Good morning. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group first quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star, then number two. I now would like to turn the conference over to your host today, Mr. Blake Mueller with FTI Consulting. Please begin.
Thank you, Keith, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 2023 first quarter results, which were reported this morning. I would like to turn the call over to Kevin Matz, Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead.
Thank you, Blake, and good morning, everyone. As always, thank you for your interest in EMCOR, and welcome to our earnings call for the first quarter of 2023. Boy, is it moving quickly. For those of you who have accessed the call via the internet and our website, welcome to you as well, and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. We are on slide two. This presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Page two describes in detail the forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides.
On slide three, the executives who are with me to discuss the quarter's results are Tony Guzzi, our Chairman, President, and Chief Executive Officer, Mark Pompa, Executive Vice President and Chief Financial Officer, and our Executive Vice President and General Counsel, Maxine Mauricio. For call participants not accessing the conference call via the internet, this presentation, including the slides, will be archived in the investor relations section of our website under presentations. You can find us at emcorgroup.com. With that being said, please let me turn the call over to Tony. Tony?
Yeah. Thanks, Kevin. Good morning, and thank you for joining our call. I will cover pages four through six in my opening comments. The momentum of the past few quarters continued in our business as we had an exceptional first quarter 2023. Our team is executing well, and I appreciate the team's focus and dedication towards driving excellent outcomes for our customers. We earned diluted earnings per share of $2.32 on revenues of $2.89 billion and operating margin up 5.4%. We had strong first quarter organic revenue growth of 10.1% versus the year ago period. We also grew remaining performance obligations or RPOs from the year ago period and from December 31, 2022, to a record $7.87 billion.
During the first quarter of 2023, we executed very well across all segments, and the broad themes that drove our business in 2022 continued, including the underlying strength in the retrofit markets with a focus on energy efficiency and IAQ or Indoor Air Quality, which also leads to emissions reduction. Growth in the network communications and data center markets, strong demand in healthcare and high-tech manufacturing, including semiconductors and all things around the EV or electric vehicle value chain, and traditional manufacturing and industrial projects driven by the onshoring of supply chains and domestic capacity expansion. We also continue to see an increase in demand for our downstream refinery and petrochemical services. I will discuss these trends in more detail in my later commentary.
We are executing well on a good mix of business, as evidenced by our improved gross profit margin of 15.1%. We still face headwinds from inflation and supply chain disruption, we continue to improve our planning and execution to mitigate such headwinds, which we expect to continue through the balance of 2023. As our results demonstrate, we had a great start to the year in our construction segments. This was due to the expertise and skill of our subsidiary and segment teams in estimating, winning, planning, and executing complex projects across diverse market sectors, trades, and geographies. Our mechanical construction segment continues to perform in an exceptional manner with an operating income margin of 8% and organic revenue growth of 8.7%.
Driving this growth is strong penetration in high-tech manufacturing, especially in the areas of semiconductors and the EV value chain, as well as continued demand for data centers. We are winning in the traditional piping trades, but also in our ever-expanding fire and life safety trades. Our strong operating income margin is a result of exceptional job site planning and execution, supported by excellence in BIM and prefabrication. Our electrical construction segment's performance continued to strengthen to historical levels. We earned an operating income margin of 6.3% in the quarter, representing a 250 basis point improvement versus a year ago period, and we had organic revenue growth of 16.8%. We had robust performance across important sectors such as network and communications, which encompasses our data center work, healthcare, and manufacturing and industrial.
We expect our results to continue to strengthen in the segment with improved project planning and execution, supported by the increased use of BIM or Building Information Modeling and prefabrication. Our recent acquisitions in this segment are performing well and have opened new markets and opportunities for us. Our US Building Services segment had a strong first quarter. We had operating margin of 5.2% with superior performance across the segment's mechanical services business, as evidenced by organic growth, revenue growth of 14.1%. We successfully executed project work and through improved planning, trade, job site coordination, and estimating, managed to address some of the supply chain challenges that negatively impacted such work last year. We often talk about the work we do to increase our customers' energy efficiency and improve air quality, which then results in emissions reductions and supports our customers' sustainability goals.
Our building services companies work through a diverse set of channels to deliver these projects and services to commercial, institutional, healthcare, and manufacturing customers. We serve these customers directly, also through major real estate providers, utilities, and ESCOs, or energy service companies. We see our ability to serve our customers through such diverse channels as a competitive advantage will continue to seek out the broadest set of customers possible. The results of our Industrial Services segment continue to improve at a steady pace, earning an operating margin of 4.5% in the first quarter of 2023. We executed a more normal turnaround season saw improved demand and mix for our shop services. We continue to execute work supporting our customers' increased demand for energy and operating efficiency, as well as their renewable fuel expansion.
The segment's performance trajectory continues to improve, and we would be even more positive about this segment's outlook if solar panel supply chain issues were not delaying our execution of electrical work supporting these solar fields. Our U.K. team continues to execute well despite a challenging market and foreign exchange headwinds. We continue to grow our customer base and are happy with our mix of facilities management contracts and owner direct project work. We leave the quarter with an excellent mix of work in our record RPOs of $7.87 billion. We have a strong balance sheet to support our organic growth outlook and our capital allocation model. With that, I will turn the presentation 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 seven. Over the next several slides, I will augment Tony's opening commentary and review each of our reportable segments' first quarter operating performance, as well as other key financial data derived from our consolidated financial statements, including in both our earnings release announcement and Form 10-Q filed with the Securities and Exchange Commission earlier this morning. Let's expand our review of EMCOR's first quarter performance. Consolidated revenues of $2.89 billion are up $297.9 million or 11.5% over Q1 2022.
Our first quarter results include $35.2 million of revenues attributable to businesses acquired pertaining to the period of time that such businesses were not owned by EMCOR in last year's first quarter. Excluding the impact of acquisitions, first quarter consolidated revenues increased approximately $262.7 million or 10.1% quarter-over-quarter. Before reviewing the operating results of our individual reporting segments, I would like to highlight that our consolidated revenues of $2.89 billion established a new first-quarter record and represents our second best ever quarter. That being said, I will now cover the results of each of our reportable segments, starting with revenue. United States Electrical Construction segment quarter one revenues of $644.7 million increased $122.7 million or 23.5% from 2022's comparable quarter.
Excluding incremental acquisition contribution, this segment's revenues grew a strong 16.8% organically quarter-over-quarter. Increased project activity within the network and communications, healthcare, manufacturing, and hospitality and entertainment market sectors more than offset revenue declines in transportation and traditional commercial market sector activity. We continue to experience strong demand from our data center customers, as evidenced by the growth in remaining performance obligations within the network and communications market sector, and we are executing against these contracts. Revenues of our United States Mechanical Construction segment of $1.1 billion increased approximately $86 million or 8.7% from the year ago period. Revenue growth during the quarter was predominantly derived from the high-tech and network and communications market sectors.
Increased activity within the quarter included both mechanical construction as well as fire protection services for customer projects, supporting the design and manufacture of semiconductors, electric vehicles, and/or related battery technologies. Additionally, similar to our Electrical Construction segment, our Mechanical Construction businesses are experiencing strong demand resulting from the growth in data center development. Both our Electrical and Mechanical Construction segments established new first-quarter revenue records in 2023, and consequently, our total U.S. construction revenues of $1.72 billion represent a first-quarter record as well. This performance surpassed that of the prior year period by $208.6 million or 13.8%. United States Building Services segment revenues of $725.4 million increased $89.8 million or 14.1%, representing an all-time quarterly record for this segment.
Growth was primarily experienced within the segment's mechanical services division, which generated incremental revenues from each of its service lines. Notably, we saw an increase in HVAC project and retrofit work due to slightly improved equipment availability that facilitated greater project execution when compared to last year's first quarter, which was more severely impacted by the ongoing supply chain disruptions and delays. This segment continues to experience strong demand for building automation and control solutions as our customers seek ways to improve the energy efficiency and or indoor air quality of their facilities. With most companies focusing on their carbon footprint, we believe that this will be an area of continuing demand for us. Our United States Industrial Services segment generated revenues of $330.9 million, an increase of $20.1 million or 6.5% year-over-year.
Despite the ongoing volatility in the broader oil and gas industry, we continue to see a steady resumption in demand for our field services offerings and as a result, we achieved a solid start to 2023. Additionally, we have experienced an increase in new build heat exchanger orders and pull-through cleaning and maintenance within this segment's shop services operations. United Kingdom Building Services segment revenues of $110.9 million represent a reduction of $20.6 million from last year's first quarter. Unfavorable exchange rate movements due to the weakening of the pound sterling negatively impacted this segment's quarter one 2023 revenues by $10.8 million.
Excluding the impact of foreign exchange, EMCOR's UK revenues decreased due to the loss of certain facilities maintenance contracts not renewed pursuant to rebuild, as well as a reduction in project activity with certain customers period-over-period. Please turn to slide 8. Selling general and administrative expenses of $281.2 million represent 9.7% of first quarter revenues and compared to $252.6 million and 9.7% of revenues in the year-ago period. SG&A for the current year's quarter includes approximately $5.2 million in incremental expenses from businesses acquired, inclusive of intangible asset amortization, resulting in an organic increase in SG&A of $23.3 million.
With EMCOR's continued revenue growth, we have added personnel to support our back office and contract administration functions, resulting in increases in salaries and benefits from the corresponding 2022 period. With the increase in both our Q1 operating income and diluted earnings per share, as well as the positive revision in our full-year 2023 EPS outlook, which Tony will cover later in this morning's presentation, we have seen a resulting increase in incentive compensation expense to reflect the actual and anticipated improvement in year-over-year performance. Reported operating income for the quarter was $154.9 million or 5.4% of revenues. It favorably compares to approximately $100 million of operating income or 3.9% of revenues a year ago.
Consistent with my revenue commentary, the current quarter's operating income and operating margin performance each represent new quarter one records for the company. Specific quarterly operating income performance by segment as is as follows: Our U.S. electrical construction segment earned operating income of $40.5 million, an increase of $20.5 million from the comparable 2022 period. Reported operating margin of 6.3% is significantly improved from last year's quarter, given a more favorable revenue mix, as well as the negative impact in 2022 of supply chain disruptions, which resulted in job site sequencing challenges as well as reductions in labor productivity and efficiency. Although we are still experiencing various degrees of supply chain difficulties, the level of impact in the current year has been less severe than that experienced in the early part of 2022.
This is due to both improved equipment availability and our subsidiary management team's ability to adapt to this less than optimal operating environment. First quarter operating income of our US mechanical construction segment of $86.2 million represents a $27.8 million increase from last year's quarter. An operating margin of 8% represents a substantial increase from the 5.9% earned a year ago. In addition to this segment's exceptional project execution, a better revenue mix when compared to the first quarter of 2022, as well as moderate improvements in both supply chain and commodity pricing environments were the primary factors driving this quarter-over-quarter improvement.
Operating income for United States Building Services is $37.7 million or 5.2% of revenues and compares to $24.2 million or 3.8% of revenues in 2022's first quarter. Consistent with the segment's revenue performance, these improvements were driven by their mechanical services division, which saw increases in both gross profit and gross margin due to better project execution, as well as the favorable impact of negotiated price adjustments, which have been enacted in response to the inflationary pressures we've experienced. Compared to the year-ago period, our United States Industrial Services segment operating income of $15 million or 4.5% of revenues represents an increase of $1.8 million with a slight expansion in operating margin. Better pricing and mix coupled with more normalized demand are the primary reasons for these quarter-over-quarter improvements.
UK Building Services operating income of $5.4 million represents a decrease of $5.2 million, while operating margin of 4.9% is reduced from 8.1% of margin a year ago. Exacerbating the impact of reduced quarterly revenues on operating income, this segment experienced a shift in the mix and size of project work, which resulted in a decrease in gross profit margin. Contributing to the unfavorable period-over-period comparison is the impact in 2022's first quarter of a successful project closeout, which enhanced reported operating margin in the prior year period. This segment's operating income was also negatively impacted in the quarter by $500,000 resulting from unfavorable exchange rate movements. We are now on slide 9.
Additional financial items of significance for the quarter not addressed on the previous slides are as follows. Gross profit of $436.1 million is higher than the comparable prior year period by $83.5 million or 23.7%, and gross margin of 15.1% is up 150 basis points quarter-over-quarter. Diluted earnings per common share is $2.32, as compared to $1.39 in 2022's first quarter. The increase in quarterly net income, combined with a reduction in our weighted average shares outstanding, has led to a $0.93 EPS improvement year-over-year. Our share repurchases in 2022 have positively impacted our first quarter 2023 diluted earnings per share by $0.25. Please turn to slide 10.
EMCOR's balance sheet maintains its strength and liquidity, positioning us to fund organic growth, pursue strategic M&A opportunities, and return capital to shareholders. Fluctuation of note within our balance sheet when compared to December of 2022 are as follows: Cash on hand of just over $420 million has decreased by $36.4 million. During the quarter, we utilized $84.6 million of cash to fund our operations, deployed $25.4 million for investing activities, including capital expenditures and acquisitions, and returned $23.2 million to stockholders through share repurchases and dividends. These uses of cash were partially offset by borrowings during the period of $100 million under our revolving credit facility. Resulting primarily from our organic growth during the period, our working capital balance has increased by nearly $193 million.
The slight increase in goodwill was entirely a result of the two asset acquisitions completed by us during quarter one of 2023, while identifiable and tangible assets have decreased marginally as the assets recognized in connection with these acquisitions were more than offset by amortization expense during the period. Total debt has increased by just under $100 million as a result of the additional borrowings under our revolving credit facility previously referenced. This increase in debt is the primary reason for the change in our debt to capitalization ratio reflected on the bottom of slide 10. Lastly, our stockholders' equity balance has increased by just over $92 million as our net income for the period exceeded our share repurchases and dividend payments. With my portion of this morning's slide presentation completed, I will now return the call back to Tony. Tony?
Yeah. Yeah, thanks, Mark. I'm gonna be on page 11, remaining performance obligations by segment and market. The robust demand for our services continued the trend we experienced in the final three quarters of 2022 into the first quarter of 2023. Total company remaining performance obligations, or RPOs, at the end of the first quarter were almost $7.9 billion, up a little over $1.9 billion or 32% over the March 2022 total of $5.95 billion. All but approximately $169 million of the $1.9 billion increase was organic. First quarter project bookings were also strong, with RPOs increasing $414 million or 5.5% in the first three months of 2023 from year-end 2022.
With a 10.1% organic revenue growth, the continued RPO growth is a sign of strong underlying demand in our most resilient sectors. RPO growth was broad-based, with each of our domestic reporting segments experiencing double-digit RPO growth in the first quarter versus the first quarter in the year-ago period. Each of these four business segments saw RPOs increase in the first quarter from year-end 2022. Our two domestic construction segments experienced strong project growth year-over-year, with combined RPOs increasing just under $1.7 billion or 36% from March 2022. The US mechanical construction segment saw RPOs increase by $934 million or 28%, while the US electrical construction segment saw an increase of $754 million or 58%.
Much of the construction segment's RPO increase results from continued demand for hyperscale data centers, semiconductor manufacturing, and healthcare facilities. We are also engaged in the build-out of the electric vehicle or EV value chain, which includes the production and development of electric vehicles, battery plants, and other manufacturing and industrial facilities driven to support this important new industry. We also are seeing increased demand from the onshoring of manufacturing and industrial facilities, as well as the expansion of capacities by some of our customers. Across this whole EV value chain and across this reshoring and capacity expansion, we're seeing strong demand for our fire and life safety services.
Our US Building Services RPO levels increased $237 million or 23% from March 2022. Now stands at $1.25 billion, a lot of that is a small to mid-size project and service work. Like all of 2022, this quarter saw continued project awards in its mechanical services division, which has focused a lot on energy efficiency, Indoor Air Quality, and general retrofit projects, as well as repair service work with growth in all the channels we serve to deliver these projects. US Industrial Services grew RPO slightly year-over-year due to an increase in demand for our heat exchanger sub services and products. Moving to the right side of the page, we show RPOs broken down by market sector. As you can see, we have expanded sector segmentation to 10 market sectors.
As we stated in our February call, for greater transparency into our current and future work, we split out what was previously reported as commercial RPOs into three sectors. The first of which is at the bottom is the traditional commercial projects, that's the golden bar. It includes work in office buildings, warehouses, retail and restaurants, and other commercial buildings. Commercial sector RPOs have increased $198 million or a little over 12% on a year-over-year basis. We disaggregated these commercial sectors into other ones to include network and communication, that is the maroon bar. That includes work that we've previously referred to as our telecommunications projects, which are data centers, data and fiber projects, and network cabling projects. This sector has grown RPOs $516 million or 86% year-over-year.
We now have a group called high-tech projects, and it's in the high-tech manufacturing sector, as shown by the green bar. These projects and services are in the semiconductor, biotech, life sciences, pharmaceutical, and the EV value chain. Year-over-year, high-tech RPOs have increased $481 million or over 100%. We believe that these industries in this high-tech manufacturing sectors are in, for the most part, in the initial stages of capacity expansion and development. That's where we continue to expect to see growth. It, you know, it'll be up and down a little bit as these are large projects a lot of times coming in, and that will drive growth in our RPOs. We also believe that to date, there has been negligible impact of the government legislation that was designed to support these sectors.
It just was passed, we think that legislation will not only increase further demand, but we think it'll elongate the duration of that demand. As I said before, we continue to broaden our fire and life safety services across all these sectors. That would be the gold, the maroon, and the green, we continue to provide projects across all sectors. Looking at other market sectors and year activity, healthcare RPOs are up 55%, institutional is up 10%, manufacturing and industrial are up 35%. Short-duration projects, which include much of the HVAC and repair service work, it's flat, maybe up 1%. Partially offsetting this increase was a reduction in transportation and water and wastewater RPOs. In looking at our market sector participation, it is noteworthy to see how balanced our participation is.
This balance demonstrates one of the strengths we have highlighted before, which is our ability to provide electrical and mechanical construction, retrofit and repair service, technical labor and solutions across diverse non-residential market sectors and U.S. and U.K. geographies. We have decent work in-hand and continue to bid new project opportunities across many non-residential market sectors. Our project mix is good, and we are executing well in all phases of project delivery in what is still a very challenging operating environment. You know, I have mentioned several of these robust sectors before today that drive our growth. On the next page, on page 12, you'll see highlights in more depth that explain them to you. I am not gonna cover that page in detail today because I think it would be redundant with the commentary I just made explaining our RPOs.
With the enhanced disclosure around commercial, I think we've met many of the things we talk about on page 12. With that, I will now turn to page 13 and 14. We expect our success to continue in 2023 despite a market that has uncertainty in it. We are gonna leave our revenue guidance intact at $12 billion-$12.5 billion in revenues. We are gonna increase our EPS guidance from what was a range of $8.75-$9.50 to $9.25-$10. EPS is what we now expect our guidance to be. Our RPOs remain strong, and we continue to see demand in key areas like we talked about, commercial retrofits, semiconductors, healthcare, data centers, bio life sciences.
We also are seeing strong demand, as I said before, for our fire life safety services across most major end markets. The supply chain issues and challenges that we've experienced through the last 18 months still exist with long lead times, unreliable delivery schedules for finished systems like switchgear and HVAC equipment. We also expect to continue to see inflationary pressures for labors, materials, and fuel. However, as we did in most of 2022 and in the first quarter of 2023, we will continue to adapt through better planning, estimating, and resource allocation. Where do we end up in this guidance range will depend on several factors, some in our control and some outside of our control. I'm going to cover first the ones that we believe that are more in our control, and it's not an exhaustive list, but it is the major ones.
The first thing we need to do is we need to continue to increase our use of BIM or Building Information Modeling, prefabrication, and enhanced planning to drive efficiency, improve safety, and increase the quality and productivity of our service delivery. We need to continue to pay attention and enhance our pricing and estimating to mitigate the impact of inflation and supply chain challenges. Third, we need to leverage our reputation as an employer of choice to staff our jobs with the right mix of skills and classifications to not only enhance our labor productivity, but also our safety and cost. Fourth, we need to train and educate our employees at all levels of the organization to work smarter and lead better.
Fifth, we need to be vigilant with our commercial service customers and actively monitor their financial condition and payment status with us as they remain challenged with occupancy and now refinancing issues. Finally, we always look to gain SG&A leverage. However, we always will have areas beyond our control that could affect our performance. Number one, material sourcing and lead times continue to challenge the market and our customers. I don't think that's improving in 2023, not much anyway. Number two, higher interest rates and economic uncertainty may impact the demand for some of our customers' products and services, and then it will impact us. I expect this will move some projects in the planning stage to later periods, and those in the decision stage may be postponed, rephased, or rescoped.
Number three, disruption caused by uncertain energy markets and supply, especially as the conflict in Ukraine continues, and it could potentially intensify. OPEC took supply out of the market, and China's reopening increases demand. However, we expect to continue to generate strong operating cash flow, and we'll continue to execute our long-term and successful capital allocation strategy that balances supporting our organic growth and acquisition while returning cash to shareholders through dividends and share repurchases. Finally, as always, I would like to continue to thank the EMCOR team because none of this would be possible without your discipline, teamwork, and dedication to drive the best possible results for our customers. As a result of serving our customers so well, we continue to produce outstanding results for our shareholders. With that, Keith, I will take questions.
All right. Thank you. At this time, we will begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster. Today's first question comes from Brent Thielman with D.A. Davidson.
Hey, thanks. Good morning. Congrats on a great quarter.
Morning, Brent. Thank you.
Hey, Tony, I was just wondering if you could comment on your traditional commercial vertical, just in the context of these kinda heightened concerns around credit tightening. It seems like that'd be an area you may have the most exposure or risk. I'd love to hear sorta how you'd pick that apart. You know, are there high levels of retrofit and upgrades within that vertical versus new construction? Any anecdotes there would be really helpful.
I mean, that's why we did the enhanced disclosure. You can see the yellow bar's traditional commercial, and it's the part that's up least year-over-year, and it's essentially flat from year-end. Part of that is a result of we're starting to burn through. That's where you really saw the impact of elongated supply lines because those projects that we do, for the most part, are meant to be quicker hitting. If you think about EMCOR's commercial backlog, probably less than 1% of what we do today to 1.5% is what I would call new, out of the ground commercial or high-rise residential. At one time, that was very different. The bulk of the business that's in that traditional yellow section or even that pink section up top. That pink section has...
You could take that pink section and spread it across all our other sectors there, the short duration projects. That yellow, for the most part, is aftermarket. It's short duration projects. It's not short duration. It's major retrofit. It's retrofit. It's tenant build out. It's ad moves and changes. It's where our longer duration energy retrofit projects are. It's that kind of stuff is the vast preponderance of what we do in commercial now. Then as you move up, right, we talked about the maroon and the green. I mean, the reality is that's a, that's a good breakout, right? Because that's where the growth is coming for us. Like we said, that growth was coming even before the enhanced legislation of like the CHIPS Act and IRA. We expect that to even continue more.
I talked about it, maybe growth or elongation. You know, we're careful in that commercial sector. We've been careful in that commercial sector for a long time. We're especially careful when it's developer-led. We pay attention to a lot of collections, and we pay attention to their financing. Do I think new build commercial is a growth market? Right now, no. Do I think there's opportunities with well-capitalized customers? The answer is yes. Do I think the energy efficiency market has legs for a while to go? I like the way we service that energy efficiency market and the short duration project market. We service that through a lot of different channels. We go direct to the owner.
We go to the owners, what would be called their in-house general contractor or construction manager that may run all their projects, like in a university or a manufacturing setting, but we're the contractor of choice and have been there for a while. We go through the large real estate providers and facilities managers. We go through that channel. We go through utilities that have programs where that helps fund and direct, and they have the salespeople that work with us that sell the project. Then we go through the major ESCOs where they may sell a project, and now they actually have people that actually have to go figure out how to get it done. We have the sales force that knows how to sell to them and sell to every one of those channels. We like that position.
We think that market has legs. It's a complex answer, but that's why we did the enhanced disclosure because we were starting to make it harder for us to have people understand where the real growth and with that quote, commercial sector, the way we traditionally defined it was.
Okay. I appreciate that. Just, I guess, staying on the topic of the RPOs, Tony, the healthcare piece also really sticks out to me, just the continued expansion there. I guess my question is would you consider that a fairly diverse group of customers and a broader trend, or is this aligned with some specific customers that just happen to be spending big?
It's both. It's both, Brent. It's both, right? On one sense, specific customers drive that backlog because they can be large projects. If you look over a two or three-year period, over time, and the way we think about it's part of a broader trend. They got, quite frankly, disrupted a little bit with COVID because they weren't building new facilities in the middle of COVID.
Mm-hmm.
They were building emergency facilities, but not new facilities or retrofitting so you could do multi-use. Some of this is pent-up demand on what should have been capital planning, but it's a long-term trend. Hospitals, and big healthcare facilities and outpatient facilities, they need to be cleaner. They need to have better ventilation. They need to have an ability to flex from positive pressure to negative pressure in our world. They have much more complex low voltage needs. They have much more complex general electrical needs. They have to put backup power. While they're doing all that, they have to think about their sustainability goals and how they're gonna operate that facility more efficiently.
Okay. Yeah. Thanks, Tony. The last one, just, I guess, which of the two construction business groups are you seeing still sort of more profound challenges related to the supply disruptions, inflation? Is it, is it more electrical or mechanical? Because, you know, it looks like the electrical margin definitely snapped back big from last year, but maybe a little below what levels we've seen in the past. I'd just love to kind of understand that.
I think, you know, I would say probably electrical more than mechanical. It's a more consolidated market for major end products, it's more on the critical path. We've had to rejigger our means and methods to work around that. Mechanically, you know, we buy a lot of equipment. We do a lot of HVAC work. We also do a lot of just straight piping work, supporting, you know, big process plants or where the owner bought the equipment. They do that in the electrical business, too, for major gear. My experience has been when you look at things like generators and switch gears, and smart panels, the delivery performance is not great yet. The mechanical's gotten a little better. At least what they say they're gonna do, they do.
The electrical lead times haven't really moved much down at all. The mechanicals have started to move down a little bit. I think in general, the mechanical sales forces are more in tune with their factories, and I think they have better visibility to keep us up to date on what's happening than the electrical sales force.
Okay.
That's the people that help buy ops is what I meant.
Yep. Yep. Okay. Thanks, guys.
Yep.
Thank you. The next question comes from Adam Thalhimer with, Thompson Davis.
Hey, good morning, guys. Great quarter.
Thanks, Adam.
On the industrial business, that was your best quarterly Op income in three years. Just curious what your visibility is like there and what the, if you can build on the Q1 result.
Look, we think things have gotten better. We like where our shop backlog is at. We like what that portends for the future. We think we're in a more normalized operating environment, which is good. We expect to continue to operate normally. We have no reason to believe we don't have a normal fall turnaround season coming up. I think the long pole in the tent is a new product we have, right? A new service, which is building these alternative energy, the renewables, especially around solar, and that's clogged up everywhere. Mark, I mean, you.
Adam, the only thing I would add is just, you know, don't lose sight of the fact of the seasonality of that business. It's, you know, kind of bookends quarter one and quarter four. Having said that, you know, we saw, as Tony mentioned a couple of times during his pre-prepared remarks, you know, we saw as close to a normal operating environment as we've seen in a while with that customer base. You know, a lot of it is mixed driven as well. You know, we're deploying the qualified labor we have.
If our customers adhere to the schedules that we've been planning with them, we're optimistic that 2023 is gonna at least look like a normal 12 month performance period for the industrial services segment.
That's reflected in our guidance. Part of that's reflected in our guidance take-up.
What is the outlook for solar panels? I don't know that I follow it that close.
Yeah. There's certainly people way better qualified to talk about that than us as part of our business. Based on what we see, not good. It's still clogged up. I don't think there's gonna be this big uptick this year. Again, that's sort of, there's people that know a lot more about that than me. As someone that's followed it closely, we're bidding at work, we see a lot of delayed work.
Yep. I guess Brent kind of touched on this, but I just wanted to touch on your macro comment. I guess the debate is, where do you think macro would manifest itself? It seems like a lot of these big projects are kinda locked and loaded, and there's government support. Maybe those big projects go, but there's risk to the short duration projects.
Yeah, you know, I think there's. It's hard to tell. I mean, the short duration projects have something that's been driving them for a while. There's this counterbalancing view out there, right, in my mind, because of energy pricing and people's drive for more sustainable facilities. On one hand, you sit there and say, "Well, I just won't do the project." On the other hand, you say, "Every day I don't do that project, my cost structure becomes worse because energy prices continue to become uncertain and escalate." Most of our major customers have committed to sustainability goals, and you can't get there unless you do equipment replacement and modernization and all the, you know, something as simple as fixing the compressor lines in a manufacturing facility. Well, that requires a lot of work. It requires new equipment.
You know, if you take out something that used to be 0.68 kW per ton, and now you're putting in something with 0.32 kW per ton on a chiller, and it has variable speed, that's a market change in your operating cost profile. Then you're gonna start thinking about, "Okay, I have to do that. If I don't do that in these triple net leases," which has always been the bane to the existence of energy efficiency, "my building may no longer be competitive," right? I have all these forces going on around me. So I think that if you're heavily exposed to new build commercial, you probably have a different outlook than we have on that.
I also think if you think of some of these major projects that are going on those big things I talked about, from reshoring, EV value chain, semiconductors, data centers. Remember, there's a whole ecosystem around each of those. I guess most of this was happening without government support. That can only help it now, and it can only elongate it, in my mind. Most of these customers are not you know, worried about 500 basis point expansion in interest rate costs. One, they're self-funded for the most part, and the kind of value they're gonna create over what they're doing. Then you layer on top of that for some of these industries, the demands with respect to national security and the onshoring of some critical industries. I think that mix drives long-term demand in a favorable way.
Look, for us, we have great RPOs. We expect to continue to have great RPOs. You know, from this high level, that could plus or minus a little bit quarter-to-quarter, but we expect our overall trends over the next couple of years to be pretty good as in these major sectors. You know, we'll see.
Right. Okay. Good color. Thanks, guys.
Thank you. The next question comes from Sean Eastman with KeyBanc.
Hi, team. Great
How are you, Sean?
Great start here. Very good start. I mean, I thought the big takeaway from the first quarter was really the margins. I mean, I think this is a record margin performance for our first quarter, yet you guys are saying there's still kind of lingering supply chain challenges. You know, is there something unsustainable that came through in the first quarter? You know, are we just, you know, kind of effectively not updating the outlook, sort of just flowing through a, you know, a better start to the year?
I don't know, Sean. I think taking our outlook up to $9.25-$10 from $8.75-$9.50 is a pretty big move. I think the revenue velocity is in the businesses, and we said that in our initial guidance. I think further, if you extrapolate that, I think that what we're really saying in the guidance is we expect strong margins through the year.
Mm-hmm.
We are mix dependent and, you know, projects start, they finish, but there was nothing extraordinary in the first quarter, right, Mark?
Yeah. Sean, the only thing I'll point out, if you recollect from quarter one last year, you know, we did have some additional headwinds with regards to project write-downs, both in electrical and mechanical construction.
Mm-hmm.
The extent of write-down activity in the first quarter of 2023 was not at that same level. The other thing which is extremely difficult to quantify relative to 2023's quarter one is with the fairly mild winter weather pattern we had in most of the geographies we operate. You know, we didn't deal with the same level of job site difficulties with regards to fighting weather. You know, like I said, that's difficult to quantify. It does not have an outsized impact on the quarter performance. You know, the only thing it might have done is pulled some activity, you know, forward in the year.
I think the other thing that bolstered first quarter operating margins, operating income margins is, you know, this is a seasonally strong quarter for industrial. We have to factor in what second and third quarter mean to us there, especially if we can't deliver some of the solar work that we hope to deliver towards the back half of the year. I guess just general caution, right? I mean, I talked about the things we don't control, and those are sizable macro forces we don't control. We think it's prudent to have an eye towards that. I think we have a strong guidance out there to update it. We started the year with strong guidance. We updated that with strong guidance.
Underlying that is what we believe, depending on where you are in that revenue range, is pretty strong underlying operating performance.
Yep. Yeah, look, I don't wanna take the wind out of the sails. Great, great update. I guess what I was getting at is just that I have to go back to 2014 to find the year where the first quarter is not the low watermark operating margin for the year. You know, I feel like with that dynamic in mind, it seems like there's a lot of cushion in the guidance from a margin perspective over the balance of the year.
I mean, we had, you know, a lot of. I mean, when you start looking at this at the macro level, though, right? There's a lot of puts and takes in any given quarter.
Mm-hmm. Mm-hmm.
We think that with those countervailing macro forces and how they could impact the back end of the year, we think that we put strong guidance out, and we think we'll obviously end up somewhere in that range. You know, we gotta execute well on the things that we can to keep those margins where they are, I enumerated those four or five points that we think are most important.
Coming back to the credit tightening element being so topical, maybe, you know, approaching that from a different way, how do you see that potentially impacting your M&A pipeline?
I don't think it impacts our ability to do what we think we need to execute other things we would like to execute. I think though, Sean, I, you know, we know this, right? If the overall M&A environment's not favorable, less things may be for sale, right? Now, a lot of the things we buy aren't necessarily in that typical M&A market. You know, most of the deals we've done over the last three years have been people selling their life's work, which is where we operate the best, right? That's where we are the most successful, and we also drive the most value, not only for the person selling the business 'cause they have a lot of things they're looking at, but for our shareholders. It gives us new opportunities to grow.
Look, private equity is not much in the market right now between interest rates, covenants, and credit tightening and the ability to place their secondary debt. They're not in the market. People that want a robust auction around their process, therefore are trying to sell their companies right now. Put all that together, you know, it's no secret, I mean, you follow the same things we do, you know, M&A volumes are down significantly.
That being said, for the kinds of things we do, you know, I don't think I would say, "Oh my god, it's the most robust pipeline I've ever seen." What we have was, I think, is an acceptable pipeline of opportunities for us to pursue to continue to build out our footprint, add to our capability, and enhance the services we're offering across a number of geographies or new geographies or product lines we'd like to add or product services we'd like to add.
Got it. All right. Thanks for the perspective. Many compliments to the team.
Thank you.
Thank you. This concludes the question and answer session. I would like to return the call to Tony Guzzi for any closing comments.
Thank you very much, all. We're, you know, we started well in 2023. We've got a lot of work ahead of us. Hope you all are well. Have a good summer, and be safe.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.