Good morning. My name is Grace, and I'll be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group First Quarter 2022 Earnings Call. [Operator Instructions]. Mr. Brad Newman with FTI Consulting, you may begin.

Thank you, Grace, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 2022 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.

Thanks, Brad, and good morning, everyone. Can you even believe it's May and almost Mother's Day. As always, thank you for your interest in EMCOR, and welcome to our earnings conference call for the first quarter of 2022. For those of you who are accessing the call via the Internet and our website, welcome to you as well. 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 certain discussions contain forward-looking statements that may include 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, Chairman, President and Chief Executive Officer; Mark Pompa, our Executive Vice President and Chief Financial Officer; and our Executive 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 said, please let me turn the call over to Tony. Tony?

Yes. Thanks, Kevin. And I'm going to be on Pages 4 to 6 to start, and I'd like to thank all of you for joining us this morning. On our February 24, year-end call, I described the current operating environment that we experienced in the first quarter as one of the toughest that I had seen in my career. This remained the case through the first quarter of 2022. However, at EMCOR, we do have a no excuses culture. We have to adapt to an ever-changing operating environment. We are executing with discipline and flexibility as we navigate this challenging environment. Overall, the quarter went about as expected for us, with a little more pressure on operating income margins in our Domestic Construction and Building Services segments due to the disruptions caused by supply chain issues and the Omicron variant. Further, the Ukraine war added another layer of uncertainty, especially with respect to energy and some raw material costs. We will cover the supply chain issues later in both mine and Mark's comments. In the quarter, we earned revenues of $2.59 billion, operating income of $100 million and diluted earnings per share of $1.39. We had very strong organic revenue growth of 10.8% in the aggregate across our domestic segments with our Industrial segment leading the way at 32%. Our project pipeline remains strong with a good mix of projects. We saw an increase of RPOs to a record $5.95 billion versus $4.78 billion in the year ago period. Our combined operating income margins were 3.9% as we fought through increased fuel costs and difficult supply chains in the quarter that disrupted many projects and prevented us from achieving our expected labor productivity. As we evaluate the quarter, I thought I would cover the business more broadly versus on a…

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 7. Over the next several slides, I will augment Tony's opening commentary and review each of our reportable segment's first quarter operating performance as well as other key financial data derived from our 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 expand our review of EMCOR's first quarter performance. As Tony mentioned, consolidated revenues of $2.59 billion are up $288.5 million or 12.5% over quarter 1 2021. Our first quarter results include $49.5 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 first quarter. Acquisition revenues positively impacted each of our United States Electrical Construction and United States Building Services segments. Excluding the impact of businesses acquired, first quarter consolidated revenues increased approximately $239 million or a strong 10.4% quarter-over-quarter. Before reviewing the operating results of our individual reporting segments, I would like to highlight that each of our segments had strong revenue growth in the quarter and that our consolidated revenues of $2.59 billion represent a new first quarter record that is only eclipsed by 2021's fourth quarter, which generated the highest quarterly revenue in our long history. Tony has previously commented on the challenging operating environment that existed during the quarter and continues to persist to some extent. So one might question why am I highlighting a first quarter revenue record in light of the fact that it did not equate to record operating income or diluted earnings per share performance? The simple answer is that our business performance and…

Thanks, Mark, and we'll see you when we do questions. I'm going to be on Page 11, remaining performance obligations by segment and market sector. The first quarter was another strong bookings quarter for the company. As many of you know, our business is not a quarter-to-quarter business. However, total company RPOs nonetheless have increased sequentially in 8 out of the last 9 quarters despite being selective in bidding activities given the uneven economic environment. As mentioned earlier, total company RPOs at the end of the first quarter were $5.95 billion, up almost $1.2 billion or close to 25% over the March '21 total of $4.78 billion. First quarter project bookings revenues by RPOs increasing $354 million from December 2021. In fact, each of our segments grew RPOs in the first quarter from year-end 2021. The organic RPO growth, as I stated earlier, was a very strong 21%. The first quarter saw a strong year-over-year quarterly RPO and revenue growth. Simply stated, this is the one-two punch highlights both the current and future top core demand in our business. We continue to see an active bidding environment even during this time of supply chain disruptions and inflation challenges. Together, our 2 domestic construction segments experienced strong construction project growth in the quarter and RPOs increased by $865 million or 22.7% from March 2021. The Mechanical Construction segments saw RPOs increase by $745 million or 28%, while the Electrical Construction segment saw an increase of $121 million or a solid 10%. U.S. Building Services RPO levels increased $306 million or almost 45% from the year ago quarter. All 3 business divisions under U.S. Building Services, our commercial site-based services, government services and mobile mechanical services saw RPO increases from the year ago quarter with mobile mechanical services RPOs increasing $272 million.…

[Operator Instructions]. And your first question comes from the line of Sean Eastman from KeyBanc Capital Markets.

Tony, first one, when you talk about being very disciplined on new bookings, what exactly does that mean? Is that just pricing like really nailing down the pricing? Or is it picking jobs where you think you have the supply chain on lock? Explain that to me on how you're approaching new work.

So it's part of the thing you talked. So let's think about what goes into an estimate and where you need to be disciplined. So in a normal environment, right, supply chain is really not that much of a variable, right? Because we have great relationships with our suppliers. We know how to scope and descope. We don't miss scope very often. And so we can get pricing right, we can lock it in. In this environment, disciplined means you look -- you make sure that on your key components, that you really understand what delivery could look like. And then you benchmark that delivery versus what -- you benchmark what they've been telling you versus what they've actually been doing. So it's no longer just saying, "Hey, you told me it would be this ridiculous 36 weeks. The last 3 times, you actually delivered it in 42 weeks". So when we make our estimate, we -- we're not telling everybody else, but we're making an estimate closer to the 42 weeks, and then we're going to do our resource planning around that. You also try to lock in all the commodities that you can, and you actually let the purchase order. Where you were in a noninflationary environment, you're not as worried about that. You actually let the purchase order and you get the supplier to commit, and you have to be disciplined to hit those windows. Typically, before a supplier would let their price out there for 30 to 60 days, sometimes now it's as quick as 7 or 8 days, and you have to be very on top of the process to make sure you're locking in that quote for that job if you get it. The other things you have to take a really hard look…

Okay. Got it. And this one is a little more granular. So if I look at the midpoint of the earnings guidance for the full year, it implies that the first quarter will be a lower proportion of that full year outlook than we've seen over the past few years. Can you just help me get comfortable with sort of that implied catch-up there? I can think of a few things that would make that make sense. But I just wanted to kind of give you guys the floor on that element.

Yes. And I'll kick it over to Mark. Well, the biggest variable, as you look at the back half of the year, that hasn't happened in '20 and '21 is we expect EIS to be profitable in the back half of the year. I mean that's the biggest variable. So that's one of the ways you catch up. The other one is if you go to the midpoint, there's an obvious just math exercise, we have less outstanding shares, right? So as a result of that, the math works. We also believe that our project timing and execution is back half weighted this year. We sort of knew that going into the year because of the scheduling of some of our larger projects and nothing's changed along those lines. Mark?

Yes, Sean, the only thing I would add to Tony's comment is we're presuming that revenue is going to continue to grow at the levels it did in the first quarter and presuming we're going to get some incremental improvement in margin contribution, which clearly we believe that or otherwise we would have changed guidance. It's going to be disproportionate, right? I mean I think the problem with the quarter that we're announcing today or that we announced today is that we didn't get the same level of pull-through from the revenue activity for all the reasons that were discussed prior to your question. We've done everything we can to make sure that for the things that I would define as self-inflicted are not going to recur in quarters 2, 3 or 4. If we get the external environment to stabilize at this point, we're comfortable with how it's going to shake out.

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

My first question is pretty specific. But you mentioned the delay in telecommunications projects. Can you expand on that at all? Is it wireless, wireline, how should we think about that?

That is data centers for us.

Data centers, okay. I just wanted to make sure I got that think right. Okay. Perfect. And then second, you hear me almost every quarter ask about M&A and how you're thinking about the valuations in the market. I would think that multiples have come down a bit. So could you comment just on how you're thinking about potentially getting more active on the M&A front and just what you're kind of seeing in the market in terms of opportunity?

Yes. I mean we have a pretty good pipeline. I mean, we've made a couple of deals in the first quarter that we were tuck-in that we expect actually to feel really good because it gives us a labor force in markets that we want to grow. But what we're not going to do is inherent somebody else's problems. And it doesn't mean they're bad companies. It means the trends we saw in the first quarter in our business, they have in spades because they don't have this level of process control and sophistication we have or connection in the supply chain. Where we can get comfortable or where we think we can help that acquisition close that gap, we'll make it. But we think there's a gap in their execution, in their projects around those issues we will probably take a pause. That being said, we're active acquirers. We expect to continue to do deals like we have through our history and broadly defined it would be in any of our segments. A little less so in EIS because we think we have the platform we need, especially on the oil and gas side, we would make the right renewable or sustainable energy acquisition there. We have a capability there that we would like to grow. But other than that, I mean, it's business as usual. We feel good. People want to be owned by EMCOR, and we want to buy them.

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

What did you say about the timing of project closeouts? I think you said there were some that got pushed from kind of late in Q1?

Yes. So we typically, right, last year, we had a very good closeout portion in Q1 of last year, and we said that, right? I mean that was something we said on our first quarter call last year. We had less of that happening mainly around supply chain issues, right? We need materials to come to us to finish the job so that we then can commission the job and get off the job. Because of the slowdown in the missed deliveries and the incomplete shipments, we had more of an issue with that in the first quarter. Here's what I think is going to happen, right? A lot of these issues, we talked about it in the first quarter last year that we saw it coming. It really started to hit with lead times, especially mid-third quarter '21. We net -- we've adjusted those lead times. We should start seeing a lot of that equipment come in here and those missed deliveries start to catch up here, May, June, July, August. Mark, do you have anything to add there?

Yes. I think Adam, once again, we don't control the timeline of our customers' projects. And when we entered into 2022, we definitely had different sequencing, especially in the data center space. So even with the delays that both Tony and I have mentioned during the call today, the way that the RPOs were going to burn through revenue was actually more late 2022 weighted than 2021. So when you look at our -- if you reflect back on 2021, our margin performance was actually stronger through the first 6 months than it was in the last 6 months of the year. And that was once again just because of the mix of work. That phenomenon is going to exist in 2022 as anticipated, except that it's the inverse. It's more back half of the year than first half of the year. So putting aside the supply chain discussions that we have had...

It can happen anywhere.

Yes, the work is scheduled to happen later in the year. A couple of things that happened relative to the first quarter it certainly does not change the quantum of the year, but certainly did impact the first quarter.

We don't give quarterly guidance for a reason. But clearly, we anticipated would have some challenges around it just from project sequencing and timing. Regardless, I mean we could have a great supply chain right now, we would have some of those issues. They were a little more pronounced because of the supply chain and we're like whistling past that. Omicron was a big deal for us in the first quarter. I mean there are parts of our company that had 20% of their workforce out on large jobs. That's a big deal. I mean -- and we got through it. It was tough and we will solder on.

Okay. And then, Tony, if you look at your large projects or EPC jobs, what stage are you in, generally, if you look at that whole portfolio?

Well, I think Mark talked about that. I mean that's part of what we talked about project sequencing and timing on '22. We knew that some of our larger jobs would be starting up in late '21. That's part of what you saw in late '21 as part of what you would have seen in the first quarter, even absent Omicron or supply chain. Some of that's been shifted a month maybe as we wait for the sequence we're not fullest once, right? We're a little more reticent about how these jobs will start up. And so it may have moved things 30, 45 days to get to full ramp. But the stages are they're much earlier in their stages than they were in the first part of '21.

Okay. And then just lastly, I'm trying to parse through your industrial commentary, are you -- I mean, vis-a-vis 3 months ago, are you -- it sounds like you're maybe a little less confident on the refinery outlook this year?

No, I didn't want you to read into that. I'm always -- look, if you've gone through what we went through over the last 21 months, you're going to be a little cautious, right? Demand is strong, customers are healthy...

Refinery utilizations are high.

Refinery utilizations are high. I mean, crack spreads are good despite the price. Our customers are healthy. They're talking to us about all the right things. We're helping them with some of their biggest needs even outside of just turnarounds. What makes me cautious is just to be cautious with the customer base. And the other thing that makes me cautious is they get a lot of pressure to keep running, right, because we need to supply in the market. But we've heard nothing that makes us less than confident what's going on in that space this year. Is that it?

Grace, is there anybody else?

All right. Look, thank you all. Thanks for your time. Thanks for the thoughtful questions. We're going to work real hard to continue to produce. Like most things, we will get through this, too. And we will figure out how to manage the supply chain, and we will make it work. Thank you all very much.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.