Good morning. My name is Adam, and I will be your conference operator today. At this time, I'd like to welcome everyone to the EMCOR Group Fourth Quarter and Full-Year 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator instructions] Mr. Bradley Vitou with FTI Consulting, you may begin.

Thank you, Adam, and good morning everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 2017 fourth quarter and full-year results, which we reported this morning. I would 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, Brad, and good morning everyone. Welcome to EMCOR Group's earnings conference call for the quarter and full-year 2017. For those of you, who are accessing the call via the Internet and our Web site, welcome to you as well. And we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. Please advance to slide two. This presentation and discussion contains forward-looking statements and certain non-GAAP financial information. Page two describes in detail the forward-looking statements and the non-GAAP financial information disclosure. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. Over to slide three, it depicts the executives are with me to discuss the quarter and full-year 2017 results. They are Tony Guzzi, our President and Chief Executive Officer; Mark Pompa, Executive Vice President and Chief Financial Officer; Maxine Mauricio, our Senior Vice President and General Counsel; and our Vice President of Marketing and 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 Web site under Presentation. You can find this at emcorgroup.com. And with that said, please let me turn the call over to Tony. Tony?

Yes, thanks Kevin, and welcome to our Q4 2017 and full-year 2017 commentary. I want to apologize upfront for my voice. I have a little bit of laryngitis, I guess, I spent a little bit too much time on airplanes over the last 6 weeks. I'm going to speak to pro forma results for 2017 throughout my introductory comments. Mark is going to cover the financial performance in detail for the fourth quarter of 2017 and Full-Year of 2017 and I don't want to be repetitive. I will be covering Pages 4 through 7 in my introductory comments. By any measure we had a fantastic 2017. We set annual performance records for revenues, operating income, operating income margin percentage, net income and earnings per diluted share from continuing operations. And most importantly cash flow from operations. We delivered a record $366 million of operating cash flow in 2017. We were able to overcome the significant negative impact of Hurricane Harvey to our Industrial segment in the important fall turnaround season and still deliver outstanding performance for our shareholders. Our U.S. Electrical and Mechanical Construction segments carried the day with record performance across the board. We had operating income growth of 54% for the year on a combined basis across our U.S. Electrical and Mechanical Construction segments. In 2017, operating income margin was up 8.2% in our Electrical Construction segment and 7.2% in our Mechanical Construction segment. We were heading in our mechanical construction segment by 60 basis points as we settled some large disputes and claims during the year. However, even adjusting for these claim and dispute settlements, we performed in an exceptional manner in both construction segments and had outstanding operating income margins and revenue growth. We executed well across all trades and across all market sectors. And discipline…

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 8. As Tony indicated in his opening commentary, I will begin with the detailed discussion of our fourth quarter 2017 results before moving to our Full-Year 2017 performance some of which Tony just outlined during his executive summary. As a reminder, all financial information discussed during today's call is included in our consolidated financial statements within both our earnings release announcement and Form 10-K filed with the Securities and Exchange Commission earlier this morning. So let's discuss our fourth quarter performance. Consolidated revenues of $2.01 billion in Quarter 4 are up $62.7 million or 3.2%. Our fourth quarter results include $35.9 million of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by EMCOR in last year's fourth quarter. Acquisition revenues positively impacted both our United States mechanical construction and United States Building Services segments. Excluding the impact of businesses acquired, fourth quarter revenues grew organically $26.8 million or 1.4%. United States electrical construction revenues of $479.4 million increased $2.5 million or 0.5% from Quarter 4 2016. Quarter-over-quarter revenue gains within the commercial, institutional and health care market sectors were mostly offset by revenue declines within the industrial and transportation market sectors partially due to the completion or substantial completion of large transportation projects which were active in 2016 as well as the early part of 2017. United States mechanical construction fourth quarter revenues of $790.8 million increased $73.3 million or 10.2% from Quarter 4 2016. Excluding acquisition revenues of $20.5 million this segment's quarterly revenues grew organically 7.4% quarter-over-quarter. This segment's revenue growth is primarily driven by higher project activity within the health care, commercial,…

You deserve to drink water. I'm going to cover page 17 here and it's by market sector. Total backlog at the end of the year-end 2017 was $3.79 billion versus $3.90 billion at the end of 2016. We have a few moving parts here, we completed or nearly completed some large food processing jobs that actually accelerated at the end of the year. We are very confident that we will replace those but it tends to be episodic as we do our negotiation on several nice projects right now. The markets continue to be active as positive economic growth supports increased non-residential construction activity, if you look at the AIA consensus construction forecast; it says 4% non-residential growth for the markets we are in, in '18 that tells about right to me. When you focus on the market sectors, our commercial project was up 19% or $215 million year-over-year which is very good for us and it's a nice sweet spot for us. Commercial projects represent just over 40% of our total backlog and our ROE read on this for this year as it should continue to be as mid single digit growth trajectory throughout 2018. Continued construction of data centers, high rise and mixed use residential and significant tenant fit our projects we made strong contributors to the commercial sectors projected growth in 2018. Given that two large food process projects reach substantial completion and we delivered for our customers is larger multiyear food processing projects a complement majority of the decrease in our industrial backlog but we also versus some backlog in a number of northeast transportation infrastructure projects. We continue to see opportunities in both food processing and transportation infrastructure. As we move through 2018 and into 2019. Overall our markets remain active putting activity strong and…

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

Thanks. And hey, Tony, a very strong quarter, congratulations to you and your team.

Yes, thank you.

Hope you feel better.

I feel fine. I just have a little laryngitis.

Just some honey and some room temperature water for you.

Yes.

So, I guess, I know you guys always start the year off with a conservative guidance, and that's been your tradition, and it seems to have served you well. I was a little surprised at the width of the guidance. And while the top end seems in line with your tradition, I guess the low end surprised me. It seems pretty low. I would love to get an idea of really how you're picture, what scenario would bad happen under.

Tahira, I think that happens under we don't rebuild backlog through the year in the industrial business as weaker performance than we would expect rebounding from Harvey in quarters three and four. It's a pretty uncertain market, I that's the swing factor for the year. And then remember, we've got to recover about 20 to 30 basis points overall mark that our overall margins benefited from some of the claim settlements in 2017.

Got it, okay. And then, I guess, if I'm looking at the industrial sector, I mean the read through from a lot of the industrial sector in earnings have been pretty positive. Do you what you're seeing, just sort of a transient headwind just based on your comps. Or as you look beyond this year do you think there are some serious issues as well. Would love to get your sense directionally on what you think is going to happen?

And in industrial segment, you're talking about the business we do in our segment, not the broader industrial economy?

That's what I mean.

Yes, look, I think we're well-positioned for a long period of time. I think we're in a pause period in here fourth quarter, and a little bit in first quarter. I think there's been unpredictability brought in. We have premier assets in that sector. I'm not as bullish on the shop services returning to where they were. But, look, I think as we move into late-'18 into '19 it'll be fairly positive. I would say that when you look at read-throughs on some of the others collectively we've been more right than wrong on what we see. And others tend to - few others in this segment that do business in our segment, in the industrial segment, tend to get a little bullish a little too early when there's been a change of events.

Got it. Okay. Thanks a lot, Tony. And I'll hop back in the queue. And feel better soon.

Thank you.

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

Hi, good morning.

Morning, Noelle.

Just first wanted to explore this idea of labor constraints a little bit, which you said are getting a little bit more difficult. How do we think about the impact there? On one hand theoretically is the private labor, you should be getting some pricing. On the other hand, obviously, a lack of availability of labor can limit growth. So can you just give us some more thoughts on how to think about that?

Well, I want to think, skilled labor; if you look at where the unemployment rate is skilled labor is going to be a challenge. Now, I would say when you take us versus other contractors we're more prepared to meet that challenge. I say this a lot, but I believe it because I go see the field a lot, I talk to people, and I know what the folks that actually do the work care about. We're an employer of choice because folks know they're going to get paid every week. They know they're going to be kept safe. They know that they're going to be led by people that actually know the work. And finally, they know that if they do well there's a good chance of follow-on work for them, which is what they care about. Now, if you take it overall, what are you doing to replenish. We've gotten more creative, as have other people. We've worked in the non-union world to expand our training and the resources we'll bring in at a lower level. In the union world, with some locals, not all local, but most locals have allowed us different classifications to bring people in a lower level and move them [indiscernible]. On the union side, on specific trades like sprinklers, we've had pretty good success transitioning non-union sprinkler fitter to union sprinkler fitters. And on the non-union side I go back to my first point, it's even more important that those four things be met than on the union side, because in the union side a lot of the employers would have that. The other thing is it's not just a skilled trade; it's also your supervision from foreman through superintendent to project manager. One of the benefits we have versus other people is our project side can flex. Because of the variety of trade we have we can take more scope. And that doesn't necessarily mean at least the top two levels, the superintendent and project level manager need to increase so we can get more leverage there. And about pricing, I mean pricing is moderately better. But I would argue that when you get to the larger projects especially, you're working with your customer to understand the budget that they have and the options they will have within that budget and which you can afford to do the work for. So, pricing flexibility actually decreases on the very large projects because you work as more of a team to deliver the value for your customer.

Thanks, that's really helpful. Second question, just shifting over to thinking about the impact of tax reform as we look at some of the incremental cash coming through, is there really any shift in how you're thinking about deploying that cash in your priorities?

I would say, "No." We've been pretty good allocators of capital and Mark, you want to expand on that?

Yes, and Noelle, as I mentioned in my commentary, the incremental cash, albeit I'd like to have an incremental $40 million or $50 million once again doesn't really change how we think about it. And we're going to execute in the manner that we have been for the last several years.

Okay. And then the last question. When you think about just generally the non-residential construction market, I think we've talked before about a little bit of softening in some of the very early cycle verticals like office and hotel, is that something you've ever seen and then second how are you guys thinking about at this point the potential for an infrastructure stimulus bill and how EMCOR might benefit?

The forecast is still there for pretty good growth in 2018. We believe that. As far as the office market, there is still a lot of retrofit going on in tenant fit out. There's some spike in office building construction. You saw today that JPMorgan Chase has announced a new 70-storey tower in midtown Manhattan. So I think there's a lot of repurposing, a lot of rethought to some of these old buildings that just don't fit the needs for the people we have today. And again I think about there were some distortions that happened with some of these large campus projects over the last couple of years that on their own can bring down demand for office construction, a gap on campus when that's not being built anymore that can have a sizeable impact on what you view is the overall office construction market. In Silicon Valley there was a new campus like - but on the other side we're repurposing all the buildings that they were in because of the capability of the company like us. A hotel, we don't play in the lower end of the hotel market. As far as the higher end of the hotel market, there may be life coming back to Las Vegas, which would be a good thing for us. There's some nice projects on board that look like they're going to come out of the ground in San Diego. So I think you got to be much more specific when we think about the market than just overall categories, because some of those categories wouldn't be what we would do anyway. So I'm fairly optimistic and in the other market that we play in that we see strong demand hopefully in '18 and going into '19 is hi-tech semiconductor. We see that in a couple of places in our footprint in the U.S. right now.

Great, thanks again.

Thank you.

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

Hey, good morning guys, great quarter.

Okay, Adam, good Adam introduces Adam. How are you Adam?

I'm great. I wanted to ask first and maybe I shouldn't overthink this, because I know you guys like to start the year with a conservative guide, but I'm just trying to parse through the revenue guidance of basically flat to down for this year. If U.S. construction is up mid-single digits, building services is up, industrial starts to grow in Q2, I just don't know how you get to down revenue this year.

Yes, I wouldn't overthink it too much, but the way I think about it is we have to think about revenue that way because we know we start the year down. If you just take everything being equal $65 million to $100 million based on our backlog being down at construction $200 million. So we've got to replace that revenue through book and ship business in 2018, which obviously we think we can do, because our guidance is 76 to 77. The other thing is we are expecting to book some large project work through the middle of the year. If we do that you'll see backlog maybe go up.

Might not revenue…

But you won't see much revenue probably this year, that'll be more of a '19 and '20 phenomenon.

Okay. That was my next question of the timing of backlog risks. Do you think it's more midyear?

And this could be like 2012 too where we're starting to see revenue go okay at a decent velocity, because there's more small project work. In 2012 we had a large project, a large food process project that never made its way into backlog. And when it finally did, there wasn't much left. And we have a couple of projects that we could be working on here starting late April or early May who could have the same characteristics as the customers decide that they want to get moving and want to do it more on a fixed fee or time and material basis the revenue burn, but maybe no work will go into backlog which you should take great comfort in in some ways, because that means we were being very careful on the contracting terms we would take and the market's allowing us to do that right now.

And Tony, that was the semiconductor job you mentioned?

It could be that and other hi-tech work. There's not just semiconductor but other hi-tech work. There's a window right now where they want to lock-in the resources and they may not want to spend months trying to get scope so fixed so we can give a fixed price.

Okay. And then lastly, I'm sorry to hammer this, you're just generating so much cash and I would assume M&A multiples are still high. I guess, you can end 2018 probably go into '19 with no debt if you wanted to?

We could pretty much do that close to now. We do see opportunities, I'm not that negative on the M&A market now. We did three nice deals last year. Mark what was the total purchase price, $170 million?

.:

So it wasn't insignificant what we did. Mark will get the exact number. It wasn't insignificant what we did. We see deals like that again this year. I'll tell you what we're not going to do. We're not going to do something that we know we can't create value for our shareholders over a three to five-year period.

$107 million.

$107 million?

$107 million, 1-0-7.

Yes. A $107 million, so we did that. I would expect we'd do that or a little more this year if you could just go through what we're looking at today, hopefully a little more. I think owners that we talked to are still sorting out tax reform. Some of the subchapter S provisions are pretty favorable. They may decide not to sell our businesses. That doesn't change some of the issues they have with the state planning and everything else. The other thing is private equity, it's still very active. They must know something we don't know other than debt. But some of the things they've bid on at the prices they've bid on doesn't make a lot of sense to us. But when they sell it to each other, I guess, it does make sense. And so, we're just going to keep doing what we do. We have a list of things that we've been working on, and that place order could be just in a normal year between a $100 million and $200 million and in a bigger year we've done deals up to $450 million and I don't think this management team is sort of the giant transformational M&A guys, because we haven't seen that work in our space in any significant way. It has to - things we look for strengthen the trade we're in, strengthen the geography we're in, strengthen the line of service we're in, transform one of our segments and lines of business but the idea that we would go out and say let's take two like companies and put them together and quite frankly there's not a lot of SG&A savings and 1 plus 1 really equals 2.

Okay. I'll turn it over, thanks.

Thank you. Is that it?

Adam, is there anybody else on the line for a question?

Yes, sir. And your next question comes from the line of Brent Thielman with D.A. Davidson.

Thanks. Great quarter and great year.

Thank you.

Hey Tony, a lot of things are going to develop here since the last earnings call between tax changes, inflation, a bigger topic. I was just curious if you'd seen that lead to any sort of hesitation as you moved projects forward in the market at all even on a shorter term basis?

No, quite the opposite.

And then on the public sector backlog kind of setting aside those select larger projects, which obviously caused some lumpiness there, has the general level of bid activity and kind of momentum in that market or sector continued to expand?

Yes.

Okay.

And there are no further questions at this time. I'll now turn it back to management.

Look, we had a fantastic 2017 and that's really a tribute to the 34,000 people that are out there working for EMCOR every day. We have the best skill trained people. We have terrific supervision. We have local leaders and CEOs that run these companies exceptionally well, and a great segment in EMCOR leadership team. We are going to deliver again in 2018, but we are going to be measured and thoughtful in how we do it. We look forward to seeing you all there. And thank you for your interest in EMCOR. And everybody have a great day.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.