MYR Group Inc. Announces Second-Quarter and First-Half 2018 Results

ROLLING MEADOWS, Ill., Aug. 01, 2018 (GLOBE NEWSWIRE) -- MYR Group Inc. (“MYR”) (NASDAQ:MYRG), a holding company of leading specialty contractors serving the electric utility infrastructure, commercial and industrial construction markets in the United States and western Canada, today announced its second-quarter and first-half 2018 financial results.

Highlights

• Second quarter revenues of $339.7 million
• Second quarter net income of $6.8 million
• Backlog of $1.01 billion, an all-time high
• Acquired the Huen Companies on July 2, 2018 for approximately $47.1 million

Management Comments
Rick Swartz, MYR’s President and CEO, said, “Our second-quarter 2018 financial results included increases in gross profit, earnings per share, net income and EBITDA as compared to the second quarter of 2017. Our backlog in the second quarter reached a new record high of $1.01 billion consisting of short and long-term projects in both our T&D and C&I segments. As we continue to expect future strength in both markets, we believe our strong position and active bidding climates should continue to support efficiencies in our operations and drive further growth.” Mr. Swartz added, “On July 2^nd we completed the acquisition of the Huen Companies which will expand our C&I services and geographic reach for delivering cost effective solutions to both new and existing customers. I am pleased to welcome these strong performing companies to the MYR Group.”

Second Quarter Results
MYR reported second-quarter 2018 revenues of $339.7 million, a decrease of $16.5 million, or 4.6 percent, compared to the second quarter of 2017. Specifically, the T&D segment reported revenues of $196.9 million, a decrease of $42.9 million, or 17.9 percent, from the second quarter of 2017, primarily due to lower revenue from large transmission projects. The C&I segment reported second-quarter 2018 revenues of $142.8 million, an increase of $26.4 million, or 22.6 percent, from the second quarter of 2017, primarily due to increased spending from new and existing customers and increased volume at certain organic expansion locations.

Consolidated gross profit increased to $38.6 million in the second quarter of 2018, compared to $27.5 million in the second quarter of 2017. The increase in gross profit was primarily due to increased margins. Gross margin increased to 11.4 percent for the second quarter of 2018 from 7.7 percent for the second quarter of 2017. The increase in gross margin was largely due to improvements in efficiency compared to the second quarter of 2017, which was significantly impacted by write-downs on three projects, and also to a favorable claim settlement during the second quarter of 2018. These margin improvements were partially offset by a write-down on a project due to inclement weather, lower productivity and ongoing negotiations relating to a contract termination. Changes in estimates of gross profit on certain projects, including those discussed above, resulted in a gross margin increase of 0.1 percent for the second quarter of 2018. Gross margin decreased 2.1 percent due to changes in estimates of gross profit on certain projects for the second quarter of 2017.

Selling, general and administrative expenses (“SG&A”) increased to $29.2 million in the second quarter of 2018, compared to $25.0 million in the second quarter of 2017. The period-over-period increase was primarily due to higher bonus and profit sharing costs. As a percentage of revenues, SG&A increased to 8.6 percent for the second quarter of 2018 from 7.0 percent for the second quarter of 2017.

Income tax expense was $2.8 million for the second quarter of 2018, with an effective tax rate of 28.8 percent, compared to a provision of $2.5 million for the second quarter of 2017, with an effective tax rate of 67.3 percent. The effective tax rate for the second quarter of 2018 benefited from the enactment of the United States Tax Cuts and Jobs Act in 2017. Our inability to utilize losses experienced in certain Canadian operations negatively impacted the effective tax rate in the second quarter of both 2018 and 2017.

For the second quarter of 2018, net income was $6.8 million, or $0.41 per diluted share, compared to $1.2 million, or $0.07 per diluted share, for the same period of 2017. Second-quarter 2018 EBITDA, a non-GAAP financial measure, was $19.8 million, or 5.8 percent of revenues, compared to $14.1 million, or 3.9 percent of revenues, in the second quarter of 2017.

First-Half Results
MYR reported first-half 2018 revenues of $685.3 million, an increase of $29.0 million, or 4.4 percent, compared to first-half 2017. Specifically, the T&D segment reported revenues of $413.3 million, a decrease of $22.2 million, or 5.1 percent, from the first half of 2017, due primarily to lower revenue from large transmission projects partially offset by an increase in distribution revenues. The C&I segment reported first-half 2018 revenues of $272.0 million, an increase of $51.2 million, or 23.2 percent, from first-half 2017, due primarily to increased spending from new and existing customers and increased volume at certain organic expansion locations.

Consolidated gross profit increased to $74.4 million in the first half of 2018, compared to $53.3 million in the first half of 2017. The increase in gross profit was primarily due to higher revenues and increased margins. Gross margin increased to 10.9 percent for the first half of 2018 from 8.1 percent for the first half of 2017. The increase in gross margin was largely due to improvements in efficiency compared to the first half of 2017, which was significantly impacted by write-downs on three projects, and also to a favorable claim settlement during the second quarter of 2018. These margin improvements were partially offset by a write-down on a project due to inclement weather, lower productivity and ongoing negotiations relating to a contract termination. Changes in estimates of gross profit on certain projects, including those discussed above, resulted in a gross margin increase of 0.1 percent for the first half of 2018. Gross margin decreased 1.0 percent due to changes in estimates of gross profit on certain projects for the first half of 2017.

SG&A increased to $57.4 million in the first half of 2018, compared to $50.8 million in the first half of 2017. The year-over-year increase was primarily due to higher bonus and profit sharing costs. As a percentage of revenues, SG&A increased to 8.4 percent for the first half of 2018 from 7.7 percent for the first half of 2017.

Other income was $0.3 million for the first half of 2018 compared to $1.6 million in the first half of 2017. The change was primarily attributable to contingent consideration related to margin guarantees on certain contracts associated with the acquisition of Western Pacific Enterprises Ltd. recognized in the first half of 2017.

The income tax provision was $5.1 million for the first half of 2018, with an effective tax rate of 28.8 percent, compared to a provision of $2.2 million for the first half of 2017, with an effective tax rate of 47.2 percent. The decrease in the tax rate in the first half of 2018 was primarily caused by the enactment of the United States Tax Cuts and Jobs Act in 2017. Our inability to utilize losses experienced in certain Canadian operations negatively impacted the effective tax rate in the first half of both 2018 and 2017. The tax rate in the first half of 2017 benefited from excess tax benefits pertaining to the vesting of stock awards and the exercise of stock options.

For the first half of 2018, net income was $12.5 million, or $0.75 per diluted share, compared to $2.4 million, or $0.15 per diluted share, for the same period of 2017. First-half 2018 EBITDA, a non-GAAP financial measure, was $37.9 million, or 5.5 percent of revenues, compared to $25.2 million, or 3.8 percent of revenues, in the first half of 2017.

Acquisition of the Huen Companies
On July 2, 2018, the Company completed the acquisition of substantially all of the assets of Huen Electric, Inc., Huen Electric New Jersey Inc. and Huen New York, Inc. (collectively, the “Huen Companies”). The Huen Companies are leading electrical construction firms with offices in Illinois, New Jersey and New York. The transaction closed on July 2, 2018 and was valued at approximately $47.1 million, subject to working capital and net asset adjustments. Additionally, there could also be contingent payments based on the successful achievement of certain performance targets.

Share Repurchase Program
MYR’s current share repurchase program will expire on August 15, 2018. On July 26, 2018, the Board of Directors approved a new $20 million share repurchase program that will begin when our current program expires. The new share repurchase program will continue in effect through August 15, 2019 or until the authorized funds are exhausted.

Backlog
As of June 30, 2018, MYR's backlog was $1.013 billion, which represented an increase of $54.9 million, or 5.7 percent, compared to March 31, 2018. Specifically, in the same period, T&D backlog increased $48.6 million, or 11.2 percent, to $482.9 million, while C&I backlog increased $6.3 million, or 1.2 percent, to $530.5. Total backlog at June 30, 2018 increased $380.9 million, or 60.2 percent, from the $632.5 million reported at June 30, 2017.

Balance Sheet
As of June 30, 2018, MYR had $171.5 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 second-quarter 2018 results on Thursday, August 2, 2018, 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, August 9, 2018, at 11:59 p.m. Eastern time, by dialing (855) 859-2056 or (404) 537-3406, and entering conference ID 6167708. 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, August 9, 2018, at 11:59 P.M. Eastern time.

About MYR
MYR is a holding company of leading specialty contractors serving the electric utility infrastructure, commercial and industrial construction markets throughout the United States and western 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, 2017, 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:
Steve Carr, Dresner Corporate Services, 312-780-7211, scarr@dresnerco.com

Financial tables follow...

MYR GROUP INC.
Consolidated Balance Sheets
As of June 30, 2018 and December 31, 2017
	June 30,				December 31,
(In thousands, except share and per share data)	2018				2017
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,203			$	5,343
Accounts receivable, net of allowances of $568 and $605, respectively		280,018				283,008
Costs and estimated earnings in excess of billings on uncompleted contracts		87,356				78,260
Current portion of receivable for insurance claims in excess of deductibles		4,380				4,221
Refundable income taxes, net		—				391
Other current assets		7,565				8,513
Total current assets		383,522				379,736
Property and equipment, net of accumulated depreciation of $242,985 and $231,391, respectively		155,571				148,084
Goodwill		46,984				46,994
Intangible assets, net of accumulated amortization of $5,423 and $5,183, respectively		10,592				10,852
Receivable for insurance claims in excess of deductibles		14,466				14,295
Investment in joint ventures		908				168
Other assets		3,551				3,659
Total assets	$	615,594			$	603,788
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations	$	1,102			$	1,086
Accounts payable		98,804				110,383
Billings in excess of costs and estimated earnings on uncompleted contracts		48,407				28,919
Current portion of accrued self-insurance		13,016				13,138
Income taxes payable, net		1,857				—
Other current liabilities		43,536				35,038
Total current liabilities		206,722				188,564
Deferred income tax liabilities		13,818				13,452
Long-term debt		57,804				78,960
Accrued self-insurance		32,093				32,225
Capital lease obligations, net of current maturities		2,068				2,629
Other liabilities		464				919
Total liabilities		312,969				316,749
Commitments and contingencies
Stockholders’ equity:
Preferred stock—$0.01 par value per share; 4,000,000 authorized shares;
none issued and outstanding at June 30, 2018 and December 31, 2017		—				—
Common stock—$0.01 par value per share; 100,000,000 authorized shares;
16,565,333 and 16,464,757 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively		165				163
Additional paid-in capital		146,610				143,934
Accumulated other comprehensive loss		(300	)			(299	)
Retained earnings		156,150				143,241
Total stockholders’ equity		302,625				287,039
Total liabilities and stockholders’ equity	$	615,594			$	603,788

 

MYR GROUP INC.
Unaudited Consolidated Statements of Operations and Comprehensive Income
Three and Six Months Ended June 30, 2018 and 2017
	Three months ended								Six months ended
	June 30,								June 30,
(In thousands, except per share data)		2018				2017				2018				2017
Contract revenues	$	339,676			$	356,185			$	685,287			$	656,314
Contract costs		301,046				328,668				610,904				603,057
Gross profit		38,630				27,517				74,383				53,257
Selling, general and administrative expenses		29,168				25,024				57,448				50,803
Amortization of intangible assets		119				210				236				398
Gain on sale of property and equipment		(1,014	)			(1,319	)			(2,065	)			(2,026	)
Income from operations		10,357				3,602				18,764				4,082
Other income (expense)
Interest income		—				3				—				4
Interest expense		(783	)			(594	)			(1,504	)			(1,108	)
Other, net		25				751				274				1,625
Income before provision for income taxes		9,599				3,762				17,534				4,603
Income tax expense		2,764				2,532				5,055				2,173
Net income	$	6,835			$	1,230			$	12,479			$	2,430
Income per common share:
—Basic	$	0.42			$	0.08			$	0.76			$	0.15
—Diluted	$	0.41			$	0.07			$	0.75			$	0.15
Weighted average number of common shares and potential common shares outstanding:
—Basic		16,455				16,312				16,388				16,237
—Diluted		16,592				16,503				16,555				16,476
Net income	$	6,835			$	1,230			$	12,479			$	2,430
Other comprehensive income (loss):
Foreign currency translation adjustment		16				59				(1	)			10
Other comprehensive income (loss)		16				59				(1	)			10
Total comprehensive income	$	6,851			$	1,289			$	12,478			$	2,440

 

 

MYR GROUP INC.
Unaudited Consolidated Statements of Cash Flows
Six Months Ended June 30, 2018 and 2017
	Six months ended
	June 30,
(In thousands)		2018				2017
Cash flows from operating activities:
Net income	$	12,479			$	2,430
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization of property and equipment		18,590				19,055
Amortization of intangible assets		236				398
Stock-based compensation expense		1,478				2,560
Deferred income taxes		323				(209	)
Gain on sale of property and equipment		(2,065	)			(2,026	)
Other non-cash items		354				(289	)
Changes in operating assets and liabilities
Accounts receivable, net		1,950				13,346
Costs and estimated earnings in excess of billings on
uncompleted contracts		(9,350	)			(22,707	)
Receivable for insurance claims in excess of deductibles		(330	)			(99	)
Other assets		2,144				(626	)
Accounts payable		(9,845	)			15,357
Billings in excess of costs and estimated earnings on
uncompleted contracts		19,564				(445	)
Accrued self insurance		(239	)			2,745
Other liabilities		9,977				(10,310	)
Net cash flows provided by operating activities		45,266				19,180
Cash flows from investing activities:
Proceeds from sale of property and equipment		2,426				2,466
Purchases of property and equipment		(28,019	)			(20,598	)
Net cash flows used in investing activities		(25,593	)			(18,132	)
Cash flows from financing activities:
Net repayments under revolving lines of credit		(21,156	)			(14,193	)
Payment of principal obligations under capital leases		(545	)			(516	)
Proceeds from exercise of stock options		1,887				1,134
Repurchase of common shares		(951	)			(2,208	)
Other financing activities		10				28
Net cash flows used in financing activities		(20,755	)			(15,755	)
Effect of exchange rate changes on cash		(58	)			887
Net decrease in cash and cash equivalents		(1,140	)			(13,820	)
Cash and cash equivalents:
Beginning of period		5,343				23,846
End of period	$	4,203			$	10,026

 

 

MYR GROUP INC.
Unaudited Consolidated Selected Data and Net Income Per Share
Three and Twelve Months Ended June 30, 2018 and 2017
						Three months ended								Last twelve months ended
						June 30,								June 30,
(in thousands, except share and per share data)							2018				2017				2018						2017
Summary Statement of Operations Data:
Contract revenues						$	339,676			$	356,185			$	1,432,290					$	1,283,233
Gross profit						$	38,630			$	27,517			$	146,130					$	129,264
Income from operations						$	10,357			$	3,602			$	44,240					$	30,387
Income before provision for income taxes						$	9,599			$	3,762			$	37,571					$	30,863
Income Tax Expense						$	2,764			$	2,532			$	6,368					$	14,489
Net income						$	6,835			$	1,230			$	31,203					$	16,374
Tax rate							28.8	%			67.3	%			16.9	%					46.9	%
Per Share Data:
Income per common share:
- Basic						$	0.42			$	0.08			$	1.92		(1	)		$	1.03		(1	)
- Diluted						$	0.41			$	0.07			$	1.88		(1	)		$	1.00		(1	)
Weighted average number of common shares and potential common shares outstanding :
- Basic							16,455				16,312				16,348		(2	)			16,063		(2	)
- Basic							16,592				16,503				16,529		(2	)			16,369		(2	)
						June 30,				December 31,				June 30,					June 30,
(in thousands)						2018				2017				2017					2016
Summary Balance Sheet Data:
Total assets						$	615,594			$	603,788			$	569,857					$	471,675
Total stockholders' equity (book value)						$	302,625			$	287,039			$	267,128					$	245,687
Goodwill and intangible assets						$	57,576			$	57,846			$	57,971					$	57,986
Total funded debt						$	57,804			$	78,960			$	44,878					$	20,000
														Last twelve months ended
														June 30,
															2018						2017
Financial Performance Measures (3):
Reconciliation of Non-GAAP measures:
Net income														$	31,203					$	16,374
Interest expense, net															2,999						1,978
Tax impact of interest															(507	)					(928	)
EBIT, net of taxes (4)														$	33,695					$	17,424
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 June 30, 2018 and 2017
						Three months ended								Last twelve months ended
						June 30,								June 30,
(in thousands, except share, per share data, ratios and percentages)							2018				2017				2018						2017
Financial Performance Measures (3):
EBITDA (5)						$	19,816			$	14,060			$	78,519					$	71,726
EBITDA per Diluted Share (6)						$	1.19			$	0.85			$	4.75					$	4.39
Free Cash Flow (7)						$	9,711			$	(4,476	)		$	(21,376	)				$	(6,524	)
Book Value per Period End Share (8)						$	18.12			$	16.01
Tangible Book Value (9)						$	245,049			$	209,157
Tangible Book Value per Period End Share (10)						$	14.67			$	12.54
Funded Debt to Equity Ratio  (11)							0.19				0.17
Asset Turnover (12)															2.51						2.72
Return on Assets (13)															5.5	%					3.5	%
Return on Equity  (14)															11.7	%					6.7	%
Return on Invested Capital (17)															11.2	%					6.6	%
Reconciliation of Non-GAAP Measures:
Reconciliation of Net Income to EBITDA:
Net income						$	6,835			$	1,230			$	31,203					$	16,374
Interest expense, net							783				591				2,999						1,978
Provision for income taxes							2,764				2,532				6,368						14,489
Depreciation and amortization							9,434				9,707				37,949						38,885
EBITDA (5)						$	19,816			$	14,060			$	78,519					$	71,726
Reconciliation of Net Income per Diluted Share to EBITDA per Diluted Share:
Net Income per share:						$	0.41			$	0.07			$	1.88					$	1.00
Interest expense, net, per share							0.05				0.04				0.18						0.12
Provision for income taxes per share							0.17				0.15				0.39						0.89
Depreciation and amortization per share							0.56				0.59				2.30						2.38
EBITDA per Diluted Share (6)						$	1.19			$	0.85			$	4.75					$	4.39
Calculation of Free Cash Flow:
Net cash flow from operating activities						$	23,233			$	6,120			$	16,888					$	27,208
Less: cash used in purchasing property and equipment							(13,522	)			(10,596	)			(38,264	)					(33,732	)
Free Cash Flow (7)						$	9,711			$	(4,476	)		$	(21,376	)				$	(6,524	)
Reconciliation of Book Value to Tangible Book Value:
Book value (total stockholders' equity)						$	302,625			$	267,128
Goodwill and intangible assets							(57,576	)			(57,971	)
Tangible Book Value (9)						$	245,049			$	209,157
Reconciliation of Book Value per Period End Share to Tangible Book Value per Period End Share:
Book value per period end share						$	18.12			$	16.01
Goodwill and intangible assets per period end share							(3.45	)			(3.47	)
Tangible Book Value per Period End Share (10)						$	14.67			$	12.54
Calculation of Period End Shares:
Shares Outstanding							16,565				16,492
Plus: Common Equivalents							137				191
Period End Shares (15)							16,702				16,683
										June 30,				June 30,					June 30,
										2018				2017					2016
Reconciliation of Invested Capital to Shareholders Equity:
Book value (total stockholders' equity)										$	302,625			$	267,128					$	245,687
Plus: Total Funded Debt											57,804				44,878						20,000
Less: Cash and cash equivalents											(4,203	)			(10,026	)					(3,363	)
Invested Capital (16)										$	356,226			$	301,980					$	262,324
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.