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

Thank you, Danielle, and good morning, everyone, and welcome to EMCOR's Second 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 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 second quarter. Jason will then review the second quarter numbers in detail before turning it back to Tony to discuss RPOs 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 contain 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. 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?

Yes. Thanks, Andy, and good morning, and thanks, everyone, for joining our call. I am going to begin my discussion on Page 4. We had an exceptional first half of the year at EMCOR, and our results for the second quarter of 2024 further illustrate our continued momentum and excellent execution in the field. Within the quarter, we set new quarterly records for revenues, operating income, operating margin and diluted earnings per share. We grew revenues by 20.4% to $3.67 billion, achieved a consolidated operating margin of 9.1% and earned $5.25 per diluted share. While revenues increased 17.7% organically, RPOs of $9 billion remained at near record levels, increasing $713 million or 8.6% versus the year-ago period. Our Mechanical and Electrical Construction segments are driving our record performance with organic revenue growth in both the quarter and year-to-date periods of over 33% in our Mechanical Construction segment and 18% in our Electrical Construction segment. We continue to be well positioned in the right geographies and market sectors. We are winning the right mix of work, estimating our opportunities with the appropriate contingency, negotiating our contracts with care, planning with discipline and executing our work with precision and innovation with year-to-date operating margins of 11.8% for Mechanical Construction and 11.5% for Electrical Construction. We continue to perform well in large and growing market sectors with strong demand anchored in favorable markets for which that includes high-tech and traditional manufacturing; network and communications, which includes data centers, institutional and health care that are benefiting from long-term secular trends. Our teams are executing with discipline and precision aided by the full range of virtual design and construction tools, we call that VDC. And that also includes BIM, which you've heard me talk about, building information modeling, as well as excellent prefabrication, fill planning,…

Thank you, Tony, and good morning, everyone. Over the next several slides, I will review the operating performance of each of our segments as well as some of the key financial data for the second quarter of 2024 as compared to the second quarter of 2023. I'm going to start on Slide 5 with revenues. As Tony mentioned, consolidated revenues were $3.67 billion, an increase of $621.3 million or 20.4% as demand for our services continues to be strong across the majority of the market sectors we serve. Each of our reportable segments experienced year-over-year increases in revenues, and we achieved organic revenue growth of nearly 18%. Looking at each of our segments. Revenues of U.S. Electrical Construction were $800 million, an increase of 18%. This segment continues to benefit from increased demand across many market sectors with the most significant revenue growth once again coming from network and communications, which, as a reminder, is predominantly our data center projects. In addition, this segment experienced increases in revenues within the transportation, high-tech manufacturing and manufacturing and industrial market sectors. Revenues for U.S. Mechanical Construction were $1.7 billion, increasing nearly 39%. This segment saw revenue growth across the majority of the market sectors in which we operate and benefited from greater levels of short duration projects and service work. The strongest growth was seen within the high-tech manufacturing market sector largely driven by continued demand for our Mechanical Construction and fire protection services by customers engaged in the design, development and production of semiconductors or electric vehicles and lithium batteries. Beyond high-tech manufacturing, we also saw notable increases within network and communications, institutional, manufacturing and industrial, health care and water and wastewater. Demand within this segment continues to be broad-based. As expected, partially offsetting the growth for both of our Construction…

Thanks, Jason. And I'm going to be speaking to Pages 10 and 11, and I'm going to start on Page 10. And on Page 10, you'll see a slide I have referenced before. The format is a little different, and it's really the same slide, as you will see in our new corporate overview presentation that we launched this quarter. This slide highlights some of the key market sectors where we are seeing growth. And in many ways, this chart informs how we allocate resources to drive organic growth. And as I discuss RPOs, if I were you, I would take Slides 10 and 11, put them side by side. And you can follow the discussion with more ease. And then the reality, as I discussed these RPOs, there's no earth-shattering news here. These are the trends we've been seeing at least over the last 8 quarters, and it's how we've set the business up to succeed. So rather than review this slide in detail because it is a continuation of what we've talked about, I'm going to discuss our RPOs as they relate to the 5 key trends outlined on the top of this chart. So if you look at data centers and connectivity, we continue to see strong demand for hyperscale data center work. And we report that in the network and communications market sector. At the end of the quarter, RPOs in the sector were a record $1.7 billion. They're up $489 million or nearly 40% year-over-year and 2% sequentially. We continue to believe that we are not only in the early innings of the overall data center expansion, but that we have successfully positioned ourselves in the key data center geographies. And we expanded our presence in these markets since 2019. Reshoring and near-shoring, coupled with…

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

Tony, maybe just to start, can you talk about maybe the pipeline of potential opportunities you're still seeing in high-tech and sort of manufacturing and industrial, I think just looking for any other evidence, this sequential reduction in RPOs is more likely temporary and timing related as I think you're ultimately suggesting here.

Yes. I mean, look, if you think big picture, right, these are sites that are going to be developed over 10 to 15 years. And so nothing has changed, right? The fabs are moving from Taiwan back to the U.S., so there's near-shoring. There's expanded need for chips because of AI. And all that remains true today just like it did last quarter, the quarter before that, the quarter before that and the quarter before that. We executed at a fairly high burn rate on one of those sites as we hit peak manpower, and we hit peak scope, right? We're at the sweet spot on one of the major sites. And that's a good thing. You could see that in our cash flow, and you can see that in the execution and the drop-through in our mechanical business, especially when you get focused on high tech. So if you go to the semiconductor sector, we're bullish on the sites we're on. We have good line of sight to multiyear projects. But like I've said before, sometimes the multiyear projects now come in different chunks. We're there now. We're working. We're part of the team. We're developing the site. And then sometimes they'll come in, in a different contracting form or they will come back in lump sum. Our job is to make sure we stay as part of that team, execute well, finish the work well, get a commission well and move to the next phase. And most of these sites, the 3 or 4 big ones we're on have 3 or 4 more fabs they're going to build. And it's just not like they jump from one to the other, and everything happens literally. So we feel really good about semiconductors. And nothing's changed in our outlook on…

That's helpful, Tony. I appreciate that. And then just in terms of the profitability of the company overall, I mean, continue to attain new highs and Tony, just -- you could sort of compare and contrast what is bid margins, what customers are willing to pay to bring you in versus just simple effective execution in the field. It would be helpful to get your -- cover there.

Those things are really hard to separate because on these bigger projects, which is really what's driving our margins, most times, we are working in a collaborative way with the customer to be able to fit inside their budget and come up with solutions that work with their budget. So it gets really hard to talk about pricing. I think productivity and our ability to do virtual design and construct and enter earlier in the design phase and do -- and we're not design builders necessarily, but upstream to do engineering assist, which will then compress the time and get the drawings right to begin with. And then to be able to develop a good model that we can all work from and build and not run into the collisions and things you do on the work site and then take that BIM plan and drive it to a very thoughtful prefabrication and supply chain management plan and work with our suppliers, I think my gut, 3/4 of this is coming from productivity and means and methods and planning. And 1/4 of it's coming from price or less because there's too much work going on in productivity. And it's -- or too linked with these customers on the build to think it could be priced. And let's be clear. Nothing's changed in this business as far as and anything we do, there's competition. And these are large sophisticated customers that know how to drive competition to a site.

Yes. Tony, I guess my last question, really kind of just with respect to the -- considering the outlook for rest of 2024. I mean this is just a massive year, potential accomplishment. I know you have a second half to work through just from an earnings perspective. And I appreciate your perspectives on how you think the company can build off of this sort of incredible year provided these kind of end market drivers sustain in the subsequent years.

I mean I always think about things, right? I think you know, in general, we're very cautious and conservative, right, by nature. And I think that's why we've had this long-term record of success in what is a pretty difficult business. I think about things maybe a little differently, right, in a sense of you got to put the enablers in place to allow growth, and you got to be positioned with the right customers in the right place. And so the question is, are you continuing to expand the geography you can serve and the sites you can serve? Have you opened up the types of things you can do? An example of that is we continue to look for opportunities to expand the geographies we're in. Our acquisition program in the first part of this year and really over the last number of years forever has been a focus on that. But then you got to think about, okay, I built a capability to do this kind of project in this geography with this subsidiary. Are there other people that have the capability to do that, they do projects that are similar and that it's coming to their geography, can we do a lot of peer learning? Can we have people teach them how to do the project planning upfront? Can they come and learn the means and methods? So I don't know what end demand will ever be, right? We try to position ourselves to markets we think are growing. But I do know if you continue to build capability within your workforce, you continue to build capability in the number of markets you can serve. And if you continue to train your leaders the right way and how you treat people and how you lead and how you plan and you do those things right, then long term, you can build on success. And I think that's the playbook we've been following for a while. I think we're in a period now that, obviously, it's accelerated over these past 3 years. But I think a lot of that is investments that we made 5, 10 years ago to continue to build that workforce and build the culture that we have that allows for transparency, that allows for teamwork, that allows for respect and share ideas across our company. And then you couple that with a strong focus on discipline and disciplined execution and then you always keep safety of your workforce and your planning in paramount, I think you get good results. And you position yourself well with key customers, you can grow with them as they expand what they're doing.

The next question comes from Adam Thalhimer from Thompson, Davis.

Also congrats on a great quarter. Tony, is the headwind you talked about within commercial, is that coming in any different than you anticipated?

No, I think we'd say -- and Jason, maybe you can elaborate on this and put some context on it, it's exactly where we thought it would be. And quite frankly, we might have had this decline even if the commercial market was strong because we would have pivoted our resources to some of the high-tech manufacturing and traditional manufacturing anyway because it's longer-term, larger projects, more difficult projects, which is right in our wheelhouse, especially on the fire and life safety side. So we would have -- not that we have a shortage of workforce, but we would have pivoted some of that workforce to a more lucrative market anyway. Jason, you got...

Tony, I would agree with that. I think right on the commercial side, it is the only market sector where on a quarter-to-date basis, we are down on the Construction side. It's exactly what we expected, both electrically and mechanically. And as Tony said before, we've pivoted ourselves elsewhere where we are seeing growth. And then on commercial, if the question is specific to commercial site based where we've talked about the headwinds there, it's exactly the contracts that we spoke about at the end of December. The revenue decline there is exactly what we anticipated. And Building Services is operating collectively as a segment right where we thought it would be, right, the growth in the quarter being 1% and on a year-to-date basis at 4%.

Okay. And then presumably, you're running pretty flat out. I assume you guys are fully engaged. You're probably having some labor availability issues, if anything. I mean have you guys been turning away work? Or how have you been managing backlog?

We -- look, let's think about business in general, right? These are massive markets even when times aren't as bullish as they are now. When you run a company like ours and you're running it at the subsidiary level, you're always focused on what's the best opportunities in the market I have for the capabilities I have, and how am I going to deploy those resources. And you do it 2 different ways, right? You think about those that you're going to deploy over a 1-year or 2-year horizon on a set of projects and opportunities. But you also keep running at a more routine stuff, the short duration projects, and you keep that alive in the market. And we're blessed here at EMCOR is our team, our subsidiary CEOs, I would say, with the guidance of the segment folks, are masters at thinking about how you take the resource and deployment in the most effective way possible. You'd always say -- I've never been one to say, "Oh, we're turning away all kind of work, we're doing this or that" because I don't believe that's what we actually do. I think we say, "This is the team we're playing with. This is what we have. This is how we're building workforce capability." And we're going to grow 2 ways. Either we can do more projects because we build more capability with foreman and superintendent to that or the size of the projects going up in some cases, and that multiyear opportunity and that person can run bigger work over a longer time period. So I don't think we're labor short. We're always looking for great labor. We have great labor. I think, though, that if you have a metering, it's not around the actual labor, the journeyman, the apprentices and the wireman and those folks. The labor shortages, if you're going to have any, it's about your workforce development over time would be in the foreman, the project managers, the project executives and the skilled estimating resources you have, and we're always developing those. So it very much is a how you're going to manage the mix in your local geography and how we're going to manage the mix across EMCOR.

And then, Tony, how do you think about your potential to grow margins from here? I've been looking at EMCOR for about as long as you've been CEO. And I mean it's just amazing the productivity and the margins you guys are generating.

Yes. A lot of stuff has got to come together, and it has been coming together. You got to start with all those things we've talked about: workforce development, investments in technology, best practice sharing. It echoes across from estimating, mix management, means and methods, virtual design and construct, BIM, supply chain management. I mean you really have to take your -- what you're doing well and then spread that through the company, and that's one way to get margin. The second thing is we're in a tough business. And so absence of badness is a big deal. And so we've invested and trained our folks pretty strongly on contract negotiations. And when it's a more difficult negotiation, we've enhanced our legal capability to be able to respond and be thoughtful. And then when we do run into a problem, like not everything is perfect all the time, we're prepared for that dispute with facts and adherence to the contract so we can get a better result than we may have gotten 5, 8 years ago. And then I think the other thing is you got to have good markets where you get good absorption in and you're working alongside the customer to get a good result. And where do margins go from here? I mean, obviously, we believe for the rest of the year, they're about the same as you go to -- right, Jason?

Yes. If you look at the guidance, really what we've assumed there, and I touched on the midpoint, right, which is if you look at the midpoint of our guidance, we're saying we can repeat in the back half of the year what we've done through the first 6 months of the year. When you look at those, the low end of the guidance, we're essentially saying we believe that at the low end, we can achieve the record margins that we achieved in the back half of last year. And if you look at the high end, we're essentially assuming 30 to 40 basis points above where we're at today.

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

Can you talk about which geographies in the country you are seeing the highest growth right now? And would there be any other like geographies that you'd call out as being weaker versus stronger right now?

It's fairly broad-based in the markets that we're in. So -- but if you go to where the real growth is coming from, I think you'd have to say Texas, specifically around high-tech manufacturing and data centers. I think the Midwest has been fairly strong for us, and that's driven by auto, data centers and just general construction across the Midwest and even still some cold storage and things like that. I think Arizona has been very strong for us, as you'd expect. The Mid-Atlantic has been very strong for us. New York City, sort of flattish. Again, we're mainly an aftermarket company in New York City now, [indiscernible] company. I think Boston has slowed a little bit. It's more flat, but it's up yet from where it was 5 years ago, but it's slowed a little bit. I mean some of the R&D facilities they were building have slowed. They were doing that sort of hotel concept around lab space. That certainly slowed. California has been okay, and energy retrofit work in California has been pretty strong. Some of the health care work in California has been pretty strong. Oregon, Washington continues to be strong, especially around data centers. Salt Lake's up, I mean, maybe not as strong as Arizona and other places, but still up. So it's pretty broad-based. I would say sort of the Northeast is sort of flattish, again, going back. The rest of the country, I think, is doing pretty well. Jason?

I think you hit on it all, Tony.

I'd add Georgia and North Carolina. They're very strong for us right now.

Got it. That's super helpful. And then just lastly, with the $800 million of cash on the balance sheet, no debt, how should we be thinking about M&A versus repurchases as we go to the second half of the year? Like should we expect the M&A program to be concentrated more and looking after those high-tech manufacturing and data center end markets? And then is there any change in the M&A pipeline at all?

Yes. We have a good pipeline. Deals happen when they happen. I would expect right now, I mean, obviously, we're not afraid of doing $0.5 billion or $1 billion deal. But right now, what we're looking at is more of the same of what we did here in the first half of the year, which we're very pleased with. Our M&A execution over the last 5 years has been superb. And those who have known me over a long period of time, I think M&A is very difficult. I think we've been a good B+, A- student for a while here. The size of the deal goes up, the execution risk gets a lot harder. But so far, we've executed well. We have a good pipeline. Jason, I'd turn it over to you. I think we're going to continue to return cash to shareholders, and we're going to continue to grow the company through M&A and organic growth.

Yes. I think overall, right, no real change in strategy here. I think we'll continue to be balanced capital allocators. As Tony said, we're pleased with what we did through the first half of the year, right? We generated $412 million of operating cash, but our cash balances remain largely unchanged from the end of 2023. And that's the acquisitions at $173 million, the share repurchases at $149 million, our CapEx and our dividends. And in the back of our slide deck, I think it's Slide 13, we've updated our historical capital allocation here. If you look where we are so far this year, it's weighted 45% to shareholder return and 55% to business reinvestment. And if you look over time, we're closer to 50-50, and we'll continue to strive for that over time. So I think a long-winded way to say the back half of the year should look very similar to the first half.

I mean I think I've always been a proponent you don't force M&A. I think you -- some of the things we did here in the first half of the year, we've been talking to those people for 3 years. Some of the things we'll do a year from now, we've been talking to them for 3 years. I mean we are so focused on making sure we have a good cultural fit. We'll get the numbers right, right? If the cultural fits right, we're usually talking to a really good company that shares our values. What we won't do -- and also it's something we believe we can grow. And it's something that adds capability to us. What we won't do is play the multiple game, right? We're not out there trying to say, well, we're at X, and we can buy whatever is out there for a much -- 7 to 10, and therefore, we're creating value. That never works out well, especially -- and maybe it works out well for the PE guys. But I can promise you that doesn't work out well as an operating company because we own them forever, and we've got to build the businesses and they got to culturally fit. So we're much more focused on that than anything else. And you can see the fruits of our M&A work today in our numbers from deals we made 15, 16, 10, 12 years ago. And we really haven't wavered from that and has paid significant dividends for us. We start with management. If we don't believe the management has the skill and character and all the things and the competency that we all think is important, we won't buy the company because even if you can replace management, if those things aren't evident in the company, that bleeds through the entire company that create nothing but problems for us.

Got it. Okay. Can I squeeze one more in? For the data center build, is it possible to like parse through how much of the data center builds you're working on is just coming from traditional type data center builds we've seen over the past 5 years with the cloud? Or how much is coming from these new AI-type data centers?

We wouldn't have that kind of visibility. We just know that it's expanded. The only thing you could parse through is maybe the power requirements have gone up, but they were going up anyway. Ultimately, we'll build a data center. We'll energize the racking. We'll do day 2 work. What's actually going on in there, we don't have a lot of visibility to post once we build it. Even if we're doing some of the maintenance there, we don't have a lot of visibility on what the customers are using for. I thought where you headed the developers versus the 5 or 6 owners to build them, and there, there's really no difference, right? In the end of the day, those people are building them for the 5 or 6 people that would be building the data centers.

Mr. Guzzi, we have no further questions. I would like to turn it back to you for closing remarks.

Sure. I'm just going to tell you, thank you. I appreciate your interest in EMCOR. And be safe. With that, I'll turn it over to Andy to close us off here.

Thanks, Tony. Thanks, Jason and Maxine, and thanks to all of you for joining us today. If you should have any follow-up questions, please do not hesitate to reach out directly. Thank you all again, and have a great day. Danielle, would you please close the call?

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