MYR GROUP INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS MYR GROUP INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) March 31, 2021 December 31, 2020 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 73,069 $ 22,668 Accounts receivable, net of allowances of $ 1,665 and $ 1,696 , respectively 373,524 385,938 Contract assets, net of allowances of $ 350 and $ 359 , respectively 192,883 185,803 Current portion of receivable for insurance claims in excess of deductibles 11,342 11,859 Refundable income taxes — 1,534 Other current assets 14,548 28,882 Total current assets 665,366 636,684 Property and equipment, net of accumulated depreciation of $ 302,134 and $ 294,366 , respectively 181,096 185,114 Operating lease right-of-use assets 21,724 22,291 Goodwill 66,067 66,065 Intangible assets, net of accumulated amortization of $ 15,045 and $ 14,467 , respectively 50,793 51,365 Receivable for insurance claims in excess of deductibles 26,758 27,043 Investment in joint ventures 3,644 3,040 Other assets 3,798 4,257 Total assets $ 1,019,246 $ 995,859 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 4,381 $ 4,381 Current portion of operating lease obligations 6,986 6,612 Current portion of finance lease obligations 53 318 Accounts payable 192,241 162,580 Contract liabilities 140,314 158,396 Current portion of accrued self-insurance 24,447 24,395 Other current liabilities 79,402 86,718 Total current liabilities 447,824 443,400 Deferred income tax liabilities 18,295 18,339 Long-term debt 25,039 25,039 Accrued self-insurance 45,095 45,428 Operating lease obligations, net of current maturities 14,787 15,730 Other liabilities 19,742 18,631 Total liabilities 570,782 566,567 Commitments and contingencies Stockholders’ equity: Preferred stock—$ 0.01 par value per share; 4,000,000 authorized shares; none issued and outstanding at March 31, 2021 and December 31, 2020 — — Common stock—$ 0.01 par value per share; 100,000,000 authorized shares; 16,817,256 and 16,734,239 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively 168 167 Additional paid-in capital 157,995 158,618 Accumulated other comprehensive income 276 23 Retained earnings 290,021 270,480 Total stockholders’ equity attributable to MYR Group Inc. 448,460 429,288 Noncontrolling interest 4 4 Total stockholders’ equity 448,464 429,292 Total liabilities and stockholders’ equity $ 1,019,246 $ 995,859 The accompanying notes are an integral part of these consolidated financial statements. 2 Table of Contents MYR GROUP INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME Three months ended March 31, (in thousands, except per share data) 2021 2020 Contract revenues $ 592,486 $ 518,470 Contract costs 515,533 456,838 Gross profit 76,953 61,632 Selling, general and administrative expenses 49,647 45,046 Amortization of intangible assets 578 1,228 Gain on sale of property and equipment ( 683 ) ( 1,050 ) Income from operations 27,411 16,408 Other income (expense): Interest income 13 2 Interest expense ( 475 ) ( 1,513 ) Other income (expense), net 41 ( 895 ) Income before provision for income taxes 26,990 14,002 Income tax expense 7,062 4,070 Net income $ 19,928 $ 9,932 Income per common share: —Basic $ 1.19 $ 0.60 —Diluted $ 1.17 $ 0.59 Weighted average number of common shares and potential common shares outstanding: —Basic 16,760 16,627 —Diluted 17,045 16,742 Net income $ 19,928 $ 9,932 Other comprehensive income: Foreign currency translation adjustment 253 87 Other comprehensive income: 253 87 Total comprehensive income $ 20,181 $ 10,019 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents MYR GROUP INC. UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Preferred Common Stock Additional Paid-In Accumulated Other Comprehensive Retained MYR Group Inc. Stockholders’ Noncontrolling (in thousands) Stock Shares Amount Capital Income (Loss) Earnings Equity Interest Total Balance at December 31, 2019 — 16,649 $ 166 $ 152,532 $ ( 446 ) $ 212,219 $ 364,471 $ 4 $ 364,475 Net income — — — — — 9,932 9,932 — 9,932 Adjustment to adopt ASC 326 — — — — — ( 268 ) ( 268 ) — ( 268 ) Stock issued under compensation plans, net — 55 — 82 — — 82 — 82 Stock-based compensation expense — — — 1,080 — — 1,080 — 1,080 Shares repurchased — ( 20 ) — ( 241 ) — ( 185 ) ( 426 ) — ( 426 ) Other comprehensive income — — — — 87 — 87 — 87 Stock issued - other — 1 — 24 — — 24 — 24 Balance at March 31, 2020 $ — 16,685 $ 166 $ 153,477 $ ( 359 ) $ 221,698 $ 374,982 $ 4 $ 374,986 Balance at December 31, 2020 — 16,734 $ 167 $ 158,618 $ 23 $ 270,480 $ 429,288 $ 4 $ 429,292 Net income — — — — — 19,928 19,928 — 19,928 Stock issued under compensation plans, net — 123 1 109 — — 110 — 110 Stock-based compensation expense — — — 1,487 — — 1,487 — 1,487 Shares repurchased — ( 41 ) — ( 2,231 ) — ( 387 ) ( 2,618 ) — ( 2,618 ) Other comprehensive income — — — — 253 — 253 — 253 Stock issued - other — 1 — 12 — — 12 — 12 Balance at March 31, 2021 $ — 16,817 $ 168 $ 157,995 $ 276 $ 290,021 $ 448,460 $ 4 $ 448,464 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents MYR GROUP INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended March 31, (in thousands) 2021 2020 Cash flows from operating activities: Net income $ 19,928 $ 9,932 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation and amortization of property and equipment 11,293 10,641 Amortization of intangible assets 578 1,228 Stock-based compensation expense 1,487 1,080 Deferred income taxes ( 47 ) 236 Gain on sale of property and equipment ( 683 ) ( 1,050 ) Other non-cash items 529 ( 305 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable, net 12,592 38,089 Contract assets, net ( 6,991 ) ( 7,467 ) Receivable for insurance claims in excess of deductibles 802 ( 754 ) Other assets 15,314 5,195 Accounts payable 29,198 ( 18,091 ) Contract liabilities ( 18,087 ) ( 4,697 ) Accrued self insurance ( 285 ) ( 77 ) Other liabilities ( 6,238 ) 1,283 Net cash flows provided by operating activities 59,390 35,243 Cash flows from investing activities: Proceeds from sale of property and equipment 651 870 Purchases of property and equipment ( 7,031 ) ( 9,138 ) Net cash flows used in investing activities ( 6,380 ) ( 8,268 ) Cash flows from financing activities: Net repayments under revolving lines of credit — ( 2,263 ) Payment of principal obligations under equipment notes — ( 2,177 ) Payment of principal obligations under finance leases ( 273 ) ( 312 ) Proceeds from exercise of stock options 110 82 Repurchase of common shares ( 2,618 ) ( 425 ) Other financing activities 12 23 Net cash flows used in financing activities ( 2,769 ) ( 5,072 ) Effect of exchange rate changes on cash 160 ( 303 ) Net increase in cash and cash equivalents 50,401 21,600 Cash and cash equivalents: Beginning of period 22,668 12,397 End of period $ 73,069 $ 33,997 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents MYR GROUP INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Organization, Business and Basis of Presentation Organization and Business MYR Group Inc. (the “Company”) is a holding company of specialty electrical construction service providers and is currently conducting operations through wholly owned subsidiaries, including: The L. E. Myers Co., a Delaware corporation; Harlan Electric Company, a Michigan corporation; Great Southwestern Construction, Inc., a Colorado corporation; Sturgeon Electric Company, Inc., a Michigan corporation; MYR Energy Services, Inc., a Delaware corporation; E.S. Boulos Company, a Delaware corporation; High Country Line Construction, Inc., a Nevada corporation; Sturgeon Electric California, LLC, a Delaware limited liability company; GSW Integrated Services, LLC, a Delaware limited liability company; Huen Electric, Inc., a Delaware corporation; CSI Electrical Contractors, Inc., a Delaware corporation; MYR Transmission Services Canada, Ltd., a British Columbia corporation; Northern Transmission Services, Ltd., a British Columbia corporation and Western Pacific Enterprises Ltd., a British Columbia corporation. The Company performs construction services in two business segments: Transmission and Distribution (“T&D”), and Commercial and Industrial (“C&I”). T&D customers include investor-owned utilities, cooperatives, private developers, government-funded utilities, independent power producers, independent transmission companies, industrial facility owners and other contractors. T&D provides a broad range of services, which include design, engineering, procurement, construction, upgrade, maintenance and repair services, with a particular focus on construction, maintenance and repair. C&I customers include general contractors, commercial and industrial facility owners, government agencies and developers. C&I provides a broad range of services, which include the design, installation, maintenance and repair of commercial and industrial wiring, the installation of traffic networks and the installation of bridge, roadway and tunnel lighting. 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. Although the majority of stay-at-home orders have been phased out, we are still experiencing impacts associated with the COVID-19 project-specific protocols. We expect the project-specific requirements to remain in place which will continue to impact project schedules and workflow going forward. 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. Basis of Presentation Interim Consolidated Financial Information The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations, comprehensive income, stockholders’ equity and cash flows with respect to the interim consolidated financial statements, have been included. The consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements as of that date. The results of operations and comprehensive income are not necessarily indicative of the results for the full year or the results for any future periods. These financial statements should be read in conjunction with the audited financial statements and related notes for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on March 3, 2021 (the "2020 Annual Report"). 6 Table of Contents Joint Ventures and Noncontrolling Interests The Company accounts for investments in joint ventures using the proportionate consolidation method for income statement reporting and under the equity method for balance sheet reporting, unless the Company has a controlling interest causing the joint venture to be consolidated with equity owned by other joint venture partners recorded as noncontrolling interests. Under the proportionate consolidation method, joint venture activity is allocated to the appropriate line items found on the consolidated statements of operations in proportion to the percentage of participation the Company has in the joint venture. Under the equity method the net investment in joint ventures is stated as a single item on the Company’s consolidated balance sheets. If an investment in a joint venture contains a recourse or unfunded commitments to provide additional equity, distributions and/or losses in excess of the investment a liability is recorded in other current liabilities on the Company’s consolidated balance sheets. For joint ventures which the Company does not have a controlling interest, the Company’s share of any profits and assets and its share of any losses and liabilities are recognized based on the Company’s stated percentage partnership interest in the joint venture, and are normally recorded by the Company one month in arrears. The investments in joint ventures are recorded at cost and the carrying amounts are adjusted to recognize the Company’s proportionate share of cumulative income or loss, additional contributions made and dividends and capital distributions received. The Company records the effect of any impairment or any other-than-temporary decrease in the value of the joint venture investment as incurred, which may or may not be one month in arrears, depending on when the Company obtains the joint venture activity information. Additionally, the Company continually assesses the fair value of its investment in unconsolidated joint ventures despite using information that is one month in arrears for regular reporting purposes. The Company includes only its percentage ownership of each joint venture in its backlog. The Company is the majority controlling interest in a joint venture. As a result, the Company has consolidated the carrying value of the joint ventures’ assets and liabilities and results of operations in the Company’s consolidated financial statements. The equity owned by the other joint venture partners has been recorded as noncontrolling interest in the Company’s consolidated balance sheets, consolidated statements of stockholders’ equity, and their portions, if material, of net income (loss) and other comprehensive income shown as net income or other comprehensive income attributable to noncontrolling interest in the Company’s consolidated statements of operations and other comprehensive income. Additionally, the joint venture associated with the Company’s noncontrolling interest is a partnership, and consequently, the tax effect of only the Company’s share of the joint venture income is recognized by the Company. The majority controlled joint venture made no distributions to its partners, and the Company made no capital contributions to the joint venture, during the three months ended March 31, 2021. Additionally, there have been no changes in ownership during the three months ended March 31, 2021. The project associated with this joint venture was substantially completed in 2019. Foreign Currency The functional currency for the Company’s Canadian operations is the Canadian dollar. Assets and liabilities denominated in Canadian dollars are translated into U.S. dollars at the end-of-period exchange rate. Revenues and expenses are translated using average exchange rates for the periods reported. Equity accounts are translated at historical rates. Cumulative translation adjustments are included as a separate component of accumulated other comprehensive income in shareholders’ equity. Foreign currency transaction gains and losses, arising primarily from changes in exchange rates on short-term monetary assets and liabilities, and ineffective long-term monetary assets and liabilities are recorded in the “other income, net” line on the Company’s consolidated statements of operations. Foreign currency losses and gains, recorded in other income, net, for the three months ended March 31, 2021 and 2020 were no t significant. Effective foreign currency transaction gains and losses, arising primarily from long-term monetary assets and liabilities, are recorded in the foreign currency translation adjustment line on the Company’s consolidated statements of comprehensive income. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Actual results could differ from those estimates. 7 Table of Contents The most significant estimates are related to estimates of costs to complete contracts, pending change orders and claims, shared savings, insurance reserves, income tax reserves, estimates surrounding stock-based compensation, the recoverability of goodwill and intangibles and allowance for doubtful accounts. The Company estimates a cost accrual every quarter that represents costs incurred but not invoiced for services performed or goods delivered during the period, and estimates revenue from the contract cost portion of these accruals based on current gross margin rates to be consistent with its cost method of revenue recognition. As of March 31, 2021 and 2020, the Company had recognized revenues of $ 14.0 million and $ 36.4 million, respectively, related to significant change orders and/or claims that had been included as contract price adjustments on certain contracts, some of which are multi-year projects. These change orders and/or claims are in the process of being negotiated in the normal course of business, and a portion of these recognized revenues had been included in multiple periods. The cost-to-cost method of accounting requires the Company to make estimates about the expected revenue and gross profit on each of its contracts in process. During the three months ended March 31, 2021, changes in estimates pertaining to certain projects increased consolidated gross margin by 0.1 %, which resulted in increases in operating income of $ 0.6 million, net income of $ 0.4 million and diluted earnings per common share of $ 0.02 . During the three months ended March 31, 2020, changes in estimates pertaining to certain projects increased consolidated gross margin by 0.1 %. These changes in estimates did no t have a significant impact to consolidated operating income, net income or diluted earnings per common share. Recent Accounting Pronouncements Changes to U.S. GAAP are typically established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considers the applicability and impact of all ASUs. The Company, based on its assessment, determined that any recently issued or proposed ASUs not listed below are either not applicable to the Company or adoption will have minimal impact on its consolidated financial statements. Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes , which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The Company adopted this ASU in January 2021 and there was no effect on the consolidated financial statements or disclosures. 2. Contract Assets and Liabilities Contracts with customers usually stipulate the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide with the billing terms, which frequently include retention provisions contained in each contract. The Company’s consolidated balance sheets present contract assets, which contain unbilled revenue and contract retainages associated with contract work that has been completed and billed but not paid by customers, pursuant to retainage provisions, that are generally due once the job is completed and approved. The allowance for doubtful accounts associated with contract assets was $ 0.4 million as of March 31, 2021 and December 31, 2020. Contract assets consisted of the following: (in thousands) March 31, 2021 December 31, 2020 Change Unbilled revenue, net $ 108,268 $ 97,543 $ 10,725 Contract retainages, net 84,615 88,260 ( 3,645 ) Contract assets, net $ 192,883 $ 185,803 $ 7,080 8 Table of Contents The Company’s consolidated balance sheets present contract liabilities which contain deferred revenue and an accrual for contracts in a loss provision. Contract liabilities consisted of the following: (in thousands) March 31, 2021 December 31, 2020 Change Deferred revenue $ 138,180 $ 155,570 $ ( 17,390 ) Accrued loss provision 2,134 2,826 ( 692 ) Contract liabilities $ 140,314 $ 158,396 $ ( 18,082 ) The following table provides information about contract assets and contract liabilities from contracts with customers: (in thousands) March 31, 2021 December 31, 2020 Change Contract assets, net $ 192,883 $ 185,803 $ 7,080 Contract liabilities ( 140,314 ) ( 158,396 ) 18,082 Net contract assets (liabilities) $ 52,569 $ 27,407 $ 25,162 The difference between the opening and closing balances of the Company’s contract assets and contract liabilities primarily results from the timing of the Company’s billings in relation to its performance of work. The amounts of revenue recognized in the period that were included in the opening contract liability balances were $ 41.4 million for the three months ended March 31, 2021 and $ 25.7 million for the three months ended March 31, 2020. This revenue consists primarily of work performed on previous billings to customers. The net asset position for contracts in process consisted of the following: (in thousands) March 31, 2021 December 31, 2020 Costs and estimated earnings on uncompleted contracts $ 3,705,959 $ 3,921,376 Less: billings to date 3,735,871 3,979,403 $ ( 29,912 ) $ ( 58,027 ) The net asset position for contracts in process is included within the contract asset and contract liability in the accompanying consolidated balance sheets as follows: (in thousands) March 31, 2021 December 31, 2020 Unbilled revenue $ 108,268 $ 97,543 Deferred revenue ( 138,180 ) ( 155,570 ) $ ( 29,912 ) $ ( 58,027 ) 9 Table of Contents 3. Lease Obligations From time-to-time, the Company enters into non-cancelable leases for some of our facility, vehicle and equipment needs. These leases allow the Company to conserve cash by paying a monthly lease rental fee for the use of facilities, vehicles and equipment rather than purchasing them. The Company’s leases have remaining terms ranging from one to six years , some of which may include options to extend the leases for up to five years , and some of which may include options to terminate the leases within one year . Currently, all the Company’s leases contain fixed payment terms. The Company may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for the remaining lease payments under the term of the lease. Additionally, all of the Company's month-to-month leases are cancelable, by the Company or the lessor, at any time and are not included in our right-of-use asset or liability. At March 31, 2021, the Company had several leases with residual value guarantees. Typically, the Company has purchase options on the equipment underlying its long-term leases and many of its short-term rental arrangements. The Company may exercise some of these purchase options when the need for equipment is on-going and the purchase option price is attractive. Leases are accounted for as operating or finance leases, depending on the terms of the lease. The following is a summary of the lease-related assets and liabilities recorded: March 31, 2021 December 31, 2020 (in thousands) Classification on the Consolidated Balance Sheet Assets Operating lease right-of-use assets Operating lease right-of-use assets $ 21,724 $ 22,291 Finance lease right-of-use assets Property and equipment, net of accumulated depreciation 140 390 Total right-of-use lease assets $ 21,864 $ 22,681 Liabilities Current Operating lease obligations Current portion of operating lease obligations $ 6,986 $ 6,612 Finance lease obligations Current portion of finance lease obligations 53 318 Total current obligations 7,039 6,930 Non-current Operating lease obligations Operating lease obligations, net of current maturities 14,787 15,730 Total non-current obligations 14,787 15,730 Total lease obligations $ 21,826 $ 22,660 The following is a summary of the lease terms and discount rates: March 31, 2021 December 31, 2020 Weighted-average remaining lease term - finance leases 0.2 years 0.4 years Weighted-average remaining lease term - operating leases 3.2 years 3.4 years Weighted-average discount rate - finance leases 2.6 % 2.6 % Weighted-average discount rate - operating leases 3.9 % 3.9 % 10 Table of Contents The following is a summary of certain information related to the lease costs for finance and operating leases: (in thousands) Three months ended March 31, 2021 2020 Lease cost: Finance lease cost: Amortization of right-of-use assets $ 189 $ 249 Interest on lease liabilities 3 11 Operating lease cost 2,486 2,231 Variable lease costs 76 71 Total lease cost $ 2,754 $ 2,562 The following is a summary of other information and supplemental cash flow information related to finance and operating leases: Three months ended March 31, (in thousands) 2021 2020 Other information: Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 2,540 $ 2,069 Right-of-use asset obtained in exchange for new operating lease obligations $ 1,502 $ 3,024 The future undiscounted minimum lease payments, as reconciled to the discounted minimum lease obligation indicated on the Company’s consolidated balance sheets, under financial leases, less interest, and under operating leases, less imputed interest, as of March 31, 2021 were as follows: (in thousands) Finance Lease Obligations Operating Lease Obligations Total Lease Obligations Remainder of 2021 $ 53 $ 7,083 $ 7,136 2022 — 8,036 8,036 2023 — 5,736 5,736 2024 — 2,968 2,968 2025 — 1,132 1,132 2026 — 796 796 Thereafter — — — Total minimum lease payments 53 25,751 25,804 Financing component — ( 3,978 ) ( 3,978 ) Net present value of minimum lease payments 53 21,773 21,826 Less: current portion of finance and operating lease obligations ( 53 ) ( 6,986 ) ( 7,039 ) Long-term finance and operating lease obligations $ — $ 14,787 $ 14,787 The financing component for finance lease obligations represents the interest component of finance leases that will be recognized as interest expense in future periods. The financing component for operating lease obligations represents the effect of discounting the lease payments to their present value. Certain subsidiaries of the Company have operating leases for facilities from third party companies that are owned, in whole or part, by employees of the subsidiaries. The terms and rental rates of these leases are at market rental rates. As of March 31, 2021, the minimum lease payments required under these leases totaled $ 3.0 million, which are due over the next 3.3 years. 11 Table of Contents 4. Fair Value Measurements The Company uses the three-tier hierarchy of fair value measurement, which prioritizes the inputs used in measuring fair value based upon their degree of availability in external active markets. These tiers include: Level 1 (the highest priority), defined as observable inputs, such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 (the lowest priority), defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. As of March 31, 2021 and December 31, 2020, the Company determined that the carrying value of cash and cash equivalents approximated fair value based on Level 1 inputs. As of March 31, 2021 and December 31, 2020, the fair values of the Company’s long-term debt and finance lease obligations were based on Level 2 inputs. The Company’s long-term debt was based on variable and fixed interest rates at March 31, 2021 and December 31, 2020, for new issues with similar remaining maturities, and approximated carrying value. In addition, based on borrowing rates currently available to the Company for borrowings with similar terms, the carrying values of the Company’s finance lease obligations also approximated fair value. 5. Debt The table below reflects the Company’s total debt, including borrowings under its credit agreement and master loan agreements for equipment notes: (dollar amounts in thousands) Inception Date Stated Interest Rate (per annum) Payment Frequency Term (years) Outstanding Balance as of March 31, 2021 Outstanding Balance as of December 31, 2020 Credit Agreement Revolving loans 9/13/2019 Variable Variable 5 $ — $ — Equipment Notes Equipment Note 6 6/25/2019 2.89 % Semi-annual 7 12,896 12,896 Equipment Note 7 6/24/2019 3.09 % Semi-annual 5 6,980 6,980 Equipment Note 8 12/27/2019 2.75 % Semi-annual 5 5,513 5,513 Equipment Note 9 12/24/2019 3.01 % Semi-annual 7 4,031 4,031 29,420 29,420 Total debt 29,420 29,420 Less: current portion of long-term debt ( 4,381 ) ( 4,381 ) Long-term debt $ 25,039 $ 25,039 Credit Agreement On September 13, 2019, the Company entered into a five-year amended and restated credit agreement (the “Credit Agreement”) with a syndicate of banks led by JPMorgan Chase Bank, N.A. and Bank of America, N.A, that provides for a $ 375 million facility (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. dollar equivalent of $ 75 million. The Company has an expansion option to increase the commitments under the Facility or enter into incremental term loans, subject to certain conditions, by up to an additional $ 200 million upon receipt of additional commitments from new or existing lenders. Subject to certain exceptions, the Facility is secured by substantially all of the assets of the Company and its domestic subsidiaries, and by a pledge of substantially all of the capital stock of the Company’s domestic subsidiaries and 65 % of the capital stock of the direct foreign subsidiaries of the Company. Additionally, subject to certain exceptions, the Company’s domestic subsidiaries also guarantee the repayment of all amounts due under the Credit Agreement. If an event of default occurs and is continuing, on the terms and subject to the conditions set forth in the Credit Agreement, amounts outstanding under the Facility may be accelerated and may become or be declared immediately due and payable. Borrowings under the Credit Agreement are used for refinancing existing indebtedness, working capital, capital expenditures, acquisitions, share repurchases, and other general corporate purposes. 12 Table of Contents Amounts borrowed under the Credit Agreement bear interest, at the Company’s option, at a rate equal to either (1) the Alternate Base Rate (as defined in the Credit Agreement), plus an applicable margin ranging from 0.00 % to 0.75 %; or (2) Adjusted LIBO Rate (as defined in the Credit Agreement) plus an applicable margin ranging from 1.00 % to 1.75 %. The applicable margin is determined based on the Company’s consolidated leverage ratio (the “Leverage Ratio”) which is defined in the Credit Agreement as Consolidated Total Indebtedness (as defined in the Credit Agreement) divided by Consolidated EBITDA (as defined in the Credit Agreement). Letters of credit issued under the Facility are subject to a letter of credit fee of 1.00 % to 1.75 % for non-performance letters of credit or 0.50 % to 0.875 % for performance letters of credit, based on the Company’s consolidated Leverage Ratio. The Company is subject to a commitment fee of 0.15 % to 0.25 %, based on the Company’s consolidated Leverage Ratio, on any unused portion of the Facility. The Credit Agreement restricts certain types of payments when the Company’s consolidated Leverage Ratio exceeds 2.50 or the Company's consolidated Liquidity (as defined in the Credit Agreement) is less than $ 50 million. Under the Credit Agreement, the Company is subject to certain financial covenants and is 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 covenants including limitations on asset sales, investments, indebtedness and liens. The Company was in compliance with all of its financial covenants under the Credit Agreement as of March 31, 2021. As of March 31, 2021, the Company had no debt outstanding under the Facility and letters of credit outstanding under the Facility of approximately $ 12.3 million, all of which was related to the Company's payment obligation under its insurance programs. As of December 31, 2020, the Company had no debt outstanding under the Facility and letters of credit outstanding under the Facility of approximately $ 10.4 million, including $ 9.8 million related to the Company's payment obligation under its insurance programs and approximately $ 0.6 million related to contract performance obligations. The Company had remaining deferred debt issuance costs totaling $ 1.1 million as of March 31, 2021, related to the line of credit. As permitted, debt issuance costs have been deferred and are presented as an asset within other assets, which is amortized as interest expense over the term of the line of credit. Equipment Notes The Company has entered into Master Equipment Loan and Security Agreements (the “Master Loan Agreements”) with multiple banks. The Master Loan Agreements may be used for the financing of equipment between the Company and the lending banks pursuant to one or more equipment notes ("Equipment Note"). Each Equipment Note executed under the Master Loan Agreements constitutes a separate, distinct and independent financing of equipment and a contractual obligation of the Company, which may contain prepayment clauses. 13 Table of Contents As of March 31, 2021, the Company had four Equipment Notes outstanding under the Master Loan Agreements that are collateralized by equipment and vehicles owned by the Company. The following table sets forth our remaining principal payments for the Company’s outstanding Equipment Notes as of March 31, 2021: (in thousands) Future Equipment Notes Principal Payments Remainder of 2021 $ 4,381 2022 4,511 2023 4,645 2024 7,102 2025 2,189 2026 6,592 Thereafter — Total future principal payments $ 29,420 Less: current portion of equipment notes ( 4,381 ) Long-term principal obligations $ 25,039 6. Revenue Recognition Disaggregation of Revenue A majority of the Company’s revenues are earned through contracts with customers that normally provide for payment upon completion of specified work or units of work as identified in the contract. Although there is considerable variation in the terms of these contracts, they are primarily structured as fixed-price contracts, under which the Company agrees to perform a defined scope of a project for a fixed amount, or unit-price contracts, under which the Company agrees to do the work at a fixed price per unit of work as specified in the contract. The Company also enters into time-and-equipment and time-and-materials contracts under which the Company is paid for labor and equipment at negotiated hourly billing rates and for other expenses, including materials, as incurred at rates agreed to in the contract. Finally, the Company sometimes enters into cost-plus contracts, where the Company is paid for costs plus a negotiated margin. On occasion, time-and-equipment, time-and-materials and cost-plus contracts require the Company to include a guaranteed not-to-exceed maximum price. Historically, fixed-price and unit-price contracts have had the highest potential margins; however, they have had a greater risk in terms of profitability because cost overruns may not be recoverable. Time-and-equipment, time-and-materials and cost-plus contracts have historically had less margin upside, but generally have had a lower risk of cost overruns. The Company also provides services under master service agreements (“MSAs”) and other variable-term service agreements. MSAs normally cover maintenance, upgrade and extension services, as well as new construction. Work performed under MSAs is typically billed on a unit-price, time-and-materials or time-and-equipment basis. MSAs are typically one to three years in duration; however, most of the Company’s contracts, including MSAs, may be terminated by the customer on short notice, typically 30 to 90 days, even if the Company is not in default under the contract. Under MSAs, customers generally agree to use the Company for certain services in a specified geographic region. Most MSAs include no obligation for the contract counterparty to assign specific volumes of work to the Company and do not require the counterparty to use the Company exclusively, although in some cases the MSA contract gives the Company a right of first refusal for certain work. Additional information related to the Company’s market types is provided in Note 10–Segment Information. 14 Table of Contents The components of the Company’s revenue by contract type for the three months ended March 31, 2021 and 2020 were as follows: Three months ended March 31, 2021 T&D C&I Total (dollars in thousands) Amount Percent Amount Percent Amount Percent Fixed price $ 151,931 48.2 % $ 227,709 82.0 % $ 379,640 64.1 % Unit price 85,269 27.1 18,431 6.6 103,700 17.5 T&E 70,278 22.3 14,382 5.2 84,660 14.3 Other 7,430 2.4 17,056 6.2 24,486 4.1 $ 314,908 100.0 % $ 277,578 100.0 % $ 592,486 100.0 % Three months ended March 31, 2020 T&D C&I Total (dollars in thousands) Amount Percent Amount Percent Amount Percent Fixed price $ 121,002 46.7 % $ 218,539 84.3 % $ 339,541 65.5 % Unit price 63,310 24.4 18,076 7.0 81,386 15.7 T&E 68,051 26.2 15,802 6.1 83,853 16.2 Other 6,907 2.7 6,783 2.6 13,690 2.6 $ 259,270 100.0 % $ 259,200 100.0 % $ 518,470 100.0 % The components of the Company’s revenue by market type for the three months ended March 31, 2021 and 2020 were as follows: Three months ended March 31, 2021 Three months ended March 31, 2020 (dollars in thousands) Amount Percent Segment Amount Percent Segment Transmission $ 211,227 35.7 % T&D $ 171,566 33.1 % T&D Distribution 103,681 17.5 T&D 87,704 16.9 T&D Electrical construction 277,578 46.8 C&I 259,200 50.0 C&I Total revenue $ 592,486 100.0 % $ 518,470 100.0 % Remaining Performance Obligations As of March 31, 2021, the Company had $ 1.53 billion of remaining performance obligations. The Company’s remaining performance obligations include projects that have a written award, a letter of intent, a notice to proceed or an agreed upon work order to perform work on mutually accepted terms and conditions. The following table summarizes the amount of remaining performance obligations as of March 31, 2021 that the Company expects to be realized and the amount of the remaining performance obligations that the Company reasonably estimates will not be recognized within the next twelve months. Remaining Performance Obligations at March 31, 2021 (in thousands) Total Amount estimated to not be recognized within 12 months Total at December 31, 2020 T&D $ 584,421 $ 152,951 $ 645,422 C&I 940,758 190,950 889,596 Total $ 1,525,179 $ 343,901 $ 1,535,018 15 Table of Contents The Company expects a vast majority of the remaining performance obligations to be recognized within twenty-four months, although the timing of the Company’s performance is not always under its control. Additionally, the difference between the remaining performance obligations and backlog is due to the exclusion of a portion of the Company’s MSAs under certain contract types from the Company’s remaining performance obligations as these contracts can be canceled for convenience at any time by the Company or the customer without considerable cost incurred by the customer. Additional information related to backlog is provided in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 7. Income Taxes The U.S. federal statutory tax rate was 21 % for each of the three months ended March 31, 2021 and 2020. The Company’s effective tax rate for the three months ended March 31, 2021 was 26.2 % of pretax income compared to the effective tax rate for the three months ended March 31, 2020 of 29.1 %. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the three months ended March 31, 2021 was primarily due to state income taxes and foreign earnings and the associated impact of the global intangible low tax income (“GILTI”) and other permanent difference items, partially offset by a favorable impact from stock compensation excess tax benefits. The difference between the U.S. federal statutory tax rate and the Company’s effective tax rate for the three months ended March 31, 2020, was primarily due to state income taxes and excess tax expense pertaining to the vesting of stock awards related to the Company’s stock compensation program along with foreign earnings and the associated impact of GILTI. The Company had unrecognized tax benefits of approximately $ 0.4 million as of March 31, 2021 and December 31, 2020, respectively, which were included in other liabilities in the accompanying consolidated balance sheets. The Company’s policy is to recognize interest and penalties related to income tax liabilities as a component of income tax expense in the consolidated statements of operations. The amount of interest and penalties charged to income tax expense related to unrecognized tax benefits was no t significant for the three months ended March 31, 2021 and 2020. The Company is subject to taxation in various jurisdictions. The Company’s 2017 through 2019 tax returns are subject to examination by U.S. federal authorities. The Company’s tax returns are subject to examination by various state authorities for the years 2016 through 2019. 8. Commitments and Contingencies Purchase Commitments As of March 31, 2021, the Company had approximately $ 18.0 million in outstanding purchase orders for certain construction equipment, with cash payments scheduled to occur over the next nine months . Insurance and Claims Accruals The Company carries insurance policies, which are subject to certain deductibles, for workers’ compensation, general liability, automobile liability and other insurance coverage. The deductible per occurrence for each line of coverage is up to $ 1.0 million, except for wildfire coverage which has a deductible of $ 2.0 million. The Company’s health benefit plans are subject to stop-loss limits of up to $ 0.2 million for qualified individuals. Losses up to the deductible and stop-loss amounts are accrued based upon the Company’s estimates of the ultimate liability for claims reported and an estimate of claims incurred but not yet reported. The insurance and claims accruals are based on known facts, actuarial estimates and historical trends. While recorded accruals are based on the ultimate liability, which includes amounts in excess of the deductible, a corresponding receivable for amounts in excess of the deductible is included in current and long-term assets in the Company’s consolidated balance sheets. 16 Table of Contents Performance and Payment Bonds and Parent Guarantees In certain circumstances, the Company is required to provide performance and payment bonds in connection with its future performance on certain contractual commitments. The Company has indemnified its sureties for any expenses paid out under these bonds. As of March 31, 2021, an aggregate of approximately $ 1.20 billion in original face amount of bonds issued by the Company’s sureties were outstanding. The Company estimated the remaining cost to complete these bonded projects was approximately $ 632.8 million as of March 31, 2021. From time to time, the Company guarantees the obligations of wholly owned subsidiaries, including obligations under certain contracts with customers, certain lease agreements, and, in some states, obligations in connection with obtaining contractors’ licenses. Additionally, from time to time the Company is required to post letters of credit to guarantee the obligations of wholly owned subsidiaries, which reduces the borrowing availability under the Facility. Indemnities From time to time, pursuant to its service arrangements, the Company indemnifies its customers for claims related to the services it provides under those service arrangements. These indemnification obligations may subject the Company to indemnity claims and liabilities and related litigation. The Company is not aware of any material unrecorded liabilities for asserted claims in connection with these indemnification obligations. Collective Bargaining Agreements Most of the Company’s subsidiaries’ craft labor employees are covered by collective bargaining agreements. The agreements require the subsidiaries to pay specified wages, provide certain benefits and contribute certain amounts to multi-employer pension plans. If a subsidiary withdraws from any of the multi-employer pension plans or if the plans were to otherwise become underfunded, the subsidiary could incur liabilities for additional contributions related to these plans. Although the Company has been informed that the underfunding of some of the multi-employer pension plans to which its subsidiaries contribute have been classified as “critical” status, the Company is not currently aware of any potential liabilities related to this issue. Litigation and Other Legal Matters The Company is from time-to-time party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief. The Company is routinely subject to other civil claims, litigation and arbitration, and regulatory investigations arising in the ordinary course of our business, as well as in respect of our divested businesses. These claims, lawsuits and other proceedings include claims related to the Company’s current services and operations, as well as our historic operations. With respect to all such lawsuits, claims and proceedings, the Company records reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe that any of these proceedings, separately or in the aggregate, would be expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. 9. Stock-Based Compensation The Company maintains two equity compensation plans under which stock-based compensation has been granted: the 2017 Long-Term Incentive Plan (which was amended and restated as of April 23, 2020) (the “LTIP”) and the 2007 Long-Term Incentive Plan (as amended) (the “2007 Plan”). Upon the adoption of the original LTIP in 2017, awards were no longer granted under the 2007 Plan. The LTIP provides for grants of (a) incentive stock options qualified as such under U.S. federal income tax laws, (b) stock options that do not qualify as incentive stock options, (c) stock appreciation rights, (d) restricted stock awards, (e) restricted stock units, (f) performance share awards, (g) phantom stock units, (h) stock bonuses, (i) dividend equivalents, and (j) any combination of such grants. 17 Table of Contents The Company has outstanding grants of time-vested stock awards in the form of restricted stock units. During the three months ended March 31, 2021, the Company granted time-vested stock awards covering 47,956 shares of common stock under the LTIP, which vest ratably over three years , at a weighted average grant date fair value of $ 66.38 . During the three months ended March 31, 2021, time-vested stock awards covering 40,662 shares of common stock vested at a weighted average grant date fair value of $ 32.02 . During the three months ended March 31, 2021, the Company granted 42,091 performance share awards under the LTIP at target, which will cliff vest, if earned, on December 31, 2023, at a weighted average grant date fair value of $ 80.11 . The number of shares ultimately earned under a performance award may vary from zero to 200 % of the target shares granted, based upon the Company’s performance compared to certain metrics. The metrics used were determined at the time of the grant by the Compensation Committee of the Board of Directors and were either based on internal measures, such as the Company’s financial performance compared to targets, or on a market-based metric, such as the Company’s stock performance compared to a peer group. Performance awards granted cliff vest following the performance period if the stated performance targets and minimum service requirements are attained and are paid in shares of the Company’s common stock. During the three months ended March 31, 2021, plan participants exercised options to purchase 5,102 shares of the Company’s common stock with a weighted average exercise price of $ 21.71 . The Company recognizes stock-based compensation expense related to restricted stock awards and restricted stock units based on the grant date fair value, which was the closing price of the Company’s stock on the date of grant. The fair value is expensed over the service period, which is generally three years . For performance awards, the Company recognizes stock-based compensation expense based on the grant date fair value of the award. The fair value of internal metric-based performance awards is determined by the closing stock price of the Company’s common stock on the date of the grant. The fair value of market-based performance awards is computed using a Monte Carlo simulation. Performance awards are expensed over the service period of approximately 2.8 years, and the Company adjusts the stock-based compensation expense related to internal metric-based performance awards according to its determination of the shares expected to vest at each reporting date. 10. Segment Information MYR Group is a holding company of specialty contractors serving electrical utility infrastructure and commercial construction markets in the United States and western Canada. The Company has two reporting segments, each a separate operating segment, which are referred to as T&D and C&I. Performance measurement and resource allocation for the reporting segments are based on many factors. The primary financial measures used to evaluate the segment information are contract revenues and income from operations, excluding general corporate expenses. General corporate expenses include corporate facility and staffing costs, which include safety costs, professional fees, IT expenses and management fees. The accounting policies of the segments are the same as those described in the Note 1– Organization, Business and Significant Accounting Policies to the 2020 Annual Report. Transmission and Distribution: The T&D segment provides a broad range of services on electric transmission and distribution networks and substation facilities which include design, engineering, procurement, construction, upgrade, maintenance and repair services with a particular focus on construction, maintenance and repair. T&D services include the construction and maintenance of high voltage transmission lines, substations and lower voltage underground and overhead distribution systems. The T&D segment also provides emergency restoration services in response to hurricane, ice or other storm-related damage. T&D customers include investor-owned utilities, cooperatives, private developers, government-funded utilities, independent power producers, independent transmission companies, industrial facility owners and other contractors. Commercial and Industrial: The C&I segment provides services such as the design, installation, maintenance and repair of commercial and industrial wiring, installation of traffic networks and the installation of bridge, roadway and tunnel lighting. Typical C&I contracts cover electrical contracting services for airports, hospitals, data centers, hotels, stadiums, convention centers, renewable energy projects, manufacturing plants, processing facilities, waste-water treatment facilities, mining facilities and transportation control and management systems. The C&I segment generally provides electric construction and maintenance services as a subcontractor to general contractors in the C&I industry, but also contracts directly with facility owners. The C&I segment has a diverse customer base with many long-standing relationships. 18 Table of Contents The information in the following table is derived from the segment’s internal financial reports used for corporate management purposes: Three months ended March 31, (in thousands) 2021 2020 Contract revenues: T&D $ 314,908 $ 259,270 C&I 277,578 259,200 $ 592,486 $ 518,470 Income from operations: T&D $ 28,673 $ 17,964 C&I 14,272 9,312 General Corporate ( 15,534 ) ( 10,868 ) $ 27,411 $ 16,408 For the three months ended March 31, 2021 and 2020, contract revenues attributable to the Company’s Canadian operations were $ 17.7 million and $ 18.1 million, respectively, predominantly in the C&I segment. 11. Earnings Per Share The Company computes earnings per share using the treasury stock method. Under the treasury stock method, basic earnings per share are computed by dividing net income available to stockholders by the weighted average number of common shares outstanding during the period, and diluted earnings per share are computed by dividing net income available to stockholders by the weighted average number of common shares outstanding during the period plus all potentially dilutive common stock equivalents, except in cases where the effect of the common stock equivalent would be anti-dilutive. Net income and the weighted average number of common shares used to compute basic and diluted earnings per share were as follows: Three months ended March 31, (in thousands, except per share data) 2021 2020 Numerator: Net income $ 19,928 $ 9,932 Denominator: Weighted average common shares outstanding 16,760 16,627 Weighted average dilutive securities 285 115 Weighted average common shares outstanding, diluted 17,045 16,742 Income per common share: Basic $ 1.19 $ 0.60 Diluted $ 1.17 $ 0.59 For the three months ended March 31, 2021 and 2020, certain common stock equivalents were excluded from the calculation of dilutive securities because their inclusion would either have been anti-dilutive or, for stock options, the exercise prices of those stock options were greater than the average market price of the Company’s common stock for the period. All of the Company’s unvested time-vested stock awards were included in the computation of weighted average dilutive securities. 19 Table of Contents The following table summarizes the shares of common stock underlying the Company’s unvested time-vested stock awards and performance awards that were excluded from the calculation of dilutive securities: Three months ended March 31, (in thousands) 2021 2020 Time-vested stock awards 48 — Performance awards 42 30 12. Subsequent Event On April 13, 2021, the Company prepaid its $ 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. 20 Table of Contents