What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-28 compared with 2020-10-28 · 109 added, 209 removed, 205 unchanged (61% of the section changed)

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We have operated in the transmission and distribution industry since 1891.

We are one of the largest contractors servicing the T&D sector of the electric utility industry in the United States and provide T&D services in western Canada.

Our T&D customers include many of the leading companies in the industry.

We have operated in the commercial and industrial industry since 1912.

We are one of the largest electrical contractors servicing the C&I industry in the United States and in western Canada.

We are one of the largest U.S.

contractors servicing the T&D sector of the electric utility industry and provide T&D services throughout the United States and western Canada.

Our T&D customers include many of the leading companies in the electric utility industry.

We have also provided electrical contracting services for commercial and industrial construction since 1912.

Our C&I segment provides services in the United States and in western Canada.

Our C&I customers include facility owners and general contractors.

We believe that we have a number of competitive advantages in both of our segments, including our project management team, skilled workforce, extensive centralized fleet, proven safety performance and reputation for timely completion of quality work that allows us to compete favorably in our markets.

We believe that we have a number of competitive advantages in both of our segments, including our skilled workforce, extensive centralized fleet, proven safety performance and reputation for timely completion of quality work that allows us to compete favorably in our markets.

In addition, we believe that we are better capitalized than some of our competitors, which provides us with valuable flexibility to take on additional and more complex projects.

Since March of 2020, the COVID-19 pandemic has had a significant impact on the global economy, including the US and Canadian economies.

As the situation continues to evolve, the Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it impacts our customers, subcontractors, suppliers, vendors and employees.

Since March 2020, the COVID-19 pandemic has had a significant impact on the global economy, including the US and Canadian economies.

The COVID-19 pandemic caused a slowdown of certain projects due to specific state, local, municipal and customer mandated stay-at-home orders and new project requirements that were established to protect construction workers and the general public, most of which have impacted our C&I segment.

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We expect the project-specific requirements to remain in place which will continue to impact project schedules and workflow going forward.

The Company is unable to predict the ultimate impact that COVID-19 will have on our business, employees, liquidity, financial condition, results of operations and cash flows.

Most of the Company’s operations are considered critical and essential businesses, making our projects generally exempt from stay-at-home or similar orders in certain parts of the United States and western Canada.

However, if this pandemic persists for an extended timeframe our business could be more significantly impacted as a result of prolonged unfavorable economic conditions.

The Company began implementing changes in March of 2020 in an effort to protect our employees and customers and to support appropriate health and safety protocols, including implementing alternative and flexible work arrangements where possible.

As the conditions surrounding the ongoing COVID-19 pandemic remain fluid, and if disruptions do re-emerge, they could materially adversely impact our business.

Our key estimates that could potentially be impacted include estimates of costs to complete contracts, the recoverability of goodwill and intangibles and allowance for doubtful accounts.

We had consolidated revenues for the nine months ended September 30, 2020 of $1.6 billion, of which 51.0% was attributable to our T&D customers and 49.0% was attributable to our C&I customers.

Our consolidated revenues for the nine months ended September 30, 2019 were $1.5 billion.

For the nine months ended September 30, 2020, our net income attributable to MYR Group Inc.

and EBITDA (1) were $40.6 million and $95.2 million, respectively, compared to $24.9 million and $69.7 million, respectively, for the nine months ended September 30, 2019.

We had consolidated revenues for the three months ended March 31, 2021 of $592.5 million, of which 53.2% was attributable to our T&D customers and 46.8% was attributable to our C&I customers.

Our consolidated revenues for the three months ended March 31, 2020 were $518.5 million.

For the three months ended March 31, 2021, our net income and EBITDA (1) were $19.9 million and $39.3 million, respectively, compared to $9.9 million and $27.4 million, respectively, for the three months ended March 31, 2020.

We believe that the proposed legislative actions may positively impact long-term demand, particularly in connection with electric power infrastructure, transportation and renewable energy spending.

We are hopeful that proposed legislative actions will provide greater opportunity in both of our reporting segments.

We also believe there is an ongoing need for utilities to sustain investment in their transmission systems to improve reliability, reduce congestion and connect to new sources of renewable generation.

Consequently, we anticipate that we will continue to see significant bidding activity on large transmission projects over the next two years.

The timing of multi-year transmission project awards and substantial construction activity is difficult to predict due to regulatory requirements and the permitting needed to commence construction.

Significant construction on any large, multi-year projects awarded in the remainder of 2021 will not likely occur until 2022.

Bidding and construction activity for small to medium-size transmission projects and upgrades remain active, and we expect this trend to continue, primarily due to reliability and economic drivers.

(1) EBITDA is a non-GAAP measure.

Refer to “Non-GAAP Measure—EBITDA” for a discussion of this measure.

We believe there is an ongoing need for utilities to sustain investment in their transmission systems to improve reliability, reduce congestion and connect to new sources of renewable generation.

Consequently, we believe we will continue to see significant bidding activity on large transmission projects over the next two years.

The timing of multi-year transmission project awards and substantial construction activity is difficult to predict due to regulatory requirements and the permitting needed to commence construction.

Significant construction on any large, multi-year projects awarded in 2020 will not likely occur before 2021.

Bidding and construction activity for small to medium-size transmission projects and upgrades remains steady, and we expect this trend to continue, primarily due to reliability and economic drivers.

However, in light of the uncertain COVID-19 environment, we continue to believe there may be a future slowdown of construction activity in the transmission market, the recovery of which will be dependent upon the pace and timing of the United States overall recovery from the COVID-19 pandemic.

Because of reduced spending by United States utilities on their distribution systems for several years, we believe there is a need for sustained investment by utilities on their distribution systems to properly maintain or meet reliability requirements.

As a result of reduced spending by United States utilities on their distribution systems for several years, we believe there is a need for sustained investment by utilities in their distribution systems to properly maintain or meet reliability requirements.

In 2021, we continue to see increased bidding activity in some of our electric distribution markets, as economic conditions improved in those areas.

We believe the increased hurricane activity over the past several years and recent destruction caused by wildfires will cause a push to strengthen utility distribution systems against catastrophic damage.

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We believe electric utility employee retirements could increase with further economic recovery, which may result in an increase in outsourcing opportunities.

We expect to see an incremental increase in distribution opportunities in the United States in 2021, however, in light of the uncertain COVID-19 environment we continue to believe there may be a future slowdown of construction activity in distribution systems, the recovery of which will be dependent upon the pace and timing of the United States overall recovery from the COVID-19 pandemic.

Amid the ongoing COVID-19 pandemic, we expect C&I bidding opportunities to be impacted and market uncertainty could contribute to an overall deceleration in projects coming out to bid.

Recovery of the C&I market will be heavily dependent on overall economic recovery.

We are hopeful that stimulus packages will provide greater opportunity and are encouraged by the possible approval of a long-awaited infrastructure bill.

We expect to see an incremental increase in distribution opportunities in the United States in 2021, depending on the ultimate U.S.

economic recovery from the COVID-19 pandemic.

We expect C&I bidding opportunities to continue to be impacted by the ongoing COVID-19 pandemic and market uncertainty could contribute to an overall deceleration in projects coming out to bid.

Recovery of the C&I market will be heavily dependent on the timing and pace of the Unites States and Canada economic recoveries.

We believe that the primary markets we serve may be somewhat less vulnerable to economic slowing, such as health care, transportation, data centers, warehousing, renewable energy and water projects.

Many signs indicate that the service industry and small project market could quickly rebound in the near future as pent-up demand will need to be addressed.

In addition, the United States has experienced a decade of privately funded economic expansion which has challenged the capacity of public water and transportation infrastructure forcing states and municipalities to seek creative means to fund needed expansion.

We are hopeful that the service industry and small project market could quickly rebound as pent-up demand will need to be addressed.

In addition, the United States has experienced a decade of economic expansion which has challenged the capacity of public water and transportation infrastructure forcing states and municipalities to seek creative means to fund needed expansion.

We believe the need for expanding public infrastructure will offer opportunity in our C&I segment for several years.

We expect the long-term growth in our C&I segment to generally track the economic growth of the regions we serve.

We also expect to see increased bidding opportunities in the new C&I markets we recently entered through strategic acquisitions and organic expansions.

We strive to maintain our status as a preferred provider to our T&D and C&I customers.

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We continue to implement strategies that further expand our capabilities and allow opportunities to provide prudent capital returns.

On July 15, 2019, we completed the acquisition of substantially all the assets of CSI Electrical Contractors, Inc.

(“CSI”), which expanded our C&I operations in California.

The total consideration was approximately $80.7 million, funded through borrowings under our credit facility.

We ended the third quarter of 2020 with $310.4 million available under our credit facility.

We believe that our financial position, positive cash flows and other operational strengths will enable us to manage the current challenges and uncertainties in the markets we serve, including new challenges and uncertainties associated with the ongoing COVID-19 pandemic, and give us the flexibility to successfully execute our strategies.

In light of the uncertainties around the economic impacts from the COVID-19 pandemic, we are focused on controlling our costs and capital expenditures to preserve our ability to continue to fund our operations;

however, we continue to invest in developing key management and craft personnel in both our T&D and C&I markets and in procuring the specific specialty equipment and tooling needed to win and execute projects of all sizes and complexity.

We ended the first quarter of 2021 with $362.7 million available under our credit facility.

We believe that our financial position, positive cash flows and other operational strengths will enable us to manage the challenges and uncertainties in the markets we serve, and give us the flexibility to successfully execute our strategies.

We continue to invest in developing key management and craft personnel in both our T&D and C&I markets and in procuring the specific specialty equipment and tooling needed to win and execute projects of all sizes and complexity.

We refer to our estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts, as “backlog.” A customer’s intention to award us work under a fixed-price contract is not included in backlog unless there is an actual written award to perform a specific scope of work at specific terms and pricing.

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Additional information related to our remaining performance obligations is provided in Note 6–Revenue Recognition in the accompanying notes to our Consolidated Financial Statements.

Our backlog was $1.72 billion at September 30, 2020, compared to $1.50 billion at December 31, 2019 and $1.37 billion at September 30, 2019.

Our backlog at September 30, 2020 increased 11.0% from June 30, 2020.

Backlog in the T&D segment increased $225.8 million and C&I backlog decreased $54.9 million compared to June 30, 2020.

Our backlog as of September 30, 2020 included our proportionate share of joint venture backlog totaling $28.6 million, compared to $28.7 million at June 30, 2020.

Our backlog was $1.64 billion at March 31, 2021, compared to $1.65 billion at December 31, 2020 and $1.54 billion at March 31, 2020.

Our backlog at March 31, 2021 decreased 0.4% from December 31, 2020.

Backlog in the T&D segment decreased $59.4 million and C&I backlog increased $53.3 million compared to December 31, 2020.

Our backlog as of March 31, 2021 included our proportionate share of joint venture backlog totaling $19.2 million, compared to $24.8 million at December 31, 2020.

The following table summarizes that amount of our backlog that we believe to be firm as of the dates shown and the amount of our current backlog that we reasonably estimate will not be recognized within the next twelve months:

Backlog at September 30, 2020

Backlog at March 31, 2021

(in thousands) Total Amount estimated to not

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To date, we have not been required to make any reimbursements to our sureties for claims against our surety bonds.

As of September 30, 2020, we had approximately $1.36 billion in original face amount of surety bonds outstanding.

Our estimated remaining cost to complete these bonded projects was approximately $660.2 million as of September 30, 2020.

As of March 31, 2021, we had approximately $1.20 billion in original face amount of surety bonds outstanding.

Our estimated remaining cost to complete these bonded projects was approximately $632.8 million as of March 31, 2021.

From time to time, we guarantee the obligations of our wholly owned subsidiaries, including obligations under certain contracts with customers, certain lease agreements, and, in some states, obligations in connection with obtaining contractors’ licenses.

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Three months ended

September 30, Nine months ended

September 30,

2020 2019 2020 2019

(dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent

(dollars in thousands) Amount Percent Amount Percent

Contract revenues $ 592,486 100.0 % $ 518,470 100.0 %

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Net income $ 19,928 3.4 % $ 9,932 1.9 %

net income (loss) attributable to noncontrolling interest — — 106 — — — (1,476) (0.1)

Net income attributable to MYR Group Inc.

$ 17,292 2.8 % $ 10,355 1.8 % $ 40,609 2.5% $ 24,915 1.7 %

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Revenues were $607.9 million for the three months ended September 30, 2020 compared to $583.2 million for the three months ended September 30, 2019.

The increase of $24.7 million, or 4.2%, was primarily due to incremental revenues from the CSI acquisition and storm work related to certain weather events.

These increase were partially offset by impacts related to the COVID-19 pandemic primarily associated with our C&I segment and a delay in start-up activity on certain transmission projects.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Revenues were $592.5 million for the three months ended March 31, 2021 compared to $518.5 million for the three months ended March 31, 2020.

The increase of $74.0 million, or 14.3%, was primarily due to an increase in revenue on large-sized T&D projects as well as an increase in revenue on medium-sized C&I projects.

Additionally, revenues during the three months ended March 31, 2020 were negatively impacted by a slight slowdown of C&I work in certain geographic areas related to the COVID-19 pandemic.

Gross margin.

Gross margin was 12.6% for the three months ended September 30, 2020 compared to 10.2% for the three months ended September 30, 2019.

The increase in gross margin was primarily due to an increase in higher margin and storm-related work, better-than-anticipated productivity on certain projects and settlements related to previously unrecognized revenues on project claims and change orders.

These improvements were partially offset by labor inefficiencies on certain projects and decreases in revenue recognized on pending claims and change orders for which the Company is seeking reimbursement.

Changes in estimates of gross profit on certain projects resulted in a gross margin decrease of 0.3% and an increase of 0.2% for the three months ended September 30, 2020 and 2019, respectively.

Gross margin was 13.0% for the three months ended March 31, 2021 compared to 11.9% for the three months ended March 31, 2020.

The increase in gross margin was primarily due to better-than-anticipated productivity on certain projects and a favorable job close-out.

These improvements were partially offset by inclement weather experienced on a project, unfavorable pending change order adjustments on certain projects and labor inefficiencies on certain projects.

Changes in estimates of gross profit on certain projects resulted in a gross margin increase of 0.1% for each of the three months ended March 31, 2021 and 2020.

Gross profit.

Gross profit was $76.5 million for the three months ended September 30, 2020 compared to $59.2 million for the three months ended September 30, 2019.

Gross profit was $77.0 million for the three months ended March 31, 2021 compared to $61.6 million for the three months ended March 31, 2020.

The increase of $15.4 million, or 24.9%, was due to higher revenues and margins.

Selling, general and administrative expenses.

Selling, general and administrative expenses (“SG&A”) was $51.4 million for the three months ended September 30, 2020 compared to $41.7 million for the three months ended September 30, 2019.

The period-over-period increase of $9.7 million was primarily due to an increase in bonus, profit sharing and other employee-related expenses to support the growth in our operations, as well as incremental cost associated with our CSI operations, and an increase in contingent compensation expense related to a prior acquisition.

Gain on sale of property and equipment .

Gains from the sale of property and equipment for the three months ended September 30, 2020 were $0.5 million compared to $1.2 million for the three months ended September 30, 2019.

Gains from the sale of property and equipment are attributable to routine sales of property and equipment no longer useful or valuable to our ongoing operations.

Interest expense .

Interest expense was $1.1 million for the three months ended September 30, 2020 compared to $2.1 million for the three months ended September 30, 2019.

The period-over-period decrease of $1.0 million was primarily due to a decrease in our outstanding debt and a decrease in our weighted average interest rate during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, partially offset by prepayment penalties from early retirements of equipment notes.

Income tax expense.

Income tax expense was $6.5 million for the three months ended September 30, 2020, with an effective tax rate of 27.4%, compared to the expense of $3.8 million for the three months ended September 30, 2019, with an effective tax rate of 26.4%.

The increase in the tax rate for the three months ended September 30, 2020 was primarily due to the impact of the global intangible low tax income (“GILTI”) and other permanent difference items.

Net income attributable to MYR Group Inc.

was $17.3 million for the three months ended September 30, 2020 compared to $10.4 million for the three months ended September 30, 2019.

The increase was primarily due to the reasons stated earlier.

Segment Results

The following table sets forth, for the periods indicated, statements of operations data by segment, segment net sales as percentage of total net sales and segment operating income as a percentage of segment net sales:

Three months ended September 30,

(dollars in thousands) Amount Percent Amount Percent

Contract revenues:

Transmission & Distribution $ 299,739 49.3 % $ 294,940 50.6 %

Commercial & Industrial 308,162 50.7 288,274 49.4

Total $ 607,901 100.0 % $ 583,214 100.0 %

Operating income (loss):

Transmission & Distribution $ 32,387 10.8 % $ 17,726 6.0 %

Commercial & Industrial 11,732 3.8 10,795 3.7

Total 44,119 7.3 28,521 4.9

General Corporate (19,190) (3.2) (11,259) (1.9)

Consolidated $ 24,929 4.1 % $ 17,262 3.0 %

Transmission & Distribution

Revenues for our T&D segment for the three months ended September 30, 2020 were $299.7 million compared to $294.9 million for the three months ended September 30, 2019, an increase of $4.8 million, or 1.6%.

The increase in revenue was primarily related to an increase in storm work related to certain weather events partially offset by a delay in start-up activity on certain transmission projects.

Revenues from transmission projects represented 61.7% and 66.5% of T&D segment revenue for the three months ended September 30, 2020 and 2019, respectively.

Additionally, for the three months ended September 30, 2020, measured by revenue in our T&D segment, we provided 42.2% of our T&D services under fixed-price contracts, as compared to 53.4% for the three months ended September 30, 2019.

Operating income for our T&D segment for the three months ended September 30, 2020 was $32.4 million, an increase of $14.7 million, or 82.7%, from the three months ended September 30, 2019.

The increase in T&D operating income from the prior year was primarily due to higher revenues, better-than-anticipated productivity on a certain projects, an increase in storm related work and settlements related to previously unrecognized revenues on project claims.

These increases were partially offset by decreases in revenue recognized on a pending claim and change order on a project for which the Company is seeking reimbursement as well as labor inefficiencies on another project.

As a percentage of revenues, operating income for our T&D segment was 10.8% for the three months ended September 30, 2020 compared to 6.0% for the three months ended September 30, 2019.

Commercial & Industrial

Revenues for our C&I segment for the three months ended September 30, 2020 were $308.2 million compared to $288.3 million for the three months ended September 30, 2019, an increase of $19.9 million, or 6.9%, primarily due to increases in volume associated with the CSI acquisition and transportation-related services, partially offset by slowdowns associated with the COVID-19 pandemic.

Measured by revenue in our C&I segment, we provided 80.7% of our services under fixed-price contracts for the three months ended September 30, 2020, compared to 76.6% for the three months ended September 30, 2019.

Operating income for our C&I segment for the three months ended September 30, 2020 was $11.7 million, an increase of $0.9 million, over the three months ended September 30, 2019.

The period-over-period increase in operating income was due to higher revenues, an increase in higher margin work and better-than-anticipated productivity on certain projects.

These increases were partially offset by labor inefficiencies on certain projects.

As a percentage of revenues, operating income for our C&I segment was 3.8% for the three months ended September 30, 2020 compared to 3.7% for the three months ended September 30, 2019.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Revenues were $1.6 billion for the nine months ended September 30, 2020 compared to $1.5 billion for the nine months ended September 30, 2019.

The increase of $0.1 billion, or 9.3%, was primarily due to incremental revenues from the CSI acquisition, partially offset by a decrease due to the timing of activity on various-sized C&I projects, along with impacts related to the COVID-19 pandemic primarily associated with our C&I segment.

Gross margin.

Gross margin was 12.2% for the nine months ended September 30, 2020 compared to 9.7% for the nine months ended September 30, 2019.

The increase in gross margin was primarily due to an increase in higher margin and storm-related work as well as better-than-anticipated productivity on certain projects.

These increases were partially offset by labor inefficiencies on certain projects.

Additionally, gross margin during the nine months ended September 30, 2019 was negatively impacted by projects at lower than historical margins and inefficiencies associated with a joint venture project, that has since been completed.

Changes in estimates of gross profit on certain projects resulted in gross margin decreases of 0.4% and 0.5% for the nine months ended September 30, 2020 and 2019, respectively.

Gross profit.

Gross profit was $199.4 million for the nine months ended September 30, 2020 compared to $145.2 million for the nine months ended September 30, 2019, the increase of $54.2 million, or 37.3% was due to higher revenues and margins.

Selling, general and administrative expenses.

SG&A was $137.7 million for the nine months ended September 30, 2020 compared to $108.6 million for the nine months ended September 30, 2019.

The period-over-period increase of $29.1 million was primarily due to the acquisition of CSI, along with an increase in bonus, profit sharing and other employee-related expenses to support the growth in our operations.

Selling, general and administrative expenses was $49.6 million for the three months ended March 31, 2021 compared to $45.0 million for the three months ended March 31, 2020.

The period-over-period increase of $4.6 million was primarily due to an increase in employee incentive compensation costs and an increase in contingent compensation expense related to a prior acquisition.

Gain on sale of property and equipment .

Gains from the sale of property and equipment for the nine months ended September 30, 2020 were $2.0 million compared to $2.5 million for the nine months ended September 30, 2019.

Gains from the sale of property and equipment for the three months ended March 31, 2021 were $0.7 million compared to $1.1 million for the three months ended March 31, 2020.

Gains from the sale of property and equipment are attributable to routine sales of property and equipment no longer useful or valuable to our ongoing operations.

Interest expense .

Interest expense was $3.9 million for the nine months ended September 30, 2020 compared to $4.5 million for the nine months ended September 30, 2019.

This decrease was primarily attributable to a decrease in our outstanding debt and a decrease in our weighted average interest rate during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, partially offset by prepayment penalties from early retirements of equipment notes.

Other income (expense).

Other expense was $0.6 million for the nine months ended September 30, 2020, primarily attributable to a contingent consideration related to margin guarantees on certain contracts associated with the acquisition of CSI recognized in the three months ended September 30, 2020.

Other income was $0.4 million for the nine months ended September 30, 2019.

Interest expense was $0.5 million for the three months ended March 31, 2021 compared to $1.5 million for the three months ended March 31, 2020.

The period-over-period decrease of $1.0 million was primarily due to the decrease in our outstanding debt during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Income tax expense.

Income tax expense was $15.6 million for the nine months ended September 30, 2020, with an effective tax rate of 27.7%, compared to the expense of $8.8 million for the nine months ended September 30, 2019, with an effective tax rate of 27.2%.

Net income attributable to MYR Group Inc .

Net income attributable to MYR Group Inc.

was $40.6 million for the nine months ended September 30, 2020 compared to $24.9 million for the nine months ended September 30, 2019.

Income tax expense was $7.1 million for the three months ended March 31, 2021, with an effective tax rate of 26.2%, compared to the expense of $4.1 million for the three months ended March 31, 2020, with an effective tax rate of 29.1%.

The decrease in the tax rate for the three months ended March 31, 2021 was primarily due to a favorable impact from stock compensation excess tax benefits.

Net income was $19.9 million for the three months ended March 31, 2021 compared to $9.9 million for the three months ended March 31, 2020.

The increase was primarily due to the reasons stated earlier.

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Nine months ended September 30,

Three months ended March 31,

(dollars in thousands) Amount Percent Amount Percent

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Transmission & Distribution

Revenues for our T&D segment for the nine months ended September 30, 2020 were $835.8 million compared to $823.4 million for the nine months ended September 30, 2019, an increase of $12.4 million, or 1.5%.

The increase in revenue was primarily related to an increase in revenue on distribution projects, partially offset by a decrease in revenue on transmission projects.

Revenues from transmission projects represented 64.3% and 67.2% of T&D segment revenue for the nine months ended September 30, 2020 and 2019, respectively.

Additionally, for the nine months ended September 30, 2020, measured by revenue in our T&D segment, we provided 44.7% of our T&D services under fixed-price contracts, as compared to 49.8% for the nine months ended September 30, 2019.

Operating income for our T&D segment for the nine months ended September 30, 2020 was $74.2 million, an increase of $25.5 million, or 52.3%, from the nine months ended September 30, 2019.

The increase in T&D operating income from the prior year was primarily due to higher revenues, better-than-anticipated productivity on certain projects and an increase in higher margin work on certain projects.

These increases were partially offset by labor and material inefficiencies and inclement weather experienced on certain projects.

As a percentage of revenues, operating income for our T&D segment was 8.9% for the nine months ended September 30, 2020 compared to 5.9% for the nine months ended September 30, 2019.

Revenues for our T&D segment for the three months ended March 31, 2021 were $314.9 million compared to $259.3 million for the three months ended March 31, 2020, an increase of $55.6 million, or 21.5%.

The increase in revenue was primarily related to an increase in revenue on large-sized projects.

Revenues from transmission projects represented 67.1% and 66.2% of T&D segment revenue for the three months ended March 31, 2021 and 2020, respectively.

Additionally, for the three months ended March 31, 2021, measured by revenue in our T&D segment, we provided 48.2% of our T&D services under fixed-price contracts, as compared to 46.7% for the three months ended March 31, 2020.

Operating income for our T&D segment for the three months ended March 31, 2021 was $28.7 million, an increase of $10.7 million, or 59.6%, from the three months ended March 31, 2020.

The increase in T&D operating income from the prior year was primarily due to higher revenues, better-than-anticipated productivity on certain projects and a favorable job close-out.

These increases were partially offset by inclement weather experienced on a project.

As a percentage of revenues, operating income for our T&D segment was 9.1% for the three months ended March 31, 2021 compared to 6.9% for the three months ended March 31, 2020.

Commercial & Industrial

Revenues for our C&I segment for the nine months ended September 30, 2020 were $803.7 million compared to $676.7 million for the nine months ended September 30, 2019, an increase of $127.0 million, or 18.8%, primarily due to incremental revenues from the CSI acquisition, partially offset by a decrease due to the timing of activity on various-sized projects along with impacts related to the COVID-19 pandemic.

Measured by revenue in our C&I segment, we provided 81.5% of our services under fixed-price contracts for the nine months ended September 30, 2020, compared to 69.4% for the nine months ended September 30, 2019.

Operating income for our C&I segment for the nine months ended September 30, 2020 was $30.0 million, an increase of $9.6 million over the nine months ended September 30, 2019.

The period-over-period increase in operating income was primarily due to higher revenues, an increase in higher margin work on certain projects and better-than-anticipated productivity on certain projects, partially offset by labor inefficiencies on certain projects.

As a percentage of revenues, operating income for our C&I segment was 3.7% for the nine months ended September 30, 2020 compared to 3.0% for the nine months ended September 30, 2019.

Revenues for our C&I segment for the three months ended March 31, 2021 were $277.6 million compared to $259.2 million for the three months ended March 31, 2020, an increase of $18.4 million, or 7.1%, primarily due to an increase in revenue on medium-sized projects.

Additionally, revenues during the three months ended March 31, 2020 were negatively impacted by a slight slowdown of work in certain geographic areas related to the COVID-19 pandemic.

Measured by revenue in our C&I segment, we provided 82.0% of our services under fixed-price contracts for the three months ended March 31, 2021, compared to 84.3% for the three months ended March 31, 2020.

Operating income for our C&I segment for the three months ended March 31, 2021 was $14.3 million, an increase of $5.0 million, over the three months ended March 31, 2020.

The period-over-period increase in operating income was due to higher revenues and better-than-anticipated productivity on certain projects.

These increases were partially offset by unfavorable pending change order adjustments on certain projects and labor inefficiencies on certain projects.

As a percentage of revenues, operating income for our C&I segment was 5.1% for the three months ended March 31, 2021 compared to 3.6% for the three months ended March 31, 2020.

Non-GAAP Measure—EBITDA

We define EBITDA, a performance measure used by management, as net income attributable to MYR Group Inc.

plus net income from noncontrolling interest, interest expense net of interest income, provision for income taxes and depreciation and amortization.

EBITDA, a non-GAAP financial measure, does not purport to be an alternative to net income attributable to MYR Group Inc.

as a measure of operating performance or to net cash flows provided by operating activities as a measure of liquidity.

We define EBITDA, a performance measure used by management, as net income plus net income from noncontrolling interest, interest expense net of interest income, provision for income taxes and depreciation and amortization.

EBITDA, a non-GAAP financial measure, does not purport to be an alternative to net income as a measure of operating performance or to net cash flows provided by operating activities as a measure of liquidity.

We believe that EBITDA is useful to investors and other external users of our Consolidated Financial Statements in evaluating our operating performance and cash flow because EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, useful lives placed on assets, capital structure and the method by which assets were acquired.

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Three months ended

September 30, Nine months ended

September 30,

(in thousands) 2021 2020

Net income attributable to MYR Group Inc.

$ 17,292 $ 10,355 $ 40,609 $ 24,915

Net income (loss) attributable to noncontrolling interest — 106 — (1,476)

Net income 19,928 9,932

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Three months ended

September 30, Nine months ended

September 30,

(in thousands) 2021 2020

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Liquidity and Capital Resources

As of September 30, 2020, we had working capital of $199.2 million.

As of March 31, 2021, we had working capital of $217.5 million.

We define working capital as current assets less current liabilities.

During the nine months ended September 30, 2020, operating activities of our business provided net cash of $128.6 million, compared to $31.7 million of cash provided for the nine months ended September 30, 2019.

During the three months ended March 31, 2021, operating activities of our business provided net cash of $59.4 million, compared to $35.2 million of cash provided for the three months ended March 31, 2020.

Cash flow from operations is primarily influenced by demand for our services, operating margins, timing of contract performance and the type of services we provide to our customers.

The $96.9 million year-over-year increase in cash provided by operating activities was primarily due to favorable net changes in operating assets and liabilities of $76.2 million and increase in net income of $17.2 million and depreciation and amortization of $2.0 million.

The favorable change in operating assets and liabilities was primarily due to the net favorable year-over-year increases in various working capital accounts that relate primarily to construction activities (accounts receivable, contract assets, accounts payable and contract liabilities) of $38.9 million and a favorable change of $29.9 million in other liabilities, of which $17.2 million is due to the timing of payroll and the related tax payments, which we have elected to defer under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

The $24.1 million year-over-year increase in cash provided by operating activities was primarily due to favorable net changes in operating assets and liabilities of $12.8 million and an increase in net income of $10.0 million.

The increase in cash provided by working capital accounts, primarily related to construction activities, was primarily due to favorable changes in contract assets and contract liabilities due to the timing of billings and payments under our contracts.

In the nine months ended September 30, 2020, we used net cash in investing activities of $25.3 million, consisting of $27.5 million for capital expenditures, partially offset by $2.1 million of proceeds from the sale of equipment.

In the nine months ended September 30, 2020, financing activities used net cash of $96.6 million, consisting primarily of $65.2 million of repayments under our revolving line of credit, $30.4 million of repayments of principal obligations under our equipment notes of which mostly consists of prepayments of our principal obligations, $0.9 million of repayments of finance lease obligations and share repurchases of $0.4 million, all of which represented shares surrendered to satisfy tax obligations under our stock compensation programs during the nine months ended September 30, 2020.

We anticipate that our borrowing availability of $310.4 million at September 30, 2020 under our revolving line of credit and future cash flow from operations will provide sufficient cash to enable us to meet our future operating needs, debt service requirements, capital expenditures, acquisition and joint venture opportunities, share repurchases, and any new challenges and uncertainties associated with the COVID-19 pandemic.

The unfavorable change of $7.5 million in other liabilities was primarily due to higher bonus accruals and the timing of employee related wage and tax payments.

In the three months ended March 31, 2021, we used net cash of $6.4 million in investing activities of consisting of $7.0 million for capital expenditures, partially offset by $0.7 million of proceeds from the sale of equipment.

In the three months ended March 31, 2021, financing activities used net cash of $2.8 million, consisting primarily of share repurchases of $2.6 million, all of which represented shares surrendered to satisfy tax obligations under our stock compensation programs.

We anticipate that our borrowing availability of $362.7 million at March 31, 2021 under our revolving line of credit and future cash flow from operations will provide sufficient cash to enable us to meet our future operating needs, debt service requirements, capital expenditures, acquisition and joint venture opportunities, share repurchases, and $25.2 million of remaining payroll tax deferrals provided under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which will be paid within the next two years.

Although we believe that we have adequate cash and borrowing capacity to meet our liquidity needs, any large projects or acquisitions may require additional capital.

Additionally, in light of the uncertainties around the economic impacts from the ongoing COVID-19 pandemic, we are focused on controlling our costs and capital expenditures to preserve our ability to continue to fund our operations;

We have not historically paid dividends and currently do not expect to pay dividends.

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and Bank of America, N.A.

The Credit Agreement provides for a facility of $375 million (the “Facility”), not to exceed three times Consolidated EBITDA (as defined in the Credit Agreement) less Consolidated Total Indebtedness (as defined in the Credit Agreement), that may be used for revolving loans of which $150 million may be used for letters of credit.

The Credit Agreement provides for a facility of $375 million (the “Facility”), subject to certain financial covenants as defined in the Credit Agreement, that may be used for revolving loans of which $150 million may be used for letters of credit.

The Facility also allows for revolving loans and letters of credit in Canadian dollars and other currencies, up to the U.S.

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The Credit Agreement restricts certain types of payments when our consolidated Leverage Ratio exceeds 2.50 or our consolidated Liquidity (as defined in the Credit Agreement) is less than $50.0 million.

Under the Credit Agreement, we are subject to certain financial covenants and must maintain a maximum consolidated Leverage Ratio of 3.0 and a minimum interest coverage ratio of 3.0, which is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided by interest expense (as defined in the Credit Agreement).

Under the Credit Agreement, we are subject to certain financial covenants and are limited to a maximum consolidated Leverage Ratio of 3.0 and a minimum interest coverage ratio of 3.0, which is defined in the Credit Agreement as Consolidated EBITDA (as defined in the Credit Agreement) divided by interest expense (as defined in the Credit Agreement).

The Credit Agreement also contains a number of covenants, including limitations on asset sales, investments, indebtedness and liens.

We were in compliance with all of the financial covenants under the Credit Agreement as of September 30, 2020.

As of September 30, 2020, we had $38.6 million of debt outstanding under the Facility and letters of credit outstanding of approximately $11.3 million.

As of December 31, 2019, we had $103.8 million of debt outstanding under the Facility and letters of credit outstanding of approximately $10.6 million.

We were in compliance with all of the financial covenants under the Credit Agreement as of March 31, 2021.

We had no debt outstanding under the Facility as of March 31, 2021 and December 31, 2020, and letters of credit outstanding of approximately $12.3 million and $10.4 million as of March 31, 2021 and December 31, 2020, respectively.

Equipment Notes

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Each Equipment Note constitutes a separate, distinct and independent financing of equipment and contractual obligation.

As of September 30, 2020, we had four executed and outstanding Equipment Notes that are collateralized by equipment and vehicles owned by us.

In addition to regularly schedule payments we retired five of our Equipment Notes during the nine months ended September 30, 2020.

The outstanding balance of these Equipment Notes was $31.6 million as of September 30, 2020 and $62.0 million as of December 31, 2019.

As of March 31, 2021, we had four executed and outstanding Equipment Notes that are collateralized by equipment and vehicles owned by us.

The outstanding balance of these Equipment Notes was $29.4 million as of March 31, 2021 and December 31, 2020.

On April 13, 2021, the we prepaid our $7.0 million Equipment Note 7 using cash on hand.

This prepayment included an insignificant amount of accrued interest and there was no associated prepayment penalty.

Off-Balance Sheet Transactions

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Under certain circumstances such as foreclosures or negotiated settlements, we may take title to the underlying assets in lieu of cash in settlement of receivables.

As of September 30, 2020 and 2019, none of our customers individually exceeded 10% of consolidated accounts receivable.

As of March 31, 2021 and 2020, none of our customers individually exceeded 10% of consolidated accounts receivable.

Management believes the terms and conditions in its contracts, billing and collection policies are adequate to minimize the potential credit risk.

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We are including the following discussion to inform you of some of the risks and uncertainties that can affect our company and to take advantage of the protections for forward-looking statements that applicable federal securities law affords.

Statements in this Quarterly Report on Form 10-Q contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), which represent our beliefs and assumptions concerning future events.

When used in this document and in documents incorporated by reference, forward-looking statements include, without limitation, statements regarding financial forecasts or projections, and our expectations, beliefs, intentions or future strategies that are signified by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “objective,” “outlook,” “plan,” “project,” “likely,” “unlikely,” “possible,” “potential,” “should” or other words that convey the uncertainty of future events or outcomes.

When used in this document and in documents incorporated by reference, forward-looking statements include, without limitation, statements regarding financial forecasts or projections, and our expectations, beliefs, intentions or future strategies that are signified by the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “likely,” “may,” “objective,” “outlook,” “plan,” “project,” “possible,” “potential,” “should”, "unlikely,” or other words that convey the uncertainty of future events or outcomes.

The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q.

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We have based these forward-looking statements on our current expectations and assumptions about future events.

While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict, and many of which are beyond our control.

While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict, and many of which are beyond our control.

In addition, many of these risks, contingencies and uncertainties are currently amplified by, and may continue to be amplified by, the COVID-19 pandemic.

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• Our industry is highly competitive.

Increased competition can place downward pressure on contract prices and profit margins and may limit the number of projects that we are awarded.

• Negative economic and market conditions may adversely impact our customers’ future spending and, as a result, our operations and growth.

• We may be unsuccessful in generating internal growth, which could impact the projects available to the Company.

• Negative economic and market conditions, as well as regulatory and environmental requirements, may adversely impact our customers’ future spending and, as a result, our operations and growth.

• Our inability to successfully execute or integrate acquisitions or joint ventures may have an adverse impact on our growth strategy and business.

• Project performance issues, including those caused by third parties, or certain contractual obligations may result in additional costs to us, reductions or delays in revenues or the payment of penalties, including liquidated damages.

• Our revenues may be exposed to potential risk if a project is terminated or canceled, if our customers encounter financial difficulties or if we encounter disputes with our customers.

• Our business is labor intensive and we may be unable to attract and retain qualified personnel.

• We may be unable to attract and retain qualified personnel.

• The timing of new contracts and termination of existing contracts may result in unpredictable fluctuations in our cash flows and financial results.

• During the ordinary course of our business, we may become subject to lawsuits or indemnity claims, which could materially and adversely affect our business and results of operations.

• We may incur liabilities and suffer negative financial or reputational impacts relating to occupational health and safety matters including those related to hazards such as wildfires and other natural disasters.

• During the ordinary course of our business, we may become subject to lawsuits or indemnity claims.

• Backlog may not be realized or may not result in profits and may not accurately represent future revenue.

• Our business growth could outpace the capability of our internal resources and limit our ability to support growth.

• Our insurance has limits and exclusions that may not fully indemnify us against certain claims or losses, including claims resulting from wildfires or other natural disasters, and the unavailability or cancellation of third party insurance coverages would increase our overall risk exposure and could disrupt our operations.

• Changes in tax laws or our interpretations of tax laws could materially impact our income tax liabilities.

• The nature of our business exposes us to potential liability for warranty claims and faulty engineering, which may reduce our profitability.

• Risks associated with operating in the Canadian market could restrict our ability to expand and harm our business and prospects.

• Our dependence on suppliers, subcontractors and equipment manufacturers could expose us to the risk of loss in our operations.

• Our participation in joint ventures and other projects with third parties may expose us to liability for failures of our partners.

• Our inability to successfully execute or integrate acquisitions or joint ventures may have an adverse impact on our growth strategy and business.

• Legislative or regulatory actions relating to electricity transmission and renewable energy may impact demand for our services.

• Our use of percentage-of-completion accounting could result in a reduction or reversal of previously recognized profits.

• Our actual costs may be greater than expected in performing our fixed-price and unit-price contracts.

• Our financial results are based upon estimates and assumptions that may differ from actual results.

• The loss of a major customer may have an adverse effect on us.

• We extend trade credit to customers for purchases of our services, and may have difficulty collecting receivables from them.

• We may incur liabilities and suffer negative financial or reputational impacts relating to occupational health and safety matters, including those related to environmental hazards such as wildfires and other natural disasters.

• Our failure to comply with environmental and other laws and regulations could result in significant liabilities.

• We may not be able to compete for, or work on, certain projects if we are not able to obtain necessary bonds, letters of credit, bank guarantees or other financial assurances.

• Inability to hire or retain key personnel could disrupt our business.

• The COVID-19 pandemic may have an adverse impact on our business, employees, liquidity, financial condition, results of operations and cash flows.

• Our business may be affected by seasonal and other variations, including severe weather conditions and the nature of our work environment.

• Opportunities associated with government contracts could lead to increased governmental regulation applicable to us.

• We are subject to risks associated with climate change including financial risks and physical risks such as an increase in extreme weather events (such as floods, wildfires or hurricanes), rising sea levels and limitations on water availability and quality.

• Our use of percentage-of-completion accounting could result in a reduction or reversal of previously recognized revenues and profits.

• Our financial results are based upon estimates and assumptions that may differ from actual results.

• Our actual costs may be greater than expected in performing our fixed-price and unit-price contracts.

• An increase in the prices of certain materials and commodities used in our business could adversely affect our business.

• We may not be able to compete for, or work on, certain projects if we are not able to obtain necessary bonds, letters of credit, bank guarantees or other financial assurances.

• COVID-19 may have an adverse impact on our business, employees, liquidity, financial condition, results of operations and cash flows.

• Work stoppages or other labor issues with our unionized workforce could adversely affect our business, and we may be subject to unionization attempts.

• Failure to obtain permitting, right-of-way access and other tactical considerations prior to the commencement of work could delay the commencement of work on projects or cause modifications of work plans, potentially resulting in lower margins.

• Multi-employer pension plan obligations related to our unionized workforce could adversely impact our earnings.

• Our results of operations could be adversely affected as a result of asset impairments.

• We may not have access in the future to sufficient funding to finance desired growth and operations.

• We rely on information, communications and data systems in our operations and we or our business partners may be subject to failures, interruptions or breaches of such systems, which could affect our operations or our competitive position, expose sensitive information or damage our reputation.

• Our operations are subject to a number of operational risks which may result in unexpected costs or liabilities.

• Opportunities associated with government contracts could lead to increased governmental regulation applicable to us.

• Changes in our interpretation of tax laws could impact the determination of our income tax liabilities.

• The nature of our business exposes us to potential liability for warranty claims and faulty engineering, which may reduce our profitability.

• Our stock may experience significant price and volume fluctuations and future issuances of our common stock could lead to dilution of our issued and outstanding common stock.

• Risks associated with operating in the Canadian market could restrict our ability to expand and harm our business and prospects.

• Our failure to comply with the laws applicable to our Canadian activities, including the U.S.

Foreign Corrupt Practices Act and similar anti-bribery laws, could have an adverse effect on us.

• If we fail to maintain effective internal controls, we may not be able to report our financial results accurately or timely or prevent or detect fraud, which could have a material adverse effect on our business or the market price of our common stock.

• An increase in the prices of certain materials and commodities used in our business could adversely affect our business.

• Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

• Certain provisions in our organizational documents and Delaware law could delay or prevent a change in control of our company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis