Good morning. My name is Marliese, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group's First Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Andy Backman, Vice President of Investor Relations. Mr. Backman, you may begin.

Thank you, Marliese, and good morning, everyone, and welcome to EMCOR's First Quarter 2024 Earnings Conference Call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at emcorgroup.com. With me today are Tony Guzzi, our Chairman, President and Chief Executive Officer; Jason Nalbandian, Senior Vice President and EMCOR's newly appointed Chief Financial Officer; and Maxine Mauricio, Executive Vice President, Chief Administrative Officer and General Counsel. For today's call, Tony will provide comments on our first quarter. Jason will then review our first quarter numbers before turning it back to Tony to discuss RPOs, key market drivers and how they impact our business segments, as well as reviewing our revised 2024 guidance before we open it up for Q&A. Before we begin, as a reminder, this presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these 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. And finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-Q filed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony?

Good morning. Thanks, Andy, and thanks all of you for joining our call. I'm going to begin my discussion on Page 4. We had an exceptional start to the year at EMCOR. It was another quarter of records as our performance established new first quarter records for revenues, operating income, operating margin and diluted earnings per share and operating cash flow. We earned $4.17 per diluted share and grew revenues by 18.7% to $3.43 billion. Revenues increased 18.5% organically. And we were still able to grow RPOs to $9.2 billion, an increase of $1.3 billion or 16.5% versus the year-ago period. Our consolidated operating margin was a very strong 7.6%. The performance of our Electrical and Mechanical Construction segments this quarter continued to exceed our already high expectations. Our Electrical Construction segment revenues grew 18.6% with operating margin reaching a record 12%. Our Mechanical Construction segment grew revenues 32.4% with record first quarter revenues and a record first quarter operating margin of 10.6%. We executed well with strong demand across many of the market sectors we serve, including high-tech and traditional manufacturing as well as network and communications, which includes our data center work. We had outstanding performance at some of the most demanding projects for our most sophisticated customers. Central to our success is how our leadership teams effectively plan where and how we will compete and select the right sectors and geographies that allow us the best opportunity to earn the best outcome when deploying our precious resources. Then our excellence in BIM, which is really a lot more than building information modeling, it's much evolved into virtual design and construction. You'll hear me talk about VDC, that's how we talk about it at EMCOR. Which then moves into prefabrication, estimating, project planning and management, and our best-in-class…

Thank you, Tony, and good morning, everyone. Over the next several slides, I'll review our operating performance for each of our segments as well as some of the key financial data for the first quarter of 2024 in comparison to the first quarter of 2023. I'm going to start on Slide 5, which is revenues. As Tony mentioned, consolidated revenues were $3.43 billion, an increase of $541.8 million or 18.7%. Each of our domestic reportable segments experienced year-over-year increases in revenue, and with organic growth of 18.5%, substantially all of this growth was organic. If we look at each of our segments. Revenues of U.S. Electrical Construction were $764.7 million, an increase of 18.6%. This segment continues to benefit from growth across many of the market sectors in which we participate with the most significant revenue growth in network and communications, which is predominantly our data center projects. The increased need for cloud computing, data storage and the emergence of AI have accelerated the demand for these services. Revenues in U.S. Mechanical Construction were $1.4 billion, increasing 32.4%, with revenue growth across the majority of the market sectors in which we operate. While the most significant growth occurred in the high-tech manufacturing market sector, we also saw notable increases in manufacturing, industrial, institutional and network and communications. As we've mentioned on previous calls, as a result of projects for customers engaged in the design and manufacturing of semiconductors as well as the production and development of electric vehicles and related battery technologies, this segment is experiencing strong demand for both its traditional mechanical services as well as our fire and life safety offerings. Coupled with the continued build-out of hyperscale data centers and domestic near-shoring and reshoring, these trends continue to be the driving factors behind the segment's significant organic…

Thanks, Jason. I'm now on Slide 9. So on Slide 9, you'll see a chart that I've discussed, it's a little bit reformatted over the last 4 quarters, which highlights some of the key market sectors where we are seeing growth. In many ways, this chart, over a long period of time, and we start showing it about 4 quarters, but this idea behind this chart has really been how we allocated resource for the last 5 years or so. And now let me get into the details of this chart. We reformat a little bit, so we put things together here. And I'm going to start on the upper left-hand corner and talk about data centers and connectivity. We have that in network and communications. And our RPOs are up 9%, 51% year-over-year. And they're at a record $1.7 billion. On a year-over-year basis, they're up $575 million. A lot of this will tie to the information on the next page. I'm not going to cover it twice. We continue to see strong demand for data center, and let me sort of reflect a little bit. We've been on calls about 4 or 6 quarters ago where people were talking about was data center demand slowing? We hadn't seen that, and part of that could be our market position with really good customers that really value what we do to help deliver great projects for them. And -- but also, I think we were seeing the beginning of the AI almost 6 quarters ago. And it has become more pronounced. You can't pick up a newspaper today without seeing and talking about data center growth and the quest for more data and more computing power. They also need more energy, and I think that will play out over time…

[Operator Instructions] At this time, we'll start with a question from Brent Thielman from DA Davidson.

Tony, I guess the manufacturing and the high-tech manufacturing verticals, how do you think about the sustainability of those areas without government incentives? And then also, how much of those verticals for you are being driven by, call them, mega jobs that might require kind of billions of investment versus sort of more selected -- that might be more selective versus kind of broader-based investment?

I don't know how to parse the second one really as far as mega jobs versus -- but we're seeing demand being pretty strong across it. My general view on some of the high-tech manufacturing areas that have been built, you think about there's probably 6 semiconductor or 7 semiconductor markets. They've been semiconductor markets. There is a rebirth in some of those markets. The only real new one is the one in outside Syracuse in Clay, New York. The other one is where the business happened, right? It was happening in Phoenix before. It was happening in Austin, Texas before. It was happening -- Columbus, Ohio was new also, I guess. But I think Intel has been thinking of expanding. Boise, Idaho was happening before. Salt Lake City was happening before. Oregon was happening before. So these for the most part, other than maybe 2 markets, have been well-established markets. Even Raleigh, North Carolina. I mean, Wolfspeed, which is one of the customers -- that was Cree one time, and Cree did semiconductors for their lighting products and decided just to focus on semiconductors. So I think a lot of it would be happening anyway. I think they realized they were too exposed to the supply chain. The supply chain had to move more to the U.S. It's pretty obvious why you can't -- if you're a Taiwan semiconductor, why you just can't be in Taiwan. It's both a diversification. It's what any responsible business would do. Intel is investing for their next generation. I mean, Intel was not cash-poor, neither is Samsung, neither is Micron. These are very good companies that know how to invest through a cycle. Now what have the government incentives done? Well, they've done a couple of things, right? I think they've helped strengthen…

Okay. Okay. Appreciate that. And then just on the Electrical business, I mean, 12% margins is exceptional. Just wondering, can you unpack that? I mean, what leads to a 12% sort of print here? Just the way to think about it -- going forward.

Yes, I'm going to -- I never talk about go-forward margins. We always think about it in bands and we always think about it over sort of 8 quarters, looking back. But it wasn't all that too long ago in the first quarter of 2022, not to bring up a more challenging time for us, where we had, through supply chain, a lot of jobs stalled in the Electrical sector. And we weren't earning the margins. I think we earned 6% margin or high 5s that quarter. And external folks' hairs were on fire, and we sort of knew what the drivers were. And I would say those drivers flipped this quarter, right? So the drivers of why we didn't do well, it had nothing to do with execution in the field. We -- maybe we had a little unproductive labor because we kept people and we were waiting for jobs, that didn't start up, to start up. We had some supply chain stalls that caused that. And then that caused people to delay the site conditions and the buildup. And so we did the right thing. We kept our powder dry. We kept some of our key labor, especially supervision, because we knew we were going to begin on the work. I would say the opposite happened this quarter. We had near-flawless execution in our Electrical business on a really good mix of work that led to these results. Is it always going to be this good? Probably not. But we have a really good Electrical business, led in the field by really capable people with a great segment team. Yes, Jason?

The only thing I would add there, right, is it truly is a combination of execution and mix in the quarter. There's no anomalies when we look at large project closeouts or project losses, anything to that effect really netted to near 0 in the quarter. So it truly is mix and execution. I think 12% is a record quarterly operating margin for Electrical. So I wouldn't necessarily say that, that's the new norm. I think to Tony's point, it makes sense to look at it over a 15- to 18-month period, and that's probably something we can expect to see from Electrical in the near term.

If you looked at our electrical team and our mechanical team and say, what do they actually focus on? They look at the operating margin in a given quarter as an output metric. So what are they focused on? The inputs, right? How productive is the labor on a job? How safe is that labor on a job? How much portion of the job we've been able to put through our VDC process, which is prefab, BIM modeling? How successful we've been in negotiating the contract to have constructive discussions as scope expands? They're looking at the input metrics, right? And then they're looking at the absorption they're getting on their overhead as they do this work. And that leads to great results. I mean I think they look at the end of the quarter and look down at the results, hey, that's pretty good. But they're back to focusing on the input metrics.

Okay. And Tony or Jason, I mean, just with respect to the comments on mix also in the context of the guidance, and I realize it moves around quarter-to-quarter. I guess when I think about mix for you guys, it's sort of larger, more complex sort of developments that require some level of sophistication that you bring. Why would that look any different going forward?

I don't think it will, at least in our guidance. Jason, you agree?

Yes. And I think, right, when you look at our guidance, as Tony said, margins for the year between 7% and 7.5%, right? I think the thing to remember is 7% margins will be equivalent to what we did on an annual basis in 2023, which was a record. And 7.5% margin is really our trailing 12-month average margin. And so I think what we're saying there is that mix we expect for the remainder of the year is consistent with the mix we've seen in the last 12 months.

Or -- and if you think about the input side of that, we're doing a really good job on resource allocation. And that extends -- obviously, you see it in the construction segment over the last several quarters. But quite frankly, you're also seeing it in Building Services because of what's happening in Mechanical Services and building controls, right? The mix there is very good also. And look, the industrial team also has focused the mix in a good direction, whether it's how they manage the mix within their shops, of the 5 shops we have, how they think about their field resources and how they do that versus some of the specialty services we have versus the turnaround. And then quite frankly, we're pretty excited about some of the things we have going on in our Electrical business and then how they think about mix there. When you have really precious resources like we have, and for us, that really means supervision, shop capability, VDC capability, project engineers, project managers, we think hard and long about what we're going to commit to over a long period of time and what's more attractive. And quite frankly, what's happening with us, we're winning, right? Our customers are choosing us because we deliver for them.

And now we will take a question from Adam Thalhimer from Thompson, Davis.

Great quarter. Congrats on that. And Jason, welcome to the call.

Thank you.

Tony, can you just keep going on that? Because I was actually curious how you do allocate resources. How much of it is top-down, like you're having the discussion with the customers? And how much of it is your subsidiaries?

Most of it is at the subsidiary and segment level. We -- for lack of a better word, we, at the segment and corporate level think, we put out our intent. We think about markets, we think about where is the best place for us to allocate our resources, how we're going to allocate them. But our fighting unit, quite frankly at EMCOR, is our subsidiaries, and they're good. And then within those subsidiaries, right, we think about which subsidiaries get more investment versus other subsidiaries because of the opportunities that are in front of them. And it's a very thoughtful process. We have very sophisticated business leaders at the subsidiary level, supported by great relationships whether -- with labor, whether it's union or nonunion, with superintendents and project foreman and project managers. And they look at their playing field and say, what's the best way to allocate these resources to derive the best results for our company, their people; the best results for our customers; and to build something that's sustainable in these markets based on the opportunities they see in front of them. And for us, that's usually a 6- to 24-month planning horizon at the subsidiary level and then thinking about how that builds capability. So look, what makes a great data center builder makes a good complex project builder that can do things under pressure with a fast timeline with a demanding customer. A lot of markets that look like that, but you have to build that capability. And then what we do a really good job of, and this is where our segment teams do an exceptional job of, how do you -- you don't move the people for a long period of time, but how do you peer learn? Peer learning at EMCOR is a big deal. So I talked about the expansion into other markets that we've done. It's not like we -- every place that we expanded into a data center market, we didn't have a company. It's just they weren't serving a data center market. And so the team or the electrical team said, "Okay, we do this really well. Why can't we do it here? And when we do it here, this is how we have to think about let's go way back here to estimating. So we'll work together on the estimate. And then how do we think about building the VDC capability? How do we think about prefab in that market? What does schedule start to look like?" Because we're going to make a commitment to a customer we probably have in another market to tell them now we can do that in this market. And for our guys, that's a pretty high bar to jump over, to have them trained up and ready to go. And that's how our folks think about it. That's one example that's happening every day across our company.

I guess you've kind of put a speed governor on the RPO growth. Is that fair?

We don't take work we don't think we can execute. That's true. But I wouldn't -- I've heard other people say, "Hey, we're turning away work." I don't think that would be true here. I think we think about what we're going to bid. And when we bid the work or estimate the work or work in partnership with our customers to think about taking the work, we're pretty sure we can execute it. And we may not win it all the time. We don't. We don't have everything that we want to win. But I wouldn't call it a speed governor, but we very much don't try to outrun our headlights, right? We try to stay within our capability. Where do contractors don't do well is where they don't have the capability to do a job, they grow beyond the capabilities and they lack the execution resources. So the way we build capability and build capacity is someone that had been an assistant project manager or assistant project engineer, a regular foreman, now can become a general foreman, maybe help us get another superintendent out on the field which allows us to build more labor force. And then that assistant project manager now can run their own work a year, 1.5 years later with the right training. And then we can build that capability. Or if we're going to expand in another market. So maybe one of our electricals that have done a pretty -- a lot of industrial work, we take that person and say, "Okay, here's what's different between that work and data center work. Or here's what's different between that work and semiconductor work. And this is the things you need to be aware of." And they work with other EMCOR companies to understand those nuances. But I would say, yes, our governor is our capacity to build skill and -- it's not cash. It's not capital investment. It's building the human capital and acquiring the human capital and training that we feel comfortable we can expand the company.

And sorry if I missed it. What was the forward look on data centers?

I think it's pretty good. I mean, you read the same things we've done. We've done a lot of work on that. I think it's pretty good. I mean, we don't see any slowdown. And the thing that will constrain it, but then we'll fix that, we always do, people, is there will be more investment in the energy infrastructure, and then they'll keep growing. And there's nothing in the near term that suggests that's a problem, though.

And are you seeing any -- to the extent you're seeing any weakness in nonres kind of more broadly, like commercial, I know you don't play there much. But it sounds like that would be confined to Building Services.

No. That's not true. We just reallocate our resources. So we were very good at -- in the fire or life safety world, at large big box retail distribution centers. That slowed down on the dry goods side. That -- they're very capable people. We moved that capability to other places like battery plants, like semiconductor plants, through training, through a very careful, do in once, do it right, and get it right. We have a great team there, and we build that. So yes, there's slowdowns. I mean, there are certain markets -- I don't think the New York guys are running around spiking the ball in the end zone right now. They're working hard, and they're doing fine. But you wouldn't say that's a booming market. There's no Hudson Yards. There's none of that happening right now. Maybe a little slowdown in the Northeast overall, but that's been overcome by other parts of the country. I mean, nothing is always up and to the right, as you know, Adam. I mean, commercial, yes, we're not really in the light commercial business in any significant way, even in Building Services other than some of the maintenance contracts. So yes, I mean, we have our share of challenges. But luckily, we have more good than those challenges right now. Jason, do you have anything to add?

I think you covered it, Tony.

And we continue with a question from Alex Dwyer from KeyBanc.

Congrats on a great start to the year.

Thanks.

So I just wanted to ask about the productivity improvements we've seen over the past year. Like how broad-based have these improvements been in the business? Is it concentrated in a couple of end markets or projects or geographies? I just want to get a better sense for how much more room there is to run in like implementing prefab and virtual design and BIM throughout the broader company.

Now look, Alex, the reality is we're every day trying to figure out that impact on our ongoing margins versus more favorable contract terms. I would say most of our margin enhancement is coming from execution. I mean, any job we do, there's plenty of competition. I mean, there's other people that know how to do this work. And so I never sit there and think about -- we have very capable competitors in every business that we have. So we're earning margins because we're earning them. And it's hard to separate. I would say this in general, right? The place where you have a multiyear build, like some of these data center markets or semiconductor markets or even the manufacturing sites, where you have a multiyear build, you get better. Your people get better, they get more productive. We think of better ways to do it. And if the mix of contracts skew more for us towards fixed price versus GMP with a fee, then we do better. If we can convert more GMP to fixed price, that's good for us and the owner because we have certainty -- they have certainty of cost. And somewhere 50%, 60% along the way, we also have certainty of outcome. Or we think we do. So it's hard to separate some of that stuff. I will tell you this, though, right? The more work we can do in the shop versus in the field, the better we do. The more we can get in the planning earlier with our VDC, the virtual design construct, and implement more of those tools, the earlier we can do that, the better off we work. And so I'll just give you a broad number. And we have -- we were probably around 500 VDC people, mainly…

I think the only thing I would add, you asked specifically about investments in certain markets or different sectors. And I think, right, none of these investments are targeted at a single market sector, right? The same prefabrication facility that can do a high-tech manufacturing -- support a high-tech manufacturing project can support a health care project or any other sector that we're working in. And the same thing with VDC or BIM, right? It's not targeted at any subset of our work, other than more so to our construction side than our service side.

Maybe, Jason, talk a little bit about how CapEx moved here and how do we build or build infrastructure or things like that.

In the quarter, relatively comparable year-over-year. And I think if you go to a full year of 2023, that's when you'd really see it compared to the full year of 2022. I think our CapEx was up roughly 60%, and that really was a lot of these investments that Tony has been talking about. And we'll continue to invest in prefab facilities. We'll continue to invest in BIM. We'll expand the facilities that we have where we need more capacity. And we'll find ways to add facilities in other markets where we currently don't have the same capacity we do elsewhere.

But all our investments, someone asked the question earlier about are these top-down or are they bottom-up? They're bottom-up, but there's a receptive knowledgeable ear at the top to ascertain where the best way to invest, and also to provide resources when needed, to help them invest. We haven't turned down a significant capital investment here in 5 years. I only say 5 years because I don't remember before that, because our folks bring these forward, they tend to be very well thought. And they take a -- and as a contractor, just so we understand that, too, our folks are looking for less than 4-year cash payback when they make that infrastructure investment because we do think like contractors, right? We're looking at the current market and say, "This is good for today, it'll be good for the future. But let's make sure we can earn today." And the other thing is we -- 95% I always qualify things, probably it's 100%, but 95% of our prefabrication is for us in our jobs. We don't prefabricate for the market.

That's really helpful. So if I can just ask the next one. I guess like the Industrial Services outlook commentary, it seemed a lot more positive this quarter. Large turnarounds are coming through with the larger scopes and you're getting better overhead leverage on that. And then 1Q was the best performance since the pandemic. Like would you say there's better visibility now into customer spending plans and turnarounds now? Or is it still kind of different?

I'd say yes and no, right? Yes in that we have pretty good visibility in that we understand they're going to do the work. But they could shift it from fourth quarter to first quarter or third quarter to fourth quarter. I would say that I had the privilege of seeing the kind of relationships our folks have firsthand recently at one of the biggest refining customers. And they're at the top, and they're deep. Why? Because we help that customer perform and solve problems. And ultimately, that's what that business comes down to. You have to have the best technical resources. And the good news I take away from what I've seen recently in that business is there's a little straining for manpower going on right now. And when that happens in the Gulf Coast, that's usually a good thing. It means that there's more activity going on. And when there's more activity going on, that's good for the larger contractors like us.

Thank you very much. Mr. Guzzi, we have no further questions at this time. And I will turn it back to you for some closing comments, please.

Look, we got off to a good start this year. It's been a -- we've been performing really well. I don't think you can ever discount the skill it takes of our folks in the field. You heard me talk about it earlier. And someone asked me an interesting question today. Are these decisions being made top-down at the segment level, subsidiary level? I'd say it's a team sport. But at the end of the day, we're only as good as our subsidiaries deliver on the projects that they commit to our customers. And with that, I'll thank them, and see you all in a couple of months. Bye.

Great. Thank you, Tony, and thank you, Jason, and thank you, Maxine, and to all of you for joining us today. If you should have any follow-up questions, please do not hesitate to reach out. Thank you all again, and have a great day. And Marliese, could you please close the call?

Yes. This conference has now concluded. Thank you for attending today's presentation, and you may now disconnect. Have a great rest of your day.