Good morning. My name is Alan, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Fourth Quarter and Year End 2023 Earnings Call [Operator Instructions]. Please note, this event is being recorded. I'd like to hand things over to Mr. Blake Mueller with FTI Consulting. You may begin.

Thank you, Alan, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 2023 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, Blake. Good morning, everyone. And as always, thank you for your interest in EMCOR and welcome to our earnings conference call for the fourth quarter and full year 2023. For those of you who are accessing the call via the Internet and our Web site, welcome to you as well, and you've arrived at the beginning of our slide presentation that will accompany our remarks today. We are on Slide 2. This presentation and certain forward-looking statements and may also contain 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 and full year 2023 results. They are, Tony Guzzi, our Chairman, President and Chief Executive Officer; Mark Pompa, Executive Vice President and Chief Financial Officer; Jason Nalbandian, our Senior Vice President and Chief Accounting Officer; Maxine Mauricio, Chief Administrative Officer, our Executive Vice President and General Counsel; and Andy Backman, Vice President, Investor Relations. For call participants not accessing the conference call via the Internet, this presentation, including the slides, will be archived in the Investor Relations section of our Web site under Presentations. You can always find us at emcorgroup.com. And with that said, please let me turn the call over to Tony. Tony?

Thanks, Kevin. Good morning. And thank you for joining us for our 2023 full year and fourth quarter earnings call. Before we begin, though, I would like to recognize two of our executives, Mark Pompa and Kevin Matz. As we have previously announced, Mark and Kevin will close out two remarkable EMCOR careers on April 1st. I want to thank them for their hard work, dedication to EMCOR, and you've been great teammates. I know they both share our excitement about the future at EMCOR, as Jason will take the helm as our CFO. Andy will take over Kevin's Investor Relations responsibilities. I also want to recognize the promotion of Maxine Mauricio to Chief Administrative Officer, as she assumes some of the oversight duties previously held by Kevin. Thank you again to Kevin and Mark, congratulations to Jason and Maxine, and a continued warm welcome to Andy, who joined us this last fall. Now I'd like to turn you to Page 4 to 6 and that's where I'm going to start my comments. I'm going to focus most of my comments on our full year 2023 results, and Mark will go into more detail about our fourth quarter. We had a great fourth quarter at EMCOR. We outperformed our expectations, earning $4.47 per share on $3.44 billion in revenue, which represented 16.2% organic revenue growth. Our fourth quarter operating margin was exceptional at 8.4%. Fourth quarter rounded out an excellent 2023 by any measure. We did have an incredible 2023 with revenue of $12.6 billion, representing growth of 13.6% and organic revenue growth of 12.6%. Our earnings per share increased by approximately 65% and our operating income up $875.8 million, grew 55% over that of 2022 with record annual operating margin of 7%. Operating cash flow of $900 million represented…

Great. Tony, thank you for those kind words you said earlier. And good morning, to everyone participating on our call today. For those accessing this presentation via the webcast, we are now on Slide 7. Over the next several slides, I will provide a detailed discussion of our fourth quarter 2023 results as well as a summary of our full year performance, some of which Tony just outlined during his opening commentary. As a reminder, all financial information discussed during this morning'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 today. With that, let's begin our review of EMCOR's fourth quarter. Consolidated revenues of $3.44 billion increased $489.4 million or 16.6% from the fourth quarter of 2022. Each of our domestic reportable segments experienced revenue growth during the fourth quarter, which was the case for all four quarters of 2023. Revenues attributable to businesses acquired during the quarter were just under $11 million. So substantially all of our quarter-over-quarter revenue growth was due to organic activities. Our fourth quarter's consolidated revenues established a new all time quarterly revenue record for the company and eclipses our previous record set during the third quarter of 2023. The specifics to each of our reportable segment's fourth quarter revenue performance is as follows. United States electrical construction segment revenues of $763.4 million increased $49.8 million or 7% from quarter four of 2022. This segment continues to experience revenue growth across the majority of the market sectors that we serve, with the most significant fourth quarter revenue increases being generated within the manufacturing and industrial and high tech manufacturing market sectors. Revenues of our United States mechanical construction segment of $1.47 billion increased $339.3 million or approximately 30%…

Thanks, Mark. And I'm going to start on Page 12. We really could think of this, the way we talk about earnings is, we just talked about everything that happened in the past, and this next section is all about the future. And if you go to Page 12, we've talked about this chart probably about three quarters ago, we started talking about it. And I look at this as a resource allocation chart. It not only informs how we allocate resources to drive organic growth but this chart also informs our capital allocation decisions, which we'll talk about later. So if you think about this chart and moving left to right, and it will be some intermixing. The first part is the electrification EV value chain, it's a trend. And there's been a lot in the news lately about what's happening, is it stalling and all that. In our world, it's not right now, because of where we played. For us, it's mainly been about fire and life safety and utility scale charging stations, and now solar is starting to come back up on the radar. But the way I think about this, this is a major transformation, whether EVs and the electrification is 10% of vehicles, whether it's 15% of vehicles, whether it's is 30%. And clearly, the policy got a little ahead of the technology here, but that's okay. At the end of the day, all these facilities will be built. Some of them, the battery infrastructure is going to have to be built again, no matter what penetration it has. It's a lot more than it is today. And the utility scale charging stations that we participated in, these are at major hubs of transportation. And some of this is well underway, because it makes sense,…

[Operator Instructions] Our first question comes from Brent Thielman of D.A. Davidson.

Tony, I heard you say twice, guidance assumes strong margin performance. Have heard you mentioned for quarters now favorable contract terms is it really sort of one factor here for the really strong margins, but I don't imagine that's changing with the new work you're taking into the business. But are those better terms broad based, is it confined to a few of the really hot areas and markets within the business? I just wanted to hear you maybe talk about that.

Well, the better terms are mainly focused around liquidity in the project, right, cash flow, keep the project moving. And that wouldn't be an issue with us but we negotiate hard for those, because the better the cash flow on the project is typically the projects moving well. Secondarily, the better terms around, okay, if we're going to expand scope with the method for which we're going to expand scope, so we don't get into the change order discussions that are extended and really affect productivity. Some of it's around general conditions, the realization that we want people to have the right general conditions to be able to execute the project well. And finally, I think the better contractual terms around how things convert, whether they go from a fee based contract, GMP to a fixed price and what would be the mechanism to do that? You put all that together, yes, I think the larger the project right now, the more are those terms are favorable both for the owner and for us, because it's a clear eye view of how we're going to work together.

And then comparing your RPOs to last year, the RPOs to be executed within a lot, the RPO is kind of beyond one years down compared to that same number last year. And I guess, Tony, the question is, is the response there, what you said in the opening commentary that you may be on these customer sites already and so you can essentially sort of turn the work faster, or is there more to it than that?

No, that's basically it, coupled with the pace and timing of some of this large work, I mean times money, especially in the data center space. And as a result, you have to be a big sophisticated contractor that has the financial resources to mobilize on the site, being able to assemble a trained workforce with the right training on a job that might have been in planning, we get it, we may have a month and half to mobilize, within four months we're at full production and within nine months, some of these big data center jobs what we do on the -- the guts of it are done. And then if you go to the other side of that, if you're already at a significant semiconductor site or a EV site or even a health care facility, or any manufacturing site, there's a lot of work that has to get done initially to set the utility infrastructure and mobilize and get everybody to say, okay, we're going to be here. But then as they build the other parts of the site, add tooling, other things, you may get that in an award that will build to something almost the same size in chunks that are 15% to 20% of what you ultimately overdo on that scope.

And then I thought it was [Technical Difficulty] employee heacount saw a bigger increase last year than we've seen since the onset of the pandemic for the company. I guess, Tony, do you feel like you have the right amount of kind of human capital to address the opportunities you see out there or is it an impediment to you by any means? Just curious…

It hasn't been an impediment yet, Brent. We always say that we're always -- with an eye towards that, we've always had good success building it. The impediment actually we’ll find the skilled tradespeople. It's how quickly we can develop foreman, how quickly we develop project managers to move from being someone that was helping on the job or was an assistant foreman to move up to run big work, likewise with project managers. We've also had pretty good success subtracting how we are winning, people like [indiscernible]. And we've also had pretty good success attracting skilled foreman and project managers from other parts of the country when we're building out some of these sites from other companies and also from other industries.

Just last one, Mark. The free cash conversion noticeably strong this year just compared to the last five years, taking away 2020 COVID. But can we think this conversion rate can continue off the guidance you've given here?

Unfortunately, not, Brent. I think as Tony mentioned, with regards to some of our contract negotiations for some of our larger, more sophisticated work, we've been successful in making sure that we're staying ahead of the curve with regards to being provided the necessary working capital to complete those jobs based on advanced billings and payments. We cannot continue the cycle of collecting more cash than income earned. I don't think any company can. So I suspect 2024 is going to look more normal. So I think an appropriate benchmark would be 2022 or 2021 [Technical Difficulty] plus or minus, yes. And a lot of that, once again, not to sound like a broken record is highly determined based on progression of work. But at the end of the day, we much rather be in the position we're currently in than on the other side of the curve with regards to trying to chase collections once a project is complete.

We've always looked at cash flow. If you're earning at net income, it means the business is in pretty good shape, right? And if we're in the construction businesses, Jason, what do you think, 75%?

75% to 80%.

Op income, that means our project portfolio is usually pretty good and that we don't have a lot of jobs that are eating cash, because they're in some form of dispute or they're delayed or anything. So when you're overperforming like we did this year versus operating, like Mark said, it's because specifically go to the mobilization we had on some of these big sites. We negotiate really hard upfront to make sure that we're not have a big cash drain as we mobilize on these sites, and sometimes that takes a long time to negotiate that. And also sometime we’ll start on that, the one form of contract structure. And then over time, that contract structure will change from a fee based or T&M plus to more of a fixed price flow, because now we know what it costs to put labor on the site. We know the composition of the workforce, we're going to work force for the next three or four, or five years, hopefully. And then we know the owner and the GCs and the engineering firms we're going to work with how they get change orders down, how they get add moved. And so we have great folks on the ground that know this art. It's not a science, it's an art, and they do it really well. And they've a lot of experienced people help them quarterback that. And it's really the power of our corporate segment and subsidiary teams working together to bring that home on a site and to bring the cash flow home.

Tony, not to belabor the point. But when we look at kind of a normalized historical cash flow, right, over the last couple of years and we adjust for some of the impacts we saw with COVID, whether it was deferred FICA payments, I think a reasonable kind of historical average is somewhere between 70% and 80% of operating at a consolidated basis.

Which gets you at net income or a little bit above. Does that make sense, Brent?

That makes sense. Appreciate all the help.

Our next question comes from Adam Thalhimer of Thompson Davis.

I guess I wanted to start on RPOs. So commercial is obviously down year-over-year, which is not [Technical Difficulty]. so my question would be, do you think these other segments can continue to offset commercial weakness?

Well, I think, Adam, with guidance out of $13.5 billion to $14 billion know that not all our revenues and RPOs but we feel pretty strongly that these other trends will continue through the year. As far as RPOs go, there could be fits and starts in the RPOs in some of these segments as work gets let. But we feel really good about Page 12 and the underlying drivers of our business and we think that we will continue to win. And the good news for us is we're balanced across market sectors. So as I talked about on Page 12, the skilled trade because these are complex projects and then when we share knowledge so well across our company on how to build and means and methods that our supervision can deploy that skilled trades on any number of industries once they get going. And that's been the strength of EMCORE over a long period of time and we expect it to continue to be so. So the short answer is -- I give you a shocking thing here, Adam. I think over the last seven, eight years, maybe a couple of mixed use buildings but as far as commercial skyscrapers where we were the core person doing the core building shell and everything else who was with that, not talking tenant fit out on commercial, I think we've built two, Mark, right, in 9 years now. We have one underway right now that's really a delayed project in 2017, and it's going fine. But that's not been the heart of EMCOR's business for a while. We still are big in the tenant fit out place, which where we operate, how we always like to say, we at EMCOR operate and earn in the Class A office space for tenant fit out and retrofits and everything and we occupy Class B and C space because of the nature of what we do. So where we operate we're fine, because that's still buoyant, a lot of movement, we’re reconfiguring and figuring workspaces, new buildings. And then if you go to the other side of that, on the B&C space, quite frankly, it's not a bad time to be looking for space.

Tony, fire and life safety, do you think it makes sense to break that out as a segment for us?

No, I don't think…

I mean, clearly, you're seeing good trends. And I'm just -- I'm curious on forward trends there.

It's such an integral part of mechanical and how mechanical jobs thought about, and it's such a heart of our shops and everything. It would be hard to break out because it's ingrained in some of the companies and how they operate. That being said, it's an important part of our business. And it has a real success factor with our customers to deliver results on very complicated facilities across the country. Now that has some unique characteristics that make it on a trade delivery standpoint, it has a national union, right? Most trade businesses don't have a national union. Like the rest of the mechanical business, it's gravitated more towards prefab. Like the rest of the mechanical business, you have to have excellence in craft in the field and multidiscipline, they can do multisize pipe and really engineering. So it also has more of a design assist element as the rest of the mechanical business has gravitated towards. So that's why it's so integral to that mechanical business and it really wouldn't make sense to have it look different than the rest of the mechanical business.

And then just last one on data centers. One big tech company said, US data center capacity, I think they said will double in the next five years. So I'm just curious if your funnel kind of matches that comment?

We've done a lot of work around it. We think it grows high single digits to mid teens for a while. So yes.

The next question comes from Alex Dwyer of KeyBanc Capital Markets.

Can I just start off with -- can you talk about the semiconductor and the CHIPS Act opportunity set. So like we're seeing -- there's more grant funding coming to market in the past couple of weeks and next coming weeks, but there's also beem some major fab project delays. I'm just wondering how we should think about the opportunity set over the next 12 months in light of these two diverging signals next 12 months?

Next 12 months? Good. I mean it's the next 12 months, we have most of it already in RPOs and we know what the work we'll be doing on some of these critical sites. When you think about the delays, actually, that's not bad for us in some cases. We're building the infrastructure around that, they have to staff them. It allows the sites to become much more after the initial build, they start to winnow down to the contractors that are the winners on that site that have done great work for them. On the sites that we are, we emphatically are those contractors.

And then how would you compare and contrast like the semiconductor build out versus the data center build out in terms of like the duration of the cycle and based on what you're hearing from your customers on discussions on plans? I'm just trying to wonder like, is one a five year cycle, is one a 10 year cycle? Just any thoughts on duration of the two cycles?

I don't really have -- we’re contractors, we tend to look at things in three to five year cycles. And as we look at things over the next three to five years, we feel pretty good about that. Again, we can deploy our resources to the best opportunities. Secondarily, I give you a real world case. If someone comes in and the semiconductor market is going to be strong in a market we have our share of work or maybe we're not even playing in the semiconductor market in that market. The rest of the work that happened around, because it usually becomes a buoyant infrastructure that's part of that, whether it’d be warehousing, whether it’d be health care, the area tends to grow. We may do all those jobs and not do the semiconductor work. For us, it's a matter of resource allocation. How better serve the jobs and what the best opportunities are. Data center, I said, again, both and we look really strong for the next three to five years. I would say the data center business is a much more stable business and how they're going to staff it. Because they don't -- think about a data center, they have to get the technology right and a lot of them know how to do that and they're thinking of redesign. The data center human resource end of it is all on the construction side. The actual operating of the data center requires very few people. So once they get them up and running, it's much easier for them to think about capacity planning. Contrast that with the semiconductor world, you have -- some of them have established work forces in some of these markets. They have a much easier time thinking about expansion and growing. For someone that comes in knew it the first time, they may hire one and half workers to two workers for everyone that's going to stick with them on the production side. The construction side, there's a workforce that knows how to do that work after the first one. The construction folks aren't the issue. We would say that a -- I don't want to say slow down, a more thoughtfully planned next three or four phases on that. Once you get up and running leads to a more orderly construction site, we know how to work together and it goes on. We're all for them taking their time and getting them staffed correctly and becoming successful versus just build, build, build. It’s better for us and our planning, it's better for them also. So bullish on both, data center does not have the human resource issue after the fact that semiconductors does.

This concludes our question-and-answer session. I would like to turn the conference back over to Tony Guzzi for any closing remarks.

Thank you all. We look forward to hearing and working with you all in 2024. And with that, we now put a wrap on 2023.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.