Earnings Call: Q3 2018

Oct 25, 2018

Good morning. My name is Maisha and I will be your conference operator for today. At this time, I would like to welcome everyone to the EMCOR Group Third Quarter 2018 Earnings Call. There will be a question and Ms. Jamie Beard, you may begin. Thank you, Maisha, and good morning, everyone. Welcome to the EMCORE Group conference call. We are here today to discuss the company's 2018 third quarter results, which were reported earlier this morning. I would like to turn the call over to Kevin Matts, Executive Vice President of Shared Services, will introduce management. Kevin, please go ahead. Thank you, Jamie, and good morning, everyone. Welcome to EMCORA's earnings conference call for the third quarter of 2002. For those of you who are accessing our call via the internet on our website, welcome to you as well. And we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. Please advance to Slide 2. This presentation and discussion contains certain forward looking statements and certain non GAAP financial information. Page 2 describes indeed of the forward looking statements and the non GAAP financial information disclosures. I encourage everyone to review both statements in conjunction with our discussion and the accompanying slides. Slide 3 has the executives who are with me to discuss the quarter and 9 month results. They are Tony Guzzi, our Chairman, President and CEO Mark Pompa, our Executive VP and Chief Financial Officer, Maxine Mauricio, our Senior Vice President, General Counsel and our Vice President of Marketing And Communications, Mava Heffler. 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. Tony? Thanks, Kevin, and good morning, and I'll be covering pages 4 to 6 upfront here. We had another terrific quarter we set quarterly records for We had 7.5 percent organic revenue growth in the quarter, which was Aided not only by the recovery in our Industrial Services segment for the Harvey impact in the year ago period, but also strong organic growth in our Building Services, electrical construction and UK segments. We are winning new work and executing that new work well across all segments. We continue to perform well in our Mechanical And Electrical Construction segments, our Building Services segment and the UK. We are now finally experiencing a recovery that is still gaining momentum in our Industrial Services segment as more normal demand patterns and activity return with our refining and petrochemical customers post Harvey. We continue to attract some of the best skilled trades people, However, labor markets are tight and we will drive productivity solutions to reduce our fill labor needs. And we always are recruiting and training new entrants into our skilled trades workforce. Overall, we had a really good quarter, and we have very good performance year to date. In our Mechanical And Electrical Construction segments, we continue to perform well. On a combined basis, we performed 7.4% operating income margins. And as I've said many, many, many times, you cannot look at operating income margins in these segments on a quarter to quarter basis. But to understand the trends, it is better to look at 4 to 5 quarter rolling average. And when viewed in the current quarter or through that lens of this rolling average, our operating income margins are strong, and we are executing well. Most of the quarter to quarter fluctuation result from project mix, timing and in some cases, dispute resolutions or problem jobs. However, over a few quarters that normalizes, and we know that our performance is strong and we're executing with discipline and focus. We have strong results across almost all market sectors and geographies. We are winning work at acceptable margins and our subsidiary and segment leaders are focused on delivering for our customers on some of the most mission critical and demanding projects. We are proud of our record in delivering superior results for our customers in these segments. Our Building Services segment had very strong organic growth in the quarter. 6.4%, driven by our Mechanical And Energy Services business. We also had very strong operating income margins of 6.2%. Which are a result of both revenue mix and strong execution. We are implementing our new contract wins well in the commercial site based business, and have strong execution in our government business, especially in our IDIQ work. Our team in building services is focused like a laser on improving our customer's maintenance and energy spend through project and recurring maintenance solutions that drive better asset efficiency and utilization for their customers across commercial, industrial, manufacturing, healthcare, institutional, government market sectors. We've had a good quarter. We have good discipline, strong execution, and we think that will continue. Our Industrial Services segment is contributing again. The comparison versus the year ago period is not that difficult as Harvey decimated this segment in the Third And Fourth Quarters of 2017. Also, it's important to realize that 3rd quarter is not one of our seasonally strongest quarters. We are back to serving our customers in a substantial manner. We are not we are not satisfied with 3.8% operating margins. Our operating income margins will improve in the 4th quarter as customer spending patterns continue to improve in the 4th quarter and they have to date in the 4th quarter. Our team has made many improvements over the last year in both our shop and field businesses that have not yet materialized in our results. We took advantage of the weak market to hire Shop performance is better. We have more work and better margins in our remaining performance obligations. And as a result, we expect our Shop performance to improve. Our UK segment continues to perform well. We continue to win new customers and expand existing relationships and with 17.1 percent organic revenue growth in the quarter and improved operating income margins versus the year ago period, the results show the success. We are performing well in both our facilities management, technical services and small project businesses in the UK. Despite strong organic revenue growth in the quarter, we had strong growth in our remaining performance obligations up 8% on a sequential basis performance. We had good cash flow in the quarter despite the strong organic revenue growth, and we expect cash flow to continue to improve in the fourth quarter as is typical for us. And we will And with that, Mark, I'll turn it over to you. Thank you, Tony, and good morning to everyone participating on the call today. For those assessing this presentation via the webcast, we are now on Slide 7. Over the next several slides, I will augment Tony's opening commentary on, of course, 3rd quarter performance, as well as provide a summary of our year to date results through September 30. All financial information referenced is derived from our consolidated financial statements included in both our earnings release announcement and Form 10Q filed with Securities And Exchange Commission earlier this morning. So let's revisit our 3rd quarter performance. Consolidated revenues of $2,050,000,000 are up 8.5 percent over quarter 3 2017. Our 3rd quarter results include $19,300,000 of revenues attributable to businesses acquired, pertaining to the period of time that such businesses were not owned by EMCORE in last year's third quarter. Acquisition revenues positively impacted our U. S. Mechanical Construction and U. S. Building Services segments. Excluding the impact of businesses acquired, 3rd quarter consolidated revenues increased $141,000,000 or 7.5 percent organically. All of EMCOR's reportable segments generated revenue growth during the third quarter. U. S. Electrical's construction revenues of $486,000,000 increased $28,100,000 or 6 0.1% from quarter 3 2017. Quarter over quarter revenue gains within the commercial, hospitality and manufacturing market sectors were partially offset by revenue declines within projects during 2017. U. S. Mechanical construction revenues of $772,300,000 increased $12,200,000 or 1.6%. Excluding acquisition revenues of $10,700,000, this segment's revenues increased $1,500,000 or 0.2 percent organically. As I mentioned during my second quarter earnings call commentary, our Mechanical Construction segment completed a number of large scale projects in 2017. As a result, and as we begin pre project planning and mobilization on a number of new projects within this segment, we only achieved modest revenue growth during the quarter just ended. This segment has, however, experienced the largest increase in new contract awards as evidenced by their 18% growth and remaining performance obligations since March 31st this year. Amcor's total domestic construction business 3rd quarter revenues of $1,260,000,000, increased $40,300,000 or 3.3 percent. U. S. Building Services quarterly revenue of $473,700,000 increased $36,600,000 or 8.4 percent. Excluding acquisition revenues of $8,600,000, this segment's revenues increased organically 6.4 percent. Revenue gains within their mechanical, energy and government services divisions were partially offset by a revenue decline within their commercial site based services division. This segment continues to experience strong project demand, which is providing a more favorable revenue mix. U. S. Industrial Services revenues $114,500,000 increased $68,800,000 or 47.2 percent as a result of higher field services and shop services activities. As I am sure everyone on this call remembers and as Tony just commented, 2017 third quarter results for this segment were severely impacted by Hurricane Harvey. Towards the latter half of quarter 3 this year, we started to see the resumption of normal seasonal demand as we head into the fall turnaround season. We are encouraged to United Kingdom Building Services revenues of $100,500,000 increased $14,700,000 or 17.1 percent, as a result of increased small and capital project activities. This segment's quarterly revenues were negatively impacted by $400,000 of foreign currency movement, as the pound sterling continues its vulnerability due to uncertainties around the terms of the UK's exit from the European Union. My last statement on 3rd quarter revenues is to echo what Tony referenced earlier, our $2,050,000,000 of quarterly revenues is a new record for EMCOR, and eclipsed 20 seventeen's fourth quarter, which represented the first time we exceeded $2,000,000,000 in quarterly revenues in our history. Please turn to Slide 8. Selling, general and administrative expenses of $197,300,000 represent 9.6% of 3rd quarter revenues and reflect an increase of $8,400,000 from quarter 3 2017. The current year's quarter includes approximately $2,800,000 of incremental SG and A inclusive of intangible asset amortization from businesses acquired, resulting in an organic quarter over quarter increase of approximately $5,600,000. This organic increase is primarily due to higher incentive compensation costs necessitated by our expectations for increased year over year profitability, as well as other employment costs associated with an increase in employee headcount to support our organic revenue growth. Additionally, We have experienced increases in information technology and professional fee expenses quarter over quarter due to discrete initiatives currently in progress. Reported operating income from the quarter of $111,800,000 represents 5.5 percent of revenues and compares to $106,000,000 or 5.6 percent of revenues in 20seventeen's third quarter. Similar to this quarter's revenue performance, Our almost $112,000,000 of quarterly operating income represents a new all time quarterly record. With that said, will now cover each of $5,000,000 decreased $12,100,000 from the comparable 2017 period. Reported quarterly operating margin is 7.1%, which is below 20 seventeen's exceptional 3rd quarter operating margin of 10.2%. This segment executed a number of large transportation and telecommunications projects in last year's third quarter that either completed or reached substantial completion resulting in the record quarterly operating income margin in 2017. Conversely, the current year's quarter results include a large number of new projects which are in the early stages of completion. In addition, this segment's results were negatively impacted by an infrastructure project on the West Coast, which experienced a write down of U. S. Mechanical Construction Services segment operating income of $58,700,000 represents a $1,200,000 or a 2.1% increase for last year's quarter. Operating margin is due to increased gross profit from manufacturing, commercial and hospitality project activity, as well as the contribution from a business acquired 2017. Our total U. S. Construction business is reporting a 7.4% operating margin for the quarter just ended as compared to 8.5 percent in last year's third quarter. Operating income for U. S. Building Services increased 3,300,000 to $29,300,000 or 6.2 percent of revenues. The improvement in quarterly operating income and operating margin is primarily due to increased profitability within their Government Services division due to new contract awards and increased IDIQ project activity. Additionally, this segment's operating income benefited from an increase in large project activity period over period within its Energy Services division. Our U. S. Industrial Services segment operating income of $8,200,000 represents 3.8 percent of revenues, which is an increase of 13,000,000 from 20 seventeen's quarterly operating loss of $4,800,000. Lavelle's third quarter of each year tends to be one of the seasonally weakest for this segment, It is encouraging to see a return to more typical levels of activity within both our field services and shop activities as we gear up for the fall turnaround season. UK Building Services operating income of $4,500,000 or 4.4 percent of revenues represents an increase of $1,000,000 and is a 40 basis point improvement over last year's third quarter. Continued strong small and capital project activity drove the period over period improvement. We are now on Slide 9. Additional key financial data for the third quarter not addressed on the previous slides are as follows. Quarter 3 gross profit of $309,300,000 or 15.1 percent of revenues is improved in absolute dollars by $14,300,000 However, our gross profit margin contracted 50 basis points due to the reduction in U. S. Electrical construction gross profit as a result of the change in revenue mix, as well as the gross profit and gross margin impact of the lost project previously referenced. Diluted earnings per common share from continuing operations is $1.36 and compares to $1.09 for the quarter ended September 30, 2017. This represents a $0.27 or 24.8% improvement quarter over quarter. Our tax rate for the 3rd quarter is 27.1 percent and was favorably impacted by certain discrete items. With 1 quarter remaining in 2018 and our year to date tax rate being consistent with the quarterly rate of 27.1 percent just reported, I believe our full year 2018 tax rate will now be between 27% 27.5%. We have continued our quarterly sequential improvement in cash flow performance with 3rd quarter cash provided by operating activities representing $98,500,000, As a result of our significant organic revenue growth during the quarter, our working capital investment has increased driven primarily by new construction project startups in our rebound in industrial services activities. At this time last year, we had very little revenue activities within our industrial services segment due to Hurricane Harvey's impact And as previously stated, we had numerous projects within our 2 U. S. Construction segments finish or achieve significant completion milestones that triggered substantial cash collections in late 2017. As Tony indicated earlier, we are still anticipating strong cash generation during the fourth quarter but do not expect to achieve a result comparable to 2017's record cash flow generation. We are now on Slide 10. With the quarter out of the way, let's now turn our attention to our year to date results through September 30, revenues of 5 $900,000,000 represent an increase of $227,000,000 or 4% as compared to $5,670,000,000 in the prior year period. Our year to date results include $55,300,000 of revenues attributable to businesses acquired, pertaining to year to date period. Excluding the impact of businesses acquired year to date revenues increased organically $171,700,000 or 3 percent. Significant revenue growth within each of our domestic construction segments and our U. S. And UK Building Services segments was muted by a 4.2% year over year revenue decline in our Industrial Services segment, which got off to a slow start in 2018, due to 20 17 period by $33,400,000 or 4 percent. 20 eighteen's gross margin is 14.7 percent, 2018's gross margin of 14.7 percent is flat with the comparative 2017 period. Strong year over year improvement within each of our U. S. Mechanical Construction And U. S. Building And UK Building Services segments in both absolute dollars and margin contribution percentages was partially offset by reductions within both expenses of $578,300,000, represent 9.8 percent of revenues as compared to $554,100,000 or 9.8 percent of revenues in 2017. Year to date 2018 includes $7,600,000 of incremental SG and A, inclusive of intangible asset amortization pertaining to businesses acquired. Year to date operating income is $289,400,000, and represents an $8,600,000 increase over 2017's year to date performance. Our year to date operating margin is 4.9%, which is consistent with 2017's 9 month performance. Although our operating margin is flat year over year, as we disclosed last year, 20 seventeen's 9 month data operating margin benefited by 30 basis points due to the recovery of certain contract costs previously disputed on a project within our U. S. Mechanical Construction segment completed in 2016. Additionally, the project write downs during the current quarter our U. S. Electrical Construction segment negatively impacted our year to date operating margin by 10 basis points. Reported diluted earnings per common share from continuing operations is $3.52 for the 9 months ended September 30, 2018, compared to $2.93 in the corresponding 9 month 2017 period. On an adjusted basis, reflecting the add back non cash intangible asset impairment loss realized that 2018 second quarter non GAAP diluted earnings per share from continuing operations would have been $3.54 as compared to 20 seventeen's $2.93, which represents an improvement of 20.8 percent year over year. We are now on Slide 11. Encore's balance sheet continues to maintain its strength, variations of note from December 31, 2017 are as follows: our September 30th cash balance has decreased from year end 2017 primarily as a result of the continued repurchase of common stock pursuant to our stock repurchase program, as well as funding for acquisitions, capital expenditures, and dividends. Working capital levels have increased due to our growth in accounts receivable and contract assets related to our strong quarterly organic revenue performance. Changes in our goodwill balance reflect the impact of businesses acquired, identifiable intangible assets that have primarily decreased due to the impact of 31 point total debt of $299,300,000 is reduced from December 31, 2017 due to mandatorily quarterly principal repayments under our outstanding term loan, partially offset by the amortization of debt issuance costs during the 2018 year to date period. As a result of our outstanding borrowings, we have a debt to capitalization ratio of 14.4% at September 30, 2018. Although our cash flow performance to date does not favorably compare to our exceptional 2017 performance, our balance sheet retains its strength we remain in good position to execute against our strategic objectives and to capitalize on market opportunities. With my portion of the formal slide presentation concluded, I will return the call to Tony. Tony? Thanks, Mark, and I'm on page 12. It's remaining performance obligations for RPO by segment and market sector. As we have communicated over the last several quarters, at the beginning of 2018, EMCOR adopted Fasb's new revenue recognition standard, which requires the disclosure of remaining unsatisfied performance obligations. We call those RPOs. Prior to the adoption of new standard, the company had reported backlog on a quarterly basis. Backlog is not a term recognized under United States generally accepted County Principles. So instead of reporting 2 figures, we have chosen to move solely to RPO. The most significant difference between remaining performance obligations and log relates to the contract term of the company's service contracts. A detailed description of that difference between backlog and RPO can be found in the MD and A within the company's first quarter 10 Q. Looking at the graphs, total RPOs at the end of the 3rd quarter was $3,970,000,000 or up 8.1 percent from the June 30th level of 3,670,000,000 or up $365,000,000 or 10.1 percent from March 31, 2018, when we initially change over to RPO reporting from backlog. RPO increases this year have mainly been driven by our domestic construction segments. However, our other 2 domestic segments, Building Services, and Industrial Services have also experienced RPO growth for the year. RPO in our UK segment is down a bit thus far this year. Looking at RPO by market sector, our growth is being led by increases in commercial and industrial sector projects. We like that. Where we have leading positions, for instance, in data center and food processing projects. We believe that total non residential activity remains buoyant at around the mid single digit growth for the year. And as we move into the final quarter of 2018, There is nothing that we currently see that will blunt the activity as we move into the beginning of 2019. We're in pretty good market yet. So in summary, we have grown our RPO level through the year on the back of a good nonresidential market and the current bidding environment remains active and we are positioned to continue to execute well in what is still a pretty good market. Now go to Page 1314, As we move to year end, we are going to raise our guidance from $4.40 to $4.80 per diluted share from continuing operations to $4.75 to $4.90 per diluted share from continuing operations. We now expect revenues to be at least 7 $900,000,000. We expect each of our segments to perform well in the 4th quarter. And the difference between the bottom end of the range, that's the 4.75 the top end of our range, which is the 490, will result from continued strong execution and performance in our mechanical and electrical construction segments And if work accelerates to year end like it did last year, that will help us get to the top end of the range. We do expect continued improvement in our Industrial Services segment, but with scope increases, we could move to the top end of the range. And we do expect solid execution in the UK And Building Services segment. It is a narrow range at this point in the year. So those items, project timing and acceleration, scope increases in industrial, and growth in maintenance project work and building service in the UK will define where we are in that range. Let's get to capital allocation. We will continue to allocate capital to growth first. And you saw that in the third quarter, where we had strong organic revenue growth. And we now have executed 2 nice acquisitions, one tucks into our electrical construction segment and the other one early in the year tucked into our Building Services segment. And these deals open new geographies to us and also bring us some new capabilities to execute for our customers. We have a robust pipeline for these deals at this time. And we are known as We have repurchased 96,000,000 in shares through the third quarter and have returned another 14,000,000 in cash to shareholders through dividends year to date. Our board authorized us at our meeting just a day ago to repurchase another $200,000,000 of shares when coupled with our remaining share authorization of 79,000,000 provides adequate authorization to execute additional return of cash to shareholders. We believe our markets continue to provide us opportunity to perform for you we look forward to finishing 2018 strong. And with that, Maisha, And at this time your first question does come from Hara. Sahara, your line is open. Hi, thank you and congratulations on another strong quarter, guys. Thanks team. Tony, given the strength of the 3rd quarter and I know you might have low vol 4th quarter again on the revenue side. But just given your commentary, mechanical seems like you are getting a lot of backlog in again. Industrial is recovering. Is it conceivable potentially for you guys to see mid to high single digit revenue growth into next year? I think a lot of that will depend on where we end the year, T. We had a lot of project accelerations at the end of last year. That could happen again this year. We're not going to comment on 2019, but we think that mid single digit growth in the non res market would Boy well for us. We've got to understand more about the turnaround schedule, which right now looks pretty good. And then the whole the things that grow on building services right now with remaining performance obligations up 8.1% sequentially, and we continue to see strength in that going in the fourth quarter. I expect us to have decent guidance going into next year. Got it. Okay. And just taking the commentary you had, on really making the industrial margins, already pushing those further and you're not happy with where they are right now. And hopefully these glitches and transportation projects go away. Could you also see margin expansion next year? I think a lot of it will have to do with mix tea. Clearly, our industrial services people expect better margins and to do better. It's not we need more volume and we're starting to see volume return. We did make some nice investments in that business. So we'll have some startup as we start up a couple, new areas product lines, both at Midstream and also some other services in the refinery, but we do expect to do better in industrial. Now we also have very strong construction margins right now. And we're going to fight like heck to keep them. But in some ways in construction world, we like our margins where they are and somewhere around there is okay. We need to grow margin dollars there as the works available and the right mix of works available. At Building Services, we continue to get to the right mix. We don't see any, any slowing in the kind of work we're doing there to help our customers improve their assets. And the UK continues to be full truck. But you know, I always think about it. We're around 5% right now. The mix of how we get to that 5% or high fours to mid fives may change. But that's a pretty good place for us to be. We'd like some margin expansion, but we don't want to sacrifice, that next project for margin expansion. Mark, I mean, you may have view on that too. Yes, I think with regards to Tony's comment on industrial, obviously, there is still some headwind within the third quarter and their margin performance because of their higher fixed overhead structure. And they did ramp up activity, but the activity ramped up towards the latter half of quarter 3. So there definitely was some under absorption of overhead. The company is performing well across the whole portfolio as we speak. As you could appreciate, there's a tremendous amount of moving parts. We're remaining disciplined in our project selection and obviously We're requiring our field labor to continue to execute at a very high level. And I think we're going to carry that strength into 2019, but stay tuned for more on that when we get there on the timeline. Yes, as far as the transportation projects, I think when you look at it as a portfolio over the last 3 years, we've actually done quite well, absent the one project in New York City, which had a lot of anomalies with it. This was more of a routine run of mill issue, it's the scope got away from us. We have a lot of other things where the scope moves with us. We feel really good about the portation market. And it's one of the things we can really add value long term. Got it. Okay. Tony, actually, that's pretty helpful. Thank you both. At this time, your next question comes from Adam Stimmler. He is from Thompson's Davis. Adam, your line is open at this time. Adam, how are you? Hey, good morning, guys. Nice quarter. Thank you. Tony, are you seeing much variability in demand by city or region at this point? Sure. I mean, there's parts with our companies, right? We have companies that are more capable in certain And so therefore, they're able to do more things. So I can't tell you whether it's demand. But, yeah, I mean, there are some pockets around the country that are stronger, and some of that has to do with us, right? I would say broad based, there's a general uplift. There's markets we don't participate in a large way. So I don't have a view on those, but Both coasts are pretty good. I do think the residential high rise market is slowing in some cities. Not a big part of what we did. And quite frankly, that could be good. Because it could allow more manpower to come to our projects and allow us to grab, some manpower and move out our marginal manpower. But right now, the market's pretty strong. And with the return of the upstream market in the Permian, the return of the downstream market in the Gulf Coast, we're all figuring out how to deal with SB 54 in California. And the resuming normal activity downstream there in California. I think if you look at that in general, There's a demand for our labor. There's demand for manpower. I think long term, we continue to see really good bidding opportunities for the company we have to have the most capability. Okay. And then Tony, can you remind us what margins within industrial are you happy with? You said you're a little unhappy with the margins? I mean, I think depending on mix, and Mark may have a view too. I mean, I think if we're heavily mixed towards the field in a different in a quarter, it may go more towards the mid-six the high sixes. If we have a little more shop work, it may get in the mid sevens, Mark, is that? Yes, I would say, Adam, 6.5% to 8% would be what I would consider acceptable performance range, and that can vary quarter to quarter depending on where you are relative to turnaround, right. And Mark Stock and operating income markets, right? I mean, realize that's our segment with the heaviest D and A load. Okay. And then in Electrical, you referenced some large jobs that were starting up. Can you give some additional color on kind of magnitude and timing of how that progresses? They're large. No, we don't give specifics, but these are, these are jobs mid-forty, $50,000,000, $50,000,000 type jobs are more starting up. They're commercial, they're industrial, And, they'll have a left to them somewhere between 9 18 months, we think, right now. Okay. And then, lastly for me, Mark, can you give us any color on cash flow expectations for Q4? Yes, I mean, I think both Tony and I mentioned in our commentary that we're expecting Q4 to be stronger than Q3. So realistically, it's going to be something north of $100,000,000 in the 4th quarter. And we'll see where we are. Continue to have the same level of strong organic revenue growth in the fourth quarter, my estimate might be a little bit on the high side, but that'll be a good position to be in, right, because we'll just carry over that monetization of activity into 2019. We have a lot of TNM work in progress right now. Obviously, with our field based businesses, both the industrial segment and within our electrical construction segment. And, unfortunately, the way those contracts are structured, we bill in arrears and if we got a lot of, a lot of craft mobilized on a daily basis and we're billing when we're supposed to. That money may not come until quarter 1, 2019. Our days are still pretty good. And, our net billings are in good shape. And our IR aging at 9:30 looks no different than it did as of December 31, 2017 or as of 9:30 2017. So I mean, the good news is we always say we like to invest in our business for growth. We're investing in our business for organic growth right now, and we're going to have the ability to take advantage of investing in our business for acquisition growth too. Great. Thanks guys. Thank you. At this time, your next question comes from Noel Dilts from Stifel. Noel, your line is open. Hi, and congratulations on a good quarter. Good morning. I just wanted Tony, you mentioned labor a bit in your comments and I just wanted to dig into that a little bit further. First, I think the question is, are the labor markets becoming so tight that they could potentially constrain growth. I know you mentioned some productivity initiatives. So if you could kind of expand upon what you're doing there, And then could you give us a sense of what you're seeing in terms of wage rate changes and how to think about the productivity of your force right now as you bring on new people? Right. I mean, clearly, right, we're beyond our core workforce right now. That have been for the last 24 months. And of course, as we grow, more people get added to our core workforce. And I think you have to take a nuanced view of this, no, all the way we think about it. The businesses that peak the fastest, which would be our industrial turnaround businesses, and our oil and gas businesses find short term labor constraints the most challenging. And what that would likely lead to is an extension of time on a given turnaround or an extension of hours that someone will work. To get the work done. And there's a lot of things driving that. 1 is a resumption of demand and it's coming now. After a slow period. So some people have left and gone to the construction trades out of that core work group. The other part of it is the demand can be pretty barter based. So if it's you're strong in Texas and Louisiana right now and works returning in California where the wages are a little higher, you may find it more difficult to staff a turnaround in Ohio or in Indiana. So you have to really think about it in a nuanced way. And then when you get to the construction trades, where you're planning can be a lot more systematic. You start thinking about what the mix of over time and other leverage you will use. And you have thought about that in your estimate that you will use to drive performance on that so that you can keep your most productive labor working as much as you can, but also at the same time realizing you can't fatigue the workforce to the point where they're no longer productive. And so a lot of planning goes into that. And then the thing we're seeing going on in general is you're seeing an up, upskilling I would not want to be running today a painting company, a drywall company, a janitorial company in any significant way. Because the most skilled of those people are trying to make their way up into the better trades. And of course, we're a landing home for that. So they're a lot of different. And of course, then you get to each of these are a localized market to some extent. And so you have to work through that. The good news is when you get to what the broader category of skilled trades cares about, we're one of the destinations of choice. And the reason we are is because the 4 or 5 things that are most important starting with, I know for a fact I'm going to get paid every week. I know that I'm going to be working for supervision that knows what they're going to do and knows what they're doing. I'm working in a place that invests in safety in my safe my training and my equipment. And if I do a good job, I'm likely to be able to become part of their core workforce. And we check all those blocks. And it really you have to think about those things from both a union and non union standpoint And it very much is a local market. And then you get to the wages. Union wages go slower in this environment because they were hired to begin with the nonunion wages. And the union wages are contractually. There are hundreds of local negotiations that happen to set those contracts. Their local CBAs. And we negotiate and because we're one of the leaders in the most important markets, and we have found the unions to be very rational. In most market, not all, but most markets, because they realize it's a balance. And part of it is they know the hours can go up and their members can benefit from over time and other special things that happen in a more mission critical job. In the nonunion world, For the most skilled laborers, labor's wages may accelerate a little faster, but there you allow, you have much more flexibility on crew mix. And so we have to get very good about that. And then you get to the productivity initiatives. We have some of the best foreman and superintendent in the businesses and estimators. And project managers. And we think a lot about prefabrication right now. And in a good market is where you learn to do prefab the best because you're straining at labor. You want to keep your best labor productive. So we've invested in the pre fabrication and by the investment in pre fabrication over the last really 10 years, and things like the Trimble systems to make sure the points are right in BIM. And all the things we do, we aren't as good a position as anybody to take labor out of the field and put it into our shops. For my second question, I wanted to dig into refinery services a bit more. As you think about this kind of catch up from the delays associated with Harvey. And I understand you're limited in what you can say about 2019, but is there a way you could give us a sense of how you're thinking about sort of just base growth in that market? And then how much this kind of potential catch up or deferral of work could add to the opportunity as we look the next 12 to 18 months? Yes, a lot of the deferral work, you have to be careful how you think about it because the way you'll see that is in scope increase once you're into the turnaround. I mean, so we probably won't have a lot of visibility on deferrals until we're into it. As one of our most seasoned operators, thoughtfully told me last year when I was thinking about all that and asking somebody that's actually on the front lines of it every day. He said, Tony, so when you miss an oil change in your car, you then decide to do 2 back to back And of course, the answer to that, no. And, okay, by missing the oil change, did you create damage? Any answer to that maybe? And so we'll learn a lot about that in the fourth quarter 1st quarter as we get into these turnarounds and see what happens with scope. All that being said, one of the things that there's a lot of things going on in that market right now And one of the things you say on the negative side, you can say all these consolidations happen. As a large contractor, that could be a positive for us. Because we have the ability to serve those large refiners in a substantial way. And then on the other side, you could say the crude mix is different than what these folks had planned 8 to 10 years ago when there was the big CapEx cycle to get these refineries, especially on the Gulf Coast and some of the Midwest ones prepared for either sour Canadian or North Dakota crude or Venezuelan crude and Canadian crude when you looked at the Gulf Coast. And now they're running more Permian crude through there, which is sweet crude. As you put all that together and say, what does that mean for maintenance? And so you say consolidation has been good, scope increases could happen from the deferrals, but then the life may be extended to some of these assets because of the crude mix going through. We think net net net of all that, we're in a pretty good position and we have to continue to look for services to add and we are doing that. And by adding those services, we can keep ourselves more relevant to our customers. At this time, your next question comes from Brent Stevens from D. A. Davidson. Great, thanks. Great quarter. Thank you. Hey, Tony, in Industrial Services, all been waiting for the lid for some time and it sort of feels like you're seeing kind of an abrupt comeback in the business. You mentioned what you've done to hire and retain people things were slower. Is any of or all of that playing into more favorable contract terms with these customers right now? Is it they might be scrambling to get your services? No. These are very tough negotiators. You deal with the supply management and purchasing group now. You deal with the operational scope and, you have to be pretty thoughtful in how you do contracts with them. But what is happening is people realize to get the right mix of work on it that they have to get down to understand who's going to be coming on the job. So you're seeing a return to that, but these are tough negotiators that know what they're doing. And the good news is they value what we do and we have large scale relationships with some of the biggest downstream chemical and petrochemical and refinery Okay. And you offered some good things in terms of the different factors playing into kind of what's impacting these refining customers and the goals and so forth. I didn't hear you mentioned IMO 2020. Could you tell about what that might mean for your business over the next few years? Sure. Marpol is a good thing for us. It's going to lead to a lot of small capital projects, which we happen to do on the mechanical side. It's going to lead to increase in diesel type production or right below diesel, which is something the U. S. Refiners are structurally advantaged at, which should increase demand in the more the better our customers do, the better we do. And it should lead to higher utilization long term. I don't know what's going to happen to the refining sector 30 years from now, but here's how we think about the next 5 to 10 years. We see steady demand, we think, improvement and Marpool is helping that. And the other thing we see is the Gulf Coast refiners, especially really becoming more and more strategically advantaged one because of their size. Too because of the mix of crews they can put in, their input costs, especially natural gas are very favorable. And who's likely to be the losers, and we have an export market we can now serve, who's likely to be the losers long term in the refining space, is, Northern, Europe, and the East Coast of the U. S. Okay. And I guess this all of us on our side are trying to think about next year, assuming it looks like construction market momentum is going to carry on. There be any reasons why electrical or mechanical, at least on a core organic basis should grow a lot faster than the other? I think it's been a project mix and timing. No reason, I think structurally, no, especially with industrial continuing to plot back to a regional, reasonable volume levels. No. At this time, your next question comes from Adam Filmer from Thompson Davis. Adam, a doubleheader. Can you just provide some brief comments on the buyback of $200,000,000? Yes, I mean, look, it's a sign of confidence, right? We've had a thoughtful buyback program over a period of time. The way we think about it is return to cash to shareholders. We're not speculators in our own stock. We've executed well over a long period doing it. We have no specific goals in any given quarter or any given time. But one thing we are committed to a long term is to keep no dilution from happening, which is not that hard considering we only dilute somewhere between, what, more, 250,000 shares a year. Not a lot. And so look, obviously, our board said, we had $79,000,000 reopening into another $200,000,000. I would guess, we think our stocks obviously have value right now over the last couple of weeks. That was sort of been a crazy correction, but the whole market has to. But again, go back to my earlier report. We're not speculators in the stock. We balanced it against other opportunities for organic growth, acquisitions, we prioritize share repurchase over expanding the dividend. Perfect. Okay. Thanks. That's it, Maisha. Okay. I think that's it. At this time, we do have I apologize. I don't mean to interrupt. How we do have a question from Noel De from Stifel. Go ahead, Noel. Along the capital allocation line of questioning, could you just give us an update on kind of what you're seeing in terms of potential M and A targets in the market and any changes in how you're thinking about multiples in valuation? Yes, we really haven't changed how we think about it for a long period of time. I mean, these two deals we executed so far this year, I think are emblematic and the kind of things we'll be doing. There may be one a little bit larger or 2 a little bit larger over the next couple of years, but nothing that we see right now that I don't think we're going to be making a transformative deal anytime soon. Typically doesn't work out well in our space. We're not going to go out and spend a couple of $1,000,000,000 on something. We're very comfortable doing acquisitions. $200,000,000 to $600,000,000. There's really nothing out there like that right now. But a collection of them together could start to look like one of those. Evaluations for anything more than $25,000,000 of EBITDA is still crazy. I mean, you know, there's been no, coiling of that with interest rates going up a little bit for the private equity people. I think that's more of a terms game than it is a interest rate game. If banks will give them great terms and they'll execute the bills. We feel good about what we're doing. We have a good pipeline of the kind of deals that could really add value. And, we'll continue to balance that against our organic growth and return of cash to shareholders. Thanks. Thank you. Okay. Thank you to everybody. And we look forward to talking to you collectively, I guess, again, in February. And everybody have a happy end of the year and everybody stay safe. Goodbye. This concludes today's conference call. You all may now disconnect. Thank you for