MYR Group Inc (MYRG) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the MYR Group Incorporated Second Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today's presentation, Mr. Philip Kranz. Sir, please begin.

Thank you, and good morning everyone. I'd like to welcome you to the MYR Group conference call to discuss the Company's second quarter results for 2014, 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, August 13, 2014 at 11:59 PM Eastern Time by dialing 855-859-2056 or 404-537-3406 and entering conference ID 73821520.

Before we begin, I want to remind you that this discussion may contain forward-looking statements. Any such statements are based upon information available to MYR management as of this date and MYR assumes no obligation to update any such forward-looking statements. These forward-looking statements involve 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 Annual Report on Form 10-K for the year ended December 31, 2013, the Company's quarterly report on Form 10-Q for the second quarter of 2014 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 2014 Conference Call to discuss financial and operational results. I will start by providing a brief summary of the second quarter results and 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 industry and MYR Group operational update for the quarter. I will then conclude with some closing remarks and open up the call for your comments and questions.

We posted a strong second quarter this year with 7% higher revenues compared to the second quarter of 2013, highlighted by a 56.7% increase in C&I revenues. Our backlog grew for the second consecutive quarter from $385.6 million at March 31, 2014 to $397.9 million as of June 30, 2014.

We continue to see momentum in the markets we serve and remain optimistic that the long-term outlook for opportunities within our T&D and C&I segments. Spending trends for electric transmission infrastructure continue to be strong and several regulatory developments suggest an increased need for transmission development, potentially generating further transmission investment.

We continue to strengthen our position as a premier specialty contractor in our markets. We are investing in our employees, our fleet and our processes, all the while being mindful of the importance of remaining a low cost provider of construction and maintenance services. Providing outstanding customer service, along with a competitive cost structure are essential to meeting our customers' expectations and delivering long-term value to shareholders. We believe that substantial investments will be needed to ensure the reliability, security and future growth of our nation's electrical infrastructure, which reinforces our belief that MYR Group is ideally positioned for long-term growth and remains in the midst of an exciting time in our industry.

Now, Paul will provide details on our second quarter 2014 financial results.

Thank you, Bill and good morning everyone. Yesterday, we announced our 2014 second quarter results. Our revenues for the second quarter of 2014 were $228.9 million, which represented a $15 million increase compared to the same period in 2013.

On a percentage basis, 2014 second quarter revenues increased 7% over the 2013 second quarter revenues. The increase was primarily due to significantly higher revenues from C&I projects. On a consolidated basis, material and subcontractor costs comprised approximately 31% of total contract costs in the second quarter of 2014, compared to approximately 28% in the second quarter of 2013.

From a segment standpoint, and compared to the 2013 second quarter, T&D revenues decreased $7.6 million to $166.4 million, while C&I revenues increased $22.6 million to $62.5 million.

Focusing on the T&D segment, revenues were $132.7 million for transmission and $33.7 million for distribution in the second quarter of 2014. This compares to $147.9 million for transmission and $26.1 million for distribution for the second quarter of 2013. Material and subcontractor costs in our T&D segment comprised approximately 25% of the total contract cost in the second quarter of 2014, compared to approximately 24% in the second quarter of 2013.

Transmission revenues decreased in the second quarter of 2014 as compared to the second quarter of 2013, as declines from several large projects, which were completed or nearing completion, were partially offset by increased work on mid-sized transmission projects.

In the second quarter of 2014, revenues from our transmission business were 58% of total revenues compared to 69.1% in the second quarter of 2013. In the second quarter of 2014, revenues from our distribution business were 14.7% of total revenues compared to 12.2% in the second quarter of 2013.

C&I segment revenues increased by 56.7% to $62.5 million in the second quarter of 2014 from the second quarter of 2013. Significant increase in C&I revenue was primarily due to increased activity with hospitals, data centers and transportation customers in our Colorado and Arizona markets. Material and subcontractor costs in our C&I segment comprise approximately 47% of total contract costs in the second quarter of 2014, compared to approximately 42% in the second quarter of 2013.

Our overall gross profit in the second quarter of 2014 was $30.5 million, compared to $31.3 million in the second quarter of 2013. Our gross margin was 13.3% in the second quarter of 2014, compared to 14.6% in the same quarter of 2013. Second quarter 2014 and 2013 gross margins included net benefits of approximately 1.9% and 1.3% respectively from improved contract margins on several large transmission jobs, due to cost efficiencies, additional work and effective contract management.

The gross margin benefit in the second quarter of 2014 was more than offset by lower equipment utilization, particularly large specialty transmission equipment, as several large transmission projects are nearing completion, along with higher equipment repairs and maintenance cost. The gross margin in the second quarter of 2013 benefited from higher equipment utilization.

Second quarter 2014 SG&A expenses were $18.1 million compared to $16.1 million in the second quarter of 2013. The increase in SG&A expenses was primarily related to higher personnel cost to support operations and higher stock compensation cost. SG&A as a percentage of revenues was 7.9% for the second quarter of 2014 compared to 7.6% for the second quarter of 2013.

Second quarter 2014 EBITDA was $20.7 million, compared to $22.5 million in the second quarter of 2013. Our provision for income taxes declined to $4.6 million in the second quarter of 2014 compared to $5.7 million in the same quarter of 2013.

Our effective tax rate for the second quarter of 2014 was 37.4% compared to 37.6% in the second quarter of 2013. Second quarter 2014 net income was $7.7 million or $0.36 per diluted share, compared to $9.5 million or $0.44 per diluted share in the second quarter of 2013.

Shifting to our first half 2014 results, revenues increased $29.2 million or 7% to $444.5 million, compared to $415.3 million for the first half of 2013. The increase was primarily the result of significantly higher C&I revenues.

Our overall gross profit for the first half of 2014 was $57.6 million compared to $58.6 million in the first half of 2013 and our gross profit margin decreased to 13% versus 14.1% in the first half of 2013. The decline in both gross profit and gross margin in the first half of 2014 was primarily due to lower equipment utilization, particularly large specialty transmission equipment, along with higher equipment repairs and maintenance cost. The gross margin in the first half of 2013 benefited from higher equipment utilization.

EBITDA decreased to $39 million or $1.80 per diluted share for the first half of 2014, compared to $40.8 million or $1.91 per diluted share in the first half of 2013. First half 2014 net income was $14 million compared to net income of $16.4 million in the first half of 2013. Diluted earnings per share were $0.64 for the first six months of 2014 compared to $0.76 per diluted share for the first six months of 2013.

We invested $25.2 million in property, plant and equipment in the first half of 2014 compared to $21.9 million in the first half of 2013. We expect our capital spending in 2014 will be similar to our 2013 capital spending. As such, the absolute level of capital spending in the second half of 2014 should be lower than the first half of 2014.

Total backlog at June 30, 2014 was $397.9 million, consisting of $265.8 million in the T&D segment and $131.1 million in the C&I segment. Total backlog at June 30, 2014 increased $12.3 million from the $385.6 million recorded at March 31, 2014. T&D backlog increased $17.3 million or 6.9%, while C&I backlog decreased $5 million or 3.6%. The increase in backlog at June 30, 2014 was a result of a number of project awards with no single award being greater than $35 million.

Moving to the balance sheet, stockholders' equity increased to $311.1 million at June 30, 2014 from $296.1 million at December 31, 2013. Our return on equity for the 12 months ended June 30, 2014 was 11.8% as compared to 15% for the prior-year period. At June 30, 2014, we had approximately $54.6 million in cash and cash equivalents, no outstanding funded debt and $156.6 million in availability under our credit facility.

In the second quarter of 2014, we spent $750,000 to purchase 30,600 shares of our common stock under our $25 million stock repurchase program.

In conclusion, we had another solid quarter of higher revenue growth and our second consecutive quarter of backlog growth. With our strong balance sheet, we believe we are well capitalized for sustained organic growth, as well as for possible acquisitions.

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

Thanks, Paul and good morning everyone. As we enter the second half of 2014 and look to 2015, we are confident that the bidding environment in our T&D and C&I segments will remain robust. We anticipate transmission project opportunities of all sizes will develop at a steady pace, due to the reliability mandate, economic drivers and the proliferation of renewable power generation sources.

Our bidding activity remained steady quarter-over-quarter and resulted in a broad-based project awards in which no single project was greater than $35 million. These awards continue to build MYR Group's considerable portfolio of experience and will also reinforce our reputation as a premier specialty contractor with unique set of resources and capabilities required to successfully execute complex T&D and substation projects.

From an industry standpoint, TransmissionHub recently hosted its quarterly market update and announced that they are tracking an average of $28.4 billion annually for transmission projects in the 2014 through 2018 timeframe. Figures also indicate that $5.3 billion in transmission projects are in various stages of planning and development through the remainder of 2014. Further, various industry sources indicate that transmission investments are expected to reach an aggregate of $160 billion over the next 10 years. While we believe these estimates reinforce the fact that a healthy market exists for future opportunities, there is always the chance that some of these projects may be delayed or suspended due to permitting or regulatory issues.

On the regulatory front, we expect that EPA and FERC-related announcements made in the second quarter will have a positive impact on driving the need for continued transmission investment and development across the US.

The EPA's draft rule to reduce carbon emissions by 30% from hundreds of fossil-fired power plants by 2030 should increase the urgency for utilities to invest in new generation sources, such as natural gas and renewable energy. We expect the need for new generation sources will require the development of additional transmission resources to deliver affordable electricity to population centers.

Additionally, at EEI's Annual Convention in June, Warren Buffett announced that Berkshire Hathaway has committed $15 billion toward renewable energy investments with another $15 billion ready to go, which provides further evidence of an increased focus on renewable energy resources investment. We believe Buffett's remarks may bode well for MYR Group, given our strong relationship with Berkshire Hathaway's MidAmerican Energy, PacifiCorp and NV Energy.

Further, our experience from the recent completion of the ON-Line project, which was designed to deliver renewable energy to the population center of Southern Nevada, bolsters our position to bid and win future renewable energy projects in the Western US as they come to market.

Recent industry sources predict that within the next 15 years, renewable energy shares of the US electricity generation capacity will grow from 7% in 2012 to 28% in 2030, while coal-fired energy capacity will fall from 21% to 9% in that same timeframe. Additionally, Exelon Transmission Company indicated that FERC's mandate for competitive transmission could create $6 billion to $42 billion in new market opportunities for non-incumbent developers over the next decade. We believe we are well positioned to compete for these types of projects and will continue to track activity related to the implementation of FERC Order 1000.

Outside of regulatory opportunities, we are also seeing an emphasis on the development of electrical infrastructure as it relates to oil and gas projects in certain parts of the country. For example, SPP recently announced to spend $1.45 billion for transmission-related projects through 2023 to meet increased load from oil and gas delivery, of which $573 million as notice to construct.

Xcel Energy also recently announced plans to construct 149 miles of 115 kV, and 245 miles of 345kV transmission line, 12 new substations and upgrades to nine substations, amid booming oil and gas development in Texas and New Mexico. The development is part of Xcel Energy's $1.6 billion Power to the Plains transmission enhancement program. We continue to remain diligent regarding business development activities across new markets, particularly in Canada, Alaska and California and believe that these markets will offer us long-term growth opportunities.

In regards to the distribution market, we see an emphasis on improvements to system reliability, upgrades to outdated or older distribution systems and a steady recovery in the housing market, driving stable and long-term growth opportunities for our distribution business. We continue to add crews to augment many of our utility customers' internal work forces for our ongoing operation and maintenance needs, and we believe that this will continue going forward.

Another potential avenue for increased distribution opportunity is related to expansion of high-speed communication networks for companies like Google throughout a number of US cities. New fiber infrastructure will be installed on existing electric utility lines and much of this fiber network expansion will require updates to existing distribution systems to accommodate the new communication capacity. We believe this upgrade work will be performed by traditional distribution linemen with familiarity and knowledge of the local utility systems, where the fiber network will be located. We anticipate that some of this make-ready work, as it is referred to, may be performed by our crews throughout the US.

Shifting to our C&I business, in the second quarter, we experienced substantial revenue growth and a stable backlog, supported by increased bidding and project activity in our Colorado and Arizona markets. As we said before, we see the healthcare, data center, airport and industrial markets as the key to our continued growth.

As we move through 2014, we are also seeing growth in communication, transportation and electrical projects which fit our core expertise and resources. Therefore, we are continuing to expand our internal resources to pursue these growth markets. Our long-term client relationships are bringing new opportunities in areas such as Utah, Wyoming, Nebraska, New Mexico, Nevada and Texas, where our Colorado and Arizona clients have other facilities.

Select markets with limited competition, such as airfield lighting, light rail and data centers will remain a strong focus for us through 2014. As one of the few electrical contractors in Colorado, Arizona and the surrounding regions, with the scale expertise, experience, resources and safety record necessary to successfully execute these larger and more complex C&I projects, we believe we are in an industry-leader position to win our fair share of future opportunities, despite continued strong competition.

In summary, as we continue to grow, develop and refine our expertise throughout all our operational aspects of our business, we are not only confident in our ability to capture a significant portion of projects or opportunities, but we are all -- but also in our capabilities to successfully source and safely execute our projects. We see favorable market conditions in all areas of our business and are optimistic that we will continue to deliver solid results for our customers and shareholders.

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

Thank you for that update, Rick. Our strategies to grow our business have not wavered and we will stay focused on disciplined bidding, responsible project execution and careful evaluation of all organic and acquisition growth opportunities.

Our financial and operational results reflect consistent performance and we remain optimistic about realizing continued long-term success for MYR Group, due to the numerous growth prospects in the markets we serve. This stability provides us the resources and financial strength to pursue additional growth strategies on a variety of fronts.

Although we have one of the best fleets with specialty equipment in the industry, we still have opportunities to invest in our fleet and tooling, which will further build our resource capabilities, lower our cost structure, increase our competitive position and enable us to grow and better serve existing and new customers. In addition, we will continue to invest in our people and strive for continuous improvement in every area of our organization.

On behalf of Paul, Rick and myself, I would like to thank you for joining us on the call today and for placing your confidence in MYR Group. I look forward to updating you on our progress next quarter.

Operator, we are now ready to open it up for comments and questions.

(Operator Instructions) Alex Rygiel, FBR Capital Markets.

A couple of questions. First, you mentioned a number of large projects that were either completed in the quarter or nearing completion. There have been periods through the history where project rotation does lead to gaps in profitability and revenue recognition, and all that fun stuff. Can you sort of address that topic over the next one or two quarters as a couple of these larger projects come to completion?

You're right that it isn't a continuous line. We'll have some projects that are wrapping up, other projects ramping up. We have not had any significant big projects awarded recently. As Rick indicated, in the last quarter, our largest one was less than $35 million I believe. So we have not added to the backlog any big projects, but there are -- the bidding activity is as brisk as I've seen it. I wish there were more big projects in the mix, but there are a lot of small and medium-sized projects that we're pursuing. Whether that's going to perfectly mesh in terms of resources that free up, it probably won't. There will be gaps from when we wrap up some of these projects until we're able to redeploy those resources.

And secondly, as it relates to your buyback program, obviously it's very nice to have an authorization in place and it's nice to see that you started to repurchase some shares in the quarter, but the quantity of shares purchased in the quarter was somewhat small. And so, could you sort of address what the strategy there is with regards to your buyback program?

Alex, I'd probably said before in the call or as I've met the folks like yourself in person, I mean, we're very objective in our share repurchase program. We have a plan in place. And as the market hits that price, we buy. If it doesn't, we don't buy. So we continue to evaluate it every quarter.

Tahira Afzal, KeyBanc.

The first question is really in regard to the transmission side of the story. Bill, as you see a sort of healthier stream of smaller projects in your mix on the transmission side, can you talk a bit about your CapEx strategy going forward? Do you feel that you are sort of pretty well equipped at this point on your large specialty equipment side and hence, into 2015, we could potentially see CapEx starting to trail down?

That's definitely possible. We constantly evaluate our capital expenditure program. We've added a lot of iron for these big transmission jobs. We think that was a good move over the last several years as we've done that. We still have a few opportunities where we have some equipment we need to buy. We have a few leases that have rental purchase options that are well in the money that we will probably exercise, but the pace of capital spending that we've seen over the last four or five years, we're going to have to see a much bigger uptick in the amount of transmission work for us to keep increasing at that pace.

So, it is possible 2015, 2016 could actually be less than what we are experiencing over the last couple of years. Now, having said that, we have seen the distribution spending pick up a little bit and unfortunately the kinds of equipment you use for distribution projects isn't the same iron that you'd used necessarily for transmission projects. There are some common things like pick-up trucks and those kind of things obviously, but the big wire equipment and the big aerial devices are different and I wish we were able to move equipment back and forth between distribution and transmission, but that's limited. So, there are -- I'm expecting some opportunities to further invest in the distribution side of the business. And as it relates to the C&I work, that's not at all capital intensive, that's fairly minimal.

And, Bill, if you look at the -- and maybe Rick can also chime in, on the C&I side, clearly a phenomenal revenue quarter for you. Are you kind of reaching sort of a C&I rate, which is potentially going to stabilize at this point, do you think, versus a second quarter clip you can actually grow more? And as you grow on the revenue side, how should we expect the book-to-bill for C&I to play out? Is it going to be able to continue to see and really reflect the momentum on the revenue side as well?

Tahira, I'll take that. It was a good quarter for us overall on the C&I side as far as going forward at that rate. I would say we had a fairly high capture rate of work and we were able to execute quite a bit of work during the quarter. I don't see that trend -- I wouldn't use that in your modeling. I'd use something similar to what's been there in the past, but it is a market that we're definitely see growing, lot opportunities out there and the geographic expansion is probably where we see the most opportunity.

Andy Wittman, Baird.

So just on the equipment under-utilization, it sounds like there's nothing imminent on the large project side. Is there maybe even opportunity if some of these purchase options are in the money to buy it out and then, I guess for lack of a better term, slip in, or maybe even more broadly, is there an opportunity to just sell equipment that you have to kind of improve the margins if you feel like there's a decent amount of un-utilization out there?

We are constantly calling our equipment, both things that we own outright and things that we have under lease agreements to see if we ought to sell it. We have actually exercised some rental purchase options and turned around in auction the equipment off and have made a profit on that. We will continue to do that. If it's in the money, we'll look at it and we need to recognize that the equipment market is also subject to supply and demand influences. So, the equipment market is -- on the transmission stuff is softer today than it was a year ago. So, we try to keep our finger on the pulse of that market. We also know if we take equipment to an auction house, you got to pay transportation fees to get it there and you have to pay the auctioneer fee for it. So it needs to be well in the money before we would that, but we're constantly going through our entire fleet of equipment saying, what do we really need long-term, what don't we need, and if we don't think we have a use for it, we'll get it on down the road.

In addition, I'd probably add, we're doing that while we're evaluating longer-term projects that are coming out for bid. As we said earlier in the script, it's a robust bidding market out there. We're seeing a lot of small to mid-size projects and we're evaluating what equipment we have out there that just come out of the repair shop, what equipment we have on projects, and we're trying to balance that entirely out. So we do see a lot of opportunities to put that equipment out in the future. So I don't want you to think there's nothing in the future.

And, Andy, our business, as we've discussed on other calls, a lot of the reliability projects we have, we can't work on all of them during the summer. A lot of projects that we have in backlog, as well as projects we're bidding today, can't start until September. That does not mean we don't have any work in the summer. But every year, the summertime is a bit of a lull, because our clients can't take these circuits out of service, because they're relying on the circuit to carry peak load during the summer. So that is a bit of a seasonality in our business that even though it's the perfect time of year to do construction, we can't do as much as we'd like, because the clients can't give us the outages.

Two more questions, if I might. One -- I guess the next one is just on the bidding environment. I think Rick, you said that the outlook is robust. You said that the bidding activity is steady. With two quarters now of sequential backlog increases, do we feel like the -- do you guys feel like the backlog is going to need to continue that momentum higher on a sequential basis or maybe [does it flatten]? I'll just like to get your overall impression of where that's headed?

I certainly hope it increases. I mean that's our goal. That's why we're in business, to continue to grow our business from -- and as I said earlier, from the standpoint of jobs that are coming into bid right now, I've probably haven't seen this much activity over the last couple of years. So it continues to increase, the number of bids. Large projects, again, are out there to the degree they were in previous years, but small to mid-sized work, there is a lot of it coming in the doors.

And then maybe just my final question here, is kind of on that business development side. You guys have been working hard trying to get into some new markets. Certainly, I know that you're always looking at M&A. I guess I'd be curious as to, especially with the Pike transaction of the Go-Private, how active is private equity today in the space? And are you finding yourselves losing competitive bids for companies that you'd otherwise acquire? And where is the multiple? Is the Pike deal that you saw fairly indicative in the kind of 8, 8.5 times range is the going rate for franchises out there? I think some of your comments on that would be insightful.

Certainly private equity has been a major player in our industry in the last four or five years. As you know, we were at one point owned by a private equity. At that stage, it was kind of a rarity. There were just a couple of contractors that had private equity. Now, there are several more. Some of the multiples, based upon historic earnings, have been fairly high. Some are more reasonable. I can't really comment on Pike's situation. You need to contact Eric Pike to get his assessment on that, but I don't think that multiple is unheard of. And there are a lot of private equity players out there. And, as you know, that's driven by available and cheap debt. So a number of these transactions are loaded up with a lot of debt and that's both good and -- in good times, it's good, in bad times, it's bad. So I don't really have anything more to add on that, Andy.

John Rogers, Davidson.

A couple of things. Fist of all, just on the equipment utilization on the T&D side, Rick, if understood your comments correctly, you're seeing market opportunities in both areas. But it sounds as if, near term, it's a lot of smaller project work, which I am just trying to understand, does that mean that some of your large project equipment is going to continue to be under-utilized for a while? I ask all this in the context of -- I mean, we've seen revenue ramp before in years past. And you've had to give up or you've experienced lower margins during those periods and some of it's subcontractor work and [I don't know] -- maybe some comments on how you're thinking about the market right here?

As we've described, a lot of our large projects started coming down, a lot of that equipment has been out there -- out on the right of ways for multiple years. It was in need of some repair. So, that was part of our increased cost, was getting that equipment repaired and ready to go out, and as we look at these smaller projects or mid-sized projects, the logistics of those how they tie together, we evaluate that, how we're going to move our equipment around, we take that all into account as we're bidding these projects and as we're looking at them, and as we're evaluating fleet requirements going forward.

So, it's not just one component we're looking at, but we're seeing a lot of areas of the country where this equipment will be available to move from project-to-project. Some of those projects we have lined up, some of them we don't have, I guess, perfect visibility into all of our equipment, but we look at it every day. We evaluate it as a complete team and we try making sure we have the right equipment out there to perform the work.

In terms of the larger project work that you're looking at, I assume mostly out into 2015, would you be self-performing more of this than you have in the past or about the same?

I would think it's about the same. We do have, let's say, on the foundation work, we have significant internal capacity to self-perform foundations. We have added some capacity, but we also rely heavily on a couple of reliable subcontractors to help us with foundations. On the road building side, probably we, again, can self-perform certain things, but that's not necessarily our expertise. So, if it's that significant road building we would typically outsource that. So, I would say the mix of what we outsource, what we self-perform is going to be pretty similar to what we have in the past, John.

So Bill, if I could just press here a little further then, so is the large project work higher or lower margin for you versus the smaller projects?

Well, in the higher margin work we've got some small projects that we've done really well on. I would say there are fewer competitors on the big jobs than the smaller jobs. So, by just looking at competition there, if you've got a really big job, you're not likely to see 10 bidders at the pre-bid. On a smaller job, depending upon where it is, it could be a select group or it could be a broader group. So I don't know that our history really supports whether larger jobs are always synonymous with higher margins. We've done a good job executing on our larger jobs generally. But as we bid them going in, I don't know that we could say that we would demand a higher margin always the bigger the job is.

And then just follow-up I guess on Paul's comments relative to the buyback, what sort of dilution are you looking at on an annual basis just from options and stock grants? It seems as if even with the buyback your share count is continuing to grow.

John, I don't have an exact number in front of me, but yes, we do experience some dilution because of our long-term compensation plan. But I don't have the exact number in front of me. And, obviously, quarter-over-quarter, you can see that our diluted shares outstanding grew more than what we repurchase shares.

Dan Mannes, Avondale.

A couple of questions. So first, as it relates to the roll-off of large projects and the utilization issue, first of all, I think you have -- again, I'm looking at maybe three good-sized projects rolling off currently. I guess the main tower is almost done. Mount Storm to Doubs finished I think a year early. And I think you finished a pretty meaningful section on V-Plan. First of all, can you maybe talk about maybe your performance as you close those out, any benefit from that, because it looks like that's been a help the last couple quarters? And then secondarily, on the utilization side, was this planned for or is -- I guess I'm just trying to understand how much of this was sort of in your control, i.e. you wanted to take some equipment for maintenance, versus either not having the right kind of work or not having sufficient work to support. So could you kind of help me with those two items?

Let me address the second one. I wouldn't say it's totally planned for. Obviously, we're bidding every week. We're adjusting the aggressiveness of our bids based upon our need to keep iron busy. We don't ever plan to take this big equipment and go park it against a fence. That is not our strategy. We're trying to keep it as busy as we can all the time. But it doesn't work out perfect. If we would have gotten all the bids that we bid, we'd probably being scrambling around trying to find the iron. So it's definitely not a perfect science. We're trying to balance that as best we can. And I'd be the first to admit we're not perfect at it.

In terms of large projects, you cited a couple that are towards the tail end of construction. There is some ongoing work like right-of-way restoration and re-seeding and we're closing out contract issues. So that has been a factor in the last several quarters. So that is an important part of closing out these jobs, to make sure we get them completed and deliver the asphalt drawings to the owner and collect our retention and negotiate and finalize change orders. So that's a big part of being successful at this business.

Would you say, by and large, as you come to the end of these projects, have they been a tailwind or a headwind from a margin perspective, especially in the context of Mount Storm to Doubs? I think you've finished almost a year early, which would seem to be pretty strong performance, though, maybe there were some other factors involved.

I think we've -- it's been more of a tailwind. It's helped us. We, knock on wood, have not had many situations where larger projects have been a drag on us. There have been a couple though. So just big is not always better, but we have been overall successful in closing out these big jobs, and I've had a couple of situations where we've had margin improvement that we were able to recognize.

And then as it relates to backlog, you guys mentioned obviously backlog did grow in the second quarter sequentially, but nothing above $30 million. I think you're aware, we've been tracking a large project in North Dakota that we've at least anecdotally believe that you guys have been selected for. I was just wondering if that project was currently in your backlog or if that's something still outstanding, especially in the context that work is supposed to start in the next two months?

For the scope that we were awarded on that project, it is in our backlog currently. So that is in our backlog.

So does that imply there is more scope still remaining to be bid or -- I guess if you give me a little more color on that, is this sort of a piecemeal situation, like when you went through a CAPX 2020 and ITC?

It's not so much of a piecemeal. It's the portions -- the job itself was awarded. Some of the stuff the owner may be doing upfront. Some of that stuff may not -- is not in our scope. So that project is in our scope in the numbers we provided.

And then lastly, just in terms of following up on the regional expansion in terms of what you're looking to do in Canada and California, can you give us any update on any maybe tangible progress you've made? I don't know if you have any wins in either side or beyond opening the office in Canada, what is actually going on there?

In addition to opening the office in Calgary, we have got pre-qualified with quite a few customers out there. We are receiving bid packages, we are assessing those bid packages and bidding a few projects up there. So, we are going in deeper. We will -- our goal is to have a project awarded by year end or next quarter. That's our goal as a company. And we're putting a push to do that.

And in California?

California, we continue to meet with utilities, evaluate projects. We did a few projects out there. We were not successful currently on the ones we bid, but we continue to meet with the clients, bid projects and it is an area we want to go into.

Adam Thalhimer, BB&T Capital Markets.

Rick, earlier this year you talked about 10 large transmission projects that you're bidding, but what happened to those? Did some of those just get pushed or were they all awarded to other contractors?

Most of them -- I mean a lot of those have got pushed. A few of them were awarded to other contractors and I think we continue to look at that list, evaluate everything that's going on there. A lot of those projects to get delayed because of environmental or any other issue that may push one out, but we do look at every project out there.

And then I wanted to ask also about T&D margins. If you go back to before the -- before you won a lot of that large transmission work, T&D margins were in the 8% to 10% operating margin range. I mean, why wouldn't we be headed back into that range, given that distribution should be picking up as a percentage of the mix and the opportunities really are in the small and mid-sized transmission jobs?

Adam, it is definitely a possibility. We still think the market is very strong on the distribution side. we've gone through a period of about five years where that market was horribly depressed. So I would think there is some strength there that didn't exist in the 2010-2013 time period, but our crystal ball is not so clear as to whether we're going to be able to maintain the margins we've had in the last couple of years or it might revert back to the period you talk about. If you look back further than that, there've been some markets that are very similar to what we've just run through. So, this is kind of a cyclical business, and I don't think we're able to totally predict that.

Noelle Dilts, Stifel.

First I was just hoping you could just give us a little bit more detail on what you're seeing by geographic region in the US in terms of the small and medium transmission project activities, if you're seeing certain pockets of strength that will be great?

Generally, it's strong in a lot of markets. Certainly, the Northeast is strong, Southeast is probably not particularly strong area. Midwest is strong. The Southwest has picked up. Northwest has picked up, but there are areas like Nevada, obviously, we did a very big job in Nevada and I'd love to say there's another gigantic job coming in Nevada, but that's not likely to repeat itself. But if you look at, like, Arizona and Southern California, I think that market is strong. Texas is a market on its own, there is not a [CREZ II] out there, but there is significant work in Texas. The CREZ projects have made a lot of wind farms possible, and we're actively pursuing the transmission and collector work on those wind farms. The Houston market is very strong. So, there are some really bright spots in our mind that we're pursuing.

And I think you've talked about this a bit, but given that you're seeing that sort of pull in the large project transmission market, are you seeing pricing and bidding get much more aggressive, would you say that the small to medium market is adequately strong right now that you're not seeing intense bidding pressure? Could you just give us some thought there?

I think pretty much like in the past, there are regions of the country that are very weak and to be competitive in those regions, you have to lower your margin requirements. There are other regions that are strong, equally strong to what we've experienced in the past. So, it's hard to generalize on transmission. It's very much a region-by-region basis, but definitely there are some markets that are softer than what we were looking at in 2010 when a lot of the big jobs were put on our books and others books.

And then finally, if you're looking in the C&I business, can you just give us an update on the geographic expansion, how many states you are working in now and when you look further down the line, what your ambitions are for extending that business geographically?

Currently, we're working outside the Arizona and Colorado, where we've got projects in Nebraska, we've got a project in -- a couple of projects in Nevada. We continue to look at the other markets around. We're doing some work in New Mexico. So, pretty much the states that I went through earlier are states that we are doing something in and there's possibility to move into other areas, but it's on a case-by-case basis and as we said earlier, we follow our clients into those areas. So when those opportunities come up, we're looking at every one of them and seeing how it makes business sense to us.

William Bremer, Maxim Group.

Just wondering, some of the industry reports these days are basically voicing that utility CapEx has remained pretty much flat year-over-year, but in essence there's behind the scenes, a shift away from, say, generation to more transmission. I just wanted to get your sense on whether or not you're starting to see that play out maybe in 2015 and then possibly can you give us an update on your involvement and your activities in Alaska at this time?

Well, as we talk to utilities, they generally would rather spend money on transmission than any of their other possibilities. More and more companies are disaggregating their generation from the utility mix. The generation -- new generation has gone through a lot of changes and I think the folks -- the traditional utilities do that as a much higher risk situation than investing in transmission. So, I would say, which has been the case for several years, they'd rather invest in transmission and get it under FERC jurisdiction than any of their options. So that's validated as all of us involved in making sales calls, utilities. The transmission incentives are still valid.

In terms of Alaska, I think that's worked out to be a good acquisition of assets for us. There are some nice utility clients up there. We've done a fairly good job of integrating those clients and those employees and those equipment. So I have high hopes for Alaska. So, it is proving to be what we expected when we bought those assets.

Thank you. I'd now like to turn the conference back over to Mr. Bill Koertner for any closing remarks.

Well, I'd like to thank everybody for participating in the call. We remain excited about the opportunities in both our C&I and T&D markets. Still feel we've got one of the best management teams and groups of employees in the industry and obviously it's a people business and that's the key to our success and we certainly appreciate the support our shareholders have given us, as well as our other partners and industries. So, with that I close the call, and everybody have a great day. And we'll look forward to getting back on the phone next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.