Q3 2020 EMCOR Group Inc Earnings Call
[music].
At this time I would like to welcome everyone to the I'm quickly they.
Margaret tiny tiny earnings call Oh.
All lines have been placed on mute to prevent any background noise.
I'll take the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply pass Star then the number one on your telephone keypad if.
He would like people to buy your question press the pound key Mr.
It's Jamie bag, but after the I. consulting you may begin.
Thank you Larry and good morning, everyone. Welcome to the EMCOR Group Conference call. We are here today to discuss the Companys 2023rd quarter results, which were reported this morning, I would like to turn the call over to Kevin Matz Executive Vice President of shared services, who will introduce medicine Kevin.
Please go ahead.
Thank you, Jamie and good morning, everyone.
As always thank you for your interest in EMCOR and welcome to our earnings conference call for the third quarter of 2024.
For those of you who are accessing the call via the Internet at our website welcome and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today, we are on slide two.
This presentation and discussion contains certain forward looking statements and certain non-GAAP information page to describe in detail. The forward looking statements and the non-GAAP financial information disclosure I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slide.
Slide three shows executives, who are with me to discuss the quarter and nine month results. They are Tony Guzzi, Our chairman President Chief Executive Officer, Mark Pompa, Our executive Vice President Chief Financial Officer, and our senior Vice President General Counsel Maxine Mauricio.
For call participants not accessing the conference call via the Internet. This presentation, including the slides will be archived in the Investor Relations section of our website under presentations you can find us at EMCOR group Dotcom with that said, please let me turn the call over to Tony Tony.
Good morning, and thanks, Kevin Oh, I'm going to start on pages four through six we.
We had an exceptional quarter.
As reported with respect to operating income at a 135.9 million.
Operating income percentage at 6.2%.
And with respect to earnings per diluted share at $1.76 on a non-GAAP adjusted basis.
We are in revenues of 2.2 billion in the quarter and had operating cash flow of 270 million.
We had excellent operational performance and cost control our team executed with focus discipline and precision.
We continue to take steps to keep our skilled trades workforce safe motivated and productive.
We achieved this performance despite a very difficult operating environment.
Our core industrial services segment, which you know focuses on downstream petrochemical and oil and gas and.
In refining we are structurally reduced our SG today by about seven to 9 million per quarter on a go forward basis.
Actual performance of our segments built in industrial services GAAP, thus, demonstrating how the diversity and balance at EMCOR can work for our shareholders I will cover some highlights by Simon and I will cover the broad themes are practices that drew.
Given our performance during these challenging times.
Our electrical and mechanical construction segments had outstanding performance in the quarter and on a year to date basis, we leveraged our cost structure across a solid mix of projects turned strong and robust operating income margins of 9.2% and our electrical construction segment and 9.0% in our mechanical construction segment.
We leveraged a lower cost structure, but more importantly had exceptional field performance on our projects.
We did benefit on some project closeouts or resolutions, we always have some of those something that mark will cover in more detail, but the underlying performance and productivity in these segments as good as we have ever had period full stop.
Our building US building services segment for formed exceptionally well with a record quarterly operating income percentage up 6.9%, our commercial site based business as our best third quarter ever and reset our cost base to position us for even more success in the future as we grow the business we.
I have a very good customer mix, our customers are demanding but by involving us in their maintenance capital spending they provide us with the opportunity to add value for incremental small projects and service activity. Our government business also had a very good quarter. In addition, we had excellent repair service and project performance in.
In our mobile mechanical services Division.
Repair services aided by a hot summer coupled with significant demand for our I II or indoor air quality product and services. We also are near flat year to date for project bookings on an organic basis, which shows significant recovery from the large drop in organic bookings in April and May.
We also completed a nice acquisition in August that will build our project capabilities and allow for long term service growth in the Washington DC market.
Our industrial services segment had a tough quarter in line with what we expected and discussed on our second quarter earnings call demand has dropped significantly across the industry and that coupled with successive hurricanes made for a very difficult quarter. This is a tough environment for industrial services as we focused on.
Our chemical and refining.
However, we are well positioned when our customers rebound, we have reset the business through aggressive cost cutting and redeploying personnel to the work that is available the issue in our field supervision is absorbed productive. However, they are capable of managed much larger work scope versus what is available today and that is where the leverage is in this segment.
Our UK segment continues to steady performance and continues to build on a strong market position.
Our strong customer relationships give us opportunities to not only meet their service needs, but also their maintenance and project retrofit needs.
I want to take this opportunity to share with you. How we have succeeded in this challenging operating environment across EMCORE. These actions and teams are why we have had this exceptional year their performance across our business.
Number one we cap our focus as an organization.
As we have moved through this ever changing environment. In 2020, we have stay focused on accomplishing our mission for our customers. We are already a flatter organization and we had direct communication at multiple levels, we became even flatter with even better communication across our company.
Over to employee safety is and has been our number one priority throughout this pandemic our people were able to keep this priority Paramount as it is one of our core values. We just had to implement these practices in a different way.
Our team knows we aboard shortcuts and we always emphasize worker safety. This unrelenting focus and commitment to safety is not new to US and is one of the main reasons, we can fill the best team in the industry number three.
We work together across this large decentralized organization by focusing on the task at hand, and we have sought to comply at all times with a multitude of regulations programs and procedures in this constantly changing environment. Our staff is make sure that our subsidiaries at the best available information to implement the practices need.
Did the key progress moving on a project for US service demand again, teamwork and mutual respect for each other our core values of EMCORE number four we stayed focused not only on safety, but also productivity. Our people took ownership of job size brought solutions forward that allowed us to.
At least maintain the productivity we've been in the jobs through better scheduling adjust your work practices more pre fabrication and better job site logistics in many ways. We are uniquely trained to perform in this constantly trading environment. We are a team of very successful trade contractors, who know how to read.
React and adapt to changing markets and jobsite conditions number five we.
We have positioned ourselves into some good term mark long term markets, which I will talk about later, such as healthcare manufacturing high Tech manufacturing Datacenters commercial and food processing.
We offer valuable centers services in these markets to our electrical trades are H.B.A. saitek HPC technicians, our pipe Fitters Welders mill right sprinkler builders and plumbers, we were able to move between markets with skill and agility that can handle the most complex construction and service opportunities within these markets number six.
We were prepared and trained to serve our customers with new products when the pandemic hit we bundled together our services and products related to I accused slash indoor air quality and building wellness and had these solutions ready to present to our customers. When we were able to re enter buildings campuses and industrial facilities, we've helped in Q.
We continue to help our customers reopened with more peace of mind by improving the airflow and air quality in their workplaces number seven we became leaner and more productive we cut costs early and deepen some of our businesses. We did not wait to react we found new ways to work through technology and finally number eight.
We leveraged our scale our suppliers worked with us to make sure we had the necessary prop personal protective equipment necessary for our people to do their jobs, we had the job materials, we needed to be successful. Despite slot supply disruptions that may have impacted others. We shared ideas on how to keep safe, but also stay productive.
For me, it's been humbling to see this high level of execution. During these difficult times. It speaks to his leadership of our segment and subsidiary leaders, who look for solutions when obstacles are in front of them and our highly skilled and dedicated workforce, who continue to work and serve our customers throughout these difficult times driven by this pandemic.
I cannot thank them enough for all that they do for EMCOR everyday our customers and our shareholders and with that Mark I'll turn it to you. Thank you Tony and good morning to everyone participating on todays call for those accessing this presentation via the webcast. We are now on slide seven.
Over the next several slides that will augment tonys opening commentary and of course third quarter performance as well as provide an update on our year to date results through September Thirtyth.
All financial information referenced 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 EMCOR third quarter performance consolidated revenues of $2.2 billion or down $86 million or 3.8% from quarter three.
2019.
Our third quarter results include $81.4 million of revenues attributable to businesses acquired pertaining to the time that such businesses were not owned by EMCOR in last year's third quarter acquisition revenues positively impacted both the United States mechanical construction in the United States building services segments, excluding the impact of businesses acquired third quarter.
Consolidated revenues decreased approximately $167.5 million or 7.3% on like our results for the second quarter of 2020, where each of our reportable segments had quarter over quarter revenue declines we did see revenue gains in three of our five segments during the third quarter of this year.
However, when you remove the impact of businesses acquired all of our US reportable segments experienced organic revenue declines period over period as the effects of the Cove in 19 pandemic as well as the disruption within the oil and gas markets are still impacting a number of our businesses United States electrical construction revenues of 508.9.
Clean decreased $45.8 million or 8.3% from 2019th third quarter revenue declined across multiple market sectors due to the continuing impact of the pandemic, including the associated containment and mitigation measures as well as the curtailment of certain capital spending by some of our customers. This segment. Additionally.
Experienced a significant reduction in revenues within the manufacturing or industrial market sector, where certain of our electrical businesses perform services for both midstream and upstream oil and gas customers not dissimilar to our industrial services segment. The electrical construction segment has experienced numerous project deferrals specifically in them.
Manufacturing and industrial market sector, resulting from cost control actions initiated by many of their customers within the broader oil and gas industry.
United States mechanical construction segment revenues of 891.5 million increased $22.3 million or 2%, 2.6% from quarter. Three 2019. The result of this segment represent record third quarter revenue performance, excluding acquisition revenues of $61.1 million. This segment's revenues decreased 38.8.
$8 million or 4.5% organically reductions in quarter over quarter revenues from the manufacturing market sector inclusive of activities within the food processing submarket sector as well as the healthcare market sector due to project completions in the prior year are the primary reasons for this segment's organic revenue decline.
Im course total domestic construction business third quarter revenues of $1.4 billion decreased by $23.5 million or 1.6%.
The United States building services quarterly revenues of $551.5 million increased $19.4 million or 3.7% and represents an all time quarterly record for this segment.
Excluding acquisition revenues of $20.3 million. This segment's revenues decreased approximately $900000 or less than a quarter of a percent rig.
Reduced building control project activities due to access restrictions created by the code in 19 pandemic were almost entirely offset by increased small project revenues, including indefinite delivery indefinite quantity project volumes from this segments government services division as well as an increase in demand for certain services aimed at improving.
Indoor air quality in response to the pandemic and in line with the recommendations from the CDC Tony will comment further on our Q capabilities later in this presentation.
United States Industrial services revenues of 139.7 million decreased $94.4 million or 40.3%. As this segment continues to be impacted by the negative macroeconomic conditions and uncertainty within the markets in which it operates additionally, our quarterly performance within this segment was adversely affected by work stoppages, resulting.
From Hurricane and tropical storm activity in the Gulf Coast region, where the majority of our industrial services operations are located United Kingdom building services segment revenues of $110.1 million increased $12.5 million or 12.7% from last year's quarter revenue gains for the quarter resulted from new maintenance contract awards as well as strong.
Project activity across our customer portfolio. In addition revenues for this segment were positively impacted by $5 million as a result of favorable foreign exchange rate movements within the quarter. Please turn to slide eight selling.
Selling general and administrative expenses of $226.8 million represent 10.3% of third quarter revenues and reflect an increase of $6.7 million. The current years quarter includes approximately $8.9 million of incremental expenses from businesses acquired inclusive of intangible asset amortization, resulting in an organic quarter.
Over quarter decrease in selling general and administrative expenses of approximately $2.2 million SGN expenses for the third quarter of 2019 were favorably impacted by $4.5 million of insurance recovery and legal settlements within the industrial services segment when excluding these recoveries from the prior.
Our year period, the adjusted organic decline in 2000, Twentys third quarter SGN eight is $6.7 million.
Quarter over quarter reductions in salaries, and travel and entertainment expenses due to a combination of cost cutting measures and the continuing impact of the Cove in 19 pandemic were partially offset by an increase in quarterly incentive compensation expense due to EMCORE is improved operating performance during the period and our revised upward to expectations.
For full year 2020 the.
The increase in SG and as a percentage of revenues is due to the reduction in quarterly consolidated revenues without a commensurate decrease in certain of our fixed overhead cost as we do not deem the current operating environment to be permanent this is consistent with their assessment. During this year's second quarter, Additionally, with quarter over quarter and sequential.
The increase in total incentive compensation expense previously mentioned, our SGN as a percentage of revenues was unfavorably impacted by approximately 50 basis points within the third quarter of 2020 Rick.
Reported operating income for the quarter of 135.9 million represented $20.1 million increase or 17.4% as compared to operating income of 115.7 million in 2019 third quarter. This represents an all represents an all time quarterly operating income record for EMCOR, which is quite remarkable perform.
Once when you consider the economic backdrop.
Our third quarter operating margin of 6.2%, which favorably compares to 5.1% of operating margin reported in last year's third quarter, we experienced operating margin expansion expansion within each of our reportable segments other than our US industrial services segment, which is reporting an operating loss for the quarter and our UK building services.
Men, which was essentially flat period over period.
Specific quarterly performance by reporting segment as follows our US electrical construction segment operating income of 47.1 million $47.1 million increased $13.4 million from the comparable 2019 period.
Reported operating margin of 9.2% represents a 310 basis point improvement over last year's third quarter. This improvement in both operating income dollars and operating margin is largely attributable to increased gross profit contribution from commercial market sector activities inclusive of numerous teligent inclusive of numerous telecommunication.
Auction projects. In addition, operating income and operating margin of this segment benefited from favorable project Closeouts within the transportation and institutional market sectors, which positively impacted quarterly operating margin in the current year by 70 basis points.
Third quarter operating income of our U.S mechanical construction services segment of $80 million represents an $18.8 million increase from last year's quarter, while operating margin in the quarter of 9% represents a 200 basis point improvement over 2019, despite the impact of the Cove in 19 condemning this segment has experienced and.
Greece gross profit from projects within the majority of the market sectors in which it operates in addition, a more favorable mix of work within the both within both the manufacturing in the commercial market sectors drove the improvement in quarterly operating margin our.
Our combined US construction business is reporting a 9.1% operating margin and a $127.1 million of operating income, which has increased from 2019 third quarter by 32.3 million or 34% for the third quarter of 2020 operating income and operating margin for you. It's building services segment was 38 point.
2 million, 6.9% respectively.
Performance of this segment represents an all time quarterly record in terms of both operating income and operating margin operating income increased by $3.2 million over last years third quarter and operating margin improved by 30 basis points. These increases were primarily due to increased gross profit and gross profit margin from this segments commercial site based services Division.
In addition, this segments results for the current quarter benefited from lower selling general and administrative expenses due to cost cutting measures enacted in response to the COVID-19 pin debit.
Our us industrial services operating loss of $9.8 million represents a decrease of $15.4 million compared to operating income of $5.6 million in last year's third quarter as briefly mentioned earlier on this call as well as during my commentary on our second quarter earnings call. This segment has been significantly impacted by adverse macro.
Economic conditions within the oil and gas industry as well as the dramatic decline in demand for refined oil products due to the travel restrictions and other containment and mitigation measures imposed in response to COVID-19. These conditions have resulted in reduced capital spending and the implementation of various cost cutting measures by certain of our customers, which.
As a result in a decrease in demand for the services provided by this segment compounding this reduced demand and as ever and as I referenced during my revenue commentary the Gulf Coast region has been impacted by numerous name storms during 2000, Twentys hurricane season, which resulted in the suspension of planned maintenance activities as our customers focused.
On storm preparation and recovery efforts.
UK building services operating income of $5.3 million represents an approximately $600000 increase over 2019 third quarter due to an increase in gross profit within the segment operating margin of 4.8% slightly reduced from 2019 third quarter operating margin of 4.9% we announced.
Slide nine rigs.
Additional financial items of significance for the quarter not addressed on my previous slides are as follows quarter three gross profit of $363.2 million or 16.5% of revenues is improved over last year's quarter by $27.2 million and 180 basis points of gross margin, we experienced quarter over quarter improvement in gross.
Gross profit dollars in all reportable segments other than our industrial services segment due to the unfavorable market conditions previously outlined diluted earnings per common share of one dollar and 11 cents compares to $1.45 cents per diluted share in last year's third quarter adjusting our record quarterly performance for the negative impact on.
Our income tax rate, resulting from the non deductible portion of the noncash impairment charges recorded during the second quarter of this year non-GAAP diluted earnings per share for the quarter ended September Thirtyth 2020 is one dollar and 76 cents, which favorably compares to last year's quarter by 31 cents or two.
Any 1.4%.
My last comment on this slide is the continuation of my income tax rate commentary, which as you can see on the bottom of slide nine is 54.7% for the quarter due to the non deductibility of the majority of quarter two noncash impairment charges with one quarter of 2020 remaining I anticipate that our full year tax rate will.
Be between 53, and 54%, which is a downward revision from the previous range provided on our quarter to call as everyone. On this call knows this range can change if we have any significant discrete tax items that occur during the fourth quarter. Please turn to slide 10.
With my quarter commentary complete, let's now turn our attention to end quarters year to date results through September Thirtyth.
Revenues of 6.52 billion, representing a decrease of $255.1 million or 3.8% when compared to revenues of 6.77 billion in the corresponding prior year period. Our year to date results include $214.1 million of revenues attributable to businesses acquired pertaining to the period of time as such.
Businesses were not owned by EMCOR in the 2019 year to date period, excluding the impact of businesses acquired year to date revenues decreased organically, 6.9%, primarily as a result of the significant revenue contraction experienced during quarter, two given the containment and mitigation measures mandate it by certain of our customers as well.
As numerous governmental authorities in response to COVID-19 year to date gross profit of 1 billion is higher than the 2019 nine month period by $20.4 million or 2.1% year to date gross margin is 15.5%, which favorably compares to 2000 nineteens year to date gross margin of 14 point.
6% the year over year gross margin improvement was largely driven by our combined us construction business.
Selling general and administrative expenses of $659 million represent 10.1% of revenues this compares to $652.5 million or 9.6%.
Revenues in the prior year period year to date 2020 includes 25.2 million of incremental SGN, a inclusive of intangible asset amortization pertaining to businesses acquired excluding such incremental cost or SGT has decreased on an organic basis by approximately $18.7 million year over year.
Reported operating income for the first nine months of 2020 is $119.2 million adjusting this amount to exclude the noncash impairment loss on goodwill identifiable intangible assets and other long lived assets recorded in the second quarter results in non-GAAP operating income of 352 million for 2029 month period as compared to three.
Hundred $38 million for the corresponding 2019 year to date period. This adjusted non-GAAP operating income represents a $13.9 million or 4.1% improvement year over year diluted earnings per common share for the nine months ended September Thirtyth 2020 is 96 cents when adjusting this amount for the impact of the noncash.
Impairment charges previously mentioned non-GAAP diluted earnings per share was $4.54 as compared to $4.22 in last years nine month period. This represents a 32 cents or 7.6% improvement period over period. We are now on slide 11.
And first we'll put any profile continues to improve as we just completed another quarter of strong cash flow generation, bringing our year to date operating cash flow to $546.8 million. Our operating cash flow has benefited from the effective management of working capital by our subsidiary leadership teams, coupled with the impact of certain government measure.
Is enacted in response to the COVID-19, pandemic, which allow for the deferral of the employers portion of social security tax payments and the remission and value added tax for our UK subsidiary on a year to date basis. These measures have favorably impacted operating cash flow by approximately $81 million with this strong operating cash flow.
Cash on hand has increased to $679.3 million from the approximately 359 million on our year end 2019 balance sheet and is the primary driver of the increase in our September Thirtyth working capital balance although changes in key balance sheet positions of know are as follows goodwill has decreased since December 31.
2019, as a result of a noncash impairment charge recognized during the second quarter of 2020, partially offset by an increase in goodwill, resulting from the businesses acquired during two years before 2020 year to date period.
Largely as a result of $44.8 million of amortization expense recorded during the first nine months of this year are identifiable intangible asset balances has decreased since December 31, 2019, similar to our goodwill balance discretes was partially offset by incremental intangible assets recognized as.
The result of the acquisition of two businesses during the first nine months of this year total debt has decreased by approximately $30 million since the end of 2019, reflecting our net financing activities during the year. Although not included on this slide is due to the periods presented at EMCOR has paid down approximately $273 million of borrowings.
Under its credit facility inclusive of borrowings executed during 2020 and cores debt to capitalization ratio has decreased to 12.3% as of September thirtyth.
Lastly, our stockholders' equity has decreased since December 2019, as our share repurchase activity and dividend payments for the nine month period of 2020 have exceeded our net income due to the impairment loss recognized in the second quarter.
Due to our strong cash flow performance in concert with our available credit and core remains in a very strong position to take advantage of any market opportunities that may be present and future periods with my lengthy portion of this pride to slide presentation concluded I would like to give the call back to Tony Thanks, Mark.
And Thats what happens over in the third quarter.
Thank you and I'm going to be on page 12 remaining performance obligations by segment and market sector.
Total RPD was at the end of the third quarter were a little over $4.5 billion up $495 million or 12.3% when compared to the September 2019 level of $4 billion.
Argos Likewise increase to save about 494 million for the first nine months of 2020.
With all of this growth being organic except for approximately $86 million relating to two acquisitions and that current 12 month period.
Taken together, our mechanical and electrical construction segment, Rpos have increased $409 million or 12.4% since the year ago period, 7% of this growth is organic with the balance being rpos that came with our November 19 acquisition of BK.
A full service mechanical contractor headquartered in the Atlanta area.
I should note here that thus far in 2020 BK has more than doubled its ARPU shows total in the first nine months of this year as they continue to win work, including projects in the data center manufacturing and healthcare markets. The integration of BK I has gone very well due to the exceptional team they have a real are terrific.
Team. So we're thrilled to have them on our team.
Building services segment ARPU has increased in the quarter as this segment small project repair service work also continues to regain its footing remember the small project work in this segment was the first to feel the effect of the pandemic as building operations Shipley shutdown. We are getting in there now as facilities opened up and more and more of building owners and tenants.
Are looking for ways to increase there.
Indoor air quality in their facilities and I'll go a little deeper into Q on the next slide.
Project bookings are nearly flat on a year to date basis, which is a pretty good recovery considering the deed drop in bookings we had in April and May are.
On the right side of this page we show our peers by market sector similar to a quarter ago, all eight market sectors listed at year over year ARPU increases except for manufacturing slash industrial where we have just completed some major projects and are looking at reloading for additional work and we feel pretty good about that as we are in the mid to develop.
It's a good prospects in the manufacturing sector as supply chains change and we also are very strong and high tech manufacturing.
Many of these projects come in pieces first of all at once into our backlog coverage.
Commercial project Rpos comprise our largest market sector at over 40 for 2% of total this is almost a 20% increase from the year end and it's really spurred by two things really a hi Tech and data center projects at Baird.
Repeating or industry has saved and adapt to the safety and we're protocols to key project progressing with a larger goalkeeping worker safe.
Our protocols are working the industry keeps working and bidding opportunities continue pretty much all sectors and geographic markets. So I want to take the next two page and cover on pages 13, and 14, what I'm going to discuss our markets and opportunities where we are as we move forward. We believe have some resiliency for us to operate it.
And I'm now going to turn to page 13.
Assess future effects on markets. We believe we have multiple pockets of resistance. Despite wider nonresidential uncertainty, let's go to first to Datacenters are this has only gotten stronger through the pandemic. It was strong already.
And is it demands our electrical mechanical and fire protection demand across mid Atlantic Pacific Northwest Midwest and southeast.
We've done a good job here and we're one of the leaders and we've also made some strategic acquisitions, especially in the last 15 months not only a fire protection assets, but also key electrical contractors like we did in the Midwest and also in the southeast which is emblematic of our BK acquisition and of course, we build organic capability here and build off.
Long term success and data center markets and we are able to build these hyperscale on time on budget and with speed to important to note here that there's always changes in the data center market projects get the redesign they get moved they get delayed as they get redesign other ones get accelerated.
That was a routine course of business outside of the pandemic and really have little to do with the pandemic at our case.
On the warehouse side, we continue to build out E commerce supply chain and we continue to see very strong demand im not only regular warehouse as we continue to see demand across cold storage. This is especially true for our fire protection and sprinkle work.
In industrial manufacturing, we believe we are well positioned for electro mechanical opportunities and mill right opportunities driven by the re shoring or supply chain, the south southeast and relocation from higher cost States and sites. We do believe also that we'll have additional food processing opportunities anecdotally, we've won at least three.
Jobs in the last four months, which would have been headed either to Mexico or overseas that are now being being built in the southeast.
On the healthcare side, we continue to see demand.
For our our assist our work electrical mechanical fire protection and then eventually service hospice.
Hospitals are looking to retrofit that are looking to build new facilities and they're looking to have more flexibility in their existing facilities and build new facilities.
We have grown backlog here, we expect to continue to grow back I look this can be episodic things come in and out on the big project side, but the flip side of that is we're not doing as much service workers. We typically have done in hospitals as they deal with the impact of co. It long term, we expect to do more retro.
People do things to be more flexible to think about it.
We did a lot of work to create negative pressure environment and death in these hospitals we.
We expect to continue to do that but in any asset and if you have a a bigger casualty event.
Accidents terror situations, they want to be able to do positive pressure so.
So facilities are going to have to move between the two and Thats all bought airflow and the kinds of work, we do and then you're going to have to have in hand.
Electrical systems and communication of hiring in those facilities and we are uniquely positioned to help with those and we have great relationships with some of the biggest hospital systems in the country and we help them through the pandemic, we've helped them build some of their new facilities in the past and we expect to do both in the future and I think you're starting to see.
The impact of that in our backlog on the water and wastewater side. This we think is a good long term market for us, especially in Florida, and really there they're looking for a comprehensive construction services and in water and wastewater. Many times, we serve as a prime contractor, bringing all trades and activities together.
Mechanical services, we believe has been a good market for us for a long long time, we have a terrific business.
Most of it rest in building services some of our service operations are rest in our mechanical construction segment and you can see that in our 10-Q.
We see growing demand stepping from maintenance deferrals, we think theres going to be a lot of retrofit opportunities I'm going to cover both that an indoor air quality as we switch to page 14.
EMCOR has been a leader for a long time as you look at block one of HVAC capabilities expects, a big part of our business and it can be up to a third or more of what we do in any given year. If you look at it we do new construction of course, we can we can do big work.
We talked about that on some of the resilient markets on the page before core tenant fit out were great retrofit company, we know how to do the energy retrofit work, we know how to energy engineer that energy retrofit work and we know how to read.
Support and help all the Escos that are doing that energy retrofit work.
Thats equipment replacement energy reserve energy retrofit lighting upgrade building control systems.
One of the things we made we don't brag about enough is a capability that we have in that aftermarket of Hvdc. We're the leader there and we are the largest independent controls contractor on top of everything else and really what we seek to get to is building wellness have the most efficient building, but have it be a place that is healthy.
Now as you moved to block to indoor Air quality, let's think about this at a high level.
Really that the goal over the last 20 years.
And I've seen this from an OEM I've seen it from a service perspective I've seen it from a new construction perspective has been to take indirect outside air out of the building.
Outside air is inefficient right in the summer with humidity. It causes efficiency problem in the winter caused the same for obvious reasons and so we worked real hard to take outside air out that all went by the way side in the middle of March now, which we're opening up air dampers that haven't been opened in a long time and actually buildings are going back to.
[music] 25, CFM per person and thats cubic feet per minute and we had got that down to 15, and we had you safe and productive ways to do that like demand control ventilation.
So what do we do it now and indoor air quality well a lot of it is hey, you got to give people peace of mind and you as an owner have to do everything possible to increase the wellness and indoor air quality of your buildings. How do you do that you do that through enhanced filtration.
We take things from a merch 10, or 12 up to emerge 14, or 15, you do that movie cap lap technologies, it gets better and better and this stuff actually works that reduces surface the combination and it increases airborne in activation rates are things pass through the coil pass across the.
Air Handler media and as a result, you make it cleaner needlepoint bipolar ionization. We're one of the leaders in the implementation of that technology and as I talked about earlier, we spent a lot of time training on this all the way down through our technicians during.
The lock down and the pandemic and we were ready to go yes. There is a recent case study here. Rob. This is somewhat has 240 buildings, mainly small package of equipment. So here you have to attack it by getting into the.
The mixing box and how do you do that you do that through unique as what you are trying to do is get the surface stock contamination gone through you the lights.
We'll do this across 240 reduced 90 state the goal was to demonstrate to the employees and actually have it happened in the Andrew our quality gets better at.
This was a large multi state corporation with lots of sites and I had given a number that we thought it would be like a good medium sized projects are.
This is actually much better than we thought it was going to be hard to quantify exactly what it will be up but it's something we can get in front of our customers with and help them drive productivity in their buildings.
By giving them a better workspace now one of the things you have to think about is indoor air quality and efficiency work across purposes with each other I personally believe we've already had a good retrofit market that retrofit markets going to gain strength as we move through 2021 on the Hvdc side, and again EMCORE being the largest independent.
Air conditioning.
Contractor with a great retrofit capability will clearly be in a position to help our country, our customers balanced indoor air quality against efficiency.
With that I'm going to turn to the last two pages 15, and 16 and I'm going to close out here they.
Clearly we have done much better than we expected when we withdrew guidance in April and then will be reinstated got it reinstated guidance with our second quarter earnings announcement, both of which we believe were the right thing to do today, we are raising our guidance for earnings per share from continuing operations, we will move to 590 to 610 non-GAAP.
Our earnings per share and revenues of around $8.7 billion in providing this revised guidance. We have assumed the following operating environment first we remain in an exceptional service in most cases second we continue to execute productively in this environment third there are no significant shutdown.
I was like we saw in March and April and for Us that means our sites our projects are crash.
Four we expect to have continued strong performance from our electrical and mechanical construction segments building services and the UK.
We still see pretty good opportunities that we are estimating a bidding and to date, we have seen no significant project deferrals outside of oil and gas as Mark the Strat described it now.
No. The note non residential market may move downward in the fourth quarter or continue to sort of the mix.
We do expect that decline to be in the mid single digits. As we move into 2021. This is still a big market and if you refer back to page 13, we have a lot of operating space and what we believe are resilient markets.
For industrial services, which is downstream refining and petrochemical for the most part we do expect sequential improvement as we go from Q3 to Q4, but nothing significant for the balance of the year and as of today. We do expect the first quarter of 2021 to be better than the fourth quarter of 2020, we have some visibility not as much as.
We would typically have at this time, however, we do not expect any significant contribution from this segment for the balance of the year, where we end up in this range now is largely a factor of job timing completion and service demand.
As far as capital allocation, we will continue to return cash to shareholders through dividends and then we do expect to return to some level of share repurchase activity in the next few quarters. We expect to continue to be a balanced capital allocator, what I'm really excited about as we are rebuilding our pipeline of potential acquisitions and expect to start.
Executing that pipeline in early 2021, we expect those acquisitions to be similar to the acquisitions that we executed from 2018 to 2020, which really was a terrific period for us to grow our company through acquisition.
We certainly have the balance sheet to support such growth in our company and we expect again expect to remain balanced capital allocators Lar with that I'll turn it over to you and take questions.
Thank you Sam.
I would like to remind everyone I guess to ask.
Please please press Star then the number one target from Keybanc.
That's why I will ask a question if you would like to just buy a question you can pass the park.
Okay. So just a moment.
And over time.
Yes, Thanks, Chris current underlying Brent Thielman from D.A. Davidson Your line go ahead.
Hey, great. Thanks, Good morning, Congrats on a great quarter good morning, Brett.
Okay. Tony appreciate all the color on slide 13.
In the kind of run crude tanker market. Some of these seem like pretty three specialized highly technical area I'm wondering as you get larger for you.
If these particular areas provide margin merger margin opportunities.
A company of course, assuming you execute on these appropriately yes.
Yes, I mean with some of these markets you're in you're working with the customer on budget, you're doing fee based jobs.
Got you know you're balancing speed against execution, a lot of times, you're working against the budget.
Brett our margins are pretty good right now.
And thats, mainly coming from productivity and pricing.
So.
I'm always hesitant to get too excited about commenting on well that's a great margin area now as you go to the smaller work clearly when you bring them in Q solutions and other things, but they're a repair service and so a lot of time to time and material and a lot of time to small ticket items with high impact. So sometimes they can have a little higher margin, but you are.
Very specialized in what you're doing there.
So.
You look back having that kind of capability, we have technically allows us to perform the way we have.
Okay, and Tony is it fair to say that the $500 million odd.
Within our Peos and then really mostly related to these markets are in there that things that are impacted benefiting today.
No. It's mostly these markets and we don't think.
Even though we're down to manufacturing we like to look at that as a good long term market for us too and it's always important when the food process jobs come in or sometimes on a high tech job comes in they come in in a lump.
But even the high tech jobs can come in and pieces as we develop the project and a lot of the manufacturing moves where people are re shoring or building out capability. They tend to come in pieces and so they never caused a big bump in our.
Our ARPU rose.
Okay, Great and then on the on the industrial services business over the near term, obviously, a tough environment.
Curious.
I guess two part question Tony hit the Hurricanes and from the storm activity, we've been seeing created any for at least the near term Capex repair work and then I guess your thoughts into the business as we move into 2021, you know generally.
Generally speaking.
I'll answer the phone and I want mark to kick in on some of the dynamics that happened on the cost side with the Hurricanes, yes surely.
I don't think they've caused.
Really a lot of opportunity for us.
In the near term.
They did cause disruption and mark will get into that in the second and as we move into 2021.
I mean, I think is tied to the pandemic right and the resumption of travel.
Right now what's happening is crack spreads are actually okay. The issue is capacity utilization.
And lot, 7% to 9% depending on depending on its mix as jet a fed jet ace now being dumped back into diesel and that's really affecting the profitability because that incremental barrel right that incremental volume coming out of refinery is where they really make the margins no matter what that product is so utilization.
Asked to come up and then I think we'll start spending money again mark.
Brent ill with regards to the belden, when Tony to Sun and specific to the performance in the quarter.
Unfortunately, the disruption related to the storms wasn't just a symbol of us not executing work in generating revenue.
We obviously had our work crews mobilized to execute.
Against the maintenance plan that Didnt happen.
So there's a fair amount of cost that was incurred during.
During the quarter that clearly we did not generate any revenue is the profits from.
We were not unable to released on labor and multiple situations.
Because we were asked to keep them on standby in.
In case that we were asked to assist in any of the assessment or recovery activities. So specific to the question about capital opportunities as a result, the strawn dentists certainly the opportunities there.
We are with most of our customers still in the assessment phase.
And hopefully there will be some opportunities for us, albeit it's unfortunate that the expense of the storm damage disrupting both our customers and all the residents in that Gulf Coast region, which now let yet last night storm was the fifth named storm that hit in the 2020.
Hurricane season, so it's it's it's it's very unfortunate.
On top of everything else that's been unfortunate in calendar 2012 and are following the same path.
Yep.
Okay I'll pass it on thank you guys. Thank you.
Well well done.
Democrats during 15 month everywhere and if you do have a question. Please press Star then the number one on your telephone keypad CRM next question will come from the line of Brian Smith from Keybanc capital markets. Your line is now live perhaps.
Hi, and thanks for taking my questions complements to the fields.
The impressive would never know Theres, a pandemic going up so iceberg.
[music].
I guess first for me.
I appreciate all the color around.
The pockets in Brazilian demand.
They certainly make a strong argument that.
Any kinda sorta outperform the broader nonres trajectory in the coming years.
But.
We are hearing from multiple tiers of the.
Slower decision, making deferred starts off.
Things just slower to move across the finish line. So I just wonder how you would characterize risk of seeing an air pocket into early next year around that dynamic whether that's something you think we should have and are reflected in our estimates.
Just given the uncertainty in the macro and around the election.
Sean your.
Your specific question.
Was on project delays and deferrals.
Yes, just characterize the level of risk.
No decision, making slows down there and we do see some deferrals even in these end markets where.
You know there is resilient demand drivers so as of today.
I'll speak about what I know right as of today.
Once we got through the oil and gas issues in March which is a very different market and most of that works on time and material anyway. So they can turn them off relatively quickly.
As of today, we see nothing abnormal.
In delays deferrals or anything else.
[music].
We've not experienced that we have a different book of business probably than a couple of our peers.
We are well costs attributed in several many datacenter markets.
We don't look at the decision, making around one datacenter to datacenter is with the amount of work we're doing.
As anything other than routine course of business. These things shift around they move around the design change.
This is all about capacity planning in a region the way we think about it.
Secondarily, we work on projects over a long period of time and as of today all of the significant projects that we have been working on are continuing to advance.
We did have one small project a change.
Which actually worked to our benefit because of a re shoring issue.
That happened with one of our customers.
We are talking to a lot of people about that right now and we're also talking to folks about health care opportunities.
Now.
When we get to the election.
You know the reality the good thing about being.
My age now is I have now worked under Republican administrations as a senior business executive for a long time and I've worked under Democratic administrations I may have my personal views about that but from a business standpoint.
The things that we do tend to need to get done whether the Democrats are in charge of the Republicans are in charge Dave.
People are going to need the kinds of things we've talked about on page 13.
And then I will say Oh, we're going to get a big infrastructure Bill because the Democrats are in charge and of course that was the great hope when the Republicans are a chart eventually something will happen there maybe.
But at the end of the day people are still going to build things theres still going to build things in the markets that were really good that we're still going to do a mechanical service on on buildings, we're still going to retrofit buildings. We now have this influx of IEI Q work. We have this markets were able to pivot to and participate morin.
Either by building organic capability or through acquisition like we've done and.
Datacenters and health care and then we also have built businesses, we can build out whether it be low voltage, which we already are a market leader, but we'd like to build that up we continue to build out our controls footprint and so you know, it's sort of three yards and a cloud of dust hair and once in a while we take the top off the defense and do really well.
That's really helpful. I appreciate it Tony and it's been a long call. So I'll leave it there and pass it along thank you Shawn Thanks for followed us.
Thank you Dan.
At this time I would like to remind everyone I'd like to ask a question. Please press Star then the number one on your telephone keypad.
Taiwan.
Okay. So just a moment compiled from say then my question.
We have another question on the phone line coming from morale.
From Stifel. Your line is more like go ahead.
Hi, guys and congratulations on a great quarter.
Thank you.
I was hoping you could just comment on you know just given the environment. It does sound like maybe some of that smaller.
Smaller contractors might be facing more challenges than you are.
So what im curious, how you think that might affect.
Consolidation opportunities in the industry and more importantly, just kind of how you're thinking about potential M&A targets, what you're seeing in terms of pricing and what would be interesting to you in the current environment, yet I think Noelle. If you took our acquisitions from the last three years laid them on a piece of paper is see.
We spent over $400 million.
We brought some terrific capability and terrific teams into our company and I think Thats would be look and I think probably 13 acquisitions mark something like that.
Big and small and I think we would look to execute the same way in our pipeline was really good going into the pandemic.
We were able to complete the acquisition in DC as we had a lot of it done we have other things teed up and where I would think that we would emphasize is really four or five areas. One is we still despite as big as we are I think we can still play a role and and building.
More capabilities for geography.
Good successful electrical and mechanical contractors in markets, where we're not we would look to acquire.
And usually they bring broad with kind of companies we look at it.
Geography, we look for companies that are like ours to the best of what they do they have the ability to do a lot of different things and they could flex between markets in their local market.
End markets between our local market.
And we have several that were talking to in our discussions of sort of pandemic independent it may slow down our discussion.
Though we know today or are they know who we are and a lot of time, where someone sell in their life or to us and they tend to work for us and they tend to work for us for a long time it's.
Then a recipe for great great success for us.
Thanks to electrical and mechanical contractors that you saw what we did in the southeast and the Midwest.
Back in 2019 would look to do that again.
As far as capability and then the good markets I think the second thing is we'll always look to add mechanical service capability now they can take a different flavor sometime.
Sometimes we buy a large company that has a bigger platform and a market. Other times, we have our platform and we look to expand around that geographically I to build capability a lot of ways Thats, how weve got that is how we build our very successful, California company Mesa our overall.
Overall, a long period of time, where clearly the market leader in mechanical service that was done through organic growth that was done through opening branch offices with a great management team, having great labor management and that it was also done through selective small acquisitions.
And we look to do that in other places or we build a dive beachhead in the market and then expand from there and really the island that is to be able to offer our full range of services that we can on the mechanical basis, and then I think the final way we'd look at it is we always are looking up for good fire protection assets, we have to really.
Great platform companies, I think growth rate organically, and we looked at and capability where appropriate.
So they would be the places that we would look to acquire I think you know.
For us the sort of.
10 million 50 million 100 million, even $200 million Dale was a place we operate really well in the 10 million, obviously gets absorbed into a larger entity.
Whereas the $50 million.
Acquisition price or so becomes a standalone entity for us in the market and of course, the 200 million dollar, but still really becomes a market leader for us and in an environment. So it's all sort of all of the above how does this affect it I think anytime you have a big dislocation I will we see is that.
People reevaluate where they are.
And if they thought they had a five year window. They may accelerate that are a little bit and say well, maybe I should start thinking about this now as far as pricing.
If you are buying a good company they cost with a cost we tend not to get too far ahead of ourselves and pricing.
We're certainly not competitive with private equity I mean, they are much smarter than we are about how to run. This company. So we wouldnt dare compete with them on that.
Okay.
Thanks for that a great color on I.
I guess the second question again I appreciate the detail you provided on on slide 13, and 14 its really helpful.
The way you could help us look at your backlog and say look at that piece, that's commercial and.
Understand how much of that work might be in those verticals that are a little bit more resilient.
I guess im just kind of trying to tip bridge, how to think about those those markets that you believe are a bit more insulated and on.
The work you currently have in backlog, yes, I mean, we don't break it out we break it out to a lot of detail now I mean, you all have it on a detail what we do.
We're pretty protective of how much we are doing in some of those markets. Our customers appreciate that and we certainly don't want to let our competitors know where where that successful or not.
Okay.
John.
That level of losses.
Jack there obviously, if it's in our disclosed RPL balanced those are signed contracts and this build on what Tony said earlier.
Very unusual for us once we actually sign a contract for a project that that project actually going to happen.
So okay, but like I commented Noel.
You are really trying to drive that I think is what do we do in high Tech and data centers within the commercial segment.
I can't comment to the growth in that segment is coming from those markets.
Okay.
Great I think thats. It from me. Thank you. Thank you very much Noel.
Thank you.
That there are no further questions on the line.
I would now like to turn the call back to Mr., Tony for closing remarks, and I'm going to finish and I made this comment when we were talking I think for this leadership team around this table.
And for clearly our people at the segment level.
We are.
Absolutely humbled by out well our organization has responded to this crisis.
And we thank our employees.
And our leadership in the field for keeping focused on the task at hand, and keeping our employees safe we're going to do everything we can to keep doing that we will get through this next phase of or whatever we're in right now at this pandemic and hopefully come out here in the first quarter with solutions to this problem I. Thank you all very much and I guess, we will talk to you.
Until the new year to be well.
Thank you Frank Thank you so much money and again. Thank you everyone for participating. This concludes today's conference you may now disconnect stay safe and have a level.
[music].
Hmm.
[music].
[music].
[music].
[music].