MYR Group [MYRG] Conference call transcript for 2022 q1
2022-04-28 15:14:13
Fiscal: 2022 q1
Operator: Good morning, everyone and welcome to the MYR Group First Quarter 2022 Earnings Results Conference Call. Today’s conference is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to David Gutierrez of Dresner Corporate Services. Please go ahead, David.
David Gutierrez: Thank you and good morning, everyone. I’d like to welcome you to the MYR Group conference call to discuss the company’s first quarter results for 2022, which were reported yesterday. Joining us on today’s call are Rich Swartz, President and Chief Executive Officer; Betty Johnson, Senior Vice President and Chief Financial Officer; Tod Cooper, Senior Vice President and Chief Operating Officer of MYR Group’s Transmission and Distribution segment; and Jeff Waneka, 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 312-726-3600 and we will send you a copy or go to the MYR Group website, where a copy is available under the Investor Relations Tab. Also a replay of today’s call will be available until Thursday, May 5, 2022 at 11:00 AM Mountain Time. Please call 855-859-2056 or 404-537-3406 and enter conference ID 9940838. 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 Group’s management as of this date. And MYR Group assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual material 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, 2021, the company’s quarterly report on Form 10-Q for the first quarter of 2022, 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, let me turn the call over to Rich Swartz.
Rich Swartz: Thanks, David. Good morning, everyone. Welcome to our first quarter 2022 conference call to discuss financial and operational results. I will begin by providing a summary of the first quarter results and then we will 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 Waneka, Chief Operating Officers for our T&D and C&I segments, will provide a summary of our segments performance and discuss some of MYR Group’s opportunities going forward. I will conclude today’s call with some closing remarks and open the call up for your questions. The first quarter of 2022 was another good quarter for MYR Group. Strong execution, coupled with top line momentum, and mitigation efforts focused on the adverse effects of inflation and supply disruptions contributed to our ongoing success. We are also proud of our ability to execute projects for our clients, while maintaining focus on the safety and wellness of our employees. We entered 2022 with positive momentum in a complex environment fueled by our 2021 record revenue and healthy backlog at the end of 2021. Our first quarter results include a net income of $20.7 million, along with increases in revenues and gross profit as compared to the same period of 2021. Our backlog at the end of the first quarter was $2.4 billion, reflecting our ongoing resilience in strong customer relationships. Each year, we survey executives of our utility clients and use the data to supplement our business strategy and planning. For the second year in a row, clean energy emerged as the most impactful trend influencing the strategic direction of their business. Our survey participants are actively participating in the clean energy transformation and predict increased spend on clean energy projects and supporting infrastructure. Their responses also reflect a focus on electrification, labor solutions and resiliency strategies. We continually strive to understand the needs of our clients and align our capabilities and strengths to better serve them. Our T&D segment responded to a diverse set of opportunities, including distribution, transmission, and clean energy projects. Our C&I segment entered the year with a solid backlog and steady bidding opportunities in their core markets, including healthcare, clean energy, transportation, and data centers. Our collaborative approach to project delivery, coupled with capable and committed team members allows us to be a sturdy yet flexible partner for our clients. Now, Betty will provide details on our first quarter 2022 financial results.
Betty Johnson: Thank you, Rick and good morning everyone. On today’s call, I will be reviewing our quarter-over-quarter results for the first quarter of 2022 as compared to the first quarter of 2021. Our first quarter 2022 revenues were $636.6 million, representing an increase of $44.1 million or 7.4% compared to this same period last year. Our first quarter T&D revenues were $364.9 million, an increase of 15.9% compared to the same period last year. The breakdown of T&D revenues was $221.6 million for transmission and $143.3 million for distribution. The T&D segment revenues increased primarily due to an increase in revenues on distribution projects, including the incremental distribution revenues from the Powerline Plus Companies and an increase in revenue from transmission projects. Approximately 50% of our first quarter T&D revenues related to work performed under master services agreements. C&I revenues were $271.8 million, a decrease of 2.1% compared to the same period last year. C&I segment revenues decreased primarily due to a reduction in revenue in certain geographical areas. Our gross margin was 12.6% for the first quarter of 2022 compared to 13% for the same period last year. The slight decrease in gross margin was due to cost increases associated with supply chain disruptions and impacts from the COVID-19 pandemic, some of which also caused labor and material inefficiencies on certain projects as well as inclement weather experienced on certain projects. These margin decreases were partially offset by favorable job closeouts and net favorable change order adjustments on certain projects. First quarter 2022 SG&A expenses were $53.6 million, an increase of $4 million compared to the same period last year. The increase was primarily due to the acquisition of Powerline Plus Companies. First quarter 2022 amortization of intangible assets was $2.8 million, an increase of $2.2 million compared to the same period last year. The increase was primarily due to amortization related to certain intangibles acquired with the Powerline Plus Companies. Effective income tax rate for the first quarter of 2022 represents 15.4% of pre-tax income compared to 26.2% for the first quarter of 2021. The effective tax rate for the first quarter of 2022 decreased primarily due to a favorable impact from stock compensation excess tax benefits and the reduction of the impact of the global intangible low tax income. First quarter 2022 net income was $20.7 million or $1.21 per diluted share compared to $19.9 million or $1.17 per diluted share for the same period last year. Total backlog as of March 31, 2022 was $2.4 billion, 46.4% higher than a year ago with record highs in both our T&D and C&I segments. Total backlog as of March 31, 2022 included backlog related to our large Timberland Solar project announced on April 14, 2022. Total backlog as of March 31, 2022 consisted of approximately $1.1 billion for our T&D segment and approximately $1.3 billion for our C&I segment. Moving to liquidity in our balance sheet, we had approximately $217.3 million of working capital, $49.7 million of funded debt, and $317.5 million in borrowing availability under our credit facility of March 31, 2022. Our funded debt to EBITDA leverage ratio has continued to stay strong at 0.3x leverage as of March 31, 2022. We believe that our credit facility, strong balance sheet and future cash flow from operations will enable us to meet our working capital needs, equipment investments, and our growth strategies. I will now turn the call over to Tod Cooper who will provide an overview of our Transmission & Distribution segment.
Tod Cooper: Thanks, Betty and good morning everyone. Our continued focus on execution in all areas of our T&D segment, including distribution, transmission and clean energy projects resulted in a solid first quarter. The strength and expansion of our market presence led to a record backlog for the segment as we continue to focus our efforts on priorities such as aging infrastructure, system hardening, reliability and clean energy projects that are helping clients meet decarbonization goals. Rich mentioned earlier, our strategic insight survey. The survey indicated that greater than half of the participants question plan to spend more than a quarter of their T&D budgets on infrastructure to support clean energy. An example of this can be found at MYR Energy Services, or MYRE, which has negotiated multiple EPC projects related to clean energy as well as MYRE Solar Group’s recently announced award of the Timberland Solar project for ConEdison Clean Energy Businesses Incorporated. In early January, we acquired the Powerline Plus Companies in Ontario, Canada. We are continuing to integrate the company into our operations and are focusing on cultural alignment while supporting growth in their business. They bring in strong market presence in Toronto and the surrounding areas, which we will work to build upon in the years to come. Our subsidiaries are very busy across the U.S. Our Eastern region continues to be active in all markets with lump-sum unit price and several master service agreements focusing on transmission and distribution work. Most noticeably, the L.E. Myers Company continues a long held relationship with the Tennessee Valley Authority of being awarded a 5-year contract that will extend this relationship beyond 30 years. Our Western region is leveraging customer relationships and capitalizing on expansion opportunities. Sturgeon Electric California recently expanded services into a new region for Southern California Edison and High Country Line Construction was recently awarded a transmission project for a new client, South Texas Electric Co-op. In Alaska, Sturgeon was recently awarded the transmission project in Seward with other opportunities to expand its presence in this market. We continue to monitor global economic pressures that may affect the solar and transmission markets. While our work in these markets has been minimally impacted by such pressures to-date, sourcing material going forward could become increasingly difficult and the impacts of rising commodity and resource costs may impact certain projects. We are also monitoring a current investigation by the Department of Commerce related to the application of tariff on solar panels coming from certain countries in Southeast Asia. These tariffs, if imposed, did impact apply to certain projects in the U.S. We are in close collaboration with customers and suppliers to help us navigate all of these market challenges. We are also starting to engage in discussions with customers around the newly passed federal infrastructure investment in Jobs Act. We know the effect to our industry will take time to realize. However, we may see industry investments begin within the next few years. This includes keeping our eye on the funding earmarked for transportation, specifically related to electric vehicle charging infrastructure. The bill also includes funding for energy and power, with the purpose of expanding transmission lines to allow for clean energy growth and support for grid hardening. In summary, the first quarter of 2022 was strong and as a trusted partner in the T&D industry, we are looking forward to working with all of our clients to navigate around the challenges while maintaining a laser focus on safety and project execution. I will now turn the call over to Jeff Waneka who will provide an outlook of our Commercial & Industrial segment.
Jeff Waneka: Thanks, Tod and good morning everyone. Our C&I segment continues to perform well amidst a wide range of continually changing economic conditions. Through increased collaboration with our vendors and clients, we are working hard to mitigate the various supply chain and inflationary issues facing the construction industry. We are fortunate to have established strong relationships that are promoting early and proactive communication to resolve these complex issues. And to-date, we have seen minimal impact to our overall performance. We entered 2022 with a record backlog in C&I and in the first quarter, added meaningful projects to our book business. In prior quarters, we have stated that our core markets of transportation, healthcare, data centers, clean energy, warehousing, and water treatment are remaining resilient. And now, our first quarter awards include projects in other desirable markets, such as pharmaceutical and food and beverage. Demand for our services remains strong in most of our district offices allowing for discrete – discretion in pursuit selection. We are pleased to see the Dodge Momentum Index rebound in the first quarter. The overall momentum index was 17% higher in March of 2022 when compared to March of 2021. The institutional component was up 23% over the year, while the commercial component was 14% higher. The American Institute of Architects Architectural Billing Index also reported notable increases stating that the spike in the overall index could reflect firm’s desire to beat the interest rate hikes that are expected over the coming months. The first quarter’s increase in both indexes suggests that the construction sector continues to weather the storm as owners seek to push their projects forward. Clean energy projects continue to drive much of the conversation in electrical construction, especially related to the infrastructure investment in Jobs Act. The Edison Electric Institute or EEI recently announced the formation of the National Electric Highway Coalition, which formed to build a coast-to-coast fast charging network for electric vehicles along major U.S. travel corridors. EEI said it expects the number of battery powered EVs to grow from roughly 2 million last year to at least 20 million by the end of the decade. Therefore, the number of public fast charging stations around 10,000 in the U.S. currently will also have to expand by the end of the decade. Private funding to support the boom in electric vehicles is currently underway as car dealerships and transit centers grapple with the need to modify service and sales centers across the country. In addition to electric vehicles being a hot topic in the clean energy movement, solar projects continue to be additive to our C&I portfolio. We added new solar projects to our backlog and believe future solar projects will represent a large part of our future growth. We are also pleased that many of the large civil projects we are tracking continue to advance toward procurement. As Denver International Airport has grown into the third busiest airport in the world, our subsidiary company, Sturgeon Electric’s backlog and opportunity for future work have advanced at an equally rapid pace. Several projects to upgrade facilities and expand runways are tracking toward award in 2022. As the public resumes its appetite for travel, we believe that transit-oriented projects will continue to populate our pipeline. To conclude, we are proud of our employees are responding to the unique challenges facing the industry. They continue providing the proactive and customer-focused communication that will help MYR Group maintain a leading position in the markets we serve. Thanks, everyone for your time today. I will now turn the call back to Rich who will provide us with some closing comments.
Rich Swartz: Thank you for those updates, Betty, Tod and Jeff. Our first quarter performance demonstrates the stability of our core markets, the strength of our operations, and the depth of our client relationships. We will continue to focus on the clean energy transformation, electrification, and grid modernization. We take pride in the role MYR Group and our subsidiaries play in building efficient and resilient infrastructure across the U.S. and Canada. Our clients are faced with navigating a dynamic and challenging market. We strive to be a reliable partner for project delivery with extensive expertise and highly skilled team members to maintain our position as a leader in the industry. This fortifies our foundation to grow our business and provide our clients and prospects with a strong yet nimble partner. I would like to extend a thank you to our employees and shareholders for the continued support of MYR Group. And I look forward to connecting in the year ahead. Operator, we are now ready to open the call up for comments and questions.
Operator: [Operator Instructions] Your first question comes from the line of Sean Eastman with KeyBanc Capital Markets. Your line is open.
Operator: Alright. And your next question comes from the line of Justin Hauke with Robert W. Baird. Your line is open.
Operator: And your next question comes from the line of Noelle Dilts with Stifel. Your line is open.
Operator: And your next question comes from the line of Brian Russo with Sidoti. Your line is open.
Operator: [Operator Instructions] Your next question comes from the line of Jon Braatz with Kansas City Capital. Your line is open.
Operator: [Operator Instructions] Alright. I am showing no further questions at this time. I would now like to turn the conference back to Rich Swartz.
Rich Swartz: 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.
Operator: Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may all disconnect.
