EMCOR Group (EME) Q3 2025 Earnings Call Transcript

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Date

Thursday, October 30, 2025 at 10:30 a.m. ET

Call participants

Chairman, President, and Chief Executive Officer — Tony Guzzi

Senior Vice President and Chief Financial Officer — Jason Nalbandian

Executive Vice President, Chief Administrative Officer, and General Counsel — Maxine Maurizio

Vice President, Investor Relations — Lucas Sullivan

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Takeaways

Diluted EPS -- $6.57 in diluted earnings per share, reflecting a 13.3% increase compared to the third quarter of 2024.

Revenue -- $4.3 billion in revenue, up 16.4% year over year, with organic growth accounting for 8.1% and acquisitions contributing $306.6 million.

Operating margin -- 9.4%, at the upper end of management’s anticipated range.

Segment revenue performance -- U.S. Electrical Construction revenue rose 52.1% to $1.29 billion; U.S. Mechanical Construction revenue reached $1.78 billion, up 7% almost entirely organically.

Network & communications growth -- Revenues in U.S. Electrical Construction from network and communications increased nearly 70% year over year; mechanical segment nearly doubled its network and communications revenue year over year.

Mechanical services -- U.S. Building Services mechanical services division delivered 5.8% organic revenue growth and achieved high single-digit operating margins.

Record RPOs -- Remaining performance obligations totaled $12.6 billion, a 29% increase in RPOs compared to the third quarter of 2024 and 6% sequentially (June to September 2025); network and communications RPOs set a record at $4.3 billion, with over 80% of this sector's RPO growth in 2025 being organic.

UK divestiture -- EMCOR UK is being sold for approximately $255 million, with close expected by year end, impacting only the portion of 2025 ownership period; UK segment currently represents roughly $500 million in annual revenue and $0.45 of diluted EPS on an annualized basis; the actual 2025 impact will be limited to the portion of the year following the sale.

Cash flow -- Operating cash flow reached $475.5 million and $778 million year to date as of September 30, 2025, enabling repayment of $250 million outstanding under the revolving credit facility.

Shareholder returns and investment -- More than $430 million allocated to share repurchases in the first nine months of 2025 and $900 million to acquisitions in the first nine months of 2025; management remains "disciplined" in capital allocation.

2025 financial guidance -- Revenue guidance tightened to $16.7 billion-$16.8 billion for fiscal 2025 and non-GAAP diluted EPS guidance for fiscal 2025 narrowed to $25-$25.75, raising the low end by $0.50 and the midpoint by $0.25.

John W. Danforth Company acquisition -- Signed agreement to acquire Danforth, expected to add $350 million-$400 million in revenue with initially lower margins due to backlog amortization in the first year; closing anticipated in the fourth quarter.

Productivity trends -- Management cited a continued ability to grow revenues at a rate outpacing both headcount and man-hours over the past five years, with sustained investments in prefabrication and VDC capability.

Operating margin by segment -- U.S. Electrical Construction operating margin was 11.3% (down 280 basis points from the third quarter of 2024, with 90 basis points of the decline due to amortization and the remainder impacted by lower profitability on certain projects in new geographies), U.S. Mechanical Construction at 12.9% (comparable year over year), U.S. Building Services at 7.3% (up 30 basis points).

Industrial services -- Revenues were $286.9 million, in line with the third quarter of 2024, but operating income nearly doubled because of a shift toward higher-margin shop service work.

Acquisition contributions -- Miller Electric was the largest source of incremental revenue among acquired companies, and bolstered both healthcare exposure and operational capabilities.

Geographical expansion -- EMCOR now operates in over 16 data center markets electrically and over six mechanically, compared to just a handful in 2019; future targeted expansions may add additional markets.

Summary

EMCOR Group (NYSE:EME) reported all-time high revenues and RPOs. Management described demand as broad-based across key sectors and highlighted record profitability at both the consolidated and segment levels. Management articulated strategic priorities by divesting the UK business and announcing the acquisition of John W. Danforth Company, reallocating resources toward core U.S. markets and specialties. The quarter featured a disciplined balance between organic growth, accretive acquisitions, and shareholder capital returns—all underpinned by a strong balance sheet and robust cash generation.

Tony Guzzi stated, "over 80% of our RPO growth we have seen in this space during 2025 has been organic," referencing network and communications.

Operating margin strength continued despite acknowledged headwinds from intangible asset amortization and investments in new geographic markets, with management clarifying that such effects are episodic and part of routine expansion.

UK business sale proceeds will be redeployed into organic investment, additional M&A targeting electrical and mechanical construction and mechanical services, and returning capital to shareholders.

Management confirmed that sequential growth in RPOs, especially those with durations exceeding twelve months, signals longer-term revenue visibility beyond the typical cycle.

Jason Nalbandian emphasized, "a rolling twelve to twenty-four month average is where we expect our margins to be. Those margins would be somewhere between 9.1-9.4%."

Guidance reflects anticipated timing of UK divestiture and minimal near-term impact from Danforth acquisition, with EPS effect from Danforth noted as "negligible" for the first year due to backlog amortization, per management.

EMCOR’s largest project wins in network and communications are increasing in size, and contracts often follow a GMP structure, leading to cautious RPO recognition relative to total work expected.

Industry glossary

RPO (Remaining Performance Obligations): The value of contracted work yet to be performed and recognized as revenue.

VDC (Virtual Design and Construction): Technology-driven process for integrated design, planning, and management of construction projects.

BIM (Building Information Modeling): Digital representation and collaborative platform for planning, design, construction, and operation of buildings and infrastructure.

GMP (Guaranteed Maximum Price): A contract type where the contractor guarantees the client that project costs will not exceed a preset limit.

Prefabrication (Prefab): Off-site manufacturing of components or modules that are later assembled on the project site.

Full Conference Call Transcript

Lucas Sullivan: Thank you, Chris. Good morning, everyone, and welcome to EMCOR's third 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, Senior Vice President and EMCOR's Chief Financial Officer, and Maxine Maurizio, Executive Vice President, Chief Administrative Officer and General Counsel. For today's call, Tony will provide comments on our third quarter and discuss our RPOs.

Jason will then review the third quarter and numbers, then turn it back to Tony to discuss our guidance before we open it up for Q and A. Before we begin, a quick reminder that this presentation and discussion contains certain forward looking statements and may contain certain non GAAP financial information. Slide two 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?

Tony Guzzi: Thanks, Lucas, and welcome to the call. And I'm gonna be on pages four through five of our presentation. Good morning, and welcome to our third quarter 2025 earnings call. I'm going to cover the financial highlights for the third quarter, and then provide commentary on what has gone well through the first three quarters of this year. Which has been a lot. Jason will cover the quarterly financial results in detail. We had another strong quarter at EMCOR. We earned $6.57 in diluted earnings per share, and generated revenues of $4.3 billion, which represents a 16.4% increase from the prior year period. We achieved an exceptional operating margin of 9.4% and had strong operating cash flow of $475.5 million.

For the third quarter, we had a book to bill of 1.16 with remaining performance obligations at a record $12.6 billion, which represents an increase of $2.8 billion year over year and $2.5 billion from December 2004. We continue to allocate capital with discipline. For the first nine months of 2025, we allocated just over $430 million on share repurchases and utilized $900 million for acquisitions. Our balance sheet remains strong and liquid, providing the fuel to support our growth and capital allocation strategy. So what's driving this outstanding performance in 2025?

Our electrical and mechanical construction segments continue to earn impressive operating margins and generate growth in their base of business as demonstrated by increases in both revenue and RPOs across a number of key sectors. We execute well for our customers in these segments by using VDC, BIM and prefabrication coupled with strong planning, excellent labor sourcing and management, and disciplined contract negotiation and oversight. We have managed our project mix well, and continue to gain the confidence of our customers across geographies and diverse market sectors. With respect to data centers, we continue to improve our capabilities to serve an increasing number of data center sites, with multiple trades and across a diverse set of customers.

As I've said before, we are known for having the best field leadership in the business, and they operate with focus, discipline, humility, and grit. Our mechanical services business in our US building services segment continues to execute well with revenue growth of nearly 6% in the quarter and 7% year to date. And an operating margin in the high single digits. The impact of the successful restructuring in our site based businesses is reflected in this segment's third quarter operating margin expansion. Our Industrial Services segment had some demand headwinds during the year as some large turnarounds were moved into the fourth quarter or further into 2026.

And lastly, we had a successful third quarter in our UK Building Services segment. In September, we announced the sale of our UK business and believe that we will complete this transaction by year end as we await UK regulatory approval. EMCOR UK has a very talented management team. And they will serve their new owners well and we will miss them. Overall, we had another strong quarter and a robust performance year to date, 2025. Now I'm going to turn to the RPO section. As I previously mentioned, we leave the quarter with a diverse and strong set of RPOs at $12.6 billion.

Due to the growth in the majority of the sectors we serve, our RPOs have increased 29% year over year and 25% when compared to December 2024. On a sequential basis, RPOs have increased 6% from June to September. Long term secular trends across key sectors continue to support this growth. Driven by robust data center demand, RPOs within network and communications totaled a record $4.3 billion at the September.

Chris: Almost double that

Tony Guzzi: of the year ago period. While acquisitions have added to our data center capabilities, and allow us to serve our customers in additional geographies, over 80% of our RPO growth we have seen in this space during 2025 has been organic. Health core RPOs totaled $1.3 billion. While the healthcare sector has always been core to EMCOR, the acquisition of Miller Electric has expanded our opportunities in this sector, contributing to the nearly 7% RPO growth we experienced year over year. Manufacturing and Industrial RPOs totaled $1.1 billion. In addition to demand driven by customers' onshoring and reshoring initiatives, recent growth in this sector has also benefited from the award of certain food process projects.

Within our Mechanical Construction segment as well as a renewable energy project within our Industrial Services segment. And led by our Mechanical Construction segment water and wastewater RPOs increased by over $300 million during the quarter and now total $1 billion as we continue to win projects throughout Florida.

Lucas Sullivan: Although RPOs within High-tech Manufacturing have decreased from September,

Tony Guzzi: we continue to believe in the long term fundamentals of this sector. While acknowledging that award of these projects can be episodic in nature or impacted by our resource allocation decisions, as we seek to deploy our workforce in a manner that achieves optimal outcomes for EMCOR and our shareholders. With that, I will gladly turn the presentation over to Jason to cover our financial results in detail. Thank you, Tony, and good morning, everyone. As Tony mentioned, over the next several slides, I will review the operating performance for each of our segments as well as some of the key financial data for the 2025 as compared to the 2024. I'll start on slide six, which is revenues.

With growth of 16.4%, revenues of $4.3 billion set a new company record for a third quarter. Acquisitions contributed $306.6 million with the largest incremental revenue. Coming from Miller Electric. On an organic basis, revenues grew by 8.1%. We experienced growth within all of our reportable segments, and demand for our services continues to be strong across most of the sectors that we serve. If we look at each of our segments, revenues of U. S. Electrical Construction were $1.29 billion increasing 52.1% due to a combination of strong organic growth and the acquisition of Miller.

Consistent with our commentary over the last several quarters, while we continue to experience greater data center demand, growth within this segment remains broad based as increased revenues were generated from nearly all market sectors. In addition to network and communications, where revenues grew by nearly 70% year over year, Electrical Construction saw notable growth in commercial, healthcare, institutional, and transportation. This once again demonstrates the broad offerings of this segment. Revenues in Electrical Construction also benefited from higher levels of short duration projects and service work due in part to the capabilities we've added through the Miller acquisition. Revenues of U. S. Mechanical Construction were a record $1.78 billion up 7% almost entirely through organic growth.

Due to greater demand for data center construction projects, this segment saw the largest increase from the network and communications market sector where quarterly revenues nearly doubled year over year. Beyond data centers, greater revenues were generated from several other market sectors, with the most notable increase within manufacturing and industrial led by food processing construction projects. Partially offsetting the revenue growth of the mechanical construction were decreases within the high-tech manufacturing

Lucas Sullivan: as we completed certain semiconductor construction projects

Tony Guzzi: and commercial due to less warehousing and distribution project revenue. We are starting to see some resumption in demand from our e commerce customers, we are just beginning to ramp up on these projects. On a combined basis, our Construction segments generated revenues of $3.1 billion an increase of 22.2%. Looking next at U. S. Building Services, revenues of $813.9 million reflect a 2.1% increase year over year. This marks the second quarter of revenue growth since the loss of site based contracts that we've previously referenced.

Similar to the second quarter, the growth in mechanical services exceeded the revenue decline within site based, and driven by each of its service lines our Mechanical Services division generated revenue growth of 5.8% in the quarter, all of which was organic. Turning to our Industrial Services segment. Revenues of $286.9 million are in line with that of the year ago period. Decreased field services revenues as a result of the completion of a large renewable fuel project were offset by an increase in shop service revenues primarily due to greater new build heat exchanger sales. And lastly, UK Building Services generated revenues of $136.2 million which represents an increase of $29.8 million or 28.1%.

While favorable exchange rate movements did positively impact the segment's revenues by $4.8 million, growth was largely driven by the award of recent facilities maintenance contracts by new customers and increased project activity with existing customers. If we turn to slide seven, for operating income, we generated a record third quarter operating income of $405.7 million and earned a very impressive 9.4% operating margin. Looking at each of our segments, U. S. Electrical Construction had operating income of $145.2 million which represents a nearly 22% increase. As a result of the revenue growth I referenced, this segment experienced greater gross profit across the majority of the market sectors in which we operate resulting in the increase in operating income.

While down from the unprecedented 14.1% earned in last year's third quarter, the segment's operating margin of 11.3% remained strong reflecting the overall performance and execution by our companies. In addition to incremental intangible asset amortization, which reduced operating margin by 90 basis points, operating margin in the quarter was impacted by lower profitability on certain projects in new geographies where we encountered reduced labor productivity while investing in the development of a workforce. Operating income from US mechanical construction of $229.3 million increased by 6.7% in line with the growth in segment revenues while operating margin of 12.9% is comparable year over year as we continue to execute well across our project portfolio.

Together, our 12.1% and earned a combined operating margin of 12.2%. U. S. Building Services generated operating income of $59.4 million an increase of 6.9% and expanded operating margin by 30 basis points to 7.3%. In addition to the increase in revenue, the operating performance of the segment benefited from a reduction in SG and A margin as we are beginning to see the impact of the restructuring we recently completed within our site based business. Moving to industrial services, despite revenues which were relatively consistent year over year, operating income of this segment nearly doubled due in part to a more favorable mix given a greater percentage of higher margin shop services work.

And lastly, UK Building Services earned operating income of $7.6 million or 5.6% of revenues. The increased profitability of The UK business was due to greater gross profit stemming from increased revenues a more favorable project mix and effective cost management resulted from the leveraging of their overhead, during a period of growth. If we move to slide eight, I'll cover a few highlights not included on the previous slides. Gross profit of $835.3 million has increased by 13.7% and our gross profit margin for the quarter was 19.4%. SG and A of $429.6 million increased by $58.4 million while our SG and A margin remained consistent year over year at 10% of revenues.

Accounting for nearly two thirds of the increase in SG and A, was $32.2 million of incremental expenses from acquired companies and $5.7 million of incremental intangible asset amortization expense. Excluding these items, SG and A grew by $20.5 million largely due to employment costs as we continue to invest in headcount to support our organic growth and we experienced some increased incentive compensation within certain of our segments given higher projected operating results. And finally on this page, diluted earnings per share was $6.57 compared to $5.8 an increase of 13.3%. If we look briefly at slide nine, this slide summarizes our results for the first nine months of 2025.

With year to date revenue growth of 15.5%, and operating margin expansion of 20 basis points, or 30 basis points when you exclude the impact of the transaction costs incurred earlier this year.

Lucas Sullivan: our performance for the first March set a number of new company records.

Tony Guzzi: In a later slide, Tony will outline our updated earnings guidance for 2025. As I've done in the past, I mentioned that now as this guidance reflects continued strength in our margins.

Jason Nalbandian: Specifically, at the low end, have assumed a full year operating margin which is equal to what we have earned year to date. While the high end reflects what we could achieve if we produced an operating margin in the fourth quarter equivalent to the record margin we earned in Q4 of last year. Let's move to slide 10, which is our balance sheet. With cash on hand of $655 million and working capital of $878 million our balance sheet as of September 30 remains strong and liquid positioning us well to continue to deliver for our customers and shareholders.

Although not shown on the slide, during the quarter, we had operating cash flow of $475.5 million and have generated $778 million year to date. For the full year, we continue to estimate that operating cash flow will be at least equal to net income and approximately up to 80% of operating income. Given our strong operating cash flow during the quarter, we repaid the $250 million that was previously outstanding under our revolving credit facility. And before I turn the call back over to Tony, I just want to quickly look at Slide 11, which summarizes the pending divestiture of our UK business.

As Tony mentioned and we previously announced, have entered into an agreement to sell EMCOR UK approximately $255 million. This transaction, which we anticipate will close prior to the end of the year, sharpens our focus on core end markets throughout The United States while supporting our balanced capital allocation strategy. Proceeds will be used to pursue further organic growth and strategic M and A with a focus on electrical and mechanical construction, as well as mechanical services while also returning capital to our shareholders.

Due to the size of The UK business, this transaction will not be treated as discontinued operations and as a result, will retain the revenue and earnings that have been generated by the business through the close of the transaction. Therefore, while EMCOR UK currently provides us with approximately $500 million of annual revenue, and $0.45 of diluted EPS the impact in the current year will be limited to the portion of 2025 that we no longer own the business. This has been reflected in the updated earnings guidance, which Tony will share with you, And when providing our Q4 results, will adjust for transaction expenses and any gain from sale as those items are excluded from our guidance.

With that, I will turn the call back over to Tony.

Tony Guzzi: Thanks, Jason. Yeah. We've been executing very well. And as a result, we will tighten our 2025 revenue and earnings per share guidance. Specifically, we're updating our full year 2025 revenue guidance to a range of $16.7 to $16.8 billion from our previous range of $16.4 billion to $16.9 billion. This reflects the momentum we have seen in the business while adjusting for the anticipated sale of The UK segment.

Jason Nalbandian: We

Tony Guzzi: We are also narrowing our guidance for non GAAP diluted earnings per share to a range of $25 to $25.75 reflecting an increase of 50¢ at the low end and 25¢ at the midpoint. In order to continue to earn strong operating margins, we will need to continue to execute discipline and efficiency for our customers. I always remind our investors that this is not a quarter to quarter business. With respect to operating margins. In the past four to eight quarters on average, we've collected the underlying margins in our business. There remains momentum and demand in key sectors. Especially in data centers, traditional and high-tech manufacturing, health care, water and wastewater, HVAC service, building controls, and retrofit projects.

Mac macroeconomic uncertainty always exists. Especially around tariffs, trades, and now we have the government shutdown again. We believe our guidance reflects the potential impact of such uncertainty as we view it today. We will remain disciplined capital and resource allocators. Our strong balance sheet bolsters our ability to execute a healthy pipeline of acquisitions and also robust opportunities to invest in our organic growth.

Lucas Sullivan: And return of cash to shareholders through dividends and share repurchases.

Tony Guzzi: When we talk about resource allocation, we work to maximize our opportunities across the right sectors, customers, contracts and geographies. Our resources, that is our supervision, our virtual design and construct or VDC capability, prefab, and as important as anything, our subsidiary and segment leaderships time, attention and focus as they are ultimately the quarterbacks that direct this allocation we think about that across all those sectors, customers, contracts, geographies. Last night, we signed an agreement to acquire the John W Danforth Company. Based in Buffalo, New York with operations across Upstate New York and Ohio. Danforth is a mechanical construction company with expertise in data centers, health care, industrial, manufacturing, and commercial.

They also have excellent VDC and pre cav prefab capabilities. Danforth should add about $350 million to $400 million in revenues with solid steady state margins. However, in the first year, those margins will be reduced to backlog amortization.

Lucas Sullivan: The transaction is expected to close in the fourth quarter subject to customary

Tony Guzzi: closing conditions. They are a great team, They have a great cultural fit with us, and we have worked together successfully in the past. We do look forward to much success together, and we look forward to soon welcoming the Danforth team to our EMCOR team. And I'm gonna close with what's probably the most important statement that I make in our recall. I wanna thank my EMCOR teammates. You for your dedication to EMCOR and our customers. You for living our values every day. Thank you for taking care of one another and keeping each other safe. And thank you for the outstanding results you continue to produce for our shareholders And with that, I will take questions.

Chris: Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, please press the pound key. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Brent Thielman with D. A. Davidson. Please proceed.

Brent Thielman: Hey. Thanks. Good morning.

Chris: Good morning, Rob. Hey, Tony. Maybe just to build upon

Lucas Sullivan: some of your comments and, the concluding statement there. Obviously, I think maybe somewhat folks somewhat surprised by the margin profile this quarter. I think to your point, this is it's a construction business. You have impacts from mix and other factors in any quarter. And maybe, Tony, could you build on the margins that you're seeing on new work Are they attractive relative to what we see reported here? Just an opportunity to address those concerns here.

Tony Guzzi: This is some of the strongest overall operating margins we've had in a quarter. We knew we were going to have amortization headwind in the electrical segment. And without the amortization headwind, or the investment in new markets, Reality is we're 14% plus in electrical. Mechanical margins are very strong. Building services margins are strong. Jason, I think year to date, these are the best margins we ever had on a year to date basis. I think the thing that I go back to, Tony, is we've said over

Jason Nalbandian: time, right, a rolling twelve to twenty four month average is where we expect our margins to be Those margins would be somewhere between 9.19.4%. And on a consolidated basis, we delivered 9.4% in the quarter. When you look at where we were as we exited Q2, we said for full year our margins would be between 99.4%. We delivered at 9.4% the quarter. So I think we're delivering the margins that we anticipated. Yeah.

Tony Guzzi: And what the business does. I mean, yeah, it bounces around a little bit. But you don't buy something the size of Miller with the amount of backlog amortization. We're gonna go through RPO amortization. We're gonna go through and be able to keep margins at the levels they were. I mean, it's just that's not we and we and we did that when we gave our guidance for the year. So I'm I'm a little befuddled about some of the margin reaction. To be straight with you.

Chris: Yep. Understood. I guess separate question.

Lucas Sullivan: You know, nearly a double, if not more, in data center RPOs. I think folks understand that's a pretty good market. Maybe if you could just touch on maybe some of the other sectors and maybe what areas are surprising you in terms of relative

Tony Guzzi: Yeah. I mean, I think you hit on a really important you know, we have a broad base of business outside of data centers that's pretty successful. And I think a really good marker I always think about this in our business broadly, is what goes on in the mechanical service business, which grew mid single digits as strong operating margins and almost has no data center exposure. I think I have this right seven of our 10 mechanical segments had growth and 10 of our electrical market sectors 10 of our 11 electrical market sectors had growth. We're seeing strong growth on the mechanical side in water and wastewater. We continue to see strong demand in health care.

In both sectors, really, And the addition of Miller, really bolsters our health care exposure on the electrical side and some of the fastest growing health care markets in the country. Of which they're exposed to. We continue to see good opportunities in traditional manufacturing especially for us in food processing It's one of the few things we do on a on a large scale, EPC. And we do it very well out of our ShamWash subsidiary in Fort Wayne, Indiana. We continue to see pretty good demand

Chris: in

Tony Guzzi: traditional retrofit commercial. It's it's a strong market for us, especially with an eye towards energy efficiency. And the restacking of buildings that continues to go on. I think, you know, high-tech manufacturing, that's a choice. We have very strong demand in parts of the country. And we're and we're executing very well. Other parts of the country, it's a little lumpier. Or we may rededicate those resources, quite frankly, to more data center work. Versus slog through another semiconductor plant in parts of the country. We did very well on it. It's just it's just a very difficult customer set application in one particular case. So when you put it all together, demand's broad based. It's strong.

We like having diverse demand. We're gonna continue to pursue diverse demand. And you know, I think that's good news for our shareholders for the long term. We're not giving up anything on the data center side by doing that. As you said, with the size and the

Chris: Next question. And it comes from Adam Thalhimer with Thompson Davis. Please proceed. Hey.

Lucas Sullivan: Hey. Good morning, guys. Thanks for

Tony Guzzi: Morning. Thanks for taking the questions.

Chris: The organic expansion you talked about that impacted the Electrical segment

Adam Thalhimer: Tony, can you just talk about the investments you're making how long that headwind might persist, and what the what the benefit

Tony Guzzi: I think typically, Adam, it's a one or two quarter headwind. As we start up the job and you know, it's a margin investment is what it is. It's it's not really a capital investment upfront. It's a margin investment as we have to go through the learning curve of building a labor force And sometimes that takes a little longer. Sometimes we get it right at the beginning of a new market, and sometimes it takes us further into the job to get it right. And, you know, we do that all the time. And, but we only call that out, I think, to make investors aware that, you know, it's not a linear line.

When you expand from what was six to eight, three or four data center markets in 2019 serving to over 16 today electrically. From one or two mechanically to over six today. Mechanically. That's not a linear straight line. We have yet to not do it successfully. And it's just more of a pointing out that, hey. That's part of how we grow the business and it's part of what we almost look at it as r and d to go into a new market.

Jason Nalbandian: Yeah. And I think there's a combination of things that we expect to as we move forward, right? We'll build that labor force. We'll get that efficiency, we'll inherently become more productive as we do the next phases of these contracts. And we'll learn some lessons here and we'll price our jobs to that market. So it's a number of things that we think improve as you go from the first set of phase set of jobs to those next couple of phases. It's an ongoing headwind.

Tony Guzzi: Always in the numbers. This was a little more because it was a little bigger site.

Adam Thalhimer: Okay. Well, I think I mean, you left the prospect of flat Q4 margins in the guidance, which I thought was interesting Just curious how you might get to the high end of the Q4 margin guide. I think it's just project timing.

Tony Guzzi: I mean, at this point, I mean, there's really nothing new. And then and then, you know, we'll have you know depending on when Danceforce close, it's not gonna really add anything. We'll have revenue coming in without a lot of margin because of the headwind of the black backlog amortization. We're still running off the Miller backlog amortization. I think those are the kinds of things. Operating wise, we expect to operate pretty well in the field.

Adam Thalhimer: I'll turn it over. Thanks, guys. Yep.

Chris: And the next question comes from Brian Brophy with Stifel. Please proceed.

Tony Guzzi: Yeah. Thanks.

Jason Nalbandian: Thanks. Good morning, everybody. Good morning.

Lucas Sullivan: Just wanted to following up on the geographic investments.

Jason Nalbandian: Just wanted to see if you could help us quantify, I guess, the impact. I think

Lucas Sullivan: some of the numbers you gave, my background below math, suggests 200, maybe two fifty basis point impact to margin in the quarter. Am I in the ballpark

Jason Nalbandian: there? Yeah. Think I think I'll give you dollars and we could work that into margins. I mean, we look at the jobs that drove it, it's probably about $13 million or so. Okay. Okay. That's helpful.

Lucas Sullivan: And then

Jason Nalbandian: appreciate all the commentary on The UK business. Curious how you guys are feeling about the business portfolio after this transaction closes. Is there anything else you guys would consider non core? Or how are you thinking about the portfolio at this point?

Tony Guzzi: We look at our portfolio all the time. And, you know, portfolio actions to the size of The UK look. We're making portfolio adjustments all the time. In our mechanical and electrical construction business. Even mechanical services. One of those portfolio adjustments we just talked about We invested in a series of projects in a geographic market or two to gain scale in that market. That's a $13 million investment. You all don't think about that as a portfolio action. It was a little larger in this quarter, but it's metro areas in this country, we have no interest for participating on the electrical side the traffic market anymore.

And we've been slowly winding that down across a number of markets. So those kind of things that we call routine course of business, the ins and outs, opening a new couple new branch offices in the mechanical service business. It's through a small asset purchase of some guys' tools and trucks. Which there's there's one mover one way. That we announced. There's one moving the other way. Right? The UK is out. John w Danforth is in. The UK really it's it's a success story.

For people that have followed us over a long period of time, know that while we turned something into something very successful with a great team, And it was the right time to exit for our shareholders really for that team and for that business. It wasn't gonna be a place that we, because of all the other opportunities we have, gonna be a place that we were gonna allocate a lot of capital to grow. We like, for example, weren't gonna take The UK platform and grow through the rest of Europe to build a facility services business. That's not something we were gonna do. It's probably something that needed to happen to continue the growth of that business.

John w Danforth is another decision. Right? Someone we knew. Someone we've known very well, in a market that's steady, in a market where they have a leadership position, with a group of people that we have worked with before, They got some interesting capabilities in BIM, VDC, prefabrication. And those capabilities have they work in the data center phase. They work in the heavy industrial space. So work in the health care space, and they execute those projects very well. So not a one for one, as far as exchange, but it's the kind of thing, you know, midsize mechanical, construction acquisition in

Lucas Sullivan: I think and we have balance sheet capability to do both without selling The UK.

Tony Guzzi: But it was the right time. Look at other parts of our portfolio, we examine it all the time. And know, we're probably headed towards is how do we think about the rest of our site based business, which is pretty integrated into our building services business. It's on the improvement trend. And then, you know, we have the industrial services business, which has had a tough couple years. That being said, some of the things we do there, some of the prospects we have, we think we can improve it. And, you know, I'll let us always say these things. This way. Deals happen both ways when they happen. And there's a timing that's right.

And right now, we think we have a good portfolio that we're executing on. It still has upside across all the businesses that we're operating in.

Jason Nalbandian: Appreciate all the color. I'll pass it on.

Chris: The next question is from Justin Hawk with Baird. Please proceed. Oh, great. Yeah. I guess maybe I was gonna build on that last question just about capital allocation. And obviously, you did the Danforth after the

Adam Thalhimer: quarter

Chris: you know, on a good cash flow quarter, and you got the proceeds coming in from The UK. But should there be any read or do you wanna make any comments about just the lack of buybacks in the quarter? Is that signaling that there's 's other kind of pending transactions that are out there that maybe are closer to coming than not or anything about just usually, your buybacks are pretty predictable quarter to quarter.

Adam Thalhimer: Yeah. We yes and no. We did

Tony Guzzi: a greater amount than we typically would do in the first part of the year, and most of that executed off of a 10b5-one.

Jason Nalbandian: We're not really traders in our SOC.

Tony Guzzi: There was a bit of a dislocation, and the 10 b five one picked it up. In the second quarter. That being said, we're not capital constrained. We'll be balanced capital allocators over a long period of time. If you go to the end of my remarks, we look at we look at all uses of capital. From organic investment. And it's interesting. We were thinking about what we've added this year or add by the end of the year. We'll add about 400,000 square feet, give or take. Of prefabrication space. And our ability to prefabricate some called modular construction, maybe it's the next step down, which for the most part, we do for our jobs.

And we do that across our fire life safety business. We do that in our electrical business. We do that in our mechanical business. And Danforth adds to that capability. They have a very well run very modern shop. It's one of the attractions they had with us in a pretty good labor market. So we don't have capital constraints. There's there's not a lot of timing going on unless there's a big dislocation. And I wouldn't consider today a big dislocation. We ran up in a week, and we came right back to where we were And we think we're performing well. Our cash flow is good. We're gonna keep a strong and liquid balance sheet.

I think this next six years will look very similar to the last six years. And I think what you see on the last page of our presentation, you take a six year trend,

Chris: Yep.

Adam Thalhimer: Yep. Got it. Okay.

Chris: That's it for me. Thank you. Thank you. And Please proceed. comes from Avi Jaroslavich with UBS. And the next question

Jason Nalbandian: Hey. Good morning, guys. Thanks for taking the question. So noticed that organic growth been running around mid to upper single digits. The last few quarters.

Avinatan Jaroslawicz: Are you thinking that should be picking up at all in the near term just based on some of the backlog growth that you're seeing? Or does this seem like a more comfortable rate for the foreseeable future?

Tony Guzzi: Look. I think high single digits, low double digits is probably a comfortable rate. I mean, the reality, right, we're a big company. And the law of large numbers start to take over. You think about what we have to add from an organic so say we're growing 10% organically, you take our guidance. That means we added

Avinatan Jaroslawicz: between a billion 5 and $2 billion of revenue

Tony Guzzi: organically in a year. That's pretty darn good. And still maintain the cash flow characteristics we have and the margin profile we have. And Jason, I think that's probably not a bad way to look at it.

Jason Nalbandian: I agree with that, Tony. Especially when you look I would look at the RPO growth sequentially, right? We're growing 5%, 6% sequentially. I think that gives you a little bit more of a tell for the future. The other thing too is if you look at our RPO and you look at how much of it will burn in excess of twelve months, Right now, I think it's about 20% or so will burn greater than a year. And if you look historically, that number was typically about 15%. So some of the work we're booking now is a little bit longer term which I think impacts just the turn of that RPO. Yeah.

And if you think about it,

Tony Guzzi: we had some really good growth markets I think if you look at our data center business, I mean, that's gonna grow high teens to mid twenties for a while. And if you look at any forecast out there, right, cloud storage, data centers, are gonna grow high single digits to low teens. And AI growth, depending on who you look at, we've looked at many, and we've remember, we're actually connected all the way back through our customers and their capital spending plan. AI data centers are gonna grow 20% plus. And that's gonna become an increasing part of our business and that'll be by design. But we're not gonna neglect our traditional business.

You and if you look long term, right, we've grown in excess of non res in our construction businesses.

Jason Nalbandian: 500 basis points. Over a five year period. Over a five year period.

Tony Guzzi: That's probably a pretty good marker. And it may go a little more than that because of the data center concentration. But maybe that picks up another 100 basis points. I mean, are long term projections. But I think, you know, high single digits, organic, maybe pick a couple more points up. Through acquisition. Is it how we think about the business? Over a long term and how we have thought about it over a long period of time in our planning.

Avinatan Jaroslawicz: Okay. Appreciate that perspective. And then if I could just ask a follow-up in terms of some of the cost of growth that you're been seeing just with growth having been relatively steady just on the organic side, can you share some more color as to what made this maybe more unique than past situations? Been growing at a pretty nice clip over the last couple of years. And, similarly, have we had any periods where there've been a similar type of level of these startup inefficiencies in the mechanical construction segment?

Tony Guzzi: They show up. Yes. And the only reason we called it out this quarter is a little more than usual. This happens just about every quarter, and you can see it in our one disclosure in the queue. That's where most of that rests. This was a little more, a little tougher market, little tougher job building the labor force. And, really, it's still a profitable job. I mean, I don't want everybody to think that we invested into a lost job. That's not what happened here. This is classic revenue recognition thing. Right? The margin came down versus what we expected. And like Jason said, we probably were a little more optimistic than we needed be.

As we entered that new market because quite frankly, if you looked at the customer

Avinatan Jaroslawicz: and what we thought we were gonna be doing and the speed with which is gonna happen,

Tony Guzzi: We'd work from other markets before, and we had different experience. And we had a more experienced workforce.

Chris: Okay.

Avinatan Jaroslawicz: Got it. Appreciate the time. Thank you.

Chris: Our next question is from Sam Cusworth with William Blair. Please proceed.

Jason Nalbandian: Hey, Tony. Hey, Jason. Thanks for taking our questions here.

Avinatan Jaroslawicz: Sure. I guess to start, you know, looking at your network and communications end market, it looks like revenue was flat sequentially for total US construction. Just given the rapid sequential growth we've seen in the last few quarters, I think investors may have found that surprising. Can you talk about what caused that pacing to slow? I think you just mentioned that know, you think that market

Jason Nalbandian: Yeah. Can you yeah. Just can you repeat that question for me? Because we're not seeing that same data point. I just wanna make sure I understand the question. You're saying revenue in network and communications is flat for construction?

Avinatan Jaroslawicz: For total US construction, sequentially. Yeah. Year over year was growing. Oh, sequ

Adam Thalhimer: sequentially?

Jason Nalbandian: Think it's just project timing. I mean Yeah. You got I think year over year, up tremendously. Right? We're probably up almost 80%. I think electrical is up 70%. Mechanical is nearly double. I think it's up 90% or so. Sequentially, I wouldn't really look at this business one quarter to the next and look for

Tony Guzzi: And RPOs are up almost double. Right?

Jason Nalbandian: In the in the quarter, at least 50% of our RPO growth came from network and communications. Yeah.

Tony Guzzi: So I yeah. We're not said simply, we're not seeing any slowing in the market. A lot of project timing. I mean, you could tell by our surprise of we think it's area of great strength for us, and it's gonna continue to grow.

Avinatan Jaroslawicz: Got it. Okay. That's helpful. Maybe just sticking with the data center team, You know, maybe you could just update us on the footprint through mechanical business. You know, I think last we spoke, you had been about five markets today, but you were thinking of maybe taking that up to county electrical business, 15 markets. Should we think about that as you think about the next year?

Tony Guzzi: We will add you know, one to two mechanical markets over the next year. The difference between mechanical and electrical is the mechanical, you're I would say it takes a little more to build the workforce that you're put into that market, and you really, really have to think about your prefab plan as you go into that mechanical market. So there's a level of investment you have to make on prefabrication and VDC that's a little more mechanical support the next market you move into. So I think, you know, we'll grow by another two markets or so over the next year. Maybe one more than that with the acquisition of Danforth.

And then I think we'll, electrically, we'll probably add one or two markets also at least, maybe more.

Avinatan Jaroslawicz: Got it. Thanks. We'll leave it there. Appreciate it.

Tony Guzzi: Yeah. Yeah. When you talk about markets, it's also important to think about once you get on some of these sites, that can be a five year build. And so we're doing the first building on some of these places. Be a five year build. And a lot of times, you can have one, two, or three m core companies on those site. And the thing that gets lost in this I'm not I can't even count the number of fire protection sites we're on. In our fire life safety business, we're probably serving 70% of the data center sites in one way or another around the country.

Avinatan Jaroslawicz: Got it. It's very helpful color. Thank you. You bet.

Chris: The next question is from Sangeeta Jain with KeyBanc Capital Markets. Please proceed.

Sangeeta Jain: Great. Thank you so much for taking my questions. So appreciate the color on the RPOs in network and communications. Can you just elaborate if you're seeing potentially larger individual bookings in this segment or if there's any change in terms of how these contracts are coming through?

Tony Guzzi: The answer is yes and yes. With a caveat. Some of the contracts also will be larger but they'll be in a contract type called GMP. Where we only book a portion of that work over time. Because they let out the next phase even though we know we have the whole thing, which may distinguish us from other

Jason Nalbandian: people. Again, at EMCOR, in RPOs, it

Tony Guzzi: only contracted work. And that includes places where we may have $30 million in RPOs, know we're gonna do a $100 million of work. And so we've been relatively consistent with that. But in general, they're getting larger. I think, a fair comment. The project size is getting larger. And that's a combination of larger called storage sites and larger, AI size for sure. With more content, especially mechanically.

Sangeeta Jain: And then are you booking further and further like, earlier and earlier for projects that may not start, let's say, a few quarters?

Tony Guzzi: No. Know we're probably gonna get those projects. But again, which differentiates EMCOR from some other people in our sector, our space, is even though we're pretty sure we're gonna get the next five buildings until that next data center is let it's not in our RPOs. Even though it's, an 80, 90% probability, we're gonna get

Jason Nalbandian: Yeah. And if you're looking at the growth in RPOs greater than a year, it's not data centers that's driving that. It's some of the other work we do, particularly in the water. Yeah. Yeah.

Sangeeta Jain: Okay. And that's helpful. And then is there anything in your guide, 25 guide for the acquisition that you just referenced?

Tony Guzzi: No. That'll be any impact they have for 25 will be immaterial. Maybe a little bit on the revenue side, but we don't know exactly when we'll close. And then you have to offset that versus when The UK will close. We think we called it about right. If The UK closes later and this one closes earlier, maybe we go towards the top or the higher the top end of that guide more comfortably.

Jason Nalbandian: And on bottom line, right, if you just think EPS, just because of the backlog amortization and we typically say this, the impact is negligible in that first say, twelve months or so just because of the backlog amortization. So certainly, for the fourth quarter, impact on EPS of the acquisition should be minimal. The minimal, yes.

Sangeeta Jain: Okay. Okay. Great. Thank you so much. Appreciate it.

Chris: And the next question is from Adam Boops with Goldman Sachs. Please proceed.

Adam Thalhimer: Hi. Good morning. Good morning. I think you're in

Jason Nalbandian: hours per employee has moved up steadily higher over the last few years. Can you just talk about how much more runway you have to increase utilization both from an hour per employee basis and then in terms of just productivity.

Tony Guzzi: Well, I think I think we're gonna continue to drive productivity. Again, because of project mix, And, you know, like, if we do with more water, wastewater coming in, that is even more different because of some of the subcontractor work. Do anything in general Right? If you look at it, a minimum, I think we're gonna continue to drive at least three to 5% better because we got to a pretty good place.

Jason Nalbandian: Productivity.

Tony Guzzi: I think it'll be higher than that. Go back to that discussion we just had about our shop investments. You know, we're doing our man hours are growing less than our revenues. And we expect that, you know, man hours to continue to grow a third to half as much as what revenues will grow. And in most of our revenues, this is what's interesting. Right?

Avinatan Jaroslawicz: At one time,

Tony Guzzi: if you go back five or six years, we would have had much more equipment in those revenue numbers. If you take most of this data center work or high-tech manufacturing work we're doing, even some health care work, we're not really buying the end major components. And most of that was driven by supply chain. Difficulties around supply chain post COVID and extended lead times The owners or the owners through the Centimeters general contracts, but mainly the owners are buying that equipment now and then sending it to us for a handling fee.

The revenue growth would even be more And so the productivity we're getting and the ability to grow hours at a third to half the rate of revenues, is even more impressive if you look over the last three to five years versus if you took a ten year view. Jason, you have anything to add? Yeah. We've we've talked about it before. Right? If you look over

Jason Nalbandian: a five year period, revenue is growing basically three times what our headcount is growing. I think Tony touched on the productivity tools and the investments in prefab. Think the other thing impacting that too is project sizes, right? As project sizes scale up, inherently get more utilization and we're benefiting Well, especially if you're indirects. Yes.

Avinatan Jaroslawicz: Yeah.

Adam Thalhimer: Got it. And then your data center business has

Jason Nalbandian: grown at a really impressive high double digit rate. The backlog would support sort of continued double digit growth.

Avinatan Jaroslawicz: Can you just take us under the hood and help us think how you're

Lucas Sullivan: how you're able to allocate

Jason Nalbandian: resources, so efficiently and how quick. Quickly you'll be able to move labor around from here. What sort of the sustainable rate of growth that we should be underwriting in that business?

Avinatan Jaroslawicz: Look. I think

Tony Guzzi: if you heard the what I just said. Right? Earlier, and I think you're probably, Adam, looking at the same market forecast we are and compiling them all and trying to get a view You know, cloud storage is gonna go 910% is what most people think over the next five years. And AI, depending on which ones you look at, are in excess of 20, 25%.

Avinatan Jaroslawicz: So if you blend that out,

Tony Guzzi: we're doing both You know, there's no reason for us not to believe it's not a quarter to quarter business be continue to look annually year over year. I don't know. Mid teens, low twenties, depending on the year or the quarter. Eventually, get into a lot of large numbers there too, but

Jason Nalbandian: sustainably,

Tony Guzzi: I think the good news is we're penetrated with the right customer. I'm share an anecdote with all of you because I think it's it's really constructive. We, you know, we are a large data center builder that our customers value. And we just pulled together our 80 top people in the or so in the data center business And we actually did it down at Miller. And they hosted it. And it first of it was a really impressive group of people that really know the business and know the customers.

And what we talked about on our side means and methods of how to drive productivity and contract terms and the things we're seeing that can lead to better outcomes for not only EMCOR, our shareholders, but also the customer. But what was different about this meeting and know, I've been doing this for a little while, is and I'm not gonna get into names. Of three of the top four actual end use, the actual end result in capital, And the other two wanted to come in, but the schedules wouldn't allow. And they did they've done since done conference calls on these.

Where the direct owners wanted to come in and make sure that we what they had planned. And how much they wanted us to be part of those plans going forward. And so this is looking right through the general contractors and construction managers who are ultimately who write our checks. And are very important customers for ours and partners. But the end user you know, the big hyperscalers, And it and it, you know, wanted us to know how important and share their plans with us on a proprietary basis. And I'm not gonna share all those plans, obviously, because it was on a confidential proprietary basis.

But to be able to pull our team together like that, to be able to talk about how we get better, to be able to talk very specifically around means and methods and labor productivity, and couple that with our customers sharing their outlook of their capital spending,

Jason Nalbandian: that led me obviously more positive

Tony Guzzi: than negative by a long shot. On what data center build looks like over the next five years.

Avinatan Jaroslawicz: Terrific. Appreciate all the color. Data center build.

Chris: And at this time, we are showing no further questioners in the queue and this does conclude today's question and answer session. Would now like to turn the conference back over to Tony Guzzi for any closing remarks.

Tony Guzzi: So look, we'll we'll we'll see a couple of you and we'll see some of the more investors as we're out and about with conferences here in November and December. But for the rest of you, this will be the premature happy Thanksgiving and a great end of the year and happy holidays and all those things. And for those of you that enjoy Halloween, enjoy Halloween tomorrow. Mostly, that should be people with little kids. After that, it's not that much fun. That's my view. But, no, thank you all. And to my EMCOR colleagues, stay safe and we look forward to seeing you all on the map.

Chris: Today's conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.

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