Executive Summary / Key Takeaways

• MYR Group, a long-standing electrical construction services provider, is strategically positioned to capitalize on significant investments in aging electrical infrastructure, grid modernization, and the surging demand driven by electrification, particularly from data centers and clean energy initiatives.
• The company demonstrated a strong operational and financial recovery in Q1 2025, with revenues increasing 2.2% year-over-year to $833.6 million, gross margin expanding to 11.6%, and diluted EPS jumping 29% to $1.45, signaling a move past the project-specific headwinds experienced in 2024.
• Backlog remains healthy at $2.64 billion as of March 31, 2025, reflecting robust bidding activity and future revenue visibility, particularly in the core T&D and growing C&I segments.
• Management anticipates operating within the mid-range of its target margins for both segments in 2025 (7-10.5% for T&D, 4-6% for C&I) and expects stronger free cash flow generation, supported by increased profitability and improved working capital dynamics.
• While risks such as labor costs, material inflation, and the timing of large project awards persist, MYR Group's strong balance sheet, operational expertise, and focus on long-term customer relationships position it favorably within a competitive but expanding market.

Powering the Future Grid

MYR Group Inc. stands as a seasoned player in the critical field of electrical construction services, tracing its operational lineage back to the late 19th century. Established in its current holding company structure in 1995 through the merger of established contractors, MYR Group has built a foundation rooted in over a century of experience in the electric utility infrastructure and commercial/industrial sectors. This deep history, coupled with strategic growth initiatives including acquisitions like the one involving CSI, has shaped the company into one of the largest U.S. contractors serving the Transmission and Distribution (TD) sector, alongside a significant presence in the Commercial and Industrial (CI) market across the United States and Canada.

The company operates through these two distinct segments, each addressing vital components of the electrical landscape. The TD segment focuses on the backbone of the grid – high-voltage transmission lines, substations, and lower-voltage distribution systems, including increasingly important work on clean energy projects, electric vehicle charging infrastructure, and emergency restoration. The CI segment caters to the electrical needs of diverse facilities, from airports and hospitals to manufacturing plants and, notably, the rapidly expanding data center market. This dual focus allows MYRG to participate broadly in the electrification trend reshaping North America.

MYR Group's strategic approach centers on leveraging its core strengths: a skilled workforce, an extensive centralized fleet of specialized equipment, a proven safety record, and a reputation for reliable, high-quality project execution. The company emphasizes building and expanding long-term relationships, particularly through master service agreements (MSAs), which constituted a significant 60% of TD revenues in Q1 2025. This provides a stable base of recurring work. Complementing this, MYRG strategically pursues new opportunities, maintaining a disciplined bidding process to secure projects that align with its capabilities and risk tolerance.

Operational Expertise and Technological Execution

While MYR Group does not highlight proprietary, quantifiable technological inventions in the same vein as a manufacturing firm, its technological edge lies in its deep operational expertise and capability to execute complex electrical infrastructure projects driven by cutting-edge technologies like artificial intelligence (AI) and clean energy. The company's skilled craft personnel and specialized equipment are its tools for implementing the advanced electrical systems required by modern data centers, renewable energy installations, and upgraded grid infrastructure.

The demand generated by new technologies, particularly AI, is a significant driver for MYRG's business. Industry forecasts cited by management indicate that AI data centers alone will require tens of gigawatts of new capacity, with AI queries demanding substantially more electricity than traditional computing. Data centers are projected to consume a growing percentage of U.S. electricity generation. MYRG's role is to build the intricate electrical infrastructure – from transmission lines connecting new generation sources to substations and internal wiring – necessary to power these facilities. This requires specialized knowledge in high-density power distribution, cooling systems, and complex wiring, areas where MYRG's CI segment, in particular, demonstrates proficiency.

Furthermore, the company's involvement in clean energy projects and EV charging infrastructure positions it to capitalize on the energy transition, requiring expertise in integrating renewable sources into the grid and building out new charging networks. MYRG's investment in developing its personnel and procuring specific equipment is aimed at maintaining this operational and execution capability, which serves as a critical differentiator in a market increasingly defined by technological advancement and complex project requirements. This ability to translate technological demand into tangible infrastructure projects is a key component of MYRG's competitive moat.

Competitive Landscape

MYR Group operates within a competitive environment populated by both large, diversified players and smaller, regional specialists. Key publicly traded competitors include Quanta Services (PWR), MasTec (MTZ), EMCOR Group (EME), and Primoris Services (PRIM).

Quanta Services and MasTec are larger in scale and revenue than MYRG, competing across transmission, distribution, and renewable energy infrastructure. PWR, as the largest player, benefits from scale and invests heavily in digital tools, potentially achieving higher operational efficiency in large transmission projects. MTZ has aggressively pursued clean energy projects and utilizes some automated construction tech. Compared to these giants, MYRG positions itself as a specialist, particularly strong in maintenance, repair, and regional responsiveness, which can lead to faster mobilization for emergency restoration and potentially higher margins in these niche areas. While PWR and MTZ may show higher overall revenue growth and potentially better capital efficiency (as suggested by higher ROIC/ROE in some periods), MYRG's focus on operational execution and cost control, particularly evident in its Q1 2025 margin recovery, allows it to compete effectively and capture market share, as reflected in its growing backlog.

EMCOR Group and Primoris Services also compete in overlapping CI and utility infrastructure markets. EME is a strong competitor in the CI space, particularly in diversified services for commercial facilities and data centers, often showing robust profitability metrics. PRIM competes across infrastructure and utilities, emphasizing cost efficiency. MYRG's CI segment competes directly with EME and PRIM for projects like data centers and transportation infrastructure. While EME might offer integrated services or show higher ROE, MYRG's C&I backlog growth and margin performance (4.7% operating margin in Q1 2025, recovering from 2024 lows) demonstrate its ability to win and execute complex projects in its core markets.

MYRG's competitive advantages lie in its established reputation, long-standing customer relationships (especially through MSAs), regional expertise, and disciplined project execution. Its ability to maintain a strong balance sheet and liquidity position also provides flexibility compared to some competitors. However, its smaller scale relative to PWR and MTZ could be a disadvantage in bidding for the largest, multi-billion dollar transmission projects, and it may lag in the adoption speed of certain cutting-edge digital technologies compared to its larger peers. The competitive environment, particularly in certain clean energy sub-markets, can also put pressure on pricing and terms.

Financial Performance and Liquidity

MYR Group's financial performance in 2024 was significantly impacted by challenges on a small group of clean energy projects in the TD segment and one project in the CI segment. These issues, stemming from factors like weather, labor inefficiencies, delays, and contractual disputes, led to reduced margins and profitability during the year. For instance, the T&D segment experienced an operating loss margin of 1.8% in Q2 2024, heavily impacted by these projects.

However, the company demonstrated a notable recovery in the first quarter of 2025. Revenues increased by 2.2% year-over-year to $833.6 million. This growth was driven by a strong 14.4% increase in the CI segment revenue to $371.9 million, offsetting a 5.8% decrease in TD revenue to $461.8 million (primarily due to planned selectivity on clean energy work). Gross profit margin expanded significantly to 11.6% in Q1 2025, up from 10.6% in the prior year period, reflecting improved project execution and a larger portion of projects progressing at higher contractual margins. Operating income rose to $34.3 million, resulting in a 4.1% operating margin. Net income for the quarter was $23.3 million, leading to diluted earnings per share of $1.45, a 29% increase compared to $1.12 in Q1 2024. EBITDA also saw a healthy increase, reaching $50.2 million compared to $39.8 million in Q1 2024.

This Q1 2025 performance indicates that the company has largely moved past the specific project headwinds from 2024, as those projects reached mechanical or substantial completion by the end of that year. While net changes in estimates still had a negative impact on gross margin in Q1 2025 (-1.1%), this was less severe than the impact seen in Q1 2024 (-1.2%) and was more than offset by overall project performance.

MYR Group maintains a solid liquidity position. As of March 31, 2025, the company had working capital of $229.5 million and cash and cash equivalents of $10.9 million. Funded debt stood at $87 million, resulting in a healthy funded debt-to-EBITDA leverage ratio of 0.68 times. The company has access to a $490 million revolving credit facility, with $379.4 million in borrowing availability as of the end of Q1 2025, providing ample flexibility for operations, capital expenditures, and strategic initiatives.

Cash flow generation saw a significant improvement in Q1 2025, with $83.3 million provided by operating activities, a substantial increase from $7.7 million in the prior year period. This was primarily driven by favorable changes in operating assets and liabilities, including a reduction in accounts receivable and collection of pending change orders and retainage. Free cash flow was a strong $70 million in Q1 2025, compared to negative $18 million in Q1 2024. Management expects stronger free cash flow generation in 2025, although acknowledging that cash flows can be lumpy due to project timing.

The company actively manages its capital allocation, prioritizing organic growth and opportunistic share repurchases. A new $75 million share repurchase program was approved in February 2025, and substantially all funds were utilized by the end of Q1 2025, repurchasing 639,207 shares at a weighted-average price of $117.33.

Outlook and Risks

Management's outlook for 2025 is positive, anticipating a return to more normalized profitability levels. They expect to operate within the mid-range of their target operating income margins: 7% to 10.5% for the TD segment and 4% to 6% for the CI segment. This is predicated on the assumption that the underperforming projects from 2024 are now behind them and that the core business segments will continue their strong execution.

Revenue growth in 2025 is expected to see high single-digit opportunities in both the core TD business (excluding solar) and the CI segment. However, the overall TD segment revenue growth will be partially offset by a planned reduction in clean energy work compared to 2024, as the company remains selective in that market based on terms and conditions. The timing of large, multi-year transmission project awards remains difficult to predict due to regulatory and permitting processes, with significant construction on any new large awards in 2025 likely not beginning until 2026. Nevertheless, bidding activity remains healthy across both segments, driven by robust market demand.

Key market drivers supporting this positive outlook include the ongoing need for utilities to invest in transmission systems for reliability, congestion reduction, and connecting new energy sources, as well as increased investment in distribution systems for maintenance, reliability, storm hardening, and accommodating distributed energy resources. The CI segment is expected to benefit significantly from the increasing demand for electricity, particularly from data centers fueled by AI, as well as opportunities in transportation, healthcare, and manufacturing, aligning with positive industry construction forecasts.

Despite the optimistic outlook, several risks could impact MYR Group's performance. These include the potential for cost overruns on fixed-price and unit-price contracts, volatility in labor and material costs (exacerbated by inflation and potential tariffs), project delays or cancellations, the ability to attract and retain skilled labor, and the inherent risks associated with large construction projects. While the challenged projects from 2024 are substantially complete, there is still potential for impacts from ongoing negotiations related to change orders or claims. The competitive nature of the industry could also pressure margins if bidding becomes overly aggressive. Furthermore, dependence on key customers, potential disruptions from severe weather or natural disasters (like wildfires), and risks associated with operating in Canada or changes in tax laws are factors to monitor.

Conclusion

MYR Group has demonstrated resilience and operational strength, successfully navigating the project-specific challenges that impacted its 2024 performance. The strong results in the first quarter of 2025, marked by revenue growth, margin expansion, and increased profitability, signal a return to healthier operational execution in its core markets.

The company is well-positioned to benefit from powerful secular trends driving demand for electrical infrastructure, including grid modernization, system hardening, and the burgeoning needs of electrification, particularly the significant power requirements of AI-driven data centers. With a healthy backlog, a disciplined approach to bidding, a strong balance sheet, and a focus on leveraging its operational expertise and long-standing customer relationships, MYR Group appears poised to capitalize on these opportunities. While risks inherent to the construction industry persist, the company's strategic focus and demonstrated ability to execute position it favorably within a competitive but expanding market, supporting a positive outlook for profitability and cash flow generation in 2025 and beyond.