MYR Group Inc. — FY 2022 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022; it is not a standalone fourth-quarter report. 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.
Key financial metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $3,008.5 million | $2,498.3 million |
| Gross profit / margin | $344.0 million / 11.4% | $325.0 million / 13.0% |
| Operating income / margin | $114.9 million / 3.8% | $118.6 million / 4.7% |
| Net income attributable to MYR Group | $83.4 million | $85.0 million |
| Diluted EPS | $4.91 | $4.95 |
| Operating cash flow | $167.5 million | $137.2 million |
| Capital expenditures | $77.1 million | $52.4 million |
| EBITDA (non-GAAP) | $175.8 million | $164.2 million |
At year-end, cash was $51.0 million; working capital was $223.3 million, down from $249.8 million. Total debt was $40.6 million, including $12.9 million drawn on the revolving facility and $27.6 million in equipment notes. The company reported $349.3 million of revolver availability and compliance with its credit covenants. Outstanding operating and finance lease obligations totaled $34.0 million.
Material changes versus FY 2021
- Revenue increased 20.4%, led by T&D revenue growth of 34.1% to $1,745.8 million; C&I revenue increased 5.5% to $1,262.8 million.
- Gross margin fell 1.6 percentage points. Management cited inflation and supply-chain costs, labor and equipment inefficiencies, unfavorable change orders, and weather on certain projects. Higher revenue lifted gross profit, but lower margins contributed to lower operating income and net income.
- T&D operating margin decreased to 8.0% from 10.2%; C&I operating margin decreased to 3.4% from 4.5%.
- Operating cash flow improved by $30.3 million. Investing cash use rose to $185.7 million, including $110.7 million for the Powerline Plus acquisition and $77.1 million of capital expenditures.
- The January 2022 Powerline Plus acquisition expanded Ontario distribution operations. Acquisition-related intangible amortization contributed to higher amortization expense.
- Year-end backlog rose to $2.50 billion from $1.79 billion. Remaining performance obligations were $2.33 billion; the company estimates $451.8 million of these will not be recognized within 12 months. Backlog is not a stand-alone forecast and includes work with varying cancellation and assignment terms.
Outlook, risks and unusual items
- Management expressed optimism about utility infrastructure, grid reliability, clean-energy connections, distribution investment, and public infrastructure demand. It expects active bidding for small- and medium-sized transmission work, but said substantial construction on large multi-year projects awarded in 2023 is unlikely to materially affect 2023 results.
- Management highlighted ongoing cost volatility and potential delays from supply-chain disruption, inflation, tariffs, and regulatory and permitting processes. It also cited competition, skilled-labor availability, weather and seasonality, project execution and cost-estimation risk, and customer change-order disputes.
- Fixed-price contracts represented 62.7% of FY 2022 revenue, exposing the company to cost overruns that may not be recoverable. Revenue and profit rely on cost-to-cost estimates; changes in estimates reduced FY 2022 gross margin by 0.4 percentage points, or operating income by $9.8 million and diluted EPS by $0.41.
- The company recognized $19.6 million of revenue from significant change orders and claims included in contract price adjustments, versus $2.4 million in FY 2021; final collections could differ from estimates. The filing also reports $2.7 million of other income in FY 2022, including Canadian wage subsidy amounts and a favorable acquisition earn-out adjustment.
- Significant risks include wildfire and other catastrophic-event exposure, insurance availability and costs, union and multi-employer pension obligations, customer/project concentration, cybersecurity, and possible project delays or cancellations. The top 10 customers generated 35.4% of revenue; no single customer exceeded 10%.
- Surety bonds outstanding had an aggregate original face amount of approximately $1.97 billion, with estimated remaining project costs of $880.2 million. Management reported no material expected adverse outcome from disclosed ordinary-course litigation. The independent auditor issued unqualified opinions on the financial statements and internal controls; the acquired Powerline Plus companies were excluded from the 2022 internal-control assessment.
Important facts for investors to verify
- Whether project-level margins recover from FY 2022 cost inflation, supply-chain pressures, and execution inefficiencies, particularly in C&I.
- Conversion, timing, cancellation exposure, and profitability of backlog and remaining performance obligations, including the substantial fixed-price component.
- Collection and final settlement of the $19.6 million of recognized change-order and claim revenue, and the accuracy of ongoing cost-to-complete estimates.
- Powerline Plus integration and performance, including the contingent earn-out and any future margin-guarantee adjustments.
- Cash conversion and working-capital needs as receivables and contract assets increased; capital spending, debt levels, and use of the $75 million remaining share-repurchase authorization.
- Potential changes in bonding capacity, insurance coverage and premiums, and exposure to wildfire losses and multi-employer pension plans.