Q4 2024 EMCOR Group Inc Earnings Call
Betsy: Good morning. My name is Betsy, and I will be your conference operator today.
Betsy: At this time, I would like to welcome everyone to the M-Corps Group 4th Quarter and Full Year 2024 Earnings Conference Call.
Betsy: All lines have been placed on mute to prevent any background noise.
Betsy: After the speaker's prepared remarks, there will be a question and answer session.
Betsy: If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.
Betsy: If you would like to withdraw your question, please press star then 2.
Speaker Change: I would now like to turn the call over to Andy Backman, Vice President of Investor Relations. Mr. Backman, you may begin.
Andy Backman: Thank you, Betsy, and good morning, everyone, and welcome to MCOR's fourth quarter and full-year 2024 earnings conference call.
Speaker Change: For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today.
Speaker Change: With me today are Tony Guzzi, our Chairman, President, and Chief Executive Officer, Jason Nalbandian, Senior Vice President and MCOR's Chief Financial Officer, and Maxime Mauricio, Executive Vice President, Chief Administrative Officer, and General Counsel.
Speaker Change: For today's call, Tony will provide comments on our fourth quarter and the full year 2024. Jason will then review our fourth quarter and full year numbers before turning it back to Tony to discuss our recent acquisition of Miller Electric Company, our RPOs, as well as reviewing our 2025 guidance before we open it up for Q&A.
Speaker Change: Before we begin, as a reminder, this presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures.
Speaker Change: I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides.
Speaker Change: And finally, as a reminder, all financial information discussed during this morning's call
Speaker Change: In my opening comments today, I will primarily highlight our performance in 2024.
I'll discuss what went well and the challenges we face.
Speaker Change: on nearly every relevant financial metric, including diluted earnings per share of $6.32, operating income of $389 million.
Speaker Change: operating margin of 10.3 percent, operating cash flow of 469 million, and revenues of 3.77 billion, a 9.6 percent year-over-year increase.
For 2024, we earn $14.6 billion in revenues.
achieving year-over-year revenue growth of 15.8 percent.
We had diluted earnings per share of $21.52.
Speaker Change: operating income of 1.3 billion and we had an operating margin of 9.2 percent. We had operating cash flow of 1.4 billion dollars.
Speaker Change: It was a terrific year with strong execution across our business, supported by well-timed long-term investments that positioned us to serve growing, diverse, and technically sophisticated end markets.
Speaker Change: Our performance culture centered on mission-first people always enables us to attract, develop, retain, and reward an exceptional workforce, which in turn drives our strong performance for both our customers and our shareholders.
Speaker Change: So, this morning, rather than providing a segment-by-segment recap of the year, what I thought I'd do is I'd provide an overview of what went well in 2024 and really what has gone well over the last three to five years.
Speaker Change: as well as some of the challenges we overcame to deliver an exceptional 2024.
Speaker Change: First, we operate in growing markets that offer long-term opportunities for success.
Speaker Change: However, to perform well in these markets, you must have the ability to track, develop, and retain exceptionally skilled labor.
Speaker Change: You must exhibit excellence in project planning and development, virtual design and construction, and I'll refer to that as VDC. And VDC includes BIM, or building information modeling, that then leads to pre-fabrication and then automation of some of our pre-fabrication operations.
Speaker Change: You also need to have experienced leaders down through the segment and subsidiary levels who can manage the performance of the work and earn and maintain the confidence of our customers.
Speaker Change: As we have demonstrated again in 2024, and really over many years, our ability to perform well in growing markets like data centers, high-tech and traditional manufacturing, healthcare, energy retrofits, and water and wastewater projects,
Speaker Change: They provide us the opportunities to generate above-market growth. At MCORP, we pivot to sectors where growth and opportunity exist, and we deploy our skilled workforce and leadership teams to tackle the most difficult projects for customers who value our capabilities, experience, and strong balance sheet.
Speaker Change: Further, we have a broad service offering and the trade depth to effectively execute that offering.
Speaker Change: Our extensive capabilities across the mechanical and electrical trades allow us to provide a more comprehensive scope and give us the desired scale for our customers. In the electrical trades, we can offer the full range of medium and low voltage solutions across geographies and markets and customers.
Speaker Change: Our mechanical capabilities span large, complex mechanical and piping systems in high-tech and traditional manufacturing.
Speaker Change: Industrial, Oil and Gas, Healthcare, and Water and Wastewater projects that often require superior BDC and prefabrication capabilities to ensure efficient, precise, and safe execution.
Speaker Change: Our mechanical capabilities extend to fire life safety where we design, install, and service some of the most complex fire suppression and alarm systems.
Speaker Change: Beyond construction, our capabilities extend to the aftermarket, where we have the skills and skill to meet our customers' needs with HVAC and building control service and retrofit projects as well as electrical retrofits, low voltage work, as well as the fire life safety service solutions mentioned above.
Speaker Change: And finally, we invest in the long term for our people, and we are disciplined capital allocators. At our core, we are a company that succeeds because of excellence in field leadership and skilled labor, united by our MCOR values of mission first, people always.
Speaker Change: We have a comprehensive leadership development program from project managers and foremen to segment and corporate leadership. We train extensively across the skills that enable our success.
Speaker Change: We also have leading succession management, as evidenced by the fact that 80% of our subsidiary and segment promotions are internal and well-planned.
Speaker Change: our voluntary turnover rates at the subsidiary and segment leadership levels are near zero as we have a pay-for-performance culture and we work collectively as a team to achieve superior results for our customers.
Our capital allocation model is balanced and effective.
Speaker Change: focused on building the business first through organic investment. For example, over the past three years, we have more than doubled our capital investment in the business with CapEx now in 2024 of $75 million. We have a very successful acquisition program, and we return cash to our shareholders through dividends and share repurchases.
Speaker Change: In 2024, we completed 7 acquisitions for approximately $230 million, and we returned $43 million in cash through dividends to our shareholders and $500 million to our shareholders through share repurchases.
Speaker Change: The Mueller acquisition, which we discuss later in this presentation, closed on February 3rd, 2025, and is a great example of our capital and discipline in action.
Speaker Change: As we have said in the past, deals happen when they happen. And we are disciplined acquirers focused on building our overall business to better serve the demands of our customers through offering of diverse services across markets and geographies.
Speaker Change: Well, 2024 was an exceptional year. We did have some challenges. These include ongoing supply chain issues. We finished some pre-COVID work that we have now finished that, you know, was not the greatest, and the intense competition we faced in our U.S. and U.K. site-based services business.
Speaker Change: Building and maintaining our skilled workforce is always a challenge, but our field leaders are best in class in labor planning, sourcing, training, and retention.
Speaker Change: We anticipate facing some macro and other potential challenges in 2025, but as we've done in the past, we will work to protect ourselves with extensive planning, and where appropriate, prefabrication and automation, coupled with the right contractual terms and structures.
Speaker Change: As contractors, it is in our DNA and training to adapt and improvise to achieve acceptable results.
Speaker Change: We exit 2024 with RPO growth of 14% year-over-year and aggregate RPOs of $10.1 billion, another record for the company.
Speaker Change: Mueller added over 700 million in RPOs as of our February 3rd closing. That is not in the 10.1 billion 2024 year-end number discussed above
Speaker Change: Our balance sheet remains liquid and strong, even after the $865 million acquisition of Mueller. With that, Jason, I'll turn the discussion over to you.
Thank you, Tony, and good morning, everyone.
Jason Nalbandian: Starting on slide six, I'm going to review our operating performance for each of our segments as well as some of the key financial data for the fourth quarter of 2024 as compared to the fourth quarter of 2023.
Jason Nalbandian: I'll also touch on some of the highlights for our full year performance, in addition to our acquisition of Miller Electric, and the impact on our guidance for 2025.
Jason Nalbandian: As Tony mentioned, consolidated revenues were a record $3.77 billion, an increase of $330.8 million, or 9.6%, which was led by our construction segments as we continue to execute well and demand remains strong across most of the key sectors that we serve.
On an organic basis, revenues grew 7.4%.
Jason Nalbandian: Revenues of U.S. electrical construction were $933.2 million, an increase of just over 22%.
Jason Nalbandian: The most significant growth in this segment was experienced in the network and communications market sector due to a number of data center projects.
Jason Nalbandian: But beyond data centers, demand within this segment continues to be broad-based with notable revenue increases within high-tech and traditional manufacturing, transportation, and institutional.
U.S. mechanical construction generated revenues of $1.66 billion, increasing 12.8%.
Jason Nalbandian: Similar to electrical construction, the largest growth during the quarter was seen within network and communications.
Jason Nalbandian: In addition, this segment experienced revenue increases within a number of the other sectors in which we operate, including high-tech manufacturing and healthcare.
Jason Nalbandian: Revenues of the mechanical segment also benefited from higher levels of service work as we continue to grow our mechanical and fire protection maintenance base.
Jason Nalbandian: As expected, and consistent with my comments the last several quarters, partially offsetting the growth in both of our construction segments was a decrease in revenues from the commercial market sector due to either reduced demand across the commercial real estate industry or the completion of various warehousing and distribution projects.
Jason Nalbandian: Further, within the mechanical segment, we did experience a quarterly decrease in revenues from the manufacturing and industrial sector, due in part to the timing of project startups.
Jason Nalbandian: With a robust pipeline of traditional manufacturing and food processing projects, along with a 7% year-over-year increase in manufacturing RPOs, we remain confident in the underlying demand drivers of this sector.
Jason Nalbandian: On a combined basis, our construction segments generated revenues of $2.6 billion, an increase of 16% year over year.
Jason Nalbandian: Looking at U.S. building services, revenues were $755.6 million, representing a decrease of 5.8% due to the non-renewal of certain facilities maintenance contracts discussed on prior calls.
Jason Nalbandian: An $89 million reduction in revenues from our commercial and government site-based operations more than offset the continued strength of our Mechanical Services Division, which grew revenues by $42.5 million.
Jason Nalbandian: We experienced revenue growth across each of our mechanical service lines.
Jason Nalbandian: And just as a reminder, we began to see the impact of the lost site-based contracts in the second quarter of 2024. As such, when we look forward, we do anticipate a revenue headwind of $60 to $70 million within U.S. building services for the first quarter of 2025.
Jason Nalbandian: If we move to industrial services, revenues were $312.7 million, an increase of 6.9%, driven by the segment's field services division, inclusive of an acquisition made by us during the year.
Jason Nalbandian: And lastly, U.K. building services delivered revenues of $107.9 million, generally in line with that of the year-ago period.
Let's turn to slide 7.
Jason Nalbandian: With operating income of $388.6 million, or 10.3% of revenues, our performance established new quarterly records for both operating income and operating margin.
Jason Nalbandian: When compared against the fourth quarter of 2023, this represents a 34.4% or nearly $100 million increase in operating income, and operating margin has expanded by 190 basis points.
Once again, turn it to each of our segments.
Jason Nalbandian: U.S. electrical construction generated operating income of $147.9 million, which represents a 94% increase.
Jason Nalbandian: Operating margin was an outstanding 15.8%, a 580 basis point improvement.
Jason Nalbandian: In addition to a more favorable mix of work, this performance is a true testament to the exceptional execution by our operating companies and project teams.
Jason Nalbandian: Operating income for U.S. mechanical construction was $220.6 million, an increase of 18.6 percent year-over-year, and operating margin of 13.3 percent expanded by 70 basis points.
Jason Nalbandian: Similar to electrical construction, a more favorable mix of work and excellent project execution were the primary drivers of this performance.
Jason Nalbandian: From a market sector perspective, our construction segments generated greater gross profit from the majority of the sectors in which we operate, with the largest increases generally tracking the growth in revenues.
Jason Nalbandian: And together, our construction segments reported an operating margin of 14.2 percent, which is a 250 basis point improvement year over year.
Jason Nalbandian: Operating income for U.S. building services was $40.9 million, a slight decline year-over-year. However, operating margin remained strong at 5.4 percent.
Jason Nalbandian: Moving to industrial services, operating income was $10.2 million, a decrease of $2.4 million, and operating margin was 3.3%, a reduction of 100 basis points.
Jason Nalbandian: Despite the increase in revenues, this segment experienced a decrease in gross profit and gross profit margin given a less favorable mix of work due in part to lower revenue contribution from our shop services division.
Jason Nalbandian: And lastly, UK Building Services earned an operating income of $4.8 million.
Jason Nalbandian: In addition to the impact of slightly lower revenues, operating margins in the U.K. have declined by 50 basis points as the segment's project portfolio in last year's fourth quarter included a greater number of higher margin opportunities.
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Jason Nalbandian: A few quarterly highlights on this slide, starting with gross profit.
Jason Nalbandian: Driven by our electrical and mechanical construction segments, as well as our U.S. building services segment, gross profit margin has expanded by 210 basis points, with gross profit increasing by 22.5%.
Jason Nalbandian: Our fourth quarter SG&A increased by just under $40 million, which includes $9.5 million of incremental expenses from acquired companies.
Jason Nalbandian: The remainder of this increase is largely due to employment costs, given both greater headcount to support our organic growth, as well as higher levels of incentive compensation expense across our operating companies due to their improved performance.
Jason Nalbandian: SG&A margin for the quarter of 9.8% compares to 9.6% a year ago. The 20 basis point increase is a direct result of the expansion in gross profit margin and a corresponding increase in subsidiary incentive compensation that I just referenced.
Jason Nalbandian: And finally on this page, diluted earnings per share was $6.32 compared to $4.47, an increase of 41.4%.
If we briefly turn to slide 9...
This page summarizes our performance for the full year.
Speaker Change: Tony touched on much of this already in his opening commentary, so rather than walk through these results in detail, I simply want to highlight that our performance for 2024 sets new company records for virtually every metric that we track.
Jason Nalbandian: including annual revenues, gross profit and gross profit margin, operating income and operating margin, net income, and diluted earnings per share.
Jason Nalbandian: Notably, for 2024, we earned a full-year operating margin of 9.2%.
Jason Nalbandian: As we look ahead, we remain confident in the underlying fundamentals of our business.
Jason Nalbandian: When Tony outlines guidance for 2025, you will see that we are once again projecting a year of strong operating margins with a range of 8.5 to 9.2 percent.
Jason Nalbandian: When looking at this range though, it is important to note that we anticipate a 25 to 30 basis point impact from intangible acid amortization stemming from the Miller Electric acquisition.
Thank you.
Jason Nalbandian: With that being said, if we look first to the high end of this range, we are projecting an operating margin which would match the record margin we earned in 2024 despite the incremental amortization.
Jason Nalbandian: Under this scenario, we're essentially forecasting a level of margin expansion within the underlying business.
Jason Nalbandian: At the midpoint of our margin range, we have assumed a full year operating margin of approximately 8.9%, which when accounting for the incremental amortization, is essentially in line with the 9.2% operating margin we earned in 2024.
Jason Nalbandian: When looking at margins it's also important to remember that we are a project-based business and our margins can and will move around from quarter to quarter based on the mix and timing of our work.
Jason Nalbandian: Let's turn now to slide 10, which is our balance sheet.
Jason Nalbandian: As we've previously stated, our balance sheet remains strong and liquid, and when combined with our history of operating cash flow generation, provides us the flexibility we need to invest in organic growth, pursue strategic acquisitions, and return capital to our shareholders.
Jason Nalbandian: We remain committed to our philosophy of balanced capital allocation and believe this is reflected both through our acquisition of Miller Electric, which Tony and I will speak to on the next slide, and our announcement today that our Board of Directors has approved a $500 million increase to our share repurchase program.
Jason Nalbandian: So let's turn to slide 11, where we highlight the Mueller acquisition.
Jason Nalbandian: Based in Jacksonville, Florida, Miller Electric expands our presence in the southeast where we previously had limited electrical operations.
Jason Nalbandian: For full year 2024, the company generated estimated revenues of $805 million and $80 million in adjusted EBITDA.
Jason Nalbandian: with RPOs as of December 31st of just over 700 million.
Jason Nalbandian: We anticipate that Mueller will contribute meaningfully to our projected revenue growth in 2025, with approximately 35 to 50 percent of our growth coming from Mueller's contribution beginning in February of 2025.
Jason Nalbandian: We also anticipate that the acquisition will be modestly accretive to diluted earnings per share in 2025, with further accretion in future years as backlog amortization runs off.
Jason Nalbandian: When we reference EPS accretion, there's three factors which need to be considered.
Those include the underlying operating contribution from the business,
Jason Nalbandian: The incremental and tangible asset amortization, which we estimate to be approximately $45 million in the first year, and a reduction in interest income resulting from the all-cash purchase.
Jason Nalbandian: When you consider all three of those factors, we estimate EPS increase in 2025 of between $0.10 and $0.15.
Jason Nalbandian: With that, I'll turn the call back to Tony, who I know wants to say a few words about the acquisition before we continue.
Tony Guzzi: Yeah, thank you Jason. And look, we couldn't be more excited than to finally got into a deal with the team from Miller Electric, Henry Brown, his brother and family and the ESOP shareholders of that company.
Tony Guzzi: You know, we first started talking to each other almost six years ago just to get to know each other because they're a leader in our space, and we're a leader in the space.
Tony Guzzi: And they've always had this unbelievable reputation for professionalism, care for their employees, and excellent execution for their customers, and also disciplined capital allocators, much like we are.
Tony Guzzi: It is really an acquisition that positions us to serve our customers better throughout the Southeast.
Speaker Change: and also provide opportunity to expand opportunity for the team at Miller and grow the business substantially. It was already grown substantially over the past five to ten years, but to even grow more. I think when Henry and I talked about the acquisition, it was not an acquisition based on
Speaker Change: They run their company very much like a public company, with the care and fiduciary responsibility of what a public company does. They have training programs. They have an inclusive culture. Their values almost identically match our values of mission first people always.
Speaker Change: And you've heard me talk in the past about when M-Corps does an acquisition.
Speaker Change: We first look, is there excellence and acceptable field execution? Without a question, the folks at Miller Electric and the team there are excellent in field execution and really deliver for the customers in a safe, productive manner.
Speaker Change: Then we also go back to the main office and said, do they share our values?
Speaker Change: and transparency and safety and teamwork. And then they also add to that the embrace of the community, which they would like many of our local companies do.
Speaker Change: There's nothing we really want to change at Miller. What we want to do is take the best of Miller and bring it into MCOR, and take the best of MCOR and bring it to Miller.
Speaker Change: and we expect a long and prosperous future. We're excited that Henry and his team are going to be leading that business into the future and it will report under our electrical segment to Dan Fitzgibbons, who I'll modestly say is one of the top data center people in the country.
Speaker Change: So, their mix of work actually brings more diversity to us.
They're about 24% data centers.
23% health care, 15% commercial.
Speaker Change: They know how to do the hardest industrial work, and they also know how to work in the sports entertainment market, which is a growing part of the Florida market.
Speaker Change: They will be based in Jacksonville, Florida, and we look to grow the Miller footprint from Jacksonville, Florida, throughout the Southeast, through both organic growth and acquisition.
Speaker Change: So Henry Brown and his team will be key parts of the MCOR leadership going forward and it's about as near perfect match of how a company's run as what we've seen at MCOR. You take the best subsidiaries at MCOR, you can lay it alongside how Mueller's run and they're almost identical.
Speaker Change: With that being said, I'll now move on to RPOs, which will be pages 12 and 13, and I'd ask you to turn your attention there, and I'd ask you to pull those pages out or look at them side by side like we have the last couple times. And what you'll see on page 12 is some key trends in market sectors where we continue to see growth.
Speaker Change: If you look at data centers and connectivity, we continue to see strong demand for hyperscale data center growth, which we include in our network and communications sector.
At the end of 2024...
Speaker Change: RPOs in this sector were a record $2.8 billion, up $1.25 billion, or 80% year-over-year.
Speaker Change: 31% sequentially from the end of the third quarter. As I said on prior calls, we continue to believe we're in the early innings of the overall data center expansion, and we have successfully positioned ourselves in key data center geographies over the last several years. Mueller even brings us more geography to serve the data center market.
Speaker Change: And we do that by expanding our capabilities both through organic capability building and acquisition and Windows acquisitions building more capability.
Speaker Change: I also believe we're in the early days of reassuring and nearshoring.
Speaker Change: and it will continue to provide us opportunities for both the high-tech manufacturing and the manufacturing industrial sectors.
Speaker Change: We expect this to even strengthen more as customers invest more capital in these sectors, as well as in oil and gas projects. Look, a lot of talk will go around tariffs.
Speaker Change: We believe long-term, the equalization of trade is a plus for MCOR. There'll be some near-term hiccups, but we will work through like we always do.
Speaker Change: But long-term, the equalization of trade is a good thing for M-Corps as reassuring and nearshoring will be part of that. High-tech manufacturing, we had just over a billion dollars at the end of the quarter. That includes semiconductor, pharma, biotech, life sciences, and electric vehicle value chain.
Speaker Change: RPOs in this sector were down sequentially year-over-year by 18.2% and 29.6% respectively. Look, driving this is the episodic nature of these projects, especially in the semiconductor space.
Speaker Change: You know, you go through initial phases of multi-year projects, multi-phase locations, and then they reload and get ready for the next phase. Also it's defined as we complete, especially in the fire protection side, certain electric vehicle manufacturing or EV value chain projects.
Speaker Change: You know, we're going to have more share of EVs than we have today. There's going to be hybrids, and they're all going to need battery plants and the value chain built to do that.
Speaker Change: We remain positive long-term in the expansion of each one of these sectors in high-tech manufacturing.
Speaker Change: In addition, we continue to see a healthy base of RPOs within a traditional manufacturing industrial market sector. Go back to that reshoring-nearshoring trend, which I believe we're in the early innings
Speaker Change: And RPOs there are $863 million at the end of the quarter, up nearly 7% year-over-year. And then finally, looking at energy efficiency and sustainability, good long-term market for us for as long as I can remember.
Speaker Change: We continue to excel with retrofit project work, especially within the Mechanical Services Division of our U.S. Building Services Segment, where we had RPOs of over $1.1 billion. As a reminder, this is focused on tenant fit-out, retrofitting outdated equipment, integrating building controls, and it's really focused on making the space better.
more efficient and also reducing usage and cost.
These projects also increase overall system performance.
Speaker Change: Go to page 13, you're going to continue to see strong demand in healthcare. We're into the quarter with another record, 1.3 billion in RPOs, up 26% from the year ago period, and 8% from the third quarter.
Speaker Change: Our water and wastewater RPOs were at $683 million at the end of the quarter, up approximately 6% year-over-year. These projects are episodic in nature, these are big-size and scope projects for us, and this is mostly a Florida market for us.
Speaker Change: RPOs in the institutional sector, which include Project River Schools, Universities, and local, state, and federal buildings were up 18% year-over-year, coming in at a record $1.1 billion.
Speaker Change: Spending on research facilities, new classroom phase, technology upgrades across campuses, renovation and retrofits with indoor air quality and reduced energy consumption is really what's driving demand in this market sector.
Speaker Change: Transportation RPOs grew 12% year-over-year to 294 million, largely driven by airport construction. And then finally, we had short-duration projects of 457 million. Go back to all the retrofit projects we talked about. This is about energy efficient, smarter, cleaner, and more productive buildings.
Speaker Change: Partially, as setting our RPO increases, we're expecting declines in commercial, and there's no surprises there. Although, I will say, we'll see what happens now at the back half of 25 into 26 as return to office mandates become more prevalent, and then buildings will be needing retrofitted because some of them haven't been occupied for five or six years.
Speaker Change: As I mentioned earlier, total company RPOs at the end of the fourth quarter were $10.1 billion.
up 1.25 billion or 14.2% year-over-year.
Speaker Change: Mueller will add another $700 million, sort of December 31st, sort of similar number.
and that will be additive to that $10.1 billion.
Speaker Change: We're pleased with the RPO performance, particularly in light of that strong revenue growth we had through the year and in the fourth quarter, which demonstrates continued strong demand for our services, and we are pleased with our project pipeline, which remains strong and diverse. I'll get ahead of you on the question on this.
Speaker Change: Obviously, with the margins Jason talked about, we believe what we have in RPOs is very similar to what we executed over the past year, and we also believe what we're bidding on now is very similar with our outlook we gave you to what we've done over the last two years.
So, in closing, I'm going to go to page 14.
Speaker Change: Obviously 2024 was another great year for MCOR, another record year.
Speaker Change: Our team accomplished much, and with the addition of Miller Electric on February 3rd.
Speaker Change: And I talked about this, we already added another great team to our already solid foundation for future growth.
for 2025 and beyond.
Speaker Change: As we set our 2025 guidance, obviously we remain optimistic about our growth prospects and margin profile.
Speaker Change: We'll acknowledge, and you know what, there's challenges in the broader economic environment here. You could copy and paste this from year to year. There's always challenges in the broader economic environment.
Speaker Change: And in order to address these challenges, we will do what we always have done. You focus on what you control, and you execute well.
Speaker Change: You continuously plan for what you don't control, you don't overcommit your resources, and you continue to develop great leaders, and you continue to retrain, train, and develop leaders and also the best skilled workforce in the industry. If you do that, things tend to work out okay.
Speaker Change: What we do know is these things. We should continue to earn our customers' confidence to build and service.
their most project-challenging campuses, buildings, and manufacturing plants.
Speaker Change: As such, we believe that our diverse market sectors provide the opportunity for us to grow our business to $16.1 billion to $16.9 billion in revenues, and that's inclusive of the Mueller acquisition. And we expect to earn diluted earnings per share of between $22.25 and $24.
Speaker Change: We expect our operating margins pre-Mueller to continue to be strong and anticipate Mueller will perform well. But intangible asset amortization, Jason went through all this in the first year of acquisition. You take MCOR overall, he talked about this, it's going to nick us between 25 to 30 basis points for the full year.
Speaker Change: Also, just to be clear, and I think I've said this nine out of the last ten years, and I might have missed one, it's always important for people to remember this is not a quarter-to-quarter business.
Speaker Change: project timing and customer releases do not always go as planned, right? And so you guys plan quarterly, we don't.
Speaker Change: We recognize that we may need to overcome headwinds from potential terrorists, which may be negative in the short term.
Speaker Change: And I've said this, I believe long-term that'll be positive for us as it may drive more reshoring. We also see volatility around supply chains. I just think that's a constant state of business now, and a global supply chain will continue to face challenges and uncertainty.
Speaker Change: Further, we understand that the new administration may delay or end funding under certain legislation, and it probably would benefit our customers.
Speaker Change: overall. We will manage these uncertainties as we always have. We're going to be vigilant on cost, vigilant on planning, and vigilant on pricing and contractual terms.
We will allocate more capital acquisitions.
Speaker Change: We allocated more than 2024, and we will continue to allocate to acquisitions.
for the remainder of 2025.
and we expect the acquisition market to remain active.
Speaker Change: We'll continue to invest organically and we'll continue to return cash to shareholders as evidenced by the expansion of our share repurchase program.
Speaker Change: Finally, and not last, I want to thank all our M-Corps teammates for taking care of each other, living our values of mission first, people always, and continuing to work in a safe and productive way to deliver exceptional value to our customers. With that, I'll take questions.
Betsy, over to you.
We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star, then 1 on your touch-tone phone.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Thanks for watching.
Speaker Change: The first question today comes from Brent Thielman with D.A. Davidson. Please go ahead.
Brent Thielman: Thanks. Good morning. Congrats on the strong year in the NOAA deal.
Thanks, Brad. Appreciate it.
Thank you. Thank you.
Speaker Change: Yeah, hey Tony, maybe just on Miller, I mean, I, you know, take from your comments, sounds like a really well-run business. I'm, I guess, more so wondering if there are opportunities or future revenue synergies to gain when you can sort of combine it with some of your existing operations in the Southeast.
Speaker Change: Yeah, we really only have overlap in two markets of any size and we think of net additive in both.
Speaker Change: We have some overlap in Texas, we have some overlap in...
Speaker Change: mid to southern Virginia, and in both places we think that's additive.
Speaker Change: But that's part of the opportunity. The other part of the opportunity was Mueller.
is, you know, we share customers and
Speaker Change: They're going to want us to do more where Mueller's customers have confidence in them and we may not have the relationships, or we have relationships where they're going to want to bring Mueller into play, especially as you expand into some of these larger projects, whether that be data centers, manufacturing plants, or healthcare services.
Speaker Change: Those are the places where I think we have the most synergies in the near term.
Speaker Change: And then, look, Miller, you know, in MCORP, we think of some of our bigger companies as platform companies, and Miller will serve as a platform company for us through the Southeast.
Speaker Change: We think it opens a window into acquisitions in the Southeast. Not large electrical contractors, but small to mid-sized ones that will allow us to build, scale, and serve our customers better and more Southeastern markets.
Thank you. Bye-bye.
Speaker Change: And, Tony, I mean, it looks like data centers may be approaching sort of 30 percent of your
Speaker Change: your RPOs, maybe to what degree you're seeing the influence of new AI data centers in your bookings now. I know it hasn't really been influential to revenue yet.
Speaker Change: Yeah, I think that's a fair comment. The way we think about it now, do we know exactly what our customers are going to use those data centers for? No, but the way we know that is because of the kind of systems they're putting in and the kind of mega watch they're using.
Speaker Change: I would still say, based on the mix of work we expect to execute for the most of 2025, we're still building cloud storage data centers with a little AI. But the mix is starting to come in with some AI data centers.
Speaker Change: The reality of all this is, I still believe we're in the early innings, like most major capital expansions.
Speaker Change: nothing's ever linear. I know that you know where we were building on three sites and there was maybe only three or four or five sites doing data centers in the country in 2019 to any scale, today you would say we're building hyperscale data centers electrically in about 15 different locations geography-wise.
Speaker Change: And we talked about how we did that. So clearly, and I think these are some of the smartest planning people that I've had the privilege of watching work.
Speaker Change: I don't think DeepSheet caught them by surprise. I think they have a plan, they're executing.
Speaker Change: And what they've been in, if you think about that expansion of sites, is two things. They're mitigating their risks.
Speaker Change: It allows us to bring different labor to bear, but also they've been in the search for power, right?
Speaker Change: And there's, you know, manufacturing sites that aren't as strong as they were until you go up to the shores of Lake Michigan outside of Chicago or towards South Bend. You go to places in Iowa, you go to places in Oklahoma that were major manufacturing sites at one time. The power is there and there's excess power. And so they've been moving towards this excess power.
Speaker Change: And what would have held it up, I think, in some of the more mature data center sites was they were starting to get worried about a dearth of power maybe developing somewhere around, you know, 2027, 2028.
Speaker Change: And I think one of the positives of the new administration is the realization that you need baseload power to stabilize the grid and also to support not only reshoring and nearshoring but also any industrial expansion and also to become a leader in AI. So I do think what you'll see is more gas plants built.
Speaker Change: And those gas plants will enable those existing sites to continue to flourish and develop. And I think that's a key enabler to say.
Speaker Change: Decent visibility, you know, we're contractors, for the next two or three years, we have decent visibility into the data center build, but I think it extends far beyond that.
Speaker Change: Really helpful. Tony, last one, I guess I have to ask on margins, appreciate your opening comments, but I mean the move in electrical margins here has just been...
Speaker Change: phenomenal here in the last few years that you know I guess that the question I get is
Speaker Change: How do you build upon this? Are there still opportunities from execution, efficiencies, and utilization in the field? You know, open-ended question, but I'd love to hear it. Yeah, look, I would be cautious to say we're going to build on these margins, right? Especially the margins you saw in the fourth quarter.
Speaker Change: I will say, though, we obviously believe in the stability of margins based on our guidance.
Speaker Change: And if you combine the margin profile we have with the efficiency of capital, we're operating the business from a return on net asset basis right now in our construction businesses.
They're doing great.
Speaker Change: And, you know, if you told me I could run a 8.5 to 10% M-Core forever, I would take that deal from you.
and it'll bounce around quarter to quarter, right?
If you could tell me, I could generate cash flow.
Speaker Change: between 70% and 100% of EBITDA, I would take that deal.
Right?
Speaker Change: And if you told me that we're going to continue to move the mix and continue to have opportunities to expand our mechanical service business, which also has leading margins, and we'll solidify that site-based business at a smaller size, we'll take that deal. So when I look at what we have and why we're achieving those margins, in my estimation, very little of it has to do with price.
Speaker Change: We still have some of the most difficult customers in the world. They're demanding. They're not paying us one more nickel than they have to.
Speaker Change: We're being innovative in our means and methods. We're sharing those means and methods, how to get things done more efficiently for customers around the country. We have great data center peer groups, both mechanically, electrically, and in our fire life safety business.
Speaker Change: People come to us because they know they're going to get it done efficiently, safe, productively, and it's going to work.
Speaker Change: And we also know how to integrate further upstream with our BDC capabilities to know that we can help get involved earlier in the design to get to design for constructability.
Speaker Change: I think our excellence in BDC and BIM and Prefab and the way we share knowledge
Speaker Change: If you talk about it, it's been very targeted, and it's been very targeted to the software enabling tools.
the VD, the expansion of prefabrication.
Speaker Change: And then the linkage of that prefabrication where customers feel confident that they can link us in earlier in the design so the design for constructability and speed happens earlier.
I think all that together, especially on these large projects...
Speaker Change: have allowed us to achieve superior margins. And then it gets down to the basis of great labor management in the field and having the right crew mix assembled. And quite frankly, the union's working with us to assemble the right crew mix, and we're a destination employer, whether you're union or non-union, in the field.
Speaker Change: You put all that together, you train the hell out of your supervision from foreman up through superintendent to project manager to CEO, you drive people to the financial metrics that matter on a project in a company, and you get good results. But all of that, you have to have a good market, right?
Speaker Change: If you don't have a good market, those things are not as easy to do.
Speaker Change: The only thing I think I'd add on margins, right, we obviously provided our expectations for the full year on a consolidated basis. If you think of our segments and you think quarter to quarter, I would just say if you look at trailing 12, 18, 24 months, that gives you a good look of where the margins will bounce around between quarters. Good point, Jason.
Speaker Change: I got to make a comment though. I think it was early 2022 we had some, not to sort of bring up you know bad news, but early 22 we had some late starts on some data center projects.
Speaker Change: It was, switchgear specifically wasn't getting delivered on time. We held on to a little bit of excess labor.
Speaker Change: No offense Brent, but you know our analysts the hair were on fire about Martin in the court And we said we're pretty sure we're still the leading electric contractor that can execute better than anybody in the field. Here's what's going on
Speaker Change: And so will that happen again? I don't think anytime soon, but there's variables of control But you can bet we're going to always take the opportunity to hold on to our best field supervision and not react to a short-term Blip and that's why margins aren't a core. I'm not foretelling anything here. Just mark. This is not a quarter-to-quarter business with margins
Speaker Change: Yep. Understood. Appreciate you taking all the questions. I'll pass it on. Thanks, Brent. Next question, Betsy.
Speaker Change: The next question comes from Adam Salheimer with Thompson Davis. Please go ahead. Morning, Adam.
Adam Salheimer: Hey, good morning guys. Congrats on the year and the Mueller acquisition. And then you could add on the outlook, right? It's a pretty good outlook. I was trying to be brief, but congrats on the outlook.
I'm trying to get your high-level thoughts on capital allocation.
Yeah.
Adam Salheimer: So, would you guys be willing to hold a little bit of net debt, you know, if you found another Mueller or if you really wanted to lean into the buyback quickly?
Adam Salheimer: I think on the former, not the latter. I think we would take on net debt or look, I think we're comfortable between one and two times for a short period of time and we're comfortable really at point five to one on a sustained basis if we needed to fund the business.
Adam Salheimer: If we found another Mueller, which I'm not sure there's another one exactly like Mueller.
Yes, we would lean in and do that.
Adam Salheimer: because the synergies and the profile of that company, if you go from field execution back to the values they run that company by, it was a perfect fit. There's not that many out there like that. They don't create problems for us with too much overlap, and then it's a destructive acquisition.
Adam Salheimer: There are still a few out there that are smaller, but still sizable.
Jason Nalbandian: So the answer to that is yes, and I think, Jason, that you agree with me on this, right? Deals happen when they happen.
Jason Nalbandian: And you just try to make sure your balance sheet is flexible enough to take advantage of that. And so the buyback for us is where excess capital goes. And we're not afraid to do that. But would we lever up to do a buyback? No, I don't think that would be a good use of capital. Agreed, Tony.
Speaker Change: And then I wanted to ask about how we should think about the building services segment from a high level.
Speaker Change: I'm curious, is that kind of slow growth, slow growth of better margins over time? I think we still have a couple tough compare, we have a tough compare still probably through the middle of the year as that contract, the year over year rolls off.
Speaker Change: I think growth will return sort of maybe fourth quarter of this coming year. I think it will be more weighted, it's always been weighted towards mechanical service.
Speaker Change: I think in near term we won't be building the site-based business to the level it was. We won't win that kind of contract any time soon. And also it's a smart management team in site-based. They're not going to chase the real estate people down to the bottom.
Speaker Change: So, if someone values our technical capability, our program management capability, and really understanding how the equipment actually works in their buildings, then we're the right solution for them.
Speaker Change: If they want a fast buck turn with the real estate guy, they can knock themselves out.
Speaker Change: And we still see, you know, we have quietly built out that mechanical service business to a leading position.
Speaker Change: through organic growth and small tuck-in acquisitions. We see, still, a world of opportunity in front of us to do that, and we'll continue to buy mechanical service companies, which for us means real service companies, right? They do small project work, HPAC retrofits.
Speaker Change: We'll continue to look for the opportunity in every one of our markets to add building controls capability.
Adam Salheimer: Alright, thanks guys. Good luck in Q1. Thanks. Thanks, Adam. Next question, Betsy?
Speaker Change: The next question comes from Brian Brophy with DFEL. Please go ahead.
Brian Brophy: Thanks, good morning everybody. I would extend my congratulations as well. Very nice quarter, very nice margin performance.
Brian Brophy: wanted to ask on health care. That was another strong area of RPO performance in the quarter. I guess, can you talk about what you're seeing there in terms of demand dynamics here currently?
Brian Brophy: Yeah, the demand dynamics we're seeing there are really centered around new hospitals, new operating suites.
in the podium, new patient towers.
Brian Brophy: And I think some of this is being accelerated a little bit because of COVID, and they had outdated hospitals and outdated patient towers.
Brian Brophy: and they realized they didn't have enough patient rooms. And so there's a balance going on there. Expansion, you know, the growth in places like Florida and the Southeast and in the Southwest, you're also seeing the growth there in Texas, you know, just demographically growing.
Brian Brophy: And in the Northeast, you're just seeing old hospitals being rehabbed and rebuilt. I mean, we're doing some work up in Boston right now. It's magical how they're putting this project together while they keep the hospital going of one of the leading health care hospitals in the world.
Brian Brophy: and so we're good at that stuff and if you think about a hospital and if you stand at the bottom of the hospital and look up, it's a system-rich environment much like a data center, much like a semiconductor plant, much like a manufacturing plant.
Brian Brophy: Hospitals tend to be a little heavier, like data centers are more electrically heavy for us sometimes. Hospitals tend to be more mechanically heavy.
Brian Brophy: because you think about you're bringing med gases in, you're bringing HVAC in, you have air purification systems, you're doing, you know, positive and negative pressure rooms and you're trying to make them flexible, you have air changes that have to happen not within the patient rooms, you have to isolate things.
Brian Brophy: You have to have constant humidity. I mean, there's a lot of things that go into it And that's where you know working with the engineers We don't design them but working with the engineers to figure out what system is going to work best
Brian Brophy: and then being able to commission it the right way. Very complex commissioning. And then a lot of times, you know, we usually have service operations in those markets. After a year or so, maybe we can get lucky and hand it off to them.
Brian Brophy: Yeah, that's really helpful. Thank you. And then I wanted to also ask on the warehousing side of things. We continue to hear green shoots there. Curious if you're seeing similar, and can you kind of remind us how important of an end market that is for you guys? Look, again, go back. We're contractors.
Quite frankly
Speaker Change: When warehousing came down, we were pivoting to data centers anyway.
Speaker Change: And from our perspective, the kind of fire and warehousing for us was mainly a fire life safety. And on the margins, only where the high substation where they were trying, where people like Amazon were building substations for electric vehicles, major, you know, power input where we're doing electrical work at a warehouse.
Speaker Change: So, the reality is, fire and life safety, that's an easy pivot for us from warehousing to data centers. That was underway anyway.
Speaker Change: We are seeing some green shoots in warehousing. I would offer a lot of it sort of smaller scale. Cold storage warehouses have been where it's been picking up for us lately.
Speaker Change: and secondarily there's a lot of re-racking going on in these major warehouses. They're becoming much more automated as they become much more automated. We do some of that work.
Speaker Change: But also, when you do that, you have to bring more fire protection to bear into those projects because now there's more fire protection within the racks because the racks are stacked much closer and therefore you need more fire-like safety in them.
Speaker Change: Yeah, that's helpful. And then one other one for me real quickly here. You called out tariffs as a risk factor. Can you remind us how you may potentially be impacted there and talk about how you guys have managed through that in the past? Yeah, so let's just rewind to 2021.
Thank you.
Very quick price increases from just about everything we did.
Speaker Change: I don't think it'll be that unplanned and that abrupt. It already isn't.
Speaker Change: And, of course, we're prepared for it. So how do we think about it? Well, first, if we can get the contractual terms in place, which we've been working on since 2021.
to say, hey, if there's a sudden change in prices...
Speaker Change: we're going to pass that on to you. Secondarily, if we're on a large project, and think about MCOR, I'd say it's a third, a third, a third, right?
Speaker Change: A third of our business is small projects and service. That's continuously getting repriced. Any pricing that goes up, that's what's going to happen. So this is material pricing is what tariffs are going to impact us.
Speaker Change: That part of the business isn't really going to be impacted at all. And if it is, we're not going to be able to find it on the income statement in any meaningful way. The second part of in-court projects is sort of a million to ten million dollar projects, give or take. That's about a third of mCorp's business, right? That's across the whole business.
And if you look at that
That's a little quick return.
Speaker Change: We may get nicked a little bit. Again, probably not material, what will happen. And then you get to the third, just the larger projects. And then let's bifurcate that third.
Speaker Change: We would have brought the chillers, the air handlers. We would have bought the switchgear. But because of the lousy lead times in the supply chain,
Speaker Change: Send the equipment to us and we get a handling fee. So that's probably of that 33% That's probably half of our or more of our material cogs. We're really not exposed much at all there
Speaker Change: And then the balance is on pipe, wire, and conduit. It's up to us and our local folk working with distribution to protect our prices when we've got a long-term commitment.
Speaker Change: And, right now, we may have a little bit of inventory uptick, and we've got that small compared to the overall size of MCOR. We may have a little bit of inventory uptick where we lock in the price on certain pipe and conduit and wire to be able to build a project. Jason, you have anything to add on that? I think you've summarized it, Tony.
Speaker Change: So you can tell we've spent a lot of time thinking about this.
Speaker Change: and our team's ready and again go back to we're contractors we get paid to adapt to really difficult situations and figure out a solution how to overcome it.
Brian Brophy: Yeah, very helpful caller. I will pass it on. Congrats again. All right. Thank you. Thanks, Brian. Next question, Betsy.
Speaker Change: The next question comes from Alex Dwyer with KeyBank Capital Markets. Please go ahead.
Hi guys, good morning. Thanks for taking my questions.
or
Speaker Change: hire a labor force? If this is something you're planning for, and are there any investments that you can make ahead of this to better position MCOR in this scenario?
So the answer would be yes, yes, and yes.
Speaker Change: If you were to rewind to 2019, we were serving about three data center markets electrically, one and a half or so mechanically. Today that's, with the addition of Miller, about 15 or 16 electrically. And most of the expansion has happened in secondary markets.
Speaker Change: And by secondary market means, you know, not Metro D.C., not Metro Atlanta, not, you know, a market we've worked in forever in Portland, Washington.
and a little bit of Texas. So what happened, right?
Speaker Change: There's been this quest for power, this search for power. These are really smart planning people.
Speaker Change: And so they said, where are we going to be able to build for the next five years without having a dearth of power, that we're pretty going to have a surety of power?
And so you're seeing them go to places.
Speaker Change: over time over the last three years, really. And I think they feel a little better because they're not as worried about cash generation. You're never gonna power this expansion with renewable intermittent power. It was gonna be part of the solution.
Speaker Change: But that's not a solution for something that needs to run 24 hours a day at 50 to 100 megawatts
Speaker Change: And so if you think you weren't going to have surety of power, you were out looking for pockets of power where you know where that were going to be.
Speaker Change: That's why data centers were coming to parts of Indiana. That's why data centers...
Speaker Change: We're expanding more on Columbus, Ohio. Think about Ohio River, right? And if you didn't have coal power coming up, you still had some nuclear, but you're also going to be able to build gas generation.
Speaker Change: That's why data centers expanded in Northern Virginia originally and they moved down to the Richmond area, but why did they do that?
Speaker Change: because you have power coming out of West Virginia, Southern Virginia, and it's all sources of power, traditional power. That's why you had data centers going to Oklahoma where you did have some renewable or I'd say intermittent power. You did have some of that with wind.
Speaker Change: But you also had baseload fossil power that you could bring to bear. That's why you see them going to Charleston, South Carolina, right? That's why you see them going to Atlanta. I'll just give you an aside in Atlanta. There's a big data center being built, center campus being built south of Atlanta.
Speaker Change: That data center campus, there were three nuclear reactors being built that were are built. The first one brought online. The give or take is about 5,000 megawatts. It's a lot of power, right?
That data center campus will use one in a third.
Speaker Change: And the electron doesn't care where it comes from. One in a third of one of those new nuclear reactors.
one day to center campus.
Speaker Change: So, you know, that's why they've expanded. So how have we handled that? Well, we've done it through acquisition.
Speaker Change: We've also done it by taking some of our existing capacity, and what we've learned is our teams that can build hospitals.
Those teams have the skill and ability with some training.
Speaker Change: and some cross-training. So we take folks from places where we've built data centers.
Speaker Change: They go in on the front end and help with estimating and developing the plan of work and the means and methods.
Speaker Change: And then those teams can come in, and then now we can train up what are really good electrical and mechanical teams to do more work.
Speaker Change: We've also done it through organic expansion. An example of that is what we've done in Columbus, Ohio. We took two of our best operating data center teams mechanically out of Poole and Kent.
Speaker Change: and Batchelor and Kimball, they came together and formed a company called Upland that's there specifically to serve data center clients, but now will serve the market more broadly. And over a two- or three-year period, we've become one of the leading...
Speaker Change: mechanical data construction companies in Columbus, Ohio, and one of the leading mechanical contractors, and that's new for us.
Speaker Change: We hadn't done a lot. We did the same thing electrically in Arizona through organic growth and investment.
our team from Dyne Portland building excellence in prefabrication.
Speaker Change: in Portland, bringing that capability down to Arizona, recruiting a workforce. That workforce started with building a great prefabrication shop.
Speaker Change: with a couple of low-voltage jobs in the semiconductor space, now they can pivot and do day-two data center work. And with six months to a year with the creativity of the leadership team there, and the means and method know-how and innovation, they'll be servicing the broader data center market in Arizona.
Speaker Change: So that's just a snippet of how we think about it.
Speaker Change: and then being able to look at now an energy policy potentially.
Speaker Change: that brings more surety to power, which I believe, as I said earlier...
Speaker Change: to an AI, which is somewhere between 150 and 200, and just rewind the tape for people. Take 200 megawatts and say 5,000 to 6,500 homes, and that will give you an idea of the power usage needed to supply a data center.
Speaker Change: Thanks, Tony. That was a super helpful answer. And then I guess my second and last question is just on the industrial services outlook for this year and just kind of think about what is what is built into guidance from a revenue growth and margin perspective.
Speaker Change: There is room for the margins to continue to perform here and how meaningful do you think of an impact it could be with a more oil and gas friendly administration over the next couple of years? I think the real benefit will be 26 and beyond. I think what you're seeing this year is a more traditional turnaround market with a caveat is...
Speaker Change: The first quarter got off to a little bit of a slow start because of the snowstorm in Texas, which delayed everything a week, which means we ate a little bit of labor. Nothing significant. We ate a little bit of labor for a week as we were geared up to start the turnaround season, and then everything got stuck in place in Texas for a week.
Speaker Change: We see a normal turnaround season, probably a little more back half loaded, but that happens. It's a year-to-year thing.
Speaker Change: But we continue to see the force march to normal demand. We do see, hopefully, somewhere around back half of 25 going into 26.
Speaker Change: We have a great electrical business, the team at Arden down in Louisiana, through Texas up into North Dakota and the mid-continent area.
Speaker Change: They're some of the best upstream and midstream people. That is really where we have the exposure, and if there's opportunity there, they'll take advantage of it, and that should come in the form of more compressor stations and also bringing electrical services to the well site.
Speaker Change: for 2025. The one thing I'd point out is we did have an acquisition in industrial services this year. So some of the growth we saw this year came from an acquisition. So we would expect a more normal level of organic growth next year. And that acquisition was focused on upstream, and it was focused on really helping control control solutions.
Speaker Change: around methane and that's why we bought it it expands our services and puts it with a great team down at Arden and I will say as we look from middle of 26 through the middle of 28 and a half We're hoping that I'll be glad we own that asset in the out years
Speaker Change: I mean the whole industrial services segment in the out years coming up.
Got it. Thank you. I'll turn it over. Thanks, Alex.
Is that the next question?
Speaker Change: The last question today comes from Adam Buff with Goldman Sachs.
Please go ahead.
Hi, good morning. Morning, Adam.
Speaker Change: I think the midpoint of your guide assumes around 7.5% organic growth. Can you just help us bifurcate 20-25% organic growth between your highest growth end markets, data centers, and high-tech manufacturing and how that compares to the balance of the business?
Speaker Change: Yeah, I'm going to kick us over to Jason. I don't think we see significant growth because we'll have to get it into RPOs first.
Speaker Change: We'll see the growth there first before we have growth in revenues and high-tech manufacturing. We do see data center growth, but Jason, I'll throw it over to you, but it's sort of 50-50, isn't it? I think that's fair, Tony. I mean, I think when you look at...
Speaker Change: When you look at this year, and you look at our growth...
against traditional non-res.
Speaker Change: We probably grew 100 to 150 basis points in excess of non-res. And so when we think about next year and we say what's the assumptions for the high growth sectors versus what's the assumptions for the rest of the business, I think we'll continue to grow somewhere between 100 to 200 basis points in excess of non-res. That's MCOR overall. MCOR overall. But in our electrical mechanical segment, it's almost twice that. Right.
Thank you.
Speaker Change: How are you thinking about your ability to continue to grow employee count in 2025 and how much of that 7.5% organic growth would be driven by employee capacity versus room for further utilization improvements?
Speaker Change: Man-hours if you take it over a three or four year period.
Speaker Change: has been growing about 60% to 65% of our revenue growth.
Speaker Change: We expect to be able to continue that trend going, and that goes to what our folks are doing in prefab, what they're doing in planning, what they're doing in estimating, and all those things.
Speaker Change: We always complain in the field about not being able to find the people, but our folks do a wonderful job of finding the people, and I always go back to what I always say.
Speaker Change: All right, at the end of the day, how do you attract great tradespeople to come and want to work for you, sometimes for a project, but some of them for a career? I think it gets down to four or five things, right? I think, and these are in no particular order.
Speaker Change: First, they want to know they're going to get paid every week, and if they're union employees, they want to know that also you're paying into the benefits fund.
Speaker Change: The second thing, right, again, no particular order. They wanna know that you're gonna make the investments to keep them safe. That's not only in the means and methods to make sure the job's well planned, but also they have the equipment they need to be successful.
Speaker Change: In my 20 plus years at MCOR, we have never turned down a safety investment and then we never will.
Speaker Change: The third thing they really care about, am I being led by people at the local level and above, but mainly the local level, from the foreman through the superintendent to the project manager to that CEO and VP of operations.
Speaker Change: that know what I'm doing and know what the challenges on the job and that they can come in and help me if they need to Get through a tough situation on a job site
Speaker Change: I think another thing that someone that want to build a career with us if I do a good job for you
Speaker Change: Will you make me part of your permanent team? We have, if you take our trade workforce, about two-thirds of it, give or take, are with us from project to project to project, and they've built a career with us.
Speaker Change: And I think finally, I think a lot of them want to be with a company that quite frankly does some of the most interesting work in the space. Tradespeople don't like to do a lot of rework, they like well-planned jobs, and quite frankly they like to point to the skyline or point to the market and say, I built that.
Speaker Change: You know, and I was part of the team that built that. I'm part of the team that takes care of that and You know, it's it and they take a lot of pride in that so I think you know Emcor emphatically goes check check check check check. We talked about Miller earlier
Speaker Change: Mueller can do the same thing in their markets. It's check, check, check, check, check, right?
They also provide that environment for the trade people.
to build long-term success with them.
Speaker Change: And just to add on to Tony's comment about headcount not growing as fast as revenues, if you look over a 10-year period, our revenue CAGR's round number is 10%, our headcount CAGR is 3, 3.5%, right, and kind of a 3-to-1 ratio. And if you look at even just this year alone, headcount's up 5, 5.5%, and revenue growth is up almost 16%. So that ratio is holding true even today, and we expect it. Yeah, it goes to 65%.
Speaker Change: We expect to only have to grow headcount a third to half as much as we grow revenue. And we see no reason why that would be different. Yeah, and what I was trying to say is 65% sort of gets covered.
Speaker Change: And then the last one for me, you know, really strong margins in the quarter and understand margins can bounce around quarter to quarter, but any specific driver of the positive variance and margins versus your expectation heading into the quarter and any other major puts and takes driving the margin outlook you mentioned.
Speaker Change: incremental intangible amortization but any other moving pieces we should keep in mind in terms of mix or any other pieces in 2025.
Speaker Change: Yeah, I think in terms of the quarter, there's really no anomalies. I think we beat our expectations when it came to execution, particularly in the electrical segment, right, which had a north of 15% margin. When we look to 2025, outside of the intangible asset amortization, I don't think there's any anomalies or any one-offs to be considered.
Speaker Change: I think also, you know, at these levels of margin, and you heard me say before if I could run M-Corps forever between eight and a half to ten percent combined margins with good growth,
Speaker Change: where we are right now we are very cognizant of keeping good margins but also we're more worried about margin dollars right now the margin percentages right at these levels we want to grow margin dollars and if we had to give up 10 basis points to do that we would do that
Great, appreciate all the color.
Thank you.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mr. Guzzi for any closing remarks. Look, thank you all for your interest in MCOR. I know there's a lot more than the analysts that asked questions. Hopefully, you got most of your questions answered.
Speaker Change: You know, we expect another good year. We're excited about the future.
Speaker Change: And to our team, let's work safe and productively in 2025 or even better than we did in 2024. And with that, Andy, I'll throw it back to you to close out the call.
Andy Backman: Great, thanks. Thanks, Tony. Thanks, Jason. And thank you all for joining us today. If you should have any follow-up questions, please do not hesitate to reach out to me directly. Thank you all again, and have a great day, and Betsy, will you please close the call?
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Thanks for watching!
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Speaker Change: Thank you to all of you for your patience. I'm glad to have this opportunity to turn my story the way I have chosen to. A long story with a twist!
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