MYR Group Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; comparisons are with Q1 2011 unless otherwise noted. MYR Group provides specialty electrical construction services through Transmission & Distribution (T&D) and Commercial & Industrial (C&I) segments.
Financial performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Contract revenue | $240.2 million | $150.3 million |
| Gross profit / margin | $26.1 million / 10.9% | $21.6 million / 14.4% |
| Operating income / margin | $10.2 million / 4.3% | $7.6 million / 5.1% |
| Net income | $6.2 million | $4.5 million |
| Diluted earnings per share | $0.29 | $0.21 |
| EBITDA (non-GAAP) | $16.0 million | $11.9 million |
| Cash from operating activities | $(12.0) million | $13.8 million |
| Capital expenditures | $8.3 million | $12.2 million |
- Revenue grew 59.8%, mainly from several large transmission projects; T&D revenue increased 73.7% to $205.0 million, while C&I revenue increased 9.2% to $35.2 million.
- Gross profit increased with volume, but gross margin declined as Q1 2011 included approximately $5.8 million of above-average profit from large projects nearing completion. T&D operating margin fell to 8.2% from 11.5%; C&I operating margin rose to 3.1% from 2.6%.
- SG&A rose 14.1% to $15.9 million, but declined as a share of revenue to 6.6% from 9.3%. The effective tax rate was 38.0%, versus 39.4%.
Cash, debt, and liquidity
- Cash was $3.8 million at March 31, down from $34.0 million at year-end. Operating cash use reflected working-capital demands, particularly a $28.4 million increase in accounts receivable and higher contract costs in excess of billings.
- Investing activities used $8.2 million; financing activities used $10.1 million, including repayment of $10.0 million of revolving borrowings. No revolving loans were outstanding at quarter-end.
- The $175 million revolving credit facility had $157.8 million available for borrowing; approximately $17.2 million of letters of credit were outstanding. The company reported compliance with its financial covenants.
- Management expected cash, available credit, and future operating cash flow to meet operating needs, debt service, and planned capital expenditures. It expected 2012 capital spending to be slightly below 2011, while noting large projects may require additional working capital.
Business outlook, risks, and contingencies
- Management reported strong transmission bidding activity, especially for small and medium-sized projects, and said transmission capacity was tightening in some regions due to labor and equipment shortages. Distribution and C&I customers continued to defer some spending amid economic uncertainty and competition.
- Backlog was $639.9 million at March 31, 2012, up from $603.9 million at March 31, 2011; $181.4 million was estimated not to be recognized within 12 months. The company cautions that backlog may not be realized or profitable and is not a standalone indicator of future revenue.
- Outstanding surety bonds totaled approximately $899.4 million, with estimated remaining costs to complete of $397.9 million. The company also disclosed $4.8 million of construction-equipment purchase commitments, mostly payable over the next six months, and $17.2 million of letters of credit.
- Risks include project cost overruns and percentage-of-completion estimates, cancellations and timing of awards, labor and equipment availability, customer payment delays, bonding capacity, seasonality, and insurance or legal claims. Management said ordinary-course litigation was not expected to have a material adverse effect; certain multi-employer pension plans were labeled critical, with no significant potential liability known to the company. No material changes to previously reported risk factors were identified.
Investor verification priorities
- Assess whether large-project revenue growth is sustainable and whether margins recover as projects progress.
- Track receivables, retainages, contract assets, and operating cash conversion as activity grows.
- Review backlog quality, timing, contract mix, and exposure to fixed-price execution costs.
- Monitor credit-facility availability, covenant compliance, bonding capacity, and project-related working-capital needs.
- Follow labor and equipment constraints, customer spending delays, insurance reserves, and potential claims.