Earnings Call: Q4 2016

Feb 23, 2017

Good morning. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Fourth Quarter and Full Year 2016 Earnings Call. Call. Mr. Bradley Batu with FTI Consulting. You may begin. Thank you, Sylvia, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 20 4th quarter and full year results, which were reported 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, Brad, and good morning, everyone. Welcome to EMCOR Group's earnings conference call for the fourth quarter of 2016. For those of you who are accessing the call via the internet and our website also welcome, 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 and full year 2016 results. They are Tony Guzzi, our President and Chief Executive Officer Mark Pompa, Executive Vice President And Chief Financial Officer Maxine Mauricio, our Senior Vice President And 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 its slides, will be archived in the Investor Relations section of our website, under Presentations. You can find us at emcorgroup.com. Before we begin, I want to remind you that this discussion may contain certain forward looking statements. Any such statements are based upon information available to EMCOR Management's perception as of this date, and EMCOR assumes no obligation to update any such forward looking statements. These forward looking statements involve risks and uncertainties that could cause actual results 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 EMCORE 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 in other reports filed from time to time with the Securities And Exchange Commission. With that said, please let me turn the call over to Tony. Tony? Yes. Thanks, Kevin. Good morning, and thanks for joining us this morning. I will be speaking to pages 3 to 5. I'm going to speak about 2016, And I'm going to leave it to Mark to cover the quarter and year in detail. My comments will use pro form a results that add back the Ardent Robillay transaction costs and the small impairment loss reported this 4th quarter. Taking a step back, we had a record setting 2016 at EMCOR. And I now will share some of the highlights overall for the year, and then I will provide some highlights by reportable segment. We had record setting revenues of $7,550,000,000 and earned $3.09 per diluted share from continuing operations. Cash flow from operations was strong at $265,000,000. Our revenue growth was exceptional in 2016. Driven primarily by Overall, we grew revenues by 12.4%, with almost 70% of that being organic growth Our Electrical And Mechanical segments grew revenues 18.6% overall and had over 13.1% organic growth. Our Industrial Services segment had 15.8 percent revenue growth all of which was organic. Building Services had 3% revenue growth, most of it through a very good tuck in acquisition, in mechanical services, and the UK had negative growth, driven primarily by FX post Brexit. We had decent pro form a operating we had but we should have done better. And as many of you know, we don't spend a lot of time making excuses. And when bad things happen, we fight hard for our rightful entitlements when we have issues because as a specialty contractor, we have already spent the cash And we work to complete the work, regardless of how difficult the conditions our customers have us work under or how demanding they are. That is what makes us who we are. In 2016 however, we had 3 significant issues that total about $47,000,000 of losses. Mark is going to cover in detail the financial impact of these projects and contracts, but I wanted to provide a broader operational view of what impacted us on each of these projects and contracts. 1 of these projects was almost a complete completely 4th quarter event from an execution and completion perspective in our Mechanical Construction segment. This was a time and material contract performed with a large crew of pipe fitters working very heavy over time on a compressed time schedule on a fast paced process facility project. These sets of circumstance are usually in our sweet spot for success. However, in this case, our customer expanded our scope and mismanaged this high intensity event, and the customer significantly overran the budget on this work. That overrun for us totals almost $18,000,000, Now that the 1,000,000 of project write downs on an institutional project due to unfavorable site conditions and project delays not driven by us. And finally, our issues on the large Northeast transportation project have been communicated throughout the year and were a result of a highly accelerated project in its final stages, and it cost us $19,400,000 in 2016. All three of these projects are substantially complete. And we are demobilized and working small clinch punch list items. To place this in context, this year, we executed many large complex projects like these projects and contracts that went extraordinarily well. And we don't spend much time discussing these successes and is clear in the underlying strength of our results that despite these discrete negative issues, we could still deliver a record year for our shareholders. And now, With those details of those projects behind us, I want to talk about the strength of our underlying business, and I'm going to give you some highlights by segment. In the Electrical Construction segment, the underlying business is very strong as we built backlog through the year, despite significant organic revenue growth. We executed well across manufactured healthcare and institutional work. In the Mechanical Construction segment, we had exceptional revenue growth and strong execution across almost all of our contracts and projects. We delivered well across the majority of our end markets with particularly strong execution in commercial, hospitality, Manufacturing, Data Center And Water And Wastewater And Market Sector. We had executed well across all of our mechanical trades and have delivered strong results across all of our geographies. We have and are executing some of the largest food processing work that we have ever done. We expect our growth and we should expect our growth in mechanical construction to generate growth in operating income. And operating income growth. In our Building Services segment, and performance in our Mechanical Services business. Our Mechanical Services business has strong performance, not only in its service agreement and repair service activities, but also had very good overall performance in our retrofit projects. We continue to see strong demand for retrofit projects and EMCOR is able to package these projects and in many cases deliver strong energy savings to our customers. We held steady in our commercial and government site based services business And in these businesses, we continue to work to exploit our niche in self perform technical services, leveraging a nationwide footprint and we provide vendor managed solutions for interior and exterior services. Overall, building services had a good year. Our Industrial segment had a stellar year despite significant headwinds in our shop business that we have discussed many times. Our Shop Heat Exchanger services have historically been one of the most profitable revenue streams in import. However, our backlog, revenues and operating profits are down over 50% over the last 2 years as a result of the decline in integrated oil company cash flows, which drives deferred maintenance and reduced capital expansion spending. We made up for that and still grew revenues by 15.8% and operating profit by 37.9% as we executed well across our field services business, especially in our specialty services. In 2016, we executed some of the largest turnarounds that we have ever executed. We not only had that turnaround work, we had several large projects that we were able to execute for our customers that were complex and demanding. On these large projects, we were able to mobilize in short order over 1000 highly skilled trades people. Not many of our competitors could execute the work we did as it required extraordinary supervision, labor management, and financial resources to mobilize and management. We can do this at EMCOR, but these type of project activities are usually not planned and we react to our customers' needs. Although this create a headwind for us in subsequent periods for comparison, it is important, profitable, and very good work since the acquisition of Repcon Strickland. The UK segment has steady and now has had 3 straight years of solid contribution to our results. Our 2013 restructuring worked, and the UK is ready to grow in a measured way. We have added some nice maintenance contract wins over the past year. You know, we leave this year with a very strong backlog that despite the record organic revenue growth, grew 3.5% versus the same year ago period. And most of that growth is in our construction segments. We continue to have a strong and liquid balance sheet supported by consistently strong cash flows even when we have double digit organic revenue growth. We've had very good acquisition integration over the past 3 years also. You know, we had a very strong 2016. And sure, it could have been better, but it was still a record performance And with that, I will turn it over to Mark to cover to discuss backlog and the outlook for 2017. Thank you, Tony, and my good morning to everyone participating on the call today. For those accessing this presentation via the webcast, we are now on Slide 6. As Tony indicated in his opening commentary, I will begin with a detailed discussion of our fourth quarter 20 16 results before moving to our full year 2016 performance, some of which Tony just outlined during his executive summary, and is included in our consolidated financial statements within both our earnings release announcement and Form 10 K filed with the Securities And Exchange Commission earlier this morning. So let's review our 4th quarter performance. Consolidated revenues of $1,950,000,000 in quarter 4 are up $172,100,000 or 9.7 percent. All reportable segments are reporting increased revenues quarter over quarter other than our UK Building Services segment. Incremental revenues attributable to businesses acquired of $71,100,000 pertaining to the period of time that such businesses were not owned by EMCOR in last year's fourth quarter, positively impacted our U. S. Electrical Construction, U. S. Building Services and our U. S. Mechanical Construction segments. Excluding such such acquisition revenues, our organic revenue growth in the quarter is 5.7%. U. S. Electrical Construction revenues of $476,900,000, increased $119,300,000 or 33.4 percent from quarter 4 2015. Excluding acquisition revenues of $54,500,000, This segment's revenues grew $64,900,000 or 18.1 percent organically. Quarterly revenue growth was primarily driven by project activity within the transportation and commercial market sectors, inclusive of certain large scale telecommunication projects, partially offset by quarter over quarter revenue declines within the healthcare and sectors. U. S. Mechanical Construction 4th quarter revenues of $722,300,000 increased $62,000,000 or 9.4 percent, Excluding acquisition revenues, this segment grew organically 9%. Consistent with this segment's revenue activity during late 2015 and throughout 20 team, revenue growth continues to be broad based from a market sector perspective. Specifically during the quarter, commercial of water, industrial and healthcare contributed the largest dollar revenue growth. EMCOR's total domestic construction business 4th quarter revenues of $1,200,000,000, increased $181,300,000 or 17.8 percent, of which 12.2% was generated from organic activities. U. S. Building Services quarterly revenues of $438,500,000 increased $2,700,000 or 0.6%. Excluding acquisition revenues of $14,000,000, this segment's revenues decreased organically 2.6%. Revenue gains within their Mechanical Services division were offset by revenue declines within their commercial site based and government services divisions, due to maintenance volumes. Although the majority of contract attrition occurred earlier in the year, we remain selective in evaluating new maintenance contract sales opportunities U. S. Industrial Services revenues of $237,300,000 increased $15,000,000 due to increased turnaround activities from our industrial field services operations which were partially offset by reduced revenues from this segment's shop services operations due to low levels of capital spending by our customers. This reduction in capital spending is a continuation of a trend that began to affect us in late 2015 as a result of crude oil price volatility. United Kingdom Building Services revenues of $75,000,000 decreased $26,900,000 or 26.4 percent due to the $16,600,000 impact of the continued weakening British pound, as well as a reduction in small project and capital project activity when compared to 2015 fourth quarter, as our U. K. Customers are still assessing the short and long term locations on their business models as a result of the Brexit vote earlier in 2016. My last comment on quarterly revenues is that our 4th quarter revenues of $1,950,000,000 EQuipsed our previously established quarterly revenue record, which we achieved in 2016 second quarter. Please turn to Slide 7. Selling, general and administrative expenses of $194,900,000 represent 10% of revenues and an increase of 26,400,000 from the $168,500,000 reported in 20 fifteen's fourth quarter. As a percentage of revenues, the current year quarter increased 50 basis points from the 9.5% reported last year. The current year's quarter includes approximately $9,300,000 of incremental SG and A inclusive of intangible asset amortization from businesses acquired. Therefore, our quarterly organic SG and A increase is approximately 17,100,000 and is due to increases in employment costs as a result of larger incentive compensation awards earned as a result of the improvement in full year operating performance. Additionally, increased headcount to support our strong organic revenue growth as well as higher medical insurance expenses were significant cost drivers in our 4th quarter. Lastly, we experienced a greater level of bad debt expense, which was concentrated within our U S. Construction businesses. With regard to our quarterly SG and A as a percentage of revenues, The 50 basis point increase is due to the true up of incentive compensation awards in the quarter as a result of the over performance of certain of our operating companies. For those of you on the call who regularly follow us, you may remember that in early 2015, our SG and A percentage was high due to the impact of the same item, for the opposite reason. Despite a slow start to 2015, we were accruing both short term and long term incentive compensation awards based on anticipated improved annual results over full year 2014. As operating performance improved throughout the latter part of 2015, We saw a decline in our SG and A as a percentage of revenues since those incentive awards are expensed ratably over the calendar year. Conversely, in 2016, Certain operating companies experienced better than anticipated operating performance in the last 2 quarters of the year, resulting in incremental expense to true up for actual year performance resulting in our 4th quarter SG and A percentage exceeding our reported annual percentage of 9.6%, which is down from full year 2015. Reported operating income for the quarter of $74,500,000 represents 3 point compares to $84,100,000 or 4.7 percent in 20 fifteen's 4th quarter. 20 sixteen's 4th quarter operating income includes a $2,400,000 non cash impairment charge as a result of the diminution and value of a trade name of a business previously acquired. Our U. S. Electrical Construction Services segment operating income of $31,100,000 increased $16,400,000 or over 100% from the comparable 2015 period. Reported operating margin of 6.5 percent represents a 240 basis point improvement over last year's 4th quarter. This segment experienced $8,200,000 of losses on several transportation projects during 2015 fourth quarter, As a result, there is a substantial quarter over quarter improvement in gross profit contribution from this segment's transportation market sector activities. These projects were either complete or substantially complete at December 31, 2016. Reduced from commercial and industrial market sector project activities led by certain telecommunication projects. 20 4th quarter U. S. Mechanical Construction Services segment, operating income of $32,200,000, represents a $26,300,000 decrease from last year's quarter. Reported quarterly operating margin is 4.5%, which is significantly less than 2015 fourth quarter. This segment incurred a loss of $20,500,000 in the current quarter on a project at a process facility as a result of a contract dispute with our customer. This project negatively impacted the segment's operating margin by over 300 basis points. The job was substantially completed December 31, 20 16, and we will seek recovery for our losses. As a reminder, during the fourth quarter of 2015, this segment benefited from a 12,100,000 of revenues as a result of the settlement of a claim on an institutional project for which we had recorded significant losses in reported period reporting periods prior to 2014. Our total U. S. Construction business is reporting a decrease of $9,900,000 in operating income or 13.5 percent over last year's 4th quarter with an operating margin of 5.3 percent, which represents a decline of 190 basis points over 2015 4th quarter. Operating income for U. S. Building Services of $21,000,000 increased $5,400,000 or 34.8 percent over 2015 fourth quarter. Reported operating margin of 4.8 percent represents 120 basis point improvement over last year's quarter, with reported 3.6% operating margin. The improvement in quarter over quarter operating income and operating margin is due to higher revenues and gross profit margins, from this segment's Mechanical Services division, along with improved quarterly performance within their Government Services operations. Our U. S. Industrial Services operating income of $11,200,000 decreased $600,000 or 5.4% compared to 20 fifteen's fourth quarter with an operating margin of 4.7 percent or 60 basis points less than last year's 5.3 percent operating margin. The decrease in operating income and operating margin quarter over quarter is partially attributable to costs associated with the closeout of a large field services capital project which project revenues were predominantly recognized over the prior 4th quarters. This unfortunately masked strong turnaround activities executed in the current quarter. UK Building Services operating income of $2,800,000 or 3.7 percent of revenues represents a $300,000 reduction period over period, which is due to a $600,000 headwind from a weakened British pound. Quarterly operating margin improved 70 basis points from 20 fifteen's 4th quarter operating margin of 3% due to a more favorable mix of revenues. The impact on consolidated quarterly operating margin the previously mentioned loss project within our U. S. Mechanical Construction Services segment is a negative 120 basis points. We are now on Slide 8. The table on Slide 8 lays out those discrete items that impact quarter over quarter comparability. The only item to address is the identifiable intangible asset impairment loss impacting the current quarter of $2,400,000. After giving effect to the add back of this item, 2016 fourth quarter adjusted operating income would have been $76,900,000 or 3.9 percent of revenues, which represents a decline of $7,200,000 80 basis points in operating margin from last year's fourth quarter. We have not included any project loss activity reported in the quarter as a pro form a adjustment as project gains and losses represent our normal business activity. Tony previously referenced our strong operating cash flow for the annual period during his commentary, And from a quarterly perspective, we generated $135,600,000 of operating cash flow, which is good performance in another reporting period of significant revenue growth. Please turn to Slide 9. Additional key financial data for the quarter not addressed on the previous slides are as follows: Quarter 4 gross profit of $272,000,000 represents 13.9 percent of revenues, which has improved from the comparable 2015 period, by 19.3 substantial growth in quarterly revenues, the quarter over quarter decrease in gross margin resulted from the $20,500,000 loss, recorded within our US Mechanical Construction segment as previously referenced. Restructuring costs during the most recent quarter were immaterial do not warrant an in-depth discussion at this time. Diluted earnings per common share from continuing operations for the fourth quarter is $0.69 as compared to $0.80 per diluted share a year ago. On an adjusted basis, reflecting the add back of the non cash impairment loss in 2016 fourth quarter, diluted earnings per common share from continuing operations would have been $0.72, which represents a decrease of 0 point 0 $8 or 10% from the comparable 2015 amount. We are now on Slide 10. With the 4th quarter discussion complete, I will now augment Tony's 2016s annual commentary Consolidated revenues of $7,550,000,000 or up $832,800,000 or 12.4 percent as compared to $6,720,000,000 $800,000 pertaining to the period of time that such businesses were not owned by EMCOR in the prior year and positively impacted our U. S. Electrical construction, U. S. Building Services And U. S. Mechanical Construction segments. Excluding the impact of businesses acquired, year to date revenues grew organically $582,000,000 or a strong 8.7%. All of our reportable segments are reporting year over year revenue increases other than our UK Building Services segment. U. S. Electrical Construction Revenues of $1,700,000,000, increased $337,300,000 or 24.7 percent. Acquisitions contributed $158,500,000 resulting in organic revenue growth for 2016 of 13.1 percent. Increased project activity within the commercial transportation and hospitality market sectors were partially offset by revenue declines within the industrial and healthcare market sectors. U. S. Mechanical Construction 20.16 revenues of $3,009,000,000 $9,000,000 of revenues resulting in year over year organic revenue growth of 13.1 sector in which we participate was the driver of this segment's strong annual organic revenue growth and this revenue trend has been evidenced through all four quarters of 2016. U. S. Building Services revenues of $1,790,000,000 increased $52,500,000 or 3 percent The majority of the segment's revenue growth is attributable to the acquisition of a mechanical services company in April of 2016, The modest annual organic revenue growth is due to increased activities within this segment's remaining mechanical services and energy services operations. U. S. Industrial Services, 2016 revenues of $1,100,000,000 increased to $145,200,000 or 15.8% compared 2015. This segment's annual revenue increase is due to capital and maintenance project activity from our industrial field services operations inclusive of turnaround activities despite revenue contraction within the segment's SHOP Services operations as a result of lower customer Our UK segment 2016 revenues decreased $51,200,000 primarily to a $41,000,000 headwind as a result of negative exchange rate movements year over year, as well as a reduction in revenues from institutional service project activities. Please turn to Slide 11. Selling, general and administrative expenses of $725,500,000 represent an increase of $69,000,000 as compared to 656 point $6,000,000 in 2015. This increase includes $30,300,000 of incremental SG and A related to businesses acquired inclusive of intangible asset amortization. Additionally, our year to date selling, general and administrative expenses include $3,800,000 of transaction expenses, incurred in connection with our acquisition of Arden and Robley. As a percentage of revenues, SG and A is 9.6% in 2016 compared to 9.8% for the 2015 annual period. This 20 basis point reduction in our annual SG and A percentage demonstrates rate's good cost control and a period of exceptional revenue growth. Year to date operating income is $308,500,000 or 4.1 percent of revenues, and represents a $21,400,000 increase over 2015's annual performance. 2016's performance includes 2 discrete items that unfavorably impacted reported operating income by $6,300,000, which we adjusted for purposes of pro form a presentation. Therefore, on an adjusted basis, S. And Capital $101,800,000 increased $19,500,000 or 23.8 percent over 2015 levels, and represents 6% of revenues for both periods. This segment generated higher gross profit from commercial transportation and hospitality project activity Additionally, acquisitions favorably impacted operating income by 8,100,000 by $19,400,000 of losses incurred on a transportation construction project in the Northeast due to productivity issues attributable to unfavorable job site conditions for which we will seek recovery. This project, which is substantially complete, negatively impacted this segment's annual operating construction operating income of $133,700,000 or 5 percent of revenues decreased $4,900,000 or 100 basis points over 20 fifteen's full year performance. This segment's operating results were negatively impacted by aggregate losses of $27,900,000 incurred on 2 construction projects, including an 18.3 institutional project due to unfavorable job site conditions and delays. Such projects negatively impacted the Mechanical Construction segment's annual operating margin by 120 basis points. These projects were substantial to complete at the end of 2016, and we will seek recovery for our losses here as well. Additionally, as previously mentioned during my quarterly commentary, this segment benefited from the settlement of a $12,100,000 claim, in 2015, which resulted in a favorable 50 basis point impact of operating margin improvement in the prior year. Total U. S. Construction operating margin of 5.4 percent decreased 60 basis points year over year, primarily due to the combination of current year project losses. And the impact of 20 fifteen's favorable claims settlement within U. S. Mechanical Construction. U. S. Building Services 2016 operating income was 75,800,000 increased $5,200,000 or 7.4 percent due to increased profitability within the Mechanical Services division. Additionally, businesses acquired during 2016 favorably impacted operating income by $2,800,000, The operating margin improved 10 basis points year over year to 4.2%. U. S. Industrial Services 2016 operating income increased $21,400,000 or $77,800,000 or 7.3 percent of revenues. The year over year increase is due to strong turnaround activities during both spring and fall seasons, as well as strong demands for some of our specialty field services. Additionally, this segment experienced significant headwinds during 2015, due to the impact of the nationwide refinery operator strike. This improved performance was somewhat muted by the continuation of soft demand for our shop services due to a lack of capital spending by our customers for the reasons previously mentioned during this call. MCORE UK Building Services operating income of $11,900,000 or 3.7 percent of revenues increased $300,000 due to an increase in gross profit from service activity within the commercial market sector as a result of recent contract awards. The increased gross profit was partially offset by a decrease in operating income of $1,500,000 related to the effect of unfavorable exchange rate movements during full year 2016. 2016. For the sake of completeness, the impact on EMCOR's consolidated annual operating margin of the 3 previously mentioned loss projects that occurred within both of our U. S. Construction Services segment is a negative 70 basis point We are now on Slide 12. Consistent with the reconciliations discussed previously on Slide 8, This page reflects the operating income reconciliation for the 2 annual periods from GAAP to pro form a adjusted earnings for the two items that impacted 2016. Additive to this reconciliation from the quarterly reconciliation previously discussed are the transaction expenses related to the acquisition of Arden and Robley that occurred in April 2016. Adjusted operating income reflecting the add back of these 2 discrete items listed as $314,700,000 or 4.2 percent of revenues as compared to $287,100,000 or 4.3 percent of revenues in 2015 an increase of $27,600,000 or 9.6 percent. The annual tax rate for 2016 is 37.5 percent as compared to 38.1 percent for the 12 month 2015 period. The improvement in the 2016 tax rate is due to the favorable impact of the adoption of the new accounting pronouncement, which requires the income tax benefits associated with shared based compensation, to be recognized in the income statement when the awards vest. These income tax benefits were recognized in previous years as a component of stockholders' equity, With regard to 2017 planning, I anticipate a normalized income tax rate between 37.5% 38%. However, as I have previously mentioned in past calls, this rate can fluctuate if any discrete tax events occurred during 2017. Please turn to Slide 13. Additional key financial data on the slide not addressed during My 12 month summary are as follows: year to date gross profit of $1,000,000,000 is higher than 2015 by $93,400,000, However, gross margin is down 40 basis points year over year. Total restructuring costs of approximately $1,400,000 or higher than 20fifteen's activity due to the consolidation of certain back office functions within our U. S. Building Services segment and the closure of an underperforming subsidiary within our U. S. Mechanical Construction Services segment. Diluted earnings per common share from continuing operations for the year is $3.02 compared to $2.72 per diluted share a year ago. On an adjusted basis, excluding the impact of acquisition transaction costs and the non cash impairment loss on identifiable intangible assets, 2016's year to date adjusted diluted earnings per share would have been $3.09 as compared to 20fifteen's reported $2.72 per share, representing a 13.6% increase year over year. Please turn to Slide 14. Enquarters balance sheet continues to build upon its strength and liquidity. Our cash balance has decreased since year end 2015, primarily to funds expended for acquisitions, common stock repurchases and dividend payments, net of incremental borrowings from our amended credit facilities. Such decreases were offset by strong operating cash as a result of our organic revenue growth. Changes in goodwill and identifiable intangible asset balances reflect the impact of acquisitions made during 2016. Net of $40,900,000 of intangible asset amortization expense and the impact of the identifiable intangible asset impairment loss recorded during the fourth quarter. Total debt of $423,300,000 represents a net increase of approximately $108,000,000 from year end 2015, due to funds drawn against a revolving credit facility to facilitate our closing of the Art and Robley acquisition previously mentioned. As a result of our outstanding borrowings, we currently have a debt to capitalization ratio of 21.6%, which is down on a sequential basis from the 3rd quarter, as we have paid down $100,000,000 of principal outstanding under our term loan at the end of 2016. We remain happy with our balance sheet and our exceptional cash of conversion during the year and as a result, we continue to be in a good position to capitalize on all opportunities. With my extended portion of this presentation concluded. And with much relief, I would like to return the presentation back to Tony. Thanks, Mark. You deserve some water. I'm on page 15, which is backlog by market sector. Our strong year is also reflected in our backlog. Total backlog at the end of the 4th quarter is 3.9000000000 up $132,000,000 or 3.5 percent from December 2015 and flat with backlog at the end of the 3rd quarter. Book to the bill for the quarter was 1 and for the year was 1.02. Similar to the 3rd quarter, project bookings remained strong in the 4th quarter, demonstrating strong ongoing construction and mechanical service demand, consistent with our generating record revenue levels. When you focus on the market sectors, we have seen strong demand from the commercial sector all year as commercial backlog increased close to 10% a little over $1,300,000,000 and is pretty much on par with our highest level ever. Healthcare backlog, while this 10% of total backlog, increased every quarter this year, and in fourth quarter, we won multiple farmer projects in the New York area, as well as a large healthcare facility project in Cincinnati. We remain long term positive on the healthcare market, mainly driven by changing demographics, aging facilities, advancing technologies, and underlying all that is HIPAA requirements and privacy. However, there's going to continue to be some dislocation in this market as Congress and administration figure out what changes to the Affordable Care Act need to be made for whatever is going to happen with repeal and replace. Our institutional work is down a bit with backlog off about 14 percent. However, this is in line with the general trend in the public nonresidential market. And again, this could perk up a little bit under the new administration. With regard to total private nonresidential market, generally speaking, we believe the market still has legs after a pretty good 2016. We remain where we were a quarter ago being cautiously optimistic of mid single digit growth in 2017, which in line with most market forecasts we've seen, We might be a little bit more conservative, but the election has led to a more positive view on potential business investment. And let me provide you an anecdote. We are seeing that specifically with some of our auto and high-tech customers, and we are positioned to benefit from significant work as they look to invest more on what they believe will be a more favorable business environment. So we'll create that more favorable business environment. Specifically, the new administration has discussed the following. Infrastructure revitalization, Pro U. S. Energy Complex, expatriation of overseas cash, tax reform, potential change in labor regulations. All this could potentially elongate and add momentum to the non res construction cycle and could create positive momentum throughout 2017 and into 2018 and beyond for companies like us. Now moving to Page 16, which we backlogged by segment. Our Electrical And Mechanical segments have been the main contributor to the company backlog growth in 2016. Backlog for our domestic construction segments is up 215,000,000 or 7.6% from December 2016 as we have been and are well positioned to benefit from continued growth in the nonresidential construction market. The Mechanical Construction segment backlog grew $139,000,000 or 8.3 percent year over year while the Electrical Construction segment ended the year with backlog up $75,000,000 or 6.5%. Again, backlog growth was corresponding record revenue for the year is a testament to the velocity we're seeing in the construction segments. Backlog in our Building Services segment is down just over 100,000,000 with all that reduction in our site based and government businesses. Backlog in our mechanical mobile services division, on the other hand, is up about 7%. Our Industrial backlog stands at our Industrial Services backlog stands at $51,000,000, unchanged from the 3rd quarter and $5,000,000 lower than December 2015. I currently don't expect any change in our SHOP backlog as the refiners led by the integrated oil companies continue to recalibrate capital spending. However, we do believe we are bottom in our shop services business and with the high levels of utilization in the refineries, we believe that spending eventually has to pick up again. Again, I'll remind you that this is shop this backlog in industrial services is our shop backlog. However, we continue to see strong debt demand for our field services, And as we said before, this time and material work is therefore not in backlog. UK backlog is up on the back of a few large service projects and contract awards. Our backlog reflects positive demand as we head into 2017. And with that, I'll turn to 'seventeen, on Page 1718. Now turning to 'seventeen, our initial guidance will be $3.10 to $3.50 per diluted share from continuing operations on $7,500,000,000 to $7,600,000,000 in We do expect a growing nonresidential market in the mid single digits and we expect a decent refinery and petrochemical market. But we do not have visibility that we would like to have yet in the second half of twenty seventeen overall, but especially in our Industrial Services segment. We also have a gap to fill, especially in the Second And Third Quarter in our Industrial Services segment as we had very good success as we discussed several times over the course of the last few quarters in the second and third quarter of 2016 on some large project work that we currently do not have a near term replacement for in early 2017. The question is, how do we move to the top end of the range in 2017? Much like we did in 2016, where we actually exceeded the top end of our initial guidance range. Some of the actions depend on us some of it will depend on our end markets and customers. We have good backlog in our Electrical And Mechanical Construction segments and for us to move to the top end of the range, we need to expand markets through the year, and we cannot have the level of sizable disputes write downs that we had in 2016. Overall, we executed well, but we need to have more of an absence of badness in our portfolio We do expect a decent market that will be very difficult for us to achieve the level of organic growth we had in 2016, again, in 2017. With our acquisition of Ardent Robillay last spring, we bought an option that we did not have on midstream and upstream oil and gas segments. We are seeing some stirring of activity and an interesting anecdote is that prior to the election in the midstream market, our own customers were talking with lawyers about how they would complete and permit projects. To now, after the election, they are re engaging contractors engineers about how they can accelerate pipeline projects. Although rig counts are up, drillers are largely returning to places that have the electrical infrastructure to drill in place. The next round of increases should occur in areas that will need that infrastructure. If this happens in the mid and upstream markets, then we will have the opportunity to move to the top end and when we need to have mechanical services lead the way. We expect to continue to see opportunity in our retrofit energy savings projects and expect to have growth in our self perform site and government offerings. In the Industrial Services segment, we have clearly gained share over the last 3 years in this market Our biggest challenge will be replacing our success from last year on some work and is likely to take more projects and increase turnaround scope conversely what we now have versus what we now see to have the same strong performance this year as last year. The work in expanded from our expanding our services scope to our customers and to move to the top end of the range, we will need to see that happen again in 2017. We don't expect and aren't planning any significant rebound in our shop services, but we do think we have reached bottom at the bottom to the market. And if oil prices continue to stabilize, and have some increases, we should see spending return. It would also be helpful for this segment that the regulatory environment may not be so punitive some of our customers. In the UK segment needs to continue to have steady improvement. And across our portfolio, we continue to have cost discipline, and we need to continue on focus on execution, execution execution that we are all well known for. As for the deployment of cash, we will continue to grow the business organically first, add acquisitions across our portfolio And in January, we executed a NICE Fire Protection acquisition, and we will return cash to shareholders through dividends and buybacks. We have a pretty good track record of executing all of the above. As for acquisitions, we would add to any of our segments at this time from establishing a new geography or capability in our construction segments, New geography or increased presence to our mechanical services business or additional services or capabilities to our broader building services portfolio and industrial services portfolio. With that, I'll take questions and turn the call to Sylvia. Thank you. Ladies and gentlemen, And your first question comes from the line of Tahira Afzaal from KeyBanc. Good morning. Thank you very much. Hey, Dhuni, how are you doing? I'm doing fine. How are you? I'm doing fine. So, you know, if I look at, you know, I know this year you have tough comps But at the same time, it seems just based on, potentially everything that's being proposed by the new administration, It seems there could be a longer lag to even your private commercial cycles and you were probably anticipating last quarter? I would agree with that. I think private investment is starting to feel more confident. And there's anecdotes I gave on oil and gas. Some of the high-tech spending we're about to see some of the auto investment we're about to see, I think, all bode well for us. So the question is timing, These things need to be designed. They need to be bid. But clearly, they are in markets that we perform very well in. We think at a minimum it elongates the non res cycle and it could give it a boost going into the end of 2017 into 2018. I do agree with that. Got it. So I mean, 2018, it sounds like your organic growth could be the same potentially even higher if all of this plays through, right? Yes, it could. If it were the same as it was in 16, I think, would be satisfied. I think what we're seeing right now, we have good backlog growth in our electrical mechanical segments. So we're seeing continued pace of recovery, and it, and I don't think anywhere baked in those numbers yet, is positive momentum from all the things we talked about, which people are seeing post election. So we may have a little bit of a lull here in 'seventeen between these two periods. But if business investment and large complex projects, continue to gain legs, and things that need very highly skilled manpower in a short period of time, they are clearly on our sweet spot. And we will be there to take advantage And one of the reasons we can take advantage of it is not only in the organic investments we made over the last 5, 8 years, but also the acquisition investments have put us in markets today that 5 or 8 years ago, we couldn't be in, whether that be industrial markets in the Southeast, oil and gas markets upstream and midstream or even are more, significant investments over the last 10 years we've made downstream. So we feel good about all that. And we have to navigate that. We got to pick the right projects and we've got to execute, which we do fairly well most Got it, Tony. And I guess second question, how should we be thinking about inflation and labor bottlenecks for your businesses. You've had a very strong year. And we've seen inflation in essence and labor pricing remains fairly de earned over the last few years? Do you think that might change? Yes, labor pricing has stabilized. And we really don't see anything in the near term, say, 12 to 18 months that would say that would change much. But if we can if we see another surge in activity overall in the market and if it if it starts going towards a higher mark, you may see some labor inflation. Now realize our folks are pretty well paid now. And they get that. And in some ways, they'd rather have the work then in reality, whether it be union or non union environment, the trade people that we've dealt with over the last 5 years have been fairly pragmatic about what they're looking for. We have a couple places, not so much. You could probably guess where they're at. In some of the bigger, union markets. But when you get outside of there, the people are pretty pragmatic. They want to work. And wages are good right now. Demand's good right now. They want to work. We're one of the better people to work for. Even when we get in disputes like we got, some of these jobs that folks know they're going to get paid. The disputes are problem, not their problem, and that we're going to be able to get the job done safely And we're going to be able to technically get that job done correctly. And really that's what trades people care about. Got it. Okay. And thank you very much, and I'll hop back in the queue. Thanks, Pete. Your next question comes from Brent Thillman from D. A. Davidson. Good morning, Brett. Thanks for taking my questions. On Industrial Services, you kind of look at last couple of quarters. Is this sort of level of profitability you'd expect for the shop business going forward kind of mid single digits until we see a little bit more going on in that business? Yes. I think, we had a very successful execution on some specialty work. We had mid single digits at about right. For us to get back up into the higher, single digits, low double digits mark, we need to see the shops return. Okay. And then, and also in that business, do you see other projects like the one you did earlier this year that these sort of field services projects that that could potentially play out in 2017? Yes, you never know, Brent. Well, there's things that happen. We know there's some things going on right now. That could potentially take us there. I guess, guys, if we looked over the last 5 years, we've had 3 of those events. So better than average odds. We'll see something, maybe not that big. One thing we have seen is our folks have gotten better and better at large turnarounds. And we've become in some ways the go to contractor for that. And the other thing we've seen is we've really, really, got more significantly into the petrochemical business since the acquisition of Repcon Strickland. So we might make it up with a specific project or 2. But building that footprint out, being in more facilities, being known as someone who can marshal very skilled people in a very short period of time, allows you to be the person when those opportunities come around to be the person that they turn to. And that's all we can hope for And then we got to win the work and go execute. Okay. That's great. And then Tony, I'm curious kind of how you're thinking about the UK business and the context your outlook for 2017? I mean, it seems like a fair amount of uncertainty right now in that area. What we do in the UK And, I'll ask Mark to help me with this because he spends a lot of time thinking about the UK. He's one of the I'll drive the restructuring we shouldn't see a lot of variation because one is the overall impact in our numbers is not that big, right? It's less than 3% or 4% of any one of our numbers, revenue or operating profit. We also have some very significant long term customers, that were in more critical facilities, and some of them are government, quasi government, or large industrial type customers. So the uncertainties there, but I think our folks are focused on what they can control. And I don't expect big bumps from there, Mark, view. Yes, and I think, Brian, I think that when you look at the composition of that business, the core maintenance contracts that we're executing under, are all very is all very good contract work. Where you're able to get a little improvement in margin is on the project side. And clearly we saw everybody hit the pause button post Brexit with regards to any kind of significant small project or even small capital spending. I suspect that will free up at some point. Is this a question of what what's going to be the indicator that our customers are going to need to be able to start to execute underneath what their plans are. Ultimately, at some point, kind of like what we experienced and our industrial services space in the U. S, you can always spend maintenance spending or small capital spending for so long before you run into a breaker fix. You're not a breaker fix, you're at replace. I don't think we're at that point yet, but I think if we have another year like we saw this year, they're going to be there pretty soon. And we really saw that in our mechanical services, right, Mark? Okay. And last one, if I could. The project and mechanical this quarter, anything unusual about the project or the work performed, I guess, in context of what you tend to do in that business? Yes, something very unusual. Our customer decided not to pay us when they overran their budget, and we will be looking for a full entitlement on that's so unusual about it. Your next question comes from Noel Dilts from Stifel. Hi, Noel. How are you? Hi, doing well. Thanks. Good morning. First question, I just wanted to expand a bit on Brent's question on Industrial Services. If you look at some of the I guess, industry sources out there, they're indicating a pickup in general turnaround activity in the spring season. My question is, do you think there is has or you are seeing a fundamental change in, how refiners are acting? And, second, Could you talk about just what the split is of that business at this point between Refinery and Petrochem and how you're thinking about the outlook for each of those sort of customer sets as we head into next year? Yes. So let's go split overall right now. It's still more probably 85% film, 15% shop It used to be 70, 30. So let's go there. Now let's go to the 85%, which is where most of the Petrochem business is. It's probably 70% refining, 30% petrochemical. That mix and so the revenue is bigger. That mix years ago would have been 90.10. So we've added some nice mix there. One of the larger turnarounds we did in the fall was actually in a petrochemical plant. I think we see them very similar, right? A lot of things are set up favorably for both of them. We also believe that the spring turnaround season is good and the fall will firm up What we have to benefit it of and this is what makes the comparison so hard is we jump in there and we'll do either capital work time and material, some capital work, small capital work fixed price in that segment, very, very little of that. But when you do those larger projects outside of the turnaround activity, it can skew your results. You almost have to look at this as like a 2 year window. And if you look at over 3 years, we've clearly gained share because the market's been growing very low single digits and we've been up way above that 2 or 3, 4 times that. At any given quarter. One of the things trends we've seen, and it could be the selection of services we offer or the capability of our our field folks, our project managers, our superintendents and our CEOs who run these companies is we've seen a trend towards larger turnarounds for That could just be more confidence in us to be able to execute the work. So we believe maintenance spending will be strong. It's lumpy. It could be just our selection of customers either succeed or don't succeed, but we don't see a real negative market over the next 18 months And with our continuing to fill in the petrochemical market, we continue to build stability in the market. But for us to perform at very high levels like we did last year. We need that icing on the cake of the project work. Right, right. Okay. Then for my second question, I wanted to shift over to the construction side. Here, I guess one thing I wanted to touch on is, when you look at some of the general, again, industry forecasts, I think as we look out to 17 Dodge, etcetera are looking for a bit of a shift toward industrial, I'm sorry, institutional spending. It doesn't sound like you're necessarily expecting that. Sounds like you're kind of expecting more of the commercial side to remain strong. So first, curious if you have any thoughts on that. And then second, I'm always interested in your thoughts on particular geographies. And if you're seeing cities or states that are either showing some improvement or slowing down a bit? Yes. So first question is, we are seeing some institutional opportunities out there and we balance those against the private opportunities. Some of the best work we've ever been done has been institutional. Some of the best work we've ever done has been private. Some of the worst work we've ever done has been institutional. Some of the worst work we've ever done has been private. So we look at them opportunity by opportunity. I don't disagree that institutional should come back but I think it's going to be a lot less than people think, just sitting here today, because as people try to, as government is basically The people that actually let the contracts are sort of frozen in place right now for the next 3 months as they figure out who's in charge to actually sign the authorizations. Been shifting gears, give you a little color on geographies. The Northeast is pretty good yet, especially Boston, I do expect New York to slow down some, not so much on the infrastructure side, but on the commercial and high rise residential. I think that will slow down from 2017 into 2018. I think the South continues to be strong, especially industrially. Maybe that's because that's where we operate. But we continue to see strong demand for our industrial services through the southeast. We think South Florida is going to be strong for us for the next 3 years at least as we have a very, very good position in water and wastewater projects. And, with a consent degree in Miami Dade, we think that creates opportunity for us And there's only a couple contractors that can really do the work well, and we all should get our share. Texas is more remarkably resilient in the sense that previously with oil prices would adjust to the way it would have fell off the face of the earth. But parts of Texas continue to be strong. And with our acquisition, of the fire protection company, we actually bought ourselves more of an option into the commercial and health care. And and data center market, through the Southwest and even nationwide. California has been strong. I think part of that is strong for us because of the position we have in each of the markets. There's going to be some infrastructure work done in Southern California We have benefited from the port work. There's been some high-tech, for lack of a better word, manufacturing is more high-tech R and D and development in Southern California around the San Diego that continues to be strong. Northern California continues to be strong. We're very selective in what we will do in Northern California. On the commercial side, because it could be very difficult building environment, with all the rules and regulations. The Midwest is holding its own. Chicago, we have a nice position in the Chicago market. We continue to do data center work there as well as in the Pacific Northwest. We have an electric gold contractor in the Northwest. Randy and his team do a phenomenal job, serving our customers throughout the Pacific Northwest and we couldn't be more proud of them. And then as you go towards, other sectors, We've had a very, very good run here in food for service and food process, and we expect that to continue. Very helpful. Thanks. Your next question comes from the line of Adam Thalhimer from Thompson Davis. Lots of questions on Industrial Services. I just wanted to ask one more. As it relates to your guidance, Are you, I guess you're assuming probably a double digit revenue decline there this year? Well, what we're saying at the low end of our guidance is we don't successfully refill that project in any substantial way. And that's really what we're saying. And then Go ahead. Well, I was going to switch gears to the 3 jobs where you had a loss this year. Are you assuming any recovery in the guidance? We never assume any recovery in our guidance. We don't know when it will happen. How it will happen with the legal costs will be. Yeah, we have an idea of that part, but we don't assume any recovery because One of the benefits of being us is we can hang in there. And we don't have to accept substandard settlements, and we won't. So that's one of the big reasons we don't even try to project when this will happen. Our general counsel and our CFO here can be pretty hard headed as is our segment people to making sure that we get to something that resembles a rightful entitlement. Okay. And then, you referenced a telecom project a couple of times in the prepared remarks, not something you normally talk about. Just hoping you could provide some color. Right, Mark, we're seeing great demand right now for data centers. And, multiple geographies. And multiple geographies and we're well positioned to continue to do that. Okay. Well, I just wanted to take one more stab at the top line because I think I guess I'm confused that you'd be guiding to basically flat Rev when Let me take that out for you, Adam. I'll save you the, save you the machinations. We do expect some weakness industrially. I don't know if it's as as severe as what you're saying, but that's an issue for us because we did so well last year and so well over the last 3 years. You can't keep growing the level we were. When you put a large project in there, it can have an outsized impact on your revenue. The second thing is go back to our backlog discussion. We talked about $100,000,000 coming out of our Building Services backlog year over year. Now that is really driven by a couple large site based contracts, where one of them we had for 15 plus years, and it was it's more than half of that backlog decline. And what happened there was outstanding performance by us. I think the customer would acknowledge we had outstanding performance. The shape and size of their portfolio is going to change. Generationally, they had a change in leadership. They've decided to in source a bunch of things that were outsourced. They've decided to outtask and outside, instead of generally facility to manage. We bid that contract to make money. We had seen declining margins, which is not uncommon in something you've had that long. It's that large. So we were probably on our way out of there in a year or a year and a half based on just margins along from us. They accelerated it. We'll leave friends and we'll probably do some great mechanical service work for them over the next 3 years. That those that could be, I don't want to put 2 other ones like that that had gone from very profitable to rebid not profitable, $100,000,000 out. Now we're winning other things, but the ramp up on those once you win something can take a year and a half to get to full ramp. Much like it did with this one, 13 years ago, when we finally won the whole thing. So that's part of it. That's not the most profitable part hence why we have an upper range. And then you have industrial services. We do expect growth in Mechanical Services, and we expect growth in our Electrical And Mechanical segments. Construction. Yes, healthy growth. Okay. That's good color. Thanks, Penny. Yes. Your next question comes from John DeAngelo from Macquarie. Good morning, John, and welcome to the call. Good morning. Thanks for taking my questions. So most of my questions have already been answered. So just two short questions from me. Which states performed best for the Electrical And Mechanical segments in 2016? And then which states do you see performing better in 2017 than 2016. Thank you. Did you say states? Yes. We don't really think about that way. I guess I could give you regions. The West performed very well, electrically. Really, other than our large Northeast infrastructure project, we performed well everywhere electrically last year. So one project take that out. It was Broadberry's strong performance mechanically. I'd offer the same thing. We had one project out west, that we discussed here in the fourth quarter, but we'll seek our rightful retirement for. We had an a institutional project. It really wasn't, it all came to a head at the end, but it really wasn't in 2016. But you look at our portfolio across the country, our guys knocked it out of the park. These are 2 isolated incidents. So we had it maybe a little bit outsized performance in a couple of places, but we didn't have really any bad performance outside of that, across the company. Okay. Thank you very much. Your next question comes from Tate Sullivan from Sidoti. Hey, thanks for getting me in. I haven't heard you mention any sources of potential pent up demand if you do get everything that might happen in terms of taxes and less regulation. Is there any pent up demand related to ongoing energy efficiency effort in our country? Yes, look, I'm not a big pent up demand kind of guy. I think we've seen I think you probably could go back and look at our transcripts over a long period of time. I'll talk about it a lot. I think I did mention it last year in mechanical services and retrofit business. Mark used it today a little bit, to talk about why some of the trends are happening in Industrial Services. I think in general, I think there's something there, Tate. As more money becomes available, you go to you ask something very specifically about energy savings projects, I happen to believe this would be an easy win. There were some legislation they tried to get through. It got so watered down. I'm not sure it was particularly effective. I'm not even sure it passed, what center appointment was pushing with Senator Shahin. We were a little bit involved in that years ago on the front end. We certainly didn't recognize what came back out of the other side. But if you have more cash, most energy savings projects are sort of 15% to 20% return projects. They are air conditioning and lighting focused that and controls. That's how you make the money in them. And so, yeah, I think people would look to invest there. I think you look to investor even beyond just the energy savings, even here, right, the level of comfort you can achieve with some of the technology that is available now is pretty substantial compared to what some of the old systems were. So I think that is a place that tax reform, more cash and owner's pockets, looking for projects to invest in infrastructure, why not invest in your own infrastructure. Your final question comes from Nicholas Capalla from Thompson Research. Good morning. Good morning. This is Steven on for Nick. Quick question on the energy end markets around the country. Just the regions exposed to it. Is non res activity still depressed in those areas, or is that coming back at all? The only non res market that we participate in that's exposed to those energy markets in any substantial way Houston. I guess we're going to pick it up now with our fire protection. They never had depressed because of the other things going on. In Houston, it was depressed, it has not started to come back in a substantial way. Yes, I remember, just taking aside though, a lot of these folks when times were flushed they put a lot of money into their facility. So part of it's a natural pause. We were involved in 4 major campus expansions for integrated oil and gas or campus consolidations. For integrated oil and gas companies and petrochemical companies from 2011, to 2016. So even if there was no downturn, they likely wouldn't be spending at the same level they were. During that time period because they already build out their infrastructure. Right. That makes sense. And then last question, has, the Brexit impact and the continuing uncertainty there made acquisitions enticing for you guys in the UK? No. Anything else? No, that's it. Thank you. There are no further questions at this time. I will now turn the call back to management for any closing remarks. Hey, look, we look forward to performing for you in 2017. And we're off to work. We've had a great 2016. Could have been stronger, but that's behind us. Look forward to talking to you in April at the end of first quarter. Thanks a lot. Bye. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may