Q3 2022 EMCOR Group Inc Earnings Call

October 27, 2022

[music].

Okay.

Good morning, My name is Jordan and I'll be your conference operator today.

At this time I would like to welcome everyone to the Amcor group third quarter 2022 earnings call.

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

After this remarks there'll be a question answer session.

If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If you would like to withdraw your question Press Star then the number killed.

Mr. Blake Mueller with F. T I consulting you may begin.

Cute Jordan and good morning, everyone. Welcome to the EMCORE Group Conference call. We are here today to discuss the company's 2022 third quarter results, which were reported this morning.

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

Thank you Blake and good morning, everyone as always thank you for your interest in EMCORE and welcome to our earnings conference call for the third quarter of 2022.

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

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

On the next slide.

They are the executives who are with me to discuss the call and nine month results. They are Tony Guzzi, Our chairman President and Chief Executive Officer, Mark Pompa, 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 as always at EMCORE group Dot Com with that said, please let me turn the call over to Tony Tony Yeah. Thanks, Kevin and good morning, everybody I will discuss our third quarter.

Results in my opening comments and.

Mark will cover the third quarter and year to date results in greater detail.

The opening commentary will focus on pages four through six.

We delivered another strong quarter at EMCORE.

Revenues grew to $2 83 billion with 12, 1% overall revenue growth and 10, 8% organic revenue growth.

Continuing the strong organic revenue growth, we have earned over the last three years.

I believe that this achievement of consistent strong organic revenue growth and the underlying profit growth is a testament to our positioning in certain key markets and a result of our long term acquisition programs capital spending lead our development programs and customer and sector focus.

Further our gross margin gap versus prior year performance as close to a smallest gap this year.

This shows that we are narrowing the impact of the supply chain disruptions and inflation as we price plan and execute our project and service work.

We grew operating income to $150 1 million with five 3% operating income margins, we had strong SG&A leverage with SG&A margin at nine 3% of revenues our operating cash flow was exceptional at $257 million in the quarter, our diluted earnings per share was $2 16 per share.

Compared to $1 85 per share.

For the third quarter of 2021.

Excellent overall performance, especially against the challenges of continued supply chain disruptions and inflation. These issues are still present and it does does present operating challenges that we have to work through.

I'm always amazed at the resourcefulness flexibility and depth operating skills of our field leadership team has a plan and execute around an ever changing and volatile environment and achieved excellent execution for our customers.

Now I'll cover some highlights by segment.

We continue to have very strong revenue growth in our electrical and mechanical construction segments are.

Our mechanical construction construction segment revenues grew at 11, 2% in the quarter and most of that growth in this segment was organic.

Electrical construction segment revenues grew at 19, 3% with 13, 1% organic revenue growth operating income margin of five 6% in the electrical construction segment was challenged by product mix timing and some legs you see legacy transportation project issues.

We continue to see very strong performance from our data center and high Tech manufacturing projects and are experiencing sizable growth in our commercial <unk> driven by these project awards.

We expect electrical operating income margins to rebound sequentially as we finish the year and move into 2023 as our mix improves as projects delayed by extended lead times for major equipment commenced into the execution phase.

Operating income margin in our mechanical construction segment was eight 1% driven by exceptional execution in the commercial market sector on several semiconductor pharma and life science projects. Our mechanical construction segment also performed well with respect to our fire protection offerings.

With cuts across all geographies and sectors outperformance supply chain and inflation challenges continue and will remain part of our project planning and execution to the balance of 2022 and well into 2023, our U S building services segment had an excellent quarter with at all.

Operating income margin of six 4%.

And 38, 7% operating income growth driven in part by revenues of $710 7 million, which represented 13, 8% revenue growth quarter over quarter and that was all mostly organic revenue growth, we had strong repair service HVAC.

<unk>, an energy efficiency project execution.

Driving this growth is the underlying demand for our offerings. We leave this quarter with record RPE OS as we continue to benefit from our customers has been demand for energy efficiency upgrades indoor air quality improvement. It was a great quarter for building services, our industrial services segment faced a headwind of <unk>.

Late turnaround projects as our customers pushed some work into the fourth quarter.

Third quarter is typically a seasonally weak quarter in the industrial services segment, and we believe we will continue to see improved performance in the fourth quarter and into the first quarter of 2023 were also hampered in this quarter by delays startup and awards on several solar opportunities that we are well positioned to execute as supply chain.

Jane disruptions east.

United Kingdom building services segment continues to excel with seven 1% operating income margins favorable project mix and excellent customer delivery. Our team continues to perform well against the backdrop of very challenging economic environment and foreign exchange headwinds.

We exited the quarter with a strong balance sheet <unk> remaining performance obligations at a record level of $7 1 billion versus $5 4 billion, a year ago and $5 6 billion at the end of 2021 with that I'll turn the call over to Mark and he'll go over the quarter in detail.

Thank you Tony and good morning to everyone 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 on <unk> third quarter performance as well as provide a brief update on our year to date results through September 30.

All financial information referenced this morning is derived from our consolidated financial statements included in both our earnings release announcement and Form 10-Q filed with the Securities and Exchange Commission earlier today, So, let's revisit and expand our review of <unk> third quarter performance consolidated revenues of $2 83 billion or up $304 7 million or 12, 1%.

Over quarter, three 2021 and represent a new all time quarterly revenue record for EMCORE.

Each of our reportable segments experienced quarter over quarter revenue growth other than our United Kingdom building services segment, which was negatively impacted by unfavorable exchange rate movements during the quarter.

Excluding $32 8 million of revenues attributable to businesses acquired pertaining to the time that such businesses were not owned by <unk> in last year's quarter revenues for the third quarter of 2022 increased approximately $272 million or 10, 8% when compared to the third quarter of 2021.

Specifics of each reportable segment are as follows United States electrical construction segment revenues of $633 4 million increased $102 4 million or 19, 3% from quarter three 2021.

Excluding incremental acquisition revenues. This segment's revenues grew a strong 13, 1% organically quarter over quarter.

<unk> project activity within the commercial market sector inclusive of the telecommunications and technology sub market sectors as well as revenue growth from projects supporting both sustainable energy solutions and other traditional energy sources within the manufacturing market sector were the main drivers of the period over period increase in addition, this segment.

To provide electrical solutions through our health care clients, where the remains strength in demand for large capital projects.

United States mechanical construction revenues of $1, one 2 billion increased $113 million or 11, 2% from quarter. Three 2021 revenue growth during the quarter was driven by increases within the commercial institutional and water and wastewater market sectors with respect to commercial sector revenue growth we are benefiting from.

Increased project activity for customers within the semiconductor industry as well as customers within the biotech life Sciences and pharmaceutical industries. These projects include both traditional mechanical construction as well as fire protection services. In addition, within the commercial market sector. We continue to see increased demand for our fire protection service.

Notably from our e-commerce customers as they expand their warehouse and distribution facilities from an institutional market sector perspective revenue growth was geographic geographically broad based and included increased revenues from a number of schools universities and other educational customers, including those which have received funding for HVAC.

And replacement under the cares Act.

On the other hand, our water and wastewater revenues remain concentrated within the southern United States, where we are supporting and the increasing demand for portable drinking water in the treatment of wastewater given the shift in population in that region.

Third quarter revenues for <unk> combined United States construction business of $1 75 billion increased $215 4 million or 14% with 11, 9% of such growth being organic this combined revenue performance as well as the revenue performance of each of our electrical and mechanical construction segments.

Represent new all time quarterly revenue records consistent with last quarter. The achievement of these records have been accomplished while also increasing remaining performance obligations, which also represent all time highs for each of our construction segments. Tony has already commented on our IPO development during the quarter and you will be providing more detailed comp.

At the conclusion of this financial section.

United States building services quarterly revenues of $710 7 million increased $86 1 million or 13, 8% revenue growth was generated within the segment's mechanical services and commercial site based services divisions within mechanical services, we continue to benefit from strong demand for HVAC retrofit projects.

In building automation and control services with an emphasis on improving building efficiency energy consumption and indoor air quality. In addition, we are experiencing growth and service repair and maintenance volumes as supply chain delays have resulted in the need to extend the useful lives of existing HVAC equipment in instances when replacement equipment.

Not readily available with respect to the segment's commercial site based services division, new customer additions as well as the scope of our site expansion and increased project activity with existing customers, where the drivers of the quarterly increase in revenues and.

<unk> industrial services segment revenues of $247 2 million increased $15 million or six 5%, although the quarterly growth is not as significant as that of our last two quarters. We were encouraged to see solid mid single digit revenue growth as quarter. Three represents this segment's seasonally slowest period as Tony previously.

We mentioned this revenue growth was despite the headwinds created by refinery utilization wildly in excess of 90% during the majority of the quarter, which can often limit the opportunities to provide field services as our customers are reluctant to take down the refineries for any extended maintenance United Kingdom building services revenues of 117.

$7 million decreased $11 $8 million as previously mentioned this revenue contraction was entirely due to unfavorable exchange rate movements for the British pound versus the United States dollar, which is masking revenue growth on a local currency basis. This segment continues to see strong project demand from the commercial market sector customers inclusive of.

Telecommunications Submarket sector, please turn to slide eight.

Selling general and administrative expenses of $263 1 million represent nine 3% of revenues and compares to $243 9 million or nine 7% of revenues in the year ago period. The current year quarter includes approximately $3 7 million of incremental expenses from businesses acquired inclusive of intangible asset amortization.

Resulting in an organic quarter over quarter increase in SG&A of $15 $5 million. This.

This quarter's organic growth in SG&A expenses was primarily related to increased personnel costs due to both increased headcount to support our organic revenue growth as well as higher quarterly incentive compensation expense due to improved year over year performance at certain of our operations. Additionally, we continue to experience growth in travel and entertainment expense.

This is our employee business travel continues to resume normalcy. Despite the growth in SG&A dollars, we have seen a reduction in SG&A as a percentage of revenues as we successfully leverage our cost structure as I mentioned last quarter, we continue to manage to.

Maintaining discipline with overhead investment and will seek incremental efficiencies and economies of scale as we drive future revenue growth.

Reported operating income for the quarter of $150 1 million or five 3% of revenues compares to operating income of $137 4 million or five 4% of revenues in 2020 ones third quarter or $151 million of quarterly operating income eclipses EMCORE is all time quarterly Oi record set in 2021 four.

Quarter, our operating margin of five 3% represents a sequential improvement from that of quarter, two which was also sequentially higher than quarter. One despite inflationary pressures in supply chain headwinds EMCORE continues to execute at a high level producing strong operating results and margin conversion on a revenue base, which continues to.

Growth spurt.

Specific quarterly performance by segment is as follows our U S. Electrical construction segment operating income of $35 6 million decreased $8 7 million from the comparable 2021 period reported operating margin of five 6% represents a reduction from the eight 3% in last year's quarter the decrease in both.

Operating income and operating margin is due to a less favorable project mix within the commercial institutional and transportation market sectors, coupled with certain discrete project write downs totaling $10 $5 million during the quarter, which negatively impacted the segment's operating margin by 170 basis points. These losses were due.

In part to supply chain disruptions as well as project completion delays and time extensions beyond our control. The majority of these projects were bid a number of years ago under different economic conditions, where the extent of the supply chain disruptions as well as current inflationary pressures and escalating material prices could not have been contemplated we continue.

To evaluate our contractual rights and are pursuing recovery where permitted.

Aided by the increase in segment revenues third quarter operating income of our U S. Mechanical construction segment of $91 million represents a $10 2 million increase from last year's quarter, while quarterly operating margin of eight 1% as modestly improved from 8% in 2020 once third quarter. This improvement in operating margin is despite.

Having a larger number of active projects within the manufacturing and water and wastewater sectors, where we are either acting as a construction manager or general contractor and these cases are percentage of self perform labor is less than a typical EMCORE construction project, thereby resulting in a lower gross margin profile operating income for U S build.

Services is $45 6 million or six 4% of revenues, which represents a substantial $12 7 million or $38 7 million.

Sorry, 38, 7% increase.

Over period with 110 basis point expansion in operating margin driven by the performance of our mechanical services Division. This segment is benefiting from both favorable project execution as well as the impact of certain pricing adjustments aimed at better aligning our building rates with the increased operating costs, we have experienced.

Our U S. Industrial services segment operating loss of $1 4 million represents a $1 6 million dollar improvement from the $3 million loss reported in 2021 third quarter as I referenced earlier quarter. Three is historically, our industrial segment's seasonally weakest quarter. Additionally, the delay or deferral into future periods.

A certain customer turnaround projects, which were anticipated to commence in September of this year resulted in a shortfall when compare to internal expectations for the quarter.

UK building services operating income of $8 4 million or seven 1% of revenues represents an increase of $1 8 million and a 200 basis point improvement in operating margin quarter over quarter. This improved operating income performance is despite the foreign exchange headwinds mentioned during my revenue commentary, which reduced the segment's reported operating.

Income by $1 $4 million in the quarter.

This segment continues to benefit from a more favorable mix of project work when compared to the prior year.

We are now on slide nine.

Additional financial items of significance for the quarter not addressed in the previous slides are as follows quarter. Three gross profit of 403, sorry, $413 2 million represents an all time gross profit record for the company and is higher than the comparable 2021 quarter by $31 9 million or eight 4%. However.

Margin of 14, 6% is lower than last years third quarter, primarily due to the impact of project write downs within our electrical construction segment, which negatively impacted our consolidated gross profit margin by 40 basis points during the quarter, although the quarter over quarter gross margin compares unfavorable 14, 6% of gross margin is sequentially higher.

Here than our first two quarters of 2022, and the 50 basis point year over year reduction represents the smallest quarterly variance to date in the current year diluted earnings per common share in the third quarter of 2022 is $2 16.

As compared to $1 85 per share for the prior year period. This third quarter EPS performance represents a new quarterly earnings per share record for EMCORE due to the combination of net income growth and a reduction in our weighted average shares outstanding given our continued share repurchase activity during the year.

Please turn to slide 10.

With my quarter commentary out of the way, let's touch on some highlights with respect to <unk> results for the first nine months of 2020 to.

Revenues of $8 3 billion represent an increase of $862 9 million or 11, 9% of which 10, 3% of such revenue growth was generated from organic activities. As a result of our exceptional performance over the last two quarters, our year to date operating income of $387 7 million approximate to that of 2012.

One which is quite impressive given the headwinds previously discussed.

Operating margin for the year to date period is four 8% and we continue to reduce the year over year gap, which is now only 50 basis points on a combined basis. Our U S. Construction operations have experienced sequential quarterly improvement in operating margin throughout the year and all of our other segments are reporting nine month operating margins, which are.

Either equal to or greater than that of the corresponding prior year period.

Year to date diluted earnings per share was $5 50.

And represents an increase of six 4% from the $5 17.

EPS reported in 2020 ones nine month to date period.

Although not shown on this slide my last comment on our year to date results.

With respect to our strong operating cash flow in the nine months period, we have generated $238 4 million of operating cash flow, which represents a substantial improvement over last year. Although we had a slow start during the first six months of 2022, we generated $257 2 million of operating cash during the third quarter.

Our strong organic revenue growth to date in 2022, and the resulting requirement for working capital investment our subsidiary management and project teams have done an excellent job of maintaining discipline in our project and service contract administration, resulting in great cash conversion.

We are now on slide 11 <unk>.

<unk> balance sheet remains strong and we continue to be in a position to invest in our business return capital to shareholders and pursue strategic M&A transactions. Despite the significant operating cash flow I just mentioned our cash on hand has declined from year end 2021, as a result of cash used in investing and financing activities.

During the first nine months of 2022, notably we utilized $656 $6 million for the repurchase of our common stock have spent $91 1 million in acquisitions and returned $20 million to our shareholders in the form of dividends. This activity was funded by our cash on hand as well.

Well as $170 million in borrowings under our revolving credit facility.

Resulting primarily from the decrease in cash coupled with an increase in our net contract liability position, our working capital balance has decreased by nearly $289 million from year end to 2021.

These decreases were partially offset by an increase in accounts receivable given the revenue growth. We continue to experience in terms of other fluctuations within our balance sheet, the $26 $5 million increase in goodwill since December of last year was entirely a result of the acquisitions completed by us thus far in 2022 now.

Five on tangible assets have increased by approximately $16 $6 million as the additional intangible assets recognized in connection with the aforementioned acquisitions were partially offset by amortization expense during the period.

Total debt exclusive of operating lease liabilities has increased by nearly $170 million since December given the borrowings under our revolving credit facility that I previously mentioned as a result of this incremental debt coupled with the reduction in our shareholders' equity due to our capital allocation activities and of course debt to capitalization ratio Hasnt.

Creased from 10, 4% at year end 2021 to 18, 9%.

There are 32022.

We remain committed to our long term capital allocation strategy and with our consistent free cash flow generation, along with our liquidity inclusive of revolving credit capacity, we continue to remain flexibility and our ability to execute against our strategic objectives with my portion of this morning's slide presentation completed I will now.

If the call back to Tony.

Thanks, Mark well done it and I'm on page 12 remaining performance obligations or RPE OS and we have diverse RP OS of 710 ability on an all time record we continue to be successful in winning new work and winning matters as a company had another strong project bookings quarter, we've experienced healthy.

Throughout 2022 across our segments and many market sectors and while we've always described our business is not predicated on month to month or quarter to quarter. It ebbs and flows with projects and projects award. It is noticeable that our RP OS total has increased in eight consecutive quarters fueled overwhelmingly by organic RPI.

Growth and Thats with strong underlying organic revenue growth.

Total company <unk> at the end of the third quarter were $7 1 billion or up $1 7 billion or 32% over the September 2021 totaled $5 4 billion.

From the end of last year, our payrolls were up $1 5 billion or 27%. Additionally, we booked $641 million of work in the.

In the three months since June 30, the complexion of our <unk> portfolio has changed a bit over the last 12 months or so and general length is going up of projects as project scope increases and thats because of supply chain issues would it remain elevated and also the technical complexity and labor complexity of what kinds of projects that were way.

At the at the higher end of the project to larger projects.

Yes, when you have those complex supply issues, coupled with the ability to attract and retain and deploy the right mix of Scott skilled craft labor and the adverse present technical demand of projects. Many of our customers are looking for the contractor or us there can be a preferred choice to complete some of these technically sophisticated projects where they may have.

May be hyperscale data centers food processing plants semiconductor fabs hospitals.

Arm of plants, biolife plants healthcare facilities or broad based energy efficiency upgrades.

Together, our two domestic construction segments experienced strong project growth year over year with RP always increasing just under $1 5 billion or 34% U S building services <unk> increased $276 million from the year ago period or 33%. That's one and is now at about $1 1 billion.

And small to mid size project work and also service work.

This call this quarter, we saw the increase in our mechanical services division and the reward of renewal of several facilities maintenance contract and its site based services Division.

As I mentioned last quarter. These extended lead times for HVAC equipment combined with the push for energy efficiency and improve building wellness is resulting in our customers asking us to retrofit and when we can't retrofit on time as Mark said, we're repairing their equipment.

The additional <unk>, we think about the lack of equipment ability. It is driving our repair service work because equipment still needs to run in my opinion lead time for applied HVAC equipment will continue to be extended well into 2023.

Moving to the right side of the page, where we have our our peers broken down by market sector. As I mentioned earlier quarter three was a strong booking quarter supported by <unk> increases and all sectors, except water and wastewater and we have good underlying trend in the markets, where we compete water wastewater they tend to be more episodic award.

Market sectors were led by project awards and are broadly defined commercial sector that includes numerous data center projects semiconductor projects and projects customers within the biotech life Science pharma industries, it's not yesterday's or 10 years ago commercial market sector.

Finishing our market sector year over year growth healthcare up 33% institutional up 24% and short duration projects, where most of the retrofit work in energy efficiency work is up 34%.

Partially offsetting that was minor decreases in water wastewater industrial manufacturing and a decrease in transportation RFP owes what I said last quarter still ring true today I continue to like the balance and breadth from both a business segment and market perspective, and a geographic perspective of our RP.

Portfolio as we closeout 2022, and we move into 2023 I want to talk about the next slide page 13, and I've talked about this because it is some underlying trends that are driving their business and our business.

And they look like they have legs well into the future and look some of these awards come in bulky and episodic for the bigger work like data centers and semiconductor Fabs and some of it is more quick hitting like the indoor air quality and mechanical services work.

But you go to data centers and semiconductor Fabs, we see good demand and we see that continuing well into 2023.

And we're positioned in all the right geographic markets with the right people are we in every one of them know, but weren't enough of them to make a difference.

There is strong demand for electrical systems do you think about data centers bigger electrical systems smaller mechanical systems today still big content on both parts fire protection goes across everything.

You think about semiconductor fab for EMCORE, it flips stronger mechanical demand lesser electrical demand again fire protection demand across it fire protection, we can cover the entire geography of the U S for these opportunities.

Industrial manufacturing.

Some of that shows up in our commercial because that's where our pharma life Sciences and biotech as we see strong opportunities and we are really what's driving that one is.

New products, new facilities strengthening supply change and the re shoring of manufacturing and also still relocation from higher cost states to lower cost states.

Healthcare this for us is.

Outpatient health care facilities hospitals.

And large physician medical office buildings. These are both upgrade opportunities as well as new construction opportunities as people seek more flexibility in their health care systems and pandemic type people a lot and also just the aging of America and the aging of these facilities are driving this demand.

We put a new one inherent energy transition and transportation and.

And if you think about it I heard at best from one of the Big utility Ceos today.

It's in all of the above strategy and EMCORE can participate in an all day about strategy.

It's not an either or energy demand is increasing if you think about what's happening with health care facilities data centers semiconductor Fabs fabs and industrial manufacturing reassured, we're not going to be using less energy in America, and so we need all sources of energy to excel.

Coal will phase out and so youre going to need natural gas to supplement that in renewables nuclear theyre opening I guess they are fueling the first nuclear nuclear plant in Georgia, not a big market for us, but on the periphery, we will support nuclear plants. The one in Georgia is getting built would be the first one in a generation.

Energy transition, we do participate in the solar and wind markets.

And some very specific transmission and distribution opportunities, but also in the in placement of the solar field, we should've been doing more of that work today, we do that in both the electrical.

Segment, and we do it in the industrial services segment.

Cause of the positioning of the assets and the capability. We've learned if some of those oil and gas guys are great solar builders.

They're very good at it and then you've got the whole value chain of automotive from all the way back at the mines to lithium minds in the transportation all the way through manufacturing and battery all the way through to Evs and the new plants that are being built to the distribution centers that are now putting industrial.

Scale solar is amcor going to be the person that's going to build the evs.

<unk> stations at restaurants, probably not we will do it.

Episodically or we'll do it within a local market. We are the people that are doing it at the major distribution hubs. Those are those are high intensity electrical projects Theyre almost substation grade installations.

And then I will move all the way down through how you continue to do battery storage, which is at best embryonic at this stage.

And then you've got all underlying demand charges and what's going to have to happen with the gas system to support the renewable grid I'm actually quite bullish on how we participate on that over a 20 year time horizon. It is not a three year project. This is a 20 to 30 year transition and beyond the transition we're going to need more energy.

And thats not to say that we're not going to continue to support the downstream refining petrochemical and upstream market and oil and gas water and wastewater Mark Mark touched on it.

Mainly concentrated in the south east and even more so in Florida.

There's a couple of things going on there you had consent decree work that was going on with our some of our customers. Now you have strong underlying demand of more people moved into those states and the demand for fresh water wastewater treatment is continuing to increase mechanical services.

There are none better that EMCORE mechanical service work there is nobody better at putting energy efficiency project.

And we have the scale we have the people we have the technical Knowhow and we have the OEM relationships and controls.

Our product offerings to make it happen in a big way not only from an efficiency upgrade standpoint, but from an indoor air quality and finally.

We're the best buyer protection contractor in the United States Bar none.

Were good we can do large projects, we can do small projects. We can do service, we have the fab capability to deliver that at a cost it's competitive for our customers on the most technically sophisticated projects in the in the country and all that other stuff I talked about is being built out.

Now, let's go to closing on pages, 14, and 15 and what boat shoe care about is we took up guidance.

We believe that we will now achieve around $11 billion in annual revenue and we're going to tighten that diluted EPS range and earnings per share guidance range by raising the bottom end of that range to 760, and the top end of that diluted earnings per share range of 785.

We believe that we still have a growing nonresident residential market because of all the things I just talked about on the previous page on page our team with respect to industrial services. We also believe that the oil and gas market will continue to improve and that we will gain momentum into the renewables market as we exit the year.

We talked about the <unk> is there a record level, we discussed the sectors on page 12, and actually let us execute well in the fourth quarter and well into the first half of 2023 and beyond we believe the operating income margins will hover around on a full year basis, 5% or a little bit above 5%, where we end up in the range at this.

Point of the year will depend on the following we do expect improvement in our electrical construction segment operating income margin as we move to a more favorable project mix and further progress on these projects that we're just starting in the third quarter and we have a record of successful execution. In these types of projects. We do expect momentum to continue from Q3 into Q4.

And our mechanical construction segment in both revenue and operating income driven by favorable project mix and excellent execution.

Our industrial service.

We believe we'll have a more typical fourth quarter turnaround season, and our U S and UK building services will continue to perform well.

I think confidence is how you allocate capital right and at the end of the day, we have confidence in our execution and prospects and thus we have returned nearly $677 million in cash to shareholders through share repurchases and dividends are on a year to date basis, we have repurchased $656 6 million in shares year to date with $202 3 million.

One of such share repurchase activity in the third quarter. We have also spent $91 1 million on acquisitions in 2022, including our recent acquisition of Boston area base gas and electric and we're thrilled to have them on the team from our Ceos of subsidiary in segment leadership teams to our service Supervisors Foreman superintendents and project managers.

Our skilled craft labor our team continues to perform well in a tough operating environment and for that I. Thank the entire EMCORE team I. Appreciate all of that that team does for EMCORE and for our customers every day and with that Jordan, We will now take questions.

We will now begin the question answer session.

A quick question you May Press Star, then one and telephone keypad.

If youre using a speakerphone, please pick up the handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Sean Eastman with Keybanc capital markets. Please go ahead.

Hi, Tony and team Thanks for taking my questions.

I wanted to start on margins.

Just a higher level question sort of putting aside the noise in margins we've seen this year.

How would you characterize the bridge from sort.

2011 in the high threes to this kind of mid 5% level, we've seen over the past couple of years.

How much of that is the cycle how much of that is structural and I realize we're not.

Seeing slowing right now, but just in anticipation of that I wanted to understand.

That move in and how sustainable this level is maybe at a lower level of activity into the outer years.

Yes, Sean I think.

It's always hard to separate structural over cycle I mean.

<unk> cycle I mean, we've been at this for a while.

I think a lot of it goes to what we've decided to do and what we've decided not to do.

Alright.

We.

Our operating in an environment.

Where we are very intentional about the kind of work we've taken we've always have been.

But the team is yes.

Have <unk>.

Centered around a core set of values of how we run the company and its just a short set of expectations on how we run the company and what we expect.

And there's a couple of things that are structural.

We have bigger subsidiaries than we had in 2011 and if they got more powerful and we get more leverage out of that and we can take more scope of the work. We are also seeing a move in the market.

To concentrate more scope on these larger projects and do.

Folks like us we've gotten more technically sophisticated and so you've got a structural point right with the maturation of been where we are still back in 2011, we were probably still leading bim contractor.

I think of increase that lead but also will get better at it every day and it's not just it's really cool to see a three D model, but if you don't do anything with it the plan your work or plan Youre pre fabrication plan. It doesn't mean anything we've gotten better and better at pre fabrication linked to Ben and then the execution on the job site and what that means.

And so what that means is we're producing more in a factory type setting on these more sophisticated jobs and less in the field and you can really see that on on large scale mechanical projects, which led the way and our electrical contractors, especially as they build out these data centers and the workday supported healthcare get better at it every day too.

The other thing we did is we enhanced our position in markets that are more favorable.

For us to complete more of the value chain. So fight fire protection. So that was a build out strategy. That's been 12 15 years in the making we just for acquisition we've done it through organic growth and we've done it for capital investment again, our folks are the leaders in <unk> fabrication.

<unk> and SA coming out are the best fire protection contractors in my mind. It because you had plenty of competition, but they are really good at what they do and they are a preferred technical choice.

When you think about that fire protection model and why we liked it so much as labor is more flexible.

It's a national Union for most of the Union.

It's designed build product on a very specific trade people just designed to a code. We then designed the system underlying it and lends itself well to pre fabrication and it lends itself well to crews they can dell means and methods and apply it across multiple <unk>.

Sites.

And.

And you ever put away that they've got great management, right that really understand.

Understand how to satisfy our customers and at the same time drive superior operational performance.

When you think about the mechanical service if you go to more structural right. We've done a lot in building services.

To restructure how we think about the business and what I mean by that is if you go into building services. Our site based business is we have a very good business development. We have a very good execution team, we lead with self perform and we lead with scope that makes sense for us we're better at selecting our customers than we ever have.

People that demand technical excellence or demand consistent execution across many sites and really with our self perform labor as we built that out from <unk>.

<unk> 2011, maybe 50 70 guys to over 500 today.

Operating engineers with some HVAC, some electrical skills and that team has done a great job and then you get to the mechanical services side, we spent a lot of time understanding mix and pricing.

And project management, and sophistication, where we've actually brought as we move up the chain on these bigger energy efficiency project the scales from our mechanical construction segment and some of them into the mechanical services. This likewise, we've done the opposite and taken some small projects skills and put them in our mechanical construction segment.

And then finally.

Achieving these margins right mark in the face of what.

It had been a less favorable mix in 2011 industrial was our highest margin product.

A lot of our time between 2008, and 2013 14, and we expect those margins to improve but we have done it in the other trades, which are much bigger and we wouldnt have expected to mix up the way we did Sean the only thing I would add to Tony's commentary and this is a point of emphasis we had a number of <unk>.

The rating companies back in the 2011 Purion in periods prior to that that were performing at our consolidated levels are higher the issue that we had is we had a number of businesses clearly, we're performing below that which was driving margin dilution. So.

Q3 2022 EMCOR Group Inc Earnings Call

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