EMCOR Group, Inc. (EME) Q1 2017 Earnings Report, Transcript and Summary

Good morning. My name is Pauli and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group First Quarter 2017 Earnings Conference 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] Thank you. I will now turn the conference over toe Mr. Bradley Vitou with FTI Consulting. Sir, you may begin.

Thank you, Pauli, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the Company’s 2017 first 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 management. Kevin, please go ahead.

Thank you, Brad, and good morning, everyone. Welcome to EMCOR Group’s earnings conference call for the first quarter of 2017. For those of you, who are accessing the call via the Internet on our website, welcome to you as well, and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. We are on Slide 2. Slide 2 depicts the executives who are with me to discuss the quarter's results. They are Tony Guzzi, our 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 this discussion may contain certain forward-looking statements. 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 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 2016 Form 10-K and in other reports filed from time-to-time with the Securities and Exchange Commission. With that out the way, please let me turn the call over to Tony Guzzi. Tony.

Yes. Good morning and thanks Kevin. I’ll move you on pages two to four. As I go through these opening remarks. Good morning and thanks for joining us on this conference call, we are off to a good start this year. And we had a very strong first quarter with revenues of $1.89 billion, earnings per diluted share from continuing operations of $0.88 per share and operating income margins of 4.4%. It was our best first quarter ever in terms of revenues, operating income and earnings per diluted share from continuing operations. It also it was our eight consecutive quarter of record revenue growth versus the year ago periods. We had 8.4% revenue growth nearly half of our revenue growth with organic revenue growth. Our success this quarter was driven by excellent execution in our electrical and mechanical construction segments. We had strong underlying execution across these segments and benefitted from the absence of the avenues and clearly one of our most popular phrases here at EMCOR. Our electrical construction segment grew revenues 27.2% versus the year ago period. Posted 7.0% operating income margins and grew operating income by approximately 86% versus the year ago period. Our mechanical construction segment grew revenue by 10.3% versus the year ago period posted 6% operating income margins and grew operating income by 70%. Our quarter was driven by strong execution across all end-markets with particular strength in commercial, manufacturing, healthcare and transportation. Our building services segment held us down in the quarter and it had a good quarter despite receiving no help from the weather. We continue to have strong underlying strength in our mechanical services business and are starting up several new contracts in commercial site based business and with that a mild weather in this segment which is now something we will talk about much today. It was a steady quarter, we continue to see growth in our mechanical services business ahead and we are in the pilot stages of two nice contract wins at our commercial site based business. Our industrial services segment growing well and had a good spring turnaround season. And mostly this turnaround work was completed in the quarter versus last year's elongated season that puts more work into the second quarter. Revenues were flat, but the comparisons to the year ago periods - comparison as we have previously discussed and we had solid performance through the first three quarters of last year on a specialty services product and had a pretty good turnaround season last spring. We executed well at 6.6% operating margins despite the lack of impact project. We believe that we continue to gain share in a core turnaround market and have grown to a first grade service project and not only definers but petrochemicals plants as well. Our team continues to execute very well for our customers. Our [UK] (Ph) segment has a decrease in revenues as a result of foreign exchange, but on a constant currency basis had some growth. We had some start up expenses in the first quarter from some new contract wins, we expect this headwinds to diminish as we move later into the second quarter. The UK building services business has steady performance and we continue to grow our customer base and our customer scope. Our balance sheet remains liquid and strong and our back on stands at a very strong to $3.97 billion. Our SG&A spending we under control at 9.7% of revenue. And with that, I'll turn the discussion 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 on Slide 6. Over the four slides, I will augment Tony's opening commentary and cover each of our reportable segments first quarter operating performance in a little more detail as well as other key financial data derived from the consolidated financial statements including in both our earnings release announcement and Form 10-Q filed with the Securities and Exchange Commission earlier this morning. So let's get started. Consolidated revenues of $1.89 billion are up $146.8 million or 8.4% over Q1, 2016. Incremental revenues attributable to businesses acquired at $77.7 million pertaining to the period of time that such businesses were not owned by EMCOR on last year's first quarter positively impacted our U.S. electrical construction, U.S. building services and U.S. mechanical construction segments. Excluding such acquisition revenues , our organic revenue growth in the quarter is 4%. U.S. electrical construction revenues of $443 million increased $94.7 million or 27.2% from Quarter 1 2016. Excluding acquisition revenues of $43.9 million this segment's revenue grew $50.8 million or 14.6% organically. Quarterly revenue growth was primarily driven by project activity within the commercial and transportation market sectors inclusive of certain large scale telecommunication projects partially offset by quarter-over-quarter revenue declines within the healthcare and hospitality market sectors due to certain project completions that occurred in late 2016. U.S. Mechanical Construction first quarter revenues of $671.1 million increased $62.7 million or 10.3%. Excluding acquisition revenues of $16.8 million the segments revenues grew 7.5% organically quarter-over-quarter. Our mechanical construction revenue growth continues to be broad based from a market sector perspective as was the case throughout 2016. Specifically during the first quarter commercial healthcare of water and industrial market sector activities contributed the largest dollar revenue growth partially offset by revenue declines from institutional project activity. EMCOR’s total domestic construction business first quarter revenues of $1.11 billion, increased $157.4 million or 16.5% of which a healthy 10.1% was generated from organic activities. U.S. Building Services quarterly revenues of 440 million decreased $3.1 million or 0.7%. Excluding acquisition revenues of $17.1 million, this segment’s organic revenue decrease is 4.6%. Revenue gains within the mechanical services division were offset by revenue declines within the commercial site-based and government services divisions due to maintenance contract attrition, primarily occurring in 2016, as well contract scope reductions. Additionally, although quarter one 2016 was relatively acquired on the snow removal front the quarter just ended saw a reduced of snow removal activities year-over-year due to lower seasonal snow fall in geographies where we are contracted for removal on an event basis. U.S. Industrial Services revenues of 258.6 million increased 1.1 million due to increased turnaround activities from our Industrial Field Services operations, as we executed a somewhat normal spring turnaround schedule. This differs from 2016’s first quarter and what we experience certain delays which extended our spring turnaround season at the quarter two 2016. This increase in turnaround activities for the first quarter of 2017 was partially offset by reduced revenues from large project activity within our specialty services offerings, which were exceptionally strong in 2016 and positively impacted each of the first three quarters of last year. United Kingdom Building Services revenues of $79 million decreased $8.6 million or 9.8% due to the $12.2 million impact of unfavorable exchange rates for the British pound versus the U.S. dollar. Additionally, small project and capital project activity remains muted as the impact of Brexit continues to affect their customers spending patterns. Lastly our $1.89 billion of quarterly revenues surpass our previous first quarter revenue at $1.74 billion, which awfully enough was the season and last year's first quarter. Please turn to Slide 7. Selling general and administrative expenses of $183 million represent 9.7% of revenues and which provides an increase of $15.6 million from the quarter one 2016. The current year's quarter includes approximately $12.4 million of incremental SG&A inclusive of intangible asset amortization from businesses acquired. Excluding it's incremental acquisition related SG&A as well as the $1.1 million of transaction expenses incurred in 2016 first quarter. 2017 quarterly organic SG&A growth is approximately $4.3 million and this is primarily due to increase in employment cost as a result of higher headcount to support our organic revenue growth as well as higher incentive compensation expense due to anticipated and improve full-year operating performance the majority of which occurred within our U.S. construction businesses. Reported operating income for the quarter of $82.8 million represents 4.4% of revenues and compares to $55.6 million or 3.2% in 2016 first quarter. Our U.S. Electrical Construction Services segment operating income of $31 million increased $14.3 million or 85.8% from the comparable 2016 period. Reported operating margin of 7% represents a 220 basis points improvement over last year's first quarter. The increase in this segment's operating income is due to increased project activity within the commercial market subsector with the concentration in the telecommunications market subsector quarter-over-quarter. The improvement in segment operating margin is due to the lack of transportation project write downs that impacted 2016's first quarter as well as the completion or significant completion of these specific projects which were in a loss position during 2016 that depress last year's operating margins due to revenues recognized for which there was no corresponding profit recognition. 2017's first quarter U.S. Mechanical Construction services operating income of $40.4 million represents a $16.7 million increase in last year's quarter. This represents a 70% improvement quarter-over-quarter primarily due to increased gross profit contributions from projects within the industrial commercial and water market sectors. Additionally, this segment's quarterly operating income benefited from the recovery of certain contract cost incurred in 2016 that were previously disputed. This segment's operating margin of 6% and represents a 210 basis points improvement from 2016's first quarter. Our total U.S. construction businesses reporting 6.4% operating margin which represents a 220 basis points improvement period-over-period. Operating income for the U.S. building services of $14.2 million slightly improved from last year's first quarter while recorded operating margin of 3.2% is flat between both periods. Consistent with this segment's revenue performance, the mechanical services divisions' organic growth and project and repair services, volume and operating income contributions generated by acquisitions were partially offset by a reduction income from commercial site based services due to contract attrition and reduced snowfall removal volumes. Our U.S. industrial services operating income of $70 million decreased $1.8 million or 9.7% compared to 2016's first quarter with an operating margin of 6.6% or 70 basis points less than last year's 7.3% operating margin. A seasonably normal spring turnaround reason was not enough to offset the profit contribution in 2016 from a large field services capital project that was active during the first three quarters of last year. Additionally, the operating margin contribution from our shop services operations is reduced quarter-over-quarter due to necessary pricing declines as a result of lower market demand. The UK building services operating income of $1.7 million or 2.1% of revenues represents a $1.6 million reduction period-over-period, which is due to a decrease in both small and capital project activity as well as $200,000 of headwinds from a weakened British pound. Additionally, as Tony mentioned, this segment incurred mobilization cost in connection with new contract awards was pursuant to contract terms will be recovered over the lifecycle of such contracts. Lastly on this slide, we used $5.2 million of cash in operations as compared to $37.2 million of cash used in operations during 2016's first quarter. with the funding of our prior year's incentive compensation awards occurring during our first quarter, it historically represents a weakest cash flow quarter. However, our current year quarter cash flow is benefitting from a change in the due day for the first installment of federal estimated tax payments which moved from March 15 to April 15. We are now on Slide 8. Additional key financial data for the quarter not addressed on the previous slides are as follows; quarter one gross profit of $266.3 million represents 14.1% of revenues, which has improved from the comparable 2016 quarter by $43.2 million, and a 130 basis points. The quarter-over-quarter improvement in gross profit is largely due to a substantial growth in quarterly revenues, as well as the improved operating performance in both of our U.S. construction segments. The quarter-over-quarter increase in gross margin is due to the impact in last year's first quarter of losses on certain transportation projects as well as the effect of revenues recognized with no corresponding gross profit on projects and loss positions in the prior year. In addition, the first quarter of the current year benefitted from the recovery of certain contract loss previously disputed on the project that was completed in 2016. Restructuring cost during the most recent quarter primarily represent employee severance cost in connection with the continued implementation of process improvements in both our back-office and business development functional areas. Diluted earnings per common share from continuing operations is $0.88 as compared to $0.56 for the quarter ending March 31, 2016. On an adjusted basis reflecting the add back of transaction cost incurred in quarter one 2016 related to the Ardent and Rabalais acquisition, diluted earnings per common share from continuing operations would have been $0.57 for 2016, as compared to the $0.88 per diluted share in the current year, which represents an increases of $0.31 or a 54.4% improvement. Although we have not presented on the slide it is worth mentioning that our tax rate for the first quarter of 2017 was 33.6% and lower than expected due to a favorable discreet item. My expectations for a full-year tax rate inclusive of this favorable item is between 37% and 37.5%. Lastly, in addition to achieving a new first quarter revenue record this quarter represents new first quarter records for gross profit and gross profit margin, operating income, net income from continuing operations and diluted earnings per share from continuing operations. We are now on Slide 9. Tony has also mentioned our balance sheet continues to be strong as we build upon its strength and liquidity. If you could see our cash balance has decreased since year-end 2016 due primarily to funds expanded for acquisitions that were closed in the first quarter as well as our common stock repurchase activity. Working capital levels have decreased since the end of last year primarily due to the reduction and cash just referenced. Changes in our goodwill and identifying intangible asset balances reflect the impact of acquisitions including finalization of purchase price allocations net of $12.2 million in intangible asset amortization expense. Total debt of $420.7 million is reduced from the year-end 2016 due to the mandatory quarterly principle repayments under our term-loan of $3.8 million offset by new capital lease additions during the quarter. As a result of our outstanding borrowings we currently have a debt to capitalization ratio of 21.5% which represents a slight decrease from where we were at year-end 2016. We continue to remain happy with our balance sheet as well as the underlying cash flow conversion of our current contract portfolio, as a result we continue to be in a good position to capitalize on all opportunities. With my brief commentary concluded, I would like to return the presentation to Tony. Tony.

Thank you, Mark. And it was a god brief in first quarter right. Look I'm going to go on pages 10 and 11 and I'm going to talk about backlog. As you can see on the schedule, total backlog at the end of the first quarter is just under $4 billion at $3.97 billion. It's up by $122 million or 3.2% from March 2016, and up from year-end by $71 million or 1.8%. The book-to-bill for the quarter was 1.04. So we had another strong quarter of project bookings on top of strong revenue growth. Our market continue to give us bidding opportunities across most sectors and our construction segments are executing well. Focusing on these market sectors and it sounds like a bit of broker record from 2016 our backlog is lead by commercial sector projects. Commercial sector backlog is stands at almost $1.4 billion, by the way our highest level ever, we said that few times last couple of years and it grew 9.2% from the year ago quarter and increased 5.1% from December 31. Commercial backlog now stands at 35% of our total backlog. While the commercial sector and why in terms of projects our project really grow from anything from the new commercial building to telecommunications and data center work to a large retrofit work to a simple tenant retrofit projects. We execute well in all of those sectors. It's now five consecutive quarters that we have seen the increase in healthcare backlog and over $400 million it's at a level not seeing since 2010. We have recent project wins in New York Cincinnati, Indiana and Boston. U.S. Healthcare is influx and so an uncertain market from the legislative perspective in all of our long-term is good market for us. these progresses are technically challenging and the demographics really say that we need to have more services. And in technology and advancements in technology will continue to be for new and updated facilities. We have burned some backlog in our industrial and transportation sectors as we work on some food processing and infrastructure projects. And hospitality off note is up this quarter as we secured mechanical systems and facility installations for new Northeastern Casino. EMCOR is a fairly good proxy for the non-residential construction sector. Summarizing we believe that non-residential market is still position to grow by mid-single digits in 2017, with the private side leading the public side. Remember this is a very big market at over $700 billion and only 98% of its record 2008 high as measured by census bureau. It’s quite a statement it will take us almost nine years to reach the level that we achieved in 2008. If you go to Page 11, backlog by segment as we experienced throughout 2016 and now into 2017, our backlog is growing in our domestic construction segments combined our electrical and mechanical construction segments' backlog increased to $192 million to almost $3.1 billion or up just over 7% since March 2016. Both segments saw year-over-year gains with electrical up $117 million and mechanical up $75 million. We continue to see bidding opportunities across most of our end-markets. Backlog in our building service was down $57 million and Mark went through the revenue side of that reality is based on site facing government business is pretty much flat on mobile mechanical services business, but we do expect growth in the mechanical services business and in the site based business as the year progresses in backlog. Our industrial services backlog stands at $51 million and it's really just a continuation of the same of the shop services business and nothing really changed with respect to capital spending and the refining sector and the remains at continuing lower levels. Backlog at UK remains relatively flat and we did win some contract awards that Mark and I both talked to all about. In all backlog is up in construction and it's in-line or a little ahead of markets. It's flat in shops and again in-line with what we believe the market soon and so far we are pretty much where we thought would be in 2017. Now I would like you to turn to Pages 12 and 13. Recognizing our strong start to the year and also cognizant of the reality and we are already in the first quarter we are going to adjust our guidance to reflect the start. As we believe we can now raise the lower end of our range from $3.10 to $3.20 per diluted share from continuing operations. Despite the strong revenue growth in the first quarter, we are going to leave our revenue guidance unchanged at $7.5 billion to $7.6 billion. We believe that we will continue to see strong growth in our electrical and mechanical construction segments. But as we have discussed a lot over the last three calls, we will still have headwind in our industrial services segments, as a result of the top 2016 comparisons especially in the second and third quarters of 2017, versus that year-ago periods. From the impact project cover many times as well as continued reduced demand and really reduced pricing for our shop services in new heat exchangers. Our start is a little stronger than we expected. But as discussed it was driven by excellent execution in our construction segments. The year is really developing as we expected strong growth in our end performance in our electrical and mechanical construction segments, solid performance against tough year-over-year cost and our industrial services segment is steady and incrementally improving building services segment performance, and we will have a steady UK performance. We expect to continue to look for opportunities in for our capital much in the same manner as we did in the first quarter. We made two nice acquisitions in the first quarter. One in fire protection and one in mechanical services, both building geographic wide spaces in EMCOR's portfolio and added some capabilities as well. We will continue to look to add capabilities and geographic reach in our mechanical and construction segments as well as our building services and industrial services segment. Our acquisitions will remain de-risk focused. We will continue to return the cash to shareholders through dividends and buybacks. And Pauli with that, I look to take questions.

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

Thank you very much and congratulations Tony, great execution this quarter.

I’ll thank the people in the field.

So I guess first question is, if you are looking at the healthcare side and that Tony you talked about it more than you have in the past. Do you think this could be turning potentially into a longer cycle and it could play an important role going forward? Or do you think the commercial side of the business remains where you should focus on the more broad base level?

I think the commercial side is on more broad base level. I think healthcare for the next three to five quarters would be important for us, we have backlog, we have to execute. Healthcare has become much more episodic than it was prior to the Affordable Care Act as far as big jobs happened there is not a steady bidding activity for large healthcare jobs like there were, but we are well position to take advantage of them when they are. But the commercial markets and the breadth that we can serve there is probably a more steady and steadily increasing market for us than the healthcare market.

Got it, Tony. And then you talked about the non-res market and your ability to grow at least the alongside back in the mid-single digit. If you look how everything is shaping up over the last few months and I know it's too early. Do you think to that growth rate could be sustained into next year at this point or it's too early to say?

I think it's little early. but I see nothing right now based on the bidding activity that doesn't tell to me that the market is not strong. And I will say there is definitely over the last four months an up tuck in our customer sentiment broadly.

Right.

And They are willing to spend money.

Got it okay. And it seems like that showing up a leading indicator again as well, so really support what you are saying. Thank you Tony, I'll hop back into queue.

Thank you.

And your next question comes from the line of Noelle Dilts with Stifel.

Good morning Noelle.

Hi good morning thanks. Just given the headwind that you are facing in industrial services in the second quarter, could you maybe go back and revisit and give us a sense of maybe how much the petrochem work and the one off work benefited you last year either from a revenue or profitability standpoint. And then my second question would be just as we look at the underlying turnaround market, what do you think starts to change the behavior of the refineries and just if you could expand upon your expectations for the back half of the year and into next year.

God. You know next year is always hard, but back half of the year, I mean we will be a lot smarter in July than we are today, but we are expecting a fairly busy fall turnaround season. The reality we have been very fortunate with our customer mix and I think with our broad array of more capabilities. Absent the strength we really had a series of I would say good turnaround seasons. We believe I don't if we are taking share we are just getting enhanced scope or there are capabilities we are able to put more labor on the job and do it quickly really skilled people. we have had a pretty good success with a lot of people saying there is a tough market and we believe it is a slower growing market we are just doing fairly well in it. We won't be specific about petrochemical work, but we do expect second and third quarter to be more challenging for us. we don’t give quarterly guidance, but clearly it would be very difficult for us to achieve the level of success we have in the second quarter of last year. that would be a tough thing for us to do.

Great, okay. And then in your Q you talked about certain telecom project benefiting you in the quarter. could you just talk about what you are seeing in telecom, how you are participating in and how you are thinking about that going forward?

Well I mean telecom work, data center work is system rich work. It is something we did very well. Very demanding customers, top customers, not only is the most profitable customers at times, but also in contract structure they are very sophisticated. But we line up with them well and we have customers that we can I don't say move across the country, but they can use our capabilities in different parts of the country. What we are seeing is strong market and it's a market that we are well positioned to take advantage of in the markets where we participate in it.

Okay. And then my last question is just on M&A, you spoke about some of your targets there, but could you talk about what you are seeing in terms of just I guess asset or target pricing in the market general interest levels of selling by potential smaller private firms?

We have done two very, we think a very good deals during the first quarter. that being said, who knows, I mean some people have expectations that are outrages, others understand that it takes two sides to actually get to a deal. Our private equity in a lot of ways will always be and even today in my mind it's crazy the base at the bar but with cheap debt, they can pay a turn or turn and a half sometimes even two turns of all what the assets really were. So for us to be able to compete with them in a significant way and that should be appropriate fit by like [Indiscernible] so much and we were able to have one synergy that we got first grade team that had all rate that came in industrial services. So we will be careful, we will be smart about it, we won’t get [indiscernible] with anything that we will buy it our own cost. But we do see enough opportunities and one of the best companies that we have it is the one we spent over $50 million on to the first quarter, if acquisitions aren’t there, we have a great company, we can buy at a multiple sometimes lower than those acquisitions in EMCOR.

Makes sense. Thanks.

And your next question comes from the line of Tate Sullivan with Sidoti.

Good morning. More on M&A enough seeing the two deals in the course of the quarter and that more to the specific question on business segment I mean I believe always associated your building services is more recurring in maintenance and it looks like one that might have been in the larger acquisition as a mechanical business in the Western U.S. and why to put it in buildings services and can you just go over the difference between the two and.

Sure. If you look at or segment probably the electrical and mechanical construction segments is broadly tend to be bigger projects, and 80% plus to the time they are working for general contractors. We do have a couple of businesses within our mechanical segment that have our large services business, but the construction business is in those businesses to work and services businesses. To get to the building services business and mechanical services is the other way around. The services business we are working for the owners directly tends to be 70%, 80% of the revenue and we introduce project work for those owners and their maybe a general contract from all the times. Their most times they have been directed by the owner and try to work the dealing off with us and one of the times we have an underlying base service agreement where we are doing service work and repair service. We have a technician base in those businesses that are fairly significant and we go over the things you would expect the service to business to do from GPS to very efficient truck [indiscernible] so one is a little more owner and service led, one is a little more construction led and [Indiscernible].

Okay, perfect that makes perfect sense and thanks for that. And then you mentioned petrochemical in addition to refineries to I mean going back last cycle and as on getting by mean buying Ardent. I mean do you look or do you benchmark where you want to be in terms of your total energy exposure.

No. Again we would never tell them not to - just like we don’t benchmark for our total construction exposure. We tend to focus on our opportunities and where we can find the best opportunities to continue to sustain growth for our shareholders. Ardent is a good example. Ardent has a fairly significant for a lack of a better word electrician and intendance business or lot of refineries they call nested. And also has the ability to do work especially in the [indiscernible] part of that business can do a lot of different fixed price work. So we look at opportunities and look a long-term growth in those markets and try to find the right point to enter it or grow it organically.

Okay. thank you very much. Have a great day.

And your next question comes from the line of Adam Thalhimer with Thompson Davis.

Good morning guys, great quarter. I'm trying to understand in the industrial service segment the revenue can you give us a little bit more color if I look two years ago back in 2015 for Q2 and Q3 you did $467 million of revenue in that segment. Is that a good benchmark kind of for I guess think about Q2, Q3 this year?

Well I’ll kick it over to Mark, but my view is our revenue our performance in Q2 and Q3 of 2015 probably looks a lot more like this year than 2016.

Yes. The only difference Adam is as Tony mentioned earlier, we have the impact of the strike at the beginning of the 2015 and unfortunately some of that work loss is discreet nature as we roll through the year. So that number that you are drawing out is probably a reasonable number, but we actually could be a little bit lower than that once again based on the fact that there were some spillover from the strike that work was executed as we went throughout the remainder of 2015?

Okay perfect.

And right now we are not factoring not any specialty services work, reality is we can get a call this afternoon and we can mobilize we won’t know that. As it tends to be more emergency related work sometimes.

Okay. And then in the building services business, you talked about a couple of projects that are just starting up. So you are going to have year-over-year revenue growth in that segment from those projects that are ramping up?

Probably we wouldn't see until late in the fourth quarter until it really ramps up, it takes a long time, the way we typically do it in the U.S. is it may end up into a large contract, but we start with pilots. So that we all set expectations about what the funding is going to be, what the execution is going to be. So I think it would be probably towards the end of the year until we would expecting any large impact from those what we just spoke of.

Yes and Adam this is Mark again, the other thing is with some of the maintenance contracts that we do not carry forward into 2017, they were still burning revenue in Q2, Q3 of 2016.

Okay that could be. So I mean in general I guess what I'm trying to get you to the comment on is rising [indiscernible].

We think we have a revenue whole year-over-year in the industrial services segment in Q2, and Q3. And we have although not nearly as profitable not even in the zip code that’s profitable. We have the affirmation projects Mark talked about and our projects and contracts of building services were significant revenue contracts that we had for such a long period of time, then became a lot less possible that's why you don't hear us winding about profitability in building services is much of the revenue.

And then just lastly , I mean you had it was great to see you guys put up great margins in the domestic construction business again. It seems like there is really no project issues that emerged just curious why that margin performance wouldn't continue going forward. I assume that you expect that basically.

Well if we are going to hit our guidance, we have to have growth in margins here because we don't expect based on our guidance today much growth in revenue. The reality of the whole thing is that's basically underlying performance absence the badness of last year, the business underlying, 98.9% of our projects or more is been exceptional over the last 18 months.

Got it. Okay. That's all helpful. Thank you.

[Operator Instructions]. Your next question comes from the line of Brent Thielman with D. A. Davidson.

Good morning Brent.

Good quarter.

Thank you.

Let me just a couple of last questions on the backlog by market sector, one the dip in the transportation sector, do you look at that as kind of just timing of new work coming in. it just seems like it’s moving in the wrong direction relative to what is been talked about out there at least in terms of funding and support?

Well, I think they talked about and letting contracts disconnected from each other right now right. So again to remind everybody what our backlog is it's actual signed contracts or signed change orders for one year of the signed service agreement of a multiyear service agreement, we don’t take all three years and lump it into the backlog all at once. We also make no estimations on turnaround volume as all that work is [indiscernible] which is why industrial would be so low. Transportation and general tends to be an episodic market, we booked a work. We execute that they work, we may book another one in between there. Part of it is we have resources that execute that work and so to some of its timing of the resources of when they will go off those jobs and timing of those within the next award. Some of that is we have been on some work and we didn’t win it because the price or the terms weren’t right, for others is some of it hasn’t been elect yet in the markets where we really participate significantly in transportation market. Transportation work for the most part at EMCOR to the most part is an electrically [indiscernible] the function. It's bridges, tunnels, airports, ports in general, we did a lot of work on Southern Californian airports in subways. On the mechanical side it's much more than what we would do. On the mechanical side it would be stations, it would be tunnel their relation and things like that so when we book a big transportation work at EMCOR for the most part it's typically a electrical job and we have broad base capability there and we were also typically unless we are part of a design build team, will design and assist team a lot of other people will be booking that work ahead of when we would be booking that work.

Okay, that's helpful. Maybe just on the institutional piece of the market, looking back 2010 to 2012 certainly a bigger piece of the pie. Is that to the work is isn’t there right now obviously it's much smaller or is it just the highway commercial to healthcare steps just more attractive deal.

It's a combination of both. But a lot of that institutional work we saw back in 2011 or 2012 when we large was really housing our building services segment and it was very significant base off agreements that we had for the navy. Quite frankly we won all the award here as we performed exceptionally well, when it came for rebid, we decided we couldn’t do work with all across. So we moved on.

Okay, alright. Thanks guys.

At this time there are no further questions. Now we will return the call back to management for closing remarks.

Thank you all very much, I think through the questions I think we have a pretty good picture of what we are anticipating over the next couple of quarters. Here is basically and to summarize this. We expect strong execution of our electrical and mechanical construction segments and we do expect revenue growth there. Or going to be a lower revenue challenge here in Q2 and Q3 we are going to execute we are doing pretty well. In industrial services and building services we will improve. Revenues might not be as strong because we have two large contracts that came out, but they were relatively well profitability. So through your questions and through our commentary, I think we have a pretty good picture o what is hold here. We feel good about taking the lower end of the range up because we are over performed I think versus even our expectations in the first quarter. With that, we look forward to seeing you all and thank you for your interest in EMCOR.

Thank you. This concludes today's conference. You may now disconnect.