Third Quarter 2026 Conference Call - MYR GROUP INC

Financial Performance:

• Third quarter 2026 revenue reached a record $1.26 billion, a 32% increase year-over-year ($309 million), driven by strong CNI and T&D growth.
• CNI revenue hit a record $704 million (up 58% YoY) due to fixed-price contracts and acquisitions (Valley Electric, Common Electric). T&D revenue was $555 million (up 10% YoY).
• Gross margin improved to 13.6% from 11.8%, attributed to better-than-expected productivity and favorable job closeouts, partially offset by project inefficiencies.
• Operating income margins expanded to 9.3% for T&D (from 8.2%) and 8.7% for CNI (from 6.4%); CNI margin was impacted by $4.9 million in amortization expense from recent acquisitions.
• Net income surged to a record $60 million (up 86% YoY), with diluted EPS at $3.82. EBITDA was a record $110 million.
• Operating cash flow decreased to $46 million (from $96 million) due to timing of billings and payments; free cash flow was $9 million (down from $65 million).
• Total backlog hit a record $3.68 billion (up 38% YoY), split between $2.39 billion (C&I) and $1.29 billion (T&D).
• Liquidity position remains strong with $298 million working capital, $216 million funded debt, and $650 million borrowing availability; debt-to-EBITDA leverage ratio stands at 0.63x.

Guidance and Future Outlook:

• Full-year 2026 outlook implies continued growth, with management anticipating 18-22% CNI revenue growth and 10-13% T&D revenue growth for 2027.
• Company-wide revenue growth for 2027 is projected at 15-18%, with CNI operating margins trending toward the high end of the 6-9% range and T&D margins stabilizing in the 8-11% range.
• Large-scale transmission projects are expected to begin ramping in the second half of 2027, with significant growth anticipated from 2028 onwards.
• Management forecasts Capital Expenditures to average 3% of revenue in 2027, supporting organic growth and prefab investments.
• A new $100 million share repurchase program was authorized effective November 4, 2026, expiring November 3, 2027.

Business Segments and Product Lines:

• T&D Segment: Maintained steady performance with bidding activity supported by utility infrastructure needs; secured transmission projects in Indiana, Virginia, Iowa, and substation/EPC work in New Mexico, Washington, Texas, Massachusetts, and New York.
• CNI Segment: Delivered solid results driven by diversified end markets including healthcare, education, government, data centers, warehousing, and wastewater; acquired Valley Electric and Common Electric have integrated as planned and are meeting backlog/revenue expectations.
• Acquisitions: The addition of Valley and Common Electric expanded geographic reach and capabilities; amortization impact on margins was less severe than initially anticipated due to a longer amortization timeline.
• Prefabrication: Continued strategic investment in prefab facilities to shift assembly from field to controlled environments, improving efficiency and labor utilization.

Market and Competitive Landscape:

• T&D: Power Insights forecasts 10% annual transmission growth through 2030, driven by aging infrastructure, low growth in other areas, and resilience programs.
• CNI: The Dodge Momentum Index for non-residential building projects rose 3.7% in September, led by institutional sectors; data center and light rail projects are showing strong demand.
• Competition: Management notes active M&A market with slightly compressed private market valuations (estimated 8-10x multiples on C&I side); the company remains patient to secure quality targets with multiple customers and strong reputations.
• Demand Drivers: Strong demand for grid modernization, electrification, and large-scale electrical infrastructure projects supports the backlog growth.

Risks and Challenges:

• Cost Inefficiencies: Certain projects faced higher costs due to productivity inefficiencies, partially offsetting margin gains.
• Working Capital Headwinds: Higher interest rates and longer customer payment terms are creating working capital pressures, affecting operating cash flow.
• Unapproved Change Orders: Fluctuations in unbilled receivables and pending change orders are occurring as part of ordinary course business, requiring verbal approvals before finalization.
• Project Timing: Large transmission projects have a delayed start timeline (late 2027), creating a lumpy revenue profile for T&D in the near term.

Management Commentary and Tone:

• Management expressed a highly confident and positive tone, citing "strength of the business," "disciplined execution," and "record" financial results.
• Rick Swartz emphasized the strategic success of the Valley and Common Electric acquisitions, noting they are on plan and creating cross-selling opportunities.
• The team highlighted a focus on operational excellence, safety, and selecting projects that align with core capabilities rather than "storm chasing."
• Tone regarding M&A was patient but opportunistic, prioritizing quality and long-term viability over speed.

Analyst Questions and Answers:

• Q: CNI margin progression and end markets? A: Margins expected to remain in the high 6-9% range; growth driven by diversification beyond just data centers into institutional and government sectors.
• Q: T&D margin outlook and large project impact? A: T&D margins expected to hold steady at 8-11% in 2027; large projects will not materially impact margins until late 2027/2028.
• Q: Acquisition amortization impact? A: Amortization was a smaller headwind than forecast due to a longer amortization period (2+ years) for Valley and Common assets.
• Q: M&A valuation and pipeline? A: Private market multiples have compressed slightly; management is looking for high-quality electrical businesses with strong customer bases.
• Q: Share repurchase strategy? A: The $100M program signals strong financial health; capital will be allocated to buybacks, acquisitions, and organic CapEx as opportunities arise.
• Q: CNI backlog visibility? A: Customers are sharing projects with visibility into 2029-2030, often via Part A/Part B contracts securing materials and labor early.

Other Key Points:

• Credit facility amended in September to $690 million revolving plus term loan tranches, increasing aggregate capacity by $400 million.
• Effective tax rate improved to 27.1% due to favorable state tax impacts, partially offset by higher US taxes on Canadian income.
• No further changes to guidance regarding individual subsidiary revenue contributions, though Valley and Common are performing on plan.
• M&A strategy for CNI remains strictly electrical, while T&D may consider ancillary services expansion.