MYR Group Inc. (MYRG) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the MYR Group’s Second Quarter 2017 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] And as a reminder, this conference may be recorded. I would now like to introduce Ms. Kristine Walczak of Dresner Corporate Services. Ma'am, you may begin.

Thank you, and good morning, everyone. I would like to welcome you to the MYR Group conference call to discuss the company's second quarter results for 2017, which were reported yesterday. Joining us on today's call are Rick Swartz, President and Chief Executive Officer; Betty Johnson, Senior Vice President and Chief Financial Officer and Treasurer; Tod Cooper, Senior Vice President and Chief Operating Officer of MYR Group’s Transmission and Distribution Segment; and Jeff Waneka, Senior Vice President and Chief Operating Officer of MYR Group’s Commercial and Industrial Segment. 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 go to the Company's website where a copy is available under the Investor Relations tab. Also, a replay of today's call will be available until Thursday, August 10, 11:59 PM Eastern Time by dialing 855-859-2056 or 404-537-3406 and entering conference ID 42428877. Before we begin, I want to remind you this discussion may contain forward-looking statements. Any such statements are based upon information available to MYR management as of this date and MYR assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2016, the company's quarterly report on Form 10-Q for the second quarter 2017 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 Rick Swartz.

Thanks, Kristine. Good morning, everyone. Welcome to our second quarter 2017 conference call to discuss financial and operational results. I will begin by providing a brief summary of the second quarter results and then turn the call over to Betty Johnson, our Chief Financial Officer, for a more detailed financial review. Following Betty’s discussion, Tod Cooper and Jeff Waneka, Chief Operating Officers for our T&D and C&I segments, will provide an industry outlook and discuss some of MYR Group’s opportunities going forward. I will then conclude with some closing remarks and open the call up for your comments and questions. Second quarter 2017 revenues came in strong at $356.2 million. However, our gross margins were down largely due to write-downs on three projects. Two projects in the Midwest were significantly impacted by weather, resulting in an unbudgeted cost associated with right-away access, lower productivity and increased road damage and repair requirements. As a result, we wrote down approximately $2.8 million for these two projects in the second quarter. One T&D project in Canada experienced cost impacts mainly associated with project delays and schedule extensions. Although we are working diligently with our client to recover these costs, we have not yet recognized all of the revenue relating to various pending project claims and change orders. This resulted in a write-down of approximately $2.6 million for this project in the second quarter. Margins were also impacted by costs associated with acquisitions and opening new offices to grow the depth and breadth of our resources and with those investments comes from integration, utilization and operational challenges. While our financial results may not demonstrate the benefits from these new operations until late 2017, we believe they will strengthen our position and enable us to successfully execute any type or size of project, compete effectively against traditional and new competitors, and most importantly, serve the needs of our clients. We anticipate gaining momentum on the back half of 2017 due to a healthy backlog, a steady bidding climate in both our T&D and C&I market segments and a variety viable project opportunities in new and existing markets. Recognizing that our priority is to make sure that growth is profitable for our shareholders, we remain focused on strong project execution and approach in all our bidding and operational activity. Looking ahead, the market looks like it will remain strong throughout this year and into next, and we believe we are well positioned in this competitive market to win our share of anticipated opportunity in both our market segments. Industry activity and trends and continue to point historical investments in electrical infrastructure, which still supports the ongoing execution of our three-pronged strategy of prudent capital allocation for acquisitions, organic growth and return of capital to stockholders. Our commitments to developing skilled teams, working safely, expanding our client base and maintaining our solid financial position should continue to lay the foundation for future growth, allowing us to deliver strong returns to our stockholders. Our foundation is solid, our team is strong and we believe MYR is in an excellent position for the coming years. Now Betty will provide details on our financial results for the second quarter of 2017.

Thank you, Rick, and good morning, everybody. And I start by apologizing for my raspy voice this morning. Our second quarter 2017 revenues were $356.2 million, which represents an increase of 36% compared to the same period of last year. The increase was primarily due to higher revenues from large transmission projects, an increase in distribution projects and higher C&I revenues due to increased spending from existing customers and the WPE acquisition in late 2016. T&D revenues were $239.8 million, an increase of 34.2% compared to the same period last year. The breakdown of T&D revenues was $170.9 million for transmission and $68.9 million for distribution. C&I revenues were a record high for the third consecutive quarter at $116.4 million, an increase of $33.1 million or 39.7% compared the same period last year. Our overall gross profit was $27.5 million compared to $31.4 million in the second quarter of 2016. The decrease in gross profit was primarily due to lower overall gross margin partially offset by higher revenues. Our gross margin was 7.7% in the second quarter of 2017 compared to 12% in the same period of last year. As we’ve previously discussed, the decrease in gross margin was largely due to write-downs on three projects during the quarter and cost associated with organic and acquisition growth. Margins were negatively impacted by contingent consideration related to margin guarantees from an acquisition agreement, $900,000 that is classified as other income. In addition margins were also negatively impacted from high volume from a large transmission project that carries lower-than-average margins due to the high mix of material subcontractor costs. Changes in our estimates of gross profit and certain projects resulted in a gross margin decrease of 210 basis points in the second quarter of 2017 compared to an increase of 10 basis points for the second quarter of 2016. SG&A expenses were $25 million, a $2.5 million increase from the previous year. This was primarily due to $2.8 million of cost associated with our expansion into new geographic markets and higher payroll cost to support operations, partially offset by lower bonus and profit sharing costs. SG&A as a percentage of revenue decreased to 7% for the second quarter of 2017 from 8.6% for the second quarter of 2016. We had an income tax provision of $2.5 million in the second quarter of 2017 compared to an income tax provision of $3.3 million in the same quarter of 2016. The effective tax rate in the second quarter of 2017 represented 67.3% of pretax income compared to an effective tax rate of 37.8% in the second quarter of 2016. The increase in the effective tax rate for the second quarter of 2017 was primarily caused by our inability to utilize losses experienced in certain Canadian operations. Net income was $1.2 million or $0.07 per diluted share compared to $5.5 million or $0.31 per diluted share in the second quarter of 2016. Turning to the June 2017 balance sheet. We had approximately $10 million in cash and cash equivalents, $44.9 million of funded debt and $181.4 million in availability under our credit facility. Our Board of Directors recently approved a new $20 million share repurchase program that will begin when the current share repurchase program expires. The new program will expire on August 15, 2018, but when authorized fund are exhausted. Although we had a challenging first half of 2017, we believe that the fundamental business and markets we participate in are strong to support improved profitability going forward. We believe our capital and borrowing capacity going forward will support our working capital needs, planning requirements, equipment investments and future growth. So now I’ll turn the call over to Tod and Jeff, who will provide an overall industry outlook in a view of MYR Group’s opportunities. Tod?

Thanks, Betty, and thanks to everyone for joining us this morning. Although we had three projects that negatively affected our financial results for the first half of 2017, we remain confident we are headed in the right direction for continued growth and success. Let me tell you why. Our bidding activity for all types of work, including small to medium-size projects, EPC projects and large transmission projects, has picked us substantially during late Q2 and early Q3, and we believe our experienced investor resources puts us in a favorable position to win our share of these projects. We are committed to our strategy and believe our efforts will position us to capitalize on this healthy T&D market for years to come. I’d like to spend a few movements now to tell you about the current transmission market. As I just stated, we are participating in a very active bidding environment for projects of all types and sizes. We have experienced an increase in EPC opportunities, which we expect to continue. To better serve ourselves for capturing more EPC work, we have strengthened our relationships through several meetings and strategy sessions with our industry partners. We have also enhanced our project management capabilities through experienced new hires and education and training, which has received positive feedback from our customers. A number of our T&D operating groups are engaged in pre-proposal discussions with developers and utilities for projects of various sizes. Our experience, improving track record of executing projects enables us to provide construction expertise to developers and utilities prior to the RFB phase, which assist them in bringing projects to market. Early contractor involvement during project planning and engineering helped streamline project execution and typically resolves in a more successful project for all parties. By highlighting our value-add capabilities and sound knowledge base of project conditions, we position ourselves well when it comes time to compete on these opportunities. On the utility side of the business, we saw several notable announcements during the second quarter, evidence that our utility clients and prospects are continuing to invest heavily in their power grid assets. SNL Energy survey 25 utilities about their plants for capital investments in the near term and found that most plan to increase their capital spend focusing on strengthening critical energy infrastructure. The majority of these utilities that were part of the survey are MYR clients. Dominion Resources announced investments totaling $800 million for projects of all sizes in 2017, including several 500kV transmission segments and are replacing smaller lines throughout their system. While some planned projects are completed or under construction, we anticipate ample opportunity for the remainder of this year. MYR Group has extensive experience performing projects for Dominion over the past several years, including over 300 miles of 500kV transmission lines. Duke Energy announced their Power/Forward Carolinas initiatives, which calls for $13 billion in investments over the next 10 years for critical underground transmission lines, further integration of new grid technologies, installation of advanced smart metering, protection against physical and cyber attacks, and the continued integration of renewable energy resources. CenterPoint Energy in Houston announced that they have sorted endorsement by Texas regulators for the Freeport area Master Plan project, which consist of substation enhancements and the construction of the new 345kV transmission line. The project with an estimated cost of approximately $247 million will enhance reliability for the Gulf Coast region and deliver new generation to better serve the increase in industrial users in the area. We look forward to presenting this exciting opportunity. Oncor Electric Delivery Company, one of MYR's newest clients, announced [indiscernible] Texas project, which is a joint venture with American Electric Power, another long term MYR client. This 345kV 100 mile project in West Texas will help us regional grid stability and reliability. The project is expected to start construction in the next two years with the cost of approximately $336 million. We've also been encouraged in the second quarter by planning permitting progress for several several multi-state large projects. Some of which have entered the RFP stage. As these large opportunities become a reality, we know that we are in a strong position to cash our fair share of the work. Turning to the distribution market. Our crews continue to work through long-term contracts with multiple utilizes. The overall distribution market continues to rebound, driven by ongoing improvements in housing market, the need to integrate new technology on the distribution system and the need to strengthen their grid during major storm occurrences. We are happy to report that in the second quarter we were notified that our longstanding distribution alliance agreement with Xcel Energy in Colorado would be approved for an additional three-year term. This demonstrates the confidence that they have in our company and crews to provide continued quality service to their distribution system. Our distribution operation for Oncor Electric in Texas is gaining momentum. In order to better serve the overall Texas market , we recently opened a new office and fleet facility located outside of Alvarado, Texas, which demonstrates our commitment serving this rapidly growing part of the country. On a final note, we will continue to focus on strengthening and growing our client relationships to ensure we remain the contractor choice that is best suited to meet their current and future project needs. We will explore in new markets and service offerings through acquisitions and organic growth initiatives, and we will remain disciplined as we carefully assess the competitive landscape and the needs of broad clients in order to capitalize on the right opportunities to grow our business. We continue to invest in our people, equipment and safety programs so that MYR maintains its position as one of the country's leading specialty electrical contractors. Thanks again for your time today. I will now turn the call over to Jeff Waneka, who will provide an overview and outlook of our Commercial and Industrial segment.

Thank you, Tod, and good morning, everyone. My addition for MYR, C&I segment is to continue to leverage technology while collaborating risk and reward in order to put us in a favorable position on some of the most advanced projects across the country. Our tight relationships are bringing high-quality opportunities and are focused on high-tech puts us in a strong position to continue expanding operations. Let me give you a few examples. First, let’s start with an update on the aerospace industry. As the Internet of Things continues its rapid expansion, the demand for satellite communications grows ever greater. After more than a year of design collaboration with an international aerospace company, we were awarded a large contract to build a highly complex manufacturing and testing facility. We’ve mobilized the site and are now providing designing assistance on other potential projects. Moving to air travel. As security needs increases and Internet-base ticketing takes hold, airports are faced with the need to reconfigure major portions of their facilities. MYR C&I Group is in negotiations at Denver International Airport on a multi-million dollar project, which starts to recollection of much of their infrastructure to allow changes in how passengers flow through the airport. We understand that international airports in other target markets will soon be undergoing similar infrastructure changes, and we believe that our high-tech experience will create an advantage for these future opportunities. Moving to healthcare. Hospital providers are now merging both physically by coming together in combined space and through technology to better serve a broader clientele. Later this year, C&I will be completing Phase 1 Denver Health initiative to combine services with University of Arizona in a new $400 million building. Phase 2 of this project will be awarded later this year and this project will continue throughout 2018. Understanding the complexities of commingled communication systems and clients into a single integrated facility gives us a distinct advantage on similar future endeavors. A prime example is the new children’s hospital plan for Broomfield, Colorado. Since the initial award of this project, its value has grown as children’s hospital creates additional space in their facility for other healthcare providers. This will be our fourth sizeable project for this client, which puts us, again, shoulder-to-shoulder with their experts, providing long-term solutions and increasing our value with them. Moving to transportation. Our groundbreaking US 36 project between Denver and Boulder, Colorado, where our crews installed millions of dollars of high-tech equipment, fiber optics and signage allows the department of transportation to streamline traffic flow and take steps intended to reduce major accidents and fatalities. This project has resulted in calls from around the country to assist on similar projects. As mentioned in our prior call, we are now on exclusive teams pursuing similar large projects in multiple states. Moving to data centers. Nearly every division of C&I has data center work in progress, which is one of our strongest markets. We are also tracking many new desirable projects. For instance, we’re working for our largest data center client in multiple states, and there is a steady stream of upgrades in the planning stage. What’s even more exciting is that every data center build leads to years of ongoing maintenance and upgrades. These are mission-critical facilities and loyalty to their expert builders is very strong. In addition to the relationships established with data center owners, we are establishing strong relationships with some of the country's largest general contractors that focused primarily on building mission-critical facilities. When these types of projects are planned in our target markets, we're first on their list to help them budget a project and bring the project to life. Finally, we've opened a new division in our California region focused on the renewable energy market. This development occurred when we hired a team of industry veterans with renewable experience. MYR now has the ability to furnish all aspects of our renewable plan, from the panel to the transmission tie. We're also very excited about their experience in the battery storage industry, which has the potential to truly change the industry. I believe our opportunities to expand services in this market are abundant. So to conclude, I've shared my vision of how MYR will continue leveraging trusting relationships, combined with advances in technology that puts us in a favorable position for many exciting projects. Thanks for your interest in our company, and I'll turn it back to Rick for a closing segment.

Thank you for those updates, Tod and Jeff. Overall, as we reflect on our performance for the second quarter, we will focus on operational improvements in the second half as we continue to grow our business. We consider ourselves fortunate to work in this very robust and evolving industry. While uncertainty of project timing in a highly competitive landscape will continue to post challenges, we believe we are in a strong position to capitalize on future opportunities we expect from this healthy market environment. We are committed to what we believe as a sound and well executed business model to help us achieve our goals and deliver long-term value, and we'll continue to make strategic decisions that make our company safer and stronger. We do acknowledge that future success is never guarantee. Only consistently strong leadership and dedicated employees over a long period of time can ensure long-term success in any business. That's what we have at MYR. On behalf of Betty, Tod, Jeff and myself, I sincerely thank you for joining us on the call today and for your ongoing confidence in MYR Group. I look forward to updating you on our progress next quarter. Operator, we're now ready to open the call up for comments and questions.

Thank you. [Operator Instructions] And our first question will come from the line of Alex Rygiel with FBR Capital. Your line is now open.

You talked a little bit about the new market opportunities in the second half of 2017. Can you be a little bit more specific on that? Is that the new division in California you're referencing?

It's that and it's a few of the organic areas that we opened last year that continue to have developments and have more securing work in those areas and we're starting to see the backlog grow in most of the organic areas we've opened.

Excellent. And then as it relates to the three projects that impacted the second quarter, is there any carryover effect in terms of third quarter from these projects?

I'll let Tod take that and then I'll to it.

Yes, as far as the two projects in the Midwest, construction on both of those projects is complete and they both have been turned over to the client. On one project, we have a few remaining landowner settlements and three townships that we had to close out went repair with. We've engaged a landowner consultant on that project and we feel that we have readequate reserves in place to finish those two projects in the Midwest now. As far as the Canada project, that job will be substantially completed at the end of September. Just a little more history on that is that the project, it’s primarily a labor-and-equipment project and is encountered several delays beyond our control throughout the course of the project, and we continued to discuss the pending claims and change orders with our client, and we’re prepared to take those to the next level if we cannot settle with the client. Rick, do you have anything?

No, I think that covered it, Tod

And then lastly, on the topic of EPC opportunities, it sounds like we might be going through kind of a mix shift here towards greater revenue contribution from EPC projects, can you talk about that impact on your margins more broadly and your impact on your margins in the current quarter?

We continue to see that developing. As we said in our script, as others are saying in the marketplace, it is more prevalent on the T&D side than it was, let’s say, two, three years ago. On our C&I side, that’s been a big component of our business all along. So it’s something we do. So we have the expertise there that we brought over to the line of sight as far as the procurement side and the engineering side on securing those and making sure that we have those covered. But as an overall fact, we’re able to still secure a good margin on our labor and equipment. But the pass-through, when I say pass through it does come with a mark-up on the material and the subcontract. An component is usually at a lower rate. So you do see it a little pressure there, but it depends on the contract.

Very helpful. Thank you very much.

Thank you. And the next question will come from the line of Tahira Afzal with KeyBanc Capital Markets. Your line is now open.

Hi, Folks.

Good morning, Tahira.

So I guess, as I look at how your margins and T&D ramp that up to [Indiscernible], more for gradual sort of backend-loaded ramp as you finish off and think about some of these projects. And does that mean that by the fourth quarter we should be back to normalized margins over there?

Hope so. I mean, when I look at our overall backlog, the margins in there remain consistent as I said last quarter. That hasn’t changed. We’re not seeing a dip in on backlog margins. We do this year have – well, this year, we have a large project in Texas that we’ve discussed in the past that does have a lot of pass-through costs as far as subcontractor and material component in it, and that goes into the second quarter of next year. So we do see a little pressure there on the margins, but it’s not enough to really move the needle much, just because of the size of that EPC component of that project.

Got it. Okay. And [Indiscernible] C&I side, the margins over there have been more or so pumping along bottom of your range ex charges, so do we see some steep investments standing off at some point and align for more of a margin expansion over there?

We’re only driving for margin expansions where we can get it. So I think we look at it. We strive for that. It’s just some of the factors is but some times can fall you back a little from that and we try to address that every quarter.

And the C&I margins, you should manually just for those contingent considerations that are in other income. That impacts the C&I margins. It doesn't impact our pretax income but at the classification on the financial statement, so they're a little bit stronger than happy income that's shown in the segment.

It takes a little while for organic offices to kind of mature and get into a good run rate, and we've now been in some of these markets that we opened up: building resources and building relationships, and we're now seeing the kind of traditional projects that we've received in, in our existing legacy markets. So we do believe that those margins will improve in those organic areas.

Got it. Okay. So, just as a quick follow-up to that, given you expect hopefully some margin directional improvement there, and I think bounced bank on the T&D side, it seems the revenue side in prospects are going well. So should we be in a position in 2018 where your margins can overall aggregate gross margins can bounce back into that 11% last shown? Or is it tough to call right now?

I would say that's our goal. We see some movement on the T&D side as far as future bids and potential margins going up, when you look at some of the large projects that are finally going to come to market. On the C&I side, that components are little bit different. The cost entrée, so much lower for our competitors to come into that to expand though there may be a saturation in a given area, you still see margin pressures to some degree. So you don't see that increased side, but what -- what Jeff and his team are doing are being very selective on the projects that are rolling. Is on two sides, one is long-term rode with the client. How long will that sustain in chasing those clients and not just chasing the highest margin work, but that balance between the two.

Thank you. And the next question comes from the line of Andrew Wittmann with Robert W. Baird. Your line is now open.

I just wanted to dig in and make sure I understand some of the charges in a little bit more detail before stepping back and ask some more strategic questions. But is it right to assume that the $2.6 million in Canada is entirely not tax-deductible, and therefore, on a EPS basis, it was about a $0.16 hit to your EPS for the quarter?

It's correct that it's not tax-deductible. So for that specific job, I don't have the exact dollar amount, but it would take the entire amount of the $2.6 million.

So if you do that and then maybe last jobs for 2.8 million, that's $0.11, that’s $0.27 right there. The quarter -- I mean, you can't have it back, but you can make a pathway that underlying margin performance, ex the charges, was kind of in line with what folks were expecting in and that's seems to match the commentary that you were asking about; I wanted to also ask on the in the -- 10-Q you mentioned that there's $1.2 million of other adjustments which also occurred in the quarter, I guess my question around those is in which segments did those other adjustments, process adjustments hit and what's the status of those jobs? Are they complete, how much backlog is left with the those?

The majority -- probably of the non-T&D, the item that is called out for the -- at $900,000, that’s sitting in other income, of that income for C&I they have incomes for C&I is impacted by that $900,000. The others would be in T&D and that's a very -- isn’t much smaller in impact because $900,000 is the one job?

Yeah, so a very little on the remaining revenue on those projects, very little of that prove down that -- $300,000, she is talking about.

Got it. Got it. Okay, that makes sense. How much longer does the margin guarantee stay in place? And this is the second quarter I think relatively we had this recognition by costs?

It should be -- I mean it depends some projects may get pushed down a little bit, so we work on that. It could stay in place for as long as six months or so. So we are working through that if that projects finish up and we can get a final cost to complete final estimate the both parties agree on.

Great. And then just you guys kind of mentioned in your comments about an uptick in bidding in late 2Q and here early 3Q. I guess my question is when do you expect to receive notification on the awards of those projects you also expect those relatively short order, where they larger projects and may take some time to find their way through selection?

I’ll start, and I’ll turn it over to Tod and Jeff to give a little more color on it. Projects are all different sizes. So we have some projects that clients are ready to go. They are ready to start if one of those where we move our site our people on within weeks. And then we’ve got other projects that you receive a large project award it maybe six month before you mobilizing on that. Tod and Jeff, you guys can talk a little more specific.

We have a mix of constructions that are only contracts as well, labor and equipment contracts bidder, bidding but our large projects on the T&D side right now. So I’m we are working on several others and it is a mix of those projects that we’ll start here in the third quarter as well as need some additional permitting to get started in 2018. EPC from an we do have some projects, should hit in the fourth quarter, but the majority of those are 2018 and longer.

Great.

C&I, we have been in pre-construction phase on multiple projects and all across the Western United States we have every reason to those who could become projects in the third quarter, fourth quarter that the full value of those awards will come through.

Thank you. Your next question comes from the line of Noelle Dilts with Stifel. Your line is now open.

Hi, thanks. Good morning.

Good morning, Noelle.

So first just a housekeeping question, and on the Midwest projects, I know the Canadian project you talked about there’ve some opportunity for recovery, but on the Midwestern projects didn’t come that way been that way. So is this weather impact just sort of the normal weather impact that you have there in contract.

Yeah, it is on these two projects, these are long-term clients, and we’ve done work fork, work for today work we over work for over the past decade with these customers. So these are really call one-off weather occurrences that we had, we didn’t bid this project any different than we had in the past or we would put the projects in the future. The weather was a huge. And to give you an idea, I think we had approximately 50 days of rain in this last quarter on one project as we attempted to finish it up. And if I look at these two projects overall, Noelle, and I look kind of the net effect of the two projects, substantial amount of revenue that are involved with these projects over the last year and a half, and if I look at the net effect of margin, it's about a 1% loss overall. So it's not like we lost millions and millions on these projects, it's that they were doing extremely well for us. And we were projecting them -- weather towards the end of the project that last six months really, and especially end of this quarter, kind of put the brakes to the whole project and made us incur that additional cost.

It also looks like there was a pretty significant shift in terms of the fixed price work you're doing in T&D declining in the quarter. Could you help us understand what was going on there?

Yes, it's -- I've always said that it's all the projects that come in and what you happen to have in backlog at that time, and then one of the projects that we have is a large Texas project that we talked about in the script also about the lower revenue on pass-through costs -- lower markup on pass-through costs, so that affects us in our backlog. But any quarter it varies based on the type of work we've got. And when it comes to fixed cost or unit price or anything that goes with that, we don't really have a preference. We'll do any type of work. We try to adapt to what our customer wants and then make sure the contract fits us, and we cover as many of those risks as we can.

And then just given the absence of a quorum, FERC, how are you thinking about the potential impact from that on the industry and your business, if we don't see resolution relatively soon?

It's really going to probably effective on some of the larger projects and most of those projects. That's not the only component holding them up. I mean they're still going. They're trying to do parallel, the FERC, the permitting approval, ye, the right-of-way acquisition, all that stuff goes hand-in-hand. I don't see it currently as an impact. It doesn't mean if they don't move and get a quorum set up in there, then so they can move these projects forward that it won't be in the future, but they got many other components still work through on many of these projects.

And then last question from me. It looks like there's actually kind of an interesting buildup of backlog for wind and solar projects given the tax credit expiring and interest rates starting to step down in 2020, are you expecting any sort of rebound in renewable project activity as we move into '18 and how are you thinking about the associated transmission opportunity?

Well I think it's -- for us it's more than just the transmission opportunity it's also the C&I component that Jeff talked about with the group that he's brought in, in California. We see it -- right now as we've got a pretty good business model put together, we see it as an opportunity for our company to potentially capitalize on. So we see it both in our T&D side and our C&I side has a position growth factor.

Thank you. And the next question will come from the line of Bobby Burleson with Canaccord. Your line is now open.

Just wanted to touch upon -- so several of my questions have been answered, just wanted to touch upon kind of what regions or the countries do you think are going to be the strongest? Or are you seeing the most opportunity in the next couple of quarters for broader space kind of public-type work?

I'll turn it over to Tod and Jeff.

I think on the T&D side, where the work has generally over the past few years kind of moved from area to area, we're starting to see it kind of expand nationwide. We’re really excited about some of the larger opportunities from an RFP and RFI standpoint that are out there in the West. We’ve been waiting this for quite some time, and along the East Coast and the Mid-Atlantic states, where we’re seeing a pickup there, but the Midwest remains consistent and strong. So I think today we see it a more spread out and consistent than we’ve seen in the past few years for opportunity.

And when would you expect kind of a ramping in these opportunities? Would it be going in next year or even beyond that?

I think, in the West, with some of these large projects, it would be beyond 2017.

We’re currently doing pricing on some projects and working on RFPs that are out -- I mean, some of the construction phase is ‘19, ‘20 as far as that, some are ‘18. So we’re seeing a variance. In the past, you were probably bidding – if I take on back a couple of years, we were bidding projects that would be completed in the next 24 months or seeing some that don’t – some that starts sooner than that, but some that start of the projects are until then, but people are actually planning that far in advance in capturing their teams now. Jeff, you got anything on C&I side?

Well, we’re very excited about our traditional, our legacy units, very strong markets. And the exciting part is where we’ve chosen to go open offices, we’re seeing similar activity. So it still I think really moved into the right markets along the West Coast and Las Vegas, and those areas are really picking up right now.

Great. Thank you, guys, very much.

Thank you. And your next question comes from the line of Jon Braatz with Kansas City Capital. Your line is now open.

Good morning, Rick, Betty. A question about the new organic offices that you’ve opened in the past year and a half, 2 years. Number one, have you – are you thinking about opening any additional offices? And then sort of in aggregate, can you give us an idea of what these offices -- what the drag on margins these offices are having and when you might expect them to -- these offices in aggregate again to reach sort of maturity?

Okay. I’ll start with that, and then I’ll let Jeff or Tod or Betty add to it. As we go through, in organic growth areas, we look at them every quarter and every month. I said last quarter we are going to focus on the ones we have established already and not really search to open new ones within the next year, but if the right opportunity comes, if a client wants to take us somewhere, if it makes business sense and our people can put together business plan that passes, I would say senior management and our board, and it can profitable, we’re not going to say no to it necessarily, but our focus is to make the ones we have profitable. And when I look at the drag of them, net of all the organic growth areas, my goal is to have that hopefully cost of all those – the overhead cost covered this year by the work they’re doing. Some if you look at them as a net operation of all the organic growth areas is to have that overhead cost covered with our backlog, with the work that burning off and then to have enough backlog to sustain them and have them profitable as an overall operation next year.

Okay. Thank you.

Thank you. This concludes today’s question-and-answer session. I would now like to turn the call back over to Mr. Rick Swartz for closing remarks.

Thank you, everyone, for participating on today's call. I feel privileged to work for this great company with such talented people. The way we work together to address challenges while growing our business and supporting our clients is a source of pride and confidence as we pursue new opportunities long into the future. I don't have anything further. We look forward to working with you going forward and speaking with you again on our next conference call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone, have a great day.