MYR Group Inc. Price & Performance (MYRG)

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 statement. These forward looking statements involve risks, and uncertainties that could cause actual results to differ materially from the forward looking [indiscernible] Accordingly, these statements are no guarantee of future performance. These risks and uncertainties are discussed in company's annual report on Form 10 ks for the year ended 12/31/2024 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 Schwartz.

Thanks, David. Good morning, everyone.

Welcome to our fourth quarter twenty twenty four conference I will begin by providing a summary of the fourth 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, Brian Stern and Don Egan Chief Operating Officers for our T and D and C and I segments will provide a summary of our segment performance and discuss some of MYR Group's opportunities going forward. I will then conclude today's call with some closing remarks and open the call up for your questions. We finished 2024 with continued improvement in our financial performance in the fourth quarter. As we work through the unfavorable impacts from a relatively small group of clean energy projects in our T and D segment, and one project in our C and I segment over the course of the year. These projects all reached mechanical completion during the fourth quarter. Our backlog increased to $2,600,000,000 reflecting a healthy bidding environment and ongoing investments in infrastructure, to meet growing electricity demand We continue to expand relationships through multiyear mass service and alliance agreements, while strategically pursuing additional opportunities to forge new partnerships. Key market drivers such as system hardening, grid modernization, technology advancement [indiscernible] Infrastructure improvements and decarbonization all present opportunities for long term growth across our business.

According to the Deloitte 2025 power and utilities industry outlook released in December, Utilities are responding to this dynamic energy landscape with record capital expenditures. Reaching an estimated 174,000,000,000 in 2024. Forecast project these capital expenditures to keep rising in the coming years. Many MYR MYR Group plans to continue to serve as a resourceful, flex to our customers as they endeavor to meet demands for reliable power.

Our C and I segment continues to see robust long term opportunities with new and existing customers within our core markets of data centers, transportation, pharmaceuticals, [indiscernible] and clean energy.

The C3 groups twenty twenty four North American electric transmission market forecast released in September noted there are more than 170 hyperscale and colocation data centers planned. Requiring more than 45 gigawatts of capacity Our C and I teams help build new facilities and expand existing ones while our T and D crews provide grid infrastructure improvements, and additions to help deliver the vast electricity demands required of data centers. Increasing demand for electricity offers a promising outlook for our industry. Which more than ever needs proven partners with established resources to meet the energy needs of businesses and communities, We believe our chosen core markets are poised for ongoing success thanks to the significant investments being made in electrical infrastructure. And are confident that our hard earned reputation for collaboration, [indiscernible] and reliable project delivery positioned us well for future work. Now Kelly will provide details on our fourth quarter twenty twenty four financial results.

Thank you, Rick, and good morning, everyone. Our fourth quarter twenty twenty four revenues were $830,000,000 which represents a decrease of $174,000,000 or 17% compared to the same period last year. This decrease was primarily related to certain clean energy projects in our T and D segment that have reached mechanical completion. As well as a decrease in revenue on C and I fixed price contracts offset by an increase in revenue on C and I T and E contracts.

Our fourth quarter T and D revenues were $450,000,000 a decrease of 24% compared to the same period last year. The breakdown of T and D revenues was $267,000,000 for transmission $183,000,000 distribution. G and D segment revenues decreased due to a reduction of $136,000,000 in revenue on transmission projects primarily related to certain clean energy projects that have reached mechanical completion. The work performed under master service agreements represented approximately 60% of our T and D revenues in the fourth B and I revenues were $380,000,000 a decrease of 8% compared to the same period last year. C and I segment revenues decreased primarily due to a decrease in revenue on fixed [indiscernible] offset by an increase in revenue on T and E contracts. Our gross margin was 10.4% for the fourth quarter of twenty twenty seven percent for the same period last year. The increase in gross margin was primarily due to the continued benefit of higher margins on certain completed projects and certain projects nearing completion. These benefits largely related to better than anticipated productivity, and previous favorable change order. Gross margin was also positively impacted by better than anticipated productivity experienced These margin increases were partially offset by a decrease in gross margin related to clean energy projects in T and D that have reached mechanical completion the unfavorable impact of a C and I project and labor and project inefficiencies.

T and D operating income margin was six point seven percent for the fourth quarter of twenty twenty four, compared to 7.2% for the same period last year. The decrease was primarily related to losses on certain clean energy projects have reached mechanical completion.

These project losses were due to higher labor and contract related costs as well as labor and project inefficiencies. Combined, the gross profit changes related to certain clean energy projects negatively impacted T and D operating income as a percentage of revenues by 3% in the fourth quarter of twenty twenty four. C and I operating income margin was point 9% for the fourth quarter of twenty twenty four. Compared to 2.1% for the same period last year. The increase was primarily due to the continued benefit of higher margins on certain completed projects and certain projects nearing completion. These benefits largely related to better than anticipated productivity and previous favorable change orders. Operating income margin was also positively impacted by significant estimated gross profit changes related to better than anticipated productivity experienced These increases were partially offset by a single project, had a negative impact of 2.2% on C and I operating income margin during the fourth quarter. This project reached The loss on this project was primarily due to scope additions increased labor costs related to scheduled compression and lower productivity due to access and workflow issues. Additionally, B and I operating income margin was positively impacted related to a prior acquisition.

Fourth quarter twenty twenty four SG and A expenses were $57,000,000 a decrease of $3,000,000 compared to the same period last year. The decrease was primarily due to a decrease in employee incentive compensation costs and a decrease in contingent compensation expense related to a prior acquisition. Partially offset by an increase in employee related expenses to support future growth in our operations. [indiscernible] Our fourth quarter effective tax rate was 40.9% compared to 32.3% for the same period last year. The increase was primarily due to higher other permanent difference items and the unrecognized benefit of deferred tax assets. [indiscernible] fourth quarter twenty twenty four net income million dollars compared to $24,000,000 for the same period last year. Net income per diluted share of $0.99 compared to a $1.43 for the same period last year. Fourth quarter twenty twenty four EBITDA was $45,000,000 compared to $53,000,000 for the same period last year. Total backlog as of 12/31/2024 consistent with the prior quarter, and a 2.5% increase the prior year. Total backlog as of 12/31/2024 consisted of $818,000,000 for T and D segment and $1,800,000,000 for our C and I segment. Fourth quarter twenty twenty four operating cash flow was $21,000,000 compared to operating cash flow of $43,000,000 for the same period last year.

The decrease in cash provided by operating activities was primarily due to the timing of contingent compensation payments associated with the prior acquisition and lower net income.

Fourth quarter twenty twenty four free cash flow was 9,000,000 compared to free cash flow of $22,000,000 for the same period last year. Reflecting the decrease in operating cash flow, partially offset by lower capital expenditures. Moving to liquidity in our balance sheet. Had approximately $266,000,000 of working capital $74,000,000 of funded debt, and $355,000,000 in borrowing availability under our credit facility of 12/31/2024. We have continued to maintain a strong funded debt to EBITDA leverage ratio of 0.63x as of 12/31/2024. We believe our credit facility, strong balance sheet and future cash flow from operations will enable us to meet our working capital needs pursue acquisitions and opportunistically repurchase shares. Board of Directors recently authorized a new $75,000,000 share repurchase program.

New program will when the authorized funds are exhausted, whichever is earlier. Now turn the call over to Brian Stern, who will provide an overview of our transmission and distribution segment. Thanks, Kelly.

Good morning, everyone. The T and D segment continues to focus on strengthening and growing our market presence by seeking to expand long term relationships and strategically bidding and winning opportunities with new and existing customers. Our fourth quarter twenty twenty four results were steady thanks to proven business principles of safety, quality and reliability across our balanced portfolio of work. We continue to maintain a stable and diverse pipeline of transmission distribution and substation projects working closely with customers to deliver quality results and on time outcomes. Bidding activity remains healthy in the segment and the outlook for 2025 and future years is positive. Investments to upgrade an aging electrical infrastructure improve reliability, meet low growth and achieve decarbonization goals all present opportunities for long term growth. According to the S and P global forecast released in January 2025, aggregate energy utility investments are projected to hit new highs of $2.00 $2,000,000,000 in 2025 and increased to $211,000,000,000 by 2027, as the country strives to meet increasing electricity demand. Our customers require the proven expertise reliable project delivery MYR Group provides in the face of this dynamic energy landscape we believe this creates opportunities for future growth Our subsidiaries continue to execute and win additional work In our Eastern Region, the L. E. Myers Company won transmission and substation work throughout the Midwest as well as in Virginia and Tennessee while Harlan Electric and ES Bullis received substation and transmission project awards, in the Northeast At West, Sturgeon Electric extended a three year master service agreement in the and one transmission, distribution and substation work in Arizona, Oregon, Washington and Utah.

Great Southwestern Construction was also awarded new transmission distribution and substation projects in Texas, Florida, Georgia and the Carolinas.

In summary, we believe this is an exciting time to be part of the industry. Our customers rely on us to help them safely meet the increasing demand and deliver reliable energy to communities. I'm proud of our amazing teams and the commitment they show every day to overcoming challenges and providing exceptional value. Our successes are attributable to them. I will now turn the call over to Don Egan, who will provide an overview our Commercial and Industrial segment.

Thanks, Brian, and good morning, everyone. The C and I segment achieved improved results in the fourth quarter compared to previous quarters as our chosen core markets remain healthy and we continue to capture new projects. Our ability to safely and skillfully execute Bidding activity remains healthy.

With continued signs of long term stability.

The 2025 Dodge Construction Network outlook released in November 2024 forecasts an increase in total non residential construction including 7% growth in commercial construction, 4% in institutional construction and 9% in manufacturing.

The American Institute of Architects consensus construction forecast predicts healthy growth in 2025 across our core markets such as data centers, [indiscernible] and manufacturing. Data centers alone are anticipated to see a 22% increase Our teams continue collaborating with customers to build new facilities and upgrade existing facilities, while leveraging our to strategically capture future opportunities for continued success. Across The U. S. And Canada, our companies continue to perform and pursue an array of projects. In the fourth quarter, Western Pacific Enterprises won healthcare work in Vancouver, and Huyn Electric was awarded a large distribution center project in New Jersey. We continue to win additional transportation work in Canada and Colorado, while CSI Electrical contractors in Hewen Electric captured additional clean energy projects in California and New York. ES Ullos was also awarded a higher education project in Maine and is well positioned for additional project opportunities in the future. In conclusion, when I look at the accomplishments of our employees, have achieved, I am inspired by their effort and dedication to serving our customers with integrity. Because of them, our organization remains at the forefront of the industry. We believe the future is promising and we will continue working side by side with our valued customers to safely build the infrastructure we cry to meet the demands of modern society.

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, Brian and Don.

Our steady fourth quarter performance demonstrates our commitment to sound business strategies and strong operating principles, even as we faced head headwinds from a relatively small group of projects. We believe that the growth forecast in the markets we serve a steady pipeline of project opportunities, and the continued development of our experienced teams position us well for enduring success. Through both our business segments, we serve as an open and trusting partner for our valued customers. Who rely on us to safely deliver high quality electrical construction services. Our success is made possible thanks to the excellence of our dedicated and talented employees.

I'm grateful for for them and their invaluable contributions this year. I would also like to thank our customers for their continued trust our shareholders for your ongoing support. We are excited about the essential role and why our group will to help create the modern electrical infrastructure, our communities rely upon every I look forward to working with you in 2025 and beyond. Operator, we are now ready to open the call up for your comments and questions.

Our first question comes from the line of Sangeetha Jain of KeyBanc. Your line is now open.

Hi, good morning, Rick Kelly. Thank you for taking my question.

Can I start by asking you on the bidding environment that you're seeing in C and I, the type of projects, the geographies and if the potential tariffs are coming up in your discussions?

I would say we're seeing activity in really all the markets we're in a lot on the data center side. I think when you're getting into hospitals and that's still a lot of activity and then the transit side as Don highlighted in his prepared comments.

Think [indiscernible] the potential of tariffs is always coming up as we get into newer contracts. Think that's a point that everybody's talking about. So I would say it's a very discussed point out there. And I would say a lot of our contract are getting provisions in to cover that risk.

Got it. And if I can follow-up on some comments that you made in your prepared remarks about lower revenue in fixed price contracts in both segments. Can you explain that? Is that a function of a change in how you're bidding for projects with a bigger focus on T and E contracts?

We like D and E contracts, but we also like fixed price. I think it's just the mixture of the projects that are coming to us During that quarter, I wouldn't look at it as a long term trend going forward. We've shown we can have execute either type of projects, but we did see an increase in kind of the T and E ones over this last quarter.

Was that in any specific area that you can highlight?

No, it wasn't in one specific area. It was just the way the work came in.

Great. Thank you so much. Sorry, just to add on to that. We did highlight in our [indiscernible] revenue has been coming down on clean energy projects within the T and D price work. I think conversely, you've seen our percentage of MSA work has climbed up to 60% of our overall T and D revenue. Understood. Thank you, Kelly.

Thank you. One moment for our next question. Our next question Our next question comes from the line of Justin Hawke of Baird. Your line is now open. Great. I guess it's obviously good to see the challenging projects have reached mechanical completion here, which I know is kind of the target for the year end. And I guess, the quarterly of that would be just thinking about the free cash flow, because it looks like with the completion of those bad jobs, a lot of the the unbilled has moved into accounts receivable. And just thinking about the free cash flow the last couple of years been kind of challenged as you funded those. What needs to happen to kind of collect the AR on that? And bring the DSOs down? And should we think of 2025 as being much stronger free cash flow year?

Yes. Good question, Justin. And similar to my comments on last quarter's call, we do see stronger free cash flow generation this year. And I would say positive drivers, of course, the increased profitability as we return to more of the mid part of our target operating income ranges for each segment. So that's a driver. And then as you pointed to also the recent reduction and balances for total pending change orders, that's down about 40% from third quarter and retainage, also down over 20% from third quarter. So as we see that cash collected that helps to drive positive cash flow. Now the one thing I would maybe just a couple of factors going the other way. We of course quarter to quarter our cash flows can be lumpy and that really comes back to timing And I would say that our selective selectivity on clean energy projects and kind of the lumpiness of large transmission work can also impact operating cash flow and just kind of the ebbs and flows of that. But yes, just to return to your original question, we do see stronger free cash flows in 2025.

Okay, great. And I guess my follow-up, You guys have given us, at least in the T and D segment, the trailing twelve month revenue contribution from clean energy projects over the last couple of quarters. That have helped kind of normalize where the revenue expectations are as kind of we think about those cycling out Do you have the update as of the year end, how much was energy projects in the T and D segment. Yes. It ended up being about 4%. [indiscernible] 4%, yes.

Okay. And that was four for the quarter, about 10% on a year to date basis.

Okay.

Is it fair to think that that's essentially zero in 2025 that work hasn't come back in? Or is there a portion of it that is? [indiscernible] yes, I think for us, we're going to continue to be selective in that market. We like that work overall is done Spokey picked up some work in a few areas where we see very good activity and we've had very good success in some of the other markets we're in where we historically done that on the T and D front. We'll continue to be very selective. So right now, I wouldn't We haven't said we haven't we're not taking on any work. I mean, we definitely like that market. But we want to take on that work at the right price. So we'll continue to be selective.

Okay.

Yes. Fair enough. Thank you for clarifying those two.

Thank you. One moment for our next question. Our next question comes from the line of Adi Modak of Goldman Sachs. Your line is now open. Hi, good morning, team. Rick, Kelly MYR, just curious if there's anything that you can share in terms of how you're thinking about the growth in the two businesses for this year? And anything on the margin progression as we roll through the year? I know you don't have official guidance, but any kind of color there that be helpful.

I would say on the margin projection, we're going to we right now we anticipate operating at a year basis to kind of in that mid range of our our targets that we've been out that 7% to 10.5% on T and D and the 4% to 6% on C and I. When we're looking at growth, we still see and all that on the C and I side, I guess that upper single digit growth opportunity there on revenue and I think on T and D, we still have growth within the core T and D segments, but we've got to make up for for kind of that loss of what we've had on the solar side or the clean energy side. So as we said last quarter, there would be a hole to fill and we best we can and we see the opportunities out there to do it. That's super helpful. And then I think you highlighted over 170 hyperscalers, if I heard that right, Can you talk about how many of those are in the core markets that you are exposed to? I know you previously indicated that you want a balanced exposure in the C and I business.

But I'm just curious what the competitive landscape is for those core regions and what that means in terms of the size and number of projects that you could be on?

Yes. I would say we're seeing lots of We are seeing some of the hyperscalers come into our core markets. And just like we said, we're going to continue to be diversified in what we what we focus on. We like to focus on data centers and healthcare and water wastewater work, but there are to answer your question specifically, there are heart to scalers that are moving into our core markets.

Thank you. I'll turn it over.

Thank you. One moment for our next question. Our next question comes from the line of John Bratz of KCCA. Your line is now open.

Good morning, everyone.

Good morning. Rick, I have a question for you and Brian. And Sort of a big picture question. Obviously, the Trump administration is sort of refocusing attention on oil and gas. And I'm curious if there's more electricity generation via combined cycle, single cycle, as opposed to clean energy How might that affect your business? And what are you hearing from your utility customers in terms of a changing generation mix as a result of the new administration. And again, how it might influence the opportunities ahead for you?

For us, either way, I mean, whether it's clean energy or coming from combined cycle plants, or anything like that, we're doing the lines in and out of them. We don't do that construction of the combined cycle itself. And we're selective on the clean energy side that we do. So though it's a part of our business, the lines in and out in the substations and the associated work is very strong either way for us.

I'll let Brian add to that.

Yes, Rick kind of hit on it. I think our planning planning cycle with major utility customers has been in motion for a while. So we haven't seen any shifts and discussions with them. As far as a change from the new administration.

Okay. Okay. And Kelly, one question for you. Just curious what the unrecognized benefit from the deferred tax charge was, if you want to call it that.

Sure. So that just had an overall impact on the effective tax rate for the quarter and the year. And really just comes to the sort of unevenness in profitability we had this year across the portfolio. So a little drag there. I think when you look at tax rate overall. Obviously, our effective tax rate was higher this year, driven by the higher permanent differences. Which a lot of that was really driven by contingent compensation from a prior acquisition and the deductibility limits around that. So that will become less of a headwind as we look forward. But we do expect to still have pressure on our overall effective tax rate relative to history. Because of the growth in our Canadian operations. The last thing I'll mention just maybe while we're on tax rate, something that's a little bit unusual relative to the last few years is that we do expect our effective tax rate quarter by quarter. To be MYR even across the year The last few years, we've had tax rate benefit in the first quarter driven by how stock compensation hits the tax rate and we don't expect that to be a material driver here in the first quarter of twenty twenty five.

Okay. Thank you, Kelly. [indiscernible] Thank you. One moment for our next question. Our next question comes from the line of Brian Brophy of Stifel. Your line is now open.

Yes, thanks. Good morning, everybody. Curious if conversations with customers on these prior challenge projects have completed or finished regarding potential claims or change orders Or is there any potential impact from those discussions that could occur sometime in 2025.

I would say those conversations are continuing. Some have been settled out. Some discussions are still going on.

There always could be possible impacts as you settle out these projects. But as we stand right now, we feel we have them covered as far as the way we've reported them. So I would say everything that way appears to be good and the conversations are ongoing. But there always could be impacts.

Okay. I guess can you give us a sense for potential size? Would this be something relatively immature [indiscernible] is there potential for there to be a positive impact because you're pursuing change orders or there are also negative potential outcomes, just any help there? Would be appreciated. The way we're looking at it is it's either positive or negative. It's probably not enough to move the needle. When we're looking at it, but that's how we see it today as these conversations continue to evolve.

We would provide any updates we have, but at this point, not all of them are settled and those conversations are ongoing. So I'm kind of limited on what can say about them at this point.

Understood. Thank you. Appreciate it.

Just to reiterate, I mean, we do we evaluate that and we adjust our estimates on that month by month quarter by quarter. So what we're presenting in our year end financials reflects most up to date information we have.

Understood. Appreciate it. Thank you.

Thank you MYR. I'm showing no further questions at this time. I would now like to turn back to Rick Schwartz for closing remarks.

To conclude, on behalf of Kelly, Brian, Don MYR myself, I sincerely thank you for joining us on the call today. Do not have anything further. And we look forward to you working for we look to working with you, going forward and speaking with you again on our next conference call. Until then, Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. [indiscernible]