Q1 2020 Earnings Call

The mark and our project execution was very strong and we book some very nice retro fit and energy-savings projects are Industrial Services segment had a very good job, despite a challenging End Market. We had strengthened our field operations and executed several large turnarounds. Some of our work was put from mid-march until later in the second quarter off or the results. Whatever you have been better our UK segment had a terrific quarter. We leave the quarter with a strong and liquid balance sheet record remaining perfect obligations or our POS and a business is still has opportunities to operate in this unprecedented environment. We are well-positioned to continue serving our markets and our customer in an expanded way when normalized operations resumed with that. I will turn it over to Mark to discuss the quarter in more detail.

Thank you. Tony Nathan. Good morning to everyone on the call today for those accepting this presentation by the webcast. We are now on slide seven over the next several slides. I will off Tony's open and commentary and review each of our reportable segments first quarter operating performance as well as other chief financial data derived from our Consolidated financial statements included in both our earnings release announcement and form 10-q filed with the Securities and Exchange Commission earlier today. So let's expand our review of em course first quarter performance Consolidated revenues of 2.3 billion or up 151.1 million or 6.5% over quarter 1/2019.

As we have already released preliminary results. I am not going to speak that much to the first quarter of 2020.

Results include eighty two point five million of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by emcor and last year's first-quarter acquisition revenues positively impacted each of our United States Electrical construction the United States mechanical Construction in United States Building Services segments, excluding the impact of businesses acquired first quarter of solid revenues increased approximately fifty eight point six million or 2.7% All of em chords reportable segments other than our United States Electrical construction segment reported Revenue growth during the first quarter of 2020 United States Electrical construction revenues of 525.2 million decreased 2.8 million or approximately one-half of a percentage from 2019 s first-quarter excluding acquisition revenues of twenty five point four million. This segment's quarterly revenues declined 5.3% organically quarter-over-quarter.

Revenue declines within the commercial transportation water and Hospitality Market sectors due to the completion of certain projects during 2019 were partially offset by increased project revenues with manufacturing institutional and Healthcare Market sectors United States mechanical construction revenues of 834.1 million increased 81.7 million or 10.9% off water 1/2019, excluding acquisition revenues at 55.5 million. This segment's revenues grow organically, 3.5% quarter-over-quarter, Revenue growth was primarily attributable to an increase in revenues for manufacturing Healthcare transportation and institutional projects. These Revenue gains were partially offset by contractions and project activity within the commercial hospitality and money market sectors.

First quarter revenues for imports told domestic construction business of 1.36 billion increase 78.9 million or 6.2% as Tony will cover later during this presentation combined United States Construction business has experienced growth both sequentially and year-over-year and the remaining performance obligations through March 31st, the United States Building Services quarterly revenues of 550.1 million increased six million or just over 1% the more the majority of which was attributable to organic activities Revenue gains within the segments Mechanical Services Division were substantially off by quarter over quarter Revenue declines within each of their commercial site based energy and government services divisions United States Industrial Services revenues of 310 million increased fifty one point four million or 9.9% as a result of higher Field Services activities as we executed a fairly Strong Spring turnaround schedule, when compared to the prior-year offsetting the quarter-over-quarter revenue growth wage.

Decline in the segment shop Services revenues due to a reduction in Newfield heat exchanger sales United Kingdom Building Services revenues of 112.4 million increased 4.8 million or 4.55 due to incremental revenues from new maintenance contracts as well as continued project and repair activity across their customer portfolio. Quarterly. Revenue growth was hindered by two point two million a foreign exchange Edwin's, please turn to slide 8 selling General and administrative expenses of $227 million represent 9.9% a first quarter revenues and reflect an increase of twenty eight point eight million from quarter 1/2019 sg&a for the first quarter of 2020 includes approximately nine million in incremental expenses from businesses acquired inclusive of intangible asset amortization resulting in an organic quarter-over-quarter increase of approximately 11.8 million dollars. This organic increase is primarily due to higher employment costs as a result of increased head count dead.

our first quarter is

to support our pre Cove in nineteen

Revenue growth expectations as well as incremental expense for credit losses within the quarter this incremental expense compares unfavorably to 2019 first quarter, which included a recovery of credit loss as are bad debts that had been previously written-off in addition the first quarter of 2019 benefited from a favorable legal settlement within our Industrial Services segment, which was recorded as a reduction in general and administrative expenses. The current year increases were partially offset by a reduction in incentive compensation expense year-over-year reported operating income for the quarter of $106 represents 4.6% of revenues and compares to 102.3 million or 4.7% of revenues and 2019 s first-quarter this performance represents a 3.7 million wage increase or 3.6%. Over. R u s electrical Construction Services segment operating income of 43.9 million increased approximately 1 million dollars from the copper bowl 2019.

Reported operating margin of 8.4% represents a 30 basis-point improvement over last year's first-quarter the increase in the segment's operating income is primarily due to incremental contribution from a business acquired in 2019 the Improvement and operating margin. However, is due to favorable project execution inclusive a project Closeouts within the quarter first quarter operating income off of our us mechanical Construction Services segment of 45.2 million represents a 4.2 million increase from 2019 operating margin of 5.4% is consistent year-over-year wage increase in the segments operating income is partially attributable to the incremental contribution from businesses acquired as well as increase gross profit from organic activities within the manufacturing Market sector.

Our total us construction business is reporting 89.1 million of operating income and a 6.6% operating. Margin. This performance has improved by 5.1 million dollars or 6.1% from 2019. First quarter operating income for us Building Services of 20.8 million represents. 4% of revenues is a six point six million dollar reduction from last year's first quarter off operating margin decreased by 140 basis points, the quarter-over-quarter reduction and operating income is due to lower gross profit from the segments commercial site Based Services Division as a result of the rejection and snow removal revenues as well as a decline in gross profit within within their Energy Services Division due to a decrease in large project activity given the substantial completion of certain projects a 1019 Additionally the reduction in operating margin quarter-over-quarter is due to the under absorption of certain overhead costs and those divisions that experience Revenue declines as well as an increase in the provision.

Credit losses within this segment that's compared to 2019 first quarter which benefited from the recovery of certain receivables which had previously written off our us Industrial Services segment interesting operating income of 12.3 million dollars or 4% or revenues the previously referenced quarter-over-quarter growth and field services activities resulted in an improvement in both operating income and operating margin wage at the 2019 s corresponding. UK Building Services operating income a 5.8 million represents 5.1% of revenues, which is an improvement of one point six million dollars in 120 basis of operating margin expansion over 2019 first quarter our emcor UK team continues to do an excellent job of fostering new maintenance customer relationships and executing on repair and project Services while maintaining a disciplined cost structure. We are now on slide 9

additional Financial items are significant for

The Quadra not addressed on my previous slides are as follows quarter one gross profit of 333.1 million represents 14.5% of revenues, which is improved from the comparable 2019 came by 24.3 million and twenty basis points of gross. Margin. The increase in Consolidated gross profit is a result of increases across all our reportable segments other than u.s. Building Services while the gross margin Improvement is due to continued excellence and project execution primarily within our United States Construction segments diluted earnings per common share is $1.35 off that's compared to $1.28 per diluted share for the quarter ended March 31st, 2019. This represents a 5.5% Improvement quarter-over-quarter. We are now in Flight. I want to drive one course of clarity profile directly a little later in this morning's call. But as you can see on this slide our balance sheet continues to maintain its strength cash on hand is slightly down from your end. Mm.

15 as a result of cash used and operations primarily due to the funding of 2019 es company-wide incentive compensation Awards additionally with respect to cashews and financing activities. I purchased approximately $99 million dollars of our common stock pursuant to our share repurchase program these uses of cash were offset by incremental borrowings of a hundred ninety two point five million dollars under an extended credit facility during the quarter working capital levels have increased due to our our organic Revenue growth as well as an increase in accounts receivable and a corresponding decrease in that contract abilities related to certain delays and customer Billings resulting from the Rye. You can ransomware attack we disclosed in connection with their 2019 year end earnings call and form 10-K filing. We are currently caught up with our transaction processing. However, that does not necessarily translate to quicker turnaround when it comes to payment from our customers.

The increase in Goodwell is due to the business acquired during the first quarter within our Building Services segment identifiable intangible assets decreased as a result of 14.7 million of intangible acid amortization partially offset by the impact of additional intangible assets recognized in connection with the previously referenced twenty-twenty acquisition. Total debt, excluding operating lease liabilities is approximately $505 million and represents an increase of 192.3 million from your end 2019 as a result of our outstanding borrowings. We had a debt-to-capitalization ratio 5.9% as compared to 13.2% at December 31st, 2019. As I mentioned earlier. I will cover emcor is liquidity in Greater depth later in this morning's presentation after I turn a call back to Tony Tony. Thanks Mark and I'm on page eleven, which I will cover remaining remaining performance obligations by segment and Market sector.

As stated earlier, we had a strong bookingsupport total our POS at the end of the first quarter or four point $4 billion up 267 million or 6.4% when compared to the March 2019 level up 4.16 billion. In fact, this RPO total is the highest quarterly total reported since we initiated off your reporting in March 2018 and higher than any backlog level, we reported prior to that domestic our POS have increased $284 million or 7.1% since the year ago. Driven mainly by a mechanical construction segment. We did close a few strategic mechanical construction acquisition in 2019, which helps support that growth book-to-bill measuring first quarter 2020 RPO activity over a year end 2019 birth.

Activity was close to one point.

To which is fairly strong performance considering the strong first-quarter revenues of 2.3 billion. So from the end of 2019 total our POS increased three hundred thirty-eight million or 9.6% on the right side of the page. We show our POS by market sector 1.8 billion of this is to us as projects in the commercial sector way. We view this sector broadly and Beyond office and financial facilities. This sector also includes high-tech and data center projects that we continue to bid and construct. We are building a highly complex fast-paced data center projects for the largest internet and data storage providers. And while there are certain dents geographies for data center construction like the Mid Atlantic and the Pacific Northwest where we have industry-leading expertise in our dining Washington pulling can't North and down Oregon companies. We are also seeing other areas of the country where data center birth

Is building up for the large providers emcor companies are uniquely suited to do this work in other parts of the country as well to such areas are in Dallas, Iowa, where in the last eighteen months or so we have made electrical construction and service Acquisitions Investments to address growth in these Geographic areas. Also took last November. We announced the acquisition of Bachelor and Kimball or bhi Ki this terrific atlanta-based full-service mechanical contractor is a nationwide leader in constructing large complex construction projects including data centers with a strong performance record for data centers in the broader Southeast and Oklahoma additionally be also is a leading provider of Health Care Facilities another Market sector this RPO growth in the year-over-year and first three months of twenty-twenty dead.

Before I leave here, cuz I know you're going to ask I want to address a certain question. Yes, we have performed several projects across the country either to support the Corps of Engineers municipalities wage or health care provider customers. And what we're doing is expanding or retrofitting facilities to allow for the better treatment of covid-19 patients. This work was for the most part being executed on a time and material basis. Therefore. It's for the most part not included in our nose in the Attic in the aggregate while this work is incredibly important to support our customers this month as it also substantially impacted our results.

In summary, all I can say is that the current and bidding environment is still active in most areas the countries and I'll speak to that in a moment. And while it is very rare the projects that we are working on your canceled there is going to be a certain degree of uncertainty with respect to the role of this work in this fluid environment that we are operating in at this time. And now I'm going to go to page twelve and thirteen and I'm going to talk about you know, what the external environment looks like and what the internal environment that we're dealing with looks like, you know, as I think about our business office again rely on what has always been our operating philosophy and I'm poor, you know, you only can control what you can control and you have to react to the macro disruptions and problems and discipline and process-oriented ma'am.

We will keep our focus on our core values of mission first people always.

We know that we create long-term sustainable value for our shareholders by focusing on our task at hand and maintaining the discipline that has served us so well and good and money markets and in markets like the one in which we are currently operating that have changed very abruptly. We must keep executing our mission for our customers, but we must also keep our country safe, which is one of our core values fortunately. It is in our DNA to have robust contingency plans that Focus not only on opportunity capture in any Market, but also resilient to react to markets and job site conditions that change for better or worse and has it has contracts markets job sites and the overall environment changes. We are used to adjusting to changes in those conditions and know how to Pivot responsibly and appropriately on very short notice. So first, let's discuss the operating environment dead.

The external operating environment that we are operating in in many cases. We are still operating full force as we are deemed in the central business and many states and cities. However, this changes to the plus or minus every day Boston New York City New Jersey parts of the San Francisco Bay area and Pennsylvania off or under Workshop reach or M. Course project and service work are not deemed essential. However, even in those places, we are still operating at twenty-five to thirty percent of capacity is that work is deemed essential are small Project work and technician based businesses have been the most impacted of our United States businesses customer have shut much of this stop, but I do not expect this shutdown will continue as a lot of this work is needed service for summer start up and required maintenance replacement and repair work.

And always keep in mind that we do not determine whether a project is stop or a service site is closed our owner general contractor construction manager in home ec contractor customers determine that and we respond accordingly the oil war and now the oil glut emanating from significantly reduced demand is ongoing and having an impact on our oil and gas customers this affects. Both are more limited Upstream business where the impact has been most significant to our March larger Downstream business office where there has been less of an impact to date.

When you talk about how we get supplies right to do our job, so by disruption also happen as manufacturers or Distributors are forced to close plants in certain States and or countries as those plant Personnel or quarantine or facilities are closed for cleaning for the government decides that facility is not essential to date may not had any significant disruptions that have not allowed us to do our work where we are deemed essential. Here's what we do control in this crisis to some extent we can control some wage costs. Unfortunately. This means we must lay off or furlough skilled tradespeople when we have no work for them. We've had a growing Workforce over the last five years and unfortunately in many cases the work has stopped abruptly stopped over the last six weeks.

We have reduced.

Our hourly Workforce by Twenty to twenty-five percent overall in line with those projects that are active about 40% of our salaried Workforce is either furloughed or working with reduced hours or reduced pay up to 25% on a temporary basis for example, as early as March 18th. We announced in temporary office most of the headquarters staff a n or hours by 25% This includes me and all the name executive officers. Our board of directors have reduced their compensation by about 22% Our segment leadership also implemented similar cost reductions for their segment staff and Leadership teams. However, about 40% of our company is still working at 3 covid salary and hourly levels. And in those cases, we have not significantly reduced our sg&a or costs as we need to have them have the resources

They need to continue to perform for our customers. We are taking measures to protect our employees. We have been very proactive with employee safety implementing a program precautionary protocols and providing the necessary p p and training we started social distancing practices and others safety protocols in many of our locations offer first week of March. We banned all overseas travel by the third week of February and discouraged all domestic air travel by March 16th. This will impact productivity in the near-term my safety and health come first and in his prices, we still must protect our contractual rights. We are required under contract to provide notice on jobs that are off and we have also outline for our customers how work practices have changed and possible productivity issues. We may have our customers know we need to do this High birth.

I believe that we are all working together. Well now but in the end everything will depend on the contractual language when this crisis abates and we must protect our rights Thursday. We are communicating frequently and consistently with our field leadership about the many areas that we are have working but have had to lead our response while navigating the Myriad of Governor orders from the trade-off between reduced hours and furloughs shutdown directors essential versus non-essential businesses, and that's just to name a few and we are proactive working with our suppliers to keep project supplies moving, but also to stay ahead of the game on providing the best personal protective equipment that we can

However, we need to balance what we control against what we do not control. And in this case the things we do not control outweigh the areas, we do control our mechanical and electrical construction segments are operating at about seventy-five to eighty percent of capacity right now because in many markets we are essential and we are still working on our most significant projects are Building Services segment has been the most impacted by the macro factors described above and is operating at about 65,000 the 70% of capacity or Industrial Services segment had a good first quarter and has the potential to continue in the second quarter based on several large turnaround wage are currently scheduled to be executed in the latter part of the second quarter and the early part of the third quarter the fall schedule it neither set nor firm at this time. He is dead.

Is operating at about seventy-five?

Five 80% of capacity do UK business is less impacted by nature of our customer base and is operating at eighty to eighty 5% of capacity. You put all that together. We think we are deploying it about seventy to eighty percent of our operating capacity as of today. However, as noted Above This is a fluid situation and circumstances change today both for the positive and the negative the next area and I believe the most important area in these challenging and uncertain times is a condition of and how we have managed our balance sheet off. Our balance sheet is solid. Our liquidity is strong prior to the Q&A today Mark will provide a liquidity update under our credit facilities Times Like These are why am I here to the fundamentals of a strong balance sheet? We've always done that and we always will through these business changes in Cycles. It is fundamental to who we are wage.

How we run the business as far as capital allocation, we see no risk to the dividend. Currently. We do not plan any share BuyBacks until any more share BuyBacks wage. Can we return to more normal operating conditions? We did have a strong acquisition Pipeline and still do but that will wait until some normalcy returns. We have several off position. Not large. I'm sorry. We have several Acquisitions much like we did last year between the Forty and sixty million dollar purchase price range that would either help us increase our Geographic market place and they are attractive and they are great companies and they will increase our end Market exposure to attractive and markets like healthcare data centers infrastructure that have long-term secular growth. But again that we'll wait until some more normalcy returns. Finally. We are developing a plan to bring our company back to one hundred percent capacity.

Really? That's something we know how to do we mobilize large job sites significant service opportunities and large multi-faceted multi-trade customers contracts all the time. We know how to wrap up with speed and disciplined. We have terrific prospects have strong rpos. And even in this disrupted Market, we have black market sectors that are robust such as water and wastewater health care and within commercial data centers. We are still bidding and booking work through this changing and evolving environment off. What we know is we are well-positioned as a company in very attractive long-term markets and we know we have some of the best operators in the industry in our subsidiary companies and wage level. We know we have a company whose people are resilient and tough. We know that we attract great talent and the talent acquisition May accelerate in these challenging times. We yep,

we have one of the best long-term reputations in our industry for employees as we have a

Long-term record of taking care of our employees safety and we develop them over a long-term career with us. What we do not know is what will be the pace and timing for this recovery. However, we do know that we will not be caught flat-footed in that recovery taking everything into consideration and the uncertainty created by this covid-19 pandemic. We were through our 2020 Jeep is on April 21st. We hope that when we come back to you with our Q2 earnings announcement. We also guidepost for 2020. We should know more by that before we take questions to ask our CFO Mark to cover our line of credit and our liquidity work only. Thanks again for everybody on the call. We are now on slide 13 subsequent birth to our fourth quarter 2019 earnings while we amend it and extended our prior credit facility, which I've been entered into in August of 2016.

What this refinancing transaction we refresh the term loan component of the credit facility increasing the amount of our Term Loan to 300 million from the approximately $254 million that was outstanding as the back end of December 30th Is the end of December nineteen? Additionally, we upsized the revolving credit line from the previous nine hundred million dollars of capacity to 1.3 billion of the month credit under the existing terms and conditions. If necessary this revolving credit line could be further increased by $600 to one point nine billion of capacity at em, first off. This would be subject to incremental commitments from either existing or additional lenders as a result of this transaction, which has a maturity date of March 2nd 2025 Imports historically strong liquidity is even more robust at the bottom of slide 13, you can see the amount of our outstanding borrowings at the end of the first quarter which includes the three hundred million under our Term Loan, which I just mentioned which hotel

Annual amortization requirement of 2.5% beginning in March 2021 and a 5% per annum amortization requirement in each of the succeeding three years additional. We have utilized approximately $270 million of available capacity under our revolving credit line with two hundred million in direct borrowings, and approximately $70 million of letters of credit issued off its activity leaves M4 with approximately 1021000000 dollars of available credit at March 31st. Such liquidity is additive to our cash on hand in the operating cash flow to come back specs to generate and calendar 2020 resulting from the monetization of our accounts receivable a contract assets during the ordinary course of business, despite any concern we have regarding the impact covid-19 of the covid-19 pandemic on the markets and customers we serve we expect to continue our long trend of generating positive operating cash flow in 2020.

On a trailing 12-month basis or debt-to-ebitda is less than 1 times the March 31st and all be at higher than at any point in time during the last three years remains low to reiterate and Port security remains strong and we continue to be well positioned to capitalize on all opportunities with that. Once again, I will turn the call back to Tony Tony. Yeah. Thanks Mark and Laura with that will take off. Absolutely. So your first question will come from the line of mr. Brandt Steelman from d a Davidson. So please proceed your line is not alive.

Thank you. Good morning. Good morning. How are you? I'm doing well doing well. Thank you. Hey, Tony her from a couple of others in the Contracting World about seeing more of a preference to only allow more of the established contractors. That might be taking kind of safety precautions a little more fiercely to come and bid. Are you seeing that at all in any of your Market? You know, I think the kind of customers that are attracted to us and the kind of general contractors and construction managers. One of the reasons they're picking us amongst many reasons is not just the precautions we would take in a with respect to covid-19 safety practices and Health and Welfare practices. It's how we run jobs to begin with. You know, we have industry-leading safety. In fact, we just finished one of our best quarters ever in the first quarter. We would be in the top.

1 or 2% of the industry on any money on any safety metric. So I think that could be the case but I think the kind of people that choose us. Anyway birth reasons are choosing us is one because of our safety record and the care we have for our employees because of our strong financial position. We tend to attract not only the best supervision and leadership in the field. We tend to attract some of the best trades people that there are

Okay, appreciate that and then on Building Services, I'm curious that all these delays and kind of challenges getting into the buildings. Does that create some pent-up demand to the extension when you can get back into these facilities, we might you know anticipate seeing some specs and work it should but you know, I've never managed a company through a pandemic and what that same look like. So I I venture to say I wouldn't speculate but a normal times you usually don't get rewarded. You usually don't get rewarded for not doing or completing your free summer maintenance before it becomes 90 degrees with 95% humidity in parts of the country.

Right. Okay, and my I guess my last question about mechanical the big jump in our POS and even from last quarter and I think you had in there last quarter there a large job or something. That's an outlier is truly reflective of the streets BK. I book work just like we thought they would we we knew we bought a market leader. We knew they had terrific positions and some change Southwest markets not only with respect to Data Centers, but also with respect to health care and larger institutional work with some higher education facilities. So they were part of the story but the story is much bigger than those. We we also booked some farmer work, which really only one job had anything to do with uh, covid wage and and that is one of the treatments and I'll just leave it at that that maybe maybe someone might be gearing up for but other than that it was we had a strong booking Porter because we're in sectors that we think have log

term secular growth

Okay. Thank you. I'll get back into you.

Thank you. And your next question will come from the line of new guilt. Some people, please go ahead your line is not live. All right. Thanks so much. So, you know, I just wanted to ask you guys how you're thinking. If you could expand upon how you're thinking about the non Rosie Market, you know longer-term and some of the conversations we've had with construction Economist. They've kind of suggested that there was less over billed in the cycle. And so they think you know in 2021 A6 normalize it might be pretty spending might be pretty close to 2019 levels. I'm just curious kind of one how you're thinking about that life and and second how you're thinking about the opportunity around more more of the renovation work. If if there may be some work around, you know air flow management and not even spacing given social distance to sort of how you're thinking about those opportunities. Yeah. I mean look, I think that trying to draw any conclusions birth.

Of what's happening today for the non-res market to be tough. Look. I think there's some underlying fundamentals that are pretty strong on and on Riverside. I think off data infrastructure. I'm not even sure we're halfway where we're going to be the next five years. I do think some repurposing of Billings will happen some Renovations will happen. I think people will continue to upgrade their hvhc systems and you're not only get better air flow, especially with some of the new control technology. But you also get a substantial Energy savings. Now one of the things that are going to happen here with with the operations building I think over this next five months and I don't think covid-19 be forever. I mean, I don't think anybody does so we sort of fast forward a year. I think a much better place. I think one of the things are going to happen is, you know, the demand for energy is going to go up.

Because you're going to be bringing more outside air. And as you bring in more outside air, it's untreated, but it's certainly good to dilute the space. But then you have to treat it off and they have to control for humidity or which then controls creates more Demand on the HVAC system. I think there's also things we can do to help with employees mindset month, you know, even before this we were putting in UV lights and things like that on the coils and some of the fans sections you can go to an improved, uh a filter and so there's things you can do that. You know, I could I mean I'm certainly not uh saying that's for sure but it would be common sense that it would help with air quality. And those are all things we can do in the retrofit of buildings. Now, it's Biscuits reconfigured, you know, a lot of people went to open Office plans what will happen in the near-term with those they could be back open Office plans in a year. They may temporarily change those open Office plans wage.

Will certainly help us any companies like ours to help them think about what air flow looks like and temperature management looks like in those short-term changed office plans. Now what I

thanks going to happen here you know I I do think our technicians are already starting to trickle back into buildings we've had met hirings up what I mean by that is we went down big in Building Services off we're starting to hire back some of those technicians down and out as building starts say hey we're going to reopen we need to be prepared and some of this work is better off to let you come in and do now, is when the building occupies

I do I don't really sense that there was a lot of overbuilding I mean and if you think about em for you know we ask we do Residential high-rise but it's a very small part of what we do in the overall aggregate of emcor it's probably less than 1 and 1/2 to 2% of what we do and that fluctuates you know we really had one bag Hospitality project in the last three years and it was a very successful one both for the owner at us but you know you look at where we are we're still project that does a lot of small projects but we also can do some of the most complicated infrastructure work that's both Transportation infrastructure work which is mainly a a electrical job for us but also we on data infrastructure I mean we're terrific Builders of these hyperscale data centers in some of the most important markets and we really made some smart Acquisitions over the last two authors

Three years to build out that capability. So even if the non I've always said if they're not read Market stays flat to just down a little bit. It's really not the end of the world. There's going to be a correction here because of what's going on with covid-19.

Thank you so much.

Thank you. And your next question will come from the line of the atom is Sally Marathon Sampson Davis. So you line is not alive. Hey, good morning guys morning Adam. How long do you feel like, you know enough today to put some guideposts around us know?

Does does what Comfort said I mean could that Loosely hold up for you guys kind of I think we gave you the building blocks Adam. We said we're working seventy eight to eighty per-cent capacity that starts to frame the revenue side how long that will last we could be back up to 90% in capacity by the 1st of June. They're starting to put plans to get in some of these major markets with the unions who I think in these major metropolitan areas with the governor will determine whether the people come back to court because ultimately it's about when the men and women on the trades feel comfortable about coming back to work.

so

Does that happen May 15th, does that happen June 1st, we could go from seventy to eighty percent. We could go to 90% by the middle of May to early June that could be June 15th. We don't know that we don't control that off for me to sit here and tell you I know that uh would would presume that I know things that only the trade unions know and really the governor's office knows and that's all based on Thursday demonology and their models and I can't even speculate about that. I know I also know that you know, I expect that will make money in the second quarter Mark, right? Yep, and maybe a lot more to talk about that a little more and I expect that, you know, second quarter is going to be tough for everybody third-quarter. We should start to come back whether this is a U or a V and our industry. I don't know I would think there's a potential would be somewhere in between because we have jobs that will come back.

And I think third quarter will get stronger based on what we know today and fourth quarter could even be stronger, but then there could be an outbreak again in the fourth quarter of which I have no knowledge or experience with God. I do expect things to normalize by like everybody else by first quarter of next year. Certainly second quarter. Next year should be a good cop versus second quarter this year, but I would think so, but you know and then you gotta say okay what's going on with productivity for people to think that there's not going to be a productivity impact long as we become accustomed to these new work rules and you know wearing masks and wearing Shields and sanitizing tools all the things. We absolutely new need to do to keep our Workforce safe. You'd be kidding yourself now we will learn but we're also doing things to mitigate those, you know, people have been fairly responsible about split shifts, you know dead.

Disaggregating the worksite the scheduling has been better than ever in a lot of our places with our construction manager customers as they try to get density down on the jobs. But those are all things that you know, the good news about being a contractor and having the kind of people that we have working for us is we're used to dealing with changing ambiguity and our our folks approach this just like any other product of Mark. Yeah. The only thing I mean, I'll State the obvious Adam. I mean this this company has never provided quarterly earnings guidance and and we're obviously not going to start that in twenty twenty years ago telling his comments, you know, as we continue to refine or refine our internal forecast thing. We don't see any interim. That will not be profitable. I will put a caveat on that though that to the extent that market conditions don't improve there's clearly going to be some pressure on a pyramid analysis relative to to those parts of our business wage.

Have high levels of Goodwill or an intangible assets. Um, so putting that to the side if you look at the underlying core operation.

Of all of our subsidiaries You know despite the head winds that were were all collectively facing and at the reduced capacities were still anticipating being a profitable business off bedroom recording. For 2020. Here's what has been positive and I think it again go to the position of our companies and Marcus we're bidding and winning work right now. I think one of the things everybody's going to have to think about, you know, we're going to pop out a second quarter and say backlogs likely to be upright or rpos are likely to be up cuz we don't usually get cancellations and we saw have a pretty good idea what's in there obviously of size and we think they're projects that will go but part of it's going to be up and we're going to do our darn best to figure out what part of it. We didn't Revenue like we showed up in the second quarter or an aren't Revenue like we should in a normal times. So there's going to be a little bit of a false positive there.

I think the other thing you've got to think about is decision making has slowed and so for those larger projects maybe outside of some of the faster Pace work like data centers and home and uh, those kind of works. I think there's going to be a lot more planning that's going to go on just going to say okay we would have let that project maybe maybe in June or July am I to start up in October November December that planning might all push out and you could be in a position where there's uh a little bit of gas in Revenue not overall revenue revenue that might have been maybe three to six months off from here.

yeah, so that was one of my key questions so in certain sectors like

Education Office Buildings where the the assumption is that they're significant disruption is is the bidding really slow there or is it kind of just still just not that bad?

Well again, we we don't play other than on the maintenance side and even that it's not a huge part of our business on the retail side. I mean, we're just not competitive in that market except for replacement work off for the well-capitalized retailers. Which for the most part is where we are those retailers have replacement work that they had scheduled some of them pushed it out a month, but they're already talking to about us what that schedule will look like instead of April May what it looks like in June and then what it looks like in September October and that would what would be our repair contingency plans found some of that work there was supposed to be replacement and these are people that have prospered through this ugh pandemic as far as education. We may only play in a retrofit side there and and it's it's geared towards although we don't make a lot of guarantees almost none. It's geared towards uh energy

Savings type work and Equipment change out and control system upgrades. Uh, we're starting to see people talk to us about starting that work early cuz they don't plan on bringing students back to school as far as the commercial work. We still see decent opportunity in the retrofit side. As of today. We don't have significant commercial exposure on high-rise office building construction. There wasn't that much of a going on we do have some on residential high-rise, but I said before that's less than 1 and 1/2 or 2% of what we do in that would be counted within commercial.

Okay, and then last one for me when you talk about productivity impact?

I mean how we have you think about having a set of model like if you're an electrical you're operating within a range of called six to eight percent usually mechanical is 5 to 7 % Usually, can you still eke out and can you stay in that range even with the revenue declines or yeah. Okay, I think guys up today. Yes. The answer would be because we've been at the higher end of that range if we were at the lower end of the range, I'd be a lot less confident. Okay. Well, this is great color. Thank you guys very much and thank you.

Thank you and force answer is your next question will come from the line of Joe and Company. So please proceed the line is not live. Hi guys. Good morning morning doing well. Just a question on competition. What are you seeing there? Do you think any competition is at risk in this downturn? And you may benefit from it on the on the other side. I just wondering what you're seeing with competition. Yeah, you're a look.

You have competition we always have competitors and we have some really good competitors. You know, I think there does tend to be more of a flight to Quality in a downturn for significant projects. I think competition was at risk before this started some of them because they overextend their balance as they grow and a smaller contractor going from being Thirty to sixty million many times does not work out well for them.

I think there will be a like there always is in a in a change and this is an Abrupt change. I think some people may say you know what this is a good time to pack it in a way I can take my working capital off the table and maybe I can go join one of these competitors. I had in a local market these tend to be the 20 or 30 million dollar company were the principals really good. They do they tend to run that one that run that one or two large jobs themselves. And in the past we've had some of those folks come to work for us and I expect that to happen again and they'll come work for us for five or eight years run big work for us and they're great people. You know, I never spent a lot of time worrying about what our competitors do again. I always go dead things. I control and more appropriately what our subsidiary leadership controls and so we bid work.

To first of all, we make sure that we have the people and resources to execute that work.

And that's where we start do we have the people or resources to execute that work do we have the experience or or specifically in that subsidiary? A lot of cases off to do a really good job on that work technically them then also we balance that again. Can we make money at it? And are we working for people that we actually work want to work for on that job and Thursday both on the service side and the construction site and we put all that together and that's how we decide what are the best opportunities and then we think about the competition. You know, I certainly am quite frankly wish our competitors the best in this crisis. This is a terrible crisis in pandemic and I hope I hope they all come through it fine.

Okay.

Understand second question was related to the electrical our POS. What do you make out of the rpos? They're declining the last several quarters and what your thoughts are on a specific part of the business. Yeah. I think that's like a flywheel downpour. That just does great as great margins has great craft conversion as terrific prospects. I don't read too much into that. That's the Evan flow of work and I know we have a very active bid log and we book some really great work in the electrical segment over the last five or six weeks.

Okay last question you provided a lot of information this morning and there's a lot going on a lot of moving pieces with the economy in general or what not. What are your biggest sort of challenges managing the company from the executive level in this specific time. And what are you looking at or maybe most concerned of months regarding the situation? I think you start with you've got to do everything you can as a leader.

Except the climate that you expected as a leader and this leadership team is with me here. I would say that we believe our primary responsibility right now is to make sure that we can execute the work safely. And with the well-being of our employees are might

And then we have to be able to accomplish that work to the technical specifications that our customers expect. This pandemic would not be excused for us not delivering a quality product or a customer's.

I think then all the operating practices we've had a temp take over right we have very strong values oriented company.

We have a culture of focusing on the most important things whether it be operationally or financially and based on what you see with our balance sheet. I could Mark could take you through what it's just we're not going to do that right now and very very detailed cash planning that goes on and cash forecasting whether the markets are good bad mediocre. It's just part of our DNA and uh, is that DNA Service as well when things times are good and it serves as well when times are a little tougher and you know, one thing I don't live far away cat worrying about is I'm really sure that emcor will come through this fine.

Emcor will come through this stronger than our competitors and that our people will do the right thing in the field to protect the well-being of our employees.

And one of the things we have to do is a leadership team all the way down through to subsidiary leadership is we've got to communicate communicate communicate. We have to be consistent in that communication and we have to provide people good information the work that our legal team are human resources teams at our safety teams and our financial teams have done through this crisis to get our operating teams the right information. They need to be able to impact this Myriad of things that have come out on these different relief packages what it means for our employees what it means for us.

and how we make sure

That we not only comply with federal law that we do right by our employees and our shareholders while we're doing that in our customers. But also, how do we make sure that we can distill that information the things that people can understand, you know that goes to what is really in the Central Business versus a non-essential business it goes to how do we work with our supplier? You know, we were out in front of this in relatively short order of thinking about PPE needs for our employees and that goes all the way from the top down that goes from me all the way down through the organization worried about that. We we anticipate that we're going to be wearing masks in different environments for a long time and we acted appropriately

We have all kind of protocols around tool sanitation and job site safety and we have a structure that allows us to communicate effectively. We have contingency plans that we develop for crisis. Although I am quite think it would be this crisis when we developed them. But our guys know how to ramp up and ramp down and focus on what's important. You know, I I think it's just the nature of who we are we're conservative right Mark we took we took a we've been in one meeting more than one meeting when we've had a lot of people Tallis the beauty of Leverage and I guess we never quite believe that did wage was it not right? And I think that shows right now and you know, we'll run the business like we always do and we'll get to the other side of this.

Okay, thanks. Well, I hope you're all safe and well and good luck with everything same to you Joe. Thank you.

Thank you. And do I know for the questions and the Q4 sensors? Give me please continue. Hey, look where it's clearly in an unprecedented times. And for anybody that's listening. I know there's a lot of or employees listening, you know, we'll all get through. This will come off strong the unfortunately they're everybody's making a lot of tough decisions right now. It's nice to see everybody back to work and you know, we'll do that. The right way to will have everybody's safety in mind when we do that, but let's always remember. We also got a, mission we have for our customers and you know in our in our shareholders and we will do that too, and we couldn't be more proud of how everybody's responded back and you know, we'll come out of the other side of the stronger with that. Thank you all very much and everybody. Be safe.

Again, thank you everyone for participating. This concludes today's conference. You may not disconnect stay safe and have a lovely day.

Thursday

Dead dead dead.

Thursday Thursday