MYR Group Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. MYR Group provides specialty electrical construction services in the United States and western Canada through Transmission and Distribution (T&D) and Commercial and Industrial (C&I) segments. The filing was signed March 3, 2021. Figures below are in U.S. dollars.
Financial performance
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Revenue | $2.247 billion | $2.071 billion | +8.5% |
| Gross profit / margin | $275.9 million / 12.3% | $214.2 million / 10.3% | +28.8% gross profit |
| Operating income / margin | $86.5 million / 3.8% | $57.2 million / 2.8% | +51.4% |
| Net income attributable to MYR | $58.8 million | $37.7 million | +55.9% |
| Diluted EPS | $3.48 | $2.26 | +54.0% |
| Operating cash flow | $175.2 million | $64.9 million | +$110.3 million |
| Capital expenditures | $44.4 million | $57.8 million | Down $13.5 million |
- Segment mix: T&D revenue was $1.154 billion, up 1.8%, and represented 51.4% of revenue. C&I revenue was $1.093 billion, up 16.7%, and represented 48.6%.
- Segment operating margins: T&D improved to 9.5% from 6.5%; C&I was 3.4% versus 3.3%.
- Quarterly context: Q4 2020 revenue was $608.0 million and net income attributable to MYR was $18.2 million, compared with $571.1 million and $12.8 million in Q4 2019. Diluted EPS was $1.07 versus $0.76.
- Cash and liquidity: Year-end cash was $22.7 million, versus $12.4 million. Working capital was $193.3 million, down from $242.4 million; current assets were $636.7 million and current liabilities $443.4 million.
- Debt: Total debt fell to $29.4 million from $165.8 million. No revolving credit borrowings were outstanding at year-end; the $375 million facility had $364.6 million of reported borrowing availability and $10.4 million of letters of credit outstanding. MYR reported compliance with its credit covenants.
- Backlog: $1.649 billion at year-end, up from $1.499 billion. Remaining performance obligations were $1.535 billion; the company expected the vast majority to be recognized within 24 months. These measures are not guarantees of future revenue.
Year-over-year changes and notable items
- Revenue growth reflected incremental contribution from the 2019 CSI Electrical Contractors acquisition, partly offset by COVID-19-related impacts, particularly in C&I.
- Higher gross margin reflected more higher-margin and storm-related work and better-than-anticipated productivity on certain projects. Labor inefficiencies and unfavorable project settlements partly offset the improvement. Prior-year results also included lower-margin work and inefficiencies on a joint venture project that has since been completed.
- Operating cash flow benefited from favorable working-capital timing, including contract assets, liabilities and billings, and deferred payroll-related tax payments under the CARES Act. Cash used in financing was $124.3 million, chiefly reflecting $103.8 million of revolving-credit repayments and $32.6 million of equipment-note repayments.
- Management reported that changes in project estimates reduced 2020 gross margin by 0.8 percentage points and operating income by $18.0 million; estimated impacts were $12.8 million to net income and $0.76 to diluted EPS. The corresponding 2019 operating-income impact was $11.7 million.
- CSI-related contingent compensation expense was $4.0 million in 2020; future payments, if earned, are tied to performance and continued employment. Additional CSI margin-guarantee adjustments may be recognized in 2021.
Outlook, risks and contingencies
- Management was optimistic about long-term utility infrastructure investment, including grid upgrades, reliability, distribution work and renewable-energy connections. It anticipated significant large-transmission bidding activity over the next two years, while noting that timing is variable and large awards may take time to move into construction.
- Management expected incremental distribution opportunities in 2021, but described C&I bidding and project schedules as vulnerable to pandemic effects and dependent on broader economic recovery. Project-specific COVID-19 protocols were expected to continue affecting schedules and workflow. No numerical revenue or earnings guidance was provided.
- Key risks include COVID-19 impacts, cyclicality and seasonality, fixed-price cost overruns, labor availability and costs, project delays and cancellations, customer claims and collection timing, and estimating costs to complete long-term contracts. Severe weather, wildfires, safety incidents, insurance limitations, supply constraints, bonding capacity, cybersecurity and multi-employer pension obligations are also cited risks.
- Outstanding surety bonds had an original face amount of approximately $1.33 billion, with estimated remaining costs to complete of $629.1 million. The company stated it believed significant surety claims were unlikely. Ordinary-course litigation was not expected by management to have a material adverse effect; outcomes remain uncertain.
- MYR adopted the expected-credit-loss standard in 2020, recording a $0.3 million cumulative adjustment to retained earnings. The auditor identified estimates of variable consideration and costs to complete on selected long-term fixed-price contracts as a critical audit matter. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether improved T&D and C&I project margins and productivity are repeatable, and whether the 2020 estimate-related reductions or settlements signal ongoing project risk.
- How much of backlog and remaining performance obligations converts to revenue and cash, given cancellation rights, MSA volume uncertainty and schedule dependence.
- Whether working-capital cash-flow benefits, including deferred CARES Act payroll taxes, reverse or normalize in subsequent periods.
- The continuing effects of COVID-19 on C&I projects, customer spending, labor, suppliers and project timing, alongside management’s qualitative outlook.
- Potential exposure from CSI contingent compensation and margin guarantees, bonded projects, insurance reserves, wildfire risks and multi-employer pension plans.
- Use of the newly authorized $50 million share-repurchase program: no shares were repurchased under that program in 2020. MYR reported no history of cash dividends and did not expect to pay them.