MYR GROUP INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Steady third quarter performance improvement due to strong market position and customer relationships, resolving unfavorable project impacts from prior quarters.
• Edison Electrical Institute projected U.S. investor-owned utilities to invest $186-$203 billion annually from 2024-2026 for electrification, tracking major expansion projects for future work.
• C&I segment has strong bidding activity in core markets, with new opportunities in transportation, data centers, and pharmaceuticals; awarded a $100 million project at Hollywood Burbank Airport.
• T&D segment had steady performance despite clean energy project impacts, with storm response work and new contracts in various regions; master service agreements and mutual assistance driving work.
• C&I segment saw improved results, with ongoing data center opportunities and positive bidding activity in health care, aerospace, and other sectors.

Segment Performance

• T&D Segment: Third quarter revenues were $482 million, a 12% decrease year-over-year. Transmission revenues were $277 million, Distribution $205 million. Revenue decreased due to a $81 million reduction in transmission project revenue, partially offset by a $14 million increase in distribution project revenue. Work under master service agreements accounted for approximately 55% of T&D revenues. Operating income margin was 3.6% for the quarter, down from 6.6% y-o-y due to losses on clean energy projects.
• C&I Segment: Revenues were $406 million, a 4% increase year-over-year. Primarily due to growth in fixed price and T&E contracts. Operating income margin was 5% for the quarter, up from 3.6% y-o-y, though impacted by a single project. Total backlog as of September 30, 2024, was $2.6 billion, with $799 million for T&D and $1.8 billion for C&I.

Guidance

• T&D revenue expected to be flattish to third quarter in fourth quarter, with lower clean energy revenues offset by growth in core T&D business.
• C&I revenue expected flat to slightly down in fourth quarter, depending on project timing.
• Anticipate operating in the middle of margin ranges excluding impacts of problem projects; T&D margin midpoint 7%-10.5%, C&I 4%-6% in 2025.
• Selective on T&D solar projects, with core business operating well minus a few problem projects.

Risks

• Unfavorable impacts from certain clean energy projects in T&D and a single C&I project, including weather-related issues, labor inefficiencies, and contract disputes.
• Schedule extensions due to owner-furnished panel delays increasing costs on clean energy projects.
• Interest rates remaining high affecting payment terms with customers.

Question and Answer

• Q: Additional color on change orders for clean energy projects and margin impact. A: Pursuing change orders for clean energy projects, expecting to get these projects behind us by year-end. Expect to operate in the middle of margin ranges excluding the impacts of problem projects.
• Q: T&D backlog and solar projects. A: T&D backlog continues to decline on the solar side while growing on the core T&D business; selective on solar projects with favorable terms and conditions.
• Q: C&I margins and storm impact. A: C&I margins at 5% with positives from change orders offsetting headwinds; storm work is usually a positive contributor but not a significant driver of results.
• Q: Capital deployment and priorities. A: Focus on organic growth and tuck-in acquisitions for value creation, with flexibility for opportunistic share repurchases given a strong balance sheet.
• Q: Solar work and problem projects. A: Still pursuing solar work selectively; problem projects had unfavorable weather impacts, expecting less drag in the fourth quarter but risks remain until completion.