Q3 2020 MYR Group Inc Earnings Call

October 29, 2020

[music].

Good morning, everyone and welcome to the M Life. Our agreed third acquired 2020 earnings results Conference call. Today's conference is being recorded I'd be fine for opening remarks, and introductions I would like to turn the conference over to David get Jared.

Dress nerd corporate services. Please go ahead David.

Thank you and good morning, everyone I'd like to welcome you to the wire Group conference call to discuss the company's third quarter results for 2020, which were reported yesterday.

Joining us on todays call are Rick Swartz, President and Chief Executive Officer, Betty Johnson, Senior Vice President Chief Financial Officer, and Treasurer Tom.

Cooper Senior Vice President and Chief operating officer, and wire groups transmission and distribution segment, Jeff want a senior Vice President and Chief Officer, and Wired boots commercial and industrial segment if.

If you did not receive Yesterdays press release, please contact dresner corporate services at three one to seven to 630 600, and we will send you a copy or go to them why our group web site, where a copy is available under the Investor Relations tab.

Also a replay of today's call will be available until Thursday November November 2020 at 12 PM Eastern time by dialing 8558.

Fivenine.

2056, or 4045373, 406, and entering conference I'd 776 130.

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 him wire group management as a state and him why our group assumes no obligation to update any such forward looking statements. These forward looking statements involve risks and uncertainties that could cause.

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 year ended December 31 2019.

The company's quarterly reports on form 10-Q for the first second and third 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 is 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 third quarter 2020 conference call to discuss financial and operating results I will begin by providing a summary of our third quarter results and then turn the call over to Betty Johnson, Our Chief Financial Officer for more detailed financial review following Betty's discussion, Todd Cooper and Jeff one at that.

Chief operating officers for our team DMC nice segments will provide an industry outlook and discuss some of them were in our groups opportunities going forward.

I will then conclude with some closing remarks and open the call up for your comments and questions.

Our third quarter results included a net income of $17.3 million, a 67% increase over the third quarter of 2019, along with increasing creases in revenue growth gross profit EBITDA and free cash flow as compared to the same period of 2019.

Our backlog at the end of the third quarter was $1.72 billion the sixth consecutive record high for our backlog, reflecting the current stability in the markets, we serve as well as our competitive strength.

With the first nine months of 2020 in our rear view mirror. We are pleased that the plans we enacted allowed us to successfully meet the needs of our clients remain profitable continue to grow our business and keep our people working as safely and productively as possible.

We continue to carefully monitor the varying degrees to which the COVID-19 pandemic is affecting our business, we consider the health safety and well being of our employees clients and communities our highest priority.

COVID-19 continues to have a negative impact on individuals within the communities, we serve and I'm proud to say that our community involvement has remained strong throughout the third quarter through blood drives meal donations for essential workers volunteer hours and event sponsorships and wire group continues to give back to the people.

And the communities in which we live and operate.

During the third quarter bidding and project execution was an act was active for projects of all types and sizes in both our DMD and CF business segments.

The drivers for capital spending in transmission remained strong, including the ongoing need to strengthen grid reliability and resilience replace the aging infrastructure and integrating renewable energy.

Well, our primary cnine markets appear to be less vulnerable to economic slowdown, including health care transportation data centers warehouse.

Renewable energy and water projects, we continue to monitor and discussed planned projects with our business partners to gain additional insight into the future stability of our business.

We also anticipate significant opportunities in the utility scale solar and battery storage space in the near future. This is being driven by aggressive state renewable portfolio standard goals carbon reduction commitments from utilities across the country improved technology and declining material costs.

Overall, we believe our greatest strength lies in the diversity and dedication of our talented professionals, who inspire me with their unwavering perseverance through these challenging times together, we will we will adapt to our clients' needs innovate and remain agile in order to meet and exceed performance expectations.

We are confident that our geographic scale depth of expertise and client focused mindset will allow us to deliver sound financial results that form the foundation for consistent long term success now.

Now Betty will provide an overview of our financial results for the third 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 third quarter of 2020 as compared to the third quarter of 2019.

Our third quarter 2020 revenues were $607.9 million a record high.

This represents an increase of $24.7 million or 4.2% compared to the same period last year.

Our third quarter TNT revenues were $299.7 million, an increase of 1.6% compared to the same period last year.

The breakdown of Tandy revenues was $185 million for transmission and $114.7 million for distribution.

The Tandy segment revenues increased primarily due to storm work related to certain weather events, partially offset by a delay in startup activity on certain transmission projects.

Approximately 50% of our third quarter TNT revenues related to work performed under Master service agreements.

See an AD revenues were $308.2 million a record high for CNS segment, with an increase of 6.9% compared to the same period last year.

See nice segment revenues increased due to higher volume associated with the CSR acquisition and transportation related services.

Partially offset by slowdowns associated with the COVID-19 pandemic.

Our gross margin was 12.6% for the third quarter of 2020 compared to 10.2% for the same period last year.

The income improved gross margin was primarily due to an increase in higher margin and storm related work better than anticipated productivity on certain projects and settlements related to previously unrecognized revenues and project claims and change orders.

These improvements were partially offset by labor inefficiencies on certain projects projects and decreases in revenue recognized on pending claims and change orders for which the company is seeking reimbursement.

SG expenses were $51.4 million, an increase of $9.7 million compared to the same period last year.

The increase was primarily due to higher bonus profit sharing and other employee related expenses to support the growth of our operations as well as incremental costs associated with our Cxi operations and an increase in contingent compensation expense related to prior acquisitions.

Third quarter 2020, net income attributable to our group was $17.3 million or one dollar and two cents per diluted share record highs for EMR.

Compared to $10.4 million or 62 cents per diluted share for the same period last year.

Third quarter, 2020, EBITDA was $36.2 million, representing a quarterly record high for Empire.

Total backlog as of September Thirtyth, 2020, with $1.72 billion, a record high and was 25.9% higher than a year ago.

Total backlog consisted of record high for Tandy segment.

$746.6 million.

And $973 million for RCM segment.

Our TMT backlog includes the previously announced Marci to new Scotland upgrade project with LS power.

Moving to liquidity and our balance sheet, we had approximately $199.2 million of working capital $70.2 million of funded debt and $310.4 million and borrowing availability under our credit facility as of September Thirtyth 2020.

We have continued to focus on strengthening our balance sheet, improving our free cash flow free.

Free cash flow came in strong for the period at $20.2 million and was a record high of $115.8 million for the trailing 12 months.

Our funded debt to EBITDA leverage ratio has improved over the last 12 months since our CSR acquisition, improving from 1.85, a year ago to our current 0.6 times leverage as of September Thirtyth 2020.

We believe our credit facility strong balance sheet and future cash flows from operations will enable us to meet our working capital needs in clip and investments growth initiatives and funding requirements.

Additionally, given our solid liquidity and financial position and strong financial performance. Our board of directors authorized a new share repurchase program, which allows us to repurchase up to $50 million of our outstanding shares of common stock effective November 2nd.

We intend to fund these purchases from cash on hand, and through borrowings under our credit facility.

In summary, we had improvements this quarter and revenues gross profit net income earnings per share EBITDA free cash flow funded debt to EBITDA leverage and backlog compared to the prior year.

Additionally, this quarter, we set new record highs for revenue gross profit net income earnings per share EBITDA and backlog.

I'll now turn the call over to Todd Cooper, who will provide an overview of our transmission and distribution segment.

Thank you Betty and good morning, everyone.

As outlined in our earnings release or TMB segment had a strong third quarter in terms of revenue operating income and backlog.

Amidst the ongoing curve in 19 pandemic, we're fortunate to be classified as an essential business and strive to maintain our top tier service capabilities and expertise to our clients employees and communities.

I'm excited to announce that employ our group was officially awarded the Marci to new Scotland upgrade project with LS power.

The related contract is valued at more than $250 million in final negotiations were completed in September and construction is anticipated to begin in early 2021 with the scheduled in service date by the end of 2023.

Pick outlook for the next three years.

Reports continue to show, an increasing demand for utility scale solar and energy storage with limited contracted resources to fulfill installation demands we.

We believe that we are well equipped with the resources and expertise to grow our capabilities to capitalize on the opportunities in the solar energy storage markets.

Overall bidding activity remain active through the third quarter, we continue to capitalize on small to medium sized projects and are committed to the further developing of our EPC in renewable energy opportunities. While further strengthening our position are positive relationships with our clients under Masters services agreements.

In closing, we had a strong third quarter performance and are optimistic about our growth potential and our ability ability to adapt during these unique and challenging times.

With the health and safety of our people our clients and our communities as a top priority we remain confident in our ability to adjust our business operations as needed.

I will now turn the call over to Jeff Monica, who will provide an overview of our commercial and industrial segment.

Thanks, Todd Good morning, everyone. It has been a busy third quarter for C&I as we track the ebb and flow of COVID-19 cases across the country.

We continue to closely monitor its impact on our ongoing work as well as its potential impact our pipeline a future work. Our crews have responded favorably to changes in work guidelines and our work remains relatively unimportant.

We are much of our success to the processes and new digital platforms, we put in place over the last several years to collaborate electronically.

Having this headstart before COVID-19 arrived allowed for rapid deployment of new processes as our clients move to increase social distancing in an industry that demands high levels of proficient communication.

We entered 2020 with record backlogs that continued to burn at a steady pace through the quarter after experiencing a slight decrease in revenue in the second quarter. We have steadily increased revenue each month, and then returned to pre pandemic levels.

We announced in the second quarter that we had not experienced any significant covid related project cancellations, which is still the case today. However, a few projects starts have been pushed into the future.

While we are pleased with the lack of cancellations were carefully monitoring project start dates so that we can maintain the needed resources for the commencement of these projects.

Turning to bidding activity C&I bidding opportunities have remained active in most of our district offices most of the large projects being tracked appear to be moving forward. However, long term market predictability remains of concern is various economic indicators report potential deficits and funding issues, we believe that <unk>.

<unk>, an industrial recovery through the balance of the year will continue to be dependent on overall economic recovery and we remain hopeful that stimulus packages will offer continued opportunities as we move forward.

C&I was successful in winning significant projects during the third quarter, which provides confidence that are chosen markets will continue to offer a solid platform for growth and profitability.

We believe our primary markets may be somewhat less vulnerable to economic slowly, including health care transportation data centers warehousing renewable energy and water projects. In addition, we have been expanding our transportation expertise across our district offices, which we believe positions us favorably for future.

Spansion and we remain encouraged by a possible approval of a national infrastructure Bill.

Both industry analysts and our clients are indicating that the health care market is showing resiliency.

According to Dodge data and analytics spending is expected to increase as hospitals and healthcare provider's adapt to the new normal and preparing for potential resurgence of COVID-19.

Moving forward the primary considerations for healthcare facilities will be scalability and flexibility by creating more ICU capabilities and flexible patient capacity, including larger medical gas connections additional power and flexible ventilation systems. The American Institute of Architects stated that healthcare construction is.

One of the few sectors expected to avoid a recession this cycle forecasting a 2% increase this year. Another 3% of 2021, we continue to track several large projects expected to procure over the next few quarters.

We have also experienced ongoing opportunities in the datacenter market as power reliability edge computing and high Availably services become a greater focus heightened investments from cloud services and Colocation providers are among the significant contributors to the growth of the market.

We are seeing a continual stream of modernization projects as clients strive for higher efficiency and cost savings recent contract awards in various C&I districts provide confidence that this segment will continue its expansion.

Another market that appears to be holding up well is warehousing. According to Dodge data their biggest building sector warehouses is only expected to slipped 1% in 2020 that is particularly impressive when you consider that warehouse construction set a dodge date of record with 226 million square feet.

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Warehousing dedicated to E commerce fulfillment has been flourishing during the COVID-19 prices and is forecast to experience a fee shape progression returning to prior spending levels and possibly breaking a record again in 2021.

In closing we are fortunate to have built a business focused on sustainability creativity and long and strong customer relationships as always we remained focused on working safely productively and in close collaboration with our clients and industry partners.

Thanks, everyone for your time today I will now turn the call back to Rick who will provide us with some closing statements.

Thank you for those updates Betty card and Jeff and clothing, I've never been prouder to serve as MYR groups, President and CEO are remarkable employees projects and industry reputation are second to none.

We remain committed to providing excellent shareholder value in doing so through sustainable and safe working environments, both in our offices and field operations in closing I'd like to once again, thank our employees for their dedication and our lawyer loyal clients and stockholders for their trust and support operator, we are now ready to open the call.

All up for comments and questions.

Is there a reminder, ladies and gentlemen to ask a question you all need to press star one on your telephone can we draw. Your question. Please press enter.

<unk>. Please stand by all we compile Vicky in a roster.

Our first question is from Sean Man of Keybanc. Your line is open.

Good morning. This is al conquer Sean Thanks for taking my questions.

So I'll start off with the transmission Martin that we're very strong it's quarter and the double digit range, maybe they were well above that high end of that historical typical range of you guys are provided in the past I.

I guess I'm, just trying to understand better what drove strength you caught up to him work in the settlements related to unrecognized revenue how material over those towards margin I guess, what I'm trying to get at is just trying to think whether this type of margin profile sustainable going forward.

Yes, we are above whatever what we've given us that range before this quarter.

The storm and some of those settlements did play Intuit it didn't drastically move the needle. We also had extremely good weather during this period and as we said in past quarters that weather can make or break you. So when you take all those things combined good weather those settlements in some of that storm work at it together it was additive.

To our higher range there.

Okay very helpful and then another one on transmission or Tendie.

Regarding that Alex Power project, you guys booked this quarter and wrapping up next year, and then coupled with the large transmission prospects hitting up.

I guess, how should we think about the mix of large versus small to medium sized project from a margin perspective.

On an annual basis marginalized could we be trending towards the upper end of that historical range any thoughts on the puts and takes on that dynamic going forward would be helpful.

Maybe this is taught it certainly our goal to continue to improve and and keep working on a margin through productivity and all the training that we do from a from the aspect of of the large projects, what we do see some of them.

Getting closer to come with coming to market. You know, we still find that several are struggling through the permitting process and haven't been on the board yet as far as the putting on orefice or rfps for those projects, but.

We really.

Focus on what's out there every day for us and that's too small to medium sized projects that we we know and which date do.

Through the script here that we're seeing a lot of bidding activity, we're continuing to to focus on performing on those projects. So.

That's pretty pretty steady right now in pretty level Oz and we are optimistic that some of these large projects are going to come to market.

We do have the more senior new Scotland project, starting next year. So.

It's a big focus for US I think we've always said that large projects as a big part of what we're doing.

When they come out one of the contractors that people look look towards for for <unk> for building those and that's what we strive to do.

Thank you and cacti squeeze one more and then so with with C&I backlog taken down since the high end first quarter.

Can you provide any thoughts around the visibility around like the timing of an inflection point of where like backlog to turn a corner and maybe talk to stabilize.

We have had a very strong backlog coming into the year, where record highs I think we turned nine months of increasing backlog, we'd love to be at a higher book to bill ratio, but at the moment, we're being really smart about what we look at it no doubt there some <unk>.

Returning in the market and and we're making.

A lot of evaluations on what to chase as things tighten up and I think we're doing quite well in capturing the work that we're capturing it's it's.

There's just a lot of turmoil in the market right now it's not no. One can really tell when that inflection point is but we're doing well tracking what were the projects we've been falling for quite a while as Jeff said, it's been enacted did market and the majority of the areas that we serve with our C&I side and again, we want to me.

Sure we have the right contract in place before we sign a contract and put it into our backlog. So we don't control the timing of that we'll do everything we can to negotiate to have the first contract, we can and sometimes that doesn't come into a quarter and it may take three four months to negotiate those contracts out so our backlog. We've always said before is going to be.

Lumpy. So if there's a slight decline in one quarter I wouldn't read too much into that.

Thank you.

Our next question is from John.

Kansas City capital your line Okay. Good.

Good morning, everyone.

Couple of questions.

Betty has some of the storm restoration revenue.

Or work in the third quarter extended.

And to the fourth quarter absent.

Today's hurricane.

This is Todd yet, yes it has.

Really really not much to elaborate there, but I think you've seen the continuing effects of the wildfires in the okay. <unk> that we are still experiencing so there is some of that ongoing today, okay. Okay. Secondly.

When you listen to utility companies and you guys you talk a little bit.

More frequently about battery storage.

On the renewable.

Generation and I guess.

Two questions number one is what exactly do you do with.

And in regard to battery storage, what kind of work do you do in that.

In that regard and then secondly.

Maybe to help frame the opportunity of emerging battery storage opportunity. For example, Nextera energy has has proposed a new facility down here in Kansas City of 3500 acre wind Solar farm 500 megawatt farm.

And I will supposedly it will include battery storage, what kind of incremental.

Addition, or cost to us.

Solar farm like that is battery storage.

Can you help frame maybe the opportunity.

The emerging battery storage developments.

Well I think I think when we really look at the overall market with battery storage. What it's doing is allowing these to these projects to to be able to come to market because before it was duckbill curve everybody hit they're all the solar sites produced energy at the same time, there was no way to store. It. This allows the feasible and take it to market afterwards.

It's probably in that I would say, 10% to 20% additive.

To what it costs to site to do that that would be a rough range for our work we've done everything from the the installer of the batteries and that those components to actually be involved with the engineering side and bringing that site into the market. So from the pure procurement side and everything we've done.

So we've installed it for clients just as a as a labor broker and then we have also done the full full phase of purchasing it and installing it so if a good additive to our business. Okay. Okay are you seeing any.

Developments in offshore wind.

We are we are seeing some of that we last year, we had a project where we did the onshore portion of one of those projects.

We're seeing available we're seeing potential for those to come to market I think there's a lot of activity out there, but a lot of it has to do with pricing right now and trying to make sure it's viable to.

Bring in pricing wise, so we're involved with that side on kind of a budgeting.

That estimate inside of it and providing budgets to our clients and construct ability reviews. Okay. Alright. Thank you very much.

Again, ladies and gentlemen can you have a question at this time. Please press star one online telephone came back.

Question will trauma Dayang, a dash of equal your line or welcome.

How long ago, congrats on a great corner.

So I wanted to start off asking about yes, hi, you're thinking about the impact can be November presidential election.

Outcome on operation do you kind of see demand child's changing based on people who've Galactan, maybe kind of get what you think what you're thinking about IL hazmat our business.

I'll start and I'll, Jeff are taught at anything they want to for US. It's I don't see the market's we're changing that that we're chasing today or that we're involved with.

Really be infected accurately regardless renewable.

For the solar side that we're in it's going to continue with whoever's.

Voted in there the mandates that are out there some of the stuff identified in my script. Those are going to those are going to stay is constant drivers.

Again, we're not into two tenant finish we're not into high rise construction as a big component of our business in any way. So the market's we serve are going to continue regardless of who's in there.

We don't control the economy and that could go up or down a little bit, but I don't think any of us can predict that I'm pretty bullish on the markets were in and hope that the economy continues to be strong.

Great. Thanks.

Have you seen or heard any pricing pressure discussion on confessions emerging from the danite sagna because it lets lay down and project activity are pushed out.

And no doubt, they're tightening of the market and it's very.

It depends on the location and the country as to how much that is.

So.

Again, the work that we've tried to pursue is more relational and more about our technical expertise. So I think some of the smaller work that we do in multiple districts is saying probably the greater pressure, but the larger projects that we have on the horizon, they're far more viable and seeing less pressure NOL I would say it.

It's not anything we haven't seen when we've been entering tough economic times before or doubtful economic times before we.

We've seen that competitiveness increase what I can tell you that we're not going to change the way we bid.

We put a lot of stuff in place as far as training, making sure our predict productivity continues to improve everywhere, we can but we're not going to take work below cost. So.

Our focus is always going to be to focus on the cost in our estimates and then we can put a fair margin on it.

It's not going it's not race to the bottom for us. So if somebody wants to take a project below cost they're going to do it.

Great. Thank.

I am sharing no further questions at this time I would like to turn the conference back to Mister Rich.

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 here may now disconnect.

[music].

Good morning, everyone and welcome to the <unk> are agreed third quarter 2020 earnings results Conference call Today's conference is being recorded.

I'd be fine for opening remarks, and introduction I would like to turn the conference over to David good yards.

Dressed third corporate services. Please go ahead.

Thank you and good morning, everyone I'd like to welcome you to the I'm Wire Group conference call to discuss the company's third quarter results for 2020.

Ported yesterday.

Joining us on today's call are Rick Swartz, President and Chief Executive Officer, Betty Johnson, Senior Vice President Chief Financial Officer and Treasurer.

Cooper Senior Vice.

[music].

Good morning, everyone and welcome to the <unk> Our group third quarter 2020 earnings results Conference call Today's conference is being recorded.

For opening remarks, and introduction I would like to turn the conference over to David gets yards.

Dressed third corporate services. Please go ahead.

Thank you and good morning, everyone I'd like to welcome you to the wire Group conference call to discuss the company's third quarter results for 2020 reported yesterday.

Joining us on today's call are Rick Swartz, President and Chief Executive Officer.

Eddie Johnson, Senior Vice President Chief Financial Officer, and Treasurer.

Todd Cooper, Senior Vice President and Chief operating Officer, and Workgroups transmission and distribution segment I, just want to Kelly Senior Vice President and Chief Officer, and while that's commercial and industrial segments.

If you did not receive Yesterdays press release, please contact president corporate services at 21 to 17, 630, 600, and we will send you a copy or go to the M., where our group website, where a copy is available under the Investor Relations tab.

Also a replay of today's call will be available until Thursday November November.

2020 at 12 PM Eastern time by dialing 855.

Five night.

Kids Euro five six.

4045373 of course, there are six and entering conference I'd 776, 130 <unk>.

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 while management has a state.

Our 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 year ended December 31 29 killed.

The company's quarterly reports on form 10-Q for the first second and third quarters at 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 the most comparable GAAP measures is 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 third quarter 2020 conference call to discuss financial and operating results I will begin by providing a summary of our third quarter results and then turn the call over to Betty Johnson, Our Chief Financial Officer for a more detailed financial review following Bettys discussion taught Cooper and Jeff one of the.

Chief operating officers for our team DNC nice segments will provide an industry outlook and discuss some of them were in our groups opportunities going forward.

I will then conclude with some closing remarks and open the call up for your comments and questions.

With the first nine months of 2020 in our rearview mirror. We are pleased that the plans we enacted allowed us to successfully meet the needs of our clients remain profitable continue to grow our business and keep our people working safely and productively as possible.

We continue to carefully monitor the varying degrees to which cook. The COVID-19 pandemic is affecting our business, we considered the health safety and well being of our employees clients and communities our highest priority.

Entities in which we live and operate.

During the third quarter bidding and project execution was an <unk> was active for projects of all types and sizes in both our TNT and see an eye business segments.

The drivers for capital spending in transmission remained strong, including the ongoing need to strengthen grid reliability and resilience to replace the aging infrastructure and integrating renewable energy.

While our primary cnine markets appear to be less vulnerable to economic slowdown, including health care transportation data centers warehouse.

Renewable energy and water projects, we continue to monitor and discussed planned projects with our business partners to gain additional insight into the future stability of our business.

Overall, we believe our greatest strength lies in the diversity and dedication of our talented professionals, who inspire me with their unwavering perseverance through these challenging times together, we'll we will adapt to our clients' needs innovate and remain agile in order to meet and exceed performance expectations.

Now Betty will provide an overview of our financial results for the third 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 third quarter of 2020 as compared to the third quarter of 2019.

Our third quarter 2020 revenues were $607.9 million a record high.

Represents an increase of $24.7 million or 4.2% compared to the same period last year.

Our third quarter TNT revenues were $299.7 million, an increase of 1.6% compared to the same period last year.

The breakdown of TNT revenues was $185 million for transmission and a $114.7 million for distribution.

The <unk> segment revenues increased primarily due to storm work related to certain weather events, partially offset by a delay in startup activity.

Certain transmission projects.

Approximately 50% of our third quarter TNT revenues related to work performed under Master service agreements.

<unk> revenues were $308.2 million a record high for Syn <unk> segment with an increase of 6.9% compared to the same period last year.

See nice segment revenues increased due to higher volumes associated with the Sealy acquisition and transportation related services.

Partially offset by slowdown associated with the COVID-19 pandemic.

Our gross margin was 12.6% for the third quarter of 2020 compared to 10.2% for the same period last year.

Improved gross margin was primarily due to an increase in higher margin and storm related work.

Her than anticipated productivity on certain projects and settlements related to previously unrecognized revenues and project claims and change orders.

<unk> expenses were $51.4 million, an increase of $9.7 million compared to the same period last year.

Chris was primarily due to higher bonus profit sharing and other employee related expenses to support the growth of our operation as.

As well as incremental costs associated with our CSR operations and an increase in contingent compensation expense related to prior acquisitions.

Third quarter 2020, net income attributable to our group was $17.3 million or one dollar in two cents per diluted share record highs for him why are.

Compared to $10.4 million or 62 cents per diluted share for the same period last year.

Third quarter 2020, EBITDA was $36.2 million, representing a quarterly record high for him we are.

Total backlog as of September Thirtyth, 2020, with $1.72 billion, a record high and was 25.9% higher than a year ago.

Total backlog consisted of record high for Tandy segment.

$746.6 million.

And $973 million for RCM segment.

Our 10 day backlog includes the previously announced Marci, the new Scotland upgrade project with LS power.

Moving to liquidity and our balance sheet.

Proximately $199.2 million of working capital $70.2 million of funded debt and $310.4 million and borrowing availability under our credit facility as of September Thirtyth 2020.

We have continued to focus on strengthening our balance sheet, improving our free cash flow.

Free cash flow came in strong for the period at $20.2 million and was a record high of $115.8 million for the trailing 12 months.

Our funded debt to EBITDA leverage ratio has improved over the last 12 months since our CSR acquisition.

Moving from 1.85, a year ago to our current 0.6 times leverage as of September Thirtyth 2020.

We believe our credit facility strong balance sheet and future cash flows from operations will enable us to meet our working capital needs.

Investments growth initiatives and funding requirements.

We intend to fund these purchases from cash on hand, and through borrowings under our credit facility.

In summary, we had improvements this quarter in revenues gross profit net income earnings per share EBITDA free cash flow funded debt to EBITDA leverage and backlog compared to the prior year.

Additionally, this quarter, we set new record highs for revenue gross profit net income earnings per share EBITDA and backlog.

I'll now turn the call over to Todd Cooper, who will provide an overview of our transmission and distribution segment.

Thank you Betty and good morning, everyone.

As outlined in our earnings release, our TV segment had a strong third quarter in terms of revenue operating income and backlog.

Yes, the ongoing overnight to pandemic, we're fortunate to be classified as an essential business and strive to maintain our top tier service capabilities and expertise to our clients employees and communities.

I'm excited to announce that employ our group was officially awarded the Marci to new Scotland upgrade project with LS power.

This project is expected to have positive impacts on the New York power grid, ultimately improving system reliability, increasing efficiency and facilitating statewide access to renewable energy.

As industry headlines in the third quarter continued to note an increase in demand for clean power, we're committed to supporting the development of renewable energy and sustainability through projects like this.

Throughout the third quarter, we deployed numerous crews across the United States to provide storm restoration services.

Our crews worked diligently to restore power for tens of thousands of individuals affected by significant natural disasters, such as hurricane Laura the duration in the Midwest wildfires in the west and tropical storms in the east.

In line with our values of responsiveness of teamwork, we continue to stand ready to restore power to those in need.

Across the country work continues on several small to medium sized transmission projects.

Various lump sum distribution and substation jobs and numerous long term master service agreements.

Work also continues on the milestone to Valley 500 Kv project for Dominion.

Chester area reliability project for Rob on grid, and the Battle Mountain utility scale Solar project in Nevada for consolidated Edison, which has progressed nicely during the third quarter.

Our current work trends and outlook remains positive despite kind of a 19 uncertainty.

Industry sources continue to highlight positive trends in TSV spending forecasting an optimistic outlook for the next three years.

Ports continue to show, an increasing demand for utility scale solar.

And the energy storage with limited contractor resources to fulfill installation demands.

We believe that we are well equipped with the resources and expertise to grow our capabilities to capitalize on the opportunities in solar and energy storage markets.

Overall bidding activity remained active through the third quarter, we continue to capitalize in small to medium sized projects and are committed to the further developing of our APC and renewable energy opportunities.

While further strengthening our position or positive relationships with our clients under master services agreements.

In closing, we had a strong third quarter performance and are optimistic about our growth potential and our abilities ability to adapt during these you'd be in challenging times.

With the health and safety of our people our clients and our communities as a top priority we remain confident in our ability to adjust our business operations as needed.

I will now turn the call over to Jeff wanted to who will provide an overview of our commercial and industrial segment.

Thanks, Todd and good morning, everyone. It has been a busy third quarter for CNS, we track the ebb and flow over 19 cases across the country.

We continue to closely monitor its impact on our ongoing work as well as its potential to impact our pipeline of future work. Our crews have responded favorably to changes in work guidelines and our work remains relatively unimpacted.

We all much of our success to the processes and new digital platforms, we put in place over the last several years to collaborate electronically.

Having this head start before COVID-19 arrived allowed for rapid deployment of new processes as our clients move to increase social distancing in an industry that demands high levels of proficient communication.

We announced in the second quarter that we had not experienced any significant cobot related project cancellations, which is still the case today. However, a few projects starts have been pushed into the future.

While we are pleased with the lack of cancellations. We are carefully monitoring project start dates so that we can maintain the needed resources for the commencement of these projects.

Turning to bidding activity seen I bidding opportunities that remain active and most of our district offices most of the large projects being tracked appear to be moving forward. However, long term market predictability remains a concern as various economic indicators report potential deficits and funding issues, we believe that.

Merkel and industrial recovery through the balance of the year, we will continue to be dependent on overall economic recovery and we remain hopeful stimulus packages will offer continued opportunities as we move forward.

So you know I was successful in winning significant projects during the third quarter, which provides confidence that our chosen markets will continue to offer a solid platform for growth and profitability we.

We believe our primary markets may be somewhat less vulnerable to economic slowing including health care transportation Datacenters warehousing renewable energy and water projects. In addition, we have been expanding our transportation expertise across our district offices, which we believe positions us favorably for future.

I mentioned that we remain encouraged by a possible approval of a national infrastructure Bill.

Both industry analysts and our clients are indicating that the health care market is showing resiliency.

According to Dodge data and analytics spending is expected to increase as hospitals and health care providers adapt to the new normal and preparing for potential resurgence of cold and 19 move.

Moving forward the primary considerations for healthcare facilities will be scalability and flexibility by creating more IC, you capabilities and flexible patient capacity, including larger medical gas connections additional power and flexible ventilation systems. The American Institute of Architects stated that healthcare construction is.

One of the few sectors expected to avoid a recession the cycle forecasting a 2% increase this year and another 3% in 2021.

We continue to track several large projects expected to procure over the next few quarters.

We have also experienced ongoing opportunities in the data center market as power reliability edge computing and high availability services become a greater focus heightened investments from cloud services and co location providers are among the significant contributors to the growth of the market.

We are seeing a continual stream of modernization projects as clients strive for higher efficiency and cost savings recent contract awards and various sienna districts provide confidence that this segment will continue its expansion.

Another market that appears to be holding up well as warehousing.

According to Dodge data their biggest building sector warehouses.

Only expected to slip 1% in 2020 that is particularly impressive when you consider that warehouse construction set a dodge data record with 226 million square feet started in 2019.

Warehousing dedicated E commerce fulfillment has been flourishing during the Tobin 19 crisis and is forecasted to experience a V shape progression starting to prior spending levels and possibly breaking a record again in 2021.

In closing we are fortunate to have built the business focused on sustainability creativity and long and strong customer relationships as always we remain focused on working safely productively and in close collaboration with our clients and industry partners.

Thanks, everyone for your time today I'll now turn the call back to Rick who will provide us with some closing statements.

Thank you for those updates Betty Todd and Jeff in closing I've never been prouder to serve as anywhere group's president and CEO, our remarkable employees projects and industry reputation are second to none.

We remain committed to providing excellent shareholder value and doing so through sustainable and safe working environment, both in our offices and field operations in closing I'd like to once again, thank our employees for their dedication and our loyal clients and stockholders for their trust and support operator, we're now ready to open the call.

Up for comments and questions.

As a reminder, ladies and gentlemen to ask a question on your need to press star one on your telephone until we draw. Your question. Please press the punky. Please stand by while we compile the DNA roster.

Our first question is from Shawn.

<unk> of Keybanc Your line is open.

Hi, Good morning, this is out comp for Sean Thanks for taking my questions.

So I'll start off with the transmission margins that were very strong this quarter and the double digit range. They were well above that high end to that historical typical range you guys have provided in the past I.

I guess I'm, just trying to understand better what drugs drag you caught up so I'm working the settlements related to unrecognized revenue how material were those toward margin I guess, what I'm trying to get out is just trying to sense, whether this type of margin profile sustainable going forward.

Yeah, we're above whatever what we've given at that range before this quarter.

This storm and some of those settlements did play into it it didnt drastically moved the needle. We also had extremely good weather during this period and as we said in past quarters, you know that weather can make or break you. So when you take all those things combined good weather those settlements and some of that storm work added together it was additive.

To our higher range there.

Thanks, very helpful. And then another one on transmission or 10 days.

Regarding our project you guys booked this quarter in wrapping up next year, and then coupled with the large transmission prospect hitting up are you.

Just how should we think about the mix of large versus small to medium sized projects from a margin perspective.

On an annual basis marginalized could we be trending towards the upper end of that historical range.

Your thoughts on the puts and takes on that dynamic going forward would be helpful.

Maybe this is Todd it's certainly our goal to continue to improve and keep working on our margins through productivity and all the training that we do from a from the aspect of of the large projects, while we do see some of them.

Getting closer to kind of coming to market. You know, we still find that several are struggling through the permitting process and havent been on the board yet as far as the putting out RF Pfizer or fuse for those projects, but you know we really.

The focus on what's out there every day for us and Thats the small to medium sized projects that we we know and we stayed true.

The script here that we're seeing a lot of bidding activity, we're continuing to focus on performing on those projects. So that's pretty pretty steady right now pretty levelized and we're optimistic that some of these large projects are going to come to market.

You know, we do have the more soon to Scotland projects, starting next year. So.

It's a big focus for US I think we've always said that large projects is a big part of what we're doing and.

When it come out one of the contractors that people look look towards for for bid for building those and that's what we strive to do so.

Thank you and Capex squeeze one more in and so it with 60 high.

Hi backlog ticking down since the high in first quarter.

Can you provide any thoughts around the visibility around the timing of an inflection point, where like backlog to turn a corner and maybe start to stabilize.

We have had a very strong backlog coming into the year. We are at record highs I think we turned the nine months of increasing.

Backlog, we'd love to be at a higher book to bill ratio, but at the moment, we're being really smart about what we look at it no doubt there are some tightening in the market and and were making.

A lot of the valuations on what to Chase is things tighten up and I think we're doing quite well in capturing the work that we're capturing its its.

You know Theres, just a lot of turmoil in the market right now it's not no. One can really tell when that inflection point is but what were doing well track and what were the projects weve been falling for quite a while yeah and as Jeff said, it's been an active bid market and the majority of the areas that we serve with RC Eni side and again, we want to make sure we have the.

Right contract in place before we sign a contract and put it into our backlog. So we don't control the timing of that we'll do everything we can to negotiate to have the fares contract, we can and sometimes that doesn't come into a quarter end. It may take three four months to negotiate those contracts out so our backlog. We've always said before is going to be lumpy.

So if there is a slight decline in one quarter I wouldn't read too much into that.

Thank you.

Our next question is from John Roberts of Kansas City Capital. Your line is open.

Good morning, everyone.

Couple of questions.

But he has some of the storm restoration revenue.

Or work in the third quarter extended.

Into the fourth quarter absent.

Today's hurricane.

This is Todd yes, yes it has.

Really really not much to elaborate there, but I think you've seen that the continuing effects of the wildfires in the okay. There are days that were still experiencing so there is some of that still ongoing today, okay. Okay. Secondly.

When you listen to utility companies and and you guys you talk a little bit.

More frequently about battery storage.

On the renewable.

Generation and I guess.

Two questions number one is what exactly do you do with it.

And in regard to battery storage, what at what kind of work do you do an app and in that regard and then secondly.

Maybe to help frame the opportunity of emerging battery storage.

Opportunity.

For example, Nextera energy is has proposed a new facility down here in Kansas City, a 3500 acre wind solar farm, a 500 megawatt farm.

And well supposedly will include battery storage, what kind of incremental.

Addition, or cost to us.

A solar farm like that is battery storage.

Can can you help frame maybe the opportunity.

The emerging battery storage developments.

Well I think I think when we really look at the overall market with battery storage. What it's doing is allowing these to these projects to be able to come to market because before it was that bell curve everybody hit all the solar sites produced energy at the same time, there is no way to store, it which allowed the feasible and take it to market afterward.

It's probably in that you know I would say, 10% to 20% additive.

To to what it cost to site to do that and then be a rough range for our work we've done everything from the the installer of the batteries and that those components to actually being involved with the engineering side and bringing that site into the market. So from the pure procurement side and everything we've done both.

So we've installed it for clients just as a as a labour broker and then we've also done the full full phase of purchasing and installing it. So it's a good additive to our business. Okay. Okay are you seeing any device.

Developments in offshore wind.

We are we're seeing some of that we last year, we had a project where we did the onshore portion of one of those projects.

We're seeing available we're seeing potential for those to come to market. I think there is a lot of activity out there, but a lot of it has to do with pricing right now and trying to make sure it viable to bring in pricing wise. So we're involved with that side on kind of a budgeting.

You know that that estimate inside of it and providing budgets to our clients and constructability reviews. Okay. All right. Thank you very much.

Again, ladies and gentlemen, if you have a question at this time. Please press star one on line telephone keypad.

Our next question is from Xyo you'd die of Evil. Your line is open.

No Aldo congrats on a great quarter.

So I wanted to start off asking about how you're thinking about the impact of the November presidential election outcome.

Oh come on operation do you kind of see demand trends changing based on hipple, who collect and maybe kind of give what you think what you're thinking about the trial has met or business.

I'll start and I'll, let Jeff or Todd add anything they want to have that for us. It's I don't see the markets were changing that were that were chasing today or that were involved with really be infected accurately regardless renewable I for.

For the solar side that we're in it's going to continue with whoever's.

Voted in there the mandates that are out there some of the stuff I identified in my script. Those are going to those are going to stay is constant drivers.

Again, we're not in to two tenant finish we're not into high rise construction as a big component of our business in any way. So the markets. We serve are going to continue regardless of who's in there.

We don't control the economy in that could go up or down a little bit, but I don't think any of us can predict that I'm pretty bullish on the markets. We're in and hope that the economy continues to be strong.

Great. Thank you.

Have you seen or heard any pricing pressure or discussion on price concessions emerging from the Dan I'd segment, because of a slowdown and project activity or push out.

And no doubt there is a tightening of the market and it's very.

It depends on the location and the country is to how much that is.

So again.

Again, the work that we try to pursue is more relational and more about our technical expertise. So I think some of the smaller work that we do in multiple districts is saying probably the greater pressure, but the larger projects that we have on the horizon, there far more viable and seeing less pressure and while I would say its.

It's not anything we havent seen when we've been entering tough economic times before or doubtful economic times before.

We've seen that that competitiveness increase what I can tell you is we are not going to change the way we bid.

We put a lot of stuff in place as far as training, making sure our predict productivity continues to improve everywhere, we can but we're not going to take work below cost. So.

Our focus is always going to be the focus on the cost in our estimates and then we can put a fair margin on it.

Not going to it's not race to the bottom for us. So if somebody wants to take a project low cost theyre going to do it.

Great. Thanks.

I am showing no further questions at this time I would like to turn the conference back to Mr. Rick Swartz.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2020 MYR Group Inc Earnings Call

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