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MYR Group Inc. Announces Third-Quarter and First Nine-Months 2017 Results

November 1, 2017 at 4:00 PM EDT
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ROLLING MEADOWS, Ill., Nov. 01, 2017 (GLOBE NEWSWIRE) -- MYR Group Inc. (“MYR”) (NASDAQ:MYRG), a holding company of leading specialty contractors serving the electrical infrastructure market in the United States and Canada, today announced its third-quarter and first nine-months 2017 financial results.

Highlights

  • Third quarter revenues of $373.5 million, a record high quarterly revenue
  • Third quarter C&I revenues of $157.5 million, more than double third-quarter 2016
  • Third quarter net income of $5.1 million, or $0.31 per diluted share
  • Backlog remains strong at $701.7 million

Management Comments
Rick Swartz, MYR’s President and CEO, said “We had another strong, record high revenue quarter highlighted by our C&I segment, which more than doubled third quarter 2016 revenue. We actively bid and were awarded numerous projects of all sizes, which resulted in our 11 percent backlog increase, and are encouraged by the projected strong market outlook in both our T&D and C&I segments. Our third quarter results reflected improved performance in many of our organic growth initiatives as well as the substantial completion of the two Midwest projects that negatively impacted our first half results. Continued improvements in our core services are producing what we believe to be sustainable returns for MYR Group and our shareholders.”

Third Quarter Results
MYR reported third quarter 2017 revenues of $373.5 million, an increase of $90.2 million, or 31.9 percent, compared to the third quarter of 2016. Specifically, the T&D segment reported revenues of $216.0 million, an increase of $9.6 million, or 4.6 percent, from the third quarter of 2016, primarily due to an increase in distribution projects. The C&I segment reported record third-quarter 2017 revenues of $157.5 million, an increase of $80.7 million, or 105.1 percent, from the third quarter of 2016, primarily due to increased spending from existing customers and the Western Pacific Enterprises (“WPE”) acquisition in late 2016.

Consolidated gross profit increased to $34.9 million in the third quarter of 2017, compared to $34.1 million in the third quarter of 2016. The increase in gross profit was primarily due to higher revenue, partially offset by lower overall gross margin. Gross margin decreased to 9.3 percent for the third quarter of 2017 from 12.0 percent for the third quarter of 2016. The decrease in gross margin was largely due to lower margins on certain T&D projects due to weather and lower productivity, as well as project delays and schedule extensions related to a T&D project in Canada. Margins were also negatively impacted by costs associated with organic and acquisition growth. Changes in estimates of gross profit on certain projects, resulted in a gross margin decrease of 0.9 percent for the third quarter of 2017. Gross margin increased 0.7 percent due to changes in estimates of gross profit on certain projects for the third quarter of 2016.

Selling, general and administrative expenses (“SG&A”) increased to $23.8 million in the third quarter of 2017, compared to $23.2 million in the third quarter of 2016. The year-over-year increase was primarily due to $1.4 million of costs associated with our expansion into new geographic markets and higher payroll costs to support operations, largely offset by lower bonus and profit sharing costs. As a percentage of revenues, SG&A decreased to 6.4 percent for the third quarter of 2017 from 8.2 percent for the third quarter of 2016.  

Other expense increased from $0.4 million in the third quarter of 2016 to $1.4 million in the third quarter of 2017 primarily due to a change in contingent consideration of $1.5 million.

The income tax provision was $4.2 million for the third quarter of 2017, with an effective tax rate of 44.8 percent, compared to a provision of $4.2 million for the third quarter of 2016, with an effective tax rate of 40.4 percent. The increase in the tax rate in the third quarter of 2017 was primarily caused by our inability to utilize losses experienced in certain Canadian operations.

For the third quarter of 2017, net income was $5.1 million, or $0.31 per diluted share, compared to $6.1 million, or $0.38 per diluted share, for the same period of 2016. Third quarter 2017 EBITDA, a non-GAAP financial measure, was $20.1 million, or 5.4 percent of revenues, compared to $20.5 million, or 7.2 percent of revenues, in the third quarter of 2016.

First Nine-Months
MYR reported first nine-months 2017 revenues of $1.03 billion, an increase of $231.0 million, or 28.9 percent, compared to first nine-months 2016. Specifically, the T&D segment reported revenues of $651.5 million, an increase of $83.5 million, or 14.7 percent, from the first nine months of 2016, primarily due to higher revenue from large transmission projects and an increase in distribution projects. The C&I segment reported first nine-months 2017 revenues of $378.3 million, an increase of $147.5 million, or 63.9 percent, from first nine-months 2016, primarily due to increased spending from existing customers and the WPE acquisition in late 2016.

Consolidated gross profit was $88.1 million in the first nine months of 2017, compared to $92.8 million in the first nine months of 2016. The decrease in gross profit was primarily due to lower overall gross margin, partially offset by higher revenue. Gross margin decreased to 8.6 percent for the first nine months of 2017 from 11.6 percent for the first nine months of 2016. The decline in our gross margin was largely due to write-downs on three projects. Two projects in the Midwest U.S. were significantly impacted by weather resulting in unbudgeted costs associated with right-of-way access, lower productivity and increased road damage and repair requirements. As a result, we wrote down $4.1 million for these projects in the first nine months of 2017. One T&D project in Canada experienced cost impacts mainly associated with project delays and schedule extensions. Although we are working with our client to recover these costs, we have not recognized all of the revenues relating to various pending project claims and change orders, which resulted in write-downs on this project of $3.3 million. A higher mix of smaller, shorter duration T&D work also impacted margins in the first nine months of 2017. The shift in the mix of work also caused a decline in our fleet utilization and increased mobilization and demobilization costs. Margins were also impacted by costs associated with organic and acquisition growth. These impacts were partially offset by settlements related to previously unrecognized revenues on a project claim and pending change orders. Changes in estimates of gross profit on certain projects, including those discussed above, resulted in a gross margin decrease of 0.7 percent for the first nine months of 2017. Gross margin decreased 0.5 percent due to changes in estimates of gross profit on certain projects for the first nine months of 2016.

Selling, general and administrative expenses (“SG&A”) increased to $74.6 million in the first nine months of 2017, compared to $69.6 million in the first nine months of 2016. The year-over-year increase was primarily due to $6.6 million of costs associated with our expansion into new geographic markets and higher payroll costs to support operations, partially offset by lower bonus and profit sharing costs. Additionally, $1.0 million of costs associated with activist investor activities were incurred in the first nine months of 2016. As a percentage of revenues, SG&A decreased to 7.2 percent for the first nine months of 2017 from 8.7 percent for the first nine months of 2016.

The income tax provision was $6.4 million for the first nine months of 2017 with an effective tax rate of 45.6 percent, compared to a provision of $8.8 million for the first nine months of 2016 with an effective tax rate of 39.1 percent. The increase in the tax rate in first nine months of 2017 was primarily caused by our inability to utilize losses experienced in certain Canadian operations, partially offset by excess tax benefits of approximately $1.0 million pertaining to the vesting of stock awards and the exercise of stock options.

For the first nine months of 2017, net income was $7.6 million, or $0.46 per diluted share, compared to $13.6 million, or $0.77 per diluted share, for the same period of 2016. First nine-months 2017 EBITDA, a non-GAAP financial measure, was $45.2 million, or 4.4 percent of revenues, compared to $52.7 million, or 6.6 percent of revenues, in the first nine months of 2016.

Backlog
As of September 30, 2017, MYR's backlog was $701.7 million, which consisted of $313.6 million in the T&D segment and $388.1 million in the C&I segment, was $69.2 million higher than the $632.5 million reported at June 30, 2017. T&D backlog increased $18.6 million, or 6.3 percent, from June 30, 2017, while C&I backlog increased $50.6 million, or 15.0 percent, over the same period. Total backlog at September 30, 2017 increased $81.1 million, or 13.1 percent, from the $620.6 million reported at September 30, 2016. The increase in backlog does not include any amount related to the previously announced Denver Central 70 Project. We expect this project to be added to backlog during 2018.

Balance Sheet
As of September 30, 2017, MYR had $149.6 million of borrowing availability under its credit facility.

Non-GAAP Financial Measures
To supplement MYR’s financial statements presented in accordance with generally accepted accounting principles in the United States (GAAP), MYR uses certain non-GAAP measures. Reconciliation to the nearest GAAP measures of all non-GAAP measures included in this press release can be found at the end of this release. MYR’s definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP.

MYR believes that these non-GAAP measures are useful because they (i) provide both management and investors meaningful supplemental information regarding financial performance by excluding certain expenses and benefits that may not be indicative of recurring core business operating results, (ii) permit investors to view MYR’s performance using the same tools that management uses to evaluate MYR’s past performance, reportable business segments and prospects for future performance, (iii) publicly disclose results that are relevant to financial covenants included in MYR’s credit facility and (iv) otherwise provide supplemental information that may be useful to investors in evaluating MYR.

Conference Call
MYR will host a conference call to discuss its third-quarter 2017 results on Thursday, November 2, 2017, at 9:00 a.m. Central time. To participate in the conference call via telephone, please dial (877) 561-2750 (domestic) or (763) 416-8565 (international) at least five minutes prior to the start of the event. A replay of the conference call will be available through Thursday, November 9, 2017, at 11:59 p.m. Eastern time, by dialing (855) 859-2056 or (404) 537-3406, and entering conference ID 2388139. MYR will also broadcast the conference call live via the internet. Interested parties may access the webcast through the Investor Relations section of MYR's website at www.myrgroup.com. Please access the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. The webcast will be available until Thursday, November 9, 2017, at 11:59 P.M. Eastern time.

About MYR
MYR is a holding company of leading specialty contractors serving the electrical infrastructure market throughout the United States and Canada who have the experience and expertise to complete electrical installations of any type and size. Their comprehensive services on electric transmission and distribution networks and substation facilities include design, engineering, procurement, construction, upgrade, maintenance and repair services. Transmission and distribution 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 electrical contracting services are provided to general contractors, commercial and industrial facility owners, local governments and developers generally throughout the western and northeastern United States and western Canada. For more information, visit myrgroup.com.

Forward-Looking Statements
Various statements in this announcement, including those that express a belief, expectation, or intention, as well as those that are not statements of historical fact, are forward-looking statements. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenue, income, capital spending, segment improvements and investments. Forward-looking statements are generally accompanied by words such as “anticipate,” “believe,” “encouraged,” “estimate,” “expect,” “intend,” “likely,” “may,” “objective,” “outlook,” “plan,” “possible,” “potential,” “project,” “remain confident,” “should” “unlikely,” or other words that convey the uncertainty of future events or outcomes. The forward-looking statements in this announcement speak only as of the date of this announcement; we disclaim any obligation to update these statements (unless required by securities laws), and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. 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. No forward-looking statement can be guaranteed and actual results may differ materially from those projected. Forward-looking statements in this announcement should be evaluated together with the many uncertainties that affect MYR's business, particularly those mentioned in the risk factors and cautionary statements in Item 1A of MYR's Annual Report on Form 10-K for the fiscal year ended December 31, 2016, and in any risk factors or cautionary statements contained in MYR's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.

MYR Group Inc. Contact:
Betty R. Johnson, Chief Financial Officer, 847-290-1891, investorinfo@myrgroup.com

Investor Contact:
Kristine Walczak
Dresner Corporate Services, 312-780-7205, kwalczak@dresnerco.com 

Financial tables follow…

MYR GROUP INC.
Consolidated Balance Sheets
As of September 30, 2017and December 31, 2016
 
  September 30,   December 31,
(In thousands, except share and per share data)    2017       2016  
  (unaudited)    
ASSETS      
Current assets:      
Cash and cash equivalents $ 1,682     $ 23,846  
Accounts receivable, net of allowances of $606 and $432, respectively   274,249       234,642  
Costs and estimated earnings in excess of billings on uncompleted contracts   107,818       69,950  
Current portion of receivable for insurance claims in excess of deductibles   4,003       3,785  
Refundable income taxes, net   403       2,474  
Other current assets   5,279       8,202  
Total current assets   393,434       342,899  
Property and equipment, net of accumulated depreciation of $228,185 and $209,466, respectively   150,248       154,891  
Goodwill   46,981       46,781  
Intangible assets, net of accumulated amortization of $5,262 and $4,684, respectively   10,769       11,566  
Receivable for insurance claims in excess of deductibles   14,766       14,692  
Other assets   4,399       2,666  
Total assets $ 620,597     $ 573,495  
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Current portion of capital lease obligations $ 1,109     $ 1,085  
Accounts payable   119,172       99,942  
Billings in excess of costs and estimated earnings on uncompleted contracts   43,851       42,321  
Current portion of accrued self insurance   12,083       10,492  
Other current liabilities   37,444       42,382  
Total current liabilities   213,659       196,222  
Deferred income tax liabilities   18,263       18,565  
Long-term debt   79,497       59,070  
Accrued self insurance   33,146       32,092  
Capital lease obligations, net of current maturities   2,997       3,833  
Other liabilities   475       539  
Total liabilities   348,037       310,321  
Commitments and contingencies      
Stockholders’ equity:      
Preferred stock—$0.01 par value per share; 4,000,000 authorized shares;      
none issued and outstanding at September 30, 2017 and December 31, 2016   —       —  
Common stock—$0.01 par value per share; 100,000,000 authorized shares;      
16,458,523 and 16,333,139 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively   163       162  
Additional paid-in capital   142,952       140,100  
Accumulated other comprehensive loss   (217 )     (433 )
Retained earnings   129,662       123,345  
Total stockholders’ equity   272,560       263,174  
Total liabilities and stockholders’ equity $ 620,597     $ 573,495  
       


MYR GROUP INC.
Unaudited Consolidated Statements of Operations and Comprehensive Income
Three and Nine Months Ended September 30, 2017 and 2016
 
  Three months ended   Nine months ended
  September 30,   September 30,
(In thousands, except per share data)   2017       2016       2017       2016  
                               
Contract revenues $ 373,502     $ 283,259     $ 1,029,816     $ 798,827  
Contract costs   338,649       249,196       941,706       706,048  
Gross profit   34,853       34,063       88,110       92,779  
Selling, general and administrative expenses   23,814       23,203       74,617       69,579  
Amortization of intangible assets   195       188       593       691  
Gain on sale of property and equipment   (576 )     (467 )     (2,602 )     (1,079 )
Income from operations   11,420       11,139       15,502       23,588  
Other income (expense)              
Interest income   —       —       4       5  
Interest expense   (685 )     (408 )     (1,793 )     (833 )
Other, net   (1,413 )     (417 )     212       (361 )
Income before provision for income taxes   9,322       10,314       13,925       22,399  
Income tax expense   4,177       4,168       6,350       8,766  
Net income $ 5,145     $ 6,146     $ 7,575     $ 13,633  
Income per common share:              
—Basic $ 0.32     $ 0.39     $ 0.47     $ 0.78  
—Diluted $ 0.31     $ 0.38     $ 0.46     $ 0.77  
Weighted average number of common shares and potential common shares outstanding:              
—Basic   16,314       15,805       16,263       17,489  
—Diluted   16,474       16,177       16,476       17,817  
               
Net income $ 5,145     $ 6,146     $ 7,575     $ 13,633  
Other comprehensive income (loss):              
Foreign currency translation adjustment   206       19       216       (65 )
Other comprehensive income (loss)   206       19       216       (65 )
Total comprehensive income $ 5,351     $ 6,165     $ 7,791     $ 13,568  
               


MYR GROUP INC.
Unaudited Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2017 and 2016
 
  Nine months ended
   September 30,
(In thousands)    2017        2016  
       
Cash flows from operating activities:      
Net income $ 7,575     $ 13,633  
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:      
Depreciation and amortization of property and equipment   28,906       28,747  
Amortization of intangible assets   593       691  
Stock-based compensation expense   3,479       3,488  
Deferred income taxes   (302 )     (116 )
Gain on sale of property and equipment   (2,602 )     (1,079 )
Other non-cash items   1,113       (38 )
Changes in operating assets and liabilities      
Accounts receivable, net   (37,059 )     1,770  
Costs and estimated earnings in excess of billings on      
uncompleted contracts   (36,980 )     (28,774 )
Receivable for insurance claims in excess of deductibles   (292 )     (1,640 )
Other assets   85       7,008  
Accounts payable   14,803       11,022  
Billings in excess of costs and estimated earnings on      
uncompleted contracts   1,363       5,454  
Accrued self insurance   2,626       299  
Other liabilities   (5,098 )     32  
Net cash flows provided by (used in) operating activities   (21,790 )     40,497  
Cash flows from investing activities:      
Proceeds from sale of property and equipment   2,802       2,544  
Purchases of property and equipment   (24,909 )     (17,948 )
Net cash flows used in investing activities   (22,107 )     (15,404 )
Cash flows from financing activities:      
Net borrowings under revolving lines of credit   20,427       33,407  
Payment of principal obligations under capital leases   (812 )     (442 )
Proceeds from exercise of stock options   1,147       2,080  
Repurchase of common shares   (3,058 )     (101,483 )
Other financing activities   3,718       2,077  
Net cash flows provided by (used in) financing activities   21,422       (64,361 )
Effect of exchange rate changes on cash   311       55  
Net decrease in cash and cash equivalents   (22,164 )     (39,213 )
Cash and cash equivalents:      
Beginning of period   23,846       39,797  
End of period $ 1,682     $ 584  
       


MYR GROUP INC.  
Unaudited Consolidated Selected Data and Net Income Per Share
  
Three and Twelve Months Ended September 30, 2017 and 2016  
   
              Three months ended   Last twelve months ended  
               September 30,    September 30,  
 (in thousands, except share and per share data)                2017        2016        2017        2016    
                             
Summary Statement of Operations Data:                  
Contract revenues   $ 373,502     $ 283,259     $ 1,373,476     $ 1,070,011    
Gross profit   $ 34,853     $ 34,063     $ 130,054     $ 125,390    
Income from operations   $ 11,420     $ 11,139     $ 30,668     $ 33,889    
Income before provision for income taxes   $ 9,322     $ 10,314     $ 29,871     $ 32,332    
Income Tax Expense   $ 4,177     $ 4,168     $ 14,498     $ 12,818    
Net income   $ 5,145     $ 6,146     $ 15,373     $ 19,514    
Tax rate         44.8%       40.4%       48.5%       39.6%    
                             
Per Share Data:                  
Income per common share:                  
- Basic       $ 0.32     $ 0.39     $ 0.96   (1)   $ 1.10   (1)  
- Diluted       $ 0.31     $ 0.38     $ 0.93   (1)   $ 1.08   (1)  
Weighted average number of common shares                        
and potential common shares outstanding :                            
- Basic         16,314       15,805       16,191   (2)     18,171   (2)  
- Diluted         16,474       16,177       16,444   (2)     18,518   (2)  
                             
               September 30,    December 31,    September 30,    September 30,  
(in thousands)      2017       2016       2016       2015    
                             
Summary Balance Sheet Data:                  
Total assets   $ 620,597     $ 573,495     $ 499,609     $ 559,706    
Total stockholders' equity (book value)   $ 272,560     $ 263,174     $ 248,673     $ 341,254    
Goodwill and intangible assets   $ 57,750     $ 58,347     $ 57,798     $ 58,281    
Total funded debt   $ 79,497     $ 59,070     $ 33,400     $ —    
                             
                      Last twelve months ended  
                       September 30,  
                         2017        2016    
Financial Performance Measures (3):                  
Reconciliation of Non-GAAP measures:                          
Net income           $ 15,373     $ 19,514    
Interest expense, net               2,255       1,021    
Tax impact of interest               (1,094 )     (404 )  
EBIT, net of taxes (4)           $ 16,534     $ 20,131    
                             

See notes at the end of this earnings release.

   
   
MYR GROUP INC.  
Unaudited Performance Measures and Reconciliation of Non-GAAP Measures
  
Three and Twelve Months Ended September 30, 2017 and 2016  
   
              Three months ended   Last twelve months ended  
               September 30,    September 30,  
 (in thousands, except share, per share data, ratios and percentages)    2017        2016        2017        2016    
                                             
Financial Performance Measures (3):                                  
EBITDA (5)   $   20,053     $   20,470     $   71,309     $   72,802    
EBITDA per Diluted Share (6)   $   1.22     $   1.27     $   4.34     $   3.93    
Free Cash Flow (7)   $   (45,281 )   $   (11,676 )   $   (40,129 )   $   51,050    
Book Value per Period End Share (8)   $   16.40     $   15.13            
Tangible Book Value (9)   $   214,810     $   190,875            
Tangible Book Value per Period End Share (10) $   12.93     $   11.61            
Funded Debt to Equity Ratio  (11)     0.29       0.13            
Asset Turnover (12)             2.75       1.91    
Return on Assets (13)             3.1 %     3.5 %  
Return on Equity  (14)             6.2 %     5.7 %  
Return on Invested Capital (17)             5.9 %     6.5 %  
                             
Reconciliation of Non-GAAP Measures:                  
Reconciliation of Net Income to EBITDA:                  
Net income   $   5,145     $   6,146     $   15,373     $   19,514    
  Interest expense, net       685         408         2,255         1,021    
  Provision for income taxes       4,177         4,168         14,498         12,818    
  Depreciation and amortization       10,046         9,748         39,183         39,449    
EBITDA (5)   $   20,053     $   20,470     $   71,309     $   72,802    
                             
Reconciliation of Net Income per Diluted Share                
     to EBITDA per Diluted Share:                  
Net Income per share:   $   0.31     $   0.38     $   0.93     $   1.08    
  Interest expense, net, per share       0.04         0.03         0.14         0.05    
  Provision for income taxes per share       0.25         0.26         0.88         0.68    
  Depreciation and amortization per share       0.62         0.60         2.39         2.12    
EBITDA per Diluted Share (6)   $   1.22     $   1.27     $   4.34     $   3.93    
                             
Calculation of Free Cash Flow:                  
Net cash flow from operating activities   $   (40,970 )   $   (5,965 )   $   (7,797 )   $   72,802    
  Less: cash used in purchasing property and equipment     (4,311 )       (5,711 )       (32,332 )       (21,752 )  
Free Cash Flow (7)   $   (45,281 )   $   (11,676 )   $   (40,129 )   $   51,050    
                             
Reconciliation of Book Value to Tangible Book Value:                
Book value (total stockholders' equity)   $   272,560     $   248,673            
  Goodwill and intangible assets       (57,750 )       (57,798 )          
Tangible Book Value (9)   $   214,810     $   190,875            
                             
Reconciliation of Book Value per Period End Share                 
     to Tangible Book Value per Period End Share:                
Book value per period end share   $   16.40     $   15.13            
  Goodwill and intangible assets per period end share   (3.47 )     (3.52 )          
Tangible Book Value per Period End Share (10) $   12.93     $   11.61            
                             
Calculation of Period End Shares:                  
Shares Outstanding       16,459         16,065            
  Plus: Common Equivalents       160         372            
Period End Shares (15)       16,619         16,437            
                             
                   September 30,    September 30,    September 30,  
                    2017       2016       2015    
Reconciliation of Invested Capital to Shareholders Equity:                
Book value (total stockholders' equity)       $   272,560     $   248,673     $   341,254    
    Plus: Total Funded Debt           79,497         33,400         —    
    Less: Cash and cash equivalents           (1,682 )       (584 )       (30,429 )  
Invested Capital (16)       $   350,375     $   281,489     $   310,825    
                             

See notes at the end of this earnings release.

 
(1) Last-twelve-months earnings per share is the sum of earnings per share reported in the last four quarters.
(2) Last-twelve-months average basic and diluted shares were determined by adding the average shares reported for the last four quarters and dividing by four.
(3) These financial performance measures are provided as supplemental information to the financial statements. These measures are used by management to evaluate our past performance, our prospects for future performance and our ability to comply with certain material covenants as defined within our credit agreement, and to compare our results with those of our peers. In addition, we believe that certain of the measures, such as book value, tangible book value, free cash flow, asset turnover, return on equity and debt leverage are measures that are monitored by sureties, lenders, lessors, suppliers and certain investors. Our calculation of each measure is described in the following notes; our calculation may not be the same as the calculations made by other companies.
(4) EBIT, net of taxes is defined as net income plus net interest, less the tax impact of net interest. The tax impact of net interest is computed by multiplying net interest by the effective tax rate. Management uses EBIT, net of taxes, to measure our results exclusive of the impact of financing costs.
(5) EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA is not recognized under GAAP and 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. EBITDA is a component of the debt to EBITDA covenant, as defined in our credit agreement, which we must comply with to avoid potential immediate repayment of amounts borrowed or additional fees to seek relief from our lenders. In addition, management considers EBITDA a useful measure because it eliminates differences which are caused by different capital structures as well as different tax rates and depreciation schedules when comparing our measures to our peers’ measures.
(6) EBITDA per diluted share is calculated by dividing EBITDA by the weighted average number of diluted shares outstanding for the period. EBITDA per diluted share is not recognized under GAAP and does not purport to be an alternative to income per diluted share.
(7) Free cash flow, which is defined as cash flow provided by operating activities minus cash flow used in purchasing property and equipment, is not recognized under GAAP and does not purport to be an alternative to net income, cash flow from operations or the change in cash on the balance sheet. Management views free cash flow as a measure of operational performance, liquidity and financial health. 
(8) Book value per period end share is calculated by dividing total stockholders’ equity at the end of the period by the period end shares outstanding.
(9) Tangible book value is calculated by subtracting goodwill and intangible assets outstanding at the end of the period from stockholders’ equity outstanding at the end of the period. Tangible book value is not recognized under GAAP and does not purport to be an alternative to book value or stockholders’ equity.
(10) Tangible book value per period end share is calculated by dividing tangible book value at the end of the period by the period end number of shares outstanding. Tangible book value per period end share is not recognized under GAAP and does not purport to be an alternative to income per diluted share.
(11) The funded debt to equity ratio is calculated by dividing total funded debt at the end of the period by total stockholders’ equity at the end of the period.
(12) Asset turnover is calculated by dividing the current period revenue by total assets at the beginning of the period.
(13) Return on assets is calculated by dividing net income for the period by total assets at the beginning of the period.
(14) Return on equity is calculated by dividing net income for the period by total stockholders’ equity at the beginning of the period.
(15) Period end shares is calculated by adding average common stock equivalents for the quarter to the period end balance of common stock outstanding. Period end shares is not recognized under GAAP and does not purport to be an alternative to diluted shares. Management views period end shares as a better measure of shares outstanding as of the end of the period.
(16) Invested capital is calculated by adding net funded debt (total funded debt less cash and marketable securities) to total stockholders’ equity.
(17) Return on invested capital is calculated by dividing EBIT, net of taxes, less any dividends, by invested capital at the beginning of the period. Return on invested capital is not recognized under GAAP, and is a key metric used by management to determine our executive compensation.

Source: MYR Group, Inc.

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