Q2 2023 MYR Group Inc Earnings Call
Welcome to M Y <unk> second quarter 2023 earnings results Conference call.
At this time, all participants on a listen only mode.
Today's conference is being recorded.
After the speaker's presentation, there would be a question and answer session to ask the question. During the session you would need to press star one one on your telephone.
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At this time for opening remarks and introductions.
Now like to turn the conference over David Gutierrez of Dresner Corporate services. Sir. Please go ahead.
Thank you and good morning, everyone.
I'd like to welcome you to the onward group conference call to discuss the company's second quarter results for 2023.
Ordered yesterday.
Joining us on today's call <unk>, President and Chief Executive Officer, Kelly, <unk>, Senior Vice President and Chief Financial Officer.
Dot Trooper, senior Vice President and Chief operating officer, and more groups transmission and distribution segments.
<unk> Senior Vice President and Chief operating officer of M Y R groups commercial and industrial segments.
If you did not receive yesterday's press release.
Contact original corporate services at 312726, 3600, and we will send you a copy or go to the <unk> group website, where copies available under the Investor Relations tab.
Also a webcast replay of today's conference call will be available for seven days on the investors page of <unk> website at M Y R 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 them more groups management as of this date.
And I'm one of 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 31st.
1022 the Cup.
Companies quarterly report on Form 10-Q, four second quarter of 2023.
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 Richards.
Thanks, David Good morning, everyone welcome to our second quarter of 2023 conference call to discuss financial and operational results.
I will begin by providing a summary of the second quarter results and then we'll turn the call over to Kelly Huntington, Our Chief Financial Officer for a more detailed financial review following Kelly's overview, Todd confirm Donigan, Chief operating officer for our T and D N CNI segments.
Provide a summary of our segment to performance and discuss some of them are groups opportunities going forward. I will then conclude today's call with some closing remarks and open the call up for your questions.
A solid second quarter performance resulted from our strong market physician healthy backlog and operational excellence, we continue to see quality bidding opportunities across the organization and strategically pursuit of new work, while maintaining and expanding relationships with our existing valued customer.
The countries need for an investment and a more robust electrical infrastructure, along with continued shift to clean energy sources present ongoing opportunities for growth.
Earlier this year, we survey should we surveyed executives of our utility clients to collect data to supplement our business strategy and planning and the T&D segment <unk>.
Insights based on the answers from those executives indicate that new transmission billed as the number one investment planned over the next five years.
Growing investment by our clients seeks to meet the higher demand for electricity around the country. In fact, the percentage of percent anticipate in our survey who view low demand. It's a high priority nearly doubled since our 2021 survey.
And our C&I segment clean energy continues to present itself as a potential growth driver as we see numerous large electric vehicle charging station and solar project opportunities across the U S.
Are chosen cohort core markets of health care data centers manufacturing and transportation also contribute to our solid backlog of work and create steady bidding opportunities.
As always our greatest strength lies within our talented and dedicated employees. We continue to develop our add in power our teams to reach their highest potential as we grow our company.
Our team members strive to provide customers with excellent safety and project delivery.
Helping them achieve their business goals.
Kelly will provide details on our second quarter of 2023 financial results.
Thank you wreck and good morning, everyone.
Second quarter, 2023 revenue where $889 million.
A record high which represents an increase of $181 million or 25 per cent compared to the same period last year.
Our second quarter, T&D revenues, where $504 million.
An increase at 21% compared to the same period last year.
The breakdown of T&D revenue.
With approximately.
Excuse me.
$322 million.
For transmission and approximately $181 million for distribution.
T&D segment revenues increased both on transmission project, primarily related to clean energy project.
And on distribution project.
Work performed under Masters service agreement.
Continue to represent.
Approximately 50 per cent of our T&D revenue <unk> excuse me one moment.
I apologize.
CNI revenues were $385 million a record high for our C&I signal with an increase of 31 per cent compared to the same period last year.
<unk> segment revenues, primarily increased due to higher revenue related to clean energy projects and certain geographical area.
Heart gross margin was 10.1% for the second quarter of 2023 compared to 11.4% for the same period last year.
The decrease in gross margin, that's primarily due to labor and project inefficiencies.
Some of which were caused by supply chain disruption in increments weather.
Gross margin with author negatively impacted by rising costs associated with inflation.
These margin decreases or partially offset by better than anticipated productivity on certain projects and a favorable change later.
T&D operating income margin.
7.5% for the second quarter of two of 2023.
Compared to seven 9%.
The same period last year.
The decrease was primarily due to labor.
And project inefficiencies stomach, which were.
By inclement weather, partially offset by better than anticipated productivity on a project.
CNI operating income margin.
Was 3.3% for the second quarter of 2023.
Compared to 3.2% for the same period last year.
Increase was primarily due to better than anticipated productivity uncertain project and a favorable change order.
These increases were partially offset by labor and project inefficiencies some of which were caused by supply chain disruption as.
As well as rising costs associated with inflation.
Second quarter of 2023, SG&A expenses were $58 million, an increase of $6 million compared to the same period last year. The increase was primarily due to higher employee related expenses.
To support the growth in our operation and an increase in employee incentive compensation costs.
Second quarter of 2023 interest expense with $1 million, an increase of $500000 compared to the same period last year.
Increase was primarily due to higher interest rates, partially offset by lower average that balance it during the second quarter of 2023 as compared to the same period last year.
Second quarter of 2023, net income was $22 million compared to $20 million for the same period last year.
Net income per diluted share of one dollar and 33 cents increased 16% compared to one dollar and 15 months for the same period last year.
Second quarter of 2023, EBITDA with $47 million compared to $44 million for the same period last year.
The total backlog as of June 30th 2023, with $2.73 billion, a record high and was 12 per cent higher than a year ago.
It'll backlog as of June 30th 2023 consisted of $1.18 billion for our T&D segment.
And $1.55 billion for our CNI segment.
Second quarter of 2023 operating cash flow with negative $21 million compared to positive operating cash flow of $39 million for the same period last year.
The decrease in cash provided by operating activities was primarily due to the timing of billing and payment associated with project starts and completion.
Second quarter of 2023 free cash flow with negative $43 million compared to positive free cash flow of $22 million for the same period last year, reflecting the decrease in operating cash flow and higher capital expenditures to support our continued growth.
Moving to liquidity in our balance sheet, we had $256 million of working capital $45 million, a funded debt and $451 million and borrowing availability under a credit facility as of June 30th 2023.
During the second quarter be completed an amendment an extension of our credit facility, which now has a 490 million dollar capacity, representing a 115 million dollar increase.
We have continued to maintain a strong funded debt to EBITDA leverage ratio at 0.25 times leverage as of June 30th 2023.
[noise] believes that are larger credit facility strong balance sheet and future cash flow from operations will enable us to meet our working capital needs support the organic growth of our business.
New acquisitions and Opportunistically repurchase shares.
I'll now turn the call over to Todd Cooper, who will provide an overview of our transmission and distribution segment.
Thanks, Kelly and good morning, everyone.
Continued focus on strengthening expanding existing relationships with key customers along with executing our worked with our expectations lead to solid second quarter results in our community segments.
We continue to see steady building activities are pleased with our strong backlog.
Increased emphasis on <unk> system pardon me.
Well is the integration of clean energy.
Our areas are clients continue to folks and investment and employ our group is well positioned.
<unk> continued to execute this a stroke <unk> apartment.
Earlier, Rick mentioned, our strategic insight survey survey of our community clients.
Survey indicated a robust investment plan over the next five years and new transmission build.
Participants also ranking system heartbeat, and clean energy of other top drivers impacting their strategic direction.
Of those surveyed 67% indicated they plan on investing in an overhead recent up during in the next five years as part of system hurdling efforts and in order to meet the growing demand of the nation's grid.
Clean energy remains the most an actual driving factor for our clients and their businesses strategic direction was 89% renting. It is the top planned investment in the next five years.
Solar energy storage ranked highest of these plans clean energy investments with 27% of the participants targeting increases in battery storage capacity.
You'd be charging station infrastructure and wind also rank in the top nine areas of investment.
These responses in line with what we've seen in recent years and we believe these customer priority.
To generate growth opportunities for M Y R group.
Our eastern region remains active in all markets with our subsidiaries, winning additional work and growing G customer relationships through Master service agreement extensions recently, we were successful in extending to a R. T M S. As in the northeast for three additional year speech.
As well as establishing a new partnership with a large coke in the Midwest.
Our western region is leveraging customer relationships and capitalizing on expansion opportunities is bidding activity throughout the reason remains policy.
M Y R Energy services continues to see a strong interest is spelled E. P. C project delivered.
Larger projects in the U S driven by the electrocution of the grid it shipped to clean energy, which a robust drivers in the transmission market.
Slicing issues continued to present, a challenge in the silver market and have phones delays and some project across the country a carryover from last year, which saw a 16% decrease in solar installations. According to the U S solar market insight 2022 urine.
Review report released in March.
However, it appears the solar project opportunities are back on the rise.
Their recent report released in June and reported the best first quarter and industry history of 47 per cent increase from 212022.
According to the record solar accounted for 54% of all new electricity generating capacity added to the grid in the first quarter of 2023.
As the market continues to grow.
<unk> investing heavily in the training and development of those craft and management personnel to ensure the successful execution of our solar portfolio.
In summary court T M B segment.
Dedication to our clients to health and safety of our employees.
Strict adherence to our operating principles physicians as well for success.
We strive to leverage all of our capabilities of our companies and teams to contribute to our customer success and I'd like to thank all of our town employees for their commitment and effort.
I will now turn the call over to <unk>, you can do will provide an overview of our commercial and industrial food.
Thanks, Todd and good morning, everyone.
Our C&I segment achieve study results in the second quarter, even as supply chain and material pricing headwinds continue through.
Through extensive collaboration with our vendors and clients and by leveraging our strong supplier network across the organization.
Our segment continues to perform solidly with signs of improving market conditions.
According to the most recent Q1 2023 market conditions report conducted by one of our trusted general contractor partners.
Using statistics from the U S Census Bureau, total nonresidential construction spending in the U S increased 15.5% from February of 2022 to February of 2023.
This included a 21.6% increase for commercial construction spending and I'm, 11.5% increase in healthcare construction spending.
This improvement is also reflected in the latest architectural billings index, which reported positive score for me it is.
Highest since September of 2022.
These are encouraging forecast that could generate growth for our business.
Our long standing relationships with valued customers contributed to a steady backlog at work.
And we continue to see strong bidding activity across North America, especially anarchy markets.
Even electric continues to see new opportunities and Amy charging station infrastructure as well as solar projects of various sizes and its core markets.
Sturgeon Electric Arizona District continues to expand relationships with customers and core markets such as data centers.
Hospitals and manufacturing while closely monitoring additional opportunities for battery storage projects.
Transportation remains steady on project activity, both in Colorado for Sturgeon Electric at Denver International Airport and in Canada with Western Pacific Enterprises, performing work on the Skytrain Rapid Transit Center and Metro Vancouver.
Manufacturing also presents several opportunities for new and additional work as we continue to build and strengthen relationships with our large EEV manufacturers and engineering firms representing nationwide opportunities.
In summary, we are proud of our employees for their creative thinking <unk>.
<unk> and have a partner with our customers to respond to the challenges Lincoln and lingering in our industry.
They are proactive and customer focused approach enables MYR group to mitigate these hurdles and maintain a healthy pipeline of work enhancing our potential for continued growth.
Thanks, everyone for your time today I will now turn the call back to Rick who will provide us with some closing comments.
Thank you for those updates Kelly, Todd and done our second quarter of 2023 performance illustrates the strength of our core markets continue to demand an investment in electrical infrastructure and our ability to maintain and expand strong and diverse customer relationships. We take pride in the role we play in building.
Okay, and resilient infrastructure across the U S and Canada.
We continually focus on meeting the needs of our customers as they navigate dynamic market conditions fortifying Our foundation is a strong and agile partner I.
I want to thank our employees for their invaluable contributions and dedication to safety and operational excellence. Each day, we believe M Y R group is strategically positioned to generate growth while delivering shareholder value.
And I would like to thank each of you for your continued support operator, we are now ready to open the call up for comments and questions.
Thank you, ladies and gentlemen, as a reminder to ask a question. Please press star one one on your telephone and wait to hear your name announced.
To withdraw your question. Please press star one one again please.
Please stay on Bob while we compile the Q&A roster.
Oh first question comes from a line of Alex Dwyer with Keybanc capital market to your line is open.
Hi, good morning, Thanks for taking my questions.
Good morning out.
Yeah. So first can you just can you talk about what you're seeing in terms of the supply chain across the business like.
God, you're continuing to see supply chain of inefficiencies and inflationary pressures and CNI improve I'm just wondering how that turned it through the quarter and then on the team do supply chain. It sounds can materials are still tight and and the shortage of transformers has been topical.
Just an update on these would be helpful.
Sure sure I'll start on the CNI side.
On that side, we said we'd see.
In previous quarters, we saw that we are seeing gradual kind of Ah glidepath towards kind of that lower end of our margin profile and improving conditions on the supply chain. We continue to see that and I think in previous quarters. I said, we think we feel it's going to get back to normal by that first stand in the first quarter of next year.
We're continuing to see those improvements and it's heading that way on the T&D front, I mean, I think materials tight on that side.
But.
Our customers in general are getting out in front of that and making commitments sooner. So they have that material when the projects occur so they're planning at a at a higher rate and looking out further into the future.
Got it thanks, and then and then on the Tandy margin.
It sounded like whether it was the primary headwind and a quarter.
Are there any way to break out how big of an impact that was during the quarter and then and then it just to look ahead like is there anything different about your mix of business in the segment.
That could preclude you from getting margins back in that target range. The middle of that range later this year.
I'll start and all that taught add to it I think for us.
We see that borrowing bad weather, we see being able to get into that mid range of our margin profile.
There should really be no issues with that borrowing weather.
So I think we are seeing improved market conditions out there across the board, but did you want to add.
No I think the other part of your question was what was really Alex a mix of business and I I don't see the mix of business that we're in impacting margins at this point in time.
Rich right as far as the the.
The supply chain issues as well it seems like your clients are providing more visibility longterm. So they're they're planning much better right now, but you know overall the impact it was there quantifiable it's.
Slightly impact was where I put it.
Mmm.
Got it and lastly, just on the backlog.
The CNI backlog was quite strong I'm just wondering if there was anything larger in there or like a certain and market where you saw saw a lot of work come through.
And then do you took down the backlog is there anything to read into that or is that just timing.
And the T&D that side I'll start there is just timing I mean, it's always lumpy on awards, we want to make sure we have the right one in place.
We continue to grow our T&D side of the business and our CNI side, but on the T&D front.
MSA work continues to be about 50% of the revenue that that we produce each quarter and we liked that growth foreseeing on that side. So really know mix change on that at all on our backlog as strong just lumpy on that side on the CNI side there was no.
Huge projects in any one area I would say it was a steady flow of projects and and kind of all our core markets on the CNI side. So pleased with activity, we're seeing and look forward to continue.
Thanks, guys.
Thank you.
Thank you.
Our next question comes from the line of Justin half with fur your line is open.
Hi, Good morning, everyone. Thanks for taking my questions here I guess I I had a question just on the the expectations for revenue growth in the back half of the year you know you've had two quarters here, where the revenue growth has been over 20%.
Last year in the second half.
You know you grew over 30%.
C a difficult comp, but I guess typically seasonality you'd have more revenue sequentially in the third quarter versus the second quarter and I guess, just mathematically that would that would imply still.
Still double digit growth.
The third quarter.
Is that is that still a reasonable kind of assumption of the seasonality.
The thing that would kind of disrupt that I guess I'm just trying to think about how you're thinking about the back half of the year.
When we look at the back half of the year, we had a very strong front front half as you said the last half of 2002 was was very strong for us.
Going into this year and last quarter, I said to expect kind of in that that high single digit growth I would say now when we're looking at the work on our backlog that's been a burnley be in that lower low double digit growth is where I'd anticipated going so continue to see a lot of activity.
Continue to see the supply chain issues out there that would pull us from that higher I would say mid teen range down so look at that low low double digits for an area growth.
Okay, Alright that makes sense and then I guess, just just maybe dwelling on the free cash flow a little bit more.
I know you talked about the timing and on some of the receivables with the revenue ramp. It. It does look like your contract capital is up a fair amount and there's been a little bit of an uptick in the revenue from unapproved change orders. So is there anything.
Discrete and there are any large projects. That's you know maybe is going to be something that's it's dragging on working capital for awhile or.
Is it a one off this quarter.
Yeah, I'll jump in and answer that when Justin.
A couple of dynamics that are affecting at first you know just the revenue growth that we're experiencing so working capital to support that growth.
The other really boils down to timing of projects and when they are starting and completing how that affects our retention balances which were at quarter over quarter and then how that can affect you in some of the larger project. We're at the start we can have a favorable position from a contract structure and then as we get through that project that balances out.
But really it's just you know I think you're going to continue to see some lumpiness in that from quarter to quarter, depending on when we have projects ramping up and wrapping up.
Okay, Alright, so there's.
One big logic.
No iPhone org.
Finding across the whole portfolio and we don't see any changes to our collection patterns or or payment terms overall, it's really just comes down to timing.
Okay, Great and I think our DSO had been extremely low and even compared to our peers is still extremely low but it did climb a little bit, but I would say that's normal cycles of business.
Yeah, that's fair enough I think I'll just leave it there then.
Backup thank you very much.
Thanks, Justin.
Thank you please stand by for our next question.
Our next question comes from the <unk> Your line is open.
Hi, good morning.
Good morning, Brian .
Just to follow up on.
Strong first half in revenue and actually the trailing 12 months revenue is quite solid is do you have low single digits.
2023 revenue growth has that kind of like the new.
Level of organic growth that we can expect.
Yes.
That's what we hope to see I mean, as we said with the material issues out there and some of that stuff I plan on.
For the for the year being kind and that low double digit.
On the low end of the double digit growth, but we kind of revising that from what we're seeing now or what we saw in previous quarters I should say from that high single digit to that.
Right, Okay. So just to confirm.
<unk> double digit.
Is <unk> could be repeatable mmm 2024 and beyond.
For that right now we would like it to go there I would say plan on that high single digit next year, but.
Barring changes in the market or weather conditions or materials supply issues, we should be close to that close to the double digit that that high single digit I plan on for next year.
Borrowing and accurate.
Taking place Uh-huh.
Got it and then just you know when we looked at the the TNG.
Breakdown.
Quarter over quarter revenue it looks like the majority of the increase came from transmission, which revenue was up 29%.
No word distribution looks like it was up just about 10% I was just wondering.
Are there any one large transmission project that drove that that year over year increase.
No there's not one projected split among many projects.
Okay.
And then the Cal ISO approve there are 2022 transmission plan.
It's about five or $7 billion.
I think 40 over 40 projects and I know.
Past you mentioned in your relationship with a southern California based utility and I was just wondering.
When.
Development might start or win.
We could potentially see some awards.
Granted to you to use like and where our group.
Yeah, Brian This is Todd.
Yeah. We are excited about that we're actually starting to see some bidding opportunities right now as part of the <unk>.
But they're so it's probably going to be a two or three year process here. Some of the smaller projects are getting out on the street right now, but we're aware of.
The increase in the size of those projects over the next year or two so we're excited about that it will present, some some opportunities for.
Okay and then.
The.
Extreme heat that we've seen witnessed in Ah, Arizona and the southwest mostly.
These first three or four weeks of July I know it clearly has a different impact on T N D versus CNI, but if you could just kind of maybe discuss you know any labor or productivity.
Impacts from the extreme heat month to date.
Yeah, but right now we're not seeing a tremendous impact on that we're always concerned about the health and safety of our employees and and we're really focused on it we have our crews starting much earlier and working up to the point, where they can but we're getting full days in right now.
By starting much earlier and.
Finishing earlier in the day as well before the the heat peaks out, but something we have in Iowa little concerned about.
Concerned about the health and safety of our employees.
To date, the Napoli wood.
We've been getting full days in those areas.
Okay, Great and then last week.
Hearing and reading a lot about the electric vehicle charging stations I think yesterday consortium of automakers.
I'll, just you know a multibillion dollar.
Strategy for charging stations I'm, just wondering how big of an opportunity is it either on the T&D side or the CNI side I mean would you just could could you capture.
A big.
<unk> of the business or are these.
One of them.
Behind the meter type of work.
Work projects, you know that kind of piggyback whenever you're doing for for your existing utility customers and or CNI customers.
I'll I'll take that.
Just seeing.
Those EV opportunities across the board really both on our T&D and our CNI segments.
And we're seeing anything from small commercial where there is a couple of Chargers too maybe even some automobile dealerships, where they're asking for eight to 10 Chargers, but it could affect in touch every piece of our business really.
Yeah, and we're working on some nationwide agreements also so I think when you look at it it's.
[noise] physician for our company to be and we can dimbulb T&D side for our customers are bringing the power to the stations and then we can also take it from those charging stations, so and set those so for us as we think good good growth opportunities.
Improperly steady growth opportunities going forward as the market expands.
Alright, great. Thank you very much.
Thank you.
As a reminder, ladies and gentlemen that start one one to ask the question.
Please stand by for our next question.
Our next question comes from the line of John Bratt with K C. C. A your line is open.
Morning, everyone.
Good morning, John <unk>.
One of the one of the the pressures your feeling on the gross margin front is.
Some inflationary pressures and.
I guess my question is can you begin are you able to begin.
Begin to price.
Price those pressures into your into your into your bids.
To recover some of that margin.
Yes, we can.
Some contracts, we have are more favorable than others and I'm talking about older contracts I mean, a lot of our MSA and have fuel price increases have different opening provisions for them.
Newer contracts a lot of them are tied to inflationary pressures or increases for that reason.
But as we burn off some of the older work.
That didn't have those provisions and if that's what's been a draw on our margins to a certain extent and we see that improving as those projects burn off and that will continue through the end of this year and then will be pretty much into the newer projects. So.
We only see better terms and conditions and our contracts and what we saw two or three years ago and I think that's going to continue to be in place okay.
Okay. So as we enter let's say 2024.
Most of those <unk> most of those contracts will have some type of if you want to call. It escalator clause some provision in there that that.
Allows you to absorb or pass through some of the if there are some higher higher cost.
Yeah, not every contract will have that but I would say.
More and more projects are able to have that so sometimes we're teaming with our suppliers are vendors and they're covering that risk there's different ways to obtain it.
That goal of not having that total.
Visibility or or impact of it so I think as we move forward. It's one of those that we address on every contract were on and.
It's something that the whole industry space and so it's not just us facing that others are facing at all to ourselves I think our clients are more apt to bend on that issue and make sure. They have the right pricing in place going forward.
Is there any way you could quantify for us how much.
It has.
Been sort of a headwind on margins.
And if you look at our CNI side I mean, we've been operating below what that normalized margin profile, we say about 4% to 6% that's what's drawn as probably below that 4% and then there's been some some other impacts out there, but I mean, that's that's been primarily the driver that's taken us down okay. Okay. Thanks, and then just follow up on.
Sort of that the <unk> the previous question about the weather.
So it really hasn't been the hot weather is is it just.
Rayne I know it's been raining.
Northeast is that really the weather issue that.
You're faced and at times.
Well it <unk> I mean that makes it a little tougher to do and we've had a lot of that out in the northeast Yep lately. So that continues to impact us I don't want to say he has no impact on us.
We're doing a lot of solar installations around the country on both sides of the business. So you're not you may not be as productive in those times when that each extreme like that but usually that goes on for weeks not months Uh-huh. So it's something that I don't feel is going to have a great draw blood on our margins, but it does it is something that does impact.
People are working as quickly as they wouldn't is Todd says sure. We're doing a lot of stuff to start earlier and made sure the safest the safety and health of our employees come first okay alright. Thank you.
Thank you.
Thank you.
As a reminder, ladies and gentlemen, that's star one one to ask the question.
I'm showing no further questions in the queue.
I would now like to turn the call back to <unk> for closing remarks.
To conclude on behalf of Kelly, Todd Dawn 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.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].