MYR Group Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Specialty electrical construction contractor serving utility infrastructure and commercial and industrial markets in the U.S. and Canada, through Transmission & Distribution (T&D) and Commercial & Industrial (C&I). This unaudited report covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. Amounts below are in U.S. dollars.
Financial results and position
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $636.6 million | $592.5 million | Up 7.4% |
| Gross profit / margin | $80.5 million / 12.6% | $77.0 million / 13.0% | Profit up 4.6%; margin down 0.4 percentage points |
| Operating income / margin | $24.9 million / 3.9% | $27.4 million / 4.6% | Down 9.2% |
| Net income / diluted EPS | $20.7 million / $1.21 | $19.9 million / $1.17 | Net income up 3.8% |
| EBITDA (non-GAAP) | $39.6 million | $39.3 million | Approximately flat |
| Operating cash flow | $21.5 million | $59.4 million | Down $37.9 million |
| Capital expenditures | $14.0 million | $7.0 million | — |
Segments: T&D revenue was $364.9 million, up 15.9%, and operating income was $30.4 million, up 6.1%; its operating margin declined to 8.3% from 9.1%. C&I revenue was $271.8 million, down 2.1%, and operating income fell to $10.1 million from $14.3 million; its operating margin declined to 3.7% from 5.1%.
Liquidity and debt: Cash was $18.7 million at March 31, versus $82.1 million at year-end. Working capital was $217.3 million. Debt totaled $49.7 million, including $45.2 million drawn on the $375 million revolving facility and $4.5 million of equipment notes. The company reported $317.5 million of revolving borrowing availability and $12.3 million of letters of credit outstanding. It was in compliance with credit covenants. Total lease obligations were $36.8 million.
Material changes and unusual items
- On January 4, MYR acquired Powerline Plus Ltd. and an affiliate, expanding its Ontario distribution business. Cash paid net of acquired cash was reported as $110.6 million in the cash-flow statement; the preliminary purchase allocation also records $10.6 million of contingent earn-out fair value. Purchase accounting remains preliminary.
- Revenue growth reflected distribution and transmission work and the acquisition, partly offset by lower C&I revenue in some areas. Backlog rose to $2.41 billion at March 31, from $1.79 billion at December 31, 2021 and $1.64 billion a year earlier. Remaining performance obligations were $2.28 billion; these measures are not guarantees of future revenue or profit.
- Management attributed weaker gross margin to cost inflation, supply-chain disruption, COVID-related impacts, project inefficiencies and weather, partly offset by favorable close-outs and change-order adjustments. Project estimate changes increased Q1 2022 gross margin by 0.5 percentage points and operating income by $3.8 million; management estimated a $2.7 million net-income benefit, or $0.16 diluted EPS.
- The effective tax rate fell to 15.4% from 26.2%, primarily reflecting stock-compensation excess tax benefits and a reduced GILTI impact. Higher acquisition-related amortization also affected operating results.
- Operating cash flow declined mainly due to working-capital timing and other liability changes, including employee incentive compensation payments, and prepayments for materials. Investing cash outflow included the acquisition. Financing cash inflow included $45.2 million of revolving borrowings.
Outlook, risks and contingencies
Management expects continued bidding activity for transmission work and anticipates incremental distribution opportunities, including from Powerline Plus. It sees potential long-term demand from utility reliability investment, renewable generation and public infrastructure. C&I recovery remains dependent on economic conditions. The filing provides no quantified earnings or revenue guidance; management cautions that large transmission awards and construction timing are difficult to predict and that major projects awarded later in 2022 are unlikely to materially affect 2022 results.
Key risks include inflation and material, labor and equipment cost increases; supply-chain disruption; COVID-related delays; weather and wildfire exposure; project execution and fixed-price contract cost overruns; labor availability; customer or regulatory delays; acquisition integration; and uncertainty in realizing backlog. The company notes that MSAs can generally be terminated on short notice. Variable-rate revolving debt was $45.2 million; management estimated a sustained 1 percentage-point rate increase would raise annual interest expense by approximately $0.5 million. No material derivative instruments were outstanding.
Contingencies include $1.46 billion in original face amount of outstanding surety bonds, with estimated remaining completion costs of $579.7 million; $17.2 million of construction-equipment purchase commitments; and a Powerline Plus earn-out whose potential payout is unlimited and could exceed its acquisition-date fair value. The company reported no known material unrecorded indemnity liabilities and did not expect ordinary-course litigation, individually or in aggregate, to materially affect its financial position, results or cash flows. It also disclosed $12.6 million of remaining CARES Act payroll-tax deferrals expected to be paid by year-end 2022.
Most important facts for investors to verify
- Whether margin pressure from inflation, supply constraints, weather and project inefficiencies persists, particularly in C&I, and whether reported project-estimate benefits recur.
- Whether backlog converts to revenue and cash on expected schedules, considering project timing, contract cancellation rights and cost-to-complete risk.
- Powerline Plus integration, final purchase-price allocation, acquired contract performance and the potential earn-out obligation.
- Cash-flow and liquidity trends after the acquisition, including revolving borrowings, covenant headroom, equipment commitments and lease obligations.
- Exposure from surety bonds, insurance claims, wildfire and other contingencies, and multi-employer pension plans.