Earnings Call: Q2 2021

Jul 29, 2021

Good morning. My name is Jerome, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Second Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Mr. Haskell Questell with FTI Consulting. You may begin. Thank you, Jerome, and good morning, everyone. Welcome to the EMCORE Group conference call. Call. We are here today to discuss the company's 2021 Q2 results, which were reported this morning. I would like to turn the call over to Kevin Maff, Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead. Thank you, Haskell, and good morning, everybody. EMCOR. As always, thank you for your interest in EMCOR, and welcome to our earnings conference call for the Q2 of 2021. It's amazing to me that we're already halfway through the year, in fact, more so now. For those of you who are accessing the call via the Internet and our Web Welcome to you as well, and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. We are on Slide 2. Call. This presentation and discussions contain forward looking statements and may contain certain non GAAP financial information. End of the call. Page 2 describes in detail the forward looking statements and the non GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction end of the call. Slide 3 are the executives who are with me to discuss the quarter 6 months results. They are Tony Guzzi, our Chairman, President and Chief Executive Officer Mark Pompa, Executive Vice President and Chief Financial Officer end of the call. And our Executive Vice President and General Counsel, Maxime Mauricio. For call participants not accessing the conference call via the Internet, EMCOR. This presentation, including the slides, will be archived in our Investor Relations section of our website under Presentation. You can always find us at emcorgroup.com. Call. With that said, please let me turn the call over to Tony. Tony? Yes. Thanks, Kevin, and good morning to everybody. And upfront here, I'm going to be covering Pages 4 to 6. You take a step back, what a difference a year makes. When we reported our Q2 2020 numbers, we were in the throes of a pandemic and have much better visibility with respect to our operations than a year ago. We remain focused on our employee safety as we continue to work in this environment. Call. We had a very strong operating quarter with revenues of $2,440,000,000 operating income of $133,000,000 an earnings per diluted share of $1.78 We maintained strong operating income margins of 5.5 percent working capital this quarter, leading to a more typical cash flow pattern for us than the prior year, during which we were liquidating our balance sheet end of the call due to COVID-nineteen imposed lockdowns and customer site restrictions. Regardless of the unusual factors impacting our comparison against last year. We had a very strong quarter. Our business trends are strong. We grew our remaining performance obligations, and I'll refer to them as RPOs for the rest of the presentation, to a record $5,100,000,000 end of the call. In both our Electrical and Mechanical Construction segments, we had revenue growth in our Electrical Construction segment of 19.3% end of the quarter. And in our Mechanical segment, up 21.3%, which I believe reflects more than just a resumption of normal demand call from the COVID impacted results of the Q2 last year. With mechanical construction operating income margins of 8.3% and electrical construction Operating income margins of 8.7%, we are executing with discipline and precision as we grow our business. Especially strong growth within the commercial, and that's really across commercial, but data centers and logistical infrastructure drove that and health care market sectors. Our large project work and small quick term project work are both strong from a revenue and booking perspective. Call. We continue to work very hard to bid and schedule our work amid the uncertainty around material pricing and availability. Our team is experienced with this issue, and so far, we have weathered this challenge. But it requires attention to detail, communication with our supply chain partners and customers, of the year. Thoughtful planning and careful contract negotiations. The supply chain pressures are likely to be with us for most of the balance of the year. EMCORE. Again, I sound redundant, but we are blessed with an execution oriented culture across EMCORE. Our electrical end of the call. And mechanical construction teams are some of the best operators in the business. We leave the quarter with very strong RPO growth across these segments of almost 8% from the year ago period and nearly 10% for the end of 2020, and this is despite very strong revenue growth. Call. Our U. S. Building Services segment had a very strong quarter with revenue growth of 30.4% and operating income growth of 13.9%. Quarter. Operating income margins were strong at 4.9%. RPOs additionally increased 37.8% versus the year ago period, and organically, RPOs are up 21.2%. We see accelerating demand for HVAC retrofit projects with a special emphasis on energy retrofit and IAQ or indoor air quality. We are also performing very well in our commercial site based business with strong bookings year to date end of the call. We are not only executing for our current customers but are winning new work and have a very healthy pipeline of opportunities in this business. Call. We expect to continue to see strong demand for our mechanical services as well as our commercial site based business services as customers seek to improve their facilities as they emerge from the pandemic. Our building services team has done an exceptional job of anticipating our customers' needs post pandemic, In our Industrial Services segment, we had a near breakeven performance on an operating income basis despite taking a $4,000,000 charge SEC for a receivable from a customer who recently entered into bankruptcy protection. We had positive EBITDA, Inquiries and scheduling are at very robust levels for late 2021 early 2022. Crack spreads remain strong, and utilization continues Our U. K. Building Services segment had another strong quarter with operating income growth of 31.7%. Call. We continue to execute well for our customers in the U. K. And have strong retrofit project growth and also for our full facilities management offering. Quarter. Overall, a very strong quarter, and we remain poised to deliver for our customers and shareholders for the remainder of 2021. Call. We've had a great start of the year, and I would be remiss if I didn't thank all our employees for their focus on safety first while delivering results for our customers end. With that, I will turn the discussion over to Mark. Thank you, Tony, and good morning to everyone participating on our call today. EMCOR. For those accessing this presentation via the webcast, we are now on Slide 7. Over the next several slides, I will supplement Tony's opening commentary on EMCOR's 2nd quarter performance, call, as well as provide a brief update on our year to date results through June 30. All financial information referenced this morning is derived from our consolidated financial EMCOR's statements included in both our earnings release announcement and Form 10 Q filed with the Securities and Exchange Commission earlier today. So EMCOR's Q2 performance. Consolidated revenues of $2,440,000,000 are up $423,600,000 or 21% over quarter 2, 2020. Our second quarter results included $53,800,000 of revenues attributable to businesses acquired EMCOR. Pertaining to the time that such businesses were not owned by EMCOR in last year's Q2, acquisition revenues positively impacted both our United States Electrical Construction United States Building Services segments. Excluding the impact of businesses acquired, 2nd quarter revenues increased to nearly $370,000,000 or 18.4 percent end of the call when compared to the Q2 of 2020, which was severely impacted by the COVID-nineteen pandemic and the corresponding containment and mitigation measures mandated by certain of our customers as well as numerous governmental authorities. Despite the less than difficult compare between quarterly periods Due to the challenging environment in 2020, EMCOR's quarter 2, 2021 revenues represent an all quarterly revenue record for the company. The specifics to each of our reportable segments are as follows: United States Electrical Construction segment revenues of $489,500,000 increased $79,100,000 or 19.3 percent from 20 20 2nd quarter. End. Excluding acquisition revenues of $8,600,000 this segment's revenues increased 17.2% quarter over quarter. Call. Significant increases in revenue contribution from projects within the commercial, institutional and healthcare market sectors were the primary drivers of the period over period improvement. Call. We continue to see strength in the telecommunications submarket sector as we experience sustained customer demand for data center projects, end of the call. With respect to the commercial market sector, consistent with the growth experienced by our Electrical Construction segment, call. This segment also continues to see strong demand for data center project work given growth in data storage and cloud computing across the country. Call. In addition, the continued build out of our customers' e commerce supply chains has resulted in an increase in the number of fire protection project opportunities for this segment end of the call. Within various warehousing and distribution facilities. With regard to the healthcare market sector, consistent with the trends we experienced during the Q1 of this year, EMCOR. We are engaged in a number of projects ranging from mechanical system retrofits to complete installations in both new and existing healthcare facilities. EMCOR's combined United States construction business of $1,450,000,000 increased $247,300,000 or 20.6 end. This revenue performance represents an all time high for our combined construction segments. Despite this record revenue performance, call. We increased remaining performance obligations, which Tony briefly covered, within each of these segments as a result of strong project bookings. Tony will cover this in more detail at the completion of my prepared remarks. United States Building Services quarterly revenues of 624,400,000 call. This segment's revenues increased almost 21% organically. This performance also represents a well time quarterly record for this segment's revenues. Revenue gains within each of their divisions due to the resumption of maintenance and project activity as compared to 2020's COVID impacted quarter, EMCOR. Augmented by incremental projects aimed at improving customers' indoor air quality as well as increased building automation and controls activity were the primary drivers of this quarter's EMCOR's Industrial Services segment revenues of $235,200,000 decreased $5,900,000 or 2.5 percent end as this segment has yet to return to pre pandemic revenue levels due to prolonged adverse market conditions within the oil and gas and related industries. Although still below the prior year, this 2.5% quarter over quarter revenue reduction is significantly less end of the quarter. We are pleased with the results of the year. We are pleased with the results of the year. Let's hope that we do not Any additional macroeconomic headwinds impacting this industry. United Kingdom Building Services revenues of $129,900,000 increased end of the call. $6,700,000 or 39.5 percent from last year's quarter, resumption of maintenance contract activity that began during quarter 1 of this year strengthened in quarter 2 call as project work that was deferred in 2020 has recommenced. Additionally, revenues of this segment benefited from $14,500,000 end of the quarter. Please turn to Slide 8. Selling, general and administrative expenses of 240 end of Q2, 2020. EMCOR. Adjusting for incremental expenses attributable to companies acquired, inclusive of intangible asset amortization, EMCOR's organic SG and A increase was 33,400,000 call. As a reminder, the prior year period benefited from substantial cost reductions resulting from actions taken in response to the COVID-nineteen pandemic. End of the call. A significant percentage of such actions pertain to employment costs, including furloughs, headcount reductions and temporary salary reductions. Call. Additionally, 2020 Q2 included reduced levels of incentive compensation expense as a result of the downward recalibration of our internal forecasts EMCOR. Include a significant growth in revenues as well as profitability forecasts, which equips EMCOR's previous earnings performance records call. Just so that there is no misunderstanding, at this time last year, we were either reversing the previous quarter's incentive accruals or accruing at significantly reduced rates, quarter. While at this point in 2021, based on our performance for the 1st 6 months of the year and our projections for the remainder of the year, Our incentive compensation levels are tracking more linear with our current year earnings expectations. In addition to these increases in employment costs, call. Our results for the Q2 of 2021 included a $4,100,000 provision for credit losses due to the bankruptcy filing of a customer within our U. S. Industrial Services Reported operating income for the quarter of $133,400,000 compares to an operating loss of $122,600,000 in 20 20 2nd quarter call due to the $232,800,000 non cash impairment charge recorded in the prior year. Excluding 2020's impairment charge, end. Operating income for the current period represents a $23,200,000 or 21.1 percent improvement end of the call over last year's adjusted non GAAP second quarter operating income of $110,100,000 For the Q2 of 2021, operating margin end of Q1. This represents 5.5 percent of revenues and is consistent with our adjusted non GAAP operating margin in last year's quarter. Consistent with our quarterly revenue performance, end of the call. The operating income of each of our reportable segments other than U. S. Industrial Services has increased by double digit percentages. Specific quarterly operating performance by reporting segment is as follows. Operating income of our U. S. Electrical Construction Services segment of 42 point end of the call. $7,000,000 for the quarter ended June 30, 2021 increased by $11,100,000 from the comparable 2020 period. End of the call. Services segment of $79,300,000 increased $12,300,000 from the comparable 2020 period. Reported operating margin of 8.3% represents a Flight Reduction from last year's quarter. Our over 20% increase in quarterly revenues was the major driver of our period over period operating income improvement, call. While the slight reduction in operating margin resulted from a modest decrease in gross profit margin due to the composition of work performed during each period. End. Each of our electrical and mechanical construction segments established new second quarter records in terms of operating income dollars. Call. Our total U. S. Construction business is reporting $122,000,000 of operating income and an 8.4% operating margin. This performance has improved by 23 point quarter. $4,000,000 20 basis points from last year's Q2. Operating income for U. S. Building Services is $30,300,000 or 4.9 percent of revenues. Call. This represents a $3,700,000 improvement quarter over quarter and like most of our other reporting segments represents a new second quarter record for operating income dollars. Increased gross profit from the Mechanical Services and Commercial Site Based Services divisions due to a strong resumption in demand as compared to 2020's challenging Q2 was the primary reason for the period over period increase in operating income. End of the call. The 70 basis point reduction in quarterly operating margin is due to revenue mix, which included a larger percentage of fixed price capital projects end of the call, we have a lower gross profit margin profile than the segment's call out service work. Our U. S. Industrial Services segment operating loss of end call. Approximately $200,000 represents a decrease of $3,500,000 from last year's 2nd quarter operating income of 3,300,000 call. While the segment experienced an increase in both gross profit and gross profit margin during the current quarter, call. Its results include an increase in credit losses due to the aforementioned customer bankruptcy, which negatively impacted operating income by $4,100,000 end of the quarter. Looking ahead, we are encouraged as we are beginning to see signs of improving financial performance, call, albeit in an environment that remains somewhat challenged. UK Building Services operating income of $7,000,000 or 5.4 percent of revenues end of the call. Represents an improvement of $1,700,000 with a slight reduction in operating margin over 20 22nd quarter. Approximately $800,000 of this period over period improvement end of the call. Is due to positive foreign exchange movement with the remainder attributable to an increase in project activity primarily within the commercial market sector. Call. The decrease in quarterly operating margin is a result of an increase in the ratio of selling, general and administrative expenses to revenues in the current quarter call as the prior year benefited from certain short term cost cutting initiatives and actions in response to the COVID-nineteen pandemic. We are now on Slide 9. Additional financial items of significance for the quarter not addressed on my previous slides are as follows. Quarter two gross profit of $376,300,000 end of the call. Higher than 2020's comparable quarter by $61,000,000 or 19.3 percent. Gross margin of 15.4 percent end of the call. Our next question comes from the line of David. Please go ahead. Thank you, David. Thank you, David. Good morning, everyone. End of the call. Diluted earnings per share in the Q2 of 2021 is $1.78 as compared to a loss per diluted share of $1.52 in the year ago period. Call. On an adjusted basis, after adding back the impairment loss on goodwill, identifiable intangible assets and other long lived assets recorded last year, call. 2020's non GAAP diluted earnings per share was $1.44 When compared to our current quarter's performance, call. This 2021 quarterly diluted EPS of $1.78 represents a new all time record for any quarterly period in our history, end of the call, despite some of the headwinds we continue to face. This is further testimony to the operational excellence demonstrated by our subsidiary and segment teams each and every day EMCOR's call. Please turn to Slide 10. With the quarterly commentary complete, I will touch on some high level highlights EMCOR's results for the 1st 6 months of 2021, revenues of $4,740,000,000 represent an increase of $427,900,000 or call. 9%. Operating income of $250,400,000 or 5.3 percent of revenues represents sizable increases from both 2020's reported end as adjusted non GAAP 6 month results. Year to date diluted earnings per share is $3.32 end of the quarter. As compared to 2020 strong cash flow performance during the first half of the year. With substantial organic revenue growth in this year's Q2, We have experienced an increase in working capital investment as both our accounts receivable and contract asset balances have elevated in concert with our project and service volumes. Quarter. Further, it is important to note that our cash flow for the prior year period was favorably impacted by certain government legislation passed in light of the COVID-nineteen pandemic, call, which allowed for the deferral of the employer's portion of Social Security taxes throughout the majority of 2020 and also extended the deadline for making estimated federal tax payments from the 2nd to Q3 of last year. These measures, along with the United Kingdom's deferral value added tax in the prior year, favorably impacted both our 2nd quarter and 6 month operating cash flows in 2020 by almost $100,000,000 EMCOR. My expectation for full year 2021 is that we will generate operating cash flow in excess of $300,000,000 Please turn to Slide 11. EMCOR's balance sheet remains strong and liquid. Cash on hand is down from year end 2020, call. Driven by cash used in financing activities of approximately $157,000,000 inclusive of $138,000,000 used for the repurchase of our common stock end of the call and cash used in investing activities of approximately $771,000,000 most notably due to payments for acquisitions, end of the call. Net of cash acquired totaling just shy of $56,000,000 Working capital levels have increased modestly as increases in accounts receivable and contract assets end of the call. The increase in goodwill is predominantly a result of the 3 businesses acquired during the 1st 6 months of this year. Net identifiable intangible assets have increased slightly end of the call, as the impact of additional intangible assets recognized in connection with the previously referenced acquisitions were largely offset $31,000,000 of amortization expense during the year to date period. Total debt, exclusive of operating lease liabilities, is virtually unchanged end of the call since year end 2020. As a result of our consistent outstanding borrowings and the growth in our stockholders' equity EMCOR. Due to our net income for the 1st 6 months of 2021, EMCOR's debt to capitalization ratio has reduced to 11.7% EMCOR from 11.9 percent at the end of last year. EMCOR remains in a position of strength, which allows us to continue to invest in our business, end call. With my portion of this morning's slide presentation complete, I would I'd like to return the call to Tony. Tony? Hey, thanks, Mark. I'm going to be on Pages 12 to 13. I'm going to talk about remaining performance obligations by segment and market end call. I'll give you a top summary here. They're at their highest level ever. We have a strong mix. Our bookings were strong for both small and large projects. We've been talking about into my overall RPO commentary. We sort of had an RPO triple play here with RPOs increasing in 3 comparable periods. The year period, that's versus 'twenty for June 'twenty 1, June 'twenty 6 month period, 2021 June versus December 'twenty 1 and sequentially from March 2021. All 5 of our business segments are RPO growth for each of these measurement periods. Let's be fair. We've said this many times. This is not a quarter to quarter or month to month business. RPO movement It's not something we draw sweeping conclusions from month to month or quarter to quarter. But the reality is with the kind of bookings we had and the level we're at, we feel pretty good end about the forward view of our business. And I had a quarter one statement where I talked about the non res market, and I think I talked about it Also as we move through last year, that we wouldn't know what the impact of that second quarter would be until we got to the second quarter. And I think we can now say that we expect growth in the nonresidential market. I would guess that growth is going to be somewhere in the mid single digits, call, and we're clearly outperforming that mid single digit growth. As mentioned, total company RPOs at the end of the second quarter were just over $5,100,000,000 They're up $516,000,000 or 11.2 percent when compared to the year ago level of $4,600,000,000 They increased 5 end call. $111,000,000 for the 1st 6 months of the year. And real important to look at is the organic RPO growth, which increased $409,000,000 or 8.9%. End. And again, I talked about a book to bill well over 1. Our domestic construction segments had RPO growth in the quarter, $301,000,000 since June 30, 2020, and that was both in the Electrical and Mechanical Construction segments, call. We also expect strength to continue in our small projects, short duration work, and a lot of that centers on commercial and manufacturing is where we see that work. End. Building services is 13% of total RPOs in the 2nd quarter. It increased $202,000,000 $114,000,000 $202,000,000 $202,000,000 $202,000,000 $202,000,000 of that $202,000,000 was organic. Pre pandemic, small project demand is active. It's back is one other way of saying that across the country. And you're also getting more value now because of the indoor end of the call. The quality and air movement work that we're doing in addition to the energy efficiency work. Our customers are executing both types of these projects as a result of an expectation of increased energy costs, a desire to reduce their carbon footprint and a strong belief that IAQ Solutions will improve their employees' productivity call by improving their ease of mind and their safety. One of the things I'd point out is we are one of the key problem solvers for energy efficiency work and IAQ work. And as you demand more energy efficiency from your facility, we bring concepts from ideas and of things that people think about to real projects for owners and tenants. We're uniquely positioned to help our customers reduce their carbon footprint, achieve cost reduction goals and have better and cleaner buildings. Every time we service, repair or replace an HVAC unit or install or service a new or updated building control systems, and this is exactly where Mark told you we were growing in building services. We are making facilities, Health Care Facilities, Factories and Office Buildings Less Carbon Intense and More Efficient. The other thing we're seeing is the combination of these energy savings projects call with more on-site generation, whether it be renewable generation like solar or combined heat and power, which takes end of the call. It is important to note that most of our Industrial Service segment field services work would not be in RPOs as it is executed via time and material contracts. And in that case, we're seeing strong demand for us to schedule for people as we go from the back half of this year into next year. Call. What we're seeing across the RPOs is we're winning at a rate that we believe is much faster than the underlying nonresidential market growth We have durability to move within these sectors and flexibility, and that will continue to benefit us as we move through the remainder of 2021 and into 2022. With that, I'm now going to wrap up on Pages 1516. As we assess our performance at the half, we are call. We will raise our revenue guidance to $9,500,000,000 in revenues, which exceeds our previous range of $9,200,000,000 end of the call to $9,400,000,000 in revenues. We will raise our earnings per diluted share guidance from $6.35 to $6.75 conclusion of the Q2 and with greater visibility that we now have, we can raise our guidance. For us to achieve the middle to end of that guidance range, a large percentage of the following must happen. I think most of you know I like to talk about what we control and what we don't control. We like to focus on the things we don't control and prepare contingency plans for those things That we don't control. So we focus on the things we control and have contingency plans for the things we don't control. What we control? Well, we like to think we control our costs, and we're known for keeping our costs in check, Whether that be direct and indirect labor costs, material costs, we're pretty good at this, and it's been an operating fundamental here at EMCOR for a long time. We call. We need to continue to have success in navigating the supply chain challenge with respect to pricing and availability. I talked about that earlier in my opening commentary. It's a challenge. I mean, I've listened to a bunch of calls. You listen to more calls. It's a challenge. We're positioned well to navigate it. We think we'll continue navigating it well, end, but it is a challenge. We also need to continue to be able to find the right labor at the right time. We've always been very successful at that. It's a question you all ask. Call. I'll answer for you now. We expect to continue to be successful at that. We will always struggle to find HVAC technicians in the summer like everybody else. End. And our raw technicians and our operating engineers, we always are looking for because we're growing that business pretty healthily right now. And so those are the two areas we always look for people, but we have great labor relations at the local level, and we expect to be able to man our projects with the right people at the right time and the right skill mix. We are an employer of choice. We expect the booking momentum to continue, Especially with respect to quick term project work. And for us, that means projects really less than $2,500,000 or so. It's very strong right now. We expect that to continue. And that's what gives us conviction to talk about the underlying strength in the market overall. I'm humble enough and our team is humble enough There's a whole bunch of things we don't control. We don't control whether the nonresidential market will continue this strong. We expect it to be. Call. But if it's not, we will react and have a contingency plan to adapt to that. We don't control what will happen in industrial services. We know what we see with respect to what call. People want us to do, but we've been doing this long enough to know that, that can change. And look, we're a little shy about We don't expect any major COVID disruptions in our business or our geographies. I do expect That there be increased demand from our customers for us to supply vaccinated people, and we are advocating that strongly in our business and for our employees. We spent nearly $57,000,000 on acquisitions year to date. They were right down the pipe as far as the kind of things that we like to do. Call. We returned $138,000,000 year to date on share repurchases, as Mark talked about, and we've end of the call. Also returned $14,200,000 in dividends back to our shareholders. We expect to continue to be balanced capital allocators as the year progresses, We have a decent pipeline of acquisitions that we are working on. I will tell you unequivocally right now that one of the stress of our company is our balance sheet. Call. Our customers look to that balance sheet. It's one of the reasons we can grow as fast as we can organically, and it's one of the reasons we've had so much success call. On a lot of the quick term work in these large data center projects and health care projects because people know that we will have the working capital and the ability to build the team end quote on a very quick basis with the right labor at the right time and have the access to the capital to do that. With all that being said, I'm happy to take questions. Jerome, Your first question comes from the line of Noelle Dilts with Stifel. Your line is open. Call. Hi, guys. Congrats on another good quarter. Good morning, Noelle. Good morning. So I was hoping you could just speak to the impact of raw material cost inflation. I asked about this last quarter and you talked about really making some major efforts to manage higher costs coming through. So could you just discuss where that stands today and the extent to which you've been able to pass Hyre material cost on to your customers. There's 3 ways that this gets mitigated end and how it works, right? The first one is, on longer term projects where we locked in the price, especially for major end components or major commodities where we've talked to distributors long before today. We're blessed to have good relationships. And businesses work together. I mean, most pricing is protected on those large projects because we're going to all work quarter. We're all going to work together after this period of inflation. So there's a portion of our work that's protected. Call. The next portion of our work is you look at our composition of our company and you think about how much gets executed in short order, which is less than a year, call. This marks about twothree of what we do. So therefore, we're repricing that work all the time. We know today that we're in that environment. So there's 2 ways we'll mitigate that. We either lock it in for that 60 or 90 days where we buy the material or we'll make it very clear to our customers that this is the component price contract where they don't accept it, then we work extra hard to lock in the price. The third component of our work is time and material. A big chunk of the building services work, the small project work may not be time and material, but it's going to be executed in less than 60 days. It has a lot of the pricing characteristics of time and material work or it actually is time and material work and all of our industrial work, which has very low material component that's not Purchased by the customer is time and material work. Mark, do you have anything to add on that? End. No, I'll just to edify what Tony said. When you look at our RPO In hand, actually 84% is going to be executed in the next 12 months. So it's actually more than 2 thirds. EMCOR. So clearly, our supply network has been stable for a long number of years. As you would imagine, EMCORE. EMCORE is a sizable and important customer for those of us who are in that chain. It's a valued relationship on both call. I think Mark said made a really important statement there, and this is the CFO making the statement. We value both sides of that supply chain. So unlike other large companies that we deal with at times, we don't take prepaid discounts If we're not prepaying somebody or early paying somebody, we treat our suppliers the way we expect to be treated. And as a result of that, they tend to treat us fair in times like this. And We also have open communication. You think about a large distributor in a market. We may be, in many cases, their most important customer Electrically and mechanically on what they're distributing. And we are the most important customer, and you treat them right when times are maybe not as good as they were last year. They remember that now just like we do. I mean, our best customers get our best labor, and I think we get the best treatment from a lot of our suppliers call. Because our subsidiary CEOs deal very professionally with their suppliers at all times, that is how we conduct business. It's It's part of our corporate values. It's part of our code of conduct. It's how we treat people, and it's how we expect to be treated. Okay, great. That's really helpful. Second question is a little bit more granular. But could you just end. I'll expand upon the trends you're seeing in Industrial Services. And one of the things we've been watching is that with kind of good operating environment for some of the refiners, strong crack spreads, etcetera, that they might delay some work. Just could you speak to what you're seeing there and how you're thinking about the outlook? I think they may, but they're not going to delay it beyond Q1 of next year, we don't think, and that's what we're really seeing what we're really calling The real inflection. Clearly, we think the comps will be better as you move through the back half of this year for a lot of reasons. Call. But we do think that they're rebuilding. They're getting their planning. We know what we're planning. Again, they'll be better this year, next year. I don't think that they plan on deferring maintenance forever. Okay. Thank you. And your next question comes from Sean Giffman with KeyBanc Capital Markets. Your line is open. Call. So book to bill above 1 times, 2 quarters in a row now. I'm just curious how you'd characterize The kind of velocity there since the start of the year, has bid activity continued to build momentum through the first half? And maybe put another way, would you expect to book more work in the second half than you did in the first half? I'm always cautious to think of that, especially thinking of the kind of booking we had in the first half. End. I think you've heard me say this before, Sean. Every decision of size that we're involved with is a binary decision. Call. When scopes define, we don't get it. It's not like a OEM that gets a share of the market typically. So we won the project and we didn't win the project. Call. We won more than we thought we were going to win in the first half of the year, and we won the right kind of work. Could that happen again in the second half of the year with more velocity? Sure, it could. I don't necessarily think overall activity is necessarily stronger than we thought it was going to be. We're winning more of the right work and call. The kind of work we won, than we thought in a typical year. Mark? Yes. Sean, the only thing I would add to Tony's comment is that We're also seeing people making decisions now, right. Clearly, in the back half of twenty twenty, there was call. Yes, a lot in front of us, a lot in front of our customers and most people hit the pause button for the obvious reasons. We're seeing more conviction in decision making certainly through the 1st 6 months of 2021. I mean, we're cautiously optimistic that, that trend is going to continue as we move through the rest of the year. Yes. I think one of the wildcards is supply chain. Call. I think if there were more conviction around the supply chain right now, I think booking activity would even be stronger. I think there's 2 things that are sort of holding back things right now. 1 are the supply chain issues, which are real, and I think they center on 2 things. Call. One is resumption of capacity, right? Capacity is coming back online, both in the U. S. And overseas. Call. And the second thing is availability of labor. We talk to our suppliers. They're figuring out the first part, I think, now, end. Getting the materials and really steel mill should start coming down. That's the one I think price should start coming down, and it really hasn't in substantial way yet. But the real one is labor. It's very difficult to hire labor to just come in and restaff a lot of the plants. So therefore, they're not operating at the capacity they'd like to operate at. And I'll give you a real example, right? When we talk to some of our suppliers, The way you typically hire in the manufacturing environment, although we don't really do that, but the way you typically hire in a end of the year. You would typically bring people in either seasonally or for a 60 day trial period. A 60 day trial period would typically be through a temp agency. And really, what you're trying to make sure is does the person show up to work, Can we train them on the skills and can they pass the drug test? I mean, just be very straight, that's what they're looking for. And then after 60 days, people typically would get a pretty substantial raise. So they may have brought them in at $12 or $13 an hour And then raise them to $15 $18 an hour once they became full time. That whole first step isn't happening right now. And So as a result, you're getting more churn in their permanent workforce if they can find it. And venture to say, I think a big chunk of the manufacturing capacity that we draw from is probably still yet somewhere between 6% 10% understaffed versus where they'd like to be. Okay. That's interesting, Tony. That's helpful as we think about the swings into the second half. Call. And my second question is, we talk about the non res market growth and call. The construction segments are clearly poised to sort of outperform that broader non res growth. But I wanted to kind of Drill Down on Building Services. Considering we've got some seemingly pretty durable secular drivers there around Energy Efficiency, IAQ, etcetera. I mean, what's the growth rate in the services piece of the business, if that makes sense. Yes. I mean, So you can see what's going to go on with project bookings. I mean, they'll roll out. They're a little larger than they typically are, so the end. It will be a little longer, so they may go into next year, some of them. You're talking 20% plus organic growth in bookings. Underlying service growth is very strong. It's high single digits or will be end. It should be through the summer. What's restraining that segment's growth right now is some of what's going on with the government business right now. It is nothing that we are terribly worried about, but it's slow awards, slow decision making. Pretty much, Mark and I talk about it. We could pretty much play the playbook based on when the administration's changed, and now it even happens at midterm elections, so Depending on what happens with Congress. So that's what's sort of slowing things down. Good growth in commercial sites, good growth in repair service, Good growth in service agreements, good growth in controls, very strong growth in projects. So you are right to point out, We have a great team that anticipates those needs and did all the training they needed to do to have people ready. But you're right to point out there are some very good secular trends That we're benefiting from. Those trends also happen in the mechanical construction business. A portion of the revenues, Mark, what 15%, 20% of their revenues It's also service and small projects. Do you have anything to add to that? No, nothing to add. Okay. Thanks a lot, gents. I'll turn it over there. End. Okay. Great. And your next question comes from Adam Thalhimer with Thompson Davis. Your line is open. Hey, good morning guys. Congrats on the quarter. Good morning, Adam. Great quarter. Thank you. Can you I guess I wanted to ask first on the revenue guidance Because that would imply I would have to bring down the back half a little bit. Within the segments, where are you possibly seeing A little bit of weakness where I could bring that down. We don't do your modeling. We looked at the first half, we're expecting as good or better second half as the first half, but the wildcard being what might happen in industrial. So I don't know how you're thinking about the other parts, but that's how we're thinking about the world in general. Do you see industrial revenue being similar to the first half? I don't I think it should be better. Call. But again, we're cautiously optimistic and with an emphasis on the word cautiously. And then within building services, was there anything unusual that flowed through in Q2. I know you talked about that mix issue. No. I mean nothing unusual. So 6.24% is kind of a decent base for the back half? 6.4 what? No, no, I'm sorry, 600 The quarterly revenue there was $625,000,000 I just didn't know if that was Yes, Adam, we don't do quarterly revenue and operating How are clients responding to materials prices? I call. I think they're pragmatic. They're reading it about in the paper every day. Do they want the project done or not? We're being straight up with them, right? We tell them what we know. They're hearing it everywhere. So the reacting is I wouldn't say it's shock and disappointment. The same characters that never want to pay for anything, don't want to pay for anything now, and the ones that work with us are the ones we're working with. Yes, this is the time for us to be customer selective and we are. And then, Mark, any thoughts on back half cash call. Is it better than the first half? Yes. I mean, in my commentary, Adam, I specified that we're expecting full year operating cash flow to be in excess of $300,000,000 Obviously, we're what negative 6 or 7 through the first half. So you could force that math. Got it. And then, Tony, you brought up the acquisition pipeline. Can you just give a little more color? Yes, sure. I mean, we've closed Some deals here today. We have a couple more that we expect to close here in the near term. They're either geographic expansions or product line expansions, call. And they've been different sizes. There are things that can be stand alone and help us grow market or there are very niche things that we attach to Existing operations. The pipeline is strong. What we are learning is some companies that thought they were ready to sell, Post pandemic, maybe weren't quite ready to sell. They need 6 months maybe to get things ready to sell. But again, I think I pointed out on the slide, we did about $500,000,000 of deal from 2018 till Q1. There's no reason for me to believe it won't be at least that or more as we go through the next 3 years. As I've always said, deals happen when they happen. They're I feel better about the acquisition teams we have in place now than I ever have. I feel better about the due diligence we do now than I ever have. Those might take longer now, right? There's other things you have to think about. You have to make sure you're doing good cyber due diligence, and the targets clearly know that. You have to make sure you're doing good due diligence around What you really think happened to their demand in the pandemic and what's coming back, I think, again, the people we're working with to buy know that also. Call. And then, of course, you've heard me whine consistently for any number of years now about multiples, Private equity multiples. I'm not going to do that anymore because for me, as a Pittsburgh Steelers fan, it's sort of like The New England Patriots beat us. They beat SS Life. I'm not sure they're beating us on long term value creation. All you have to do to win an acquisition is pay more EMCOR in some cases. And that's usually not the best acquisition for us. The best acquisition for us is some of the terrific people M Corp team over the last number of years. I can go all the way back to when we bought S. A. Communal in 2,006 end. Steve Communal still probably runs that company, or Shambaugh that came with Comfort Systems, and Mark Shambaugh run it, and now Paul Myers is a terrific operator with Mark Bierkamp run it. And they take pride in what they do, and they're building that business for the long term and the work that Rob Vincent has done in fire protection Or the team that came with R&R Mechanical and how Vincent sold his life's work to us and he's still in there every day EMCOR. Swing it away and part of the team. And those are the best acquisitions for EMCOR. We see no shortage in pipeline of people who really care about their business, their people and want a fair return on their life's work but still want to work. And so I'll stick to what we do end of the long term value creation we have and not get crazy and try to compete for people with people that have a different view of the world end. And your next question comes from Brent Thielman with D. A. Davidson. Your line is open. Good morning, Brooks. Thank you. Hey, good morning. Congrats again on another great quarter. Tony, I mean more than 20% growth this quarter. I know you had some unique circumstances last year, but that's pretty notable of the quarter. I think one of the things that comes to mind is all the supply chain logistical pressures that have been brought up, assuming it affects Everyone in the industry. And I guess what I'm wondering is, do you think you're gaining some share in light of that in some of these local geographies just because you have this more sophisticated platform and better equipped to manage that. What I think is we're winning more projects. I don't ever think about share. So yes, I guess we're winning more share. But the way I think about it, are we winning more of the projects that we target? And the answer to that is yes. And I think we're winning more of those projects for three reasons. It starts with technical excellence, right? We got the best folks, and we can do it safely, and we do it right, and we're going to be there to make sure that, that product commissions the right way. And then on the service side, we're going to bring some of the best technical resources to get buildings back up and running or to get that energy done, reduce people's carbon footprint and now bring an IAQ solution in with it. And Mike Bordis and the team in Energy Services. Call. Then I think it gets to the people at our segment level, Joe Burns and Dan Fitzgibbons. They've invigorated the teams. We had great teams to begin with, And they've invigorated them to look in this market and look at that, what you just said, as an opportunity. We are more sophisticated. And we also people know that we can bring the labor to bear. And we can, a lot of times, get the best labor to bear. We have some of the best foremen and superintendents in the industry. They then attract some of the best labor in the industry. Call. And I would now and just follow with what I think is often overlooked. When you're going to do a data center project that may be a hyperscale project, It's a 50 megawatt, a 75 megawatt project and you're going to burn $80,000,000 of costs in 9 months or less. You better have the liquidity and balance sheet to do that. And more and more customers are looking at our balance sheet and looking at our liquidity and looking at our ability to execute the other two things And say, yes, these guys can make that happen. And they manage this business very conservatively, and they manage it appropriately for the kind of contractors that they are. Amcor folks will bring it to bear. And I'd add another thing. Our folks are working better together through their peer learning emphasis and ideas across our company than any time in my 17 years here. Hey, Tony, do you think that's applicable to industrial services as well because I know the environment is still not good, but your margins are up a little bit there. It seems like there's a better growth in field services ops. I wonder if that's Bad markets prove whether you have a good team or not. We have a great team. They've been operate they're operating near break Even on an operating income basis, generating positive EBITDA mark, cash is okay, right? Tough market. Call. I think, yes, the same applies there. Yes. And I guess I tended to think of materials at least call. Historically, it's generally a pass through for you guys, right or wrong, but most of the costs just lie in the people, right? And so I guess what I'm asking here, Tony, is how constraining is this rise in materials prices to margins now or potentially into the second half? Because Yes, if that's the case, I know your gross profit dollars should grow, but is it really meaningful enough to potentially weigh on margins for new jobs you add? No, it might be a short term dislocation on 1 project or 2 projects. And look, we may choose to do that. Because just like We talk about how our suppliers protect us. On the right projects, we protect our customers. That's life. And we're not going to blow up a long term relationship because of that. If we think, hey, The customer did everything right here. We need to make this right. That doesn't typically happen on the large projects, but the smaller stuff, we may do that. The second thing is what is constraining is potentially new starts. We haven't seen that yet. We might. Call. But I'll give you a flip side of the argument that is likely to happen, I think. We talked a lot about reshoring and onshoring and manufacturing capacity. I think this whole supply chain issue is actually an opportunity for us long term. Long term meaning the next 2 to 5 years As more people look at creating flexibility in their factories and making them less labor dependent after what they've experienced over the last 6 months And more things come onshore. The trade relations aren't getting better with China. The situation is not any more improved in Mexico. Call. One of the things I know when we talk to our customers is we got collectively an industrial American, a bad habit. We We always thought about our most important products being dual sourced, at least dual sourced from a facility standpoint. It might be with the same supplier, But as far as we expected to have dual facilities, we got away from that the last 10 years, and we see that coming back pretty substantially right now across the board. Call. Okay. Maybe the last one and I didn't speculate too much on markets, but I don't think I realized how Your healthcare related business is coming back both in electrical and mechanical. I guess I'm just curious to your thoughts whether that's Cyclical, secular catch up from last year's kind of softness. What are your thoughts there? It's cyclical, secular. End. Does that make sense? All of the above. There's good long term secular trends, but we think it's going into a pretty good cycle right now. Yes, looks sustainable. Okay. All right. Thank you very much. Thank you. Is that it? All right. We No further question at this time. I'll hand the call back to the company. Hey, look, thank you all for listening. We did have a very good quarter. Our folks are doing a lot of the right things, and I know I'm thankful to be surrounded by such great teammates every day, and we're very aware How hard the work is in the field. And I have a lot of passion on the subject about how we take care of our people. EMCOR. And I'd implore anybody that's listening from EMCOR, do everything you can to encourage vaccinations so we can start to put this pandemic behind end of our core values of safety, and I look at this as squarely in the middle of that core value. With that, I'll leave you. Thank you, and end. Ladies and gentlemen, that concludes today's conference. Thank you all for joining. You may now disconnect.