EMCOR Group, Inc. (EME) Q2 2014 Earnings Report, Transcript and Summary

Good afternoon. My name is Teresa, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Second Quarter 2014 Earnings Call. [Operator Instructions] Thank you. Mr. Nathan Elwell with FTI Consulting, you may begin.

Thank you, Teresa, and good morning, everyone. Welcome to the EMCOR Group Conference Call. We are here today to discuss the company's 2014 second quarter results, which were reported this morning. I would like to turn the call over to Kevin Matz, Executive Vice President of Shared Services, who will introduce the rest of the team. Kevin, please go ahead.

Thank you, Nathan, and good morning, everyone. Welcome to our earnings conference call for the second quarter of 2014. For those of you who are accessing the call via the Internet and our website, welcome, and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. If you are, please advance to Slide 2. Slide 2 depicts the executives who are with me to discuss the quarter and 6 month 2014 results. They are Tony Guzzi, President and Chief Executive Officer; Mark Pompa, our Executive Vice President and Chief Financial Officer; Mava Heffler, Vice President, Marketing and Communications; and our Executive Vice President and General Counsel, Sheldon Cammaker. For call participants not accessing the conference call via the Internet, this presentation, including the slides, will be archived in the Investor Relations section of our website under Presentations. You can find this at emcorgroup.com. Before we begin, I want to remind you that this discussion may contain certain forward-looking statements. Any such statements are based upon information available to EMCOR's management's perception as of this date, and EMCOR assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. Such risks and uncertainties include, but are not limited to, adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for Emcor Services, adverse business conditions, increased competition, mix of business and risks associated with foreign operation. Certain of the risks and factors associated with Emcor's business are also discussed in the company's 2013 Form 10-K and in other reports filed from time to time with the Securities and Exchange Commission. With that said, please let me turn the call over to Tony. Tony?

Thanks, Kevin. And for those on the call looking at the slides, I will be covering Pages 3 to 5 to start. First, good morning, and thanks for your interest in EMCOR. I want to speak to pro forma numbers that are adjusted for the continued costs for the closure of our U.K. Construction business. And in Q2 2013, it also includes some of our deal costs associated with the acquisition of RepconStrickland. We had a very good second quarter here at EMCOR, and it finished about where we expected. We expected to do well. We are off to a great start through the first half because we are at $0.61 per diluted share here in the quarter and are at $1.25 per diluted share at the halfway point here in 2014. We are at operating margins of 4.5% on a pro forma basis in Q2 on revenues of about $1.558 billion. However, we did have negative organic growth of 4.4% domestically, which is where we're focused because of the U.K. closure. And that really results from 2 -- 3 things. One is, nonres is not off to a great start this year as a market, the non-residential market. The second one is if you'll remember at Q2 last year, we had 2 significant projects, and they were problem projects, they had revenue associated with them that was quite substantial. We lost money on them, and they are no longer in our Mechanical segment. The work is done. And we did reload in those subsidiaries with that type of work. And we started reshaping our portfolio in the site-based business back in 2013, and we're still seeing the effects of that. And that's about a 12-day TEMA process as it goes through the numbers, and that's in our Building Services segment. However, we did have strong organic growth in our Industrial segment of over 24%. We think that bodes well and demonstrates the benefit of our combined offering in the refinery petrochemical space. I'm going to cover some highlights of our segments, and then I'm going to leave the detailed financial section to Mark. So let me go to the Electrical and Mechanical segments and cover some topics that will cover both segments real quick. I believe we are in a choppy and uneven non-residential market looking for more conviction. It has recovered some and it continues to recover. I think the first half's been particularly slow. We talk about weather and some other things, but I do like that we had better growth in the market last year, and that absent the lack of our new Department of Energy work and some mechanical work that we talked about, we are winning more than our fair share and we have the -- still have the capacity to do more work with little to no incremental cost investment. Now going into the segments more specifically that make up our Construction business. Our Electrical segment continues to perform very strong. At 7.4% operating margins in the quarter and 7.2% year-to-date, we are executing well on a good mix of work, achieved through very disciplined bidding. And that's a hallmark for us. We really stress the disciplined bidding and execution. Revenues were essentially flat in the quarter versus prior year. We have right now a very strong performance, a nice mix of work. We are prioritizing and winning the best opportunities to deploy our resources. Our success in the Electrical segment results from tough hard-nosed execution in a slowly improving market. Our Mechanical segment has rebounded as expected from last year's substandard performance, especially in Q2, as we completed work on 2 large problem jobs that caused our segment results to lag in this segment in the year-ago period. At 5.3% operating margin in the quarter, our Mechanical segment is back on track and executing well. We expect this performance to continue, and like the Electrical segment, we are winning by working smarter, more efficiently and with intense focus on cost and productivity. Building Services, typically, as we previously discussed, has its weakest seasonal quarter in Q2. We did expect a decline in operating margins sequentially, but margins were a little weaker by 20 or 30 basis points than we expected for a couple of reasons. One, we had a very tough compare because we did great work on our plant services business and still doing well. We closed out a very good plant improvement contract in the year-ago period. And we've had a slow uptake in customer wins in our site-based business post portfolio-reshaping. As we mentioned, we reshaped our U.S. building site-based portfolio over the past 18 months and we now have a good mix of work. We need to win more. We have strong customer retention, and existing customers have increased their spending with us on our leveraged work, as it is up double digits. Our Mechanical segment had a very good quarter. Our Mechanical Service business had a very good quarter also in the Building Services segment. And our Government business improved year-over-year as we had very good productivity in the Government and Mechanical Services business and the IDIQ work, the indefinite duration/indefinite quantity work had its first positive revenue growth quarter-over-quarter in the last 6 quarters. We think that maintenance has been deferred too much in the government space, and maybe we're seeing the return of some normalcy in spending. Year-to-date, operating margins for the segment, Building Services segment, are on track at almost 4%, and we still have room for improvement. Our small project work is returning and our small project bidding activity remains strong, and that bodes well for this segment. And hopefully, this is a more -- indicator of a recovery in the non-res market, and that more sensible maintenance spending is returning. Industrial Services had a very strong quarter, with over 24% organic growth and 7% operating margins. We had contribution from RepconStrickland, and the results for the combined businesses show that the integration is on track, and this is typically a tough seasonal quarter for the Industrial Services business. We continue to execute well in our integrated business to serve our customers better. Our U.K. business had a good quarter, but was aided by a onetime benefit related to a liability reversal of $4.8 million that Mark will cover in detail. The closure of our U.K. Construction business is on track and expect to be completed this year. And we have less than $4 million of remaining backlog to complete. Our Services business is still what we think -- thought it would be, a 3% to 3.5% business, and we're going to try to drive that higher by $300 million to $350 million in revenues. Our backlog grew in the quarter to $3.64 billion, and we won important new awards in the transportation and commercial sectors, offset by a continued weakness in the institutional sector. We had a decline in our overall industrial manufacturing sector, but we view this as more of a timing issue than a trend. Our cash generation was very strong in the quarter at $64 million versus $42.9 million in the year-ago period. On a year-to-date basis, cash flow from operation is at $39.6 million versus a negative $52.2 million on a year-to-date basis last year. Our balance sheet remains liquid and strong. Overall, a very good quarter, a very good start to the year in a choppy market, but that's the operating environment we're used to now. And with that, I'll turn it over to Mark.

Thank you, Tony, and good morning to everyone participating on the call today. For those accessing this presentation via the webcast, we are now on Slide 6. And as Tony indicated in his opening commentary, I will provide a detailed discussion for our second quarter 2014 results before moving to year-to-date key financial data derived from our consolidated financial statements, included in both our earnings release announcement and Form 10-Q filed with the Securities and Exchange Commission earlier this morning. So let's begin. Consolidated revenues of $1.56 billion in quarter 2 are essentially flat as compared to 2013. Revenues attributable to businesses acquired positively impacted both our U.S. Industrial Services and U.S. Mechanical Construction Services segments during the second quarter. Excluding the impact of businesses acquired, second quarter revenues declined organically $84.4 million or 5.4%. All reporting segments other than U.S. Industrial Services reported revenue declines during the most recent quarter. Domestic Electrical Construction revenues declined modestly quarter-over-quarter as evidenced by their 0.2% change. U.S. Mechanical Construction revenues decreased approximately $45 million or 7.8% from last year's second quarter as a result of a decline in revenues from manufacturing and institutional construction projects, some of which was attributable to a planned reduction in scope of activities for a subsidiary that reported significant project losses during 2013 in the southeastern United States. The majority of project volume declines were within the power generation and high-tech sub-industry sectors due to several large projects that were in process at this time last year. U.S. Building Services revenues of $418.1 million decreased $30.3 million quarter-over-quarter due to revenue declines within their commercial site-based services offerings due to our contract portfolio reshaping, as well as a reduction in the volume of energy-related services projects performed in 2014 as compared to this timeframe in 2013. Additionally, the Government Services division of EMCOR Building Services reported a moderate revenue decline quarter-over-quarter due to the substantial completion of a significant base operating contract that has not been renewed. U.S. Industrial Services revenues increased $98.3 million or in excess of 120%, which is attributable to both the $78.6 million of incremental revenues from our RepconStrickland acquisition in July of 2013, as well as strong organic revenue growth of 24.9% for our -- from our Ohmstede business in both our field and shop services divisions. With respect to our U.K. Construction and Building Services segment, we are 1 quarter closer to our completion of our withdrawal from all engineering and construction activities. And as a result, our U.K. quarterly revenues continued to decline as we move towards completion. Please turn to Slide 7. Selling, general and administrative expenses of $151.5 million represent 9.7% of revenues and reflect an increase of $11.8 million from quarter 2 2013. The current quarter's SG&A is inclusive of $10.9 million of incremental expenses, including a tangible asset amortization expense from those acquisitions completed during 2013. Additionally, 2013's selling, general and administrative expenses included $1.4 million of transaction expenses pertaining to our acquisition of RepconStrickland. Therefore, our organic increase in SG&A expense period-over-period is $2.3 million, which is attributable to an increase in employee-related costs, with the most significant increase pertaining to medical insurance claims. As a percentage of revenues, SG&A in our second quarter, as previously stated, is 9.7%. Excluding the impact of acquisitions, our SG&A as a percentage of revenues would be 9.5%. Operating income of $67.7 million represents 4.3% of revenues and favorably compares to $36.1 million of operating income at 2.3% of revenues in 2013 second quarter. All reportable segments generated increases in operating income and sizable improvements in operating margin quarter-over-quarter other than U.S. Building Services and to a lesser extent, U.S. Electrical Construction Services. Total intangible asset amortization expense for the quarter is $9.5 million, which is an increase of $3.2 million over quarter 2 2013 and is consistent with our first quarter reporting. Our U.S. Electrical Construction Services segment operating income declined approximately $400,000 and a 10 basis points -- and 10 basis points of our margin perspective, which is essentially a flat performance quarter-over-quarter. 2014 second quarter U.S. Mechanical Construction Services segment operating margin of 5.3% represents a 220 basis-point improvement from last year's quarter. This segment's operating income increased $10.5 million to $28.7 million, which represents a 57.5% increase quarter-over-quarter. 2013 second quarter was negatively impacted by $10.9 million of losses attributable to 2 projects from an operation in the southeastern United States. And the current quarter's performance is more reflective of the profit characteristics of projects in our domestic Mechanical and Construction segments backlog. Our total U.S. Construction Services is reporting a 6.1% operating margin as compared to 4.7% in the 2013 second quarter. Operating income for U.S. Building Services decreased $2.8 million over 2013's second quarter, with the quarterly operating margin of 3.3% or 40 basis points less than the comparable 2013 period. The reduction in operating income and associated margin is due to lower maintenance contract volume in the commercial site-based services division due to the reshaping of our project portfolio, which resulted in certain contract terminations. Additionally, our Energy Services division has lower operating income as they were engaged in several large projects in 2013 that are not present in the current quarter. Unfortunately, these operating income reductions offset improved performance within our Mechanical Services and government site-based services divisions during the quarter due to increased small project activity obtained either commercially or through the IDIQ process which Tony commented on earlier. Our Industrial Services segment is reporting a $9.1 million increase in operating income to $12.4 million, with a corresponding 290 basis-point improvement in operating margin. The increase during the second quarter is due to higher revenues and corresponding operating income within their field services division due to greater turnaround activity. Additionally, our shops benefited from increases in overall demand. Our RSI acquisition, which we have now owned for 1 year, contributed $1.5 million of operating income net of intangible amortization expense during the second quarter, which equates to $0.01 per diluted share. EMCOR U.K. was profitable during the quarter as compared to an operating loss reported in last year's second quarter. Please note that the losses generated within the U.K.'s Engineering and Construction division of $1.7 million and $8 million for quarter 2 2014 and 2013, respectfully, are included within the segment disclosure. The quarter-over-quarter improvement is due to the reduction and losses generated by our U.K.'s -- U.K.'s construction activities, as well as the positive impact of a reduction in certain accrued contract costs no longer expected to be incurred within their Building Services operations. The impact of this change of estimate was $4.8 million in the quarter. We are now on Slide 8. Consistent with prior quarters, this table lays out those items impacting our second quarter and year-to-date results, which we believe should be excluded from EMCOR's reported operating income to provide clear comparability. Each of the current year items, other than restructuring costs, have been addressed in today's earlier commentaries, but for the sake of completeness are as follows. Losses generated by EMCOR's U.K. Engineering and Construction operations within the second quarter of approximately $1.7 million and $8 million, respectfully, and restructuring expenses of $261,000 and $5.8 million, respectfully, pertaining to reductions in workforce, as well as idled real estate in 2013 as a result of our strategic change in the U.K. The effect of the aforementioned adjustments amounts to adjusted operating income of approximately $69.7 million or 4.5% of revenues for the quarter ended June 30, 2014, as compared to $51.3 million or 3.3% of revenues for the corresponding 2013 period. Cash provided by operations for the second quarter was $64 million, which represents an improvement of $21.1 million over cash provided by operating activities during 2013's second quarter. For the 6 month period and the cash provided by operations of $39.6 million compared to cash used in operating activities of $52.2 million for the year-to-date 2013 period. This represents an improvement of approximately $92 million year-over-year. Please turn to Slide 9. Additional key financial data on this slide not addressed during my highlights summary are as follows. Quarter 2 gross profit of $219.6 million represents 14.1% of revenues, which is improved from the comparable 2013 quarter by $38.1 million and 240 basis points of gross margin. For the quarter, all reportable segments generated higher gross margin percentages on an organic basis compared to quarter 2 2013 through good execution and disciplined project selection. Total restructuring costs were $438,000 as compared to $5.8 million in the second quarter of 2013. And unlike our most recent quarters, we actually had some domestic restructuring activity in the southeastern United States. Diluted earnings per common share for the quarter is $0.59 compared to $0.31 per diluted share a year ago. On an adjusted basis, reflecting the add back of losses incurred within our U.K. Construction and Engineering operations and associated restructuring costs and 2013 transaction costs incurred in connection with our acquisition of RepconStrickland, diluted earnings per share would be $0.61 per share for 2014 as compared to $0.48 per diluted share on 2013's second quarter. We are now on Slide 10. I will now discuss our results for the 6 month period ended June 30, 2014. Revenues were slightly up at $3.16 billion as compared to $3.13 billion at 2013's year-to-date period. All reporting segments are reporting organic revenue declines year-over-year, while our Industrial Services segment is reporting an overall increase of revenues due to the impact of the RepconStrickland acquisition. Year-to-date gross profit of $434.9 million is greater than the representative 2000 period by 2 -- $62.2 million and is 190 basis points higher on a gross margin basis at 13.8% of revenues. All reporting segments other than Industrial Services are reporting higher gross margins year-over-year. Selling, general and administrative expenses of $296.4 million represent 9.4% of revenues compared to $278.1 million or 8.9% of revenues. Incremental SG&A pertaining to 2013's acquisitions is $22.6 million, resulting in an organic decrease of $4.4 million. However, 2013's year-to-date results included $1.4 million of transaction costs related to the RepconStrickland acquisition, resulting in a true organic reduction in 2014's SG&A of $3 million. Year-to-date operating income of $137.1 million or 4.3% of revenues and represents a $49.7 million increase over 2013's year-to-date performance. Consistent with our year-to-date gross margin trend, all segments other than U.S. Industrial are reporting higher operating income and operating margins year-over-year. Our Industrial segment is reporting increased operating income on a year-to-date basis, with a reduction in operating margin due to the impact of our acquisition of RepconStrickland. As previously disclosed on Slide 8, adjusted operating income reflecting the add back of losses incurred within our U.K. Construction and Engineering operations and associated restructuring costs for both periods and transaction costs incurred in 2013 associated with the RepconStrickland acquisition would be $141.8 million for 2014 as compared to $107.8 million for 2013, which represents a 31.6% increase year-over-year. Diluted earnings per common share were $1.19 for the 6 months ended June 30, 2014, compared to $0.75 in the corresponding 2013 period. On an adjusted basis, reflecting the add backs previously discussed and also disclosed on the bottom of this slide, our year-to-date diluted earnings per share would be $1.25 as compared to $0.99 per share in 2013, a 26.3% increase. Please turn to Slide 11. EMCOR's balance sheet remains sufficiently liquid as represented by cash in excess of $400 million and modest leverage as represented by our debt-to-capitalization ratio of just over 18%. Working capital levels have increased since December 31 due to a reduction in current liabilities as the result of reduced levels of accounts payable and accrued payroll and benefits. Goodwill has reduced slightly during the year as a result of the disposition of a subsidiary within our Building Services segment that occurred in quarter 1. Identifiable intangible assets are unchanged between periods other than amortization expense of $19 million in the first 6 months of 2014. Total debt is approximately $345 million, with the majority of the reduction due to the mandatory quarterly repayments of approximately $4.4 million under our term loan. We continue to do a good job of managing all risks that are inherent in our business, and I believe our balance sheet clearly reflects our successes. With my slides concluded, I would like to return the presentation to Tony. Tony?

Thanks, Mark, and I'm on Page 12. I'm going to cover backlog by segment. Total backlog at the end of the second quarter is $3.64 billion, is up $125 million or 3.6% from June 2013. Additionally, a more recent comparison has total backlog growth for the first 6 months of year up $276 million or 8.2%. In summary, domestic backlog is up $196 million year-over-year and $284 million from December 31, 2013. Backlog in the U.K. has just about reached stasis from our withdrawal from the U.K. construction market. As we said, we have about $4 million left to go in the Construction business and was down minimally in the 2 mentioned periods. We continue to build backlog with a book-to-bill for the quarter at over 1, and even when accounting for a large infrastructure project that I'll talk about now. More specifically, as you get into our U.S. backlog within our construction operation, the lowest true section of the bar is up $196 million or 8.1% from June '13. And it does include a multi-year project award for the electrical work for the new Tappan Zee Bridge. It's an exciting project for EMCOR, and we do this kind of work very well, this infrastructure work. It will be done by our Welsbach Electric subsidiary, which has great execution capability. The field work for the replacement bridge will begin in early 2015. We will have a little bit of activity as we go through the end of this year. And the project is scheduled to run through mid-2018. Our scope is to install all electrical systems, including lighting, power, tollbooth, traffic-signaling and security systems. This is a complex project. And it took us over 3 years to bring into backlog. The project value is in excess of $150 million and will impact us mainly through 2015 through mid-2018. However, even outside of that, backlog did grow, and we are seeing encouraging momentum as backlog has growth both in Electrical and Mechanical Construction segments since June '13 and again, since December '13, mainly on the back of increased commercial and transportation awards. In fact, backlog in these 2 segments has grown $289 million or 12.5% since year-end 2013 and now stands at $2.6 billion. Backlog in Building Services stands at $750 million and is down $64 million. And this is really a simple story. We portfolio reshaped. That cost us $60 million. In Florida, which you're seeing in the profit of Building Services, in one of the contracts, we did really well on the way out as we converted into a cost-plus as they were in transition. We weren't going to do that on a sustained basis, that's why we exited that contract. It was by 1/2 of those in last year's number. We're down 60 in government, and most of that is related to a large-based operating agreement. We're still on site. We did not win the rebid. It got very, very competitive on the rebid, so we didn't win that. The actual financial impact of that joint venture is minimal. It's less than $0.01 a share or about $0.01 a share because we had partners on the joint venture and the minority share you saw go out there, so that's what most of the minority share for us was. Our mobile services group though actually has backlog increasing $60 million, so that's why it gets down $60 million, down $60 million, up $60 million, and that makes the segment about flat year-to-date. And then you go to Industrial, I'll remind you what Industrial is for us in the segment. It is just the shop work and mainly the major rebuild and new OEM work in Ohmstede. The old Ohmstede is the shop work. Everything else there is not in backlog because it's all time and material or fixed schedule type work when you schedule a values type work. So we feel pretty good about where the backlog is. If you go to the sectors on Page 13, what you see over a period of time is commercial growing. It's not quite all the way where it was in 2007, but it's making its way there. And what you see is some of the institutional health care pushing against that, and especially the hospitality, but we're not even going to talk about that right now. But between institutional and health care, they've come down, and I think the reasons for that are pretty straightforward. Health care is a very uncertain market. I think it's a good long-term market. In institutional, that's where you see the result of some of the federal government actions and in our case, the rebid on that large base operating agreement. If you go to Industrial, we talked about where the segment would be. It's actually up, but the other work is, we win large project awards, right? And in the Industrial side, especially on the food processing side, we have great prospects in front of us. They're lumpy when they come in. And when they go out, you're doing a lot of pre-engineering work before you will put it in backlog. We think that's transit. And then of course, you go to transportation, so that's the Tappan Zee Bridge, but also, we feel very good about some of the infrastructure work we're doing in the other parts of the country and other infrastructure opportunities we'll be able to win in New York. I feel good about the mix of backlog and I feel good about the projects we have in backlog. I think what's really important to understand is, we've been in a 4-year recovery or so in nonres, and it's been choppy. We keep the same disciplined bidding regardless what's going on around the market. We saw some of our competitors, and some of them aren't doing very well right now. As you see some large contractor failures recently, they filled up on work even at low prices as we begin to recover. We didn't do that. We have more focused on margin, especially in the Construction but all the businesses, so we focus on margin and execution a lot more than we focus just on revenue. Revenue can be very easy to get in our business, and we like the mix of backlog that we have right now and feel really good about its trajectory. Now I'm going to be on Page 14 and 15, and I'm going to close this up. We're going to raise the bottom end of the range from $2.45 to $2.50, and really, that's a sign of margin confidence. And we're going to leave the top end where it was at $2.70. We are going to bring revenue guidance down from $6.8 billion to $6.6 billion. Execution is strong, and that operating margin gave us the confidence to raise the bottom end of the range. The revenue guidance we're bringing down is really because of the nonresidential construction market growth. I think what we're going to see when all is said and done is basically a flat market through June. June starts do look like they were better, and the market is going to grow probably closer to 2.5% to 4% for the year versus the previously contemplated 5% that we thought maybe is the top end of what we were thinking. I think the question most of you will have is how do you guys get to the midpoint to the top end of the range? And here is 4 key things that can get us there. The full turnaround season needs to get to the mid to top -- needs to have strong pull-through work off of our planned turnarounds. We expect the solid fall season, but you need a strong pull-through to reach the top end of the range. We just need to have a seasonable early winter, nothing spectacular, just on track with seasonal averages. We do need to see the non-residential recovery gain a little steam in the second half. It should. Indicators like ABI and [indiscernible] said it should, but it has been a very slow start to the year. And if you look at our operating margins, on the revenue we win and the revenue we'll do here in the second half of the year, we just need to have a little upside versus where you'd be at the low end to the midpoint. In summary, I'd like to leave you some key points. Our Construction business has performed very well on this slow recovery, and our expectation is that will continue. Our business -- Building Services business has rescaled and as the market leader, has had significant profit improvement over the last few years. We expect that to continue. Our Industrial Services business is a market leader, was one before and is more of one now with the acquisition of RepconStrickland, and we are performing and we continue to expect to reap the benefits of our acquisition of RepconStrickland as this important market continues to grow and our penetration and position in that market is more pronounced. And our U.K. business has been restructured. We're almost done with the Construction business, and our remaining Services business should reward us with more predictable and steady returns. We are going to continue to focus on the areas we control. We've said that consistently, and so that's what we're going to do. We're going to focus on cost control, productivity, disciplined bidding, hard-nosed execution, smarter organic growth and disciplined capital allocation. And with that, Teresa, I'll turn the call to you, and we look forward to taking your questions.

[Operator Instructions] And your first question comes from the line of Adam Thalhimer with BB&T. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Tony, you brought up the positive nonres starts. I mean, what's your -- what's the general -- because they have been very positive in the last 3 or 4 months, what's the rule of thumb on how your business lags those?

Well, we're going to lag them by at least 3 to 6 months. But that being said, it's a big market, Adam, and we see opportunities out there. We do very well on the opportunities we target. And I do see probably for the first time that I have felt in 3 or 4 years, that there are a lot of fundamentals coming together on the private side. Commercial continues to grow, mainly driven by the renovation refit part of the commercial business, a substantial add-on, I would call it. And we are well-positioned to take advantage of that. It's one of the more profitable things we do as a commercial work. I think infrastructure, there are some good infrastructure projects out there. We just won one of them after a long negotiation and we expect to do well, we expect to support our customers very well on that project. So I think starts are coming. I think people are trying to be more positive if we would just let them. Adam R. Thalhimer - BB&T Capital Markets, Research Division: On Industrial Services, you put up a good margin there considering it's a seasonally off quarter, 7%. Could that be the -- but you said Q2 is the worst, and Repcon didn't contribute a lot in Q2, so is 7% kind of the low point for the year?

I would say somewhere around there right now, yes. Repcon contributed on an EBITDA basis, so you're right about the operating income. It did contribute. And what you're starting to see in that business is the effects of the combined business, and we're worried a whole lot less about who's doing the work than that we're getting the work. And you're also seeing the benefit in our business of really good shop execution and good repair capability that others in our space may not have. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. Then last question for me. The commercial site-based business, what -- can you just talk about that? I mean, what is that exactly? And you talked about getting the win rate up, how do you do that?

Well, look, it's -- we reshaped the portfolio. We know how to sell. When we reshaped the portfolio, we tried to increase margins probably a little too aggressively for what the market would bear. We have an opportunity. What it does is it does everything from raw technicians, we put people in the buildings to run them, operating engineers. We manage subcontractors and do things like snow removal, like we were all very excited about the performance of what that could do in the first quarter. We manage janitorial subcontractors. So we do the full range of services. We self-perform as you get to more of the operating-engineer trade side. We subcontract as we get more to the soft services. It's a business that's profitability -- has improved dramatically over the last 2 or 3 years, but it's got a long way to go. How do you win more? You got to bid more competitively. And in our case, we got to do a little better job listening to what the customer is actually asking us to bid, instead of trying to convince the customer what they should bid. We tend to come at things at a very technical bend and we have to go back and relearn the lesson like we had sometimes in our Construction business, bid the specification and then work for the change order or you won't get even in the game.

And your next question comes from the line of Glenn Wortman with Sidoti & Company. Glenn Wortman - Sidoti & Company, LLC: Yes. So sticking with the Building Services, has your long-term margin outlook for that business changed at all, or do you think that 5% margin goal is still achievable over time?

Well, we got to get to 4% on a sustained basis and we're there year-to-date. I think we have -- we're going to have to mix more Mechanical Service and Government Services business in there. And we're going to have to really understand the effects of when we have a contract where we have pass-through revenues and we don't earn much of a markup on it where we may be doing -- managing someone's sub-contract capital work but we're not actually doing the work. I think we can get it to 4% to 4.5% here on a sustained basis in the near term, but it's going to take more mix in Mechanical Service and Government Services rebound to get us over -- closer to 5%. Glenn Wortman - Sidoti & Company, LLC: Okay. And then on the U.K. side, you guys went through that pretty quick. Can you just go over what pushed the margin in the quarter and then how we should be thinking about the top line and margins?

I'll turn it to Mark.

Yes. I think it's consistent with kind of what we said in the past. When we get to the other side of this restructuring of our Engineering and Construction business, we're looking at a Building Services business with annual revenues between $300 million and $350 million and operating margins between 3% and 3.5%. We're hopeful once we get to that point that we could see an uplift in overall operating margins, but it's going to require some fine-tuning of the cost structure there because that's the way it exists today, it's managing 2 different businesses, which are distinct. But well, I guess we need to get through all of our contractual obligations on the current restructuring before we can move on to the next look at the cost structure.

And your next question comes from the line of Noelle Dilts with Stifel. Noelle C. Dilts - Stifel, Nicolaus & Company, Incorporated, Research Division: So I know you don't give quarterly guidance, but just a couple of things. Looking out at the third quarter and fourth quarter, just to try and get a pace of -- or sense of the pace of how things will recover, but I think in the press release, you noted that you expect sequential increases in the non-res market in both the third quarter and the fourth quarter, so are you actually expecting the fourth quarter to be a little bit stronger than the third quarter on the non-res side? Am I reading that right?

Yes, I think you're reading that right. Noelle C. Dilts - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then just, okay, circling back to Adam's question on the Industrial Services margin, if you look back at last year, it was kind of a challenging margin performance for Ohmstede and Redman. Can you talk about some of the factors that you think will help to drive what would have to be a significantly higher margin this year just to get back to around that 7% margin in the third quarter?

I think -- we don't give quarterly guidance, but I think second quarter benefited from some spillover work from the first quarter, especially in our shops. Third quarter, it all has to do when the work starts up. If it starts up in the 2nd week of September, then the margin has a chance to be a little higher because we'll be billing. And we won't be, for lack of a better word, provisioning people to get ready for a late September, early October start. So the more the turnaround season moves into third, which is sort of like the inverse of what happens in the first quarter, if some bleeds into the second quarter, second quarter gets better, the opposite happens in the fourth quarter, the more we can start early. The other thing is you never know week-to-week in the Industrial business when your customers may need help. And so we have very good technical labor, and you saw that in the back half of 2012. We really benefited when we were able to really react to a customer situation. That can happen and that can drive the margins higher. I mean, our expectation in the third quarter is somewhere between high 5s would be the worst to 7. And then it picks up from there in the fourth quarter. I mean, Mark, that's basically what I think. And it all has to do with really the absorption of the overhead is what drives the differences. Noelle C. Dilts - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then one last quick question. What's your expected tax rate at this point for the year?

Obviously, we're trending a little bit lower than our initial expectations. If the U.K. continues to perform for the remainder of this year at a better level than last year, I think we're probably going to settle in somewhere around 30.5% to the 39% which we originally started.

And your next question comes from the line of Ally Himmons [ph] with D. A. Davidson.

I was wondering if you guys saw any additional acquisition opportunities for EMCOR in the future.

Oh, of course. I always had a belief that deals happen when they happen. We think it's a relatively slow market right now for our space, but that doesn't mean that they -- something couldn't come here in the next 6 weeks, at the least initial evaluation of it. Our company's been built through acquisition over a very long period of time. Right now, we have what I would say 4 to 5 really good areas to invest. We would still invest in our U.S. Electrical and Mechanical Construction businesses. We have pretty good footprint there. So we'd either need to bring in a niche capability like infrastructure or industrial or geography like the Southeast Mechanical or New England Electrical. That kind of thing. So it will be more a geography capability play in Construction. As you go to Building Services, we still have white space in our Mechanical Services business, places we would like to be where we don't have the capability we would like to have. You go to South Florida, and you go to parts of Texas, the Intermountain region, the Pacific Northwest, we would like to have more Mechanical Services capability there. On the Government side, it would have to be something that would allow us to add to our services more than anything else. We're not necessarily looking to buy contracts from people. We can always go bid those contracts, we have the capability. On the site-based services side, I think we'd rather grow organically, although there are areas we would like to self-perform more of the work that we do today. You go to Industrial Services, we like our offerings, everything from [indiscernible] to cat crackers,to heat exchangers, to heat exchanger build and repair, to welding services, high-premium welding services, one of the best companies out there is Turnaround Welding Services, to refectory services. So we like those businesses. There are some geography we'd like to expand into there, potentially up into the Mid-Continent area. And also, we think there are still 2 or 3 heat exchanger shops or custom manufacturing shops that we should own to help support our Service business. And then finally, in the U.K., which I would say is just a mirror image of the Building Services business. There are certainly some things we would like to think about on the property management side. Not do property management, but the support of the property managers with good O&M maintenance, and then we'll continue to grow that organically, mainly focused on the U.K. So yes, we look every day, and we're going to be disciplined in that process. And we're always going to be fighting in this low interest rate and easy money environment where private equity guys can borrow money and leverage 6x or 7x, that's really not good for anybody.

[Operator Instructions] Your next question comes from the line of Tahira Afzal with KeyBanc.

I guess first question is, in your press commentary, Tony, you noted that with the current cost structure, you could continue to accommodate growth. Your margins have come in pretty strong, execution is strong. So as we look out, directionally, even beyond this year, to the extent you can comment, can you talk a bit about where margins could go?

T, we peaked last time. I think it was 4.9%, 4% or something in 2009 as we were coming off. Volume was coming down, and we're now convinced we could finish some good work in the Construction business. And some of the risk of projects not completing during that period of time got behind us. So clearly, we are shooting to at least do that or better. So I think if you ask this team what its near-term goal is in a recovering -- a stronger recovering non-res market, we got to get to the high 4%s and then get to 5%. I mean, I think that's what we see as our first intermediate goal post. To get above that, a couple of things would have to happen. We need to mix the business better. So the acquisitions we make need to tend towards the industrial space or a niche contracting or Mechanical Service space for us to get those margins a little higher. And I think the more incremental revenues we can add -- the only issues we have right now are in some of our Services business, whether it'd be even the U.K. or the U.S. in the site-based business, we can add volume with very little incremental SG&A and we need to do that. I would say the same thing in the Construction business. There, the margins are pretty good, so I'm not expecting a big margin pickup from doing that, but we can do the work with little incremental investment. So I'd say 5% is our near-term goal, and we got to get there first.

Got it. Okay. And Tony, the second question from me. If you look at your bookings, clearly, some of the strongest bookings you've seen in a little while. Can you maintain this clip? It sounds like a lot of excitement about the commercial sector that might be the case. And if that's so, if I was to build a similar bond rate on the bookings you are getting and the backlog you have, it seems to indicate your growth on the organic side could pick up fairly nicely into next year. Is that the case or is there some change in the duration of your backlog [indiscernible] to be taken into...

I don't think our duration has really changed. We always somewhere have a project that looks a little bit like Tappan Zee in there. Maybe there'd be 2 of them that would be the same as the duration of Tappan Zee, or 3 of them. But it's the same kind of -- so that really is not going to change our burn. The commercial work does burn quicker, absolutely. And I think if we can get some industrial work in there, that tends to burn quicker than other large projects. You saw that with the work we did in the food processing side back in '12, which really caused organic growth. So I would look for that. We need to see some industrial backlog growth, not segment, but sector. I think my view on it has been for a while, that if nonres grows, and it really hasn't grown year-to-date and that's what we're seeing, if you think about last year, I think the numbers I look at tells me it shrunk last year 2% to 2.5%. We actually held serves, so that means we actually grew better than the market. That will be the same thing in '12. I think the same numbers would show in '11. So I think if we get a little bit of non-res growth, and if it starts to get to the 2% to 4% or 5%, yes, we should be at least to the non-res market growth and usually, we'll lag that by 1/4. And then we should be able to do a little better, 50 or 100 basis points better in the Construction business than what the nonres is growing. If you go to the Services side, the way I think about that, it's GDP and now, we've done the portfolio-reshaping, and that will flush its way out of the system here. Third quarter will be the last time you really see that impact in our numbers on a year-over-year basis in the Building Services segment. Once that flushes out, I think our Services business, if the economy's growing, too, we should grow 3.5% to 5%, 3% to 5%. Because we tend to be doing a little better. And I'm a little -- one of things that the got me a little energy right now is for the first time in 5 years, we're actually seeing strong sensible projects on the small projects side, which means owners potentially are starting to make more sense about their maintenance spending in their small projects side. And the other side of it is they come back to the contractors that do that work best, and that's companies like ours. So you put those things altogether, yes, if the economy can get a little bit moving in a positive direction, nonres gets there, then we should grow a little better than that.

Got it. Okay. And this is probably the most [indiscernible] I have heard you Tony in a while, and is this all just on the small activity bidding momentum you're seeing, or should I read into it you've seen some nice acquisitions there out there, too?

I don't know about the acquisitions. I think what you see us as a team most excited about is we like margin percentages and margin dollars than we like revenue. And that we were able to execute like we have year-to-date on the margins side, tells us that our folks are executing with discipline, productivity. And they are being very disciplined in their bidding. That tells me that as the market recovers, we're going to keep that same discipline, and there should be better opportunities out there. And also, unfortunately, I think some of our competitors loaded up with work that we didn't think was good, and so that should give us some capacity if the market does come back.

And your last question comes from the line of Min Cho with FBR Capital Markets. Min Cho - FBR Capital Markets & Co., Research Division: [indiscernible] the question. Hey, Tony, the -- obviously, given your guidance for revenue for the full year, that would suggest that at some point the second half of the year would see some organic revenue growth on the positive side. Now whether it happens in the third quarter or fourth quarter, does that really have to do with the timing of the turnarounds in the small business and the small projects? Or is there something else that could cause a shift in when we see that organic growth?

I think our compares get easier in the Building Services side because of the portfolio reshaping in the fourth quarter. But I think the other 2 things you mentioned are dead on, coupled with seasonal weather in the fourth quarter. Min Cho - FBR Capital Markets & Co., Research Division: Okay. And then also, you mentioned that Repcon added about $0.01 in the quarter. Are you still comfortable with your guidance for 2014?

Yes. Min Cho - FBR Capital Markets & Co., Research Division: All right. And you still feel that could be conservative given the -- kind of depending on the turnaround season?

I think we're comfortable with our guidance, and we like the impact that it's having on the other parts of our business and how the integration's going. Min Cho - FBR Capital Markets & Co., Research Division: Okay. And then just last one for Mark. I'm sorry. When you talked about the organic revenue growth in the second quarter, I wasn't sure if you had stated it was a negative 5.4% or negative 4.4%.

It's 5.4% overall. It's 4.4% domestically, which Tony cited in his notes.

And Mr. Elwell [ph], do you have any closing remarks?

Yes. Thanks, Teresa. Look, we've executed well through the half, and that's what we control, how we execute and the kind of projects we work on. I think I'll go back to the key points. We're going to keep control of our costs. We're going to continue to focus on productivity, disciplined bidding. We're going to be hard-nosed in our execution and decision-making kind of work we take. And we're going to try to look for smart organic growth and we will be good allocators of capital like we always have been on a go-forward basis. Thanks for your interest for EMCOR. And I hope everybody has a great remaining of the summer. We'll talk to you in the third quarter, and please be safe.

Thank you. That does conclude today's conference call. You may now disconnect.