Earnings Call Transcript - MYRG Q2 FY2025

Operator

Good morning, everyone, and welcome to the NYR Group Second Quarter 2025 Earnings Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jennifer Harper, NYR Group's Vice President of Investor Relations and Treasurer. Please go ahead, Jennifer.

Jennifer Harper, Head of Investor Relations

Thank you and good morning, everyone. I would like to welcome you to the NYR Group conference call to discuss the company's second quarter results for 2025, 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. A copy of yesterday's press release is available on the MYR Group website at myrgroup.com under the Investors tab. A webcast replay of today's calls will be available on the website for seven days following the call. 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, an MRR 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 10k for the year end of December 31st 2024 the company's quarterly report on form 10q for the second quarter of 2025 and in yesterday's press release we also present certain non-GAAP financial measures a reconciliation of these non-GAAP measures to the most comparable gap measures is set forth in yesterday's press release with that let

Rick Swartz, CEO

turn the call over to Rick for thanks Jennifer good morning everyone welcome to our second quarter 2025 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 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 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. A steady second quarter performance resulted from the strength of our long-term customer relationships, operational consistency, and strong market presence. We were awarded several master service agreements, further expanding existing relationships with key customers while safely performing ongoing work around the U.S. and Canada. We also captured additional projects in our chosen core markets, further solidifying our food market position, and continue to strategically pursue new opportunities. Across both business segments, bidding activity remains healthy, driven by the demand for electricity and reliable resilient infrastructure as well as the increasing prominence of modern technologies such as artificial intelligence emphasis on grid modernization and hardening continue to be strong market drivers and could present opportunities for consistent success across our business as always our focus remains on collaborating closely with our customers in an open and trusting partnership while delivering safe, quality, and consistent on-time results in this dynamic energy landscape. 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 2025 financial results.

Kelly Huntington, CFO

Thank you, Rick, and good morning, everyone. Our second quarter 2025 revenues were $900 million, which represents an increase of $71 million, or 8.6% compared to the same period last year. Our second quarter T&D revenues were $506 million, an increase of 10% compared to the same period last year. The breakdown of T&D revenues was $305 million for transmission and $201 million for distribution. Distribution revenues increased by $25 million, and transmission revenues increased by $23 million. Work performed under master service agreements continued to represent approximately 60% of our T&D revenues. C&I revenues were $394 million, an increase of 6% compared to the same period last year, primarily due to an increase in revenue on fixed-price contracts. Our gross margin was 11.5% for the second quarter of 2025, compared to 4.9% for the same period last year. The increase in gross margin was primarily due to the second quarter of 2024 being negatively impacted by certain T&D clean energy projects and a C&I project. In the second quarter of 2025, gross margin was also positively impacted by better than unanticipated productivity, and a favorable job closeout. These margin increases were partially offset by an increase in cost associated with labor and project inefficiencies and unfavorable change orders. T&D operating income margin was 8% for the second quarter of 2025 compared to an operating loss margin of 1.8% for the same period last year. The increase was primarily due to the second quarter of 2024 being negatively impacted by certain clean energy projects as well as better than anticipated productivity on certain projects during the second quarter of 2025. These increases were partially offset by higher costs related to labor and project inefficiencies. C&I operating income margin was 5.6% for the second quarter of 2025 compared to 0.4% for the same period last year. The increase was primarily due to the second quarter of 2024 being negatively impacted by a single project, as well as contingent compensation expense related to a prior acquisition that did not recur in the second quarter of 2025. In addition, higher gross margin in the second quarter of 2025 was due to a larger portion of our project progressing at higher contractual margins, some of which are nearing completion, as well as better than anticipated productivity and a favorable job closeout. These positive drivers were partially offset by higher costs related to labor and project inefficiencies and unfavorable change orders. Second quarter 2025 SG&A expenses were $63 million, an increase of approximately $2 million compared to the same period last year. The increase was primarily due to increases in employee incentive compensation costs and employee-related expenses to support future growth. These increases were partially offset by $5 million of contingent compensation expense related to a prior acquisition recognized during the second quarter of 2024 that did not recur in 2025. Second quarter 2025 net income was $27 million compared to a net loss of $15 million for the same period last year. Net income per diluted share was $1.70, compared to negative 91 cents for the same period last year. Second quarter 2025 EBITDA was $56 million, compared to negative $5 million for the same period last year. Total backlog as of June 30, 2025, was $2.64 billion, 4% higher than a year ago. Total backlog as of June 30, 2025, consisted of $927 million for our T&D segment and $1.72 billion for our C&I segment. Second quarter 2025 operating cash flow was $33 million compared to $23 million for the same period last year. The increase in cash provided by operating activities was primarily due to higher net income. Second quarter 2025 free cash flow was $12 million compared to $3 million for the same period last year, reflecting the increase in operating cash low, partially offset by higher capital expenditures. Moving to liquidity in our balance sheet, we had approximately $251 million of working capital, $86 million of funded debt, and $383 million in borrowing availability under our credit facility as of June 30, 2025. We have continued to maintain a strong funded debt-to-EBITDA leverage ratio of 0.46 times as of June 30, 2025. 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. Our board of directors authorized a new $75 million share repurchase program, which replaces our prior repurchase program. The new program will expire on February 4th, 2026, or when the authorized funds are exhausted, whichever is earlier. I'll now turn the call over to Brian Stern, who will provide an overview of our transmission and distribution segment.

Brian Stern, COO

Thanks, Kelly, and good morning, everyone. Our T&D segment achieved steady results in the second quarter as our focus remained on strengthening and expanding existing relationships with key customers by executing our work at a high level and creating value. Healthy bidding activity continued in the second quarter as we monitored and selectively pursued projects of various sizes with our project portfolio consisting of master service agreements and a healthy mix of smaller to mid-sized jobs. This quarter, an MYR Group subsidiary executed a five-year design build electric distribution master service agreement with Excel Energy with anticipated revenues to be in excess of $500 million over the five-year period. The MSA is effective through 2029, with construction projects estimated to begin in the first part of 2026. In addition, we are awarded two other MSAs with major utilities in the Northeast and Midwest. Beyond MSAs, we also want a variety of transmission and substation work across the country, including 230 kV and 345 kV transmission line rebuilds in South Carolina and Missouri, respectively. The growing demand for electricity continues to create exciting growth opportunities in the industry. A recent Deloitte Research Center for Energy and Industrials report released in February forecasts $1.4 trillion of capital investments in the U.S. power sector from 2025 to 2030 and predicts similar expenditures to last until 2050. The report also projects that by 2030, power demand will increase 10-17% from 2024 levels. NYR Group will continue serving as a dependable 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, our strong focus and commitment to safety and project execution has enabled us to grow our customer base with new contract wins and expand our current partnerships. We continually strive to leverage the full capabilities of our companies and teams to contribute to our customer success. I will now turn the call over to Don Egan, who will provide an overview of our commercial and industrial segment.

Don Egan, COO

Thanks, Brian, and good morning, everyone. The second quarter saw steady results in the C&I segment as we continued to strengthen and leverage strong relationships with our valued customers while professionally executing projects of various sizes and strategically bidding new opportunities. Bidding activity remains healthy in our chosen core markets, even as wider economic questions linger moving forward. The major construction indices continue reporting increases in growth potential compared to the previous year. According to the most recent Q1 2025 market conditions report based on information from the U.S. Census Bureau, total non-residential construction spending in the U.S. increased 3.9% from February 2024 to February 2025. This includes 6.7% increase for educational construction spending and a 4.8% increase in manufacturing construction spending. This improvement is also reflected in the latest Dodge Momentum Index report released in June, which saw an overall 3.7% growth in May compared to the previous month, including a 10.5% increase in institutional building. The report also found the DMI was up 24% when compared to May of 2024, with data centers still significantly contributing to the overall healthy growth. Last quarter, we mentioned the verbal award of phase one of a large-scale data center project in Colorado for Sturgeon Electric, valued at over $90 million, which has now been contractually awarded and added to our backlog. We also won additional work throughout our core markets across the country in the quarter, including aerospace, healthcare, and higher education. We also received awards in battery storage, transportation, and manufacturing. In summary, we are proud of our employees for their creative thinking, dedication, and commitment to collaborating closely with our valued customers. Their proactive and customer-focused approach enables us to maintain a healthy pipeline of work and enhance 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.

Rick Swartz, CEO

Thank you for those updates, Kelly, Brian, and Don. Our performance in the second quarter reflects the strength of our operational team, our ability to maintain and expand diverse customer relationships, and the stability of our core markets. We continue to be proactive and disciplined in this dynamic energy landscape and remain committed to the strong operating principles and sound business strategies that have enabled us to become an industry. We recognize the importance of adapting to market conditions and being an agile partner for our customers as we respond to industry changes. This is supported by our continued investment and development of our teams, who drive value for our customers and communities by the work they perform each day. Thank you to every employee for your dedication and invaluable contributions to this organization. It does not go unnoticed. And finally, I want to thank each of you for your continued support of MYR Group. We look forward to progressing our business strategies while emphasizing our customer relationships and creating shareholder value. Operator, we're now ready to open the call up for comment.

Operator

Thank you. As a reminder for those of you on the phone, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while I compile the Q&A roster.

Operator

Our first question comes from Sanjita Jing from KeyBank.

Operator

Please go ahead.

Sanjita Jing, Analyst — KeyBank

Good morning. Thank you for taking my questions. First, if I can ask Rick and Kelly on the MSA that you press released earlier, I think it was this month, if it was, I'm presuming it's a new MSA and not a renewal, and whether you displaced an incumbent or if it's like brand new scope that you won with Excel.

Rick Swartz, CEO

It's new scope, so it's additional to what we already have under our MSAs.

Sanjita Jing, Analyst — KeyBank

And did you displace? And so there was no displacement. This was just new work, you're saying?

Rick Swartz, CEO

This is additional work, yes.

Sanjita Jing, Analyst — KeyBank

And then if that's helpful, thank you. And then if I can ask a follow-up on your CNI backlog, good to see the data center $90 million award getting booked in 2Q, but I'm just trying to wonder why the backlog was down sequentially and if there's anything big that got finished in the second quarter, or how should we think about that?

Rick Swartz, CEO

I would say it was the normal progression of work. Our backlog is always going to be lumpy. I've said that for years. I mean, it takes us lots of good activity on that side. But, again, it's going to be lumpy. These projects are a lot of cases when you're getting into some of the data centers, some of the transportation work, and those projects, again, can take months.

Sanjita Jing, Analyst — KeyBank

Thank you, Rick.

Rick Swartz, CEO

Thanks.

Operator

Thank you. One moment for our next question. our next question comes from Ati Modak from Goldman Sachs please go ahead

Ati Modak, Analyst — Goldman Sachs

hi good morning guys Rick that color on the MSA was very helpful but I guess maybe in terms of the business footprint expansion assuming that is mostly the MSA anything you can talk to in terms of the philosophy on how additional expansion would occur and should we expect new MSA announcements or something that you are actively pursuing

Rick Swartz, CEO

Yeah, we're always, I mean, we like the MSA work. As Kelly said, it was approximately 60 for this last quarter. But again, we like the bid work, too. So it's really just timing how it comes in. Not all customers want to do MSA work. So we'll continue to expand that where we can. But, you know, very good opportunities when we're looking kind of at the mid- and large-sized longer-term. So we'll push it on, I guess, all fronts on that side, but this last quarter.

Ati Modak, Analyst — Goldman Sachs

That's great. And then as you think of this new sort of incremental slice of revenue, how are you thinking about labor requirements, any need to acquire or sort of expand part of work that is not self-sourced? And how should we think about the margin impact of these the new MSAs?

Rick Swartz, CEO

You know, I think for the most part, we've always self-performed 100% of our electrical work. We do ancillary services. We'll subcontract good opportunities in the labor market. I think we do a lot on the training and development side. Again, we're always looking for that right, you know, tucking acquisition on top of it where it makes sense. Patient and make sense.

Ati Modak, Analyst — Goldman Sachs

Thank you, Rick.

Operator

Thank you. One moment for our next question. Our next question comes from Justin Hawk.

Justin Hawk, Analyst — Baird

from Baird. Please go ahead. Great. I guess I wanted to get an update just because you guys have kind of been intentional. I mean, you've been in the solar market forever, renewables generation forever, but it's kind of been something that you've moved away from some of your work there from maybe where it was at a peak. I think you've given us some stats for the T&D business in terms of kind of the trailing 12-month revenue contribution from solar work, And I guess I was just hoping to get an update on that. And I guess the reason why is specifically maybe you can comment on is just, you know, any change in customer discussions in terms of their planning with the One Big Beautiful Bill, because that's something that's obviously topical and, you know, we're getting a lot of questions on that.

Rick Swartz, CEO

Yeah, I would say on the T&D side, we continue to be selective on those projects. We haven't seen big changes in the markets that we've talked about that we've competed on. historically in the on the solar side of our tnd business so being selective we haven't announced any any new work come into that um but again our on our c and i side where we do uh seeing long you know conversation to say that that's low single digit percentage contribution of

Kelly Huntington, CFO

your revenue and side is renewable stuff at this point yeah so if you look on the t and d side of of our revenues, you know, it was 10% of our revenues last year. And, you know, as we'd mentioned previously, it was down to just 4% of our fourth quarter revenues. And that percentage has continued to decline in the first and second quarters as we've been, you know, undertaking activities to reach final completion on that existing portfolio of projects. And then on the CNI side, you know, it's been a core market for us for a long time and, you know, part of our growth on the CNI side of the business. But, you know, not a single one of our core markets is dominant including solar or data centers yeah okay all right that's

Justin Hawk, Analyst — Baird

helpful um and i guess my my second question rick you talked a little bit about the m&a but just philosophically thinking about it um you know you your balance sheet's obviously in a really good position you've got the new 75 million dollar authorization you were you know uh aggressive on buying the stock in the first quarter but you're just thinking about um i don't know kind of the various ways that, you know, you could deploy capital, you know, desire for M&A versus buyback or just how you're balancing that, especially since some of your peers have been more aggressive, particularly on the CNI side, in terms of bringing on some more capacity, just maybe just a lay of

Rick Swartz, CEO

the land of capital allocation outlook. Sure, sure. You know, when you look at that side of it, But I think for us, it's finding the right acquisition. So we continue to look. We see good activity out there, but it's just finding the right one. And, again, we're going to be disciplined, and the price will pay into it. We've seen multiples come significantly on the C&I side. But, again, for the right company, we will continue to look at those opportunities. But we've got the opportunity.

Operator

Thank you. Our next question comes from John Bratz from Kansas City Capital Associates. Please go ahead.

John Bratz, Analyst — Kansas City Capital Associates

Good morning, everyone. Rick Kelly, my first question is, your operating environment seems to be getting incrementally better every quarter. I hear a lot of great news about demand for electricity. I guess my question is, Rick, do you have to sort of ramp up your investment spending, your CapEx spending, and maybe your, you know, sort of your corporate expenses to meet this incrementally stronger demand? Any reason you have to begin to accelerate spending?

Rick Swartz, CEO

We watch that all the time, especially on the, you know, CapEx side. You know, when you look at equipment deliveries, where that side's at. the commitments we need to make for some potentially new look at it. But I wouldn't say it's going to be a needle mover to be ready to take on this work.

John Bratz, Analyst — Kansas City Capital Associates

Okay, okay. And a question for Don. Obviously, there's a lot of noise out there all the time regarding tariffs and supply chain and so on. Are you seeing any C&I projects or any projects having to go back for rebid and maybe the timeline to project awards lengthening at all?

Don Egan, COO

I haven't necessarily seen many projects extend their schedules. However, we do have clients that are coming to us much sooner, issuing in some cases a limited notice to proceed to get long-lead equipment coming. So we're talking actively with our customers to try to do what we can to prevent any extension to schedules.

John Bratz, Analyst — Kansas City Capital Associates

Okay. All right. Thank you very much. Thank you.

Operator

Thank you. Our next question comes from Brian Brophy from Stiefel. Please go ahead.

Brian Brophy, Analyst — Stiefel

Yeah, thanks. Good morning, everybody. Appreciate you taking the question. I guess if I remember correctly, you guys have previously talked about high single-digit growth in T&D this year, excluding some of the headwind on the clean energy side. It feels like after this quarter and some of the backlog and order activity that maybe there's some upside to that. Just curious if you wouldn't mind providing an update there.

Rick Swartz, CEO

Yeah, I would say I'll tell you.

Kelly Huntington, CFO

Okay, sure. So, you know, we still see that expectation for the full year, that high single-digit growth, including solar, which, as I mentioned before, was 10% of our revenues last year. I think we're continuing to see a really strong market environment out there. I think the one thing that can continue to be a little bit unpredictable on how quarterly revenues fall out on both sides of the business really is timing of materials expense and when projects are ramping up, pushes by a few weeks in either direction can cause some variability to quarterly revenues, but continue to see a strong market outlook and that high single-digit growth for both C&I and for T&D, including Fuller.

Brian Brophy, Analyst — Stiefel

Thanks. I appreciate it. I'll pass it on.

Operator

I am showing no further questions in the queue. I will now turn the call over to Rick Schwartz for any additional or closing remarks.

Rick Swartz, CEO

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 in the future and speaking with you again on our next conference call. Until then, stay safe.

Operator

This concludes today's conference call. We thank you for participating. You may now disconnect.