MYR Group Inc. (NASDAQ:MYRG) Q4 2023 Earnings Call Transcript
MYR Group Inc. (NASDAQ:MYRG) Q4 2023 Earnings Call Transcript March 3, 2024
MYR Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone and welcome to the MYR Group Fourth Quarter and Full Year 2023 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] 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 fourth quarter and full year results for 2023, which were reported yesterday. Joining us on today’s call are Rick Swartz, President and Chief Executive Officer; Kelly Huntington, Senior Vice President and Chief Financial Officer; Tod Cooper, Senior Vice President and Chief Operating Officer of MYR Group’s Transmission & Distribution segment; and Don Egan, Senior Vice President and Chief Operating Officer of MYR Group’s Commercial & 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 webcast replay of today’s call will be available for seven days on the Investors page of the MYR Group website at myrgroup.com. 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 results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. These risks and uncertainties that are discussed in the company’s annual report on Form 10-K for the year ended December 31, 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 is set forth in yesterday’s press release. With that said, let me turn the call over to Rick Swartz.
Rick Swartz: Thanks, David. Good morning, everyone. Welcome to our fourth quarter and full year 2023 conference call to discuss financial and operational results. I will begin by providing a summary of the fourth quarter and full year 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, Tod Cooper and Don Egan, Chief Operating Officers for our T&D and C&I segments, will provide a summary of our segment’s 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 2023 with solid financial performance in the fourth quarter and full year revenues of $3.6 billion, setting a record high for the ninth consecutive year.
A steady backlog of $2.51 billion reflects a healthy bidding environment and the continued investment in infrastructure to meet growing electrification demands across the US and Canada. Our accomplishments this year demonstrate the strength and expansion of deep client relationships through alliance and multiyear service agreements, while strategically pursuing and capturing new opportunities. On December 2023 report from Clean Grid Initiative, forecast electricity demand will increase from 2.6% to 4.7% in the US over the next five years, with grid planners expecting a growth of 38 gigawatts through 2028, nearly double the 2022 forecast. In total, the report found $630 billion in near-term investment will be required to meet this load growth.
MYR Group will continue to serve as a strong and nimble partner for our clients as they strive to meet demands for reliable power. In our C&I segment, data centers continue to provide steady opportunities alongside our chosen core markets, including wastewater, transportation and healthcare. The same Clean Grid Initiative report forecast data center growth alone to exceed $150 billion through 2028 as the use of artificial intelligence increases. We continue to track these opportunities and seek to intelligently bid and execute projects to position us for future success. Grid modernization, reliability improvement, system hardening, decarbonization and greater usage of hybrid cloud environments and artificial intelligence are the key market drivers that present opportunities for consistent success across our business.
The tremendous investments being made in electrical infrastructure are encouraging and highlight why we believe our chosen markets are poised for ongoing success for many years to come. Now, Kelly will provide details on our fourth quarter and full year 2023 financial results.
Kelly Huntington: Thank you, Rick and good morning, everyone. For the year ended December 31st, 2023, we reached record annual revenues of $3.6 billion. Full year net income of $91 million and EBITDA of $188 million. Our fourth quarter 2023 revenues were $1 billion, a record high and an increase of 16% compared to the same period last year. Our fourth quarter T&D revenues were $592 million, a record high for our T&D segment and an increase of 15% compared to the same period last year. The breakdown of T&D revenues was $403 million for transmission, a record high and $189 million for distribution. T&D segment revenues increased due to higher revenue on transmission projects, primarily related to higher revenue on clean energy projects as well as higher revenue on distribution projects.
Work performed under Master Service Agreement continue to represent approximately 50% of our T&D revenue. C&I revenues were $413 million, a record high for our C&I segment and an increase of 18% compared to the same period last year. C&I revenues increased primarily due to higher revenue related to clean energy projects. Our gross margin was 9.7% for the fourth quarter of 2023 compared to 11.1% for the same period last year. The decrease in gross margin was primarily due to labor and project inefficiencies, some of which were caused by supply chain disruptions and inclement weather experienced on certain projects. Gross margin was also negatively impacted by rising costs associated with inflation and unfavorable job closeouts. These margin decreases were partially offset by better than anticipated productivity and favorable weather on a project.
T&D operating income margin was 7.2% for the fourth quarter of 2023 compared to 8% for the same period last year. The decrease was primarily due to labor and supply chain inefficiencies mainly related to clean energy projects, the inclement weather and an unfavorable job closeouts. These decreases were partially offset by favorable weather on a project and better than anticipated productivity. C&I operating income margin was 2.1% for the fourth quarter of 2023 compared to 3.6% for the same period last year. The decrease was primarily due to labor and project inefficiencies, some of which were caused by supply chain disruptions and inflation as well as unfavorable and unfavorable job closeouts. These decreases were partially offset by better than anticipated productivity.
Fourth quarter 2023 SG&A expenses were $60 million, an increase of $2 million compared to the same period last year. The increase was primarily due to higher employee-related expenses to support the growth in our operations and an increase in contingent compensation expense related to a prior acquisition, partially offset by a decrease in employee incentive compensation costs. Fourth quarter 2023 interest expense was $2 million, an increase of $600,000 compared to the same period last year. The increase was primarily due to higher interest rates and higher outstanding debt balances during the fourth quarter of 2023 as compared to the same period last year. Fourth quarter 2023 net income was $24 million compared to $25 million for the same period last year.
Net income per diluted share of $1.43 decreased compared to $1.46 for the same period last year. Fourth quarter 2023 EBITDA was $53 million compared to $52 million for the same period last year. Total backlog as of December 31st, 2023, was $2.51 billion, a slight increase from the prior year. Total backlog as of December 31st, 2023, consisted of $960 million for our T&D segment and $1.55 billion for our C&I segment. Fourth quarter 2023 operating cash flow was $43 million compared to operating cash flow of $94 million for the same period last year. The decrease in cash provided by operating activities was primarily due to the timing of billings and payments associated with project starts and completion. Fourth quarter 2023 free cash flow was $22 million compared to free cash flow of $65 million for the same period last year, reflecting the decrease in operating cash flow, partially offset by lower capital expenditure.
Moving to liquidity and our balance sheet. We had approximately $279 million of working capital, $36 million of funded debt and $442 million in borrowing availability under our credit facility as of December 31st, 2023. We have continued to maintain a strong funded debt-to-EBITDA leverage ratio of 0.19 times as of December 31st, 2023. We believe that our 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, pursue acquisitions and opportunistically repurchase shares. I’ll now turn the call over to Tod Cooper, who will provide an overview of our Transmission & Distribution segment.
Tod Cooper: Thanks, Kelly and good morning, everyone. The T&D segment achieved solid fourth quarter and full year 2023 results, once again proving that our business principles of partnering closely with our clients and executing our projects safely with expected quality and on-time delivery remain intact and effective. Expanding relationships with our long-term clients through Alliance and Master Service Agreements and strategically bidding and winning work with new and existing clients helped us continue to strengthen and grow our market presence. As Rick mentioned, the Clean Grid Initiative report forecasts robust investments in the coming years, and we believe there are abundant opportunities for sustained growth in this market.
Our strategic insight survey of T&D clients conducted earlier this year had 67% of the respondents, planning increased new transmission build over the next five years and validates the Clean Grid Initiative report for the growing electrification demand in the US with 56% of our clients ranking low demand as a high-impact factor in their business’ strategic direction. The solar market faced headwinds in 2023, we mentioned on our third quarter call that rising labor costs, project inefficiencies and weather, most notably on a few solar projects, along with supply chain disruptions affected our financial results. This is true for the fourth quarter as well, and we continue to work with our clients and project teams to advance these projects to completion.
We anticipate that the majority of the field work on these projects will be completed by the beginning of the third quarter. However, our outlook for solar opportunities and ability to execute remains positive as we see rising labor costs stabilizing and supply chain issues becoming less severe. The fourth quarter 2023 solar market insight report released by the Solar Energy Industries Association and Wood Mackenzie reported 58% growth compared to the third quarter of 2022. And their outlook remains strong for the solar markets trajectory over the next five years, forecasting an average 14% growth annually over that period. We will continue to closely monitor and strategically pursue opportunities in the solar market. Within the T&D segment, transmission, distribution, substation and clean energy projects have varied size, complexity and capacity continued to create a steady pipeline for work.
Across the US and Canada, we have won or renewed several MSAs in 2023 and been successful at securing a nice share of lump sum transmission, substation and distribution work. In summary, we are proud of our accomplishments in the fourth quarter and all of 2023. Our teams maintained a strong focus on safety and project execution, positioning us as a strong partner in the T&D industry into the future, and I thank them for their tremendous effort. Increased grid demand and reliability in aging electrical infrastructure, decarbonization goals and legislative funding remain primary market drivers and when combined with our operational excellence positions us well for long-term success in this segment. In closing, as I stepped down as the Chief Operating Officer of MYR Group’s Transmission & Distribution segment, I’d like to thank Rick and the entire management team for their support throughout my career as well as the thousands of employees whose hard work and dedication on all of our projects have made MYR what it is today.
I look forward to supporting Rick and the team with other initiatives going forward and what remains an exciting and dynamic market. I’ll now turn the call over to Don Egan to provide an overview of our Commercial & Industrial segment.
Don Egan: Thanks, Tod and good morning, everyone. Our C&I segment saw a steady growth, thanks to healthy bidding activity and our continued ability to safely and skillfully execute projects while leveraging our strong vendor relationships to mitigate inflationary and supply chain headwinds. Our backlog increase as we capture desirable projects in our core markets. And we continue to see and track new opportunities in data centers, transportation, clean energy and healthcare. As Rick mentioned earlier, the December 2023 Clean Grid Initiative report forecasts significant growth in data centers across the US, driven by the rise of artificial intelligence and hybrid cloud environments. The report found investments in data centers as well as new industrial and manufacturing facilities as key drivers for the significant near-term investment to meet load growth demands.
With $481 billion in commitments for industrial and manufacturing facilities since 2021, in addition to the announcement of 200 manufacturing facilities this past year. Data centers are forecasted to increase from 17 gigawatts to 45 gigawatts of low demand by 2030 the report found. These forecasts aligned with the healthy activity we’ve seen with Sturgeon Electric executing and pursuing additional data center projects in Arizona and Colorado. Pharmaceutical manufacturing is another core market showing strong bidding activity across the segment that we continue to monitor and intelligently pursue. Outside of data centers and pharmaceuticals, Western Pacific continues to perform a pipeline of transportation work and monitor exciting transit opportunities in Canada.
CSI is executing clean energy and commercial projects across California, while water treatment and healthcare facilities continue to offer strong opportunities throughout the C&I business. A few of our district offices were negatively impacted from long-term pre-COVID-19 projects that had continued inflationary and supply chain disruptions during the quarter. Most of these projects will be completed during the first half of this year, allowing us to focus and execute on our healthy backlog of projects. Through our strengths of proven preconstruction service, strong execution and national buying power, we continue to collaborate with our clients, enabling us to secure additional work. To conclude, our chosen core markets are healthy and the strength of our current client relationships are generating additional pursuits.
Our dedicated employees continue to respond to lingering challenges to the business segment with proactive and customer-facing communication that help MYR Group maintain our leading positions in the markets we serve. We are proud of their dedication, commitment to our organizational values and the strong culture they create. Thanks, everyone for your time today. I will now turn the call back to Rick, who will provide us with some closing comments.
Rick Swartz: Thank you for those updates, Kelly, Tod and Don. We are proud of our growth, which reflects our ongoing commitment to strong operating principles, sound business strategies and our ability to maintain and expand long-term customer relationships across both business segments. We believe the future is promising for our industry as the demand for electrification increases, and our communities come to depend on reliable, clean energy more than ever before. Our accomplishments in 2023 are the result of our talented and dedicated employees, their commitment is admirable, and I appreciate each of them for placing tremendous care in everything they do. I would also like to thank Tod for his contributions to the company over his 33 years of service and in his tenure as COO as he transitions towards retirement and also welcome Brian Stern, as Senior Vice President and COO to our T&D segment.
Finally, I thank each of you for your ongoing commitment and support to the success of our organization. I look forward to working with you going forward. Operator, we are now ready to open the call up for your comments and questions.
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