will provide details on the third quarter and the first nine months 2013.

Thank you, Bill. And good morning, everyone. Yesterday, we announced our 2013 third quarter and first nine months results.

Our revenues for the third quarter 2013 were $232.9 million, which represented a $17.7 million decrease compared to the same period in 2012. On a percentage basis, 2013 third-quarter revenues decreased 7.1% over the 2012 third quarter.

To put this decrease in perspective, third-quarter 2012 revenues increased $40.1 million, or 19% over third-quarter 2011 revenues. Additionally, $7.9 million of the reduction in revenue in 2013 was attributed to a decrease in storm work, as compared to the same quarter last year.

Material and subcontractor costs comprised approximately 31% (sic - see press release, "26%") of total contract costs in the third quarter of 2013, compared to approximately 45% in the third quarter of 2012. In addition, to give you a full 12-month picture of material and subcontractor costs, our fourth-quarter 2012 material and subcontractor costs was approximately 37% of contract costs.

We expect fourth-quarter 2013 material and subcontractor costs to be more in line with the third-quarter 2013 material and subcontractor costs. The amount of material and subcontractor costs as a percentage of overall project costs continues to be highly bearable from project to project, depending on the client and the project requirements.

From a segment standpoint when compared to the 2012 third quarter, T&D revenues decreased $17.1 million to $187.2 million, and C&I revenues decreased $600,000 to $45.7 million.

Focusing on the T&D segment, revenues were $161.9 million for transmission, and $25.3 million for distribution in the third quarter of 2013. This compares to $170.5 million for transmission and $33.8 million for distribution for the third quarter of 2012.

Transmission revenues decreased in the third quarter of 2013, as compared to the third quarter of 2012, even though we worked more man hours in the third 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 third quarter of 2013 than in the same quarter last year, which contributed to a decrease in revenue for the quarter.

Material and subcontractor costs in our T&D segment comprised approximately 27% of the total contract costs in the third quarter of 2013, compared to approximately 45% in the third quarter of 2012. The material and subcontractor costs in our T&D segment in the fourth quarter of 2012 were approximately 33% of contract costs.

In the third quarter of 2013, revenues from our transmission business were 69.5% of total revenues, compared to 68.1% in the third quarter of 2012. C&I segment revenues decreased by 1.2% to $45.7 million in the third quarter of 2013 from the third quarter of 2012, primarily due to a decrease in revenue on projects with contract values greater than $10 million.

Material and subcontractor costs in our C&I segment comprised approximately 46% of the total contract costs in the third quarter of 2013, compared to approximately 45% in the third quarter of 2012. In addition, material and subcontractor costs in our C&I segment in the fourth quarter of 2012 represented approximately 57% of contract costs.

Our overall gross profit in the third quarter of 2013 increased to $32.5 million from $29.6 million in the third quarter of 2012, and our gross margin increased to 13.9% versus 11.8% in the third 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 more of the Company's labor and equipment costs on a relative basis.

Approximately 60 basis points of the increase in gross margin was due to improved contract margin on several large transmission projects as a result of increased productivity levels, cost efficiencies, additional work, and effective contract management. For the fourth quarter of 2013, we still expect overall gross margins to be in the range of 13% to 14%.

Third-quarter 2013 SG&A expenses were $19.6 million, compared to $15.6 million at the third quarter of 2012. SG&A expenses for the quarter included a legal reserve of $2.3 million pertaining to litigation regarding a 2009 traffic accident in Florida involving one of our subcontractors. The Company intends to defend its position through trial and if necessary an appeal process.

The remaining increase in SG&A was primarily due to an increase in employee compensation and fringe benefits related to the increased number of personnel to support our operations. SG&A as a percentage of revenue increased to 8.4% in the third quarter of 2013, compared to 6.3% in the third quarter of 2012. Excluding the legal reserve, SG&A would have been 7.4% of revenues in the third quarter of 2013.

Third-quarter 2013 EBITDA was $20.4 million, compared to $20.7 million in the third quarter of 2012. Excluding the legal reserve, EBITDA would have been $22.7 million for the third quarter of 2013.

Our provision for income tax has declined to $4.6 million in the third quarter of 2013, compared to $5 million in the same quarter of 2012. Our effective tax rate of 35.6% was 90 basis points below the 36.5% in the third quarter of 2012. The decline in effective rate was primarily caused by lower state taxes due to changes in the business mix between states and other discrete items.

Third-quarter 2013 net income was $8.3 million, or $0.38 per diluted share, compared to $8.7 million, or $0.42 (sic - see press release, "$0.41") per diluted share in the third quarter of 2012. Without the legal reserve, third-quarter 2013 net income would have been $9.8 million, or $0.45 per diluted share.

Shifting to our first nine-months results, revenues decreased $103.1 million, or 13.7%, to $648.1 million, compared to $751.2 million for the first nine months 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 nine months of 2013 increased to $91 million from $85.7 million in the first nine months of 2012, and our gross margin increased to 14%, versus 11.4% the first nine months of 2012. The increase in both gross profit and gross margin in the first nine months 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 $61.3 million for the first nine months of 2013, compared to $58.4 million for the first nine months of 2012. Meanwhile, the first nine months 2013 net income increased to $24.7 million, compared to net income of $24.5 million for the same period of 2012.

Diluted earnings per share were $1.14 for the first nine months of 2013, compared to $1.15 per diluted share for the first nine months of 2012. Without the legal reserve, net income for the first nine months of 2013 would have been $26.2 million, or $1.21 per diluted share.

We invested $31.5 million in property, plant and equipment in the first nine months of 2013, compared to $32.1 million in the first nine months of 2012. We still expect 2013 capital spending to be similar to 2012 capital spending levels.

Total backlog as of September 30, 2013, was $444 million, consisting of $298 million in the T&D segment and $146 million in the C&I segment. Total backlog at September 30, 2013, decreased $30.5 million compared to the $474.5 million reported at June 30, 2013. T&D backlog decreased $60 million, or 16.7%, while C&I's backlog increased $29.5 million, or 25.3%, compared to last quarter.

Moving to the balance sheet, stockholders' equity increased to $284.2 million at September 30, 2013, from $254.7 million at December 31, 2012. A return on equity for the last 12 months ended September 30, 2013, was 14.2%, as compared to 14.5% for the prior year period. We believe ROE is one of the best overall financial measures because it relates to net income through the equity that shareholders have invested in our company.

At September 30, 2013, we had approximately $62.9 million in cash and cash equivalents, no outstanding funded debt, and $157.5 million in availability under our credit facility. Our cash balance increased $43.1 million from December 31, 2012, as cash from operating activities was partially offset by cash used in our continued investment in fleet, equipment and tooling.

As of September 30, 2013, we had $17.5 million in letters of credit outstanding under the credit facility. We did not repurchase any shares in the first nine months of 2013 under the $22.5 million share repurchase program, which expires on August 29, 2014.

In conclusion, solid execution on our jobs resulted in higher gross profit and gross margin as a percentage for the third quarter of 2013. Excluding the impact of the legal reserve, net income, diluted earnings per share, and EBITDA exceeded the same period last year. With our strong balance sheet, we believe we are well-capitalized for continued organic growth, as well as for possible strategic acquisitions.

I'll now turn the call over to Rick Swartz, our Chief Operating Officer, who will provide an overall industry outlook and our view for MYR's opportunities.

Thanks, Paul, and good morning, everyone.

Throughout the third quarter, we focused business development and operational efforts on exploring opportunities in both new and existing markets. Our project teams continued to execute work and manage contracts, while our T&D and C&I estimating teams evaluated and bid on a steady flow of projects.

As mentioned on our last call, although large project bidding activity has decreased compared to the levels experienced over the past several years, we remain optimistic that we will begin to see a nation-wide increase in this area beginning in 2014. Further, we anticipate the construction start dates on such projects will begin towards the end of 2014 and the beginning of 2015.

The fundamental need for delivering renewable resources and increasing system reliability remain key catalysts for large transmission project activity. Meanwhile, bidding and construction activity for small- to medium-sized transmission construction projects and upgrades remains robust and we expect this trend to continue.

The activity in small- to medium-sized project is primarily due to reliability and economic drivers. In the third quarter, the EPA announced additional regulation standards that may further limit coal-fired generation plant construction in the US. We continue to believe that these regulations may force the retirement of coal-fired generation plants, which could require additional transmission-related projects to deliver power from new generation sources such as natural gas-fired and renewable generation facilities.

According to GenerationHub, coal generation retirements will be completed by the end of 2017, with a peak expected in 2015, the initial deadline for compliance with the EPA's mercury air toxic standards.

In the third quarter, we saw increased activity and announcements related to the shift in the generation mix for many of our utility clients. Some of these announcements included the Ohio Power and Siting Board stating that it has 29 active electric transmission cases before it, which represents $427 million in required new investment. We believe this is in response to some of the coal-generation retirements that have been announced.

PJM recently authorized $1.2 billion in upgrades and improvements to its region's electric transmission system. We believe this is in response to meeting the challenging impacts of storms such as Hurricane Sandy last year, as well as the ongoing shift of generation from coal to natural gas.

In addition to these announcements, we continue to see an increase in proposed spending by other entities to help harden their power delivery systems and prepare for future events such as what occurred during Hurricane Sandy.

We have made note of several large transmission opportunities on previous calls that we continue to evaluate. Along with monitoring the progress of these large transmission projects and opportunities for small- to medium-sized projects, today we'd like to provide more details surrounding potential growth opportunities for MYR Group in a few specific regions, including some regions where we have had limited or no historical presence.

We continue to identify Texas as a strong region for growth with ample opportunities for small to medium projects. We recently completed construction of the 235-mile, 345kV cross-Texas transmission, or CTT project. The CTT project is part of CREZ, or the Competitive Renewable Energy Zone.

We believe that our performance on this project will allow us to capitalize on additional opportunities related to small- to medium-sized projects for interconnection and integration of renewable resources to the CREZ backbone, along with interconnections needed throughout the state.

ERCOT remains in the early stages of evaluating required transmission needs for accommodating the substantial amount of wind generation that is projected to come online in the Texas panhandle. More than half of the wind interconnection requests, or 11 gigawatts out of the total 21 gigawatts in ERCOT are in the panhandle. Or of the 11 gigawatts, nearly 3.5 gigawatts have already signed interconnection agreements that will require projects totaling 273 miles of new transmission line.

While we see continued opportunity in Texas and the surrounding region, we also anticipate margin pressure as the resources from the CREZ build-out become available with the completion or near-completion of most of the CREZ projects.

In California, there's a significant state-wide activity and viable opportunities driven by needs for expanding the state renewable portfolio standard and ensuring system reliability. In response, we have focused business development and bidding efforts on clients and projects associated with these opportunities.

The retirement of the San Onofre nuclear facility, along with the continued push to achieve the 33% renewable portfolio standard by 2020, promotes the need for additional transmission, substation and distribution projects. Our presence in Nevada, due to our performance on the online project, provides us with the established crews and personnel that will help position us well for growth within the region.

In terms of new market expansion opportunities for MYR Group, we announced in September that we established district operations in Anchorage and Fairbanks, Alaska, through acquiring equipment and hiring personnel from a local contractor. We believe the economic environment in Alaska could present favorable T&D bidding opportunities.

We are also analyzing project opportunities in the Canadian transmission market, which appears to be entering a substantial growth phase over the next several years. Various data sources indicate that large project awards could exceed $10 billion in Canada from 2014 to 2016.

These projects are driven by continued need for infrastructure to develop oil and gas assets, further development of hydro power, delivery to load centers, and upgrades to provide reliability for an aging infrastructure.

Although we are not currently operating in Canada, we have established legal entities for future operations. We believe there may be favorable bidding opportunities in the transmission market in the near and longer term.

We continue to monitor several big picture events and trends that are impacting the industry, such as the possible ITC-Entergy merger, the implementation of the FERC Order 1,000 and its relation to the transmission build-out, and the continued need to integrate a changing generation mix throughout the country.

Turning to the distribution market, as we noted on our last call we are seeing signs of recovery in the market after years of deferred spending. The primary focus by many of our clients over recent years has been on the repair, maintenance, and construction of transmission-related assets and we believe this focus will continue.

However, we also believe that our utility clients will increase focus on the expansion, repair, and maintenance of their distribution assets. On this front, several utilities are adding contractor crews to augment their internal operations and maintenance crews.

Going forward, we believe that reliability mandates for utilities, as well as a push to harden utility assets against major storm-related damage, should drive continued growth in the distribution market for MYR. In addition, we see an area of potential growth for distribution projects as the housing market recovers.

Utility spending on upgrades and expansion of distribution systems is closely linked to the development of new housing, which has been increasing at a steady rate over the past year, but is still well below previous peak levels. We anticipate that the continued recovery in the housing sector will be a positive for our distribution services going forward.

Shifting to our C&I business, we have noticed increased momentum in bidding activity in both our Colorado and Arizona markets in the third quarter and thus far in the fourth quarter. Three main markets in Colorado, health care, data center and water treatment facilities, remain consistently strong. We are also seeing increased activity in educational facilities and high-rise residential and office construction.

The services we provide to educational institutions and mining operations remain steady throughout Arizona, and we have begun to expand our capabilities in Colorado to pursue electrical work associated with the oil and gas industry, as increased drilling and new plant construction are underway, especially throughout northern Colorado.

Smaller C&I opportunities have remained relatively flat for some time but are just beginning to show signs of improvement in both Colorado and Arizona. Although competition in the C&I sector remain strong, we are one of the few electrical contractors in Colorado and Arizona with the expertise, experience, resources, and the safety record to execute larger, more complex commercial and industrial projects.

As an industry leader in this large project niche, we believe we are well positioned to win our fair share of these opportunities. We see ample opportunities for growth in both our existing markets and those outside of our current geographical footprint. Our strong management, experienced operational teams, and financial strength give us the tools we need to continue to expand our business over the next several years.

Thanks to everyone for your time today. I will now turn the call back to Bill Koertner, who will provide us with some closing remarks.

Thank you for that update, Rick. We finished the quarter with no debt and a growing cash and equity position. This provides MYR the resources and financial strength to continue pursuing growth strategies on a variety of fronts.

It gives us the resources needed to pursue additional organic growth opportunities in our existing markets. We already have one of the best fleets of specialty equipment in the industry. That said, we still have opportunities to invest in our fleet and tooling, which will further lower our cost structure, increase our competitive position, enable us to better serve our existing customers.

These financial resources also allow MYR the flexibility to pursue opportunities like the Alaska asset purchase and possible expansion into Canada. In addition, it gives us the capital needed to consider acquisitions in other new geographic markets, as well as new end markets.

MYR has not been a particularly acquisitive company in the last decade, as most know. We intend to move forward cautiously as we evaluate acquisition opportunities for transactions that fit us best, those that we believe we can integrate successfully and those that can be acquired at reasonable valuations.

This is no small challenge today because there are a number of strategic buyers like MYR and a number of financial players like private equity funds pursuing the same deals. All of us, at least today, have access to low-cost bank debt to fuel this activity. No one knows how long the fed's easy money monetary policy will continue.

While we like to talk about equipment, markets, and strategies, the real key to our success is our people and their commitment to serving our clients. We intend to further invest in the recruitment and training of good people at all level. MYR's people are already among the best in the industry, but we must get even better to keep that edge. We remain committed to growing MYR and creating long-term value for shareholders.

On behalf of Paul, Rick and myself, I'd like to thank you for joining us on the call today and for your continued interest in MYR Group. I look forward to updating you on our progress next quarter. Operator, we are now ready for comments and questions.

Thank you. (Operator Instructions) Tahira Afzal, KeyBanc.

This is actually Saagar on for Tahira. Congratulations on a solid quarter.

Thanks, Saagar.

First off, you mentioned that the large transmission market has seen lumpiness in 2013 but that can be a level that should pick up in 2014. In addition, you mentioned small- to medium-sized project activity has remained robust. And then you mentioned different areas geography-wise that you're looking to grow in.

That said, your bookings and book-to-bill on the transmission side have been lumpy, also. Can you just talk us through what gives you confidence that book-to-bill can go above 1X sustainably going forward and when you see that happening?

We are confident that it will go above 1X just based upon our marketing efforts as we talk to clients. We certainly are out on the road a lot talking to clients in various parts of the US as well as north of the border.

I believe there are going to be plenty of opportunities out there over the long term. As you point out, it's lumpy and we had a big run up in our backlog in 2010, 2011. We've been busy trying to complete those projects. And we're aggressively looking for new projects.

So I don't think there's going to be a shortage of projects. When that's going to turn around, I can't predict that but I can tell you I would not be investing in the fleet assets for our company if I didn't feel there were going to be ample opportunities to put our existing fleet to work as well as those new assets. So I don't have specifics, I just feel confident over the long term it will turn around.

Okay. And then, Paul, you mentioned gross margins for the fourth quarter in the range of 13% to 14%. But then you guys also had positive commentary on C&I activity levels being strong and distribution continuing to get better.

But looking to 2014, do we see a mix shift starting to occur with your top line, which could impact margins?

Well, I don't necessarily think so. I think the amount of transmission revenues, distribution revenues with C&I might move around slightly. I don't think it'll move to a level where, for instance, our C&I business overtakes our transmission business. Our core, we're a transmission company first, distribution and then C&I.

Okay. And then last question on my end, Bill, you mentioned to my first question that you would not be investing if you didn't see the growth opportunities out there.

Is there a way to show us or tell us how much of your investment is going towards new equipment versus replacing old equipment?

I guess the thing I would do is obviously we're throwing off a significant amount of depreciation each quarter and compare that to the net plant additions. We're investing more in equipment than what our quarterly depreciation is.

So it is a net increase. But how long that'll continue I don't know, but we are investing more than what our quarterly depreciation is. So that'd be the way I'd look at it, if I were in your shoes.

All right, great, thank you. And congratulations again on a solid quarter.

Thanks.

Andrew Wittman, Baird.

Where do I want to start? Maybe the color on the materials and subcontractor costs is extremely helpful. So thank you, Paul, for adding that into your reporting these last few quarters.

As you look at this, I just want to understand some of the moving parts inside of it. On a year-over-year basis, if you look at a net gross margin for your transmission distribution business based on that number, the margin would be down about 130 basis points.

So you guys kind of talked about some of the factors why gross margins were up year-over-year on mix but how do you reconcile the net margin being down? Was that a mix? Was that a weather issue? Was there a one-time charge last year that was a tough comp? Can you just give us a little bit more color as we look at the net margins in the T&D business?

(inaudible) Andy, I'm not totally tracking where you're coming from. Certainly margins continue to trend up. So I'm not really --

I'm taking if you just look at the percentage of revenue that's material subcontractor costs, if you take that out of the gross -- the revenue to the GAAP revenue that's reported. And then come up with, quote, a net revenue and look at the margins on that basis, clean of the pass-through costs, in other words, margins would be slightly down on that basis.

I'm just trying to reconcile if productivity is down. Or if it's just the project mix, is there more challenging pricing? I guess that's what I'm trying to get after there.

Well, first I think you'd have to give me a chance to run your mathematics that way to draw a conclusion. But what I've seen year-over-year is our labor hours continue to go up. Our fleet utilization remains at a high level. We continue to expand our fleet.

Historically what you've seen with pass-through, it's declined from a very high level to a more moderate level over this year. So I'd have to run that analysis, Andy, to give you some sort of definitive answer.

Okay. That's fine. I guess maybe, Bill, you talked about the labor and the people being the underpinning of the business. Clearly that's definitely the case. Do you feel like in today's market where there's not quite as many large projects as there were a couple of years ago, do you feel like you've got the foremen, the access to the really experienced labor that you need in a more competitive market for large projects today versus what was -- there was a lot more market opportunity a couple years ago.

Can you just talk about your senior craft labor talent pool? And are you still looking to grow that to be even more competitive? More successful in the large project arena?

Yes, maybe contrast that with five years ago before this transmission ramp-up occurred there were relatively few experienced foremen and construction managers that knew how to do a big transmission job.

With all the work that we and several of our competitors have performed in the last five years, the skill level is much better than what it was five years ago. We're continuing to add those skills. It goes all the way from contract administration to equipment operators to general foremen.

So we definitely have a stronger bench strength today than what we did five years ago. Labor is, as you know, a very regional kind of thing. The Texas market is different than the Minnesota market and the market in Connecticut is different than the one in California.

So not all of these skilled resources reside necessarily in the markets that are going to see the most robust expansion. So we, like our competitors, are constantly looking for skilled people that are willing to move. And we've got a number of them that work for us today and have been very loyal to us.

So as we explore new markets, that's a big key to our success is getting the skilled people to move with us to where the work is.

Great. Thanks for that commentary. If I could just one final question, Bill. In the last, I don't know, few months, few quarters, I think there's maybe been a little bit of more open candor about the potential to give guidance maybe in the future as we're next heading into the fourth quarter and year-end budgeting process.

Is that something that investors should maybe potentially expect for 2014 is guidance on the next conference call? Especially considering the kind of wide range of estimates that are currently out on there on the Street?

Well, it is something we talk about but I wouldn't anticipate a change.

Okay. Thank you very much.

Adam Thalhimer, BB&T Capital Markets.

Hello, good morning, guys. Nice quarter, particular on the cash flow.

Good morning, Adam.

Good morning, Adam.

Maybe I missed it, Paul, but did you -- how much were labor hours up in Q3, if you care to disclose that?

I don't think we've ever put a percentage on that. Just made the statement that they were higher than they were in the same period last year.

And then what would be your early thoughts on 2014 in terms of labor hour growth? Or potential labor hours?

As we look at our capital budget for 2014, we consider our total labor hours and is there growth. And we're in the process of finalizing our capital budget for 2014. So it's really hard for me to make that statement to you at this time.

Okay. This C&I backlog growth, when do you think that starts to translate into revenue?

Well, eventually, obviously, these projects, they come into our income statement. I guess it would be hard for me to say when that turns into revenue.

Adam, I think the C&I book of business has got some big projects in it, some medium-sized projects, and some small or kind of service work. Certainly if we pick up service work, it probably starts running through revenue the next month. Or maybe two months out.

A bigger project from the point at which you receive the tentative award until you finalize it, you could be looking at 6, 8, 9 months before that starts to flow through revenue in a meaningful way.

Yes, I'm just looking at the past six quarters you had really strong backlog growth from C&I. But revenues remained at this kind of $40 million, $45 million level. And I'm wondering when you might see $50 million in revenue or $55 million in revenue based up on the backlog growth.

Yes. Well, I don't really have any more to add. It's just takes time to get these projects ramped up. And a lot of our C&I work, just like on the T&D work, the awards are let in many cases before the project is fully engineered. And it does take time for that backlog to end up translating into revenue.

Okay. Last one for me, you mentioned seeing an increase in demand for distribution crews, which is great. Just curious what the pricing is like on that early kind of increase in crew demand?

I would say pricing is firmed up. Of course, the distribution market gets overwhelmed with storm work. So I think you've got to factor out periods like the last quarter of 2012 where it just skewed the numbers because distribution resources were all traveling to the storm.

So if you had traditional work bidding during that period, it kind of skewed it. So I'd say it's firmed up in kind of a normalized basis. So the way I look at it is take a period of several years and consider that would be normal. So it has firmed up some.

Great. Thank you.

Cory Mitchell, D.A. Davidson.

Just to drill down on CapEx plans for next year. Do you guys have a good idea on that? Do you maybe feel comfortable giving us a range?

Yes. Well, Cory, like I said to Adam, we're still finalizing our 2014 CapEx budget. So it's probably not the time to offer a range up today.

Okay. Well, maybe I'll ask it a different way, then. How much higher are maintenance requirements, given the recent investments you guys have made?

Well, I'll take you back to what Bill had mentioned on another question about maintenance CapEx versus growth CapEx. One measure you could use is sort of look at our total depreciation expense, which is trending in the high 20s for the year. Compare that to what we spend, you can sort of draw some conclusions that way.

Okay. And --

I mean, we will talk about 2014 capital spending plans at some point. It's just it's premature to talk about them today.

Okay. That's understandable. And then regarding possible acquisitions, are you guys looking for something similar to the asset purchases like NORCON? Or are you just open to anything?

Well, we're not open to anything. We're trying to be disciplined with it. That, I think, was something that fit us well. We were able to buy it at a reasonable valuation and it's the type of thing that we felt comfortable that we could integrate it.

So the execution, we have confidence that we can do the due diligence. And if we feel we can integrate it without hurting the rest of our operation, those would be important criteria for us.

So we are looking at more opportunities than what we've looked at in the past and are trying to become or remain disciplined in how we go about evaluating them and how we price those acquisitions.

Okay. And then one more on Canada. What do you guys want to see there before you get more involved up there?

Well, I think we just want to see these projects come to fruition. Just like in the US, they have permitting issues and right-of-way access issues. And it appears that the stars are aligned for a lot of these big projects to go forward. So we just -- they're not completed. But we're very confident a lot of them are going to happen and we want to be a player.

Okay, great. Thanks, Bill.

Noelle Dilts, Stifel

Can you give us an update on what you saw in the quarter in terms of the CapEx 2020 and the ITCV plan projects? Did you pick up any additional work on those projects that went into backlog? And also, can you talk about how much remaining potential work is out there on those projects?

On the CapEx project, we picked up two additional segments on that project during the last quarter. There is another segment coming out on the CapEx project over the next couple months that'll be awarded. So that's one more segment that'll be out for bid on that section.

And then on the ITC work we continue to see future bid packages coming out. And we think we're well positioned on that one to capture that work.

And I know you've been a little bit reticent to talk about your expectations for growth in 2014, but maybe could you just comment on a couple of things? One, if there will be much of a change in terms of the percentage of work coming from materials and subcontractors in 2014 versus 2013. And then your kind of high level thoughts on the small to medium transmission project market.

Well, in terms of material, I think it's going to be more like 2013, Noelle. There are a few situations where the owner is asking the contractor to buy materials. But I don't think it's going to be as prevalent as the jobs that were bid in 2010 and 2011 that we and others picked up. So I would say 2013 would be more typical.

And then any thoughts on the pace of the small to medium project activity?

That has been strong and we see that continuing to be strong. Whether it's going to accelerate further or not, I can't say but it has been strong. We expect it to stay strong.

Okay. And then one last question. You've heard from some of the other folks that plan this in transmission in some cases on more of the equipment supplier side. But you've heard a fair amount about some projects shipping from -- slipping from the third quarter into the fourth quarter and early next year.

Would you say that that's consistent with what you're seeing in the market, a bit of slippage on some of the timeframe for some of these projects?

Yes, I'd say that's consistent with the way we look at it. Since I've been in my role, I've never seen a project accelerated. They either stay on track or they slip a little just due to the nature of the challenges our clients face as far as permitting and getting everything done before they can put a shovel in the ground. So there has been some slippage but that has gone on for decades.

Okay. Thanks.

Craig Irwin, Wedbush Securities.

Congratulations on a strong quarter. I wanted to ask for an update on your MSA work. Is it still roughly half of your total electric revenue? And is this growing consistent with what you're seeing in the distribution channel? Are you picking up additional volumes of work there or additional man hours with the growth in distribution that you're seeing?

Craig, let me answer the first part. I don't know if we've ever given out what MSA is a percentage of our overall revenues. I mean, we have quite a few MSA agreements in place and as you know, we only track three months of that in our backlog. So I don't think in my time we've ever given out that percentage.

But do you care to approximate it for us today?

What I will do is go back and take a look at it. But I wouldn't want to offer a percentage up today.

Okay. And then as far as the growth in activity under MSAs, are you seeing additional activity consistent with what you're seeing in the distribution market where your customers are increasing the necessary man hours to meet the list of projects that they're putting in front of you?

Yes. I guess when we look at that, I see an increase in MSAs out for bid. I see the renewals of some of them coming in place and continuing. We do, as I said while I was talking a while ago, we do see an increase in that area. So it is something that's remaining strong.

Excellent. Excellent. Then just to talk a little bit about the CREZ work. So it's positive to hear your commentary in your prepared remarks there. Good to hear that there's additional work that you're going to be competitive for.

What are we looking at as potential timing there? Is this something where we should expect awards before the middle of next year so that maybe we can replace some of the activity that you had from CTT? Or is this something where there's still a decent amount of uncertainty as we look out into 2014?

I think we're hopeful on it. But the projects still need to come to fruition. I mean, as Bill said, he's never seen one advanced. He's seen them either remain on schedule or pushed back a little. So it's as these total projects come to market we really have no control over that. So we've got some insight on when some of them are going to happen but not all of them.

Okay. And then the SWIP project as well, is there any follow on work that you might be pursuing that you might be able to transition those crews over to something that provides a little bit of continuity for people in that geography? Or are these crews that maybe you'd be offering work in Canada, too, and some of your other locations where you've seen significant activity?

We're always looking for new opportunities of where we can place our people. We've got places we can put these people. We've had the conversations with them. So we can move the key personnel to other projects. But in the West, we don't have one specific project outlined for these guys to just move straight onto today.

Excellent. Thanks again for taking my questions.

Stefan Neely, Avondale Partners.

Quick question on Q3. Did you guys see any benefits from project close-outs during the quarter?

No.

Okay. And then again kind of a follow up question on the commentary for regional expansion into Canada. Do you guys have any kind of timeline you're looking for there to be situated to win business?

There are some projects that are in the early stages of bidding that are occurring right now. Some will be bid in the winter but it isn't -- these have fairly long planning periods.

So even though the projects are being bid, let's say in this quarter, it's not likely that the contractor or contractors that might be successful on them are going to see any revenues in the next 12 months. Some very large projects with long planning periods and the owners are trying to line up contractor resources early so they can integrate them into the pre-planning of the job.

Okay. All right, so you're not looking at any sort of timeframe to be up there and expanded, whether it be by organically or it would be an acquisition at all.

No.

Okay. Thank you, that's all I had.

William Bremer, Maxim Group.

Can we go into the bookings a little bit in T&D? Is it safe to assume that the pricing of those bookings are better than we've seen? Can we at least derive that?

I think it depends geographically where we're looking. We've seen some pressures in a few markets and we've seen some increases in other markets. So it's geographically-based.

And what type of capacity utilization are we running at in transmission at this time?

Obviously, on the labor side we're running at 100%, because I don't want anybody working or getting a paycheck that's not working. So I guess that question maybe relates more on the equipment utilization. Certainly we try to keep our equipment working and when we have available equipment, we're working hard to find a home for it. So, in our equipment utilization we have not put out any numbers on that but it remains at strong levels.

Okay, Bill, thank you. That's all I got.

Tahira Afzal, KeyBanc.

It's actually Saagar on for Tahira again. Just had a quick follow up question related to buy-backs. As your share price and as your company on multiple levels trades at a relative discount to some of its peers, when do the buy-backs start to look more attractive for you guys? Thank you.

Saagar, we have a pre-filed plan in place right now. We evaluate it every quarter. Obviously, we haven't repurchased any shares to this point of the year. So during that period of evaluation, we didn't think it made sense to repurchase any shares. Now, that might change in this quarter or subsequent quarters.

Okay. And is there -- what are the different metrics that you guys look at in determining that the -- is there -- any more color on that would be helpful. Thank you.

I guess I can add, you indicated we trade at a discount. I'm not sure exactly which measure you're looking at, but there are a lot of ways to measure it. If you look at a measure like market to book, in that case we may trade at a premium to some of our peers.

If you look at it as a relationship to EBITDA or earnings per share, there are a lot of different ways to measure financial performance and market valuation. So we don't have just one that we think this is the magic measure. We look at them all and in some measures we might look like we're trading at a discount. Other measures it might look like we're trading at a premium.

Great. Thank you.

Thank you. And this concludes our question and answer session for today. I would like to turn the conference back over to the MYR Group for any concluding remarks.

Well, I appreciate everybody being on the call this quarter. We always find this rewarding from our end to hear what's on your mind and certainly appreciate your support covering our stock and investing in our stock. So with that said, I'll close the call and look forward to talking to you next quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.