MYR Group Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are to Q1 2023 unless otherwise noted. MYR Group provides specialty electrical construction services through Transmission and Distribution (T&D) and Commercial and Industrial (C&I) segments.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $815.6 million | $811.6 million | +0.5% |
| Gross profit / margin | $86.2 million / 10.6% | $84.4 million / 10.4% | +2.2% gross profit |
| Operating income / margin | $24.3 million / 3.0% | $27.4 million / 3.4% | -11.5% |
| Net income | $18.9 million | $23.2 million | -18.2% |
| Diluted EPS | $1.12 | $1.38 | -$0.26 |
| EBITDA (non-GAAP) | $39.8 million | $41.3 million | -3.6% |
| Operating cash flow | $7.7 million | $37.2 million | -$29.5 million |
Revenue growth reflected higher T&D activity, partly offset by lower C&I revenue. Gross margin improved modestly, but higher SG&A, interest expense and the effective tax rate contributed to lower operating income and net income. The effective tax rate was 18.0%, versus 14.4%.
Segments and work outlook indicators
- T&D: Revenue rose 10.1% to $490.4 million; operating income fell 9.1% to $29.8 million and margin declined to 6.1% from 7.4%.
- C&I: Revenue declined 11.2% to $325.2 million, primarily because certain projects started later than expected. Operating income increased to $11.4 million from $10.6 million; margin improved to 3.5% from 2.9%.
- Backlog: $2.43 billion at March 31, 2024, down from $2.51 billion at year-end 2023 and $2.67 billion a year earlier. T&D backlog fell $106.4 million sequentially; C&I backlog rose $19.3 million.
- Remaining performance obligations: $2.22 billion, of which $1.72 billion is estimated for recognition within 12 months. RPO is not the same as backlog and excludes certain cancellable master service agreement work.
Cash, debt and liquidity
- Cash and cash equivalents were $3.9 million at March 31, versus $24.9 million at December 31, 2023. Q1 cash decreased $21.0 million.
- Working capital was $293.8 million. Operating cash flow was lower year over year, principally reflecting construction-related timing of billings and payments and lower net income.
- Capital expenditures were $25.8 million; net cash used in investing activities was $23.9 million.
- Total debt was $37.9 million, including $17.5 million drawn on the revolving facility and $20.4 million of equipment notes. The $490 million revolving facility had $434.3 million of borrowing availability; $38.2 million of letters of credit were outstanding.
- Revolver borrowings carried a 7.56% weighted-average interest rate for the quarter. The company reported compliance with its credit agreement covenants. A permanent 1% rate increase on revolving borrowings outstanding at quarter-end would add approximately $0.2 million of annual interest expense.
- Operating and finance lease obligations totaled $40.5 million. The company also had $26.9 million of construction-equipment purchase commitments scheduled for cash payment in 2024.
Material changes, outlook and risks
- Changes in estimates on certain projects reduced Q1 2024 consolidated gross margin by a net 1.2%, versus a net 0.6% reduction in Q1 2023. The 2024 changes reduced operating income by $9.8 million, net income by $6.9 million and diluted EPS by $0.41. Negative revisions were associated largely with labor and project inefficiencies, weather, supply-chain cost pressure, an unfavorable change order and job closeout; positive revisions partly offset these effects.
- At March 31, the company had recognized $87.4 million of revenue related to large change orders and claims under negotiation, up from $76.5 million at year-end 2023. These amounts involve estimation and collection uncertainty.
- Management sees active bidding in distribution and expects incremental distribution opportunities in some markets during the rest of 2024. Large transmission awards may take time to reach meaningful construction activity. C&I opportunities remain strong, but market volatility could slow segment growth.
- Management expects delays and cost volatility to continue through 2024, citing supply-chain disruption, inflation, tariffs and regulatory slowdowns; affected projects may remain at lower margins until completion. No specific full-year revenue or earnings guidance is provided.
- Other disclosed exposures include fixed-price contract cost overruns, labor availability and union issues, weather and wildfire impacts, customer project delays, variable-rate debt, insurance claims, and the ability to obtain bonds or letters of credit. Approximately $2.59 billion of surety bonds were outstanding, with estimated remaining costs to complete bonded projects of $660.8 million.
- The company said ordinary-course litigation is not expected to have a material adverse effect and reported no material changes to previously disclosed risk factors. Disclosure controls were assessed as effective at quarter-end.
Important facts for investors to verify
- Whether project cost estimates stabilize and the $87.4 million of change orders and claims under negotiation are resolved and collected.
- Whether T&D project inefficiencies and C&I delayed starts improve, and whether backlog converts to revenue and profit on the expected schedule.
- Whether operating cash flow recovers as contract billing and payment timing normalizes, given low quarter-end cash and planned equipment commitments.
- How higher borrowing costs, insurance and labor costs affect margins and covenant headroom; the filing reports covenant compliance but does not state the actual ratios.
- Whether the $26.9 million of equipment commitments, outstanding letters of credit and bonded-project obligations remain manageable alongside capital spending and any share repurchases.