Good morning, everyone, and welcome to the MYR Group Second Quarter 2024 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call 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 second 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 312-780-7204, 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 Investor 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 second 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 second quarter 2024 conference call to discuss financial and operational results. I will begin by providing a summary of the second 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 segments' 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. Our results for the quarter were negatively impacted within our T&D segment by clean energy projects that are all scheduled to reach mechanical completion by the end of the year and by one project within our C&I segment that is scheduled to reach substantial completion during the fourth quarter of this year. However, across our business segments, other project execution remains strong. Bidding activity remains healthy and we continued to strategically expand on existing partnerships as well as capture new opportunities throughout the markets we serve for continued long-term growth. The ever-growing demand for data centers fueled in part by the increasing prominence of artificial intelligence continues to offer exciting growth opportunities for our business now and into the future. Our recent Goldman Sachs equity research report on AI data centers and the coming U.S. power demand surge released in April forecast U.S. power demand to experience growth not seen in a generation. The report predicts the utilities need $50 billion of capital investments in new power generation capacity to meet the forecasted 47 gigawatts of additional load by 2030. Thanks to our breadth of capabilities and strong customer relationships, MYR Group is well positioned to win contracts for new data center work and help build the electrical infrastructure required to power those facilities. This quarter, in our C&I segment, Western Pacific Enterprises was awarded a transportation project in Canada valued at approximately $170 million, further solidifying the long-standing working relationships in the region. Additionally, our T&D segment won several Master Service Agreements for substation, transmission and distribution work across the Midwest and in the Carolinas, Florida and Kentucky. Overall, the increased electrification and investments being made in the electrical infrastructure are encouraging and highlight why we believe our chosen markets are poised for ongoing success for years to come. Now Kelly will provide details on our second quarter 2024 financial results.

Thank you, Rick, and good morning, everyone. Our second quarter 2024 revenues were $829 million, which represents a decrease of $60 million, or 6.7%, compared to the same period last year. Our second quarter T&D revenues were $458 million, a decrease of 9% compared to the same period last year. The breakdown of T&D revenues was $282 million for transmission and $176 million for distribution. T&D segment revenues decreased due to a decrease of $40 million in revenue on transmission projects and a decrease of $6 million in revenue on distribution projects. Work performed under Master Service Agreements continue to represent approximately 50% of our T&D revenues. C&I revenues were $371 million, a decrease of 4%, compared to the same period last year. The C&I segment revenues primarily decreased due to the delayed start of a few projects, which are now anticipated to start later this year, as discussed last quarter. Our gross margin was 4.9% for the second quarter of 2024 compared to 10.1% for the same period last year. The decrease in gross margin was primarily related to clean energy projects in our T&D segment, the unfavorable impact of a C&I project, as well as an increase in costs associated with labor, project inefficiencies and schedule compression on certain projects. These margin decreases were partially offset by favorable change orders, better than anticipated productivity, a favorable job close-out, favorable joint venture results and favorable materials pricing on a project. T&D operating loss margin was 1.8% for the second quarter of 2024 compared to operating income margin of 7.5% for the same period last year. The decrease was primarily related to clean energy projects and was due to contractual disputes, labor and project inefficiencies, higher labor and contract-related costs and unfavorable weather conditions. In addition, schedule extensions caused by owner-furnished panel delays led to increased costs on two clean energy projects, for which we are pursuing change orders. Combined, the gross profit changes related to clean energy projects negatively impacted operating income as a percentage of revenues by 10.5%. Many of these projects have reached mechanical completion and the remaining projects are anticipated to reach mechanical completion in the third and fourth quarters of 2024. Additionally, T&D operating income margin was negatively impacted by higher fleet depreciation and maintenance expenses and a decrease in work in progress. C&I operating income margin was 0.4% for the second quarter of 2024, compared to 3.3% for the same period last year. A single project that is anticipated to reach substantial completion during the fourth quarter of 2024 had a negative impact of 3.6% on C&I operating income margin during the second quarter. The loss on this project was primarily due to scope additions, increased labor costs related to schedule compression and lower productivity due to access and workflow issues. C&I operating income margin was also negatively impacted by an increase in costs associated with labor, project inefficiencies and schedule compression on certain projects as well as higher contingent compensation expense related to a prior acquisition. These decreases were partially offset by favorable change orders, better than anticipated productivity, favorable job close-out, favorable joint venture results and favorable materials pricing on a project. Second quarter 2024 SG&A expenses were $62 million, an increase of $4 million compared to the same period last year. The increase was primarily due to an increase in contingent compensation expense related to a prior acquisition and an increase in employee-related expenses to support future growth, partially offset by a decrease in employee incentive compensation costs. Second quarter 2024 net loss was $15 million compared to net income of $22 million for the same period last year. Net loss per diluted share of $0.91, compared to net income per diluted share of $1.33 for the same period last year. Second quarter 2024 EBITDA was negative $5 million compared to $47 million for the same period last year. Total backlog as of June 30, 2024, was $2.54 billion, 7% lower than a year ago and a 5% increase from the first quarter of this year. Total backlog as of June 30, 2024 consisted of $831 million for our T&D segment and $1.71 billion for our C&I segment. Second quarter 2024 operating cash flow was $23 million compared to operating cash flow of negative $21 million for the same period last year. The increase in cash provided by operating activities was primarily due to the timing of billings and payments associated with project starts and completions. Second quarter 2024 free cash flow was $3 million, compared to negative free cash flow of $43 million for the same period last year, reflecting the increase in operating cash flow and lower capital expenditures. Moving to liquidity. We had approximately $270 million of working capital, $45 million of funded debt and $427 million in borrowing availability under our credit facility as of June 30, 2024. We have continued to maintain a strong funded debt-to-EBITDA leverage ratio of 0.3 times as of June 30, 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. During the second quarter, we repurchased 117,000 shares at a weighted average price of $138 per share for a total expenditure of $16 million. As of June 30, 2024, we had approximately $59 million of remaining availability to 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. As Kelly stated, operating margins were negatively impacted by clean energy projects in our T&D segment. Operating margins within our Transmission and Distribution portfolio had solid performance in the second quarter, and our focus remains on quality execution of projects, expanding long-standing customer relationships, and strategically pursuing new opportunities to strengthen and grow our market presence, while overcoming near-term challenges in our clean energy portfolio. Healthy bidding activity continued in the second quarter as we monitored and selectively pursued projects of various sizes. Our team successfully completed and were awarded multiple alliance agreements this quarter. L.E. Myers won MSAs for transmission and substation work in Indiana, Kentucky, Ohio, and Florida as well as overhead and underground distribution projects in Nebraska. Great Southwestern Construction was also awarded MSAs for substation, transmission and distribution work in the Midwest, Florida and the Carolinas, while High Country Line Construction won two transmission projects in California. As Rick mentioned earlier, the demand for electricity is only growing as new technologies continue to increase in everyday life. A 2024 white paper report on AI and data center energy consumption from the Electric Power Research Institute found that AI queries are estimated to require 10 times the electricity as traditional search engine queries. The report forecasts data centers alone will grow to consume as much as 9.1% of U.S. electricity generation annually by 2030 versus an estimated 4% today. MYR Group continues to serve as a knowledgeable and agile partner for our utility customers as they strive to meet this increasing electrification demand, helping build an improved infrastructure for the future. In summary, a firm dedication to our clients and a strict adherence to our operating principles positions us well for success. And I thank all of our talented employees for their commitment and effort in making this success possible. 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. The decrease in gross margin in our C&I segment was primarily due to an unfavorable impact on a C&I project as a result of scope additions, increased labor costs related to schedule compression and lower productivity due to access and workflow issues. As Rick mentioned earlier, we were awarded a large-scale transit project in Canada with Western Pacific Enterprises. WPE has a proven history of successful large transit project execution. This project reflects the tremendous infrastructure investments being made in both the United States and Canada, demonstrating the strength of the markets we serve and why we believe our business is poised for continued success. Our other core markets also remain active with subsidiaries across the organization continuing to perform essential work for our valued customers. Pharmaceuticals and healthcare facilities are strong markets with CSI, electrical contractors, working projects in California and Sturgeon Electric in Colorado and Arizona. In addition, we were recently awarded projects for a new Civic Center in California, an Air Force Base in Wyoming and a new data center campus in Colorado. Data centers continue to be a growth market for our business and one that we have decades of experience working in. The electricity consumption of these facilities is unprecedented. New data center campuses are being built with capabilities ranging from 100 to 1,000 megawatts, roughly equivalent to the load consumed by 80,000 to 800,000 homes. In addition, we continue to see our existing clients retrofitting their facilities to meet the increased power density and cooling requirements of artificial intelligence. To conclude, our chosen core markets are healthy and the strength of our customer relationships continue to generate additional opportunities. This is thanks to our talented employees and their daily dedication to executing projects with a safety-first mindset. By living our core values every day, our employees help us stand as an industry leader in safety and project execution that our customers have come to rely on. 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. Although our second quarter performance was negatively impacted by a relatively small group of underperforming projects, we continue to successfully execute our portfolio of projects, reflecting the resiliency of our core markets and our ability to strengthen and expand our customer relationships. We will continue to focus on bidding opportunities and projects that reflect our operating principles and breadth of capabilities. We continually emphasize meeting the needs of our customers as they navigate dynamic market conditions and the changing energy landscape while investing in and developing our team members to maintain our position as a leader in the industry. This fortifies our foundation to grow our business and provides customers and prospects with a strong and agile partner. I would like to thank our employees for their invaluable contributions and shareholders for your continued support of MYR Group. And I look forward to connecting with you in future quarters. Operator, we are now ready to open the call up for comments and questions.

Thank you. Our first question comes from the line of Sangita Jain with KeyBanc Capital Markets. Your line is open.

Yes. Good morning. Thank you for taking my questions. So Rick, on the solar project that you called out this quarter that had the delays and the cost overruns, are these in the same territories where you also said that the market was getting competitive and that you would step away from bidding projects there?

If they're in some of those same markets, yes.

So then can I follow-up by asking that does this give you an indication that you kind of want to stay away from utility scale solar for now or do you still feel okay bidding in other markets?

For us, I think we're going to continue to be selective in the environment we're in right now. It's not like we have to change this work. We talked about the activity of our other core markets. But we've been doing it for a long time and it's something at the right price and with the right customer, we'll take on additional work, but very selectively.

Okay. And if I can ask a follow-up on operating margins in light of Q2. Should we still expect that you can exit in T&D at the 7% and C&I at that 4%, which is the low end of your long-term outlook?

Can we exit that for the year? Is that your question?

Yes. Yes, exit at that rate, maybe.

Well, I think our performance will be in that mid-range on the T&D side. It will be on that lower range on the C&I, barring these projects. So you have to exclude these projects and that's where we see it going for the next couple of quarters as we get these projects behind us. There can always be some additional impacts or changes on the ongoing projects we have that are troubled projects. But I think they've all been identified, but that could affect us going forward a little bit.

Understood. Thank you for taking my questions.

Thank you. Our next question comes from the line of Ati Modak with Goldman Sachs. Your line is open.

Hi. Good morning, team. So I know you've spoken about the backlog tends to be lumpy, but can you talk about the outlook that you're seeing on the T&D side in particular given it sounds like there are some market expectations for softness in the back half of the year, so I would love to get your perspective.

Yes. For us, we're seeing a lot of activity, I would say, when it comes to small and mid-sized projects. I think when you're looking at longer-term projects, lots of long-term opportunities, I think they've been a little slower to come to market. And any time you receive a large project, it's going to be four to six months before you start seeing any kind of revenue burn off of that. So I think there's more to come on that. As I said, lots of activity in the marketplace. So long-term, we see it as a great market. We need a few of these larger projects to roll out and happen. And I think they're scheduled to do that. So it's a good thing to see. We've got lots of bidding activity. So again, long-term good, but short-term it could be a little lumpy.

Got it. Thank you, Rick. And then for the clean energy projects where there were owner-related delays, I'm just wondering if there are provisions that allow you some level of protection, whether it's contractual or other ways to mitigate that? And then the change orders, how should we think about that offsetting through the remainder of the year?

I think for us, these projects, any time there's delays on projects or acceleration or different things that can happen, I think there's always the potential for litigation. Though you have a contract that covers certain items, does it cover every item in there? And then how does it affect you on a project? So for us, it's weighing all that. Continuing to have discussions with the customer and then seeing where that settles up. I would say, historically, we've been pretty good at being able to settle stuff without going to litigation. But on projects like this, you never know. So again, I think we've got a good position to go to litigation if we need. Some of these items that we've talked about are well beyond anything that we could anticipate or would really solve on our own. So I think we'll continue to monitor it and see where it goes.

Okay. Thank you for that. Appreciate it.

Thank you. Our next question comes from the line of Justin Hauke with Baird. Your line is open.

Yes. Good morning. I wanted to address the charges you mentioned. Generally, these issues are the same ones you have been dealing with over the past several quarters in the same market and the same projects. Was there a specific event this quarter that led to a wider reassessment of the gross margin assumptions, resulting in this larger write-down? I'm trying to grasp the scale of the charges compared to the write-downs you have experienced in previous quarters.

Sure. The T&D results were significantly affected by the clean energy projects. Solar revenue accounted for about 15% of our revenue in the first half, which isn't a large percentage, but it illustrates where the impacts were concentrated. Various factors contributed to this situation, particularly delays in solar panel deliveries that were expected to arrive much earlier. Additionally, we faced other challenges, such as weather-related issues, impacting those same projects. A combination of factors affected us, primarily in one quarter, rather than across our entire business. Specifically, on the C&I side, the impact was largely due to one project that may lead to litigation. However, we have a history of working collaboratively with this client and resolving past issues, so we will see how it develops moving forward.

Okay, my second question is about the $170 million transportation project that you won in Canada. When is that expected to start, and what is the duration? Any details would help in understanding how that project will proceed, as it is a significant project for you.

Yes, that's a larger project. We've undertaken transportation projects of similar scale, so this isn't new territory for us. It's a longer-term undertaking, expected to span about three and a half to four years. It won't involve a significant turnaround each year. A couple of years ago, we completed a project in Colorado that was over $100 million and followed a similar timeline.

And that starts next year?

Yes.

Thank you. Our next question comes from the line of Brian Brophy with Stifel. Your line is open.

Thanks. Good morning, everybody. Just curious how you're thinking about revenue guidance for the rest of the year. Last quarter, you talked about flat for both segments. Just curious how you're thinking about it today?

Yes. When we evaluate solar, we will remain selective in that area of the business. It has provided positive contributions in a few markets, but in others, we face significant competition and pricing challenges. As a result, we continue to experience a decline in our solar backlog, with limited additions in our T&D segment. Consequently, we anticipate a decrease in revenue moving forward due to our selective approach. However, we expect to mitigate some of this decline with growth in the T&D segment. We hope to see ongoing progress with our projects, particularly the small and mid-size ones, which we have been successful in acquiring recently. There is just a temporary slowdown in large projects.

Okay. And just to be clear, that was offset by growth in C&I, correct?

We do see growth in C&I, yes.

Okay, thanks. And then I guess just kind of at a high level, the goalpost, if you will, has been moved out a couple of times now when these challenged projects roll off, I think we were previously expecting about midway through this year now towards the end of this year. I guess, just what gives you guys confidence that we're not going to see another push-out in terms of when these challenged projects roll?

Yes. For us, it's the one additional C&I project. If you look at the other ones, they're rolling off as planned, there really was no change in that. And we highlighted that, without that, this one project impact on the C&I side, we would have been where we set our margin profile would be or a little above that low-end of it. So I'd say, that's going as planned. So we see those rolling off. On the T&D side, there were a couple of new projects that came into kind of the solar impact side, but it was all solar-related and we've got good visibility on what we have left to finish.

Okay, thanks. I'll pass it on.

Thank you. Our next question comes from the line of Jon Braatz with Kansas City Capital. Your line is open.

Good morning, everyone. Rick, regarding the projects that encountered issues this quarter, to what extent do you think the challenges were due to your own performance or execution? Can you differentiate the internal factors from the external ones?

Really, with a couple of these going into potential litigation, I think we're always willing to, what I say, pay for our own sins. And I think a portion of it, whenever you do a hindsight analysis, you always see things you could do different. So we weren't perfect within this performance, but not all of our loss was caused by things we did. That's about as deep as I can go into it knowing that there's potential litigation out there, Jon.

Okay. I appreciate that. And then on the clean energy projects, other than sort of the competitive landscape that might depress margins and so on and so forth, is there anything inherently different about the clean energy project versus a T&D project that makes it a little bit riskier for you?

In general, no. I would say that various factors can influence the risk level of a project. As we mentioned regarding our C&I side, we have experienced strong performance, contributing positively to our margins throughout the year. It's important to note that this is dependent on the region and the specific book of business, and it did not involve all the same customers on the T&D side. We've maintained good visibility on the remaining work we need to complete.

Okay. I may have asked this before, but in considering the challenging projects in the second half, how confident are you that you have accounted for all the costs? Is there any potential for additional risk from these projects in the second half?

Yes, there is potential risk involved. It's always present as you complete projects and go through negotiations, and with project completions, there's additional risk. When considering our operating margins, I believe that without these projects we will be in the mid-range of our T&D margin profile. However, with these projects, it's difficult to predict due to the variables involved. This situation could impact us, and we will provide updates on this as we progress each quarter.

Yes, okay. All right. Thank you.

Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Rick 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.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.