MYR Group Inc. — FY 2011 Form 10-K
Reporting period: Year ended December 31, 2011; filing signed March 7, 2012. MYR Group provides electrical infrastructure construction, maintenance and repair through its Transmission and Distribution (T&D) and Commercial and Industrial (C&I) segments. Amounts below are in U.S. dollars.
Financial performance
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Revenue | $780.4 million | $597.1 million | +30.7% |
| Gross profit / margin | $85.6 million / 11.0% | $70.7 million / 11.8% | Profit +21.0%; margin down 0.8 percentage points |
| Operating income / margin | $29.6 million / 3.8% | $26.5 million / 4.4% | Income +11.8%; margin down 0.6 percentage points |
| Net income / diluted EPS | $18.3 million / $0.87 | $16.1 million / $0.78 | Income +13.5% |
| Operating cash flow | $30.4 million | $44.8 million | Down $14.4 million |
| Capital expenditures | $42.3 million | $21.9 million | Nearly doubled |
| Cash and working capital at year-end | $34.0 million / $59.2 million | $62.6 million / $85.1 million | Both decreased |
EBITDA, a non-GAAP measure, was $49.1 million, up from $42.7 million. Operating cash flow less capital expenditures was approximately negative $11.9 million. The company reported $10.0 million in revolving borrowings at year-end, no long-term debt, and $147.8 million of remaining credit availability. It entered a new $175 million five-year credit facility in December 2011, maturing in 2016, and was compliant with its covenants at year-end. The $10 million revolving balance was repaid after year-end.
Material changes and segment results
- T&D revenue rose 39.0% to $622.0 million, representing 79.7% of total revenue; segment operating income increased to $52.1 million from $36.6 million. Transmission project activity and distribution work, including storm restoration, drove growth.
- C&I revenue increased 5.8% to $158.4 million, but segment operating income fell 17.7% to $5.8 million; operating margin declined to 3.7% from 4.7%, reflecting competition, lower productivity on some projects and higher insurance expense.
- Consolidated gross margin declined as estimated costs to complete increased on several large transmission projects, insurance expense rose, and C&I project margins faced pressure. Corporate operating costs also increased to $28.3 million from $17.2 million.
- Year-end backlog increased 33.0% to $692.8 million from $520.9 million; $205.4 million was estimated not to be recognized within 12 months. T&D backlog was $612.2 million and C&I backlog was $80.6 million.
- Fourth-quarter 2011 revenue was $234.3 million, gross profit $24.6 million, net income $5.9 million and diluted EPS $0.28. Fourth-quarter 2010 figures were $155.1 million, $21.8 million, $6.1 million and $0.29, respectively.
Outlook, risks and other notable items
- Management expected transmission bidding activity to remain strong in 2012 and anticipated recognizing substantial revenue from recently awarded large transmission projects in 2012 and 2013. Construction timing could be affected by permitting, right-of-way, financing, engineering and materials procurement. The filing gives no specific revenue or earnings guidance.
- Management expected 2012 capital spending to be slightly below 2011 levels, with continued emphasis on transmission equipment. It expected competitive pressure to continue weighing on C&I and distribution margins.
- Management cited shortages of specialized equipment and skilled labor in some regions, with potential labor-cost inflation and margin pressure. Other key risks include fixed-price cost overruns, project cancellations or delays, seasonal and severe weather, customer concentration, collection timing, bonding availability and variable-rate debt.
- The top 10 customers generated 58.1% of 2011 revenue, although no single customer exceeded 10%. Approximately 88% of field labor was union-represented; several multi-employer pension plans were classified as critical or endangered, but management reported no known significant liability at year-end.
- After year-end, the Electric Transmission Texas master agreement was cancelled because commercial terms could not be agreed. The associated work was excluded from year-end backlog. The company reported $881.1 million in outstanding surety bonds and estimated $474.5 million of remaining costs to complete bonded projects.
- Insurance expense rose to $21.5 million from $16.0 million, and accrued self-insurance liabilities reached $38.9 million. Ordinary-course litigation and historic asbestos-related claims were disclosed; management did not expect a material adverse outcome, while noting that circumstances could change.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective. No cash dividends were declared or paid, and management did not anticipate dividends in the foreseeable future.
Important facts for investors to verify
- Whether large transmission projects progress as scheduled and whether updated cost estimates support expected margins and backlog conversion.
- Whether working-capital demands, receivables and contract asset balances permit operating cash flow to recover as revenue grows.
- Whether labor, equipment and insurance costs continue to pressure margins, particularly in C&I and distribution work.
- Current borrowing availability, covenant headroom and bonding capacity as projects scale; confirm the post-year-end repayment of revolving debt.
- Developments in union pension-plan funding, insurance claims, tax examinations and legal contingencies.