Aug 8, 2012
Operator
Good morning, everyone. And welcome to the MYR Group Second Quarter 2012 Earnings Results conference call.
Today's conference is being recorded.
Operator
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.
Philip Kranz
Thank you, and good morning. I'd like to welcome you to the MYR Group conference call to discuss the Company's second quarter results for 2012 which were reported yesterday.
Joining us on today's call are Bill Koertner, President and Chief Executive Officer; and Paul Evans, Vice President and Chief Financial Officer.
If you did not receive yesterday's press release, please contact Dresner Corporate Services at 312-726-3600 and we'll send you a copy or you can go to MYR's website at www.myrgroup.com where a copy is available under the Investor Relations tab. Also a replay of today's call will be available until Tuesday, August 14, 2012 at 11
59 p.m. Eastern Time by dialing 855-859-2056 or 404-537-3406 and entering conference ID 9959450.
If you did not receive yesterday's press release, please contact Dresner Corporate Services at 312-726-3600 and we'll send you a copy or you can go to MYR's website at www.myrgroup.com where a copy is available under the Investor Relations tab. Also a replay of today's call will be available until Tuesday, August 14, 2012 at 11
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.
If you did not receive yesterday's press release, please contact Dresner Corporate Services at 312-726-3600 and we'll send you a copy or you can go to MYR's website at www.myrgroup.com where a copy is available under the Investor Relations tab. Also a replay of today's call will be available until Tuesday, August 14, 2012 at 11
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 guarantees of future performance.
These risks and uncertainties are discussed in the company's Form 10-K for the year ended December 31, 2011, the company's quarterly report on Form 10-Q for the second quarter of 2012 and in yesterday's press release. Certain non-GAAP financial information will be discussed on the call today.
A reconciliation of this non-GAAP information to the most comparable GAAP measure is set forth in yesterday's press release.
If you did not receive yesterday's press release, please contact Dresner Corporate Services at 312-726-3600 and we'll send you a copy or you can go to MYR's website at www.myrgroup.com where a copy is available under the Investor Relations tab. Also a replay of today's call will be available until Tuesday, August 14, 2012 at 11
With that said, let me turn the call over to Bill Koertner.
William Koertner
Good morning, everyone. Welcome to our second quarter 2012 conference call to discuss financial and operational results.
I'll provide a brief summary of the second quarter and first half results before turning the call over to Paul Evans, our CFO, for a more detailed financial review. Following Paul's discussion, I will provide some additional information and an outlook for the industry.
William Koertner
I am pleased to report record revenues, EBITDA, gross profit and earnings per share for the second quarter of 2012. Revenues grew to $260.4 million in the second quarter of 2012 from $185.3 million in the second quarter of 2011, an increase of 40.5%.
All of this growth was achieved organically as MYR has not made an acquisition for several years.
William Koertner
Gross margin for the second quarter of 2012 increased to 11.5%, an increase of 100 basis points over the second quarter of 2011 which was the result of improved execution of our work and higher utilization of our fleet assets. Diluted earnings per share was $0.45 for the second quarter of 2012 compared to $0.18 for the same quarter of last year.
This represents growth of 150%.
William Koertner
The transmission side of our business continues to experience unprecedented growth as we continue to execute work under contract and pursue new opportunities as they come to market. Today many large projects are being divided into smaller segments for bidding an award as opposed to a single award for the entire line.
William Koertner
ITC and NPPD's 225 mile KETA line and the 3 big CapX2020 lines which total 632 miles are examples of big projects being split into smaller, individual line segments for bidding. This trend in sourcing strategy is likely to continue and it will affect backlog reporting especially for companies like MYR, who do not count the project in backlog until a signed contract is in place for a specific scope of work.
William Koertner
We expect the market for transmission projects of all sizes will continue to significantly expand over the next several years. Based upon actual spending from investor-owned utilities, the Edison Electric Institute estimates that actual and planned transmission investments will be approximately $13.7 billion in 2013 and $13.5 billion in 2014.
William Koertner
We also follow 2 other sources for transmission spending forecast, the Working Group for Investment in Reliable and Economic Electric Systems or WIRES for short and the Brattle Group. Both of these information sources forecast transmission spending in the range of $12 billion to $16 billion per year through 2030.
William Koertner
We have seen an increase in bidding activity in the second quarter of 2012 compared to the first quarter 2012 and expect those to continue throughout the year. Most of the increase in bidding activity in the second quarter relates to small to medium sized transmission projects.
As is always the case, we target project opportunities that best fit our resources and then we believe should provide us the opportunity to earn attractive operating margins consistent with current market dynamics.
William Koertner
We expect the business environment for our distribution business in C&I segments to continue to be challenging, albeit we have seen some positive bidding signs in the second quarter of 2012. In some regions of the country, customers remain extremely cautious in their spending due to concerns on the overall economy.
William Koertner
As a result, margins are pressured as compared to historical levels due to the competitive environment and we expect this will continue through 2012.
William Koertner
On August 1, MYR Group's Board of Directors authorized the Company to repurchase up to $20 million of its outstanding common stock. We are committed to creating long-term value for our stockholders and believe the decision to purchase common shares will further that objective without compromising our ability to grow the business.
William Koertner
Now Paul will provide details on the second quarter and first half 2012 financial results and then I will be back to provide some additional insight on current market conditions and our perspective for the future of MYR. After that there will be an opportunity for you to ask questions.
William Koertner
So with that, Paul, please begin.
Paul Evans
Thank you, Bill, and good morning, everyone. Yesterday after the market closed, we announced our 2012 second quarter results.
As Bill mentioned, our revenues for the second quarter of 2012 were a record $260.4 million which represented a $75.1 million increase over the same period in 2011. On a percentage basis, 2012 second quarter revenues increased 40.5% over the 2011 second quarter.
Paul Evans
From a segment standpoint and compared to the 2011 second quarter, T&D revenues increased $76.1 million to $215.8 million and C&I revenues decreased $1 million to $44.6 million. To give some historical perspective on how our business has changed, in the second quarter of 2008 47.4% of our revenues came from transmissions.
By contrast, for the second quarter of 2012 transmission revenues represented 72.1% of our total revenues.
Paul Evans
Focusing on the T&D segment, revenues were $187.6 million for transmission and $28.2 million for distribution in the second quarter of 2012. This compares to $98.1 million for transmission and $41.6 million for distribution for the second quarter of 2011.
Paul Evans
The second quarter 2012 increase in transmission revenues primarily related to a number of large transmission awards in late 2010 and early 2011 that were in various stages of their respective construction cycles during the quarter, lower distribution revenues related to a decrease in storm work of about $5.6 million and a decrease in work under our master service agreements. Our sales decreased by 2.3% in the second quarter 2012 from the second quarter 2011.
Paul Evans
Our gross profit in the second quarter of 2012 increased to $30.1 million, $19.5 million in the second quarter of 2011. And our gross profit as a percentage of revenues increased to 11.5% versus 10.5% in the second quarter of 2011.
The increase in gross margin was primarily due to improved overall project margins on small and medium sized projects in both segments and improved utilization of fleet assets.
Paul Evans
On a sequential basis, second quarter 2012 gross margin increased to 11.5% from 10.9% in the first quarter of 2012 and 10.5% in the fourth quarter of 2011, reflecting better execution on our jobs and improved utilization of our fleet assets.
Paul Evans
Second quarter 2012 SG&A expenses were $14.5 million compared to $13.7 million in the second quarter of 2011. The increase was primarily due to higher employee compensation and benefit costs related to greater employee headcounts.
Our SG&A as a percentage of revenues declined to 5.6% in the second quarter of 2012 compared to 7.4% in the second quarter of 2011. Second quarter 2012 EBITDA increased to $21.8 million or $1.03 per diluted share compared to second quarter 2011 EBITDA of $10.6 million or $0.51 per diluted share.
Paul Evans
Our provision for income tax increased $5.9 million in the second quarter of 2012, compared to $2.1 million in the second quarter of 2011. Our effective tax rate increased to 38.2% versus 36.3% in the second quarter of 2011.
This increase was associated with certain discrete tax adjustments and state income taxes that benefited the second quarter of 2011. Second quarter 2012 net income was $9.5 million or $0.45 per diluted share compared to second quarter 2011 net income of $3.7 million or $0.18 per diluted share.
Paul Evans
Now shifting to our first half 2012 results, revenues increased $165 million or 49.2% to $500.6 million compared to $335.6 million for the first half of 2011. Despite higher gross margins as a percentage of sales for the second quarter of 2012, gross margin as a percentage of sales for the first half of 2012 decreased to 11.2% compared to 12.2% in the first half of 2011.
Paul Evans
The stronger gross margin performance in the first half of 2011 was primarily due to a few large transmission projects which experienced above average margins of about $5.8 million in the first 3 months of 2011, when they were in the final stages of completion.
Paul Evans
EBIDA increased to $37.7 million or $1.79 per diluted share for the first half of the 2012, compared to $22.6 million or $1.08 per diluted share for the first half of 2011. Meanwhile, first half 2012 net income of $15.7 million represents an increase of 91.6% of net income of $8.2 million in the first half of 2011.
Diluted earnings per share improved to $0.74 for the first 6 months of 2012 up from $0.39 per diluted share for the first 6 months of 2011.
Paul Evans
In the first half of 2012, we invested an additional $20.4 million in property, plant and equipment compared to $22.8 million in the first half of 2011. We believe our strategy to invest in equipment and tooling will result in better execution on current projects and position us to capture additional business in the coming years.
Paul Evans
Total backlog at June 30, 2012 was $543 million, consisting of $464.2 million in the T&D segment and $78.8 million in the C&I segment. T&D backlog at June 30, 2012 decreased 28.2% compared to June 30, 2011.
The decrease in our T&D backlog was primarily due to ongoing construction in several large transmission projects. C&I backlog at June 30, 2012 increased 11.2% compared to C&I backlog at June 30, 2011.
Paul Evans
As we have discussed on previous calls some of our revenue never flows through our quarterly backlog reporting. This is because the award of the project as well as the execution of the work can all take place within the quarter.
In addition as Bill mentioned, most of the CapX2020 work on the Brookings and Fargo lines that we anticipated performing over the next few years is not included in our backlog due to the way individual line segments will be awarded over time and how we account for our backlog.
Paul Evans
Our backlog only includes projects that have a signed contract or an agreed upon work order to perform work on mutually accepted terms and conditions. This may be different than how other companies report backlog.
Paul Evans
Moving to the balance sheet, stockholders equity increased to $233 million at June 30, 2012 from $215.7 million at December 31, 2011. On June 30, 2012 we had approximately $24.3 million in cash and cash equivalents and $147.8 million in availability under our 5-year credit facility.
Our cash balance declined $9.7 million from December 31, 2011 primarily due to a $27.3 million increase in our accounts receivable as a result of increased revenue and increased retainages in our large projects and our continued investment in fleet, equipment and tooling.
Paul Evans
The decline was largely offset by an increase in cash and other operating activities. As of June 30, 2012 we had approximately $17.2 million in letters of credit outstanding under the credit facility and $10 million in revolving loans outstanding under the credit facility.
In our first quarter call, we discussed the possibility of a share repurchase program. As Bill mentioned, our Board has now approved a program which becomes effective on August 10, 2012 and will remain in effect for 1 year.
Paul Evans
We may repurchase up to $20 million in shares. Repurchases will be funded using available liquidity.
In conclusion, we believe our strong balance sheet gives us an advantage over many of our competitors to acquire new equipment and tooling, to invest in our workforce, to return additional value to our shareholders through share repurchases, and to consider strategic acquisitions.
Paul Evans
Now, I'll turn the call back to Bill for a discussion on the overall industry.
William Koertner
Thanks, Paul. While our construction management teams continue to work on several large projects in various stages of construction, our estimating teams have been hard at work evaluating and pricing projects throughout the country.
As noted earlier, we see ample opportunities for continued growth in transmission construction of all sizes throughout the U.S. including new lines and upgrades and associated substation work.
William Koertner
We monitor a variety of information sources on transmission spending projections. They all point to a very bright, long-term future for reliable service providers like MYR.
Our large projects group and our regional district offices have been extremely busy these last few months responding to RFIs and RFPs on a number of large discrete transmission projects as well as new alliance type arrangements.
William Koertner
To better focus our efforts, we like to break the overall transmission market down by transmission planning regions. All regions have in common the fact that little money was spent on new transmission and system upgrades for 20 to 30 years.
This has lead to reliability concerns and has prompted increased scrutiny from the North American Electric Reliability Corporation or NERC.
William Koertner
Bottom line, it has resulted in a significant number of new lines and system upgrades across the country. While there are some things in common with all of the planning authorities, there are also differences among them, given regional, economic, political, and regulatory influences.
As we target opportunities across the country, we try to be mindful of these differences because they can affect the sourcing strategies by utilities and developers within these regions. Take the Midwest Independent System Operator, or MISO, for instance.
William Koertner
This region is highly focused on identifying multi-value projects in the region. We believe this bodes well for big transmission operators like Amaron [ph], ATC, ITC, MidAmerican, Duke and Excel [ph] and some others that operate in the region.
William Koertner
We are a major player in the Midwest and view these projects as a great opportunity for us. All of the planning authorities are being impacted by the EPAs, Mercury and Air Toxic Standards, or MATS.
However, no area appears to be more affected than PJM by the new standards. These standards will likely result in substantial power plant retirements around the country by the end of 2015.
As a result of plant closings, we expect increased spending in electric transmission in order to deliver new power resources to the region to support the electric grid.
William Koertner
Since last November, PJM has already approved awards of $2.5 billion in transmission system improvements. The PJM region includes 60 million people in 13 states and the District of Columbia.
The upgrade projects will range from simple equipment replacements to new substations as well as rebuilding of existing transmission lines or the building of new lines to maintain reliable electric supplies.
William Koertner
On a dollar basis, over half of the improvements will be in the state of Ohio. Southern Company, which operates in the [indiscernible] region of the Southeast, it announced in Mid-June that it may need to perform as much as $700 million of transmission work as a result of the new EPA rule.
These are just a couple of examples of the regions where the new EPA rules are likely to drive new transmission investment.
William Koertner
Obviously other regions and utilities across the country will also be affected by the new MATS standards. On other calls we have discussed the drivers of transmission investment in regions governed by other ISOs and RTOs.
We also see these regions as great opportunities for MYR, even though the drivers of the new transmission investment might be a little different versus the factors affecting MISO and PJM.
William Koertner
All of you are undoubtedly familiar with FERC order 1000. Compliance with this new rule is set to be required in October of this year.
This order should help new transmission development move forward across the country and contribute to a robust transmission market from projects of all sizes for several years to come. These opportunities should be available in the competitive transmission market through traditional utilities, independent transmission companies like ITC and ATC, and various partnerships of both as the needs for reliability of our nations' grid become more clearly defined and cost allocations and benefits are clarified.
William Koertner
We will continue to track and monitor announcements by other utilities and planning authorities as they work through assessing the final rule and understanding the implications to generation and transmission upgrade needs. We anticipate that the resolving decision and plans will result in even greater transmission opportunities over the next few years for MYR.
William Koertner
Distribution demand remains steady yet we believe that economic conditions are still causing some of our customers to delay or reallocate their capital spending program. As a result, competition remains strong.
Now I'd like to shift over to our C&I business. As mentioned earlier on this calls, bidding activity has increased in some of our areas.
Nonetheless excess capacity remains within the C&I industry as both large and small contractors pursue the available work.
William Koertner
Although our margins within this segment increased during the second quarter of 2012 compared to last year, they're still below historical levels. Our C&I market focus continues to be on healthcare, government office buildings, research centers, smart highway work, data centers, mining and waste water treatment.
This makes us somewhat susceptible to the slow economic recovery at the national level. As always, we remain focused on creating value for MYR shareholders.
We continue to monitor and make adjustments to our cost structure in an effort to ensure MYR remains one of the lowest cost, highest value providers in the industry.
William Koertner
We believe that our cost structure coupled with our steady focus on our market will position MYR to maximize its potential as - a greater number of T&D, and C&I projects move forward. We believe that our commitment to safety, high quality customer service, and on-time execution will ensure MYR remains a valued partner for utilities and C&I clients.
William Koertner
That's it for now. As always, thank you for your interest and support and now I'd like to turn the session over for your comments and questions.
Operator
[Operator Instructions] Our first question is from Tahira Afzal with KeyBanc Capital.
Tahira Afzal
I guess, my first question is in regards to - really utilization on your electric transmission side. If you could provide some color to the extent you can, on really how you see equipment utilization of [indiscernible] right now.
And as you look through your regions, where the regions are still soft and whether you should to be [ph] uptick in you know probably pick up the most?
William Koertner
Okay, there are really 2 things that are important from a utilization perspective. One would be utilization of the human side of the business, we've got a lot of skilled workers, and in some areas of the country, the labor market is extremely tight for skilled resources, the Texas would be an example of that.
But there are also other areas where the market gets - is really tight. There are few other areas where that's not the case, and they're actually men still on the books which is the term the unions use to identify the people waiting to be called out from the union hall to be assigned work.
William Koertner
So we don't have any statistics or try to quantify that. We just keep track of it and as we bid work we are mindful of it.
Sometimes we have to put extra money in our bid to provide incentives to attract people, and that is a very dynamic situation that we - I think are pretty good at managing, but it's definitely a challenge. On the equipment side, that's the other scare resource.
We've done, I think, a fairly good job of anticipating the demand coming. We've not had to turn down any work because we didn't have the big transmission equipment and tooling to perform the work.
So that's a constant balancing job. Certainly we don't want to have fixed assets and the cost of those fixed assets sitting on our books if we don't have a home for them.
William Koertner
So right now we feel pretty comfortable with where we are as we mentioned on the call. Our utilization of equipment assets has been pretty good the last couple of quarters.
I'll contrast that to maybe the second and third quarter of 2011, where we had acquired fleet assets in anticipation of what we saw coming in 2012 but we couldn't immediately put it to work. We needed to buy this equipment and get it outfitted, so as compared to last year, our fleet utilization is higher.
William Koertner
But we don't report any fleet utilization numbers but it is something that's a monthly balancing job to make sure we've got the right equipment but not too much equipment.
Tahira Afzal
Thank you, Bill. And the second question I had was really in terms of cash allocation.
You know clearly we're seeing some of the -- sort of dividends of your measure bidding activity and - goal execution of flowing through and - we can as a consequence see that - projects you're working on are [indiscernible] bring cash. So as you look forward and you see cash coming in, how would you build yourself and your team like to - just allocate that money going forward?
Tahira Afzal
Is it all going to go -- is the strategy going to continue to be to work - shareholder return on, do you also feel like you need to invest in other aspects of your business and perhaps expand to other verticals.
William Koertner
Well, whatever we do is aimed at shareholder return. So whether that be by equipment and tooling, be that considering acquisition or be that returning capital to shareholders in the form of a stock buyback or a dividend or something like that.
William Koertner
All of our actions are aimed at trying to enhance shareholder value, so as time passes and we assess the market opportunity, we certainly -- our approach has been to focus on internal organic growth. Probably more so than many of the peer companies that we're compared to and we think that's been a good strategy and clearly as evidenced by the revenues we've produced in the last couple of quarters we've had some success at producing organic growth.
So we -- as far as cash going forward, the bogie is always measured in terms of what's in the best interest to shareholders and that could be buying more equipment, tooling. Could be an acquisition or it could be returning cash to shareholders in the form of a buyback or a dividend.
Operator
Our next question is from Jeff Beach with Stifel, Nicolaus.
Jeffrey Beach
First question. I thought a standout in your numbers was the significant decline in your corporate expense and the very small increase in SG&A year-over-year, or sequentially.
Can you talk about where the -- where some of the cost reductions or other measures that you've taken have held down that number to what I think is probably the best I've seen in a couple of years?
William Koertner
Jeff, let me start with that and then maybe Paul will be able to add to it. We told you and others that there is leveraging of our SG&A cost, so as our revenues go up, certainly we expect SG&A to go up but proportionately we expect it not to grow as rapidly, so I think we're seeing some of that.
We are very focused on trying to control overhead cost and you know, that continues even though we're experiencing pretty substantial revenue growth. And Paul, do you have anything more on the SG&A side?
Paul Evans
No, I mean, Jeff, obviously we want to leverage our SG&A and I would think while we have added some headcount, I think we're at a place right now where we can certainly handle the revenues where we're at -- where they are at and probably a further increase in revenues. You know, certainly from my part of the organization I feel pretty good about the headcount that we have.
William Koertner
One other thing, Jeff, I think now we pretty much got ourselves positioned on the Sarbanes-Oxley compliance. We took the company public in '08 and we had to ramp up and do some things to be a public company and comply with all of the rules and regulations.
I think we -- not that we won't have additional expenses in that regard, but I think we've largely got the base put in place to be a public company and that took a couple of years to get that done.
Jeffrey Beach
All right, thank you. And as a follow-up, can you just comment a little more on the weaker revenues and distribution?
I don't think distribution industry wide seems to be maybe as weak. Is this your focus on transmission?
I know you're transferring shifting assets into transmission from distribution. Can you talk a little bit about what's happening there?
William Koertner
Great question, Jeff. As you I know remember back a couple of years ago, we were actually showing growth in distribution business whereas many of our peers where showing a reduction.
At that time, we said we didn't think the market was growing but we were taking some market share away from some competitors.
William Koertner
Well that same thing is happening here. We have chosen not to dive quite as low on trying to retain and build distribution spending as maybe some of our competitors.
It's still a good business, I think still has a great long-term outlook. But we have lost some market share on the distribution side.
Operator
Our next question is from Adam Thalhimer with BB&T Capital Markets.
Adam Thalhimer
I wanted to ask about the large transmission jobs and you said -- which is good, you said you saw nice pick up in small and mid-sized bidding opportunities in Q2 versus Q1. I think, Bill, what would you say the chances are in the next 3 months we come in and see a press release from you guys announcing a $100 million plus transmission job?
William Koertner
It's definitely possible. There are a couple of big jobs that are pending and some that we expect to be bid.
So there are definitely possibilities. As far as a probability, I wouldn't venture to make a probability assignment but it is possible.
Adam Thalhimer
Okay. And then also wanted to ask about your operating margin in T&D.
5.7%, really good performance and I'm just curious what the puts and takes were to get to that number and whether you think that's a sustainable level going forward?
William Koertner
Paul, you want to try to answer that?
Paul Evans
Adam, I think where we're at, I mean it reflects that we're executing on our plan. We've said this for some time we'll do that.
And you're seeing those results now. As I look at it all the way, I start at gross margin and look all the way down to net income.
I think we're in a good place right now. We're sort of hitting our stride on some large jobs.
It is true that smaller and medium-sized jobs are doing quite well, so I think for the near term it probably got a good number.
William Koertner
Just one other thing I'd add, Adam. In the quarter we resolved some outstanding change orders.
We do not recognize change order revenue until they're highly probable of coming to pass. So some of those require months, quarters.
Sometimes they hang out there even for a year. We were able to resolve some of those that had a positive effect on margin as well.
Operator
Our next question is from Craig Irwin with Wedbush Securities.
Craig Irwin
Last quarter you talked about some procurement revenue in the quarter basically where you were buying material for execution on some of your large projects.
Craig Irwin
Can you update us as far as whether or not that was a material contribution to the top line this quarter? And maybe scope it out for us as far as where it's likely to head over the next few quarters?
William Koertner
It definitely did contribute to the second quarter as well as the first quarter. Whether it will be an ongoing thing or not, that certainly depends upon the mix of new contracts we secure.
Some of them have virtually no procurement, some of them have virtually no subcontractor component.
William Koertner
Others have significant material and significant subcontractor. So I'm really not in a position to speculate on what the nature of future awards will look like, but it's definitely a possibility that there will be a material and subcontractor costs in that.
But it really is very dependent on -- very project-specific dependent.
Craig Irwin
Okay. And a lot of construction companies will actually break out for you numerically what their pass-through or procurement revenue contributes to the top line.
Is that something that you might be able to do or can you give us a bit -- an approximate range -- an approximate size with a contribution in the past couple quarters?
William Koertner
We haven't done that in the past, and I don't think we would probably be doing it in the future. And as far as pass-through, we hopefully aren't pass-throughing anything.
Whatever we might have in the way of material that would be under our scope, for a subcontractor, be under our scope. There better be some margin on top of that.
So, we're not in the business of just trading dollars.
Craig Irwin
Okay. But then the margin would be well below the corporate average.
Is that fair?
William Koertner
The margins -- we do not mark those things up as much unless there is some risk that we might be taking where there might be a gap between our contract with our client and our subcontract with the material provider or the subcontractor.
William Koertner
So we do assess the risk and if there is risk inherent in that, we would mark it up higher. But if it's a very generic kind of thing with very limited risk, the markup would not be that great.
Craig Irwin
Great. My next question is about your bookings on the Transmission Distribution side.
Can you share with us the approximate contribution of smaller projects in there and maybe confirm for us whether or not there were any pieces of some of the larger projects, specifically CapX2020 that might have contributed to your 2Q bookings on the T&D side?
William Koertner
Let me start with that and then Paul can jump in. Our primary focus is on generating profits for shareholders, not managing backlog.
And I know we have a different definition of backlog than in many of our peers.
William Koertner
So, managing the backlog and trying to levelize it is not a primary objective. Certainly we need backlog to create revenues, but our focus is on producing results, profits for shareholders.
William Koertner
In terms of these larger projects that would flow through backlog, I think we tried to highlight in our prepared remarks that we do have a small amount of backlog related to these larger projects but it really isn't that significant.
Craig Irwin
Great. And -- sorry, Paul.
Paul Evans
I was just going to add to that, Craig. We just don't look at our book to bill on small, medium and large-sized projects.
We look at it in totality for T&D and then in totality for C&I.
Craig Irwin
Okay. And then CapX2020, was there another segment for that volume in there or another large project potentially contributing?
Paul Evans
In our backlog there's only a small amount for CapX2020 at this time. I'll go back to my prepared remarks.
Given the way that that contract's been broken up into small pieces, we feel pretty good about getting that work that nonetheless additional segments haven't been signed at this time.
Craig Irwin
Then, is it fair to understand that you'll see a shift in the overall contribution from a transmission side towards smaller projects over the next handful of quarters or should we expect larger projects to continue to make up the majority of your transmission revenue over the next several quarters?
William Koertner
Not real positive what to expect there. Maybe just talk about these projects that are driven by these EPA rules.
As we've seen the list of projects that the utilities have that will be affected. There are a whole bunch of small- to mid-size projects, but they're also 3 or 4 mid-sized projects that make that up.
William Koertner
The NERC reliability work, most of that ends up being smaller system upgrade projects. I'm not aware of any big mega-project that might result in an announcement.
Maybe you'd have an announcement on some kind of an alliance arrangement, but I see a good steady mix of small- and medium-sized projects as well as some big projects.
William Koertner
I don't see -- as we've discussed on other calls in the second half of 2010 and the first quarter or first half 2011, there just happened to be a bunch of big project awards announced during that period, and I don't see that as being repeated. It will continue to be our project award as far as concentrated in a 9-month or 12-month period, it's probably not likely.
Craig Irwin
Great. And then last question, if I may.
So it sounds like we're moving on to faster booking burn projects in general and those obviously will have an implication as far as what gets photographed at the end of the quarter for backlog. So there'll be -- would end up being shared with investors really is the backlog number ruling everything up.
Craig Irwin
Can you maybe provide us more of an explanation as far as how and why we might not see these as completely showing up in your backlog, given that they are fairly quick to complete on the smaller side?
William Koertner
I really don't have anything more to elaborate on that. Paul, you have anything that - in your mind?
Paul Evans
Craig, I would sort of go back to my prepared remarks. I mean some of those projects, we'll sign them within the quarter and the work is well underway in that same quarter and it doesn't really extend too much on in to the next quarter.
So that's why we talked about that. So I don't think there's really anything more to add to that.
Operator
Our next question is from Andrew Wittman with Robert W. Baird.
Andrew J. Wittmann
Had a couple of questions here, specifically on -- I'm seeing a little bit about your hit rate on your bidding and proposal activity. How has that been trending just relative to recent history and can you just kind of give us a sense about your success pattern there?
William Koertner
Well, if you look at a short period of time, like a quarter, you might find a very high hit rate or you might get skunk for a quarter. We certainly don't look at it month-by-month or quarter-by-quarter, judge it on the long term.
I think our success rate is pretty consistent with long-term patterns.
William Koertner
Certainly the big projects, there are perhaps fewer competitors there. Maybe our ratio might be a little bit higher than on the small projects where you go to a bid meeting with 10 or 15 other contractors.
But I think our success rate is pretty consistent with what has run in the past.
Andrew J. Wittmann
But specifically in distribution, I just want to make sure this is clear. You mentioned that you're losing some market share, but was that a conscious choice because you're not willing to chase price or has that just been markets that you've been going away from, because you're focusing on other things?
William Koertner
That was a conscious choice. I think we could have retained market share had we really discounted our prices.
Ultimately, we need to generate enough margin on our distribution business to afford to replace the equipment.
William Koertner
And we're not in the charitable business here. We're trying to allocate our capital where we think it does our shareholders the most good.
And in the last couple of years, we just haven't chosen to go quite that low on the margin to try to hold market share on distribution.
William Koertner
I do think the distribution market is a good long-term market and I see us being a big player in it. These distribution alliances typically are bid every 3 years or so.
There are some that bid last year, there are some that are bidding this year.
William Koertner
So as market conditions change, so it returns to something that is more attractive, more consistent with the risk of the business, we would hope to build that back up.
Andrew J. Wittmann
Yes, that makes a lot of sense. I was just -- maybe final question here just if you could kind of go around the horn a little bit on some of your larger projects and specifically the online is always a good one to get an update on and where are we there?
And maybe some of your other larger projects that maybe the -- sort of grudge [ph] work that you're doing or remain?
William Koertner
Sure. Let me start with the online project.
There was a news release put out by NV Energy sometime ago, a month or 6 weeks ago, announcing a delay in that project and I think it indicated that it was likely to be delayed until the end of the year. It also discussed cost increases that could be caused because of the delay as they deal with some of the engineering issues on the towers.
William Koertner
So, our expectation is the project will get ramped back up, but probably not until the end of the year and that is dependent upon the regulators approving the application that is now before them. So it's probably -- I think they're now believing that the project will get completed in 2013, by the end of 2013 and probably not a lot of work with the structures or the wire will take place this year.
William Koertner
We have continued to build roads, deal with environmental issues, to move plants, we've installed foundations, we've installed anchors. So a lot of the activities other than setting the structures and the wire work have continued, but we've done virtually nothing on the structures of the wire.
So that's I guess where I see the Nevada project.
William Koertner
The other projects are all generally on schedule. They all have their unique challenges.
The Texas work has its challenges, the main work has its challenges. The work we're doing in West Virginia, they all have challenges but I think we're doing a fairly good job of keeping up with the schedules on them.
Operator
Our next question is from Alex Rygiel with FBR.
Alexander Rygiel
Bill, could you comment a little bit on what you think your market share is inside the CapX2020 program to-date?
William Koertner
I don't have a percentage. The one 230 line I think is typically referred to as the bid [indiscernible] line.
A competitor performed that work. The 2 projects that are out now are the cargo and the bookings line.
We are doing some work on small segments of those lines. They have by no means all been awarded to us.
William Koertner
We are in discussions with pricing on individual segments, so it's -- this is one much like the key to work where they're divvying it up into 20-mile pieces or 70-mile pieces and we certainly hope to earn our fair share of that work.
William Koertner
It's largely a function of performance. The project called the Lacrosse Project, there's been some -- a lot of preplanning on that, but to my knowledge as far as any awards to any contractor that I'm not aware of if there is anything.
Alexander Rygiel
Can you give us an update on KETA phase 2? Has that started yet?
William Koertner
Yes, the KETA work in Northern Kansas is progressing well. That should all be done by the end of the year.
Alexander Rygiel
And then lastly, is the margin profile of your distribution business today lower than last year?
William Koertner
I don't know that it's any different. Do you have anything on that, Paul?
Paul Evans
I don't think there's anything that would sort of jump out at us to give you an answer one way or the other.
William Koertner
One thing I'm sure is obvious to you, a lot of the contractors including us, as we perform distribution work, you're trying to make a guesstimate as to how much storm work that will lead to. Some contractors are willing to discount the baseline distribution work in order to have distribution crews in distribution equipment ready to run off to some storm.
William Koertner
If I knew with certainty what kind of storms were going to occur between now and the end of the year, that is a huge driver of the margins on distribution work. Certainly in the month of July, I think all of the line contractors picked up some distribution work due to some storms, but I don't believe it's anything out of the ordinary at this point.
Alexander Rygiel
And one last question. Some of your customers breaking up larger transmission jobs into projects that are 20 or 30 miles long.
Are they doing this because of permitting challenges or are they doing this because they're getting a better price from the contractors?
William Koertner
I'd say it's mostly the former. They don't have the right of way secure, they don't have the permits or they don't have the material.
I think that's what's driving it. I don't think anybody that I've heard was strategizing.
If we break it up into smaller pieces, we'll get better prices from the contractors. I don't think that's their motivation.
William Koertner
It's more just not trying to get ahead of themselves because if they make a commitment to a contractor and then have to delay the job because the permits didn't get issued or the materials didn't get issued, they're opening themselves up for change orders and they try to avoid any unnecessary change orders.
Operator
Our next question is from William Bremer with Maxim Group.
William Bremer
Can we go right into pricing? The bookings that you're receiving now versus say the first quarter, are they better in terms of pricing -- pricing the backlog, is it better at this point?
William Koertner
I don't know. We don't look at it that way, William.
Each job we bid, we assess the risk, we look at how well it fits us strategically but we don't have a statistic that says "well, in this quarter our bidding was averaged X percent and this period it averaged Y percent". We don't look at it that way.
We try to assess each individual project, assess the risks of the project, assess how well it fits us and assign what we think is a reasonable margin to it.
William Bremer
All right, okay. Can you give us a sense of how much book in burn you realized this quarter to get a sense of how quickly you guys could turn projects?
I mean, how material was it for the second quarter?
William Koertner
Paul, you want to...
Paul Evans
I don't know if that's a -- Bill, that's a number that we put out to folks. Can you maybe ask in a different way to help us better understand what you're getting at?
William Bremer
How many projects were not in your backlog as of the first quarter that you were able to realize in the second?
Paul Evans
I don't think I have that number available to give to you, Bill.
William Bremer
Okay. Well, maybe you guys could help me out in terms of your substation work during the quarter, how much of that impacted the T&D segment?
William Koertner
We don't break that out. Our substation work has been strong.
We were a significant regional player doing substation work, but we don't break that out. It's pretty consistent with how it's been running in the past.
William Bremer
Okay. The SG&A.
Very, very impressive as well as your corporate expense line. Should we make the assumption that there's been some structural changes with the Company?
We haven't seen it this low for many, many quarters and given the incremental $20 million top line in the second quarter for modeling purposes, how do we look at expenses going forward at this point?
William Koertner
I don't think you should assume there have been any structural changes. We continue to grant raises to employees.
We continue to see higher employee benefit expenses, so we are seeing higher costs. Just we benefit from the fact that we're able to leverage the business, more revenues, more margin on projects we can generate and try to keep a handle on our SG&A costs, but we haven't had layoffs or salary freezes or anything that I think you might consider structural.
William Bremer
And then Bill, to my last question and I appreciate the color. The resolved change orders.
Can you give us a sense of how that affected the second quarter? I mean are we talking about -- can you give us some type of magnitude on that figure?
William Koertner
It's a few million and as we incur the costs in prior quarters for the change order work, we just recognize the costs with no revenue or margin to cover it. And then when we're able to resolve the charge order, then that revenue and that margin comes in.
It's not a huge number, but it is a couple million.
William Bremer
And Paul, where would that be categorized? Where is that placed?
Paul Evans
It flows right into our gross margin. We'll have more top line revenues when we actually get a sign off on a change order.
William Bremer
But it does not affect SG&A?
Paul Evans
Only as a percentage of revenues, it would...
William Bremer
Right. That's what I meant.
So it's all going to affect the SG&A $14.5 million. There's not like a couple million benefit there then?
Paul Evans
No.
Operator
Our next question is from John Rogers from D.A. Davidson.
John Rogers
So Bill, I don't know whether you can distinguish here, but your comments on the market for transmission, you don't imply to upgrade to a -- for reliability purposes. How much of the work out there -- potentially out there is associated with changes and sources or power, gas switching versus alternative energy projects and I'm thinking about some of the delays there as well?
William Koertner
I would say thus far very little. These rules are in place now and all the utilities are -- you're trying to figure out the impact of them.
Certainly, there have been a few coal-fired plants shut down but nowhere as near the number of shutdowns that we expect.
William Koertner
So as they shut down these plants, they need to compensate in some manner because many of those plants were located in load centers and the range of options the utility has is to put a new plant in that same load center and I guess they could put a gas plant there if they had the room and they had available gas supplies or as an alternative, they could spend money on their transmission system to bring in power from further away than what the system is built today.
William Koertner
But I don't think we've seen much of that occur already. I think a lot of that is coming and certainly there is the possibility that some of these standards could get delayed, and -- I don't know the impact of the election this fall, but I suppose that could have an impact too.
But it isn't just the standard with what's happened in natural gas prices. The gas plants are now very economical as base load generation.
John Rogers
Okay. And thanks for the color.
Just as a follow-up, given the strength in the market activity and not only for you and others, but are there any equipment issues or specialty skill shortages, I mean besides the electricians that are out there?
William Koertner
You can never have enough good equipment operators. We -- I think have some really good ones in our Company and this equipment is very sophisticated and so that would be a skill set in addition to the folks that do the line work.
So those -- that's kind of on the field level. We're also always looking at good estimators, good job costs, accountants, good schedulers kind of managing the contractual issues that are increasingly important because the nature of our customer is more sophisticated than what it would have been 10 or 15 years ago where you don't have program managers.
A lot of the jobs today have program managers that require a higher sophistication to feed them all the information that they need.
Operator
Our next question is from Jeff Beach with Stifel, Nicolaus.
Jeffrey Beach
Yes, as a follow-up, do you have capacity or are you pursuing work in Canada?
William Koertner
We have not pursued any work to-date. That is something that we look at and we have been looking at it for a year or more.
But right now, we are not bidding work in Canada.
Operator
Thank you. I'm showing no further questions at this time.
I would now like to turn the conference back over to MYR Group for closing remarks.
William Koertner
I appreciate everybody being on the call. We're definitely excited about the opportunities for our industry and think we're in a great position to capitalize on them.
I'd be remiss if I didn't thank our management team and our employees. Obviously, they're the ones that are producing the results that Paul and I get to report on and they've been working very hard and long hours, under some very difficult conditions.
William Koertner
I'd also like to thank our shareholders and the sell-side analysts that have followed the Company. You're very important to us.
Obviously, this business requires a lot of capital and you've been Johnny on the Spot to provide us the capital and we definitely appreciate that. So with that, I'll close the call and look forward to talking to everybody next quarter.
Operator
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.