EMCOR Group, Inc. (EME) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Polly, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Fourth Quarter Year-end 2014 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Elwell, sir, you may begin.

Thank you, Polly, and good morning, everyone. Welcome to the EMCOR Group Conference Call. We are here today to discuss the company's 2014 fourth quarter and full year 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 we hear you're in snowy Chicago. I hope it snows for a long time out there. For those of you who are accessing our 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. We're now on Slide 2. With me to discuss the quarter and the 12 months results are Tony Guzzi, our President and Chief Executive Officer; Mark Pompa, Executive Vice President and Chief Financial Officer; Mava Heffler, Vice President of 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 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 future guarantee of performance. Such risks and uncertainties include, but are not limited to, adverse effects of general economic conditions, changes in the political environment, specific changes in EMCOR's market for services, adverse business conditions, increased competition, mix of business and risks associated with foreign operations. Certain of the risks and factors associated with EMCOR's business are also discussed in the company's 2014 Form 10-K, which was issued this morning, 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 good morning. And I'll be speaking to Pages 3 through 5. I want to open by saying we had a very good 2014, and I'm pleased to be able to make that statement at the open here. What I'm going to do in my part of the call here at the beginning is I'm going to speak to full year 2014 results for the most part. Mark is going to cover Q4 2014 and full year 2014 in detail. I'm going to speak to pro forma numbers. We're going to adjust for the building sale, the Repcon acquisition costs from the previous year, 2013, and some small restructuring and impairment charges. Now when you look at the year, the U.K. Construction business closure is now in discontinued operations and therefore, it is not in my commentary. I am going to make one comment with respect to Q4 2014. It's the first organic revenue growth quarter we've had in 6 and we grew 3.9% organically. And it was our largest revenue quarter in our history. Now I'll cover 2014 in a little more detail. We generated revenues of $6.42 billion. We generated $2.49 in diluted EPS on a pro forma basis. We generated a stellar $246 million in operating cash flow and expanded pro forma operating margins from 3.9% to 4.4%. I thought I'd spend some time covering some of the good things that happened to us in 2014, some of it of our own doing and we had some help from some markets, and I will talk about some of the headwinds we encountered in 2014. Some of the headwinds relate to our performance and others relate to the markets we execute and operate in. Let's talk about some of the positives. With the results that we posted in the fourth quarter and the organic growth of 20.9% for the year, I think we can say the integration of Industrial Services has been a success. Our customers like our offering. We have retained our key team members. And our teamwork and execution is on track. Our Electrical Construction business continues to perform steady and at a market-leading level at 6.9% operating margins. We perform very well in this business and have for quite some time. Electrical Construction continues as one of EMCOR's most consistent and highest-performing businesses. Our Mechanical Construction business rebounded from its 2 problem jobs in 2013 and posted 5.2% operating margins and grew operating income 22%. Our Mechanical business is on track and performing well. Together, we operated our U.S. Construction businesses at 5.8% operating margin, which is well within our expectation of 5.5% to 6.5%. Our Building Services segment had steady performance, and our Mechanical Services division in that segment performed well. And we had solid operating performance in our Government Services division. This segment did have some headwind in the year and especially the fourth quarter with respect to legal expenses that I will talk about in the 2014 headwinds. U.K. Construction business closure is essentially complete and is now in discontinued operations. And that closure was a well done process, and it was executed well. And the U.K. Building Services business is on solid footing. We returned $223 million in cash to our shareholders and still have a solid, strong and liquid balance sheet that you would expect us to have because it's how we manage the business. We exited the year with backlog up 10% in our domestic U.S. business and 9% overall, with outstanding growth in the transportation sector and continued solid growth in the commercial sector. Let's talk about some headwinds we had. The nonresidential construction market grew in 2014, and best we can tell, in the markets that we participate, the sectors, that it grew about 5.5%. And we had good individual market and local company growth in those markets, and we had a backlog growth that kept pace or was a little ahead of that nonresidential growth. However, we did not have overall growth in our Construction business. One reason is we lagged a little bit, that growth, as we put it into backlog. We're later cycle in those projects than what the bookings would be upstream. And we restructured several operations. We removed almost $120 million in nonproductive revenue out of the business that were in either local markets that weren't performing for us over a long period of time or in sectors that lack long-term market opportunities. Growth in Building Services continued to face the headwind of the portfolio reshaping, which should be largely behind us, but also the loss of 2 government-based JVs, one that actually finished towards the end of the year, that we had for over 8-plus years. We performed very well on these joint ventures and won all the award years. Quite frankly, we lost the recompetes on pricing. The pricing was too aggressive for us to be able to deliver the service that we wanted to deliver for the customer and earn an acceptable return for our business. These revenue losses, coupled with the portfolio reshaping and site base, made revenue difficult to achieve despite the growth in our Mechanical Services business. For comparison purposes, these revenue drags should drop off somewhere between Q2 and Q3 2015. Legal settlements, with respect to the disclosed class action and the settlement therein, created at least $0.04 of diluted EPS headwind, most of it in the fourth quarter, and all of it in the Building Services segment and all of it, which was the previously disclosed California class action, where we certainly did nothing wrong. However, we settled. Overall, 2014 was a good operational year for consolidated EMCOR, and we continue to build on our foundation of future success. I will now turn it over to Mark for a detailed discussion of not only Q4, but 2014. I'll be back to discuss backlog and 2015 prospects.

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. As Tony indicated in his opening commentary, I will begin with a detailed discussion of our fourth quarter 2014 results before moving to year-to-date financial information, some of which Tony just summarized and is included in our consolidated financial statements in both our earnings release announcement and Form 10-K filed with the Securities and Exchange Commission earlier this morning. So let's get started on quarter 4's financial results. EMCOR was successful in generating organic revenue growth during the quarter, which is our first quarter of organic growth since quarter 1 of 2013. Consolidated revenues of $1.71 billion are up 4% from the fourth quarter of 2013. Revenues attributable to businesses acquired, pertaining to the period of time that such businesses were not owned by EMCOR and last year's fourth quarter, impacted the current year's quarterly revenues by approximately $1 million, clearly not as significant as it's been over the past several quarters. Therefore, EMCOR's organic revenue growth for the fourth quarter is 3.9%. Our quarterly revenue growth was driven by exceptional revenue performance within our U.S. Industrial Services segment, which is reporting a $74.3 million or 40.4% quarter-over-quarter increase. Strong demand for our field services offerings were the primary driver behind this quarterly growth. However, our shop services also are reporting revenue growth within the fourth quarter. Our one additional reportable segment that had fourth quarter revenue growth is our U.K. Building Services segment, which is reporting an $8.8 million or 10.7% increase despite the impact of negative exchange rate movements quarter-over-quarter. Incremental project work for our maintenance contract base is the primary reason for such growth, and we are cautiously optimistic about this segment's future revenue opportunities. EMCOR's remaining reportable segments are reporting revenue declines within our fourth quarter, thereby muting the positive growth within our Industrial and U.K. segments. I would like to note that fourth quarter revenue reductions within both our U.S. Construction segments as well as U.S. Building Services are substantially less than our reported revenue declines within such segments during quarter 3 of 2014. Domestic Electrical Construction revenues declined $7.6 million from last year's fourth quarter as the result of reductions in current project activity within the institutional and industrial market sectors that masked revenue gains within both the transportation and health care market sectors. U.S. Mechanical Construction revenues decreased approximately $4 million or less than 1% as a result of a decline in revenues from industrial and transportation construction projects. Consistent with my commentary during the last 2 quarters, the majority of project volume declines were within the food processing, power generation and high-tech industry market subsectors as well as telecommunications due to several large projects that were in process or approaching completion at the end of 2013. Despite these revenue declines, our Mechanical Construction segment did experience revenue growth within the commercial and institutional market sectors during the quarter. U.S. Building Services revenues of $427.6 million decreased $6 million quarter-over-quarter due to revenue declines within their commercial site-based services, government site-based services and Energy Services divisions. The lack of significant snow in many geographies during the fourth quarter as well as our lack of success on a government contract rebid were the primary reasons for this quarterly revenue reduction. These factors offset an over 14% revenue increase within the Mechanical Services division of our U.S. Building Services segment within the quarter across the majority of their operating companies due to both incremental service and small project activity. My last comment on our fourth quarter revenue, which Tony touched upon as well, is to point out that our $1.7 billion of consolidated revenues represents a quarterly revenue record for EMCOR despite all of our segments not generating increased quarterly revenues. Please turn to Slide 7. Selling, general and administrative expenses of $172.2 million represent 10% of revenues and reflect an increase of $11.2 million from quarter 4 2013. The current quarter's SG&A is inclusive of $300,000 of incremental expenses related to acquisitions for the time period not owned during last year's fourth quarter. Therefore, our organic increase of SG&A expense quarter-over-quarter is $10.9 million, which is attributable to an increase in employee-related costs due to incentive compensation as the result of improved year-over-year profitability as well as increased costs pertaining to our medical insurance claims experience. Additionally, the company experienced legal costs within the fourth quarter and year-to-date periods due to the resolution of an outstanding legal matter. Although we are not happy with the growth in our overall selling, general and administrative expense levels during 2014 as well as its percentage of revenues, it is not unexpected as the growth in our U.S. Industrial Services segment revenue, as a percentage of our total activities, will naturally drive up this percentage due to the higher fixed cost structure necessary to deliver their services. To complete this thought, Industrial Services represent 15% and 13% of EMCOR's consolidated revenues for the fourth quarter and year-to-date 2014 periods, respectively. This compares to approximately 11% and 8% for the corresponding 2013 periods. The reported operating income of $74.5 million represents 4.3% of revenues and compares to $75.9 million and 4.6% of revenues in 2013's fourth quarter. Our fourth quarter operating income includes approximately $400,000 of restructuring expenses as well as a $1.5 million noncash impairment charge as a result of the diminution in value of certain trade names accrued by businesses previously acquired. Consistent with our fourth quarter revenue trends, both our U.S. Industrial and U.K. Building Services segments are reporting operating income increases, while the remainder of our other reportable segments are reporting quarterly declines. Our U.S. Electrical Construction Services segment operating income of $23.7 million decreased $6.3 million or 20.9% over quarter 4 2013, with an operating margin of 6.7% or 160 basis points less than last year's 8.3% operating margin. The decrease in operating income in absolute dollars and in margin percentage is due to the gross profit contributions in 2013's fourth quarter from large project activity within the industrial, institutional and transportation sectors that were primarily located in the Western United States. 2014's fourth quarter U.S. Mechanical Construction segment operating margin of 6.2% represents a modest decrease from last year's quarter due to reduced gross profit contributions from project activity within certain subsectors of the commercial and industrial market sectors. Specifically, as previously referenced, we were very active in late 2013 on several projects within the high-tech, power generation and food processing market subsectors, which such project activity was concentrated amongst a few operating companies. These reductions offset operating income increases experienced amongst the majority of our domestic Mechanical Construction segment operating companies during our fourth quarter. Our U.S. Building Services segment operating income of $12.3 million or 2.9% of revenues declined $2 million or 14.1% over 2013's fourth quarter. The quarter-over-quarter reduction is due to lower maintenance contract volume in their commercial site-based services division due to the reshaping of our project portfolio, discussed during my prior quarterly commentaries, as well as the quarter-over-quarter reduction of snow removal activity within this division. Additionally, the commercial site-based division incurred significant legal expenses within the fourth quarter, inclusive of settlement costs, associated with the resolution of a legal matter. These reductions offset improved operating income and operating margin within the Mechanical Services and government site-based services divisions of this segment during the quarter due to increased small project activity, inclusive of higher indefinite-duration, indefinite-quantity activities. Our Industrial Services segment is reporting $20 million of operating income or 7.7% of revenues. This represents a $7.6 million and 90 basis point improvement over 2013's fourth quarter. The improved quarterly performance is attributable to the revenue gains previously referenced that were primarily driven within their field services operations due to strong turnaround activity within the quarter. U.K. Building Services operating income of $2.4 million represented a $1.2 million increase over quarter 4 2013 due to increased project activity within the commercial and health care market sectors. We are now on Slide 8. Consistent with prior quarters, the table on Slide 8 lays out those items impacting our fourth quarter, which we believe should be excluded from EMCOR's reported operating income to provide clearer comparability. There is one item that impacts each of the quarters presented. For the 2013 period, we are adding back the transaction expenses related to the acquisition of RepconStrickland, which is consistent with our 2013 pro forma reporting. With regard to 2014's fourth quarter, we are adding back the noncash identifiable intangible asset impairment charge of approximately $1.5 million. The effect of the aforementioned adjustments amounts to adjusted operating income of approximately $76 million in each period or 4.4% and 4.6% of revenues in the quarters ended December 31, 2014, and 2013 respectively. Our income tax provision for the quarter is reflected at a tax rate of 39.5%, which includes a discrete item that negatively impacted the rate by approximately 100 basis points within the quarter. This is an unfavorable comparison to 2013's fourth quarter income tax rate of 29.7%, which was positively impacted by a reduction in income tax reserves of $6.6 million due to the resolution of certain tax exposures that occurred during 2013. Tony touched on our strong operating cash flow performance for the year earlier in this call. And from a quarterly perspective, we generated $137.7 million of operating cash flow as compared to $82 million in 2013's fourth quarter. Please turn to Slide 9. Additional key financial data on this slide not addressed during my highlights summary are as follows. Quarter 4 gross profit of $248.6 million represents 14.5% of revenues, which has improved from the comparable 2013 quarter by $11.7 million. Our fourth quarter gross profit and gross margin are also up on a sequential basis from our quarter 3 results. Total restructuring costs of $369,000 represent the continuation of our closure of 2 domestic Construction subsidiaries that we anticipate to have completed by the middle of 2015. Diluted earnings per common share from continuing operations for the fourth quarter is $0.66 compared to $0.76 per diluted share a year ago. On an adjusted basis, reflecting the add-back of the noncash impairment loss and identifiable intangible assets in the current year's quarter and 2013's transaction expenses incurred in connection with the acquisition of RepconStrickland, diluted earnings per common share from continuing operations would be $0.68 per share for 2014 as compared to $0.76 per diluted share in 2013's fourth quarter. We are now on Slide 10. With the quarterly discussion out of the way, I will now augment Tony's 2014 annual commentary. Revenues of $6.42 billion are up $91.4 million as compared to $6.33 billion of revenues in 2013's annual period. Acquisitions contributed $231.2 million of incremental revenues for periods not owned during the last year and benefited both the U.S. Industrial and U.S. Mechanical Construction segments. Excluding these incremental revenues, 2014's organic revenue decline is 2.2%. All of our reportable segments, other than U.S. Industrial Services and U.K. Building Services segments, are reporting revenue declines year-over-year for the reasons highlighted during my fourth quarter commentary. Domestic Electrical Construction revenues of $1.3 billion decreased $33.8 million or 2.5% from 2013. U.S. Mechanical Construction 2014 revenues decreased $128.6 million to $2.2 billion. In addition to the decline in large project activity between periods previously discussed, this segment's revenue also declined due to the planned reduction in the scope of activities for a subsidiary that recorded significant project losses in 2013. This impact was most pronounced during the first 9 months of 2014. U.S. Building Services annual revenues of $1.7 billion decreased $73.6 million or 4.1% from 2013. U.S. Industrial Services 2014 revenues increased $320.5 million, of which $212 million represents RepconStrickland's contribution for the period of time not owned during 2013. Therefore, the Industrial Services organic revenue increase for full year 2014 is 20.9%. Lastly, our U.K. segment revenues increased approximately $6.9 million to $350.5 million, which represents a 2% increase over 2013. Please turn to Slide 11. SG&A expenses of $626.5 million represent 9.8% of revenues compared to $580.6 million or 9.2% of revenues. Approximately $26.6 million of incremental SG&A, inclusive of intangible asset amortization, is included in 2014's results as a consequence of acquisitions made in 2013. Year-to-date operating income is $289.9 million or 4.5% of revenues and represents a $49.5 million increase over 2013. 2014's operating income includes an $11.7 million gain on the sale of a building as well as the $1.5 million noncash impairment loss on identifiable intangible assets previously disclosed. Our U.S. Electrical Construction services segment operating income decreased $7.2 million over 2013 levels. Corresponding operating margin of 6.9% is down 40 basis points due to lower revenues and margin contributions from institutional and industrial projects year-over-year. Specifically, our 2013 project activity within the public and power generation market subsectors did not replicate in 2014. Domestic Mechanical Construction operating income of $114.4 million or 5.2% of revenues increased $20.7 million and 120 basis points over 2013's full year performance. Total U.S. Construction operating margin of 5.8% increased 60 basis points from 2013's 5.2% operating margin. U.S. Building Services 2014 operating income increased -- decreased $1.3 million over 2013 or 2% due to reduced profitability within their commercial site-based and Energy Services divisions. The commercial site's reduction in operating income is due to the contract portfolio reshaping as well as headwinds from legal expenses, including the associated settlement of a legal matter previously touched upon. Despite this overall reduction in operating income year-over-year, this segment was able to improve operating margins by 10 basis points in 2014. U.S. Industrial Services' 2014 operating income increased $24.4 million, of which $8.4 million represents RepconStrickland's contribution for the period of time not owned during 2013. Therefore, the Industrial Services organic operating income increase for 2014 is $16 million, up 41.2%. EMCOR U.K. Building Services operating income increased $2 million year-over-year and benefited from a reduction made during the second quarter of 2014 and certain accrued contract costs no longer expected to be incurred. Our 2014 annual results also include $1.2 million of restructuring expenses. We are now on Slide 12. As previously disclosed on Slide 8, Page 12 reflects the operating income reconciliation for the year from GAAP to non-GAAP earnings. Additive to the full year reconciliation from the quarterly reconciliation previously discussed, is the gain on the sale of a building that occurred in quarter 3 of 2014. Adjusted operating income in 2014 reflecting the add-back of the noncash impairment loss on identifiable intangible assets and the deduction of a gain related to the disposition of a subsidiary's owned building and land is $279.6 million or 4.4% of revenues as compared to $246.5 million or 3.9% of revenues in 2013. The only pro forma adjustment in 2013 is the add-back of transaction expenses related to the acquisition of RepconStrickland. The actual tax rate for 2014 is 37.4% as compared to 35.9% for the 12-month 2013 period. For purposes of 2015 planning, I anticipate a normalized income tax rate of approximately 38%. However, this rate can fluctuate if any discrete tax events occur during the year. Please turn to Slide 13. Additional key financial data on this slide not addressed during my 12-month highlights summary are as follows. Year-to-date gross profit of $907.2 million is higher than 2013 by $85.6 million and 110 basis points higher on a gross margin basis at 14.1% of revenues. Total restructuring costs of $1.2 million compares to $647,000 in 2013. And as previously mentioned, we should be complete with our current restructuring activities by the middle of this year. Diluted earnings per common share from continuing operations for the year is $2.59 compared to $2.16 per diluted share a year ago. On an adjusted basis, reflecting the add-back of the noncash impairment loss on identifiable intangible assets and the deduction of the gain on sale of a building in 2014 and the add-back of 2013's transaction costs related to the acquisition of RepconStrickland, adjusted diluted earnings per common share from continuing operations for 2014 would be $2.49 as compared to $2.22 per diluted share in 2013, an improvement of 12.2% year-over-year. We're almost in the homestretch here. We are now on Slide 14. EMCOR's balance sheet remains sufficiently liquid as represented by cash in excess of $400 million and modest leverage as demonstrated by our debt-to-capitalization ratio of 19%. Our cash balance is relatively flat from year-end 2013 as the substantial cash generated from our operating activities during 2014 was offset by cash used in financing activities predominantly related to over $200 million of share repurchases made during the year. Working capital levels have decreased since the end of 2013 due to a reduction in current assets as a result of reduced levels of accounts receivable. Goodwill has reduced slightly during the year as a result of the disposition of a subsidiary within our U.S. Building Services segment that occurred in quarter 1. Identifiable intangible assets have decreased between periods due to $38 million of amortization expense, in addition to the approximately $1.5 million noncash impairment charge taken during the fourth quarter. Total debt is approximately $335 million, with the majority of the reduction due to the mandatory quarterly repayments of approximately $4.4 million or approximately $7.5 million annually under our term loan. We continue to do a very good job of converting our operating earnings into cash flow. And we have utilized such operating cash flow to fund organic growth opportunities as well as return cash to stockholders. Although 2014 was relatively quiet on the strategic investment front, we are well capitalized to take advantage of all opportunities that may be in front of us. With my portion of the commentary concluded, I would like to turn -- return the presentation to Tony. Tony?

Thanks, Mark. Before I begin, I'm on Page 15. I'm going to cover backlog by market sector. As I mentioned last quarter, the historical backlog figures have been adjusted for the discontinued treatment of the U.K. Construction operations. So as you look back, all the backlog associated with U.S. -- U.K. Construction operations are out. Total backlog at the end of December is $3.63 billion, we're up $290 million or approximately 9% from December 2013, giving us a book-to-bill ratio for the year of over 1.04. Even though total backlog ticked down a tick in the quarter, which I believe is more timing versus anything else, we continue to see bidding opportunities. And given the 2015 forecast I've seen and what our view is on private non-residential construction, we do expect backlog to grow in 2015, all things being equal. So I do expect, at the end of 2015, that our backlog will be greater than where it is at the end of 2014. It will likely not get there on a straight-line basis, but if you do the year-over-year, that's likely what it will look like. For the year, commercial and transportation backlog had increases of 16% and 62% respectively. And as I've noted previously, our commercial backlog is close to -- I think it was at the highest level in our history at 34% of total backlog, it's close, and it's comprised of projects, really, broad-based across the country and includes increases from not only our Construction operations, but from our Mechanical Services businesses, which performed project work alongside their service contract base and it's more energy retrofit and project -- small project retrofit work. In 2014, we had some major transportation infrastructure projects, and that has lifted the transportation backlog to over $700 million, which is its highest level since 2009. Most of the increase is in New York City, and much of that increase is in the Welsbach Electric subsidiary, which is a leading bridge, rail substation and infrastructure contractor in the New York City Metro Area. It has the skill and experience to perform such large and complex projects as the previously disclosed Tappan Zee project that we announced a couple of quarters ago. Given current bid activity, we do expect to be significant players at even more infrastructure work around New York, and Welsbach is one of just a few uniquely qualified contractors to do that work. Market mix has remained relatively constant through 2014, with commercial and transportation activity leading backlog higher and institutional, industrial work down a bit. Institutional should stay around current levels, I think. We could win another government JV, but as of now, we'll see when that timing happens. I do think industrial has a good chance, and here, we're talking broad-based industrial manufacturing. The Industrial segment is -- backlog attributable to shops, and I'll cover that in a minute. Industrial broader-based for us means food processing, data -- I mean, high-tech work, power plant work. And so we do our bidding on some nice opportunities now. We're in -- on the food process work, we have completed some of the engineering work, and so we do expect to see that growth throughout the year. When you go by segment, domestic backlog is up $307 million, Construction up $329 million or 14%, and Building Services down 29%. I think we've beat the government losses to death and so I'm not going to talk about that more now. However, as noted earlier, we did have growth in our Mechanical Services group, which really is a sign of nonresidential market strength as it continues to move upward. There's been a little shift in our construction backlog, in that some of our work won in '14 are longer-duration projects and should provide a solid base for not only '15, but going into '16 also. Industrial Services ticked up a little bit, that is the shop work at Ohmstede. And the field services group really is not a backlog business, it's a time and material business or unit price business. Now I'd like you to move to Page 17 and 18 where we'll talk about 2015. When we talk about backlog, that's the basis of a lot of what we'll do in '15. Now we'll talk about '15. Our guidance is out at $2.65 to $2.95 per diluted share, with $6.6 billion in revenues. We enter 2015 with our businesses performing well, a large integration on track in RepconStrickland and a significant restructuring in the U.K. behind us. We have an excellent foundation to grow our business, both through acquisition and organically. We do expect nonresidential growth of at least 3% to 5% in 2015. We should not have the revenue drag from U.S. Construction restructurings that we had in 2014. With respect to the oil and gas market, we are largely a downstream-focused company. However, we will have some small headwinds from the upstream challenges in our Construction business as we serve the office needs of those large E&P-focused companies. For example, we have had great success in the tenant improvement market in Houston. We'll still be successful, but there is likely to not be as much demand for that tenant-buildout work. Further, any impact we experience in our Industrial segment is likely to be focused in the newbuild heat exchangers, about 12% of the segment, as capital budgets adjust for large integrated oil producers. We have not seen that impact yet because backlog actually grew in the fourth quarter, but we may. We are starting to experience some turnaround deferrals. And I would call them scope to get to the deferral, curve and time [ph] to get to the deferral, as a result of the U.S. refining strike. And this has all happened within the last 2 weeks. Quite frankly, the first 6 weeks of the turnaround season was very strong for us. As of today, we do not believe that this work is canceled, but do believe it is deferred outside of Q1 and early Q2. It could go into the summer. It could go into Q3, and maybe the fall turnaround season will start up earlier as a result. Now let's look at the fundamentals of the market. We told you the 6 weeks of this look very good. In reality, it's because the fundamentals of the market are good. We've got good refining margins and high utilization. And so the question is, how do you move to the top end of the range? There's really 3 or 4 ways we can do that. Of course, we're always going to watch our costs, that's a given, that's a foundation that EMCOR is built on. We need a little faster conversion of our backlog growth into sales. And if we got a book-to-bill of 1.04 or 1.05 again and we were able to convert that better, we should grow in our Construction business and that's implied in our guidance. We could get a little more than that. 1% or 2% above that $6.6 billion is a big deal. Said simply, if we have stronger non-res growth that converts into -- stronger and non-res backlog growth that converts into stronger 2015 revenues, we can move to the higher point -- mid or the higher point of our earnings guidance. We need our Industrial business to continue to perform strongly. You saw what it did in the fourth quarter and for the year. We had a strong, and still do, a strong spring and fall turnaround season lined up. The strike is a bump in the road. However, for us to get to the mid to high point of our range, we not only need to be able to do those turnarounds, we need to augment with great specialty services like we have, like specialty welding and torquing. We need small project HVAC Energy Services work to continue to grow at double digits. And we continue to remain -- maintain and expand margins in that business. And we need a better Q4 2015 than Q4 2014 with respect to snow removal. And it would be great to have some heat this summer, especially after this winter, because we had none last summer. So it would be good to have heat, and that could be -- help us get to a better part of the range. So with respect to capital allocation, we plan on pulling all 4 levers in 2015. We expect to generate cash at least equal to net income. First, we always prefer, always prefer as a first choice is to invest in the organic growth of our business and we do. We always look for the right acquisitions to augment any of our existing segments and businesses. And we will always look for the opportunities that complement our capabilities so we can perform more work for our customers. And finally, we will continue to return cash to shareholders through buybacks and dividends. Thank you for your interest. And with that, Polly, I will take questions.

[Operator Instructions] And your first question comes from the line of Tahira Afzal with KeyBanc Capital Markets.

First question is, Tony, if I look back, your backlog growth on an organic basis has really mirrored your revenue growth in the past. So as you end the year with 8% year-on-year backlog growth, why are we still -- why are we looking at only 3% or so revenue growth? It seems you've taken some pretty cautious assumptions this year versus last year in regards to incremental work, so I would love to get a little more of your thoughts around that?

Yes. Sure, T. About half of that backlog growth is in longer-term projects, half of 60%, and because of that, we'll be at the front end of that work. Take Tappan Zee and some of the other infrastructure work that we're doing in New York in 2015 and we'll revenue a lot more in 2016. So that's part of the reason. The second part is, really, we had a very strong organic growth year in our Industrial business, and so the comps get tougher and tougher. We'd be happy for 3% to 5% growth on that in the year, and -- with all that's going on with the strike. But the major reason is the longer-term nature of some of the projects in our backlog right now.

Okay. That's actually pretty helpful. And then, Tony, you mentioned in your prepared commentary you're always vigilant on costs, yet we have seen G&A creep up to probably the highest level as a percentage of revenues that we've seen in many years. Can you kind of put that in perspective? We've been seeing small noise every quarter, just in general. And is that noise in these costs? How do we look at this going forward? Is it going to take away from some of your earnings power?

So T, I'm going to let Mark go into detail on this, but let me hit the high level. So one of the things we watch is number of people. So organic SG&A people creep, that's less than 1% or 2%. The second thing we look at is fixed costs. What are you doing with facilities, infrastructure? That's about flat. So those are the real fixed cost numbers. But when you buy a business like RepconStrickland and bring it in and it has a higher SG&A percentage versus the Construction business and you haven't done anything in the Construction acquisition in a while and your Construction business didn't actually grow in 2014, that drives that percentage higher. And I think the other thing is we had some noise on the legal expenses settlement line, and all that rests in SG&A for the most part. And because of that, you're seeing an abnormal, which on an absolute basis, could be 20 -- 15 or 20 basis points. So Mark, are you going to add to that?

Yes. And T, to continue that thought, clearly, what I mentioned with regards to Industrial Services, the mix of revenues is different in '14 than it certainly has been in any period -- or comparable period prior to that. And as Tony mentioned, where we've had revenue growth and resulting profitability growth has been in some of our higher overhead operations. So that is driving part of it. As Tony mentioned, we've been relatively fortunate up until 2014 and really having nothing unusual happening on the legal litigation front. And unfortunately, in '14, as we both have mentioned in our commentary, we had some significant activity, a lot of which occurred in the fourth quarter. We clearly are very sensitive to it. We clearly are continuing to watch it, and we'll do what we can to drive it down. To be quite honest with you, 2014 was somewhat of an abnormal result from the perspective of percentage of revenues with regards to SG&A expense.

Okay. We'd like to get it in to the 9.5 to 9.8 range.

Your next question comes from the line of Alex Rygiel with FBR. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: First question, as it relates to sort of your outlook for 2015, backlog's up nice organically, revenue guidance is positive. It seems like your margin guidance is a little flattish. Any obvious reasons for that?

I think the biggest part of it, Alex, to me, is we're at 4.4% pro forma margins overall, Alex. Yes, clearly, mix would drive us -- is a thing we can leverage to drive us higher. I think with Mark, I think we're thinking at across the guidance range, unless we get a better mix out of Industrial and Electrical, our margins are sort of mid-4s for the year, and that's why.

Yes. The range in the guidance range from the low end is 4.3% to the high end at 4.7% compared to the 4.4% pro forma number that Tony just mentioned.

Big margins, Alex, we've executed very well. Other than the projects in '13, we really haven't had any significant losses in a while. So what you're seeing is what you get especially out of the Construction business where that matters. And so we're executing well, but we're not seeing, from '13 to '14 in our backlog, a significant uptick in margins that we put into backlog. The market is still fairly competitive out there. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: The Building Services segment 15 years ago, when that business started, it definitely was additive to sort of margin and margin stabilization. Strategically...

Actually, 15 years ago, we lost money. Up until 7 years -- 6 or 7 years ago, we lost money. Look, it did pro forma about 4.1 when you adjust for the legal expenses. We certainly don't think it will be, over the next year or 2, to track to -- from EMCOR at the mid-4s. You've got to remember in that business that it has a fairly significant amount of pass-through revenue, probably close to $100 million, $110 million, so that dilutes the margin. I will tell you the Mechanical Services business is certainly additive, the Governments certainly doesn't hurt us, and the site based, with just a little more revenue, will be dead on to our margins.

As well as Energy.

And Energy is dead on. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: But does the Building Services business still provide the strategic advantage that you were hopeful for a dozen years ago?

Well, I think it's -- I think if you look out in the market, companies that do that work have very good multiples. It's not as volatile as the construction business. I think it gives us definite advantages. We get national account customers as a result of it. We're in the business. We do it very well, and our margins compare as well or better than anybody else's in the business.

And Alex, just to state the obvious, just to make sure everybody's clear, Building Services as a standalone reporting segment didn't exist until last year. So if you're looking back at history, you're looking at the total Facilities Services segment, and certainly from 2007 to periods thereafter, Industrial is embedded in that segment. So that clearly, Industrial's margins, as you can see in our current reporting, are significantly higher. So... Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: And lastly, sort of as it relates to your Industrial Services segment, obviously, that segment's rebounded nicely and over time, I think, very strategic in your strategy long-term. Is the environment ripe right now from an acquisition standpoint to maybe double-down on that market? Or is it still a little bit too early and does the sort of the outlook for oil need to stabilize first?

I think if you're in it for the long term and the fundamentals for the downstream market, which is where we play, as far as we can see, are going to be very good. So what drives it? They operate on a spread between what they can sell it for or what they can buy the crude for, right, if they can sell the processed product or not. Three things have to remain good and they look like they're going to remain. We spent a lot of time and effort and we used outside experts to help us think about this. One is, is natural gas prices going to stay low. Well, that looks like it's yes, as far as we can see. That's 40% or more of their cost structure. Second thing you look at, what's the price of crude and the mix of crude that are going to be available to them. The Gulf Coast refineries, which is where most of our business is, or a majority of our business, are well positioned to operate on any slates in crude. And so they have a natural advantage there. The third part of it is, will the U.S. have an export advantage for finished product. And right now, the Gulf Coast refiners look like they're the low-cost producer because of the mix of crudes they can be in and the other factors I said with Energy. We're long-term or even short-term bullish on this sector. Could you have a dislocation this quarter because of the strike? Sure. But is that work likely to come back? Yes, most of it. Would we like to expand our shop network like we did with Redman? Yes, the answer to that is yes. Would we like to add specialty capability like we did with RepconStrickland in a couple of important product lines like Turnaround Welding and healthy [ph] out units? The answer to that is yes. Do we see opportunities for us to continue to grow organically like we did with the washstand in La Porte and like we are doing with the start-up of the specialty torquing business? The answer to that is yes. So we are long-term bullish on it. We think it takes advantage of our skills. We think the safety programs, we think the ability to attract highly technical labor is something that's an advantage for us. Might this be an opportunity to buy because people, especially private equity, that own some of these companies aren't sure of the outlook or can't work through the cycle like we can? I think internally, we've been starting to think that there may be an opportunity here to build some attractive assets for the long term. We'll see. I mean, we don't control the pace and timing of those. So yes, we do like it and we like what we did with RepconStrickland. We like what we did with Ohmstede. And we like what we did with Redman.

Your next question comes from the line of John Rogers. John B. Rogers - D.A. Davidson & Co., Research Division: A couple of clarifications. First of all, talking about 2015, I think Tony, in your comments, one of the things that you said that had to go right was snow. And I mean, haven't we seen that?

No, I said in the fourth quarter. So the first quarter is okay. Remember, we had a wonderful snow season in the first quarter last year. So we're fighting to get back to par with 2014 right now in 2015. We did nothing other than our seasonal contracts in December, so we need -- yes, I'm talking to go from the midpoint of the range to the high point of the range. One of the things that would help us, could help us a couple of cents, would be a good snow in December '15. John B. Rogers - D.A. Davidson & Co., Research Division: Right. Right. Just -- okay. And then the other question is just in terms of your comments about the overall market -- or I guess is the nonresidential market growing, would you say, 3% to 5%?

That's what we expect, yes. John B. Rogers - D.A. Davidson & Co., Research Division: I mean, it seems in that kind of a market, at least historically, you've been able to grow on your Construction side a little quicker than that or quicker than the market and pick up some share.

Yes. John B. Rogers - D.A. Davidson & Co., Research Division: And is that still possible? I mean, in the guidance, it seems like -- or it's being offset by something else?

And I think that is part of the upside we have, right? I talked about how you go to that higher end of the range. One of them is the better non-res growth, and that's growing better than the market. On a total revenue basis, we had to get through the headwind of these 2 government contracts that we lost, and that could be $70 million of revenue to the Building Services space, not very profitable once you eliminate the joint ventures, but well, that a couple of pennies. But you got to get through that, so that's part of the caution in the total. But one of the things that we're balancing is this year, backlog grew 9% but revenues on a combined basis were actually down on our U.S. Construction business. So we need to get more quick-turn revenues. We need some food processing plants. We can move through the year pretty quickly where the customer wants it up and running as quick as we can. But yes, we usually do grow better than the market. And if the cycle is starting to grow at around 5%, we should start seeing growth in excess of that if we can get more quick-turn backlog. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And then lastly, just in terms of share repurchases, I mean, you talked about potentially maybe some opportunities in acquisitions, but timing's always tough on that. I mean, should -- x acquisition, should we look for the same sort of investment level in 2015 than the $200 million that we saw in 2014?

We don't really set any target for share repurchase above making sure we don't dilute from where we are. One of the reasons we got aggressive in the fourth quarter is we saw that we were having a pretty good cash year. And we thought we'd take advantage of that in the fourth quarter to do share repurchases and reduce the base going into '15. So yes, we tend to be opportunistic based on how we're performing and other opportunities that are out there like acquisitions. We do like to run a conservative balance sheet. And there's a lot of reasons we've talked about a long -- over a long period of time for that, and -- but share repurchase is definitely part of our capital deployment. It's here and it's likely here to stay.

Your next question comes from the line of Adam Thalhimer. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Hey, Mark, just curious what share count you're using for 2015 guidance.

We're using approximately 64 million. Adam R. Thalhimer - BB&T Capital Markets, Research Division: And then -- okay. And then Tony, what -- I'm still trying to get a sense for, I mean, are you -- I'm just talking kind of pure non-res Construction. Are you more optimistic than you were, say, 3 months ago?

I am probably the same as I was 3 months ago because I was fairly positive 3 months ago. I will tell you, the one caution I think we all need to work through, we only see it in Houston. But the impact of oil and gas on non-res construction could be -- could dampen, if you look at the markets and how they all play out, you take Texas and Oklahoma and Louisiana, it could dampen a point or 2. Now the only place we play in that in the non-res side directly is in Houston, but it definitely could have an impact. So I'm not negative. I think there is markets that are strong. I think it's been gaining momentum. I think commercial's been gaining momentum. I think high-rise residential continues to gain momentum. I think non-res continues to gain momentum. I think infrastructure work, especially in around some of the major cities like New York, we're still bullish on the data center work. And I think we'll see some potential power gen opportunities as the year unfolds. So I think it's a fairly good market right now. It's not a great market. We're not back in 2007 or '08, and we're still 10-or-15-at-least percent below that as you finish the year in '15. But there's enough growth in the right places in the country. I think you will see a dampening in the first quarter, maybe not versus first quarter in '14 as you look at the industry, I'm talking, because of the severe cold. In construction workers really can't work in the U.S. in the severe cold. People send them home because of productivity. So I'd say I'm about the same. And I wasn't negative 3 months ago, so that might be the right way to answer it.

And your next question comes from the line of Noelle Dilts. Noelle C. Dilts - Stifel, Nicolaus & Company, Incorporated, Research Division: I just wanted to circle back to the comment on M&A and kind of your view on the oil and gas markets right now. But I think when we talked a few quarters ago, you mentioned that multiples in the market for acquisitions overall were pretty hefty. Are you already starting to see some of those multiples come down, particularly in the oil and gas space? And then have you seen any change on the non-res side?

Yes. Look, multiples, in my mind, finished 2014 at a ridiculous level when you read any of the M&A reports. When you're talking 10x on average for any size deal, that's sort of crazy. And we don't like to pay that, at least knowingly. For us to get even to the 8 to 9x that we paid for RepconStrickland, it has to be that kind of acquisition. It has to be something that strategically is going to move the needle for us, and is something that we know we can create incremental value. The way I think about acquisitions, and I think our team does, is really in 3 big buckets. So the first big bucket is, would you do a public market deal? Well, we never have, and I don't think we have it listed here of the 4 public companies that we're going to buy tomorrow, and so I would try that: unlikely and would take a real special circumstance. Then you get to this whole new category that's been developed over the last 7 or 8 years, and it's called private equity, high leverage, ridiculous leverage that the banks give them on their EBITDA, low interest, free money, no covenants, high-valuations market. We played in that 2 times. We bought Ohmstede and we bought RepconStrickland, and we're glad we did. But it takes a special circumstance for us to be competitive in that size deal, and that would be the $40 million to $70 million EBITDA deal. It is very pricey. It is extremely competitive. And nothing has changed there. As long as there is light covenants, high leverage and cheap money, these guys will buy anything. Then you get to the third bucket, which has really been how we build a lot of EMCOR. It's either special circumstance or a longtime family business or ESOP that we're going to buy. A good service company or a good local construction company or even a good oil and gas company like Redman. That market actually looks a little better here in 2015 than it has in '13 and '14. I think the primary reason for that, Noelle, is now people have a couple of good years where they actually rely -- they have something to price off of as the markets recover. So I would say that the larger deals, the private equity interest auction is still a very difficult market for EMCOR to operate in. And so we're back doing what we do best, in a lot of ways. We're out talking to a lot of people that have been interested in us and we've been interested in, and see if we can get some of those closed in 2015. We also -- there's been some long private equity deals that they've owned way past that they should, that they haven't been able to sell for a lot of reasons. Some of them are very good companies that may pop loose without a superheated process, and we think they'll come to market this year too. I hope that's helpful. I mean, it's 3 different ways to look at the world, but it's really how we look at it. Noelle C. Dilts - Stifel, Nicolaus & Company, Incorporated, Research Division: Yes -- no. That is helpful. And then just my second question is -- it goes back to the outlook you laid out on downstream, which I thought was very helpful in terms of your long-term view. Just going back to kind of the strength you saw in the quarter and the fact that we've seen such high utilization at the Gulf Coast refineries, we think a lot of maintenance has been pushed out. Do you think you're starting to see that break at all? That these refineries are having to address some of these deferred maintenance -- further down the line?

Yes. Yes, Noelle. Yes, Noelle, I think they've done a very good job of balancing maintenance and high utilization. And we were actually, and still okay, but we were actually in the midst of a very good turnaround season until the strike made its way to the Gulf Coast in a more pronounced way. So in our customer base, and the things we were doing, we weren't seeing big deferrals. What we were seeing is -- I told you the first 6 weeks of the year, which is not something we usually comment on, were very good. And we saw -- we're still strong, but we're seeing people now do planning to say, look, the strike going, our operator -- our management is actually operating the plant, we can't supervise you and actually write the permitting you need to get the jobs done. We need to think about how we're going to wind this down in such a way we can start it back up. I think the answer is 2 things drive, I think, maintenance in refineries: high utilization and good refining margins. And I don't know which one drives it more, but high utilization looks like it's going to be here a while, and good refining margins, especially for the refining-only-focused companies look very good. So I think that thesis would be right. And I think that we expect maintenance spending to remain strong.

And at this time, there are no further audio questions.

Good. Thank you. Look, we did have a very good 2014, but that's in the rearview mirror. And all we take from that is, we did a good job with cash-free deployment in 2014. We entered the year with a great balance sheet. We have good market prospects. Our job is to go out and execute and try to get that guidance to at least the midpoint of that range and see how we go from there. So thank you, all, very much. We'll be back to talk to you in April. And some of you we'll be talking to here over the next 2 or 3 weeks as some of you have conferences. Thanks for your interest in EMCOR. And I hope everybody has a warmer March than we had February. But it would be okay if it snowed a little bit. Goodbye.

And thank you. And thank you for your participation. This concludes today's conference. You may now disconnect.