MYR Group Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. MYR Group provides specialty electrical construction services through Transmission and Distribution (T&D) and Commercial and Industrial (C&I) segments in the United States and Canada. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance and condition
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $799.8 million | $610.2 million | $2,144.6 million | $1,852.2 million |
| Gross profit / margin | $86.3 million / 10.8% | $83.9 million / 13.8% | $247.7 million / 11.5% | $241.9 million / 13.1% |
| Operating income / margin | $27.0 million / 3.3% | $31.0 million / 5.1% | $78.1 million / 3.6% | $88.0 million / 4.8% |
| Net income | $18.4 million | $23.2 million | $58.8 million | $64.3 million |
| Diluted EPS | $1.09 | $1.35 | $3.45 | $3.75 |
| Operating cash flow | Not separately stated for the quarter | Not separately stated for the quarter | $73.7 million | $108.2 million |
- Q3 revenue rose 31.1% year over year, while net income fell 20.4%. Nine-month revenue grew 15.8%, while net income declined 8.6%.
- Q3 T&D revenue increased 47.5% to $452.0 million; segment operating income fell 2.8% to $34.3 million, and margin declined to 7.6% from 11.5%. C&I revenue rose 14.6% to $347.8 million; operating income decreased to $10.9 million from $14.1 million, with margin at 3.1% versus 4.7%.
- For the first nine months, T&D revenue rose 29.9% to $1,232.1 million and operating income was nearly flat at $97.6 million; margin fell to 7.9% from 10.2%. C&I revenue increased 0.9% to $912.5 million, while operating income declined to $30.5 million from $42.9 million; margin was 3.3% versus 4.7%.
- Cash and cash equivalents were $35.8 million at September 30, 2022, down from $82.1 million at year-end 2021. Working capital was $249.8 million. Total debt was $85.9 million, including $57.7 million drawn on the revolving facility and $28.2 million of equipment notes; cash less debt was approximately $50.1 million net debt.
- Investing activities used $157.5 million in the first nine months, including $110.7 million for the Powerline Plus acquisition and $48.5 million of capital expenditures. Financing activities provided $41.7 million, principally from borrowings, partly offset by $31.7 million of program repurchases and $6.8 million of employee tax-withholding share repurchases.
- The $375 million credit facility had $303.9 million of borrowing availability at quarter-end, alongside $13.3 million of outstanding letters of credit. The company reported compliance with its financial covenants. Nine-month average interest on facility borrowings was 2.45%; revolving debt is variable-rate and unhedged.
Material developments and period comparisons
- Powerline Plus Ltd. and affiliate were acquired January 4, 2022, expanding Ontario distribution operations. The filing reports $110.7 million cash paid net of acquired cash in its cash-flow discussion. Purchase accounting included approximately $53.0 million of goodwill and $49.7 million of identifiable intangible assets; allocation remained preliminary.
- Gross margin contracted in both comparison periods. Management attributed pressure mainly to supply-chain disruption, inflation, labor and material inefficiencies, weather, and continuing COVID-19 impacts. Higher revenue partly offset lower margins.
- Nine-month operating cash flow declined by $34.5 million year over year, principally reflecting less favorable working-capital movements, including receivable timing and construction-related accounts.
- Backlog was $2.48 billion at September 30, 2022, compared with $1.79 billion at December 31, 2021 and $1.63 billion a year earlier. Remaining performance obligations were $2.29 billion. Management cautions that backlog is not a stand-alone predictor of future revenue or profit.
- Foreign currency translation reduced comprehensive income by $5.9 million in Q3 and $7.8 million for the first nine months. The nine-month effective tax rate was 25.0%, versus 25.9% a year earlier.
Outlook, risks, and unusual items
- The filing provides no numerical earnings or revenue guidance. Management expects ongoing bidding activity in small- and medium-sized transmission work and an incremental increase in distribution opportunities for the remainder of 2022. It noted that significant construction on large multi-year transmission awards made later in 2022 would likely not begin until 2023.
- Management sees potential long-term demand from utility reliability and clean-energy investment, infrastructure spending, and public transportation and water needs. C&I growth remains dependent on the timing and pace of market recovery.
- Management identified supply-chain disruption, inflation, tariffs, regulatory delays, labor availability and costs, weather, COVID-19 effects, and project execution as risks to costs, awards, margins, and cash flows. Fixed-price and unit-price contracts expose the company to unrecoverable cost overruns.
- Q3 project-estimate changes reduced gross margin by 0.3 percentage points and operating income by $2.4 million, net income by $1.7 million, and diluted EPS by $0.10. Comparable Q3 2021 estimate changes increased gross margin by 1.4 percentage points and operating income by $8.2 million.
- At September 30, the company had $23.9 million of recognized revenue related to large change orders or claims under negotiation. It also had $1.78 billion of outstanding bond face amount, with estimated remaining costs to complete bonded projects of $861.1 million; management did not expect legal proceedings or bond claims to have a material adverse effect.
- The company authorized a $75 million share-repurchase program, with $41.6 million remaining at quarter-end; it was scheduled to expire November 7, 2022, or when funds were exhausted. Management said it did not expect to pay dividends.
Important facts for investors to verify
- Whether margins recover as supply, inflation, labor, and project-efficiency pressures change, particularly in C&I.
- Conversion and profitability of backlog and remaining performance obligations, including timing of large transmission work and the cancellability of some master service agreements.
- Collection and billing trends underlying the growth in receivables and contract assets, and the effect on operating cash flow.
- Powerline Plus integration, final purchase-price allocation, contingent earn-out exposure, and acquired-business contribution to results.
- Debt levels, variable-rate exposure, covenant headroom, and liquidity needs for capital spending, equipment commitments, acquisitions, and repurchases.
- Resolution and collectability of negotiated change orders and claims, and potential insurance, bonding, labor, or litigation exposures.