Q3 2021 EMCOR Group Inc Earnings Call

October 28, 2021

[music].

Good morning, My name as Jerome and I will be your conference operator today at this time I would like to welcome everyone to the EMCORE group third quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise I, probably the speaker's 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 he would like to withdraw your question press the pound key Mr. Bad Newman with F. D. I control. Thank you may begin.

Thank you Jerome and good morning, everyone. Welcome to the EMCORE Group Conference call. We are here today to discuss the company's 2021 third 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.

Thank you Brad good morning, everyone and happy Halloween.

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

For those of you who are accessing the call via the Internet on our website welcome to you as well as 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.

Age two describes in detail the forward looking statements and the non-GAAP financial information disclosures.

<unk> everyone to review both of the closures both disclosures in conjunction with our discussion and accompanying slides slide.

Slide three shows the executives who are with me today. They are Tony Guzzi, Chairman, President and Chief Executive Officer, Mark Pompa, Our executive Vice President and Chief Financial Officer, and our Executive Vice President and General Counsel Maxine Mauricio.

For call participants not accessing the call via the Internet this presentation, including the slides will be archived in the Investor Relations section of our website under presentations you can find us at EMCORE group Dot Com with that said, please let me turn the call over to Tony Tony.

Morning, and thanks, Kevin and thanks for joining our call my opening comments will reference pages four through six of our presentation.

As we have navigated the last few years, we've learned to operate in a highly uncertain and volatile environment.

And we've done it with success on almost any metric.

We've had to accomplish our mission, while keeping our people safe our company values of mission first people always have served us extremely well throughout these unprecedented times.

We had an exceptional third quarter at EMCORE.

Especially against a very difficult comparison in the prior year.

As you may recall in the third quarter of last year, we were bringing about a third of our company back to full operations.

We had projects poised and ready to resume or start.

Delayed service that needed to be completed and buildings campuses and production facilities.

We helped our customers reopen as they resumed operations.

Further we had yet to bring back our full complement of staff that we need to sustain and build our operations said.

Simply we had an abundance of work at all the materials at a lower cost base as we were still returning to full operations. After the extreme cost reductions we have taken in response to the pandemic.

Against that backdrop in comparison for the third quarter of 2021, we were able to post $1 85 in earnings per diluted share versus $1 76 of adjusted diluted earnings per share in the year ago period.

We grew revenues to $2 five 2 billion with 14, 5% overall revenue growth and 12, 2% organic revenue growth, we posted five 4% operating income margins, despite strong headwinds from supply chain issues and labor disruptions.

Caused by the Delta Varian I.

I believe this is very good performance considering the operating conditions, we faced in the quarter.

We grew remaining performance obligations or <unk> 18, 7% from the year ago period to 538 billion, we generated operating cash flow of 121 million. Despite the strong organic revenue growth.

All we had a very successful quarter that continues to show the strength and diversity of our business, but more importantly, the outstanding leadership provided by our teams at the subsidiary segment and corporate level.

Our electrical and mechanical construction segments had excellent performance in the third quarter of 2021.

Both segments posted strong operating income margins and had strong organic revenue growth through careful planning on our large projects and excellent supplier relationships, we mitigated a lot of the supply chain disruptions facing our operations. However, we are seeing cost increases of 10% to 20% and.

Eight that such increases will continue in the near future.

And that is only part of the issue as we have seen lead times increase by two to three times their normal levels.

Our success in the quarter points to the continued resiliency of our teams their ability to navigate these issues deliver for our customers.

And continue to keep our workforce productive and safe.

We continue to have a robust pipeline of data center warehousing at health care projects, and we had strong bookings with our manufacturing clients in the quarter Bill.

Building services had had the most difficult comparison of the quarter as a deep cost cuts taken at the height of the shutdown where most severe in this segment, we still posted decent operating income margins of 5% against the year ago period of six 9%. However, we were most affected in this segment by <unk>.

Fly chain issues and diminished productivity.

Although demand for our retrofit project work is very strong we had some issues with the synchronization of our supply chain with our labor planning, resulting in reduced productivity to mitigate these issues. It has become a common practice to have daily communications on deliveries and price changes on a quick term project and service work.

Further this segment also bears the brunt of the dollar per gallon increase in the fuel, which gasoline and diesel year over year due to its largely and this had an impact of 20 to 30 basis points on operating income margins. We can pass some of this increase onto our customers had.

Just repriced into our timing material rates in June we will do so again between now and January across the majority of our building services operations. This is the second increase this year, which is not our usual practice of executing which is once a year usually in June.

Demand remains strong and we will continue to improve our planning over the next quarter or two.

Industrial services continue to operate as we expected we improved on a year over year basis with respect to revenue and operating income we had some impact with respect to the storms in the Gulf coast, but that mainly just pushed out work to later in the year or into next year and we did have some disruption to our shop work in Louisiana.

Demand for our services continues to build refinery of <unk> is at a very high level and we expect it and we expect to execute a better fourth quarter turnaround season. This year versus a year ago period. We also anticipate much improved demand as we exit the year and move into the first quarter of 2020.

Two.

The U K continues to execute well for its customers with double digit revenue growth and good operating income margins demand remained strong for our services.

Like like in the United States. We're also battling supply chain issues for a quick term project work in the United Kingdom.

We'll leave the quarter with a pristine balance sheet strong fundamentals and record Rps and with that Mark I'll turn it over to you.

Thank you Tony.

Turning to everyone participating on today's call 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 on <unk> third quarter as well as provide a brief update on our year to date results through September 30th.

All financial information referenced this morning is derived from our consolidated financial statements included in both our earnings release announcement and Form 10-Q filed with the Securities <unk> Exchange Commission earlier today.

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

Consolidated revenues of $2, five 2 billion or up $320 million or 14, 5% over quarter, three 2020 and represent a new all time quarterly revenue record for EMCORE.

Each of our reportable segments experienced quarter over quarter revenue growth excluding.

Excluding $50 3 million of revenues attributable to businesses acquired pertaining to the time that such businesses were not owned by EMCORE in last year's quarter.

Revenues for the third quarter of 2021 increased nearly $270 million or a strong 12, 2% when compared to the third quarter of 2020, which was still somewhat impacted by the effects of the COVID-19 pandemic.

<unk> of each reportable segment are as follows United States electrical construction revenues of $527 9 million increased $55 9 million or 11, 8% from 2023rd quarter.

Excluding acquisition revenues within this segment of $29 5 million. This segment's revenues grew organically five 6% quarter over quarter increased project activity within the commercial health care and institutional market sectors were the primary drivers of the period over period improvement.

United States mechanical construction segment revenues of $999 6 million increased $108 1 million or 12, 1% from quarter. Three 2020. The results of this segment represent a new quarterly revenue record revenue growth during the quarter was driven by increases within the manufacturing health.

Care and commercial market sectors with respect to the manufacturing market sector. We are in the early phases of construction on several food processing plants, which will accelerate further as we move into 2022 from.

From a healthcare market sector perspective, there continues to be greater demand for our services as we are engaged in a number of projects ranging from mechanical system retrofits to complete installations in both new and existing health care facilities lastly, within the commercial market sector. We continue to see strong demand for data Center project work given.

And digital storage and cloud computing across the United States.

We continue to assist our e-commerce customers with the build out of the warehouse and distribution network through both traditional mechanical as well as fire protection services.

Third quarter revenues from EMCORE is combined United States construction business of $1 $5 3 billion increased $164 million or 12% with nine 9% of such revenue growth being organic this combined revenue performance eclipses. The quarterly revenue record established by this group during the second quarter of this year.

Despite this record revenue performance each of our construction segments have increased the remaining performance obligations both year over year as well as sequentially.

United States building services quarterly revenues of $632 5 million increased $75 9 million or 13, 6% excluding acquisition revenues of $20 8 million. This segment's revenues increased nine 9% organically revenue gains were reported within our mobile mechanical services division due to increased.

Service repair and maintenance activities, our commercial site based services Division as a result of new contract awards in our government services Division given an increase an indefinite delivery indefinite quantity project volumes EMCORE.

<unk> industrial services segment revenues of $232 2 million increased $60 7 million or 35, 4% due to improved demand for both field and shop services. As we are beginning to see some resumption of maintenance and small capital spending in the energy sector.

United Kingdom building services revenues of $129 5 million increased $19 4 million or 17, 6% from last year's quarter revenue gains for the quarter resulted from the continuation of strong project demand from this segments maintenance customers, who previously deferred such work during 2020 as the result of the COVID-19 pandemic.

Related prolonged U K government lockdown measures. Additionally, this segment's revenues were positively impacted by $8 million a favorable foreign exchange rate movements within the quarter. Please turn to slide eight.

Selling general and administrative expenses of $243 9 million represent nine 7% of third quarter revenues and compare it to $226 8 million or 10, 3% of revenues in the year ago period. The current year's quarter includes approximately $5 3 million of incremental expenses from businesses acquired inclusive of intangible asset.

Amortization, resulting in an organic quarter over quarter increase in SG&A of 11 9 million <unk>.

Consistent with my commentary during our second quarter earnings call. The prior year period benefited from substantial cost reductions, resulting from our actions taken in response to the COVID-19 pandemic, a significant percentage of such savings pertains to employment costs, including furloughs head count reductions and temporary salary reductions.

Conversely, EMCORE is considerable revenue growth in 2021 has necessitated an increase in head count in the current year. Additionally, our SG&A for the current period reflects an increase in healthcare costs as the result of a normalization in the level of medical claims as well as greater travel and entertainment expense due to a partial resumption of certain bids.

This activities by our workforce when compared to the same timeframe in 2020.

The reduction in SG&A as a percentage of revenues as a result of the aforementioned increase in quarterly revenues without a commensurate increase in certain of our overhead costs as we were able to successfully leverage our cost structure. During this period of strong organic revenue growth.

Reported operating income for the quarter of $137 4 million or five 4% of revenues compares to operating income of $135 9 million or six 2% of revenues in 2023rd quarter.

The 80 basis point reduction in operating margin is due to reductions in gross profit margin within several of our reportable segments due to a less favorable revenue mix, which I will elaborate on during my individual segment commentary. Despite this reduction in quarter over quarter operating margin EMCORE is $137 4 million of operating income represent.

A new third quarter record.

Specific quarterly performance by segment is as follows our U S. Electrical construction segment operating income of $44 1 million decreased $1 $9 million from the comparable 2020 period reported operating margin of eight 3% represents a reduction from the nine 7% margin reported in 2023rd quarter. The <unk>.

Greece in both operating income and operating margin is due to a decline in gross profit within the commercial and transportation market sectors, given a change in the composition of project work performed quarter over quarter. In addition, and as disclosed in last year's third quarter. The results for the prior year period benefited from the settlement of final final contract value on <unk>.

Projects, which favorably impacted this segment's Q3, 2020 operating income and operating margin by $4 $4 million and 70 basis points respectfully.

Third quarter operating income for our U S. Mechanical construction services segment of $82 3 million represents a $2 3 million increase from last year's quarter, while operating margin of eight 2% represents an 80 basis point reduction from the 9% earned in 2023rd quarter from an operating margin perspective, similar to our electrical construction.

<unk> segment, the reduced profitability can be attributed to a less favorable mix of work during the quarter. Most notably this segment experienced a decrease in gross profit margin within the manufacturing market sector as the results for the period included increased revenues from certain large food processing projects for which we were are for which we are.

Acting as the construction manager and carry lower than average gross profit margins when compared to our traditional subcontractor arrangements with our customers.

Further the results for the year ago period benefited from the favorable closeout of several manufacturing projects, which resulted in incremental operating margin contribution to be clear the impacts within the quarter for both our construction segments relates to discrete projects or events that should not be misconstrued as representative of our margin expectations for all on.

Boeing project in service contracts included in remaining performance obligations, which Tony will cover in detail later this morning.

Our combined U S. Construction business is reporting a $126 4 million of operating income with an eight 3% operating margin. This level of operating income represents a new third quarter record for our combined construction business.

To add that adult below that of the prior year. The operating margins to date in 2021 for each of our electrical and mechanical construction segments exceed both their three year and five year average margins operating income for U S building services was $31 $6 million or 5% of revenues. This represents a reduction of <unk>.

$9 million and 190 basis points of operating margin quarter over quarter growth in operating income within this segment's commercial site based and government services divisions was not enough to offset declines within its mobile mechanical and energy services divisions as I commented during last quarter's call. Our mobile mechanical services Division has a large number.

A fixed priced capital projects currently in process, which traditionally have a lower gross profit margin profile in this segment's call out service and small project work. In addition, during the quarter, we experienced some productivity issues, partially due to the delayed receipt of certain equipment and materials, which has impacted our profitability both in terms of dollars.

<unk> and margin.

Lastly growth in this segment SG&A expenses due to headcount additions to support revenue growth as well as incremental amortization expense related to businesses acquired further compressed operating income and operating margin.

Our U S. Industrial services segment operating loss of $3 million represents a $5 9 million improvement from the $8 $9 million loss reported in 2023rd quarter. Darwin improvement. This segment continues to be impacted by difficult market conditions within the oil and gas industry. Additionally, although not as severe as in the prior year quarter.

Under this segment experienced lost work days due to both temporary plant in certain customer site closures, resulting from named storm activity in the Gulf Coast region during the 2021 quarter U.

UK building services operating income of $6 6 million or five 1% of revenues represents an increase of $1 3 million, a 30 basis point improvement in operating margin quarter over quarter approximately $400000 of this period over period improvement is due to positive foreign exchange movement with the remainder attributable to an increase in project activity primarily.

Within the commercial market sector.

We are now on slide nine.

Additional financial items of significance for the quarter not addressed on the previous slides are as follows quarter three gross profit of $381 3 million.

It's higher than the comparable quarter by 18 by $18 2 million or 5% gross margin of 15, 1% is lower than the 16, 5% in last year's third quarter due to the shift in revenue mix in each of our U S electrical and mechanical construction segments as well as our U S building services segment as I just referenced during my segment operating.

Income discussion.

Diluted earnings per common share of $1 85 represents a new quarterly record for the company and compares to $1 $1 11 per diluted share in last year's third quarter, adjusting 2000, Twenty's EPS for the negative impact in our prior year income tax rate, resulting from the non deductible portion of last year's noncash impairment charges recorded during <unk>.

2022nd quarter non-GAAP diluted earnings per share for the quarter ended September 32020 was $1 76 when.

When compared to our current quarter's performance, we are reporting a nine or five 1% quarter over quarter earnings per share improvement.

Please turn to slide 10.

With my quarter commentary complete I will touch on some high level highlights with respect to EMCORE as results for the first nine months of 2021.

Revenues of $7 6 billion represent an increase of $747 8 million or 11, 5% of which nine 4% in such revenue growth was generated by organic activities operating income of $387 8 million or five 3% of revenues represents a significant increase from reported operating income for the.

First nine months of 2020, and a double digit increase from the corresponding adjusted non-GAAP operating income figure figure for that period year to date diluted earnings per share was $5 17.

And represents an increase of approximately 14% over 2000, Twenty's adjusted non-GAAP EPS for the nine months period.

Although not shown on this slide my last comment on our year to date results as with respect to operating cash flow for the first nine months of 2021, we have generated approximately $114 million of operating cash flow, which is well below 2000, Twenty's record performance as I commented last quarter, our substantial organic revenue growth has required increased working capital invest.

This contrast to 2020, where for a large part of the year, we were liquidating our balance sheet due to the revenue declines, resulting from the COVID-19 pandemic. Further it is important to note that last year's nine month operating cash flow was favorably impacted by $82 $3 million due to government stimulus measures that allows for the deferral of.

Certain tax payments in both the United States and the United Kingdom.

As previously communicated my expectation for full year 2021 was operating cash flow in excess of $300 million with our upward revision in 2021 revenue expectations I am still targeting the same level of operating cash flow performance, but it is possible that we may not eclipsed the $300 million target should our working cap.

<unk> investment would be greater than expected during the fourth quarter. Please turn to slide 11.

<unk> balance sheet remains strong and liquid cash on hand is down from year end 2020, driven by cash used in financing activities of approximately $213 million inclusive of $183 million used for the repurchase of our common stock and cash used in investing activities of $137 5 million.

Most notably due to payments for acquisitions net of cash acquired totaling approximately $114 million. These uses of cash were partially offset by cash provided by operations of $114 million as I noted just a few moments ago.

Working capital has increased by nearly $20 million increases in accounts receivable and contract assets, resulting from our substantial organic revenue growth. During the period were partially offset by the decrease in our cash balance just referenced as well as our increase in contract liabilities. The increase in goodwill is predominantly a result of the fire.

This is acquired during the first nine months of this year no identifiable intangible assets have increased by $19 million as the impact of additional intangible assets recognized in connection with the previously referenced acquisitions was <unk>, which was.

It was largely offset by $48 million of amortization expense during the year to date period as a reference point on a full year basis, we anticipate depreciation and amortization expense, including both depreciation of property plant and equipment as well as amortization of intangible assets to be approximately $112 million for 2020.

One.

Total debt exclusive of operating lease liabilities is fairly consistent with that of December 2020, and of course debt to capitalization ratio has reduced to 11, 4% from 11, 9% at year end 2020.

<unk> remains well positioned to capitalize on available opportunities as our balance sheet combined with the borrowing capacity available to us under our credit agreement provides us with great flexibility in pursuing numerous organic and strategic investments with my portion of this morning's slide presentation completed I would like to give the call back to Tony Tony.

Thanks, Mark and I'm going to be on page 12 remaining performance obligations by segment and market sector.

We had another strong project bookings quarter here at EMCORE.

Each of our five reporting segments RPM growth year over year, why as we mentioned earlier simultaneously increasing revenue over the same period. We also saw <unk> growth in seven of the eight market sectors in which we report.

By definition, our Poe and project bookings are forward looking so it's fair to say that we're currently seeing strong future demand across all of our segments and market sectors.

While September 30, as a single point in time and projects certainly ebb and flow, we are well positioned moving into 2022.

As mentioned earlier total company <unk> at the end of the third quarter were just under $5 4 billion up $849 million or 18, 7% when compared to the year ago level up $4 5 billion.

Organic <unk> growth was a strong 15, 6% year to date for the nine months completed in 2021 total <unk> have increased $784 million or just over 17%. This strong booking activity across our company trends related to a book to bill ratio well over one despite that.

Company generating record revenues are.

Our two domestic construction segments experienced strong construction project growth in the quarter with <unk>, increasing $606 million or 16, 5% from the same period last year.

<unk> World this slightly by two Midwestern electrical construction and services acquisitions completed this year.

Building serves as our RPM levels increased $180 million or almost 29% from the year ago quarter, a $142 million of the 180 million was organic.

We continue to see widespread small and short duration project demand and believe this will remain active through the end of the year and into 2022 as workers return to buildings campuses factories and institutional facilities across the country postcode and as a delta variant hopefully continues to subside.

Our industrial services segments are ARPA increase of $53 million from September 2020 work within our heat exchanger shops has been building and while still are lower than historical levels pricing appears to be improving a bit.

Further we continue to build capability execute fixed price contract work in both our electrical and mechanical trades in this segment. While this segment remains challenged due to macroeconomic forces. We are starting to see signs of increased activity much as we expected as we move into 2022 and that is good news.

In summary, we continue to see strong momentum in our core markets at our scale diversity of demand.

<unk> ability to pivot to more resilient sectors.

Allowed us to continue to have strong bookings in <unk> growth, but also a very strong organic revenue growth I'm now going to finish our discussion on pages 15 and 16.

We are closing in on yet another record year performance at EMCORE, Despite a very difficult operating environment.

At the beginning of the year, we expected that margins would be under some pressure, but we believe that we would have the necessary revenue growth to offset any margin compression.

We foresaw the supply chain issues, but card frankly, there are worse than we expected.

We not only have seen increasing in volatile pricing, but lead times that extend through two to three times normal levels.

Energy prices, especially gasoline and diesel costs have increased by more than we anticipated. We also expect COVID-19 to be much less impactful than it was as a delta variant caused disruption on some job sites and send some key supervision into quarantine.

Working in this challenging environment, we continue to deliver and no excuses manner and execute well for our customers, while keeping our employees safe.

Despite such headwinds we are raising our guidance.

Our new guidance is diluted earnings per share of $6 95.

To $7 15.

And we now expect to earn revenues between 980 billion and $9 85 billion.

As we close on 2021, we do expect to continue to be challenged by supply chain and productivity issues, but we will work through them as we are resilient.

We expect the nonresidential market that showed mid single digit growth in 2021, and expect that momentum to continue into 2022.

We like all large employers will have to navigate complying with the pending emergency temporary standard or Etfs.

With respect to mandatory vaccination and testing.

And the executive order mandating vaccination on federal contracts.

The Etfs has not been released and therefore, the related cost to comply and the impact of our productivity are unknown.

We expect to generate additional operating cash flow in the fourth quarter and we expect to continue to be balanced capital allocators to date in 2021, we have repurchased $183 million in EMCORE stock paid $21 million in dividends and invested $114 million of acquisitions there.

We will continue to position EMCORE for long term and sustained growth.

Our board of directors, just to authorize a new and our largest share repurchase authorization of an additional $300 million.

We continue to have a very active acquisition pipeline.

I'm thankful for our EMCORE team members and leaders for their dedication and resilience as we continue to focus on employee safety and delivering for our customers as always thank you for listening and your interest in EMCORE and with that Sharon I will now take questions.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad to withdraw your question press the pound key.

Question comes from Sean Eastman with Keybanc capital markets. Your line is open.

Hi, great. Thanks, Shawn good morning, great quarter. Thank you.

So.

Everyone is obviously worried about labor availability supply chain in place and you guys touched on it quite a bit in the prepared remarks, but maybe just in short Tony what's the playbook for running the business.

And this sort of resource constrained operating environment.

What are kind of the 123 things.

Youre doing or really focused on as we look out the next couple of quarters.

Sean It really comes down to a couple of things the labor availability I'm going to put to the side for a minute I think our folks over a very long period of time have figured out how to navigate through labor availability and now we've learned how to navigate through disruptions to labor with the pandemic on our job sites. So.

I think we know how to do that I think we'll get through that.

And we've done it before in high growth markets.

We're blessed with some of the best local management that you could have that really understand their labor and understands how to keep good supervision on job sites.

Go into the second point on supply chain.

I think now is the time in some ways you get rewarded for being a good partner.

EMCORE has never been known as a company that takes advantage of its suppliers on terms or doesn't do what we say we're going to do we also don't blame suppliers for things that where our problems.

Which could be common practice in our industry at times. So we're known as a pretty good partner for our supplier and Thats paying dividends now where do you see that most of us at the distribution level. Most of what we buy comes through distribution in some form or another and we have very good OEM relationships and because of our scale, we have the ability to.

Make sure on our most important jobs that we can keep availability as good or better than anybody else.

The thing that might be a little bit different in this playbook right. Now is how you deal with the short term quick term service work.

One of the things we pride ourselves on is keeping our customers facilities factories edgy.

Educational facilities institutions health care facilities up and running.

When someone makes a commitment to us on a six week project that the materials are going to be there.

We believe him.

And in today's World I think that's become more problematic not because our suppliers don't think they can deliver it in that time period is it sometimes they can't so we've had to go the extra mile with communications and it really has changed some of our planning before we something of similar demo something what mean by that is demolish something.

So that we can build because we have to keep our customers' facilities running and it could be as simple as we were getting really good at it.

On time right on right on place delivery of service parts I think some of that is going to go by the wayside for the next six to nine months as we just like to make sure we have it in our hands.

Before we start our repair so a lot of variables going on its 1000 details. So the first one is labor availability a lot of communication the second wave of our supply chain, having been a good partner, we're being rewarded for that now lots of communications don't get to advanced in the project until you're sure that you have the materials you need to execute to that.

Next.

Part of the project and then the third one is be very clear on contract terms.

I'm actually pleased with how we've been able to work with our our customers through these supply chain issues and through the pandemic everybody seems to have the attitude right now that we're all in this to some extent together and we're just trying to get to completion and get it and get a building built get a data center build getting commissioned and online.

And a lot of planning has to go on it's less than ideal.

Unfortunately things like this teach you new lessons that in some ways will make you better long term, but I would just leave you with this.

The supply chain issues are unprecedented.

I'm seeing lead times I've never seen in my career and I've been doing this a long time.

That is almost as big of an issue for us is pricing or is a bigger issue mark anything to add there.

No Tony I think Charlotte.

It's on.

Unprecedented at least in my professional career.

And not to overplay, this but I think the fact that.

We have long standing relationships within within our supply chain.

Certainly advantageous to us but ultimately.

There's a lot of things that have to happen on the front end in order for us to continue to be successful and we will contingency plans are the best that we can.

But ultimately there is only so much we can do and I think we've been successful to date and based on a revision in earnings guidance. We don't see any reason why we will not continue to have the same levels of success as we move forward through.

Through the end of 'twenty sign offs.

Okay, Great Alright, that's helpful. And then and then maybe just trying to connect the dots between telling.

Tony Your last comment there just an unprecedented supply chain lead times and not getting too advanced on a project until you're sure you have the materials sort of balancing that with this.

Huge momentum.

<unk>.

And in the bookings trends year to date.

<unk> are up mid teens organically clearly that support some nice growth into next year, but we need to kind of moderate our expectations.

Around kind of.

How much youre going to let the business grow in this kind of environment.

If you can sort of level set on a reasonable expectation for growth into next year, even qualitatively around these dynamics that it would be helpful. Yes look sure we've always had the belief that well.

We typically in a good market grow little grow better than what the non res market is going to grow we are in some resilient sectors and.

So we're not going to hold back when we can win good work and we can responsibly execute that work and so if you look at our Rps we believe.

That that's representative of what we think we can accomplish.

Those elevated levels.

I think what happens in this kind of environment and we've seen this over the last two or three years is there is a definite especially at the two ends right owners, where youre doing a service project a retrofit project want to go with quality people that know how to do the work and can plan and you think about it that would even be more reason to want to deal with a company like ours.

They know that we have the resources to make that happen and on the top end at the project level.

You are competing against a budget a lot of times, they'll but people want to be with route well resource companies and Thats beyond just financial strength, that's what the resources to actually do the planning to learn from each other to be able to draw on the kind of supplier relationships, Marc and I talked about.

And to have very clear communications.

On what we can accomplish on what schedule.

I don't think there is a fixed amount, which say this company can grow it's very much a bunch of individual decisions in local markets and sectors and I think the appetite for larger projects is out there with some of our owners.

I'll tell you what you do see in this kind of environment and I think what we're benefiting from.

Some of our construction manager general contractor customers in a market that may have.

Less complication.

Sometimes we'd like to cut off the job right and give different pieces of different people.

And this kind of environment, you would rather be with somebody like us or let us worry about multiple parts of the project and multiple trades on that project and what I mean by that is not necessarily in our mixing our electrical and mechanical work, but we can take a greater mechanical scope or greater electrical scope on a project and so we are seeing that and that might be with <unk>.

Part of what's underlying that RPM growth.

Very interesting alright, I'll turn it over thanks, guys. Thanks, Sean.

Your next question comes from Adam polymer with Thompson Davis Your line is open.

Hey, good morning, guys congrats on a great quarter. Thanks, Adam.

Hey, Tony what would be your thought on margins and backlog.

You know.

Adam I don't have any reason to believe that we didnt, we don't we havent booked work at an acceptable margin now.

Now margins fluctuate quarter to quarter as Mark talked about.

Sure well above even in the quarter, a three year average as you've been following us a long time I think you would agree for the most part these are very good margin levels, especially with the headwind that we're seeing in industrial with no real operating income margin.

<unk> contribution.

Some of that has to do with contract structure as you get to the bigger jobs right you might be working on more GM.

GMP or guaranteed maximum price type contracts that adjust and theres more cost transparency.

Some of it will have to do with.

The quick turn service work and the margin there so we don't ever sit there and say.

Hey, there's a specific margin in backlog, we're looking for quite frankly it is.

Tough thing to measure, but we do look forward to say do we have the right work the right people and the right tools to earn an acceptable return on capital employed and return on investment and return on labor.

Labor.

For that project work. So we feel good about what we have in RPE OS.

We think as good of mixes we've had but again that will fluctuate quarter to quarter Mark.

Yes.

I'm really nothing to add to that I think.

When you look at our year to date margin performance is quite strong.

Clearly because of the complexity of this business you do get some some margin fluctuations quarter to quarter, depending on the timing of work.

We are we are on the front end of a lot of large work right now and.

As our history has indicated we tend to we tend to be a little bit more cautious with profit recognition at that point until they're fully established on the job site and clearly with.

Everything that was required as a result of the COVID-19 pandemic.

We're being extra cautious with regards to our labor.

And obviously, how we're working with the other trades around us so.

We certainly do not.

Tell our operating teams to reduce their level of expectation for profitability on work as they are approaching their markets.

We are clearly requiring the same level of excellent execution.

All of our projects and service opportunities so that so that it hasnt changed.

So I don't see that our future is going to look any different than our recent past.

We're going to continue to perform well for all of our stakeholders. Yeah. Let me, let me tie together a couple of thoughts there.

For the broader group.

And Adam you gave us a good opening to do that on page 13 in 2014.

So we talk about what we had in these resilient sectors.

These growth opportunities.

And so when you look at page 13, and Youll see data centers warehouses industrial manufacturing health care water wastewater mechanical services and they are quality of fire protection.

Everything we've talked about for the last year and a half is still very strong.

And some of them really stand out I mean fire protection continues to be a very strong market for us.

We are the nationwide leader, especially on the installation side and we got to be two or three on the service side now.

This digital build out data centers and the digital infrastructure around supply chain thats happening within the country, maybe they should let some of those guys takeover the ports and figure out how to get that done, but what we're doing within the countries pretty strong.

In the data center market continues very strong as does the infrastructure for the.

The supply chain for the big.

Delivery services <unk>.

Industrial manufacturing continues to be too.

Three stories for us.

The first story is we're really good at tech manufacturing and supporting Tech manufacturing.

And you think that's going to happen with the chip build out we're well positioned in a couple of markets, where that's going to take place you think what's happening in food processing, which is going to continue to grow we're very well positioned with our shambaugh subsidiary. They have some nice opportunities in front of them they tend to be episodic, but that team that really knows how to execute as does our tech manufacturing people.

And finally, the re shoring of manufacturing is a real trend.

And the supply chain issues continue to SaaS rebate that we.

We've been talking about it for two or three years, we continue to see that and you really see it in things like the things on pharma.

Grid resiliency and finally on building products.

And all three of those areas healthcare continues to be a good market for us.

And it's going to continue to be one thing we learned in the pandemic.

Thank our health care customers, obviously are dead serious people.

And as a result of that they are looking to build more resiliency and more flexibility into their facilities and they realize their mechanical systems, especially.

May need to be updated and made more flexible water wastewater for us is a more localized market on the mechanical side much more national on the electrical side, although certainly not as big of scope.

<unk> services indoor air quality and energy retrofit are all very strong markets for us what youre seeing a little bit in the building services margin as well.

Not so much that the work wasn't good at RPM as what Youre seeing in some ways is is that's where the supply chain issues came to head the fastest that team knows how to execute they've been correcting it.

Maybe we had a couple.

25% of the problem was or the 75% was probably externally.

Driven and across all those sectors that fire protection business remains very strong I would add one more and that's with respect to energy transition.

Clearly a big trades contractor, we have something thats very valuable for people to use we will participate in the energy transition and already are we have solar capability. We've done some projects both in our electrical segment and we've now started to really build our capability and our industrial services segment to do that work.

That work has long lead time, though I mean.

And we will participate there we also do a solar work in conduction with our mechanical services work, especially in states like California, New Jersey.

And in New York and some in Arizona, So we do that work today and it's more.

Low megawatt Mega.

A megawatt or less.

<unk> versus the 200 megawatt sites that our electrical segment may do or electrical.

<unk>.

Trades in the industrial services and finally as you start thinking about things longer term like carbon capture.

This pipe.

A lot of piping done around that and that will happen both in our mechanical construction segment and our industrial services segment and we are in the <unk>.

First on some of those ideas in the first or second inning, we're <unk>.

Seeing our customers already start to talk to us about us and the capability will have there.

<unk>.

And the thing you don't think as much about and something we are participating in the industrial services segment and again its in the first inning in the renewable fuels and that some of our.

Refinery customers are actually adapting their facility to do and again, its electrical system upgrades and as pipe both of which were pretty good at.

So put all that together we feel good about some of these growing markets and I'll go to page 14, we have some headwinds right I mean everybody's wrestling with the same thing right now on supply chain and you're going to worse, what did we expect it to be in the air when we made guidance that as the year progressed. If you remember we were doing a little bit of whining about supply chain.

And our first quarter call in our second quarter call, we did a little more whining and here in the third quarter call. We're talking about it more so we expected good availability, but some price increase.

Material prices are volatile and increasing but that second point, we make on I tried on the lead times, So mark what we'll probably see right as the projects are going to go they'll move forward. They may slide to the right you see some of that already in our numbers.

And so with that really affects for us is our ability to recognize.

Our revenue our profit at a certain time because versus what we planned and sometimes we may have a gap right. We may have labor that we need to keep onboard.

Because the schedule has been elongated a little bit we're pretty good about not doing that but that could be one of the productivity issues that we wrestle with.

Adam you gave us a chance to talk more comprehensively about it but I hope that answers a lot of folks questions about how all of this in this together.

Okay, great color I'll turn it over.

And your next question comes from Zane Karimi.

With da Davidson. Your line is now open.

Hey, good morning, Tony and Mark Kevin and congratulations on the solid quarter. Good morning, Jami. Thanks, Dan.

So I know you guys alluded to it earlier, but can you provide some more color around any of the impacts in the industrial segment related to the storms in the south.

Mark I'll, let turn it to you.

Yeah, Zane I mean clearly.

The storm activity.

In the current year third quarter was not as exaggerated as it was a year ago.

Clearly Ida and then to a lesser extent tropical storm Nicholas <unk>.

Impactful.

Most impactful to our customers who basically.

To close our facilities as a result of that which ended up deferring. Some of the work that we were anticipating are doing in the third quarter.

So that work.

For the most part is has tripled into quarter. Four however, some of that looks like it actually might trickle into the first quarter of 2022.

Certainly impactful above last year's quarter was much more impacted by that.

I believe there was five named storms in the third quarter of 'twenty calendar 2020.

Most of which did impact us or our customers in some way shape or form so we.

We did have lost workdays this quarter.

So overall happy with the performance of that segment, certainly on a comparative basis to a year ago and how.

How that market is developing for us as we move forward in the year and Mark I think one of the things we see in.

In general with industrial services.

Is.

We've communicated correctly here at this level about how we thought it was going to roll out and how things would strengthen and where the opportunities would be we can only do that because that tells you how in tune of our folks are with their customers.

And at what kind of position, we have with our customers to be able to actually get a pretty good handle on how the market's evolving I don't think that's necessarily.

That karma with some of our competitors, but it shows you the depth of our customer relationships, but also the sort of market awareness that our team has the other thing is when you get to that the impact of storms, we can't control what happens with our customers, but we've started to do a much better job in our case as we are doing done more and more.

Or things to harden, our facilities to be able to withstand the storm is much better over the last 18 months than we had previously and we're going to continue to do that.

Great. Thank you and then one more you guys did mention solar.

Some of that's interesting, but can you talk a little bit about the M&A environment that youre seeing now.

How youre feeling about that going into 2022, yes. So look I have been a consistent weiner over probably 10 years complaining.

The price is private equity will pay and the things they will do on deal structure you know what.

Somehow we have managed to do a much of some very successful deals with the right people at the right time and I think our acquisition program over the last five years has been as well executed and as well integrated as almost any time in our history I think it has been.

The best time in our history for M&A.

All that being said.

We've made some progress right, we've done $114 million year to date I think the way. We've described it we expect to be able to at least replicate what we've done from 2017.

Through 2024 deals happen when they happen we have a lot of discussions going on it's a pretty active market for every one deal that may even get to the point, where I'll look at we've looked at 10, our business development team and they are really good and working with our segment people to get that down to something we can look at we've done some creative things.

Around the companies. We've just bought we bought our first Aesop and we did extraordinarily well and we're very happy with the.

Incorporation of that very fine electrical contractor in the Midwest into our family.

That was something we hadn't done before and we figured out how to do that and.

Where that opportunity presents itself, we will be a buyer that tenants, we think that could be a good market for us.

We arent competitive when it's a broad auction with 15 private equity people thrown in numbers bidding the book.

So I'd say more of the same.

We continue to see opportunities and we.

We love, where our balance sheet is to be able to do those deals. We can always look at somebody and say, we can close and we can close without condition on financing.

And I'd add one other thing.

Broader speaking, we continue to attract folks that are selling their life's work or.

Or their families generational life's work and we're a good home for those companies.

I was in a discussion.

Several weeks a week ago with someone and you can see the prior to that person.

What they built as a team and hopefully we'll be able to make that deal here at EMCORE and we're out there doing that all the time.

So all that being said.

Okay environment I'll add one other thing when you go to the balance sheet.

We take for granted.

The success, we've had with our balance sheet that balance sheet as a point of.

Of competitive differentiation for us.

I believe and I think mark believes in.

Our segment leadership believes that having that liquidity on our balance sheet is something these bigger customers look to <unk>.

Because they know we're going to complete the job. They know we're going to have the working capital to get it done and they know that we're not going to it's sort of endemic of how we think about the business overall, we take measured risk and that's how they want us to do if they are trusting us to do an $80 million project, that's going to burn in 2014.

Months and is critical data infrastructure.

So you can't separate the two.

And it's not only a point to allow us the firepower for acquisitions, but some of it theres good great underlying organic growth you see it because customers trust us to be measured conservative and thoughtful in how we approach the overall business.

Great well, thank you for all of that and I'll jump back into queue. Thank you.

Alright. Thank you no further question.

At this time, so I'll hand, the call back to Tony Guzzi for any closing remarks, yes.

Yes, Thanks, you all.

It's certainly been an interesting year.

And I want to.

Again, just finish by thanking all of our EMCORE employees, our subsidiary teams you've done a great job our segment teams.

No the four of us sitting around this table today.

Feel blessed to be able to be on the same team as you all stay safe and.

I'm not going to wish you a happy Halloween because it's probably the holiday eye care at least about so we wont see until after the holiday So happy Thanksgiving and a happy holiday season. Thanks, Mike.

Thank you and that concludes today's conference. Thank you all for joining you may now disconnect.

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Good morning, My name is Jerome and I will be your conference operator today at this time I would like to welcome everyone to the EMCORE group third quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise I'm afraid of speakers remarks.

There will be a question and answer a question. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If he would like to withdraw your question press the pound key Mr. Bob Newman with F. D. I consulting you may begin.

Introduce management Kevin. Please go ahead.

Thank you Brad good morning, everyone and happy Halloween.

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

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 the forward looking statements and the non-GAAP financial information disclosures.

Courage, everyone to review both of the closures both disclosures in conjunction with our discussion and accompanying slides slide.

My opening comments will reference pages four through six of our presentation.

As we have navigated the last few years, we've learned to operate in a highly uncertain and volatile environment.

And we have done it with success on almost any metric.

We've had to accomplish our mission, while keeping our people safe our company values of mission first people always have served us extremely well throughout these unprecedented times.

We had an exceptional third quarter at EMCORE.

Especially against a very difficult comparison in the prior year.

As you may recall in the third quarter of last year, we were bringing about a third of our company back to full operations.

We had projects poised and ready to resume or start.

<unk> service that needed to be completed and buildings campuses and production facilities that we helped our customers reopen as they resumed operations.

Further we had yet to bring back our full complement of staff that we need to sustain and build our operations.

Said simply we had an abundance of work had all the materials at a lower cost base as we were still returning to full operations. After the extreme cost reductions we have taken in response to the pandemic.

Against that backdrop in comparison for the third quarter of 2021, we were able to post $1 85 in earnings per diluted share versus $1 76 of adjusted diluted earnings per share in the year ago period.

We grew revenues to $5 2 billion with 14, 5% overall revenue growth and 12, 2% organic revenue growth, we posted five 4% operating income margins, despite strong headwinds from supply chain issues and labor disruptions.

Caused by the Delta Varian.

I believe this is very good performance considering the operating conditions, we faced in the quarter.

We grew remaining performance obligations or <unk> 18, 7% from the year ago period to 538 billion, we generated operating cash flow of 121 million. Despite the strong organic revenue growth all in all we had a very successful quarter that continues.

To show the strength and diversity of our business, but more importantly, the outstanding leadership provided by our teams at the subsidiary segment and corporate level.

Our electrical and mechanical construction segments had excellent performance in the third quarter of 2021.

That such increases will continue in the near future.

That is only part of the issue as we have seen lead times increase by two to three times their normal levels.

Our success in the quarter points to the continued resiliency of our teams their ability to navigate these issues deliver for our customers.

And continue to keep our workforce productive and safe.

We continue to have a robust pipeline of data center warehousing at health care projects, and we had strong bookings with our manufacturing clients in the quarter built.

Building services had the most difficult comparison in the quarter as a deep cost cuts taken at the height of that shutdown, where most severe in this segment, we still posted decent operating income margins of 5% against the year ago period of six 9%. However, we were most affected in this segment by <unk>.

Fly chain issues and diminished productivity.

Demand remains strong and we will continue to improve our planning over the next quarter or two.

Demand for our services continues to build refinery utilization is at a very high level and we expect <unk> and we expect to execute a better fourth quarter turnaround season. This year versus a year ago period. We also anticipate much improved demand as we exit the year and move into the first quarter of 2022.

Two.

The UK continues to execute well for its customers with double digit revenue growth and good operating income margins demand remained strong for our services.

Like in the United States. We're also battling supply chain issues for a quick term project work in the United Kingdom.

We'll leave the quarter with a pristine balance sheet strong fundamentals and record Rps and with that Mark I'll turn it over to you.

Thank you Tony and good.

Turning to everyone participating on today's call 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 on <unk> third quarter as well as provide a brief update on our year to date results through September 30.

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

Consolidated revenues of $2, $5, 2 billion or up $320 million or 14, 5% over quarter, three 2020 and represent a new all time quarterly revenue record for EMCORE.

Each of our reportable segments experienced quarter over quarter revenue growth excluding.

Excluding $50 3 million of revenues attributable to businesses acquired pertaining to the time that such businesses were not owned by EMCORE in last year's quarter.

The specifics of each reportable segment are as follows United States electrical construction revenues of $527 9 million increased $55 9 million or 11, 8% from 2000, Twenty's third quarter <unk>.

Excluding acquisition revenues within this segment of $29 5 million. This segment's revenues grew organically five 6% quarter over quarter increased project activity within the commercial healthcare and institutional market sectors were the primary drivers of the period over period improvement.

Fair and commercial market sectors with respect to the manufacturing market sector. We are in the early phases of construction on several food processing plants, which will accelerate further as we move into 2022 from a healthcare market sector perspective, there continues to be greater demand for our services as we are engaged in a number of.

<unk> ranging from mechanical system retrofits to complete installations in both new and existing health care facilities lastly, within the commercial market sector. We continue to see strong demand for data Center project work given growth in digital storage and cloud computing across the United States and we continue to assist our e-commerce customers with the build.

Out of the warehouse and distribution network through both traditional mechanical as well as fire protection services.

Third quarter revenues from EMCORE combined United States construction business of 153 billion increased $164 million or 12% with nine 9% of such revenue growth being organic this combined revenue performance eclipses. The quarterly revenue record established by this group during the second quarter of this year.

Despite this record revenue performance each of our construction segments have increased the remaining performance obligations both year over year as well as sequentially.

United States building services quarterly revenues of $632 5 million increased $75 9 million or 13, 6% excluding acquisition revenues of $20 8 million. This segment's revenues increased to nine 9% organically revenue gains were reported within our mobile mechanical services division due to increased.

The Kingdom building services revenues of $129 5 million increased $19 4 million or 17, 6% from last year's quarter revenue gains for the quarter resulted from the continuation of strong project demand from this segments maintenance customers, who previously deferred such work during 2020 as the result of the COVID-19 pandemic and the <unk>.

Later prolonged UK government lockdown measures. Additionally, this segment's revenues were positively impacted by $8 million a favorable foreign exchange rate movements within the quarter. Please turn to slide eight.

Asset amortization, resulting in an organic quarter over quarter increase in SG&A of $11 $9 million.

Consistent with my commentary during our second quarter earnings call. The prior year period benefited from substantial cost reductions, resulting from our actions taken in response to the COVID-19 pandemic, a significant percentage of such savings pertained to employment costs, including furloughs head count reductions and temporary salary reductions.

Conversely, EMCORE is considerable revenue growth in 2021 has necessitated an increase in head count in the current year. Additionally, our SG&A for the current period reflects an increase in health care costs as the result of a normalization in the level of medical claims as well as greater travel and entertainment expense due to a partial resumption of certain bid.

<unk> activities by our workforce when compared to the same timeframe in 2020.

Reported operating income for the quarter of $137 4 million or five 4% of revenues compares to operating income of $135 9 million or six 2% of revenues in 2023rd quarter. The.

A new third quarter record.

Specific quarterly performance by segment is as follows our U S. Electrical construction segment operating income of $44 1 million a decreased $1 9 million from the comparable 2020 period reported operating margin of eight 3% represents a reduction from the nine 7% margin reported in 2023rd quarter.

<unk> in both operating income and operating margin is due to a decline in gross profit within the commercial and transportation market sectors, given a change in the composition of project work performed quarter over quarter. In addition, and as disclosed in last year's third quarter. The results for the prior year period benefited from the settlement of final final contract value on <unk>.

Projects, which favorably impacted this segment's Q3, 2020 operating income and operating margin by $4 4 million and 70 basis points respectfully.

We are acting as the construction manager and carry lower than average gross profit margins when compared to our traditional subcontractor arrangements with our customers.

Further the results for the year ago period benefited from the favorable closeout of several manufacturing projects, which resulted in incremental operating margin contribution to be clear the impacts within the quarter for both our construction segments relates to discrete projects or events and should not be misconstrued as representative of our margin expectations for all on.

<unk> project in service contracts included in remaining performance obligations, which Tony will cover in detail. Later this morning, our combined U S. Construction business is reporting a $126 4 million of operating income with an eight 3% operating margin. This level of operating income represents a new third quarter record for our combined construction business.

So I'd like to add that adult below that of the prior year. The operating margins to date in 2021 for each of our electrical and mechanical construction segments exceed both their three year and five year average margins operating income for U S building services was $31 6 million or 5% of revenues. This represents.

That's a reduction of $6 9 million and 190 basis points of operating margin quarter over quarter growth in operating income within this segment's commercial site based and government services divisions was not enough to offset declines within its mobile mechanical and energy services divisions as I commented during last quarter's call our mobile mechanical services.

<unk> has a large number of fixed priced capital projects currently in process, which traditionally have a lower gross profit margin profile in this segment's call out service and small project work. In addition, during the quarter, we experienced some productivity issues, partially due to the delayed receipt of certain equipment and materials, which has impacted our profitability both.

In terms of dollars and margin.

Lastly growth in this segment's SG&A expenses due to head count additions to support revenue growth as well as incremental amortization expense related to businesses acquired further compressed operating income and operating margin.

Our U S. Industrial services segment operating loss of $3 million represents a $5 9 million improvement from the $8 $9 million loss reported in 2023rd quarter development improvement. This segment continues to be impacted by difficult market conditions within the oil and gas industry. Additionally, although not as severe as in the prior year quarter.

This segment experienced lost workdays due to both temporary plant in certain customer site closures, resulting from named storm activity in the Gulf Coast region during the 2021 quarter U.

UK building services operating income of $6 6 million or five 1% of revenues represents an increase of $1 $3 million 30 basis point improvement in operating margin quarter over quarter approximately $400000 of this period over period improvement is due to positive foreign exchange movement with the remainder attributable to an increase in project activity primarily.

Within the commercial market sector.

We are now on slide nine.

Additional financial items of significance for the quarter not addressed on the previous slides are as follows quarter three gross profit of $381 3 million.

It's higher than the comparable quarter by 18 by $18 2 million a 5% gross margin of 15, 1% is lower than the 16, 5% in last year's third quarter due to the shift in revenue mix in each of our U S electrical and mechanical construction segments as well as our U S building services segment as I just referenced during my segment operating.

Income discussion.

Diluted earnings per common share of $1 85 represents a new quarterly record for the company and compares to $1 $1 11 per diluted share in last year's third quarter, adjusting 2000, Twenty's EPS for the negative impact on our prior year income tax rate, resulting from the non deductible portion of last year's noncash impairment charges recorded during <unk>.

2022nd quarter non-GAAP diluted earnings per share for the quarter ended September 32020 was $1 76 when.

When compared to our current quarter's performance, we are reporting a nine <unk> or five 1% quarter over quarter earnings per share improvement. Please.

Please turn to slide 10.

With my quarter commentary complete I will touch on some high level highlights with respect to <unk> results for the first nine months of 2021.

Revenues of $7 6 billion represent an increase of $747 8 million or 11, 5% of which nine 4% of such revenue growth was generated by organic activities operating income of $387 8 million or five 3% of revenues represents a significant increase from reported operating income for.

The first nine months of 2020, and a double digit increase from the corresponding adjusted non-GAAP operating income figure figure for that period year to date diluted earnings per share was $5 17.

And represents an increase of approximately 14% over 2000, Twenty's adjusted non-GAAP EPS for the nine month period.

Estimate. This contrast to 2020, where for a large part of the year, we were liquidating our balance sheet due to the revenue declines resulting for the from the COVID-19 pandemic. Further it is important to note that last year's nine month operating cash flow was favorably impacted by $82 $3 million due to government stimulus measures that allowed for the deferral.

Certain tax payments in both the United States and the United Kingdom.

Capital investment would be greater than expected during the fourth quarter. Please turn to slide 11.

<unk> balance sheet remains strong and liquid cash on hand is down from year end 2020, driven by cash used in financing activities of approximately 213 million inclusive of $183 million used for the repurchase of our common stock and cash used in investing activities of $137 5 million.

Most notably due to payments for acquisitions net of cash acquired totaling approximately 114 million. These uses of cash were partially offset by cash provided by operations of $114 million as I noted just a few moments ago working capital has increased by nearly $20 million increases in.

Accounts receivable and contract assets, resulting from our substantial organic revenue growth. During the period were partially offset by the decrease in our cash balance just referenced as well as our increase in contract liabilities. The increase in goodwill is predominantly a result of the five businesses acquired during the first nine months of this year.

<unk> tangible assets have increased by $19 million as the impact of additional intangible assets recognized in connection with the previously referenced acquisitions was <unk>, which was.

One.

Total debt exclusive of operating lease liabilities is fairly consistent with that of December 2020, and <unk> debt to capitalization ratio has reduced to 11, 4% from 11, 9% at year end 2020.

Thanks, Mark and I'm going to be on page 12 remaining performance obligations by segment and market sector. We had another strong project bookings quarter here at EMCORE.

By definition Arpaio and project bookings are forward looking so it's fair to say that we're currently seeing strong future demand across all of our segments and market sectors.

While September 30, as a single point in time and project certainly ebb and flow, we are well positioned moving into 2022.

As mentioned earlier total company <unk> at the end of the third quarter were just under $5 4 billion up $849 million or 18, 7% when compared to the year ago level of $4 5 billion.

Company generating record revenues are.

Our two domestic construction segments experienced strong construction project growth in the quarter with <unk>, increasing $606 million or 16, 5% from the same period last year.

<unk> were lifted slightly by two Midwestern electrical construction and services acquisitions completed this year.

Building serves as our <unk> levels increased $180 million or almost 29% from the year ago quarter, a $142 million of the $180 million was organic.

We continue to see widespread small and short duration project demand and believe this will remain active through the end of the year and into 2022 as workers return to buildings campuses factories and institutional facilities across the country post COVID-19 and as a delta variant hopefully continues to subside.

Our industrial services segments are RPI increase of $53 million from September 2020 work within our heat exchanger shops has been building and while still are lower than historical levels pricing appears to be improving a bit.

Further we continue to build capability to execute fixed price contract work in both our electrical and mechanical trades in this segment. While this segment remains challenged due to macroeconomic forces. We are starting to see signs of increased activity much as we expected as we move into 2022 and that is good news.

In summary, we continue to see strong momentum in our core markets at our scale diversity of demand and a bit of ability to pivot to more resilient sectors.

Allowed us to continue to have strong bookings in <unk> growth, but also a very strong organic revenue growth I am now going to finish our discussion on pages 15 and 16.

We are closing in on yet another record year performance at EMCORE, Despite a very difficult operating environment.

At the beginning of the year, we expected that margins would be under some pressure, but we believe that we would have the necessary revenue growth to offset any margin compression.

We foresaw the supply chain issues, but card frankly, there are worse than we expected.

We not only have seen increasing in volatile pricing, but lead times that extend through two to three times normal levels.

Working in this challenging environment, we continue to deliver in a no excuses manner and execute well for our customers, while keeping our employees safe.

Despite such headwinds we are raising our guidance.

Our new guidance is diluted earnings per share of $6 95.

To $7 15.

And we now expect to earn revenues between 980 billion and $9 85 billion.

As we close on 2021, we do expect to continue to be challenged by supply chain and productivity issues, but we will work through them as we are resilient.

We expect the nonresidential market to show mid single digit growth in 2021, and expect that momentum to continue into 2022.

We like all large employers will have to navigate complying with the pending emergency temporary standard or Etfs.

With respect to mandatory vaccination and testing.

In the executive order mandating vaccination on federal contracts.

The Etfs has not been released and therefore, the related cost to comply and the impact of our productivity are unknown.

We will continue to position EMCORE for long term and sustained growth.

Our board of directors, just to authorize a new and our largest share repurchase authorization of an additional $300 million.

We continue to have a very active acquisition pipeline.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and through withdraw your question press the pound key yes, great.

Question comes from Sean Eastman with Keybanc capital markets. Your line is open.

Hi, Tim Great. Thanks, Shawn good morning, great quarter. Thank you.

So.

Everyone is obviously worried about labor availability supply chain in place and you guys touched on it quite a bit in the prepared remarks, but maybe just in short Tony.

The playbook for running the business.

And this sort of resource constrained operating environment.

Kind of the 123 things.

Youre doing or really focused on that.

Look out the next couple of quarters.

I think we know how to do that I think we'll get through that.

And we've done it before in high growth markets.

We're blessed with some of the best local management that you could have that really understand their labor and understands how to keep good supervision on job sites.

Go into the second point on supply chain.

I think now is the time in some ways you get rewarded for being a good partner.

EMCORE has never been known as a company that takes advantage of its suppliers on terms or doesn't do what we say we're going to do we also don't blame suppliers for things that where our problems, which could be common practice in our industry at times. So we're known as a pretty good partner for our supplier and Thats paying dividends now where do you see that most of the distribution.

Abuse of level most of what we buy comes through distribution in some form or another and we have very good OEM relationships and because of our scale. We have the ability to make sure on our most important jobs that we can keep availability as good or better than anybody else.

The thing that might be a little bit different in this playbook right. Now is how you deal with the short term quick term service work.

One of the things we pride ourselves on is keeping our customers facilities factories edgy.

Educational facilities institutions health care facilities up and running.

When someone makes a commitment to us on a six week project that the materials are going to be there.

We believe them.

And in today's World I think thats become more problematic not because our suppliers don't think they can deliver it in that time period is that sometimes they can't so we've had to go the extra mile in communications and it really has changed some of our planning before we something of similar demo something what mean by that is demolish something.

So that we can build with because we have to keep our customers' facilities running and it could be as simple as we were getting really good at it.

On time right on right on place delivery of service parts I think some of that is going to go by the wayside for the next six to nine months as we just like to make sure we have it in our hands.

Next.

Part of the project and then the third one is be very clear on contract terms.

I'm actually pleased with how we've been able to work with our our customers through the supply chain issues and through the pandemic everybody seems to have the attitude right now that we're all in this to some extent together and we're just trying to get to completion and get it and get a building built get a data center build get it commissioned and online.

And a lot of planning has to go on it's less than ideal.

Unfortunately things like this teach you new lessons that in some ways will make you better long term, but I would just leave you with this.

The supply chain issues are unprecedented.

I'm seeing lead times I've never seen in my career and I've been doing this a long time.

That is almost as big of an issue for us is pricing or is a bigger issue mark anything to add there.

Tony I think Charlotte.

It's on.

Unprecedented at least in my professional career.

And not to overplay, this but I think the fact that.

We have long standing relationships within within our supply chain.

Certainly advantageous to us but ultimately.

There's a lot of things that have to happen on the front end in order for us to continue to be successful and we will contingency plans are the best that we can.

Through the end of <unk>.

Okay, Great Alright, that's helpful. And then and then maybe just trying to connect the dots between telling.

Tony Your last comment there just an unprecedented supply chain lead times and not getting too advanced on a project until you are sure you have the materials sort of balancing that with this.

Huge momentum.

<unk>.

And in the bookings trends year to date.

<unk> are up mid teens organically clearly that support some nice growth into next year, but we needed to kind of moderate our expectations.

Around kind of.

How much youre going to let the business grow in this kind of environment.

If you can sort of level set on a reasonable expectation for growth into next year, even qualitatively around these dynamics that would be helpful. Yes look sure. We've always had the belief that well.

We typically in a good market grow little grow better than what the non res market is going to grow we are in some resilient sectors.

And so we're not going to hold back where we can win good work and we can responsibly execute that work and so if you look at our Rps we believe.

That that's representative of what we think we can accomplish.

At those elevated levels I think what happens in this kind of environment and we've seen this over the last two or three years is there is a definite especially at the two ends right owners, where youre doing a service project a retrofit project want to go with quality people that know how to do the work and can plan and you think about it that would even be more reason to want to do.

With a company like ours.

Because they know that we have the resources to make that happen and on the top end at the project level.

You are competing against a budget a lot of times al but people want to be with <unk>, well resource companies and Thats beyond just financial strength, that's what the resources to actually do the planning to learn from each other to be able to draw on the kind of supplier relationships, Marc and I talked about.

And to have very clear communications.

On what we can accomplish in on what schedule. So I don't think Theres a fixed amount. We say this company can grow it's very much a bunch of individual decisions in local markets and sectors.

And I think the appetite for larger projects is out there with some of our owners I'd tell you. What you do see in this kind of environment and I think what we're benefiting from.

Some of our construction manager general contractor customers in a market that may have less complication.

Sometimes we'd like to cut off the job right and give different pieces of different people.

In this kind of environment.

You would rather be with somebody like us and let us worry about multiple parts of the project and multiple trades on that project and what I mean by that is not necessarily in our mixing our electrical and mechanical work, but we can take a greater mechanical scope or greater electrical scope on a project and so we are seeing that and that might be with part of what's underlying that RPM growth.

Very interesting alright, I'll turn it over thanks, guys. Thanks, Sean.

Your next question comes from Adam Palmer with Thompson Davis Your line is open.

Hey, good morning, guys congrats on a great quarter. Thanks, Adam.

Hey, Tony what would be your thought on margins and backlog.

Yeah.

Adam I don't have any reason to believe that we didnt, we don't we havent booked work at an acceptable margin now.

Now margins fluctuate quarter to quarter as Mark talked about.

<unk> contribution.

Some of that has to do with contract structure as you get to the bigger jobs right you might be working on more GM.

GMP or guaranteed maximum price type contracts that adjust and theres more cost transparency.

Some of it will have to do with.

The quick turn service work and the margin there so we don't ever sit there and say.

Hey, there's a specific margin in backlog, we're looking for quite frankly it is.

Labor.

For that project work. So we feel good about what we have in RP OS.

We think as good a mix as we've had but again that will fluctuate quarter to quarter Mark.

Yes.

I'm really nothing to add to that I think.

When you look at our year to date margin performance is quite strong.

Clearly because of the complexity of this business you do get some some margin fluctuations quarter to quarter, depending on the timing of work.

We are we are on the front end of a lot of large work right now and.

As our history has indicated we tend to we tend to be a little bit more cautious with profit recognition at that point until they're fully established on the job site and clearly with.

Everything that was required as a result of the COVID-19 pandemic.

We're being extra cautious with regards to our labor.

And obviously, how we're working with the other trades around us so.

We certainly do not.

Tell our operating teams to reduce their level of expectation for profitability on work as they are approaching their markets.

We are clearly requiring the same level of excellent execution.

All of our projects and service opportunities so that so that it hasnt changed.

So I don't see that our future is going to look any different than our recent past.

We're going to continue to perform well for all of our stakeholders. Yeah. Let me, let me tie together a couple of thoughts there.

For the broader group.

And Adam you gave us a good opening to do that on page 13 in 2014.

So we talk about what we had in these resilient sectors and these growth opportunities.

And so when you look at page 13, and Youll see data centers warehouses, industrial manufacturing healthcare water and wastewater mechanical services and they are quality of fire protection.

Everything we've talked about for the last year and a half is still very strong.

And some of them really stand out I mean fire protection continues to be a very strong market for us.

We are the nationwide leader, especially on the installation side and we got to be two or three on the service side now.

In the data center market continues very strong as does the infrastructure before.

The supply chain for the big.

Delivery services <unk>.

Industrial manufacturing continues to be too.

Three stories for us.

The first story is we're really good at tech manufacturing and supporting Tech manufacturing.

And you think what's going to happen with the chip build out we are well positioned in a couple of markets, where that's going to take place you think what's happening in food processing, which is going to continue to grow we're very well positioned with our shambaugh subsidiary. They have some nice opportunities in front of them they tend to be episodic, but that team that really knows how to execute as does our tech manufacturing people.

And finally, the re shoring of manufacturing is a real trend.

In the supply chain issues continue to SaaS rebate that we.

We've been talking about it for two or three years, we continue to see that and you really see it in things like the things on pharma.

Grid resiliency and finally on building products.

And all three of those areas healthcare continues to be a good market for us.

And it's going to continue to be one thing we learned in the pandemic and I think our health care customers, obviously are dead serious people.

And as a result of that they are looking to build more resiliency and more flexibility into their facilities and they realized their mechanical systems, especially.

May need to be updated and made more flexible water wastewater for us is a more localized market on the mechanical side much more national on the electrical side or certainly not as big of scope mechanical services indoor air quality and energy retrofit are all very strong markets for us what you are seeing a little bit in the bill.

<unk> services margin as well.

Not so much that.

The work wasn't good at RPI is what Youre seeing in some ways is is thats, where the supply chain issues came to head the fastest that team knows how to execute as they have been correcting it.

Maybe we had a couple.

75% of the problem was or the 75% was probably externally.

Driven and across all those sectors. The fire protection business remains very strong I would add one more and that's with respect to energy transition.

Clearly a big trades contractor, we have something that is very valuable for people to use we will participate in the energy transition and already are we have solar capability. We've done some projects both in our electrical segment and we've now started to really build our capability and our industrial services segment to do that work.

That work has long lead time, though I mean.

And we will participate there we also do a solar work in conduction with our mechanical services work, especially in states like California, New Jersey.

And in New York and in Arizona, So, we do that work today and it's more.

Low megawatt Mega.

A megawatt or less.

Provider versus the 200 megawatt sites that our electrical segment may do or our electrical.

<unk>.

Trades in the industrial services and finally, you start thinking about things longer term like carbon capture.

This pipe.

A lot of piping done around that and that will happen both in our mechanical construction segment and our industrial services segment and we are in them.

First on some of those ideas in the first or second inning.

Seeing our customers already start to talk to us about us and the capability will have there.

<unk>.

And the thing you don't think as much about and something we are participating in the industrial services segment and again its in the first inning in the renewable fuels and that some of our.

Refinery customers are actually adapting their facility to do and again, its electrical system upgrades and as pipe both of which were pretty good at.

So put all that together we feel good about some of these growing markets and I'll go to page 14, we have some headwinds right I mean everybody's wrestling with the same thing right now on supply chain and Youre going to worse, what did we expect it to be in the air when we made guidance that as the year progressed. If you remember we were doing a little bit of whining about supply chain.

Material prices are volatile and increasing but that second point, we make on that side on the lead times. So mark what we'll probably see right as the projects are going to go they'll move forward. They may slide to the right you see some of that already in our numbers.

And so with that really affects for us is our ability to recognize.

Our revenue our profit at a certain time because versus what we planned and sometimes we may have a gap right. We may have labor that we need to keep on board.

Because the schedule has been elongated a little bit we're pretty good about not doing that but that could be one of the productivity issues that we wrestle with.

Adam you gave us a chance to talk more comprehensively about it but I hope that answers a lot of folks questions about how all of this in this together.

Okay, great color I'll turn it over.

And your next question comes from Zane Karimi.

Davidson Your line is now open.

Hey, good morning, Tony and Mark Kevin and congratulations on the solid quarter good morning, Jason Zhang.

So I know you guys alluded to it earlier, but can you provide some more color around any of the impacts in the industrial segment related to the storms in the south.

Mark I'll, let turn it to you.

Yeah, Zane I mean clearly.

The storm activity.

In the current year third quarter was not as exaggerated as it was a year ago.

Clearly Ida and then to a lesser extent tropical storm Nicholas <unk>.

Impactful.

Most impactful to our customers, who basically they have closed their facilities as a result of that which ended up deferring. Some of the work that we were anticipating are doing in the third quarter.

So that work.

For the most part is has trickled into quarter. Four however, some of that looks like it actually might trickle into the first quarter of 2022.

Certainly impactful above last year's quarter was much more impacted by that.

I believe there was five named storms in the third quarter of 'twenty calendar 2020.

Most of which did impact us or our customers in some way shape or form so we.

We did have lost workdays this quarter.

So overall happy with the performance of that segment, certainly on a comparative basis to a year ago and how.

How that market is developing for us as we move forward in the year, Yes, Mark I think one of the things we see in.

In general with industrial services Zane.

Yes.

How the market's evolving I don't think thats necessarily.

That comment with some of our competitors, but it shows you the depth of our customer relationships, but also the sort of market awareness that our team has the other thing is when you get to that the impact of storms, we can't control what happens within our customers, but we started to do a much better job in our case as we are doing more and more.

Things to harden, our facilities to be able to withstand the storm is much better over the last 18 months than we had previously and we're going to continue to do that.

Great. Thank you and then one more you guys did mention solar.

So that's interesting, but can you talk a little bit about the M&A environment that youre seeing now.

How you are feeling better about that going into 2022, yes. So look I have been a consistent weiner over probably 10 years complaining about.

The price is private equity will pay and the things they will do on deal structure you know what.

Somehow we have managed to do a months of some very successful deals with the right people at the right time and I think our acquisition program over the last five years has been as well executed and as well integrated as almost any time in our history I think it has been.

The best time in our history for M&A.

All that being said.

We've made some progress right, we've done $114 million year to date I think the way. We've described that we expect to be able to at least replicate what we've done from 2017 through 2024 deals happen when they happen we have a lot of discussions going on it's a pretty active market for every one deal that may even.

And get to the point, where I'll look at we've looked at 10, our business development team and they are really good and working with our segment people to get that down to something we can look at we've done some creative things around the companies. We've just bought we bought our first Aesop and we did extraordinarily well and we're very happy with the.

Incorporation of that very fine electrical contractor in the Midwest into our family.

That was something we hadn't done before and that we.

Figured out how to do that and.

Where that opportunity presents itself, we will be a buyer that tenants, we think that could be a good market for us.

We arent competitive when it's a broad auction with 15 private equity people thrown in numbers bidding the book.

So I'd say more of the same.

We continue to see opportunities and we.

We love, where our balance sheet is to be able to do those deals. We can always look at somebody and say, we can close and we can close without condition on financing and.

And I'd add one other thing.

Broader speaking, we continue to attract folks that are selling their life's work or.

Or their families generational life's work and we're a good home for those companies.

I was in a discussion.

Several weeks ago, we could go with someone and you can see the prior to that person.

What they built as a team and hopefully we'll be able to make that deal here at EMCORE and we're out there doing that all the time.

So all that being said.

Okay environment I'll add one other thing when you go to the balance sheet.

We take for granted.

The success, we've had with our balance sheet that balance sheet as a point of.

Of competitive differentiation for us.

I believe and I think mark believes in.

Our segment leadership believes that having that liquidity on our balance sheet is something these bigger customers look to <unk>.

They know we're going to complete the job. They know we're going to have the working capital to get it done and they know that we're not going to it's sort of endemic of how we think about the business overall, we take measured risk and that's how they want us to do a third trusted us to do an $80 million project, that's going to burn in 13.

Months and is critical data infrastructure.

So you can't separate the two.

Great well, thank you for all of that and I'll jump back into queue. Thank you.

Alright, Thank you and no further question.

At this time, so I'll hand, the call back to Tony Guzzi for any closing remarks, yes.

Yes. Thanks, you all it's certainly been an interesting year.

And I want to again, just finish by thanking all our EMCORE employees, our subsidiary teams you've done a great job our segment teams.

No the four of us sitting around this table today.

Feel blessed to be able to be on the same team as you all stay safe and.

I am not going to wish you a happy Halloween because it's probably the holiday eye care at least about so we wont see until after the holiday So happy Thanksgiving and a happy holiday season.

Thank you and that concludes today's conference. Thank you all for joining you may now disconnect.

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