MYR Group Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; filed March 6, 2013. The filing is an annual report and includes unaudited fourth-quarter results. MYR Group provides specialty electrical construction services through Transmission and Distribution (T&D) and Commercial and Industrial (C&I) segments.
Financial results and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $999.0 million | $780.4 million |
| Gross profit / margin | $118.7 million / 11.9% | $85.6 million / 11.0% |
| Operating income / margin | $55.8 million / 5.6% | $29.6 million / 3.8% |
| Net income / net margin | $34.3 million / 3.4% | $18.3 million / 2.3% |
| Diluted EPS | $1.60 | $0.87 |
| Cash from operations | $30.0 million | $30.4 million |
| Capital expenditures | $37.2 million | $42.3 million |
| Cash and working capital at year-end | $19.8 million / $89.5 million | $34.0 million / $59.2 million |
| Debt at year-end | None | $10.0 million revolving debt |
Operating cash flow less capital expenditures was approximately negative $7.3 million. Net cash used in investing activities was $36.0 million; financing activities used $8.1 million, including a $10.0 million revolving-debt repayment. Total assets were $466.3 million and stockholders’ equity was $254.7 million at year-end. The company had $155.3 million available under its $175 million credit facility, with $19.7 million of letters of credit outstanding, and reported compliance with facility covenants.
Fourth-quarter results
Q4 2012 revenue was $247.8 million, gross profit $32.9 million, net income $9.8 million, and diluted EPS $0.46. Compared with Q4 2011, revenue rose from $234.3 million and net income from $5.9 million; gross profit rose from $24.6 million and diluted EPS from $0.28.
Changes and business drivers
- FY revenue increased 28.0% year over year, principally from large transmission projects, including projects with above-normal subcontractor and materials costs that boosted reported revenue. T&D revenue rose 33.2% to $828.7 million; C&I revenue increased 7.5% to $170.2 million.
- Gross margin improved by 0.9 percentage points. Management attributed the improvement mainly to better margins on small and medium projects and stronger fleet utilization. Segment operating margins rose to 9.7% in T&D from 8.4%, and to 4.5% in C&I from 3.7%.
- Backlog fell to $497.6 million from $692.8 million at year-end 2011, mainly as previously awarded large T&D work was completed. Management cautions that backlog is not a standalone indicator of future revenue.
- T&D accounted for 83.0% of revenue, up from 79.7%. One customer, Cross Texas Transmission, represented 15.1% of 2012 revenue; the top ten represented 59.6%.
- EBITDA, a non-GAAP measure, was $80.7 million versus $49.1 million. The filing cautions that EBITDA excludes recurring costs and is not a substitute for GAAP income or operating cash flow.
Outlook, risks and notable items
Management expected elevated industry activity to continue, with strong bidding for large multi-year transmission projects in 2013, while noting regulatory uncertainty could affect spending timing. It expected 2013 C&I markets to improve, distribution-market margins to remain competitive, and capital spending to be slightly below 2012. Management cited long-term grid upgrades, reliability needs and renewable integration as demand drivers, but offered no specific revenue or earnings guidance in the provided filing text.
- Key risks include customer concentration, project delays or cancellations, competitive pricing, fixed-price cost overruns, labor and specialized-equipment constraints, severe weather, and the timing and working-capital demands of large projects. Revenue and profit recognition relies on percentage-of-completion estimates that may be revised.
- Approximately 88% of field labor was union-covered. Several contributing multi-employer pension plans were in critical or endangered status; potential withdrawal or underfunding liabilities were not quantifiable, and management was not then aware of significant specific exposure.
- Surety bonds had an aggregate face amount of $883.3 million, with estimated remaining costs to complete bonded work of $301.4 million. Outstanding purchase commitments for equipment were $5.9 million, mostly payable in the first half of 2013.
- In January 2013, a subsidiary was named in an environmental contamination lawsuit concerning a former manufactured-gas-plant site; potential liability could not be estimated. The company said other ordinary-course litigation was not expected to have a material adverse effect, while acknowledging outcomes remain uncertain.
- The board authorized up to $20 million of share repurchases through August 9, 2013; none had been made by year-end. The company had not paid dividends and said it intended to retain funds for the business.
- Ernst & Young issued unqualified opinions on the financial statements and internal controls; management also reported effective disclosure controls and financial-reporting controls.
Important facts for investors to verify
- Whether major transmission-project execution, margins and customer work releases can be sustained as completed projects roll off, given the decline in reported backlog.
- Collections, retainage and working-capital needs: receivables rose to $167.2 million, including $56.1 million of retainage, while operating cash flow remained roughly flat despite sharply higher earnings.
- Whether reported revenue growth reflects durable work volume or the variable inclusion of subcontractor and materials costs, which can increase revenue while carrying lower margins.
- Exposure to Cross Texas Transmission and other large customers, and the credit quality and payment timing of concentrated receivables.
- Developments in the January 2013 environmental lawsuit, multi-employer pension plans, and surety or letter-of-credit requirements.