Earnings Call: Q1 2017

Apr 27, 2017

Good morning. My name is Polly, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCORE Group First Quarter 2017 Earnings Conference Call. Call. Thank you. I'll now turn the conference over to Mr. Brentley Vitu. With FTI Consulting. Sir, you may begin. Thank you, Polly, and good morning, everyone. Welcome to the EMCOR Group conference call we are here today to discuss the company's 2017 first quarter results, which were reported this morning. Would like to turn the call over to Kevin Matt's Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead. Thank you, Brad, and good morning, everyone. Welcome to EMCOR Group's earnings conference call for the first quarter of 2017. For those of you who are accessing the 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. We are on Slide 2. Slide 2 depicts the executives who are with me to discuss the quarter's results they are, Tony Guzzi, President and Chief Executive Officer Mark Pompa, our Executive Vice President and Chief Financial Officer, Maxine Mauricio, our Senior Vice President And General Counsel and our Vice President of Marketing And Communications, Made of 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. And may contain certain forward looking statements. Such statements are based upon information available to EMCOR's management's perception as of this date Ampcor assumes no obligation to update any such forward looking statements. These forward looking statements involve risks and uncertainties that could cause will result to differ materially from the forward looking statements. Accordingly, these statements are no guarantee of future performance. Such risks and uncertainties include, but are not limited to, adverse effects of general economic conditions, changes in the political environment, changes in the specific markets for EMCOR Services, adverse business conditions, increased competition, mix of business and risks associated with foreign operations. Certain of the risks and factors associated with EMCOR's business are also discussed in the company's 2016 Form 10 K and in other reports filed from time to time with the securities and Change Commission. With that out of the way, please let me turn the call over to Tony Guzzi. Tony? Yes, good morning. Thanks, Kevin. I'm going to be on pages 2 to 4 as that goes for these opening remarks. Good morning, and thanks for joining us on this conference call. We're off to a good start this year. We had a very strong first quarter with revenues of $1,890,000,000, earnings per diluted share from continuing operations of $0.88 per share. And operating income margins of 4.4%. It was our best first quarter ever in terms of revenues, operating income and earnings per diluted versus the year ago periods. We had 8.4 percent revenue growth. Nearly half of our revenue growth was organic revenue growth. Our success this quarter was driven by excellent execution in our Electrical And Mechanical Construction segments. We had strong underlying execution across these segments and benefited from an absence of madness to coin one of our most popular phrases here at Encore. Our Electrical Construction segment grew revenues 27.2 percent versus the year ago period. Posted 7.0 percent operating income margins and grew operating income by approximately 86% versus the year ago period. Our Mechanical Construction segment grew revenues by 10.3% versus the year ago period, posted 6.0% operating income margins and grew operating income by 70%. Our quarter was driven manufacturing, Healthcare And Transportation. Our Building Services segment held its own in the quarter and had a good quarter despite receiving no help from the weather. We continue to have strong underlying strength in our mechanical services business, and are starting up several new contracts in our commercial site based business. And we've vowed a mild weather in this segment, which is not something we'll talk about much today. It was a steady quarter. We continue to business. Our Industrial Services segment performed well and had a good spring turnaround season. And most of this turnaround work was completed in the quarter versus last year's elongated season that pushed more work into the second quarter. Revenues were flat, but the comparison to the year ago periods of tough comparison as we have previously discussed, as we had stellar performance through the 1st 3 quarters of last year on a specialty services project and had a pretty good turnaround season last spring. We executed well at 6.6 percent operating margins, despite the lack of an impact project. We believe that we continue to gain share in the core turnaround market and have grown into a first rate service provider to not only refineries but petrochemical plants as well. Our team continues to execute very well for our customers. Our 8 K segment as a decrease in revenues as a result of foreign exchange, but on a constant currency basis, had some growth. We had some startup expenses in the first quarter from some new contract wins, we expect this headwind to diminish as we move later into the second quarter. The UK Building Services business has had steady performance and we continue to grow our customer base and our customer scope. Our balance sheet remains liquid and strong and our backlog stands at a very strong $3,970,000,000. Our SG and A spending is well under control at 9.7 percent of revenues. And with that, I'll turn the discussion over to 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 6. Over the next four slides, I will augment Tony's opening commentary and cover each of our reportable segments' 1st quarter operating performance and a little more detail, as well as other key financial data derived from the consolidated financial statements included in both our earnings release announcement and Form 10Q, filed with the Securities And Exchange Commission earlier this morning. So let's get started. Consolidated revenues of $1,890,000,000 are up $146,800,000 or 8.4% over quarter 1 2016. Incremental revenues attributable to businesses acquired of 77,700,000, pertaining to the period of time that such businesses were not owned by EMCORE in last year's first quarter positively impacted our U. S. Electrical Construction, U. S. Building Services and our U. S. Mechanical Construction segments. Excluding such acquisition revenues, our organic revenue growth in the quarter is 4%. U. S. Electrical Construction revenues of $443,000,000 increased $94,700,000 or 27.2 percent from quarter 1 2016. Excluding acquisition revenues of $43,900,000, this segment's revenues grew $50,800,000 or 14.6 percent organically. Quarterly revenue growth was primarily driven by project activity within the commercial and transportation market sectors, inclusive of certain large scale telecommunication projects, partially offset by quarter over quarter revenue declines within the healthcare and hospitality market sectors due to certain project completions that occurred in late 2016. U. S. Mechanical Construction 1st quarter revenues of $671,100,000 increased $62,700,000 or 10.3%. Excluding acquisition revenues of $16,800,000, this segment's revenues grew 7.5 percent organically quarter over quarter. Our Mechanical Construction revenue growth continues to be broad based from a market sector perspective, as was the case throughout 2016. Specifically during the first quarter, commercial, healthcare, water and industrial market sector activities contributed to largest dollar revenue growth, partially offset by revenue declines from institutional project activity. And of course, total domestic construction business first quarter revenues of $1,110,000,000, increased $157,400,000 or 16.5 percent, of which a healthy 10.1% was generated from organic activities. U. S. Building Services quarterly revenues of $440,000,000 decreased $3,100,000 or 0.7%. Excluding acquisition revenues of $17,100,000, this segment's organic revenue decrease is 4.6%. Revenue gains within their Mechanical Services division were offset by revenue declines within their commercial site based and government services divisions, due to maintenance contract attrition, primarily occurring in 2016 as well as contract scope reductions. Additionally, about quarter 1 2016 was relatively quiet on the snow removal front, the quarter just ended, saw reduced levels of snow removal activities year over year, due to low seasonal snowfall and geographies where we are contracted for removal on an event basis. U. S. Industrial Services revenue $258,600,000 increased $1,100,000 due to increased turnaround activities from our industrial field services operations as we executed a somewhat normal spring turnaround schedule. This differs from 2016's first quarter in which we experienced certain delays, which extended our spring turnaround season into quarter 2 2016. This increase in turnaround activities for the first quarter of 2017 was partially offset by reduced revenues from large project activity within our specialty services offerings, which were exceptionally strong in 2016, and positively impacted each of the 1st 3 quarters of last year. United Kingdom Building Services revenues of 79,000,000 decreased $8,600,000 or 9.8 percent due to the $12,200,000 impact of unfavorable exchange rates for the British pound versus the U. S. Dollar. Additionally, small project and capital project activity remains muted as the impact of Brexit continues to affect our customer spending patterns. Lastly, our $1,890,000,000 of quarterly revenues surpassed our previous first quarter revenue record of $1,740,000,000, which oddly enough was achieved in last year's first quarter. Expenses of $183,000,000 represent 9.7 percent of revenues and reflect an increase of $15,600,000 from quarter 1 2016. The current year's quarter includes approximately $12,400,000 of incremental SG and A, inclusive of intangible asset amortization from businesses acquired. Excluding this incremental acquisition related SG and A, as well as the $1,100,000 of transaction expenses incurred in 2016's first quarter, 2017 quarterly organic SG and A growth is approximately $4,300,000, and is primarily due to increased employment costs as a result of higher headcount to support our organic revenue growth as well as higher incentive compensation expense due to anticipated improved full year operating performance the majority of which occurred within our U. S. Construction businesses. Reported operating income for the quarter of $82,800,000 represents 4.4 percent of revenues, and compares to $55,600,000 or 3.2 percent in 20 sixteen's first quarter. Our U. S. Electrical Construction Services segment operating income of $31,000,000 increased $14,300,000 or 85.8 percent from the comparable 2016 period. Reported operating margin of 7% represents a 220 basis point improvement over last year's first quarter. The increase in this segment's operating income is due to increased project activity within the commercial market subsector with a concentration in the telecommunications market sub sector quarter over quarter. The improvement in segment operating margin is due to the lack of transportation project write downs that impacted 20sixteen's first quarter as well as the completion or significant completion of these specific projects, which were in a loss position during 2016, that depressed last year's operating margins due to revenues recognized for which there was no corresponding profit recognition. 20 17s first quarter U. S. Mechanical Construction Services operating income of $40,400,000 represents a $16,700,000 increase from last year's quarter. This represents a 70% improvement quarter over quarter, primarily due to increased gross profit contributions from projects within the industrial, commercial and water market sectors. Additionally, this segment's quarterly operating income benefited from the recovery of certain contract costs incurred in 2016 that were previously disputed. This segment's operating margin is 6% and represents a 210 basis point improvement from 2016s first quarter. Our total U. S. Construction businesses reporting a 6.4% operating margin, which represents a 220 basis point improvement period over period. Operating income for the U. S. Building Services of $14,200,000 is slightly improved from last year's first quarter, while reported operating margin of 3.2% is flat between both periods. Consistent with this segment's revenue performance, the Mechanical Services division's organic growth and project and repair services, Volume and operating income contribution generated by acquisitions were partially offset by a reduction in income from commercial site based services due to contract attrition and reduced snowfall removal volumes. Our U. S. Industrial Services operating income of $17,000,000 decreased $1,800,000 or 9.7 percent compared to 2016 first quarter with an operating margin of 6.6 percent or 70 basis points less than last year's 7.3 on operating margin. A seasonably normal spring turnaround season was project that was active during the 1st 3 quarters of last year. Additionally, the operating margin contribution from our shop services operation is reduced quarter over quarter due to necessary pricing declines as a result of lower market demand. UK Building Services operating $1,700,000 or 2.1 percent of revenues represents a $1,600,000 reduction period over period, which is due to a decrease in both small and capital project activity as well as $200,000 of headwind from a weakened British pound. Additionally, as Tony mentioned, this segment incurred mobilization costs connection with new contract awards, which pursuant to contract terms will be recovered over the lifecycle of such contracts. Lastly, on this slide, we used $5,200,000 of cash in operations as compared to $37,200,000 of cash used in operations during 2016 first quarter. With the funding of our prior year's incentive compensation awards occurring during our first quarter, it historically represents our weakest cash flow quarter. However, our current year quarter cash flow is benefiting from a change in the due date for the 1st installment of federal estimated tax payments which moved from March 15 to April 15. We are now on Slide 8. Additional key financial data for the quarter not addressed on the previous slides are as follows, Quarter 1 gross profit of $266,300,000 represents 14.1 percent of revenues, which has improved from the comparable 2016 quarter by $43,200,000 130 basis points. The quarter over quarter improvement in gross profit is largely due to our substantial growth in quarterly revenues, as well as the improved operating performance in both of our US construction segments. The quarter over quarter increase in gross margin is due to the impact in last year's first quarter of losses on certain transportation projects as well as the effect of revenues recognized with no corresponding gross profit on projects and loss positions in the prior year. In addition, the first quarter of the current year benefited from the recovery of certain contract costs previously disputed on a project that was completed in 2016. Restructuring costs during the most recent quarter primarily represent employee severance costs in connection with the continued implementation of process improvements in both our back office and business development functional areas. Diluted earnings per common share from continuing operations is $0.88 and compares to $0.56 for the quarter ending March 31, 2016. On an adjusted basis, reflecting the add back of transaction costs incurred in quarter 1, 20 16 related to the Arden Robley acquisition, diluted earnings per common share from continuing operations would have been $0.57 for 2016, as compared to the $0.88 per diluted share in the current year, which represents an increase of $0.31 or a 54.4% improvement. Although not presented on this slide, it is worth mentioning that our tax rate for the first quarter of 2017 was 33.6 percent, and lower than expected due to a favorable discrete item. My expectations for a full year tax rate inclusive of this favorable item is between 37% 37.5%. Lastly, in addition to achieving a new 1st quarter revenue record, This quarter represents new 1st quarter records for gross profit, gross profit margin, operating income, net income from continuing operations, and diluted earnings per share from continuing operations. We are now on Slide 9. Tony also mentioned balance sheet continues to be strong decreased since year end 2016 due primarily to funds expended for acquisitions that were closed in the first quarter, as well as our common stock repurchase activity. Working capital levels have decreased since the end of last year, primarily due to the reduction in cash just referenced. Changes in our goodwill and identifiable intangible asset balance reflect the impact of acquisitions including finalization of purchase price allocations, net of $12,200,000 of intangible asset amortization expense. Total debt of $420,700,000 is reduced from year end 2016 due to the mandatory quarterly principal repayments under our term loan, of $3,800,000 offset by new capital lease additions during the quarter. As a result of our outstanding borrowings, we currently have a debt to capitalization ratio 21.5%, which represents a slight decrease from where we were at year end 2016. We continue to remain happy with our balance as well as the underlying cash With my brief commentary concluded, I would like to return the presentation to Tony. Tony? Thank you, Mark. And it always is brief in the first quarter, right? Look, I'm going to be on pages 10 and 11. I'm going to talk about the backlog. As you can see on the schedule, total backlog at the end of the first quarter is just under 4,000,000,000 at $3,970,000,000. It's up $122,000,000 or 3.2 percent from March 2016, and up from year end by $71,000,000 or 1.8%. The book to bill for the quarter was 1.04. We had another strong quarter of project bookings on top of strong revenue growth. Our markets continue to give us bidding opportunities across most sectors and our construction segments are executing well. Focusing on these market sectors, and it sounds like a bit of a broken record from 20 16, our backlog is led by commercial sector projects. Commercial sector backlog stands at almost 1,400,000,000. By the way, our highest level ever, we said that a few times the last couple of years, and it grew 9.2% from the year ago quarter. And increased 5.1% from December 31. Commercial backlog now stands at 35% of our total backlog. While the commercial sector is wide in terms of projects, our projects really go from anything from a new commercial building to telecommunications and data center work, to a large retrofit work to a simple tenant retrofit project. We execute well in all of those sectors. It's now 5 consecutive quarters that we have seen an increase in healthcare backlog and over $400,000,000, it's at a level not seen since 2010. We have recent projects wins in New York, Cincinnati, Indiana and Boston. BS Healthcare is in flux, it's an uncertain market from a legislative perspective. But, however, long term, it's a good market for us. These projects are technically challenging, and the demographics really say that we need to have more services. And the technology and advancements in technology will continue the need for new and updated facilities. We have burned some backlog in our industrial and transportation sectors as we work on some food processing infrastructure projects. Hospitality of note is up this quarter as we secured the mechanical systems installation for a new Northeastern casino. You know, EMCOR is a fairly good proxy for the nonresidential construction sector. Summarizing, we believe that nonresidential market is still positioned to grow by mid single digits in 20 team, with the private side leading the public side. Remember, this is a very big market at over 700,000,000,000 and only 98% of its record 2008 high as measured by the Census Bureau. You know, it's quite a statement that it will take almost 9 years to reach the level that we achieved in 2008. You can go to page 11, backlog by segment as we experienced throughout 2016 and now into 2017, our backlog is growing in our domestic construction segments. Combined our Electrical And Mechanical Construction segment's backlog increased $192,000,000 to almost 3,100,000,000 or up just over 7% since March 2016. Both segments saw year over year gains with electrical up 117,000,000 and mechanical up $75,000,000. We continue to see bidding opportunities across most of our end markets. Backlog in our building service is now 57,000,000 And Mark went through the revenue side of that. Reality, it's based on our site based and government business. It's pretty much flat in our mobile mechanical services business. But we do expect growth in the mechanical services business and in the site based business as the year progresses in backlog. Our Industrial Services backlog stands at $51,000,000, and it's really just a continuation of the same story of the Shop Services business and nothing's really changed with respect to capital spending in the refining sector, and it remains at continued lower levels. Backlog in the UK remains relatively flat. And we did win some contract awards that Mark and I both talked to all about. And all backlog is up in construction and it's in line or a little ahead of Marcus. It's flat in shops, and again, in line with what we believe the market's doing. And so far, we're pretty much where we thought we'd be in 2017. Now I'd like you to turn to pages 1213. Recognizing our strong start to the year and also cognizant of the reality that we are only in the 1st quarter we are going to adjust our guidance to reflect the start as we believe that we can now raise the lower end of our range from $3.10 to $3.20 per diluted share from continuing operations. Despite the strong revenue growth in the first quarter, we are going to leave our revenue guidance unchanged at $7,500,000,000 to $7,600,000,000. We believe that we will continue to see strong growth in our Electrical And Mechanical Construction segments. But as we have discussed a lot over the last three calls, we will still have headwind in our Industrial Services segment as a result of top 2016 comparisons, especially in the second And Third Quarters of 2017 versus that year ago period. From the impact project covered many times, as well as continued reduced demand and really reduced pricing for our shop services, new heat exchangers. Our start is a little stronger than we expected. But as discussed, it was driven by excellent execution in our construction segments. The year is really developing, as we expected, strong growth in our end performance in our Electrical And Mechanical Construction segments, solid performance against tough year over year comps in our Industrial Services segment and steady and incrementally improving Building Services segment performance. And we will have steady UK performance. We expect to continue to look for opportunities to deploy our capital much as much in the same manner as we did in the first quarter. We made 2 nice acquisitions in the first quarter, 1 in fire protection, and 1 in mechanical services. Both Bill and geographic white spaces and EMCOR's portfolio and add some capabilities as well. We will continue to look to add capabilities and geographic reach in our Mechanical And Construction segments, as well as our Building Services And Industrial Services segment. Our acquisitions will remain U. S. Focused. We will continue to return to cash to shareholders through dividends and buybacks. And following with that, I'll look to take questions. Your first question comes from the line of Tahira Afzal with KeyBanc Capital Markets. Thank you very much. And congratulations, Tony. Great execution this quarter. I'll thank the people in the field Yes, please. So I guess first question is, if you're looking at the health care side. And Tony, you talked about it a little more than you have in the past. Do you think this could be turning potentially into a longer side and it could play a fairly important role going forward? Or do you think, the commercial side of the business remains where we should focus on a more broad based level? I think the commercial side on a more broad based level. I think health care for the next 3 or 3 to 5 quarters will be important for us. We have backlog we have to execute. Back health care has become much more episodic, than it was prior to the, Affordable Care Act As far as big jobs happen, there's not a steady bidding activity for large healthcare jobs like their work, but we're well positioned to take advantage of them when they are. But the commercial market and the breadth that we can serve there is probably a more, steady and steadily increasing market for us than the health care market. Got it, Donnie. And then, you talked about the non res market and your ability to grow at least alongside that in the mid single digit. If you look at what how everything is shaping up over the last few months. And I know it's too early. Do you think though at growth rate could be sustained into next year at this point or it's too early to say? I think it's a little early, but I see nothing right now based on the bidding that doesn't say to me that the market's not strong. And I will say there's definitely over the last 4 months an uptick in our customer sentiment broadly, right, and they're willing to spend money. Got it. And it seems like that's showing up and leading indicators again as well. So fully supports what you're saying. Thank you, Tony. I'll hop back in the queue. And your next question comes from the line of Noelle Deets with Stifel. Hi, good morning. Thanks. Just given the headwind that you're facing in Industrial Services in the second quarter, could you maybe go back and revisit and give us a sense of maybe how much the petrochem work and the one off work, benefited you last year, either from a revenue or a profitability standpoint. And then my second question would be, just as we look at the underlying turnaround market, what do you think starts to change the behavior of the refiners and just if you could expand upon your expectations for the back half of the year and into next year? Got it. Next year is always hard, but back half of the year. I mean, we'll be a lot smarter in July than we are today, but we're expecting a fairly busy fall turnaround season. The reality, we've been very fortunate with our customer mix. And I think with our broad array of our capabilities, we really had, absent the strike, we really had a series of 5 straight good turnaround seasons. We believe, I don't know if we're taking share, we're just getting an enhanced scope or that our capabilities, we're able to put more labor on the job and do it quickly with really skilled people. We've had pretty good success in what a lot of people are saying is tough market. And we believe it is a slower growing market. We're just doing fairly well in it. We won't, be specific about the petrochemical work, but we do expect Second And Third Quarter would be more challenging for us. We don't give quarterly guidance, but clearly, it would be very difficult for us to achieve the level of success we had in the second quarter of last year. That would be a tough thing for us to do. Right. Okay. And then in your, in your Q, you talked about certain telecom projects benefiting you in the quarter. Could you just talk about what you're seeing in telecom, how you're participating and how you're thinking about that going forward? Well, I mean, telecom work data center work is system rich work. And stuff that we do very well. Very demanding customers, tough customers, not always the most profitable customers at times, but also in contract structure, they're very sophisticated. But we line up with them well, and we and we have customers that we can don't want to say move across the country, but they can use our capabilities in different parts of the country. What we're seeing is strong market. And it's a market that we're well positioned to take advantage of in the markets where we participate in Okay. And then my last question is just on M And A. You spoke about some of your targets there, but could you talk about what you're seeing in terms of just, I guess, asset or target pricing in the market, general interest levels of selling, by potential, by potential smaller private firms? Well, I mean, we had we've done 2 very we think are very good deals here in the first quarter. That being said, who knows? I mean, some people have expectations that are outrageous. Others understand that it takes 2 sides to actually get to a deal private equity, in a lot of ways, will always be, and even today, in my mind, it's crazy that they set the bar, but with cheap debt, they can pay a turn or turn a half, sometimes even two turns above what the assets really worth. So for us to be able to compete with them in a significant way, it has to be a perfect fit Revcon Strickland was. And we were able to have a lot of synergy that we brought at First for 'eighteen, add to our already good team in Industrial Services. So we'll be careful. We'll be smart about it. We won't get so enamored with anything that we'll buy at all costs. But we do see enough opportunities. And one of the best companies that we have is the one we spent over $50,000,000 on in the first quarter. If acquisitions aren't there, we have a great company. We can buy at a multiple, sometimes lower than those acquisitions in EMCOR. Makes sense. Thanks. And your next question comes from the line of Tate Sullivan with Sidoti. Good morning, Dave. Good morning. More on M and A and I've seen the 2 deals in the course of the quarter and more specific question on business segment, I mean, I've always associated your building services as more recurring and maintenance work. And it looks like one that might have been the larger position as a mechanical business in the Western U. S? And why put it in Building Services? And can you just go over the difference between the 2? Sure. If you look at our segments broadly, the Electrical And Mechanical Construction segments, just broadly tend to do bigger projects. And 80% plus of the time they're working for general contractors. We do have a couple of businesses within our Mechanical segment that have a large services business, but the construction businesses in those businesses for the services businesses. You get to the building services business, the mechanical service it's the other way around. The services business we're working for the owners directly tends to be 70, 80% of the revenue and we either do a project work for those owners and there may be a general contractor involved at times, but most times they're being directed by the owner to try to work the deal out with us. And a lot of times, we have an underlying base agreement, service agreement, where we're doing service work and repair service. We have a technician base in those businesses that are fairly significant. And we do all the things you would expect our service to business to do. From GPS to very efficient truck routing and everything else. So one's a little more owner and service led. Ones are more a little more construction led in GC led. Okay, perfect. That makes perfect sense. And thanks for that. And then Can you you mentioned petrochemical in addition to refineries too. I mean, going back last cycle and getting and then buying Arden, I mean, do you look do you benchmark where you want to be in terms of your total energy exposure? No. Again, we would never tell them not to just like we don't benchmark for our total construction exposure. We tend to focus on opportunities and where we can find the best opportunities to contain sustained growth for our shareholders. You know, art is a good example. Art is a fairly significant for lack of a better word, electrician and attendance business, so a lot of refineries they call nested. It also has the ability to do work, especially the rovalay part of that business can do a lot of different fixed price work. So we look at opportunities and look at long term growth in those markets and try to find the right point to enter it or grow it organically. Okay. Thank you very much. Have a great day. And your next question comes from the line of Adam Thalhimer with Thomas Davis. I'm trying to understand in the Industrial Services segment, the revenue, can you give us a little bit more color? If I look 2 years ago back in 2015. For Q2 and Q3, you did $467,000,000 of revenue in that segment. Is that a good kind of benchmark for how you're thinking about Q2, Q3 this year? Well, I'll kick it over to Mark. But my view is, our revenue, our performance in Q2, Q3 of 'fifteen probably looks a lot more than like this year than 'sixteen did. The only difference Adam, as Tony mentioned earlier, we had the impact of the strike at the beginning of 2015 and Unfortunately, some of that work losses discreet nature as we roll through the year. So, that number that you're throwing out is probably a reasonable number, but we actually could be a little bit lower than that once again based on the fact that there was some spillover from the strike. That work was executed as we went throughout the remainder of 2015. Okay, perfect. And then And right now, we're factoring any specialty services work. Reality is we can get a call this afternoon and we can mobilize. We won't know that. It tends to be more emergency related work sometimes. Okay. And then in the Building Services business, you talked about a couple of projects that are just starting up. So you're going to have revenue you're going to have year over year revenue growth in that segment from those projects that are ramping up? Probably you wouldn't see it until late in the fourth quarter till it really ramps up. It takes a long time. The way we typically do it the U. S. Is it may end up into a large contract, but we start with pilots so that we all set expectations about what the funding is going to be, what the execution is going to be. So I think it would be probably towards the end of the year till we would expect to get any large impact those work we just picked up. Yes. And Adam, this is Mark again. The other thing is with some of the maintenance contracts, that we don't, we did not carry forward into 20 17, they were still burning revenue in Q2, Q3 of 2016. Okay. So it could be. All right. I mean, in general, I guess what I'm trying to get you to comment on is why you didn't raise the We think we have, our revenue whole year over year in the Industrial Services segment. In Q2 and Q3. And we have, although not nearly as profitable, approval. We have the aforementioned projects. Mark talked about, not project for contracts and building services that were significant revenue contracts that we had in for such a long period of time. That they became a lot less profitable. That's why you don't hear us whining about the profitability of building services as much as the revenue. From those launches. That's why. And then just lastly, I mean, you had it was great to see you guys put up great margins in the domestic construction business again. Seems like there's really no project issues that emerged just curious why that margin performance wouldn't continue going forward? And I assume that you expect that based on the Well, if we're going to hit our guidance, we have to have growth in margin this year because we don't expect based on our guidance today, much growth in revenue. The reality of the whole thing is that's basically the underlying performance, absent the baddest of last year. The business underlying on 98.9% of our projects or more has been exceptional over the last 18 months. Got it. Okay. That's all helpful. Thank you. Your next question comes from the line of Brent Thielman with D. A. Davidson. Thank you. Maybe just a couple of last questions on the backlog by market sector. One, the dip in the transportation sector, do you look at that as kind of just timing of new work coming in? It just seems like it's moving in the wrong direction relative to what's you talked about out there at least in terms of funding and support? Well, I think talked about and letting contracts are disconnected from each other right now, right? So we don't, we again, to remind everybody what our backlog is, it's, the actual signed contracts or signed change orders for 1 year of assigned agreement of a multiyear service agreement. We don't take all 3 years and lump it into the backlog all at once. We also make no estimations on turnaround volume as all that work is time and material, which is why industrial will be so low. Transportation in general tends to be an episodic market. We book big work. We execute that big work. We may book another one in between there. But part of it is we have resources that execute that work. So some of it's timing of the resources of when they would roll off those jobs and timing of when we would win the next award, some of it is We've bid on some work and we didn't win it because the pricing or the terms weren't right. Or others is some of it hasn't been let yet in the markets where we really participate significantly in transportation market. Transportation work for the most part at EMCOR, for the most part, is an electrically driven function. It's bridges, tunnels, airports, ports in general. We did a lot of work, on Southern California and the ports in some ways. On the mechanical side, it's much more narrow what we would do. On the mechanical side, it would be stations. It would be tunnel ventilation and things like that. So when we book a big transportation award, at EMCOR. For the most part, it's typically an electrical job. And we have broad based capability there. And we would also typically, unless we're part of a design build team or design assist team, a lot of other people will be booking that work. Ahead of when we would be booking that work. Okay. That's helpful. Maybe just on the institutional piece the market, looking back 2010 to 2012, certainly a bigger piece of the pie. Is that to the work that isn't there right now? Obviously, it's much smaller or is it just the private commercial, the healthcare stuff, just more attractive to you? It's a combination of both. But a lot of that institutional work you saw back in 11, 12 when it was large was really housed in our Building Services segment. And it was very significant base operating agreements that we had for the Navy. Quite frankly, we won all the award years We performed exceptionally well. When it came for rebid, we decided we couldn't do work below our costs. So we moved on. Okay. All right. Thanks guys. Paul, anybody else? And at this time, there are no further questions. Now we will turn the call back to management for closing remarks. Thank you all very much. I think the questions, I think we have a pretty good picture of what we're anticipating over the next couple of quarters. The year is basically to summarize this, we expect strong execution in our Electrical Mechanical Construction segments, and we do expect revenue growth there. We're going to be a little revenue challenged here in Q2 and Q3. We're execute, we think pretty well in industrial services. And building services will improve. Revenues might not be as strong because we have 2 large contracts that came out. But they were relatively low profitability. So through your questions and through our commentary, I think we have a pretty good picture with good on fold here. We feel good about taking the lower end of the range up because we over performed, I think, versus even our expectations in the first quarter. With that, we look forward to seeing you all, and thank you all for your interest in Import. And thank you. This concludes today's conference. You may now disconnect.