MYR Group Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. MYR Group provides specialty electrical construction services through its Transmission and Distribution (T&D) and Commercial and Industrial (C&I) segments.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Revenue | $811.6 million | $636.6 million; up 27.5% |
| Gross profit / margin | $84.4 million / 10.4% | $80.5 million / 12.6% |
| Operating income / margin | $27.4 million / 3.4% | $24.9 million / 3.9% |
| Net income | $23.2 million | $20.7 million |
| Diluted EPS | $1.38 | $1.21 |
| EBITDA, non-GAAP | $41.3 million | $39.6 million |
| Operating cash flow | $37.2 million | $21.5 million |
| Capital expenditures | $19.6 million | $14.0 million |
Revenue growth reflected higher C&I activity in certain geographies and increased transmission and distribution project revenue; clean-energy work contributed in both segments. T&D revenue rose 22.1% to $445.3 million, and C&I revenue rose 34.8% to $366.3 million. Segment operating margins declined year over year: T&D to 7.4% from 8.3%, and C&I to 2.9% from 3.7%.
At March 31, 2023, cash was $47.0 million, working capital was $223.5 million, and total debt was $25.7 million, including $20.5 million long-term. No borrowings were outstanding under the $375 million revolving facility; borrowing availability was $363.3 million, with $11.7 million of letters of credit outstanding. The company reported compliance with its credit agreement covenants. Operating, investing and financing cash flows were respectively positive $37.2 million, negative $18.1 million and negative $23.1 million; cash declined $4.0 million during the quarter. Financing outflows included $12.9 million of net revolver repayments, $7.9 million of share withholding-related repurchases and $2.0 million of equipment-note payments.
Changes, outlook and material items
- Gross margin fell to 10.4% from 12.6%, despite higher revenue. Management attributed the decline to labor inefficiencies, including weather and supply-chain disruption, inflation, and a prior-period sales-tax accrual adjustment; better productivity on one project partly offset these pressures.
- Changes in project estimates reduced Q1 2023 gross margin by 0.6 percentage points, operating income by $5.1 million, net income by $3.6 million and diluted EPS by $0.21. In Q1 2022, estimate changes instead increased gross margin by 0.5 percentage points and operating income by $3.8 million.
- Backlog was $2.67 billion at March 31, up from $2.50 billion at December 31, 2022 and $2.41 billion a year earlier. T&D backlog increased $216.6 million from year-end; C&I backlog declined $50.2 million. Remaining performance obligations were $2.51 billion; the company expects the vast majority to be recognized within 24 months. Backlog and performance obligations are not guarantees of revenue or profit.
- Management cited long-term opportunities from utility investment, grid reliability, clean energy, electrification and infrastructure spending. It expected incremental distribution opportunities during the remainder of 2023 and continued active bidding for small-to-medium transmission projects. Timing of large transmission awards and construction is uncertain, and projects awarded later in 2023 were not expected to materially affect 2023 results. No specific financial forecast or quantified guidance was provided.
- Risks include project cost overruns and estimate revisions, labor availability and productivity, inflation and supply constraints, severe weather and wildfire exposure, customer contract timing, and the possibility that backlog is delayed or not realized. The company had $26.0 million of construction-equipment purchase commitments due in 2023 and 2024. Surety bonds had $2.03 billion of original face value outstanding, with estimated remaining project completion costs of $733.3 million.
- Recognized revenue associated with large negotiated change orders and claims was $25.2 million at March 31, 2023; related amounts remain under negotiation. Management said ordinary-course legal proceedings were not expected to have a material adverse effect. Some contributing multi-employer pension plans were classified as “critical,” but the company reported no currently known potential liability related to that status.
Important facts for investors to verify
- Whether lower project margins, labor inefficiencies, inflation and supply-chain issues persist, and how project-estimate revisions affect results.
- Progress and collection prospects for the $25.2 million of recognized revenue tied to negotiated change orders or claims.
- Conversion, timing and profitability of backlog and remaining performance obligations, particularly the divergent T&D and C&I trends.
- Cash conversion, capital spending and liquidity needs, including equipment commitments, bond requirements and potential revolver use.
- Exposure to weather, wildfire, insurance costs, labor constraints and multi-employer pension-plan developments.