Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Third Quarter 2020 Earnings Call. All lines have been placed in mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Ms. Jamie Baird with FTI Consulting, you may begin.

Thank you, Lara, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company’s 2020 third 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, Jamie, and good morning, everyone. As always, thank you for your interest in EMCOR and welcome to our earnings conference call for the third quarter of 2020. For those of you who are accessing the call via the Internet and our website, welcome, and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. We are on slide two. This presentation and discussion contains certain forward-looking statements and certain non-GAAP information. Page two 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 three shows the executives who are with me to discuss the quarter and nine months results. They are Tony Guzzi, our 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 this at emcorgroup.com. With that said, please let me turn the call over to Tony. Tony?

Yes. Good morning, and thanks, Kevin. I am going to start on pages four through six. We had an exceptional quarter, s reported with respect to operating income at $135.9 million, operating income percentage at 6.2% and with respect to earnings per diluted share at $1.76 on a non-GAAP adjusted basis. We earned revenues of $2.2 billion in the quarter and had operating cash flow of $270 million. We had excellent operational performance and cost control. Our team executed with focus, discipline and precision. We continue to take steps to keep our skilled trades workforce safe, motivated and productive. We achieved this performance despite a very difficult operating environment for our EMCOR Industrial Services segment, which you know, focuses on downstream, petrochemical, and oil and gas and refining. We have structurally reduced our SG&A by about $7 million to $9 million per quarter on a go-forward basis. The exceptional performance of our segments Building, Industrial Services gap thus demonstrating how the diversity and balance at EMCOR can work for our shareholders. I will cover some of the highlights by segment and I will cover the broad themes and practices that have driven our performance during these challenging times. Our Electrical and Mechanical Construction segments had outstanding performance in the quarter and on a year-to-date basis. We leveraged our cost structure across a solid mix of projects, returned strong and robust operating income margins of 9.2% in our Electrical Construction segment and 9.0% in our Mechanical Construction segment. We leveraged a lower cost structure, but more importantly, had exceptional field performance on our projects. We did benefit on some project closeout to resolutions. We always have some of those, something that Mark will cover in more detail. But the underlying performance and productivity in these segments is as good as we…

Thank you, Tony, and good morning to everyone participating on today’s call. For those accessing this presentation via the webcast we are now on slide seven. Over the next several slides, I will augment Tony’s opening commentary and EMCOR’s third quarter performance, as well as provide an update on our year-to-date results through September 30. All financial information referenced is derived from a consolidated financial statements, included in both our earnings release announcement and Form 10-Q filed with the Securities and Exchange Commission earlier this morning. So let’s revisit and expand our review of EMCOR’s third quarter performance. Consolidated revenues of $2.2 billion, are down $86 million or 3.8% from quarter three 2019. Our third quarter results include $81.4 million of revenues attributable to businesses acquired, pertaining to the time that such businesses were not owned by EMCOR in last year’s third quarter. Acquisition revenues positively impacted both our United States Mechanical Construction and United States Building Services segments. Excluding the impacted businesses acquired, third quarter consolidated revenues decreased approximately $167.5 million or 7.3%. Unlike our results for the second quarter of 2020 where each of our reportable segments had quarter-over-quarter revenue declines, we did see revenue gains in three of our five segments during the third quarter of this year. However, when you remove the impact of businesses acquired, all of our U.S. reportable segments experienced organic revenue declines period-over-period, as the effects of the COVID-19 pandemic, as well as the disruption within the oil and gas markets are still impacting a number of our businesses. United States Electrical Construction revenues of $508.9 million decreased $45.8 million or 8.3% from 2019’s third quarter. Revenue declined across multiple market sectors due to the continuing impact of the pandemic, including the associated containment and mitigation measures, as well as the curtailment…

Thanks, Mark. And that’s what happens when we are in the third quarter, right? Thank you. And I am going to be on page 12, remaining performance obligations by segment and market sector. Total RPOs at the end of the third quarter were a little over $4.5 billion, up $495 million or 12.3% when compared to the September 2019 level of $4 billion. RPOs likewise increased the same amount $494 million for the first nine months of 2020, with all of this growth being organic except for approximately $86 million relating to two acquisitions in the current 12-month period. Taken together, our Mechanical and Electrical Construction segment RPOs have increased $409 million or 12.4% since the year ago period, 7% of this growth is organic with the balance being RPOs that came with our November ‘19 acquisition of BKI, a full service mechanical contractor headquartered in the Atlanta area. I should note here that thus far in 2020, BKI has more than doubled its RPOs total in the first nine months of this year, as they continue to win work, including projects in the data center, manufacturing and healthcare markets. The integration of BKI has gone very well due to the exceptional team they have. They really are a terrific team so we are thrilled to have them on our team. Building Services segment RPOs increased in the quarter as this segment’s small project, repair service work also continues to regain its footing. Remember the small project work in this segment was the first to feel the effect of the pandemic, as building operations simply shutdown. We are getting in there now as facilities open up and more and more building owners and tenants are looking for ways to increase their indoor air quality in their facilities and I will…

Thank you, sir. [Operator Instructions] Your first question will come from the line of Brent Thielman from D.A. Davidson. Your line is now live. Go ahead, please.

Hey. Great. Thanks. Good morning. Congrats on a great quarter.

Good morning, Brent.

Tony, appreciate all the color on slide 13, interesting to kind of run through all those markets. Some of these seem like pretty sort of specialized kind of highly technical areas and I am wondering as these get larger for you, if these particular areas provide larger margin opportunities to the company, of course, assuming you execute on these appropriately?

Yeah. I mean, with -- some of these markets you are in, you are working with a customer on budget, you are doing fee-based jobs. You are balancing speed against execution. A lot of times you are working against the budget. Brent, our margins are pretty good right now and that’s mainly coming from productivity, not pricing. So I am always hesitant to get too excited about commenting on, well, that’s a great margin area. Now, as you go to the smaller work, clearly, when you bring IAQ solutions and other things, but they are repair service and so a lot of time it’s time and material and a lot of times it’s small ticket items with high impact. So sometimes they can have a little higher margin, but you are very specialized in what you are doing there. So you look back having the kind of capability we have technically allows us to perform the way we have.

Okay. And Tony, is it fair to say that the $500 million odd bump in RPOs, I mean, it’s really mostly related to these markets or are there other things that are benefiting you there?

No. It’s mostly these markets and we don’t think, even though we are down in manufacturing, we like to look at that as a good long-term market for us too. And it’s always important, when the food process jobs come in or sometimes a high-tech job comes in, they come in in a lump. But even the high-tech jobs can come in in pieces, as we develop the project and a lot of the manufacturing moves where people are re-shoring or building out capability, they tend to come in pieces and so they never cause a big bump in our RPOs.

Okay. Great. And then on the Industrial Services business over the near term, obviously, you had tough environment. I am curious, I guess, two-part question, Tony, if the hurricanes and some of the storm activity we have been seeing has created any some near-term CapEx, repair work. And then, I guess, your thoughts into the business as we move into 2021, generally speaking?

Look, I will answer the one and I want Mark to kick in on some of the dynamics that happen on the cost side with the hurricanes. But, yeah, surely, I don’t think they have caused really a lot of opportunity for us in the near-term. They did cause disruption and Mark will get into that in a second. And as we move into 2021, I mean, I think, it’s tied to the pandemic, right, and the resumption of travel. Right now what’s happening is crack spreads are actually okay. The issue is capacity utilization. And about 7% to 9% depending on depending on this mix is ZA [ph]. ZA is now being dumped back into diesel and that’s really affecting the profitability because that incremental barrel, right, that incremental volume coming out of refinery is where they really make the margins, no matter what that product is. So utilization has to come up and then I think they will start spending money again. Mark?

Brent, with regards to build on what Tony just said and specific to the performance in the quarter, unfortunately, the disruption related to the storms wasn’t just as simple of us not executing work and generating revenue. We obviously had our work crews mobilized to execute against a maintenance plan that didn’t happen. So there’s a fair amount of cost that was incurred during the quarter that clearly we did not generate any revenues or profits from. We were not unable to release that labor in multiple situations, because we were asked to keep them on standby in case that we were asked to assist in any of the assessment or recovery activities. So specific to the question about capital opportunities as a result of storm damage, certainly the opportunity is there, but we are with most of our customers still in the assessment phase and hopefully there will be some opportunities for us, albeit it’s unfortunate at the expense of the storm damage disrupting both our customers and all the residents in that Gulf Coast region, which -- last night’s storm was the fifth named storm that hit in the 2020 hurricane season. So it’s really unfortunate. On top of everything else that’s been unfortunate in calendar 2020.

And we are following the same path.

Yeah. Okay. I will pass it on. Thank you, guys.

Thank you.

Thank you. [Operator Instructions] Your next question will come from the line of Sean Eastman from KeyBanc Capital Markets. Your line is now line. Go ahead, please.

Hey. Thanks for taking my questions. Compliments to the fields, really impressive, would never know there’s a pandemic going on, so nice work. I guess, firstly for me, I appreciated all the color around the pockets of resilient demand and you can certainly make a strong argument that EME can sort of outperform the broader non-res trajectory in the coming years. But we are hearing from multiple peers about a slower decision-making, deferred starts, things just slow to move across the finish line. So I just wonder how you would characterize risk of seeing an air pocket into early next year around that dynamic, whether that’s something you think we should have kind of reflected in our estimates, just given the uncertainty in the macro and around the election.

Sean, your specific question was on project delays and deferrals?

Yeah. Just characterize the level of risk, decision-making slows down and we do see deferrals even in these end markets where there is resilient demand drivers?

So, as of today -- I speak about what I know, right? As of today, once we got through the oil and gas issues in March, which is a very different market and most of that works on time and material anyway, so they can turn them off relatively quickly. As of today, we see nothing abnormal in delays, deferrals or anything else. We have not experienced. We have a different book of business probably than a couple of our peers. We are well-constituted in several, many data center markets. We don’t look at the decision-making around one data center or two data centers with the amount of work we are doing, as anything other than routine course of business. These things shift around, they move around, the designs change, this is all about capacity planning in a region the way we think about it. Secondarily, we work on projects over a long period of time, and as of today, all of the significant projects that we have been working on are continuing to advance. We did have one small project change, which actually worked to our benefit, because of a re-shoring issue that happened with one of our customers. We are talking to a lot of people about that right now and we are also talking to folks about healthcare opportunities. Now, when we get to the election, the reality -- the good thing about being my age now is, I have now worked under Republican administrations as a senior business executive for a long time and I have worked under Democratic administrations. I may have my personal views about that. But from a business standpoint, the things that we do tend to need to get done, whether the Democrats are in-charge or the Republicans are in-charge. People are…

That’s really helpful. I appreciate it, Tony. And it’s been a long call so I will leave it there and pass it along.

Thank you, Sean. Thanks for following us.

Thank you. [Operator Instructions] We have another question on the phone line coming from Noelle Dilts from Stifel. Your line is now live. Go ahead, please.

Hi, guys, and congratulations on a great quarter.

Thank you.

I was hoping you could just comment on, just given the environment, it does sound like maybe some of the smaller contractors might be facing more challenges than you are. So, one, curious how you think that might affects consolidation opportunities in the industry. And more importantly, just kind of how you are thinking about potential M&A targets, what you are seeing in terms of pricing and what would be interesting to you in the current environment?

Yeah. I think, Noelle, if you took our acquisitions from the last three years, lay them on a piece of paper. You see we have spent over $400 million. We brought some terrific capability and terrific teams into our company. And I think that would be look -- and I think, got it, probably, 13 acquisitions, Mark, something like that, big and small. And I think we would look to execute the same way and our pipeline was really good going into the pandemic. We were able to complete the acquisition in D.C., because we have a lot of it done. We have other things teed up. And where I would think that we would emphasize is really four or five areas. One is we still, despite as big as we are, think we can still play a role in building more capabilities for geography. Good successful electrical or mechanical contractors in markets where we are not, we would look to acquire. And usually they bring broad, what the kinds of companies we look in different geography, we look for companies that are like ours. The best of what they do. They have the ability to do a lot of different things and they can flex between markets in their local market -- end markets between their local markets. And we have several that we are talking to and our discussion is a sort of pandemic independent. It may slow down our discussion. But -- we know who they are and they know who we are and a lot of times where someone is selling their life work to us and they tend to work for us and they tend to work for us for a long time. It’s been a recipe for great success for us. I think the…

Okay. Thanks for that. It’s great color. I guess the second question -- again, I appreciate the detail you provided on slide 13 and 14. That’s really helpful. Is there a way that you could help us, like, look at your backlog, and say, look at that piece that’s commercial and understand how much of that work might be in those verticals that are a little bit more resilient? And I guess, I am just kind of trying to bridge how to think about those markets that you believe are a bit more insulated and the work you currently have in backlog?

Yeah. I mean, we don’t break it out. We have broken out to a lot of detail now. I mean, you will have a ton of detail on what we do. We are pretty protective of how much we are doing in some of those markets. Our customers appreciate that and we certainly don’t want to let our competitors know where we are that successful or not.

Okay.

I think that was a large market. Just to interject there, obviously, it’s in our disclosed RPO balance. Those are signed contracts. And just to build on what Tony said earlier, it’s very unusual for us once we actually sign a contract or a project that that project actually doesn’t happen, so.

Okay.

But like I commented, Noelle, I mean, what you are really trying to drive out I think is, what do we do in high-tech and data centers within the Commercial segment. I did comment that the growth in that segment is coming from those markets.

Okay. Great. I think that’s it for me. Thank you.

Thank you very much, Noelle.

Thank you. And as there are no further questions on the line, I would now like to turn the call over back to Mr. Tony Guzzi for closing remarks.

Yeah. I am going to finish and I made this comment when we were talking. I think for this leadership team around this table and for clearly our people at the segment level, we are absolutely humbled by how well our organization has responded to this crisis. And we thank our employees and our leadership in the field for keeping focus on the task at hand and keeping our employees safe. We are going to do everything we can to keep doing that. We will get through this next phase of whatever we are in right now with this pandemic and hopefully come out here in the first quarter with solutions to this problem. Thank you all very much, and I guess, we won’t talk to you until the New Year. Be well.

Thank you, sir. Thank you so much presenters. And again, thank you everyone for participating. This concludes today’s conference. You may now disconnect. Stay safe and have a lovely day.