Q2 2020 EMCOR Group Inc Earnings Call

[music].

I would like to welcome everyone to be I'm quickly its second quarter plenty plenty earnings call.

All lines have been placed the need to prevent any background noise.

It's because your likes it would be a question answer session.

I would like to ask a question. During this time CP Press Star then the number one I need telephone keypad.

I'd like to address your question, perhaps the package.

Mr Hospitals, I still would actually I consulting you may begin.

Thank you Laura and good morning, everyone welcome to be important conference call. We're here today to discuss the company's T. W. 22nd quarter results, which were reported this morning.

I'd like to turn the call over to Kevin Matt Executive Vice President of shared services, who will introduce management Kevin. Please go ahead.

Thank you Haskell and good morning, everyone. Thank you for your interest in EMCOR and welcome to our earnings conference call for the second quarter 2020.

Time is really moved on.

And that's I said in our last call Hope you on your families are well staying safe as we move through this unprecedented time.

For those of you who are accessing the called the or the Internet and our website welcome and we hope you have arrived at the beginning of a slide presentation that will accompany our remarks today.

Please advance to slide two.

This presentation discussion contains forward looking statements and certain non-GAAP financial information.

Page views. This as described in detail a forward looking statements in the non-GAAP financial information disclosures I encourage everyone to review both disclosures in conjunction with our discussion in the company slot.

Slide three shows he executives who are with me to discuss the quarter in six months results. They are Tony Guzzi, Our chairman President and Chief Executive Officer, Mark <unk>, Our executive Vice President and Chief Financial Officer, and our senior Vice President General Counsel Maxine Mauricio.

Call participants not access seem to call directly via the Internet. This presentation, including our slides will be archived in the Investor Relations section of our web site under presentation and again, you can find us at EMCOR group Dotcom.

We said, let me turn the cold.

Thanks, a lot, Kevin and I'll be addressing pages four through six.

Let me first start by thanking our employees for their extraordinary efforts and these continued challenging times.

Our performance under these conditions is outstanding.

Organization showed the grit.

Resiliency discipline and innovation that we're known for.

And we stayed focused on keeping our employees shape.

Well executing for our customers.

Turning to our financial results throughout our discussion all my financial commentary disregards the impact of the impairment charge that mark will cover in detail.

We earn in adjusted dollar 44 per diluted share for the second quarter.

Adjusted operating income margins for the second quarter, where a strong 5.47%.

Operating cash flow is excellent at 276 million on a year to date basis.

We accomplish lists in an environment, where we had 15.5% negative organic revenue growth for the quarter just ended.

Our mechanical construction segment performance was exceptional with operating income growth of 24% and 8.5% operating income margins.

Our electrical construction segment had strong operating income margins of 7.2%.

Despite having a 20.1, 0.7% decrease in revenues as they were more significantly impacted by the mandated shutdowns that our mechanical construction segment was and further the electrical construction segment is more exposed to the volatility caused by our oil and gas exposure in this segment.

Our U.S. building services segment had a very strong quarter with 5.6% operating income margins. Despite a 9.8% revenue decrease.

We saw demand improved through the quarter, especially in our mechanical services and government services businesses.

We exited the quarter in a nice hot steamy summer with an even more competitive cost structure.

Our industrial services segment is also moving ahead in a very challenged market.

Our customers are cutting costs deferred work and fighting through a really tough market for them and as a result for us.

We will continue to maximize any opportunity available cut costs and look to provide flexible solutions when possible.

I don't anticipate this trend to improve until at least the first quarter 2021 at the earliest.

We are fortunate to be a segment leader and have long standing relationships with the most important customers in the downstream refining and petrochemical markets.

Our UK segment had a strong quarter and we expect this execution and performance to continue.

They faced many of the same challenges that our US building services segment faced.

However, our UK customer base is more institutional manufacturing government focused and as a result, we are stable build employment throughout the UK shutdown as we redeemed essential in many cases.

So how did we continue performing in this environment and how will we continue to perform.

My caught my comments cut across all EMCORE reporting segments.

We outlined some of these actions on our first quarter call may or April and we executed well.

So number one.

We focused on employee safety first and as a result, we were able to staff job safely and with the right people.

Said differently, our people had confidence that we would do the right thing.

We implemented guidelines to keep operating and when necessary to reopen.

We aggressively procured.

Pp, that's the personal protective equipment upfront that our employees needed to keep working and we executed the trading necessary to work safely in this environment.

We communicated at all levels with a focus on safety execution and results.

Our flat organizational structure helped our communications remained effective and unhampered despite co would related challenges.

Number two.

We fairly quickly implement all the different government mandates and programs with respect to Covance.

Our staff did a superb job and distilling these mandates in programs into specific actions.

For our subsidiary operations to continue operating productively and safely and Incompliance with these very government mandates.

Number three.

We aggressively cut SGN day through both the short and long term measures.

We cut executive pay 25% in the quarter cut other salary employees pay in the quarter furloughed staff permitting laid off salary step cut almost all travel and entertainment expenses and reduced any additional discretionary expenses.

We reduced 21 million in the quarter versus a year ago period, and when removing incremental yesterday for business at acquired we cut 28 million on an organic basis.

I expect about half of those cuts to be permanent.

We acted to fast and decisively and it shows in our results further we aggressively right sized our craft labor workforce to match demand through layoffs and furloughs.

Number four.

We knew we had to come about what would be reduced productivity because of increased use of pp.

And the implementation of other cobot related safety measures. We have successfully combined to this challenge and met this challenge by working with our customers in our workforce to offer better scheduling.

Planning and work practices.

We believe for the most part that we are near breakeven on a productivity basis to where we would have been pre code.

Number five we trained our field are filled and salesforce on I accused that is indoor air quality and other building enhancements products and projects. During the initial phases of co with so we would be ready to provide solutions for our customers to be able to return to their facilities with confidence in an image.

Proved indoor environments.

Number six.

Our subsidiary leaders, let as well any organization that I could mad imagined I'll say that again, our subsidiary leaders, let as well as any organization that I could imagine and they executed all the above initiatives I just mentioned in an exceptional manner.

With all that said, we leave the quarter with a strong RPL position of 4.6 billion.

Our balance sheet, the stress and through the quarter, despite adverse conditions and even more competitive cost structure than we already had with all that said I will turn the discussion over to Mark.

Thank you Tony and good morning, everyone participating on the call today for those accessing this presentation via the webcast. We are now on slide seven.

Over the next several slides I will supplement tonys opening commentary on EMCORE second quarter performance as well as provided an update on our year to date results through June Thirtyth.

All financial information reference is derived from our consolidated financial statements included in both our earnings release announcement and form 10-Q filed with the Securities Exchange Commission earlier this morning.

So, let's revisit and expand our review of EMCORE second quarter performance.

Consolidated revenues of 2 billion or down 310.2 million or 13.3% over quarter to 2019.

Our second quarter results include $50.2 million revenues attributable to businesses acquired pertaining to the time that such businesses were not owned by EMCORE at last year's second quarter.

Acquisition revenues positively impacted both the United States mechanical construction in United States building services segments.

Excluding the impact of businesses acquired second quarter consolidated revenues decreased approximately 360.4 million or 15.5%.

All of them cores reportable segments experienced quarter over quarter revenue declines as a result of the containment and mitigation measures mandated by certain of our customers as well as numerous governmental authorities in response to coated 19. This resulted in facilities closures and project delays, which impacted our ability to execute on our with.

Pharmas obligations in many of the geographies that we serve.

The specifics to each of our of our reportable segments are as follows United States Electrical construction segment revenues of 445.9 million decreased a 123.5 million or 21.7% from 2019 second quarter. In addition to the negative impact of the coded 19 pandemic on second quarter revenue.

The unfavorable variance year over year was partially attributable to 2009 teams all time record quarterly revenue performance.

Revenue declines in most of the market sectors, we serve were partially offset by quarter over quarter revenue growth in the institutional and hospitality market sectors.

Hi, distaste mechanical construction segment revenues of 790.4 million decreased 32.7 million or 4% from quarter to 2019.

Excluding acquisition revenues of 47.9 million this segment's revenues decreased organically, 9.8% quarter over quarter.

Revenue declines in manufacturing and commercial market sector activities were muted by revenue gains quarter over quarter within the institutional transportation and health care market sectors. The prior year quarter also represented an all time quarterly revenue record for our U.S mechanical construction segment.

Second quarter revenues from Emcores combined United States construction business of 1.24 billion decreased 156.2 million or 11.2%.

As Tony will cover later during this presentation, our combined United States construction business has experienced growth both sequentially and year over year and the remaining performance obligations through June thirtyth.

Some of this growth and Rpls has come at the expense of revenue generation during the second quarter due to cold in 19. However, we were also successful and obtaining new project opportunities during this period.

The United States building services quarterly revenues of 472.4 million decreased 51.3 million or 9.8%.

Excluding acquisition revenues of 2.3 million the segment's revenues decreased 10.2% from a record results achieved in the second quarter of 2019 reduced project and controls activities within their mobile mechanical services division largely attributable to the impact of cold in 19, as well as less large project activity in the energy services.

Division were the primary drivers of the quarterly revenue decline. Additionally, as mentioned on previous calls we're continuing to see a reduction in Q project activity within our government services division due to both a smaller contract base as well as an overall reduction in government spending.

Emcores industrial services segment was significantly impacted by the shops by the sharp decrease and volatility in crude oil prices, resulting from geopolitical tensions between OPEC and Russia as well as dramatic reduction in demand for refined oil products due to the containment and mitigation measures implemented in response to cultivate 19.

These factors have resulted in decreased demand for services as this customer segments. This segment's customer base has initiated severe cost containment measures, which have resulted in the deferral or cancellation of previously planned maintenance as well as the suspension of most capital spending programs as a result, our industrial services segment second quarter revenues.

Declined 212.2 million from the 295.5 million reported in 2019 second quarter. This represents a reduction of $83.3 million are 28.2%.

The United Kingdom building services revenues of $93.1 million decreased 19.4 million or 17.3% from last year's quarter. The period over period revenue reduction was primarily attributable to decreased and project activities, resulting from coded 19 containment and mitigation measures instituted by the UK government. This segment's.

News, we're also negatively impacted by $3.4 million of foreign exchange headwinds, Please turn to slide eight.

Selling general and administrative expenses of 205.2 million represent 10.2% of revenues and reflect a decrease of 21.1 million from quarter to 2019.

As DNA for the second quarter includes approximately 7.2 million of incremental expenses from businesses acquired inclusive of intangible asset amortization, resulting in an organic quarter over quarter decrease of approximately $28.3 million to decline inorganic selling general administrative expenses is primarily due to certain cost reductions rich.

Bolting from our actions taken in response to the coded 19 pandemic. This includes a period over period decrease in salaries expense due to both reduced head count as well as temporary salary reductions. Additionally, incentive compensation expenses decreased due to lower projected annual operating results relative to incentive.

Targets when compared to the prior year lastly, we have experience reductions in both medical claims as well as certain discretionary spending such as travel and entertainment costs quarter over quarter.

The increase in SGN as a percentage of revenues is due to the reduction in quarterly consolidated revenues without a commensurate decrease in certain of our fixed overhead costs as we do not deem the current operating environment to be permanent.

During the second quarter, we identified certain indicators of impairment within those of our businesses that are highly dependent on the strength of the oil and gas and related industrial markets.

Previously referenced volatility in crude oil prices as well as the containment and mitigation measures implemented in response to the coven 90 pandemic significantly impacted the demand for our services within these businesses, resulting and revised near term revenue and operating margin expectations. These negative developments. Additionally resulted an uncertainty within.

The us equity markets, which led to an increase in the weighted average cost of capital utilized in our impairment analysis, the combination of lower forecasted revenue and profitability along with a higher weighted average cost of capital as a result in the recognition of a 232.8 million noncash impairment charge during the quarter 220.

$5.5 million discharge pertains to a write off of goodwill associated with our industrial services reporting unit, while the remaining $7.3 million relates to the dimming nation and value of certain trade names and fixed assets within our United States Industrial services in our United States electrical construction segments.

As a result of the noncash impairment charge. This referenced we're reporting an operating loss for the second quarter of 2020 of 122.6 million, which represents a decrease in absolute dollars of 242.6 million when compared to operating income of $120 million reported in the comparable 2019 period on a.

Adjusted basis, excluding the impact of the noncash impairment loss, our second quarter operating income would have been a 110.1 million, which represents a period over period decrease of 9.8 million or 8.2%. While adjusted operating income has declined we have experienced an increase in operating margin on an adjusted basis.

For the second quarter 2020, our non-GAAP operating margin was 5.5% compared to a reported operating margin of 5.2% in the second quarter of 2019, reflecting strong operating conversion within most of our reportable segments.

Considering the operating environment during the quarter, our entire team did a great job.

Specific quarterly performance by reporting segment is as follows our US electrical construction services segment operating income of 32.2 million decreased $11.6 million from the comparable 2019, Perion reported operating margin of 7.2% represents a 50 basis point decline over last year's second quarter the reduction of quarterly operating.

Net income and operating margins due to the significant decrease in revenues as well as the impact of favorable project Closeouts within 2019 second quarter second quarter operating income of our U.S mechanical construction services segment of 66.9 million represents a 13 million dollar increase from last year's quarter. Despite the disruption.

Caused by the coded 19 pandemic. This segment experienced an increase in gross profit within the commercial institutional and health care market sectors operating margin of 8.5% improved 190 basis points over the 6.6 operating margin generated in 2019, primarily due to a more favorable revenue mix than in the euro.

Quarter.

Our total us construction businesses reporting 99.1 million of operating income and an 8% operating margin. This performance has improved by $1.4 million in 100 basis points of operating margin from 2019 second quarter. In addition, it represents a sequential improvement from 20, Twentys first quarter and both absolute dollars and margin per.

Formants.

Operating income for you. It's building services is $26.4 million or 5.6% of revenues and although reduced by $1.6 million from last year's second quarter represents a 30 basis point improvement in operating margin the quarter over quarter reduction in operating income is due to lower gross profit contributions from their mobile mechanical services and energy services.

Division as a result of reductions in revenues as previously mentioned the improvement in operating margins due to a better mix of service maintenance and repair activities within the segments and mobile mechanical services Division.

Are you US industrial services segment operating income of 3 million represents a decrease of 30.1 million from last year's second quarter operating income of $16 million.

Operating margin of the segment for the three months ended June 32020 was 1.4% compared to 5.4% for the three months ended June 32019. The decrease in operating income an operating margin was primarily driven by the reduction in quarter over quarter revenues, which resulted from the adverse market conditions mentioned during today's call as well.

A significant pricing pressure due to limited shop services opportunities.

UK building services operating income of 5.4 million was essentially flat with 2019 second quarter as foreign exchange headwinds accounted for the modest period over period decline operating margin of 5.7% represents an 80 basis point increase over last year as a result of improved maintenance contract performance as well as the implementation of cost containment measures, which.

Resulted in as gene a expense reductions.

We are now on slide nine.

Additional financial items of significance for the quarter not address than the previous slides are as follows.

Quarter to gross profit of 315.3 million is reduced from 2019 second quarter by 31.1 million or 9%. Despite this reduction in gross profit dollars, we did experience and improvement in gross profit as a percentage of revenues with the reported gross margin of 15.7%, which is 80 basis points higher than last year's quarter.

As previously mentioned on this call we had exceptional revenue conversion within our U.S mechanical construction segment as well as margin expansion within both our us in UK building services segments. We are reporting a loss per diluted share of one dollar and 52 cents as compared to earnings per diluted share and last year's second quarter of one dollar and 49 cents on an.

Adjusted basis, after adding back the impairment loss on goodwill identifiable intangible assets and although long lived assets non-GAAP diluted earnings per share is one dollar and 44 cents as compared to the same report at $1.49 cents in last year's quarter.

This represents a modest reduction of five cents or just over 3% not to be repetitive in my commentary, but in light of coded 19 in the economic backdrop, we all experienced during the last several months EMCORE has done a great job of maximizing returns were given the opportunity to deliver it services. Please turn to slide tag.

With the quarter commentary complete lets turn our attention to enforce first six cents six month results revenues of 4.31 billion, representing a decrease of $169.1 million or 3.8% when compared to revenues of $4.48 billion in the corresponding prior year period, our second quarter revenue declines offset revenue gains.

Posted in quarter, one at each of our U.S mechanical construction US building services us industrial services in UK building services segments, while our US electrical construction services segment has had two consecutive quarters of revenue contraction.

Year to date gross profit of 648.3 million is lower than the 2019, six month period by $6.8 million or a modest 1% year to date gross margin is 15%, which favorably compares to 2019 is year to date gross margin of 14.6% gross margin improvement was largely driven by our.

Combined use construction business as well as our UK building services segment.

Selling general and administrative expenses of 432.2 million for the 2026 month period represent 10% of revenues compared to 432.4 million or 9.6% of revenues in 2019, while SGN eight for the year to date period has decreased nominally from the prior year the substantial cost reduction in may.

Measures implemented in the second quarter have positioned us at a lower run rate than at this time last year.

We reported a loss per diluted share or 14 cents for the six months ended June 32020, which compares to diluted earnings per share of $2.77 and the corresponding 2019 period adjusting the results for the current year to exclude the noncash impairment loss on goodwill identifiable intangible assets and other long lived assets results in a.

Non-GAAP diluted earnings per share of $2.78 when comparing this as adjusted number to last year's reported amount of $2.77. We're reporting a one cents increase I would like to remind everyone on the call that our performance for the first six months of 2019 set records for most financial metrics.

With earning per earnings per share in particular exceeding the prior benchmark by almost 30%.

Not to marginalize the sizable impairment charge taken this year, but the fact that on an adjusted basis, we were able to slightly exceed our previous year record. Despite the extraordinary market challenges presented I believe EMCORE is done quite an exceptional job.

My last comment on this slide pertains to Emcores income tax rate for 2020.

As noted on this slide Emcores tax rate for the six months ended June 32020 was 59.4% our tax rate for the remainder of 2020 will continue to be impacted by the impairment charges recorded during the second quarter. The majority of which were non deductible for non cat for tax purposes. So with that said at this time.

Our full year estimated tax rate is between 58 and 59%. However, this can change if any discrete tax events occur during the remainder of the year. We're now on slide 11.

I spent some time during our quarter one earnings call detailing emcores liquidity profile as a reminder, the first quarter. Historically is historically, our weakest from a cash generation standpoint due to the funding of prior year earned incentive awards. In addition, 20 Twentys first quarter was negatively impacted by our inability to monetize certain of our first.

First quarter revenue activities due to delays and customer billings, resulting from our previously communicated at ransomware attack.

However, as Tony mentioned, we had record operating cash flow for the first half of the year and as a result, our liquidity profile has improved from our already strong position.

With strong operating cash flow through June we have paid down to $200 million a revolving credit borrowings outstanding as of March 30, Onest 2020, and our cash on hand has increased to 481.4 million from the approximately 359 million on our year end 2019 balance sheet.

The improvement in operating cash flow is due to excellent working capital management by our subsidiary leadership teams as well as the as well as the benefit of the deferral of certain tax payments due to government measures enacted in response to the coded 19 pandemic. These measures which included the deferral of estimated us federal income tax payments the employers portion of social secured.

The tax payments and the remission and value added tax for our UK subsidiary early subsidiary had Favourably impacted second quarter and year to date cash flow by approximately $100 million.

Please note that while we will continue to benefit from some of these deferrals throughout the remainder of 2020 are estimated at U.S Federal tax payments were funded subsequent to the quarter on July 15.

Changes in additional key balance sheet positions are as follows working capital levels have increased primarily due to the increase in cash just referenced goodwill and identifiable intangible assets have decreased since December 31, 2019, largely as a result of the impairment charges previously referenced in addition, intangible assets have decreased as a.

Result of 29.4 million of amortization during the year to date period stockholders' equity has declined due to the operating loss recognized during the first six months of 2020.

Inquiries debt to capitalization ratio of 13 point fives.

13.5% is essentially flat when compared to our position at 2019 year end and has reduced from 19.9%.

At March 30, Onest 2020, we have just over 1.1 point $2 billion of availability under our revolving credit line and anticipate that we will continue to generate positive operating cash flow during the last six months of calendar 2020.

Emcors balance sheet, and resulting liquidity position remained strong and we continue to preserve our flexibility and evaluated all market opportunities.

With my commentary concluded I will now turn the call back to Tony Tony Thanks, Mark and I'm on page 12 remaining performance obligations by segment end market sector.

In short we continue to win work and have seen our small project activity improved through the second quarter as it hit a low point in April for bookings and execution. Some comparisons to consider total ARPU is at the end of the second quarter. We're just about 4.6 billion up 365 billion EUR, 8.6% when compared.

For the June 2019 level of 4.23 billion ARPU has also increased 167 million.

From the first quarter of 2020 reflective of the continued demand as we are seeing for market continued demand we're seeing for our services in our markets. So for the first six months of 2020 total ARPU increased 555 million or 13.8% from December 31, with all this guy.

Growth only $11 million relates to a tuck in acquisition. So it was almost all of that growth is organic.

Domestic rpos have increased 346 million or 8.4% since the year ago period, driven mainly by our mechanical construction segment.

We did burned through some electrical construction project as we completed some complex work. However, we expect to backfill. These projects as we continue to see demand, especially in the high Tech and data Center, Mark and high Tech for Us means semiconductor and the data center market.

Are you at building services segment, our Fios dipped a little on a quarter as this segment's project work with first impacted by Cove 19 building access to delays and decision making.

As the economy opens up combined with the hotter weather, we are gaining more access facilities and seeing a resumption of our work.

Additionally, both into our both of our industrial services and EMCORE UK segments increased ARPO level by roughly 15% respectively from June 32019.

On the right side of the page we have on 12, we show our peos by market sector of the market sectors listed all had year over year, ARPU increases except for manufacturing and industrial.

This is not to be confused with our industrial segment.

Currently we are in the process of competing some major food processing projects. We continue to see demand for these large complicated projects and have a number of potential opportunities. We are looking at commercial project. Our fios comprises our largest sector market sector. It over 40% of the total this is a 19% increase from year end spurred by.

Data center projects and as we've said before we are uniquely suited for these fast paced, especially in the hyperscale projects from both an electrical and mechanical perspective.

They're very active market for us, our health care and water and wastewater with these sectors being up 25, and 49% respectively from year end 2019.

To date, we have not seen any material slowdown in bidding opportunities apart from the mandated areas that was New York New Jersey.

Boston and parts of California, It a little bit in Pennsylvania. However, these areas are now open as I said earlier the industry has adapted save the safety safe work practices at protocols to key project progressing.

And especially to keep worker safe.

Finally, we are positioned very well to help our customers as they adjust their HPC and building control systems to improve the acute and cleanliness of their buildings and other facilities. It starts with the introduction of more outside air into the space as one of the simplest ways to make a building healthier, but unfortunately this makes the building less efficient.

We have strong experienced in I accused systems and our service companies in mechanical contractors know how to implement UBI lights bipolar ionization enhanced filled to enhance filtering and control system modifications. Most of this work will never make it into reported rpos from a quarter to quarter basis at is quick turn hi, Mark.

Good activity together, it will amount to a nice media medium sized project with good margins I.

I do expect these high acuity additions to longer term spur a more robust hvdc replacement market as we seek to increase efficiency to combat the increase in Q, especially the introduction of outside there.

So as I said in our first quarter over quarter call I don't know exactly how all the work specifically will roll out and how that bookings will be it's a fluid and challenging environment. There will be bumps along the way however, the direction of future opportunities for our contractor like US remained pointed in a positive direction.

So now I'm going to close on pages 13 to 14.

When we went through guidance in April we said, we had hoped that we could provide a view on the outlook for the remainder of the year during the second quarter earnings call.

We have spent the last few weeks debating internally whether to provide more definitive versus generic guidance for the remainder of the year.

We have decided to provide more specific guidance with some caveats, which mostly deal with the external environment.

The main caveat is we expect operating conditions to remain similar to that as to today's operating conditions, where most of the country is open for our type of work and we are deemed in essential activity. So we decided to give guidance as to the why and what as outlined below subject to that may caveat, we are likely going to earn $5.

Cars to $5 at 50 cents diluted earnings per share this year on an adjusted basis, adding back the impact of impairment.

I think revenues will likely be 8.6 to 8.7 billion. In this revenue guidance is our expectation from our recent forecast, where we believe that all of our reporting segments will grow revenues in the second half of the year versus the first half of the year, except for our industrial services segment we.

Now I understand how covert 19 has impacted our productivity we have seen stabilization in the small project work and the summer heat is helping our US building services segment.

We have a strong RPL position and we see markets recovering, especially in our mechanical and electrical construction segments and in our us and UK building services segments. So how do you move up in this range largely will depend on three factors. The external remark to remains largely same or even improved from today's operating environment Andre.

Today's conditions, we can book and execute work keep our workforce productive and we believe we will continue to see the recovery in the small project work.

If the industrial services.

Segment, our folks have an opportunity to help customers and an unexpected way then we will perform.

Lightly better than expected.

And we have no major project disruptions or any new significant customer bankruptcies.

So as far as capital allocation the dividend is save for the foreseeable future. However, we are unlikely to make any more share repurchases in the near term.

We will look to execute festival tuck in acquisitions, where we have decent visibility into and belief in the long term success of the acquisition, that's really no different than any time Wi Fi company.

And we based on the business the market and the improvements we can make.

We have several potential mechanical or electrical construction segment acquisitions and are in the preliminary stages discussion.

Several clinical services, a few small ones and fire protection acquisitions that we will likely execute.

Thanks for your support during these challenging times and with that I'll take questions Laura.

Thank you Sam at this time I would like to remind everyone in order to ask a question. Please press Star then the number one I mean part of turnkey.

Yes, Thats, Taiwan to ask a question as you would like to regarding your question Presque apart.

Let's look at the moment Medicare anymore.

Your first question comes under Ryan as Brent Thielman from D.A. Davidson. Your line is Okay go ahead.

Good morning, BREP, Harry Thank you Hey, good morning, congratulations on a great quarter.

Thanks.

Tony.

On the electrical business I think I caught this at the end it sounds like you know they certainly were more impacted by some of these market disruption.

Can you just walk me through are you expecting Merck headwind to abate as we move into the second half of year as we think about the outlook.

Yes, I look I think the core of our electrical business, which is commercial construction and institutional construction and healthcare construction to continue to be fine. It looked like the mechanical business in the electrical business. This a little bit different is we have a position in oil and gas if you'll remember that's for us four years ago.

We bought ardent rabalais, it's in that segment ardent ardent had a terrific year last year and we'll fight through those headwinds in the back half of the or Mark anything.

And Brian the other thing is some of the major population centers that were entirely shutdown, we have significant presence on the electrical side. Some of those markets. We also the mechanical presence, but more so electrical focus than the inability to be able to have our people either report to our offices for work or are certainly reported.

If any of our customer locations to perform and into services was was extremely difficult in the quarter, which is why is it the revenue and margin performance yen. The base business, obviously is performing very well at 7.2% operating income margins and we've had terrific performance.

I really across the country and like Mark said, they had a fight through the head into shutdowns, but it will have the overcome the compare in the back half of the year in the oil and gas business.

Okay. Okay, I appreciate that and then Kearney and.

Obviously I understand the headwinds on the industrial services business, just wondering if you're able to you.

With that manpower and capacity.

Maybe maybe to benefit year now the razor and other segments.

We are accretive that through these tough times right now yeah, we marginally half look first of all the and manpower. We would use is the trade labor.

And that you know thats flexible anyway, we have used some of the trade labor.

To help us augment especially on the electrical side. Some served to capacity we had on both the manufacturing and datacenter side, but that that normalizes I wouldnt say to any significant manner no.

Okay.

Afternoon.

Mark the impairment.

The goodwill intangibles, the net was that effectively all of it associated with the industrial segment is there some remaining on the balance now there is roughly just over 100 million of Gil goodwill remaining in the industrial segment post the adjustment.

Okay. Thank you all that don't Gulf, we're seeing an issue for the remainder of this year, but clearly that the business will have to continue to perform beyond 2020 wanted to continue to support that record evaluation.

Yep understood.

Okay. Thank you best of luck, Thanks, Brent I did.

Thank you Sir your next question will come from Barometer, Adam Behlman from some David Your line is now like go ahead.

Hey, Good morning, guys I would also say congrats thank you. Thanks.

Hey, just high level on the back half.

Embedded within that guidance, how do you guys see seasonality playing out this year, usually Q4 is a little stronger than Q3, just curious I mean, the headwind I mean, clearly reflected in our guidance is how we see seasonality playing out.

And as I said, we see stronger second half revenues versus first half for all reporting segments, except for industrial.

We typically industrial typically has a good third quarter and even forest Park fourth quarter.

So we don't see that happening this year I think for the remaining reporting segments as long as we sort of have the operating conditions, we have now.

Seasonality should be about what it is marked by right, yes, and I. Thank you Adam the only other variable is because we certainly experience a fair amount of delays during quarter two.

You know as much as we're able to control the pacing of the projects that we're on.

Im not quite sure.

Once we get through those revenue burst to get caught up what that's going to do in quarter four so.

Not all of our project start on January Onest and ended December 30, Onest as I'm sure everybody in this call knows but I think what the compression of through compression of things that have to perform between July onest in December 30, Onest of 2020.

You may not see.

Seasonality consistent with what we've experienced on a historical basis.

Okay.

I think I get that so basically you're just saying Q3 Q4.

Model and kind of the same this year.

Except for industrial except for industrial.

And then so on industrial so that we've seen that segment due in recent years as low as kind of 140 million in revenue and slight.

Operating loss does that kind of what year.

Anticipating here.

I don't know focusing and do a 140 million revenue.

In Q3 of 17 slide again on a quarterly based on a core on a quarterly basis were taken annual [laughter] look I think big picture I think we'll make money on an EBITDA basis, we've got some oh.

Goodwill and depreciation to jump over I think scale profitability is going to be de minimus on an operating income base in back half of the year and then so with what's going on in oil and gas right now Tony.

And then what's your thought on 20.

21.

I have no idea right now I mean, one of the challenges we've had in that business over the last couple of years.

Is the first quarter is always going to be better rate and quite frankly, the last two have been okay.

And this year was shaping up to be a good years for the questions going to be.

Hi, let's say, we start seeing resumption of air travel resumption of demand as you go from December January February what does that mean for refiner decision, making is maintenance are they going to keep running because they are finally, making money again.

And starting to get to a better capacity utilization or are they going to go through scheduled maintenance sitting here today I don't really have any visibility on that on the books first quarter 2021 looks okay.

But I think boy, we're going after really see December before we know that.

Okay understood and then just lastly, im trying to.

Rationalize this am I had just the ice kind of being as low as it has been for the past four months.

But you guys talked about really strong.

Bidding and I just had a how do you guys look at that well first of all were lagger right I mean, we're.

We would be bidding on projects probably more.

Doug.

Room with an ABS in February March.

The second thing is I think it depends where your where and how you're competing.

In I've always sort of if the eyes wrong right. It's consistently rider consistently wrong right self reported numbers.

My gut I'm not sure how.

That was if I were running my architectural from our engineering firm in the most of April and May I'm not sure how I reported numbers with a disbursed workforce to the to the.

Hi, I would have been at the top of my list.

Understood.

All right I'll, let somebody else have that it thanks guys. Thanks.

Thank you Sir.

Your next question will come from your line is under our belts from Stifel. Your line is already go ahead.

Hi, guys. Good morning, and again, congrats on a great performance markets.

So.

First I just wanted to ask about how you're thinking about share gain I've heard you know throughout earning season the number of larger.

Higher quality players in the market, saying that they think they may be gaining share on because some of the smaller contracts as need be distressed just kind of curious how you're thinking about that phenomenon.

We never think about that well as short as something that has ever been on our radar screen. This is a big big market.

We are the biggest so what we do but boy, there's a lot of competitors out there.

I never Siderar don't worry about who's going to succeed in who's going to fail.

Contractors.

As a wonderful thing about this business right.

When things are well, we talk about contractors over extending themselves and running into working capital problems.

When things are bad we talk about contractors, taking bad work and then valley.

Here's what I've learned over a long period of time.

Bid to which you do conveyed to make money on the market. The developable to you to make money grow one is responsible to grow in that local market shrink when you need to an adjuster cost structure and never count on your competitors, making a good good decision and a changing market.

All that being said I don't think there'll be a lot of contractors that are sizable let's say the 15 $20 million contractor and then will necessarily fell in this market because of the PPP loans I think they will survive and the question is what does that look like a year from mill.

Okay, Great that's helpful on.

And I guess, it's sort of a related question, but.

I think last quarter, you kind of talked a little bit about.

Interesting tough when you're looking at M&A opportunity, it's kind of trying to get a sense.

For the market is going you know how to think about the risk, but with some of the targets you might be looking at and.

And then also the price set of kind of being demanded at that time are you starting to see things come into balance what are you just seeing in terms of pricing in the market at the moment when you're looking at some of these targets. So we tend to look through the cycle. We closed the acquisition today and are building services segment, the walk bet and strengthen our mechanical services.

Segment.

It's a very good mechanical his contract contractor that focuses on retrofit and the into interiors market.

We have a pretty good service company there that we think long term together that we dynamite of course, we have large project capability on the mechanical side with our poll and Ken subsidiary. So this is a nice fit in an important market with a company that we've known for a long time, and we can sort of look through the cycle and look through the market.

And to performance and it is performing very well and we look at what when we make a deal.

We always try to look at a deal to say does this work for us and doesn't work for the person selling the company.

We don't want to be known at the people that are out there looking for a bargain and if that acquisition exceeds our expectations. It became from superior execution, our ability to generate synergies, especially on the revenue side for them to take more risk than they would have typically they have the capability, but maybe they didn't want to expand their personal balance sheet to do that.

I think there will be opportunities.

But EMCORE in general does not look for distressed assets.

We may at.

Few times in our past, maybe we've ended up with them, but it wasnt intentional.

And so we're going to keep the tried and true thing we've done look at the market.

Look at that position in the market of the person we're thinking of by.

If it's a very small acquisition is it going to tuck into one of our larger acquisition driven to meet site medium size acquisition to our larger subsidiaries. That's largely how we've built the fire protection business with two anchor acquisitions overtime.

And many many years ago and.

Look to generate the right kind of synergies on the revenue side and of course due to cost takeout were responsible.

Thanks to say helpful. I guess, one last question that extends a bit Adam was asking about.

When you look out.

2021 on the non resi side of the market Youve talks about a lot at the high tech vertical as and data center being.

Really strong.

Any other verticals refilling kind of more confident as you look out next year versus sense, where you might feel a little more cautious.

And then you spent a lot of time talking about the opportunity around indoor air quality and maybe some remodel any anyway that you can help investors think about the size of that that market and let's start big picture I don't know what will happen in non res.

And how what happened in second quarter will impact the overall numbers, whether it will be up or down once you correct for the second quarter. If the second quarter didn't have such an anomaly maybe would be down a little bit.

But I don't know that but with the second quarter being off as much it could actually be up a little bit right on a real basis year to year.

I, what I think about it what's likely to be challenged right.

I think just flat out commercial office space will be challenged except for maybe the renovation and NAND and the potential.

Retrofit and replacement market.

I don't think there'll be a lot of new construction going on although there are several projects that were involved with I think we'll get built.

It's funny when I went back and looked at.

Data as we got rid of for the first quarter call today, we havent been involved in a high rise commercial office building in any substantial way for four years.

Brief greenfield thanks Greenfield.

We always do and retrofit work will always doing tenant fit all work.

So I think the Greenfield Marco will even be more challenged I think residential high rise.

It was already starting to become challenged I think that will continue to be challenged.

I think anything around technology is going to do well.

And that includes built office space.

I don't think we're going to walk away from working at offices Forever I think it'll be a hybrid model and that will require reconfiguration of spaces and I'm not sure people are going to be as excited about their open office plans as they have in the future because most people want to have can.

Contingency plans to operate much like we are today and our offices.

I think that.

The healthcare market.

We'll have some stress offer us potentially as you see in our backlog.

Because spaces are going at space going out to be adjusted and there's some big projects out there that we're looking at today.

I think that the manufacturing slash industrial for us potentially could get strong it's going to look like an anomaly for a while as our big food processors jobs move in and out I think that we'll continue to be a market that will be strong for us I'm actually fairly significant believer in onshore.

And I think we're starting to see.

That happened we've seen it over the last couple of years, but I think it's not only going to be from China back to the US I think there will be a challenged from Mexico to attract new business and people build redundant supply here in the us versus Mexico, because the Mccullough Darrow story was a tough story.

We hear from some of our customers a supply lines.

Here in the second quarter with Covance and they found how difficult it could be operating operate with the current government I.

I think that the.

Institutional market will be a little bit slower than I think a little pickup is as buildings get reconfigured.

And then the education market again, you're going have to think about IEI q. I acute and drive inefficiency and so this whole replacement market, where we perform support we do a little bit ourselves in a couple of state but for the most far we support the heck out of the performance contractors. They could in fact see an up tick in their business.

821 going into 2002.

I think water and wastewater will continue to be a good market for us are mainly because we have location location location lots going on down in south, Florida and will be part and we will be part of that.

I don't think that hospitality will be a real area of strength for anybody here anytime soon in fact, we can argue here at EMCOR, we maybe to start blood and out with our commercial sector.

We just leave it out there for current comparison sake.

That's helpful perfect perfect. Thank you very much appreciate it.

Thank you.

Your next question will come from your line of sight.

Since Keybanc capital markets. Your line is now like perhaps.

Hi, guys couple management team on a strong effort.

Solid quarter.

I was just curious.

I think one of the highlights here in the second quarter is just that ARPO.

Ticking up sequentially.

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Considering this backdrop here, but I guess, partly part of that is kind of helped by a lighter.

Revenue quarter, and you are anticipating revenue run rate to tick up here in the back half. So I'm just kind of wondering about that second half dynamic should we expect some ARPO to sort of worked down in the second half.

Should we be thinking about that I look out I'll, let mark jump in here too when I look at it is it depends.

We have several projects we're looking at that if they get awarded in a rather significant then you won't see that we've also seen more stability in the small project activity on that is now part of our POS you look back many years that wouldn't have been necessarily in there.

I think the one of the things that will be a little bit of a headwind is what we're completing one heck of a food process job right now and much like we had three years ago, we had a little GAAP. We may have that again now, but we got a lot of that we have some very good prospects there.

I think that that book and Bill business underneath it is okay.

Could there be an air pocket the developed because a decision making in April and May tying back to this away VI number when architects and engineers are working remotely we had that could happen, but I don't think its long term yet.

As ours are working assumption at EMCOR has been for a while that things don't get really normal until first quarter of 21.

We have been shorter configuring, our business and working that way for awhile. So we're sort of you know looking around all those pieces Mark yes, Sean the only thing I would as its own at our amplify from Tonys comments areas as some of the some of the revenue improvement we're looking at in the back half of the air is going to be coming.

From the project work, that's going to come off the maintenance because of the sees the more normal seasonality and while there were saying in most of the geographies, where we have mechanical services capabilities on as Tony indicated a lot of that work actually never actually goes into Rpls dispose of the quick turn nature of the Conversely, because we're looking at revenue to.

Clients in the back half of the are within our industrial services segment other than the shop piece of that business as you know.

All that work is as Todd and materials, so whenever actually impacts the arpino number so im not necessarily can then that youre going to see the same level of sequential growth as we move through the third quarter, but I think with all of the opportunities out there and what we're executing against.

I would like to think it's going to be no worse than flat if not slightly up there as we progress through quarter three in quarter, four and putting aside some of those larger projects don't talk about depending on the timing on one if there are awarded and at their awarded to us when they come into the next spot.

Okay got it helpful. Next is just on the construction segment margins, it's interesting to see.

Both of them.

Hanging in pretty well here, particularly in mechanical and the second quarter.

Just any update on the traject margin trajectory and trajectory in those segments. You guys mentioned mix completing some projects cost control has been a big seeing here in the near term.

No.

Any reason why these levels are sort of sustainable or whether the normalized margin ranges shouldn't be attainable.

Even into the out year, even though.

I would go to going to Laddered not the former I don't think 8.5% mechanical margins are sustainable for an extended period of time.

I think as we've said these in the past where they jump in and out you know we always say look back 12 months that gives you get rid of Threeq before quarter. It gives you are pretty good idea how we're performing.

We've said for a long time anywhere from six to seven and 8% mechanically is pretty good performance I guess, we ticked up to 6.5% mechanically which is.

Pretty good as a baseline to seven any of maybe 7.5%. When you are finishing jobs that are going better than expected electrically weve are performing at these levels for a long time.

That both sectors are led by people that really know how to cut costs when they need to know how to meet or back in the cost.

A lot of it happens upfront right. We don't have big write offs typically maybe we have every three or four years, usually most of its not our fault and we and we do a pretty good job recovery sometimes.

A third at any given time might be our fault and so we do a good job avoiding badness always save margins are driven by an absence of badness and executing on good work. When you have it so that funnel upfront is very important and we have been very careful right now on a kind of jobs were selecting.

And you know in the beginning of this covert thing people are like getting a little desperate we didn't participate and we see norm more normal bidding resume.

So yeah long winded answer to normalized margins. These are little high right now from mechanical but I look back 12 months, we're doing okay Mark.

Yes. Thank you I see no reason that we're not going to continue to perform at our historical averages and really even look at the last 36 months relative to.

Our construction operations on a combined basis, they've been fairly consistent within within 50 basis points.

So the work the work that's remaining to be performed in our remaining performance obligations.

Margin profiles consistent with what you've seen us on and we're going to continue to operate under our operational excellence program and continue to do what's best for us for our customer so.

Yes, we believe that we wind up with the guidance out that we did.

Right I mean.

And our major question Mark in the back half of the year really centers around industrial.

And maybe to a much lesser extent as small project work and Mark went through why we believe that will keep go a much luck lesser extent of what could happen with small project only cause us develop they can turn on and off not anything we're actually seeing today, just things got really bad like they did in April that bellwood turn off again, and we said that our guidance that's one of the caveats.

Got it I'll leave it there. Thanks, so much for the time Brlthree. Thank you.

Thank you Sunrise and for your last question. We have won some del Monte Carlo from Sidoti and company. Your line is our up.

Hey, Joe.

Hi, good morning, everyone.

Sorry, I got dropped off the call for about four minutes, maybe just a little just a couple of minutes ago I'm not sure what happened, but I wanted to ask about sort of the co. Good related opportunity in terms of air quality in work there I know, it's probably still early but I'm wondering what your thoughts are on how big of an opportunity.

That could be in terms of retrofit.

Building wells for air quality, Yes, I would break it into two pieces Joe.

The first pieces what are you doing today.

To take existing systems and making more.

Friendly or better indoor environment.

I think it when you add all that up at EMCOR and.

It will be a nice project it will be a altogether it will be sort at $12 million to $20 million project with above.

Average margins better these things are going to happen somewhere between two and $10000 at a time.

Maybe 20 at the top end on your typical 100000 square footage of space that sort of what they are.

However, the longer term opportunity is okay. We did what we needed to do with the system we had.

Now how do we make sure that we have a better built space for the long term you do a lot of this on newer buildings.

So youre going to have to update the hvdc system and the control system because.

I think Q for the most part the biggest part of it is bringing more outside air I mean as the first thing you can do and it's actually one of the most effective things you can do.

That works at cross purposes with efficiency.

So I believe that as you play this out over a two year period, you're going to see the replacement market get stronger.

Going from in the Middle 21, and beyond and it's already pretty good replacement market because equipment is so much more variable and efficient today than it was even just 10 years ago.

So I think thats the second phase you'll see.

And then I think of course, there will be added.

Hvdc content and controls content in Newbuilds.

We're already seeing that you'll see even more of that.

And then if you even though to specific case I think when you get to the healthcare space now that we've had this.

Issue around I see you bet try to use in general or vet and are built to operate damn near 90% of capacity all the time at the very expensive.

So I think as you build new hospitals or retrofit hospitals, I think you're going to be putting in the ability to flex into more IC use space.

So how do you do that you introduced negative pressure right.

Which creates negative pressured and I see you room, you will put more the systems into a room that may or may not be used until you need them.

So thats going to be than an opportunity that's going to happen. So I accuse a simple thing to say.

It takes on all kind of different flavors existing today immediate I can do things I can put UBI lights on I can do enhance filtering I can do bipolar ionization I can increase their flow from outside long term I can do all kinds of things with the system those things and more but they can be actually built into this.

System, and then longer term, how do I make my space as flexible as like Ken.

Either in industrial setting an office setting where in health care setting. So I can adjust between different kinds of uses depending on something like this potentially happening again.

Okay, and so I guess when you take that sort of net the two.

Opportunities together.

How you characterize them.

Is your best guess that it's going to be more material more in the longer term say, yes, 21, and beyond yes, I think 21, it'll it'll add onto an already good summer I mean in 20, Okay. I think as you get mid 21 and beyond things start getting incorporated design it'll be more material he won't necessarily see it you'll just know you're doing more hvdc caught.

And at our building or you'll see a more rapid replacement cycle things get replaced a 10 or 12 years instead of 15 to 20.

Got it.

And then I wanted ask what we're running the cost structure was there anything any temporary cost reductions in the second quarter that come back say starting in three about half our list of revenue about half of well.

My commentary I said I think about half of these cost reductions will be permanent.

And did you quantify the cost reductions, yes, we did we said 21 million.

Actual.

Versus a year ago period 28 million organic so I think if you do that you'd say, we're picking up about 10 million a quarter give or take and ongoing cost reduction.

Got it okay.

And then the the our Peos and mechanical segment.

Is that surprising given.

The challenge in the second quarter to set the overall economy and then also.

Following.

Nonres space overall or.

That was driven look even during a slowing our rest place if you have the right capability in the right market.

With that we are larger contractors you can generate a positive result on your ARPU always because a large projects that is in fact, what happened with our larger companies in the mechanical space, we have two or three of them that really had nice bookings in the quarter.

Okay, and then lastly from me did I hear right that you said you do not expect any further share purchases for the rest of there I didn't say the rest of the year I said in the near term and that probably for US means Q3 as of today.

Got it alright, thank we expect anything it looked like along those lines.

If you take our long term view of the world and we get into a more normalized operating condition.

We expect to be a balanced capital allocator like we've always had been.

Okay.

Thanks, a lot of a great.

Thank you Jeff.

Thank you for rats and that's that's my last question I will turn the call back to that they certainly for the consumer Okay well look.

As I've finished today I really want to.

Thank our employees.

And then the leaders of the of our of our associates our employees.

This has been an unprecedented four or five months here.

[music].

And everybody is just put their head down gone to work.

Kept focused on our employee safety.

Kept focused on doing the right things by our employees one the best that we could.

And then focused on delivering results for our customers and keeping things on track.

You know it's been a.

Terrific effort by our leadership team has been.

Very very exceptional effort by our broader employee base.

I think this is going to continue for the next four or five months and I know that our team will meet to challenge and will will respond to what we respond to to keep the organization moving forward and a positive manner.

So I want to thank all that first and I, thank our customers.

And I of course, our investors also and we will continue to try to do everything we can to deliver good results for you.

Thanks.

Thank you from ransom again, thank everyone for participating. This concludes today's conference you may now disconnect. Thank you have all else equal.

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Oh.

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Okay.

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Good morning, My name is there and I will be a conference operator today.

At this time I would like to welcome everyone looks to be incorporated second quarter plenty plenty earnings call.

All lines have been placed the need to prevent any background noise.

I'd say, it's because you're like so we'll be a question and answer session.

If you would like to ask a question Jay This time CMP Press Star then the number one I need telephone keypad.

If you would like it was my other question, perhaps the parking.

Mr Hospital customer would actually I consulting you may begin.

Thank you Laura and good morning, everyone welcome to be incorporated conference call.

Yesterday discussed the company's cheap I'll be 22nd quarter results, which were reported this morning.

I'd like to turn the call over to Kevin Executive Vice President of shared services will introduce management Kevin. Please go ahead.

Thank you Haskell and good morning, everyone. Thank you for your interest in EMCOR and welcome to our earnings conference call for the second quarter 2020, how time is really moved on.

And that's I said in our last call Hope you on your families are well staying safe as we move through this unprecedented time.

For those of you who are accessing the called the or the Internet and our website welcome and we hope you have arrived at the beginning of a slide presentation that will accompany our remarks today.

Please advance to fly to.

This presentation discussion contains forward looking statements and certain non-GAAP financial information.

Page juices drugs described in detail the forward looking statement in the non-GAAP financial information disclosures I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slide.

Slide three shows executives here with me to discuss the quarter and six months' results. They are Tony Ghazi, Our chairman President and Chief Executive Officer, Mark pop up our executive Vice President and Chief Financial Officer, and our senior Vice President General Counsel Maxine Mauricio.

Call participants not accessing the call directly via the Internet this presentation, including our slides will be archived in the Investor Relations section of our web site under presentation and again, you can find us at EMCOR group Dotcom.

That we said, let me turn the Copaxone.

Thanks, a lot, Kevin and I'll be addressing pages four through six.

Let me first start by thanking our employees for their extraordinary efforts and the continued challenging times.

Our performance under these conditions is outstanding.

Our organization showed the grit.

Resiliency discipline and innovation that we are no for.

And we stayed focused on keeping our poor shape.

Well executing for our customers.

Turning to our financial results throughout our discussion all my financial commentary disregards the impact to the impairment charge that mark will cover in detail.

We earn an adjusted dollar 44 protruded share for the second quarter.

Adjusted operating income margins for the second quarter, where our strong 5.47%.

Operating cash flow is excellent at 276 million on a year to date basis.

We accomplish less in an environment, where we had 15.5% negative organic revenue growth for the quarter just added.

Our mechanical construction segment performance was exceptional with operating income growth of 24% and 8.5% operating income margins.

Our electrical construction segment had strong operating income margins up 7.2%, despite having a 20.1, 0.7% decrease in revenues as they were more significantly impacted by the mandated shutdowns that our mechanical construction segment was.

Further the electrical construction segment is more exposed to the volatility caused by our oil and gas exposure in this segment.

Our U.S. building services segment had a very strong quarter with 5.6% operating income margins. Despite a 9.8% revenue decrease.

We saw demand improved through the quarter, especially in our mechanical services and government services businesses.

We exited the quarter in a nice hot steamy summer with an even more competitive cost structure.

Our industrial services segment is also moving ahead in a very challenging market.

Our customers are cutting costs deferred work and fighting through a really tough market for them and as a result for us.

We will continue to maximize any opportunity available cut costs and look to provide flexible solutions when possible.

I don't anticipate this trend to improve.

Until at least the first quarter 2021 at the earliest.

We are fortunate to be a segment later that have long standing relationships with the most important customers in the downstream refining and petrochemical markets.

Our UK segment had a strong quarter and we expect this execution and performance to continue.

They faced many of the same challenges that our US building services segment faced.

However, our UK customer base is more institutional manufacturing government focused and as a result, we are stable build employment throughout the UK shutdown as we were deemed essential in many cases.

So how did we continue performing in this environment and how will we continued to perform.

My caught my comments cut across all EMCORE reporting segments.

We outlined some of these actions on our first quarter call May after April and we executed well.

So number one.

We focused on employee safety first and as a result, we were able to staff drop safely and with the right people.

Said differently, our people had confidence that we would do the right thing.

We implemented guidelines to keep operating and when necessary to reopen.

We aggressively procured.

Pp, that's the personal protective equipment upfront.

There are employees needed to keep working and we executed the trading necessary to work safely in this environment.

We communicated at all levels with a focus on safety execution and results.

Our flat organizational structure helped our communications remained effective and unhampered.

Despite co would related challenges.

Number two.

We fairly quickly implemented all the different government mandates in programs with respect to Covance.

Our staff did a superb job and distilling these mandates in programs into specific actions.

For our subsidiary operations to continue operating productively.

And safely and Incompliance with the various government mandates.

Number three.

We aggressively cut ash DNA through both the short and long term measures.

We caught executive pay 25% in the quarter cut other salaried employees pay in the quarter Furloughed staff permanent laid off salary staff cut almost all travel and entertainment expenses and reduced any additional discretionary expenses.

We reduced 21 million in the quarter versus a year ago paired and when removing incremental yesterday from businesses acquired we've got 28 million on an organic basis.

I expect about half of those cuts to be permanent.

We acted as fast and decisively and it shows in our results further we are aggressively right sized our craft labor workforce to match demand through layoffs and furloughs.

Number four.

We knew we had to come about what would be reduced productivity because of increased use of pp.

And the implementation of other covert related safety measures. We have successfully combined to this challenge and met this challenge by working with our customers in our workforce to offer better scheduling.

Planning and work practices.

We believe for the most part that we are near breakeven on a productivity basis to where we would have been pre code.

Number five.

We trained our field are filled and salesforce on I ask you that indoor air quality and other building enhancements products and projects. During the initial phases of code. So we would be ready to provide solutions for our customers to be able to return of their facilities with confidence and an improved indoor environments.

Number six.

Our subsidiary leaders, let as well any organization that I could mad imagined, let's say that again, our subsidiary leaders, let as well as any organization that I could imagine and they executed all the above initiatives I just mentioned in an exceptional manner.

With all that said, we leave the quarter with a strong RPL position of 4.6 billion.

Our balance sheet, the stress them through the quarter, despite adverse conditions and even more competitive cost structure than we already had with all that said I want to turn the discussion over to Mark.

Thank you Tony and good morning, everyone participating on the call today for those accessing this presentation via the webcast. We are now on slide seven.

Over the next several slides double supplement tonys opening commentary at EMCOR second quarter performance as well as provide an update on our year to date results through June Thirtyth.

All financial information reference is 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 this morning.

So, let's revisit and expand our review of EMCORE second quarter performance.

Consolidated revenues of 2 billion or down $310.2 million or 13.3% over quarter to 2019.

Our second quarter results include $50.2 million revenues attributable to businesses acquired pertaining to the time that such businesses were not owned by EMCORE at last year's second quarter.

Acquisition revenues positively impacted both the United States mechanical construction in United States building services segments.

Excluding the impact of businesses acquired second quarter consolidated revenues decreased approximately $360.4 million or 15.5%.

All of them quarters reportable segments experienced quarter over quarter revenue declines as a result of the containment and mitigation measures mandated by certain of our customers as well as numerous governmental authorities in response to coded 19. This resulted in facilities closures and project delays, which impacted our ability to execute on our remaining perfs.

Pharmas obligations and many of the geographies that we serve.

Specifics to each of report of our reportable segments are as follows United States Electrical construction segment revenues of 445.9 million decreased 123.5 million or 21.7% from 2019 second quarter. In addition to the negative impact of the coven 19 pandemic on second quarter revenues.

The unfavorable variance year over year as partially attributable to 2019, all time record quarterly revenue performance revenue declines in most of the market sectors. We serve were partially offset by quarter over quarter revenue growth in the institutional and hospitality market sectors, United States mechanical construction segment revenues.

Of 790.4 million decreased 32.7 million or 4% from quarter to 2019.

Excluding acquisition revenues of 47.9 million this segment's revenues decreased organically, 9.8% quarter over quarter.

Revenue declines in manufacturing and commercial market sector activities were muted by revenue gains quarter over quarter within the institutional transportation and health care market sectors. The prior year quarter also represent at an all time quarterly revenue record for our U.S mechanical construction segment.

Second quarter revenues from Emcores combined United States construction business of 1.24 billion decreased 156.2 million or 11.2%.

As Tony will cover later during this presentation, our combined United States construction business has experienced growth both sequentially and year over year and the remaining performance obligations through June thirtyth.

Some of this growth in Rpls as come at the expense of revenue generation during the second quarter due to cold and 19. However, we were also successful and obtaining new project opportunities during this period.

The United States building services quarterly revenues of 472.4 million decreased 51.3 million or 9.8%.

Good acquisition revenues of 2.3 million the segment's revenues decreased 10.2% from a record results achieved in the second quarter of 2019 reduced project and controls activities within their mobile mechanical services division largely attributable to the impact of cold in 19, as well as less large project activity in the energy services.

Division were the primary drivers of the quarterly revenue decline. Additionally, as mentioned on previous calls we're continuing to see a reduction in Q project activity within our government services division due to both a smaller contract base as well as an overall reduction in government spending.

Im cores industrial services segment was significantly impacted by the shop by the sharp decrease.

Volatility in crude oil prices, resulting from geopolitical tensions between OPEC in Russia, as well as dramatic reduction and demand for refined oil products due to the containment and mitigation measures implemented in response to cold at 19.

These factors have resulted in decreased demand for services as this customers such as this segment's customer base has initiated a severe cost containment measures, which have resulted in the deferral or cancellation of previously planned maintenance as well as the suspension of most capital spending programs as a result, our industrial services segment second quarter revenue.

Declined 212.2 million from the 295.5 million reported in 2019 second quarter. This represents a reduction of $83.3 million are 28.2%.

United Kingdom building services revenues of 93.1 million decreased 19.4 million or 17.3% from last year's quarter.

The period over period revenue reduction was primarily attributable to decreased and project activities, resulting from coated 19 containment and mitigation measures instituted by the UK government. This segment's quarterly revenues were also negatively impacted by $3.4 million of foreign exchange headwinds. Please turn to slide eight.

Selling general and administrative expenses of 205.2 million represent 10.2% of revenues and reflect a decrease of 21.1 million from quarter to 2019.

As DNA for the second quarter includes approximately 7.2 million of incremental expenses from businesses acquired inclusive of intangible asset amortization, resulting in an organic quarter over quarter decrease of approximately $28.3 million to decline inorganic selling general administrative expenses is primarily due to certain cost reductions.

Resulting from our actions taken in response to the coded 19 pandemic. This includes a period over period decrease in salaries expense due to both reduced head count as well as temporary salary reductions. Additionally, incentive compensation expenses decreased due to lower projected annual operating results relative to inside.

Of targets when compared to the prior year Lastly, we have experienced reductions in both medical claims as well as certain discretionary spending such as travel and entertainment costs quarter over quarter.

The increase in SGN as a percentage of revenues is due to the reduction in quarterly consolidated revenues without a commensurate decrease in certain of our fixed overhead costs as we do not deem the current operating environment to be permanent.

During the second quarter, we identified certain indicators of impairment within those of our businesses that are highly dependent on the strength of the oil and gas and related industrial markets.

Previously reference volatility in crude oil prices as well as the containment and mitigation measures implemented in response to the coven 90 pandemic significantly impacted the demand for our services within these businesses, resulting and revised near term revenue and operating margin expectations. These negative developments. Additionally resulted an uncertainty within.

The us equity markets, which led to an increase in the weighted average cost of capital utilized and are apparent analysis. The combination of lower forecasted revenue and profitability along with a higher weighted average cost of capital as a result in the recognition of a 232.8 million noncash impairment charge during the quarter 220.

5.5 million of this charge pertains to a write off of goodwill associated with our industrial services reporting unit, while the remaining $7.3 million relates to the domination and value of certain trade names and fixed assets within our United States Industrial services, and our United States electrical construction segments.

As a result of the noncash impairment charge just referenced we are reporting an operating loss for the second quarter of 2020 of 122.6 million, which represents a decrease in absolute dollars of 242.6 million when compared to operating income of 120 million reported in the comparable 2019 period on an.

Adjusted basis, excluding the impact of the noncash impairment loss, our second quarter operating income would have been 110.1 million, which represents a period over period decrease of 9.8 million or 8.2%. While adjusted operating income has declined we have experienced an increase in operating margin on an adjusted basis.

For the second quarter 2020, our non-GAAP operating margin was 5.5% compared to a reported operating margin of 5.2% in the second quarter of 2019, reflecting strong operating conversion within most of our reportable segments.

Considering the operating environment during the quarter, our entire team did a great job.

Specific quarterly performance by reporting segment as is as follows our US electrical construction services segment operating income of 32.2 million decreased $11.6 million from the comparable 2019 period reported operating margin of 7.2% represents a 50 basis point decline over last year's second quarter the reduction of quarterly operating.

From an operating margins due to the significant decrease in revenues as well as the impact of favorable project Closeouts within 2019 second quarter.

Second quarter operating income of our U.S mechanical construction services segment of 66.9 million represents a 13 million dollar increase from last year's quarter. Despite the disruption caused by the co. The 19 pandemic. This segment experienced an increase in gross profit within the commercial institutional and health care market sectors operating margin of eight point.

5% improved 190 basis points over the 6.6 operating margin generated in 2019, primarily due to a more favorable revenue mix than in the year ago quarter.

Our total US construction business is reporting 99.1 million of operating income and an 8% operating margin. This performance has improved by $1.4 million at 100 basis points of operating margin from 2019 second quarter. In addition, it represents a sequential improvement from 2000, Twentys first quarter and both absolute dollars and margin per.

Formats.

Operating income for you. It's building services is $26.4 million or 5.6% of revenues and although reduced by $1.6 million from last year's second quarter represents a 30 basis point improvement in operating margin the quarter over quarter reduction on operating income is due to lower gross profit contributions from their mobile mechanical services and energy services.

Division as a result of reductions in revenues as previously mentioned the improvement in operating margins due to a better mix of service maintenance and repair activities within the segments and mobile mechanical services Division.

Are you US industrial services segment operating income of 3 million represents a decrease of 30.1 million from last year's second quarter operating income of $16 million.

Operating margin of the segment for the three months ended June Thirtyth 2020 was 1.4% compared to 5.4% for the three months ended June 32019.

Decrease in operating income an operating margin was primarily driven by the reduction in quarter over quarter revenues, which resulted from the adverse market conditions mentioned during today's call as well as significant pricing pressure due to limited shop services opportunities.

UK building services operating income of 5.4 million was essentially flat with 2019 second quarter as foreign exchange headwinds accounted for the modest period over period decline operating margin of 5.7% represents an 80 basis point increase over last year as a result of improve maintenance contract performance as well as the implementation of cost containment measures, which.

Resulted in as gene a expense reductions.

We are now on slide nine.

Additional financial items of significance for the quarter not addressed in the previous slides are as follows.

Quarter to gross profit of 315.3 million is reduced from 2019 second quarter by 31.1 million or 9%. Despite this reduction in gross profit dollars, we did experience and improvement in gross profit as a percentage of revenues with the reported gross margin of 15.7%, which is 80 basis points higher than last year's quarter.

As previously mentioned on this call we had exceptional revenue conversion within our U.S mechanical construction segment as well as margin expansion within both our us and UK building services segments. We are reporting a loss per diluted share of $1.52 cents as compared to earnings per diluted share and last year's second quarter of $1.49 cents on an.

Adjusted basis, after adding back the impairment loss on goodwill identifiable intangible assets and although long lived assets non-GAAP diluted earnings per share is $1.44 cents as compared to the same report at $1.49 cents in last year's quarter.

This represents a modest reduction of five cents or just over 3% not to be repetitive and my commentary, but in light of Kogan 19 in the economic backdrop, we all experienced during the last several months Amcor has done a great job of maximizing returns were given the opportunity to deliver it services. Please turn to slide tag.

With the quarter commentary complete lets turn our attention to him course first six months six month results revenues of 4.31 billion, representing a decrease of 169.1 million or 3.8% when compared to revenues of 4.48 billion and the corresponding prior year period, our second quarter revenue declines offset revenue gains.

Posted in quarter, one at each of our U.S mechanical construction us building services us industrial services and UK building services segments, while our US electrical construction services segment has had two consecutive quarters of revenue contraction.

Year to date gross profit of $648.3 million is lower than the 2019, six month period by $6.8 million or a modest 1% year to date gross margin is 15%, which favorably compares to 2019 is year to date gross margin of 14.6% gross margin improvement was largely driven by our.

Combined use construction business as well as our UK building services segment.

Selling general and administrative expenses of 432.2 million for the 2026 month period represent 10% of revenues compared to $432.4 million or 9.6% of revenues in 2019, while SGN eight for the year to date period has decreased nominally from the prior year the substantial cost reduction.

Measures implemented in the second quarter have positioned us at a lower run rate than at this time last year.

We reported a loss per diluted share or 14 cents for the six months ended June 32020, which compares to diluted earnings per share of $2.77.

In the corresponding 2019 period adjusting the results for the current year to exclude the noncash impairment loss on goodwill identifiable intangible assets and other long lived assets resulted in a non-GAAP diluted earnings per share of $2.78. When comparing this as adjusted number to last year's reported amount of $2 and 77.

Sense, we're reporting a one cents increase I would like to remind everyone on the call that our performance for the first six months of 2019 set records for most financial metrics with earning per earnings per share in particular exceeding the prior benchmark by almost 30%.

Not to marginalize the sizable impairment charge taken this year, but the fact that on an adjusted basis, we were able to slightly exceeded our previous year record. Despite the extraordinary market challenges presented I believe EMCORE is done quite an exceptional job.

My last comment on this slide pertains to Emcores income tax rate for 2020.

As noted on the slide Emcores tax rate for the six months ended June 32020 was 59.4% our tax rate for the remainder of 2020 will continue to be impacted by the impairment charges recorded during the second quarter. The majority of which were non deductible for non cat for tax purposes. So what that said at this time.

Our full year estimated tax rates between 58 and 59%. However, this can change if any discrete tax events occur during the remainder of the year. We're now on slide 11.

I spent some time during our quarter one earnings call detailing emcores liquidity profile as a reminder, the first quarter historically has historically our weakest from a cash generation standpoint due to the funding of prior year earned incentive awards. In addition, 2020 is first quarter was negatively impacted by our inability to monetize certain of our first.

Quarter revenue activities due to delays and customer billings, resulting from our previously communicated at ransomware attack.

However, as Tony mentioned, we had record operating cash flow for the first half of the year and as a result, our liquidity profile has improved from our already strong position.

The strong operating cash flow through June we have paid down to 200 million or revolving credit borrowings outstanding as of March 30, Onest 2020, and our cash on hand has increased to 481.4 million from the approximately 359 million on our yearend 2019 balance sheet the improvement in operating cash flow is due to excellent.

Working capital management by our subsidiary leadership teams as well as the as well as the benefit of the deferral of certain tax payments due to government measures enacted in response to the coded 19 pandemic. These measures which included the deferral of estimated us federal income tax payments.

Employers portion of social security tax payments and the remission of value added tax for our UK subsidiary early subsidiary had Favourably impacted second quarter and year to date cash flow by approximately $100 million.

Please note that while we will continue to benefit from some of these deferrals throughout the remainder of 2020 are estimated at US federal tax payments were funded subsequent to the quarter on July 15.

Changes in additional key balance sheet positions are as follows working capital levels have increased primarily due to the increase in cash just referenced goodwill and identifiable intangible assets have decreased since December 31, 2019, largely as a result of the impairment charges previously referenced in addition, intangible assets have decreased as a.

Results of 29.4 million of amortization during the year to date period stockholders' equity has declined due to the operating loss recognized during the first six months of 2020.

Of course debt to capitalization ratio of 13 point fives.

13.5% is essentially flat when compared to our physician at 2019 as year end and as reduced from 19.9%.

At March 30, Onest 2020, we have just over 1.1 point $2 billion of availability under our revolving credit line and anticipate that we will continue to generate positive operating cash flow during the last six months of calendar 2020.

Of course balance sheet, and resulting liquidity position remained strong and we continue to preserve flexibility and evaluated all market opportunities.

With my commentary concluded I will now turn the call back to Tony Tony Thanks, Mark and I'm on page 12.

Remaining performance obligations by segment and market sector.

In short we continue to win work and have seen our small project activity improved through the second quarter as it hit a low point in April for bookings and execution. Some comparisons to consider total ARPU is at the end of the second quarter. We're just about 4.6 billion up 365 billion or 8.6% when compare.

To the June 2019 level of 4.23 billion.

I would also increased 167 million.

From the first quarter of 2020 reflective of the continued demand as we are seeing for market continued demand we are seeing for our services in our markets.

So for the first six months of 2020 total ARPU increased 555 million or 13.8% from December 31, with all this growth only 11 million relates to a tuck in acquisition. So it was almost all of that growth is organic.

Domestic rpos have increased 346 million or 8.4% since the year ago period, driven mainly by our mechanical construction segment, we did burned through some electrical construction project as we completed some complex work. However, we expect to backfill. These projects as we continue to see demand, especially in the high Tech and data center more.

Yeah, Hi Tech for us means semiconductor and the data center market.

Are you at building services segment, Argos dipped a little in a quarter as this segment's project work with first impacted by Coven 19 building access delays and decision making.

As the economy opens up combined with the hotter weather, we are getting more access to facilities and seeing a resumption of our work.

Additionally, both in our both of our industrial services Evercore UK segments increased ARPO level by roughly 15% respectively from June 32019.

Are the right side of the page we have on 12, we show our fios by market sector of the market sectors listed all had year over year, ARPU increases except for manufacturing and industrial.

This is not to be confused with our industrial segment.

Currently we are in the process of competing some major food processing projects. We continue to see demand for these large complicated projects that have a number of potential opportunities. We are looking at commercial project, our fios comprise our largest sector market sector. It over 40% of the total this is a 19% increase from year end spurred by.

Data center projects.

As we've said before we are uniquely suited for these fast paced, especially in the hyper scale projects from both an electrical and mechanical perspective.

They are very active market for us, our healthcare and water wastewater with these sectors being up 25, and 49% respectively from year end 2019.

To date, we have not seen any material slowdown in bidding opportunities apart from the mandated areas that was New York New Jersey.

Boston and parts of California, It a little bit in Pennsylvania.

However, these areas are now open as I said earlier the industry has adapted save the safety safe work practices of protocols to key project progressing.

And especially to keep worker safe.

Finally, we are positioned very well to help our customers as they adjust their hvdc ability to control systems to improve the Q and cleanliness of their buildings and other facilities. It starts with the introduction of more outside air into the space as one of the simplest ways to make a building healthier, but unfortunately this mixability less efficient.

We have strong experienced an eye acute systems and our service companies and mechanical contractors know how to implement uvulites bipolar ionization enhanced filter enhanced filtering and control system modifications. Most of this work will never make it into reported rpos from a quarter to quarter basis editors quick turn hi, Mark.

Hi, good activity together, it will amount to a nice media medium sized project with good margins I.

I do expect these high acuity additions to longer terms for a more robust hvdc replacement market as we seek to increase efficiency to combat the increase in Q, especially the introduction of outside there.

So as I said in our first quarter over quarter call I don't know exactly how all the work specifically will roll out and how that bookings will be it's a fluid and challenging environment. There will be bumps along the way however, the direction of future opportunities for our contractor like us remain pointed in a positive direction.

So now I'm going to close on pages 13 to 14.

When we went through guidance in April we said, we had hoped that we can provide a view on the outlook for the remainder of the year during the second quarter earnings call.

We have spent the last few weeks debating internally whether to provide more definitive versus generic guidance for the remainder of the year.

We have decided to provide more specific guidance with some caveats, which mostly deal with the external environment.

The main caveat is we expect operating conditions to remain similar to that as to todays operating conditions, where most of the country to open for our type of work and we are deemed an essential activity.

So we decided to give guidance as to why a lot as outlined below subject to that may caveat, we are likely going to earn $5 to $5.50 diluted earnings per share. This year on an adjusted basis, adding back the impact of a parrot.

I think revenues will likely be 8.6 to 8.7 billion. In this revenue guidance is our expectation from our recent forecast, where we believe that all of our reporting segments will grow revenues in the second half of the year versus the first half of the year, except for our industrial services segment.

We now understand how covert 19 has impacted our productivity, we're seeing stabilization in the small project work and the summer heat is helping our US building services segment.

We have a strong RPL position and we see markets recovering, especially in our mechanical electrical construction segments and in our us and UK building services segments. So how do you move up in this range largely will depend on three factors. The external remarket remains largely same or even improved from today's operating environment Andre.

Today's conditions, we can book can execute work keep our workforce productive and we believe we will continue to see the recovery in the small project work.

If the industrial services.

Segment, our folks have an opportunity to help customers and an unexpected way then we will perform.

Slightly better than expected.

And we have no major project disruptions or any new significant customer bankruptcies.

So as far as capital allocation the dividend is safe for the foreseeable future. However, we are unlikely to make any more share repurchase in the near term.

We will look to execute festival tuck in acquisitions, where we have decent visibility into and belief in the long term success of the acquisition, that's really no different than any time, we tie company.

And we based on the business the market and the improvements we can make.

We have several potential mechanical or electrical construction segment acquisitions and are in the preliminary stages discussion.

Several cataclysm versus a few small ones and fire protection acquisitions that we will likely execute.

Thanks for your support during this challenging times and with that I'll take questions Laura.

Thank you Sam at this time I would like to remind everyone in order to ask a question. Please Beth by then the number one and mid part of turnkey.

Your next Taiwan ask a question as you would like to withdraw your question Presque apart.

The question at the moment robotic anymore.

Your first question will come from the line as Brent Thielman from D.A. Davidson Your line of Barclays. Please go ahead.

Martin Thank you Hey, good morning, congratulations on a great quarter.

Thanks.

Tony.

On the electrical business I think I caught this at the end it sounds like it's certainly were more impacted by some of these market disruption.

Yes.

Can you just walk me through are you expecting Merck headwind to abate as we move into the second half year as we think about the outlook.

Yes, I look I think the core of our electrical business, which is commercial construction and institutional construction and healthcare construction do continue to be fine. It looked like the mechanical business in the electrical business. This a little bit different is we have a position in oil and gas if you'll remember that for us, but four years ago.

We bought ardent rabalais, it's in that segment ardent art. It had a terrific year last year and we'll fight through those headwinds in the back half of the or Mark.

Yes, and Brian the other thing is some of the major population centers that were entirely shutdown, we have significant presence on the electrical side. Some of those markets. We also have a mechanical presence, but marcel electrical focused than the inability to be able to have our people either report to our offices for worker are certainly rich.

Part of any of our customer locations to performance into services was was extremely difficult in the quarter, which is why is it the revenue and margin performance yet on the base business. Obviously is performing very well at 7.2% operating income margins and we've had terrific performance.

I really across the country and like Mark said, they had a fight through the head of shutdowns, but it will have to overcome the compare in the back half of the or in the oil and gas business.

Okay. Okay, I appreciate that and then cardiac.

Obviously I understand the headwinds on the industrial services business, just wondering if you're able to you.

With that manpower and capacity.

Maybe maybe to benefit year now to raise or in other segments.

Chris that through these tough times right now yeah, we marginally half look first of all the manpower we would use is the trade labor.

And then Thats flexible anyway, we have used some of the trade labor.

Plus augment especially on the electrical sites absurd to capacity, we had on both the manufacturing and data center side, but that that normalizes I wouldnt say to any significant manner no.

Okay.

Last.

Mark the impairment.

Goodwill intangibles as that was that effectively all of it associated RIDEA industrial segment is there some remaining on the back now there's roughly just over 100 million of grill goodwill remaining in the industrial segment post the adjustment.

So okay. Thank you all that don't Gulf, we're seeing an issue for the remainder of this year, but clearly that the business will have to continue to perform beyond 2020 wanted to continue to support that required evaluation.

Yep understood.

Thank you best of luck thanks, Brett.

Thank you Sir your next question will come from the line of Adam Behlman from Thompson Davis. Your line is now like go ahead.

Hey, Good morning, guys I would also say congrats thank you. Thanks.

Hey, just high level on the back half.

Embedded within that guidance, how do you guys see seasonality playing out. This year you usually Q4 is a little stronger than Q3, just curious I mean that headwind I mean, clearly reflected in our guidance is how we see seasonality playing out.

And as I said, we see stronger second half revenues versus first half for all reporting segments, except for industrial.

We typically industrial typically has a good third quarter and even for us to our fourth quarter.

So we don't see that happening this year I think.

For the remaining reporting segments as long as we sort of have the operating conditions, we have now.

Seasonality should be about what it is marked by right, yes, and I think Adam the only other variable is because we certainly experience a fair amount of delays during quarter two.

Well as much as were able to control the pacing of the projects that we're on.

Im not quite sure.

Once we get through this revenue burst to get caught up what thats going to do in quarter four so.

Not all of our projects start on January Onest and ended December 30, Onest as I'm sure everybody on this call knows but I think what the compression of compression of things that have to perform between July onest in December 30, Onest of 2020.

You may not see.

Seasonality consistent with what we've experienced on a historical basis.

Okay.

I think I get that so basically you're just saying Q3 Q4.

Model and kind of the same this year.

Except for industrial gives up or industrial.

And then so on industrial so that we've seen that segment due in recent years as low as kind of 140 million revenue and slight.

Operating loss is that kind of what year.

Anticipating here.

No no focusing them to $140 million revenue.

Q3 of 17, so while again on a quarterly this on a core on a quarterly basis.

On an annual [laughter] look I think big picture I think we will make money on an EBITDA basis, we've got some.

No.

Goodwill in depreciation to jump over.

I think profitability is going to be diminimus on an operating income base and back out there and then so with what's going on in oil and gas right now Tony.

What's your thought on 20.

21, I have no idea right now I mean, one of the challenges we've had in that business over the last couple of years.

Is the first quarter is always going to be better rape and quite frankly, the last two have been okay.

And this year was shaping up to be a good year. So the question is going to be.

Hi, let's say, we start seeing resumption of air travel resumption of demand as you go from December January February what does that mean for refiner decision, making is maintenance are they going to keep running because they are finally, making money again.

And starting to get to a better capacity utilization or are they going to go through scheduled maintenance sitting here today I don't really have any visibility on that on the books first quarter 2021 looks okay.

But I think boy, we're going after really see December before we know that.

Okay understood and then just lastly, im trying to.

Rationalize this am I had just the I kind of being as low as it has been for the past four months.

But you guys talked about really strong.

Bidding and I just had a how do you guys look at that well first of all of our lagger right I mean, we're.

We would be bidding on projects probably more.

Congress and with an ABL February March.

The second thing is I think it depends where where and how you're competing.

You know I've always sort of if the eyes wrong right. It's consistently rider consistently wrong right self reported numbers.

My gut I'm not sure how.

That was if I were running my architectural from our engineering firm in the most of April and May.

Not sure how I reported numbers within just first workforce to the to the.

Hi, I would have been at the top of my list.

Understood.

All right I'll, let somebody somebody else have that thanks, guys. Thanks.

Thank you Sir.

Your next question will come from your line is under our belts from Stifel. Your line is already go ahead.

Hi, guys. Good morning, and again, congrats on great performance in the market.

So.

First I just wanted to ask about how you're thinking about share gain I've heard you know throughout.

Earning season, the number of larger kind of higher quality players in the market, saying that they think they may be gaining share on because some of the smaller contractors, maybe distressed just kind of curious how you're thinking about that phenomenon.

Yes, we never think about that well as just sort of something that has ever been on our radar screen. This is a big big market.

We are the biggest so what we do but boy, there's a lot of competitors out there.

I never said Urata worry about who is going to succeed in who is going to fail.

Contractors.

As a wonderful thing about this business right.

When things are well, we talk about contractors over extending themselves and running into working capital problems.

When things are bad we talk about contractors, taking bad work and then valley.

Here's what I've learned over a long period of time.

Bed to what you do conveyed to make money on the market. That's available to you to make money grow when its responsible to grow in that local market shrink when you need to adjust your cost structure and never count on your competitors, making a good good decision and it changing market.

All that being said it I don't think there'll be a lot of contractors that are sizable let's say the 15 $20 million contractor that will necessarily fell in this market because of the PPP loans I think they will survive and the question is what does that look like a year from mill.

Okay, Great that's helpful on.

And I guess.

It's sort of a related question, but.

I think last quarter, you kind of talked a little bit about.

It just being tough when you're looking at M&A opportunity, it's kind of trying to get a sense.

For the market is going you know how to think about the risk let some of that targets you might be looking at and on and then also the price at the kind of being demanded at that time are you starting to see things come into balance what are you just seeing in terms of pricing in the market at the moment when you're looking at some of these targets. So we tend to look through the cycle we call.

Addition, today and are building services segment, the walk vet and strengthen our mechanical services segment.

It's a very good mechanical us contract contractor that focuses on retrofit and then to end Terriers market.

We have a pretty good service company there that we think long term together that we dynamite of course, we have large project capability on the mechanical side with our poll and Ken subsidiary. So this is a nice fit and an important market with a company that we've known for a long time, and we can sort of look through the cycle and look through the market.

And to performance and it is performing very well and we look at what when we make it Dale.

We always try to look at a deal to say does this work for us and doesn't work for the person selling the company.

We don't want to be known as the people that are out there looking for a bargain and if that acquisition exceeds our expectations. It became from superior execution, our ability to generate synergies, especially on the revenue side for them to take more risk than they would have typically they have the capability, but maybe they didn't want to expand their personal balance sheet to do that.

I think there will be opportunities.

But EMCORE in general does not look for distressed assets.

Got you know we may add.

Few times in our past, maybe we've ended up with them, but it wasnt intentional.

And so we're going to keep the tried and true thing we've done look at the market.

Look at that position in the market of the person we're thinking of by.

If it's a very small acquisition is going to tuck into one of our larger acquisition driven to meet side medium sized acquisition to our larger subsidiaries. That's largely how we've built the fire protection business with two anchor acquisitions overtime.

And have many many years ago and.

Look to generate the right kind of synergies on the revenue side and of course due to cost takeout were responsible.

Thanks, that's very helpful. I guess, one last question that extends a bit on let Adam was asking about.

When you look out.

2021 on the Nonresi side of the market you've talked about a lot of hi tech vertical as and data center being.

Really strong.

Any other verticals, where you are failing kind of more confident as you look out next year versus that it's where you might feel a little more cautious.

And then you spent a lot of time talking about the opportunity around indoor air quality. It may be some remodel any anyway that you can help investors think about the size of that that market and.

Let's start Big picture I don't know what will happen in Nonres.

And how what happened in second quarter will impact the overall numbers, whether it will be up or down once you correct for the second quarter. If the second quarter Didnt have such an anomaly maybe would be down a little bit.

But I don't know that but with the second quarter being off as much it could actually be up a little bit right on a real basis year to year.

What I think about it what's likely to be challenged right.

I think just flat out commercial office space will be challenged except for maybe the renovation and NAND and the potential.

Retrofit and replacement market I don't think there'll be a lot of new construction going on although there are several projects that were involved with I think we'll get built.

Yes, it's funny when I went back and looked at.

Data as we got rid of for the first quarter call. Today, we haven't been involved in a high rise commercial office building in any substantial way for four years.

Hey, AG refilled thanks, Phil.

We're always doing retrofit work, we're always to and tenant fit all work.

So I think the greenfield market will even be more challenged I think residential high rise.

It was already starting to become challenges I think that will continue to be challenged.

I think anything around technology is going to do well.

And that includes built office space.

I don't think we're going to walk away from working at offices Forever I think it'll be a hybrid model and that will require reconfiguration of spaces and I'm not sure people are going to be is excited about their open office plans as they have in the future because most people want to have.

Contingency plans to operate much like we are today and our offices.

I think that.

The healthcare market.

We'll have some stress offer us potentially as you see in our backlog.

Because spaces are going out space going out to be adjusted and there's some big projects out there that we're looking at today.

I think that the.

Manufacturing slash industrial for us potentially could get strong it's going to look like an anomaly for a while as our big food processors jobs move in and out I think that we'll continue to be a market that will be strong for us I'm actually fairly significant believer in onshore.

And I think we're starting to see.

That happened we've seen it over the last couple of years, but I think it's not only going to be from China back to the US I think there will be a challenge for Mexico to attract new business and people will build redundant supply here in the us versus Mexico, because the Mccullough Darrow story was a tough story.

We hear from some of our customers a supply lines.

Here in the second quarter with Covidien and they found how difficult it could be operating operate with the current government I.

I think that the.

Institutional market will be a little bit slower than I think oil pickup as buildings get reconfigured.

And then the education market again, you're going have to think about IEI q. I acute and drive inefficiency and so this whole replacement market.

Where we perform support we do a little bit ourselves and a couple of state but for the most far we support the heck out of the performance contractors. They could in fact see an uptick in their business late 21 going into 2002.

I think water and wastewater will continue to be a good market for us are mainly because we have location location location lots going on down in south, Florida and will be part and we will be part of that.

I don't think that hospitality will be a real area of strength for anybody here anytime soon in fact, we could argue here at EMCOR, we maybe to start blood and out with our commercial sector.

We just leave it out there for commit comparison sake.

That's helpful perfect perfect. Thank you very much appreciate it.

Thank you.

Your next question will come from the line of sight.

From Keybanc capital markets. Your line is now like go ahead.

Hi, guys couple management team on a strong effort.

Solid quarter.

I was just curious.

I think one of the highlights here in the second quarter is just that ARPO.

Ticking up sequentially.

[music].

Considering this backdrop here, but I guess, partly part of that is kind of helped by a lighter.

Revenue quarter, and you are anticipating the revenue run rate to pick up here in the back half. So I'm just kind of wondering about that second half dynamic should we expect some ARPO to sort of work down in the second half.

How should we be thinking about that I look out I'll, let mark jump in here too when I look at it is it depends.

We have several projects we're looking at that if they get awarded in the rather significant than you won't see that we've also seen more stability in the small project activity that is now part of our approach and I look back many years that wouldn't have been necessarily in there.

I think the one of the things that will be a little bit of a headwind is what we're completing one heck of a food process job right now and much like we had three years ago, we had a little GAAP. We may have that again now we've got a lot of that we have some very good prospects there.

I think that that booking billed business underneath that is okay.

Could there be an air pocket to develop because a decision making in April and may tying back to this way beyond number when architects and engineers were working remotely we had that could happen, but I don't think its long term yet.

As ours are working assumption at EMCOR has been for a while that things don't get really normal until first quarter of 21.

We have been sorta configuring, our business and working that way for awhile. So we're sort of you know looking around all those pieces Mark yes, Sean available it as its own at our amplified from tone is commentary is as some of the some of the revenue improvement. We're looking at in the back half of their is going to becoming.

From the project work, that's going to come off the maintenance because of the season, the more normal seasonality and while there were saying and most of the geographies, where we had mechanical services capabilities.

As Tony indicated a lot of that work actually never actually goes into Rpls disappearing as of the quick turn nature of it Conversely, because we're looking at revenue declines in the back half of their within our industrial services segment other than the shop piece of that business as you know.

All that work is as Todd and material. So a never actually impacts the arpino number so im not necessarily convinced that youre going to see the same level of sequential growth as we move through the third quarter, but I think with all of the opportunities out there and what we're executing against.

I would like to think it's going to be no worse than flat if not slightly off here as we progress through quarter three in quarter four.

Putting aside some of those larger projects already talked about depending on the timing on one if there are awarded in their awarded to us when they come into the next spot.

Okay got it helpful. Next is just on the construction segment margins, it's interesting to see.

Both of them.

Hanging in pretty well here in particular, the mechanical and the second quarter.

Just any update on new traject margin trajectory trajectory in those segments you guys mentioned mix completing some projects cost control has been a big seeing here in the near term.

Any reason why these levels are sort of sustainable or whether the normalized margin ranges shouldn't be attainable.

Even into the out year, even though.

I'd go to go flat or not the former I don't think eight at 5% mechanical margins are sustainable for an extended period of time.

I think as we said these in the past where they jump in and out you know we always say look back 12 months that gives you a gathering freak for four quarters, because you are pretty good idea how we're performing.

We have set for a long time anywhere from six to seven and 8% mechanically is pretty good performance I guess, we picked that up to 6.5% mechanically which is.

Pretty good as a baseline to seven.

Maybe 75% when you're finishing jobs that are going better than expected electrically we've ever performed at these levels for a long time.

That both sectors are led by people that really know how to cut costs when they need to net data on a meter back in the cost.

A lot of it happens upfront right. We don't have big write offs typically maybe we have every three or four years, usually most of its not our fault and we and we do a pretty good job recovery sometimes.

A third at any given time might be our fault and so we do a good job avoiding badness always say margins are driven by an absence of badness in executing our good work. When you have it so that follow up front is very important and we have been very careful right now on the kind of jobs were selecting.

And you know at the beginning as covert thing people like getting a little desperate we didn't participate and we've seen norm more normal bidding resume.

So yes long winded answer to normalized margins. These are little high right now from mechanical but I look back 12 months, we're doing okay Mark.

Thank you.

No reason that we're not going to continue to perform at our historical averages and really even look at the last 36 months relative to.

Our construction operations on a combined basis, they haven't been fairly consistent within within 50 basis points.

So the work the work that's remaining to be performed in our remaining performance obligations.

As margin profiles consistent with what you've seen us on and we're going to continue to operate under our operational excellence program and continue to do what's best for off for a customer so.

Yes, we believe that we wouldn't put the guidance out that we did.

Right I mean.

And our major question Mark in the back half of the year really centers around industrial and maybe to a much lesser extent as small project pork remark went through why we believe that will keep going at a much luck slusher et cetera, what could happen with small project only cause us to valve they can turn on and off not anything we're actually seeing today.

If things got really bad like they did in April that Bellwood turn off again, and we said that our guidance that's one of the caveats.

Got it that I'll leave it there. Thanks, so much for the time really appreciate Q.

Thank you formats and for your last question you have a line from del Monte Carlo from Sidoti and company. Your line is now on Super helpful. Hey, Joe.

Hi, good morning, everyone.

Sorry, I got dropped off the call for about four minutes, maybe just a little just a couple of minutes ago I'm not sure what happened but.

I wanted to ask about sort of the co good related to opportunity in terms of air quality in work there.

I know, it's probably still early but I'm wondering what your thoughts are on how big of an opportunity that could be in terms of retrofit.

Well for air quality, Yes, I would break it into two pieces show.

The first piece is what are you doing today.

To take existing systems are making more.

Friendly or better indoor environment.

I think it when you add all that up at EMCOR and.

It will be a nice project it'll be a altogether it will be sort at $12 million to $20 million project with above.

Average margins.

These things are going to happen somewhere between two and $10000 at a time.

Maybe 20 at the top end on your typical 100000 square foot of space, that's sort of what they are.

However, the longer term opportunity is okay. We did what we needed to do with the system we had.

Now how do we make sure that we have a better built space for the long term you do a lot of this our newer buildings.

So youre going to have to update the HK system and the control system because.

I'd say Q for the most part the biggest part of it is bringing more outside air I missed the first thing you can do and it's actually one of the most effective things you can do.

That works at cross purposes with efficiency.

So I believe that as you play this out over a two year period, you're going to see the replacement market gets stronger.

Going from in the Middle 21, and beyond and it's already pretty good replacement market because equipment is so much more variable and efficient today than it was even just 10 years ago.

So I think thats the second phase you'll see.

And then I think of course, there will be added.

Hvdc content and controls content in Newbuilds.

You're already seeing that you'll see even more of that.

And then if you even notice specific case I think when you get to the healthcare space now that we've had this.

Issue around I see EWP and try to use in general or vetting are built to operate damn near 90% of the capacity all the time at the very expensive.

So I think as you build new hospitals and retrofit hospitals, I think youre going to be putting in the ability to flex into more I see you space.

So how do you do that you introduced negative pressure right.

Which creates negative pressure that I see you room, you will put more the systems into a room that may or may not be used until you need them.

So thats going to be than an opportunity that's going to happen. So Q is a simple thing to say it takes on all kind of different flavors existing today immediate I can do things I can put UBI lights on I can do enhance filtering I can do bipolar ionization I can increase their flow from outside long term.

I can do all kinds of things with the system, those things and more but they can be actually built into the system and then longer term how do I make my space as flexible as I can.

Either in industrial setting an office setting or health care setting. So I can adjust between different kinds of uses depending on something like this potentially happening again.

Okay, and so I guess when you take that sort of net the too.

Opportunities together.

How you characterize them.

Is your best guess that it's going to be more material more in the longer term. So yes. It is 21 and beyond yes, I think 21.

Add onto an already good summer I mean in 20, Okay. I think as you get mid 21 and beyond and things start get incorporated design it'll be more material you won't necessarily see you'll just know you're doing more hvdc caught.