Earnings Call: Q3 2016

Oct 27, 2016

Good morning. My name is Derek and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCORE Group Third Quarter 20 16 Earnings Call. All lines have been placed on mute to prevent any background Thank you. Mr. Matt Dutcher with FTI Consulting, you may begin. Thank you, Derek, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 2016 third quarter results. Which were reported this morning. I would like to turn the call over to Kevin Mass, Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead. Thank you, Max, and good morning, everyone. Welcome to EMCOR Group's earnings conference call for the third quarter of 2016. Man, is the year gone by so quickly. For those of you who are accessing the call via the Internet on our website, welcome to you as well. 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 9 month results. They are Tony Guzzi, our President and CEO Mark Pompa, Executive Vice President And Chief Financial Officer Maxine Mauricio, our Senior Vice President And General Counsel and Madea Heffler, our Vice President of Marketing And Communications. For call participants not accessing the conference call via the Internet, This presentation, including the slides, will be archived in the Investor Relations sections 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 then of course, assumes no obligation to update any such forward looking statements. These forward looking statements involve risks and uncertainties that could cause 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, and I guess in 2 weeks, we'll have 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 2015 Form 10 K and 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, and good morning, and thanks for joining our call. I'm going to be covering pages 3 through 5. We had a terrific quarter, a record 3rd quarter on almost any relevant metric. We earned $0.85 per diluted share from continuing ops, earned revenues of $1,920,000,000, an increase of 13.2% from the year ago period, and we generated operating income margins of 4.5% versus 4.1% in 2015 third quarter. Each of our segments performed well in the quarter, led by a 34.2% increase in operating income and our combined construction operations with mechanical increasing operating income 46.5 percent and electrical increasing 21.2%. We had strong broad based performance across geographies and end markets. Our operating income margins are strong at 5.7 percent for our Mechanical segment and 6.7 percent in our Electrical segment despite a $6,900,000 charge related to a northeast transportation project in our Electrical segment. We are over 90% complete on this job, and we need to complete our work, and then we will seek our right pool entitlement due to us as we should be reimbursed and so we will seek reimbursement for the costs incurred to the project being disrupted and accelerated. We expect that this majority of this remaining work to be completed between now and early first quarter. Building Services segment earned 5.0 percent operating income margins and grew operating income by 40.8% of the year ago period with strong performance in our mechanical services business and improved performance in our commercial site based We continue to see strong demand for our mechanical retrofit project services in this segment driven by the implementation of energy efficiency and savings programs. Industrial Services performed well with essentially flat performance and a strong performance in the year ago period. Have finished a significant unplanned specialty project that drove the exceptional performance in the first half of the year. Our revenues were essentially flat for the quarter in this segment. And we believe this is in line with the market. And remember, we are coming off to very strong years of revenue growth in this segment. Our customers have been active and since the acquisition of Repcon Strickland, we've effectively offered and executed work across a broader range of services. We had some business interruption from the floods affecting our Louisiana shops and services and believe those revenues and operating profit are likely lost for the year. We are still remaining that impact, but have reopened our facilities and are nearly back to full operation. The UK performed in line with our expectations in which continue to see the stability and improvement gained from our restructuring efforts. Operating cash flow was strong in the quarter at 81,100,000 percent, which was despite the strong revenue growth. We had good cost efficiency and control of our overhead as our SG and A rate as a percentage of revenues dropped from 9.7% in the year ago period to 9.4% in this 3rd quarter. It was a very good quarter. And we have great year to date performance. And with that, I'll turn it 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. I will augment Tony's opening commentary with a detailed discussion of our third quarter 20 16 results before moving to year to date key financial data derived from our consolidated financial statements included in both our earnings release announcement and Form 10Q filed with the Securities And Exchange Commission earlier today. So let's start with our 3rd quarter performance. Consolidated revenues of $1,920,000,000 or up two $24,000,000 or 13.2 percent over quarter 3 2015. Our 3rd quarter results include $90,800,000 of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by EMCOR and last year's third quarter. Acquisition revenues positively impacted our U. S. Electrical Construction U. S. Mechanical Construction And U. S. Building Services segments. Excluding the impact of businesses acquired, 3rd quarter revenues grew organically 133 $2,000,000 or 7.8 percent. U. S. Electrical Construction revenues of $458,600,000 increased to $114,200,000 or 33.1 percent from quarter 3 2015. Excluding acquisitions, this segment's revenues grew $55,500,000 or 16.1 market sectors, offset by quarter over quarter revenue declines within the healthcare and water market sectors. U. S. Mechanical Construction And Third Quarter revenues of $697,700,000 increased $110,200,000 or 18.8 percent. Excluding acquisition revenues of $14,900,000, this segment grew organically 16.2%. Our Mechanical Construction segment continues to experience revenue growth across all market sectors with the commercial, water and industrial market sectors contributing the largest dollar revenue growth quarter over quarter. This is our 4th consecutive quarter of double digit organic revenue growth within this segment. They will continue to be successful and they continue to be successful in growing contract backlog which Tony will cover in his next section. And Core's total, domestic construction business 3rd quarter revenues of $1,200,000,000 increased $224,400,000, 24.1% with 16.2% being generated from organic revenue growth. US Building Services quarterly revenues of $454,800,000 increased $6,500,000 or 6.2 percent. Excluding acquisition revenues of $17,300,000, this segment grew organically 2.2%. Revenue gains within their Mechanical And Energy Services businesses were somewhat diminished by reduced revenue levels within their Government Services group, due to maintenance contract attrition, quarterly revenues within our Building Services segment were essentially flat quarter over quarter. U. S. Industrial Services revenues of $239,100,000 decreased $2,900,000 or just over 1% due to reduced revenue activity within our shop services businesses due to low levels of capital spending by our customers. This reduction in capital spending is a continuation of a trend that began in late 2015 as a result of crude oil price volatility. United Kingdom Building Services revenues of $73,000,000 decreased $24,000,000 or 24.7 percent due to the $13,200,000 impact of the continued weakening pound, as well as a reduction of small project activity when compared to 2015 third quarter as our UK 3rd quarter record for consolidated revenues, were essentially flat on a sequential basis with our 2nd quarter revenue, which had established a new all time quarterly revenue record for EMCOR. Please turn to Slide 7. Selling, general and administrative expenses of $181,400,000 represent 9.4 percent of revenues and an increase $16,300,000 from the $165,100,000 reported in 20 fifteen's 3rd quarter. As a percentage of revenues, the current year quarter declined 30 basis points from the 9.7 percent reported last year. The 3rd quarter includes approximately $11,000,000 of incremental SG and A, inclusive of intangible asset amortization from businesses acquired. Therefore, our quarterly organic SG and A increases approximately $5,300,000 and is due to increases in employment costs as a result of higher headcount and increased accruals for certain of incentive compensation programs due to higher projected annual results than at the same period end in 2015. Despite such SG and A increases, we were able to reduce our SG and A as a percentage of revenues by effective leveraging our overhead structure in a period of continued strong organic revenue growth. Reported operating income for the quarter of $86,100,000 represents point 5 percent of revenues and compares to $70,000,000 of 4.1 percent in 20 fifteen's 3rd quarter. Reportable operating segments are reporting quarter over quarter improvements in operating income other than our UK operations. U. S. Electrical Construction Services segment operating income of $30,900,000 increased $5,400,000 from the comparable 2015 period. Reported quarterly operating margin is 6.7 percent, which is 70 basis points lower than 2015 third quarter. The reduction in quarter over quarter operating margin is due to an incremental write down of $6,900,000 on a transportation construction project in the Northeast, which Tony mentioned earlier, and as a result of continued productivity issues attributable to unfavorable job site conditions. This is the same project that negatively impacted Construction segment's 2nd quarter operating performance. However, despite this continued project degradation, we have managed to sequentially improve both operating income and operating margin each quarter of the current year within our Electrical Construction segment. The impact of this project write down on this segment's quarterly operating margin is a 140 basis point reduction and is muting strong operating performance from the majority of our other electrical construction subsidiaries. 2016 third quarter U. S. Mechanical Construction Services segment operating income of $39,400,000, which represents a $12,500,000 increase from last year's quarter. This represents a 46.5 point improvement in operating quarter just ended as compared to 5.6 percent in last year's third quarter. Operating income for U. S. Building Services increased $6,500,000 $6,000,000 or 5 percent of revenues. Acquisitions generated $1,700,000 of the period over period increase, while this segment's mechanical services division contributed $1,000,000 increased approximately $200,000 or just under 2% compared to 2015 to 3rd quarter. With the reported operating margin of 6.1% 20 basis points higher than last year's 5.9 percent operating margin. The quarter over quarter improvement is attributable to increased profitability within our field services operations due to greater project activity. UK Building Services operating income of $2,600,000 or 3.5 percent of revenues represents an $800,000 reduction period over ship. The headwind of a weakening British pound and lower quarterly revenues were the reason for the 22.8% period over period operating income decline. The impact on consolidated operating margin this segment is a negative 30 basis points. Our third quarter 2016 cash flow provided by operations is $81,100,000, and we are approximately $128,900,000 for the 9 months ended. This represents exceptional performance when you consider the working capital requirements necessitated by our strong organic revenue growth. We are now on Slide 8. Additional key financial data on a slide not addressed during my highlights summary are as follows. Quarter 3 gross profit of $268,000,000 represents 13 9% of revenues, which has improved from the comparable 2015 period by $32,600,000. Gross margin was flat at 18.9% in both periods. Total restructuring costs were $539,000 as compared to $301,000 and relates to continued restructuring activities within our U. S. Mechanical Construction And U. S. Building Services segments. Diluted earnings per common share from continuing operations is $0.85, and compares to $0.66 for the quarter ended September 30, 2015, which represents a 28.8% increase. Lastly, as has become a recent trend of achieving milestones, the results for our operations for the third quarter of 2016 set new third quarter records consolidated revenues as previously mentioned, as well as operating income and diluted earnings per common share from continuing operations. Please turn to Slide 9. With the quarterly discussion out of the way, I will now quickly cover our results for the 9 month period ended September 30, 2016. Revenues of $5,600,000,000 represented an increase of $660,700,000 or 13.4 percent, as compared to $4,940,000,000 in the prior year period. All reportable segments are reporting organic revenue growth year over year, except our UK Building Services segment, which experienced a 24,500,000 headwind due to the weakening of the British pound. Our year to date results include $179,700,000 of revenues attributable to businesses acquired pertaining to the period of time as such businesses were not owned by EMCORE in the 2015 day period. Excluding the impact of businesses acquired year to date revenues grew organically $481,000,000 or 9.7 percent. The year to date gross profit of $765,900,000 is greater than the representative 2015 period by $74,000,000 or 10.7%. Reported gross margins are 13.7% 14% for the 9 month periods ended September 30, 2016 20 15, respectfully. The period over period 30 basis point reduction in gross margin is attributable to the impact of the Transportation construction project has been written down in each of the last two quarters. Additionally, we continue to have margin pressure within our Industrial Services segment as their revenue mix is a much percentage of shop services activities, which have historically generated the highest gross profit margins within the company. Selling general and administrative expenses of $530,700,000 represent 9.5 percent of revenues compared to 4.88 $100,000 or 9.9 percent of revenues in 2015. Year to date, 2016 includes $20,900,000 of incremental SG and A, inclusive of intangible asset amortization pertaining to businesses acquired. In addition, the results from the 9 month period ending September 30, 2016 include $3,800,000 of transaction expenses in connection with our acquisition of Arden and Robley. Excluding such transaction expenses, our SG and A as a percentage of revenue for the year to date period would be 50 basis points less than the corresponding 9 month period in 2015. We have continued to maintain cost discipline, despite our record revenue growth. Restructuring activity has increased from 2015 levels as we continue to refine our cost structure to capture process improvements as well as maximize utilization of our real estate footprint. Year to date operating income of $234,000,000 or 4.2 percent of revenues and represent a $31,000,000 or 15.3 percent increase over 2015 9 month performance. 2016's operating margin is 10 basis points higher than the corresponding 2015 period. All reportable segments are reporting higher operating income year over year, other than US Building Services, which had essentially flat performance on a comparative segment. This segment's operating income increased 4.7 percent period over period, while both U. S. Mechanical Construction Services and services operating income increased double digits. Our UK Building Services year to date operating income increased 6.9% and 50 basis points despite the continued foreign exchange headwinds. The impact on consolidated operating margin of the previously referenced transportation and construction losses incurred during the year within our U. S. Electrical Construction Services segment is a negative 40 basis points. Reported diluted earnings per common share from continuing operations $2.33 for the 9 months ended September 30, 2016, compared to $1.92 in the corresponding 9 month 2015 period. On an adjusted basis, reflecting the add back of transaction costs related to the Arden Robley acquisition in April, diluted earnings per common share from continuing operations would have been $0.37 per share for 2016 and represents an improvement of 23.4% year over year. We are now on Slide 10. Mcore's balance sheet continues to build upon its strength and liquidity. Our September 30th cash balances increased since year end due to our strong 9 month operating cash flow performance, offset by funds expended for acquisitions, common stock repurchases and dividends, net of incremental borrowings from our amended credit facilities. Working capital levels have improved due to an increase in accounts receivable due to our organic revenue growth as well as reduced levels of accounts payable and accrued expenses, driven by a decrease in income taxes payable. Changes in our goodwill and identifiable intangible asset balances reflect the impact of acquisitions made during 2016, net of $30,700,000 of year to date intangible asset amortization expense. Total debt of $523,300,000 represents a net increase approximately $208,000,000 from year end 2015 due to an increase in our term loan and funds drawn against our revolving credit facility to facilitate our closing of the Ardent Robley acquisition previously mentioned. As a result of our of our outstanding borrowings, we currently have a debt to capitalization ratio of 24.8 percent. We remain happy with our balance sheet and our exceptional cash flow conversion during the 1st 9 months of 2016. Both our operating and finance personnel continue to work together to maximize EMCOR's liquidity through strong risk assessment and contract performance. As a result, we continue to be in a very good position to capitalize on market opportunities. With my portion of the morning concluded, I would like to return the presentation back to Tony. Tony? Thanks Mark, and it's always, when you have the kind of year we're having, it's always great to talk about it. And for those, I'm on page 11. I'm going to talk a little bit about backlog by market sector. As you can see on the chart, total backlog at the end of the third quarter $3,900,000,000, up $138,000,000 or 3.7 percent from September of 2015 and up $131,000,000 or 3.5% from December 31. Despite this really strong revenue growth in the quarter, our book to bill was 1.05. Project bookings remained strong in quarter 3, evidenced by both strong total backlog and revenue growth, an indicator of our strong execution and project demand. That we have experienced in the quarter. And again, it's a 1.05 book to bill. And when you focus on the market sectors, we continue to see strong demand from the commercial sector as backlog increased over $100,000,000 from September 2015 and is also up from year end. Our healthcare backlog ticked up for the first time in a while on the back of a couple projects, including a nice bio healthcare facility in Chicago. There are other sectors that are all very close to last year's levels and again, with a strong demand for our services. And especially, you can see that with a strong revenue we're experienced to continue to grow backlog. With regard to the market, we're asked all the time, where we think we are in the non residential cycle. And we've talked about that. I think we've been more right than wrong, but you don't know. And I am certainly not a forecaster of markets overall. I've never pretended to be. I do think that EMCOR is a pretty good proxy for the non res cycle, given both our sector and geographic diversity. And I can say that we're busy. We're very busy right now, and we continue to be busy quoting work. And tend to be later cycled than other people, and we've clearly been growing this year, especially, at a faster rate than the market. My gut, we are still in a slow, steady growth phase of the market. It may be a little choppy. It may go up and down quarter to quarter, but I still believe we are in a slow growth phase of the market as we head into 2017. I don't think it grows high single digits, but think it doesn't go backward, at least not for the first half. It should be means mid single digits. And after that, like it always, it gets a little foggy. I'm going to move to page 12 and talk about it by segment. And there's really we've covered all this really, through our revenue discussion and everything. That's really no new news here. Other than to say that we continue to have strong backlog growth in our construction segments. They're up 6.3% from September 2015 the year ago period. And we're seeing strong growth in mechanical, and that's up almost 11%. The Electrical segment is basically flat with last year. So if you take our revenue performance that Mark just went through and you take our backlog performance. We've had 13 percent organic growth in revenues in our, construction groups and segments. We've had 19% overall. That's pretty good growth, and that's well in excess of the market. Building Services is down a little over 3% from September 2015. And that's really not in our mechanical services business. It has growth characteristics that are very similar to our Electrical Mechanical segments. It has to do what goes on in our site based businesses where revenues can be lumpy, large contracts move out, and it's the least profitable part of what we do. Industrial Services, remember, this is just shop backlog. Most of the work we do in industrial services never is in backlog because it's time and material or unit price work. This for new build heat exchangers, and that market continues, to struggle and it serves a refining and petrochemical service. I'm not sure we're at a new normal. I expect the market to come back someday, but it's certainly not doing that right now. And we've offset that drag, really, with hustling like crazy to get to new repair work. We expect this new build drag to continue into 2017. And really, we see no quick turnaround coming there. So as I said on the second quarter call, bidding activity in our markets remain active and we are winning our share of work and we're being very selective in the work that we take. Because it does us no good to build backlog and revenue that doesn't turn into good profits and good cash flow. Now I'm going to finish it here on the last couple of slides. We are going to, and as we paid, it is 13 to 14. We are going to increase our revenue and diluted earnings per share from continuing operations guidance based on our strong year to date performance. We're going to increase our revenue and we raised our earnings per diluted share from continuing ops from $2.90 to $3.10 to $3.10 to $3.20, and both of those numbers exclude the Ardent Robillay transaction costs. So you might ask, what drove our increasing guidance for the year? And I think there are 3 primary drivers and there are sub drivers under as the 3 primary drivers: 1st, we executed very well for the most part in our mechanical and electrical segments. Sure, we've had some headwinds on some Northeast transportation projects for the year. And we will seek our rightful entitlement. I went through that in my open comments. The jobs when the jobs are completed, we will seek that entitlement. But we are very well positioned in both good sector and geographic markets that have benefited from the non residential recovery. We are now growing faster than the market and have achieved strong leverage from our fixed cost structure. Our Industrial Service segment has performed well year to date. We've benefited from not only an impact project that is likely to be a nonrecurring event. But we were and are prepared for these events as we have the labor, technical supervision, equipment and working capital to mobilize on these efforts and have done that over the last 5 years. But you don't know when they're going to happen, you react, and you serve your customers. However, our base turnaround business was strong for the spring season and has started strong for the fall season. By working very hard and they have not created any headwind for us. And it gives us confidence to raise our guidance and project a year that will be a record year for EMCOR on nearly every relevant metric. So the question that you'll have is, okay, Tony, how it is your team? This great team we have assembled at EMCOR. How do you take it from 3.10to3.20 and how do you get toward the top end of that range. And how do you do that? As you number 1, you continue to have outstanding performance in our construction operations. Here in the fourth quarter. 2, we could see continued improvement in our Building Services segment led by our Mechanical Services business. And quite frankly, a little snow would not hurt into number. Number 3, a continuation of a decent fall turnaround season that we believe we are in the midst of now. And number 4, continued steady performance in our UK segment. Then we have continued a strong liquid balance sheet continue to generate good cash. So what are we going to do with the capital? We have at EMCOR. We will continue to look for opportunities add to our business much like we did acquisitions like that that add to the segments that we have is what we will look to continue to do. We will also look to continue to return cash to shareholders through dividends and share repurchases with more of an emphasis on share repurchase. I'm going to take questions now, and I'd be remiss if I didn't think the employees and management and EMCOR for really a terrific start to the year here through 9 months and a terrific quarter. Thank you all very much. And with that, I'll turn Your first question comes from the line of John Rogers. Congratulations on the quarter. Couple of things. First of all, Tony, I guess for you, on the industrial services side of the business, you mentioned the pickup in the fall turnaround season, but I'm more curious about what you're seeing in terms of capital spending plans out of the customers there. I mean, has that market changed now with oil prices that these rebounded, maybe more stable here? We haven't seen it yet on the capital side, John. We do have some exposure to upstream now with our acquisition of Art at Roblase. So we haven't seen that flow through to the upstream side, which is where I think a lot of capital was cut and then some was cut then downstream as they just took a, especially the integrated guys took a wholesale scalpel to their capital. So the short answer is we haven't seen it yet. We maybe wouldn't be the best positioned to see the early signs of that, because even in that business, we tend to even if you're building and putting it into well, the electrical will come a little later. Are seeing strong demand from our customer set, from our customer set, both in the spring and the fall and the spring 2017 doesn't look bad sitting here today. That will firm up those now through the fourth quarter. Okay. And then just in terms of your transportation project that you're seeing the recovery on. I assume it's at least as much as the losses that you reported on that project, but Can you give us a sense of what the timeframe I mean? Is this something that you have a chance of resolving in 2017? John, we never, try to make those kind of recoveries into our guidance. If it happens, then as the year happens, we would revise our guidance, it would be an event, if we thought that, that could improve our outlook. These things either settle fast or they take forever. I would put this in somewhere in the middle. It's a very difficult job that's been accelerated. And has a lot of outside influencers involved in the job that have made it fairly nonproductive. Okay. And I guess just last thing, if I could, I mean, I appreciate your comments about the non residential cycle and the sounds like low single digit growth that you're looking at. But could you give us a sense of what you're seeing in proposal activity does that support that look? I mean, just we've seen a downturn in some of the AIA numbers We, we, again, we're later cycle, so maybe we're not seeing what AI would see. That tends to be a, at best day, in my mind, a qualitative view of the world not quantitative. We have not seen a significant drop in the activity that our folks looking at right now. And that varies market to market, and it varies month to month. But if you take it in an overall aggregate, our folks have proposals and enough outlook to believe that the market should grow low to mid single digits next year. Great. Thanks a lot. Thank you, John. Your next question comes from the line of Noelle Dilts. Hi, good morning and congratulations on a really good quarter. Thank you. So my first question, just first expanding around non resi, obviously good results in the quarter, continued backlog growth. But do you think just kind of anecdotally or are you getting a sense that there's any delay in decision making around projects, here ahead of the elections? And I'm partially asking that just based on some of what we're seeing in the ABI and then some of the start state out of Dodge? Again, I think you look at where we are in the food chain. By the time it gets to us, people are fairly well along on the design and development of a project. The upstream folks like the architects may the engineers, maybe the general contractors for more on the design build side may see that and have those macro discussions. We at Mcore tend to have micro discussions. It's a project that's already developed and thought about. So we're not seeing people delay decisions based on whatever may happen 2 weeks. Yes. And then maybe could you touch on your exposure, just how you're thinking about potential federal stimulus in the infrastructure space and where and how you might see a benefit? Where we would benefit the most is first, increased IDIQ spending in our government's business market. That's been down, right, since when? Yes. We well, it's been down. 2015. Right. Yes. And late 2015 carried into 2016. And it's sound yet from where the sequester Yes. So maybe that would be a place we would see in building services, some return to more normal levels of spending free sequester. Think that's going to have to happen anyway. It's just not working. The second area we can probably see it is if of the transportation projects on the electrical side got advanced and got bid. I mean, that's really where we participate in transportation work. We also will do work around airports, if that would advance. Brack was typically had been a good thing for Encore through the years. And we participated in those projects. I think it'll have, other than the IDIQ work, little to no effect 2017. Okay. And then just shifting over to the Industrial Services business, I mean, looking back now over the past few quarters, you've really seemed to out perform your peers here. And I know you go back to the idea that you're it depends on what you're seeing out of your customers, right? And as you just said to John, you're seeing strong demand from your customer set. But do you think there's is there something about your customer set that you think maybe is driving a little bit more spending? Maybe you could touch on your Petrochem customer exposure, if you're seeing some share gain there. I'm just trying to understand how you've now consistently outperformed some of your peers in the turnaround space. Over a multi period basis? Noelle, I'm always careful to talk too much about, how others are doing versus how we're doing. Here's what I know about us. We have some of the best operators in the business, and they're technically really good. And because we have some of the best operators, we attract the best craft labor and the craft supervision to come with that. And so when customers have major issues and because since the acquisition of Repcon Strickland, we can really put together a great team to solve a problem. And then I think they know that since that acquisition, really putting the whole thing together, what we had together with Olmsted and Redmond. I think people also know what the financial strength of EMCOR they know that we're going to have the resources to get those jobs done. So when you tag, we put technical expertise with great leadership together with financial strength with a very demanding customer base and a thank goodness underlying all that, a terrific safety record, you tend to get opportunities so that others might not see. And our guys are some of them are the pillars of the industry and we benefit from that. And so I can't speak to what the others do. I can only speak to what we do. Okay. Thank you. Your next question comes from the line of Tate Sullivan Hi, thank you. In the press release, as you noted, the contribution from a recent acquisition or acquisitions, and I assume that most of that was even though you said there was some flood impact in Louisiana. I mean, are you getting a benefit from Arden earlier than you expected in general? And, related to that, on slide 6, just eyeballing, it looks like your industrial backlog increased to some of that Gulf Coast related work? No, on the Gulf Coast, we did get some backlog in the Electrical segment from Ardent. That would be some of that would be Gulf Coast really. I'm going to the market a second. We had 3 acquisitions. If you look at the past year, we made a good fire protection acquisition in the Midwest in fourth quarter of last year. Fourth quarter, right? We made a good, mechanical service acquisition right before our and then we made the Artant Robillay acquisition. These are 3 really good companies that fit the kind of things we like to do. It's the right point of the cycle for us to have acquisition activity because people put weird behind them. And Mark, maybe you can give them a little more detail. Yes. Okay. With regards to the impact of acquisitions, we've obviously just closed in the press release and in our commentary, when you get the opportunity, if you go to the 10 Q, you could actually see the actual contributions by segment. And as I mentioned, just to reiterate, electrical building services and mechanical construction all benefited from the acquisitions, Tony just touched upon. With regards to Arden's contribution being, quicker or more than anticipated. I would say to date, they're in line with expectations. You know, I don't know that they're going to form in the fourth quarter at the levels that they have through the 1st months of ownership just because of the seasonality of their business. But having said that, everybody's been mostly in line with what we expected. And, in the art situation, to a lesser extent, acquisition that was closed in the fourth quarter last year in Mechanical Construction. Those are backlog driven businesses. So we still need burn through the amortization associated with those acquired contracts, but we should be mostly through that by the early part of 2017. And if you took that group of acquisitions together and you go my last comment. There we bought in Fire Protection, Springville work, we bought in Industrial Electric And Electric, and we think that Art is an option on the future of upstream oil and gas that we were lucky to get at not having to pay for it. For the upstream oil and gas. And, the last one was a mechanical services acquisition. If you look at mixed acquisitions, it said, is that stuff you would do? In 2016 at the end of the year or 'seventeen, if they became available or end of 'seventeen, these are the kinds of things we like to do. And this is the right point of the cycle for that happen, because one of the, like, sort of questions you get that make no sense, typically, is when business goes bad, people say, it's also a great environment. It's a terrible acquisition environment because people don't sell on weak numbers. And we don't buy things. We try not to buy things that need major fix up because depend on management to grow our businesses and we like to buy good companies. So we're at the right point in the cycle for acquisitions to become available and we have enough visibility they like Mark said, that they can meet the expectations we have for them. Thank you. On separate topic on the transportation project again. And it's amazing to consider how much you exceeded expectations and you even take out that per share impact from that one transportation project. I mean, what is the should I be concerned with what I think you're going to do on the Tappan Zee Bridge project, for instance, or road transportation projects, bad projects in general? Can you just talk about the outlook at that moment? Well, the best projects, some of the best projects that have ever been performed at EMCOR have been in the transportation segment. And once in a while, you get into a Confluence events that are just bad all the way around. From outside pressure to deadlines, to poor designs, to terrible general contractor management. You put all that together sometime on a job, you get to a bad place. But I am bullish on transportation and EMCOR the long term. And it's been a key pillar and foundation in our electrical segment. Your next question comes from the line of Tahira Afzal. Hey folks, great quarter. Congratulations. Thank you, T. So, Dorey, if I look back historically, was a year you guys did 5% operating margins. If I nicked out these project issues you've had in terms of losses, you're kind of eking up to four point 5% potentially for this year. Expansion drivers as we go into next year? I mean, it becomes difficult when you think about the mix for us to see 5% operating margins right now. I mean, just because our shop business is down so much, right? A combined basis. If our shop business was strong, I think, collectively as a team would say, yeah, there's a shot at that. But because that part of the business has turned from a strong positive to a negative, it becomes hard for us. And then you get to some mix issues in general, right? Yeah, I think you could correct for the, projects this year and you could say that's happened. But the reality is with the size we are now, we don't have the kind of losses we have on this particular issue where we're dealing with right now. But there in 3000 projects, there's always some level of thing going on there. We don't execute 100%. No one does. So I think, if you add back that impact that we have, Mark, that's probably a pretty good place because most of our businesses are firing at a pretty good level right now. Yes. And then other than the the pricing environment overall in the Industrial Services segment in addition to the shop is still less pressure on it. Yes. And the pricing overall, Pete, I sat in a meeting and people say, worst pricing. And we were with some people to see broad sections of the market last Friday. And I think the general consensus of those folks they're looking more up our customer base versus us. Margins clearly haven't recovered to where they were in 2007. And most of us don't believe that will happen because of the slow nature of the recovery, in non res. Now the positive of that slow recovery is don't have the kind of labor exposure. We do have a quicker recovery because people have had a chance to build their labor force over time versus just building a quick But margins haven't recovered to those levels. So when you see us expand margins right now, it has a lot less to do with pricing. Our customers are buying tough. And efficiency. And it has a lot to do with execution and efficiency and things we brought to jobs like GPS to the Trimble systems, through BIM, then BIM leads to pre fabrication. It's led to very close coordination with our supply base, we can be more efficient. And it's led to a lot of and better preplanning when we can. What I mean by around that is really sitting down and figure out sections of the work that can be done with the least amount of, disruption. When you're a, when you're a trades contractor, and you put labor on the job, everything's about making sure you have productive resources with the tools in their hand, to work safely and get it done in the most efficient manner possible. That's different than someone that's a general contractor or construction manager or even a broader EPC see. Got it. Okay. And Tony, in your prepared commentary, you talked a bit about health care after a while. Is this, are you seeing some sustainable potential improvements coming in that sector? Or should we regard this more as sort of one offs right now? I'm still in the one off camp. I I think hospitals still are trying to figure out how to make money under the Affordable Care Act. And that certainly is not going to sort itself out anytime soon. Got it. Okay. And last question I had, Tony, as There's a lot of talk about infrastructure obviously, into the elections, but there seem to be also very meaningful implications for the power segment. Do you see that as an opportunity for MCO to play on? Or is it some source of uncertainty? I think it is an opportunity. I don't think it's a 2017 opportunity. I think it is an opportunity. And I think think it comes two ways. 1, we do participate in solar, as a specialty sub, and we've done some work out in California, and we've done it fairly well. We do participate and win with some very specific projects in the Rocky Mountain region where we will build limited transmission and distribution lines. And we anticipate probably more significantly in two areas that may be not as obvious. One is in cogeneration, all co gen plants, gas generation in general, we are well positioned in a couple of markets to take advantage of that. As the electric or mechanical sub, we will not do this work APC have no desire to do this work EPC. And in the 3rd area, that's not as obvious as cleanup. Because of our industrial footprint, not only industrial services segment, but also and a little bit in our Building Services segment, we have workers that can help decommission, whether it be a coal plant or the things that go around the coal We haven't seen that yet a lot, but I think that's an opportunity as you go further past 2018 into 2019 into 2020. Perfect. Thank you very much and congrats again. Thank you, Keith. Your next question comes from the line of John Rogers. Hi, thanks. Just maybe following up on that a little bit. Tony, it seems like every cycle for Encore non res cycle, the conventional vertical building becomes less and less. Portion of your overall business. And I guess where do you see yourself positioning over the next couple of years in non building work as a portion of Amcor? Yes. So building is still an important part of what we do. It forms the foundation of the company. It did. It's still a big part of our mechanical and electrical segment. It's still a big part of our Building Service segment. But John, that's right. I mean, you look at we built in a whole industrial segment, it really has nothing to do services segment. It has nothing to do with the Building segment. As well as Industrial Construction. And as well as Industrial Construction, underlying, in our mechanical and now in our electrical with the acquisition of Arden. We have spent, a lot of resources both through organic growth and building out capability we already had. But also through acquisition, to build, industrial construction and manufacturing capability to support those customers. And you can look at companies we have, like contra Costa, like the University of Mechanicals, like Shambaugh. But then you can look at how we've organically added to the terrific teams in each of those places, especially Shambaugh and I mean, these folks know how to do this stuff in the UMex, right, in the WASS auctions. And so we added there. That was more organic. And then we also, took that and said, okay, what are other things we can add? So PPM, Southern Industrial, ardent. Now these are things outside of, Boston. These are things outside of, the Industrial Services segment. And all of them play in those markets. They play in the maintenance part of those markets. And so we went from a company that was primarily focused on the building sector in 2001 or 2002 to a broad based specialty trade contractor that can serve a broad swath of construction and service needs in the United States. And so where do I see it going from there? Well, I think we're now at the point we have really 4 well defined segments, and that includes the UK with its Building Services segment. We can continue to add responsibly in our Electrical And Mechanical We still have geographic opportunities that would allow us to be in the building. We have geographic opportunities, industrially, We have geographic opportunities for just specific trades contractors in those segments. Mechanical Services and the Building Services segment, we have geographic opportunity that we're still lacking, and we look, we look all the time. And I said, this could be a good time for acquisitions of those kinds of companies like the last three we bought that become available. We have opportunities to add to our services in the refining and petrochemical. We still could add to our bundle of services either organically. Example, we don't do much work around catalysts. We do a little bit. We don't do much work around refractory. We do a little bit. We could do more in each of those areas. So that's how we think about the business. We will have the capital to do it. We can grow organically and through acquisition growth. And so what would you say, not so much for the last quarter, but is the balance within EMCOR now between that And I'm saying vertical construction or building construction versus the industrial civil side of the business at this point? Yes, I think you could just look at the numbers and I think you could probably say, were probably still 50, 55 percent vertical construction and 40 profit wise and 40, 45, not the only reason we get to 50 or 55 vertical construction is we bring other things in there like data centers, datacom, work and others. And that would get you to the 5055 otherwise, I'd say it's a fifty-fifty company now. Okay, great. Thank you. Your next question comes from the line of Pate Sullivan. Hi, thank you for taking the follow-up. And more on sort of specific potential market, you talked about refinery turnaround type work. But then also on the topic of intra quarter orders that you received in 2Q, I mean, what are you doing currently? What can you do? What's the opportunity set for chemical plant that are being built or expanded or already in operation in the U. S? So we do more petrochemical. We don't do a ton of work in pure chemical plants. We do petro chemical work. We do the same kind of work in petrochemical plants that we do and the other ones. Typically, usually the work is smaller. It's not as robust, but that being said, some of the larger turnarounds we've done have been in petrochemical plants and not refineries. Their cycles tend to be different than the refiners. They tend to be, a different cycle. What I mean by that is refiners are strong. Sometimes the petrochemical historically haven't been as strong. We're not finding that to be necessarily true right now. But it's the same services. We're doing the mechanical turnaround work. Now we can do electrical turnaround work. It's more maintenance focused on capital, both with the acquisition of Arden Or Ablite, which we have more capital capability. Yes, because of the E and I work and all the things around it. So our guys can sell to think about what they're trying to sell into. I got to bring highly skilled people. I got to flex a workforce. They've got to be working under the most demanding timelines and they've got to do it in an unbelievably safe and conscious manner and have the right equipment. So there's a broad swath of those kind of customers that we can serve. Now we will turn the call back to management for closing remarks. Look, we had a we're off to a great obviously and it's beyond a start now. We're just finished our 3rd quarter. We're 75% of the way through the year. We are very, thankful for the performance and the trust that our customers have given us to execute work for them. Gonna continue to try to do that as best we can in a safe manner and take care of our employees. We expect to, obviously, with our guidance, we expect to do okay here in the quarter. And we're hoping for a decent non res market, low single digit growth as we go into the next year. And one thing I would remember on EMCOR is, we got to go out and hustle every day, to keep this $7,500,000,000 now machine going. Have a lot of people to do that. And, thank you all for listening. And we won't talk to you again together until February. So all of you have a great end of the year. Be well. Thank you for your participation in today's conference call. You may now disconnect.