Q4 2021 EMCOR Group Inc Earnings Call

February 24, 2022

Okay.

[music].

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 fourth quarter and full year 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks.

There will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key Mr. Brad human with FDI consulting you may begin.

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

Here today to discuss the company's 2021 fourth quarter and full year results, which were reported this morning.

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

Thank you Brad and good morning, everyone as always thank you for your interest in EMCORE and welcome to our earnings conference call for the fourth quarter and full year of 2021.

For those of you who are accessing the call via the Internet and our website welcome to you as well and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today, we are on slide two.

This presentation and discussion contains 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 I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides.

Slide three shows the executives who are with me to discuss the quarter and full year 2021 results. They are Tony Guzzi, Our chairman President and Chief Executive Officer, Mark Pompa, Executive Vice President and Chief Financial Officer, and Executive Vice President and General Counsel Maxine Mauricio.

For call participants not accessing the conference call via the Internet. This presentation, including the slides will be archived in the Investor Relations section of our website under presentations you can find us at EMCORE group Dot Com with that said, please let me turn the call over to Tony Tony Yes. Good morning, Thanks, Kevin and thank you for joining us to discuss our 2021.

Fourth quarter and full year results I'm.

Im going to be covering pages four to six in my opening comments.

We will also provide our guidance for 2022 I'm going to focus my initial commentary on full year 2021.

My only comments for the fourth quarter of 2021 are then it went as expected.

However, the impact of Covid on productivity was more pronounced than we could have contemplated in October .

We performed well, but we fought through inquiries increased workplace and supply chain disruptions.

Cause of the surge in Covid cases, due to the omicron variant.

Four I discuss our results I want to thank the entire EMCORE team for their efforts in serving our customers so well during these challenging and ever changing times.

I also want to thank our leadership team down through the subsidiary level for focusing on employee safety and wellbeing of.

Operational excellence.

And rigorous contingency planning.

In 2021, we had our best safety year ever with performance that will continue to place us in the top 1% of our industry.

We will continue to strive everyday for zero accidents.

EMCORE had an exceptional year in 2021.

We earned revenues of $9 9 billion, which represented 12, 6% growth over 2020 revenues.

We had operating income of $530 million and operating income margin of five 4%.

We generated operating cash flow of $319 million.

Overall, it was another year, where the strength of our team our diversity of end market and demand and our execution capabilities.

<unk> us to overcome many external challenges.

Covid was omnipresent, but we worked to keep our teams safe and productive.

Supply chain challenges manifesting themselves in many ways from uncertain prices.

Extended lead times and missed deliveries from our suppliers, but.

But we persevered.

Because we are resilient.

We have also built long term relationships with our customers and our suppliers.

We negotiate hard, but we are fair and respectful, especially in times like these.

We are able to leverage such long term relationships to foster open and transparent communications, which in turn allows us to better plan our work.

I'm now going to discuss a few key drivers of the results from each of our operating segments.

Our mechanical and electrical construction segments had had outstanding years with combined operating income margins of eight 2%, which is very strong in light of the headwinds presented by supply chain constraints and COVID-19 induced labor productivity issues.

We had 10, 5% organic growth across these segments on a combined basis.

Our electrical construction segment's performance was driven by strength in the commercial market to include data centers and the resumption of demand in key markets in 2021, which were not operational for part of 2020, the institutional market and also the healthcare markets. Our mechanical construction segment also benefits so benefited from those.

Things.

To include data centers and health care end markets, but additionally showed strength in the water and wastewater markets and the manufacturing markets increased demand from customers within the biotech life Sciences, and pharmaceutical industries as well as the continued build out of our customers' e-commerce supply chains.

Further aided the performance of our mechanical construction segment.

Our investments in free fabrication, and Bim or building information modeling continue to pay significant dividends for us.

Our customers can depend on us for excellent execution on complex.

SaaS based projects that require the ability to provide design assist capability rigorous labor planning and the ability to deliver in an uncertain supply chain environment as.

As shown in our remaining performance obligations or RPE owes both segments have strong momentum going into 2022.

Our U S building services segment had another strong year with a four 8% operating income margin and 10, 9% organic growth despite.

Despite such growth our <unk> are at record levels due to strong project demand driven by replacement work tied to energy efficiency and indoor air quality upgrades, our mechanical services business performed well, but faced headwinds from supply chain induced productivity issues on small project work.

Increased fuel costs. Additionally, hindered this division's operating income margin our commercial site based business had an exceptional year driven by large contract execution as well as several successful contract startups, we leave the year in a very strong position to perform in 2022.

Our industrial services segment performed as we expected we saw strengthening demand through the year.

We are positioned well with some of our most important customers and we kept our best people on our team during the past two years of market turbulence.

We building important capabilities to not only service historical demand in the refining and petrochemical end markets, but also serve as a renewable energy and renewable fuels market and a tough market. They require steadfast decision, making strong can become stronger and we did.

Our U K business had another terrific year with excellent contract and specialized project execution rigor.

The resulting organic revenue growth of over 18% and an operating income margin of five 5%.

This team has used our organic investment capital well.

We leave the year with $5 6 billion in remaining performance obligations, a $1.0 billion increase over the previous year.

We have a stellar balance sheet with the ability to support our strong organic growth and investments in acquisitions, and we have a team that wins and the most arduous and challenging circumstances and with that Mark I'll turn it over to you.

Go through the financial results great. Thanks, a lot Tony and good morning to everyone participating on the call today.

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

Over the next several slides will provide a detailed discussion of our fourth quarter results.

As well as a summary update of our full year performance some of which Tony just outlined during his opening commentary.

As a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings release announcement and Form 10-K filed with the Securities and Exchange Commission earlier today, So, let's discuss <unk> fourth quarter performance.

<unk> revenues of $2 64 billion or up $358 7 million or 15, 7% from the fourth quarter of 2020.

Excluding $63 1 million of incremental revenues attributable to businesses acquired pertaining to the time that such businesses were not owned by <unk> in last year's quarter revenues for the fourth quarter of 2021 increased approximately $296 million or 13% when compared to the fourth quarter of 2020, we <unk>.

Strong revenue growth from all of our reportable segments during the quarter with a specific segment performance as follows.

The state's electrical construction segment revenues of $541 9 million increased $80 1 million or 17, 3% from quarter four 2020 exclude.

Excluding incremental acquisition revenues of $48 5 million. This segment's revenues grew organically six 8% quarter over quarter increased project activity within the commercial and healthcare market sectors were the primary drivers of the period over period improvement.

United States mechanical construction revenues of $1.06 billion increased $91 2 million or nine 4% from quarter. Four 2020 revenue growth during the quarter was derived from the majority of the market sectors, we serve with manufacturing and health care project activity, representing the most significant period over period.

Rate increases.

With respect to the manufacturing market sector and as commented during our third quarter's earnings conference call. We're actively engaged in the construction of certain large food processing plants, which will continue to accelerate as we move through 2022 from a health care perspective, we continue to see strong demand for our services as our customers retro.

Ah replaced on mechanical systems to increase flexibility in their facilities or improve the quality of their work environments. In addition to the increased revenue experience within these market segments sectors. This segment. Additionally benefited from incremental revenue within the water and wastewater market sector driven by several large construction projects currently underway.

Revenue gains in this segment were partially offset by quarterly revenue decline within the institutional market sector due to the completion of several projects in 2000 Twenty's fourth quarter.

Both our electrical construction and mechanical construction segments established new all time quarterly revenue record levels with their fourth quarter performance.

<unk> total domestic construction fourth quarter revenues of $1 6 billion increased $171 3 million or 12% with eight 6% of such revenue growth being organic this combined construction revenue performance represents the third consecutive quarter, where we have eclipsed the previous all time quarter.

Revenue record established by this group.

Even with this record revenue performance each of our construction segments of increase the remaining performance obligations year over year, which Tony just commented on and we will discuss further when he goes through our RPM development a little later on our call. This morning.

United States building services segment revenues of $630 1 million increased $59 2 million or 10, 4%, excluding incremental acquisition revenues of $14 6 million to suddenly segments revenues increased seven 8% organically.

Revenue gains were reported within most of their operating divisions with their mobile mechanical and commercial site based services divisions reporting the largest increases greater project and service activities with a focus on building controls and energy efficiency were the primary drivers for the quarterly revenue growth within the mobile mechanical services group, while the growth in commercial site.

<unk> services was due to new customer additions as well as the expansion of certain services for existing customers.

<unk> industrial services segment revenues of $283 6 million increased $119 3 million or 70 to 72, 6% due to improved demand for both field and shop services as we continue to experience some resumption of maintenance and capital spending in the energy sector, which we started to see during the third quarter of 2020.

One.

United Kingdom building services segment revenues of $123 9 million increased $8 9 million or seven 7% from last year's fourth quarter revenue gains, resulting from the continuation of strong project demand from this segments customers, who previously deferred such work during 2020 as a result of the COVID-19 pandemic.

And the prolonged lockdowns mandated by the UK government. Please.

Please turn to slide eight.

Selling general and administrative expenses of 260 million represent nine 8% of fourth quarter revenues and compare it to $244 6 million or 10, 7% of revenues in the year ago period.

2021 fourth quarter includes approximately seven 1 million of incremental expenses from businesses acquired inclusive of intangible asset amortization, resulting in an organic quarter over quarter increase in SG&A of $8 $3 million.

Consistent with my commentary during both our second and third quarter earnings calls 2020 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 headcount reductions and temporary salary reductions.

Conversely, and not to be redundant with my prior quarters' commentary EMCORE is considerable revenue growth in 2021 has necessitated an increase in head count or SG&A for 2021 fourth quarter. Additionally reflects an increase in health care costs as a result of a norm of a normalization in the level of medical claims as well.

As the impact of COVID-19 related testing illnesses and treatments. We are also seeing an increase in travel and entertainment expenses due to the continued resumption of normal business activities and have incurred incremental expenses to support various information technology and cyber security initiatives the.

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 growth.

Reported operating income for the quarter of $143 million or five 4% of revenues compares to operating income of $137 6 million or 6% of revenues in 2000, Twenty's fourth quarter. The 60 basis point reduction in operating margin is due to a reduction in gross profit margin within each of our domestic reportable segments.

<unk> due to a less favorable revenue mix quarter over quarter, which I will expand on during my individuals' segment commentary. Despite this reduction in quarter over quarter operating margin EMCORE is $143 million of operating income represents a new all time quarterly record.

Specific quarterly performance by segment is as follows our U S. Electrical construction segment operating income of $41 3 million decreased $2 6 million from the comparable 2020 period reported operating margin of seven 6% represents a reduction from the nine 5% reported in 2000 Twenty's fourth quarter <unk>.

Kris in both operating income and operating margin is due to declines in gross profit and gross profit margin within the commercial and transportation market sectors. Given a change in composition of project work performed quarter over quarter. In addition, this segment experienced an increase in quarterly SG&A expenses. The majority of which was a result of incremental expense.

<unk>, resulting from acquisitions, including amortization of identifiable intangible assets.

Fourth quarter operating income of our United States Mechanical construction services segment of $92 6 million represents a $7 $8 million decrease from last year's quarter and operating margin of eight 7% represents a 170 basis point reduction from the strong 10, 4% earned in 2000, Twenty's fourth quarter, whereas.

The results for the prior year's quarter benefited from the favorable closeout of several major projects within the commercial and manufacturing market sectors. The results of Q4 2021 included increased revenues from certain large projects within the manufacturing and water and wastewater market sectors for which we are acting as either the general contractor or.

The construction manager and therefore carry lower than average gross profit margins than our typical for this segment as.

As I stated last quarter, while we saw some operating margin compression on a comparative basis at a combined eight 4% operating margin for the fourth quarter of 2021, our U S. Construction operations still generate at margins greater than both their three year and five year averages.

This segment's mobile mechanical services Division continues to work through a larger number of fixed priced capital projects, which traditionally have a lower gross profit margin profile when compared to this segment's call out service and small project work. Additionally, while we continue to attempt to mitigate the effects of supply chain disruptions by leveraging our relationships with our.

Suppliers and customers and through enhanced labor planning a project scheduling this segment experienced some productivity impacts resulting from longer material and equipment lead times during the quarter.

Our U S. Industrial services segment operating income of approximately $4 million represents a $12 $6 million improvement from the $8 $6 million loss reported in 2000, Twenty's fourth quarter, Although an improvement. This segment continues to be performing below historical levels of profitability due to the remaining headwinds in the oil and gas industry, which.

Has suppressed maintenance and capital spending and has resulted in continued pricing pressure. However.

And in my revenue commentary, we have seen some positive movement in each of the last two quarters and are cautiously optimistic for 2022 and beyond.

UK building services operating income of approximately $5 million or 4% of revenues represents an increase of $740000 and a 30 basis point improvement in operating margin quarter over quarter. This improvement is due to an increase in project activity, primarily within the commercial market sector.

Now on slide nine.

Additional financial items of significance for the quarter not addressed on the previous slides are as follows quarter four gross profit of $403 million is higher than the comparable prior year quarter by $19 2 million or 5%. However, gross margin of 15, 3% is lower than the 16, 8% in last year's fourth quarter, primarily.

As a result of the shifts 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.

We had no restructuring expenses for the fourth quarter of 2021 compared to $1 6 million recorded in 2000, Twenty's fourth quarter diluted earnings per common share of $1 89.

<unk> represents a new quarterly record for the company and compares to $1 45 per diluted share in last year's fourth quarter, adjusting 2000, Twenty's EPS for the negative impact on the prior year's income tax rate, resulting from the non deductible portion of 2000 Twenty's impairment charges non-GAAP diluted earnings per share for the quarter ended December <unk>.

<unk> 2020 was $1 86.

When compared to the current quarter, we are reporting a three cent or one six quarter over quarter earnings per share improving one 6%.

Please turn to slide 10.

With the fourth quarter commentary complete I will now augment Tony's introductory remarks on <unk> annual performance consolidated revenues of $9 9 billion represent an increase of $1 1 billion or 12, 6% when compared to 2020, our year to date results include $196 $3 million.

Incremental revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by EMCORE and the 2020 annual period acquisitions positively impacted both our United States electrical construction and United States building services segments.

Excluding the impact of businesses acquired year to date revenues increased a strong 10, 3% organically with all of our reportable segments reporting total and organic revenue growth year over year.

Operating income of $530 8 million represents a substantial increase from both our GAAP and adjusted non-GAAP operating income figures for full year 2020 year to date diluted earnings per share of $7 <unk> and represents a new full year record as well as an increase of 10, 3% over 2000 Twenty's adjusted <unk>.

non-GAAP diluted EPS of $6 40.

Although not shown on this slide our operating cash flow for 2021 is approximately $319 million on a comparative basis 2020 one's performance is significantly less than the prior year as the contraction in our 2020 revenues due to the COVID-19 pandemic resulted in decline.

And accounts receivable and contract assets, which positively affected 2020 as operating cash flow. Additionally, as highlighted during the course of 2020. The prior year's operating cash flow was aided by certain government stimulus measures, which resulted in the deferral of approximately $117 5 million of non income based tax.

Payments from 2020 into both 2021 and 2022 with significant organic revenue growth in each of our reportable segments. During the 2021 fourth quarter, we experienced an increase in working capital investment, which is typical for our business that is in growth mode.

Please turn to slide 11.

<unk> balance sheet remains strong and liquid.

Cash on hand has decreased by $81 $5 million from year end 2020, or $319 million of operating cash flow was offset by cash used for financing activities of $245 5 million inclusive of $195 5 million of cash used for the repurchase of our common stock and cash.

Cash used for investing activities of approximately $153 million, most notably due to payments for acquisitions net of cash acquired totaling just over $118 million. Despite the decrease in cash on hand, working capital has increased by nearly $72 million, resulting from organic revenue growth during the peer.

Increases in accounts receivable and contract assets were partially offset by increases in contract liabilities accounts payable and accrued expenses the.

The increase in goodwill is predominantly a result of the businesses we acquired during the 2021 period.

Net identifiable intangible assets have increased by $6 5 million during 2021 as the additional intangible assets recognized in connection with the previously referenced acquisitions was largely offset by $64 million of amortization expense during the year.

Total debt exclusive of operating lease liabilities has decreased by $14 8 million, primarily as a result of the $13 9 million required principal payment made on our term loan in December 2021 <unk>.

<unk> debt to capitalization ratio has reduced to 10, 4% from 11, 9% at year end 2020, our balance sheet in conjunction with the borrowing capacity available to us under our credit agreement will continue to enable us to invest in our business return capital to shareholders and execute against our strategic objectives as we.

Moving into 2022 and periods beyond with my portion of this morning's slide presentation completed I will now return the call back to Tony. Thank you Marc can take a well deserved a drink of water.

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

The fourth quarter was another strong bookings quarter for the company.

In fact, we experienced project awards trend throughout the year with the <unk> growth sequentially in each quarter of 2021.

As mentioned earlier total company <unk> at the end of the fourth quarter were $5 6 billion.

$1 billion or 22% increase over the 2020 year end total of $4 6 billion organic <unk> growth was a strong 18%.

This strong booking activity across the company.

Related to a book to bill ratio well over one despite the company generating record revenues for the quarter and for the year.

Combined our two domestic construction segments experienced strong construction project growth in the year with <unk>, increasing by $800 million or 21, 5%.

Mechanical construction segments, our <unk> increased by $647 million or 24%.

While the electrical construction segment saw an increase of $156 million or healthy 15%.

U S building services RP O levels increased $220 million or almost 36% from the year end 2020.

Continues to hopefully move further behind us it looks like more and more companies are planning for their employees to return to their offices at least based on the bookings we're seeing so I see this demand for small project retrofits continuing through the year.

Over on the right side of the page, we show <unk> broken down by market sector. We saw <unk> growth in each of these sectors listed except to the transportation area. We saw some project completions during the year.

<unk> growth was widespread imbalanced in 2021 across most market sectors. We participate participated with commercial ipos, which for US includes data centers, increasing 29% year over year, our commercial project RPI total now stands at $2 $4 billion and makes up 43% of <unk>.

Total rpms with.

Guard to data centers, we have leading construction positions in three critical trades the.

The installation of complex electrical mechanical systems, certainly, but in addition, and in addition, we have large scale nationwide fire protection project capability.

Over the last few years, we have strengthened our take capability through organic investment and tuck in acquisitions and Thats resulted in strong growth for this part of our operation and look we have the ability to execute the most complex and.

Adding fire protection construction service opportunities for my semiconductor plant, a distribution centre and office building a hospital.

Basically because of the nature of the Union, which is a road local that travels for the most part nationwide, we can do any job anywhere.

Finishing our market sector, our payroll growth healthcare <unk> dropped 21% institutional is up 24% industrial manufacturing, which includes the pharma semiconductor and food processing food processing projects, we mentioned are up 42%.

Water and wastewater is up 22% and short duration projects are up 20% again. Many of these short duration projects are performed by our building services company and also a portion of our electrical and mechanical construction segment companies.

From our IPO perspective, I like where we are I like our position as we enter 2022 as said already I believe we have got more resilient and stronger in the last few years I believe our field execution is unmatched from a customer confidence perspective.

Whether that be a general contractor EPC construction manager or facility owner or tenant.

Whether it be construction project to our servers call EMCORE companies have a demonstrated record of performance history of on time and on budget project and service execution.

Both of which have been evident over the last couple of years that have been very challenging from an execution standpoint.

I'm now going to go to page 13, where you talk a little bit like we have in the past about the growth and resilient market sectors that we talked about we've covered this page before but I thought I would cover and in light of all the macro factors impacting our business today.

These sectors continue to drive our strong organic growth and boy our business through these challenging time Matt.

<unk> macro trends are driving these in many ways and this demand for EMCORE and they're good.

Sometimes they are good trends macro trends and sometimes from a global perspective that aqua trends, but there are good trends as far as <unk> business is concerned these trends include digitization and cyber security.

E Commerce supply chain repositioning of redundancy really spurred on by geopolitical events and costs and supply uncertainty enhanced life safety requirements healthcare flexibility and expansion made real again by Covid.

Energy transition and energy cost volatility also our potential disruptors that allow EMCORE to serve its customers I'm going to cover each of them in turn now if you go to data centers, what's driving that one is just the insatiable demand to supply large hyperscale data centers to support all kinds of Digitization efforts.

Whether it be commerce.

Or just protecting yourself from a cyber basis as more and more people move things into the cloud supported by big companies like Google Amazon Microsoft.

And then large companies are building their own data centers that lead decentralization, we have that capability in many parts of the country and really into the growth markets and we support it with the electorate electrical mechanical and fire protection trades.

Housing.

On a construction side as far as electrical mechanical we werent doing much but we've always done a lot on the fire protection side, we're the best in the business when it comes to E Commerce and large scale warehousing on a fire protection basis bar, none were helping continue to build out both the KOL e-commerce chain and the standard ecommerce change in the fire protection.

We're also moving more into the electrical business.

With these.

Warehousing, because some of the larger warehouses, especially with the Amazons of the World are also putting charging stations in which when you build at scale for our delivery trucks is a fairly complex electrical projects that require substation and enhanced switchgear industrial manufacturing. This has been one of the biggest shifts in our business.

As one of our folks out of this morning. If you go back 10, or 15 years, a lot of our electrical mechanical work was developer base business doing commercial office buildings that is no longer we still know how to do that but that is no longer. The case, we are big time into electrical and industrial and manufacturing.

We're supporting the semiconductor build out and most of the critical markets mechanically and in some places electrically we're supporting and fire protection, we're supporting the farmer rebuild here in the U S. We're supporting the battery plants in the U S. We're supporting that.

The electrification.

We move within this energy transition so industrial manufacturing will become a big deal and in industrial we continue to support our existing process industry customers in a large way refining petrochemical paper cement tie.

Tires pick one <unk>.

Health care I think we proved our metal over many years in healthcare and I think our customers appreciate it even more of what we can do through Covid, we were able to help people on the fly make their facilities more flexible and we did it with precision and we did it with low cost solutions, and then really what's happening in health care right now as Youre seeing more and more.

Demand for flexible systems, and Youre seeing really capacity expansion I think a lot of towns and cities realize they've taken too much health care capacity out and water and wastewater we're in the best market in the country and that would be Florida.

Mechanical services is ubiquitous our mechanical services operation, our supporting energy efficiency indoor air quality upgrades, our team was ready when Covid hit our team has been ready for years. It has been executing for years on energy efficiency upgrades almost any retrofit project. We do has an element of energy savings and is really helping build.

He has become more efficient greener and more productive for the owners and now you add an indoor air quality and like I said, you've heard me say before we spent 15 years 20 years, taking outside air out of buildings in the last two years, we've been figuring out how to put inside outside air back into the buildings, but also continue to battle the energy efficiency as we do.

And nobody is better in the business and no. One has the footprint we have to do it and then add on to that some of the renewable projects, we do especially out west to add small scale solar to add onsite solar at onsite generation of other fuel sources.

Have a complete offering indoor air quality I talked about and again fire protection is ubiquitous we are the best in the business and fire protection and we've got some of the best operators in the industry that really set the tone for the industry and I'm thankful everyday that they are part of our team on.

On page 14, I'm going to switch there and talk about EMCORE capital allocation trends.

There is no trend is what I would offer.

We look at this in five and six year snapshots and to me and I think to Mark is the most important bars the bar all the way over on the right, which is show what we've done on a six year average and.

And that plus or minus 5% is what we would look at for right. Now is in a lot of ways optimal capital allocation for our kind of business in these kind of markets. So what are we trying to accomplish in our capital allocation look we love to fund organic growth and we really grow like crazy in our construction businesses and our mechanical service.

Business think about it we've had organic growth despite shrinking and our industrial services segment over the last couple of years.

And that is really a testament to our ability to serve those those projects I talked about on the previous page, we love to fund internal capital expenditures in our mind, we do that for two reasons, we do it for productivity or we do it to facilitate growth and.

An example of that might be a fire protection fabrication shop strategically positioned in the growth markets that allow us to get a cost advantage and even serve our customers better and acquisitions are a priority for us and we've talked long and long through the years about what kind, we do we've been very successful over the last five years and what I am saying is more of the core.

We're continuing to execute adding great capability and great people and great companies.

But we also believe in returning cash to our shareholders through share repurchases and dividends in an ideal world, we're investing 55% to 70% of our capital into the business for growth and productivity and growth can come both organic or through acquisition and a balanced return to shareholder shareholders that formula has proven to be a winning formula for EMCORE.

And now I'm going to close and that'll be on page 15 and 16.

You know.

As we develop our initial guidance you know a lot of times, we're faced with especially the last couple of years a lot of uncertainty in the external environment I don't know about you I was certainly hoping that 2022 would have a lot less.

Uncertainty clearly when you're faced with a lot of uncertainty, but who has all of us to take a good hard look at what the lower and upper ends of our guidance range could be and it behooves all of us to think conservatively about how the business can execute with all those uncertainties.

Out there so our initial guidance will be 10, 4% to $10 7 billion in revenues and $7 15 to 785 in earnings period.

And earnings per diluted share we.

We do expect that on residential market to grow in the low to mid single digits. We do expect more normalized demand from our refining and petrochemical customers and we expect to continue to see all the things we talked about small projects on the previous page.

We also have captured in our guidance I think.

Some continued disruption from macro factors like inflation supply chain in Covid.

And as with in prior years, where we ended up in the range will depend on several factors. Some of them are in our control and some of them are outside of our control.

To talk about first the things that are within our control.

We have a track record I think over very long time are doing a really good job controlling cost as best we can.

But supply chain issues in Covid will continue to be Wildcards co.

Covid testing costs could be a wildcard as we are self insured.

Outside of our Union plans and the President's Executive order on home thing is quite broad with little or no qualification as far as people procuring supply.

I do expect continued headwinds from fuel cost as in UK and crisis showed that today and I think we captured most of those headwinds in our guidance.

We will continue to work win work and will continue to be disciplined and are estimating a pricing I like where our backlog is and I like where our backlogs priced today.

We will continue to emphasize the areas, where we have differentiated expertise and we've talked about those on the previous page.

We will continue to lead the way on safety at all levels of the organization.

However, there are more than a few things that are that are outside of our control.

I'm going to ask a question and answer for you how we see it.

The supply chain get better or worse.

Personally I expect little to no improvement in the supply chain as the year progresses.

Some areas will improve and others will worsen.

We will COVID-19 have another resurgence.

I have no idea.

I don't know, but we'll continue to I know what we will do is we'll continue to keep our people safe as we can we'll follow protocols that are prescribed to us and we'll work as hard as we can to remain as productive as we can.

While customer may decision, making slow to do all of this uncertainty quite.

Quite frankly, I don't think so on large complex projects, especially the ones that have to do with global supply chain repositioning reassuring health care food processing semiconductors or life safety or pharma. So the major markets that we're playing in today I do not expect customer decision making to slow.

I think it is going to require more planning upfront in these uncertain supply chain, we see that already that's good for US we have the people that know how to do that thorough planning and their expert and contingency planning.

In fact, we've gotten a little too good a contingency planning of the last couple of years with all the uncertainty.

What will happen with inflation I think it will may moderate as the year progresses, but I think it will be up into the right and energy markets.

Or as volatile as I have ever seen in my career.

As we move into 2022 as I covered on the previous page, we will continue to be disciplined capital allocators in terms of our organic investments acquisitions and the return of cash to our share of shareholders.

All of which are important uses of our capital as always I. Thank you I, thank our employees and our leaders.

Thank you for our interest in EMCORE and with that we will be happy to take questions.

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

First question comes from the line of Sean Eastman with Keybanc capital markets. Your line is open and you may now ask your question.

Good morning, gentlemen, thanks, good morning, Jonathan.

Good morning morning.

Just starting high level for me.

You guys have grown EPS comfortably in the double digits every single year for the past seven years in a row.

We're going into 2022, we've got big momentum in the <unk> industrial services seems to be inflicting positively you've got a fortress balance sheet.

The midpoint of the earnings growth outlook of 6% so.

I hear the risk factors, Tony but maybe just more specifically how do we wrap our heads around that like where is the real sort of.

<unk>.

<unk> built into that initial outlook.

John I think contingency and I'll ask Mark to help me here.

The way I think about it is.

It's a macro driven view.

We do better against those macro items, then we will move up in the range and I went through that so what concerns me I think any CEO right now if youre not concerned about supply chain and the unpredictability in the supply chain and what that can do to your labor productivity.

Then youre not being careful.

I think fuel costs and energy costs are a real wildcard I thought they were wildcard going into last year.

And certainly what's happened over the last week has certainly not cleared up the energy a picture any better for antibody like we do that operates a large fleet, we will do our damn best to pass those costs onto our customers, but remember we're always doing that in arrears, we can't guess at a fuel price pass it onto our customers and what largely where that most of the <unk>.

<unk> is at a time and material business.

And finally.

We took out.

Covid took a whack at our productivity.

In the fourth quarter.

And do I think Thats abating sure I do do I know, it's abating for the year I don't know we thought I think we had a victory speech last July and then we had delta and then we had another.

Moment of Ugly and then we had omicron I I'm not an epidemiologist never happen I do know a little bit about numbers I have no idea, what's going to happen. So I think if you. If you take those potential factors into play you can end up in a place to say hey, we're going to do well.

Maybe not as well as we showed up we feel really good about where our <unk> are we really feel good about the demand in our end markets, but at the end of the day, we got and execute in a world of uncertain labor productivity because of Covid and uncertain material availability because of supply chain Mark.

Sean the only thing I would add to Tony's commentary has to do around mix of revenue.

As Tony commented earlier in this morning's call about.

We've moved to a more a larger project away from traditional commercial work well, obviously when your project planning that larger more complex work you have more contingencies built into your estimates were on the front end of a lot of that work as we enter 2022.

Assuming that the project schedules adhere to what was originally anticipated were certainly going to have a lot better feel ultimately for the profitability of those jobs as we progress through the full year calendar, but if the supply chain does continue to rear its ugly head.

Those project completion timelines might slide into 2023, therefore, adding more uncertainty to our estimates so.

The work is there it's the profitability characteristics.

Not change to our detriment.

Unfortunately, not a lot of a lot of the uncertainty around the work and how it's going to progress which is beyond our control certainly belts building in some element of conservatism and Mark we're working with really rational people right now at the owner and GC and cm level.

But they also don't control the supply chain issues. The only thing I'll take exception child. When you ask your question. When you said we've comfortably grown.

Double digits.

Maybe we've been grinding.

And our focus is exceptionally hard to do that.

Maybe maybe in a virtual work from home environment, it's been comfortable EPS growth, but I can tell you I couldnt be more proud of how our people have executed to put the kind of results. We've had in a very challenging environment over the last two and a half years.

Yes Super helpful. I didn't mean to suggest it was comfortable I just met comfortably within the double digits not that it <unk>.

I have to brag on my people are a little bit in the great.

No. Please please by all means.

And my second question is yes.

Obviously, the <unk> growth was was a big positive story for you guys throughout 2021.

Yeah.

Do you expect that momentum and Rps to continue this year I'm just wondering if maybe there might have been a little bit of pull forward of New award activity just as project sponsors look to secure that contractor capacity curious of your thoughts there.

Actually.

We worry about the same observation John that you know.

People want to secure capacity with really blue chip contractors, right now, which I do think there's been a flight to quality.

However, if you go back to that page, where I talked about those resilient markets.

I think we've grown nine over the last 12 quarters, Rps, which is not that common for us. This can be lumpy. It comes in and it comes out one large project and move it one way or another.

I do think though there is enough significant opportunities out there.

We're involved on the front end and we'll see when they get awarded it could be a little lumpy, but I feel really good about the opportunities. We have in the pipeline that may materialize into significant projects and we're working as part of a team right. The project is going to happen. It's just when and we're one of two teams that may or may not win it. So the odds are fairly good on some of them.

Those projects.

<unk> I think one of the things I always look at in the business is what's happening in two parts of the business to tell you whether the momentum may be a little more broad based one of the things. We look at is our small project work, which is very strong right now and so it saying people are not only spending at the top of the market. They are also spending things they need to do to maintain their facilities.

Gain energy efficiency and get better indoor air quality in their buildings. So we're seeing that secondarily I always watch the fire protection business and the fire protection business, because it's a national business involved in every sector of construction for US. It remains very strong I was part of that is our position in the market, but the other part of that is it's sort of a national view.

On some of the more complex work and that continued strong I do think one of the things that's going to continue to drive people maybe to want to make decisions as what I said in my closing and that is that a lot of these decisions have to be made people are still well capitalized and the kind of people we work for for the most part.

Sometimes maybe we thought they were better capitalized than they are than they are but that's not very often.

They need to get this work done Theres, a major repositioning going on to support the new investments in the energy transition, but there is also a major repositioning on traditional supply chain that quite frankly, I haven't I only saw my career on the way out where people were moving from high cost states to low cost states and maybe to Mexico and eventually.

The Asia now Youre seeing it in reverse I still going to lower cost states.

And we really made some pressured investments in there.

In the mid two thousands and in the last three or four years, and we sort of got ahead of the curve.

Alright Super helpful responses, guys I'll turn it over there thank you Sean.

Your next question comes from the line of Noelle Dilts with Stifel. Your line is open.

Hi, guys. Thanks for taking my question.

Yeah.

So this is maybe a bit too detailed but.

Yes.

I was wondering if you could talk about how youre thinking about sort of.

Expected segment.

Margin ranges.

In your guidance in 'twenty two.

When I look at 2021, Martin has really held in pretty well.

And all of the segments with the exception of industrial so I'm, just really trying to get a sense of.

How do we think about electrical and mechanical margins going forward and then with industrial you know obviously you go back quite a few years, but we were talking about.

Mid single digit level.

When can we think about that division may be getting back toward.

Mid single digit type stuff.

Those are the type of range. So I'll take a shot at a macro level and I'm going to kick the mark relatively quickly here I think that we're very comfortable thinking we can operate within our three year averages on all of our segments with the exception of industrial there, we expect to be better to be better.

And three year averages for us can have 40 to 50 basis points of flux in it right Mark and it's not a quarter to quarter business and like Mark said some of it is the timing on large projects when they and when they start the contingencies built in.

And then and then the acceleration in the small project portfolio some market throw to you know all this.

As a grounding in fact, so to speak so.

When you look at full year 2021 by segment.

As I mentioned earlier, both electrical and mechanical construction are.

Our operating above their three and five year averages.

If you look at the back half of 2021 performance.

That trend is not as consistent so electrical construction last six months of 2021 was actually below those averages.

My anticipation and obviously when we did the financial modeling for purposes of 2022 planning.

We're looking at more as and as Tony indicated we're looking at margin performance consistent with really what its been the last three years. So.

That would put electrical construction around eight eight in a quarter.

Hopefully slightly higher.

Mechanical construction that gets you somewhere around 775% to 8%.

So on a blended rate when you look at total construction, it's just slightly below eight.

Up to eight 2% so thats.

That's that's still very good performance.

I think we all get Jade it looking at the last few years and say, okay. That's great.

Reality, the new reality and as much as I think the EMCORE team would love that to be the situation.

We don't control the market.

We're in a sweet spot in some things as Tony covered in depth.

That's not going to continue into perpetuity, but when you look at 2022 from a framework perspective.

It doesn't look like we're going to see any any softness so to speak with regards to demand and opportunities. When you look at our U S building services.

The 2021 performance.

Slightly below the three year and five year average.

For once again for the reasons that we've already discussed.

Clearly supply chain difficulties have been the most impactful there.

And because there was a fairly significant non union labor component to that segment.

Our ability to shift.

Resources around is good but if we have labor on site and materials and equipment are not there for installation.

Because they're being procured by somebody other than the <unk> subsidiary.

We were still on the hook for payment for that labor, which is obviously being very productive so.

<unk>.

We continue to project management, which is a center of excellence for EMCORE and has been for.

I don't want to say my entire history with the company, but for a long part of my history with the company. So I like to think that.

Theyre going to somewhere settle around that 5% range and then as Tony indicated industrial certainly.

The last three or four years have been anything, but but steady for a lot of exterior reasons that we've discussed that nausea and prior in prior calls.

But there are three year average is below 2%.

I think we would be very unhappy if thats, where the profitability of that segment resulted in 2022.

But as we mentioned I believe on last call as much as I would like to be able to shoot back to the mid single digits.

Have to walk before you can run that to get to 4%.

No.

We're certainly trending in that direction, but I think.

Unfortunately, we've all been collectively disappointed for a lot of different reasons.

Through our own fault most through other swap.

We're not ready to declare victory quite yet in that segment.

As we have more to talk about as we progressed through the year in the U K has been.

Probably the most steady of all of our businesses. When you look at variability in margins period to period.

And they're well above their three year average, which is just below 5%.

And we'd like to think that 5% or five 5% range is what our expectations are certainly in the near future. So probably a long answer to a short question.

But.

We're right, where we want to be in.

And once again, assuming project timelines certainly on the larger work progressed as planned.

Certainly we would think that theres going to be opportunity for improved margin performance relative to how we closed the 2021 periods specifically looking at the back half of the year, but once again, we're going to do everything we can to control the outcome of those things, but unfortunately.

Lot of that is dictated by others and outside influences.

Okay. Thanks, very much I'll pass it on I appreciate it thank you.

Your next question comes from the line of Adam <unk> with Thompson Davis Your line is open.

Hey, good morning, guys nice quarter. Thanks, Adam.

Hey, Tony what are you guys hearing what are you hearing from industrial customers. So I'm, sorry, if I missed that but just curious.

You mean oil once they are telling you in terms of project activity this year refining and petrochemical.

Yes, okay.

We have more industrial customers. So then just feel.

Feel free to take it wherever you want.

The other ones a lot right in my commentary did look no no I meant the ones in the industrial segment correct, Yeah, what we're seeing.

Is what we expected for the first quarter right. We said, we're going to continue to sequentially get better. We've said that a number of times I think we've called it about right.

I think they are spending money again.

We're clearly in a very.

Good position.

Said, what I've said for a very specific reason in my text, we kept the team together.

Which is a real credit to the leadership there.

It's been a rough two years.

But we kept the team together they are executing.

I think.

The year looks pretty good it looks like a normal year.

Turnaround activity.

Will they run harder and do less turnaround work in the fourth quarter because gas prices are so high I don't know that I think I think they're going to do their maintenance.

With you.

I think the other wildcard in that segment is we're not seeing it yet we're seeing a small return to upstream we see that in our electrical business in that segment.

Do expect and are people, who know a lot more about this because they've live. It every day. We are we are experts in this.

They expect somewhere around third and fourth quarter to see a resumption.

Drilling in the Permian and the Eagle Ford and a little bit North Dakota Bakken.

That will help us that's the part we don't have baked into anything yet that would be upside into our business. So I think they are ready to spend money I think they believe their long term winners the Gulf coast.

Refining and petrochemical complex, let's hope for no weather events here.

Hurricane season, and we should have a pretty good year.

Okay Super helpful and then.

So I'm curious with the.

Supply chain issues and inflation.

Have you started to see in the back half of 2021.

What did you do differently when signing.

New contracts and I guess the question is also kind of surrounding what you think your margins are back.

Backlog and kind of how protected you are from those issues. This year, Yeah look I think on the on the larger workhorse protect as you can be.

Yes, so here's what changed in this change for us in the first quarter of last year, maybe even in the fourth quarter of 'twenty, because we saw some of this coming.

First thing we did is we don't let prices out there for more than.

Depending on the kind of dropped 7% to 20 days when before we would leave them out there 30 to 60 days. So the amount that we will honor our quote, especially on the small project work came in.

So hey, we can honor and when we do that we typically.

Almost bought out on the job, which means we have commitments, especially on the small project work from our suppliers, what we are going to pay.

As you get to the larger work.

Couple of different ways, you contract it and neither do at fixed price War.

You do it GMP, which looks like a fixed price contract, but it has built in negotiators for increases in materials.

And things like that and more and more contracting has been happening that way on the larger projects because we.

We can't guarantee where the price is going to be and people are rational and they know we're about as good as anybody in the business of procuring materials.

But just isn't so theres all kinds of things like that and we are all kind of contingencies built in if deliveries don't happen that you wouldn't typically have seen in the past and people who are knowledgeable and we do a really good job.

Through our central procurement group of keeping lead times in front of people. So that they can negotiate with our customers and about what lead times look on critical materials. So long winded answer to how I feel about whats in backlog I feel about as good as I could Phil I think we've done everything we can to protect ourselves I think we priced it correctly and I think we have as well.

It is good in terms as we can get in the environment that we're in.

And I think our owners have been fair and I think our general contractors and construction manager customers have been fair.

A lot of these people want us to do the job because we're going to get it done we're going to get it done right and we have the <unk>.

Technical capability first the project execution capability, we have the ability to get the labor and quite frankly, we have the financial strength to do it.

People on these large projects actually look to our balance sheet.

As a point of strength and it's one of the reasons they contract with us.

Because they know that work is going to get done.

We are all we compete with that.

And secondarily, Adam I think that the biggest wildcard for us this year.

Things that we don't control right I have no idea, what's going to happen with Covid and I'm done projecting that I'm predicting that.

And the supply chain, it's not just pricing in the supply chain, which we can get our head around <unk>.

Availability is more of the issue someone will make a promise to you mark talked about a little bit.

Large project work, we have the chance to sequence things different we have a chance to lay out the workforce a little different when.

When you get to the smaller project work or the quick turn work right, which may not be small project, where we hit it with a lot of labor there.

The problem, we run into if a critical piece of equipment doesn't come in on time.

That could really change things out in a retrofit environment because a lot of time in a retrofit environment, yes, youre competing our price, sometimes but youre really competing on the least amount of disruption to the facility to keep it operational and you really go through even on a small job to go through very detailed sequencing and planning to do that you have labor lined up to work overtime.

We have labor lined up to work weekends and Matt if you Miss that by a day or two you've been in for eight guys. Two days of labor you do that over 10 projects. The math becomes sort of ugly pretty quickly. That's the biggest challenge the mechanical service business has had over the past six months and they're as good as anybody in the business of figuring that out.

But you know we have transparency with our distributors, we have this transparency with our equipment suppliers.

Their factories and their Oems disappoint them too.

And so what's causing it and that factories in the Oems.

Lot of times, it's their ability to bring in materials, but a lot of times just disruption from COVID-19 in their factories and they're not producing to the level. They thought they were going to a mere two weeks earlier.

Okay, great color. Thanks, Tony Good luck in Q1, thank you.

And your next question comes from the line of Brent Thielman with D. A Davidson. Your line is open you may now ask your question good morning, Brett.

Hey, good morning, Thank you.

Just one left for me Tony.

And about your prepared remarks and in particular some of the investments you've made in the past it seemed to be sort of helping you through.

All of that noise in the market right now inflation et cetera can you talk about maybe just given the state of the balance sheet, and perhaps less sort of attractive M&A opportunities out there right now some of the programs or things you are putting money toward today.

Might benefit you in the future I mean anything there worth talking about.

Absolutely we continue to build out our fire protection pre fabrication capability.

Capability.

We have <unk>.

Strategically located facilities now.

That will probably be six within we'll put two more in over the next.

Probably 12 months.

We continue to enhance our pre fabrication and our mechanical and electrical operations.

The mechanical side, we probably have 12 significant shops on the electrical side six.

We will take more square footage and we'll do be doing more things in the shops versus the field and we will be doing them on a larger scale.

Did we give up become more modular as we serve these larger projects.

Also training right, it's a soft cost, but it's not for us.

We're going to ramp back up our executive training on our company values and our leadership and also our business acumen and we've been on a two year hiatus because of Covid that will start again here in the second week of March in the last week of March we view those as critical to building our culture, which many people consider our software investment we do not we consider it a hard investment.

Think that more than anything help carry us through these last two years, we're going to continue to invest in band we've actually put a couple of full time resources, we put a terrific leader in charge of our Bim initiatives, it's actually under one of our key segment leaders, Joe Burns, who runs mechanical guides that probably knows more about that than anybody in the industry. We've enhanced.

Our relationship with Autodesk, and we will continue to push the frontier.

On our.

Our scale that we do we will continue to.

Do more.

Mechanical service training, we're doing some very creative things around mechanical service training and training of our field technicians in general to bring them up we have some virtual training that we've enhanced and we also put more money into our applied equipment training center in Arizona, which we expect to ramp back up here in the end.

The first quarter.

And on the people side.

We're investing in project management. So those are all the kinds of things, we do and I'm, probably missing a couple of things those are the kinds of things we do to build capability that we hope to continue to differentiate us in the market now look acquisitions serve a critical part in that too sometimes we can bring all of those tools to the acquisition.

Sometimes we learn from the acquisition.

It was both ways when we bought <unk> down in the southeast they were probably a little ahead of what we thought we were pretty good at pre fabrication. They were a little ahead of us, especially with some of their shop out of automation, we took those lessons and took them to other parts of our mechanical business.

So acquisitions play a critical role in our ability to not only expand our geographic and technical reach but also another way to learn and then one of the big synergies who's got into to take our learning and usually our acquisitions are hungry to get that learning from us.

Okay I appreciate the color best of luck.

Yes.

Alright, Thank you I'll hand, the call back to Tony and Cathy for any closing remarks.

Alright look thank you all thanks for listening and thanks to all of them core folks out there listening.

We're going to try to knock it here in the first quarter and our hope for another great year.

We're set up to do pretty well, but we.

We will face headwinds, we always figure out a way to get through with that have a good day.

Thank you.

That concludes the EMCORE group fourth quarter and full year 2021 earnings call you may now.

Okay.

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Yes.

Okay.

Yes.

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Good morning, My name is Jerome and I will be a conference operator today at this time I would like to welcome everyone to the Amcor group fourth quarter and full year 2021 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' three.

Thank you Jerome and good morning, everyone. Welcome to the Amcor Group Conference call. We are here today to discuss the company's 2021 fourth quarter and full year 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 Mad instrument. Kevin. Please go ahead.

Thank you Brad and good morning, everyone as always thank you for your interest in EMCORE and welcome to our earnings conference call for the fourth quarter and full year of 2021.

This 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 I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides.

Slide three shows the executives who are with me to discuss the quarter and full year 2021 results.

Tony Guzzi, our chairman President and Chief Executive Officer, Mark Pompa, Executive Vice President and Chief Financial Officer, and Executive Vice President and General Counsel Maxine Mauricio.

That said, please let me turn the call over to Tony Tony Yeah. Good morning, Thanks, Kevin and thank you for joining us to discuss our 2021 fourth quarter and full year results.

We're gonna be covering pages four to six in my opening comments.

We will also provide our guidance for 2022 I'm going to focus my initial commentary on full year 2021.

My only comment for the fourth quarter of 2021 are then it went as expected.

However, the impact of Covid on productivity was more pronounced than we could have contemplated in October .

We performed well, but we fought through inquiries increased workplace and supply chain disruptions because of the surge in COVID-19 cases due to the omicron variant before.

Before I discuss our results I want to thank the entire EMCORE team for their efforts in serving our customers. So well during these challenging and ever changing times I also want to thank our leadership team down through the subsidiary level for focusing on employee safety and wellbeing.

Operational excellence.

And rigorous contingency planning.

In 2021, we had our best safety year ever with performance that will continue to place us in the top 1% of our industry.

We will continue to strive everyday for zero accidents.

EMCORE had an exceptional year in 2021.

We earned revenues of $9 9 billion, which represents 12, 6% growth over 2020 revenues.

We had operating income of $530 million and operating income margin of five 4%.

We generated operating cash flow of $319 million.

Overall, it was another year, where the strength of our team.

Our diversity of end market and demand and our execution capabilities.

<unk> us to overcome many external challenges.

Covid was omnipresent, but we want to keep our teams safe and productive.

Supply chain challenges manifesting themselves in many ways from uncertain prices.

The extended lead times and missed deliveries from our suppliers, but.

But we persevered.

Because we are resilient.

We have also built long term relationships with our customers and our suppliers.

We negotiate hard, but we are fair and respectful, especially in times like these.

We are able to leverage such long term relationships to foster open and transparent communications, which in turn allows us to better plan our work.

I'm now going to discuss a few key drivers and results from each of our operating segments.

We had 10, 5% organic growth across these segments on a combined basis.

Our electrical construction segment's performance was driven by strength in the commercial market to include data centers and the resumption of demand in key markets in 2021, which were not operational for part of 2020, the institutional market and also the health care markets. Our mechanical construction segment also benefits have benefited from those.

Two things.

Further aided the performance of our mechanical construction segment.

Our investments in free fabrication, and Bim or building information modeling continue to pay significant dividends for us.

Our customers can depend on us for excellent execution on complex.

SaaS based projects that require the ability to provide design assist capability rigorous labor planning and the ability to deliver in an uncertain supply chain environment as.

As shown in our remaining performance obligations or RPE owes both segments have strong momentum going into 2022.

Our U S building services segment had another strong year with a four 8% operating income margin and 10, 9% organic growth despite.

Despite such growth our RP OS are at record levels due to strong project demand driven by replacement work tied to energy efficiency and indoor air quality upgrades.

Our mechanical services business performed well, but faced headwinds from supply chain induced productivity issues on small project work.

Increased fuel costs. Additionally, hindered this division's operating income margin.

Our commercial site based business had an exceptional year driven by large contract execution as well as several successful contract startups, we leave the year in a very strong position to perform in 2022.

Our industrial services segment performed as we expected we saw strengthening demand through the year.

We are positioned well with some of our most important customers and we kept our best people on our team during the past two years of market turbulence, we building important capabilities to not only service historical demand in the refining and petrochemical end markets, but also serve as a renewable energy and renewable fuels market.

In a tough market that require steadfast decision, making is strong can become stronger and we did.

Our U K business had another terrific year with excellent contract and specialized project execution, resulting in organic revenue growth of over 18% and an operating income margin of five 5%.

This team has used our organic investment capital well.

We leave the year with $5 6 billion in remaining performance obligations, a $1.0 billion increase over the previous year.

To go through the financial results great. Thanks, a lot Tony and good morning to everyone participating on the call today.

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

Over the next several slides will provide a detailed discussion of our fourth quarter results.

As well as a summary update of our full year performance some of which Tony just outlined during his opening commentary.

Consolidated revenues of $2 64 billion or up $358 7 million or 15, 7% from the fourth quarter of 2020.

<unk> strong revenue growth from all of our reportable segments during the quarter with specific segment performance as follows.

<unk> States electrical construction segment revenues of $541 9 million increased $80 1 million or 17, 3% from quarter four 2020 exclude.

It increases with respect to the manufacturing market sector and as commented during our third quarter's earnings conference call. We're actively engaged in the construction of certain large food processing plants, which will continue to accelerate as we move through 2022 from a health care perspective, we continue to see strong demand for our services.

As our customers retrofit or replace their mechanical systems to increase flexibility in their facilities or improve the quality of their work environments. In addition to the increased revenue experience within these market segments sectors. This segment. Additionally benefited from incremental revenue within the water and wastewater market sector driven by several large construction.

<unk> is currently underway.

Revenue gains in this segment were partially offset by quarterly revenue decline within the institutional market sector due to the completion of several projects in 2000 Twenty's fourth quarter.

Both our electrical construction and mechanical construction segments established new all time quarterly revenue record levels with their fourth quarter performance.

Yes.

Established by this group.

Even with this record revenue performance each of our construction segments have increased the remaining performance obligations year over year, which Tony just commented on and we will discuss further when he goes through our <unk> development a little later on our call. This morning.

United States building services segment revenues of $630 1 million increased $59 2 million or 10, 4%, excluding incremental acquisition revenues of $14 6 million. This segment's revenues increased seven 8% organically.

<unk> gains were reported within most of their operating divisions with their with their mobile mechanical and commercial site based services divisions reporting the largest increases greater project and service activities with a focus on building controls and energy efficiency were the primary drivers for the quarterly revenue growth within the mobile mechanical services group, while the growth in commercial site.

<unk> services was due to new customer additions as well as the expansion of certain services for existing customers.

One.

United Kingdom building services segment revenues of $123 9 million increased $8 9 million or seven 7% from last year's fourth quarter revenue gains resulted from the continuation of strong project demand from this segments customers, who previously deferred such work during 2020 as a result of the COVID-19 pandemic.

And the prolonged lockdowns mandated by the UK government. Please.

Please turn to slide eight.

Selling general and administrative expenses of 260 million represent nine 8% of fourth quarter revenues and compared to $244 6 million or 10, 7% of revenues in the year ago period.

Conversely, and not to be redundant with my prior quarters' commentary <unk> considerable revenue growth in 2021 has necessitated an increase in head count or SG&A for 2021 fourth quarter. Additionally reflects an increase in healthcare costs as a result of a norm of a normalization in the level of medical claims as well.

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 growth.

Reported operating income for the quarter of $143 million or five 4% of revenues compares to operating income of $137 6 million or 6% of revenues in 2000, <unk> fourth quarter. The 60 basis point reduction in operating margin is due to a reduction in gross profit margin within each of our domestic reportable.

Specific quarterly performance by segment is as follows our U S. Electrical construction segment operating income of $41 3 million decreased $2 $6 million from the comparable 2020 period.

<unk> operating margin of seven 6% represents a reduction from the nine 5% reported in 2000 Twenty's fourth quarter. The decrease in both operating income and operating margin is due to declines in gross profit and gross profit margin within the commercial and transportation market sectors, given the change in composition of project work performed quarter.

Over quarter. In addition, this segment experienced an increase in quarterly SG&A expenses. The majority of which was a result of incremental expenses, resulting from acquisitions, including amortization of identifiable intangible assets.

Whereas the results for the prior year's quarter benefited from the favorable closeout of several major projects within the commercial and manufacturing market sectors. The results of Q4 2021 included increased revenues from certain large projects within the manufacturing and water and wastewater market sectors for which we are acting as either the general contractor.

Or the construction manager and therefore carry lower than average gross profit margins than our typical for this segment.

Operating income for U S building services is $27 8 million, which is consistent with the fourth quarter of 2020, while operating margin of four 4% represents a 50 basis point reduction quarter over quarter. This segment's mobile mechanical services Division continues to work through a larger number of fixed priced capital projects, which traditionally.

Have a lower gross profit margin profile when compared to this segment's call out service and small project work. Additionally, while we continue to attempt to mitigate the effects of supply chain disruptions by leveraging our relationships with our suppliers and customers and through enhanced labor planning a project scheduling this segment experienced some productivity.

Impacts, resulting from longer material and equipment lead times during the quarter.

Our U S. Industrial services segment operating income of approximately $4 million represents a $12 6 million improvement from the $8 $6 million loss reported in 2000, Twenty's fourth quarter, Although an improvement. This segment continues to be performing below historical levels of profitability due to the remaining headwinds in the oil and gas industry, which.

Has suppressed maintenance and capital spending and has resulted in continued pricing pressure. However.

David in my revenue commentary, we have seen some positive movement in each of the last two quarters and are cautiously optimistic for 2022 and beyond.

Now on slide nine.

We had no restructuring expenses for the fourth quarter of 2021 compared to $1 6 million recorded in 2000, Twenty's fourth quarter diluted earnings per common share of $1 89.

31, 2020 was $1 86.

When compared to the current quarter, we are reporting a <unk> or one six quarter over quarter earnings per share improving one 6%.

Please turn to slide 10.

Including the impact of businesses acquired year to date revenues increased a strong 10, 3% organically with all of our reportable segments reporting total and organic revenue growth year over year.

non-GAAP diluted EPS of $6 40.

<unk> receivable and contract assets, which positively affected 2020 as operating cash flow. Additionally, as highlighted during the course of 2020. The prior year's operating cash flow was aided by certain government stimulus measures, which resulted in the deferral of approximately $117 5 million of non income based tax.

From 2020 into both 2021 and 2022 with significant organic revenue growth in each of our reportable segments. During the 2021 fourth quarter, we experienced an increase in working capital investment, which is typical for our business that is in growth mode.

Please turn to slide 11.

<unk> balance sheet remains strong and liquid.

Used for investing activities of approximately $153 million, most notably due to payments for acquisitions net of cash acquired totaling just over $118 million. Despite the decrease in cash on hand, working capital has increased by nearly $72 million, resulting from our organic revenue growth during the period.

Increases in accounts receivable and contract assets were partially offset by increases in contract liabilities accounts payable and accrued expenses.

The increase in goodwill is predominantly a result of the businesses we acquired during the 2021 period.

Total debt exclusive of operating lease liabilities has decreased by $14 8 million, primarily as a result of a $13 9 million required principal payment made on our term loan in December 2021.

<unk> debt to capitalization ratio has reduced to 10, 4% from 11, 9% at year end 2020, our balance sheet in conjunction with the borrowing capacity available to us under our credit agreement, we will continue to enable us to invest in our business return capital to shareholders and execute against our strategic objectives.

As we move into 2022 and periods beyond with my portion of this morning's slide presentation completed I will now return the call back to Tony to IQ, Mark can take a well deserved a drink of water.

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

The fourth quarter was another strong bookings quarter for the company.

In fact, we experienced project awards strength throughout the year with <unk> growth sequentially in each quarter of 2021.

As mentioned earlier total company <unk> at the end of the fourth quarter were $5 6 billion.

$1 billion or 22% increase over the 2020 year end total of $4 6 billion organic <unk> growth was a strong 18%.

This strong booking activity across the company translated to a book to Bill ratio well over one despite the company generating record revenues for the quarter and for the year.

Combined our two domestic construction segments experienced strong construction project growth for the year with <unk>, increasing by $800 million or 21, 5%.

Mechanical construction segments, our RPM has increased by $647 million or 24%.

While the electrical construction segment saw an increase of $156 million or healthy 15%.

U S building services RPM levels increased $220 million or almost 36% from the year end 2020.

As I mentioned earlier, we continue to experienced widespread demand for replacement and repair projects across a wide spectrum of energy efficiency and indoor air quality projects Theyre being blended together now as the buyer as the virus continues to hopefully move further behind us it looks like more and more companies are planning for their employees to return.

To their offices at least based on the bookings we're seeing so I see this demand for small project retrofit continuing through the year.

Over on the right side of the page, we show <unk> broken down by market sector. We saw <unk> growth in each of these sectors listed except in the transportation area. We saw some project completions during the year.

RPM growth was widespread imbalanced in 2021 across most market sectors, we participate participate in.

With commercial <unk>, which for US includes data centers, increasing 29% year over year.

Our commercial project RPI total now stands at $2 $4 billion and makes up 43% of total ARPA.

With regard to data centers, we have leading construction positions in three critical trades the.

The installation of complex electrical mechanical systems, certainly, but in this room, but in addition, we have large scale nationwide fire protection project capability.

Over the last few years, we have strengthened our take capability through organic investment and tuck in acquisitions and that's resulted in strong growth for this part of our operation and look we have the ability to execute the most complex and demanding fire protection construction and service opportunities for my semiconductor plant a distribution centre and office building a.

So basically because of the nature of the Union, which is a road local that travels for the most part nationwide, we can do any job anywhere.

Initially our market sector RPM growth healthcare <unk> dropped 21%.

<unk> was up 24% industrial manufacturing, which includes the pharma semiconductor and food processing food processing projects. We mentioned are up 42% water and wastewater is up 22% and short duration projects are up 20%.

Many of these short duration projects are performed by our building services company and also a portion of our electrical and mechanical construction segment companies.

Whether that would be a general contractor EPC construction manager or facility owner or tenant.

Whether it be construction project to our servers call EMCORE companies have a demonstrated record of performance history of on time and on budget project and service execution.

Both of which have been evident over the last couple of years that have been very challenging from an execution standpoint.

I'm now going to go to page 13, we can talk a little bit like we have in the past about the growth and resilient market sectors that we talked about we've covered this page before but I thought I would cover it in light of all the macro factors impacting our business today.

These sectors continue to drive our strong organic growth and boy our business through these challenging time Matt.

<unk> trends are driving these in many ways and this demand for EMCORE and <unk>.

Sometimes they are good trends macro trends and sometimes from a global perspective, and aqua trends, but theyre good trends as far as <unk> business is concerned these trends include Digitization and cyber security.

E Commerce supply chain repositioning of redundancy really spurred on by geopolitical events and cost and supply uncertainty enhanced life safety requirements healthcare flexibility and expansion made real again by Covid.

Energy transition and energy cost volatility also our potential disruptors that allow EMCORE to service customers I'm going to cover each of them in turn now if you go to data centers, what's driving that one is just the insatiable demand to supply large hyperscale data centers to support all kinds of Digitization efforts.

Whether it be commerce.

Or just protecting yourself from a cyber basis as more and more people move things into the cloud supported by big companies like Google Amazon Microsoft.

And then large companies are building their own data centers that lead decentralization, we have that capability in many parts of the country and really into the growth markets and we support it with the electric electrical mechanical and fire protection trades.

Housing.

We're also moving more into the electrical business.

With these.

Warehousing, because some of the larger warehouses, especially with the Amazons of the World are also putting charging stations in which when you build at scale for our delivery trucks is a fairly complex electrical project to require substation and enhanced switchgear industrial manufacturing. This has been one of the biggest shifts in our business.

As one of our folks out of this morning. If you go back 10, or 15 years, a lot of our electrical mechanical work was develop our base business doing commercial office buildings that is no longer we still know how to do that but that is no longer. The case, we are big time into electrical and industrial and manufacturing.

We're supporting the semiconductor build out and most of the critical markets mechanically and in some places electrically where support and fire protection, we're supporting the farmer rebuild here in the U S. We're supporting the battery plants in the U S. We're supporting that.

The electrification.

We move it in this energy transition so industrial manufacturing will become a big deal and in industrial we continue to support our existing process industry customers in a large way refining petrochemical paper cement tie.

Tires pick one <unk>.

Health care I think we proved our metal over many years in healthcare and I think our customers. Appreciate it even more we can do through Covid, we were able to help people on the fly make their facilities more flexible and we did it with precision and we did it with low cost solutions, and then really what's happening in health care right now as Youre seeing more and more.

Not only for Everglades restoration, but also just supporting the growth of the population, especially in South, Florida, and we got one of the best in the business down there with Pac car and his team in Poland, Kent Mechanical services is ubiquitous our mechanical services operation, our supporting energy efficiency indoor air quality.

City upgrades, our team was ready when Covid hit our team has been ready for years. It has been executing for years on energy efficiency upgrades almost any retrofit project. We do has an element of energy savings and is really helping buildings become more efficient greener and more productive for the owners and now you add an indoor air quality and like I said you've heard.

We say before we spent 15 years 20 years, taking outside air out of buildings in the last two years, we've been figuring out how to put inside outside air back into the buildings, but also continue to battle the energy efficiency as we do that and nobody is better in the business and no. One has the footprint we have to do it and then add on to that some of the renewable.

Projects, we do especially out west to add small scale solar to add onsite solar at onsite generation of other fuel sources.

We have a complete offering indoor air quality I talked about and again fire protection is ubiquitous we are the best in the business and fire protection and we've got some of the best operators in the industry that really set the tone for the industry and I'm thankful everyday that theyre part of our team.

On page 14, I'm going to switch there and talk about EMCORE capital allocation trends.

There is no trend is what I would offer we look at this in five and six year snapshots and to me and I think to Mark is the most important borrowers the bar all the way over on the right, which is show what we've done on a six year average.

<unk> business I think about it we've had organic growth despite shrinking and our industrial services segment over the last couple of years.

And that is really a testament to our ability to serve those those projects I talked about on the previous page, we loved to fund internal capital expenditures in our mind, we do that for two reasons, we do it for productivity or we do it to facilitate growth.

An example of that might be a fire protection fabrication shop strategically positioned in growth markets that allow us to get a cost advantage and even serve our customers better and acquisitions are a priority for us and we've talked long and long through the year is about what kind of we do we've been very successful over the last five years and what I am saying is more of the core.

We're continuing to execute adding great capability and great people and great companies.

But we also believe in returning cash to our shareholders through share repurchases and dividends in an ideal world, we're investing 55% to 70% of our capital into the business for growth and productivity and growth can come both organic or through acquisition and the balance returned to shareholder shareholders that formula has proven to be a winning formula for EMCORE.

And now I am going to close and that'll be on page 15 and 16.

<unk>.

As we develop our initial guidance you know a lot of times, we're faced with especially the last couple of years a lot of uncertainty in the external environment I don't know about you I, we're certainly hoping that 'twenty two would have a lot less.

Uncertainty interest clearly when you are faced with a lot of uncertainty, but who has all of us to take a good hard look at what the lower and upper ends of our guidance range could be and it behooves all of us to think conservatively about how the business can execute with all of those uncertainties.

Out there so our initial guidance will be 10, 4% to $10 7 billion in revenues and $7 15 to 785 in earnings period.

And earnings per diluted share we.

We do expect that on residential market to grow in the low to mid single digits. We do expect more normalized demand from our refining and petrochemical customers and we expect to continue to see all of the things we talked about small projects on the previous page.

We also have captured in our guidance I think.

Some continued disruption from macro factors like inflation supply chain in Covid.

And as with in prior years, where we end up in the range will depend on several factors. Some of them are in our control and some of them are outside of our control I'd like to talk about first the things that are within our control.

Yes.

A track record I think over very long time are doing a really good job controlling costs as best we can.

But supply chain issues in Covid will continue to be Wildcards co.

Covid testing costs could be a wildcard as we are self insured.

Outside of our Union plans and the President's Executive order on home thing is quite broad with little or no qualification as far as people procuring supply.

I do expect continued headwinds from fuel cost as in UK and crisis showed that today and I think we captured most of those headwinds in our guidance.

We will continue to work win work and we will continue to be disciplined and are estimating a pricing I like where our backlog is and I like where our backlogs priced today.

We will continue to emphasize the areas, where we have differentiated expertise and we've talked about those on the previous page.

We will continue to lead the way on safety at all levels of the organization.

However, there are more than a few things that are that are outside of our control.

I'm going to ask a question and answer for you how we see it.

While the supply chain get better or worse.

Personally I expect little to no improvement in the supply chain as the year progresses.

Some areas will improve and others will worsen.

We will call that have another resurgence.

I have no idea.

I don't know, but we will continue to I know what we will do is we'll continue to keep our people safe as we can we'll follow protocols that are prescribed to us and we'll work as hard as we can to remain as productive as we can.

While customer may decision, making slow to do all of this uncertainty quite.

In fact, we've gotten a little too good a contingency planning in the last couple of years with all the uncertainty.

What will happen with inflation I think it will may moderate as the year progresses, but I think it will be up into the right and energy markets.

Or as volatile as I have ever seen in my career.

All of which are important uses of our capital as always I. Thank you I, thank our employees and our leaders.

Thank you for our interest in EMCORE and with that we'll be happy to take questions.

Yes.

Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

To withdraw your question press the pound key.

First question comes from the line of Sean Eastman with Keybanc capital markets. Your line is open and you may now ask your question.

Good morning, gentlemen, thanks, good morning, Jonathan.

Good morning morning.

So just starting high level for me.

You guys have grown EPS comfortably in the double digits every single year for the past seven years in a row.

We're going into 2022, we've got big momentum in the <unk> industrial services seems to be inflicting positively <unk> got a fortress balance sheet, but the midpoint of the earnings growth outlook of 6%. So.

I hear the risk factors, Tony but maybe just more specifically how do we wrap our heads around that like where is the real sort of.

Contingency built into that initial outlook.

Sean I think contingency and I'll ask Mark to help me here.

The way I think about it is.

It's a macro driven view.

We do better against those macro.

<unk>, then will move up in the range and I went through that.

So what concerns me I think any CEO right now if youre not concerned about supply chain and the unpredictability in the supply chain and what that can do to your labor productivity.

Then youre not being careful.

I think fuel costs and energy costs are a real wildcard I thought they were wildcard going into last year.

Certainly what's happened over the last week has certainly not cleared up the energy a picture any better for anybody like we do that operates a large fleet, we will do our damn best to pass those costs onto our customers, but remember we're always doing that in arrears, we can't guess at a fuel price pass it onto our customers and what largely where that most of the <unk>.

<unk> is at a time and material business.

And finally.

We took out.

Covid took a whack at our productivity.

In the fourth quarter.

And do I think Thats abating sure I do do I know, it's abating for the year I don't know we thought I think we had a victory speech last July and then we had delta and then we had another.

A moment of Glory, and then we had omicron I I'm not an epidemiologist never happen I do know a little bit about numbers I have no idea, what's going to happen. So I think if you. If you take those potential factors into play you can end up in a place to say hey, we're going to do well, but maybe not as well as we showed up we feel really good about where.

<unk>, we really feel good about the demand in our end markets, but at the end of the day, we got and execute in a world of uncertain labor productivity because of Covid and uncertain material availability because of supply chain Mark Sean.

Sean the only thing I would add to Tony's commentary has to do around mix of revenue.

As Tony commented earlier in this morning's call about.

We've moved to a more larger project away from traditional commercial work well, obviously when your project planning that larger more complex work you have more contingencies built into your estimates were on the front end of a lot of that work as we enter 2022.

Those project completion timelines might slide into 2023, therefore, adding more uncertainty to our estimates so.

The work is there the profitability characteristics.

Have not changed to our detriment.

Unfortunately, not a lot of a lot of the uncertainty around the work and how it is going to progress which is beyond our control certainly belts building some element of conservatism and Mark we're working with really rational people right now at the owner and GC and cm level.

But they also don't control the supply chain issues. The only thing I'll take exception charm. When you ask your question. When you said we've comfortably grown.

Aps double digits.

Maybe we've been grinding.

And our folks had exceptionally hard to do that.

So maybe maybe in a virtual work from home environment, it's been comfortable EPS growth, but I can tell you I couldnt be more proud of how our people have executed to put the kind of results. We've had in a very challenging environment over the last two and a half years.

Yes Super helpful. I didn't mean to suggest it was comfortable I just meant comfortably within the double digits not that it was.

I have to brag on my people are a little bit and a great day.

No. Please please by all means.

And my second question is.

Obviously, the <unk> growth was was a big positive story for you guys throughout 2021.

Yeah.

Actually.

We worry about the same observation John that you know.

People want to secure capacity with really blue chip contractors, right now, which I do think there's been a flight to quality.

However, if you go back to that page, where I talked about those resilient markets.

I think we've grown nine over the last 12 quarters RPI is which is not that common for us this could be lumpy. It comes in and it comes out one large project and move it one way or another.

I do think though there is enough significant opportunities out there.

Those projects secondarily I think one of the things I always look at in the business is what's happening in two parts of the business to tell you whether the momentum may be a little more broad based one of the things. We look at is our small project work, which is very strong right now and so it saying people are not only spending at the top of the market. They are also spending things they need to do to may.

Their facilities gain energy efficiency and get better indoor air quality in their buildings. So we're seeing that secondarily I always watch the fire protection business and the fire protection business gets the national business involved in every sector of construction for US. It remains very strong I was part of that is our position in the market, but the other part of that is.

It's sort of a national view on some of the more complex work and that continued strong I do think one of the things that is going to continue to drive people maybe to want to make decisions as what I said in my closing.

And that is that a lot of these decisions have to be made people are still well capitalized and the kind of people. We work for for the most part I mean, sometimes maybe we thought they were better capitalized than they are than they are but that's not very often.

They need to get this work done Theres, a major repositioning going on to support the new investments in the energy transition, but there is also a major repositioning on traditional supply chain.

Quite frankly, I haven't I always saw my career on the way out where people were moving from high cost states to low cost states and maybe to Mexico and eventually the Asia now Youre seeing it in reverse I still going to lower cost states and.

And we really made some pressured investments in there.

In the mid two thousands and in the last three or four years, and we sort of got ahead of the curve.

Alright Super helpful responses, guys I'll turn it over there thank you Sean.

Your next question comes from the line of Noelle Dilts with Stifel. Your line is open.

Hi, guys. Thanks for taking my question.

<unk>.

So.

Maybe a bit too detailed but.

I was wondering if you could talk about how youre thinking about sort of.

Expected segment.

Margin ranges.

In your guidance in 'twenty two.

When I look at 2021, Martin has really held up pretty well.

And all of the segments with the exception of industrial so I'm, just really trying to get a sense of.

How do we think about electrical and mechanical margins going forward and then with industrial you know obviously you go back quite a few years, but we were talking about mid single digit level.

When can we think about that division, maybe cutting back toward the mid single digit type stuff.

<unk> mid single digit type of range. So I'll take a shot at a macro level and I'm going to kick the mark relatively quickly here.

I think that we're very comfortable thinking we can operate within our three year averages on all of our segments with the exception of industrial there, we expect to be better to be better.

And three year averages for us can have 40 to 50 basis points of flux in it right Mark and it's not a quarter to quarter business and like Mark said some of it has the timing on large projects when they and when they start the contingencies built in.

And then the and then the acceleration in the small project portfolio Mark throw to you yes.

Ill.

Rounding in fact, so to speak so.

When you look at full year 2021 by segment.

As I mentioned earlier, both electrical and mechanical construction are.

Our operating above their three and five year averages.

If you look at the back half of 2021 performance.

That trend is not as consistent so electrical construction last six months of 2021 was actually below those averages.

Yes, my anticipation and obviously when we did the financial modeling for purposes of 2022 planning.

We're looking at more as and as Tony indicated we're looking at margin performance consistent with really what its been the last three years. So.

That would put electrical construction around eight eight in a quarter hopefully slightly higher mechanical construction that gets you somewhere around 775% to 8%.

On a blended rate when you look at total construction, it's just either slightly below eight.

Up to eight 2% so that's that's.

That's that's still a very good performance when you win.

I think we all get Jade it looking at the last few years and say okay.

Reality, the new reality and as much as I think the EMCORE team would love that to be the situation.

We don't control the market.

We're in a sweet spot in some things as Tony covered in depth.

That's not going to continue into perpetuity, but when you look at 2022 from a framework perspective.

It doesn't look like we're going to see any any softness so to speak with regards to demand and opportunities. When you look at our U S building services.

The 2021 performance.

Slightly below the three year and five year average.

Once again for the reasons that we've already discussed.

Clearly supply chain difficulties have been the most impactful there.

And because there was a fairly significant non union labor component to that segment.

Our ability to shift.

Resources around is good but if we have labor on site and materials and equipment are not there for installation.

Because they're being procured by somebody other than the <unk> subsidiary.

We were still on the hook for payment for that labor, which is obviously being very productive so.

We continue to project management, which is a center of excellence for EMCORE and has been for.

I don't want to say my entire history with the company, but for a long part of my history with the company. So I like to think that.

Theyre going to somewhere settle around that 5% range and then as Tony indicated industrial certainly.

The last three or four years have been anything, but but steady for a lot of exterior reasons that we've discussed that nausea and prior in prior calls.

But there are three year average is below 2%.

I think we would be very unhappy if thats, where the profitability of that segment resulted in 2022.

But as we mentioned I believe on last call as much as I would like to be able to shoot back to the mid single digits.

Have to walk before you can run that to get to 4%.

No.

We're certainly trending in that direction, but I think.

Unfortunately, we've all been collectively disappointed for a lot of different reasons.

Through our own fault most through other swap.

We're not ready to declare victory quite yet in that segment.

They have more to talk about it as we progress through the year in the U K has been.

Probably the most steady of all of our businesses. When you look at variability in margins period to period.

And they are well above their three year average, which is just below 5%.

And we'd like to think that 5% or five 5% range is what our expectations are certainly in the near future. So probably a long answer to a short question.

But.

We're right, where we want to be in.

And once again, assuming project timelines certainly on the larger work progressed as planned.

Certainly we would think that theres going to be opportunity for improved margin performance relative to how we closed the 2021 periods specifically looking at the back half of the year, but once again, we're going to do everything that we can control the outcome of those things, but unfortunately, a lot of that is dictated by others and outside influences.

Okay. Thanks, very much I'll pass it on I appreciate it thank you.

Your next question comes from the line of Adam <unk> with Thompson Davis Your line is open.

Hey, good morning, guys nice quarter.

Thanks, Adam.

Hey, Tony what are you guys hearing what are you hearing from industrial customers I'm, sorry, if I missed that but just curious.

You mean or what they are telling you in terms of project activity this year refining and petrochemical.

Yes, okay.

We have more industrial customers and just feel.

Feel free to take it wherever you want.

I've covered the other ones a lot right in my commentary.

No no I meant the ones in the industrial segment correct yeah.

What we're seeing.

Is what we expected for the first quarter right.

Said, we're going to continue to sequentially get better we've said that number of times I think we've called it about right.

I think they are spending money again.

We're clearly in a very good position.

I said, what I've said for a very specific reason in my text, we kept the team together, which is a real credit to the leadership there it's been a rough two years.

But we kept the team together they are executing.

I think.

The year looks pretty good it looks like a normal year.

Turnaround activity.

Will they run harder and do less turnaround work in the fourth quarter because gas prices are so high I don't know that I think I think they're going to do their maintenance the honest with you.

I think the other wildcard in that segment is we're not seeing it yet we're seeing a small return to upstream we see that in our electrical business in that segment.

Do expect and are people, who know a lot more about this because they've live. It every day. We are we are experts in this.

They expect somewhere around third and fourth quarter to see a resumption of drilling in the Permian and the Eagle Ford and a little bit North Dakota Bakken.

That will help us.

That's the part we don't have baked into anything yet that would be upside into our business. So I think they are ready to spend money I think they believe their long term winners the Gulf coast.

Refining and petrochemical complex, let's hope for no weather events here in hurricane season.

We should have a pretty good year.

Okay Super helpful and then.

So I'm curious with the.

Supply chain issues and the inflation.

And you're starting to see in the back half of 2021.

What did you do differently when signing.

New contracts and I guess the question is also kind of surrounding what you think your margins are in backlog and kind of how protected you are from those issues. This year Youll look I think on the larger workhorse protect as you can be.

Yes.

Here's what changed in this change for us in the first quarter of last year, and maybe even the fourth quarter of 'twenty, because we saw some of this coming.

First thing we did is we don't let prices out there for more than.

Depending on the kind of dropped 7% to 20 days when before we would leave them out there 30 to 60 days. So the amount that we will honor our quote, especially on the small project work came in.

So hey, we can honor and when we do that we typically are almost bought out on the job, which means we have commitments, especially on the small project work from our suppliers, what we are going to pay.

As you get to the larger work Theres, a couple of different ways, you're contracted and neither do at fixed price War.

You do it GMP, which looks like a fixed price contract, but it has built in negotiators for increases in materials.

And things like that and more and more contracting has been happening that way on the larger projects because.

We can't guarantee where the price is going to be and people are rational and they know we're about as good as anybody in the business of procuring materials.

But just isn't so theres all kinds of things like that.

We have all kinds of contingencies built in if deliveries don't happen that you wouldn't typically have seen in the past and people are knowledgeable and we do a really good job.

We've done everything we can to protect ourselves I think we priced it correctly and I think we have is about as good in terms as we can get in the environment that we're in.

And I think our owners have been fair and I think our general contractors and construction manager customers have been fair.

A lot of these people want us to do the job because we're going to get it done we're going to get it done right.

And we have the technical capability first the project execution capability, we have the ability to get the labor and quite frankly, we have the financial strength to do it.

People on these large projects actually look to our balance sheet.

As a point of strength and it's one of the reasons they contract with us.

Because they know that work is going to get done.

We've always we compete with that.

And secondarily, Adam I think that the biggest wildcard for us this year.

Things that we don't control right I have no idea, what's going to happen with Covid and I'm done projecting Adam predicting that.

And the supply chain, it's not just pricing in the supply chain, which we can get our head around <unk>.

Availability is more of the issue someone will make a promise to you mark talked about a little bit.

The large project work, we have the chance to sequence things different we have a chance to lay out the workforce a little different.

When you get to the smaller project work or the quick turn work right, which may not be small project, where we hit it with a lot of labor there.

Problem, we run into if a critical piece of equipment doesn't come in on time.

That can really change things out in a retrofit environment, because a lot of time in a retrofit environment.

Yes, you are competing our price, sometimes but youre really competing on the least amount of disruption to the facility to keep it operational and you really go through even on a small job to go through very detailed sequencing and planning to do that you have labor lined up to work overtime, you have labor lined up to work weekends and Matt If you Miss that by a day or two you've been in for <unk>.

<unk> two days of Labor you do that over 10 projects, the math becomes sort of ugly pretty quickly. That's the biggest challenge the mechanical service business has had over the past six months and they're as good as anybody in the business of figuring that out.

But you know we have transparency with our distributors, we have this transparency with our equipment suppliers.

Their factories and their Oems disappoint them too.

And so what's causing it and that factories in the Oems.

Lot of times is their ability to bring in materials, but a lot of time, just disruption from COVID-19 in their factories and they're not producing to the level. They thought they were going to a mere two weeks earlier.

Okay, great color. Thanks, Tony Good luck in Q1, thank you.

And your next question comes from the line of Brent Thielman with D. A Davidson. Your line is open you may now ask your question good morning, Brett.

Hey, good morning, Thank you.

Just one left for me Tony.

And about your prepared remarks and in particular some of the investments you've made in the past that seem to be sort of helping you through all of that noise in the market right now inflation et cetera can you talk about maybe just given the state of the balance sheet, and perhaps less sort of attractive M&A opportunities out there right now some of the programs.

Or things you are putting money toward today.

Benefits you in the future I mean anything there worth talking about.

<unk>, we continue to build out our fire protection pre fabrication.

Capability.

We have.

<unk> strategically located facilities now.

And that will probably be six within we'll put two more in over the next.

Probably 12 months.

We continue to enhance our pre fabrication and our mechanical and electrical operations.

On the mechanical side, we probably have 12 significant shops on the electrical side six.

We will take more square footage and we'll do be doing more things in the shops versus the field and we will be doing them on a larger scale.

<unk> become more modular as we serve these larger projects.

Also training right, it's a soft cost, but it's not for us.

That more than anything help carry us through these last two years, we're going to continue to invest in band we've actually put a couple of full time resources, we put a terrific leader in charge of our Bim initiative, it's actually under one of our key segment leaders, Joe Burns, who runs mechanical guides that probably knows more about that than anybody in the industry. We've enhanced.

Our relationship with Autodesk, and we will continue to push the frontier.

<unk>.

Our scale that we do we will continue to.

Do more.

The first quarter.

And on the people side.

We're investing in project management. So those are all the kinds of things, we do and I'm, probably missing a couple of things those are the kinds of things we do to build capability that we hope to continue to differentiate us in the market now look acquisitions serve a critical part of that too sometimes we can bring all of those tools to the acquisition.

Sometimes we learn from the acquisition.

Okay I appreciate the color best of luck.

Yes.

Alright, Thank you I'll hand, the call back to Tony Gaffney for any closing remarks.

Alright. Thank.

Thank you all thanks for listening and thanks to all of them core folks out there listening.

We're going to try to knock it here in the first quarter and our hope for another great year.

We're set up to do pretty well, but.

We will face headwinds, we always figure out a way to get through with that have a good day.

Thank you.

And that concludes the EMCORE group fourth quarter and full year 2021 earnings call.

Q4 2021 EMCOR Group Inc Earnings Call

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