Market Overview

EMCOR Group, Inc. Reports Second Quarter 2018 Results

Share:

- Record Second Quarter Revenues of $1.95 Billion, 3.1%
Increase Year-over-Year -

- Record Second Quarter Diluted EPS from Cont. Operations of $1.21,
27.4% Increase Year-over-Year -

- Increases Full-Year Revenue Guidance and Diluted EPS Guidance Range
-

EMCOR Group, Inc. (NYSE:EME) today reported results for the second
quarter ended June 30, 2018.

For the second quarter of 2018, net income from continuing operations
attributable to EMCOR was $71.0 million, or $1.21 per diluted share,
compared to $56.8 million, or $0.95 per diluted share, for the second
quarter of 2017. Excluding the impairment charge detailed below,
non-GAAP net income from continuing operations attributable to EMCOR was
$71.9 million, or $1.23 per diluted share, for the second quarter of
2018. Revenues for the second quarter of 2018 totaled $1.95 billion, an
increase of 3.1%, compared to $1.90 billion for the second quarter 2017.

Operating income for the second quarter of 2018 was $99.7 million, or
5.1% of revenues, compared to $92.4 million, or 4.9% of revenues, in the
prior year period. Included in operating income for the second quarter
of 2018 was an impairment charge of $0.9 million. Excluding this
impairment charge, non-GAAP operating income for the second quarter of
2018 was $100.6 million, or 5.1% of revenues.

Please see the attached tables for a reconciliation of non-GAAP
operating income, non-GAAP net income from continuing operations and
non-GAAP diluted earnings per share from continuing operations to the
comparable GAAP figures.

Selling, general and administrative expenses for the second quarter of
2018 totaled $189.9 million, or 9.7% of revenues, compared to
$181.7 million, or 9.6% of revenues, in the year ago period.

The Company's income tax rate in the second quarter of 2018 was 27.2%,
compared to an income tax rate of 36.8% in the year ago period.

On January 1, 2018, EMCOR adopted the Financial Accounting Standards
Board's new revenue recognition standard, which requires the disclosure
of remaining unsatisfied performance obligations ("Remaining Performance
Obligations"). Prior to the adoption of the new standard and the related
disclosure of Remaining Performance Obligations, the Company had
reported backlog on a quarterly basis. As backlog is not a term
recognized under the United States generally accepted accounting
principles, the Company has eliminated backlog from its reporting
starting in the second quarter of 2018. For a detailed discussion
regarding the primary difference between Remaining Performance
Obligations and historical backlog, please refer to Note 3 in the
Company's Notes to Condensed Consolidated Financial Statements and Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations within the Company's Form 10-Q for the quarterly
period ended March 31, 2018.

Remaining Performance Obligations as of June 30, 2018 were $3.67
billion, compared to $3.60 billion at March 31, 2018. Domestic Remaining
Performance Obligations increased $98.0 million from the first quarter
of 2018, while Remaining Performance Obligations in the U.K. Building
Services segment fell $28.6 million.

Tony Guzzi, Chairman, President and Chief Executive Officer of EMCOR,
commented, "The Company delivered record second quarter revenue and
record quarterly diluted earnings per share, building upon the strong
momentum that we saw during the start of the year. This was driven by
continued strength in our U.S. Construction and Building Services
segments, as well as excellent performance in our U.K. Building Services
segment. Consistent project execution across our business drove an 8%
increase in operating income year-over-year and solid operating margin
expansion to 5.1% of revenues. We are very pleased with these results,
and continue to see strong project opportunities across geographies and
end markets."

Mr. Guzzi added, "Our U.S. Construction segments continued to perform
exceptionally, with combined revenue and operating income growth of 2.4%
and 9.8%, respectively. Our U.S. Electrical Construction segment revenue
increased 6.7% year-over-year driven by solid execution on our diverse
mix of projects. We are pleased with the performance in our U.S.
Mechanical Construction segment, which grew operating income 8.5%
year-over-year, despite a difficult comparison to the year ago period,
due to the benefit of certain cost recoveries from a project completed
in 2016. Our U.S. Building Services segment continued to deliver solid
results, with double-digit operating income growth driven by strong
performance in our government and energy services businesses. Results in
our U.S. Industrial Services segment reflected expected weakness due to
typical seasonality, further impacted by the continued residual effects
from Hurricane Harvey. However, we believe that we have largely
surpassed the headwinds in this segment, and expect improved performance
in the second half of 2018 with the resumption of normal demand and
increased project activity in our shop business. Finally, our U.K.
Building Services segment had another outstanding quarter, with revenue
growth of over 33% year-over-year, as we continue to execute specialty
project work and expand our business with new contract awards."

Revenues for the first six months of 2018 totaled $3.85 billion, an
increase of 1.8% compared to $3.79 billion for the first six months of
2017. Net income from continuing operations attributable to EMCOR for
the first six months of 2018 was $126.7 million, or $2.15 per diluted
share, compared to $109.9 million, or $1.84 per diluted share, for the
first six months of 2017. Excluding the impairment charge recorded in
the second quarter of 2018, non-GAAP net income from continuing
operations attributable to EMCOR for the first six months of 2018 was
$127.6 million, or $2.17 per diluted share.

Operating income for the first six months of 2018 was $177.7 million, or
4.6% of revenues, compared to $174.8 million, or 4.6% of revenues, for
the first six months of 2017. Included in operating income for the first
six months of 2018 was a $0.9 million impairment charge. Excluding this
charge, non-GAAP operating income for the first six months of 2018 was
$178.6 million, or 4.6% of revenues. SG&A totaled $380.9 million, or
9.9% of revenues, for the first six months of 2018 compared to $365.1
million, or 9.6% of revenues, for the first six months of 2017.

Please see the attached tables for a reconciliation of non-GAAP
operating income, non-GAAP net income from continuing operations and
non-GAAP diluted earnings per share from continuing operations to the
comparable GAAP figures.

Based on favorable project mix and market conditions, EMCOR is raising
its full year 2018 revenue guidance to approximately $7.8 billion, an
increase from the prior range of $7.6 billion to $7.7 billion. The
Company now expects its full year 2018 diluted earnings per share from
continuing operations to be in the range of $4.40 to $4.80, an increase
from the prior range of $4.10 to $4.70.

Mr. Guzzi concluded, "We are encouraged by our performance thus far in
2018, and are well positioned for continued growth in the second half of
the year. As a result, we are raising our guidance for both revenue and
diluted earnings per share for the full year. Our updated guidance
reflects our better than expected results in the first half of the year,
continued excellent operational execution, and a strong, diverse
pipeline of project work. As we look ahead, our healthy balance sheet
will continue to allow us to pursue strategic acquisition opportunities
that enhance our geographic reach and the breadth of our services, while
returning capital to our shareholders through additional share
repurchases and dividends."

EMCOR Group, Inc. is a Fortune 500 leader in mechanical and electrical
construction services, industrial and energy infrastructure and building
services. This press release and other press releases may be viewed at
the Company's website at www.emcorgroup.com.

EMCOR Group's second quarter conference call will be available live via
internet broadcast today, Thursday, July 26, at 10:30 AM Eastern
Daylight Time. The live call may be accessed through the Company's
website at www.emcorgroup.com.

Forward Looking Statements:

This release contains certain forward-looking statements within the
meaning of the Private Securities Reform Act of 1995. Any such comments
speak only as of this date and EMCOR assumes no obligation to update any
such forward-looking statements. These forward-looking statements may
include statements regarding anticipated future operating and financial
performance, the nature and impact of our backlog, our ability to pursue
acquisitions, our ability to return capital to shareholders, market
opportunities, and market growth. These forward-looking statements
involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. Accordingly these
statements are no guarantee of future performance. Such risk and
uncertainties include, but are not limited to, adverse effects of
general economic conditions, changes in the political environment,
changes in the specific markets for EMCOR's services, adverse business
conditions, availability of adequate levels of surety bonding, increased
competition, unfavorable labor productivity and mix of business. Certain
of the risk factors associated with EMCOR's business are also discussed
in Part I, Item 1A "Risk Factors," of the Company's 2017 Form 10-K and
in other reports filed from time to time with the Securities and
Exchange Commission and available at
www.sec.gov
and
www.emcorgroup.com.
Such risk factors should be taken into account in evaluating any
forward-looking statements.

Non-GAAP Measures:

This release also includes certain financial measures that were not
prepared in accordance with U.S. generally accepted accounting
principles (GAAP). The Company uses these non-GAAP measures as key
performance indicators for the purpose of evaluating performance
internally. We also believe that these non-GAAP measures provide
investors with useful information with respect to our historical
operations. Any non-GAAP financial measures presented are not, and
should not be viewed as, substitutes for financial measures required by
GAAP, have no standardized meaning prescribed by GAAP and may not be
comparable to the calculation of similar measures of other companies.

EMCOR GROUP, INC.

FINANCIAL HIGHLIGHTS

(In thousands, except share and per share information)

(Unaudited)

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   
For the three months ended June 30, For the six months ended June 30,
2018   2017 2018   2017
Revenues $ 1,953,886 $ 1,895,937 $ 3,854,274 $ 3,787,669
Cost of sales 1,663,042   1,621,436   3,294,311   3,246,828  
Gross profit 290,844 274,501 559,963 540,841
Selling, general and administrative expenses 189,907 181,745 380,932 365,132
Restructuring expenses 374 343 464 908
Impairment loss on identifiable intangible assets 907     907    
Operating income 99,656 92,413 177,660 174,801
Net periodic pension (cost) income 717 408 1,454 794
Interest expense (3,457 ) (3,069 ) (6,453 ) (6,140 )
Interest income 634   73   1,178   330  
Income from continuing operations before income taxes 97,550 89,825 173,839 169,785
Income tax provision 26,529   33,019   47,162   59,865  
Income from continuing operations 71,021 56,806 126,677 109,920
Loss from discontinued operation, net of income taxes (205 ) (18 ) (487 ) (522 )
Net income including noncontrolling interests 70,816 56,788 126,190 109,398
Less: Net income attributable to noncontrolling interests   (30 )    
Net income attributable to EMCOR Group, Inc. $ 70,816   $ 56,758   $ 126,190   $ 109,398  
 
Basic earnings (loss) per common share:
From continuing operations $ 1.22   $ 0.96   $ 2.16   $ 1.85  
From discontinued operation $ (0.00 ) $ (0.00 ) $ (0.01 ) $ (0.01 )
 
Diluted earnings (loss) per common share:
From continuing operations $ 1.21   $ 0.95   $ 2.15   $ 1.84  
From discontinued operation $ (0.00 ) $ (0.00 ) $ (0.01 ) $ (0.01 )
 
Amounts attributable to EMCOR Group, Inc. common stockholders:
Net income from continuing operations attributable to EMCOR Group,
Inc.
$ 71,021 $ 56,776 $ 126,677 $ 109,920
Loss from discontinued operation, net of income taxes (205 ) (18 ) (487 ) (522 )
Net income attributable to EMCOR Group, Inc. $ 70,816   $ 56,758   $ 126,190   $ 109,398  
 
Weighted average shares of common stock outstanding:
Basic 58,332,934 59,290,420 58,531,150 59,527,863
Diluted 58,670,595 59,639,061 58,862,505 59,873,416
 
Dividends declared per common share $ 0.08   $ 0.08   $ 0.16   $ 0.16  
 

EMCOR GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

   
June 30, 2018 December 31,
(Unaudited) 2017
ASSETS
Current assets:
Cash and cash equivalents $ 306,624 $ 467,430
Accounts receivable, net 1,635,289 1,607,922
Contract assets 156,134 122,621
Inventories 43,665 42,724
Prepaid expenses and other 48,511   43,812
Total current assets 2,190,223 2,284,509
Investments, notes and other long-term receivables 4,180 2,309
Property, plant & equipment, net 124,993 127,156
Goodwill 978,303 964,893
Identifiable intangible assets, net 481,577 495,036
Other assets 90,125   92,001
Total assets $ 3,869,401   $ 3,965,904
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations $ 15,625 $ 15,364
Accounts payable 505,379 567,840
Contract liabilities 551,614 524,156
Accrued payroll and benefits 282,159 322,865
Other accrued expenses and liabilities 150,153   220,727
Total current liabilities 1,504,930 1,650,952
Borrowings under revolving credit facility 25,000 25,000
Long-term debt and capital lease obligations 262,492 269,786
Other long-term obligations 341,846   346,049
Total liabilities 2,134,268   2,291,787
Equity:
Total EMCOR Group, Inc. stockholders' equity 1,734,283 1,673,267
Noncontrolling interests 850   850
Total equity 1,735,133   1,674,117
Total liabilities and equity $ 3,869,401   $ 3,965,904
 

EMCOR GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2018 and 2017

(In thousands) (Unaudited)

   
2018 2017
Cash flows - operating activities:
Net income including noncontrolling interests $ 126,190 $ 109,398
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization 19,233 20,354
Amortization of identifiable intangible assets 21,352 24,257
Provision for doubtful accounts 7 2,543
Deferred income taxes 4,855 (6,410 )
Excess tax benefits from share-based compensation (1,065 ) (1,554 )
Equity income from unconsolidated entities (290 ) (758 )
Non-cash expense for impairment of identifiable intangible assets 907
Distributions from unconsolidated entities 1,847 1,829
Other reconciling items 6,531 2,208
Changes in operating assets and liabilities, excluding the effect of
businesses acquired
(212,217 ) (49,204 )
Net cash (used in) provided by operating activities (32,650 ) 102,663  
Cash flows - investing activities:
Payments for acquisitions of businesses, net of cash acquired (25,207 ) (82,724 )
Proceeds from sale of property, plant and equipment 605 1,629
Purchase of property, plant and equipment (15,914 ) (17,668 )
Investments in and advances to unconsolidated entities (3,484 )
Distributions from unconsolidated entities 83    
Net cash used in investing activities (43,917 ) (98,763 )
Cash flows - financing activities:
Repayments of long-term debt and debt issuance costs (7,634 ) (7,601 )
Repayments of capital lease obligations (696 ) (716 )
Dividends paid to stockholders (9,381 ) (9,531 )
Repurchase of common stock (60,508 ) (65,775 )
Taxes paid related to net share settlements of equity awards (3,745 ) (2,637 )
Issuance of common stock under employee stock purchase plan 2,758 2,191
Payments for contingent consideration arrangements (3,298 ) (1,017 )
Net cash used in financing activities (82,504 ) (85,086 )
Effect of exchange rate changes on cash, cash equivalents and
restricted cash
(1,121 ) 1,739  
Decrease in cash, cash equivalents and restricted cash (160,192 ) (79,447 )
Cash, cash equivalents and restricted cash at beginning of year 469,388   466,660  
Cash, cash equivalents and restricted cash at end of period $ 309,196   $ 387,213  
 
EMCOR GROUP, INC.
SEGMENT INFORMATION

(In thousands) (Unaudited)

   
For the three months ended
June 30,
2018 2017
Revenues from unrelated entities:
United States electrical construction and facilities services $ 479,542 $ 449,222
United States mechanical construction and facilities services 740,657 741,817
United States building services 461,033 438,264
United States industrial services 167,147   187,476
Total United States operations 1,848,379 1,816,779
United Kingdom building services 105,507   79,158
Total worldwide operations $ 1,953,886   $ 1,895,937
 
 
For the six months ended
June 30,
2018 2017
Revenues from unrelated entities:
United States electrical construction and facilities services $ 934,294 $ 892,238
United States mechanical construction and facilities services 1,439,504 1,412,946
United States building services 915,785 878,294
United States industrial services 352,294   446,015
Total United States operations 3,641,877 3,629,493
United Kingdom building services 212,397   158,176
Total worldwide operations $ 3,854,274   $ 3,787,669
 

EMCOR GROUP, INC.

SEGMENT INFORMATION

(In thousands) (Unaudited)

 
For the three months ended
June 30,
2018   2017
Operating income (loss):
United States electrical construction and facilities services $ 35,985 $ 32,118
United States mechanical construction and facilities services 57,583 53,073
United States building services 22,430 20,237
United States industrial services 1,068   4,373  
Total United States operations 117,066 109,801
United Kingdom building services 4,601 3,018
Corporate administration (20,730 ) (20,063 )
Restructuring expenses (374 ) (343 )
Impairment loss on identifiable intangible assets (907 )  
Total worldwide operations 99,656 92,413
Other corporate items:
Net periodic pension (cost) income 717 408
Interest expense (3,457 ) (3,069 )
Interest income 634   73  
Income from continuing operations before income taxes $ 97,550   $ 89,825  
 
 
For the six months ended
June 30,
2018 2017
Operating income (loss):
United States electrical construction and facilities services $ 71,836 $ 63,152
United States mechanical construction and facilities services 97,175 93,525
United States building services 39,507 34,502
United States industrial services 4,537   21,417  
Total United States operations 213,055 212,596
United Kingdom building services 8,371 4,236
Corporate administration (42,395 ) (41,123 )
Restructuring expenses (464 ) (908 )
Impairment loss on identifiable intangible assets (907 )  
Total worldwide operations 177,660 174,801
Other corporate items:
Net periodic pension (cost) income 1,454 794
Interest expense (6,453 ) (6,140 )
Interest income 1,178   330  
Income from continuing operations before income taxes $ 173,839   $ 169,785  
 

EMCOR GROUP, INC.

RECONCILIATION OF 2018 AND 2017 OPERATING INCOME

(In thousands) (Unaudited)

 

In our press release, we provide actual 2018 and 2017 second
quarter June 30, 2018 and 2017 operating income. The following
table provides a reconciliation between 2018 and 2017 operating
income based on non-GAAP measures to the most directly comparable
GAAP measures.

   
For the three months ended For the six months ended
June 30, June 30,
2018   2017 2018   2017
GAAP operating income $ 99,656 $ 92,413 $ 177,660 $ 174,801
Impairment loss on identifiable intangible assets 907     907  
Non-GAAP operating income, excluding impairment loss on identifiable
intangible assets
$ 100,563   $ 92,413   $ 178,567   $ 174,801
 

EMCOR GROUP, INC.

RECONCILIATION OF 2018 AND 2017 NET INCOME

(In thousands) (Unaudited)

 

In our press release, we provide actual 2018 and 2017 second
quarter June 30, 2018 and 2017 net income from continuing
operations attributable to EMCOR Group, Inc. The following table
provides a reconciliation between 2018 and 2017 net income from
continuing operations attributable to EMCOR Group, Inc. based on
non-GAAP measures to the most directly comparable GAAP measures.

       
For the three months ended For the six months ended
June 30, June 30,
2018   2017 2018   2017
GAAP net income from continuing operations attributable to EMCOR
Group, Inc. (1)
$ 71,021 $ 56,776 $ 126,677 $ 109,920
Impairment loss on identifiable intangible assets (2) 907     907  
Non-GAAP net income from continuing operations attributable to EMCOR
Group, Inc., excluding impairment loss on identifiable intangible
assets
$ 71,928   $ 56,776   $ 127,584   $ 109,920
 

(1) Amount is income from continuing operations less net income
attributable to noncontrolling interest.

(2) Amount excludes de minimus income tax benefit.

 

EMCOR GROUP, INC.

RECONCILIATION OF 2018 AND 2017 DILUTED EARNINGS PER SHARE
FIGURES

(Unaudited)

 

In our press release, we provide actual 2018 and 2017 second
quarter June 30, 2018 and 2017 diluted earnings per common share
from continuing operations. The following table provides a
reconciliation between 2018 and 2017 diluted earnings per common
share based on non-GAAP measures to the most directly comparable
GAAP measures.

   
For the three months ended

For the six months ended

June 30,

June 30,

2018   2017 2018   2017
GAAP diluted earnings per common share from continuing operations $ 1.21 $ 0.95 $ 2.15 $ 1.84
Impairment loss on identifiable intangible assets (1) 0.02     0.02  
Non-GAAP diluted earnings per common share from continuing
operations, excluding impairment loss on identifiable intangible
assets
$ 1.23   $ 0.95   $ 2.17   $ 1.84
 
 

(1) Amount excludes de minimus income tax benefit.

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