Good day, ladies and gentlemen. And welcome to the MYR Group Fourth Quarter 2018 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 be given at that time [Operator Instructions]. As a reminder this conference call is being recorded. I would like to introduce your host for today's conference, Mr. Steve Carr of Dresner Corporate Services. Please go ahead.

Thank you, Christie, and good morning everyone. I'd like to welcome you to the MYR Group Conference Call to discuss the company's fourth quarter and full year results for 2018. 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 www.myrgroup.com, where a copy is available under the Investor Relations tab. Also, a replay of today's call will be available until Thursday, March 14, 2019 at 11:59 p.m. Eastern time by dialing 855-859-2056 or 404-537-3406 and entering conference ID 7488347. 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 Group management as of this date, and MYR Group 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, 2018, 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.

Good morning, everyone. Welcome to our fourth quarter and full year 2018 conference call to discuss financial and operational results. I'll begin our call today by providing a summary of our fourth quarter and full year results and then turn the call over to Betty Johnson our Chief Financial Officer for a more detailed financial review. Following Betty's discussion Todd Copper and Jeff Waneka our Chief Operating Officers for our T&B and C&I segments will provide industry outlook and discuss some of our MYR Group's opportunities going forward. I will then conclude with some closing remarks and open the call up for your comments and questions. Fourth quarter 2018 revenues of $446.3 million marked the record high for MYR. We also achieved record revenues for the full year of 2018 of $1.53 billion as well as an increases in gross profit earnings per share, net income and EBITDA as compared to our full year 2017. Our record backlog of $1.1 billion at the end of 2018 reflects the diverse project pipeline of an activity throughout the U.S. and western Canada. It also demonstrates that our efforts to grow our business and better meet the needs of our customers are generating opportunities and project awards in every region we serve. In addition to organic and acquisition growth initiatives that expanded our geographic footprint and broadened our range of services, we focused on key operational objectives in 2018 to not only make us bigger but better. We further enhanced our training programs to ensure employees have a wider array of professional development courses to expand their technical expertise and leadership potential. Our various subsidiaries now have new opportunities to share resources, combine best practices, broaden our service offerings and deliver greater value to our clients. Our T&D segment continued to bid and…

Thank you, Rick, and good morning, everyone. On today's call, I will be reviewing our quarter-over-quarter results for fourth quarter 2018 as compared to fourth quarter 2017. Our fourth quarter 2018 revenues were $446.3 million, a record high. This represents an increase of $72.8 million or 19.5% compared to the same period last year. Both our T&D and C&I segments experienced record high revenues this quarter. T&D revenues were $257.2 million, up 12.9% compared to the same period last year. The breakdown of T&D revenues was $181.7 million for transmission and $75.5 million for distribution. C&I revenues were $189.1 million, an increase of 29.8% compared to the same period last year. The C&I segment includes increased revenues related to the recent acquisition of Huen Companies, increased spending from new and existing customers and increased volume at certain organic expansion locations. Our gross margin was 10.6% for the fourth quarter of 2018 compared to 9.9% for the same period last year, which was primarily due to improvements in efficiency and organic expansion results. The increase in gross margin was also favorably impacted by $1.6 million of estimate changes on certain contracts associated with the acquisition of Huen Companies. These changes of estimates are subject to margin guarantees under our purchase agreement and represent potential contingent consideration for which an offset is recognized in other expenses. SG&A expense was $30.1 million, an increase of $6.1 million compared to the same period last year. This increase was primarily due to SG&A expenses related to the acquired Huen Companies, higher employee-related expenses to support operations and higher bonus costs. SG&A as a percentage of revenues were 6.7% for the quarter as a result of leveraging our higher volume of revenues. Other expense was $1.6 million for the fourth quarter of 2018, primarily attributed to…

Thanks, Betty, and good morning, everyone. Throughout 2018, our project portfolio reflected a balanced mix of T&D opportunities of all types and sizes. Bidding and project activity represented a unique and varied mix of projects. In addition to our traditional transmission and distribution work, we performed work in the T&D sector that included wind and solar interconnections, several large transmission line river crossings, physical security barriers for critical infrastructure substations and we began the onshore portion of interconnect work associated with an offshore wind project. All of this demonstrates our ability to provide an array of services throughout our footprint. Some notable project awards in 2018 included the Rochester area reliability project in New York, which is just getting under way and consist of new 115kV and 345kV transmission lines and structure relocations for Rochester Gas & Electric; the Silver Run 230kV transmission line and substation project for LS Power, which is a series of grid updates in Delaware and Southern New Jersey; and the Surry-Skiffes Creek 500kV transmission line for Dominion, which spans across the James River in Virginia. In late 2018, we were awarded the Duff-Coleman 345kV transmission line in Kentucky and Indiana for Republic Transmission. The project was won through a competitive transmission process for the Midwest Independent System Operator or MISO. We also started work in late 2018 on the 60-mile 500kV Harry Allen to Eldorado transmission line in Nevada for DesertLink, LLC, a wholly owned subsidiary of LS Power. This project is scheduled for completion in early 2020. Recent industry announcements indicate there are continued drivers for transmission spending, including pent-up demand to replace and modernize aging infrastructure and continuing growth in renewable generation sources requiring interconnection to the electric grid. Existing customers such as Oncor Electric Delivery, PSE&G, Duke Energy and NextEra announced large…

Thanks, Tod and good morning, everyone. We entered 2018 focused on increasing our value proposition to clients by providing increased procurement support, pre-construction services and project pre-planning, which is proving successful on a variety of fronts. These offerings are viewed favorably as our clients seek greater engagement to improve their award efficiency. We experienced consistent and steady growth in backlog and revenue quarter-over-quarter throughout 2018. Our increased sales effort includes training on lean processes and integrated delivery services, which will continue in 2018. We believe the value we provided our customers throughout 2018 establish momentum for the next two quarters and beyond. In addition to our improved sales efforts, we've maintained a strong focus on the fundamentals of execution, providing the solid blocking and tackling necessary to compete when the market is at its peak. Execution fundamentals are especially important when construction projects are stressed by manpower shortages, material uncertainty, accelerated schedules and ongoing margin compression. We believe our ever-present attention to the fundamentals will keep us prepared to be competitive in varying market conditions. Turning to our market outlook. We are pleased with our fourth quarter awards because they fit well into our business plan. We believe that transportation funding will drive growth, especially along the West Coast, and recent project awards in California, Washington and Vancouver, Canada, confirm our efforts to expand transit capabilities in many of our offices. As our transportation portfolio expands, so do invitations to join select teams on these increasingly technical pursuits. Throughout the Southwest and the Rocky Mountain Front Range, data center and high-tech manufacturing projects continue to offer opportunities that align with our capabilities. These highly technical projects have long been a strength in this region and our tenured engagement with general contractors and design firms indicates there will be consistent activity…

Thank you for those updates, Betty, Tod and Jeff. We are inspired, committed and proud of our achievements. With 2019 already under way, we will remain focused on our key strategic imperatives of delivering financial results, maintaining operational and organizational excellence and providing optimal customer satisfaction, all of which should allow us to execute a sustainable, long-term growth model and to evolve and operate most effectively in an ever-changing business climate. Our compliments are the byproducts of our talented employees who roll up their sleeves and bring new ideas to tackle our toughest challenges, while embodying the culture, vision and future of our Company. To conclude, on behalf of Betty, Tod, Jeff and myself, I sincerely thank you for joining us on the call today. I look forward to updating you on future calls. Operator, we're now ready to open the call up for comments and questions.

Thank you [Operator Instructions]. Our first question is from Tahira Afzal with KeyBanc Capital. Your line is open.

Thank you, and congratulations on a great year.

Thanks, Tahira.

I guess first question, if you look at the fourth quarter earnings power, pretty impressive. Is this a starting point for us into the year coming up, given your upbeat commentary? Are there some seasonality nuances like I'm sure in the first quarter we need to take into account?

Yes. The fourth quarter, we had really well, good weather across the country. We had some projects we're pushing for completion. In the first quarter, we always have that weather impact that hits us, it hits us at first and going into the second quarter. So we'll see that consistently, if you track us over the past where we've been. I would look for that same revenue drop during that first quarter.

And very healthy margins on the T&D side. Can you provide a little more color on what pathway we should expect going forward? Are you now, given the visibility you have on the projects that are now in progress, is this a more consistent margin profile for the next year?

We certainly hope so. I mean, we're always striving to improve our margins wherever we can. We have some projects that go extremely well and then we have some that take a slight dip. But we're always trying to increase that wherever we can, Tahira.

Thank you. Our next question is from Andrew Wittmann with Baird. Your line is open.

I'm just going to build on the last question a little bit here. And maybe if you could talk, Rick, about the mix of larger projects that you're seeing in T&D? Sounded like in Tod's script there were some more notable wins than we've seen in a while. Can you talk about and quantify if you could that be super helpful, how much larger project work you're working on today versus maybe the year ago period? And maybe, I mean, I guess the last question was focused more around can margins be consistent. But if the large project mix is up, shouldn't margins be higher potentially next year?

Well, let me start a little bit into that question. I guess where part of our press release says large projects, it should have said our contributions from the large project group and they're working on small to mid-size projects. So really it's at mid-sized project where we saw those margin gains come in this quarter. Aas I said last year, we finished off the project we had down in Texas for LS Power and really didn't have much large project. Work going on on the T&D side, we continue to see those projects pushed out. So we've really put a focus over the last couple of years of building our base T&D business to be able to encompass all those small to mid-size work and move from one project to the other, so have those lined up. And we've also worked heavily. And Tod, I don't know if you have anything to add on the MSA work we've tried to capture over time?

Yes. Our MSA work has always been a big part of our company, and we have several MSAs that go back decades and we've recently over the last couple of years picked up some additional MSAs. And that's both in distribution and transmission work. The ones on the transmission side, and going back to where I talked a little bit about the projects in the script that we referenced there. I would consider those on par with what we saw in 2018, not the mega projects, but some nice-sized projects. And we're going to see something similar in '19. We still see some of the mega projects getting pushed out due to regulatory delays and permitting and issues such as that. We look at '18 and '19 to be on par with each other.

And then my last question, I think for today, is going to be the question I ask oftentimes, which is about the backlog. Which has clearly grown significantly and its relative burn rate as the composition of the projects inside that backlog continue to change. Specifically, obviously the C&I backlog has grown more rapidly than the T&D backlog. And as we look at how backlog has translated to revenue historically, how should we expect that to change with the current mix that's inside that backlog?

I think when we look at our C&I backlog partial, that increase over time, over the last couple of years has really been due to a couple of the acquisitions we've done, including, and then on top of that, the organic markets that we've moved into, starting to bring in more revenue and start covering some of their cost. I'll let Jeff talk to the overall dynamics of the market and where you see it headed.

Yes, I think we're seeing pretty robust activity in all of our areas. A couple of that were slower to come out of and turn around the corner, really generated some new revenues and new backlog in namely the Arizona market, and our new divisions out in the Northeast have picked up quite a bit of work recently.

But how does the burn rate of the backlog compare today versus what you've seen over the last year? Is it going to burn faster because it's C&I and presumably they're smaller projects and so you should expect more revenue conversion for every dollar of backlog? How does, how does this burn today versus history?

It's a wide mix.

Yes.

There are some fast-track projects in the mix, but there are also some that extend out and I wouldn't consider it any different than our traditional revenue burn...

I guess my question is at the consolidated level, though, not specific to the C&I segment, if you look at total backlog or maybe do it segment by segment, but I'm just trying to get a sense about how much, I mean, I guess you give the 12-month backlog stat in the 10-K and that's helpful, but any other color you can give on top of that is what we're looking for.

Yes, I was just going to say that the backlog of $187 million going out more than one year, that's, just take that and you get what we're going to burn in the 2019 outside of our MSA work that's not included in that backlog number.

Only 90 days of the MSA work.

Yes. Only 90 days is included in there and not more that.

And as we said, the market is very active. So we continue to bid and capture projects that will be additive to that backlog.

Yes. Do you feel like the '19 year's got a disproportionately high level of book and burn type of work in it? Or is what you're seeing today still bidding out more than the 12-month period?

I would say we still see the market strong and continuing to build out.

Thank you [Operator Instructions]. Our next question is from Noelle Dilts with Stifel. Your line is open.

Hi, thanks, and congrats on a nice quarter.

Thanks, Noelle.

So first just on the T&D side, a couple of questions. So first, given that the market has shifted more of the small to medium projects and it sounds like the level of activity there is very robust, but the larger projects are still being pushed out, are you seeing tougher pricing or contract terms because there are fewer large projects? And then, I guess, as those large projects do start to come out, do you anticipate that they will be potentially more competitive because there has been this slow-off in larger project activity?

I would say on the small to mid-size, we are seeing similar competition, similar pricing in most areas to what we've seen over the last couple of years. So we haven't seen contractual terms really tighten up. We haven't seen margin pressures down, but we also haven't seen them increasing. I mean, some areas are increasing a little more due to labor availability, but contractors remain competitive and they want that next job for their backlog and to grow their company. So we, like everybody else, we're out there, competing for the work. And again where we focus is really on understanding the cost of our projects and then trying to put a fair markup on top of it. As far as the mega projects go or the larger projects, as we've said, those first ones out of the gate could remain very competitive. People could want them. We'll price them. Again, understanding our cost, really trying to make sure we focus on that, and then putting a fair markup on, I can't say our competitors will chase those.

And then on the C&I side, a couple of questions. First one, how are you thinking about the overall non-residential construction market outlook? I think there's a mixed view there in terms of how sustainable growth is into 2020. And then, given that your greenfield expansion efforts are seem to now be contributing to profitability. How are you thinking about the next wave of potential expansion? Thanks.

I'll start by saying the markets we're in are continuing to see pretty good strength in them. So we're seeing projects right now that we're bidding that are building in the 2020, 2021 time frame. We continue to chase that. We're doing a lot of pre-construction services on projects. Jeff and I'll turn this back to him in a second to discuss that and discuss our organic growth. As we said, we wanted to see our organic growth areas be profitable and be adding to the bottom line net-net as a whole by the beginning of second quarter of '18. We did start seeing that. We are selective on where we'll go after, and our focus is to really grow the areas we have right now and remain focused on making sure those are profitable and they remain profitable throughout 2019. Jeff, anything else on the market you want to add?

I think things may be shifting some from some non-residential, and other markets are really starting to pick up some steam. We're looking at projects that are out that have four and five year schedules and they're large projects with large campus settings that we see that build going on for quite some time. So as Rick said, there is some strong health in different parts of the C&I market.

Thank you. Our next question is from Jon Braatz with Kansas City Capital. Your line is open.

Jeff, back to you. There appears to be some strengthening, strengthening in the oil and gas markets in Canada. I think in December, LNG, a $30 billion project, LNG Canada was approved. I guess my question is, how active are you in those oil and gas projects in Western Canada and like how active have you been and how active might you be in, going forward?

The communication has picked up on a lot of that work. We're definitely getting inquiries quite a bit about opportunities to look at budgets and help folks with it. We haven't seen a lot of that come to market yet and don't know exactly what role we're going to play in it at this point.

Okay, but there is a possibility that they could be very sizable projects? Am I correct in that?

Yes, some of these are very large projects.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to management for any closing remarks.

Thank you, everyone, for participating on today's call. Again, I would like to thank our strong management team and employees for their hard work and our stockholders for their continued support. I don't have anything further. We look forward to working with all of you going forward and speaking with you again on our next conference call.

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