Q2 2020 MYR Group Inc Earnings Call
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David could terrorists of dress NERC her corporate services. Please go ahead David.
Thank you Hey, good morning, everyone I'd like to welcome you to them Wire Group conference call to discuss the company's second quarter results for 2020, which reported yesterday.
Joining us on todays call or Rick Swartz, President and Chief Executive Officer, Betty Johnson, Senior Vice President Chief Financial Officer and Treasurer.
Todd Cooper Senior Vice President and Chief operating Officer, then wire groups transmission and distribution segment.
And Jeff Juanita Senior Vice President and Chief operating officer of and wire groups commercial and industrial segment.
If you did not receive yesterday's press release, please contact Dresdner corporate services at three one to 76 3600, and we will send you a copy or go to the M. wire group website, where a copy is available under the Investor Relations tab.
Also a replay of today's call will be available until Thursday August six at one PM eastern time by dialing 855859.
2056, or four zero Forbes Fivethree seven three 406 and entering conference I'd four to nine 106 it.
Before we begin I want to remind you that this discussion may contain forward looking statements any such statements are based upon information available to them wire group management as of this date.
And I am wire group assumes no obligation to update any such forward looking statements. These forward looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward looking statements.
Accordingly. These statements are no guarantee of future performance. These risks and uncertainties are discussed in the company's annual report on form 10-K for the period ended December 31, 2019, the company's quarterly reports on form 10-Q for the first and second quarters of 2020 and in yesterday's press release.
Certain non-GAAP financial information will be discussed on the call today, a reconciliation of these non-GAAP measures to the most comparable GAAP measures as set forth in yesterday's press release.
With that said, let me turn the call over to Rick Swartz.
Thanks, David Good morning, everyone welcome to our second quarter 2020 conference call to discuss financial and operating results I will begin by providing a brief summary of our second quarter results and then turn the call over to Betty Johnson, Our Chief Financial Officer for a more detailed financial review.
Going Betty's discussion, Todd Cooper, and Jeff Monica, Chief operating officers for TMT and see an eye segments will provide an industry outlook and discuss some of them where groups opportunities going forward I.
I will then conclude with some closing remarks and open the call up for your comments and questions.
As the cobot 19 pandemic still dominates the headlines and its future impacts remained to be seen our priority continues to be the health safety and well being over employees clients and communities.
We're closely monitoring and adhering to the latest government recommendations and client protocols as.
As the policies, we have enacted to facilitate our ability to adapt to this evolving situation.
We developed plans and contingencies that have enabled us to deliver on our promises.
Meet the expectations of our clients and returned positive results to our stockholders. Despite these uncertain times.
We're pleased with our second quarter results highlighted by revenue of $513.1 million, a 14.3% increase over the second quarter of 2019, along with increases in gross profit earnings per share net income EBITDA and free cash flow.
Our backlog was $1.55 billion at the end of the second quarter, which marks another record high for him why are.
During the second quarter bidding and project execution remained active and we are pleased to announce that we're currently in negotiations to finalize the contract with LS power Grid, New York Corporation one.
An affiliate of LS power to provide procurement and construction services for the Marcy two new Scotland upgrade project in the state of New York.
Project consists of nearly 100 miles of 345 kilovolt transmission construction within the existing utility corridors.
The contract is valued at more than $250 million.
This project will ultimately really bottlenecks on the New York power grid to improve system reliability increase efficiency and facilitate statewide access to renewable energy.
We remain an industry leader in both our TNT and see a nice segments and as always stay focused on continually raising the bar to improve our quality and efficiency in project delivery.
Additionally, we continue to have a positive outlook about the future and despite the ongoing challenges we're confident in our ability to adapt and growth in the years ahead.
It is especially in times like these that I am hopeful humble and grateful for our incredible team, who seamlessly demonstrates their commitment to safely execute work and deliver quality services to all our clients.
Now Bedi will provide an overview of our financial results for the second quarter of 2020.
Thank you Rick and good morning, everyone on today's call I'll be reviewing our quarter over quarter results for the second quarter 2020, as compared to the second quarter of 2019.
Our second quarter 2020 revenues were $513.1 million.
This represents an increase of $64.3 million or 14.3% compared to the same period last year.
Our second quarter to Andy revenues were $276.8 million, an increase of 8.1% compared to the same period last year.
The breakdown of Tandy revenues was $181.2 million for transmission and $95.6 million for distribution.
The Tandy segment revenues increased primarily due to an increase in volume and both transmission and distribution related projects.
Approximately 50% of our second quarter Tandy revenues.
They did to work performed under Master service agreements.
CNS revenues for $236.3 million, an increase of 22.5% compared to the same period last year.
The Cnine segment revenues increased due to incremental revenues from the CSRI acquisition.
Partially offset by a decrease due the timing of activity on various size projects, along with the impacts related to corporate 19 Dominic.
These improvements were partially offset by decreases in revenue recognized on pending claims and change orders for which we are seeking reimbursement and labor efficiency inefficiencies on certain projects.
SGN, a expenses were $41.2 million, an increase of $7.3 million compared to the same period last year.
The increase was primarily due to the acquisition of Cxi, along with higher employee related expenses to support the growth in our operations, partially offset by a reversal of contingent compensation expense related to a prior acquisition.
Second quarter 2020, net income attributable to him why our group was $13.4 million or 80 cents per diluted share compared to $7.2 million or 43 cents per diluted share for the same period last year.
Total backlog as of June Thirtyth, 2020 was 1.55 billion dollar $1, a record high and was 33.5% higher than a year ago.
Total backlog as of June Thirtyth 2020 consists of $520.8 million for the Tandy segment.
In $1.03 billion for the Cnine segment.
Turning to the June Thirtyth 2020 balance sheet, we had approximately $191.4 million of working capital.
$82 million of funded debt.
And $280.2 million in borrowing availability under our credit facility.
Free cash flow came in strong for the period at $54.9 million.
We have continued to focus focused on strengthening our balance sheet, which can be seen and our funded debt to EBITDA leverage ratio improvements over the last nine months since our CSRI acquisition, improving from 1.852 0.7 times leverage as of June Thirtyth 2020.
We also continued to focus on our free cash flow controlling our operating and overhead cost and limiting capital exposures to preserve our ability to continue to fund. Our operations was increased scrutiny of this spend in light of uncertainties around economic impacts from the cobot 19 pandemic.
However, we do continue to balance this with investing and developing key personnel and an procuring the specific specialty equipment and tooling needed to win and execute projects of all sizes and complexity.
We believe our credit facility strong balance sheet from future cash flow from operations will enable us to meet our working capital needs equipment investment growth initiatives and bonding requirement.
In summary, we had improvements this quarter and revenues gross profit net income earnings per share EBITDA free cash flow funded debt EBITDA leverage and backlog compared to the prior year.
I'll now turn the call over time.
We will provide an overview of our transmission and distribution segment.
Thanks, Betty and good morning, everyone.
Throughout the second quarter, we experienced active bidding and project execution throughout artsy, India operations with minimal impact Uncoated magazine.
We're very fortunate to be considered a critical and essential business and as Rick mentioned, we are excited about the perpetual war of the more seasoned in Scotland upgrade project.
Aside from this notable announcement activity continues to set around small to medium sized projects and ongoing work under long term Master service agreements with upticks in bidding for a few larger transmission projects.
Several you seeing and renewable opportunities.
Throughout the northeast mid Atlantic in Southeast work continues for several long term clients such as Eversource Dominion into Tennessee Valley Authority.
The second quarter Morris completion of the coastal Virginia offshore wind project for Dominion, which included building the high voltage interconnection and providing the ocean boring for future option in favorable installation.
This project was a first for him why our group in the offshore series and our successful performance should position us well for future opportunities.
In June we were awarded a contract for phase two of Dominion smell storm valleys 500, Kt rebuilt project in Virginia.
Structured is underway and the project is expected to be completed in July of 2020 warm.
In the Midwest worked progress is on the commercial transmission projects for Duke energy and the gateway transmission projects for Amarin, both of which are expected to be completed later this year throughout the Midwest in Texas, we experienced steady transmission substation and distribution work much of which falls on.
Under our long term essays.
Momentum continues for solar wind and transmission opportunities throughout the West our project teams become mobilization started up efforts on the Battle Mountain storage in solar project in Nevada, and work continues on with Gateway West substation projects for Pacificorp.
On the distribution for a number of utilities are making the ongoing investments in system upgrades to improve asset performance and modernize and strengthen the grid.
Many utilities are relying on outside contractors for much of this work and our distribution work remains strong for many customers.
Industry headlines continue to reflect the positive market outlook in healthy TNT capital spending projections, although the magnitude of compared with 19 impacts are still unfolding and could affect future initiatives.
In may further reinforce that electric team this spending should remain resilient despite weaker economic conditions.
Key drivers and strengthen grid reliability replace aging infrastructure.
And integrate renewable energy remain intact and elevated levels of investments are expected to continue for the next five to 10 years with most utility customers maintaining substantial multi year capex plans.
Growth is still expected primarily in small to medium sized projects and over the next five years with potential for a handful of see large projects to accelerate towards construction in the next couple of years.
Several of our long term customers made significant spending announcements in the second quarter Excel announced plans to accelerate $3 billion and clean energy spending in response to the Minnesota Public Utilities Commission and the department of Commerce request to involve utilities in the states economic recovery process due to impacts.
Uncoated 19.
In New York National Grid filed its annual transmission and distribution capital investment plans with the New York State Public Service Commission, which includes a proposed 4 billion dollar spend over the next five years.
Pharmacy developments on the renewable from included a June report from the International renewable Energy agency that reflected significant declines in costs since 2010 for utility scale solar power interest dropped to 82% onshore wind, which has dropped 39%.
And offshore wind, which has dropped 29%.
These declines are expected to continue with improved technology and expanded market participation.
As these energy sources become cheaper compared to new electricity capacity based on fossil fuels liters of us hydro solar wind and storage industry associations plans to expand market share over the next decade.
In summary, we are pleased with our second quarter performance and remain optimistic about our future cross that prospects for growth and our ability to persevere through these challenging times.
As we strive to bring the best of them wire group to our customers employees and shareholders, we will carefully monitor and adjust our business operations as necessary to ensuring that the health and safety of our people and communities remains our top priority.
I'll now turn the call over to Jeff Monica, We will provide an overview of our commercial and industrial segment.
Thanks, Todd good morning, everyone.
Our second quarter performance is reflective of the disruption we faced in re sequencing our workflow in implementing additional safety measures throughout the course.
Our employees adapted rapidly to new guidelines and continued serving our clients with minimal impact.
We are proud of every team member who took the lead on their respective job site adhering to the guidelines to keep everyone healthy and safe.
We entered 2020 with record backlog that continued to burn at a steady pace through the quarter.
Initial decrease in CNS revenue reported last quarter continued to improve in most of our district offices as restrictions were lifted throughout the U.S and Canada.
While we have not experienced any significant project cancellations, we have faced some delayed projects starts slower ramp ups as project schedules, our adjusted in response to market disruption.
Sina bidding activity has remained active in most of our district offices most of the large projects being tracked appear to be moving forward. However market predictability is likely to remain a concern to the rest of 2020 as covert 19 cases vary across the country.
We believe that commercial and industrial recovery through the balance of the year, we'll continue to be dependent on overall economic recovery that we remain hopeful that the various approved stimulus packages will offer continued opportunities.
And I was successful in winning significant projects during the second quarter is awards provide confidence that our chosen markets will continue to offer solid platform for growth and profitability.
We've continued our investment in building, our transportation infrastructure expertise across all district offices, which we believe positions us favorably for future expansion.
We remain encouraged by the possible award of a national infrastructure, Bill and believe we will be positioned well an additional spending bills are released.
In addition to transportation and infrastructure, we believe our other primary markets may be somewhat less vulnerable to economic slowing, including healthcare datacenters warehousing renewable energy and water projects.
As always we remain focused on working safely productively and close collaboration with our clients industry partners. We expect that are seeing nice segment will emerge even stronger following the near term challenges. We are fortunate most of our operations are considered an essential business and are proud to employ the best field.
And support services in the industry.
Thanks, everyone for your time today I'll now turn the call back to Rick Who'll provide us with some closing comments.
Thank you for those updates better targeting Jeff.
I want to take a moment to except express my appreciation to our employees, who continue to inspire me everyday.
Amidst challenges due to cope with nineteens continually evolving impacts their constant dedication and positive outlook remind me that we're so fortunate to have the best team talent and culture in the business.
We will remain at the forefront of identifying industry trends and client needs in order to grow our business and provide superior services in order to achieve our long term strategic targets and we will continue to make disciplined decisions to move our business forward.
Operator, we're now ready to open the call up for comments or questions.
Thank you, ladies and gentlemen to ask a question you will need to press Star line on your telephone to withdraw your question press the pound our hash key.
Please standby, while we compared to Q and a roster.
And your first question comes from the line of Sean East men with Keybanc.
Hi, This is outcome for Sean Congrats on the strong results.
Thank you.
Yes. So so first question I just wanted to touch on the commentary around the project pipeline remaining active for both both of your segment.
And the outlook remaining impact.
How would you characterize your visibility in line of sight on outflow awards in the second half of the year and maybe how would this compares to the path at this point in the year.
I think if it's not as active as it was a year ago, but its remains active I think a year ago. We are described in the market as robust.
I think on the TMD side remains.
Very active.
Don't really see much impact there going forward none of our clients are really said theyre cutting back on their budgets on the C and I think it's really as Jeff was.
Highlighted in his script it may be changing of that type of work. So well office buildings that we didnt have a lot of exposure to that.
Well those being built next year will that stuff, but the data center the hospitals some of the other areas he highlighted.
From everything we see talking to the engineers and our clients out there those continue to be planned in it looks like those are going to move forward. It's really just the timing of it and again with any of our backlog. We've always said in previous quarters. It's lumpy we want to make sure we have the right contract in place before we sign it and again, we don't control the timing of.
The awards, so you do see that lumpy in some quarters.
Very helpful.
And my second question can you just can you give us some color around how you've been able to control costs. During this pandemic. During the last couple of quarters them and are you able to quantify the magnitude of the impact and then also last call you mentioned 15 million of questionable Capex.
Have your plans for this change in the past few months. It seems like Capex has been been pretty light this year, so far so let's.
We'll start with Capex, we continue to watch it we're just as we said we're in negotiations final negotiation.
On the LS power project.
That OFAB us continuing to invest in some capital. So again, we're going to adjust our capital to the to the book of business, we have at hand, and where we see the immediate future going so that can come up and down a little bit, but we've got to make sure. We got the right tools equipment.
In place to to execute the word profitably.
So again, we'll we'll continue to monitor that.
But it probably won't be that that high Elba cut back on our capex, but we will monitor and look at it going forward.
So so thats on the Capex side in your second part of the question or your first part of the question can you repeat that again.
Yes, I just wanted to understand cost the cost cutting during the pandemic than the past couple of quarters, and if you're able to quantify the magnitude of the impacts.
So we havent quantified it I think when we look at our overall projects go immediately our our teams got together and looked at the projects specially on the fee and ISI that may be pushed out a little bit.
We didn't cut back on on the side of where we needed to do additional planning and I think Jeff can probably add a little bit on what he's done on that planning and where you see some of its productivity based on that but we've cut you know we're always has a contractor out there looking at our overhead looking at what it takes to make us work more efficiently developing.
New plans and procedures that will aid enable us to to.
Hopefully strive to higher profit margin and we had in that that all times just not during the pandemic sides. Jeff you want to talk a little more specific about what you've done.
Yes, I think initially we believe there would be a fairly large impact to productivity due to just the safety measures put in place, but we've we've seen that the additional.
I am talking about the project and protocols and how we're going to go forward with our trade partners is actually benefited us. So there's clearly some offsetting productivity out there that's been.
Helpful to us so we.
We see that continuing as some of the projects kind of get pushed out to the right that it's allowing just a lot more collaboration between us and our partners which is beneficial.
Thank you.
And again, ladies and gentlemen to ask a question you will need to press star one on your telephone again Thats Star wanted to ask a question.
Your next question comes from the line of Justin Hauke, what Robert W. Baird.
Good morning, everyone. Thanks for taking my question here I.
I guess this one's for for bad EBIT.
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You called out a couple of things on the margins.
Some positives and negatives.
Maybe to the extent you could help us quantify some of those specifically the earn out reversal that you talked about and then maybe on the offset to that the the project Closeouts and how that impacted the margins. Thank you.
Yep.
Oh I'm going on.
Turning to the operating.
Results for Cnine.
Although we haven't quantified very specifically the reversal of contingent consideration or specifically the job Closeouts, we do in total we quantify it.
But if you just took.
Those when you think about them as one time events.
Basically the reversal of the contingent consideration and and then some of the.
Maybe some up some of the offsetting.
Negative impacts that were onetime in cnine, they pretty much offset.
So the 3.8% margin that we had.
In Cnine segment this quarter.
You can think about that as more of consistent margin because those two did offset and just wondering mind or that you went let's talk about kind of getting to that 4% or so as our our typical when you take the on higher amortization.
For the acquisitions, mainly stance I.
Just as we've talked about in the prior quarters.
So even with those different events and their this would have been just above 4%.
As it has been since the.
This time last year once yes, I became part of our operations and we had that higher amortization.
Actually for the first year.
Great yet is that it's going to be kind of what I was going to follow up on that it is just.
The amortization is that still you know in the 100 basis point range in terms of whats running for Cnine then.
What's the timeline for that rolling off because I know usually that's that's highest in the first year and you're kind of getting the point, where we're anniversarying Cxi acquisition.
Exactly.
So this the Cxi acquisition amortization.
We will definitely come down after this quarter.
And I will be very similar to and in the past when we had large amortization and a cut back so there's still be some.
And you can see in our cash flow the amortization and it's about a half a percent of the.
Cnine.
Business revenue and ill hop back.
Probably at least half of that.
Going forward.
Great. Okay. That's helpful.
And then I guess in the next question is just on the balance sheet.
It is great to see that it's kind of opened up here. After a couple of years of it being a little more stretched leased versus your history and.
I guess the question is.
Where do you guys want to kind of manage the leverage longer term, assuming kind of steady state and then also what's the thought process on coming back into the market on the buyback since it's been a couple of years. Since you guys have done anything on that front.
I can start with that Rick can you can you can add.
Our our leverage.
We talked about down at that 0.7 is.
Even lower than we had said that our goal is to get too.
And historically in this last several quarters when it came up one cents I as a company we've said that we have.
Our comfort zone and that we talked about on a regular basis goes up to two times leveraged sometimes could even be higher for that acquisition holiday.
Since I took us to the 1.85 and as a company.
From there our focus was to bring that back down to in that one to one in a quarter.
Or to doing another acquisition and Rick has done is quoted a pretty much for the last year.
The focus on on the balance sheet and improving operations.
Before we do another transaction.
We've said that we wouldn't be doing one and one in 2020.
But then after that we would be open to we're always looking at transactions Trust me, they come and across our dots on regular basis.
The more open to two and transaction then going into next year as we.
On a complete those things that he's talked about.
And when it comes to stock buybacks, we always have that on our discussion list every quarter, what the board that's always been Readdressed as you know we don't have.
A program outstanding right now that is not our first priority of our capital spend on M&A doing the theres transactions out there on based on today's market there was likely would be.
That would be our first priority Rick anything else to add to that.
I don't have anything to add better you covered it well.
Okay. Thank you very much I appreciate all of that I think that's all for me if right now thank you.
Yeah.
Your next question comes from the line of Julia you adopt with Stifel.
Hi, This is Jay a on for Noelle dilts, congrats on a great quarter.
Thank you kind of wanted to ask about you know what you guys are thinking it out for the non residential construction markets.
Recently, the consensus forecast came out for the mid year kind of talking about their expectations for 2020, and 2021 and some of that data was a bit more negative. So I'm just kind of curious about how do you guys are thinking about the nonresi construction market and to 2021.
Ill, let just start and then I'll add to it now like to address that.
We have found in prior challenging economic times that.
We're in a pretty resilient position a lot of our clients. During these times turn to their most trusted partners to get their work done.
So we have although the.
No doubt there is less work in the pipeline is in the design industry you fill there's plenty of projects out there that are there may be more difficult it.
Our clients are going to be looking for somebody who they absolutely trust to get their work done.
They know that other contractors can get stress during this time so.
We believe it starts to put us in a very favorable position and believe will push through this pretty well.
And as a company we have little exposure to big box, we don't do that as as a company.
So we don't do that kind of construction, we have limited on what I'd call high rise tie build out though we do some of it it's not a high percentage of our Cnine business. We do more of what we described as more of the high Tech specialized.
Commercial industrial type work, so again, not a lot of exposure on that but we constantly monitor the entire market.
We see some upsides in some potential markets as Jeff said with data centers and other areas that are growing.
Great. Thanks.
And again to ask a question. Please press star one on your telephone keypad again that star one.
At this time there are no further questions I will now turn the call over to Rick Swartz for closing remarks.
To conclude on behalf of Betty Todd, Jeff and myself I sincerely. Thank you for joining us on the call today I don't have anything further and we look forward to working with you going forward and speaking with you again on our next conference call until then stay safe and healthy everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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