Q1 2022 EMCOR Group Inc Earnings Call

April 28, 2022

Good morning.

MS Grace and I'll be your conference operator today at this time I would like to welcome everyone to the Amcor group first quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there'll be a question and answer session. If you would like to ask a question. During this time simply press star.

The number one on your telephone keypad and if you would like to withdraw. Your question you May press the pound key Mr. Brad Niemann with FDI consulting you may begin.

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

Here today to discuss the company's 2020 to first quarter results, which were reported this morning, I would like to turn the call over to Kevin Matz Executive Vice President of shared services, who will introduce management Kevin. Please go ahead.

Thanks, Brad and good morning, everyone can you even believe its may and almost mother's day.

As always thank you for your interest in <unk> and welcome to our earnings conference call for the first quarter of 2022 for those of you who are accessing the call via the Internet at our website welcome to you as well. 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 certain certain discussions contain forward looking statements that may include 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.

Three depicts the executives who are with me to discuss the quarter's results. They are Tony Guzzi, Chairman, President and Chief Executive Officer, Mark Pompa, Our executive Vice President and Chief Financial Officer, and our Executive Vice President and General Counsel Maxine Mauricio for call participants not accessing the 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, thanks, Kevin and I'm going to be on pages four to six to start and I'd like to thank all of you for joining us this morning.

On our February 24th year end call.

I describe the current operating environment that we've experienced in the first quarter was one of the toughest that I had seen in my career.

This remains the case through the first quarter of 2022.

However at EMCORE, we do have a no excuses culture.

We have to adapt to an ever changing operating environment.

We are executing with discipline and flexibility as we navigate this challenging environment.

Overall, the quarter went about as expected for us with a little more pressure on operating income margins in our domestic construction and building service segments due to the disruptions caused by supply chain issues and the omicron variant.

Further the Ukraine War added another layer of uncertainty, especially with respect to energy and some raw material costs.

We will cover the supply chain issues later in both mine and Mark's comments.

In the quarter, we earned revenues of $2 $5 9 billion operating income of 100 million and diluted earnings per share of $1 39.

We had very strong organic revenue growth of 10, 8% in the aggregate across our domestic segments with our industrial segment.

Leading the way at 32%.

Our project pipeline remains strong with a good mix of projects. We saw an increase in <unk> to a record $5 95 billion versus $4 78 billion in the year ago period.

Our combined operating income margins were three 9% as we brought through increased fuel costs and difficult supply change in the quarter. The disrupted many projects and prevented us from achieving our expected labor productivity.

As we evaluate the quarter I thought I would cover the business more broadly versus on a segment by segment basis as many of these trends both positive and negative and challenges.

Cut across our entire business.

First let me cover what I think is going well.

Our end markets continue to be resilient and.

And we are winning work in the right places at the right prices again, we are winning work at the right in the right places at the right prices.

As I just mentioned, we grew our post 25% in the aggregate and 21% organically.

As the year ago period, I will cover that in more detail when I review our <unk>.

After Mark's commentary.

Our industrial services segment is performing as expected and had a heck of a rebound to a more normal operating environment not seen since 2019.

We are proving our resilience everyday as we execute and complete work under what are difficult operating conditions.

The disruption caused by the omicron variance or dissipated as we exited Q1, hopefully such disruptions caused by Covid are behind us we.

We are having significant success in attracting the right mix of skilled craft labor to execute our work.

We kept our field leadership and labor intact in the short run there is a cost to US is the issues we experienced during the quarter affected labor productivity. However, we made that decision that with our high level of <unk> and the current bidding environment, we should not reduce our key labor resources, especially our field <unk>.

Such as our forming.

We are proactively managing our pricing and believe that we have caught up with customer pricing in our building services segment with respect to fuel and MRO that is maintenance repair and other type material charges as we exit the quarter.

Our team is very good at adapting and developing contingency plans with respect to our supply chain.

We have had to find workarounds and supply chain has become more volatile with respect to on time delivery and delivering a complete order.

But that's what we're good at finding solutions for difficult circumstances.

And we will continue to adapt as needed.

What has proven to be more challenging than we had contemplated in early 2022 are the following.

The continued rise in energy prices, especially for gasoline and diesel.

Leads to margin compression and that's most notably within building service, but even more broadly broadly.

It impacts our project pricing as we develop overhead rates.

Despite the continued energy price inflation, we believe that we have for the most part appropriately adjusted our pricing models to reflect these costs.

Supply chain challenges were worst than we expected and it's been a difficult supply chain and it became even more challenging due to the impact that the omicron surge and the conflict in Ukraine had on our suppliers.

Great conflict is impacted not only the price of gasoline and natural gas and diesel. It has also impacted the price and availability of certain metals like nickel, which is a key component of stainless steel and pig iron which is a key component of cast iron pipe.

While we understand how to price and contract our work in an environment of increasing lead times in prices. We also encountered missed deliveries and incomplete shipments during the quarter. These disruptions resulted in reduced labor efficiency on certain of our projects.

Supply chain disruptions in the omicron surge at the start of the quarter resulted in some very good project work being delayed and also prevented us from being able to close out some very successful projects as I turn the commentary to Mark I remain confident in our segment and subsidiary leadership and our team skills and resources.

Source wellness to mitigate these challenges and build on our strengths as we move forward in 2022 and with that I'll turn it over to Mark.

Thank you Tony and good morning.

To everyone participating on the call today.

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

Over the next several slides I will augment Tony's opening commentary and review each of our reportable segments first quarter operating performance as well as other key financial data derived from our consolidated financial statements included in both our earnings release announcement and Form 10-Q filed with the Securities and Exchange Commission earlier. This morning, So let's expand our review of <unk> first quarter performance.

<unk>.

As Tony mentioned consolidated revenues of $2 59 billion are up $288 5 million or 12, 5% over quarter one 2021.

Our first quarter results include $49 5 million of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by EMCORE in last year's first quarter.

Acquisition revenues positively impacted each of our United States, electrical construction and United States building services segments exclude.

Excluding the impact of businesses acquired first quarter consolidated revenues increased approximately $239 million or a strong 10, 4% quarter over quarter.

Before reviewing the operating results of our individual reporting segments I would like to highlight that each of our segments had strong revenue growth in the quarter and that our consolidated revenues of $2 $5 9 billion represent a new first quarter record that is only eclipsed by 2021 fourth quarter, which generated the highest quarterly revenue in our long history.

Tony as previously commented on the challenging operating environment that existed during the quarter and continues to persist to some extent.

So one my question why am I, highlighting our first quarter revenue record in light of the fact that it does not equate to record operating income of diluted earnings per share performance.

Simple answer is that our business performance and growth prospects remain strong and we collectively should not lose sight of this despite the economic headwinds that are impacting us we continue to generate strong organic revenue growth, while simultaneously growing our remaining performance obligations and most of the market sectors that we serve so although we have experienced some choppiness.

And our first quarter results due mostly to external factors, we have not eroded our strong foundation and currently believe we will meet our annual targets borrowing any worsening of the macroeconomic conditions.

With that being said I will now cover the results of mutual of our reportable segments during the quarter starting with revenue.

United States electrical construction quarter, one revenues of $522 million increased $62 6 million or 13, 6% from 2020 ones comparable quarter, excluding incremental acquisition revenues of $34 9 million. This segment's group. This segment's revenues grew organically 6% quarter over quarter.

<unk> project activity within the commercial market sector exclusive of the Telecommunications' submarket sector as well as growth in each of the manufacturing health care and transportation market sectors were the primary contributors to this segment's quarterly revenue growth offsetting these increases was a decline in revenues from the telecommunications submarket sector.

Due to the sequencing of projects in the current year as well as project delivery delays as customers await the receipt of critical equipment due to supply chain disruptions.

Both of these factors have resulted in the shift of project work to later in 2022.

United States mechanical construction segment revenues of $1 billion increased $86 million or nine 4% from quarter one 2021.

Revenue growth during the quarter was derived from the majority of the market sectors, we serve with the water and wastewater manufacturing and commercial market sector is experiencing the most significant period over period increases.

Revenue growth within the manufacturing market sector was concentrated in large food processing projects, while the growth in commercial market sector revenues was driven by demand from certain customers within the semiconductor biotech life Sciences and pharmaceutical industries.

This increased activity augmented the continued demand for our fire protection services.

Particularly from those of our customers building out their e-commerce supply chains.

Both our electrical and mechanical construction segments established new first quarter revenue records in 2022.

United States building services segment revenues of $627 8 million increased $59 8 million or 10, 5% and represents an all time quarterly record for this segment.

Excluding incremental acquisition contribution of $14 6 million. This segment's revenues increased $45 2 million or 8% organically.

Revenue growth was generated within this segment's commercial site based and mechanical and government services divisions with respect to commercial site based and government services, new customer additions and scope expansion with existing customers were the primary drivers of the quarterly increase in revenues within mechanical services, a number of trends that favorably impacted us from a revenue perspective.

Notably we have seen an increase in service repair and maintenance volumes, partially or supply chain delays that resulted in the need to extend the useful lives of HVAC equipment and instances when replacement equipment is not readily available. In addition, there continues to be high demand for building automation and control services with an emphasis on improving builds.

Efficiency and energy consumption, which is a priority for many of our customers in light of both increasing energy prices and a heightened focus on their environmental impact in the context of ESG.

United States Industrial services segment revenues of $310 7 million increased $75 3 million or 32% as I commented during our earnings calls for the second half of 2021, we have begun to see some resumption in demand for maintenance and capital spending from this segments customer base in the back half of last year such demand.

<unk> continued through the first quarter of 2022, as we executed against a more normal spring turnaround season with improved demand for both field and shop services. Unfortunately, some of the macroeconomic headwinds that have been prevalent within the broader oil and gas industry persist, but with U S refinery utilization in excess of 90% we are hopeful that 2000.

22 will continue to develop favorably and that this segment's operating results will reflect a more normal pre pandemic, a 12 month period.

United Kingdom building services segment revenues of $131 5 million increased $4 8 million or three 8% due to continued strong project volumes across the customer portfolio unfavorable exchange rate movements due to the weakening of the pound Sterling negatively impacted this segment's quarter, one 2022 revenues by three.

9 million, please turn to slide eight.

Selling general and administrative expenses of $252 6 million represent nine 7% of first quarter revenues and compared to $224 1 million and nine 7% of revenues in the year ago period SG.

SG&A for the first quarter includes approximately $5 2 million of incremental expenses from businesses acquired inclusive of intangible asset amortization, resulting in an organic increase in SG&A of $23 $3 million with EMCORE substantial revenue growth, we are adding personnel to support our back office and contract administration functions.

<unk>, resulting in increases in salaries and benefits from the corresponding 2021 period. Additionally, we continue to see an increase in medical expenses.

Claim activity related to both routine medical visits and elective procedures continues to normalize after being suppressed during 2020 in the early part of 2021 travel and entertainment expenses have also increased as our team resumed certain business travel, although still below pre pandemic levels as previously disclosed our <unk>.

G&A as a percentage of revenues was flat at nine 7% for both quarter one periods.

Reported operating income for the quarter was approximately $100 million or three 9% of revenues and compares to operating income of $117 million or five 1% of revenues a year ago. As a reminder, 2021 quarter. One performance represented first quarter records for both operating income and operating margin the <unk>.

Overall decline in operating income and margin within the current quarter was due to quarter over quarter decreases in gross margins within each of our U S. Electrical construction U S. Mechanical construction and U S building services segments. These reductions offset quarterly gains in both our U S. Industrial services in UK building services segment.

Segments specific quarterly operating income performance by segment is as follows.

Our U S. Electrical construction segment operating income of $20 million decreased $23 million from the comparable 2021 period.

Reported operating margins of three 8% represents a reduction from the eight 8% reported in last year's first quarter.

The decrease in both operating income and operating margin is due to the reduction in both gross profit and gross profit margin previously mentioned, which was largely attributable to a change in this segments project mix within the commercial market sector. In addition, whereas the prior year period benefited from the favorable progression on several extremely profitable project.

The current year's quarter was impacted by our customers' project schedules, which is heavily weighted towards the back half of the year Lastly, and as previously mentioned, we experienced project delivery delays during the quarter due to supply chain difficulties impacting the receipt of equipment these supply chains.

The supply chain delays not only impacted project timelines, but also led to labor productivity and efficiency challenges, which is a major contributor to the significant reduction in this segment's operating margin quarter over quarter.

First quarter operating income of our U S. Mechanical construction segment of $58 7 million represents a $4 $5 million decrease from last year's quarter and operating margin of five 9% represents a 100 basis point reduction from the six 9% earned a year ago as referenced during our fourth quarter 2021 earnings call our Mechanicals.

Instructions segment currently has a larger number of contracts within the manufacturing and water and wastewater market sectors, where we are either acting as construction manager or general contractor in these cases the percentage of our self perform labor is less than typical resulting in lower gross margin profile. This segment. Additionally experienced labor productivity.

<unk> issues, resulting from supply chain disruptions as well as project write downs, resulting from material price escalation portion for which we will seek future recoveries.

Operating income for U S building services was $23 9 million or three 8% of revenues and compares to $31 1 million or five 5% of revenues in 2021 first quarter.

Given a reduction in gross profit margin within this segment increased gross profit dollars, resulting from the previously referenced revenue growth. During the period was more than offset by an increase in SG&A expenses gross margin has declined due to a less favorable project mix within this segments mechanical services division due to a higher percentage of fixed price.

Capital projects, which typically have lower gross profit margins than this division's other service and repair offerings further impacting gross profit margin was a shift in the portfolio of project work being performed by the segment's commercial site based services division, including a quarter over quarter decline in certain add on work such as COVID-19 related cleaning and sanitation.

Services, and an increase of more traditional facilities maintenance type projects.

In addition, our U S building services segment experienced unabsorbed labor cost due to supply chain disruptions, where project delivery either has been delayed our job site productivity and efficiency has suffered due to incomplete shipments of material or equipment lastly, within the quarter escalating fuel prices have reduced profitability as such prices increased.

At a faster rate than the fuel surcharges to our customers, which typically can only be adjusted after we experienced the underlying cost increase although we were impacted in the quarter as Tony referenced in his opening commentary we have once again adjusted our pricing to account for these inflationary pressures.

Our U S. Industrial services segment operating income of $13 $3 million represents a $15 $7 million improvement from the $2 4 million operating loss reported in 2021 first quarter.

And a small victory column. This represents our industrial segment's second consecutive quarter of operating profit since reporting periods prior to the pandemic as referenced during my revenue commentary, we experienced more normalized demand during the quarter within both this segment's field and shop services operations turnarounds that we had forecasted to occur largely <unk>.

And on schedule with some resulting pull through cleaning and repair work operating margin was four 3% for the first quarter of 2022.

Building services operating income of $10 6 million or eight 1% of revenues represents an increase of $1 2 million and a 70 basis point improvement in operating margin period over period. This improvement was primarily from a favorable project closeout within the quarter, coupled with continued strength in the commercial market sector inclusive of various telecommunications projects.

We are now on slide nine.

Additional financial items of significance for the quarter not addressed in the previous slides are as follows quarter. One gross profit of $352 6 million is higher than the comparable prior year quarter by 11 5 million or three 4%. However, gross margin of 13, 6% is lower than the 14, 8% in last year's first quarter.

Which set new first quarter records for both gross profit and gross margin Needless to say with our growth in revenues during the quarter. We did eclipse 2021 first quarter gross profit and we established a new quarter. One gross profit record. However for the reasons covered in my segment operating income discussion, we are reporting a reduction in quarterly gross.

Margin.

Diluted earnings per common share in the first quarter was $1 39.

Compared to $1 54 per diluted share for the prior year period, despite the quarter over quarter reduction in EPS. The first quarter of 2022 represents our second best earnings per share performance in a first quarter.

Though we experienced an approximately 13% decline in quarter over quarter reported net income a reduction in outstanding shares through our share repurchase program softened the earnings per share impact of such net income decrease.

We are now on slide 10.

And of course balance sheet maintains its strength and liquidity cash on hand of over $500 million has decreased by $306 8 million from year end 2021, primarily as a result of cash used for financing activities of $193 5 million inclusive of approximately.

$182 million of common stock repurchases made by us through March 31, and.

In addition, we utilized $95 8 million of operating cash during the quarter, partially as a result of our strong organic revenue growth during the period. Additionally, as has <unk>.

As has historically been the case, our working capital needs tend to be greater in the first quarter of each year, partially due to our funding of prior year's incentive awards. Despite this use of cash during the first quarter, we anticipate the generation of positive operating cash flow as the year progresses working capital has decreased by just over 109.

<unk>.

Largely as a result of the decrease in cash just referenced which was partially offset by an increase in accounts receivable given the revenue growth during the period and a decrease in accrued payroll and benefits due to the incentive payments made during the quarter that I previously mentioned goodwill remains relatively consistent with that as of December of 2021.

Net identifiable intangible assets have decreased by nearly $15 million during 2022 as amortization amortization expense taken more than offset the additional intangible assets recognized in connection with the acquisition. We completed in Q1 total debt exclusive of operating lease liabilities remains nearly identical to that.

As of December and <unk> debt to capitalization ratio has increased modestly from 10, 4% at year end 2021 to 10, 9% at March 31, 2022, given the reduction in our shareholders' equity, resulting from our share repurchase activity during the first quarter.

As we stated before 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 and return capital to shareholders and execute against our strategic objectives, as we progress through 2022 and future periods.

Remaining committed to our capital allocation strategy as evidenced by both our share repurchase activity to date as well as todays announcement that our board of directors has increased the authorization under our share repurchase program with my portion of this morning's slide presentation complete I will now return the call to Tony Tony.

Thanks, Mark and we'll see when we do questions.

I'm going to be on page 11 remaining performance obligations by segment and market sector.

First quarter was another strong bookings quarter.

For the company.

As many of you know our business is not a quarter to quarter business. However, total company Rps Nonetheless have increased sequentially and eight out of the last nine quarters, despite being selective in bidding activities given the uneven economic environment.

As mentioned earlier total company <unk> at the end of the first quarter were $5 95 billion up almost $1 2 billion or close to 25% over the March 2021 total of $4 $7 8 billion.

First quarter project bookings revenue inspire <unk>, increasing $354 million from December 2021.

<unk> each of our segments grew <unk> in the first quarter from year end 2021 the.

The organic <unk> growth as I stated earlier was a very strong 21%.

The first quarter saw strong year over year quarterly <unk> and revenue growth simply stated. This is the one two punch highlights both the current and.

Future top core demand in our business, we continue to see an active bidding environment. Even during this time of supply chain disruptions and inflation challenges.

Together, our two domestic construction segments experienced strong construction project growth in the quarter and our <unk> increased by $865 million or 22, 7% from March 2021.

Mechanical construction segments of <unk> increased by $745 million.

28%, while the electrical construction segment saw an increase of $121 million or a solid 10% U.

U S building services <unk> levels increased $306 million or almost 45% from the year ago quarter, all three business divisions under U S building services, our commercial site based services government services and mobile mechanical services. So <unk> increases from the year ago quarter with mobile mechanical services <unk> increasing 272.

Million.

We continue to see significant opportunities to improve building wellness in the institutional and educational sectors moving.

Moving to the right side of the page, we saw our periods broken down by market sector. We continue to see balance year over year <unk> growth in every sector, except in the transportation sector.

Continuing the trend we saw throughout 2021 <unk> growth was broad based in the first quarter.

Most market sectors with commercial ipos, including Hyperscale data centers and high Tech semiconductor projects, increasing 28% year over year, our commercial Rpm's total increased $582 million year over year and now stands at $2 7 billion.

Making up 45% of our total company <unk> <unk>.

Initially up on our RP, our RPM year over year growth healthcare Ipos are up nice institutional or up industrial manufacturing or up.

And water and wastewater up as well as short duration projects.

From both a business segment end market perspective, I continue to like the balance and breadth of our Rps.

Im going to switch this page 12, because we have used this slide to talk about the underpinnings of our business.

Look.

I look at this slide and this is the table that gets set for us to execute on and really we're growing in every one of these areas I previously described.

And we're all well positioned in these non growing in these growing nonresidential markets and trades.

The data center market.

Still very strong and we're positioned well in the major data center geographic markets as well as type of data centers and as well as with the right customers. Although we did see.

<unk> delivery slowing down.

Most entirely related to supply chain that even makes the demand stronger and the need for our services stronger is that eventually the data centers are going to have to come online faster.

That across our trades electrical mechanical and fire protection and were seeing it across the regions, where we are very strong and we're very strong in this business because we have the best labor in the market to do this business, we execute very well with the trades that we have and we have excellent pre fabrication capabilities that we're looking to grow.

Across all three trades to support this growth.

<unk> talked about the fire protection growth that we've had at supporting the E. Commerce buildup again, we see no slowing of that fire protection demand and im going to segue into the industrial manufacturing, where we also see strong fire protection demand, especially it relates to two major trends.

The build out of the semiconductor plants, which we are well positioned both fire protection wise mechanically and low voltage wise on our electrical trade and also with respect to fire protection.

We are in most of the right markets to execute these trades and we're really busy doing that work and planning that work. Some of that work has been delayed a little bit or the project deliveries being delayed we are actually working on the sites because of some of the uncertainty with respect to stainless steel right now, but this is a good long term market. The other good long term markets that are very.

Good with respect to industrial manufacturing as always just food processing, where we serve as an EPC or <unk> in many cases, but also beyond that the re shoring of manufacturing we see this as a long term trend, especially with respect do you see as the growing competition with China and all the political uncertainty there but also.

People will realize now with the omicron. It is not a dependable source of supply we're.

We're also seeing industrial manufacturing grow as it is.

It does with respect to growth.

To support electric vehicles and the buildup of.

Not only charging stations, but the build out of manufacturing plants to support people that are now building electric vehicles, and we are well positioned both mechanically electrically as well at fire protection to do that work healthcare continues to be a strong market for us health care can be a little episodic, we do see people seeking more flexibility with respect.

To their health care flexibility in their facility flexibility post COVID-19 , both in our rehab mode, what I mean by Rehabbing the building, but also with respect to new construction.

Water and wastewater is another strong market for us, especially in Florida and of course now you take those next two they're intertwined across our business across all market sectors, we're seeing very strong demand for mechanical services.

We wish we were getting more delivery of equipment to put it in but when we can't we fix it.

And then in indoor air quality of these projects have all become melded together you heard me talk about individual air quality projects, that's no longer what's happening. It gets presented as an overall mechanical retrofit package that drives down energy costs, but also brings an enhanced air quality into the building or this has been a transition point for many.

Owners as outside Air was previously considered not a great thing to bring into the building, but now you have to balance the introduction of outside air versus energy efficiency, which then leads to equipment replacement and eventually all of this will get squared away and we will have very strong replacement markets as we do now.

I think thats going to continue for a while and of course, our fire protection. We are the leading sprinkler construction contractor on a nationwide basis, and we have one heck of a service offering to do there both on fire alarming and fire protection led by a great team out of two of our subsidiaries in the Midwest that work nationwide both of them.

I'd now so if you look at those trends and you think about the revenue growth. If you look at our IPO growth, we have a pretty good table set for the long term here at EMCORE, we had some bumps in the first quarter not totally unexpected. If you think about everything we had to contend with are we pleased with our suppliers right now absolutely not some.

Some of it's our fault now theyre, having the same challenges as many people out and we can talk more in the Q&A about some of the challenges. They have so we looked at that and we said you know you go to page 13 in 2014, we came out with initial guidance at 10, 4% to $10 7 billion.

Our revenues and $7 15 to 785 in earnings per diluted share we as a team see no reason to change that based upon our Q1 results. When we set our guidance, we expect that the nonresidential market to grow in the low to mid single digits. We did expect more normalized demand from our refining and petrochemical customers and we did expect to continued re.

<unk> and small project in service activity.

Reality all of these have proven to be true.

So far this year as.

As with prior years, and I think what you're going to hear is actually a repeat of what I said in the first quarter with some updates on it where are you moving that guidance range depends a lot on things that we think are in our control and things that are less in our control.

I don't think Theres any doubt to anybody that's followed EMCORE over a long period of time that we know our costs and we know how to control our costs and something we're really good at.

Proved to be worse than we expected coming out of the year end 2021, a lot of reasons for that right. We talked about those we're not going to go AD Nauseum about Ukraine.

Omicron, and how that all impacts of supply chain and it was already a challenged supply chain.

We've got the best team archive, our folks in the field and how to adapt and overcome as does the segment leadership.

The challenges are there they know how to work through them. We will continue to refine our process to mitigate these headwinds as best we can and of course, we will be very aggressive seeking entitlement, where it's available.

On our projects.

Now for changes.

We're going to continue be disciplined and are estimating a pricing.

Significant as our <unk> growth has been for the year with a book to Bill over $1. One we actually could have book more work with a little less disciplined but we remain very disciplined because we continue to see good opportunities in all of the things I talked about on page 12.

And we're winning work in all the right places and the table has been set we just got to continue to execute and get through some of the issues. We've had here in the first quarter.

We're going to sacrifice safety at all levels of our organization.

And underlying where we ended up in the guidance range as we expect as Mark said, a normal operating environment through the year for our industrial services business and sitting here today, we expect to have a normal fall turnaround season.

But like anything there is a lot of things you don't completely control.

As much as I'd like to and as much as our <unk> team would love to we don't control what happens in the supply chain to any significant way, especially as you go upstream.

We faced a tough supply chain in Q1.

And we expect it to remain a challenge in the second quarter.

This challenge specifically centers around major systems like applied HVAC.

Large electrical gear panels pumps and generators things like that things that are more system related or why is that even more challenged than the pipe in the commodities and the wire in the conduit because each of them are smart pieces of equipment and all of them have chips.

And this is when that this has been the biggest issue with on time delivery and complete delivery.

We'll COVID-19 have another resurgence even beyond what we experienced in the first quarter.

Look.

None of us really have any idea of that but what we do know is we will keep our employees as safe as possible and we will keep our projects moving and our services will be delivered.

One of the questions, we get is well customer decision, making slowed with all the uncertainties.

Quite frankly, we have not seeing customer decision, making slow, especially go back to page 12 on all the areas, where we really are selling right now.

But we have seen some projects delivery slowed I haven't not even delayed they slowed delivery.

As a result of supply chain issues around a major a major OEM systems that we talked about.

While the Fed's announced an expected increase in interest rates slowdown our customers' decision, making with respect to large capital projects.

We have seen no impact to date again go back to the kind of areas. We're really growing in most of those customers are flushed with cash.

What will happen with inflation I.

I could give you us answer and said you tell me.

But to date, we have it is worse not better than at the end of 2021.

As we move further into 2022, we will continue to be disciplined capital allocators and turns of our organic investments acquisitions and return of cash to shareholders. All of which we believe are important uses of our capital.

Year to date, we have purchased over $250 million in shares through April 28, 2022.

As announced this morning, our board has improved an increase of our $200 million under our share repurchase plan.

And we continue to be active in the acquisition space and we are funding our significant organic growth.

As always I'd like to thank you for your interest in EMCORE I'll take questions and Grace you can open the line.

Thank you as a reminder to ask a question you will need to press Star then the number one on your telephone keypad. So we draw a question you May press the pound. Please standby will compile the Q&A roster.

And your first question comes from the line of Sean Eastman from Keybanc capital markets. Your line is open.

Good morning, Sean.

Good morning team. Thanks for taking my question.

Tony first one when you talk about being very disciplined on new bookings.

What exactly does that mean is that just pricing it really nailing down the pricing or is it is it taking jobs where.

Do you think you have the supply chain.

On la.

Explain that Tony on how you're approaching new work.

No.

It's part of the things we've talked so let's think about what goes into an estimate.

And where you need to be disciplined so.

A normal environment.

Supply chain is really not that much of a variable.

Right, because we have great relationships with our suppliers, we know how to scope and D scope, we don't Miss scope very often.

And so we can get pricing right, we can lock it in in this environment disciplined means.

You make sure that on your key components.

That you really understand what deliveries could look like.

And then you benchmark that directly versus what you benchmark, what they've been telling you versus what they've actually been doing so.

So it's no longer just saying Hey, you told me it would be this ridiculous 36 weeks.

The last three times, you actually delivered it in 42 weeks.

So when we make our estimate we were not telling everybody else, but we're making an estimate closer to the 42 weeks and then we're going to do our resource planning around that.

You also try to lock in all the commodities that you can and you actually.

Let the purchase order.

We're in a non inflationary environment youre not as worried about that you actually let the purchase order and you get the supplier to commit and you have to be disciplined to hit those windows typically before a supplier with let their price out there for 30 to 60 days, sometimes now it's as quick as seven or eight days and you have to be very very on top of the process.

To make sure you are locking in that that quote for that job if you get it.

The other things you have to take a really hard look at your customers that youre going to work for and for US. That's multiple places in the channel who is the owner that ultimately is going to own. This project. If we're not working directly for the owner who is the general contractor and construction manager and with their team looks like if the owners purchasing the equipment, we have clear line of sight on that equipment and <unk>.

We have the lines of communication open to make sure that that owner is going to have the equipment delivered do they have a good track record of delivering so our information management and our experiential data is more important than ever.

The pricing of that product and then it's about labor availability, something we don't really have a lot of issues with that.

When project slide like we had some very good data center projects move in the first quarter to the second quarter and beyond again, we're doing work there, but then we have to sequence of our work to make sure that we can have the right resources at the right time, because what we really worry about first is can we get the right labor with the right skills at the right place at the <unk>.

Right time to deliver the project and you put all that together that's how you price the project and you Gotta do again, you can't just take things.

That are quoted to you you have to re checkerboard against what people have been doing in their recent history on a small project. It's a little different it's become very different typically a small project being 200 $300000 that was a lot of times would be executed in a quarter.

But with extended lead times now you got to say, Okay customer you want this done you actually need to have this done however, the window you planned on us doing it looks a little different because here's what supply looks like right now and that supply is different than what it was going to be than you're used to us doing this replacement project. Therefore, this is how we have to price it.

So that's how you think about project large and small then you get into break fix.

Work, which is the repair service that Mark talked about which is actually we expect to continue to grow through the year.

There you have to be really on top of what the variables going in we know labor, we know labor costs.

This fuels spike and we've seen it over the last year were very good at catching up but just to give you a backdrop of how things are different Sean I mean, I've been doing this a long time, all the way back to when I was carrier.

With HVAC technicians, you typically would reset your standards right before summer.

Alright, because that was your busiest time of year from from June till September and so you had reset standards and last year, we reset them almost three times and I say almost because some of the northern cities. We didn't have to do as much because they're not as busy towards the end of the year and then this year, we've already reset them twice.

And our customers have accepted that they know what's going on in the world.

In that Youre always behind right you can't charge customers for something that Hasnt happened, yet, but they also know that will be a month late taking it off because they understand by what happened upfront.

And of course, it helps to have very skilled technicians. When you do that because when you have those very skilled technicians people want them to be able to do their work and so it all works together. So yes pricing has gotten more complex, but it's mostly got.

More complex on really not having the same level of trust in the supply chain for.

For people to execute what they said they were going to execute.

Okay got it thanks for that Tony in this one's a little more granularity so if.

If I look at the midpoint of the earnings guidance for the full year.

It implies that the first quarter will be a lower proportion of that full year outlook than we've seen over the past few years.

Can you just.

Help me get comfortable with sort.

That implied catch up there.

Yes, I think of a few things that would make that makes sense, but I just wanted to kind of give you guys. The floor on that on that element, yes, I'll kick it over to Mark the biggest variable as you look at the back half of the year that Hasnt happened in 2020 , one as we expect to be profitable in the back half of the year I mean thats the biggest variable.

So that's one of the ways you catch up the other one is if you go to the midpoint. There is an obvious just math exercise we have less outstanding shares right. So as a result of that the math works. We also believe that.

Our project timing and execution.

<unk> is back half weighted this year, we sort of knew that going into the year.

Because of the scheduling of some of our larger project and nothing's changed along those lines Mark Yes, Sean the only thing I would add to Tony's comment is.

We're we're presuming that revenue is going to continue to grow at the levels that did in the first quarter.

And presuming, we're going to get some incremental improvement in margin contribution, which clearly we believe that although we would've changed guidance.

It's going to be disproportionate right I mean, I think the problem with the quarter that we're announcing today or that we announced today.

We didn't get the same level of pull through from the revenue activity for all the reasons that were discussed prior to your question.

We've done everything we can to make sure that the things that.

I would define as self inflicted are not going to recur in quarters, two or three or four.

If we get the external environment.

To stabilize at this point.

We're comfortable with with how it is going to shake out.

Very helpful. I'll turn it over there thanks, guys. Thank you Sean.

Thank you and your next question comes from the line of Noelle Dilts from Stifel. Your line is open.

Hi, Thanks.

My first question. Good morning. My first question is pretty specific but you mentioned the delay in telecommunications projects.

Can you expand on that at all is that wireless wireline.

Understood.

Okay can I make sure I said that right okay perfect.

And then second.

Can you hear me almost every quarter asked about M&A and how youre thinking about valuations in the market I would think that multiples have come down a bit.

So could you comment just on higher youre thinking about potentially getting more active on the M&A front and just what youre kind of seeing in the market in terms of opportunity.

We have a pretty good pipeline I mean, we've made a couple of deals in the first quarter that more tuck in that we expect actually if you're really good.

Because they give us a labor force in markets that we want to grow.

But what we're not going to do.

Is inherent somebody elses problems.

And it doesn't mean, they're bad companies it means.

Yes.

The trends we saw in the first quarter in our business.

They have in spades, because they don't have this level of process control and sophistication, we have or connection in the supply chain.

Where we can get comfortable or where we think we can help with that acquisition closed that gap will make it but we think there is a gap in their execution and their projects around those issues I will probably take a pause that being said we're active acquirers. We expect to continue to do deals like we have through our history and broadly defined it it would be in any of our segments.

Little less so in <unk>, because we think we have the platform, we need, especially on the oil and gas side, we would make the right.

Renewable or sustainable.

Energy acquisition there.

We have a capability there that we would like to grow.

But other than that I mean, it's business as usual, we feel good people want to be owned by amcor, and we want to buy them.

Thanks, that's helpful. I appreciate it.

Thank you and your next question comes from the line of Adam Thalheimer from Thompson Davis. Your line is open.

Hey, good morning, guys good morning, Adam.

Did you say about the timing of project Closeouts I think you said there were some that got pushed from kind of late in Q1, yeah. So we typically right last year, we had a very good.

Closeout portion in Q1 of last year, and we said that right I mean that was something we said on our first quarter call last year, we had less of that happening mainly around supply chain issues, we need materials to come to us to finish the job. So that we can commission the job and get off the job.

Because of the slowdown in the Miss deliveries and then complete shipments we had more of an issue with that in the first quarter.

Here's what I think is going to happen right a lot of these issues we've talked about it in first quarter last year that we saw it coming and it really started to hit.

With lead times, especially mid third quarter, 'twenty, one where net we've adjusted those lead times, we should start seeing a lot of that equipment come in here and as Miss deliveries start to catch up here May June July August .

Mark do you have anything to add there.

Adam once again.

We don't control the timeline of our customers' projects.

And when we entered into 2022, we definitely had different sequencing, especially in the data center space.

So even with the delays at both Tony and I had mentioned during the call today.

The way that the RPM is we're going to burn through revenue was actually more late 2022 weighted in 2021.

So when he looked at our if you reflect back on 2021, our margin performance was actually stronger through the first six months and it was sort of the back six months of the year and that was once again, just because of the mix of work.

That phenomenon is going to exist in 2022 as anticipated except that it's the inverse it's more back half of the year than first half of the year.

So putting putting aside the supply chain discussions that we think could happen anywhere.

The work is scheduled to happen later in the year, a couple of things that happen relative to the first quarter.

Certainly does not change the quantum of the year.

But certainly did impact the first quarter.

Not give quarterly guidance for a reason.

But clearly we anticipated that Q1.

Would have some challenges around that just from project sequencing and timing.

Carlos I mean, we could have a great supply chain right now we would have some of those issues and they were a little more pronounced because of the supply chain.

Okay, and the Pharmacodynamic, where like whistling past that <unk> was a big deal for us.

In the first quarter I mean, there are parts of our company that had 20% of their workforce out on large jobs Thats a big deal.

<unk>.

We got through it it was tough.

The soldier on.

Okay.

And then Tony if you look at your large projects or EPC jobs. What stage are you in generally if you look at that whole portfolio.

Well I think mark talked about that I mean, that's part of what we've talked about project sequencing and timing.

On 22, we knew that some of our larger jobs would be starting up.

In late 'twenty, one that's part of what you saw in late 'twenty. One is part of what you would've seen in the first quarter, even absent omicron our supply chain.

And some of Thats been shifted a month maybe.

As we wait for the sequence.

We're not.

Once right.

We're a little more reticent about how these jobs will start up.

And so it may have moved things 30, 45 days to get to full ramp.

But the stages are there much earlier in their stages than they were.

And the first part of 'twenty one.

Okay, and then just lastly, I'm trying to parse through your industrial common.

Commentary are you vis vis three months ago are you.

It sounds like you are maybe a little less confident.

On the refinery.

Sure I didn't want to read into that Im always look have you gone through what we went through over the last 21 months youre going to be a little cautious right.

Demand strong customers are healthy.

Refinery utilization refinery utilization higher.

Crack spreads are good.

<unk> the price our customers are healthy they're talking to us about all the right things, we're helping them with some of their biggest needs even outside of just turnarounds.

Makes me cautious is just to be cautious with the customer base.

The other thing that makes me cautious as they get a lot of pressure to keep running rate because we need to supply in the market.

But we've heard nothing that makes us less than confident what's going on in that space. This year.

Got it okay. Thanks, guys.

Got it great is there anybody else.

Alright look thank you all thanks for your time, thanks for the thoughtful questions.

We're going to work real hard to continue to produce.

Like most things we will get through this too and we will figure out how to manage the supply chain and.

We will we will make it work. Thank you all very much.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for joining you may now disconnect.

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Good morning, My name is Grace and I'll be your conference operator today at this time I would like to welcome everyone to the Amcor Group first acquired swine is planning to our next call. All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there'll 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 and if you would like to withdraw. Your question you May press the pound key Mr. Brad Niemann with FDI consulting you may begin.

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

Thanks, Brad and good morning, everyone can you even believe its may and almost mother's day.

As always thank you for your interest in EMCORE and welcome to our earnings conference call for the first quarter of 2022 for those of you who are accessing the call via the Internet and our website welcome to you as well. We hope you have arrived at the beginning of our slide presentation that will accompany our remarks today, we are on slide two.

Three depicts the executives who are with me to discuss the quarters result, they are Tony Guzzi, Chairman, President and Chief Executive Officer, Mark Pompa, Our executive Vice President and Chief Financial Officer, and our Executive Vice President and General Counsel Maxine Mauricio.

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 presentation.

You can find us at EMCORE group Dot Com with that said, please let me turn the call over to Tony Tony.

Yes, thanks, Kevin and I'm going to be on pages four to six to start and I'd like to thank all of you for joining us this morning.

On our February 24th year end call.

I describe the current operating environment that we've experienced in the first quarter is one of the toughest that I had seen in my career.

This remains the case through the first quarter of 2022.

However at EMCORE, we do have a no excuses culture.

We have to adapt to an ever changing operating environment.

We are executing with discipline and flexibility as we navigate this challenging environment.

Further the Ukraine or added another layer of uncertainty, especially with respect to energy and some raw material costs.

We will cover the supply chain issues later in both mine and Mark's comments.

In the quarter, we earned revenues of $2 $5 9 billion operating income of $100 million and diluted earnings per share of $1 39.

We had very strong organic revenue growth of 10, 8% in the aggregate across our domestic segments with our industrial segment.

Leading the way at 32%.

Our project pipeline remains strong with a good mix of projects. We saw an increase of <unk> <unk> to a record $5 95 billion versus $4 $7 8 billion in the year ago period.

Our combined operating income margins were three 9% as we brought through increased fuel costs and difficult supply change in the quarter that disrupted many projects and prevented us from achieving our expected labor productivity.

As we evaluate the quarter I thought I would cover the business more broadly versus on a segment by segment basis as many of these trends both positive and negative and challenges cut across our entire business.

First let me cover what I think is going well.

Our end markets continue to be resilient and.

And we are winning work in the right place at the right prices again, we are winning work at the right in the right places at the right prices.

As I just mentioned, we grew our post 25% in the aggregate and 21% organically versus the year ago.

Period, I will cover that in more detail when I review, our <unk> after Mark's commentary.

Our industrial services segment is performing as expected and had a heck of a rebound to a more normal operating environment not seen since 2019.

We are proving our resilience everyday as we execute and complete work under what a difficult operating conditions.

The disruption caused by the omicron variance are dissipated as we exited Q1, hopefully such disruptions caused by Covid are behind us we.

We are having significant success in attracting the right mix of skilled craft labor to execute our work.

We kept our field leadership and labor intact in the short run there is a cost to US is the issues we experienced in the quarter affected labor productivity. However, we made that decision that with our high level of RP OS and the current bidding environment, we should not reduce our key labor resources, especially our field <unk>.

Leadership, such as are forming.

Our team is very good at adapting and developing contingency plans with respect to our supply chain.

We've had to find workarounds as supply chain has become more volatile with respect to on time delivery and delivering a complete order.

But that's what we're good at finding solutions for difficult circumstances.

And we will continue to adapt as needed.

What has proven to be more challenging than we had contemplated in early 2022 are the following.

The continued rise in energy prices, especially for gasoline and diesel.

Leads to margin compression and that's most notably within building service, but even more broadly broadly.

It impacts our project pricing as we develop overhead rates.

Despite the continued energy price inflation, we believe that we have for the most part appropriately adjusted our pricing models to reflect these costs.

Supply chain challenges were worse than we expected and it's been a difficult supply chain and it became even more challenging due to the impact that the omicron surge and the conflict in Ukraine had on our suppliers.

Create conflict gets impacted not only the price of gasoline and natural gas and diesel and it also impacted the price and availability of certain metals like nickel, which is a key component of stainless steel and pig iron which is a key component of cast iron pipe.

While we understand how to price and contract our work in an environment of increasing lead times in prices, we also encountered miss deliveries and incomplete shipments during the quarter.

These disruptions resulted in reduced labor efficiency on certain of our projects such supply chain disruptions in the omicron surge at the start of the quarter resulted in some very good project work being delayed and also prevented us from being able to close out some very successful projects as I turn the commentary to Mark I remain co op.

In our segment and subsidiary leadership, and our team skills and resourcefulness.

Resourcefulness to mitigate these challenges and build on our strengths as we move forward in 2022 and with that I'll turn it over to Mark.

Thank you Tony and good morning to everyone participating on the call today.

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

<unk>.

As Tony mentioned consolidated revenues of $2 $5 9 billion are up $288 5 million or 12, 5% over quarter one 2021.

Our first quarter results include $49 5 million of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by <unk> in last year's first quarter.

Acquisition revenues positively impacted each of our United States, electrical construction and United States building services segments exclude.

Excluding the impact of businesses acquired first quarter consolidated revenues increased approximately $239 million or a strong 10, 4% quarter over quarter.

Before reviewing the operating results of our individual reporting segments I would like to highlight that each of our segments had strong revenue growth in the quarter and that our consolidated revenues of $2 59 billion represent a new first quarter record that is only eclipsed by 2021 fourth quarter, which generated the highest quarterly revenue in our long history.

Tony as previously commented on the challenging operating environment that existed during the quarter and continues to persist to some extent.

So one my question why am I, highlighting our first quarter revenue record in light of the fact that it did not equate to record operating income or diluted earnings per share performance.

Simple answer is that our business performance and growth prospects remains strong and we collectively should not lose sight of this despite the economic headwinds that are impacting us we continue to generate strong organic revenue growth, while simultaneously growing our remaining performance obligations and most of the market sectors that we serve so well.

Though we have experienced some choppiness in our first quarter results due mostly to external factors, we have not eroded our strong foundation and currently believe we will meet our annual targets barring any worsening of the macroeconomic conditions.

With that being said I will now cover the results of each of our reportable segments during the quarter starting with revenue.

United States electrical construction quarter, one revenues of $522 million increased $62 6 million or 13, 6% from 2021 comparable quarter, excluding incremental acquisition revenues of $34 9 million. This segment's group. This segment's revenues grew organically 6% quarter over quarter.

Due to the sequencing of projects in the current year as well as project delivery delays as customers await the receipt of critical equipment due to supply chain disruptions.

Both of these factors have resulted in a shift of project work to later in 2022.

United States mechanical construction segment revenues of $1 billion.

Increased $86 million or nine 4% from quarter one 2021.

This increased activity augmented the continued demand for our fire protection services, particularly from those of our customers building out their e-commerce supply chains.

Both our electrical and mechanical construction segments established new first quarter revenue records in 2022.

United States building services segment revenues of $627 8 million increased $59 8 million or 10, 5% and represents an all time quarterly record for this segment.

Excluding incremental acquisition contribution of $14 6 million. This segment's revenues increased $45 2 million or 8% organically.

Revenue growth was generated within the segments commercial site based and mechanical and government services divisions with respect to commercial site based and government services, new customer additions and scope expansion with existing customers were the primary drivers of the quarterly increase in revenues.

Within mechanical services, a number of trends that favorably impacted us from a revenue perspective, notably we have seen an increase in service repair and maintenance volumes, partially as supply chain delays that resulted in the need to extend the useful lives of HVAC equipment and instances when replacement equipment is not readily available. In addition, there continues to be high.

Demand for building automation and control services with an emphasis on improving building efficiency and energy consumption, which is a priority for many of our customers in light of both increasing energy prices and a heightened focus on their environmental impact in the context of ESG.

United States Industrial services segment revenues of $310 7 million increased $75 3 million or 32, 2% comp.

Commented during our earnings calls for the second half of 2021, we have begun to see some resumption in demand for maintenance and capital spending from this segments customer base in the back half of last year, such demand patterns continue through the first quarter of 2022, as we executed against a more normal spring turnaround season with improved demand for both field and <unk>.

<unk> services. Unfortunately, some of the macroeconomic headwinds that have been prevalent within the broader oil and gas industry persist, but with U S refinery utilization in excess of 90% were hopeful that 2022, we'll continue to develop favorably and that this segment's operating results will reflect a more normal pre pandemic, a 12 month period.

$3 9 million.

Please turn to slide eight.

Selling general and administrative expenses of $252 6 million represent nine 7% of first quarter revenues and compared to $224 1 million and nine 7% of revenues in the year ago period.

SG&A for the first quarter includes approximately $5 2 million of incremental expenses from businesses acquired inclusive of <unk>.

Intangible asset amortization, resulting in an organic increase in SG&A of $23 $3 million with EMCORE substantial revenue growth, we are adding personnel to support our back office and contract administration functions, resulting in increases in salaries and benefits from the corresponding 2021 period. Additionally.

We continue to see an increase in medical expenses.

As claim activity related to both routine medical visits and elective procedures continues to normalize after being suppressed during 2020 in the early part of 2021 travel and entertainment expenses have also increased as our team resumed certain business travel.

Well below pre pandemic levels as previously disclosed our SG&A as a percentage of revenues was flat at nine 7% for both quarter one periods.

Reported operating income for the quarter was approximately $100 million or three 9% of revenues and compares to operating income of $117 million or five 1% of revenues a year ago. As a reminder, 2020 one's quarter. One performance represented first quarter records for both operating income and operating margin.

The overall decline in operating income and margin within the current quarter was due to quarter over quarter decreases in gross margins within each of our U S. Electrical construction U S. Mechanical construction and U S building services segments. These reductions offset quarterly gains in both our U S. Industrial services in UK building services segment.

Segments specific quarterly operating income performance by segment is as follows.

Our U S. Electrical construction segment operating income of $20 million decreased $23 million from the comparable 2021 period.

<unk> operating margins of three 8% represents a reduction from the eight 8% reported in last year's first quarter.

Struction segment currently has a larger number of contracts within the manufacturing and water and wastewater market sectors, where we are either acting as construction manager or general contractor in these cases the percentage of our self perform labor is less than typical resulting in lower gross margin profile. This segment. Additionally experienced labor productivity.

<unk> issues, resulting from supply chain disruptions as well as project write downs, resulting from material price escalation portion for which we will seek future recovery.

Operating income for U S building services was $23 9 million or three 8% of revenues and compares to $31 1 million or five 5% of revenues in 2021 first quarter.

Given a reduction in gross profit margin with this within this segment increased gross profit dollars, resulting from the previously referenced revenue growth. During the period was more than offset by an increase in SG&A expenses gross margin has declined due to a less favorable project mix within this segments mechanical services division due to a higher percentage of fixed price.

Services and an increase in more traditional facilities maintenance type projects.

Our U S. Industrial services segment operating income of $13 $3 million represents a $15 $7 million improvement from the $2 4 million operating loss reported in 2021 first quarter.

And the small victory column. This represents our industrial segment's second consecutive quarter of operating profit since reporting periods prior to the pandemic as referenced during my revenue commentary, we experienced more normalized demand during the quarter within both this segment's field and shop services operations turnarounds that we had forecasted to occur largely <unk>.

And on schedule with some resulting pull through cleaning and repair work operating margin was four 3% for the first quarter of 2022.

We are now on slide nine.

Additional financial items of significance for the quarter not addressed in the previous slides are as follows quarter. One gross profit of $352 $6 million is higher than the comparable prior year quarter by $11 5 million or three 4%. However, gross margin of 13, 6% is lower than the 14, 8% in last year's first quarter.

Margin.

Diluted earnings per common share in the first quarter was $1 39.

As compared to $1 54 per diluted share for the prior year period, despite the quarter over quarter reduction in EPS. The first quarter of 2022 represents our second best earnings per share performance in a first quarter, although we experienced an approximately 13% decline in quarter over quarter reported net income a reduction in <unk>.

Standing shares through our share repurchase program softened the earnings per share impact of such net income decrease.

We are now on slide 10.

And of course balance sheet maintains its strength and liquidity cash on hand of over $500 million has decreased by $306 $8 million from year end 2021, primarily as a result of cash used for financing activities of $193 5 million inclusive of approximate.

$182 million of common stock repurchases made by us through March 31.

In addition, we utilized $95 8 million of operating cash during the quarter, partially as a result of our strong organic revenue growth during the period. Additionally, as has <unk> as has.

It's historically been the case, our working capital needs tend to be greater in the first quarter of each year, partially due to our funding of prior year's incentive awards. Despite this use of cash during the first quarter, we anticipate the generation of positive operating cash flow as the year progresses.

Working capital has decreased by just over $109 million largely as a result of the decrease in cash just referenced which was partially offset by an increase in accounts receivable given the revenue growth during the period and a decrease in accrued payroll and benefits due to the incentive payments made during the quarter that I previously mentioned goodwill remains relatively.

Consistent with that as of December of 2021, net identifiable intangible assets have decreased by nearly $15 million during 2022 as <unk> amortization expense taken more than offset the additional intangible assets recognized in connection with the acquisition. We completed in Q1 total debt exclusive of <unk>.

Operating lease liabilities remains nearly identical to that as of December and <unk> debt to capitalization ratio has increased modestly from 10, 4% at year end 2021 to 10, 9% at March 31, 2022, given the reduction in our shareholders' equity, resulting from our share repurchase activity.

During the first quarter as.

As we've stated before 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 progress through 2022 and future periods.

<unk> committed to our capital allocation strategy as evidenced by both our share repurchase activity to date as well as todays announcement that our board of directors has increased the authorization under our share repurchase program with my portion of this morning's slide presentation complete I will now return the call to Tony Tony Thanks, Mark and we'll see when we do <unk>.

<unk>.

I'm going to be on page 11 remaining performance obligations by segment and market sector.

First quarter was another strong bookings quarter.

For the company.

As mentioned earlier total company <unk> at the end of the first quarter were $5 95 billion up almost $1 2 billion or close to 25% over the March 2021 total of $4 78 billion.

First quarter project bookings revenues by our <unk>, increasing 354 million from December 2021 in fact, each of our segments grew <unk> in the first quarter from year end 2021 the.

The organic <unk> growth as I stated earlier was a very strong 21%.

The first quarter saw strong year over year quarterly <unk> and revenue growth simply stated. This is the one two punch highlights both the current and.

Future top core demand in our business, we continue to see an active bidding environment. Even during this time of supply chain disruptions and inflation challenges.

Together, our two domestic construction segments experienced strong construction project growth in the quarter and our <unk> increased by $865 million or 22, 7% from March 2021, domestic mechanical construction segments of <unk> increased by $745 million.

28%, while the electrical construction segment saw an increase of $121 million or a solid 10% U.

Million.

We continue to see significant opportunities to improve building wellness in the institutional and educational sectors moving.

Moving to the right side of the page, we saw our periods broken down by market sector. We continue to see balance year over year <unk> growth in every sector, except in the transportation sector.

Continuing the trend we saw throughout 2021 <unk> growth was broad based in the first quarter.

Most market sectors with commercial <unk>, including Hyperscale data centers and high Tech semiconductor projects, increasing 28% year over year, our commercial <unk> total increased $582 million year over year and now stands at $2 7 billion.

Making up 45% of our total company <unk>.

Finishing up on our RP or RPM year over year growth healthcare Ipos are up nice institutional or up industrial manufacturing or up and water and wastewater up as well as short duration projects.

From both a business segment end market perspective, I continue to like the balance and breadth of our Rps.

I am going to switch this page 12, because we have used this slide to talk about the underpinnings of our business.

Look.

I look at this slide and this is the table that gets set for us to execute on and really we're growing in every one of these areas I previously described.

And we're all well positioned in these non growing in these growing nonresidential markets and trades.

The data center market.

Still very strong and we're positioned well in the major data center geographic markets as well as type of data centers and as well as with the right customers. Although we did see.

<unk> delivery slowing down.

Most entirely related to supply chain that even makes the demand stronger and the need for our service to stronger is that eventually the data center, you're going to have to come online faster.

Seeing that across our trades electrical mechanical and fire protection and were seeing it across the regions, where we are very strong and we're very strong in this business because we have the best labor in the market to do this business, we execute very well with the trades that we have and we have excellent pre fabrication capabilities that we're looking to grow.

Across all three trades to support this growth.

The build out of the semiconductor plants, which we are well positioned both fire protection wise mechanically and low voltage wise on our electrical trade and also with respect to fire protection again, we are in most of the right markets to execute these trades and we're really busy doing that work and planning that work some of that work has been.

Delayed a little bit or the project deliveries being delayed we are actually working on the sites because of some of the uncertainty with respect to stainless steel right now, but this is a good long term market. The other good long term markets that are very good with respect to industrial manufacturing as always just food processing, where we serve as an EPC or <unk> in many cases.

But also beyond that the re shoring of manufacturing, but we see this as a long term trend, especially with respect do you see as the growing competition with China and all the political uncertainty there, but also people realized now with the omicron. It is not a dependable source of supply. We're also seeing industrial manufacturing grow.

As it does with respect to growth.

To support electric vehicles and the buildup of.

To their health care flexibility in their facility flexibility post COVID-19 , both in our rehab mode, what I mean by Rehabbing the building, but also with respect to new construction.

We wish we were getting more delivery of equipment to put it in but when we can't we fix it.

Some of it's our fault now theyre, having the same challenges as many people out and we can talk more in the Q&A about some of the challenges. They have so we looked at that and we said you go to page 13 in 2014, we came out with initial guidance at 10, 4% to $10 7 billion.

<unk> and small project in service activity.

Reality all of these have proven to be true.

So far this year.

I don't think Theres any doubt to anybody that's followed EMCORE over a long period of time, but we know our costs and we know how to control our costs and something we're really good at.

I think we're as good as anybody in our industries. However, we do expect continuing headwinds from fuel cost and supply chain issues, both of which as you go through the first quarter in that first quarter proved to be worse than we expected coming out of the year end 2021, a lot of reasons for that right. We talked about those we're not going to.

AD Nauseum about Ukraine.

Omicron, and how that all impacts of supply chain and it was already a challenged supply chain.

But you know what we got the best team archive, our folks in the field and how to adapt and overcome.

As does the segment leadership and the challenges are there they know how to work through them. We will continue to refine our process to mitigate these headwinds as best we can and of course, we will be very aggressive seeking entitlement, where it's available.

On our projects.

Now for changes.

We're going to continue be disciplined.

Our estimating of pricing.

Significant is our RPM growth has been through the year with a book to bill over $1. One we actually could have book more work with a little less disciplined but we remain very disciplined because we continue to see good opportunities in all of the things I talked about on page 12.

And we're winning work in all the right places and the table has been set we just got to continue to execute and get through some of the issues. We've had here in the first quarter.

Are never going to sacrifice safety at all levels of our organization and.

But like anything there is a lot of things you don't completely control.

As much as I'd like to and as much as our <unk> team would love to we don't control what happens in the supply chain to any significant way, especially as you go upstream.

We faced a tough supply chain in Q1.

And we expect it to remain a challenge in the second quarter.

This challenge specifically centers around major systems like applied HVAC.

And this is when that this has been the biggest issue with on time delivery and complete delivery.

We'll COVID-19 have another resurgence even beyond what we experienced in the first quarter look.

None of us really have any idea of that but what we do know is we will keep our employees as safe as possible and we will keep our projects moving and our services will be delivered.

One of the questions, we get is well customer decision, making slowed as with all the uncertainties.

Quite frankly, we have not seeing customer decision, making slow, especially go back to page 12 on all the areas, where we really are selling right now.

What we have seen some projects delivery slowed not even delayed they slowed delivery.

As a result of supply chain issues around a major a major OEM systems that we talked about.

While the Fed's announced an expected increase in interest rates slowdown our customers' decision, making with respect to large capital projects.

We have seen no impact to date again go back to the kind of areas. We're really growing in most of those customers are flushed with cash.

What will happen with inflation.

I could give you us answer and said you tell me.

But to date, we have it is worse not better than at the end of 2021.

As we move further into 2022, we will continue to be disciplined capital allocators in terms of our organic investments acquisitions and return of cash to shareholders. All of which we believe are important uses of our capital.

Year to date, we have purchased over $250 million in shares through April 28, 2022.

As announced this morning, our board has improved an increase of our $200 million under our share repurchase plan.

And we continue to be active in the acquisition space and we are funding our significant organic growth.

As always I'd like to thank you for your interest in EMCORE ill take questions and Grace you can open the line.

Thank you as a reminder to ask a question you will need to press Star then the number one on your telephone keypad. So we draw a question you May press <unk>.

Please standby will compile the Q&A roster.

And your first question comes from the line of Sean Eastman from Keybanc capital markets. Your line is open.

Good morning, Sean.

Good morning team. Thanks for taking my question.

Tony first one when you talk about being very disciplined on new bookings.

Exactly does that mean is that just pricing really nailing down the pricing or is it is it taking jobs where.

You think you have the supply chain.

Mark.

Explain that Tony on how Youre approaching Newark.

So it's part of the things you've talked so let's think about what goes into an estimate and where you need to be disciplined so.

A normal environment right supply chain is really not that much of a variable right.

Because we have great relationships with our suppliers, we know how to scope and D scope.

Miss scope very often.

And so we can get pricing right, we can lock it in in this environment disciplined means.

You make sure that on your key components.

That you really understand what delivery could look like.

And then you benchmark that directly versus what you benchmark, what they've been telling you versus what they've actually been doing so.

So it's no longer just saying Hey, you told me it would be this ridiculous 36 weeks.

The last three times, you actually delivered it in 42 weeks.

So when we make our estimate we were not telling everybody else, but we're making an estimate closer to the 42 weeks and then we're going to do our resource planning around that.

You also try to lock in all the commodities that you can and you actually.

Let the purchase order.

We're in a non inflationary environment youre not as worried about that you actually let the purchase order and you get the supplier to commit and you have to be disciplined to hit those windows typically before a supplier would let their price out there for 30 to 60 days, sometimes now it's just as quick as seven or eight days and you have to be very very on top of the process.

To make sure you are locking in that that quote for that job if you get it.

The other things you have to take a really hard look at your customers that youre going to work for and for US. That's multiple places in the channel who is the owner that ultimately is going to own. This project. If we're not working directly for the owner who is the general contractor and construction manager and with our team looks like if the owners purchasing the equipment that we have clear line of sight on that equipment and <unk>.

The pricing of that product and then it's about labor availability, something we don't really have a lot of issues with when.

When projects slide like we had some very good data center projects move in the first quarter to the second quarter and beyond again, we're doing work there, but then we have to sequence of our work to make sure that we can have the right resources at the right time, because what we really worry about first is can we get the right labor with the right skills at the right place at the right.

Time to deliver the project and you put all that together that's how you price the project and you Gotta do again, you can't just take things.

That are quoted to you you have to re checkerboard against what people have been doing in their recent history on a small project, it's a little different.

It's become very different typically a small project being 200 to $300000 that was a lot of times would be executed in a quarter.

So that's how you think about project large and small then you get into break fix.

Work, which is the repair service that Mark talked about which is actually we expect to continue to grow through the year.

There you have to be really on top of what the variables go in and we know labor, we know labor costs.

This fuel spike and we've seen it over the last year were very good at catching up but just to give you a backdrop of how things are different Sean I mean, I've been doing this a long time, all the way back to when I was a carrier.

With HVAC technicians, you typically would reset your standards right before summer.

And our customers have accepted that they know what's going on in the world.

In that Youre always behind right you can't charge customers for something that Hasnt happened yet, but they also know that will be a month late taking it off because they understand of what happened upfront.

More complex on really not having the same level of trust in the supply chain for.

For people to execute what they said they were going to execute.

Okay got it thanks for that Tony and this one is a little more granularity so.

I look at the midpoint of the earnings guidance for the full year.

It implies that the first quarter will be a lower proportion of that full year outlook than we've seen over the past few years.

Can you just.

Help me get comfortable with sort of the.

That implied catch up there.

If a few things that would make that makes sense, but I just wanted to kind of give you guys. The floor on that on that element, yes, and I'll kick it over to Mark the biggest variable as you look at the back half of the year that Hasnt happened in 2020 , one as we expect to be profitable in the back half of the year I mean thats the biggest variable.

So thats one of the ways you catch up the other one is if you go to the midpoint. There is an obvious just math exercise we have less outstanding shares right. So as a result of that the math works. We also believe that our project timing and execution.

<unk> is back half weighted this year, we sort of knew that going into the year.

Because of the scheduling of some of our larger project and nothing's changed along those lines Mark Yes, Sean the only thing I would add to Tony's comment is.

<unk>.

We're we're presuming that revenue is going to continue to grow at the levels that did in the first quarter.

And presuming, we're going to get some incremental improvement in margin contribution, which clearly we believe that although we would've changed guidance.

It's going to be disproportionate right I mean, I think the problem with the quarter that we're announcing today or that we announced today.

We didn't get the same level.

Pull through from the revenue activity for all the reasons that were discussed prior to your question.

We've done everything we can to make sure that for the things that.

I would define as self inflicted are not going to recur in quarters, two or three or four.

If we get the external environment.

Stabilized at this point.

We're comfortable with with how it is going to shakeout.

Very helpful. I'll turn it over there thanks, guys. Thank you Sean.

Thank you and your next question comes from the line of Noelle Dilts from Stifel. Your line is open.

Hi, Thanks.

Good morning. My first question. Good morning. My first question is pretty specific but you mentioned the delay in telecommunications projects can.

Can you expand on that at all of that wireless wireline.

Understood.

Data center, Okay can I make sure I think that right okay perfect.

And then second.

You hear me almost every quarter asked about M&A and how youre thinking about valuations in the market I would think that multiples have come down a bit.

Could you comment just on higher youre thinking about potentially getting more active on the M&A front and just what youre kind of seeing in the market in terms of that opportunity.

We have a pretty good pipeline.

We've made a couple of deals in the first quarter, they're more tuck in that we expect actually if you're really good.

Because it gives us a labor force in markets that we want to grow.

But what we're not going to do.

There is inherent somebody elses problems.

And it doesn't mean, they're bad companies it means.

Yes.

The trends we saw in the first quarter in our business.

They have in spades, because they don't have this level of process control and sophistication, we have or connection in the supply chain.

Where we can get comfortable or we think we can help that acquisition closed that gap will make it but we think there is a gap in their execution of their projects around those issues I will probably take a pause that being said we're active acquirers.

We expect to continue to do deals like we have through our history and broadly defined it would be in any of our segments.

Little less so in Eas, because we think we have the platform, we need, especially on the oil and gas side, we would make the right.

Renewable or sustainable.

<unk> acquisition there.

We have a capability there that we would like to grow.

But other than that I mean, it's business as usual, we feel good people want to be owned by amcor, and we want to buy them.

Thanks, that's helpful. I appreciate it.

Thank you and your next question comes from the line of Adam.

<unk> from Thompson Davis Your line is open hey, good.

Good morning, guys good morning, Adam.

And what did you say about the timing of project Closeouts I think you said there was some that got pushed from kind of late in Q1, yeah. So we typically right last year, we had a very good.

Closeout portion in Q1 of last year, and we said that right I mean that was something we said on our first quarter call last year.

We had less of that happening mainly around supply chain issues right, we need materials to come to us to finish the job. So that we can commission the job and get off the job.

Cause of the slowdown in the Miss deliveries and then complete shipments we had more of an issue with that in the first quarter. Here's what I think is going to happen right. A lot of these issues we've talked about it in first quarter last year that we saw it coming and it really started to hit.

With lead times, especially mid third quarter 'twenty one.

We've adjusted those lead times, we should start seeing a lot of that equipment come in here and.

And as Miss deliveries start to catch up here May June July August .

Mark do you have anything to add there.

Adam once again.

We don't control the timeline of our customers' projects.

And when we entered into 2022, we definitely had different sequencing, especially in the data center space.

So even with the delays at both Tony and I had mentioned during the call today.

The way that the RPM is we're going to burn through revenue was actually more late 2022 weighted in 2021.

So when you looked at our if you reflect back on 2021, our margin performance was actually stronger through the first six months and it was sort of the back six months of the year and that was once again, just because of the mix of work.

That phenomenon that is going to exist in 2022 as anticipated except that it's the inverse it's more back half of the year than first half of the year.

Putting aside the supply chain discussions that we may have happened anyway.

The work is scheduled to happen later in the year, a couple of things that happen relative to the first quarter.

It certainly does not change the quantum of the year.

But certainly did impact the first quarter.

Don't give quarterly guidance for a reason.

But clearly we anticipated that Q1.

Would have some challenges around that just from project sequencing and timing.

Regardless, we could have a great supply chain right now we would have some of those issues and they were a little more pronounced because of the supply chain.

Okay.

We're like whistling past that <unk> was a big deal for us in the first quarter. I mean, there are parts of our company that had 20% of their workforce out.

On large jobs Thats a big deal.

And we got through it it was tough.

The soldier on.

Okay.

And then Tony if you look at your large projects or EPC jobs. What stage are you in generally if you look at that whole portfolio.

Well I think mark talked about that I mean, that's part of what we've talked about project sequencing and timing.

On 22, we knew that some of our larger jobs would be starting up.

In late 'twenty, one that's part of what you saw in late 'twenty. One is part of what you would've seen in the first quarter, even absent omicron our supply chain.

And some of Thats been shifted a month maybe.

As we wait for the sequencing.

We're not.

Once right.

We're a little more reticent about how these jobs will start up.

And so it may have moved things 30, 45 days to get to full ramp.

But the stages are there much earlier in their stages than they were.

And the first part of 'twenty one.

Okay, and then just lastly, I'm trying to parse through your industrial comment.

Commentary are you vis vis three months ago are you.

Sounds like you are maybe a little less confident.

On the refinery.

I didn't want you to read into that.

I'm always look have you gone through what we went through over the last 21 months youre going to be a little cautious right.

Demand strong customers are healthy.

Refinery utilization refinery utilizations higher.

I mean crack spreads are good despite the price our customers are healthy they're talking to us about all the right things, we're helping them with some of their biggest needs even outside of just turnarounds.

What makes me cautious is just to be cautious with the customer base.

And the other thing that makes me cautious as they get a lot of pressure to keep running rate because we need to supply in the market.

But we've heard nothing that makes us less than confident.

What's going on in that space this year.

Got it okay. Thanks, guys.

Got it great is there anybody else.

Alright look thank you all thanks for your time, thanks for the thoughtful questions.

We're going to work real hard to continue to produce.

Like most things we will get through this too.

We will figure out how to manage the supply chain and.

We will we will make it work. Thank you all very much.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for joining you may now disconnect.

Q1 2022 EMCOR Group Inc Earnings Call

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