MYR Group Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. MYR Group provides specialty electrical construction services through its Transmission and Distribution (T&D) and Commercial and Industrial (C&I) segments.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $888.6 million | $708.1 million | $1,700.2 million | $1,344.7 million |
| Gross profit / margin | $90.1 million / 10.1% | $80.9 million / 11.4% | $174.5 million / 10.3% | $161.3 million / 12.0% |
| Operating income | $32.4 million | $26.2 million | $59.9 million | $51.1 million |
| Net income | $22.3 million | $19.7 million | $45.4 million | $40.4 million |
| Diluted EPS | $1.33 | $1.15 | $2.70 | $2.36 |
| EBITDA (non-GAAP) | $47.1 million | $43.9 million | $88.4 million | $83.5 million |
Revenue increased 25.5% in Q2 and 26.4% for the first half. Growth came from both segments, including clean-energy work. C&I revenue grew faster than T&D: 31.4% versus 21.3% in Q2, and 33.0% versus 21.7% year to date. Despite higher gross profit and net income, margins narrowed: first-half operating margin was 3.5%, compared with 3.8% a year earlier.
Cash flow and liquidity: Operating cash flow was $15.8 million for the first half, down from $60.1 million. Capital expenditures were $41.7 million; investing cash use was $38.4 million. Cash declined to $22.9 million from $51.0 million at year-end 2022. Working capital was $255.6 million. Contract assets rose $81.8 million to $382.4 million, largely reflecting billing and performance timing.
Debt: Total debt was $45.1 million at June 30, including $20.0 million drawn on the revolving facility and $25.1 million of equipment notes. The company also had $31.4 million of lease obligations. Its new five-year revolving facility provides $490 million; reported borrowing availability was $451.0 million, after borrowings and letters of credit. MYR was in compliance with its financial covenants at quarter-end.
Material changes and notable items
- Q2 gross margin fell to 10.1% from 11.4%; first-half gross margin fell to 10.3% from 12.0%. Management cited labor and project inefficiencies, weather, supply-chain disruption, inflation, and a prior-period sales-tax accrual adjustment. Higher revenue partly offset these pressures.
- Changes in project estimates reduced Q2 gross margin by 1.3 percentage points and operating income by $11.5 million; the estimated net-income and diluted-EPS impacts were $8.0 million and $0.48. For the first half, the effects were a 1.0-point gross-margin reduction, $17.8 million lower operating income, $12.4 million lower net income, and $0.74 lower diluted EPS.
- Interest expense rose, primarily because of higher interest rates. The company entered a new $490 million credit agreement on May 31, 2023, replacing its prior agreement.
- Backlog was $2.73 billion at June 30, up from $2.50 billion at year-end 2022 and $2.44 billion a year earlier. Remaining performance obligations were $2.54 billion; the measures differ, and neither guarantees revenue or profit.
Outlook, risks and contingencies
Management reported active bidding for smaller and midsize transmission work and expects incremental distribution opportunities during the rest of 2023. It sees long-term demand potential from utility investment, infrastructure and clean energy. Large transmission awards depend on regulatory approvals and permitting; projects awarded later in 2023 are not expected to materially affect that year’s results. C&I opportunities remain strong, but market volatility could slow segment growth. The filing provides no specific revenue or earnings guidance.
Management highlighted continued cost pressure and potential delays from supply-chain disruptions, inflation, tariffs, regulation and weather. Other disclosed risks include project execution and fixed-price cost overruns, labor availability, customer termination or award timing, and the possibility that backlog is not realized or profitable. Most craft employees are covered by collective bargaining agreements; the company said it was not aware of potential liabilities from multi-employer pension plans classified as critical.
At quarter-end, outstanding surety bonds had an original face amount of approximately $2.14 billion, with estimated remaining costs to complete the bonded projects of $765.0 million. Equipment purchase commitments were approximately $24.7 million. The company reported ordinary-course litigation and said it did not expect the proceedings, individually or in aggregate, to materially affect its financial condition, results or cash flows. It had a $75 million share repurchase authorization, effective through November 8, 2023 or until funds are exhausted; no shares were repurchased under the program in the first half. Management did not expect to pay dividends.
Most important facts for investors to verify
- Whether the project-estimate charges and margin pressures persist, and how project execution affects future profitability.
- Whether contract-asset growth converts to billings and cash collections; first-half operating cash flow was substantially below the prior year.
- Backlog and remaining-performance-obligation composition, conversion timing, and expected profitability, particularly given customer cancellation rights and permitting dependencies.
- Revolver availability and covenant headroom as variable-rate borrowing costs, letters of credit and capital needs evolve.
- Potential exposure from bonded projects, insurance and claims, equipment commitments, and the contingent earn-out; the filing states any earn-out payment could be significantly above its recorded $0.2 million fair value.