MYR Group Inc. — Q1 2021 Form 10-Q
Business and period. MYR Group provides specialty electrical construction services through its Transmission and Distribution (T&D) and Commercial and Industrial (C&I) segments in the U.S. and western Canada. This unaudited report covers the three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Financial amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $592.5 million | $518.5 million; up 14.3% |
| Gross profit / margin | $77.0 million / 13.0% | $61.6 million / 11.9% |
| Operating income / margin | $27.4 million / 4.6% | $16.4 million / 3.2% |
| Net income | $19.9 million | $9.9 million |
| Diluted EPS | $1.17 | $0.59 |
| EBITDA (non-GAAP) | $39.3 million | $27.4 million |
| Cash from operations | $59.4 million | $35.2 million |
Gross margin improvement reflected better-than-anticipated productivity and a favorable project close-out, partly offset by weather, pending change-order adjustments, and labor inefficiencies. The effective tax rate declined to 26.2% from 29.1%, primarily due to stock-compensation excess tax benefits.
At March 31, 2021, cash was $73.1 million, working capital was $217.5 million, and total debt was $29.4 million, including $4.4 million current debt. No borrowings were outstanding under the $375 million revolving facility; availability was $362.7 million after letters of credit. The company was in compliance with its financial covenants. Capital expenditures were $7.0 million; financing activities used $2.8 million, including $2.6 million of share withholding repurchases for tax obligations. On April 13, 2021, the company prepaid a $7.0 million equipment note using cash on hand.
Changes and operating trends
- T&D revenue rose 21.5% to $314.9 million, and segment operating income increased to $28.7 million from $18.0 million; segment margin improved to 9.1% from 6.9%.
- C&I revenue rose 7.1% to $277.6 million, and segment operating income increased to $14.3 million from $9.3 million; segment margin improved to 5.1% from 3.6%.
- Backlog was $1.64 billion at quarter-end, down 0.4% from December 31, 2020 and up from $1.54 billion a year earlier. T&D backlog decreased $59.4 million quarter over quarter; C&I backlog increased $53.3 million.
- Remaining performance obligations were $1.53 billion, versus $1.54 billion at December 31, 2020. The filing says most are expected to be recognized within 24 months, but timing is not fully within the company’s control.
Outlook, risks, and notable items
The filing provides no specific financial forecast or quantified earnings guidance. Management cited active bidding for small-to-medium transmission projects and expects continued utility investment needs related to reliability, congestion, renewable generation, and distribution-system resilience. Large transmission awards may take time because of regulatory and permitting requirements; substantial construction on large projects awarded during the rest of 2021 was not expected likely before 2022. C&I bidding and project timing remained exposed to COVID-19 and uncertainty about U.S. and Canadian economic recovery. The company expected project-specific COVID protocols to continue affecting schedules and workflow.
Key risks include variable project timing and margins, fixed-price cost overruns, change-order negotiations, labor availability and inefficiencies, weather and wildfire exposure, customer cancellations, bonding and insurance capacity, and the possibility that backlog will not be realized or profitable. Multiemployer pension underfunding and ordinary-course litigation are also disclosed; the company reported no known potential pension liability and did not expect pending legal matters to materially affect its financial position, results, or cash flows.
Other items to note: Q1 project estimate revisions increased gross margin by 0.1 percentage point and operating income by $0.6 million, net income by $0.4 million, and diluted EPS by $0.02. Revenue recognized for significant pending change orders and claims was $14.0 million at March 31, 2021, compared with $36.4 million at March 31, 2020; negotiations were ongoing. Outstanding surety bonds had an original face amount of approximately $1.20 billion, with estimated remaining costs to complete bonded projects of $632.8 million. The company disclosed $18.0 million of equipment purchase orders and $25.2 million of remaining CARES Act payroll-tax deferrals payable within two years.
Investor verification points
- Assess whether improved gross and segment margins are repeatable, given project productivity, close-outs, weather, labor, and change-order effects.
- Review backlog composition, cancellation exposure, conversion timing, and the distinction between backlog and remaining performance obligations.
- Monitor COVID-related project impacts and the timing of utility spending, major transmission awards, and C&I recovery.
- Verify cash-flow sustainability and liquidity after the April equipment-note prepayment, capital spending, purchase commitments, and payroll-tax repayments.
- Track claims and change orders, bonded-project execution, insurance reserves, wildfire exposure, and any developments in litigation or pension-plan obligations.