Earnings Call: Q4 2019

Feb 27, 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 Aimco Group Fourth Quarter And Full Year 2019 Earnings Call. All lines have been questions. Ms. Jamie Barrett with FTI Consulting, you may begin. Thank you, Laura, and good morning, everyone. Welcome to the EMCORE Group Conference Call. We are here today to discuss the company's 2019 fourth quarter and full year results which were reported earlier this morning. I would 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. Good morning, everyone. Welcome to our earnings call, and I hope you have arrived at the Internet site. And welcome. Hope you have arrived there, where we have our slide presentation that will accompany our remarks today. Please advance to Slide 2. The presentation and discussion contains forward looking statements and certain non GAAP financial information. Page 2 of the slides described in detail the forward looking statements and the non GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. Slide 3 depicts the executives who are with me to discuss the fourth quarter full year 2019 results. They are Tony Guzzi, Chairman, President, Chief Executive Officer Mark Pompa, our Executive Vice President, Chief Financial Officer and Treasurer and our Senior Vice President And General Counsel, Maxine Mauricio. For call participants not accessing the conference call via the internet, this presentation, including the slides, will be archived in the Investor Relations section of our website under Presentations. You can find us at emcorgroup.com. With that said, please let me turn the call over to Tony. Thanks, Kevin. And I'm going to focus my discussion on the full year results. Mark will pick up some of that, and he'll also speak to the fourth quarter of 2019 in detail. I'm going to be covering up front here pages 4 through 6. Overall, we had a terrific 2019. We finished the year in good shape with record financial performance on almost any relevant metric. We set records for revenue at $9,170,000,000, operating income at 461,000,000 net income, $325,000,000 and earnings per share from continuing operations of $5.75. We had record bookings of $9,100,000,000, had overall revenue growth of 12.8% with organic revenue growth in the year of 9.3%. We had cash flow from operations of $356,000,000, which exceeds our net income. We leave 2019 with flat remaining performance obligations or RPOs from the year ago period, which is quite good considering the strong organic revenue growth that we had in customers. We also executed well and that we matched our record annual operating income margin of 5.0%. We exit the year with a robust balance sheet and flat remaining performance obligations of $4,036,000,000 despite that exceptional organic revenue growth. Adding I'm now going to focus my discussion on segment performance for the year. Our Mechanical And Electrical Construction segments had another great year. And we continue $6,000,000,000 with underlying growth of 13% with organic growth of 9.3%. Operating income margin was a strong 7.0%. We are winning small midsize and large projects across all geographies and end markets. We had strength in our commercial markets, inclusive of data centers. We are winning work and are successfully managing these jobs with skilled trades people in this tight labor market. Yachtinformin and project managers. As I've mentioned before, we see our acquisitions as an opportunity to continue to fill in our white space and also build capability in our existing markets. To that end, in 2019, we executed 3 important acquisitions in the segment Each expands not only our geographic footprint, that is Iowa, the Southeast lower Midwest and an increased presence in Texas. But also enhances our technical and production capabilities. Integration of each of these companies is progressing well. Turning to the Building Services segment, in 2019, we had our best operating income margin performance at 5.4%. We had 12.3 percent revenue growth that helped to lead to a 22.3% increase in operating income versus the year ago period. We had excellent growth in performance in our mechanical services business, improved performance in our commercial site based business, and our government business held its own in an evolving market. We acquired and successfully integrated 4 companies in 2019, establishing a new geographic presence and excellent take technical capabilities with each. We have transitioned several large maintenance contracts well in our site based business. Our Industrial Services segment had much improved annual performance and our trajectory has improved post Harvey, which really affected early 2018. We had very strong revenue and operating income growth and are serving our customers well. We also have launched several new service offerings, which quickly gained new customers and increased our customer penetration, as they know, the EMCORE Industrial Services team can deliver We also have added a new important cleaning capacity to our Louisiana facility to drive repair and cleaning revenues. Our UK segment has consistently continued to perform well, and we are quite proud of our team for how much we have improved and how well the business performs now. We have built a leading franchise in the UK that is known for delivering complex facility maintenance solutions to some of the most technically sophisticated owners in the UK. With that, I'll turn it over to Mark and he'll provide more color on the 2019 financial results. Mark Thank you, Tony, and good morning to everyone participating 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 provide a detailed discussion of our fourth quarter 2019 results before moving to our full year 2019 performance, some of which Tony outlined during his opening commentary. As a reminder, all financial information discussed during today's call is included in our consolidated financial statements in both our earnings release announcement and Form 10 K filed with the Securities And Exchange Commission earlier today. So let's discuss EMCOR's 4th quarter performance. Consolidated revenues of $2,400,000,000 in quarter 4 are up $174,600,000 or 7.8 percent over 2018. Our 4th quarter results include $93,500,000 of revenues attributable to businesses acquired, pertaining to the period of time that such businesses were not owned by EMCORE and last year, first quarter. Acquisition revenues positively impacted each of our United States Electrical Construction, United States Mechanical Construction And United States Building to segments. Excluding the impact of businesses acquired, 4th quarter consolidated revenues increased $81,100,000 or 3.6 percent organically. All of EMCOR's reportable segments, other than our Industrial Services segment, experienced revenue growth during the fourth quarter of 2019. United States Electrical Construction revenues of 564.5 percent from quarter 42018. Excluding acquisition revenues of $27,700,000, this segment's quarterly revenues grew organically 1.5 percent versus the prior year. Revenue gains within the manufacturing, institutional, commercial and healthcare market sectors were substantially offset by revenue declines within the transportation, hospitality and water market sectors due to the completion or substantial completion of certain large projects during 2018 or early 2019. United States Mechanical Construction Revenues $895,600,000 increased $100,900,000 or 12.7 percent from quarter 4 2018. Excluding acquisition revenues of $44,400,000, the segment's revenues increased $56,500,000 or 7.1 percent organically. As I have mentioned during each of our quarterly calls during 2019, revenue growth within the U. S. Mechanical Construction segment remains broad based across most market sectors, with revenue gains from all sectors other than hospitality contributing to the overall increase in quarter 4 revenues. This segment's revenue performance represents an all time for our U. S. Mechanical Construction segment and surpasses the record set in 2019 third quarter. EMCOR's total domestic construction business 4th quarter revenues of $1,460,000,000 increased to $131,300,000 or 9.9 percent, with 4.5% of such growth being generated from organic activities. United States Building Services revenues of 539,000,000 increased $53,000,000 or dollars or 6.5 percent organically. Revenue gains within their mechanical services and commercial site based services divisions partially offset by a revenue decline within the Government Services division due to a smaller contract the activity in 2019 fourth quarter. Similar to our U. S. Mechanical Construction segment, revenue performance within U. S. Building Services an all time quarterly record for this segment. United States Industrial Services segment revenues of $299,300,000 decreased $13,300,000 or 4.3 percent as a result of the cyclicality of our customer's planned maintenance schedules, which led to lower turnaround activity quarter over quarter. In addition, within our shop services operation, this segment experienced a decline of shipments of new bill heat exchangers, as well as a decrease in repair volumes, partially driven by the reduction in quarterly turnaround activities just referenced. United Kingdom Building Services revenues of 105 point $5,000,000 increased $3,600,000 or 3.6 percent due to incremental revenues from new maintenance contracts as well as an increase in project and repair activities. The impact of foreign currency exchange rates were relatively neutral quarter over quarter. My last statement on 4th quarter revenues is that our $2,400,000,000 of quarterly revenues is both a 4th quarter and all time quarterly revenue record for EMCOR. Please turn to Slide 8. Selling, general and administrative expenses of 240,900,000 represent 10% of 4th quarter revenues and reflect an increase of $20,000,000 from quarter 4, 2018. The current year's quarter includes approximately $8,600,000 of incremental SG and A, inclusive of intangible asset amortization from businesses acquired, resulting in an organic quarter over quarter increase of approximately $11,400,000. This organic increase is primarily due to higher employment costs, mainly as a result of an increase in headcount to support our organic revenue growth as well as an increase in certain non income based state taxes. Reported operating income for the quarter of $122,900,000 represents 5.1 percent of revenues and compares to $113,600,000 or 5.1 percent of revenues in 20 eighteen's corresponding period. 20 nineteen's 4th quarter operating income represents an all time quarterly record for EMCOR and represents an point 1 percent increase over last year's quarter. I will cover the details of each of our reportable segment's operating income and operating margin performance as I continue through this slide. 1st, our U. S. Electrical Construction segment had operating income of $41,300,000, which increased by $8,200,000 from the comparable 2018 period. Reported quarterly operating margin of 7.3% and represents a 110 basis point improvement over 20 eighteen's 4th quarter. Quarter over quarter growth in gross profit from commercial, industrial and institutional market sector project activities, inclusive of the telecommunications and power submarket sectors more than offset gross profit contraction within the hospitality market sector due to the completion of certain gaming projects in 2018. 2019 fourth quarter U. S. Mechanical Construction Services segment operating income of $68,900,000, $3,000,000 or 8.3 percent increase from last year's quarter. Operating margin of 7.7 percent decreased by 30 basis points period over period, partially as a result of a change in revenue mix as 20 nineteen's fourth quarter included a higher percentage of large projects in the earlier stages of completion, which typically reflect lower projected gross profit margins than projects that are approaching the latter stages of completion. Total U. S. Construction business is reporting a 7.5 percent operating margin or $110,200,000 of operating income, which has increased from 20 eighteen's 4th quarter by approximately $13,500,000. Operating income for U. S. Building Services $24,200,000, represents 4.5 percent of revenues and is an $800,000 reduction from last year's fourth quarter. Operating margin decreased by 60 basis points due to a slight reduction in gross margin as a result of change in the revenue mix, primarily within our energy and services division, divisions as well as an increase in selling, general and administrative expenses due to severance expenses incurred associated with certain personnel ages that do not qualify for restructuring treatment. Our U. S. Industrial Services segment operating income of $13,100,000 represents 4.4 percent of revenues, and is a $2,200,000 reduction from 20 eighteen's fourth quarter. Lower quarterly revenue in addition to an adverse and judgment connection with the joint venture dispute were the primary reasons for the reduction in both operating income and operating margin quarter over quarter. UK Building Services operating income of $4,000,000 represents 3.7 percent of revenues, which is an improvement of $900,000 70 basis points of operating margin over 18 fourth quarter. This segment's quarterly operating performance was favorably impacted by strong project activity in addition to incremental revenues from new customer awards in 2019. We are now on Slide 9. Additional key financial data for the fourth quarter not addressed on our previous slides are as follows: Quarter 4 gross profit of $364,700,000 represents 15.2 percent of revenues, which has improved from the comparable 2018 quarter by $6,000,000. Quarterly gross profit margin has improved by 10 basis points, primarily due to favorable project accretion year over year within our U. S. Electrical Construction segment, partially offset by slightly less favorable revenue mix during 20 nineteen's 4th quarter within our U. S. Mechanical Construction segment. Restructuring expenses in 20.19 of approximately $1,000,000 pertain to the continuing realignment of management resources within our U. S. Building Services And U. S. Electrical Construction Operations. Diluted earnings per common share from continuing operations for 2019 fourth quarter is $1.54, as compared to $1.38 per diluted share a year ago. This represents a 16% or 11.6% improvement quarter over quarter. Our tax rate for quarter 4 of 2019 is 27.8 percent, which is lower than the tax rate for the corresponding 2018 period due to certain discrete items. In the prior year. This resulted in year to date operating cash flow of $355,700,000, which Tony referenced earlier. Such amount exceeded 20 eighteen's full year operating cash flow performance by nearly $83,000,000. We are now on Slide 10. With the fourth quarter commentary complete, I will now augment Tono and Tony's full year 2019 commentary. Consolidated revenues of $9,170,000,000 are up $1,040,000,000 or 12.8% as compared to $8,130,000,000 in 20 eighteen's annual period. Acquisitions contributed incremental revenues of $290,300,000 pertaining to the period of time that such businesses were not owned by EMCOR in 2018, and positively impacted all of our reportable segments other than our U. S. Industrial And UK Building Services segments. Excluding the impact of businesses prior year to date revenues increased organically $753,700,000 or a strong 9.3%. For full year 2019, we achieved revenue growth throughout all of our reportable segments with all segments other than our UK Building Services segment, achieving annual growth rates in the double digits. U. S. Electrical Construction revenues of $2,220,000,000 increased $262,300,000 or 13 4%. Acquisitions contributed $134,500,000 of incremental revenues, resulting in organic revenue growth of 6.5%. Substantial revenue growth within the commercial manufacturing and institutional market sectors more than offset revenue declines within the Transportation Healthcare hospitality and water market sectors. U. S. Mechanical Construction revenues of $3,340,000,000 increased $377,500,000 or 12 point 7% compared to 2018. Acquisitions contributed construction segment in 2019 of 11.1 percent. Significant revenue growth across most market sectors more than compensated for the revenue decline within the hospitality market sector, which resulted from the completion of certain large projects in 2018. U. S. Building Services revenues of $2,110,000,000 increased to $231,400,000 or 12.3 percent. Acquisitions contributed 100 and $700,000 of revenues, resulting in a year over year organic revenue increase of 6.6%. Strong project and service growth within this segment's mechanical commercial site based Energy Services divisions more than offset a revenue decline within the Government Services division due to attrition within their contract base. US Industrial Services annual revenues of $1,090,000,000 increased to $164,400,000 or 17.8 percent, compared to the prior year due to increased maintenance and capital project activity within their field services operations as a result of the normalization of demand patterns in 20 19 as the first half of twenty eighteen, as Tony mentioned, was negatively impacted, but the carryover effect of Hurricane Harvey. Our UK Building Services segment 2019 revenues increased to 2 percent to $423,300,000, primarily as a result of new maintenance contract award within the institutional and commercial market sectors. This segment's year over year revenue growth was despite a $19,500,000 headwind due to unfavorable foreign currency exchange movement for the pound sterling. Please turn to Slide 11. Selling, general and administrative expenses of $893,500,000 represent an increase of $94,300,000 as compared to the $799,200,000 reported in 2018. This increase includes $35,100,000 of incremental SG and A related to businesses acquired, inclusive of intangible asset amortization, a percentage of revenues, SG And A is 9.7% in 2019 compared to 9.8% for the 2018 annual period. The year over year increase in SG And A is due to an increase in employment costs as a result of growth in our indirect labor personnel, which was required support our organic revenue growth as well as higher expenses associated with company wide incentive compensation plans due to our overall increase in profitability. Additionally, on a year over year basis we have seen an increase in professional fee expenses due to certain ongoing initiatives and progress. 2019's year to date operating income is $460,900,000 or 5 percent of revenues and represents a $57,800,000 increase over 20 eighteen's annual performance. All reportable segments are reporting higher operating income and higher operating margin year over year other than our U. S. Mechanical Construction Services segment, which despite an increase in annual operating income, is reporting a line and operating margin, which I will address as I move through my commentary segment by segment. Starting with our U. S. Electrical construction segment, 2019 operating income is $161,700,000, which represents an all time segment and is an increase of $22,300,000 or 16% compared to the prior year. Operating margin for 2019 is 7.3%, which 20 basis points higher than 20 eighteen's 7.1 percent operating margin, increased profitability from the commercial market sector inclusive of certain telecommunication project activity, as well as the manufacturing and institutional market sectors offset contraction in transportation, healthcare and hospitality market sector returns due to the completion of several large projects in 2018. S. Mechanical Construction operating income of $225,000,000 increased $5,200,000 6.7 percent of revenues. Similar to our U. S. Electrical Construction segment, this segment's annual operating income represents record performance. The increase in operating income for 2019 was primarily due to an increase in revenues and associated gross profit within the commercial market sector, well as the institutional and water market sectors. The reduction in operating income margin is due to our current revenue mix, which includes a greater percentage of large projects the earlier stages of completion. In addition, operating margin for the prior year was favorably impacted by successful project closeouts in 20 eighteen's fourth quarter, in the manufacturing and hospitality market sectors. U. S. Building Services 2019 operating income of $114,800,000, an increased $20,900,000 or 22.3 percent due to increased profitability within each of their operating divisions other than government services, a result of revenue growth and improved service contract and project performance. Operating margin for full year 2019 of 5.4% compares to 5% in the prior year and represents a 40 basis point improvement. As Tony previously mentioned, this segment's performance established new annual records for both operating income and operating margin. US Industrial Services 2019 operating income increased $16,700,000, to $44,300,000 or 4.1 percent of revenues. The year over year increase is attributable to higher gross profit from the segment's field services operations due to a more normal demand pattern for our turnaround services, including capital project activities throughout 2019. The improvement in field services profitability offset a decrease in operating income from this segment's shop services operations resulted from a reduction in new build heat exchanger sales year over year. UK Building Services operating income of $18,300,000 or 4.3 percent of revenues, increased $2,400,000 due to an increase in gross profit from project and service activities within the commercial market sector resulting from increased scope with existing customers as well as new contract awards. This segment's operating income was negatively impacted by approximately $900,000 favorable exchange rate movement for full year of 2019 related to the valuation of the pound sterling. We are now on Slide 12. Additional key financial data on Slide 12 not addressed during my full year commentary is as follows: year to date gross profit of 1 $400,000,000 is greater than 20 eighteen's gross profit by $150,400,000, while gross profit margin of 14.8% is consistent year over year. Total restructuring costs of $1,500,000 are reduced from 20 eighteen's activity. Diluted earnings per common share from continuing operations is $5.75 compared to $4.89 per diluted share a year ago. Adjusting 20 eighteen's earnings per share for the non cash tangible asset impairment loss of approximately $900,000, non GAAP diluted earnings per share from continuing operations would have been $4.91 in 20 18. When comparing the current year's diluted earnings per share from continuing operations to 20 eighteen's adjusted number, 2019 represents an 84 increase or 17.1 percent year over year EPS improvement. We are now on Slide 13. EMPORE's balance sheet continues to maintain its strength with strong liquidity and modest leverage, variations of note from December 31, 2018 are as follows: Cash of approximately $359,000,000 is roughly in line with December 31, 2018, as a result of strong operating cash flow, which has offset cash used in investing and financing activities, including approximately $301,000,000 of cash expended for acquisitions 48,400,000 of capital expenditures and approximately 18,000,000 of dividend payments to shareholders. Working capital levels have increased year over year, primarily driven by growth in accounts receivable and contract assets related to our continued strong revenue growth. Goodwill has increased primarily as a result of the 7 businesses acquired during 2019. Net identifiable intangible assets have increased as well due to the to our acquisition activity partially offset by $48,100,000 of amortization expense recognized in 2019. Total debt, excluding operating lease liabilities, is $312,200,000 and has increased $16,500,000 from December 31, 2018, due to $25,000,000 of net borrowings under our revolving credit line partially offset by our mandatory quarterly principal repayments under our outstanding term loan. Standing borrowings, we have a modest debt to capitalization ratio of 13.2 percent at December 31, 2019. EMCOR had outstanding cash flow performance during 2019, which allowed us to successfully complete a series of acquisitions during the year without increasing our profile. We now begin 2020 with a strong balance sheet and an earning space that affords us the ability to take advantage of all the opportunities in front of us. With my prepared commentary concluded, I will return the call to Tony. Tony? End of the year, fourth quarter, there's a lot to talk about, and it's always nice to talk about a record year. I'm going to be on page 14. And it's remaining performance obligations. In short, we continue to see opportunities in the nonresidential market as we move into 2020. Total RPOs at the end of the 4th quarter were 4,040,000,000, up $73,000,000 or just about 2% when compared to the December 2018 level of $3,970,000,000. Book to bill measuring 4th quarter RPO total over 3rd quarter RPO was over 1. Is fairly strong activity when measured against our 4th quarter revenue of over 2,400,000,000. We've said this a lot. Our business is not a quarter to quarter business. It never has been. It never will be. And it very much depends on the flow of our projects. And our maintenance operations. We have large and small construction projects. We have time and material work that's not part of RPO. The drives then RPO activity. We have operations and maintenance services. We have industrial services that lead to projects. Overlaid on the 9 RPO markets we report. One way to look at our success in 2020 is to look at the average RPOs in 2020, what we expect over 2019. Average RPOs in 2019 was $4,110,000,000 versus an average of $3,800,000,000 in 2018. And given our various segments generating 12.8 percent year over year revenue growth, it means to me we are executing large and small faster burning projects at a very high level, and we continue to see those opportunities ahead. Again, we have said before, I believe a longer lens is a better gauge for our success. Domestic RPOs have increased roughly 2 December 2018. Our construction segment RPO activity is just a little under breakeven from the third quarter of 2018, despite having year over year growth of over 9%. In addition to seeing demand for larger, more complex project opportunities we can use to see robust demand in our Building Services segment as it's up almost $107,000,000. Most of this growth is supported by HVAC retrofits, building control projects, and repair and maintenance improvement projects in our mechanical services business. All of this work centers around customers desire desire to improve the efficiency, cost effectiveness and comfort of their HVAC building and control systems. On the right side of the page, we show RPOs by market sector. As noted, the segmentation of the 2019 bar closely resembles 2018 sector market participation. Market sectors continue to offer opportunities and slight up or down year over year variances look more like market timing than market saw softness. With that being said, we did see some good growth in health care projects in 2019. Again, These are very large, complex projects, while suited for many of our companies. As we move into the year, our markets remain active and bidding activity remains strong. In general, we believe with most nonresidential forecasts that the market will grow in low single digits with variances between the AIA classifications of commercial Education, Healthcare And Industrial. We are nicely positioned in each of these large market segments. As we go into the end of the year, I'm going to close these remarks on pages 15 16. As we start 2020, we continue to believe we are well positioned to deliver strong operating performance. We believe the nonresidential market has enough growth and it's going to be low. We think about 1% to 2% to provide us opportunities to form for our customers on their specialty construction, building service and industrial service needs. We think the turnaround seasons will be normal again year, and we are in the middle of a pretty good spring turnaround season, and we do expect a decent fall turnaround season. A guest this backdrop, we will set initial revenue guidance at 9,500,000,000 guidance will be $5.60 to $6.30. Our range is based on potential outcomes on the pace and timing of work we have already won, coupled with the work we will need to win and execute in 2020. The question is always how do we move from the low end to the midpoint to the high end of the range. I will always like to segment the discussion into 2 buckets, buckets, what we can't control and what we cannot control. First, I'll discuss the things we can't control. We always talk about them with the uncontrollables. As always, our customers may slow down investments capital projects due to election year uncertainty here in the United States, or the general economic environment could slow down as we progress through year end, or We have a significant job site condition or operating condition outside the norm or what we can control. While so far, the impact has been minimal and we expect it continue to be, we're also always subject to external factors, whether it be tariffs last year or this year the coronavirus. Now moving on to things that we do control, and that's really where we put our focus. And that may impact our ability to meet the midpoint or high end of our guidance range. First, we must maintain cost discipline and look for every opportunity to drive labor productivity. We need to win and bid our share of large project work that will allow take advantage of our skill and expertise in almost any end market from commercial, inclusive of data centers to health care, transportation to manufacturing. We need to have a decent fall turnaround season, and we have to have the opportunity to execute small project capital in late Q2 and Q2. And that is pretty common. Our small project work needs to continue to have strong growth and we must continue to execute well on our large multi site maintenance contracts. However, I do have a high degree of certainty that we will continue to execute drive productivity and win our share of project work. With respect to capital allocation, I always refer to look at this in 2 to 3 year cycles, And across that time, we've had the opportunity to have had pretty balanced capital allocation between acquisition growth capital and returning cash to shareholders. Across 2018 2019, we executed $373,000,000 in acquisitions, and that's their purchase price. Across our construction and U. S. Building Services segment, and we returned approximately $253,000,000 in cash to our shareholders through dividends and share repurchase In 2020, our capital allocation priorities remain the same. And to note, we have a decent pipeline of acquisitions similar to those executed in 2018 2019, and we also have the flexibility to return cash to shareholders. Finally, before we begin our Q and A, let me make a brief comment on the systems intrusion we recently experienced. As we previously disclosed on February 15, we determined that we were the target of our Raduoc ransomware attack, infecting certain of the company's IT systems with malware. As a precautionary measure, we promptly shut down certain systems to help contain the problem. We implemented our business continuity plans as designed and they operated as designed. The focus of our plans is to maintain field productivity and customer service and we have kept our field operations near 100 percent productive. We are measurably bringing our systems back online which will help facilitate improving back office operations. And while our investigation is continuing, we see firm to assist us. We do not have a specific timeline for the completion of this investigation, although our objective is to be thorough. The potential financial impact of this attack has been contemplated in the company's full year 2020 guidance. Security is a priority at EMCOR, and we appreciate the patience of our employees, our customers, and our vendors. As we have worked through our team has performed an extraordinary manner in this attack. We remain effective and efficient in the field and our back office operations continue to support the team. Moving forward, we will continue to provide for our customers We remain focused on delivering the excellent service they have come to expect from us. And with that, I will take your questions. Laura? Thank Your first question comes from the line of Brent Thillman from D. A. Davidson. Good morning. Congratulations. Great year. Thank you. Maybe starting on Industrial Services yet, it really solid spring turnaround in 2019. And I'm just curious if it's too early to call whether you think this year is going to be better, you can grow off those big 2019 contributions you saw from the segment? I think you said it right when you started it. It's too early to call. We're in the mid of a midst of a good spring turnaround season. We'll see how it ends up here and we'll have a pretty good visibility that at the end of the in our first quarter call that some of that might leak into 2nd quarter Mark, what do you see? Yes, I think, you know, Brian, we're obviously endeavoring to do whatever we can for our customers. And, we have a lot of labor mobilized, but as Tony said, it's a little early right now to call. I guess when we get a preview of February results, we'll know a little bit more obviously. Okay. Okay. Fair enough. And then Building Services, a lot stronger growth in 2019 than we'd expected, I guess. But should we be thinking of that still as kind of a mid or high single digit organic growth business in 2020, sort of the new norm changed I think you're thinking about it the right way, mid single digits. Just like some of our construction businesses have small project capability that can accelerate in a given time period. And of course, we brought on some significant multi site maintenance contracts in 2019. And that'll be dependent on what kind of project work comes off of those contracts. So, you know, they're not quarter to quarter businesses, but if I looked at the end of the year and it was plumb in the middle of mid single digits, I think would be satisfied. Okay. Thanks for that. And then just because it was called out in the presentation, but these large data infrastructure projects, I guess, question. Is that included in industrial or commercial RPOs? And then given the complexity of these I'm just kind of curious the margin profile over the course of the project. Are they accretive or are they in line to your construction segments? I think the way to think about them is they would be in commercial for the most part as far as the RPO question. They've burned fairly fast. For significant projects. I think, the margins very much depend on contract structure type of work we're doing, whether we're the materials or not, or whether the customer is paying for acceleration. I would say, for EMCOR because we can deliver it. We have very strong expertise in it, and we deliver great value for our customers when we do that work. We have your next question coming from the line of Adam Saliner from Thompson Davis. Your line is now live. How are you? Hey, Tony. I'm almost surprised that you had a good fall turnaround season and the spring is going well. What's what's your high level view of refinery right now? High level view, very sophisticated customers, consolidating platforms. EMCOR is pretty well positioned in it. Some vendor flux, demanding as hell, and you better be able to execute and marshal the right resources at the right time. So you're gaining share? I don't know. I think it's I think you got to be real careful, Adam. We we've talked about this in the past. I think it's how your customers line up in their turnaround seasons and how you're performing it, whether you've been able to bring additional services into those turnarounds that you have. What's the nature of the turnaround once you've got involved in it? We have some good competitors there. So I'm always hesitant to talk about share. I think in any labor based service business, whether it be our construction business, or our industrial services business, which is more time material. We think about it more of are we capturing the opportunities we should be in serving our customers? And are we discreetly capturing the best opportunities in that opportunity to prefer use our labor in a tight labor market. We don't focus a whole lot on share. Okay. And then can you walk us around the country, just kind of what you're seeing demand? Bidding wise? Sure. I think, generally, demand is fairly strong. I think in the Northeast, it continues to be sophisticated projects and smaller projects based on energy retrofit and building upgrade. You're up in the Northeast. You're looking at medical projects. You're looking at some power projects. You're looking at multi site use, you're looking at, hospital rebuilds separate from medical production type facilities. You know, not a whole lot of data center business in the Northeast because of the price of power, right? I mean, I think as you move down and you get to the mid, New York Metro area, we'll carve that out as a market specifically. EMCOR at least for New York City proper has never been a high rise residential business. You go across the river, we do more of that work there. I think some of the big marquee projects are now into tenant fit off stage, which fits our skill set very large. There's a lot some large infrastructure front work coming. There's some underway, you know, LaGuardia Airport, we're playing a little bit there as you go Kennedy, we may or may not play a little larger there. But there's some infrastructure work going on. But you know, with the nature of contracting, with the MTA, you need to be very careful now, on what contracts you take and what contracts you don't take. You go down to the Mid Atlantic, a very strong across the board. It's a big data center market. It's a as you expand that definition of Mid Atlantic, it becomes a bigger healthcare market. Also a strong commercial market. And what's coming on with potential Amazon headquarters in the DC area, it's going to be strong. And that data center market is extended beyond the Metro DC area down further into Virginia. And we're well positioned in all those places. As you get down south, again, it's a fairly strong market. There's been a lot of movement in manufacturing plants. That's something our, industrial operations up, not the downstream oil gas, but the ones in our construction businesses, serve pretty well. We're seeing pretty good growth. Of course, that's where we made the BKI acquisition, which we're very excited. They're a market leader down in the southeast to do very sophisticated work across data centers, healthcare, and manufacturingindustrial. And they're terrific people, by the way. As you go down into the Florida market, we're very well positioned for all the work that will happen down with the water authorities in South Florida. The market overall in Florida is fairly strong, especially for an energy upgrade, energy efficiency, service type work. You get to Texas. We just talked about the turnaround business and the oil and gas business. It's a consolidating customer base. That presents its challenges. And so you have to be a more sophisticated contractor to serve them. We're in the middle of 2 decent season. Remember, we were fairly weak a couple of years ago, even absent Harvey. You go down, in the Metro Houston area, signs of life have returned. Medical work is back. We made an acquisition up in College Station to solve more of the rural markets and to gain interest in the San Antonio. We're bullish on Texas. We'd like to have more to do there in Dallas. Although our Morley Moss acquisition from a couple of years ago has exposed us to the Dallas market and maybe a centrist into what we think is going to be a fairly strong data center market. Right now, we're not a major player like we are in other parts of the country, but we are participating. As as you go across there and you look at Arizona, the Southwest, for us, the Arizona market is fairly strong. Very sophisticated owners. It has a Texas, it has a healthcare sector and a commercial sector, all that are relatively strong and we participate well. They're on the mechanical side. As you go to California, California has its own dynamics, We expect pretty good in Southern California, you know, Orange County And Down. We expect pretty good performance. The L. A. Market's busy. From a cross section of, again, high-tech manufacturing, medical, institutional, and infrastructure. Northern California, you know, it has its own issues in the San Francisco area, but the general Bay area is pretty strong. And you go to the Pacific Northwest, we're big participants in the data center market and also have a pretty strong presence in electrical in general with terrific company led by a superstar up there in the Pacific Northwest. You go across the Midwest and across in the Rocky Mountain region, you know, the Denver market continues strong. You know, there's opportunities there for us. We continue to refocus our companies there and expect them to get better and better. And as you go to the upper Midwest, one of our we have a terrific subsidiary in the Midwest that does great food process work and is really, one of the most capable fire protection contractors in the country. Another one we have in Ohio on the fire protection side that's very good too. But we're strong in the Midwest, which is probably maybe not a bell mather for the whole West. We just happen have someone that can travel, do great work. And you remember, the food work is one of the few EPC works we do. Ohio continues to be strong. At least for us in parts of Ohio and in Pennsylvania as you move across has areas of strength. So I would say net net our folks are winning as share they're bidding the right projects and we still see good opportunities in almost all markets wide. And some of that might just be our position, right, in the capability that we built. With 1% to 2% growth, way we think about it. It's a big market. It has growth. Labor's been fairly tight. We have great labor. We should still be able to execute very well. Okay, awesome. We have your next question coming from the line of Noel Dilts from Stifel. Your line is now live. Good morning, Noel. Know you talked a bit about growth expectations generally, but I was hoping you could lay out, specifically how you're thinking growth across the 4 divisions in your 2020 guidance and also how you're thinking about margins? Yes, I mean, and I'll ask Mark to kick in here. You know, it's really hard for us sitting here in first quarter to think about it by division, because, you know, the way we think about it, especially in the 2 construction segments, every decision that comes to our folks is a binary decision. Last year, we won a lot of those binary decisions, that we needed to win, that we won, I shouldn't say needed to win, that we wanted to win, is a better way of saying it. And so you never know how that's going to happen or not happen. Last year, we were on the plus side. So we don't think about it that way. We try to think about it the overall business. And then as we reforecast the year, we get more clarity. And, you know, it's been how we've been doing it for a long time. We we we really don't drive our folks by growth. We think about conversion and we think about using that precious resource we have of labor across each of those divisions and really not get uh-uh, crazy and overrun your capabilities or don't stress to take a job maybe doesn't have the characteristics of another one down the road. Mark, maybe you could Yes, you know, the only thing I would add to Tony's commentary is I think, you know, clearly when you look at the double digit revenue growth we had across all of our reporting segments other than the UK in 2019. I think the logical places where I believe we could do better than the 1% to 2% or 1% to 3% that Tony had referenced earlier would be both in our industrial and our U. S. Building Services. Segment. With regards to our construction, operations, both electrical and mechanical, clearly, they're the largest in the EMCOR family. And project timing, as Tony just referenced, is somewhat beyond our control. We're optimistic that we're going to see growth in both of those segments. Obviously, where we made acquisitions, we'll see growth irrespective of that, but on an organic basis, But at this point, you know, it's a little too early to call definitively, because you could certainly see some project movement can certainly impact top line for 2020, but positively impact 2021. So we're just not quite there yet with visibility. Yes. And that's how we've been doing it for years and it served us well. Okay. Any thoughts on on margins? And I, I should have given, I was ignoring the UK. I'm sorry about that 5, 5, 5 platforms. So, my apologies. But, but yeah. And No. And I'll go back to go to Adam's question, we got on the US, the UK market, for us is is okay. We've got really good, positions in the UK and they've done a great job. So out of the one part, I will talk about share. UK business continues to take share in the market because of stability and excellence in delivery of technical service. Noel, with regards to margins, I'll just chime in. When you look at our 2019 full year performance, All of our reporting segments other than industrial performed greater than our 5 year or 10 year operating income margin performance history. So clearly, that doesn't make us satisfied. We're looking for incremental improvements, but they would be incremental improvements from where we are. And if we could sign a piece of paper today to say that we're performing at equivalent levels for the year, we just finished. I'll speak for myself not for my colleagues sitting with me, but I think we would all be happy to sign that piece of paper. Absolutely, Mark. I mean, we're we said this, I think, last year, either in the third quarter call or the call to watch here, we're much more focused on margin dollars right now, especially in our construction segments. Than we are margin percentages. They should go together, but, you know, nature of contracts could skew that by 20 or 30 basis points. The other thing that timing can skew it on large infrastructure projects where we tend to be conservative as we should be, as we do really complicated work over a long period of time. So all the food processing work has a lot of the same characteristics. So we focus on margin at this level of 5% with great cash flow generation and good growth. I think what Mark's implicit in his conversation is, yeah, don't turn down an opportunity to grow dollars right now. At, you know, worried about whether the margins stay the same or not. That makes sense. Last question, could you just comment on what you're seeing in terms of, the M and A pipeline opportunities in the market you know, have you seen any sort of multiple compression, in terms of some of the targets that you're looking at given that we are later in the cycle? You know, we really have never, especially the deals we've been doing over the, you know, last couple of years, we're not competing against the crazies in private equity that are going to redefine the world. We're more focused on executing in businesses that we know. And the reality is, we're buying from people that are selling their life's work and they want to still work, they want to still build their company, and they want a long term home for their life's work. I got a great note from a really terrific person we bought a business from and we're coming up on year for almost. And it's been a terrific, terrific business. And, you know, we do the gentleman for a couple of years, and he knew of us. We were the home for his business. He thought we made a fair deal with him. He stayed and ran it for us for 4 years, and we've had some running for 10 or 15. And, you know, nothing was better than when he was able to say in that note to me. He said, I did everything. I told you that I would do, and it's important or more importantly, you told me you did everything you told me you were gonna do. And that business on every metric has over performed where we thought it was going to. That's the kind of deals we're looking for at EMCOR. Doesn't say we don't get ourselves involved in processes, but, you know, we were just in a small process a couple of weeks ago. A relatively small company. We bid, you know, let's say, a multiple that sort of made sense for us, but it wasn't on the nonaggress subside. And we got said, good luck, you know, your 2 turns off. So we're gonna keep grinding it out the way we are making fair deals. I I we're not known as bargain hunters. That's not who we are. We try to make a fair deal with someone that wants to be with us for the long term. Where we can help grow the business together and we can continue to provide great careers for great companies. Thanks so much. Thank you. We have your next question coming from the line of Sean Eastman from KeyBanc Capital Markets. Your line is now live. I'm just going to ask one since Brian Lane's waiting for us on the other line there. The Industrial Services business, I'm just curious about how we should be thinking about the mix of work there, just what's looking stronger, maybe relative to 2019 between the field and SHOP, we did you guys did add kind of a new service line there? Just any kind of comments on business mix and margin progression and industrial services? Well, I think part of the margin progression will come from our ability, to get more absorption, in the, second and third quarter, that's always critical. We have a certain number of people that work with us over extended period of time. The mix will still skew to the field. That's a bigger part of the business, but clearly the incremental dollars that we hope to drive through our our shops is worth a lot more to us. And then they tend to have some correlation with each other. There's no specific mix we're looking at. But it's probably going to be similar, maybe a little more favorable to the shops, maybe a bigger part in 2019 than it is 20, 2020 than 2019. Yes, Sean, the remaining performance obligations in our Industrial Services segment, which is all shop related, is up over $100,000,000. And at the end of 2018, it was roughly $87,000,000. So As long as we're successful in pushing that off through through our facilities and successfully get them out the door. I would like to think that we're going to see incremental improvement there. But as Tony said, once again, just from a skewing the percentages of that segment's revenues, it's going to be hard for for that activity to eat in at the expense of the field services because it's just so much larger. Excellent. Got it. Very helpful. I learned a lot on this call today. Thanks for the time. Thank you. And your next question will come from the line of Joe Mondillo from Sidoti and Company. Your line is now live. Hi guys. Good morning. Good morning, Joe. I was wondering if you could talk about the price cost spread in 2019 given dynamics of wage increases, but also the leverage that you have. Did that change at all compared to past years? No. You look at our growth margins are relatively consistent. The mix is relatively consistent. And I think that's where you see it. One of the things, Joe, we always pay attention to though is operating income margins a little more than we do gross margins, because our mix of work can skew that 10, 20, 30 basis points at the size we are now. Size we used to be, it used to skew it even more. The size we are now at 10, 20, 30 basis point can skew based on mix. We focus much more on operating. Look, so far, you think about the dynamics of our there are no wage surprises in our business. Right. We have 3 to 5 year contracts with our union and our non union, we also have pretty good idea what labor visibility is that we're bidding to a project. So then you get down to crew mix. On the union side, we have very strong definition around crew mix because we know what we bid and we know what we can do for the contract. If we got exceptions to that crew mix, we know that bidding the job. On the nonunion side, again, we have a pretty good idea with the mix of folks we're going to use on a particular thing. So what I'm really saying is most of our pricecost differential would pass on to the customer. Can you have a short term dislocation on materials, which is not going on right now? Could you have that? You could, but it prices itself out within a within 8 to 10 weeks. Alright. And, relative to past years, just given sort of the economy slowing a bit, I'm just wondering, I mean, your RPOs organically seem down a little bit. Mhmm. How has your project intake been trending at this point in time in the year relative to past years? You know, we just finished a series of about 60 calls with our subsidiary organizations. I would say most people look at, intakes a little different than that means the one loss and that can be skewed in short term. We look more at jobs available to bid that we really want to bid. And that is as strong as it was last year and last year it was very strong. Okay. And so in terms of the guidance, which I think sort of it looks like it's calling for maybe, low single digit growth, and you saw a little bit higher growth than that last year. Is that just a conservative aspect, or is there any visibility different than there was a year ago? Could you just frame that relative to the guidance we give guidance the same way almost every year for 12 years, right? We start out. People say we're conservative. We try to say, This is what we think we know today. We're sitting here in the first quarter. We got a whole year in front of us. We have to go book and finish a lot of work in the year. They hit these numbers. And it's a project based business. And I know people get tired of me saying there's two things that I've learned over a long period of time. Every decision our customers make is binary in our project business. We're either gonna get the project or not. They usually don't give us pieces of it. It's not like a manufacturer that's got a piece of the market they're going to get. And absence of badness is a big thing in our business. And we start out this year coming off of a really terrific 2 year, 3 year run on absence of madness. We see no reason that part won't continue, but the binary decisions always make us a little hesitant because, you know, if someone else is making that decision versus us. Okay. And then, looking at some industry reports, it looks like sort of overall and this is very broad. So that's why I want to ask the question. That nonresidential construction, declined, you know, construction starts declined, very modestly, last year. And then even in 2018, and they're calling for a little bit bigger declines in 2020. Could you, help us understand what you're seeing if that's, if that's similar to what your business and what you're seeing amongst your customers, or is it a little different because that's just such a broad report some of the reports that Yes, I think what you're saying is, right, it's a broad report, lots in there. A lot of residential high rise would be in there. Expansive market, a lot of things that we wouldn't even participate in for the most part. We tend to skew to the higher end of that market and we see that really good project opportunities in front of us sitting here today in first quarter 2020. Okay. And then last question, as sort of two part. BKI, how did that, perform in the 2 months or, I guess, in the fourth quarter, if you know what September was? Or October. I mean, how did that perform in the fourth quarter relative to that $400,000,000 of revenue annually that you put out in the press release? And then what is your expectation of D And A for 2020? We don't break out specific subsidiary performance. You know, $400,000,000 is sort of what it's done over a period of time. Like any one of our companies that do large projects, you know, they could have a small eight 12 week lull in action and then pick up pretty quickly. What we do know is it's had it's disclosed in the Okay. We had pretty good performance coming out of the gates. This is a company that knows how to execute some of the toughest, most sophisticated work they have. And they got they would be they would skew into the top end of EMCOR's contractors. Immediately at the start is what we think it can do and how we think they'll execute. Mark? Yes, Joe, the only thing I would add is, the tempered tone is commentary. Clearly, with the acquisition occurring in November, we have to we have to get through a lot of acquired backlog amortization. So top line is top line, but incremental profit contribution, at least in the initial months is going to be somewhat diminished by that amortization expense, which is why when we went out with the press release and provided commentary with regards to its contribution for 2020. We weren't we weren't as bull we weren't that bullish because of what the drag is of that acquired backlog. And that's obviously pursuant to the accounting regulation. Anytime you buy a company of that size, right? It, it comes with that, it comes with, large project work that has the same ebbs and flows of our large project work. And we buy something that size. We're really looking for contribution to be significant sort of 8 to 15 months out from that, just being, pragmatic because of the things marked talked about and also the ebbs and flows of their own business. That's why when we look at something like that, we look at it over multiple years and not just off of 1 year. Right. Understandable. Could, also the the DNA just given the size of that acquisition, just wondering what your expectation is for 2020? Yes. With regard with regards to the amortization expense related to the acquired intangibles, for 2020, and this is disclosed in the footnotes of the 10 K, full year intangible amortization is roughly $56,700,000. And then, you know, I suspect, from a this the pure depreciation expense for the company, it's not going to look significantly different than it did for full year 2019. If anything, it'll be slightly up. And if it's slightly up, you're talking single percentage point And that this is a function of us changing our capital for some of these newer businesses we acquired capital assets. Okay, thanks. To presenters. Please continue. Okay. We thank you all for following us in 2019. We look forward to talking to you all in 2020. And thanks for all your support and interest in EMCORE. And I'll finish by saying, we are blessed to have a great team here. And I know this team that I've I I have around the table here with us today, We are very thankful for the people in the field and that we operate, great for our customers and we do it in a safe, efficient manner. Have a great day, y'all. Thank you everyone for participating. This concludes today's conference. You may now disconnect. Have a lovely day