Good morning. My name is Adam and I'll be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group, First Quarter 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' 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 2018 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 management. Kevin, please go ahead.

Thank you, Brad and good morning everybody. Welcome to EMCOR's earnings conference call for the first quarter of 2018. For those of you who are accessing the call via the Internet and 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. Please advance to Slide 2. This presentation and discussion contains forward-looking statements and certain non-GAAP financial information. Page 2 describes in detail the forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. Slide 3, 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 Mava Heffler our Vice President of Marketing and Communications. 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 it at emcorgroup.com. And now with that said, please let me turn the call over to Tony. Tony?

Yes, thanks Kevin. And I'm going to start on pages 4 through 6 and thanks everybody for joining the call. We had a solid start to the year. We had record first quarter revenues of $1.9 billion and earnings per diluted share from continuing operations of $0.94. We had good execution in our business and the year started out about how we expected. Strong performance from our Mechanical and Electrical construction segments, continued improvement in our Building Services segment, strong performance in our UK segment and still struggling performance in our Industrial segment. In our Electrical Construction segment our operating income improved by 15.5% versus a year ago period. Operating income margins improved by 90 basis points driven by better gross margins and tight overhead control. Also the Electrical Construction segment's improvement in operating income was driven by very good execution with especially strong performance in the transportation market. We also had very strong results for our customers and executing our commercial and healthcare projects. Our Mechanical Construction segment also performed well in the quarter. Operating income and operating income margins declined slightly. We had the headwind of a dispute settlement that aided operating income margins percentages by 90 basis points in the year ago period. Our Building Services segment had decent performance in the quarter driven by our commercial site-based government and energy services business. We had improved operating margins of 50 basis points on improved mix. We had organic growth return to this segment and the successful implementation of several large contracts in our government and commercial site-based businesses and have had record backlog in our Mechanical Services business. Our Industrial Services segment had a very difficult quarter. We had previously discussed that we had a very tough competitor in the fourth quarter of 2018 versus our outstanding…

Thank you, Tony and good morning to everyone participating on the call today. For those accessing this presentation of either webcasts we are now on Slide 7. Over the next several slides I will augment Tony's opening commentary and cover each of our reportable segments, first quarter operating performance, as well as other key financial data derived from our consolidated financial statements and Form 10-Q filed with the Securities and Exchange Commission earlier this morning. So let's revisit our first quarter performance. Consolidated revenues of $1.9 billion are up $8.7 million or one half of a percent over quarter one 2017. Incremental revenues attributable to businesses acquired of $19.4 million pertaining to the period of time that such businesses were not owned by EMCOR and last year's first quarter positively impacted our U.S. Mechanical Construction and our U.S. Building Services segments. Excluding such acquisition revenues our first quarter revenues declined organically 0.6%. All reportable segments experienced quarter-to-quarter revenue growth other than our Industrial Services segment. U.S. Electrical construction revenues of $454.8 million increased $11.8 million or 2.6% from quarter one 2017. Quarterly revenue growth was primarily driven by project activity within the healthcare and institutional market sectors partially offset by quarter-over-quarter declines in revenues from transportation construction projects due to certain project completions. U.S. Mechanical construction revenues were $698.8 million increased $27.7 million or 4.1%. Excluding acquisition revenues of $10.2 million this segments revenues grew 2.6% organically quarter-over-quarter. This segment's revenue growth was primarily driven by higher project activity within the commercial healthcare and institutional sectors partially offset by a decrease in revenues from manufacturing construction projects. EMCOR's total domestic construction business first quarter revenues of $1.15 billion increased $39.5 million or 3.5% of which 2.6% of such growth was generated from organic activities. U.S. building services revenues of $454.8…

Thanks Mark, and I'm on page 11, which is backlog by market sector. Total backlog at the end of the first quarter was $3.95 billion just about flat against the fourth quarter of 2017 and up $154 million from December 2017. Our backlog levels remained fairly high given our strong revenue performance for the quarter. Nonresidential construction remained positive across most sectors and geographies generating nice opportunities for EMCOR companies. Similar to what we said in late February, we think the nonresidential market will grow in the 3% to 5% range this year. Let me focus a little bit now on market sectors. Commercial project backlog continues to be strong. Commercial backlog represents 43% of total backlog and increased both year-over-year and since December. Demand is widespread across the company and we think the commercial sector should continue to be active for us into the front of 2019 as judged by the bidding opportunities we are currently seeing. Project backlog associated with water and waste water projects also grew both year-over-year and year-to-date. We are positioned well really in many parts of the country but this specifically is with our Poole & Kent subsidiary in Miami and historically has performed significant water waste water projects in around the greater Miami, really the greater South Florida area. Miami Dade will be investing heavily against the consent decree in its water and wastewater infrastructure over the next five years. We have already won a number of large projects and we expect to be in the running for more as the work comes out and is awarded. We have other subsidiaries at EMCOR that participate in this market and if it becomes active as it is in South Florida, as part of our broader infrastructure push, we will be there to take advantage…

Thank you, Tony. As I mentioned earlier during my financial review commentary, EMCOR adopted accounting standards codification topic 606 or as referred to ASC 606 the new revenue recognition standard as of January 1. Even through this new accounting standard did not have a material impact on our first quarter operating performance, it has necessitated a change in how we quantify and report or estimate a future activity related to our contractual management of our customers. ASC 606 requires us to identify if we have a contract with the customer and if so, we then have to identify our performance obligations under such contract. To the extent we have not fulfilled all contractual performance obligations at the end of reporting period, we are now required to quantify and disclose under generally accepted accounting principles remaining unsatisfied performance obligations by allocating a portion of the contractual transaction price to those performance obligations not yet completed. Although definitely this sounds a lot like our historical backlog disclosure, it is not the same. The primary difference between remaining unsatisfied performance obligations and backlog as historically defined by EMCOR is the evaluation and quantification of the remaining term of the multiyear service contracts. Under our previous reporting, we had quantified the base level of maintenance services to be executed for the success of 12 months without any quantification for increases in contract scope or potential project opportunities. We honestly were quite conservative in this determination relative to other companies in our broader industry that reported a backlog figure. Under the new accounting standard and related transitionary guidance, if the contract gives each party the unilateral and forceable right to terminate the remaining unperformed contract without compensating the other party, the amount of unrecognized revenue within the remaining performance obligations is limited to the notice…

Yes, thanks Mark, and my closing comments will be on Pages 14 and 15. We're going to reiterate our guidance of $4.10 to $4.70 in earnings per diluted share from continuing operations. This earnings per share guidance incorporates an estimated tax rate of 28% post tax reform. We expect revenues of $7.6 billion to $7.7 billion. When we gave our initial guidance we expect a continued growth in the nonresidential construction market, decent demand for our government and commercial site-based services, our strong energy retrofit market for small projects especially and a choppy and less predictable market with respect to our downstream refinery and petrochemical market, mostly due to Harvey. At least through the first quarter those underlying drivers are consistent with what we believe when we set our initial guidance. We expect more clarity in the downstream refinery and petrochemical markets as we approach mid 2018 from both the fall turnaround season and 2019 and we still believe we will gain better clarity as the turnarounds schedules firm up from fall 2018 and the spring 2019 turnaround seasons. As always in these calls, we provide a view of what needs to happen for us to move to the mid to the top end of our guidance range, so here they are. We need to continue to perform at a high level in our U.S. Construction segments. We do have some headwind in the second quarter as we benefited from significant claim and dispute settlements in 2018 overall and we discussed those in our 2017 10-K and year end call. However, as we have shown in the first quarter, we continue to perform at a very high level in the Electrical and Mechanical Construction segments. We continue to have strong operating income margin performance. I just want to remind everybody…

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

Hi folks.

Good morning, Tahi.

Good morning. So Tony, I guess the first question is, we've started to see because I cover some of these they got us some of these bigger E&Cs that are focused on Petrochem and LNG, but there seems to be suddenly a lot of movement on these projects moving forward again. I know you've commented on some of the downstream maintenance aspects, but in terms of small CapEx should that not bode well for your Industrial segment as well?

Yes, I think as you move through ’18 and ’19 I think that's true and I think that's true for midstream also, especially in our Electrical segment. We don't perform a lot of new build work on the LNG and Petrochem. We will now electrically especially in the Corpus Christi area, but mechanically that's not something we do a lot of. And also you've got to remember especially on mechanical side a lot of the EPCs will try to sell perform some of that work until they can't sell perform that work and that's when I talked about the unplanned events that could – that tends to be when we get involved is when they can't finish the work in most of the resources.

Okay and you know if was to look at all the unplanned events that could happen that provide upside which of the ones you think are high probability? I mean typically if I was to look at the way my model is planned it seems like maybe there's some conservatisms still around electrical and mechanical or would you say that's really the probability of some of the maintenance or Small CapEx work could be the really bigger mover?

Yes, I think two places. I think it's very rare for us to have a significant unplanned event in Mechanical or Electrical segments because those projects take a lot of planning and also before reacting there it is usually on a time and material basis which with those work forces in those markets a little different. Unplanned events can happen in the Building Services segment, IDIQ work something can go significantly wrong with a customer facility, we have to jump in and do it. But the large unplanned events happen in the Industrial segment and it's usually on - we have to help complete work on a capital project that is coming right up against where liquidated damages come into play or a maintenance event that a lot of this deferred maintenance comes home to roost and we've got to flood this and going to be like, I would like to say we had the flood dissolve right, we have to get a lot of men and women up and running very quickly, mobilized and ready to work. And that could happen, it can happen from things that where the facility had to shut down or it can happen from some of the things where the facility has hit a significant bottleneck because of the performance of part of the plant and now needs debottlenecked or a specific part fixed in a very short period of time, usually because some planned maintenance wasn't performed in an earlier turnaround.

Got it, okay. That's helpful to know. And Tony, I guess last question, the economy has been doing well for several years. I know you're little more late cycle, but are we seeing a point where the labor is tightening, are you getting pricing or if that's something you think is a concern going forward?

Well, look we have, price is better than it was three years ago clearly, but we're not winning on the margin side right now because of price, we’re winning because of execution. I would say we're further out on the labor curve than we were, so we're way beyond our core guys and the core folks that work for us. And so training is more important, selection is more important, screening is more important. Labor is tightening, that's a good thing, but where more people are coming into the workforce, more people are coming back into the workforce. We’re still you know I think always will be a destination of choice for craft labor and skilled trades people. So labor is likely to be available to us that is not available to other people. Pricing has been okay, actually both in the non-union and union workforces. We haven’t seen really sizable increases beyond what you'd expect 2% or 3% a year and the contract negotiations we negotiate on the union side multiyear agreements and quite frankly people have been quite reasonable this time around.

Got it. Thank you, Tony.

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

Good morning, Noelle.

Hi, good morning. So just kind of focusing on the turnaround business a bitm, we've obviously seen some of these sort of deferrals or push out of work at some of your competitors over the years. You guys were kind of lucky for a period. Now I shouldn't say lucky, but you guys definitely didn't see some of that for a couple of year period. So I just want to kind of dig into what gives you the confidence that what you're seeing now is sort of Harvey related versus related to just some other factors and general deferrals?

Let’s a drop a level. I think the luck came from having great resources. They could handle very large scale projects on very short time frames and that lot to weather some of the decreases in plan turnaround activity and those opportunities we believe will present themselves to us again and we'll be there to take advantage of them. I think there are some things that have changed right in versus maybe five or eight years ago in the turnaround business. I think one of them is the Permian basis and West Texas crude. It's less sour, it's less viscous and as a result of that when all these facilities were outfitted in the mid five, four, five, six, seven, eight when there was a lot of capital going in, they put equipment in and heat exchangers and other things and [indiscernible] is that required. There was based on running really crappy crude out of Saudi Arabia, Venezuela and Canada. That mix of shift to more West Texas and they are still trying to figure out what the right mix of maintenance is to go with that shift of mix. Our belief and not Tony, Mark, Kevin, Maxine's believe, but the people that are in every day that they're probably extended in that cycle or not doing enough maintenance and you’re starting to see that around the edges as some of thes refiners have unexpected turn down to their facilities and other things. The second thing that I think is a shift is there's been consolidation. And to make their contracts now they can look at a broader problem bigger parts of their fleet right, one of the big majors got out of a lot of the refining business, some has bought their facilities others has swapped assets. Instead they…

Yes, that's actually great, those are a lot of good points that you make. And I guess just shifting to my second question, just in terms of M&A opportunities and potential targets that you're seeing out there? In the past you've talked about valuations being a little bit steep. Can you just kind of talk about what you're seeing in the market right now and your general kind of appetite for M&A?

Look, our appetites what has been right, we think we're pretty good acquires. We're selective acquires, market fit, capability and culture all three things we look at before which is jump in and buy a company. We expect that fairly decent year this year at M&A. What I like to call is for lack of a better word, somebody's life's work. So many that build a great company. The new comes the CCIs, the North Stars, they built great companies. They're now in their mid 50s and they want to sell their company, but they still want to work. We do very well with those transactions and we see a decent pipeline of those type of transactions here in 2018. Now when they get done, how they get done, what’s the timing of those, I don't know. Some of these conversations have been going on for years. People had a couple good years behind them they recovered from the recession, their balance sheets are strong, the project outlook strong, they've rebuilt their market positions. In a lot of cases they've hired the next level of management and they professionalize the companies as we've got in the home over five or 10 years and we've helped coach them to do some of that stuff. Private equity you'll get to larger deals. Pricing is still little crazy, right we just looked at a couple of things this year which we would have put in the category of pretty significant fixer uppers. That we thought we could make work and would take us some time and resources we have people that how to do that obviously we know how to do that collectively as a team. But when we get to what they're really making versus their performance making. We can't get to…

Thanks. That's really helpful.

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

Hi, thank you all. Good morning. Mark, can you really talk more about the cash flow statement just it looks like the outflow, the cash flow from operations outflow was a bit larger than it was in previous first quarter, so I mean did you pay more of your payables than you usually do and also it looks like there's some line items about payments for businesses acquired, but I think you said you didn’t acquire anything.

Tate, I’ll take the last question first and then I'll walk backwards. So the payments for businesses that were recorded in the first three months of this year were related to contingent consideration arrangements for two transactions that closed in the last year or so are not arrangements. So no new companies just continuation of transactions that happened prior to 2018 with regards to that variation in operating cash flow ’18 versus ’17 through March 31. There was a larger outflow of payables in the first quarter, but the biggest two things really are on the inflow side, first and foremost as Tony had mentioned during his commentary, we were successful in resolving a contractual dispute and quarter one and actually continued to quarter two. That customer had not rendered any payments in the fourth quarter of 2016. All that money was received in the first quarter of 2017 and then additionally, because of the significant reduction in volume within our Industrial Services segment, there was just this no customer activity there at all. So fall turnaround because of hurricane Harvey was significantly impacted. So billings that we typically would have gone out prior to December 31 and would have been quite good in the first quarter of the calendar year, it did not happen in the first quarter of ’18 because those billings just weren't there. And obviously we were much stronger in that segment both in the back half of ’16 into the first quarter of 2017. So it's an unfortunate situation, but at the end of the day it's nothing to be concerned about we're very confident that we're going to be a significant cash flow generator in 2018 as we have been for a long number of years. It's just we got off to a slow start and to be quite honest with you, first quarter of ’17 was artificially good relative to our history if you actually took the time to look backward. We're typically negative in the $35 million range through the first three months of the year.

Okay, great thanks and Tony you talked about mechanical having a poor comp in 2Q because of the settlement. I calculate mechanical margin in 2Q, ‘17 was about 7% with that settlement, I mean what are you looking at for that business?

Well, I don't give quarterly margin projections, but 7% is higher I think I said that last year and said it was a sustainable margin at that point. Look it’s - I didn’t say a poor comp, I said a tough comp. I think we'll still do well in the second quarter Mechanical, very difficult for us to make up for $12 million of settlement and that helped those margins get to 7%.

Okay, it was $12 million that's right. Okay, well thank you very much.

You're welcome.

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

Good morning guys. Congrats on a good quarter.

Yes, thank you.

Tony, is your domestic construction backlog was down for the second straight quarter, how concerned are you about that?

We're not, it's versus year end its okay and we have a lot of bidding opportunities and we expect to do fairly well in our construction business this year, no concern at all.

Okay and then you said, you think the overall market goes 3% to 5%, but just trying to parse through your guidance I mean it looks like you're forecasting domestic construction revenue kind of flattish, maybe even down a little bit, so do you think you kind of underperform in the market this year just with tough comps.

Now, I think we did really well last year, but I think for us to get to 76, 77 with the start we had in industrial we needed a pretty good rebound for the rest of the year. And I think construction will be more than okay and I think we have a really good mix right now.

See the construction could grow kind of with the industry that 3 to 5.

Yes, I mean it made time off by this year, the next year, but we don't really know how much more revenue. We had good acceleration of revenues in the fourth quarter last year right.

Yes and then we actually had a couple of projects due to weather in the first quarter of 2018 that actually work was suspended. So we would like to think we're going to get caught up with that work before the end of the calendar year but some of that actually might tail into the first quarter of ’19 just don't yet.

I mean the biggest issue in construction is what we've talked about in the comp and mechanical. Between those two quarters we picked up almost $18 million of profit with no revenue and that's as a pretty big project you have to go…

Pretty big chunk of revenue you've got to go...

You've got to go behind it, you've got to go find a pretty big chunk of revenue to make up for that right? I mean that is the biggest issue in construction this year. The underlying business is performing very well and in fact it even performed better than one of looks like when you had back that $6.5 million in the first quarter. And the good news about us is we told you all that last year. We told you all that this year and so there's no surprises right, I mean the underlying business is very strong.

And Adam, this is Mark. The only thing I would add to that in light of your question with the backlog, clearly when the transportation sector a lot of those projects which are continuing to burn were large multi-year contracts those types of things are added to into backlog on an annual basis or on a quarterly basis. So the good thing was we had them. The good thing is we're executing well and unfortunately as they burn, how that gets replaced, typically gets replaced in smaller increments as opposed to big chunks.

And then we had a big chunk some time and then you know that I think the same thing on the food process side we added we finished a lot of our big food process work last year in the fourth quarter we actually thought we would be finishing it in the first half of this year. We accelerated it, we didn't accelerate our customers actually ask us to accelerate our work so they can get those plans into revenue producing mode sooner rather than later. We're working on some very nice projects there, but they get awarded when they get awarded you're working with boards and cooperatives and all kind of different folks to get that approved. They are significant capital investments and they'll happen when there are customers ready to say, they're ready to go. And will be there to execute it and you'll see a jump in backlog when that happens. And when you see a big jump in backlog with us, like right now this is the underlying business is just running right there is some big projects, $60 million, $70 million, $80 million projects in there, but there is lot of $1 million, $2 million, $3 million projects running through there. And when you see our backlog jump, it typically means, it typically means that we have a significant multi-year project that's been put in the backlog and we talk about that. I mean it's you don't see jump with that day-to-day business because we're executing at the same time we're putting things in the backlog our network. I think the average size of our project is still were more like a million bucks, $1.5 million in EMCOR. That's still the average size of what goes on here.

Okay, could I just make to some people that we follow have talked about a moderation in the growth rate of non-res, still growth but maybe you're going from 5 down to 3 or something like that, I'm just curious ?

It could be more civil related or something in the front of the cycle as opposed to where we are.

Yes, we were further down this path.

That could be coming for us or more late cycle and some others.

And Adam, this is Kevin and if you look inside some of those numbers the commercial market, the building market, the educational market, they are all running hotter than some of the other markets that the other guys were talking and that's what we have largest part of our backlog.

Yes, you could see that our market turned down year-over-year and that really wouldn’t have much of an impact on us.

Okay, I'll turn it over. Thanks Guys.

Thank you.

And I’ll now turn it back over to management for closing remarks.

Okay, thank you. There are a couple of things I hope you took away from the call were excited about the start. We're going to talk about in the future instead of historical backlog. We're going to talk about remaining performance obligations, so I’d ask you to go back and refocus on Page 13 and read Page 27 of our Q. We think it's better just to put a stake in the ground and move from there. This will be a GAAP number. We think it's better to talk to the GAAP number. And the final thing is, the business is in really good shape and we need the industrial market to recover which it surely will over the next 6 to 18 months. Thank you all very much and everybody be safe.

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