MYR Group, Inc. 2026 Q3 Earnings Call

Thank you, and good morning, everyone. I would like to welcome you to the MYR Group conference call to discuss the company's third quarter results for 2026, which were reported yesterday. Joining us on today's call are Rick Swartz, President and Chief Executive Officer; Kelly Huntington, Senior Vice President and Chief Financial Officer; Brian Stern, Senior Vice President and Chief Operating Officer of MYR Group's Transmission and Distribution segment; and Don Egan, Senior Vice President and Chief Operating Officer of MYR Group's Commercial and Industrial segment. A copy of yesterday's press release announcing our third quarter results can be found on the MYR Group website at myrgroup.com under the Investors tab. Please note, today's discussion may contain forward-looking statements. Any such statements are based upon information available to MYR Group's management as of this date, and MYR Group assumes no obligation to update any such forward-looking statements.

These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. For more information, please refer to the risk factors discussed in the company's most recently filed annual report on Form 10-K. Certain non-GAAP financial measures will also be presented. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in yesterday's press release. With that, let me turn the call over to Rick Swartz.

Thanks, Jennifer. Good morning, everyone. Welcome to our third quarter 2026 conference call to discuss financial and operational results. I will begin by providing a summary of the third quarter performance before turning the call over to Kelly Huntington for a detailed financial review. Following Kelly's remarks, Brian Stern and Don Egan will provide updates on our T&D and C&I segments, including recent performance and market opportunities. I will then return with some closing comments before opening the call up for your questions. Our third quarter results reflect the strength of our business, the benefits of disciplined execution, and the continued demand for services we provide. Investments in electrical infrastructure, grid modernization, and electrification continue to create opportunities across the markets we serve. The additions of Valley Electric and Comet Electric have expanded our capabilities, geographic reach, and customer relationships, further strengthening our platform for long-term growth.

As we move forward, we remain focused on serving our customers, executing projects safely and efficiently, and creating value for our shareholders. Our success is driven by the dedication and expertise of our employees across the organization. Their commitment to safety, quality, and operational excellence enables us to consistently deliver for our customers and position the company to capitalize on future opportunities. I want to thank our team for their continued hard work and contributions to our success. I will now turn the call over to Kelly to review our third quarter 2026 financial results.

Thank you, Rick, and good morning, everyone. Our third quarter 2026 revenues were a record $1.26 billion, which represents an increase of $309 million or 32% compared to the same period last year. Our third quarter C&I revenues were $704 million, a record high for our C&I segment, and an increase of 58% compared to the same period last year. C&I revenues increased primarily due to an increase in revenue on fixed price contracts, which included incremental revenues from the Valley and Comet acquisition. T&D revenues were $555 million, an increase of 10% compared to the same period last year. T&D revenues increased due to higher revenue on T&E, fixed price, and unit price contracts. Work performed under master service agreements represented approximately 65% of our T&D revenue. Our gross margin was 13.6% for the third quarter of 2026, compared to 11.8% for the same period last year.

The increase in gross margin was primarily due to significant changes in our estimated gross profit on certain projects related to better than anticipated productivity and favorable job closeouts. Gross margin was also positively impacted by the continued benefit of higher margins on certain projects nearing completion, largely due to better than anticipated productivity. These margin increases were partially offset by an increase in costs associated with inefficiencies on certain projects. T&D operating income margin was 9.3% for the third quarter of 2026, compared to 8.2% for the same period last year. The increase was primarily related to better-than-anticipated productivity and a favorable job closeout, partially offset by an increase in costs associated with inefficiencies on certain projects. C&I operating income margin was 8.7% for the third quarter of 2026, compared to 6.4% for the same period last year.

The increase was primarily related to better-than-anticipated productivity on certain projects, most of which are nearing completion, partially offset by an increase in costs associated with inefficiencies on certain projects. C&I operating income margin was partially offset by an additional $4.9 million of amortization expense related to certain intangibles acquired with Valley and Comet. Third quarter 2026 SG&A expenses were $82 million, an increase of approximately $16 million compared to the same period last year. The increase was primarily due to SG&A expenses associated with Valley and Comet, which were acquired on July 1, and increases in employee incentive compensation costs and employee-related expenses to support future growth. Our third quarter effective tax rate was 27.1% compared to 28.3% for the same period last year.

The decrease was primarily due to a favorable impact from state taxes, partially offset by higher U.S. taxes on Canadian income, other permanent difference items, and a reduction in foreign tax credits. Third quarter 2026 net income was a record $60 million, compared to net income of $32 million for the same period last year. Net income per diluted share of $3.82 increased 86%, compared to $2.05 for the same period last year. Third quarter 2026 EBITDA was a record $110 million, compared to $63 million for the same period last year. Total backlog as of September 30, 2026, was a record $3.68 billion, 38% higher than a year ago. Total backlog as of September 30, 2026, consisted of $1.29 billion for our T&D segment and $2.39 billion for our C&I segment.

Third quarter 2026 operating cash flow was $46 million, compared to operating cash flow of $96 million for the same period last year. The decrease in cash provided by operating activities was primarily due to the timing of billings and payments associated with project starts and completions. Third quarter 2026 free cash flow was $9 million, compared to free cash flow of $65 million for the same period last year. The decrease was due to the decrease in operating cash flow and higher capital expenditures to support future growth. Moving to liquidity in our balance sheet, we had approximately $298 million of working capital, $216 million of funded debt, and $650 million in borrowing availability under our credit facility as of September 30, 2026. We had a funded debt-to-EBITDA leverage ratio of 0.63 times at the end of the third quarter.

In September, we completed an amendment and extension of our credit facility, which now includes a $690 million revolving facility and a term loan facility consisting of a $150 million U.S. tranche and a $70 million Canadian tranche, representing a $400 million aggregate capacity increase. We believe that our credit facility, strong balance sheet, and future cash flow from operations will enable us to support the organic growth of our business, pursue acquisitions, and opportunistically repurchase shares. Our board of directors authorized a new $100 million share repurchase program that is effective on November 4. The new program will expire on November 3, 2027, or when the authorized funds are exhausted, whichever is earlier. I'll now turn the call over to Brian Stern, who will provide an overview of our transmission and distribution segment.

Thanks, Kelly, and good morning, everyone. The T&D segment maintained steady performance in the third quarter as our teams continued to execute work across our markets. Bidding activity remained consistent, supported by ongoing utility infrastructure needs. Our focus remains on selecting projects that align with our capabilities, maintaining strong customer relationships, and delivering results across the markets we serve. This quarter, L.E. Myers was awarded multiple transmission projects in Indiana, Virginia, and Iowa. We also secured an EPC contract for substation work in New Mexico and Washington. Great Southwestern was selected for additional line and substation work, including a transmission line rebuild in Texas and rebuild substation work in Indiana. Harlan Electric was selected for a 345 kV line rebuild in Massachusetts. E.S. Boulos was awarded a collector and switchyard substation project in New York. Looking ahead, the broader market backdrop remains supportive.

According to Power Insights' latest report, transmission is expected to continue growing about 10% a year through 2030. Power Insights points to load growth, aging infrastructure, and ongoing resilience programs as the drivers, which supports the durable demand backdrop for T&D work. We're proud of the work accomplished this quarter and the continued focus of our employees to bring safety, quality, reliable project delivery. Their efforts across the business are an important part of our ability to serve our customers and perform well across our markets. I will now turn the call over to Don Egan, who will provide an overview of our Commercial & Industrial segment.

Thanks, Brian, and good morning, everyone. Our C&I segment delivered solid results in the third quarter, supported by steady activity across our core markets and continued focus on project execution. Bidding activity remained healthy and backlog continued to grow as we pursued new opportunities and strengthened existing customer relationships. We remain focused on meeting customer needs, delivering quality work safely and efficiently, and maintaining a balanced mix of projects across our business.