Title

Presentation

EMCOR Group, Inc. misses on earnings expectations. Reported EPS is $ EPS, expectations were $4.57.

Operator: Good day and welcome to EMCOR Group Q1 ‘25 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Andy Backman, Vice President, Investor Relations. Please go ahead.

Andy Backman: Thank you, Sagar and good morning everyone and welcome to EMCOR’s first quarter 2025 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, 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 first quarter and discuss our RPOs. Jason will then review our first quarter and numbers before turning it back to Tony to discuss our guidance, and then we’ll 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 our Form 10-Q filed with the Securities and Exchange and Commission. And with that, let me turn it over to Tony. Tony?

Tony Guzzi: Thanks, and good morning, and thank you. I’m going to be mostly on Page 4 here to start. We had a strong quarter at EMCOR in the first quarter, generating revenues of $3.87 billion, reflecting year-over-year growth of 12.7%. We earned $318.8 million in operating income with an operating margin of 8.2% and diluted earnings per share of $5.26, representing an increase of 26% from the first quarter of 2024. When you adjust for the $9.4 million of transaction expenses related to our acquisition of Miller Electric, which closed in February, we earn non-GAAP adjusted operating income of $328.1 million or 8.5% of revenues and non-GAAP adjusted diluted earnings per share of $5.41. We are very pleased with our overall performance.

Our Electrical and Mechanical Construction segments, which had year-over-year revenue increases of 42.3% and 10.2%, respectively, drove our performance. The growth in our revenues reflects both our proactive move into new geographies to better serve our customers as well as the confidence that our customers have in our ability to perform complex projects. Driving this growth was increased activity within the network and communications, which is data centers, healthcare water and wastewater market sectors. The results of our Electrical Construction segment also included $183 million in revenues from Miller Electric. The integration of Miller is on track, and that is a credit to both the EMCOR and Miller teams. When you share the same core values and have similar operating disciplines and share best practices, then the cultural alignment makes integration more successful.

Thank you, Henry and your team. With respect to operating income, the reasons behind our growth remain the same. We continue to have excellent execution in our Electrical and Mechanical Construction segments with 12.5% and 11.9% operating margins, respectively. To achieve these margins, our teams continue to leverage our prefabrication and virtual design and construction or VDC capabilities, coupled with excellence in labor planning and management, large project coordination and execution as well as a laser focus on contract terms. Every quarter, we become better at sharing best practices across our company and ingraining them into our standard operating practices and procedures. This constant learning makes us more resilient as leaders and as a company.

The results of our U.S. Building Services segment reflects strong performance in our Mechanical Services division, which was offset by the headwinds that we previously referenced in our site-based services business. Our Industrial Services segment was impacted by the effects of a slower start to the turnaround season caused in part by frigid January weather in Texas. In addition, we had an increase in our allowance for credit losses impacted this segment’s operating income and operating margin by $4 million or 110 basis points, respectively. We anticipate this segment’s performance will improve throughout the year. And lastly, our U.K. Building Services segment continues to perform as expected. Now please turn to Page 5, and I’ll discuss RPOs. We leave the quarter with diverse RPOs or remaining performance obligations of $11.8 billion versus $9.2 billion at the end of the first quarter of 2024.

Year-over-year, our RPOs grew 17.1% organically. And with the inclusion of Miller Electric, RPOs increased by 28.1%. On a sequential basis, when compared to December of 2024, our RPOs increased by 6.4% organically and 16.3% when accounting for the Miller Electric acquisition. We had an organic book-to-bill of 1.18 for the quarter. Driving our RPO growth are the markets set forth, and I’ll talk about those on this page. Notably, RPOs within networking and communications or data centers were $3.6 billion at the end of March. These RPOs have increased by nearly 112% year-over-year and 28% sequentially, with Miller contributing to a portion of this growth, adding approximately $400 million of RPOs in this important market segment. Healthcare RPOs of $1.5 billion increased 38% year-over-year and 14% sequentially.

Healthcare has always been and remains a core market for EMCOR. The Miller Electric acquisition broadens our opportunities in this space, adding nearly $240 million of healthcare project RPOs. RPOs within the Manufacturing and Industrial segment of $1.1 billion represent an increase of 31% year-over-year or 29% sequentially, with the majority of this increase being organic. Resulting from a combination of new contract awards for existing EMCOR companies and the acquisition of Miller, Institutional RPOs increased to $1.25 billion, representing 21% year-over-year growth or 13% sequentially. And hospitality and entertainment RPOs have more than doubled year-over-year to $437 million, up nearly 73% sequentially due to the award of several sports stadium and arena projects, and that’s really something Miller is good at.

And we continue to see demand within our Mechanical Construction segment for water and wastewater projects with RPOs increasing 29% year-over-year and 20% sequentially to over $820 million. While we have experienced a decrease in our high-tech manufacturing RPOs, we continue to believe very strongly in the long-term fundamentals of this sector. As we’ve discussed on prior calls, these projects can be episodic in nature and RPOs in this space will fluctuate based on timing of project awards, start-ups and executions. We still expect future awards in this sector and some of that should happen later this year. With that, I will turn the call over to Jason, who will review the quarter’s financial results in more detail. Jason?

Jason Nalbandian: Thank you, Tony, and good morning, everyone. Starting on Slide 6, I’m going to review the operating performance for each of our segments as well as some of the key financial data for the first quarter of 2025 as compared to the first quarter of 2024. As Tony mentioned, consolidated quarterly revenues were a record $3.87 billion, an increase of $435.1 million or 12.7%, which was once again led by our Construction segments, where we continue to execute well and demand remains strong across most of the key market sectors that we serve. Revenues for the first quarter included $251 million of incremental acquisition contribution, including $183 million from Miller Electric since the acquisition on February 3. On an organic basis, revenues grew by 5.4%.

If we look to each of our segments, revenues of U.S. Electrical Construction were a record $1.09 billion. Due to a combination of organic growth and the Miller Electric acquisition, this segment generated increased revenues from almost all market sectors with the most significant growth coming from Network and Communications driven by our data center projects. In addition to data centers, notable revenue increases were experienced in healthcare, where our quarterly revenues doubled, transportation due to certain infrastructure projects and institutional as a result of a greater number of public sector projects. U.S. mechanical construction revenues were $1.57 billion, increasing 10.2%. Similar to Electrical, the largest growth during the quarter was seen from data centers within network and Communications.

In addition, this segment had noteworthy revenue increases within Healthcare due to both greater organic activity as well as incremental contribution from acquired companies, hospitality and entertainment, given increased project activity and water and wastewater driven by continued strong demand for our service offerings across the Southeast region of the United States. Revenues in the Mechanical segment also benefited from higher levels of service volume. Partially offsetting the growth in mechanical, however, were reduced revenues in commercial and high-tech manufacturing. The completion or substantial completion of certain tenant fit-out or office projects, coupled with fewer warehousing and distribution projects, which we’ve referenced on recent calls, were the primary drivers of the reduced commercial revenues.

With respect to high-tech manufacturing, we experienced a decrease in revenues from semiconductor projects as we actively work towards the completion of the initial phases of several of these contracts. On a combined basis, our Construction segment generated revenues of $2.66 billion, an increase of 21.3%. Moving to U.S. Building Services. Revenues were $742.6 million, representing a decrease of 4.9% as the expected reduction in site-based revenues more than offset the strength of our mechanical services operations, which grew revenues by $44.3 million during the quarter. Demand for Mechanical services remained robust, and we once again experienced growth across each of those service lines. We still face some headwinds in our compares for this segment as we move through the year.

However, as we progress, the decrease in site-based revenues should be less drastic, and we are optimistic that the performance of Mechanical Services will begin to offset the lower site-based revenues. Looking at Industrial Services, revenues were $359 million, an increase of 1.4%. During the quarter, this segment’s performance was impacted by a slower start to the turnaround season due to the delay or deferral of planned projects resulting from freezing weather conditions in Texas during January, which Tony referenced. And lastly, U.K. Building Services delivered revenues of $105.3 million, essentially in line with that of the prior year period. A modest decline in Facilities Maintenance revenues was more than offset by increased project demand from certain of our UK customers.

Let’s turn to Slide 7. We reported operating income of $318.8 million or 8.2% of revenues, and our performance established a new first quarter record for both operating income and operating margin. When compared against the first quarter of ‘24, this represents a 22.6% or nearly $59 million increase in operating income and operating margin has expanded by 60 basis points. Excluding transactional expenses related to the acquisition of Miller Electric, non-GAAP operating income was $328.1 million, up 26.2% or $68 million, and our non-GAAP operating margin was 8.5%, a 90 basis point improvement. Once again, turning to each of our segments U.S. Electrical Construction generated operating income of $136.1 million, which represents a 48.6% increase.

Operating margin was 12.5%, a 50 basis point improvement. From a market sector perspective, this segment benefited from greater gross profit across the majority of the sectors in which we operate with the largest increases tracking in line with its revenue growth. Operating income of U.S. Electrical Construction included $12.8 million of incremental contribution from Miller Electric, net of $7.4 million of intangible asset amortization. Operating income for U.S. Mechanical Construction was $186.7 million or 11.9% of revenues. This represents an increase of nearly 24% and 130 basis points of margin expansion. This segment experienced the most significant increases in gross profit from the networking and communications and high-tech manufacturing sectors.

Despite the reduction in high-tech manufacturing revenues that I previously referenced, the favorable progression on a number of EV and semiconductor projects resulted in greater profitability during the quarter. And together, our Construction segment reported an operating margin of 12.1%, which is a 100 basis point improvement year-over-year. Excellent execution and a more favorable mix of work continue to be the main drivers of their performance. Operating income for U.S. Building Services was $36.4 million or 4.9% of revenues. As the composition of this segment’s revenues continues to skew towards more mechanical services and less site-based, an increase in gross profit and gross profit margin more than offset the reduced revenues of the segment, leading to a $3 million increase in operating income and a 60 basis point improvement in operating margin.

I should also remind everyone that the favorable year-over-year comparison is driven in part by the impact in last year’s first quarter of a customer bankruptcy, which reduced this segment’s operating income by $11 million and operating margin by 140 basis points. Turning to Industrial Services. Operating income of $6.8 million or 1.9% of revenues compares unfavorably to $18 million or 5.1% of revenues a year ago. Adding to the direct impact of the previously referenced project deferrals and delays was a greater amount of unabsorbed overhead. The results of this segment were also impacted by a $4 million increase in the allowance for credit losses, which reduced its operating margin by 110 basis points. And lastly, U.K. Building Services earned operating income of $5 million or 4.7% of revenues.

Mobilization costs incurred with the recent award of a facilities maintenance contract by a new customer was the primary reason for the period-over-period reduction in operating income and operating margin. Moving to Slide 8 for a few quarterly highlights, starting with gross profit. Driven by our Electrical and Mechanical Construction segments as well as our U.S. Building Services segment, gross margin has expanded by 150 basis points with gross profit increasing by 22.6%. If we look next to SG&A our first quarter expenses increased by $74.6 million. Contributing to this variance was $22.5 million of incremental expenses from acquired companies, $5.1 million of additional amortization expense and the previously referenced $9.4 million of transaction costs.

Excluding these items, SG&A grew by $37.7 million, largely due to employment costs, given both greater headcount to support our organic growth as well as increased incentive compensation expense within our Construction segments given the higher projected annual operating results. SG&A margin for the quarter of 10.4% compares to 9.6% a year ago. Transaction costs account for 20 basis points of the increase with the remaining 60 basis points being driven by 2 primary factors. First, we have the incentive compensation expense I just referenced. With the increase in our gross profit margin, it is typical to see an increase in SG&A margin as the improved profitability results in greater subsidiary incentive compensation, which is a variable cost.

Next, within U.S. Building Services, SG&A margin has increased given the decline in revenues we’ve experienced without a corresponding reduction in SG&A. Our segment management team continues to adjust their cost structure, aligning the segment’s overhead to its new revenue base. And overall, we do expect to see a decrease in SG&A margin as the year progresses and anticipate a full year SG&A margin more comparable to that of the prior year when adjusting for transaction costs. And finally, on this page, diluted earnings per share, was $5.26 compared to $4.17, an increase of 26.1%. Excluding transaction costs, non-GAAP diluted earnings per share was $5.41, an increase of 29.7%. If we turn to Slide 9, which is our balance sheet, as a result of the Miller Electric acquisition and approximately $225 million utilized on share repurchases, our cash balance has decreased to just under $577 million at the end of March.

During the quarter, we borrowed $250 million under our revolver for temporary working capital needs. As we’ve stated in the past, our balance sheet, including the $689 million of working capital remains strong and liquid. And when coupled with our history of cash generation as well as the nearly $980 million of capacity available under our credit facility, we are well positioned to continue to fund organic growth, pursue strategic M&A and return capital to shareholders. Although not shown on the slide, operating cash flow was $108.5 million, which compares to $132.3 million in last year’s first quarter. As a reminder, operating cash flow during Q1 tends to be the lowest due to the funding of the prior year’s incentive compensation awards.

Cash flow in the quarter was additionally impacted by the progression on a number of contracts for which we were previously built ahead. As we work through these upfront payments, we saw the expected decrease in operating cash as our outflows exceeded our inflows on these projects. With that, I’ll turn the call back over to Tony.

Tony Guzzi: Thanks, Jason. I’m going to be on Pages 10 to 11 to finish. Given the strong start to the year, we are going to raise the low end of our diluted earnings per share guidance by $0.40 to a range of $22.65 to $24. Our revenue guidance will remain the same at $16.1 billion to $16.9 billion. I’d always remind you, this is not a quarter-to-quarter business. The guidance reflects our expectation that we will continue to deliver strong operating margins in 2025. In setting this range, we believe that we have covered the potential impact of tariffs on our business. We will manage through the tariff uncertainty similar to how we manage the supply chain and cost disruptions around COVID. We will try to pass on price increases and protect ourselves as much as we can through proactively negotiating favorable contractual terms.

While customers possibly may defer spending or delay projects, we have not yet seen any such actions in a meaningful way, and the growth in our RPOs reflects the strong demand we continue to experience for our services. We also believe that the normalization of trade and trade barriers will be a long-term net positive for EMCOR, resulting in more reshoring of critical manufacturing. We continue to believe that we are still in the early stages of this investment cycle. Said simply, we will manage this short-term challenge like we have many others. It is part of our EMCOR culture to train continuously and share best practices around operating in a volatile, uncertain, complex and ambiguous environment, we call that VUCA. We train on it. And quite frankly, that’s been the world we’ve lived in for the last 12 to 15 years.

Honestly, that is the type of environment that we have come to expect. And as contractors, we can react very well to almost any environment. So what will it take us to get to the higher end of the range? We got to continue to earn operating margins at the higher end of our performance over the last 2 years. Our RPO mix and bookings need to continue the same patterns that we have seen over the last 18 to 24 months, and we must continue to manage our costs well. As the year progresses, we will know more about each of these and the actual impact of tariffs and other macroeconomic factors that are beyond our control. I often say to our team, and this is part of our DNA, too, focus on what you can control, and that is what we plan to do. We’re going to exercise discipline around our overhead and job costs.

And we’ll continue to train and share best practices while proactively addressing any potential issues. Like we always do, we will allocate capital with discipline. We have a decent pipeline of acquisition opportunities. And I have said for many years, deals happen when they happen. Like we always do, we also want to thank our EMCOR teammates for their excellent performance and for living our values of mission first people always. Quite frankly, we got the best team in the field from all levels, and our subsidiary leaders are executing exceptionally well in a very uncertain environment, but that’s what we do as contractors, and we do it exceedingly well. With that, we’ll turn it over to Sagar for questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Brent Thielman from D.A. Davidson. Please go ahead.

Brent Thielman: Great. Thanks. Good morning.

Tony Guzzi: Good morning, Brent.

Brent Thielman: Tony, really strong start on RPOs, it looks like good momentum in most areas of the business right now. I guess in light of that, you did keep the top end of the guidance range here. And my question was more, is it to handicap what could be operational risks just related to tariffs or supply chain noise or is it more related to kind of potential growth headwinds that could surface even though it doesn’t really sound like that’s happened yet. Just wanted to get clarity there?

Tony Guzzi: No, it’s related to anything even beyond tariffs, right? There is a lot of uncertainty. It’s not growth related. We think we have the tariffs nailed down in our range. We feel really good about that. We thought it’s April even without an environment that had tariffs and everything else. I doubt we would have raised the top end of our range, even if you said there is no tariffs, no anything. We brought the bottom up because we feel good about that. But the top end, if you do that math all the way out, it was fairly aggressive guidance. And we contemplated a year where we would continue to grow, obviously, with our revenue guidance of $16.1 billion to $16.9 billion. That’s mainly due based on the pace and timing of projects, how they’ll roll out through the year. But yes, more just sort of macroeconomic early in the year, we feel really good about the prospects we have in the business right now.

Jason Nalbandian: And I think the one thing to add to that on the margin side, right, is we are maintaining our margin guidance in that same range that we had back in February of 8.5% to 9.2% with an adjusted margin for the first quarter here of 8.5%, we’re essentially saying margins will at least hold, if not improve throughout the remainder of the year.

Brent Thielman: Okay. Okay. And then – and I guess, again, back on the high-tech manufacturing, you’ve got a lot of momentum in most areas of the business. Obviously, RPOs are off a bit there. But it seems like there has been a slug of announcements lately on the pharma side related to reshoring. So I want to come back to that, your assessment of the opportunities that may be building in that vertical where we could sort of see an inflection maybe in RPOs over the next couple of years here?

Tony Guzzi: My gut tells me, yes. Pharma, I also see you’ll see more semiconductor work come in. We’ll be careful what we do there. But I think macroeconomically, it’s set up for that, right? I don’t think anybody that’s listening to this call right now would say, gee, we feel better about what’s happening in China and Taiwan today than before Taiwan Semiconductor started building fabs in Arizona. Well, the answer to that would be that’s even got more tenuous. So the spending may accelerate over the next 3 to 5 years instead of decelerate. I think that, that one, I think pharma is absolutely that tied to reshoring. But Brent, I would tell you there has been a bevy of new drugs, especially around the weight loss area that we’re also seeing the expansion.

And we’re positioned very well. A big chunk of that’s happened in the Research Triangle Park area. We have great capability there across the trade spectrum from mill rights through pipe fitters and onward. I think the other part that is happening is in New Jersey. We have great electrical capability there and mechanical. And then it’s happening in the Indiana area where we’re well positioned, too. And then you get to the biopharm area. It still is Southern California is very strong, and we have great capability there, especially electrically and mechanically. So – and then if you take all of that and you overlay fire protection, we can service the fire life safety nationally. So again, we look at that, if we’re sitting here 5 years from now, we’re going to have built a lot of high-tech manufacturing plants.

We’re going to have done it hopefully very well. And our combination of VDC, coupled with prefab, coupled with how well our folks share means and method, we expect to be able to deliver exceptional results for our customers in that area.

Jason Nalbandian: And I think, too, in that space, right, as we await other phases of awards of the semiconductor space, we’re still getting work in the other high-tech areas, be it pharma, biotech, life sciences, EV value chain. I mean just in the quarter alone, we had $200 million in inorganic net bookings in that high-tech manufacturing space.

Brent Thielman: Got it. One more, maybe more housekeeping, Jason, I was trying to get a sense of whether Miller is accretive or dilutive to the Electrical segment margin as you fold that in or maybe it’s neutral?

Jason Nalbandian: Yes. I think for the quarter, certainly dilutive to the margin, right? And we talked about the largest piece of that being driven by the intangible asset amortization. And so on an annual basis, we had said to consolidated EMCOR, expect 25 to 30 basis points of margin dilution. For the Electrical segment, I would say it’s probably about 100 to 110 basis points to that segment.

Tony Guzzi: But when we remove the amortization expense, they earn strong margins neutral with our Electrical segment.

Brent Thielman: Got it. Okay. Thanks. I will pass it on.

Tony Guzzi: Thanks, Brent.

Andy Backman: Let’s take our next question please.

Operator: Thank you. Our next question comes from Adam Thalhimer from Thompson Davis & Company. Please go ahead.

Adam Thalhimer: Hey, good morning guys. Nice quarter.

Tony Guzzi: Good morning Adam. Thank you.

Adam Thalhimer: Tony, I want to start on building services. Can you just give us kind of updated high-level thoughts on where you want to take that segment from here?

Tony Guzzi: Well, I think it’s where we have been investing. Our investment dollars have gone into the mechanical service business over a long period of time. Historically, it’s been sort of a 70-30 between site-based and – 30 being site-based, 70 being mechanical service. That’s going to, by this time next year, probably look like 80-20. So, we will continue to invest in technician-based services. We will be opportunistic on the site-based team. We have a really good team there. So, grow where it makes sense. And what we are not going to do is take contracts that have very difficult terms and provide little to no margin. And that’s what you are really seeing right now on the site-based side. So, building services has always been led by mechanical services. Our goal long-term is to grow both, but mechanical services will be the emphasis.

Adam Thalhimer: Okay. And then – got it. You bought back a lot of stock in the first quarter despite closing Miller and also you had some cash outflows related to new project starts. What gave you the confidence to do that, or can you just give some additional color behind that?

Tony Guzzi: Yes. I think it starts – Adam, it begins and ends with execution. We have a long-term history of being best-in-class as far as cash flow generation. We see no reason to believe that won’t continue. We will earn cash flow at least at net income, and we will probably exceed that a little bit as the year progresses. There is nothing in our profile that says that won’t happen in the future. Yes, you have customer prepayments that are in and out and bumps here and there, but we are smart about how we set up contractual terms. We are smart about how we execute on a job and keep our customers apprised of where we are in the progress of that job. We are best-in-class at progress billings. And quite frankly, because of the way we have our incentive plan structured, we have a cash focus in this company that’s unrelenting.

And put all that together, that gives us the confidence to continue to maybe use our balance sheet a little more aggressively. We have always said that when the right opportunity came along that we would execute that, and it was irrespective of size that we were very comfortable up to $1 billion and maybe even a little bit over that. And we have proven that with Miller. And we have also been – if you look at the collection of deals we have done in the last 5 years, we are really good at executing the integration of acquisitions. And I would put Miller in the top decile of any acquisition integration that we have ever done. So, we are here to build the business for the long-term. We feel good about our cash flow. We feel good about our balance sheet.

Jason, do you have anything to add?

Jason Nalbandian: I would just say, we did still have very strong operating cash flow this quarter, right. A little bit down from last year, but I think it’s important to remember that traditionally, really with the exception of this year and last year, Q1 operating cash flow for us is historically negative. So, at $108 million even compared to the $132 million or $133 million last year, still very strong operating cash flow in the quarter.

Tony Guzzi: And I think, Adam, cutting through, right, we obviously very – feel very good about not only the profitability, but the cash flow characteristics of what we have in RPO right now.

Adam Thalhimer: Got it. Good color. I will turn it over. Thanks guys.

Andy Backman: Thanks Adam. Next question please.

Operator: Thank you. Your next question comes from Brian Brophy from Stifel. Please go ahead.

Brian Brophy: Thanks. Good morning everybody.

Tony Guzzi: Hi Brian.

Brian Brophy: I wanted to ask one on data centers. Obviously, continues to be a bright spot here in the near-term, but we continue to see headlines point to some more noise, a couple of large hyperscalers at this point, adjusting some of their data center commitments. Just curious your thoughts on this area, what’s the latest you are seeing, and have you seen any change in your long-term customer build plans?

Tony Guzzi: Yes. The change we have seen is actually more areas, more search for power, more build. That’s what we have seen. Look, I never read too much into people’s data center announcements because some of that is sometimes just sending a signal they are pausing. And some of that has to do with design changes. We have been through this a couple of times with different hyperscalers, whether it would be on the Colo side or for lack of a better word, the OEM, the owner side with the people that are actually going to occupy. We have experienced this multiple times even on a location where they are going to build six buildings, they build two, then they change the design. What we know is size is increasing, megawatts increasing, our content is increasing and the demand for our resource is increasing.

And the number of places people want us to work are increasing. And that gives us pretty visibility, I would say, certainly through the end of the year with RPOs. And with the amount of people that have brought us into their build plans and wanting us to be part of the solution, that has definitely ticked up here in the last six months to nine months.

Brian Brophy: Got it. Yes, that’s very helpful. And then just wanted to understand some of the moving pieces on the EPS guide a little bit better, obviously some healthy buyback activity in the quarter. I am assuming that’s contributing. It also appears that the Miller transaction costs are now excluded. I guess do I have those items right, and are there any other moving pieces on EPS guidance we should be aware of?

Tony Guzzi: So, when we set the guidance, we contemplated all the impacts of Miller to include the transaction expenses. But this is such a wide range, and it’s so early in the year. It’s hard for us to say or read too much into any of that. Our revenue guidance, we feel good about. We are pegging the low end of our guidance around 8.5% margins, and we are pegging the high end of our guidance around 9.2% margins. And if we operate within there and the volume gets to the high end, I think we are going to get towards the higher end of our guidance. Could margins be stronger, that depends on mix. It not only depends on mix, electrical, mechanical versus the rest of the business, it also depends on mix of kind of contract type, GMP versus fixed price, our ability to convert GMP contracts into fixed price, all of that goes into it.

There is 10,000, 12,000 moving pieces out there. It’s April, there is some macroeconomic uncertainty. Quite frankly, with the size of the business now and where we are, we probably, in any circumstance, wouldn’t have raised anything but the low end of this guidance range with the first quarter beat that we had. And at the end of the second quarter, we will give you a pretty good view on maybe what the rest of the year looks like. And maybe at that time, we will have some more to say about the top end of the range.

Brian Brophy: Got it. That’s helpful. I will pass it on. Thank you.

Andy Backman: Thank you.

Operator: Next question comes from Alex Dwyer from KeyBanc Capital Markets. Please go ahead.

Alex Dwyer: Hey. Good morning. How are you guys?

Tony Guzzi: Good. How are you, Alex?

Alex Dwyer: Good. So, on the network and communications portion of your business, can you remind us how much of that is purely data center and what makes up the balance of that? And I guess like has there been a shift in your data center bid pipeline and ask of your customers between mechanical and electrical as we think about current versus prior years?

Tony Guzzi: Yes. So, look, 85% or so of that network – the reason we call it network and communications is we also have a low voltage business that’s become national in scope. It’s part of it. It’s 4x the size it was 5 years ago. And so that’s in there, too. But 85% plus of it is just pure data center work, standard electrical work and mechanical work and fire life safety work on data centers. As far as I am trying to remember the next question, have we seen a change in the bid prospects, I would say, yes, the inflection is up because number of sites is up. Look, this is – you have heard me say this before. This is almost like a Game of Thrones looking for power. Everybody is looking for power, to power these data centers, and they are looking all over the country.

And we went from – I think I have said we went from serving three data center sites in 2019. And I think we went to 14, now with Miller, we are like 16 or 17 geographies electrically. Mechanically, we went from two, we are like at four, and quite frankly, people would like us to be at 8 or 10 mechanically right now. And fire life safety, we service every data center market in the country. And so net-net, people are in the search for power, and their search for very dependable base load power that can service these data centers. They are becoming bigger, right. The campuses are becoming bigger. And we are working on a couple of campuses right now that will be upwards of 2,500 megawatts when built out. And that’s how people think about data center size now.

Typically, the electrical scope is 1.5x to 2x of the mechanical scope. However, that’s historical. As you get to the future, electrical might only be 1.25, not that electrical shrunk, but because of the heat in these data centers, the mechanical scope has walked up and because there is more cooling and it’s not only airside cooling, there is more rack cooling and immersive cooling around water and liquids to cool actually the servers in that media. And so that drives up the mechanical scope and then just the tonnage that needed to support that also goes up. And so just to put things in perspective, on a 2,500 megawatt data center campus. So, each LM-8000 or the Siemens equivalent of a gas turbine is about 250 megawatts to 300 megawatts.

So, these are – to get to data center, you are talking a central utility plant that it’s not dedicated because I mean electricity comes from everywhere that would be dedicated to one data center site. To put that in perspective, the biggest integrated steel mills in this country at their height didn’t use 10% of that power. So, that’s the kind of power we are talking. So, that’s why this quest for power has been going on. I think the positive is I think we will be in an environment where we will be actually able to build power plants that can power data centers because if that didn’t happen here in the years two through four of this outlook, then that would be a stunt to growth. I don’t see that happening either because you are starting to see more announcements where they just had one in Pennsylvania.

They knocked down big coal plants, actually where I am from. A big coal plant was decommissioned. They are actually going to put a data center site there, and they are actually going to put 750 megawatts at least of gas-fired generation right at the site. Those things will be owned by the utility long-term because it will be part of the grid. And so you put all that together, right now, it’s hard for us to see how this is slowing down. Again, we are part of our customer build plan. They will move around. They will say this site is slowing down. They will say we are going to slow because of design changes. I wouldn’t pretend to understand how the integration between a cloud storage platform and a training AI platform and the generative AI platform all work together.

I wouldn’t pretend to know that. But what I do know is the typical cloud stories were somewhere between 30 megawatts and 60 megawatts. And the ones we think are going to AI are north of 100 megawatts at this time. So, put 100 megawatts or 200 megawatts into perspective for you, 200 megawatts is about 5,500 homes. That’s probably average home, 3.5 to 4 people. Let’s give or take, 20,000 people, that’s a small to midsized city in the U.S. is what one data center doing AI will require with power.

Alex Dwyer: Got it. Very helpful thoughts, Tony. I guess second, on the RPO, the 28% growth rate, I think that’s the strongest like RPO growth rate since a couple of years ago. And I am just wondering how we think about this 28% RPO growth against the revenue growth guidance, which is low-double digits. Is that just a function of more of that RPOs for 2026 projects or maybe you are working on more larger projects that burn over multiple years? Just I guess just wondering if there is anything different in the burn cadence of this RPO going forward?

Jason Nalbandian: Yes. I think quickly, two things, and then I will let Tony add in as well. First, that 28% does include Miller. So, organically, it is up 17%. And then the second is just if you look at historically, what percentage of our RPOs turn to revenues in excess of 12 months. Historically, that number has always been around 85% or so. Where we stand today about – sorry, it’s been 85% is going to burn in the next 12 months, 15% in excess of 12 months. If we look today, it’s about 80% that’s going to burn in the 12 months and 20% going on beyond 12 months. So, we do have a little bit more of that RPO that’s slated for longer term burn. And that’s just some of the water and wastewater work we are doing in mechanical, some of the food process work we are doing in mechanical and just some of the jobs that we acquired through Miller.

Tony Guzzi: Yes. And the thing I would add, it’s important to also know our revenue growth rate is tempered by what you see in building services and industrial services, right. So, some of that growth rate matches up with what’s going on in the Electrical Mechanical segment, which is where those RPOs are directed towards. And the mechanical services business, which if you looked at the first quarter, right, we grew in our construction businesses total 21.3%, give or take, half of that was organic. The balance was really Miller. There is a couple of other small things going on there. Building services actually contracted. That was all driven by site-based. Our mechanical services business was up high-single digits, right.

And then the industrial services business was flattish in the quarter. And that was really geared towards the start of the slower start to the year. And the UK was also flattish. So, you got a part of the business that’s not growing at the rate the construction businesses are. The RPOs are pointed towards the construction and mechanical service business. Those growth rates more line up with what you would expect to see there.

Alex Dwyer: Thank you. I will turn it over there.

Tony Guzzi: Alright. Next question.

Operator: Thank you. Our last question comes from Adam at Goldman Sachs. Please go ahead.

Adam Bubes: Hi. Good morning. Tony, you alluded to the data center business expanding into many more markets, both electrically and mechanically over the last several years. When you think about the growth for that business off the current run rate, is the next leg of growth coming from existing markets or new markets? And just if it’s new, is that an organic expansion or via M&A?

Tony Guzzi: Almost all of our growth in data centers up to this point, I mean through the first quarter of this year has been organic. If you – or acquisitions done 4 years or 5 years ago, and they weren’t really in the data center market in a significant way. If you look at Miller, they contributed, I think, Jason, $400 million in network and communications. I don’t know…

Jason Nalbandian: On the RPO side.

Tony Guzzi: On the RPO side. So, I mean they are part of the growth going forward. In fact, I think both the Miller team and the EMCOR team are excited about the markets we can expand with because some of the capabilities they had, some of the enhanced capabilities we bring and the two of us together can even do more with the resources. But I would say also, you asked about the split between new locations and existing locations. I would say it’s fairly balanced if you look over a year. That fluctuates quarter-to-quarter. But if you look over a year and you say over the past year, where has the growth come, I would say it’s 50-50, give or take. I mean current campuses, current – when we say location, we mean like a city or a metropolitan area that’s like a 50-mile, 40-mile, 30-mile, 40-mile radius.

That doesn’t mean the sites are all the same. We are talking geographic locations, radiuses, places where they are going to have like prior Oklahoma, they built there before, but now it’s building again.

Adam Bubes: Understood. And then on margins, you folks cited a mix tailwind this quarter and in prior quarters. Which types of projects are driving the mix tailwind? And how do margins on the average data center project specifically compare to portfolio averages?

Tony Guzzi: I think in general, when we say mix tailwinds, we mean mix tailwinds more towards our construction businesses right now. I think any projects have a range of outcomes on margins. Clearly, the larger, more sophisticated ones, if we get it right, where our customers are very demanding, and we have been part of the design/assist, if all that works out, we can do a little bit better. That’s mainly based on our execution more than anything. I think midsized projects can also have those characteristics and small projects have very steady margins by and large and mix up. The reality of all that project mix right now in general to include the mechanical services business, which is more small project focused sort of $5 million and less.

I think the reality of all of it. We are operating at – over the last 3 years at the high end of what we have done over a 10-year period. And I think the reason for all of that is, we have gotten better. Maybe pricing has got a little bit better, but these are really demanding customers we work for. So, they are not paying $0.05 more than they have to. We have gotten better, and we have gotten better on the small project side because we can deliver faster for the owner and also disrupt the typically retrofit projects. We are very good about not disrupting their ongoing operations. And so that’s a valuable scale, and we have very good small project crews. On the midsized projects, it’s sort of better execution. And we are able to take some of the learnings we have from the large project side on VDC in prefab and bring that down into the mid-market.

And the price is the price. Our competitors really probably can’t do that. They don’t have the scale to do that. And then at the top end, we are working a lot of times collaborative with our customers to get to the right solution and the right planning. We are thinking a lot about labor mix management. What’s the ratio of journeymen to apprentices, wiremen, what’s the foremen mix going to be on the job, what’s the experience level of those foremen, how many of our core people are we going to have on the job versus travelers. All of those things go into thinking about how we price the job, how we build contingency and then finally, how eventually we execute that job. I mean it’s a lot of things going into it that we are at the high end over these last 2 years or 3 years, and quite frankly, based on our guidance, we see no reason that, that’s not going to continue.

Adam Bubes: And then one last one on margins for me, I know you advise on not thinking about the business on a quarter-to-quarter basis. But typically, you folks can see – and typically, you do see a step-up 2Q versus 1Q in margins. Any puts and takes around that normal cadence that we see, should we…

Tony Guzzi: In all seriousness, Adam, we don’t think about the business that way. We can’t. We have 12,000 projects, give or take, 10,000 projects to 12,000 projects. They start, they close. We have contingency being released after we get more certainty on completion of the job and completion of our labor estimates. And so there is too many moving parts. I think what we say is if you look over a – we would say now, Jason…

Jason Nalbandian: To the 24 months period…

Tony Guzzi: Yes, three quarters to five quarters, give or take, you will get a pretty accurate view of how the business is actually performing. And that band of margin expectation is what could actually happen in any quarter. It could be on the upside of that. It could be in the middle of that, maybe on the lower end of it. And none of that really has to do with the underlying fundamentals of the business. That’s why we encourage you to look over sort of three quarters to five quarters to get a real view on what’s happening with our margins.

Adam Bubes: Great. Thanks so much.

Andy Backman: Thanks Adam.

Operator: Thank you. This concludes our question-and-answer session. I would now like to turn the conference back over to our CEO, Tony Guzzi, for closing remarks.

Tony Guzzi: Yes. Look, I often think about what’s the simple message on the quarter. And I think it’s important to summarize because there is a lot of macroeconomic noise out there. And so how we think about it is, we are not going to sit here and make a lot of excuses. We are going to operate in the environment that we feel that we are in, and we are going to make contingency plans. We are going to share best practices. We are going to do everything we can to drive the productivity up on our labor because that’s something we can control. We believe sitting here today that we have the impact of the tariffs in our guidance. We thought carefully about that. That’s why we have a range. That may be why we didn’t take the lower end of as much as some of you would have liked us to.

But quite frankly, we probably wouldn’t have done that anyway this early in the year, and that’s in any macroeconomic environment. And when we talk about the uncertain macroeconomic environment, I would just caution you, I haven’t worked in a certain macroeconomic environment in almost my 15 years here as CEO. There has been lots of puts and takes and ups and downs, and you take the steel and aluminum tariffs, I think we are seven for seven with President since 1974 that have done something with the steel and aluminum market when they are President, and we are well rehearsed in how to do that. And quite frankly, COVID sharpened that sword of for us much more on how we can react. And we started planning on maybe supply chain and tariffs and all of those things because we sort of paid attention to who won the election and what that person said.

And so we started doing – refreshing our training on contractual terms, execution, labor contingencies all the way back in November and December. This was no surprise to us there to be something. It’s also important to note that, right, the biggest part of our cost is still labor, and it will always be the bigger part of our cost. And when you talk about these mega jobs, it’s always important to know we are not buying most of the end equipment anymore. That is being supplied by the owner or the GC because of what lead times did in COVID. So, we feel we have got that taken care of. Secondarily, we feel really good about our labor position in the market. We continue to attract the best and brightest to work for us, and we continue to be able to fill the jobs we need to execute well for our customers.

And finally, and I will say this unequivocally, every day I feel, we put the best leadership team on the field from foremen and up. And that’s what will make a difference in these periods of uncertainty. And that’s why customers allow us to have a 28% increase in RPO. And that’s why we have great integration and acquisitions. And that’s why people like Miller Electric are excited to be part of our team, and we are excited to have them as part of our team. With that, Andy, you can close it off.

Andy Backman: Thanks Tony and thanks Jason. And thank you all for joining us today. As always, if you have any follow-up questions, please don’t hesitate to reach out to me directly. Thank you all again and have a great day. And Sagar, will you please close the call.

Operator: Thank you. This conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.