Earnings Call: Q1 2020

Apr 30, 2020

Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amcor Group First Quarter 2020 Earnings Call. All lines have been placed on mute to prevent any background noise. Session. Ms. Jamie Baird with FTI Consulting, you may begin. Thank you, Lara, and good morning, everyone. Welcome to the EMCORE Group Conference Call. We are here today to discuss the company's 2020 first quarter results, which were reported this morning. I would now like to turn the call over to Kevin Matts, Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead. Thank you, Jamie, and good morning, everyone. Thank you for your interest in EMCOR. As we start, let me see simply and briefly say, I hope you and your families are well and staying safe as we move through this unprecedented time. For those of you who are accessing this call via our Internet and our website, welcome, and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. We are on Slide 2. This presentation and discussion contains certain forward looking statements and certain non GAAP financial information. Page 2 describes in detail the forward looking statements and the non GAAP financial disclosures. I encourage everyone to review both disclosures in conjunction with our and accompanying slides. Slide 3 depicts the executives who are with me to discuss the quarter's results. They are Tony Guzzi, our Chairman, President and Chief Executive Officer Mark Pompa, Executive Vice President, Chief Financial Officer and Treasurer and our Senior Vice President, General Counselor, C. Mauricio. For call participants not accessing the conference call via the Internet, this presentation, including the slide, will be archived in the Investor Relations section of our website under Presentations. You can find us at emcordgroup.com. With that being said, please let me turn the call over to Tony. Tony? Yes, thanks Kevin. And I'm going to be on pages 4 through 6. As we have already released preliminary results, I am not going to speak that much to the first quarter of 2020. Mark Will, I will cover some of the highlights and Mark will speak to the detailed results. And then I will end with an overview of what we are seeing in the marketplace today. Even when faced with significant obstacles, we had a record quarter. We set first quarter records for revenues, Gross profit, gross margin, operating income, and diluted earnings per share from continuing operation. The entire EMCOR organization has responded well to this COVID-nineteen crisis. I thank our leadership and and I also thank them for keeping focus on our business during these challenging times. We have a company values of mission first people always. We train those values, we hire on those values, and we promote our team on those values. It serves us well in these challenging times. I will quickly summarize some highlights for the quarter. Our Mechanical And Electrical Construction segments had a very strong quarter led by our work in data centers, healthcare and food processing. We had a particularly strong booking quarter in these segments. Our Building Services segment had the most disruption in the first quarter from COVID-nineteen as our owner customers started to limit access for our HVAC technicians and our commercial site based businesses. However, we executed very well until mid March and our project execution was very strong, and we booked some very nice retrofit and energy savings projects. Our Industrial Services segment had a very good quarter despite a challenging end market. We had strengthened our field operation and executed several large turnarounds. Some of our work was pushed from mid March until later in second quarter, or the results would have even been better. Our UK segment had a terrific quarter. We leave the quarter with a strong and liquid balance sheet, record remaining performance obligations or RPOs and a business that still has opportunities to operate in this unprecedented environment. We are well positioned With that, I will turn it over to Mark to discuss the quarter in more detail. Thank you, Tony and good morning to everyone on the call today. For those accessing this presentation via the webcast, we are now on Slide 7. Over the next several slides, I will augment Tony's opening commentary and review each of our reportable segments first quarter operating performance as well as other key financial data derived from our consolidated financial statements included in both our earnings release announcement and Form 10Q filed with the Securities And Exchange Commission earlier today. So let's expand our review of EMCOR's first quarter performance. Consolidated revenues of $2,300,000,000 are up $141,100,000 or 6.5 percent over quarter 1, 2019. Our first quarter results include $82,500,000 of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by court on last year's first quarter. Acquisition revenues positively impacted each of our United States Electrical Construction, United States Mechanical Construction, in United States Building Services segments. Excluding the impact of businesses acquired, 1st quarter consolidated revenues increased approximately $58,600,000 or 2.7 percent. All of EMCOR's reportable segments, other than our United States Electrical Construction segment reported revenue growth during the first quarter of 2020. United States Electrical Construction revenues of $525,200,000 decreased to $2,800,000 or approximately 1 half of a percent from 20 nineteen's first quarter. Excluding acquisition revenues of $25,400,000, this segment's quarterly revenues declined 5.3 percent organically quarter over quarter. Revenue declines within the commercial transportation, water and hospitality market sectors due to the completion of certain projects during 2019, were partially offset by increased project revenues within the manufacturing, institutional and healthcare market sectors. United States Mechanical Construction revenues of $834,100,000 increased $81,700,000 or 10.9 percent from quarter 1, 20 19. Excluding acquisition revenues of $55,500,000, this segment's revenues grew organically 3.5 percent quarter over quarter. Revenue growth was primarily attributable to an increase in revenues for manufacturing, healthcare, transportation and institutional projects. These revenue gains were partially offset by contractions in project activity within the commercial, hospitality and water market sectors. First quarter revenues for EMCOR's total domestic construction business of $1,360,000,000 increased $78,900,000 or 6.2%. As Tony will cover later during this presentation, our combined United States construction business has experienced growth, both sequentially and year over year, and the remaining performance obligations through March 31. United States Building Services quarterly revenues of $518,100,000, increased $6,000,000 or just over 1%. The majority of which was attributable to organic activities. Revenue gains within the segment's Mechanical Services division were substantially offset by quarter over quarter revenue declines within each of their commercial site based energy and government services divisions. United States Industrial Services revenues of $310,000,000 increased $51,400,000 or 19.9 percent, as a result of higher field services activities as we executed a fairly strong spring turnaround schedule when compared to the prior year. Offsetting the quarter over quarter revenue growth was a decline in the segment shop services revenues due to a reduction in new build heat exchanger sales. United Kingdom Building Services revenues of $112,400,000 increased $4,800,000 or 4.5 percent, due to incremental revenues from new maintenance contracts as well as continued project and repair activity across their customer portfolio. Quarterly revenue growth was hindered by $2,200,000 of foreign exchange headwinds. Please turn to Slide 8. Selling, general and administrative expenses of $227,000,000 represent 9.9 percent of 1st quarter revenues, and reflect an increase of $20,800,000 from quarter 1, 2019. SG and A for the first quarter of 2020 includes approximately 9,000,000 $11,800,000. This organic increase was primarily due to higher employment costs as a result of increased headcount support our pre COVID-nineteen revenue growth expectations as well as incremental expense for credit losses within the quarter. This incremental expense compares unfavorably to 20 nineteen's first quarter, which included a recovery of credit losses or bad debts that have been previously written off. In addition, the first quarter of 2019 benefited from a favorable legal settlement within our Industrial Services segment which was recorded as a reduction to selling, general and administrative expenses. The current year increases were partially offset by a reduction in incentive compensation expense year over year. Reported operating income for the quarter of 4.7 percent of revenues in 20 nineteen's first quarter. This performance represents a $3,700,000 increase or 3.6% period over period. Our US Electrical Construction Services segment operating income of $43,900,000 increased approximately $1,000,000 from the comparable 2019 period. Reported operating margin of 8.4 percent represents a 30 basis point improvement over last year's first quarter. The increase in the segment's operating income is primarily due to incremental contribution from a business acquired in 2019, The improvement in operating margin, however, is due to favorable project execution, inclusive of project closeouts within the quarter. 1st quarter operating income of our U. S. Mechanical Construction Services segment of $45,200,000 represents a $4,200,000 increase from 2019. Operating margin of 5.4 percent is consistent year over year. The increase in the segment's operating income is partially attributable to the incremental contribution from businesses acquired, as well is reporting $89,100,000 of operating income and a 6.6% operating margin. This performance has improved by $5,100,000 or 6.1 percent 20 nineteen's first quarter. Operating income for U. S. Building Services of $20,800,000 represents 4 percent of revenues, and is a $6,600,000 reduction from last year's first quarter. Operating margin decreased by 140 basis points. The quarter over quarter reduction in operating income is due to lower gross profit from this segment's commercial site based services division, as a result of the reduction in snow removal revenues, as well as a decline in gross profit within their energy services division, due to a decrease in large project activity given the substantial completion of certain projects in 2019. Additionally The reduction in operating margin quarter over quarter is due to the under absorption of certain overhead costs and those decisions that experience revenue declines as well as an increase in the provision for credit losses within this segment as compared to 20 nineteen's first quarter, which benefited from the recovery of certain receivables which had been previously written off. Our U. S. Industrial Services segment is reporting operating income of $12,300,000 or 4 percent of revenues, The previously referenced quarter over quarter growth in field services activities resulted in an improvement in both operating income and operating margin when compared to 2019's core spot period. UK Building Services operating income of $5,800,000 represents 5.1 percent of revenues, which is an improvement of $1,600,000 1 20 basis point of operating margin expansion over 20 nineteen's first quarter. Our EMCOR UK team continues to do an excellent job of fostering new maintenance customer relationships and executing follow on repair and project services, while maintaining a disciplined cost structure. We are now on Slide 9. Additional financial items or significance for the quarter not addressed on my previous slides are as follows: quarter 1 gross profit of 3.33 $100,000 represents 14.5 percent of revenues, which has improved from the comparable 2019 quarter by $24,300,000 20 basis points of gross margin. The increase in consolidated gross profit is a result of increases across all our reportable segments, other than U. S. Building Services, while the gross margin improvement is due to continued excellence and project execution, primarily within our United States construction segments. Diluted earnings per common share is $1.35 as compared to $1.28 per diluted share for the quarter ended March 31, 2019, This represents a 5 filed directly a little later 2019 as a result of cash used in operations, primarily due to the funding of 20 nineteen's company wide incentive compensation awards. Additionally, with respect to cash used in financing activities, we were purchased approximately $99,000,000 of our common stock pursuant to our share repurchase program. These uses of cash were offset by incremental borrowings of $192,500,000 under our amended and extended credit facility during the quarter. Working capital levels have increased due to our organic revenue growth as well as an increase in accounts receivable and a corresponding decrease in net contract liabilities. Related to certain delays in customer billings resulting from the Raiue grants and wear attack, we disclosed in connection with our 2019 year end earnings call, and Form 10 K filing. We are currently caught up with our transaction processing, however, that does not necessarily translate quicker turnaround when it comes to payment from our customers. The increase in goodwill is due to the business acquired during the first quarter within our U. S. Building Services segment, Net identifiable intangible assets decreased as a result of $14,700,000 of intangible asset amortization partially offset by the impact of additional intangible Total debt excluding operating lease liabilities is approximately $505,000,000 and represents an increase of $192,300,000 from year end 2019. As a result of our outstanding borrowings, we had a debt to capitalization ratio of 19.9% as compared to 13.2% December 31, 2019. As I mentioned earlier, I will cover EMCOR's liquidity in greater depth later in this morning's presentation after I turn the call back to Tony. Tony? Thanks, Mark. And I'm on Page 11, which I will cover remaining performance obligations by segment and market sector. As stated earlier, we had a strong bookings quarter. Total RPOs at the end of the first quarter were 4 point $42,000,000,000, up $267,000,000 or 6.4 percent when compared to the March 2019 level up $4,160,000,000. In fact, this RPO total is the highest quarterly total reported since we initiated RPO reporting in March 2018 and higher than any backlog level we reported prior to that. Domestic RPOs have increased $284,000,000 or 7.1 percent since the year ago period, driven mainly by our Mechanical Construction segment. We did close a few strategic mechanical construction acquisitions in 2019 which helps support that growth. Book to bill, measuring first quarter 2020 RPO activity over year end 2019 to activity was close to 1.2, which is fairly strong performance considering the strong 1st quarter revenues of 2,300,000,000. So from the end of 2019, total RPOs increased $388,000,000 or 9.6%. On the right side of the page, we show RPOs by market sector. 1.8000000000 of this is classified as projects in the commercial sector. We view this sector broadly and beyond office and financial facilities. This sector also includes high-tech, and data center projects that we continue to bid and construct. We are building these highly complex, fast paced data center projects for the largest internet and data storage providers. And while there are certain dense geographies for data center construction, like the Mid Atlantic And the Pacific Northwest, where we have industry leading expertise in our Dine Washington, Pool And Kent, Oregon Companies, We are also seeing other areas of the country where data center construction is building up for the large providers. Amcor companies are uniquely suited to do this work in other parts of the country as well. 2 such areas are in Dallas and Iowa, Iowa, where in the last 18 months or so, we have made electrical construction and service acquisitions investments to address growth in these geographic areas. Also, last November, we announced the acquisition of Bachelor And Kimball or BKI. This terrific Atlanta based full service mechanical contractor is a nationwide leader in constructing large, complex construction projects including data centers, with a strong performance record for data centers in the broader Southeast and Oklahoma. Additionally, BK also is a leading provider of healthcare facilities. Another market sector This saw RPO growth in the year over year and 1st 3 months of 2020. Before I leave here, because I know you're going to ask, I want to address a certain question. Yes, we have performed several projects across the country, either to support the corps of engineers, municipalities, or our healthcare provider customers. And what we're doing is expanding our retrofitting facilities to allow for the better treatment of COVID-nineteen patients. This work was for the most part, In the aggregate, while this work is incredibly important to support our customers, this work has not substantially impacted our results. In summary, all I can say is that the current bidding environment is still active in most area of the countries, and I'll speak to that in a moment. And while it is very rare, the projects that we are working on get canceled, there is going to be a certain degree of uncertainty with respect to the rollout of this work in this fluid environment that we are operating in at this time. And now I'm going to go to pages 1213 I'm going to talk about what the external environment looks like and what the internal environment that we're dealing with looks like. As I think about our business, again, rely on what has always been our operating philosophy at EMCOR. You only can control what you can control. And you have to react to the macro disruptions and problems in a disciplined and process oriented manner. We will keep our focus on our core values of mission first people always. We know that we create long term sustainable value for our shareholders by focusing on our task at hand and maintaining the discipline that has served us so well in good and bad markets. And in markets like the one in which we are currently operating, that have changed very abruptly. We must keep executing our mission for our which is one of our core values. Fortunately, it is in our DNA to have robust contingency plans to focus not only on opportunity capture in any market, but also resiliency to react to markets and job site conditions that change for better or worse. And as contracts, markets, job sites and the overall environment changes, we are used to adjusting to changes in those conditions and know how to pivot responsibly and appropriately on very short notice. So first, let's discuss the operating environment, the external operating environment that we are operating in. In many cases, we are still operating full force as we are deemed an essential business in many states and cities. However, this changes to the plus or minus every day. Boston, New York City, New Jersey, parts of the San Francisco Bay Area, and Pennsylvania, All are under work stoppage or EMCOR's project and service work are not deemed essential. However, Even in those places, we are still operating at 25% to 30% of capacity as that work is deemed essential. Our small project work and technician based businesses have been the most impacted of our United States businesses. Customers have shut much of this stop, but I do not expect this shutdown will continue as a lot of this work is needed service for summer startup and required maintenance, replacement and repair work. And always keep in mind that we do not determine whether a project has stopped, or a service site is closed. Our owner, general contractor, construction manager, and EPC contractor customers determine that. And we respond accordingly. The oil war and now the oil glut emanating from significantly reduced demand is ongoing and having an impact on where the impact has been most significant to our much larger downstream business where there has been less of an impact to date. When you talk about how we get supplies, right, to do our job, supply disruption may also happen as manufacturers and or distributors are forced to close plants in certain states and or countries, as those plant personnel or quarantine or facilities are closed for cleaning or the government decides that facility is not essential. To date, we have not had any significant disruptions that have not allowed us to do our work where we are deemed essential. Here is what we do control in this crisis to some extent. We can control some of our costs. Unfortunately, this means we must lay off or furlough skilled tradespeople when we have no work for them. We have had a growing workforce over the last 5 years. And unfortunately, in many cases, the work has stopped abruptly stopped over the last 6 weeks. We have reduced our hourly workforce by 20% to 25% overall in line with those projects that are active. About 40% of our salaried workforce is either furloughed or working with reduced hours or reduced pay of up to 25% on a temporary basis. For example, as early as March 18, we announced a temporary reduced most of the headquarters staff pay and or ours by 25%. This includes me and all the named executive officers. Our Board of Directors have reduced their compensation by about 22%. Our segment leadership also implemented similar cost reductions for their segment's staff and leadership teams. However, about 40% of our company is still working at pre COVID salary and hourly levels, And in those cases, we have not significantly reduced our SG and A or cost as we need to have them have the resources they need to continue to perform for our customers. Implementing appropriate precautionary protocols and providing the necessary PPE and training. We started social distancing practices and other safety protocols in many of our locations in the 1st week of March. We banned all overseas travel by 3rd week of February, and discourage all domestic air travel by March 16. This will impact productivity in the near term, with safety and health come first. And in this crisis, we still must protect our contractual rights. We were required under contract to provide notice on jobs that are shut down, and we have also outlined for our customers how work practices have changed and possible productivity issues we may have. Our customers know we need to do this. I firmly believe that we are all working together well now. But in the end, everything will depend on the contractual language when this crisis abates, and we must protect our rights. We are communicating frequently and consistently with our field leadership about the many areas that we working, but have had to lead our response while navigating the myriad of government orders from the trade off between reduced hours of furloughs shutdown directors, essential versus nonessential businesses, and that's just to name a few. And we are proactive working with our suppliers to keep project supplies moving but also to stay ahead of the game on providing the best personal protective equipment that we can. However, we need to balance what we control against what we do not control. And in this case, the things we do not control outweigh the areas we do control. Our mechanical and electrical construction segments are operating at about 75 to 80% of capacity right now because in many markets, we are essential and we are still working on our most significant projects. Our Building Services segment has been the most impacted by the macro factors described above and is operating at about 65 to 70% of capacity. Our Industrial Services segment had a good first quarter and has the potential to continue in the 2nd quarter based on several large turnarounds that are currently scheduled to be executed in the latter part of the second quarter and the early part of the third quarter. The fall schedule is neither set nor firm at this time. EIS today is operating at about 75% to 80% of capacity. The UK business is less impacted by nature of our customer base and it's operating at 80% to 85% of capacity. You put all that together. We think we are deploying at about 70% to 80% of our operating capacity as of today, However, as noted above, this is a fluid situation as circumstances change day to day, both for the positive and the negative. The next area, and I believe the most important area in these challenging and uncertain times, is the condition of and how we have managed our balance sheet. Our balance sheet is solid. Times like these are why we adhere to the fundamentals of a strong balance sheet. We've always done that and we always will. Through these business changes in cycles, it is fundamental to who we are and how we run the business. As far as capital allocation, we see no risk to the dividend currently. We do not plan any share buybacks until any more share buybacks until we return to more normal operating conditions. We did have a strong acquisition pipeline and still do. But that will wait until some normal C returns. We have several large acquisitions, not large, I'm sorry, we have several acquisitions much like we did last year, between the $40,000,000 $60,000,000 purchase price range that would either help us increase our geographic market presence, and they are attractive and they are great companies. And they will increase our end market exposure to attractive end markets like healthcare, data centers, infrastructure, that have long term secular growth. But again, that will wait until some more normalcy returns. Finally, we are developing a plan to bring our company back to 100% capacity. Really, that's something we know how to do. We mobilized large job sites, significant service opportunities, and large multi faceted, multi trade customers contracts all the time. We know how to ramp up with speed and discipline. We have terrific prospects, have strong RPOs And even in this disrupted market, we have market sectors that are robust, such as water and wastewater, healthcare, and within commercial data centers. We are still bidding and booking work through this changing and evolving environment. What we know is we are well positioned as a company in very attractive long term markets. And we know we have some of the best operators in the industry in our subsidiary companies and at our segment level. We know we have a company whose people are resilient and tough. We know that we attract great talent and a talent acquisition may accelerate in these challenging times. We know we have one of the best long term reputations in our industry for our employees as we have a long term record of taking care of our employee's safety, and we develop them over a long term career with us. What we do not know is what will be the pace and timing for this recovery. However, we do know and the uncertainty created by this COVID-nineteen pandemic, we withdrew our 2020 guidance on April 21st. We hope that when we come back to you with our Q2 earnings announcement, we'll have some guidepost for 2020. We should know more by then. Before we take questions though, I'm going to ask our CFO, Mark, to cover our line of credit and our liquidity. Mark? Tony, thanks again. For everybody on the call, we are now on Slide 13. Subsequent to our 4th quarter 2019 earnings call, we amended and extended our prior credit facility, which had been entered into in August of 2016. With this refinancing transaction, we refreshed the term loan component of the credit facility, increasing the amount of our term loan to 300,000,000, from the approximately $254,000,000 that was outstanding as of the end of December 30 as of the end of December 2019. Additionally, we upsized the revolving credit line from the previous $900,000,000 of capacity to $1,300,000,000 of available revolving credit. Under the existing terms and conditions, if necessary, this revolving credit line could be further increased by $600,000,000 to 1,900,000,000 capacity at EMCOR's discretion. This would be subject to incremental commitments from either existing or additional lenders. As a result of this transaction, which has a maturity date of March 2, 2025, EMCOR's historically strong liquidity is even more robust. At the bottom of Slide 13, you can see the amount of our outstanding borrowings at the end of the first quarter, which include the $300,000,000 under our term loan, which I just mentioned, which has an annual amortization requirement of amortization requirement in each of the succeeding 3 years. Additionally, we have utilized approximately $279,000,000 of available the under our revolving credit line with $200,000,000 in direct borrowings and approximately $79,000,000 of letters of credit issued. This activity leaves EMCOR with approximately $1,020,000,000 of available credit at March 31. Such liquidity is additive to our cash on hand and the operating cash flow the company expects to generate in calendar 2020 resulting from the monetization of of the COVID-nineteen pandemic on the markets and customers we serve, we expect to continue our long trend of generating positive operating cash flow in 2020. On a trailing 12 month basis, our debt to EBITDA is less than one times through March 31. And albeit higher than at any point in time during the last 3 years remains low. To reiterate, EMCOR's liquidity remains strong continue to be well positioned to capitalize on all opportunities. With that, once again, I will turn the call back to Tony. Tony? Yes, thanks, Mark. It looks, Laura, with that, we'll take questions. Absolutely. So your first question will come from the line of Mr. Brent Thielman from D. A. Davidson. Great, thank you. Good morning. Good morning. How are you? I'm doing well. Doing well. Thank you. Hey, Tony, you heard from a couple others in the contracting world about seeing more of that preference to only allow more of the established contractors that might be taking kind of safety precautions a little more seriously to come and bid Are you seeing that at all in any of your market? I think the kind of customers that are attracted to us and the kind of general contractors and construction managers One of the reasons they're picking us amongst many reasons is not just the precautions we would take in with respect to COVID, safety practices and health and welfare practices, it's how we run jobs to begin with. We have industry leading safety. In fact, we just finished one of our best quarters ever in the first quarter, we would be in the top 1 or 2% of the industry on any on any safety metric. So I think that could be the case, but I think the kind of people that choose us anyway, one of the reasons they're choosing us is, 1, because of our safety record and the care we have for our employees because of our strong financial position, we tend to attract not only the best supervision and leadership in the field, we tend to attract some of the best trades people that there are. Okay. Appreciate that. And then on building services, I'm curious, do all these delays and kind of challenges getting into the buildings, does that create some pent up demand to the extent that when you can get back into these facilities, we might anticipate seeing some spikes in work? It should. But you know, I've never managed a company through a pandemic and what that startup will look like. So I venture to say I wouldn't speculate, but a normal times, you usually don't get rewarded. You usually don't get rewarded for not doing or completing your pre summer maintenance before it becomes 90 degrees with 95% humidity in parts of the country. Right. Okay. I guess my last question is on mechanical, the big jump in RPOs. I mean, even from last quarter and I think you had ETAI in there last quarter, there a large job or something that's an outlier or is this truly reflective of Well, it's BKI book work just like we thought they would. We knew we bought a market leader. We knew they had terrific positions in some key Southwest markets, not only with respect to data centers, but also with respect to healthcare and larger institutional work with some higher education facilities. So they were part of the story. But the story is much bigger than those. We also booked some farmer work, which really only one job had anything to do with COVID, and that is one of the treatments. And I'll just leave it at that that maybe, maybe someone might be gearing up for But other than that, it was we had a strong booking quarter because we're in sectors that we think have long term, secular growth. Okay. Thank you. I'll get back in queue. And your next question will come from the line of Noelle Dilts from Stifel. Please go ahead. Your line is now live. Thanks so much. So, I just kind of wanted to ask you guys how you're thinking, if you could expand upon how you're thinking about the non resi market, longer term in some of the conversations we've had with Construction Economists, they've kind of suggested that there was less overbilled in the cycle. And so they think in 2021, as things normalize, it might be pretty spending might be pretty close to 2019 levels. I'm just curious kind of, 1, how you're thinking about that? And second, how you're thinking about the opportunity around more of the renovation work if there may be some work around, airflow management and even spacing, given social distancing, sort of how you're thinking about those opportunities? Yes. I mean, look, I think that trying to draw any conclusions off of what's happening today for the non res market. It would be tough. Look, I think there's some underlying fundamentals that are pretty strong, on the non res side. I think the data infrastructure I'm not even sure we're halfway where we're going to be in the next 5 years. I do think some repurposing of billings will happen. Some renovations will happen. I think people will continue to upgrade their HVAC systems. And you not only get better airflow, especially with some of the new control technology, but you also get a substantial energy savings. Now, one of the things that are going to happen here, with the operations of building, I think, over this next 5 months. And I don't think COVID is going to be forever. I mean, I don't think anybody does. So we sort of fast forward a year. I think we're in a much better place. I think one of the things that are going to happen is the demand for energy is going to go up because you're going to be bringing more outside air. And as you bring in more outside air, it's untreated, but it's certainly good to dilute the space. But then you have to treat it and then you have to control for humidity more, which then controls, creates more demand on the HVAC system. I think there's also things we can do to help, with employees' mindset. You know, even before this, we were putting in UV lights and things like that on the coils and the fan sections, you can go to an improved, filter. And so there's things you can do that could. I mean, I'm certainly not saying that's for sure, but it would be common sense that it would help with air quality. And those are all things we can do in the retrofit of buildings. Now if space gets reconfigured, a lot of people went to open office plans. What will happen in the near term with those? They could be back to open office plans in the year. They may temporarily change those open office plans. And they'll certainly help out any companies like ours to help them think about what airflow looks like and temperature management looks like in those short term changed office plans. Now what I think is going to happen here, I do think our technicians are already starting to trickle back into buildings. We've had net hirings up what I mean by that is we went down big in building services. We're starting to hire back some of those technicians out and out as buildings start to say, Hey, we're going to reopen we need to be prepared. And some of this work is better off to let you come in and do now versus when the building reoccupies. I do think I don't really sense that there was a lot of overbuilding. I mean, and if you think about EMCOR, Yes, we do residential high rise, but it's a very small part of what we do in the overall aggregate of EMCOR. Is probably less than 1.5% to 2% of what we do. And that fluctuates. We really had one big hospitality project in the last 3 years. And it was a very successful one, both for the owner and us. But you know, you look at where we are. We're still a project company that does a lot of small projects, but we also can do some of the most complicated infrastructure work That's both transportation infrastructure work, which is mainly a, electrical job for us, but then also we on data infrastructure, I mean, we're terrific builders of these hyper scale data centers in some of the most important markets And we really made some smart acquisitions over the last 2 or 3 years to build out that capability. So even if the non res I've always said, if the non res market stays flat to just down a little bit. It's really not the end of the world. There's going to be a correction here because of what's going on with COVID. I don't expect that correction to be long lived. And if it goes back to where it was in 2019 and stays there for a while, I think my three colleagues are on the table would say, Hey, that's good. We certainly have plenty of room to operate. And I do think, echoing the comment earlier, look, I think people go to quality in an environment like this. Especially for the most complicated jobs, but also the smaller jobs that require real technical capability to make sure you're achieving what you wanted to out of that renovation. Thank you. And your next question will come from the line of Adam Thalhimer from Samsung Davis. Your line is now live. Please proceed. Hey, good morning guys. Good morning, Adam. Good morning, Adam. Do you feel like you're known up today to put some guide posts around Q2 EPS? No. Does what Comfort said? I mean, could that loosely hold up for you guys? Kind of? I think we gave you the building blocks, Adam. We said we're working 70 8 percent to 80 percent of capacity. That starts to frame the revenue side. How long that will last, we could be back up to 90% of capacity by the 1st June. They're starting to put plans together in some of these major markets with the unions who I think in these major metropolitan areas with the governors will determine whether the people come back to court because ultimately it's about when the men and women on the trades feel comfortable about coming back to work. So does that happen May 15th? Does that happen June 1st? We could go from 70% to 80%. We could go to 90% by the middle of May to early June. That could be June 15. We don't know that. We don't control that. So for me to sit here and tell you, I know that, would presume that I know things that only the trades unions owe and really the governor's office knows. And that's all based on epidemiology, in their models, and I can't even speculate about that. I know I also know that, you know, I expect that we'll make money in the second quarter, Mark, right? And maybe I'll let Mark talk about that a little more. And I expect that second quarter is going to be tough for everybody. Third quarter, we should start to come back, whether this is a U or a V in our industry. I don't know. I would think there's a potential would be somewhere in between. Because we have jobs that will come back. And I think third quarter will get stronger based on what we know today. And 4th quarter could even be stronger, but then there could be an outbreak again in the 4th quarter, of which I have no knowledge or experience with. I do expect things to normalize by like everybody else by first quarter of next year. Certainly, second quarter of next year should be a good comp versus second quarter this year. I would think so. But, you know, and then you got to say, okay, what's going on with productivity? For people to think that there's not going to be a productivity impact as we become accustomed to these new work rules. And wearing masks and wearing shields and sanitizing tools, all the things we absolutely need to do to keep our workforce safe. You'd be kidding yourself. Now we will work, but we're also doing things to mitigate those. People have been fairly responsible about split shifts disaggregating the worksite. The scheduling has been better than ever in a lot of our places with our construction manager customers as they try to get density down on the jobs. But those are all things that the good news about being a contractor and having the kind of people that we have working for us is we're used to dealing with change in ambiguity. And our, our folks approach this just like any other product problem, Mark. Yes, the only thing I mean, I'll state the obvious, Adam, I mean, this company has never provided quarterly earnings guidance, and we're obviously not going to start that in 2020. But to echo Tony's comments, as we continue to refine our internal forecasting, we don't see any interim period that will not be profitable. I will put a caveat on that though that, to the extent that market conditions don't improve, there's clearly going to be some pressure, on impairment analysis relative to those parts of our business that have high levels of goodwill and intangible assets. So putting that to the side, if you look at the underlying core operations of all of our subsidiaries, despite the headwinds that we're all collectively facing and at the reduced capacities, we're still anticipating being a profitable business for all of our interim reporting periods for 2020. Here's what has been positive, And I think it, again, go to the position of our companies and markets. We're bidding and winning work right now. And I think one of the things everybody's going to have to think we're going to pop out of 2nd quarter and say, backlog is likely to be up, right? Or RPOs are likely to be up. Because we don't usually get cancellations and we sort of have a pretty good idea what's in there, obviously, of size. And we think there are projects that will go. But as part of it's going to be up and we're going to do our darn best to figure out what part of it we didn't revenue like we should have in the 2nd quarter or an ARC revenue like we should in a normal times. So there's going to be a little bit of a false positive there. I think the other thing he's got to sort of think about is decision making has slowed. And so for those larger projects, maybe outside of some of the faster pace work like data centers and those kind of works. I think there's going to be a lot more planning that's going to go on. And it's going to say, okay, we would have let that project maybe in June or July to start up in October, November, December. That planning might all push out And you could be in a position where there's a little bit of gap in revenue, not overall revenue, but revenue that might have been, maybe 3 to 6 months out from here. Yes. So that was one of my key questions. So in certain sectors like education office buildings where the assumption is that there's significant disruption Is the bidding really slow there or is it kind of still just not that bad? Well, again, we don't play other than on the maintenance side. And even that is not a huge part of our business, on the retail side. I mean, we're just not competitive in that market, except for replacement work. For the well capitalized retailers, which for the most part is where we are. Those retailers have replacement work that they had scheduled. Some of them push it out a month, but they're already talking to about us what that schedule will look like. Instead of April, May, what it looks like in June, and then what it looks like in September, October, and that would what would be our repair contingency plans around some of that work that was supposed to be replacement. And these are people that have prospered, through this, pandemic. As far as education, we mainly play in the retrofit side there and it's geared towards, although we don't make a lot of guarantees, almost none. It's geared towards energy savings type work and equipment change out. And control system upgrades. We're starting to see people talk to us about starting that work early because they don't plan on bringing students back to school. As far as the commercial work, we still see decent opportunity in the retrofit side. As of today, we don't have significant, commercial exposure on high rise office building construction. There wasn't that much of it going on. We do have some on residential high rise, but I said before, that's less than 1.5% or 2% of what we do, and that would be embedded within commercial. Okay. And then last one for me. When you talk about a productivity impact, I mean, how do we think about that having a set of model? Like, if you're in electrical, you're operating within a range of call to 8% usually. Mechanical is 5% to 7% usually. Can you still eke out? I mean, can you stay in that range even with the revenue declines, you're seeing? Yes, okay. I think as of today, yes, the answer would be because we've been at the higher end of that range. If we were at the lower end of the range, I'd be a lot less confident. Thank you. And presenters, your next question will come from the line of Joe Mondillo from Sidoti And Company. Hi guys, good morning. Good morning. Good morning. Just a question on competition. What are you seeing there? Do you think any competition? Is that risk in this downturn? And you may from it on the other side. I'm just wondering what you're seeing with competition? Yes. Joe, look, there were competition We always have competitors and we have some really good competitors. I think there does tend to be more of a flight to quality, in a downturn for significant projects. I think competition was at risk before the start some of them because they over extend their balance sheet as they grow, and a smaller contractor going from being $30,000,000 to $60,000,000, many times does not work out well for them. I think there will be a like there always is in a change, and this is an abrupt change, I think some people may say, you know what, this is a good time to pack it in. I can take my working capital the table and maybe I can go join one of these competitors I had in a local market. These tend to be the $20,000,000 or $30,000,000 where the principle is really good at what they do. They tend to run that 1, run that 1 or 2 large jobs themselves. And in the past, we've had some of those folks come to work for us. And I expect that to happen again. And they'll come work for us for 5 or 8 years and run big work for us and they're great people. I never spend a lot of time worrying about what our competitors do. Again, I always go to the things I control and more appropriately what our subsidiary leadership controls. And so we bid work to First of all, we make sure that we have the people and resources to execute that work. And that's where we start. Do we have the people and resources to execute that work? Do we have the experience at EMCOR or specifically in that subsidiary in a lot of cases? To do a really good job on that work technically. Then also we balance that again, can we make money at it? And are we working for people that we actually want to work for on that job? And that's both on the service side and the construction side. And we put all that together And that's how we decide what are the best opportunities. And then we think about the competition. I certainly quite frankly wish our competitors the best in this, crisis. This is a terrible, crisis and pandemic. And I hope they all come through it fine. Okay. Understand. Second question was related to the RPOs. What do you make out of the RPOs there declining in the last several quarters and what your thoughts are in that specific part of the business? Yes, I think that's like a flywheel at EMCOR that just does great, has great margins, has great craft conversion, has terrific prospects, I don't read too much into that. That's the ebb and flow of work. And I know we have a very active bid log and we booked some really great work in the electrical segment over the last 5 or 6 weeks. Okay. Last question, you provided a lot of information this morning and There's a lot going on, a lot of moving pieces with the economy in general or whatnot. What are your biggest sort of challenges managing the company from the executive level, in this specific time period, And what are you looking at or maybe most concerned of, regarding the situation? I think you start with you've got to do everything you can as a leader and set the climate that you expected as a leader, and this leadership team is with me here. I would say that we believe our primary responsibility right now is to make sure that And then we have to be able to accomplish that work to the technical specifications that our customers expect. This pandemic would not be excused for us not delivering a quality product to our customers. I think then all of the operating practices we've had at EMCOR takeover, right? We have very strong values oriented company. We have a culture of focusing on the most important things, whether it be operationally or financially. And based on what you see with our balance sheet, I could mark could take you through what is, and we're not going to do that right now. A very, very detailed cash planning that goes on and cash forecasting, whether the markets are good, bad, mediocre, it's just part of our DNA. And, that DNA serves us well when think times are good and it serves well when times are a little tougher. And, you know, one thing I don't lie awake worrying about is I'm really sure that EMCOR will come through this fine. EMCOR will come through this stronger than our competitors. And that our people will do the right thing in the field to protect the well-being of our employees. And one of the things we have to do as a leadership team all the way down through the subsidiary leadership is we've got to communicate, communicate, communicate, communicate, we have to be consistent in that communication, and we have to provide people good information. The work that our legal team our human resources teams and our, safety teams and our financial teams have done through this crisis to get our operating teams the right information they need to be able to implement these myriad of things that have come up. On these different, relief packages, what it means for our employees, what it means for us, and how we make sure that we not only comply with federal law that we do right by our employees and our shareholders while we're doing that. And our customers but also how do we make sure that we can distill that information, the things that people can understand, that goes to what is really an essential business versus a non essential business. It goes to how do we work with our supply chain? We were out in front of this and relatively short order thinking about PPE needs for our employees. And that goes all the way from the top down. That goes from me all the way down through the organization worried about that. We anticipate that we're going to be wearing masks in different environments for a long time, and we acted appropriately. We have all kinds of protocols around tools to annotation and job site safety, and we have a structure that allows us to communicate effectively. We have contingency plans that we developed for crises, although we didn't quite think it would be this crisis when we developed them. But our guys know how to ramp up and ramp down and focus on what's important. I think it's just the nature of who we are. We're conservative right? Mark, we took a we took a we've been in one meeting more than one meeting when, we've had a lot of people tell us the beauty of leverage. And I guess we never quite believe that, did we? We did not. Right. And I think that shows right now. And, we'll run the business like we always do and we'll get to the other side of this. Okay, thanks. Well, I hope you're all safe and well and good luck everything. Thank you, Jeff. Thank you. And there are no further questions in the queue. Presenters, you may please continue. Hey, look, we're clearly in an unprecedented times. And for anybody that's listening, I know there's a lot of Amcor employees listening. You know, we'll all get through this. We'll come off strong. Unfortunately, everybody's making a lot of tough decisions right now. We hope to see everybody back to work and we'll do that the right way too. We'll have everybody's safety in mind when we do that. But let's always remember, we also got to accomplish the mission we have for our customers and, you know, in our shareholders. And we will do that too. And, we couldn't be more proud, how everybody's responded. And, we'll come out of the other side of the stronger. With that, thank you all very much and everybody. Be safe. Again, thank you everyone for participating. This concludes today's conference. You may now disconnect. Stay safe and have a lovely day.