Q2 2022 MYR Group Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Good morning, everyone and welcome to the MYR Group second quarter 2022 earnings Conference call.
Today's conference is being recorded and at this time for opening remarks, and introductions I would like to turn the conference over to David could heroes of Dresner Corporate services. Please go ahead David.
Thank you and good morning, everyone I'd like to welcome you to the MYR Group conference call to discuss the company's second quarter results for 2022.
Our reported yesterday.
Joining us on today's call are Rick Swartz, President and Chief Executive Officer.
Johnson Senior Vice President and Chief Financial Officer Todd.
Tod Cooper Senior Vice President and Chief operating officer of MYR groups' transmission and distribution segment.
And Jeff One account senior Vice President and Chief operating officer of MYR group's commercial and industrial segment.
If you did not receive yesterday's press release, please contact dresner corporate services at 3127 to 630 600.
Copy or go to the MYR group website, where a copy is available under the Investor Relations tab.
Also a web cast replay of today's call will be available for seven days on the investors page.
Our group website MYR group dotcom.
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 MYR groups' management as of this date.
Her 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.
Risks and uncertainties are discussed in the company's annual report on Form 10-K for the year ended December 31 2021.
The company's quarterly reports Form 10-Q for the second quarter and first half of 2022.
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 Yesterdays press release with that said, let me turn the call over to Rick Swartz.
Thanks, David Good morning, everyone welcome to our second quarter 2022 conference call to discuss financial and operational results I will begin by providing a summary of the second quarter results and then turn the call over to Betty Johnson, Our Chief Financial Officer for a more detailed financial review following Betty's overview.
Tod Cooper and Jeff <unk>, Chief operating officers for our T&D and C&I segments will provide a summary of our segment performance and discuss some of MYR groups' opportunities going forward.
Ill, then conclude todays call with some closing remarks and open the call up for your questions.
Our second quarter 2022 results reflect our consistent financial performance and strong market position, our healthy backlog and ability to acquire new work in competitive markets is positioning us for continued success.
We continue to see significant investment and expansion in electrical infrastructure across North America.
Midwest Independent system, operator, or MISO has released plans to invest 10 $4 billion of transmission projects to support the installation of approximately 56 gigawatts of wind solar and battery storage projects.
It is anticipated that much of this work will be assigned to incumbent utilities in the region. Many of whom are MYR group's customers. We continue to track this and other major transmission expansion projects that may lead to future work opportunities.
The T&D segment experienced consistent bidding activity, including distribution transmission and clean energy projects.
C&I segment continues to see steady opportunities in our core markets, including healthcare clean energy and data centers.
Our success is ground grounded and an unwavering commitment to customers safe and reliable project execution and the talent and dedication of our team members now Betty will provide details on our second quarter 2022 financial results.
Thank you Rick and good morning.
Everyone on today's call I will be reviewing our quarter over quarter results for the second quarter of 2022 as compared to the second quarter of 2021.
Our second quarter 2022 revenues were a record high $708 $1 million.
And represents an increase of $58 $5 million or 9% higher than the same period last year.
Our second quarter T&D revenues were at a record high of $415 $2 million, an increase of 27% compared to the same period last year.
The breakdown of Tianjin about the news was $251 million for transmission.
$165.2 million for distribution.
The T&D segment revenues increased primarily due to an increase in revenue on distribution projects.
Excluding the incremental distribution revenues from the recently acquired power line plus companies.
And an increase in revenues from transmission projects.
Approximately 50% of our second quarter T&D revenues related to work performed under Master services agreements.
C&I revenues were $292 9 million a decrease of nine 3% compared to the same period last year.
The C&I segment revenue decreased due to lower revenues in certain geographic areas.
Our gross margin was 11, 4% for the second quarter of 2022 compared to 12, 5% for the same period last year.
The decrease in gross margin was primarily due to overall cost increases mainly I thought it associated with supply chain disruptions inflation, the continuing impacts from the COVID-19 pandemic.
Some of which also caused labor and material inefficiencies on certain projects.
Gross margin was also negatively impacted by an unfavorable change order adjustment on a project and incremental wet inclement weather experienced on certain projects.
These margin decreases were partially offset by better than anticipated productivity on certain projects and a favorable job closeouts.
Second quarter 2020 to SG&A expenses.
$2 million, an increase of $1 million compared to the same period last year.
The increase was primarily due to costs associated with the recently acquired power line plus companies, partially offset by a decrease in employee incentive compensation cost.
Second quarter 2022 amortization of intangibles.
Well, it's $3 3 million, an increase of $2 $7 million compared to the same period last year.
The increase was primarily due to amortization related to certain intangibles acquired with the power lines plus companies.
Second quarter 2022, other income was $2 $3 million, an increase of $2.2 million compared to the same period last year.
The increase was primarily due to funds received from the Canadian emergency wage subsidy program, which were attributable to our C&I company.
Second quarter 2022, net income was $19 $7 million or $1.15 per diluted share.
Compared to $21 $2 million or $1.24 per diluted share for the same period last year.
Total backlog as of June 30 of 2022 was 2.44 billion a record high and was 56% higher than a year ago.
Total backlog as of June 32022 consisted of $1.06 billion for our T&D segment.
A record high $138 billion for our C&I segment.
Moving to liquidity on our balance sheet, we had approximately $219 million of working capital.
$5 million of funded debt and <unk>.
$310 $3 million of borrowing availability under our credit facility as of June 32022.
Our funded debt.
EBITDA leverage ratio has continued to stay strong at 0.3 times leverage as of June 32022, even after $23 $5 million of share repurchases took.
Took place during the quarter.
We believe that our credit facility strong balance sheet future cash flows from operations will enable us to meet our working capital needs equipment investments growth initiatives and share repurchases.
I'll now turn the call over to Tod Cooper, who will provide an overview of our transmission and distribution segment.
Thanks, Betty and good morning, everyone.
Our G&P segment turned in another solid performance in the second quarter of 2022.
We continue to see steady bidding activity, which has led to new project wins across our markets. The creation of many new relationships and the strengthening of existing ones.
As Rick mentioned, we are seeing significant investments in electrical infrastructure throughout North America, including many transmission expansions and upgrades.
We anticipate this will create opportunities for several MYR group subsidiaries in the coming years.
Currently our operations remain quite busy.
Our eastern region has seen strong bidding strong bidding and project activity.
Myers Company was recently awarded a three year contract with Centerpoint energy.
The transmission project in the mid Atlantic region, and they continue individual projects and MSA work with many other key customers.
Harlan electric continues to serve DTE energy national grid, and that resource by delivering a variety of projects under Master service agreements yes.
Boulos was recently awarded multiple clean energy storage projects and are working on several substation projects under Master service agreements for key customers.
MYR energy services or in a minority which encompasses our EPC large projects and clean energy operations continues to see increased opportunities and awards.
As mentioned in the first quarter. The EPC group is working on several projects related to clean energy and this quarter has added work through their portfolio.
The award of two projects for a large customer in the Midwest.
Recently, the solar market was in flux due to the department of Commerce's decision to pursue an anti dumping complaint related to tariffs.
By the administration have since issued an executive order freezing panel tariffs for two years, which is now reopening the market and has the potential to increase demand for MYR in services.
Our western region is very active with existing customers existing and new customer opportunities Sturgeon electric California's relationship with Southern California. Edison has resulted in an extension of our current MSA and expansion into new regions.
Sturgeon electric and great southwestern construction continue their strong relationships by executing on the many msas with large utility customers throughout Arizona, Colorado, or Oregon, Utah, Texas and Kansas.
In summary, our strong focus and commitment to safety and project execution has enabled us to grow our customer base with new contract wins and expand our current partnerships we.
We continually strive to leverage all of the capabilities of our companies and teams to contribute to our customer success.
I will now turn the call over to Jeff Monica, who will provide an outlook of our commercial and industrial segment.
Yeah.
Thanks, Todd and good morning, everyone.
While the entire into C&I industry faces a period of ever changing economic conditions, which includes a myriad of political and pandemic related disruptions. Our C&I segment continues to perform well waves of supply chain issues and labor restraints have impacted building schedules and budgets requiring.
Extensive collaboration with our vendors and clients to resolve our longstanding relationships with preferred clients are proving beneficial as we work together to mitigate delays in inflationary issues.
Many of our district offices have been reworking budgets and doing value engineering to keep jobs within budget and our additional efforts generated a positive book to bill for the quarter.
The most active markets in procurement stage has been data centers transit, including Air Rail Highway and ports healthcare pharmaceutical and clean energy.
Data centers and clean energy are leading the way with numerous opportunities across multiple regions.
Although the economic challenges in the industry are well documented the major construction indices continue reporting increases and growth potential.
Architectural billing index score in June remained in positive territory, indicating a moderately strong business condition overall for 2022 to AIA is now calling for nine 1% growth in total nonresidential spending which compares January update of five 4% growth.
The Dodge momentum index jumped to 173 six in June pushing the measure to a 14 year high a sign that developers feel that their projects still have hope of moving forward on a year over year basis. The momentum index was 9% higher than in June of 2021.
The good news reported by the major indices must be tempered by the overall disruption in today's economy, a few projects across the country continue to have their start dates pushed out while owners worked through various headwinds they're facing.
We believe that these continuing market disruptions could prolong into the first half of 2023.
The projects awarded this quarter includes several small to medium sized projects in a variety of markets, including Labrador.
Laboratory.
Pharmaceutical manufacturing medical.
Data centers and transportation.
We also received awards in the clean energy space, procuring, new projects and solar and electrical fee charging stations.
We highlighted in prior quarters, the need for vehicle dealerships transportation centers and equipment facilities to perform major facility upgrades in preparation of the coming wave of electric vehicles and during this quarter. The funding for a few of those projects was initiated.
We believe our.
We believe most of our chosen markets will remain resilient, providing ample opportunity in the future.
We are also excited about new contracts awarded for design assist services on various transportation projects. We are seeing increased opportunity at Los Angeles International Airport and other transportation hubs across the country. These awards for early design services position us well for larger construction contract.
<unk> in the future.
To conclude we are proud of how our employees are responding to the unique challenges facing the industry. They continue providing the proactive and customer focused communication that we believe will enable MYR group to maintain a leading position in the markets we serve.
Thanks, everyone for your time today I will now turn the call back over to Rick who will provide us with some closing comments.
Thank you for those updates Betty Tod and Jeff we are proud of our second quarter performance, which reflects the resiliency of our core markets and the ability to strengthen and expand our customer relationships to create growth opportunities.
We will continue to focus on bidding opportunities and projects that reflect our operating principles and breadth of capabilities.
We continually focus on meeting the needs of our customers as they navigate dynamic market conditions and the changing energy landscape, while investing in and developing our team members to main our maintain our position as a leader in the industry.
This fortifies our foundation to grow our business and provide clients and prospects with with a strong and agile partner.
I'd like to extend a thank you to our employees for their invaluable contributions and shareholders for your continued support of MYR group and I look forward to connecting in the future quarters. Operator, we're now ready to open the call up for your comments and questions.
Yes, Sir.
To ask a question you will need to press star one one on your phone.
Please standby as we compile the Q&A roster.
One moment.
Our first question comes from Alexander Dwyer of Keybanc. Your line is open.
Good morning, Alex.
Mr. <unk> your phone maybe on mute.
Oh, sorry can you hear us.
I'd have to put them back in the queue. Okay. Thank you.
One moment.
And we will get our next question.
Okay.
Yeah.
And next we have Justin Hauke of Baird. Your line is open.
Hi, everyone. Good morning, Thanks for taking my morning, gentlemen.
Good morning.
I guess I.
I guess the first question I guess the key question I had is just.
In the T&D segment on the margins.
Thank you Betty for the detail on kind of the items that were in there.
I guess the question I mean, because the margin came in a little bit lower than we would've otherwise expected seasonally to be better here in the second half and.
And you've got the intangible drag that's continuing but I'm. Just curious is there anything thats kind of changed in the environment that.
That you would call out.
Pressuring margins more than.
Maybe it was last quarter or is some of the shortfall. This quarter more just kind of project specific weather and things like that that you called out.
Yeah, nothing specific on the T&D front at all I would say, it's just a normalized weather.
Project Closeouts are always going to be lumpy and in times. Like this you are probably going to be a little more conservative on when you take those closeouts to make sure that you that you don't have any impact and then finally, you look at fuel increases and some of the stuff that's going on on that side. So there is an impact there, but I would call that a slider in.
So it's more just timing.
Okay, So no kind of change.
Changed a year out.
Look on where margins for that segment should be.
Okay.
I guess the next question maybe this one is for you but.
Just looking at the.
The revenue run rate I mean, it's been coming in really strong your backlog is obviously a record year.
Just looking at the third quarter.
Again in T&D, usually we would expect revenue too.
Improved sequentially in the third quarter.
Last year. It was it was actually down a little bit which.
I guess.
I guess the question is is there any reason that third quarter revenue shouldn't be higher than Q2, just from a seasonal aspect and if thats. The case it looks like the revenue growth rates may be really strong in T&D from <unk>.
There is some aspects.
Three one there is high.
The very hot season, where we.
Wind up with.
Some of the work that gets still delayed.
And I'll.
I'll turn that to Todd.
Currency impacts each year is a little bit different.
And our various different customers.
Last year as an example was some of.
The work that was delayed because you couldnt do work in certain territories because of the very high hot season.
Yes, yes last year, what we saw last summer and the dip in Q3 was really a result of what we saw the winter previous in Texas, and Thats where were impacted the most.
It appears that the utilities are doing an excellent job of managing even the current the heat situation in <unk>.
Being less of an impact right now this year, so hopefully that will lead to some good results in Q3.
Okay alright, thank you.
Okay.
Thank you.
One moment for our next question.
Our next question comes from Brian Russo Sidoti Your line is open.
Yes, hi, good morning.
Hey, so just getting back to the MISO and tap.
Project approvals earlier this week obviously.
A big win for regional utilities and also.
P&C companies like <unk>.
And why our group.
When we look I think some projects may even be.
Forecast to come online by 2028, but just the $10 billion by 2030 I think.
Pete teen projects some of which.
From what I gather approaching $1 billion and I'm. Just curious do you have the scale and scope in your T&D segment in terms of labor or.
National footprint.
To participate competitively for these projects in addition to your existing customer base, which.
You appear to have a lot of geographic overlap with these upper Midwest.
So projects that were approved.
So I'll start Rick.
Todd.
We're really excited about that MISO opportunity right some of those projects.
<unk> coming online in 2028.
No more later later in August when the.
When when MISO works with their partners to come up with a and RF.
<unk> schedule as to as to how those projects will be built throughout the next several years.
Most of those most of those utilities youre right or are clients of ours today, we do have the capacity to continue growing.
Growing and working with those clients.
A few of those projects will be competitively bid to the FERC 1000 process.
We anticipate many of them will just be done through the incumbent utilities, because they are either upgrades or they are in a state where they have the first right of refusal. So we're excited to see where thats going and we'll probably know more here in Q3 as to the direction and the timing of all of those projects.
Okay, Great and then.
Even the size of those projects they will be $1 billion projects rolled out by the time. They go to the contract or there's other there's other aspects of that spend that doesn't come towards the contractor. So we can handle any size of those projects that would come out.
Okay, Great and then switching to C&I.
You mentioned that some of the headwinds on project sequencing and supply chain.
Labor productivity et cetera.
Those headwinds could be pushed out to the first half of 2023 are you talking <unk>.
Pacifically for MYR group or is it just an industry wide.
And that.
Youre monitoring and how does that play into kind of the 4% to 6%.
Average operating margin in that segment for the full year 2022, given that you are tracking below 4% in this first half.
Yes, Brian I think it's more of an industry issue that C&I is facing right now.
Yes.
Many of the.
Issues that we're facing are based on our general contractors and the clients were working for working through their issues. Sometimes those are not recoverable by us and they do seem to be prolonged longer than we initially thought and I think it's again waves of the pandemic affecting other parts of the country.
Other parts of the world.
We're still having an impact on deliverable of items those types of things. So that's why we're saying we believe this is going to continue a bit longer.
As far as that market as far as our margin profile goes we've said, we want to be back up to that lower end of our margin profile on the C&I side by by the end of the year and Thats certainly our goal, but as Jeff says, we see these potential delays on material and some of the price increases and stuff.
Just just the shipping and everything else that goes kind of.
That carrying on and through the first half of next year. So I think we've got a great backlog. We've got some great projects out there are people who have done a great job of trying to get ahead of some of these.
<unk>.
Delays in projects and some of that stuff and making sure our materials that our materials on time and on schedule and we're buying it within our budget. So very positive on that side, but it's more of an industry type.
Experience that everyone's facing.
Okay, Great and then just given the.
Robust T&D segment outlook keep in MISO and this is just the first tranche of four tranches.
And then relative to C&I, which.
More tracks kind of.
GDP in the overall.
Economy macro environment.
Where do you see kind of the mix of business is.
Going forward do you think T&D will become an increasingly greater portion.
<unk>.
Revenue and operating margin given that.
The different dynamics of each segment in end markets.
There's a lot of opportunities on both sides I mean, I think we've got more visibility on the transmission and distribution side than we've ever had.
I have been here 40 years I've never seen this kind of outlook.
Outlook, so very positive on that side.
Gas utilities are going to continue to spend but even in the markets. We're in on the other side.
So maybe not as as <unk>.
Resilient against.
<unk>.
Some of the other I guess macro events out there.
They are very positive going forward I like the markets were in I think when you look at the markets that we compete on the C&I I'm very positive on that side. So.
Again by both sides of it but.
I would say T&D is probably a little more resilient during downturns.
Okay, great. Thank you very much.
Thank you.
And one moment for our next question.
Our next question comes from Noelle Dilts of Stifel. Your line is open.
Hi, Thanks for taking my question.
I have a question for Jeff.
It sounds like Jeff, you're obviously spending a lot of that positive leading indicators for the construction market again, you are seeing this disruption this year. So if I'm reading into this correctly and given some of the delays. It sounds like you would expect second half revenues to kind of remain down on a year over year basis, and then we'd start to look out to 'twenty three it's a growth year.
I'm, just trying to make sure I'm thinking of that correctly or if you think twenty-three might still be hampered by higher interest rates and potential.
I guess demand destruction associated with higher overall costs, maybe you could parse out how to how to think about those elements.
Well, we see through the rest of this year fairly similar to the first half of this year very difficult to see into 2023 as to where that growth is going to go we clearly see a lot of opportunity.
We're busy in a lot of our markets when some jobs have gotten pushed out others have come in to fill their place. So we're hoping that that trend continues into 2023.
And we did say earlier this year that we saw in the second half of this year on the commercial industrial being.
Being more weighted to the second half of the year than the first half so I wouldnt say theres going to be huge increases in revenue, but we see some good project burn during the second half of the year.
Okay as long as material in the projects continue to move as we have planned today, but every day there is a there is a.
A little more information out there so you're always adjusting your schedules. Both way you are moving some things out and you're pushing some things out. So I think it's one of those we monitor it closely and we make sure we get the most productivity out of our people in the field we can.
Okay great.
And then obviously you are too.
Two of your largest competitors have recently.
Announcer made pretty big deals within the renewable space I'm curious if that changes, how you're thinking about growing that business organically versus potentially making some acquisition.
Just any thoughts about sort of your competitive positioning and how youre thinking about growing that business. So it would be great. Thanks.
Sure.
If you look back what we've done I mean, we've been in the clean energy business for years, and we've discussed that before I think when you look at the last acquisitions, we've done prior to the power line. They all had.
Clean energy components to them. So it is something that we always look at.
We will continue to look at that from an acquisition standpoint, but we've also develop that out that business out and grown it organically. So its between what we've done on the acquisition front and the organic growth very positive on that market.
We will continue to push and grow that market and we think it has a great future for our company.
Okay, great. Thank you.
Thank you.
Yes.
As a reminder to ask a question we ask that you. Please press star one one on your phone.
And one moment for our next question.
Yes.
I mean, you have the return of Alexander Dwyer of Keybanc. Your line is open.
Sorry about that but thanks for taking my questions.
Good morning, Jeremy.
Yes, we can.
Okay cool.
On the T&D revenues in <unk> can you just talk about what drove the growth.
A couple of the large projects had a major contribution in the quarter I think there was a large solar and transmission project that were supposed to ramp in spring and should those projects be full ramp through the second half of the year.
Yes on the large project side, there wasn't there wasn't large.
Mount of revenue that came in on those projects just as we had planned I mean, there was spend on them, but nothing.
The business across the board grew.
Great job with his group growing out that business and I think it's on both sides transmission and distribution, we continue to see that growth in that opportunity.
As far as spend going forward those projects will continue to spend through the next quarter.
As anticipated Todd you got anything you want to add.
No Rick you're right. It was consistent growth really across all business units, including power on.
So that was part of it as well but.
The two major projects.
You are referring to Alex.
We'll see we'll continue to see about the same level of spend through the through the third quarter it'll ramp up a little more in the fourth quarter and a majority of that work is in 'twenty three from that standpoint.
Got you that's helpful and is there any update on that CSI Solar project in California, I think it's supposed to start next early next year now.
Still hoping for the for the early next year is still working through some permitting issues, there going back and forth on that but.
Nothing nothing has taken it out past that first part of next year as of now.
And then my last one is I mean, clearly we're winning a lot of work in C&I the backlogs.
50% year on year.
Can you just talk about the pricing you are getting in the backlog relative to that 4% to 6% margin and if there is a different approach to bidding and contract terms you are taking today compared to a year ago.
And we are definitely working on the language in the front side of these jobs and getting things that are more favorable to us obviously when the pandemic hit we had a lot of work in backlog that.
It was difficult to do.
Things corrected on and we've worked our way through that.
Feel really good about the projects that we're adding to our backlog now I believe the conditions are better.
We're getting some contingencies there now the question is what will happen with pricing going forward, we think there'll be some things that go up some things that go down we hoping that in the end we are on the upside of that.
And probably one of the things that affect us the most and Jeff covered it earlier was kind of that supply chain disruption. So it might not be the flow of material that we have coming in but the steel to construct the building other components of that building may not be coming in as planned. So it causes us to re sequence our work and do things a little bit different and it's not.
It's not major disruptions, but it's enough to affect your margins and hopefully that smooths out, but as we said I think those supply chain disruptions could go into the first part of next year. So we're going to be battling that as we go forward, but I think our teams are ready to address it.
Yes, it's strongly and.
To make sure we can keep going on our projects. So that's the main component behind it and.
Make sure we price the stuff going forward properly.
But it does remain a very competitive market out there.
I would say that site hasnt changed over the last couple of years.
Both on the C&I and T&D it remains competitive out there.
Mr Dwyer.
Thanks, guys.
Thank you.
ICL.
Further questions in the queue. So I will now like to turn the conference back to Rick Swartz for final remarks.
To conclude on behalf of Betty Tod, 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.
This concludes today's conference call.
Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Okay.
Okay.
[music].
Yes.
[music].