Q3 2024 EMCOR Group Inc Earnings Call
Good morning, my name is Chuck and I'll be your conference operator today At this time, I would like to welcome everyone to the InCore Group third quarter, 2024 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key.
I would now like to turn the call over to Mr. Andy Backman, Vice President of Investor Relations, Mr. Backman, you may begin.
Thank you Chuck and good morning everyone and welcome to M.C. or third quarter 2024 earnings conference call For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our results today
The presentation will be archived in the Investor Relations section of our website at mcoregroup.com With me today, our Tony Guzzi, our chairman, president and chief executive officer, Jason Nalbandian, Senior Vice President and M.C. Chief Financial Officer and Maxim Eurecio, Executive Vice President, Chief Administrative Officer and General Counsel
For today's call, Tony will provide comments on our third quarter, Jason will then review the third quarter numbers before turning it back to Tony to discuss RPO's As well as reviewing our revised 2024 guidance before we open it up for Q&A
Before we begin as a reminder of this presentation and discussion, contain certain forward-looking statements, and we contain certain non-cap financial information.
and the National Information Disclosure.
I encourage everyone to review both the closures in conjunction with our discussion and accompanying slides.
and finally as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release, issue this morning and in our form 10Q.
Paul with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony? Yeah, thanks so much, Andy. And I'll be speaking mainly just page four of this opening.
Tony: in the third quarter of...
Tony: 2024, our team continued to perform exceptionally well and delivered another great quarter. When you compare it to the third quarter of 2023, we had record revenues of 3.7 billion, which represents growth of 15.3% revenue growth. We had record operating income of 363.5 million.
Tony: which was a 54.7% increase and we more than doubled our operating cash flow to $526 million.
RRPO's group to a record 9.8 billion in the quarter of 1.15 billion or 13.4% from the prior year quarter. And we earned a looted earnings per share of 580 compared to $3.57 for the third quarter of 2023.
Our electrical and mechanical construction segments continue their pressure performance with a combined third quarter operating margin of 13.3%.
and Individual Operating Margins of 14.1% and 12.9% respectively. The houses happen, this re-excellent field leadership. They continue to drive this off-standing execution through relentless attention to detail and constant innovation across the project lifecycle.
That begins with Project and Customer Selection, estimating, Contract Structure and Negotiation.
Significant use of VDC, which is virtual design construct. We used to talk about it as BIM.
Now we talk about it, it's a more holistic approach for his virtual design construct, which leads to pre-pavocation, labor planning and training, commissioning, and finally, all the way through the diligent collection of received rules.
Our teams then incorporate these learnings into the next opportunity to make them even more successful and productive for our customers. We do have a continuous improvement in learning culture here at M4.
and when you couple that great execution with a strong mix of work that includes data sent to semiconductor plants, other high tech and traditional manufacturing, institutional water and wastewater, water and good aftermarket service and project opportunities, including in the commercial sector.
and then our impressive performance is the end result. We are executing this diverse work and expanding into these resilient sectors with our growth over the last five years occurring through a combination of green-filled expansion, robust training once we do the green-filled expansions and compilers and tree acquisitions.
We do have some of the best leadership at the segment and subsidiary levels, and they work together to share best practices and drive results across our mechanical and electrical trades
The result is this exceptional outcome for our customers and as a result of that strong performance for our shareholders.
Our building service assignment continues to perform as we expect as it performs this year with very strong mechanical services performance and an overall operating margin of 7%. Despite the previously discussed lost contracts in our site-based businesses.
During the third quarter of 2024, our mechanical services business benefit from strong performance across its whole product line and portfolio work, including service maintenance agreements, repair services, HVAC retrofits, and building controls upgrades.
Our Industrial Service assignment continues to experience a gradual resumption in normal demand.
and we are performing well both in this field and shops.
and we are executing a normal fall turnaround season. Our UK business also continues to perform well in a difficult market. We are winning new work and our poor and our poor is a secure additional opportunities with customers that demand a strong technical solution for their facility services.
Tony: and 9.8 billion. We have a strong base of RPOs to execute and we have a balance sheet that what's well, and I want to continue to compete, win and grow in the future.
Tony: with all that said, I think we got all agreed with a great quarter, exceptional performance by our team. And with that, Jason, I will turn the call over to you and you will provide more detailed on our quarterly results. Thank you, Tony.
Over the next several slides, I'll review the operating performance for each of our segments, as well as some of the key financial data for the third quarter of 2024 compared to the third quarter of 2023. I'm going to start here on slide five, which is Revenue's.
Jason: As Tony mentioned, consolidated revenues were a quarterly record at 3.7 billion and increase of 489.3 million or 15.3 percent.
Jason: Led by our construction segments, we continue to execute well and demand remains throwing across most of the large and growing sectors that we serve.
I don't know organic basis, revenue's grew by 12.6%.
Looking at our segments, revenues of U.S. Electrical Construction were 845 million, an increase of 21.2%.
Jason: This segment continues to benefit from increased demand across many market sectors, with a most significant growth coming once again from networking communications, due to our data center project demand.
The segment additionally experienced notable increases in revenues within high-tech manufacturing as well as the institutional and manufacturing industrial sectors.
In the quarter, revenue growth within manufacturing industrial was partially driven by the completion of certain battery energy storage projects.
U.S. mechanical construction revenues were 1.66 billion, increasing 25%. Demand in a segment continues to be broad-based, and we once again saw growth in the majority of the markets in which we operate.
While the strongest growths were seen in high-tech manufacturing and networking communications, we also experienced notable increases with an institutional and healthcare.
Jason: The segment additionally benefited from greater levels of service work.
As we expected and constitute my comments last quarter
partially offsetting the growth for both of our construction segments.
Jason: with a decrease in revenues from the commercial sector due to either reduced demand across the commercial real estate industry.
or the completion of various warehousing and distribution projects which are active a year ago.
Together our domestic instruction segments generated revenues of 2.5 billion, which is an increase of nearly 24%.
Jason: If we look at U.S. building services, revenues were 796.9 million representing a decrease of 2.5% due to the non-renewal certain facilities maintenance contracts that we've discussed on prior calls.
and nearly $78 million decrease from our commercial and government-site-based operations. More than offset the continued strength from our mechanical services division, which grew revenues by 57 million in the quarter.
Jason: There continues to be strong demand for mechanical services and as Tony mentioned, we experienced growth across each of our service lines, including projects and retrofits, repair service, building automation and controls and service maintenance.
If we move to industrial services, driven by greater demand across their field services division, including turn-around of a larger size and scope growth on certain projects, revenues were 286.4 million and increase of 13.6%.
Jason: and lastly, UK Building Services delivered revenues of 106.4 million. A lot of project revenue remains consistent with that of the year ago period. Service revenues have declined resulting in a 4% decrease for this segment.
Let's turn to slide six.
For the quarter, we had operating income of 363.5 million or 9.8% of revenues.
Our performance established new quarterly records, both for operating income and operating margin, and compares favorably to operating income of 235 million or 7.3% of revenues a year ago.
Once again, if we look at each of our segments, US Electrical reported operating income of 190.1 million, which represents a nearly 89% increase.
Operating margin was 14.1% which is a 500 basis point improvement.
Jason: The segment generated increased gross profit and gross profit margin from the majority of the sectors in which we serve. In line with revenues, the most notable increases were experienced with a networking communications.
However, the segment also benefited from greater growth profit but in the institutional manufacturing industrial and high-tech manufacturing sectors.
Jason: Operating income for U.S. mechanical construction was 214.8 million, and increase of just over 55% and operating margin of 12.9% expanded by 250 basis points.
Similar to electrical construction, this segment experience greater gross profit from the majority of the sectors we serve. The largest increases were generated within high tech manufacturing and networking communications.
While our commercial sector revenues have declined, we did experience an increase in growth's profit from this sector due to a more favorable mix of work.
and together our construction segments reported operating margins of 13.3%.
Operating income for U.S. building services was 55.6 million. A slice decline year over year, however operating margin remains strong at 7% in both periods.
Conciting with the segments of revenues, increased growth profit and growth profit margin from our mechanical services division, was all set by reductions within commercial and government due to the headwinds we previously referenced.
Industrial Services operating income was 3.3 million or 1.1% of revenues versus essentially break even performance a year ago.
Jason: This improvement was driven by higher gross profit margin from both field and shop services doing part to better pricing and greater indirect cost absorption.
Jason: As a reminder, the third quarter is typically a week or quarter for the segment, accounting for the lower operating margin when compared to the first half of the year.
and lastly, UK Building Services reported operating income of 5.5 million or 5.2% of revenues.
Jason: While Project Revenue's have remained steady in the quarter, the UK soy less favorable mix of work from a margin perspective. Notably as their portfolio in the prior year included a greater number of higher margin projects.
One compared to projects of a more traditional profile, operating margins have declined in the UK by 280 basis points.
and the next episode. If we turn the slide seven.
Just a few highlights on this slide starting with Gross Profit.
Due to a combination of revenue growth, improved mix, excellent project execution, enhanced productivity and favorable pricing, Gross margin has expanded by 290 basis points and Gross profit has increased by 35%.
Our third quarter SGNA increased by 63 million, which includes 10.2 million of incremental expenses attributable to companies acquired.
While our SGNA margin of 10% for the quarter has increased by 40 basis points, our SGNA margin for the year-to-day period of 9.7% remains consistent with that of the prior year.
Given the stronger than anticipated performance, a true up-of-operating company in the sense of accruals accounts for the quarterly increase in S.J. N.A. margin.
And finally on this page, diluted earnings per share was $5.80 compared to $3.57 in increase of 62.5%.
Jason: If we briefly turn to slide eight, you can see our performance for the first nine months of 2024.
On a year-to-day basis, we have grown revenues by 18.1% or 16.2% organically. And our diluted EPS of $15.21 represents a 72% increase from $8.85 a year ago.
Jason: In a later slide, Tony Woutline are updated earnings guidance for 2024. I mentioned that now as it's our performance for the last two quarters as well as the year-to-day period which frames our guidance.
If we look at the low end of our guidance range, we've assumed operating margins which are in line with the 8.9% we have earned year to date.
At the midpoint, we have assumed fourth-quarter operating margins which reflect the average of our second and third-quarter performance.
and the high end represents what we could achieve if our fourth quarter margins are equal to the record margins we are in in this quarter.
And finally, if we look at our balance sheet on slide 9, our balance sheet remains strong and liquid and continues to be a differentiator for us in the market.
Although not shown on this slide, operating cash flow for the quarter was approximately 526 million, which represents a 145% of operating income. And on a year-to-date basis, we have generated 938 million of operating cash equivalent to 98% of operating income.
Our significant cash generation leaves us well-positioned to continue to fund organic growth, pursue strategic M&A, and return capital to shareholders, all of which we have demonstrated thus far this year.
For the first nine months of 2024, we have utilized a hundred and eighty-nine million on acquisitions, and returned $437 million to our shareholders in the form of dividends and share repurchases.
During the quarter, we repurchased 256 million of shares, bringing our year to date total to $405 million. With that, I will turn the call back to Tony for a discussion on our RPO's.
Jason: [inaudible]
on slide 10, you can see the key trends and sectors where we are experiencing growth. If you look at data centers and in that connectivity, we continue to see strong demand for hyperscaled data center work.
Tony: which has included in the Network and Communication sector at the end of the quarter RPOs in the sector where a record 2.1 billion. Up $750 million or nearly 55% year over year and almost 25% sequentially.
As I've said on prior calls, we believe that we are in the early endings of the overall data center expansion, especially with the addition of AI. And that we've successfully positioned ourselves in more data center key geographies over the past five years to serve our customers better.
Re-suring a nursery or in continues to pride opportunities for us in both the high-tech manufacturing and traditional manufacturing and industrial sectors.
Tony: and High Technic Manufacturing. We have RPOs, 1.3 billion at the end of the third quarter. That includes some of the conductor's form of biotech life sciences and the electric vehicle value chain.
RPO is an insect that we're about 7% from the Europe group here, as we continue to work through a number of high-tech manufacturers, including the initial 5, the initial 5-1, several semikonductor campuses.
However, we believe the long-term fundamentals here are solid and as we have stated before, we expect EBSM flows in the award of this work.
Many of these projects sites are multi-year sites and we are working on our anticipated we are working on multi-year multi-phase construction projects for which we would generally only be awarded one phase at any given time or a part of the phase at any given time.
While we believe we are well positioned for these follow-on contracts, they will release in different amounts, different times, and sometimes even under different contract sectors on these multi-year multi-phase building programs.
In addition to high-tech manufacturing, we continue to have a healthy dose base of RPOs within the traditional manufacturing industrial sector, which showed 921 millionth in the end of the quarter, up nearly 8% year over year and almost 18% sequentially.
When you look at energy efficiency and sustainability, we continue to excel with retrofit project work.
Tony: especially within the mechanical service division of our U.S. building service segment.
Tony: where we start year over your increase in our views of 4%.
As a reminder, much of this work is focused not only on retrofit replacement of age equipment, but also reducing energy coupled.
Energy consumption.
Tony: by coupling more efficient equipment with a building automation upgrade. And lastly, on this stage healthcare is an area where we have excelled and we ended up the quarter at a record 1.2 billion in RPOs up over 19% from the year of Go Period.
Now we go to slide 11 and I'll finish this off. Water and wastewater now total 729 million and increase of 21% sequentially and 18% year over year. And for those new to the call, this is a market for us which is mainly focused in Florida.
RPO's in the institutional sector which includes project work for schools, universities, and local and state and federal buildings. We're up 19% year earlier coming in at a record 1.1 billion.
Spending his on research facilities and hands-to-new classroom space, technology upgrades, across campuses, and renovation and retrofits with a goal of improved air quality and reduced energy consumption drives demand in the sector.
Tony: Transportation Group, 10% sequentially, and 66% year over year to approximately 350 million.
Tony: Driven by the award of certain infrastructure projects.
and short duration projects.
which are our small project work and it's across the gamut of work we do. From building control, upgrade, GHVAC upgrades.
Electrical upgrades, technology and enhancements all in the bill space. We're trying to make the buildings and campuses more efficient. Energy efficiency smarter, cleaner and more productive. They are at 437,73 million, essentially flat year over year.
When you partially upset these increases, it was an expected decline within commercial and again, for us that's new construction that's driving that and it's really not high rise in office projects, but more some of it warehousing a distribution market that has slowed somewhat.
RPO's in the commercial sector, well, 1.4 billion at the end of the third quarter, but we do it grow 3% sequentially.
Tony: as I've mentioned earlier.
Our RBOs are 9.8 billion, they're up 13.4% or 1.15 billion from year ago And the question you're going to ask is what do you think? We like the mix, we like the projects.
Tony: and we like the execution although we don't control totally the timing and execution of these projects as those RPOs were a lot. We believe that the value and the type of mix of contract structure and work we have in those RPOs is similar to the work we've been executing over the last six quarters.
Speaker Change: Now I'm going to close on page 12 and 13. We've obviously performed very well during the first recorders of 2024. And Jason talked about the record performance we had in the third quarter, especially with respect to operating margins.
are momentum has been strong, both on revenue growth and operating margin expansion.
Our revenues have grown, 18.1% on a year-to-day basis, and our operating margin has expanded 250 basis points to 8.9%.
As a result, we're going to raise our diluted earnings per share of guidance to $20.50 to $21. And that's from our previous range of $19 to $20. And we expect to earn revenues of at least $14.5 billion.
Tony: You know, as we move into the year-end and looking at future, I always step back and reflect on what is working well and what are the challenges.
and what's going well? Well clearly we are positioned well in a set of growing and diverse sectors that demand excellence and execution especially with respect to large projects.
Tony: in a better server of our customers. We've expanded our skills across geographies.
and sectors and we do that for training people well.
with that Greenfield expansion, complimentary acquisitions, and we can deduce in best heavily in VDC and in our prefab, which results in better field execution and improved productivity.
Our company's utilized peer learning and share best practices on means and methods to build capabilities and leverage our customer relations better any time in our company's history.
We leverage our corporate staff and segment staff very well to improve outcomes, not only on contracting negotiations and planning, but human resources planning, cyber IT, financial discipline, which includes management planning.
Cash Collection, Marketing, Risk Management for Trust Means Insurance in this case, to gain the benefits of expertise in learning that we've had, especially over the last five years as we build more and more of these scale products, to also leverage our scale to improve outcomes first for our customers and our employees.
We have invested in success over many years in leadership development with a focus on our core values of mission first people always and continue to develop our unique m-core operating system in practices.
We always have opportunities to improve and I'll mention of short view. We always need to adjust our product offerings, our project delivery. But in this case, we continue to need an answer to our ability to serve our customers through geographic expansion and skill transfer.
We need to enhance our site-based service offerings to focus further on our technical services expertise as a point of disforestation versus the real estate firms.
Tony: You know, always going to face challenges in an uncertain world of supply chain.
and this ruptains continue that can overcome certainly interest rates, geopolitical tensions.
But our team has shown resilience and has overcome such challenges successfully in the past And there's no reason to believe we won't do that in the future And again, we always go back to our culture of mission first people always And our unique MCORE operating model
and finally, you got to continue to invest on what's going well and you have to even do more investment in learning to make it even better.
Tony: We've had a good mix of capital allocation this year from strong organic investment, acquisition investment, and return of cash to shareholders through share repurchases and dividends.
We continue to pursue robust opportunities to invest more organic capital across our operations.
Tony: to support our VDC, which again reminding you is virtual design and construct and pre-fabrication efforts.
but also continue to apply technology and improve productivity, safety, and efficiency from our back offices to project execution. You're going to ask about acquisitions, I've always had the attitude that deals happen when they happen. We are in discussion with many people across many years.
Tony: Helped them come into the M. Corps family and we've had a great track record of that over the last five years, especially on the execution and integration of those acquisitions.
Tony: As always, I want to thank my M4 teammates for performing so well for our customers and for making M4 a great place to work as we always strive to improve as a mission first people always culture and with that Chuck I'll take questions.
Chuck: Thank you, we will now begin the question and answer session.
To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then two. And at this time, we'll pause momentarily to a symbol roster.
And the first question will come from Brent Salman with DA Davidson. Please go ahead.
Hey, thanks. Morning. To a party.
Andrew Mark: Andrew Mark
and just for some, I mean, the growth and data center.
Brent Salman: for you just continues to be remarkable. Tony, I was wondering if you could just talk around, you know what's being supported by new build out versus retrofit and then, as you think about retrofit down the line, how much of an opportunity is that for you in that category?
I think it's going to be a significant opportunity, but if you look today specifically 90% plus of our work is new build.
Tony: and...
Probably two thirds of that's on existing campuses and a third of that's on new campuses.
and Brett, when we think about the data center, it's actually to get ready for this call. I would reflect on what's changed over five of your periods. If you go back to the middle of 2019, then you snap the line here at the end of the third quarter.
We were serving electrically about two and a half markets at the end of 19
Tony: and it was a half is because it's not really a data center market. It's more of one of those places where they use to transfer data here around the New York area. And today I counted at least 13 depending on how you count at 14 markets were serving electrically. And what's driving that is our customer.
We execute well, we share learnings well, our customers want us to expand in more markets and we do that a number of ways. And now, mechanical, we can finish on mechanical. We went from serving one day to center market in 2019 to six today.
and on the Fire Life Safety side, we can serve our customers pretty liquidously across the country.
Again, understand what I'm saying is because our customers are asking us to help serve them better and more markets. So how do we do that?
Tony: Well, we do that first by leveraging our capabilities in teaching folks that we already have in an existing subsidiary how to do data center work and meet this most demanding market segment. So yes, the growth remarkable, but either some of the most demanding customers in the world.
Second, we then combine that with organic investment in those subsidiaries and in our existing subsidiaries to deliver great results for those customers. And then we're applicable, we may buy into the data center market or, and that currently has to do more than data center.
Tony: They have to be able to stand on their own in that market without the data center market. So you put all that together, that's how you serve that market. Now if you go look into the future here and the next question should be okay, how much you think is that to tie to AI today?
In the future, it'll probably be a third to half of what we're doing. We'll be tied to a AI and the balance will be just cloud storage and expanding that and eventually they interact with each other.
I will tell you the AI power requirements or anywhere from 5 to 6 times.
In some cases, what a traditional cloud storage data center will be. So what does that mean for us?
Tony: It means enhanced scope, it means more requirement for planning, every guy is more sophistication on the VDC side, which continues to make, are you understand why customers want us to expand with them into other markets?
Speaker Change: I was that'll stop Jason Nalbandian.
Very good. Appreciate all that Tony. And then, path to the ability and electrical is even better than the last few quarters, which were quite good.
Speaker Change: Are there any close-outs operational one-timers driving the 14% hot margin Tony? And it was always things and you get in quarter, but...
I think if you look at, if you look at clothes out, if you look at
Speaker Change: Well, we've disclosed, I think year over year there really is in the drastic change that's accounted for the margins. I think as we said it continues to be driven by mixed and execution, but I do think, right, you can never look at one quarter and say that's an indicator of our margins. I think in this environment, I'd say looking at a nine to 15-month rolling average is probably a good way to look at it. Yeah, and the reason we say that is, right?
Speaker Change: We don't control the time we get these projects so at any given time we could have
is especially our supervision.
Tony: sort of on the bench for a month and a half as we wait for new projects to start up. It's always important to remember. I always have to recall back to early 2022.
We saw the bill happening, people were questioning whether this was going to be sustained. We thought yes, we held on to the key supervision.
Tony: and the margins have got beat up a little bit in the first quarter of 2022 and here we are today. This is not a quarter of a quarter business, this is a long term. You think you think about what we're trying to do here?
We're trying to match our precious resources, which is our shop capacity, our VDC capability, our estimating, but most importantly, our field supervision and labor on the means of method, with what is a long-term capital build cycle across some high impact sectors.
and you can see that in our P.O. is those high impact sectors include data centers and connectivity. They include the aftermarket. They include high tech manufacturing to include semiconductors.
They include traditional manufacturing industrial. They include healthcare. They include water and wastewater. So we really value our build supervision and we're taking that precious resource and thinking about how to line it up against those opportunities in the future. And that's not a linear path to get there.
Speaker Change: Very good. Maybe just last one.
Tony, appreciate the comment around high tech manufacturing that you're using the ability to be project sort of extends.
several years, the timing can be episodic and did it. As actually, we're curious from the RPO strength and manufacturing and industrial, which sort of reflects things, I guess, outside of high tech.
What are the sorts of things you're seeing there, and maybe what contributed to the strength this quarter?
Speaker Change: and I think that's interesting. Yeah, it's pretty broad-based, but it's the traditional things we've done. Again, it always goes back to those manufacturers drive for efficiency and automation, and market expansion coupled with re-starring. And it's traditional things. It's food.
Tony: and General Consumer Goods.
It's some success of auto suppliers into the traditional automotive chain.
Tony: It's suppliers doing everything from pumps and motors and all those things. It's support, you know, all these other projects we're doing.
Tony: and capacity expansion. So some of it is driven by capacity expansion to meet the more mundane areas of all these other growth trends. And in some of its reshuring and the drive for automation and look all these places, you think about what's going on with energy prices. So we talk a lot about office building, office building, office building.
But think about what a manufacturing plant used. We're doing that work there too, or they drive for energy efficiency, and they get into a multi-year program for us to drive efficiency across their plant network.
Tony: So it, that, that theme of driving down energy costs and reducing carbon footprint. But I will tell you it's led by cost right now because of the spike in energy prices and no one thinks they're going down anytime soon.
Speaker Change: Yeah, I think the only thing I would add to that right, I grew with everything Tony said, I think the near-shoring reshoring continues to be strong for us continues to be a driver. If you're looking at RPOs sequentially, I will say maybe we saw a little bit more strength in the food process I would Tony mentioned at the onset of his commentary but we're just looking sequentially food definitely a driver. Absolutely.
Excellent, I am a curshinit, I'll pass on.
Speaker Change: The next question will come from Adam, Paul Hymer, with Thompson Davis, please go ahead.
Speaker Change: Hey, good morning guys, congrats on the 9th of a quarter. Thank you.
Tony wanted to ask about the revenue guidance first.
What's kind of your message on the decline there?
There's not a decline, we gave you a...
Ranger, 14 and half to 15 billion. Now that we look at the project timing out of our RPO's, we're at 14 and half billion. It's always was meant to be a range.
Now we're sort of zeroing in on your end.
and with 18.3% year over your growth in revenues, I think we're doing okay. To me, I think it's Tony said it's looking at the RPOs that we have coming in and the timing of when we expect those projects to kick off. There's always a natural lag between when it contracts awarded and when that contract ramps up. And this is just us revising our estimates of when we think those projects are going to ramp. So I don't necessarily view it as a reduction of a very loss of revenues as much as I view it as a timing.
Okay, so that was my next question, that's perfect. So this is your best sequential backlog growth in two years. And my question is, when do those jobs start?
Speaker Change: I'm some of them are starting right now. Some will start in the first quarter. Very few things we have in RPOs right now. We'll start much past March. Most of it will start between now and the middle of March.
and then with Pack Log Growth accelerating and maybe a little push out in project timing, I guess. Just curious if you had any high level thoughts on 25 revenue growth you could share.
Well, Adam, we've been doing this together for a while.
Now, we'll talk about 2025 in February, but clearly with the RPO grows, we are planning another year of growth, right? Jason put together some interesting analysis because this sort of helps frame it for the long term.
Speaker Change: Right, first of all, we've spent a lot of time on this call already and justifiably so talking about sort of something outside growth sectors like data centers and high tech manufacturers.
Even if you strip that out and you're looking this year.
We're still growing in the underlying more traditional markets, 7% revenue growth. And if you look over the last five years and you say, how are you growing versus non-res construction?
We're growing about 250 base points above that.
Speaker Change: of what non-wrested construction. I've typically said we grow somewhere between 20 to 20 to 30 and 35 percent of non-wrested in a high-growth market and in a slower growth market when it's growing a GDP, we typically double that growth, right? So.
Speaker Change: That's how true over the last five years, which has been a very healthy growth market for non-Rex.
So there's no reason for us to believe, whatever the expectation for non-resist, that we're likely to outperform it over a year period, quarter to quarter you never quite know.
Right? Okay, thank you guys.
Speaker Change: The next question will come from Alex Dwyer with Keybank Capital Market, please go ahead.
Hi Tony Jason Nandy, good morning. Good morning, I was congrats on the quarter. Thank you.
Alex Dwyer: I guess I wanted to get your thoughts on what would happen if there was a change in administration next year and I guess the things that come to my mind would be...
The more focus on oil and gas, less on clean energy, maybe terrorists and continued focus on domestic manufacturing.
I'm not sure how to think about how impactful it could be to your business or if or if I'm missing anything but just any thoughts there would be helpful Well, I always say so you'll never hear me make partisan comments publicly and maybe overbear I'll give you my own thoughts But the reality is we make money with Democrats and we make money with Republicans
Speaker Change: Albertus.
So I think if you go to the broad things.
Speaker Change: is anybody likely not to want to see more manufacturing reassure into the United States. I think the answer to that is both want that to happen.
I think the second thing you say one of the big drivers is some I conduct.
Does anybody think that the situation between Taiwan and trying to pet her today then it was when they did the chipset or even before the land was blocked, which was like five or seven years ago? Does anybody think that it's better today?
and then it was two years ago and either the Republican or Democrat in this case, either one of them not want to see the domestic chip manufacturing industry flourish. Well, they answer to that.
Speaker Change: Do you think anybody wants to not see data center construction go?
and have AI be a real advantage in this country and you think that...
Speaker Change: Edo one of them, one to let significant US computing power, or companies want that overseas, the answer to that is no.
So some of the big drivers I think remain intact because these are major forces driving it that have little to do with public policy or things that more to do with geopolitical things in security.
Speaker Change: Then you go to the energy situation. I think there is a difference there. I don't think it'll be as profound as people think. I personally think that we're going to have to have it all the above strategy, but I think you're going to see oil and gas flourish under one, versus the other more quickly.
I think in any case we're going to have to build more gas turbine plants in the next five years because it's the only way to fill this energy gap that's going to be created because of all the things I talked about in the beginning of my answer.
I think with one of them that will happen quicker and with the other one we'll have to get into a little bit of a crisis for that to happen, been a will happen.
I think on the renewable side, not an area that we have huge exposure to. We have some exposure, but not huge exposure like others. I think we may need to be saying, I do think that's been challenging anyway, and that will be more challenging if one wins versus the other.
Speaker Change: I think if you go along term in the auto space for us we look at a lot of different scenarios with respect to our own fleet.
Speaker Change: We believe for what we do, hybrid will eventually come in as a viable solution somewhere in the next three to five years as it gets more into SUVs and pick-up trucks and vans and O's thing.
Hi, you know, on the EV value chain something we have exposure to, but of all these big trends is the one we have the least exposure to.
Speaker Change: It's been more of a fire-like safety coat as they've built infrastructure.
Speaker Change: I think in that case I don't know either one of them will jump ahead, one will be a market approach I do think of one of the ones versus the other, the Tel-Pype emissions standard will change pretty dramatically Back to something that can actually maybe be accomplished
Put all that together, go back to my original comment.
We've done well under Democratic administrations and we've done well for Republican administrations.
What our shareholders pay this management team to do is adjust in a depth.
We're not big on lobbying, we don't do that
We had Justin adapt, we moved on, and that's the greatest thing about a contractor. That's how we're trying to think.
Got it. I appreciate the thoughts, Tony.
and then I guess just coming back to the high tech manufacturing RPO's, the return to the financial growth in the quarter.
How should we think about the ability to keep growing these RPO, this end market, RPO going forward as we think about the initial semi-fabble wars turning into follow on awards and wondering if...
Yeah, my gut that could be a headwind. And again, my gut tells me talking to our folks on the ground and the conversations on that.
A three-area is the were most exposed to phabs, electrical and mechanical and electrical. Is the sites were on?
Speaker Change: Somewhere between now and the middle of the third quarter next year.
Speaker Change: We're likely to get another big award and it might come in pieces. That's likely to happen.
and that's going to happen at two of the sites. The plan is well along the way and we're helping with some of the infrastructure planning as they get ready to do that.
I think the building side of it is one part of it, but then they got a staff at the run-up for the long term. And the people that are doing this have to do both. We don't have to do this. We just have to help them get it up at running a commissioning.
So, NetNet, I think it's a great long-term market force. I'm glad we have the capabilities we have, and I'm glad we continue to invest and build more capabilities into that market.
Got it. Okay, and then I guess my last question, the cast flows just continue to be super strong this year.
Speaker Change: I think in the beginning of the year you had given that 100% operating cash flow to net income God.
Speaker Change: I think it's been well above that for the year-to-date performance. How do we think about that? Was that overly conservative or is there something in the cash performance that has just significantly exceeded your expectations? Is that the right way to think about the business as we had to next year? Well, long term.
Over three to four years, you can't collect more than that income.
Right, that is a standard, right, 100% in that ink. And the wire we do better than that right now. We're getting ahead of some of our contracts. We always focus on this in that building and access as a major metric for us.
and I'm going to let Jason jump in here and more detail, but the point is, if it's all, you send bills. Now that's not how that works, right? That means the project is going very well and the schedule values and we've negotiated them to a way that we can keep ahead a little bit or cash neutral on these projects.
Speaker Change: Sometimes we get prepaments ahead of time to allow us to mobilize and go on a customer site. That's an negotiation. I will tie back to a broader point of maternal education, right? Our balance sheet is a major way that we compete.
We have the capacity to do a lot of things with that balance sheet and we will continue to look through the growth and acquisition. We are not afraid of doing, we said that before for the right deal. We would move and go do that. We think that works.
But in general, we're never going to be a high leverage company. And the reason for that is you think of who we're working.
Speaker Change: They are all cash-focused cash-rich customers
and when they point to long-term relationship with customers like contractors like us and partners.
Speaker Change: They want people that look like them with that respect. They want to know the job's going to get done. And so we've been able to get favorable contract terms.
Speaker Change: and that's really what allows us to be a little bit ahead.
on cash versus net income, but long term right there.
Speaker Change: and that doesn't work. Jason, I think Tony has a great summary. I think, I think, long-term, we will go back to that average that we always look at, which is 100% of that income, or 80 to 85% of operating income. When we look at this year, yeah, right now we're 98% of operating income. I think we'll maintain that level through the end of the year. We'll have another strong...
Cast Generation Quarter and Q4. But I think over the long term, we have to revert back that traditional metric. Jason and I had a very wise call like that. Brand are construction business for years. As I say, Tony, you can only collect the cash once.
Speaker Change: and that's how you get back to Casflow Ecos, let me come.
got it. Appreciate the thoughts. Thanks.
This concludes our question and answer session. I would like to turn the conference back over to Metro Tony Guzzi for an Inclusion remarks. Please go ahead.
Speaker Change: Again, I want to go back and circle around and think our field leadership in all of our team,
Speaker Change: has surely been an extraordinary five year.
of Performances We Continue to Grow.
and with that Andy I'll turn to call back over to you. Yeah thanks Tony thanks Jason McSeen and everybody for joining us before we close the call as we announced this morning.
Tony Jason and I will be participating in the bear 2024 Global Industrial Conference in Chicago, including one of one's in a webcast fireside chat on Tuesday, November 12 at 9.30 a.m. Eastern Time.
We hope to see many of you there. As always, if you should have any follow-up questions, please do not hesitate to reach out to me directly. Thank you all and have a great day and Chuck, please close the call. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: [inaudible]
Speaker Change: [inaudible]
Don't take my art for granted Don't take my hopes for granted Don't take my time
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and Jason Nalbandian. Thank you.
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