Good morning, everyone, and welcome to the MYR Group First Quarter 2024 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.

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 2024, 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; Brian Stern, Senior Vice President and Chief Operating Officer of MYR Group's Transmission and Distribution segment; and Don Egan, 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 webcast replay of today's call will be available for 7 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 are discussed in the company's annual report on Form 10-K for the year ended December 31, 2023, the company's quarterly report on Form 10-Q for the first quarter of 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 Swartz.

Thanks, David. Good morning, everyone. Welcome to our first quarter 2024 conference call to discuss financial and operational results. I will begin by providing a summary of the first 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&D and C&I segments, will provide a summary of our segment's performance and discuss some more 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. Our strong market position, operational consistency, and the strength of our long-term customer relationships resulted in steady first quarter performance. Bidding activity remains healthy across both our business segments as we seek to strategically capture new opportunities and stay true to our sound business principles. The country's growing need for investment in a more robust electrical infrastructure, along with the continued shift to clean energy sources, present ongoing opportunities for growth for our T&D segment. The Deloitte Research Center for Energy and Industrial Freeport from 2023 estimates up to $350 billion in spending towards transmission infrastructure investments through 2030, with an additional forecast of up to $580 billion in distribution infrastructure investments over the same time frame. These markets are traditional strengths for our T&D segment where we are well positioned for success. Much of our growing demand for electricity across the U.S. and Canada is fueled by the core markets our C&I segment serves: data centers and the advancement of artificial intelligence, transportation, manufacturing, and healthcare facilities are some of the expanding markets driving the need for electrification now and into the future. Our teams have the experience and relationships to continue pursuing and winning work in these chosen core markets. As always, our success is grounded in an unwavering commitment to our customers, safe and reliable project execution, and the talent and dedication of our team members. We continue to develop and empower our employees to reach their highest potential as we grow our company, and I thank each of them for their efforts. Now Kelly will provide details on our first quarter 2024 financial results.

Thank you, Rick, and good morning, everyone. Our first quarter 2024 revenues were $816 million, which represents an increase of $4 million or 0.5% compared to the same period last year. Our first quarter T&D revenues were $490 million, an increase of 10% compared to the same period last year. The breakdown of T&D revenues was $314 million for transmission and $176 million for distribution. T&D segment revenues increased $29 million on distribution projects and $16 million on transmission projects. Work performed under master service agreements continues to represent approximately 50% of our T&D revenues. C&I revenues were $325 million, a decrease of 11% compared to the same period last year. The C&I segment revenues primarily decreased due to the delayed start of certain projects that are expected to begin later in 2024. Our gross margin was 10.6% for the first quarter of 2024 compared to 10.4% for the same period last year. The increase in gross margin was primarily due to better-than-anticipated productivity, favorable joint venture results, favorable change orders, and a favorable job closeout. These margin improvements were partially offset by labor and project inefficiencies, some of which were caused by inclement weather experienced on certain projects, rising costs associated with supply chain disruptions, and unfavorable change orders and job closeouts. T&D operating income margin was 6.1% for the first quarter of 2024 compared to 7.4% for the same period last year. The decrease was primarily due to labor and project inefficiencies, most of which related to clean energy projects, primarily in one geographic area that also experienced inclement weather, as well as higher fleet depreciation and maintenance expenses and an unfavorable change order. These decreases were partially offset by better-than-anticipated productivity and an increase in work in progress. C&I operating income margin was 3.5% for the first quarter of 2024, compared to 2.9% for the same period last year. The increase was primarily due to better-than-anticipated productivity, some of which related to clean energy projects, favorable joint venture results, favorable change orders, and a favorable job closeout. These increases were partially offset by labor and project inefficiencies, some of which were caused by supply chain disruption. C&I operating income margin was also negatively impacted by a decrease in work in progress, higher contingent compensation expense related to a prior acquisition, an unfavorable change order, and higher fleet depreciation and maintenance expenses. First quarter 2024 SG&A expenses were $62 million, an increase of $5 million compared to the same period last year. The increase was primarily due to an increase in employee-related expenses, an increase in contingent compensation expenses related to our prior acquisition, and an increase in employee incentive compensation costs. First quarter 2024 interest expense was $1 million, an increase of $500,000 compared to the same period last year. The increase was due to higher average outstanding debt balances and higher interest rates. First quarter 2024 net income was $19 million compared to $23 million for the same period last year. Net income per diluted share of $1.12 decreased compared to $1.38 for the same period last year. First quarter 2024 EBITDA was $40 million compared to $41 million for the same period last year. Total backlog as of March 31, 2024, was $2.43 billion, 9% lower than a year ago. Total backlog as of March 31, 2024, consisted of $853 million for our T&D segment and $1.57 billion for our C&I segment. First quarter 2024 operating cash flow was $8 million compared to operating cash flow of $37 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 as well as an increase in our days sales outstanding compared to the prior year. First quarter 2024 free cash flow was negative $18 million compared to positive free cash flow of $18 million for the same period last year, reflecting the decrease in operating cash flow and higher capital expenditures. Moving to liquidity and our balance sheet. We had approximately $294 million of working capital, $38 million of funded debt, and $434 million in borrowing availability under our credit facility as of March 31, 2024. We have continued to maintain a strong funded debt-to-EBITDA leverage ratio of 0.2x as of March 31, 2024. 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 Brian Stern, who will provide an overview of our Transmission and Distribution segment.

Thanks, Kelly, and good morning, everyone. Within the T&D segment, we remain focused on strategically pursuing new opportunities, expanding long-term customer relationships through master service agreements, and continuing to maintain and expand our long-term client relationships. Bidding activity shows positive signs of growth with increased opportunities for various sized projects that we continue to monitor and selectively pursue. Solar market headwinds persisted into 2024, and the same group of projects continued to negatively impact our financial results in the first quarter. We continue to work closely with our clients and project teams and anticipate reaching substantial completion on this group of projects during the third quarter. The forecast for capital spending on the aging infrastructure, reliability, and energy transition projects remain strong, with spending expected to grow at record levels over the next decade according to S&P Global's industry and credit outlook for 2024 released in April. Increasing electrification demand emphasizes the need for system hardening, upgrades, and new transmission and distribution infrastructure. In the Deloitte report mentioned earlier, respondents cited upgrading and expanding grid infrastructure as our biggest challenge, creating future opportunities for our business. Our traditional T&D operations continued their strong execution of work throughout our operating territories. We continue to focus on our long-term MSA customers and supporting their needs. This is evident by our recent renewal of an existing alliance in our Western operations and the award of an exciting new MSA for a major utility in the Midwest. Additionally, substation, transmission, and distribution work remains active across the country with numerous subsidiaries being awarded projects. To conclude, our consistent focus on safety and project execution has enabled us to expand our customer relationships while strategically pursuing new opportunities. We strive to leverage our capabilities and experienced teams across our companies to contribute to our customer success and overcome challenges together. We are excited about the outlook for the T&D industry and look forward to playing a key role in helping meet the future energy demand. I will now turn the call over to Don Egan, who will provide an overview of our Commercial and Industrial segment.

Thanks, Brian, and good morning, everyone. Our C&I results in the first quarter improved from previous quarters and demonstrate the strength of our core markets we serve. Our C&I segment continues to overcome challenges as we capture and execute new projects through extensive collaboration with our clients and vendors and by leveraging our strong supplier network across the organization. Bidding activity remains healthy in our chosen core markets with continued signs of long-term stability. According to the 2024 North American engineering and construction outlook released in April, the forecast for growth in engineering and construction spending remains strong across all nonresidential segments. The report predicts continued positive growth rates in high-performing markets such as healthcare, transportation, and manufacturing, all of which are core markets for our C&I segment. These encouraging forecasts could generate growth for our business as we continue to leverage our expertise and place us in a leading position to strategically capture future opportunities in these markets. Across the U.S. and Canada, our companies continue to perform and pursue an array of projects. Data centers remain strong with recent awards as well as new opportunities in Arizona, Colorado, Chicago, and California. Transportation also remains strong as we pursue new opportunities with transit work in Canada by Western Pacific Enterprises, and we see increased opportunities for additional transportation work in Colorado and California. Aerospace is another market with opportunities and recent awards for CSI electrical contractors in California, Huen Electric in Chicago, and Sturgeon Electric in Colorado. We also continue to see new opportunities in solar, warehousing, and water treatment facilities, which are strong core markets for our C&I segment. In summary, we are proud of our employees for their creative thinking, dedication, and strong customer relationships as they continue to navigate the ever-changing landscape of the industry. These attributes enable us to mitigate the day-to-day challenges and continue to execute our projects while maintaining 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, Brian, and Don. Our first quarter performance reflects our ongoing commitment to strong operating principles and sound business strategies while remaining proactive and disciplined in a dynamic energy landscape. We continue to expand long-term customer relationships and remain focused on creating value through safe and quality project execution. Thanks to the tireless efforts of our talented employees, MYR Group is strongly positioned as an industry leader that is viewed as an essential partner by our customers. I believe 2024 represents a great opportunity for MYR Group to build upon our success. I thank each of you for your ongoing commitment and support to the success of this organization, and I look forward to working with you to advance our vision and realize our business goals. Operator, we are now ready to open the call up for comments and questions.

We will now take our first question, and it comes from Ati Modak from Goldman Sachs.

You have a unique exposure to data centers, both directly and indirectly. I'm interested in your perspective on customer conversations and when you expect the volume of work in the backlog to increase for both types of exposure. What challenges might you face, such as supply chain issues or others?

I'll start, and then I'll let Don add. I think it's a very active market for us, but we're very selective in what we approach. I think anybody can overcome it in this data center market today. So for us, it's being very selective with the resources we have, the customers we have, and then being aware of the supply chain. Right now, it's really the longer lead items that we're seeing as an issue out there. And I think our clients are addressing it and coming to us sooner and sooner with future opportunities so they can prepare for that. Don, I'll let you talk about some of the opportunities out there.

I think you really nailed it, Rick. We need to be extremely selective in the pursuits that we're chasing. We can get overcommitted, which is a big concern of ours. While we continue to monitor what's happening on the supply chain. As far as when we may see an increase in our backlog, we've talked about it before, backlog can be very clunky, but the reality is, sometimes we may have a small amount of backlog we're adding, so we can get some of that long lead equipment ordered early. But really, ultimately, we're really focused on our existing clients and what their builds are looking like in the future.

Got it. And then you spoke about expanding alliance agreements and strategically capturing new opportunities. Is that additional market share? Can you give some color around that on the opportunities that you're seeing and how we should think about the margin impact from that?

Sure. For us, it's steady opportunities to continue and grow and expand our business. Those are new market opportunities that Brian covered. And for us, it's just additive to what we do, and it's just part of our steady growth profile long term.

We will now take our next question. Please stand by. And the next question comes from the line of Brian Brophy from Stifel.

I think last quarter, you talked about expectations for high single-digit growth for the year in both segments. Just curious now that we're through the first quarter, how things are shaking up relative to that initial expectation? Are you still expecting high single-digit growth in both segments this year?

I would say on the commercial and industrial side, we are experiencing a delay in some of the projects we anticipated starting in the first and second quarters, which have now been pushed to the fourth quarter. These projects haven't been canceled; they are simply postponed due to various reasons. As a result, we expect a flatter growth profile for our company this year rather than the higher single-digit growth previously forecasted. However, we still see significant opportunities in both of our segments going forward. Regarding the transmission and distribution side, larger clean energy and solar projects are becoming increasingly competitive, a trend that has continued this quarter. We will not undertake projects at prices below our cost or fair markup. Despite the competitiveness, we view the long-term market positively.

Great. That's really helpful. And then could you talk about margin progression that you're expecting for the remainder of the year? I guess, in both segments seem to be expecting kind of an inflection here in the back half as some projects roll off. Just curious if you're still expecting that and how we should be thinking about margin progression for the year?

Yes, I'll start with the regular side. Go ahead, Kelly.

Thanks, Rick. I'll jump in and say that from the Commercial and Industrial side, we're pleased to report some improvement from the fourth quarter, achieving a 3.5% margin this quarter. We're maintaining the same trajectory discussed in the last call, aiming for the low end of our target operating income margin range of 4% to 6% by midyear on a run rate basis. We've made good progress this quarter and expect similar performance as we move into the second quarter, followed by continued gradual improvement. On the Transmission and Distribution side, as noted in Brian's remarks, we're still dealing with the same projects mentioned in previous calls that have led to lower operating income margins. We anticipate wrapping up field labor on these projects at the beginning of the third quarter, but since they have lower margins, we expect this to impact us in the second quarter. However, we should start to see margin improvement in the second half of the year, trending back toward our target range of 7% to 10.5%. Of course, this is especially true for the T&D side, which is weather-dependent. We always account for normal weather conditions. Hopefully, this gives you a clear idea of where we're headed, mirroring what we discussed in the last call.

We will now take our next question; please stand by. And the next question comes from the line of Sangita Jain from KeyBanc Capital Markets.

So Kelly or Rick, can you tell us a little bit more about the delayed projects there? What type of projects are they? The geography, maybe? And what may be causing the delay in start?

As I mentioned, we faced several issues. This was related to the commercial and industrial side, and it wasn't linked to just one specific type of work. It impacted us across different sizes of projects, with delays stemming from permitting and owner-furnished materials. However, these delays are not causing any project cancellations, and we expect to see project starts in the third and fourth quarters instead of the first and second quarters of this year.

Thank you. I would like to ask a question regarding the higher SG&A. Did this result from any earn-outs related to acquisitions? If that is the case, should we expect to model it similarly in the future?

Yes, I can address that. The year-over-year variance includes increased profitability from a previous acquisition and some contingent compensation expenses related to that. We also experienced strong favorable closeouts during the quarter, which significantly contributed to the rise in SG&A expenses, particularly when comparing year-over-year.

How should we think about that going forward? Do you expect to have more of these payments for the rest of the year? Or does that taper down?

So that could continue to be a factor in the second quarter, but I would expect that it would not be a material factor as we go into the second half of the year.

We will now take our next question. Please stand by. And the next question comes from the line of Justin Hauke from Baird.

I wanted to follow up on the solar projects. This is not a new topic, and your indication that they will be completed sometime in the third quarter aligns with previous expectations. I’d like to know, regarding the margins and their impact, approximately how much revenue are these projects generating? Additionally, considering the gross margin adjustments you've made, are they still profitable, or are they currently operating at a 0 margin? I'm trying to grasp the potential impact of this drag once the projects are finished.

It's a handful of.

Yes, Justin, I would point to Sorry, Rick, go ahead.

I would say those projects are difficult projects for us, that handful. We're getting them behind us. They are very, very low-margin projects for us. So they are slightly negative for us on that side. So they are pulling us down. Weather continues to be an impact on those projects. And as I said, they'll be finished during that beginning of the third quarter timeframe. So for us, we really haven't disclosed what the revenue was on those projects, and we're in discussions with our clients, and they don't want to say much about those projects. So that's about as deep as I can get into it.

And I would just point to some of the disclosures that we have in the 10-Q that just provide a little bit more background on that 6.1% margin we had in the quarter and some of the puts and takes from that perspective, and that gives a little bit more detail.

Yes, I noticed the 250 basis points net. I was trying to understand whether this represents 10% of the T&D business or 5%. Having that directional information would help assess what the impact will be once those projects roll off, especially since they are currently running at very low or negative margins. I'm not sure if there's more context available.

No, I would say it would take us more towards our mid-range of our guidance of where we should be at somewhere in the lower to mid-range without those projects.

Okay. I guess my second question, just maybe bigger picture. Your distribution revenue was actually up pretty strongly, up 20%. I guess we've heard some commentary that the utilities have been pulling back work under their MSAs. Maybe it's shifted to more transmission or they're restricting hours just to make sure that they don't kind of run over their CapEx budgets for the year, but the year's was up nicely. So I guess, are you seeing that? Or what are your customers saying in terms of kind of their progression of how they plan to roll out under your MSA contracts for the year?

Justin, I think when we look at it, we've always said between whether it's transmission or distribution, our MSAs are a lot of them are dual purpose, and we do both transmission and distribution work for the same clients. So it's really how they roll out their work during that quarter. And for us, margin profile is very similar. We don't care which one we do. So it's just being able to support our clients. So again, it can always shift quarter-to-quarter based on the work they're releasing us. But I don't think we've got anything that specific that says they're going to shift. And again, we only report 90 days of backlog in our MSA. So we're forecasting what we see for the next 90 days. We're not forecasting that out a year, but our clients aren't pulling back overall. We haven't seen that. So again, good spend from them, and I really don't care which bucket it goes into.

Yes. Okay. Yes. And that's a fair point with the 90 days because that's different from how some of your peers report their backlog. So thank you very much. Appreciate it.

We will now take our next question, please stand by. The next question comes from Jon Braatz from KA-CCA.

Kelly, could you provide more details on how the gross margin has been affected by your joint venture investment, which I believe contributed a 60 basis point improvement? Can you give us additional specifics on that?

Sure. And that relates to a couple of joint venture projects that we're nearing the finish line on and have had some strong results. And so that contributed to a favorable effect on the C&I segment in the quarter.

Okay. Anything going forward from those JVs?

They're getting closer to the finish line. So we're not quite finished with that. They're not fully closed out, but I would expect that this was a larger contribution that we saw in this quarter.

Larger in the second quarter? Did I hear that right?

I'm sorry, no. Larger in the first quarter.

Okay. Okay. Okay. Fine. And Rick, sort of from a big picture standpoint, sort of, as always, the utilities are facing a little bit higher cost of capital? And are you seeing any reluctance to go forward with some of their capital spending because of the higher cost? Any reason to think that maybe some projects could be pushed further out to the right?

Nothing that we see as of now. I mean you're always seeing that shift in a quarter or shorter term, maybe in the next 9 months, things can move around. But we are still in discussions with customers on projects that are well into the future, and we haven't seen anybody say anything that they're going to delay any projects or not bill them because of the cost of capital or anything like that.

As there are no further questions, I would now like to hand back to Rick Swartz for closing remarks.

To conclude, on behalf of Kelly, Brian, Don, 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.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.