MYR(US:MYRG)2023-10-26 16:42Financial Data and Key Metrics Changes - Third quarter 2023 revenues reached $939 million, a record high, representing an increase of $140 million or 17% compared to the same period last year [19] - Gross margin for Q3 2023 was 9.8%, down from 10.8% in the same period last year, primarily due to labor and project inefficiencies, supply chain disruptions, and rising costs associated with inflation [20] - Net income for Q3 2023 was $22 million, compared to $18 million for the same period last year, with net income per diluted share increasing 17% to $1.28 [34] - Total backlog as of September 30, 2023, was $2.62 billion, a 6% increase year-over-year [34] Business Line Data and Key Metrics Changes - The Commercial & Industrial (C&I) segment reported revenues of $391 million, a record high and a 12% increase compared to the same period last year, driven by clean energy projects [32] - The Transmission & Distribution (T&D) segment achieved revenues of $549 million, a record high, with a 21% increase year-over-year, attributed to higher revenue from transmission projects [56] - C&I operating margin improved to 3.6% from 3.1% year-over-year, while T&D operating margin decreased to 6.6% from 7.6% due to labor inefficiencies and project delays [33][57] Market Data and Key Metrics Changes - The North American electric transmission market is projected to grow from over $43 billion in 2022 to as high as $67 billion by 2027, with significant investments expected in Texas and California [12] - Demand for data center projects is forecasted to grow by 10% year-over-year, reaching 35 gigawatts by 2030, indicating strong market potential for the company [39] Company Strategy and Development Direction - The company is focused on expanding existing relationships with preferred clients and strategically bidding on projects to maintain a steady backlog and potential growth [18] - There is a commitment to adapt to market conditions and invest in team development to maintain industry leadership [42] - The company is selectively pursuing projects in a strong market while being cautious due to supply chain challenges and rising labor costs [78] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future demand for electrical infrastructure and clean energy initiatives, which are expected to create growth opportunities [30] - The company is monitoring supply chain constraints and working closely with vendors to mitigate challenges [61] - Management acknowledged the impact of rising interest rates on customer payment behaviors, which may affect cash flow [46] Other Important Information - Third quarter 2023 operating cash flow was $13 million, slightly down from $14 million in the same period last year, while free cash flow was negative $10 million compared to negative $4 million last year [22] - The company maintains a strong funded debt to EBITDA leverage ratio of 0.33 times as of September 30, 2023, indicating a solid financial position [59] Q&A Session Summary Question: Impact on gross margin from estimate revisions on fixed price contracts - The impact was primarily in the T&D segment, mainly on solar projects due to weather impacts and rising labor costs [70] Question: Expectations for Q4 margins compared to Q3 - Q3 margins were affected by one-time issues, and Q4 is expected to show improvement, although some clean energy projects may continue to carry lower margins [71] Question: Context on increasing unbilled receivables balance - The increase is related to company growth and project timing, with a 12% rise in contract retainage noted [73] Question: Future work market outlook - The market remains strong, but the company will be selective in project bidding due to supply chain issues and rising costs [78] Question: Free cash flow and capital expenditures - Negative free cash flow is attributed to higher capital expenditures aligned with growth, particularly in the T&D segment [80]