MYR Group Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing was signed March 5, 2014. MYR is a specialty electrical contractor operating in Transmission and Distribution (T&D) and Commercial and Industrial (C&I) markets.
Financial performance
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Revenue | $902.7 million | $999.0 million | Down 9.6% |
| Gross profit / margin | $124.9 million / 13.8% | $118.7 million / 11.9% | Gross profit up 5.2%; margin up 1.9 percentage points |
| Operating income / margin | $55.6 million / 6.2% | $55.8 million / 5.6% | Income roughly flat; margin improved |
| Net income | $34.8 million | $34.3 million | Up 1.5% |
| Diluted EPS | $1.61 | $1.60 | Up $0.01 |
| Operating cash flow | $95.1 million | $30.0 million | Up $65.1 million |
| Capital expenditures | $42.7 million | $37.2 million | Up $5.5 million |
Gross margin improved with better project execution, higher fleet utilization, and a more labor-and-equipment-intensive revenue mix. Management attributed approximately 0.8 percentage points of 2013 gross margin to improved margins on several large transmission projects. Operating cash flow also benefited from working-capital movements, including cash generated as large projects neared completion.
Balance sheet and liquidity at year-end: Cash was $76.5 million, working capital was $119.6 million, total assets were $525.4 million, and stockholders’ equity was $296.1 million. The company had no debt outstanding and $156.6 million available under its $175 million revolving credit facility, with $18.4 million of letters of credit outstanding. It was in compliance with its credit covenants.
Segments and quarterly results
- T&D: Revenue was $722.4 million, down 12.8%; operating income was $81.4 million versus $80.5 million, and segment operating margin rose to 11.3% from 9.7%. Lower material and subcontractor costs on large projects and reduced storm work contributed to lower reported revenue.
- C&I: Revenue was $180.3 million, up 5.9%; operating income increased to $10.4 million from $7.6 million, with margin rising to 5.8% from 4.5%.
- Fourth quarter, unaudited: Revenue was $254.6 million, gross profit $33.8 million, and net income $10.0 million, compared with $247.8 million, $32.9 million, and $9.8 million, respectively, in Q4 2012. Diluted EPS was $0.46 in both quarters.
Material changes, outlook and risks
- Backlog fell to $326.1 million at December 31, 2013, from $497.6 million a year earlier. Management said substantial work on previously awarded multi-year projects was not replaced by projects of similar size and scope. Backlog is not a standalone indicator of future revenue.
- Storm restoration revenue declined to $14.6 million from $41.3 million in 2012. The top ten customers represented 57.8% of 2013 revenue; no individual customer exceeded 10% that year.
- Management expected continued small- and medium-sized transmission bidding activity and improvement in distribution and C&I markets in 2014. It anticipated bidding on several multi-year transmission projects over $50 million in contract value during 2014–2015, while noting that major construction could lag awards and timing remained uncertain.
- Management expected 2014 capital expenditures to be similar to 2013, focused mainly on equipment and tooling. It cited long-term transmission investment, grid upgrades and renewable integration as potential demand drivers, while noting uncertainty around project awards, permits, competition, and renewable-energy incentives.
- Key risks include cyclical customer spending, intense price competition, fixed-price contract overruns, project delays and cancellations, labor availability and safety, weather, customer concentration and collection risk, bonding capacity, and uncertain estimates under percentage-of-completion accounting. About 92% of craft employees were union-represented; certain multi-employer pension plans were classified as critical or endangered, though management reported no known significant current liability.
- Legal contingencies: A Florida accident judgment included $3.6 million in punitive damages; the company recorded a $2.3 million reserve and appealed. A separate Superfund-site case alleged damages of up to $140 million; the company said its potential liability could not then be assessed. Management did not expect ordinary legal proceedings overall to materially affect results, but outcomes remain uncertain.
- The company reported effective disclosure controls and internal control over financial reporting; the independent auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the sharply lower backlog was replenished through subsequent awards, and how much converts to revenue and profit.
- Whether 2013 margin gains on large transmission projects are repeatable, given the role of project-specific execution and estimates.
- Whether strong operating cash flow persists after the favorable working-capital contribution from project completions.
- Developments in the Florida appeal and Ashland Superfund litigation, including any changes to reserves or potential exposure.
- 2014 capital spending, project awards, customer concentration, and covenant/bonding capacity as activity and working-capital needs change.