Good morning. My name is Adam and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Fourth Quarter and Full Year 2018 Earnings Call. [Operator Instructions] Thank you. Ms. Jamie Baird 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 fourth quarter and full year results, which were reported this morning. I would like to turn the call over to Kevin Matz, Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead.

Thanks, Jamie and good morning everyone. Welcome to our earnings conference call for the fourth quarter and full year 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. We are on Slide 2. This presentation and discussion contains forward-looking statements and certain non-GAAP financial information. This page 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 are the executives who are with me to discuss the quarter and full year results. They are Tony Guzzi, Chairman, President and Chief Executive Officer; Mark Pompa, our Executive Vice President and Chief Financial Officer; and our Senior Vice President and General Counsel, Maxine Mauricio. 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 us at emcorgroup.com With that being said, please let me turn the call over to Tony. Tony?

Thanks, Kevin and I am going to start now on Pages 4 through 6. 2018 was a great year. Our team executed with speed, discipline and precision in 2018. We served our customers adeptly on some of the most difficult and technically complex mechanical and electrical construction projects in the United States. We delivered excellent results for our customers in a recovering petrochemical refinery services market, especially in the fourth quarter. We performed well in serving some of the most sophisticated owners with mechanical retrofit and maintenance, energy savings projects, building controls upgrades and in operating facilities across a multitude of commercial, institutional and manufacturing and industrial owners. We serve these customers to their satisfaction and expectations and can bring the best technical labor and supervision to solve their needs, you have the opportunity to deliver strong financial results and we did that in 2018. We set records for revenues, operating income, net income and diluted earnings per share from continuing operations. With record 2018 revenues of $8.13 billion and operating income margins of 5% and strong cash flow of $271 million, we are not only winning work, but we are executing that work very well and converting our opportunities into strong cash flow that allows us to grow the company both organically and through acquisitions and still return cash to shareholders. We had overall growth of 5.8% with organic growth of 4.6%. We returned over $235 million of cash to shareholders through dividends and share repurchases. We successfully acquired four companies that expand our capabilities and open new geographies to us. Through these acquisitions, we expanded our mechanical services presence in the Mid-Atlantic and California, built leading positions in building controls in the New York City market and gained entrance into the important North Texas electrical construction market. These…

Thanks, Tony and good morning to everyone participating on the call today. For those accessing this presentation via the webcast, we are now on Slide 7. I will begin with a detailed discussion of our fourth quarter 2018 results before moving to our full year 2018 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 $2.23 billion in quarter four are up $216.7 million or 10.8% over 2017. Our fourth quarter results include $34.8 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 each of our United States Electrical Construction, United States Mechanical Construction and United States Building Services segments. Excluding the impact of businesses acquired, fourth quarter consolidated revenues increased $181.9 million or 9% organically. All of EMCOR’s reportable segments generated revenue growth during the fourth quarter, and our $2.23 billion of consolidated revenues represents an all-time quarterly revenue record for the company. United States Electrical Construction revenues of $534 million increased $54.6 million or 11.4% from quarter four 2017. Excluding acquisition revenues of $20.2 million, this segment’s quarterly revenues grew organically 7.2% quarter-over-quarter. Revenue gains within the commercial, manufacturing, hospitality and water market sectors were partially offset by revenue declines within the transportation, health care and institutional market sectors due to the completion or substantial completion of several large infrastructure projects during 2017 and early 2018. United States Mechanical Construction revenues of $808.5 million increased $17.7 million or 2.2%…

Yes. Thanks Mark. And I know you look forward to the Q1 call, when you only have to speak to Q1, but I got to say it was nice to hear you so eloquently speak to our record results for 2018. I am going to be on Page 16, which we titled remaining performance obligation or RPO by segment and market sector. Since this is our year-end call, one last time, I will outline our transition from backlog to remaining performance obligations. As we have communicated over the last several quarters, at the beginning of 2018, EMCOR adopted FASB’s new revenue recognition standard, which requires the disclosure of remaining unsatisfied performance obligations or RPOs for shorthand. Prior to the adoption of the new standard, the company had reported backlog on a quarterly basis. Backlog is not a term recognized under United States generally accepted accounting principles, so instead of reporting two figures and reconciling constantly against them, we choose to move solely to RPO. The most significant difference, again, the most significant difference between remaining performance obligations and backlog for us relates to the contract terms of the company’s service contracts. A detailed description of the difference between backlog and RPO can be found in the MD&A section within the company’s first quarter 2018 10-Q. I’d encourage you to go back and look at it, and you’ll see the difference is not that substantial with what we used to do and what we do today. Looking at the graphs, total RPOs at the end of the fourth quarter was $3.96 billion, up $360 million or 10% when compared to the March 31 level of $3.6 billion when we initially changed over to RPO reporting from backlog. Our book-to-bill, despite that strong organic revenue growth, in the fourth quarter was 1,…

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

Good morning.

Good morning. Tony, you have done a good job of answering all some of my dubbed questions on my notepad here. But I do have...

Okay, I figured that. I wanted to get ahead of you.

So I just have a couple more. So usually around this time of the year, I ask you about how things are looking on a macro level with your business peers. And it seems like there’s more resilience from the leading indicators. It seems you are seeing that too. So could we be exiting this year on really the non-res business, so let’s scrape out the industrial side, but really the rest of the business, could we be still in growth territory when we reach this point next year?

I don’t know. I will tell you this. One, we are late cycle in our construction businesses. So you would probably think that sitting here today, because we continue to see strong bidding. There is some underlying that are tied to the macro market, but those are markets within markets that probably for more sophisticated contractors, probably if all the work we’ve done and had others, outsiders help us with, if they are, in fact, true, they’re going to provide some tailwind for us for a while. But if other parts of the market go down, they’ll just be filling the gap. One is some of the data infrastructure build. You have to be a pretty sophisticated specialty contractor to do that work, and you have to be positioned in the markets where it’s happening, and we are. We are not everywhere yet that we’d like to be to do that work, but we have a path, we think, to get there to some more markets. And we put more resources behind it, and our folks are working together really, really well across the company to serve customers in multi locations but also to make sure that we can bring lessons learned to our customers. So that’s one. I think the second thing is regardless of what happens with an infrastructure build, there’s a fair amount of infrastructure work going on and that we’re looking at, and that should help sophisticated contractors also. And then there is underlying improvement in facilities between the – we have the crazy talk sometimes going on outside, people that don’t know. But people that know that the improvement in control systems, improvement in equipment and improvement in lighting can really lead, again, sophisticated contractors that can do that work to really help building owners,…

Got it. And that’s actually tremendously helpful and probably in line with what we are thinking, Tony. So just a quick follow-up on that. As we look at the way to redeploy your cash, it seems you might be leaning to really explore the industrial and sort of the side of the equation, which is what you’ve talked about before. Do we see potentially some more techie kind of investments in there as we move towards automation as well?

[indiscernible]: We’re opening one in Gonzales, Louisiana here in the next 2 months. It will be fully operational for the fall turnaround season. What that does is it makes that plant less dependent on newbuild heat exchangers. It expands our repair opportunities. And it’s a real value-add to our customers because they know when they give it to a company like us, like Ohmstede in the industrial space, they know it’s going to be done right. They know it’s going to be done in compliance with all the environmental laws, and they know that’s a risk that takes off of their plate because they do own it at the end anyway, just like we do when we pick it up from them. So, when we put an organic money there and then you get to the services side, as broad-based as our service offering is, there’s still other things we’d like to do. We have data center capability and services. We’d like to do more. We’d like to do more around some of the critical infrastructure in that data center. We’d like to do more with respect to just general mechanical services, and that’s an example of the acquisition that we made in the Mid-Atlantic, and we think that will be very successful. So, the deployment of capital, we’ll pull all the levers. But I would say, Mark, right now our balance sheet is about where we like it. We always need some cash, and we’ll be opportunistic across all those fronts.

Got it. Tony that is very helpful. Thank you.

Thank you.

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

Hello, good morning.

Good morning Noelle.

So, for my first question, I was just hoping you could give us a little bit more color on some of the regional trends you’re seeing in the U.S. from a non-resi construction perspective in terms of sort of first-tier cities, second-tier cities, how things are kind of trending and just generally across the country.

Yes. We might not be the best proxy in some cases because some of our, because of the kind of projects we’re doing. Northeast is still okay. I think we’re strong in parts of the Northeast yet. The D.C. market is strong for us, really, driven by data centers and some health care, the Mid-Atlantic/D. C. area. The Southeast remains strong. But our presence in the Southeast we have a very good mechanical services presence in the Southeast, but our presence in the Southeast is driven by industrial work. And that’s not petrochemical refining industrial work in the Southeast but heavy industrial, manufacturing, plant relocations, those kind of things, and aerospace now, too, water. Get down into Florida, we have a big water position, and with a consent decree, we’re poised to do well over the next couple of years. Texas, that goes to industrial for us for the most part. And we have a pretty good, growing presence in commercial, which is showing signs of life. The company in North Texas used to take part not only in the commercial market but also in the data infrastructure market there that we just bought. You get out to the Midwest our Midwest companies are sometimes not the best proxy. They’re industrial. They also one of them travels quite a bit. I would say that one of the trades that we’ve benefited from because it does travel is fire protection, and that’s a good proxy for the general market. And what that shows is, broad-based strength in a lot of markets, especially in cold storage, warehousing, data centers and manufacturing plants. As you go to the West, we have a very strong presence in California, as you know. We’re seeing still a lot of energy savings upgrade projects. We’re seeing infrastructure build-out, both on the health care side and in the transportation side. We’re seeing continued growth in multi-use as you move to Northern California, which is one of the markets we play in. And then as you go up into the Pacific Northwest, we have a terrific data center capability on the electrical side and an industrial capability on the mechanical side that has presence. So, the markets are generally okay. I mean, look, there’s ups and downs. And look, sometimes, the market’s down for us because we didn’t win the project or a couple of projects. It’s not down because the market is down. Or it’s not for us because we won 2 or 3 in a row because the alignment of scope, price and everything fell and availability fell into line. But I think generally, markets are pretty good. Mark, I mean, anything I mean, you talk to the guys all the time, too.

I mean, I think we continue to be very excited about the availability of opportunities and, clearly, the ones that we’re executing. And at this point, Tony talked about some of the difficulty in projecting beyond the midyear point. The business is the totality of our business looks exceptionally strong, and it’s executing as well as it ever has. So, all looks positive.

Okay. Fantastic. Second question just on the refinery services work that you’re doing. Tony, in the past, you’ve been really helpful in terms of kind of breaking out some of the elements that you think are have impacted turnaround and maintenance spend over the past few years. Any kind of positive developments or things you’d want to highlight in terms of how to think about the outlook and the predictability of that market?

Yes. I think everybody’s trying to figure out right now what it means when there’s not going to be Venezuelan crude coming into the country. Was that post April, I think? That’s going to be a big deal because a lot of these refiners configured their assets in 9, 8, 7, 10, pick a number, year to take advantage of lousy crude that was cheap. Now with the availability of Permian Basin crude and sweet crude, that changes the game some. And they still have to run a certain mix through those plants, so I think you’ll see more Mexican coming up and more Canadian crude and, more-crude, from North Dakota for them to make their mix up. So, part of that maintenance we’re seeing is we are [indiscernible] in these places to take advantage of this mix. But that being said, now they’re going to have to go through small capital upgrades with a different crude mix. So, I don’t know how that will all balance out. I think the other thing that’s different and could be positive for bigger providers, maybe not in the next 3 months but in the next 4 years, is there’s been more consolidation, and therefore, they’re able to run their plant networks more efficiently. And so sometimes, there’s turnarounds that you thought were small that turned into extended turnarounds. And sometimes, there are turnarounds you thought were going to be extended turn into small because of how they’re optimizing that plant network in real time. And that’s why when we get to the visibility climate, we’re not negative on the market. What we are is flexible on the market, and we have to stay that way. And I think the final thing and going back to the consolidation, I think that bodes well for people that are bringing more to their reputable companies like the companies we’re dealing with and have the balance sheet to support larger-scale turnarounds and time and material work. And then we’ve built an interesting small capital projects capability over the last couple of years that we really didn’t have 5 or 6 years ago. And I think the final thing that bodes well, look, there’s this whole thing going on with MARPOL. That’s what I call it. It’s maritime petroleum, right? They were using the lowest of the low bunker. They need to now upgrade to diesel. That means there has to be more diesel expansion. The U.S. is well positioned in diesel because of all the other factors we talked about. And so, therefore, I think folks are going to be looking to do debottlenecking projects on the diesel side, which will help someone like us that’s positioned well to not only help with the turnaround but to do small capital work.

Makes sense. Thanks so much.

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

Good morning Adam.

Hi good morning guys. Nice quarter. First question, the mechanical RPOs are growing faster than electrical. I’m just curious, is that a geographic thing?

It’s a mix thing. We have a we’re doing some large manufactured food process work, helps bring it up. You could see the same thing switch in the quarter as electrical does more data center or infrastructure work. It’s purely mix, and when the projects come in.

Got it. And then so I’m trying to figure out on the industrial side, you did $513 million of industrial revenue in the back half of ‘18. So, there’s a thought that you can replicate that in the first half of ‘19 roughly, but then you just don’t know in the back half?

I think the thought is we had a pretty good fall turnaround season, still not all the way where we’d like it to be mainly because of our specialty services. And then the thought would be we think we have a pretty good spring turnaround season, and we’ll see where the dust settles. That would be normal, normal. Normal fall ‘18, normal spring ‘19, let’s then see if we get a normal fall ‘19 for a full cycle. Mark, maybe...

Yes no, the other thing is that in the back half of 2018, we actually had some emergency work as well due to a fire at a facility that needed some assistance from us. So obviously, we hope that, that type of thing doesn’t replicate itself in 2019 for all the obvious reasons.

More customers for that.

Okay, so that hit in Q4, Mark, some of that?

No, it was Q3 – Q2 and Q3.

Then go back to the…

Well, the Q4 revenue in that segment was...

Pardon me?

Well, the Q4 revenue in that segment was super strong. I just didn’t know if that was.

Well, super strong compared to Q4 ‘17. And I think if you go back and look historically, it’s still we’ve had stronger fourth quarters in the past, and certainly, conversion profit conversion isn’t where we want it to be.

It’s the kind of business because it’s time and material business and because of the dynamic we talked about with the consolidated customer base with scope, expansion and contraction. It’s one of these things where you Mark was pointing to. You take you say, well, that happened then, and it’s going to happen now. You have to sort of look at your book of business to say that’s what we think is going to happen. We’re hoping for a normal, normal. We have reason to believe it will be normal, normal. But we’re not going to declare the all clear on that until we get into the normal fall.

Okay. And then I wanted to ask about the $10 million. I think it was $10 million of electrical losses from transportation jobs. Typically, that’s the kind of thing that you guys can see flow back when you finish the job, no?

No, this is different. What I think you’re talking about is when Mark talks about we may sometimes finish the job better than we had projected along the way because of a lot of reasons. I mean, demobilization costs, off the job quicker. This is a loss on a job. It was a scope issue and a contract issue. And our mantra at EMCOR is always finish the job, get the substantial completion, finish the punch list regardless of the circumstances because that is the way you successfully keep your customers long term. That is the way you keep your reputation. And if there is a dispute to be settled, that is the way you actually prevail in the dispute.

And the only thing I would add to that is this particular project, as you know, the preponderance of our transportation work in the past has been multiyear projects. This is something that’s actually primarily burned within calendar 2018, so it’s not something that was longer-term by nature as compared to some of the other work we’ve done in that sector in the past.

It was bid, what, Mark, ‘15?

Yes. It was delayed, delayed, delayed and then accelerated.

Okay. And then just last one for me. I’m just curious how you’re thinking about Brexit. I mean, it’s not a huge segment, but I just didn’t know if you’re doing you did $16 million in the UK last year of op income. I mean, is there a risk to that number with Brexit?

Adam, I don’t think so. I mean, obviously, all the work there is domiciled in the United Kingdom proper. We do touch government as a customer on multiple contracts. But having said that, I don’t believe, whatever the terms of the exit are from the European Union that it’s going to significantly impact the opportunities we have in front of us. There’s a lot of infrastructure upgrades that have to happen there, and that’s that has to happen irrespective if the UK is in the EU or not. So, we’re not concerned.

Perfect. Thanks guys.

Thank you, Adam.

Thank you, Adam.

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

Good morning Brent.

Hi thanks. Good morning. Great quarter. Tony, in industrial, it sounds like you’re going to see a more normal or normal, normal spring season. I guess it’s too early to call kind of a normal fall season until we get a little closer. But I guess to the extent that you do see that, do you think you can get back to that sort of target range of margins in 2019 that you talked about for that business?

We sure hope so. I would add one caveat to that. We need to see, in the back half of the year, resumption of success in some of our specialty services.

Okay. And I guess if you think about the electrical RPOs, understand the moving pieces of that, it seems like the market is pretty healthy, pretty solid bidding pipeline. Do you think that reaccelerates as we work our way through 2019?

It’s job-dependent. We have very solid bidding opportunities. We have very solid bidding opportunities across our businesses right now. So, we win, they’ll accelerate. If we lose, we’ll have to fill it in with something else.

Okay. I guess last one, more to cleanup. Did the shutdown have any mentionable impact on the business here in the earlier part of the year?

It will catch up.

Yes, Brent, the only thing it impacts is our indefinite duration, indefinite quantity opportunities. And as Tony indicated, we’re pretty confident that, despite the fact that we were delayed in quarter 1, that, that work will still be get executed either before the end of the government’s fiscal year or as we move into the early part of its next fiscal year. Typically, once that work is left to us, it’s not dependent on when it’s performed, so the key thing is just getting the work orders issued. And then once that happens, then we could execute on our time line. So, we don’t see it as having a significant negative impact on our business in 2019 and having said that, if we see something like that again.

It’s confidential.

Yes, as we move forward throughout the calendar, then we reserve the right to revisit that answer.

Okay great. Thank you.

You are welcome.

And there are no further questions at this time.

Alright. Thank you all very much. We look forward to seeing some of you in 2019. Have a great day, and thank you for your interest in EMCOR.

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