Good morning. My name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Second Quarter 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will a question-and-answer session. [Operator Instructions]. Mr. Max Dutcher with FTI Consulting, you may begin.

Thank you, Angela, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the Company's 2016 second quarter results, which were reported this morning. I'd like to turn the call over to Kevin Matz, Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead.

Thank you, Max, and good morning, everyone. Welcome to EMCOR Group's earnings conference call for the second quarter of 2016. For those of you who are accessing call via the internet and our website, welcome to you as well and we hope you have arrived at the beginning of our slide presentations that will accompany our remarks today. We are on Slide two. Slide two depicts the executives that are with me to discuss the quarter and six month results. They are Tony Guzzi, President and Chief Executive Officer; Mark Pompa, our Executive Vice President and Chief Financial Officer; Maxine Mauricio, our Senior Vice President and General Counsel; and our Vice President of Marketing & Communications, Mava Heffler. 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 such 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 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 operations. Certain of the risks and factors associated with EMCOR's business are also discussed in the Company's 2015 Form 10-K and in other reports filed from time to time with the Securities and Exchange Commission. Now with that said, please let me turn the call over to Tony Guzzi. Tony?

Yes good morning. Thanks Kevin. And I'm going to be speaking to pages three and four of the presentation. Look this is a record setting second quarter for EMCOR and one of our best ever overall. And really what this quarter highlights is the strength and diversity of our underlying business even when facing headwinds. I'm going to be speaking to pro forma numbers which remove our transaction expenses from the Ardent transaction. We set second quarter record for revenues, operating income, net income, and earnings per share. We also had a very good cash flow quarter. We earned $0.95 per diluted share from continuing operations excluding transaction cost on revenues of $1.93 billion. We had revenue growth of 17% with 12.3% organic revenue growth. Our results were powered by exceptional performance in our industrial segment, good performance in our overall construction business in segments despite the headwind from a transportation infrastructure job and solid performance in both our building services and UK segments. I'm going to now spend a little time in each one of the segments. Clearly, our industrial business segment performed exceptionally well despite the previously discussed headwind in our shop businesses. Our 48% revenue growth and 90% operating income growth were driven by exceptional performance in our build businesses led by demand for our specialty services and an extended turnaround season into Q2 versus the prior year. What happened is customers needed our specialty services on a critical and significant projects and we were and are able to provide the right resources, that is skilled labor, supervision, and equipment to help them solve some tough problems. It is always hard to predict when these events happen or how long they will sustain. But what we do know is we are better positioned than anybody to help…

Thank you, Tony, and good morning to everyone participating on the call today. For those accessing this presentation via the webcast, we're now on Slide six. As Tony indicated in his opening commentary, I will provide a more detailed discussion of our second quarter 2016 results, before covering 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 today. So let's cover our second quarter performance in a little bit more detail. Consolidated revenues of $1.93 billion are up $280.8 million or 17% over quarter two 2015. All reportable segments are reporting increased revenues quarter-over-quarter other than our UK building services segment which experienced significant headwinds from the weakened British Pound exasperated by the Brexit vote. Revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by EMCOR on last year's second quarter impacted the current year's quarter by $77.4 million and positively impacted our U.S. electrical construction, U.S. mechanical construction and U.S. building services segments. Excluding the impact of businesses acquired, second quarter revenues grew organically $203.5 million or 12.3%. U.S. electrical construction revenues are $420.6 million increased $74.4 million or 21.5% from quarter two 2015. Excluding acquisitions, the segment's revenues grew $26.1 million or 7.6% organically. Revenue growth was largely driven by project activity within the commercial transportation, industrial, and hospitality market sectors, offset by quarter-over-quarter revenue declines within the healthcare, water, and institutional market sectors. U.S. mechanical construction second quarter revenues of $629.9 million increased $75.9 million or 13.7%. Excluding acquisition revenues of $14 million this segment grew organically a 11.2%. Consistent with the revenue trends within this segment during the last two quarters revenue growth was broad based from a market sector…

Thanks Mark. You deserve to drink a water after all that. I'm on Page 11 now and we're Backlog by Market Sector. Mark covered some of this when he talked about the revenue trends and it comes pretty much on top of that. Second quarter backlog is $3.81 billion, up $187 million or 5.2% from June 2015 and $40 million from December 31 despite the strong revenue growth we've had. What you're really seeing in our backlog is right our construction segments are always growing and really they comprise 75% of our total backlog anyway. When you start to look at the market sectors, we're basically following the census data whereas year-to-date. Our backlog is growing on the private side right now and the shrunk a little bit in the institutional side which is right in line with the construction census data through May of 2016. And one of things I think we look forward is our momentum in the market and the reality is there is momentum in the market, that shows a little bit of momentum, this AVI data shows a little bit of momentum, and so does the construction data which is more of a backward looking metric. All in our line of what we said over the last couple of years is sort of a single-digit market grower mid-single-digit market grower for us. We certainly see that through the back half of 2016 and we think it goes into 2017 or you really can't see much further in that. We do see mid-single-digits and really if we can grow mid-single-digit that gives EMCOR a plenty of market to operate and find the right opportunities. And with that I'll switch to Page 12 and talk a little bit segment, there's really not a lot new here. Our…

Thank you. [Operator Instructions]. And your first question comes from John Rogers with D.A. Davidson.

Good morning, John.

Good morning and congratulations on the great quarter.

Thank you.

I guess just a couple of things in terms of the transportation projects that you have taken the hits on both first quarter and second quarter, how much work is left to do on those projects and as you finish them off will that dilute margin?

Well the first quarter write-down they will essentially complete here in the third quarter. Although the hit on the write-down this quarter they that should be finished by year-end with the bulk of the activity likely to take place by the end of third quarter. As far as diluting margins, Mark, they continue to drag with a bulk of the revenue on the first two behind us. And the one this quarter I particularly difficult we should move to a big chuck of completion here by the end of third quarter.

Okay. I'm just trying to back out that would you say $10 million charge on that project?

It costs us 230 basis points in the quarter.

$10.5 million charge in quarter two.

I remember I showed you, John, the rest of the electrical business is operating at very significant operating margins or performing very well.

Yes, okay. And then in terms of the turnaround activity, Tony, you referenced some large projects that you are working during the quarter and I know it's a tough business to predict but were those a standard turnaround can you give us a little more color on the type of work that it was --

Yes, John --

Refinery work.

It was in the broader petrochemical space.

Okay.

It was not standard turnaround work. What it was really helping people complete significant capital projects with any of the skill and expertise of some of our welders and pipe fitters and boiler makers to finish that work in a timely manner.

Okay and but you don't see much visibility for that continuing into the second half is that what are you saying because it seems like there is a lot of market activity there.

We think some of it will continue in the second half. Understand our specialty services they call us in when they need very highly skilled people or the timelines are being met so visibility get stuck. So we need to really marshal significant resources in the short period of time and so we at most get four to six weekly times on it that's the most.

Okay, okay. And then I guess just lastly Tony I mean I know your third quarter typically seasonally dips but your fourth quarters are often your best quarters but you are not calling for that this year at least back into the guidance.

Yes, I think the strength of our industrial first half makes it difficult for us to see typical patterns in our business right now. I would say that in our construction segments we will follow more typical pattern especially in light of this $10.5 million write-down in the quarter. In our industrial segment because of the nature of the work we did in the first half of the year and the extended turnaround seasons into Q2 becomes more problematic for us to look at it that way. And we think building services will sequentially improve in UK but very difficult because of that and we're going to know a whole lot more in October obviously the deal is almost over then right.

Your next question comes from Noelle Dilts with Stifel.

Good morning, Noelle.

Thanks, good morning. Congratulations on a really nice quarter.

Thank you.

So just expanding a little bit on John's line of questioning there, so you talked about seeing good fall turnaround, it kind of sounds based on what we heard from some others that maybe that's a little bit more optimistic than what your peers are expressing, so would you say, it's true that you're maybe outperforming the refinery services market as a whole and then would you say is this a function of your client exposure or do you think there is some share gains going on, so could you just give us some thoughts there?

One thing I've learned over the last nine years of being in the refinery services of petrochemical is I learn to worry a lot more about what we're doing and how we're serving our customers versus what our peers are saying because they're all over the place. Here is what we know, we know that generally we have outperformed the market now for about four years on organic especially the last three on organic revenue growth. We also know that we are able to really marshal critical resources at critical times with some of the best supervision and trace people into business. And really when we acquired Rabalais Constructors and you start to look at the 2014, 2015 and now 2016 results that really brought us to critical mass of some of these skilled operators. We also know that our broad range of capabilities allows us to serve customers in a much more holistic way and all that supported by a balance sheet that can fund significant service and working capital. We also know that expanding beyond just the refinery services market into the broader petrochemical and industrial space has served us well in that segment and put us all together has allowed us to perform as we have. Now we also know is depending on having customers trust you and given you expand its scope. And I think that underlying trend that's happened with us. We are performing some of the biggest turnarounds we've had not only in the first half of this year but also in the second half of this year.

Okay. That is helpful. And I guess I know this is early, how are you thinking about 2017 on the refinery and petrochemical services side at this point for a couple of years now we've been hearing refinery has been different work and I know you guys don't necessarily think that's happening, but do you see 2017 as the growth year?

The initial planning would say that it's going to be an okay year, pretty good, and that can change, but actually what we're thinking may happen and look if you know these guys make hey when they can when they're on the refiners. Aren't folks that technically really know this stuff, don't think these utilization rates are sustainable? Okay and so eventually more maintenance is going to need to be done. Although we've been happy with the amount of maintenance has been done over the last year-and-a-half with our book of business. It would seem that really with the gasoline stocks building somewhere in the fourth and first quarter and switching earlier to win a blend you may see the opportunity here for an expanded maintenance season, but we really won't know that until we do our third quarter call we'll have much better visibility on it then. Now we're hoping that can do for us and no clear sight yet is, it allow our shops to increases the repair volume. And that could be a good thing for us, because it's not only drives that repair volume because of that it drives better absorption of overhead in the shops.

Right, okay that makes sense. Last question I've been looking at that the decent general contractors labor statistics and took some of the general labor statistics in construction and it does look like in general, the industry is facing some tightness on the labor side, could you comment on that and if you're seeing that in any of your construction oriented businesses?

The answer to that is yes, we're blessed to be able to attract really good labor. How we see that is a little in different ways. We see people trying to get us to commit to be part of their teams much earlier as they realize, they need the right option instead of just the cheapest option and they worry about people's ability to get resources. We also see it in may be contractual terms and one quarter doesn't make a trend right mark. We say that all the time, but there's been some good activity on net billings and excess of cost which for us means the work is flowing better. And the work is flowing more in line with the contractual terms. You also see it in that scopes increase, what general contractors and construction managers like to do in a soft market is to chop for cup into many pieces as they can get it to and still be able to manage the work to get as much competition. As the market tightens, they realize that's not only an inefficient way to run the market from their own, they're on the job from their own standpoints, but they realize that does not allow us to plan manpower as effectively as we'd like to. So that's the way as we see that in a tightening market. We've been really fortunate over a long period of time, where we're union. We tend to have a very good relationship with those unions, and they know we're always going to pay our people keep them safe, and have good supervision for them, and they're always going to get the money put into their benefits fund in the union. So we have -- tend to have a good draw in union labor in most markets where we're non-union, we have many of the same dynamics; we're in destination in Florida because of all those same factors. So yes it is tightening, we think that's a good thing. Eventually, hopefully, I know the folks around this table and in our field would like to see bidding margins.

Your next question comes from Nicolas Coppola with Thompson Research Group.

Good morning guys, this is Stephen Ramsey on for Nick.

Good morning.

I was wondering if you could call out any regional characteristics in the states strengths or weaknesses in some of regions here.

Yes I don't want to take a lot of time doing this because that's and what we see may be different than other people. The Northeast continues to remain strong. New York City as I do expect New York City to slow somewhat may be not New Jersey as much, but New York City residential high-rise as well not something we do a lot off, but that will have an impact on the market. Today it's okay, but I think if you play it out year, it's going to slow. Yes, Boston remains particularly strong especially in the life sciences and hi-tech area. If you swing down and you go to the Southeast very strong for us on the industrial side, we continue to see more on-shoring of manufacturing and we continue to see more movement into those states of manufacturing facilities from other states that may be don't have quite as favorable business climate. Florida will be strong for us over the next couple of year's particularly South Florida as we specifically have great capability on the water and wastewater side. Texas has slowed as you would expect it to, not on the industrial side as much downstream and maintenance, capital projects have extended life and of course commercial and all the other categories have slowed in our part of Texas which is Houston. California continues to remain strong for us especially Northern California but there is going to be a lot of work happening in Southern California around infrastructure. And then you get to the Rocky Mountain region, it's a steady market and Chicago is fine because we have some unique capability especially on the data side. If you breakdown on our construction maintenance you really don't see a lot of difference, I would say though that the -- on the maintenance side project side becomes good, on the maintenance side some is a multi-sale like ocean people right now seems to us struggling a little bit right now and you would expect that with everything that's going on with the consolidation in retail. Is that good enough for you?

That's great, that's very helpful. Thank you. And quick follow second question on M&A are there any particular areas you're looking to fill out on valuations edging up or in line with expectations and --

You know valuations are such a deal by deal specific thing and with the acquisition of Ardent, Rabalais, we had a unique opportunity. We were able to buy a premier electrical instrumentation contractor and industrial one. We were able to buy it at a reasonable multiple and for them which is cyclical downturn. We have a great opportunity when [indiscernible] upstream come back to really good rate with that great team there. The other deal we did is more of a private, I would call as a private, private market not owned by private equity but by an individual and someone is worried about the lifeblood of their company and where their folks end up we're a premier destination and you can take that over a long period of time, you look at Camino as an example some we bought a long time ago. It continues to prosper with us and the excellent operator there, Steve Camino operates. You can take [indiscernible], we're in our second generation of ownership there from the original purchase they are doing great and it really drive in not only fire protection with food process and great local contracting business. We love those deals and we see those coming back a little stronger right now, because people been able to put a couple of good years together and maybe they realize they won't get back to 2007, maybe they're treating that, but they have something to sell on now.

Your next question comes from Tahira Afzal with KeyBanc.

Hi team and congrats on the quarter.

Thanks.

Tony, first question, as we look at that mid-single type of growth rate you see for next year, could you elaborate on which market you think will be kind of growing faster?

Yes, I'd be careful with this, because I'm answering from an EMCOR perspective right now.

Right.

And so we may have some capabilities. We think, let's go just segments and may be not focus as much on not reporting segments, but end market segments and not focus so much on geography a little bit right now. We think data market will continue to be strong the data center market, I want underlying trend to say that's going to happen, and it's highly skilled work and we do well now. We think commercial will be okay, we continue to see the restocking of buildings not -- we're not doing a ton of new construction commercial, but we're doing a lot of retrofit work in commercial a lot. We think manufacturing for us put industrial to the side, I mean that we talk about industrial most of that heavy industrial stuff is not in backlog, most of our revenues. But when you take manufacturing and other industrial there's more project driven. We think that will be good, and we think the food market for us will be continue to be a good market to serve. When you get to institutional I think it's sort of squishy right now. I think higher rate has some legs with the [indiscernible] being okay. I think government spending for us has been a hard thing to pin down where that's going to go. Quite frankly we see over the last seven years really some crazy decisions being made on the government contracting side with small business and other things. That quite frankly drive up the cost for government when people like us can bring a much more efficient solution, you know what, I don't have the ability to fight that. And we also don't think we don't do a ton in K through twelve. I don't think that's going to be a particularly strong market, because some of the places where they love to build that stuff there are under lot of budget strain right now the pension costs. Do you guys agree?

Enrollments going down too.

Enrollments going down too. Healthcare, I think is episodic, I think if you're in the right market if someone wants to do something and they'll do it, I think flat would be a good outcome in healthcare. Water for us is going to be a good market over the next couple years. And wastewater, I'm not sure that's the true of a broader trend in that we just know what we're going to be doing some nice work.

Got it. Tony if you're looking out into next year then strategically and beyond, if you did have to make strategic acquisitions are you going to stick with anything of what you said earlier on, does industrials still from a longer-term perspective been pretty favorable for you?

Yes, couple of things, we would continue to add any geographic capability on our construction business. And you still have an electrical contractor in Northeast, outside of New York City for a long time now. We still don't have an electrical contractor in the Pacific Northwest outside of Oregon we are so much doing a ton of work in Seattle has been a really good market. We've a very good one in Oregon and Southern Washington. So we would continue to look at that kind of capability. And also capability in sectors like we just did with Ardent, Rabalais, not only to give us market opportunity down in the Gulf Coast, it gave us capability outside of California on and Oregon on industrial and the Rocky Mountain region on industrial electrical. Okay, we would also do the same thing on the mechanical side with that. Now underlying EMCOR we don't want to hack of an industrial construction business. We talk about the industrial segment a lot, because it's been big important part of what we've done with downstream refining and petrochemical as a midstream work, but we've also built a pretty successful over a series of acquisitions of an industrial construction and maintenance business outside of that space weather be the acquisition of PMI almost 10 years ago now, nine years ago PPM eight years ago, Southern Industrial I think almost four or five years ago, Hansen so we've needed together a pretty good offering of industrial construction capability and we would continued to like to add to that because you also get for on maintenance business with that and we think the trends are long-term good especially in the Southeast and the Gulf Coast for and lower Midwest for industrialization back here into America. Now we also like the building services space for specifically we will continue to expand on mechanical services footprint. We'd like the deal in North Carolina in the Southeast that we did quite a lot and we had great growth underlying this business has been matched by some of the things going on the side base to government business overall in our mechanical services portfolio. And of course industrial we're always looking to add capability. We have some smaller business in there, we'd like to bulk up, our team will continually look at that and we tend to be know the properties where we want to be buy and we tend to be patient until they come available or we can drive them most [ph]. So we see those opportunities and we'll be patient to take advantage of when they're there.

Got it, okay Tony and I guess last question, you had the transportation sort of pick up [indiscernible] very unlike and you have a lot of conversation, long conversation on this last quarter is it in the book you've some taking on the project how do you feel that, lessons learnt and you guys can move on and take on some of the transportation project that might be coming out.

The easy answer. Probably not the right answer to say we're not going to do the same. Then you got at the look at the totality of our work over 10 years and you got to say where that would be a really bad decision because we've done about $1.5 billion of this work over the last 10 years and we've made superior margins into our standard gross margin in the construction business. And so that I'm going to sit back and say okay, what caused this type I think the ones in the first quarter looks that's going to happen will get recovery till finish they're not nearly the size of the loan we are talking here in the second quarter and the write-down there, you said who caused this. And other things that you would know in the bidding process that would keep you from wanting this happen to you. Some of this, you did get that into the job quite frankly you thought that, had not continued to see the cover which are always difficult job and that's one of the reasons you could do well on is because you are complicated and the demanding owner and people usually realize that these are complicated and they have to be the great communication on the job to keep the job moving. So see what happens here, clearly we'd have a lot of questions about how this job has been running the people running it so we wouldn't look to run ahead first and do a job with these folks again anytime soon until they get their act together. And there has been some unique things on this job that they won't replicate themselves and/or one-off. But you're right I mean we constantly do that, we constantly question, this is the case of we're going to stay in the market we've done very well and I would probably to say that this team has been very successful over a long period of time. I would probably to say this team will come out of this experience and we will as a team much better, I'm not sure you can make us any tougher, more conservative but I think we will come out of this experience having both with our local market team.

And you have a follow-up question from Noelle Dilts with Stifel.

Thanks. Just how much transportation revenue that going to be booked at fair margin do you have coming through in the back half?

Yes, Mark you know that.

Yes, no I think it's probably going to be in the range of $40 million to $50 million.

Now I'll turn the call back to management for closing remarks.

I'd like to say it was a very good quarter and it's a very good start to the year. It takes a lot of things to go right and sometimes people; we collectively forget all the things that have to happen to have this kind of result. When you're doing 10,000 projects with over 32,000 people and a big chunk of them skill trades people as a lot of supervision going along, a lot of bidding going on and we're obviously doing that more successfully overall than we're not doing it successfully. So we get it we're satisfied with the performance but clearly know we have a lot of work to do in the second half of the year and thank you for your interest in EMCOR and we wish you all a good remainder of the summer and for our folks and anybody else please be safe. Thank you.

Ladies and gentlemen this concludes today's conference call. You may now disconnect.