Q1 2021 EMCOR Group Inc Earnings Call

April 29, 2021

[music].

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

At this time I would like to welcome everyone to the Ampco group first quarter 2021 earnings call on.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key Mister.

Mr High School Crestor with FBI consulting you may begin.

Thank you Laura and good morning.

Welcome to the EMCORE Group Conference call.

The day to discuss the company's 2021 first 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 management Kevin. Please go ahead.

Thanks, Pascal and good morning, everyone.

As always thank you for your interest in EMCORE and welcome to our earnings conference call for the first quarter of 2021.

Unbelievable that the.

On Kentucky Derby.

Is going to be run tomorrow, or Saturday and it's already may.

For those of you who are accessing the call via the Internet on 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.

The presentation and discussion contains forward looking statements and may contain certain non-GAAP financial information page two describes in detail update forward looking statements and the non-GAAP financial disclosures I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides.

With me today are Tony Guzzi, Chairman, President and Chief Executive Officer, Mark Pompa, Our executive Vice President and Chief Financial Officer, and Treasurer, and Executive Vice President and General Counsel, Maxine Mauricio actually works not the treasurer on your longer I'm, sorry, Mark on.

Oh.

Title here for call participants not accessing the conference call via the Internet. This presentation, including our slides will be archived in the Investor Relations section of our website under presentations you can find us at <unk> dot com, but that being said please let me turn the call over to Tony Tony Yeah, Thanks, Kevin and I'm going to start my discussion on pages four through <unk>.

Six.

First I'd like to welcome you all and what a different feeling we have in late April 2021 than we had in late April 2020.

When we were in the throes of understanding of how to operate in a pandemic.

I don't have to recover all the areas of uncertainty on <unk>.

<unk> on <unk>.

Certainty and turmoil, we face last year.

Not only at EMCORE, but our country of world writ large.

However at Evercore, we were able to point to our values of mission first people always and they held us together and allowed us to perform at a very high level.

These value served as our touch point to have a focus first on the health and safety of our employees.

At the same time, we knew we also had to continue to serve our customers.

As we provided essential services across a range of projects and service calls.

And again like I always like to do I would like to thank all of our leaders and employees for their efforts.

As demonstrated by our first quarter results, we continue to deliver strong performance by executing well for our customers, while focusing on the wellbeing and safety of our employees.

The first quarter of 2021 was an outstanding quarter by any measure.

We earned $1 54 per diluted share versus $1 35 in the year ago period on revenues of $2 3 billion with operating income margins of five 1%.

We had strong revenue growth in mechanical construction segment up eight 4%. We had strong work we had strong growth in our U S building services segment of 10, 3%.

<unk> had strong growth in our UK building services segment of 12, 8% that was aided somewhat by FX.

We were essentially flat in our electrical construction segment and as expected we had a significant decline in revenues of over 35, 3% and our industrial services segment.

Which was impacted not only by industry conditions, but also the Texas freeze, which in many cases pushed out our turnaround schedule into the second quarter of 2021 and the work we did in connection with the freeze.

Could not make up for the shortfall caused by that freeze.

We also had a TR IRR, our recordable incident rate of under one at <unk> 92, which was exceptional performance and again.

Our focus on safety and wellbeing throughout the pandemic, but really that every day at amcor, because it's one of our core values. These.

These results again show the diversity of <unk> business with our ability to pivot to more resilient and stronger markets with some markets like the current downstream refining and petrochemical and oil and gas markets are weakened as a result of reduced demand.

As we analyze our first quarter performance, we continued to earn strong operating income margins in our electrical and mechanical construction segments.

At eight 8% in our electrical construction segment, and seven 2% and our mechanical construction segment.

These operating income margin show that we are earning very good conversion on the work that we win and we are executing well on our contracts, which are largely fixed price contracts.

Intentionally use the word earn in describing these operating income margins.

We have tough and demanding customers, who drive a very competitive bidding and selection process. The more complex. The work there we compete not only on price, but also on capability.

Invest for productivity not only through tools like bim or building information modeling prefab, but also better personal protective equipment and hand tools and individual work practices, but we also invest in training and best practice sharing so that we are always learning from each others to employ the best means and.

For our work with.

We also must work collaboratively with our supply chain partners and that is more important than ever as the economy starts back up to make sure that we have the right products at the right place at the right price price across our geography and portfolio of projects.

This is especially important on large <unk>.

Complex projects with accelerated time schedules.

Our subsidiary in segment leadership teams work hard to perform for our customers every day and they are among the most skilled teams in our industry.

Our U S building services team had an exceptional quarter, earning 5.0% operating income margins on 10, 3% revenue growth.

We had strong performance for our mechanical services and both our government and commercial site based businesses. We continue to have strong demand for mechanical retrofit projects and IQ or indoor air quality solutions. Our site based businesses continue to see increased demand for small project work from our.

Our total facility management customers, our leadership from our subsidiaries to the business units to the segments are working well with our customers as they returned to more in office. Our on site work. We are a trusted partner as they prepare and operate their facilities to keep their employees safe and improve their employee safety and peace of mind.

As they return to the workplace and a more significant way and we do expect that to accelerate in the next few months.

Our UK team is performing well and has experienced the same demand drivers and business contacts as our U S building services team at seven 4% operating income margins and revenue growth of four 5% without the impact of foreign exchange, we are doing very well we continue to push.

<unk> well on serving our customers, which have some of the most complex facility services needs in the U K. We also continued to execute well on our project work in the UK. We have a very good team who are laser focused on serving their customers well and have earned their customers Trust our industrial services segment.

On a tough quarter as expected we are in positive EBITDA, but were slightly negative on an operating income basis. We would have likely made positive operating income in this segment, but for the impact of the textures freeze, which pushed out the turnaround schedule, we leave the quarter with increased reporting remaining performance obligation on.

<unk> at $4 77 billion up from $4 $5 9 billion at year end 2020, an increase from the year ago level of 442 billion, we will discuss our remaining performance obligation trends.

More later in my remarks.

We exited the.

Quarter with a pristine balance sheet, and we are putting that balance sheet to work to build our business and to return cash to our shareholders with my opening complete I'll now turn it over to the conversation on Mark who will discuss his favorite quarter as he only has to comment on the quarterly performance Mark.

Thank you Tony and my voice, Thanks to you as well good morning to 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 augment Tony's opening commentary and review each of our reportable segments first quarter operating performance as well as other key financial data derived from our consolidated financial statements included in both our earnings release announcement and form 10-Q filed with the Securities and Exchange Commission earlier today, So let's expand our review.

Two of them of course first quarter performance.

<unk> revenues of $2 3 billion are up a modest $4 2 million or 20 basis points over quarter one 2020.

Our first quarter results include $29 1 million on revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by <unk> in last year's first quarter acquisition revenues positively impacted each of our United States electrical construction, United States mechanical construction and United States building services segments.

Excluding the impact of businesses acquired first quarter consolidated revenues declined $24 $8 million or one 1% organically.

Before reviewing the operating results of our individual reportable segments I should point out that such results reflect certain reclassifications of prior year amounts due to changes in our internal reporting structure aimed at realigning our service offerings, most notably we have transferred our ardent and rabalais subsidiaries from our United States electrical construction.

On to our United States Industrial services segment with that being said I will now review the results of each of our reportable segments, starting with our revenue performance during the quarter.

With the exception of the United States Industrial services in the United States Electrical construction all of <unk> reportable segments experienced first quarter revenue growth.

States electrical construction quarter, one revenues of $456 2 million decreased $5 $6 million on one 2% from 2000 Twenty's comparable quarter, excluding acquisition revenues of $6 5 million. This segment's revenues declined two 6% organically as revenue reductions within the manufacturing.

And transportation market sectors were only partially offset by increased project activity within the commercial and institutional market sectors.

United States mechanical construction revenues of $903 9 million increased $69 8 million or eight 4% from quarter one 2020.

Revenue growth was primarily attributable to an increase in commercial health care and transportation market sector activities. Due to continued strong demand for our services, partially offset by revenue declines within the manufacturing and institutional market sectors.

This substantial quarterly revenue growth was despite a reduction in short duration project volumes as a consequence of the continuing impact of the COVID-19 pandemic and represents a new first quarter revenue record for this segment.

<unk> total domestic construction business first quarter revenues of $1 36 billion increased $64 2 million or 5% and reflects a strong start to the year.

United States building services record quarterly revenues of $581 8 million increased $54 2 million or 10, 3%. Excluding acquisition revenue contribution of $22 6 million. This segment's revenues increased to $31 6 million or 6% organically revenue gains within their commercial site base.

Services Division due to an increase in event driven snow removal as well as a resumption in project volume as certain customer facilities begin to reopen for the primary drivers in quarter over quarter revenue improvement. This segment's mobile mechanical services Division. Additionally, experienced stronger project and retrofit demand with an <unk>.

<unk> on services aimed at improving indoor air quality.

United States Industrial services revenues of $235 4 million decreased $128 5 million or 35, 3%. As this segment continues to be impacted by the negative macroeconomic conditions and uncertainty within the markets in which it operates additionally, and as Tony mentioned the industrial services.

Segment was negatively impacted by abnormal weather conditions and related power outages within the Gulf Coast region, which resulted in net and the delay of active projects and the deferral of previously planned maintenance and turnaround activities with certain other customers. Although we were able to assist some of our customers with emergency repairs, resulting from the February storm. This on.

On planned work was not enough to offset the lost quarterly revenue caused by these deferrals and delays.

United Kingdom building services segment revenues of $126 7 million increased $14 3 million or 12, 8% due to growth in project activities across the portfolio as customers began to release projects, which were previously on hold due to the COVID-19 due to COVID-19. This segment's results. Additionally benefited by <unk> <unk>.

$1 $5 million as a result of the strengthening of the pound sterling given the lifting of uncertainty around the terms of the United Kingdom's trade deal with the European Union that became effective on January one 2021, please turn to slide eight.

Selling general and administrative expenses of $224 1 million represent nine 7% of first quarter revenues and reflect a decrease of $2 $9 million from 2020.

SG&A for the first quarter includes approximately $2 4 million of incremental expenses from businesses acquired inclusive of intangible asset amortization expense, resulting in an organic quarter over quarter decline in SG&A of $5 $4 million. This organic reduction is primarily attributable to lower employment costs.

As a result of reduced head count due to various cost control measures enacted during 2020 as well as a period over period decline in travel and entertainment expenses due to a combination of cost avoidance measures as well as restricted company travel protocols. These decreases were partially offset by an increase in incentive compensation expense predominant.

Within our United States mechanical construction segment due to higher projected annual operating results than what was anticipated during the same prior year period.

Reported operating income for the quarter of $117 million compares to $106 million in 2000, Twenty's first quarter represents an increase of $11 million or 10, 4% operating margin of five 1% has expanded by 50 basis points from the prior year's four 6% operating margin. This performance reflects a new first quarter.

Operating income and operating margin record for EMCORE.

Yeah.

Our United States electrical construction segment's operating income of $40 3 million.

Is consistent with 2020 as quarter, one performance reported operating margin of eight 8% represents a 10 basis point improvement over last year's first quarter as a result on a modest increase in this segment's gross profit margin first quarter operating income of our U S. Mechanical construction segment of $65 million increased to nearly $20 million from.

The comparable 2020 period on operating margin of seven 2% represents a 180 basis point expansion year over year. This improved performance is primarily due to greater gross profit across most of the market sectors. We serve as a result of both the volume increase as previously referenced and a slight improvement in revenue mix as compared.

For the year ago period. This segment's operating margin. Additionally benefited from a reduction in the ratio of selling general and administrative expenses to revenues as a result of strong quarterly revenue growth without a commensurate increase in this segment's overhead cost structure consistent.

Consistent with the commentary during my revenue discussion this performance.

Has established a new first quarter record in terms of both operating income and operating margin for the United States on mechanical construction segment.

Our total U S. Construction business is reporting a $105 2 million of operating income and a seven 7% operating margin.

Performance has improved quarter over quarter by $19 $7 million or 23, 1%.

Operating income for U S building services segment of $29 3 million as an $8 $1 million increase from last year's first quarter, while operating margin of 5% represents a 100 basis point improvement and increase in gross profit, resulting from greater snow removal activities with customers that are contracted on a per snow event basis.

Within this segment's commercial site based services Division and an increase in gross profit from project building controls and repair activities within the segments mobile mechanical services Division for the primary drivers of the quarterly increase in operating income. In addition, this segment's operating income and operating margin benefited from a reduction in SG&A expense.

As compared to the prior year due to the various cost reduction actions instituted subsequent to the first quarter of 2020. This operating income and operating margin performance represents a new first quarter record for this segment.

Our U S. Industrial services segment operating loss of $2 4 million represents a decline of $17 $9 million when compared to operating income of $15 $4 million on last year's first quarter. The reduction in period over period operating results is due to the previously referenced adverse market conditions, which this segment.

<unk> to face as well as the impact of February as extreme winter weather events. In addition performance of this segment was negatively impacted by lower plant and labor utilization due to significant reduction in revenues on a positive note. This segment was able to partially offset these negative headwinds with a nearly 21% reduction in the first quarter selling gen.

On administrative expenses due to certain cost saving and savings initiatives enacted in calendar year 2020.

UK building services operating income of $9 4 million or seven 4% of revenues represents an improvement of $3 $6 million on 230 basis points of operating margin expansion over 2000, Twenty's first quarter. This performance represents an all time quarterly record for operating income and operating margin as we experienced a strong rig.

<unk> and project work during the quarter as the United Kingdom market approaches the hopeful conclusion of the COVID-19, Lockdown mandates. Additionally, operating income for the quarter benefited from approximately $800000 of favorable foreign exchange rate movement. We are now on slide nine.

Additional financial items of significance for the quarter not addressed on my previous slides are as follows quarter. One gross profit of $341 1 million represents 14, 8% of revenues, which is improved from the comparable 2020 quarter by $8 million and 30 basis points of gross margin, both our gross profit and gross profit margin represent.

New first quarter records for EMCORE. Despite the significant headwinds we continue to experience within our United States Industrial services segment diluted earnings per common share in the first quarter is $1 54.

As compared to $1 35 per diluted share for the prior year period. This 19 or 14, 1% improvement establishes a new quarter one record for the company and also ties our all time quarterly diluted earnings per share record, which we previously achieved in quarter four of 2019.

Now on slide 10.

As evident from slide 10 and of course liquidity profile remains strong.

Cash on hand is down from year end 2020.

Additionally, we repurchased $13 million of our common stock pursuant to our share repurchase program and utilized nearly $32 million of cash in investing activities, including $24 million to fund the two acquisitions that we completed during the first quarter of this year working capital levels have increased modestly primarily due to a reduction in on.

Current liabilities given a decrease in accounts payable as well as a reduction in accrued payroll and benefits due to the previously mentioned funding funding of prior year incentive awards and the increase in goodwill as a result of the businesses acquired within on the United States electrical in United States mechanical construction segments net identifiable intangible assets have decreased as a result of.

Approximately $15 million of intangible asset amortization expense, partially offset by the impact of additional intangible assets recognized in connection with the previously referenced 2021 acquisitions.

Total debt exclusive of operating lease liabilities is virtually unchanged since year end 2020, as a result of our consistent outstanding borrowings and the growth in stockholders' equity due to our net income for the quarter <unk> debt to capitalization ratio has reduced to 11, 5%.

Our balance sheet remains pristine and in conjunction with our available credit allows us to invest in our business return capital to shareholders and execute against our strategic objectives as we navigate through ever changing market conditions with my portion of the slide presentation completed I would like the return on the call to Tony It's all yours Tony.

Thanks, Mark and just for everybody that litigation on the yearend call I did turn my mic on time.

Im going to be on page 11 remaining performance obligations by segment and market sector.

So I'd sum it up in a lot of ways in.

In 2020, we had a lot of COVID-19 disruption here in this quarter, the first quarter going into the second.

We had a little bit of that left but for the most part first quarter 2021 the.

The demand environment that project bidding for construction and service projects were continuing to be active.

As I mentioned earlier total remaining performance obligations or <unk> at the end of the first quarter were just under $4 8 billion.

$351 million or seven 9% when compared to the year ago level up $4 4 billion and <unk> has increased $181 million for the first three months of the year from the year end level of $4 6 billion.

Our domestic construction segments experienced strong project growth in the quarter with <unk>, increasing $219 million or six 1% since the year ago period of March 31, 2020, but all but $15 million of that is organic growth the $15 million belongs to a Chicago based on electrical contractor that really focuses on infrastructure.

That joined Us in February.

Building services segment or <unk> increased in the quarter of $121 million or 22% from the year ago quarter, a portion of which was the August 2020 acquisition of a Washington D. C. Full service mechanical contractor. However, more representative of what we are now experiencing in this segment <unk> grew $60 million.

Or up 10% from December 31, all of that is organic growth and to paraphrase. What I have said in February this work as both the resumption of regularly scheduled mechanical systems maintenance. So we're maintaining we're maintaining systems that havent been running full out and as small project work as a result is coming back in and then there is a.

Modifications improvements around that on efficiency and indoor air quality.

If you go to the right side of that page by market sector, clearly our largest sector for our peers continues to be commercial projects.

And we're continuing to see strength and I'll talk about this on the next page and the resilient sectors that we've highlighted such as data center and that caused supply chain build off for ecommerce delivery and fulfillment those that get a commercial segment, which also includes.

The retrofit activity on new build is 44% of total <unk>.

For the year over year and sequential quarter over quarter comparison, commercial <unk> increased 314 and $216 million respectively.

The rest of the sector is pretty much netted as in and outs as project activity.

Activity increase a little in some sectors and decreased a little on others and that's really just the normal ebb and flow of project activity and General project interest is favorable in most all sectors with the exception of hospitality.

<unk> to be challenged.

As an indication of future market activity. The March Abi came out a week or so ago and while I think this is a soft index always.

Work on our Board survey from Architected itself reported numbers, but it's been the same forever. So you say, okay. If it's consistently that way then you can start to draw trends off of it it jumped over 50, which is expansion territory February and was over 55% in March and one of the analysts noted the regional <unk>.

Cores for the most part we're in positive territory and the general outlook was upbeat thats clearly true from a year ago period.

Correspondingly the March Dodge momentum index, which is the index of nonresidential building projects in planning also posted a per strong gauge in February and March it's up low double digits, 11% from a year ago period pretty much right before the full impact of the pandemic look I think it's important for me to say.

Step back here.

First quarter of last year was a good quarter.

And until the pandemic came it was probably one of the best economies that in my business career I've ever operated in so that's the comparator that a lot of these numbers are coming off of so it's important to know that.

Both of these leading indicators are indicators of potential future activity Theyre moving in tandem, which is what we like to see and we do a whole bunch of other analysis and I'll talk about that later of what we're going to what we believe could happen to non res this year.

I'm now going to jump to page 12, and I'm going to give you a little update or commentary on these resilient sectors.

That we talk about when you look at the first two I like to think about that as the build out of our data infrastructure and our supply chain infrastructure.

That's still very strong.

It's concentrated in about on the datacenter side, 5% to 60 graphic areas. We're in 60, 70% of those areas now either electrically or mechanically we continue to build our data center maintenance business and on the warehousing side. These are the big million square foot plus warehouses.

For the most part this is a life safety play for us on the fire protection side.

I would argue we are the best in the business at it not only are we providing a great solution. We do it cost effectively and we do it time efficiently and we've got some of the best pre fab capability in the industry. We're also doing.

Targeted electrical work, depending on the region of the country.

On these warehouses.

Australia manufacturing it.

Don a little bit for us right now, but thats really driven by food process, which we have a pretty good pipeline of potential opportunities.

And we're actually very bullish on manufacturing because of where we play.

We do see supply chain chain re shoring back to the southeast that could be either out of Asia, most notably China for Mexico.

People look for redundant supply I don't think we want to people on our high margin projects I want to be caught in a situation like they were at the beginning of the pandemic or I do think we're in a decoupling mode versus China as far as supply to the U S. I think the other part is we are in some good secular markets that we expect to continue.

Most notably semiconductors.

We are very strong and some of the key markets, whether they be Arizona, which would work very strong mechanically.

We have a terrific team in Arizona that does this work superbly.

This is very difficult work and very complex.

And the team we have in Arizona that execute as divested a business we.

We also have electrical capability in Utah, which is salt Lake City area, which is another one on the semiconductor hubs and we also have electrical capability in the Pacific Northwest, most notably the Portland area, which is also a sub conductor hub. These are the three major hubs, we have capability in each and we have great relationships.

With both our general contractor customers in construction management customers as well as the Oems and end users.

Health care, we continue to see strength.

We've made the right acquisitions.

At the work, we'll be doing that in the.

Georgia market.

With BK.

Look at the work, we'll do in the Houston market with gallon you look at the work, we'll do continue to do in the Midwest with Shambaugh on a combination of companies.

Look at the work will continue to do in California.

Health care market continues to be very strong for us.

I just gave you a couple of markets. We really do this work broadly speaking across the country and we do have both at a retrofit basis, which we expect more and more mechanical electrical retrofits and we also see newbuild coming back and health care.

Again this is both a construction opportunity for us and a maintenance opportunity for us.

I think one thing people appreciated when they were on EMCORE customer through the pandemic.

We can help them make their facilities more flexible when they needed to.

To handle patient surges or different kinds of health care they needed to deliver.

Water and wastewater.

Continues to be a good market for us, especially in Florida. These projects can be lumpy in how they get delivered.

One of the best teams in the industry down in Florida, and we're very proud of them.

Get to the last two mechanical services into our quality.

We're the best in the business at this.

The Oems develop solutions, but they need a company like <unk> to be able to deliver those solutions.

And we deliver these solutions as good or better and I would say better on.

On a consistent basis than anybody in the industry.

That's both on mechanical services, the fixings indoor air quality as a whole well building concept becomes.

More prevalent and then finally on efficiency and we've been the best efficiency people for a long long time.

I would add another sector that sort of overlays. This we will participate in any energy transition when people ask us about that and clearly when you have the best pipe Fitters and electricians and the business and the people that know how to supervise them.

Youre going to be part of that.

We already are part of it on small scale solar and a more significant way out in California, and the way I think about small Cal score is the way I thought about distributed generation.

On <unk>.

Cogeneration Thats really what it is at 20 megawatts or less as you get to the bigger things we are.

Building capability, especially in Texas right now.

We'll see how that goes I think it's going to go well and we'll continue to build that capability.

And anything that the refiners do on the line of carbon capture it's pipe.

And I'm very happy that Exxon and people like Valero are talking more about renewables renewable diesel and carbon capture will be there to help them do that so.

So we feel good about these resilient markets, we don't chase fads at EMCORE, we build capability and we execute and we can pivot around these markets and we've done that over a long period of time.

I'm going to finish now on page 13 in 2014.

As we entered 2021.

Let's think about what the context of it was vaccinations were just starting to get rolled out.

We were in a world of COVID-19 surges in parts of the country.

And as February started to come we gave guidance, but that was our backdrop.

But we continue to perform our folks are resilient and they are really good at what they do.

In that initial guidance, we gave you about 878 weeks ago.

We expected to earn $6 20 to $6 70.

And earnings per diluted share. It if you look at that midpoint that would be another record year Mark after how many seven.

So pretty good.

And we expect it to do that on $9 2 million to $9 4 billion in revenue and so we clearly thought that the revenue was going to accelerate as the year went on.

Think about the tough compare were having here on the first quarter with industrial up <unk>.

Until the third week of March last year industrial was having a very good first quarter.

So we went back we thought about it and we said, okay. We had a better first quarter than we expected.

And so with that we're going to raise the low end of our guidance range of $6 35, a 15 set movement from the $6 20.

And we're going to take the top end of the range up about a nickel or $6 75 per diluted share were to keep revenue guidance, where it is and we'll certainly know more about that when.

When we get out of the second quarter.

And as we said in February 2021, we did expect.

2021 to be another year of outstanding performance.

Yes, but let's think about this we have to execute every day, we're doing this across.

<unk> 4000 projects of size of 250000 or more but if you added up all our projects. We're doing this now over about 12000 projects in service events and if you take service calls us multiples of that.

And we I think.

Do that against the backdrop of record operating income margins in our electrical and mechanical construction segments in 2020.

But we do expect those increased revenues to help us mitigate some of that challenge.

So when we gave you our guidance we laid out some assumptions on what I'm going to do now is talk about what that assumption was.

And what's the update on that assumption is now eight weeks later with first quarter on the books. So.

So the first assumption was our industrial services segment as many of you know primarily serve the downstream.

Petrochemical and refining markets, we didn't think it would materially improve.

Until the fourth quarter.

And then it would gain momentum going into 2022 as demand for refined products will continue to be challenged early in 2021, especially through the end of the second quarter.

Demand is picking up so let's talk about what that view is now we still believe as far as performance in the segment, that's an accurate view of the market.

Some trends are clearly positive now crack spreads are very good.

And high teens the.

The renewable diesel market is a market, we're helping our customers get ready for and served through upgrades and add depth adaptation.

That patients of their facilities.

And refinery utilization has moved into the low eighty's trending toward the mid eighties.

Fully expect that to be in the high eighties by early June.

It's going to be driven by really aviation fuel at this point.

So we had an assumption at the beginning of the year also nonresidential market would decline modestly.

What do we think now.

We think that market potentially could be flat for the year.

And the second quarter trends will provide more insight as we may see accelerating demand through the year.

This market now could have either breakeven performance for modest growth in 2021.

We also said that we would continue to execute well on our more resilient market sectors.

Q code manufacturing commercial driven by data center, and logistics warehousing water wastewater and all the things I just mentioned on the previous page.

We still think Thats true and even more true today, and we do expect that the year on that manufacturing gained strength and you will see it first in our backlog.

We did talk about the COVID-19 environment, we did not expect did not expect a more restrictive COVID-19 environment than what we were operating in as we gave guidance in February.

We did expect a more normal operating environment as the year progressed.

We talked about that we were operating near 100% capability. We don't use the word capacity because we always look we can add tradespeople.

We've learned how to work under the COVID-19 precautions.

It does require a lot more planning.

And we have to be much more precise on our execution, but you know what thats sort of how we operate anyway and it's nothing new for us to keep our employee safety first it's one of our core values and quite frankly.

People would not want to work for us if it was not.

So what's my updated view on that.

I believe.

So that as we enter the third quarter move through third quarter into fourth quarter more of our job sites will start to be look more normal.

And conditions in most of the states that we operate in.

As we continue to see positive trends in those states.

And we will see that in the UK to I mean, we just talked to our UK folks this morning.

<unk> $38 million on a $68 million 66 million people on the U K. This morning, we're operating in parts of the country that had zero COVID-19 cases yesterday reported.

Think that might happen here as our vaccinations continue to pick up.

We do expect we said we expect to continue to help our customers with IQ energy efficiency replacement projects.

Optimizing their systems and helping bring their employees back to work.

I would say that's going as expected.

So then you say how do we go from where we are at the low end of the range the midpoint of the range to the top end of the range.

I would say that each one of those trends are mix of those trends get better.

So maybe the non res markets better than we thought it was especially for projects that can be that can be completed in the year.

And that's especially true.

Things normalize.

And work normalize it and people start to spend more capital.

Our refining and petrochemical customers begin to gain more comfort with improved demand for refined products and they say look instead of trying a bunch of all of that work into 'twenty. Two we start to pull some of that work forward into 'twenty one.

That would be a logical thing to do they do worry about manpower.

On tight.

When they have a bunch of work scheduled we may be able to have some of those discussions.

Momentum in <unk> and efficiency accelerates.

That could happen, especially on the efficiency side as folks realize that all of the investment in <unk> actually hurts efficiency.

And their customers will be demanding them to make their facilities more efficient.

And look we've got to keep our productivity is strong as we transition we want to keep some of those gains we've made with scheduling we want to keep the emphasis we had on pre fab even on smaller jobs as we transition I think.

No we will.

But we have to keep that first.

First and foremost in our minds and of course, we're not going to open the floodgates on travel Mark talked a little bit about the organic SG&A. That's more positive than you think it is because he had a sentence in there that was pretty key.

Think about the outlook, we were taking on incentive compensation last year versus this year. We told you we expected to have organic reduction of around $15 million to $20 million were at the high end of that right now on a per on a run rate basis, and if we have increased incentive long term. That's a good thing in our field operations because that means we're doing better.

The other thing that I know you will ask about and I'll just get in front of it now a little bit is on.

Stimulus.

The thing that will impact us this year the government spending that will impact us. This year is all reloaded related to these COVID-19 emergency packages.

We will benefit from that because of the money that went to the states and municipalities to make their budgets more flushed allow them to complete some of the smaller capital projects and get some of the transit systems moving again, it will help them think through that and start that.

We will also benefit from some of the spending thats going to go on institutions and schools.

Go back to this <unk> efficiency and building wellness theme we're.

We're seeing that already.

That will impact 2021.

This larger infrastructure package of about 50% of the money give or take of stuff, we could participate in or projects that we could potentially participate in.

That for the most part is a late 'twenty two.

Early 'twenty three likely late 'twenty early 'twenty four event for us.

Think about everything that has to happen with the project.

To get it going and I think all recall late 2008 early 2009.

For large scale infrastructure projects, yes, theres concepts that people want to execute.

People don't do detailed design on concept.

And so as we know it learned back then there is no such thing as a shovel ready project there isn't here either.

But one of the things that could be quicker if we get any.

Energy efficiency dollars, right and figure out how to flow that out which in my mind would be through the utilities in their programs.

The other thing you will ask about is labor.

Look we're sort of at the top end of that food chain.

That's not something that we had issues with I do think I'm glad I'm, not a painter or a roofer or a cleaner right now.

Because there is headwinds about hiring labor at the low end, especially with the enhanced employment benefit unemployment benefit.

It requires us also on the factory side, we're lucky to be who we are.

We can like I said earlier work closely with our supply chain partners and work real hard to mitigate the impact because they are also having difficulty ramping up.

And you probably heard that on all the calls with the manufacturers I assure you that when.

When we get the capital allocation.

We had a lot of detail on that on our year end discussions.

Our guidance complications contemplates that we will continue to be disciplined capital allocators, and we will do that between organic growth, which we love to fund.

Acquisitions share repurchases and dividends.

We're on track to meeting.

Towards meeting that goal to share this.

This year, we've already done three acquisitions, we have a very good pipeline.

Sales may be moving a little slower as we try to understand the impact of pandemic on operations, but we will get through that and we feel very good about our pipeline right now and.

And with that Laura I'll take questions. Thank you for your interest in EMCORE, and we will turn on our call over to you.

Thank you Paul.

At this time I would like to remind everyone and I'd like to ask a question you can press Star then the number one on your telephone keypad.

Right on the number one on your telephone keypad. Thank you I'd like to move volume.

On the parent call.

Your first question will come from the line of Brent Thielman from D. A Davidson. Your line is now likely go ahead Chris.

Okay, great. Thank you good morning, good morning, Brett.

Hey, Tony I wanted to touch on something you mentioned in your closing remarks, there just about sort of maybe a return on the job sites back then.

When it once was pre COVID-19 in terms of processes and how things go on the job site.

Do you think that helps the margin even more from here or how do we think about sort of the financial implications of that down the road yeah.

I think it's way too early for us to think it could help the margin, we're pretty happy where our margins are right now.

But it will be interesting.

The push and pull of.

Will we be able to keep some of this enhanced scheduling.

Some cases, we will some cases, we won't.

Will we be able to work.

<unk> shifts without a lot of pay differential.

I think some of our folks have started of like that because they like being on a cloud a job site and they like being more productive and then they can put pressure back on there.

The union and others to help us do that so I think it's too early to tell.

I think there are some hard wire things that will benefit from our folks have gotten better and better at planning.

Just the things, we control and they've gotten better and better even on the smaller jobs.

Using pre fabrication and trying to get to work off the site. So.

Hopefully, we can keep productivity, where it is thats our plan and maybe we can pick up a little bit.

Okay and then also came up in your opening commentary.

So on the ear that supply chain disruptions here and there in the market maybe anything in particular that youre running into that you've really had to work hard through.

I'd be curious about that yes, nothing has risen to the level, where people are calling me to reach out to the CEO of a distributor which.

Which I've done in the past or a CEO of <unk>.

OEM.

So that means we're relatively getting.

Through our normal mechanisms, what we need to stay productive on the job.

I'm not sure that's true for everybody, but you think about who EMCORE is on a local market.

We're known as a being a very fair partner to deal with we pay people, we pay them on time.

We work with them and do a lot of preplanning, especially on the large jobs.

<unk>, we think about ways to have our suppliers help us to the point we.

Work a lot on inventory management together, we try not to have them be surprised.

And then of course, we have big relationships and we also tend to be pragmatic business people <unk>.

Sometimes we don't go for the last dollar on a negotiation because assurance of supply to us when youre workforces as expensive as ours is way more important than.

And then the extra nickel on a.

Overall wire or a line of.

For the pipe.

Okay I appreciate that.

Maybe my last question Tony is just understanding the indoor air quality opportunity. It's obviously something that comes up with investors a lot.

Is that is it something that meaningfully impacting the RPM today or is it I mean, obviously.

That's yet to come there I'm going to ask Mark to help me with this but the reality is it will probably never meaningfully affect the <unk>.

And it does it meaningfully affect growth in a quarter in building services because most of this is work.

RPM for us for the most part.

It's projects that stick around through a quarter. This work tends to be in and out and tends to be smaller ticket item, yes, so Brian just to amplify Tony's commentary.

It's fairly quick turn.

We're getting the award and we are executing the work with within the construct of a quarter. So youre not going to you're not going to actually see it hit the RPI number disclosed at the end of quarter on what's actually hitting their relative to.

The huge amount of our appeal that EMCORE has as a consolidated enterprise is not meaningful.

And Brian we don't talk about a lot about this.

But I got to give our folks a lot of credit on this one.

Back last year.

Four weeks before we're sitting here today as early as March 30 of last year.

We were gearing up to be able to deliver these solutions.

We have all the relationships this was part of our.

Arsenal of things, we would deliver to a customer.

Some of this was these tools.

Cause it hurts efficiency people weren't that excited about it.

I got to give a lot of credit the Mic board has and his team.

Advantage of the downtime with a lot of our technicians and they took advantage with our salespeople and our service supervisors and our small project managers and we did a ton of training from about March 25 last year until June 1st when we can really go back out on offer these solutions and <unk>.

Have all the OEM relationships in place you have all of the supply chain in place. We also had to have the front end trained so people could go and implement.

And so we were thinking about this on venturing to say long before other people.

And to be able to deliver and we were proactive with our customers and not reactive.

Great. Thank you guys for taking the questions.

Yes.

Thank you Sir your next question will come from the line of Adam <unk> from Thompson Davis. Your line is now line.

Hey, good morning, guys. Congrats on the great start to the year alright. Thank you.

Can you help us with moving ardent into industrial how much revenue shifts.

Mark will take that.

With regards to the quarter or are you looking at.

Full year full year.

Full year 2020, our full year 2021.

Well I need 2021.

If you gave me 2020, I think that'll help on average in 2021, so I'll give each one is volume.

So it's roughly a 100 you offered.

Being passed on to your questions.

I just wanted to make sure on your toes out okay.

So full year 2020, it's a $143 million.

That's going to move out of electrical construction into industrial.

Perfect, Okay and then.

U K and Mark you mentioned there was.

Currency benefit there, but had a great quarter I'm just curious how sustainable.

Look.

Like we always say, we'll probably much to AD nauseum for all of you these aren't quarter to quarter businesses.

For those who have been with US a long time that we're consistently operating the U K north of 5%.

Now three years in a row.

It might be 7% one quarter it might be $4 91 quarter, but if we can keep that between the goalpost of 5% to 6% on an annual basis.

We're doing pretty well and.

Drove it was the project mix and if that continues and again this is not pricing this is execution.

And this is.

Really really good work.

Okay, and then on the last one on the margin was.

Really good mechanical you talked about some food processing jobs are those are those jobs done are those going to keep burning. This year look we always have some food processing work, but the large project work.

The large project we were doing is pretty much through commissioning now we have other things on the boards on the way. This works is.

You have a lot of contingencies, you know really complex projects on commissioning.

So we are starting to move through some of those contingencies, but let's be clear.

The only thing that drove that performance. This was across a lot of work a lot of projects Mark also made a comment that.

Unless you are really listening you might have picked up on we had those that increased revenue with very little increased cost.

So at the end of the day.

We're getting good fall through because it can go to the productivity point, we're probably benefiting more from productivity in our mechanical segment because of what theyre doing on prefab and planning than in any part of EMCORE, especially in our we like to call on the power companies that what I mean.

By that large subsidiaries. They are really have got this down right now.

And then Joe Burns and his team are probably as good as anybody and taking those means and methods and spreading them through the company where applicable.

Okay. I'll go ahead and turn it over ramp up those buybacks gust.

Okay.

Thank you for the standard well I'll tell you really fill Adam.

Yes.

Thank you. Your next question will come from the line of Neuro GAAP from Stifel. Your line is now line go ahead. Please good morning.

Doing well how are you.

Right.

Great. So you talked about supply chain a bit.

But I was curious if you could just speak to on.

We've seen a lot of inflation in raw material costs and steel on.

I understand most of Europe.

Costs are made up labor, but how are you.

Cost of labor, but how are you thinking about or watching on.

On some of those.

The raw material increases in cash.

Maybe more of an indirect impact on your business.

If not handled correctly within a quarter or two that could be a direct impact.

We again go back to the supply chain discussion on AD, we work really hard on large projects.

On to try to lock in as best we can the prices, especially on the major.

Components.

Gear Chillers and air handlers, all of that typically gets locked in.

We're not speculators in that we make our price we figure it out and Thats, what we go with.

We also don't run so when we talk about being fair right typically our guys don't run back if the price moves down to those suppliers and say, okay. Now I need a reduction we made our dip.

And of course now on a more commodity.

<unk> times, they realize that.

The other thing is most of our work is getting repriced at what incentives are smaller project work. This stuff this less than a couple million all the time, what I mean by that is we're doing new work right. So therefore, we reprice it.

We were talking about this mark and I as this round of commodity inflation would free for him and I, probably about seven time, we've seen this a time together.

Together, we've seen it more than that but together we've seen it many years ago I was on the other side of this trying to ramp through price increases.

<unk>.

We really have not been stung bad by this time, we know the copper game.

Our electrical.

Those are as good as an estimate or as good as anybody in the business as our mechanical guys.

I'll make I'll go out on a limb here I might end up being wrong I doubt. It on this one steel prices will come down because capacity will come back online.

Guys typically can't help themselves, we will not be three times, what we were before this pandemic flat cold rolled as we are today that won't be the case.

And our guys also we internally.

Have a very good team that make sure that our folks know the trends of commodities are coming and say, okay. How does a company like amcor get that Salt Lake we have a group of economists best I got as Kevin and then some.

Someone that works for him. So I mean these are these are not folks who spend their time analyzing how we get good at it is we have great relationships with our distributor partners.

And they try to keep us on front of what they're seeing on the things they are buying and again all of that people always say, what's the benefits of scale that information that knowledge is a huge benefit of scale and then finally I'd offer no I'll just to sort of breakout for you that where we really are if you take the mechanical business.

45, 55% of a job can be materials and equipment, depending on whether we buy it or the customer does on <unk>.

Some of the big systems and on the electrical side Thats closer to 35% to 45% of materials and the balance is labor that's for the mechanical and electrical segments, you get to building services little less.

Because of the type of material nature of repair service and the labor based component of our repair projects in our service agreements and our site based business.

<unk> service business give or take is about 50 50 equipment to labor and as you go to industrial services.

A 10.

80, 20, I mean.

And the only thing reason it gets to 20 on materials is the work we do on the shop and remember most of our materials on a shop, our customer provided on the biggest on what they're buying the tubes and stuff.

So our exposure on materials are really in the electrical and mechanical segments.

And our guys keep in front of that pretty good and if we have a blip or expose its very short mark you have anything to add there.

On the.

Tony you pretty much Claude no while I think.

Just to Echo Tony's point I think.

Because we're such.

Such a such a large customer for the wholesalers that were sourcing from.

And we're consistent with Weyerhaeuser procuring on materials.

We have it's very rare that people do not honor the pricing once we get it and we obviously strive to get price quotes as closely as possible.

And where we're going to mobilize on on work. So we try to minimize the window of time that we would be exposed to any of that commodity inflationary pressure.

But as Tony said, if we do get stung.

It would be it would be isolated instances.

And it would only impact.

Yes.

<unk>.

No we're not we're not prolong itself through the remainder of the year.

Okay. That's really helpful. Thank you.

I guess, just shifting over kind of circling back to the infrastructure Bill.

Clearly both the Democrat.

And we've had a proposal on the Republican proposal counterproposal are talking about really big numbers really were talking about massive increases in the market. How are you guys thinking about the.

The.

Industry capacity to support more more work coming in whether.

In terms of labor do you think you'd be able to kind of.

Find the right folks to ramp up.

Relatively quickly it somewhat that funding comes in.

I mean, the answer to the EMCORE specific is.

On the projects that EMCORE will bid on the projects that EMCORE will win and that will be an increase to what we're doing today, which is we think again go back to what I said, even without this infrastructure Bill we expect non rest of maybe have a growth year versus what was unexpected down year. This year.

EMCORE won't take a job unless we have the capacity to do it and we believe we will have to have the capacity to grow if that infrastructure bill comes into the market.

It will be a meaningful part of the industry and they have caused the industry to grow and we typically outgrow the industry.

Second to that will the industry be able to absorb it.

I think the answer to that yes.

I think the industry always struggles at the low end.

Somehow it will find a way to get through that.

Where were at again.

I always use. This example, I can't worry about what all my competitors do but I'll tell you how we think about it.

We think we are a destination of choice for trade labor.

Why is that.

Go back to that discussion we had on safety.

Core value we can.

Give people the right equipment.

They know that that fundamental to who we are.

The second thing is they know theyre going to have competence supervision.

Unique and that's all the way up right.

Three people I'm sitting around the table with today, including four with me, we all have deep deep respect and have a pretty good knowledge of the challenges skilled trade labor focus on it has to do and execution of their job.

It gets better as you go down because now youre getting more technical and they're led by people that know how to help them do their job.

Really important.

The third thing is they know theyre going to get paid.

Yeah.

That's.

It sounds simple, but it worked for a smaller contract and that may or may not happen in a given week.

And the fourth thing is if they do a good job for us you.

It really there's only two or three places in the country, where the Union said Hey, <unk>.

You need to take these people, where you need to rotate these people up we pick our workforce.

Reits over that.

And they know that they can become part of our permanent workforce.

We always have a job.

Put those in with <unk> leadership position in most markets you put those four things together I don't think we will have.

Trouble.

Finding that labor, but others might.

But that's no different than any other more up market that we're in.

I will say.

One of the things that would be helpful and I actually think it will be one of the positives right.

Is the labor Department is actually being run by somebody right now that really understands.

Skilled labor training and we will see if he can make that successful.

Okay, great Great and I guess last question for me just sort of one on.

You mentioned that depend on I guess.

Deal flow, but could you just speak to what Youre kind of thing in terms of.

Pricing on multiple times given that there is no I think mark incremental optimism around non res and <unk>.

On infrastructure.

Look.

There might multiples might drift up a half a turn on a term, but so is ours right even more than that.

And so we.

We'll still have the same disciplined process, we always have.

And we can show you a slide you to go while you actually I see all those deals starts with 200 and then it goes to <unk>.

And then it goes to 20 and then it goes to five and we May closed three right.

But at the end of the day I'm not looking at 200, we have folks that look at books, maybe or reach out to owners or owners costs, we have a pretty good idea of the.

Kind of companies, we want to buy and who they are we worked with them over a long period of time, where we're best is when someone selling their life's work.

Or their families life's work and they still want to be part of the solution going forward.

We're not looking to make the best financial deal what I mean by that is we're not bargain just like I talked about how were fair with our suppliers.

We look to be fair with the people selling us their business, they're going to be our partners going forward.

Secondarily.

We want to make sure that we both by end of the business case on what it looks like go forward. So.

Private if its a big auction run by.

Some of the notorious banks that are going to do narrow and narrow to them means a 150 people looking at it.

Probably not going to be successful and in fact, I don't make sure we look at much of that anymore.

Yeah, a lot of times people will hire intermediary, but there are intermediaries higher to get to us.

And to put structure around the process and a lot of times worth the top of that list.

And like I said, we try to be very fair on terms and conditions and we tried to be very fair on price.

That works for both of US and you think about what we've done and you say Wow I didn't know you did that we've done five deals.

Since may of last year.

Through a pandemic no none of them have been doing pretty good though.

And we see nothing that will abate us from doing that or more and there might be even a larger ones coming in there, which means bigger contractors that we know for a very long period of time and they are terrific reputations.

Just sort of delayed a little bit with the pandemic.

Okay, Mark and Kevin market I think that.

Hey al.

Laura.

Yes. Thank you Sir we have last question coming from Mr. Sean Eastman from Keybanc Capital. Your line is now line go ahead. Please.

Hi, Tim Nice quarter Scott.

It's got to be a relief to.

Comp earnings mid teens on that first quarter. So.

That's excellent.

I'm just trying to think through.

Sure.

Kind of makes sense.

The earnings outlook for the balance of the year. So after this first quarter I mean at the midpoint of the full year guidance it implies lower earnings year over year four.

Q3, Q4, Q and I'm, just trying to think through where you guys are.

What you guys are kind of building in there in a sense right because on one hand, we have revenues that it'll be up high single digits industrial services should should be a good guy here over a year, but then on the other hand, we're comping some pretty tough.

Construction segment margin so.

Maybe you could just walk me through those moving parts on my thinking about that right.

I'm just wondering why it makes sense for earnings to be.

Not up.

Over the balance of the year.

Yes, Sean so.

Let's look macro level first.

I've been doing this a long time as is mark with me.

We really tried real hard to think of other than 2019.

Okay.

And maybe there is one other time, maybe it was coming from 10% to 11% and we Couldnt remember, where we ever even move guidance in the first quarter.

Yes.

Chart there.

The upper end Gotcha Gotcha.

Hey.

The second thing is youre talking <unk>.

Very slight moves in margin.

Portray the scenario that you are.

Portraying so we're not that precise at this time of the year.

We'll know a lot more at the end of second quarter right Mark.

But you were we think we have good guidance right now.

And I think we're still trying to work our way around.

Industrial services I mean, we gave up 17 million Bucks in the first quarter year over year and industrial services on a basis.

And down 35% on revenues.

So we're not ready to declare victory on that comp yet.

Mark anything to add yes, I think thats going to the industrial point Sean.

We're hopeful that it's going to be as you say a good guy.

For 2020, but we still have three quarters of activity to go through with the customer base that if anything is demonstrated.

They are reactionary to.

External factors more than any other customer base that we deal with.

So you would like to thank presuming that we have normal weather patterns.

We don't have a hurricane season of note and anything else, we could possibly think of.

That you would see a resumption in demand, but I think Tony has been very clear on this call today and he certainly was very clear on the February call that we're optimistic that we will see strengthening.

And performance in the fourth quarter of 2021 building strength into 2022.

And any any one one or two decisions could easily swing that.

All into 2022, or Conversely back into 2021, and we just don't have the visibility to that yet.

So and I think the other parts of our business are performing at or near all time historical highs.

Both from a margin contribution perspective.

On the high levels of volumes.

And that's baked into the guidance.

But I think once again, when we spoke externally in February.

We were we were anticipating that we were going to see some small element of margin degradation in our electrical and mechanical construction businesses.

Clearly, we then see that in the first quarter, but unfortunately, one quarter does not make a full year.

And we're going to endeavor to do whatever we can to maintain or improve those margins.

But as we sit here today and it's just it's just too early to predict that we're going to be successful on that front.

And we.

We operate off of what we know.

And I think collectively we're fairly optimistic right now.

We've been doing this a long time and were in the first quarter.

Yes, yes.

Thats Fair Thats helpful perspective, I really appreciate it guys I'm going to jump over and talk to Brian Lane now.

Tom Hart.

Take care.

I think that's it.

Lars at it.

Yes that would be my last question.

Okay. Thanks, Thank you all very much.

Appreciate it we'll be back to talk to you in July.

Thank you Sir Thank you so much presented on again and thank you everyone for participating. This concludes today's conference you may now disconnect.

And have a lovely town.

Yes.

On.

Okay.

Yes.

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Good morning, My name is Laura and I will be your conference operator today.

At this time I would like to welcome everyone on that to the Amcor group first quarter 2021 earnings call.

All lines have been placed on mute to prevent any background noise.

So to speak on something like that will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.

At a high school peso with FBI consulting you may begin.

Thank you Laura and good morning, everyone welcome to the EMCORE Group Conference call.

Year to day to discuss the company's 2021 first quarter results, which were reported this morning.

Like to turn the call over to Kevin Matz Executive Vice President of shared services, who will introduce management Kevin. Please go ahead.

Thanks, Pascal and good morning, everyone.

As always thank you for your interest in EMCORE and welcome to our earnings conference call for the first quarter of 2021.

Unbelievable that the.

The Kentucky Derby.

Is going to be run tomorrow, or our Saturday and it's already may.

For those of you who are accessing the call day or the Internet on 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.

With me today are Tony Guzzi, Chairman, President and Chief Executive Officer, Mark Pompa, Our executive Vice President and Chief Financial Officer, and Treasurer, and Executive Vice President and General Counsel, Maxine Mauricio actually marks not the treasurer any longer I'm sorry, Mark on.

Oh.

With that being said, please let me turn the call over to Tony Tony Yes, Thanks, Kevin and I'm going to start my discussion on pages four through six.

First I would like to welcome you all on what a different feeling we have in late April 2021 than we had in late April 2020.

When we were in the throes of understanding of how to operate in a pandemic.

I don't have to recount all the areas of uncertainty on.

Certain uncertainty and turmoil, we face last year.

Not only at EMCORE, but our country on world writ large.

However, EMCORE, we were able to point to our values of mission first people always and they held us together and allowed us to perform at a very high level.

These value served as our touch point to have a focus first on the health and safety of our employees.

At the same time, we knew we also had to continue to serve our customers.

As we provided our central services across a range of projects and service calls.

And again like I always like to do I'd like to thank all of our leaders and employees for their efforts.

As demonstrated by our first quarter results, we continue to deliver strong performance by executing well for our customers, while focusing on the wellbeing and safety of our employees.

The first quarter of 2021 was an outstanding quarter by any measure.

We earned $1 54 per diluted share versus $1 35 in the year ago period on revenues of $2 3 billion.

Operating income margins of five 1%.

We had strong revenue growth in mechanical construction segment up eight 4%, we had strong or we had strong growth in our U S building services segment of 10, 3%.

It adds draw growth at our UK building services segment up 12, 8% that was aided somewhat by FX.

We were essentially flat in our electrical construction segment and as expected we had a significant decline in revenues of over 35, 3% and our industrial services segment.

Which was impacted not only by industry conditions, but also that Texas freeze, which in many cases pushed out our turnaround schedule into the second quarter of 2021.

And the work we did in connection with the freeze.

Could not make up for the shortfall caused by that freeze.

We also had a TR IRR, our recordable incident rate of under one at <unk> 92, which was exceptional performance and again.

Our focus on safety and wellbeing throughout the pandemic.

But really that every day at amcor, because it's one of our core values.

These results again show the diversity of <unk> business with our ability to pivot to more resilient and stronger markets. When submarkets like the current downstream refining and petrochemical and oil and gas markets are weakened as a result of reduced demand.

As we analyze our first quarter performance, we continued to earn strong operating income margins in our electrical and mechanical construction segments.

At eight 8% in our electrical construction segment, and seven 2% and our mechanical construction segment.

These operating income margin show that we are earning very good conversion on the work that we win and we are executing well on our contracts, which are largely fixed price contracts.

Intentionally use the word earn in describing these operating income margins.

We have tough and demanding customers, who drive a very competitive bidding and selection process. The more complex. The work there where we compete not only on price, but also on capability.

We have to invest for productivity not only through tools like bim or building information modeling prefab, but also better personal protective equipment and hand tools and individual work practices, but we also invest in training and best practice sharing so that we are always learning from each others to employ the best means in mass.

<unk> for our work.

We also must work collaborate with our supply chain partners and that is more important than ever as the economy starts back up to make sure that we have the right products at the right place at the right price price across our geography and portfolio of projects. This is especially important on large <unk>.

Complex projects with accelerated time schedules.

Our subsidiary in segment leadership teams work hard to perform for our customers every day and they are among the most skilled teams in our industry.

Our U S building services team had an exceptional quarter, earning 5.0% operating income margins on 10, 3% revenue growth.

Our total facility management customers, our leadership from our subsidiaries to the business units to the segments are working well with our customers as they returned to more in office. Our on site work. We are a trusted partner as they prepare and operate their facilities to keep our employees safe and improve their employee safety and peace of mind.

As they return to the workplace and a more significant way and we do expect that to accelerate in the next few months.

<unk> well in serving our customers, which have some of the most complex facility services needs in the U K. We also continue to execute well on our project work in the UK. We have a very good team who are laser focused on serving our customers well and have earned their customers Trust our industrial services segment.

On a tough quarter as expected we are in positive EBITDA, but we're slightly negative on an operating income basis. We would have likely made positive operating income in this segment, but for the impact of the Texas freeze, which pushed out the turnaround schedule, we leave the quarter with increased regarding remaining performance obligation on.

<unk> at $4 77 billion up from $4 $5 9 billion at year end 2020, an increase from the year ago level of 442 billion, we will discuss our remaining performance obligation trends.

More later in my remarks.

We exited the quarter with a pristine balance sheet and we are putting that balance sheet to work to build our business and to return cash to our shareholders with my opening complete I'll now turn it over to the conversation on Mark who will discuss his favor quarter as he only has to comment on the quarterly performance Mark.

Thank you Tony and my voice, Thanks to you as well good morning to everyone participating on the call today.

For those accessing this presentation via the webcast. We are now on slide seven.

<unk> first quarter performance consolidated revenues of $2 3 billion are up a modest $4 2 million or 20 basis points over quarter one of 2020.

Our first quarter results include $29 1 million of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by <unk> in last year's first quarter acquisition revenues positively impacted each of our United States electrical construction, United States mechanical construction and United States building services segment.

Excluding the impact of businesses acquired first quarter consolidated revenues declined $24 $8 million or one 1% organically.

On to our United States Industrial services segment with that being said I will now review the results of each over of our reportable segments, starting with our revenue performance during the quarter.

With the exception of the United States Industrial services in the United States electrical construction all of them cause reportable segments experienced first quarter revenue growth.

United States electrical construction quarter, one revenues of $456 2 million decreased $5 $6 million or one 2% from 2000 twenty's comparable quarter.

<unk> acquisition revenues of $6 5 million. This segment's revenues declined two 6% organically as revenue reductions within the manufacturing and transportation market sectors were only partially offset by increased project activity within the commercial and institutional market sectors.

United States mechanical construction revenues of $903 9 million increased $69 8 million or eight 4% from quarter one 2020.

<unk> total domestic construction business first quarter revenues of $1 $3 6 billion increased $64 2 million or 5% and reflects a strong start to the year.

<unk> on services aimed at improving indoor air quality.

Segment was negatively impacted by abnormal weather conditions and related power outages within the Gulf Coast region, which resulted in net and the delay of active projects and the deferral of previously planned maintenance and turnaround activities with certain of their customers. Although we were able to assist some of our customers with emergency repairs, resulting from the February storm. This on.

On planned work was not enough to offset the lost quarterly revenue caused by these deferrals and delays.

Selling general and administrative expenses of $224 1 million represent nine 7% on first quarter revenues and reflect a decrease of $2 $9 million from 2020.

Within our United States mechanical construction segment due to higher projected annual operating results than what was anticipated during the same prior year period.

Operating income and operating margin record for EMCORE.

Sure.

Our United States electrical construction segment's operating income of $40 3 million.

It is consistent with 2020 as quarter, one performance reported operating margin of eight 8% represents a 10 basis point improvement over last year's first quarter as a result of a modest increase in this segment's gross profit margin first quarter operating income of our U S. Mechanical construction segment of $65 million increased to nearly $20 million from.

Consistent with the commentary during my revenue discussion this performance.

Has established a new first quarter record in terms of both operating income and operating margin for United States Mechanical construction segment.

Our total U S. Construction business is reporting a $105 2 million of operating income and a seven 7% operating margin.

Performance has improved quarter over quarter by $19 $7 million or 23, 1%.

Within this segment's commercial site based services Division and an increase in gross profit from project building controls and a rip and repair activities within the segments mobile mechanical services Division for the primary drivers of the quarterly increase in operating income. In addition, this segment's operating income and operating margin benefited from a reduction in SG&A expense.

As compared to the prior year due to the various cost reduction actions instituted subsequent to the first quarter of 2020. This operating income on operating margin performance represents a new first quarter record for this segment.

On administrative expenses due to certain cost saving and it savings initiatives enacted in calendar year 2020.

UK building services operating income of $9 4 million or seven 4% of revenues represents an improvement of $3 $6 million and 230 basis points of operating margin expansion over 2000, Twenty's first quarter. This performance represents an all time quarterly record for operating income and operating margin as we experienced a strong rig.

<unk> on project work during the quarter as the United Kingdom market approaches to hopeful conclusion of the COVID-19, Lockdown mandates. Additionally, operating income for the quarter benefited from approximately $800000 of favorable foreign exchange rate movement. We are now on slide nine.

Additional financial items of significance for the quarter not addressed on my previous slides are as follows quarter on gross profit of $341 1 million represents 14, 8% of revenues, which is improved from the comparable 2020 quarter by $8 million 30 basis points of gross margin, both our gross profit and gross profit margin represent.

Now on slide 10.

As evident from slide 10, <unk> liquidity profile remains strong.

Cash on hand is down from year end 2020.

Primarily as a result of cash used in operations due to the funding of 2000, Twenty's companywide incentive compensation awards as well as the funding of our United Kingdom subsidiaries VA deferral from the prior year. Additionally, we repurchased $13 million of our common stock pursuant to our share repurchase program and utilize nearly 30.

$2 million of cash in investing activities, including $24 million to fund the two acquisitions that we completed during the first quarter of this year working capital levels have increased modestly primarily due to a reduction in our current liabilities given a decrease in accounts payable as well as a reduction in accrued payroll and benefits due to the previously mentioned funding funding.

On prior year incentive awards and the increase in goodwill as a result of the businesses acquired within our United States electrical in the United States mechanical construction segments net identifiable intangible assets have decreased as a result of approximately $15 million of intangible asset amortization expense, partially offset by the impact of additional intangible assets recognized.

<unk> in connection with the previously referenced 2021 acquisitions.

Thanks, Mark and just for everybody that litigation on the yearend call I did turn my mic on time.

Im going to be on page 11 remaining performance obligations by segment and market sector.

So I got to sum it up in a lot of ways in.

In 2020, we had a lot of COVID-19 disruption here in this quarter, the first quarter going into the second.

We had a little bit of that left but for the most part first quarter 2021 the.

The demand environment and the project bidding for construction and service projects were continuing to be active.

As I mentioned earlier total remaining performance obligations or <unk> at the end of the first quarter were just under $4 8 billion.

$351 million or seven 9% when compared to the year ago level up $4 4 billion and <unk> has increased $181 million for the first three months of the year from the year end level of $4 6 billion.

Our domestic construction segments experienced strong project growth on a quarter with <unk>, increasing $219 million or six 1% since the year ago period of March 31, 2020 and.

There are about $15 million of that is organic growth. The 15 million belongs to a Chicago based electrical contractor that really focuses on infrastructure.

Joined us in February.

Building services segment, or <unk> increase in the quarter of $121 million or 22% from the year ago quarter, a portion of which was the August 2020 acquisition of a Washington D. C. Full service mechanical contractor. However, more representative of what we are now experiencing in this segment <unk> grew $60 million.

Or up 10.

<unk> from December 31, all of that is organic growth and to paraphrase what I've said in February this work as both the resumption of regularly scheduled mechanical systems maintenance. So we're maintaining we're maintaining systems that havent been running full out and in small project work as a result is coming back in and then Theres a modifications improvements.

On that on efficiency and indoor air quality.

If you go to the right side of that page by market sector, clearly our largest sector for our peers continues to be commercial projects.

And we're continuing to see strength and I'll talk about this on the next page and the resilient sectors that we've highlighted as such as data center and I call. It supply chain build off for ecommerce delivery and fulfillment those that commercial segment, which also includes.

The retrofit activity in Newbuild is 44% of total <unk>.

For the year over year and sequential quarter over quarter comparison, commercial <unk> increased 314 and $216 million respectively.

The rest of the sector is pretty much netted as in and out as project activity.

<unk> increased a little in some sectors and decreased a little on others and Thats really just the normal ebb and flow of projects and General project interest is favorable in most all sectors with the exception of hospitality.

That continues to be challenged.

As an indication of future market activity. The March Abi came out a week or so ago and while I think this is a soft index always.

Its work on our Board survey from Architected itself reported numbers, but it's been the same forever. So you say, okay. If it's consistently that way then you can start to draw trends off of it it jumped over 50, which is expansion territory February and was over 55% in March and one of the analysts noted the regional.

Scores for the most part we're in positive territory and the general outlook was upbeat and that's clearly.

True from a year ago period.

Correspondingly the March Dodge momentum index, which is an index of nonresidential building projects in planning also posted a per straw gauge in February and March it's up low double digits at 11% from a year ago period pretty much right before the full impact of the pandemic look I think it's important for me to just take a step.

Back here.

First quarter of last year was a good quarter.

And until the pandemic came it was probably one of the best economies that in my business career I've ever operated and so thats the compare that a lot of these numbers are coming off so it's important to know that.

And both of these leading indicators are indicators of potential future activity Theyre moving in tandem, which is what we like to see and we do a whole bunch of other analysis and I'll talk about that later of what we're going to what we believe could happen to non res this year.

I'm now going to jump to page 12, and I'm going to give you a little update or commentary on these resilient sectors.

We talk about when you look at the first two I'd like to think about that as the build out of our data infrastructure and our supply chain infrastructure.

That's still very strong.

Concentrated in about on the datacenter side, five or 60 graphic areas. We're in 60, 70% of those areas now either electrically mechanically we continue to build our datacenter maintenance business and on the warehousing side. These are the big million square foot plus warehouses.

For the most part this is a life safety play for us on the fire protection side.

Targeted electrical work, depending on the region in the country.

On these warehouses industrial.

Industrial manufacturing.

Don a little bit for us right now, but thats really driven by food process, which we have a pretty good pipeline of potential opportunities and we're actually very bullish on manufacturing because of where we play.

We do see supply chain chain re shoring back to the southeast that could be either out on that.

Most notably China or Mexico.

As people look for redundant supply.

Don't think we want to people on our high margin projects I want to be caught in a situation like they were at the beginning of the pandemic or I do think we're in a decoupling mode versus China as far as supply to the U S.

I think the other part is we are in some good secular markets that we expect to continue most notably semiconductors.

We are very strong and some of the key markets, whether they be Arizona, which would work very strong mechanically.

We have a terrific team in Arizona that does this work superbly.

This is very difficult work.

Very complex.

And the team we have in Arizona that executed as the best in the business.

With both our general contractor customers in construction management customers as well as the Oems and end users.

<unk> care, we continue to see strength.

We've made the right acquisitions or you look at the work we'll be doing that in the.

The Georgia market.

With BK I when you look at the work, we'll do in the Houston market with Cowen.

Look at the work, we'll do continue to do in the Midwest with Shambaugh on a combination of companies.

Look at the work will continue to do in California, the healthcare market continues to be very strong for us.

I just gave you a couple of markets. We really do this work broadly speaking across the country and we do have both in a retrofit basis, which we expect more and more mechanical electrical retrofits and we also see new build coming back and health care.

Again this is both a construction opportunity for us and a maintenance opportunity for us.

I think one thing people appreciated when they were in <unk> customer through the pandemic as we can help them make their facilities more flexible when they needed to.

To handle patient surges or different kinds of health care they needed to deliver.

Water and wastewater.

Continues to be a good market for us, especially in Florida. These projects can be lumpy in how they get delivered.

One of the best teams in the industry down in Florida, and we're very proud of them.

To get to the last two mechanical services into our quality.

We're the best in the business at this the Oems develop solutions, but they need a company like <unk> to be able to deliver those solutions.

And we deliver these solutions as good or better and I would say better.

On a on a consistent basis than anybody in the industry net.

And that's both in mechanical services, the fixings indoor air quality as a whole well building concept becomes.

More prevalent and then finally on efficiency and we've been the best efficiency people for a long long time I would add another sector that sort of overlays. This we will participate in any energy transition when people ask us about that and clearly when you have the best pipe Fitters and electricians and the business and the people that know how.

To supervise them.

Youre going to be part of that.

We already are part of it on small scale solar and a more significant way out in California, and the way I think about small Cal score is.

Way I thought about distributed generation.

And that cogeneration Thats really what it is and 20 megawatts or less as you get to the bigger things we are building capability, especially in Texas right now.

We'll see how that goes I think it's going to go well and we'll continue to build that capability.

And anything that the refiners do along the line of carbon capture it's pipe.

And I'm very happy that Exxon and people like Valero are talking more about renewables renewable diesel and carbon capture will be there to help them do that so we feel good about these resilient markets. We don't chase fads at EMCORE, we build capability and we execute and we can pivot around these markets and we've done that over a long period of time.

I'm going to finish now on page 13 in 2014.

As we entered 2021.

Let's think about what the context of it was vaccinations were just starting to get rolled out.

We were in a world of COVID-19 surges in parts of the country.

And as February started to come we gave guidance, but that was our backdrop.

But we continue to perform our folks are resilient and they are really good on what they do.

In that initial guidance, we gave you about 878 weeks ago.

We expected to earn $6 20 to $6 70.

And earnings per diluted share and if you look at that midpoint that would be another record year Mark after how many seven.

So pretty good.

And we expect it to do that on $9 2 million to $9 4 billion in revenue and so we clearly thought that the revenue was going to accelerate as the year went on.

About the tough compare were having here on the first quarter with industrial up until the third week of March last year industrial was having a very good first quarter.

So we went back we thought about it and we said, okay. We had a better first quarter than we expected.

So with that we're going to raise the low end of our guidance range of $6 35, a 15 set movement from the $6 20.

And we're going to take the top end of the range up about a nickel or $6 75 per diluted share were to keep revenue guidance, where it is and we'll certainly know more about that when.

When we get out of the second quarter.

And as we said in February 2021, we did expect.

2021 to be another year of outstanding performance.

Yes, but let's think about this we have to execute every day, we're doing this across.

And we I think.

Do that against the backdrop of record operating income margins in our electrical and mechanical construction segments in 2020.

So we do expect those increased revenues to help us mitigate some of that challenge.

So when we gave you our guidance we laid out some assumptions on what I'm going to do now is talk about what that assumption was.

And what the update on that assumption is now eight weeks later with first quarter on the books. So.

So the first assumption was our industrial services segment.

You know primarily serve the downstream.

Petrochemical and refining markets, we didn't think it would materially improve.

Until the fourth quarter.

And then it would gain momentum going into 2022 as demand for refined products will continue to be challenged early in 2021, especially through the end of the second quarter.

Demand is picking up so let's talk about what that view is now we still believe as far as performance in the segment, that's an accurate view of the market.

Some trends are clearly positive now crack spreads are very good.

In high teens low <unk>.

<unk> diesel market is a market we are helping our customers get ready for and served through upgrades and App Dev adaptation.

Net patients of their facilities.

And refinery utilization has moved into the low eighty's trending toward the mid eighties.

We fully expect that to be in the high eighties by early June.

It's going to be driven by really aviation fuel at this point.

So we had an assumption at the beginning the year also nonresidential market would decline modestly.

What do we think now.

We think that market potentially could be flat for the year and.

In the second quarter trends will provide more insight as we may see accelerating demand through the year.

This market now could have either breakeven performance or modest growth in 2021.

We also said that we would continue to execute well on our more resilient market sectors.

<unk> manufacturing commercial driven by data center, and logistics warehousing water wastewater and all the things I just mentioned on the previous page.

We still think Thats true and even more true today.

And we do expect that the year on that manufacturing gained strength and you will see it first in our backlog.

We did talk about the COVID-19 environment, we did not expect did not expect a more restrictive COVID-19 environment than what we were operating in as we gave guidance in February.

We did expect a more normal operating environment as the year progressed.

We talked about that we were operating near 100% capability. We don't use the word capacity because we always look we can add tradespeople.

We've learned how to work under the COVID-19 precautions.

It does require a lot more planning and we have to be much more precise on our execution.

That's sort of how we operate anyway and it is nothing new for us to keep our employee safety first it's one of our core values and quite frankly.

People would not want to work for us if it was not.

So what's my updated view on that.

I believe so.

Net as we and our third quarter move through third quarter into fourth quarter more of our job sites will start to be look more normal.

And conditions in most of the states that we operate in.

Because we continue to see positive trends in those states.

And we will see that in the UK to I mean, we just talked to our UK folks this morning.

$38 million out of $68 million 66 million people on the U K. This morning, we're operating in parts of the country that had zero COVID-19 cases yesterday reported.

I think that might happen here as our vaccinations continue to pick up.

We do expect we said we expect to continue to help our customers with IQ energy efficiency replacement projects opt.

Optimizing their systems and helping bring their employees back to work.

I'd say thats going as expected.

So did you say how do we go from where we are at the low end of the range the midpoint of the range to the top end of the range.

I would say that each one of those trends are mix of those trends get better.

So maybe the non res markets better than we thought it was especially for projects that can be that can be completed in the year.

It's especially true.

Things normalize.

And work normalizes and people start to spend more capital.

That would be a logical thing to do they do worry about manpower.

When they have a bunch of work scheduled we may be able to have some of those discussions.

Momentum in <unk> and efficiency accelerates.

That could happen, especially on the efficiency side as folks realize that all of the investment in <unk> actually hurts efficiency and.

And their customers will be demanding them to make their facilities more efficient.

Hey look we got to keep our productivity is strong as we transition we want to keep some of those gains we've made with scheduling we want to keep the emphasis we've had on pre fab even on smaller jobs as we transition I think.

No we will.

But we have to keep that first.

Think about the outlook, we were taking on incentive compensation last year versus this year. We told you we expected to have organic reduction of around $15 million to $20 million were at the high end of that right now on a per on a run rate basis, and if we have increased incentives long term. That's a good thing in our field operations because that means we're doing better.

The other thing that I know you will ask about and I'll just get in front of it now a little bit is on.

Stimulus.

The thing that will impact us this year the government spending that will impact us. This year is all reloaded related to these COVID-19 emergency packages.

We will benefit from that because of the money that went to the states and municipalities to make their budgets more flushed allow them to complete some of their smaller capital projects and get some of the transit systems and moving again it will help them.

Q1 2021 EMCOR Group Inc Earnings Call

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