EMCOR Group, Inc. Aktie

Thank you, everyone, for joining. Thanks for your patience. My name is Tim Mulrooney. I'm the research analyst here who covers EMCOR at William Blair. And I'm required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com.

This company probably requires -- I usually do a little intro for every company. This company probably requires no introduction. This is quite a full room. It seems like there's lots of interest here. The stock price is only indication of a lot of interest these days. But I was very excited. I've been following EMCOR for years. And we finally -- we started speaking with them about 2, 2.5 years ago, finally got coverage out the door because these things take forever last year. So we've only been covering EMCOR for a year, but I've been following you guys from afar with a lot of interest for a long, long time, and I'm very excited for you guys to be here.

So we have CEO, Tony Guzzi, who's been CEO now for how many years, Tony?

Long time.

Long time. Long time is the technical term. And then Jason Nalbandian, CFO. Thank you both for being here.

Glad to be here.

I'll pass it over to you guys for a couple of brief intro remarks, and then we'll dive into more of a fireside chat and maybe open it up for questions for those that have them.

Sure. So I'm Tony Guzzi, I'm the CEO; and Jason Nalbandian, CFO. We've both been with EMCOR a while. I joined in 2004 as the President and Chief Operating Officer, did a lot of the stuff then, officially became CEO in 2011. It has been a heck of a ride. Jason, CFO 2 years ago.

Yes, 2 years ago.

2 years ago. Before that, he was our Chief Accounting Officer and Controller. So we all -- we've had the privilege of working together a long time. I think this first slide is sort of we're mission ready, right? Things just don't happen. I'll give you a sort of an overview of the company. We're a company of people that actually do real work: plumbers, pipefitters, electricians, millwrights, HVAC technicians and we've been that same company this whole time. We -- I'd like to tell you, we're contractors at the end of the day. And by nature of being good at what we do over a long period of time, we also happen to be opportunistic. And we stay opportunistic to keep diversity of demand and get ahead of some of your questions.

We're not managing to any number on what percentage do we want to be data centers, what percentage do we want to be aftermarket. We're just trying to make as much money as we can every day in as many sectors as we can that makes sense, but then be able to deliver excellent results for our customers, by not outrunning what our capabilities are and the capabilities have to do with how much great field supervision and leadership we can build to be a force expander.

We've grown organically exceptionally well over the last long period of time, but especially the last 6 years. And we've done that by really 2 things, right? Project size has gotten bigger. And on some of the fastest-growing markets, we've added more geography either through organic growth, having our companies do some of that work in those fast-growing sectors when they were doing other things or acquisition and then growing those acquisitions.

As Jason, you'll hear us talk about, we're a balanced capital allocator. We tend to be pretty good acquirers. For me, that means we're a good BB+ student. No one is an A student in acquisitions. It's just hard, right? And you have to do them right and you have to have cultural alignment and great execution in the field. I think over time, we've been a compounder of success. We don't chase fads.We execute well and do what we say we're going to do for our customers. And I was telling somebody today, when you think of all these large jobs, we've never not finished a job. Sometimes it's not great at the end, but we've never not finished one, but we finished other people's work more than once. And I think that's a great sign of our customers' confidence.

I'll get into a couple of slides here. This will be real quick at least of time. So our new guidance is out there at $18.5 billion to $19.25 billion. That's up from what we started the year. And why is it up? Because we've surprised ourselves on the revenue side, we had the margins about right.

We had record RPO growth. These are record level RPOs, which means for us, remaining performance obligations, a measure of backlog. That is actually the accounting measure of backlog remaining performance obligations. This is work that's contracted in hand or the noncancellable portion of our service agreements, which means if we have a 5-year service agreement, they can cancel in 60 days, only 60 days' worth of RPOs are in there.

We're not taking guesses on what we're going to do for a customer or any of that. Our guidance has also increased to $28.25 to $29.75. We expect to do greater than 80% cash flow conversion this year. And we have about 47,000 employees, about 70% or so or a little more are in the field doing real work, turning wrenches or working for them and supervising. Look, we're mechanical, electrical, fire protection contractor and a maintenance contractor on top of that and we apply in different sectors, right? Mechanical, full range of piping from small bore piping to the biggest pipe you can imagine.

Air conditioning, we'll do the service on a 20-ton rooftop as well as a 5,000-ton chiller plant. We'll replace a 20-ton rooftop or we'll design, build, replace a chiller plant for a large hospital complex like down the street here. Fire protection for us typically means sprinkler for the majority of it. We also do alarm and detection. We do electrical work. We are mainly a medium voltage contractor, which means inside the wire outside the substation, we do substation work. And we have a small T&D business, and we have a nice size low-voltage business.

Security and power generation, we're not doing EPC power generation work. We're typically doing balance of plant work. We're a nonres construction company. We typically grow in our construction businesses. Jason will talk -- we can talk about it in the question and answer, 600, 700 basis points, 800 basis points above nonres. In our building services where the mechanical services business is 75% of what we do. In that business, we're doing 500 -- I mean, 300 or 400 basis points. And in that business, that's the best proxy for what's going on in the other market besides high-tech manufacturing and data centers.

We're getting 72% of our revenue in electrical mechanical construction, 21% building services. And again, 70% plus of that building services revenue is in mechanical services, which is a high single-digit ROS business. And then the balance is industrial services. Important here, we do a lot of industrial service work or construction work, up in construction services. This is the oil and gas business and a little bit of our renewable energy or intermittent energy business. That's 7% of what we do. You can see I talked about there in the interest of time, I'll move on.

And we're geographically diverse. We still have some white space we fill in. We also can do platform-enhancing acquisitions, which means build more mass in a market. We'll do everything on the acquisition side from a couple of million dollar asset deal to Miller, you saw us do last year at $865 million. We operate through 100 operating subsidiaries. We have some very large ones in there and then some smaller service companies. 450 locations in the U.S. Fire life safety, we can cover the whole country. The bottom line is representative of some of our subsidiaries, our larger subsidiaries.

With that, Jason, I'll turn it over to you.

Yes. Thanks, Tony. I think this page here really highlights what Tony just discussed about our diversity. And there's a number of ways you can look at it. You can look at it by just service line or service offering, which is really represented in the pie chart on this page or you can look at it from an end market exposure perspective, which you can see in the bar charts. And either way you look at it, EMCOR's demand does remain very broad-based. I think if we quickly look at service lines and Tony touched on some of this a little bit, at a high level and just using round numbers, we're about 40% mechanical construction, about 1/3 electrical construction, about 20% building services. And as Tony said, that's predominantly mechanical services and maintenance and then less than 10% Industrial Services, which again, as Tony mentioned, is really our exposure to the oil and gas sector.

If you look at the market sectors, so again, that right-hand side, those bar charts, you can really see how we're positioned across a number of markets in the broader nonresidential construction space. And it's our positioning in these markets that have really led to some of our growth over the last several years. I kind of bifurcate these sectors into 2 groups. So 1 is what I call the high-growth sector. So I think what we call network and communications, which is really data centers and then high-tech manufacturing, which is really led by semiconductor, biotech and life sciences.

Outside of those sectors, we have a number of core sectors that we've been in for decades, that are really staples of EMCOR, traditional manufacturing and industrial, health care, water and wastewater and even institutional. And like I said, it's really our positioning here that's allowed us to grow the way we have. If you take just a 5-year look at the business, our revenue CAGR is just over 14%, and that's really including acquisitions, really growing 2x the broader nonresidential construction market. And I do think that's just a testament to where we've positioned ourselves and where our operating companies are located, both geographically as well as in these sectors.

If you look at this next page here, supporting our growth really is our commitment to balanced capital allocation. And Tony touched on this as well. But if you look over time, we have a near 50-50 split between business reinvestment. So think M&A and CapEx as well as shareholder return. And for us, that's both through dividends and share repurchases. And we remain committed to this philosophy as we move forward. Our approach always starts with organic investment really how can we make sure that our existing or 100 operating companies can perform as best as they can and be as productive as they can, be as efficient as they can. It's making sure they have the right tools and the right resources.

And you can see that in some of the investments we've made recently in prefabrication, virtual design and construction tools and other digital technologies. Also in recent years, some of our organic growth has come from geographic expansion, looking at adjacent or new geographies and saying how can we position some of our best operators in those geographies to capitalize on demand.

Besides organic growth, we do look towards M&A. We're really looking to bolster our core capabilities and our existing trades. We're looking for geographic expansion. And for us, M&A can be stand-alone strategic acquisitions or they could be smaller tuck-in deals, which really bolster existing capability.

If you just look at 2025, for example, we did 10 acquisitions, 2 of those being Miller and Danforth were stand-alone businesses, while the other 8 were really tuck-ins that enhanced our existing presence in some of our geographies. Acquisitions will continue to be a part of our growth strategy. I think we have a fairly robust pipeline where we sit here today. But as Tony says, deals happen when they happen. And so our guidance today is really just based on organic growth.

Beyond M&A, if we have excess cash, our last priority or one of our priorities is to return capital to our shareholders. And as I mentioned, we're doing that through both dividends and share repurchases. We recently increased our dividend by 60%. It's now $0.40 per quarter. And on the share repurchase side, we've remained very active over the last several years. In the last 2 years alone, we repurchased $1.1 billion worth of our shares, and there's $593 million remaining on our current authorization on the program.

Okay. How we win? I think the top left people, talent and developing that talent. I think our core product is actually great field leadership. And I would take our development programs our sense of purpose, the way we run the company, our Mission First, People Always and the operating model that has, I think that's the one part we may be superior to everybody else.

I think technology differentiation. We're never on the bleeding edge of technology, but I would say we stay on the cutting edge, and that's the VDC tools, the engineering assist tools, the ability that flows out into our prefabrication/modular and the different centers, we're typically doing that for EMCOR in our companies. I've always been a believer in a strong balance sheet. It's one of the ways we compete. We have a fair amount of bonded work out there of about $2 billion. And think of the customers we're actually working for, they value that a great deal.

And finally, you got to hang in there. We've been doing this a long time with great success. We haven't become a data center builder in 2019. We became a data center builder in the early 2000s. We haven't become a semiconductor builder and a fab plant builder when the CHIPS Act and TSMC and other people came, we were doing that work well back in 2005, 2007. We have long track records. And because of the how we work together as a team, we can expand that track record across the country when we have the capability to do that. Tim, I'll turn it over to you.

All right. Thanks here. Let me -- actually I wanted to go back a slide. How do you go back? Looking at share repurchase year-to-date in 2026, you guys are -- I mean, you did that heavy share repurchase in 2022 right before the stock price shot up a lot. I mean, is it fair to say you think shares are undervalued here?

I wish we were that smart. Part of it is just balanced capital allocation. We're trying not to buy at peak. So there's some of that. But it's just a balanced way of doing it. You're only early in the year. We have a good pipeline of acquisitions. We'll see how the year turns out.

Okay. Yes. That's -- I'll get to that. I was going to ask -- maybe I'll ask about the M&A now. I mean you've got a lot of cash on the balance sheet. You've got no debt. Danforth closed. Miller is integrated. What is your appetite for M&A as we move further into 2026?

We've always had a strong appetite for M&A. But we're also very disciplined. We don't tend to just want to make deals to make deals. We have to believe it's compelling. Look, we do a lot of the tuck-in stuff, that's extraordinary value for all our shareholders. When you're doing something like a Miller or even a Danforth that's larger, big footprint, you really got to make sure that the culture and the values they run their company are the same as yours. You're taking a big thing into your company organization-wise. We always start with all our acquisitions. They got to be able to execute in the field. The reality is we can't fix that reputation. And we're not going to burden ourselves with somebody else's bad reputation. Our appetite is we used to say that we'd be willing to leverage up our balance sheet by 2.5x EBITDA to do a deal.

Good luck.

Yes. We're not going to -- there's not a $3 billion, $4 billion deal out there likely, but there could be a series of deals that are sort of $100 million to $500 million, give or take. And the reality of good companies, they sell in good markets. It's been my experience over a long period of time and bad companies or financially challenged companies sell in bad markets. Anybody that has a good company is not selling it into a bad market, they'll just wait.

So I expect there'll be a lot of activity, but we're very careful. We usually don't participate in the broad based. Every private equity firm can come with a staple and their main value enhancer is they can put debt on a company. We don't try to compete with that nor do we want to. We're usually or never, I should say, going to buy a company that's on a [ fifth ] PE buyer and now they want to find a strategic chump. We're not that guy either.

Do you see that in this market?

Of course, you do. And there's other people that are the strategic chump. And we're not going to be -- what we like to do is a Miller, great company, Danforth, great reputation. People we've talked to over a long period of time, the timing is right, either through something that's going on with their succession, their ownership structure or they want to get to the next level of growth and they're thinking about the capital structure and what it will take to do that, and they said, time to look for the right partner.

I think in those cases, both of them, we were the destination, and it's our job to get to a fair deal so that we can make us the destination. I think there's more than a few companies out there that that's true for. And really, the last 3 significant sized companies we've done, Batchelor & Kimball, Danforth and Miller and you can throw Quebe in there, too. They all had that criteria. We want to be with you. We got to make a fair deal. And look, I'm not looking for a bargain, to be honest with you. It may turn to look out like one because of how they perform when we team up. But we're not looking for them not to make a good deal for their current shareholder base because ultimately, that's not a good thing either.

You want them to feel great about the deal. And when we do a deal, what's interesting about us, a lot of people, all these great acquisition plans, you're going to come in there and you're going to get so excited to be part of EMCOR. I could do that until I'm blue in the face. Person who's going to get them excited to be part of EMCOR is Henry Brown, the guy that they worked for forever at Miller. It's going to be [ Robert Beck ], right? And the folks at Danforth, Pat McParlane. So that ownership team or that leadership team, in the case of an ESOP have to believe every bit of their fiber that this is the right thing for their organization. And then the integration becomes really successful.

If Jason or I are the one selling it still to the people that we just acquired, that's a lousy deal for us. We will come in and do that later. But the first initial tranche of that, and that just tells you how we think about things, is that management team has to be excited about what we can do together to grow the company.

Okay. Okay. That's helpful. Maybe now we'll pivot away from capital allocation and M&A, and we can go to organic growth, which I think is where there's a lot of questions. I mean, your guide -- what's your guide for this year, 12% to 13% -- what's your guidance?

It started about 9% to 10%.

Percentage increase, you're saying?

Yes. Percentage increase.

Round numbers, 9% to 13%.

9% to 13%. Okay. All right. I had, all right, 9% to 13% round numbers for organic growth. And if I'm going to break that down in between volume and price, I'm curious about that. And the reason I'm curious about that is because one of the big questions we get from a lot of people are the constraints on growth of the business. How many people you can add as I think about that as a proxy for like your volume. But I also know that there's a lot of -- I mean, maybe you have some more price inelastic customers right now that are just more focused on getting the infrastructure built. So would be curious on how to think about, yes, this year, but also like going forward, how we think about that breakdown between price and volume?

I think this year is very much volume driven. And then you see that when you look at our guidance, where our margins are relatively consistent year-over-year with what we did in '25 in terms of our guidance. And a lot of that is mix driven. And so when you say what is really driving then our growth, it's volume.

So that's interesting. I would have actually guessed it was a little bit more price.

Well, the reason it maybe not show up as much price. We're getting price in some markets. But it comes back to the mix of contract structure. And we're still heavily weighted towards fixed price. But in our construction business, specifically mechanically, we'll be more heavily structured in even some of the electrical markets because of the designs. We're more structured towards GMP, which by its nature has less margin upside because of a full cost disclosure.

And the reason -- there are certain owners that only go that way, especially on the mechanical side, coupled with -- I think the reason that's driving part of that is the AI build-out. There's a little more unknowns there on how that construction is going to play out and what changes are going to come versus the cloud, which for us is very much a fixed price market. But even there, one of the big builders still does the mechanical systems, GMP.

The other mix element we have this year, and we talked about this a little bit on our first quarter earnings call is some of our other sectors are starting to grow stronger than they have in the last several years. Water and wastewater is a great example. The food processing work we do within the manufacturing and industrial sector is another example. Both of those opportunities for us are a little bit unique in that there's more equipment content. There's a little bit more subcontract components to it. So our markups are just inherently less on some of that work. So that mix as well is driving demand, but it's diluting margins a little bit.

And I think it's always important to remember who we work for in all those cases. So we're in the water and wastewater market, it's public bid. We either got it right or we didn't. And other than capability requirement which may narrow the competitive field, we're not in there negotiating price.

In the food processing, we are, but we're going against the capital budget over a number of years. Some of these facilities, we've done all the -- some of these owners, we've done all their build for 5, 6 years. And so we really don't want to let them think that we're not treating them the right way and we sort of know what we have to hit based on what their capital budget is.

When you get to the high tech and the semiconductor and the data center space or even pharma space, these are really sophisticated buyers. And I sometimes chuckle when I hear some of my competitors CEOs talk about this great price leverage they have. I'm not sure that's 100% accurate because in contracting, it's very difficult to separate price. Price is maybe not as important as good contract terms. Prices maybe not important as being able to release your contingency at the end of the job. But when you release your contingency at the end of the job, it comes back and looks like price. The contingency was there for a reason. You thought that job was going to be fairly tough. And at the end, you did a little better. Maybe your prefab plan was better, maybe your labor productivity was much better, but it cuts the other way, too.

Sometimes you're on a fixed price job, you don't have enough contingency. We certainly saw that on a job we had last year. So it's our job to figure out the mix between contract structure with the owner, which is the more risk you take, fixed price, the more you have the margin opportunity versus what we're building versus the scope of that work versus the change order mechanisms that we think it's going to change a lot versus our ability to get in early and help complete the design through design-assist. And so the reason Jason says a volume game here for us this year is -- and also within that, it allows us to grow in new markets and with new customers, if we're willing to sort of do a little more GMP work this year.

And I think we're at the point now where margin dollars are more important than margin percentages. And going back to the growth point, the organic growth point, I guess I've been using this example and some of you have heard it, stick with me here for a minute. Miller Electric, a hugely successful company, one of the flagship electrical companies in the country. We bought it, let's say, give or take, it was on track to do $1 billion. It took them 77 years to do that. Great contractor.

Danforth, leader, upstate New York goes down to Ohio a little bit, done some of the biggest work from sort of Albany down over and even into the Northern Tier, Pennsylvania. 133 years to get to $410 million. We're on a 9% to 13% organic growth. Let's just take the -- give or take the midpoint on that versus last year. We're going to grow in excess of what took them 210 years to do. And so every year, we're doing that, we're creating another ENR top 10 contractor. And so you get to the resources on that. Our constraint really is not skilled labor in the field. We do a pretty good job finding that where, I think, of course, everybody up and down the hall, I'm a destination employer, whatever that means.

What we have to be is the destination employer or the destination for people that want careers, that we can develop the best foremen, project managers, superintendents, estimating chiefs. And I think if we can do that, which I think we have a pretty good track record and we can get retention there, which we have great retention there, then that allows us -- because the amount of work we're doing in the larger jobs, it allows us to expand that workforce which allows us to take more work, which allows us to make sure we are the contractor that's going to finish the work we started and do repeat work with them versus be the contractor that also finishes that work for other people.

So that supervision is what we're trying to grow because if that's supervision is as good as I know it is, they will attract the best trades people in the market, and there'll be more people that want to build a career for us versus come and do a project for us. And we'll always have both. It's like a meaningless number is what's your turnover for your field labor. It's high. Everybody's is high. What we're trying to do is build that core workforce under that turnover that allows us to build that supervision, the journeymen and all the things we need to do to be successful for the long term.

I hear you guys talk about how the bottleneck is more on the field leadership, which is interesting because if you listen to almost all of your other competitors, the bottleneck is on the workers themselves, the electricians, plumbers, HVAC folk, welders, like it's the core trades people. Why is that not a bottleneck for you? Why do you think it's less of a bottleneck for you than others?

We [ don't ] have self-directed workforces. So if you can't get the right leadership in place, if you can hire all the trades people that you want, it doesn't matter. You have to have people that actually know the means and methods and can keep them safe. And we have good competitors. They're good publicly traded competitors. It's on the union side, right? Our job is to work with the union to grow that local workforce and then have the classifications we need to be able to convert nonunion to union and be able to take people from other trades and upskill to our trade, right? If it's a nonunion business, we run a little bit of one, we don't -- we're not in the labor broker business. We're not hiring somebody else to hire people for us. We're hiring people to work for us.

I just think long term, like most things, right, I can have an idea how I can develop the leadership. Developing that workforce under the leadership becomes a much more difficult thing if I don't have the right leadership.

And I think that leadership of that supervision is where you get your productivity, your efficiency and some of the margin gains...

It's also how we can share across the company. It's how we can take our great industrial contractor here that we had in Gary, Indiana, and get them to move the South Bend to a new data center and have the guys from Chicago train them because the leadership trust each other that they're going to execute for our core customer base.

So you could say it's a chicken or an egg thing. The reason I don't talk about finding the skilled trades is difficult because if I don't have the skilled leadership, I will have people out there that are clueless on how to get productivity means and methods and everything else and keep them safe. So we are much more focused on the foremen and up.

Got you. Okay. Just in the last minute or so here, I did want to ask about data center. I mean, it's an important growth market for you. I'm just curious how that has changed. I know you're still entering new markets, but is the way that you are going to market, is the way that your contractors are interacting with the customers or the way that you're interacting with the customers, is that changing? Has it changed?

I think it's changed a lot in the last 5 years. The owners have always been very evolved in any hospital data center project, high-tech manufacturing and manufacturing job. The difference is the breadth that they know our people, right? These big builders and 20 or 30 people in each one of those big builders really know the depth of our leadership at the lower level, the hyperscalers, and that's different. And what they want from us is different.

Now we're very careful not to overcommit or tell them, hey, we're exclusively with you because at the end of the day, who are we? We're contractors. We have to manage our capacity with the best opportunity for margin long term and the best ability to get the job done so that we can keep doing it for other people. I mean, how you really make money in contracting is not to lose money or disappoint your customers. That's how you really make money in contracting long term.

A perfect way to end. I hope to see you all at the Maher breakout room. Thank you, Tony and Jason.

Good morning. My name is Cindy, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group First Quarter 2026 Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Lucas Sullivan, Director, Financial Planning and Analysis. Mr. Sullivan, you may begin.

Thank you, Cindy. Good morning, everyone, and welcome to EMCOR'S First Quarter 2026 Earnings Conference Call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at emcorgroup.com.

With me today are Tony Guzzi, our Chairman, President and Chief Executive Officer; Jason Nalbandian, Senior Vice President and Chief Financial Officer; and Maxine Mauricio, Executive Vice President, Chief Administrative Officer and General Counsel. For today's call, Tony will provide comments on our first quarter 2026 and discuss our RPOs. Jason will then review the first quarter numbers, then turn it back to Tony to discuss our guidance before we open it up for Q&A.

Before we begin, a quick reminder that this presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these 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.

And finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-Q filed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony?

Yes. Thanks, Lucas, and I'm going to start my discussion on Pages 3 and 4. Good morning, and thanks for joining us today. I'm pleased to report another outstanding quarter for EMCOR. Our first quarter 2026 results demonstrate the sustained momentum we have built over many years with strong execution across our business segments, and continued growth in our core market sectors and geographies.

In the first quarter, we generated revenues of $4.63 billion, representing year-over-year growth of 19.7% and organic growth of 16.8% when adjusting for incremental acquisition contribution and the sale of EMCOR U.K. Operating income reached $404 million, with 8.7% operating margin, while diluted earnings per share of $6.84 represents an increase of 30% versus the first quarter of 2025. This reflects our strategic positioning in high-growth markets and operational excellence across our construction and services platforms.

These results demonstrate our customers' continued confidence in EMCOR as one of their partners of choice for complex mission-critical projects. Our Construction segment once again performed extremely well in the quarter. The Electrical Construction segment generated year-over-year revenue growth of 33.1% with a 12.1% operating margin, while the Mechanical Construction segment achieved 28.9% revenue growth with a 10.9% operating margin. This performance reflects the range of our capabilities across both trade and geographies.

It also takes into account increased customer scope and our reputation as one of the premier specialty contractors for complex, fast-paced projects. Our Construction segment's growth was driven primarily by increased activity in network and communications, which is where our data center business rests. Institutional, manufacturing and industrial, health care and water and wastewater market sectors.

Within our Mechanical Construction segment, we also benefited from increased commercial market sector revenues, driven primarily by the resumption of demand for warehousing, distribution and logistics projects. Our teams continue to leverage our prefabrication and our virtual design and construction capabilities, excellence in labor management and planning, large project coordination and execution and a disciplined focus on contract negotiation, administration and the adherence to those terms.

The U.S. Building Services segment delivered solid results, led by impressive performance in our Mechanical Services division. While we still face slight revenue headwinds within our site-based business, we've begun to see the benefits of the restructuring on the cost side, which reduced overhead costs, and we have a more profitable contract portfolio mix.

Our Industrial Services segment generated revenue growth of 6.4%, and that was driven by our Field Services division. Now I'm going to turn to Page 5. Our remaining performance obligation positions strengthened significantly during the quarter, providing excellent visibility for sustained growth. Our RPOs totaled $15.62 billion at the end of the quarter versus $11.75 billion in the year ago period and $13.25 billion as of December 31, 2025. This represents year-over-year growth of 32.9% and sequential growth of 17.9%. These diverse RPOs reflect continued strong demand across many market sectors, with particularly robust activity in Network & Communications or data centers, where we continue to expand our geographic footprint and scope of services to better serve our customers.

We see no sign of slowing demand in this vertical, where customer investments in AI infrastructure, cloud infrastructure and overall digital transformation are driving unprecedented levels of activity. We are pleased with the quality and diversity of our work booked outside of the data center space, including the notable awards within water and wastewater as we continue to win new projects in Florida; institutional, driven by demand for upgraded live space by certain colleges, universities; and health care as our customers continue to modernize their facilities while seeking to make them more flexible and responsive.

The strong operational and financial performance I've outlined demonstrate the effectiveness of our strategic initiatives and the depth of our execution capabilities. Our teams continue to deliver exceptional results for our customers while maintaining disciplined financial management and operational excellence and continued good contract negotiation and adherence to the contract terms we negotiate.

With that context, I will turn it over to Jason, who will provide a detailed review of our first quarter financial results.

Thank you, Tony, and good morning, everyone. Starting with Slide 6, which shows revenues. I'm going to cover the operating performance for each of our segments as well as some of the key financial data for the first quarter of 2026 as compared to the first quarter of 2025.

As Tony mentioned, revenues of $4.63 billion established a quarterly record for EMCOR, increasing 19.7% or 16.8% on an organic basis when excluding acquisitions and adjusting for the sale of EMCOR U.K. Revenues of Electrical Construction were $1.45 billion, increasing just over 33%. This segment generated increased revenues from the majority of the market sectors we serve, with the most significant growth coming from Network & Communications, where revenues increased by nearly 50%, driven by strong demand for data centers.

While this accounted for 2/3 of the segment's growth, we did experience notable revenue increases across a number of other sectors, including hospitality and entertainment due in part to progress made on a stadium project and institutional as a result of certain public sector projects. In the quarter, our Electrical Construction segment also benefited from greater levels of short duration projects and service work.

Mechanical Construction revenues of $2.03 billion are up nearly 29%. Similar to Electrical, this segment once again experienced the greatest growth from the network and communications market sector where revenues increased by 86%. Increased cooling requirements and advancements in liquid cooling, particularly for AI data centers continue to drive opportunities for this segment.

Beyond data centers, Mechanical generated quarterly revenue growth from the majority of the other sectors in which we operate. Notably, institutional revenues doubled year-over-year manufacturing and industrial, including food processing, was up 34% and commercial increased by 33%, driven by warehousing, distribution and logistics projects, largely within fire protection.

During the quarter, this segment also benefited from increased service revenues as we continue to expand our maintenance and inspection base, both within traditional mechanical services as well as our fire life safety offerings. On a combined basis, our construction segments generated revenues of $3.47 billion, an increase of 30.6%. I should note that this performance established new quarterly revenue records for each of these segments.

Moving to Building Services. Revenues of $772.6 million grew by 4%, driven by our Mechanical Services division, which generated a 6% increase in revenues. From a service line perspective, the most significant growth was seen in repair service, service maintenance and building automation and controls.

Revenues of our Industrial Services segment were $381.8 million, an increase of 6.4%. The greater contribution from our field services operations due primarily to progress made on a large solar project was partially offset by a reduction in revenues with our shop services division due to lower heat exchanger sales and related services.

I'll turn to Slide 7 for operating income. We generated operating income of $403.8 million or 8.7% of revenues both of which are records for EMCOR for a first quarter. This represents an increase in operating income of 26.7% and operating margin expansion of 50 basis points versus the prior year. When adjusting for the acquisition transaction costs, which were incurred in Q1 of 2025, operating income grew by 23.1%, and operating margin increased by 25 basis points.

Once again, if we look at each of our segments, due to the growth in revenues, operating income for Electrical Construction increased by 28.2% to a quarterly record of $174.5 million. Operating margin of 12.1% compares to 12.5% a year ago. With consistent gross profit margins, this segment continues to execute well across its project portfolio with the year-over-year decrease in operating margin, primarily resulting from an increase in intangible asset amortization given the 1 month of incremental expense from the Miller acquisition.

Mechanical Construction had operating income of $221.6 million, an 18.7% increase. From an end market standpoint, this segment generated greater gross profit across many of the sectors in which we operate with the largest increases generally tracking in line with the growth in its revenues. Operating margin of 10.9% compares to 11.9% in last year's first quarter.

As we anticipated when we exited 2025, operating margin in this segment decreased due to a shift in mix that included a greater percentage of revenues from projects where we're acting as either a construction manager or a prime contractor and which inherently carry lower-than-average gross profit margins due to reduced markups on materials, equipment and subcontractor costs.

In addition, we had an increase in the number of GMP or cost-plus projects, particularly in newer geographies or on projects where scope or design are still evolving. Together, our construction segments grew operating income by nearly 23% and earned a combined operating margin of 11.4%. Building Services generated operating income of $40.4 million, which represents an 11.1% increase and operating margin of 5.2% expanded by 30 basis points.

This segment benefited from strong performance within its Mechanical Services division, which experienced a favorable mix, given the greater volume of higher-margin service and controls projects. Also, as Tony mentioned, while we do face some headwinds within our site-based business, the restructuring we did last year has proven to be successful, resulting in both reduced overhead costs and a more profitable contract portfolio. And lastly, operating income for Industrial Services was $12.8 million, an increase of 89.1% and operating margin of 3.3% expanded by 140 basis points.

As a reminder, and contributing to the favorable year-over-year comparison, the results for this segment in last year's first quarter were negatively impacted by a $4 million increase in the allowance for credit losses which negatively impacted operating margin for Q1 of '25 by 110 basis points. Excluding this impact, the remaining increase in operating income and operating margin was primarily a result of greater gross profit and greater gross profit margin within its Field Services division.

If we quickly turn to Page 8. I'll cover a few items not included on the previous slides. Gross profit of $864 million increased by 19.5% and our gross profit margin of 18.7% remained consistent with that of the prior year, which represents a record level of performance for a first quarter. SG&A was $60.1 million or 9.9% of revenues compared to $404 million or 10.4% of revenues a year ago. With the top line growth we experienced during the quarter, we are pleased with the operating leverage we attained as evidenced by the decrease in our SG&A margin.

And finally, on this page, diluted earnings per share was $6.84, which represents an increase of 30% or 26.4% when excluding the transaction costs in last year's first quarter. And finally for me, let's turn to Slide 9, which covers our balance sheet.

Our balance sheet, including $916 million of cash on hand and $1.25 billion of working capital remains strong and liquid and enables us to continue to fund organic growth, pursue strategic M&A and return capital to shareholders. During the quarter, we returned $105 million of cash to our shareholders through stock repurchases and our quarterly dividend. Although not shown on this page, due to an increase in accounts receivable, given our strong organic revenue growth and coupled with the payment of the prior year's incentive compensation awards, cash flows from operations in the first quarter were essentially neutral. However, for the full year, we remain confident in our ability to generate operating cash flow at least equivalent to net income or up to 80% to 85% of operating income consistent with previous years.

With that, I'll turn the call back over to Tony.

Yes. Thanks, Jason, and I'm going to be on Pages 10 and 11. Given our strong start to the year and the strength of our remaining performance obligations, we are raising our full year 2026 guidance. We are increasing our revenue and diluted earnings per share guidance to a range that reflects our confidence in the sustained operational excellence that we have exhibited and strong market momentum. .

Such guidance reflects the demand that we are seeing and our success of winning and executing large-scale projects across many geographies and market sectors. We now expect to earn revenues between $18.5 billion and $19.25 billion and diluted earnings per share of between $28.25 and $29.75. As a reminder, EMCOR's business is characterized by project cycles and timing that can create quarterly variability. However, our guidance reflects our current expectation of continued strong operating margins throughout 2026, supported by disciplined project selection and execution.

We are focused on maintaining pricing discipline while delivering exceptional value to our customers. Our sustained success is built on focused execution across a number of key priorities that differentiate EMCOR and position us for continued growth. I'm now going to highlight 4 of them. The first one is our training, peer learning and our productivity initiatives. We continue to leverage our training programs, our virtual design and construction capabilities, prefabrication facilities and capabilities and advanced project planning and delivery methodologies.

We are committed to improving our means and methods every day, sharing knowledge across our organization and investing in workforce training, retention and expansion. Second item is a contract management discipline and negotiation. We deliver exceptional results for our customers. However, we do protect our rights and interests through careful contract management, negotiation, particularly on complex fast-paced projects. Third, we're known for field service -- field leadership excellence. One can argue that is our core product.

Our field leadership excellence from frontline [ foreman ] and superintendents to project managers and executives and subsidiary and segment leaders make EMCOR an employer of choice in our industry. And finally, supporting all of that is our commitment to invest with discipline and for the long term. We maintain a disciplined approach for how we grow organically and through acquisition. This, coupled with a return of cash to shareholders through dividends and share repurchases has provided the foundation for our compounding record of success over the past decade and provides balance to our approach to capital allocation.

These interconnected priorities create a sustainable competitive advantage that drives superior, durable performance across many diverse geographies and market sectors. The fundamentals of our business remains strong with sustained demand across several key market sectors, we will continue to always face macroeconomic challenges. In fact, I can't remember a time when we haven't had them, such as geopolitical events, rising commodity prices, but our team has consistently demonstrated the ability to navigate complexity and continue to deliver results.

Our success is a direct result of their dedication, their resilience expertise, which results in executional excellence from our teammates across the organization. I want to thank every member of the EMCOR team for their contributions to our outstanding first quarter performance and over the long term. And for everything you do to serve our customers, keep each other safe, and drive our success every day. Thank you for your time this morning. We will now open the line for questions. And Cindy, I will turn the call over to you.

[Operator Instructions] Our first question comes from Adam Thalhimer of Thompson, Davis.

Congrats on the strong Q1 and the record orders. I guess I wanted to start on the book-to-bill and orders. I mean, I think at 1.5x that was a record book-to-bill for you guys. And Tony, you broadly talked about the pipeline, but I'm just curious if you can give more detail on the pipeline and what the expectation should be for orders for the rest of the year?

Well, I think I'd go back to something I said in our book, right? Orders come when they come, projects come when they come. There's variability quarter-to-quarter both on bookings. And when projects start, when they close, and what the pace of contracts are. So you know I'm not going to tell you what I see for orders for the rest of the year other than to say this.

We continue to see, and I said it in my script, we continue to see no slowing of demand, especially in data centers and really across other key market sectors. I don't think we surprised by the demand we're seeing in water and wastewater in Florida, and we're winning a little more maybe than we thought we would. I don't think we're surprised by the demand -- continued demand over multiyears in health care. We continue to see a strong manufacturing and industrial business.

I mean projects can come in there a little lumpy. And then it can also come in smaller task orders thereafter. I think the market has surprised us the most over the last 6 to 9 months or 2 to 3 quarters has been the institutional market. That has shown more resiliency than we would have thought. But I think that's a result of the market positioning we have in some key markets with some universities that are spending money.

I also think that we weren't surprised by the resumption in warehousing and logistics and the transportation network work that we're seeing and return in the commercial market sector of that because we could foresee that based on the customer spending patterns. I would say right now, we will continue to grow in excess of nonres like we have historically pretty significantly. And we will continue to win important new projects and penetrating current geographies we are and investing in new geographies, even if they may seem adjacent across the data center space.

One area I'd always remind people, because I know the question is coming about high-tech manufacturing. I think that's a market of choice for us. We are well positioned in several key markets, especially in the Mountain West and in Arizona, and we're positioned there specifically across the trades of fire life safety and mechanical and some electrical. And we have the ability in other markets to serve specialty fire life safety in just about every high-tech market that exists.

We look at that as a flex market. They can be very difficult customers to work for, in some cases, especially in the semi market. And sometimes, we're making a mix management issue within the geographic market to maybe serve a larger data center campus that maybe go after the next semiconductor fab.

But again, we feel good about demand right now. Spending patterns remain and things are pretty much unraveling for the year, much like we expected. We're not chasing margin percentages right now. We're much more focused on growing margin dollars, which is what you actually spend and invest for the long term.

That doesn't set me up well for my next question, which is on margin percentages. But so high level -- that was great color. But high level, I did want to see if I can get at the margin potential in the back half? And maybe a way to do it is just Jason, I mean, you ran through a bunch of issues that impacted you in Q1 in terms of markups and mix? And maybe you can just talk about how those issues play out as the year unfolds.

Yes. I think we said this exiting last year, and I think it still holds today. But if you look at that guidance range we provided, we do have some lower margin scenarios in there, which anticipate a changing mix. I think we believe execution is going to remain strong throughout the back half of the year, which gives us the opportunity to replicate last year's record margins at 9.4%. So I think some of these mix dynamics will remain with us throughout the rest of the year.

I also believe what we've said kind of over the last several quarters and looking at kind of a rolling 12- to 24-month average, I think that holds true. Just understanding it's going to fluctuate quarter to quarter just based on that mix as you kind of saw in mechanical this quarter. But I think the fundamentals to hold, and I think really no significant change from what we said year end.

Yes. And I think I'm always careful of false precision. We give a range for a reason. Could we be on top of that range a little bit, but it's not going to -- we don't think substantially at this point. They would take something an execution that we're not seeing right now or we take a booking that happened in year that had to be done very fast at superior margins. So we have a pretty good handle on what our mix looks like.

And I think that's one of the things that's a little bit different than us and some other folks. Some of these companies are becoming one market companies. We are diverse by nature because of the geographies we serve and some of the companies we have that are earning very good returns that have nothing to do with data centers. And we do a little better in the data center market. We do on a margin percentage, but we should.

These are fast-paced jobs. They require a very strong dedication of our resources. And look, they come with risk, right? I mean at the end of the day, we're always balancing contract risk versus execution versus type. And sometimes that leads us to take a contract structure that may have inherently lower gross margins, but on a risk-adjusted basis and then it could lead to follow-on work that comes in a fixed-price way, which will then allow us the opportunity to grow margins over time. But we feel good about where the margins are on a year-to-date basis. I think the year started out pretty much like we thought, which quite frankly, just stronger revenue than we expected. And we're winning in markets right now and that feels really good.

The next question comes from Brian Brophy of Stifel.

Yes. Nice quarter. Tony, you touched on my question at the end of -- end of your last answer in terms of potentially shifting some of this mix away from GMP to cost plus -- excuse me GMP and cost plus to fixed price over time. I guess help me understand, is that kind of a deliberate decision on your guys' part to start off with maybe some lower risk structures in these new geographies? And I guess, what is the -- what's the needle mover. What needs to happen for you guys to potentially move these to more fixed price and increased opportunity for higher margin over time. Is it just you guys need to get comfortable in the new geography? Or is there something else?

No, look, first of all, it's not only our decision, right? Some of our customers prefer to operate in a GMP mode because they anticipate they're going to have a fair number of change orders and they want to get started on the job. So it's not only our decision. When it is our decision, I think you outlined it right. We have to get comfortable that we know the pace of build and the cost. I mean I'll just remind folks of last year, right?

We had a -- I hate to always bring up bad news, but this is why we're in the -- how we have to think about the business we're in. We were in a market that checked 3 of the 4 blocks other than it was relatively new for the size we were trying to build. And at the end of the day, we took a fixed price. We didn't get the acceleration change order quite what we thought we should price it right and therefore [indiscernible] So that didn't make us shy away from fixed-price work. But it shows you when you don't get it right, you own it.

And so contract structure is not only our decision, it also comes from our owners. And we typically work together. Now I think most owners if we think we have a good handle on what it looks like, and they can get a fixed price that looks like it can fit their budget, and it takes away all the auditing and contract stuff that goes with a GMP contract they're more than happy to move away.

The other variation on that is we can get 50% into or 60% into a GMP job, we both feel comfortable with we've locked in cost and scope and therefore, we will change it to a fixed price contract. So I'd like to tell you there's 4 or 5 variables here that variables could be up to 6 to 12 of contract administration and structure. And ours is always towards the best outcome for us and our owner and also the best risk-adjusted outcome. Jason, you got anything to add on that?

Yes. I don't think anything has changed overall in terms of our appetite for fixed price work or what we see in terms of the market and our customers. I think it's very much specific geographies, specific opportunities and specific customers in the quarter, which drove the revenue mix to skew more towards GMP...

Especially in mechanical, which makes sense because you're doing more of these AI data centers now. And unless we're doing fabricated structures for those AI data centers, you can argue modular structures that have really as part of our build or somebody else's build, they do start those things up more GMP, and we would prefer they do that as they work out their designs.

Yes. And that's the comment I tried to make about the designs evolving and the scope still evolving.

Understood. That's very helpful. And then just as a follow-up. Any update on access to craft labor, labor tightness? Any notable changes you guys have seen there over the last few months?

No, no notable changes. We're continuing to recruit heavily with the unions, especially in the Southeast, Texas, Oklahoma through the Midwest. We're working in a very cooperative fashion. One of the things that have benefited us is some of the programs, and that's one of the appeals of Miller. They are excellent at this. They have a pro trade program that allows a quick training program of 2 to 4 weeks, gets people functional, allows us to bring them in at the right classification and get them functioning safely and productively on a job site and that's something we're continuing to expand and grow across other EMCOR subsidiaries to grow our craft labor force.

I will say that our -- and I've talked about this before, our real bottleneck, and it really hasn't been a bottleneck because we have this great amount of work to work on its supervision. We have to create more foreman. We have to create more general foreman, we have to get project engineers to be able to move to project managers, project managers to be able to move to project executives. That's how we really grow.

Our constraint -- yes, we have to build fabrication shops, whether they're on-site in tents or whether they're offsite in our fixed facilities, we always have to be thinking about that curve. We don't like to get too far ahead of that curve because there may be other ways to skin that cap on fabrication, like on-site fabrication and other things.

But we always have an eye towards developing that supervision level. I said it in my remarks, our core product is really [ field ] labor supervision and leadership, and we just apply in these trades, and we do that very well. And therefore, if you're doing that well, you become an employer of choice because trade craft people typically like 4 or 5 things, right? First, they like to know they're going to get paid every week, and their benefits are going to get paid and in no particular order that you're going to give them the safety equipment and tools that they need to be safe, that you have a good safety program.

That the supervision they're working for actually knows what they're doing and can really share means and methods and are plugged into our network to gain more knowledge on means and methods that they're working for people up through the chain of command and understand the work they're doing. And finally, that if they do a good job and so choose they want to be part of one of our core teams, that we have ongoing work and that they want promoted that they have an opportunity to be promoted. EMCOR emphatically checks all those blocks in our subsidiary companies. And I think that's why you have -- it's difficult. Our guys are slogging away at it every day on mix management. I think we've been able to meet the moment as far as recruitment and retention of trade excellent [indiscernible]

The next question comes from Justin Hauke of Robert W. Baird.

Great. I guess -- so we already talked about, obviously, the first quarter, really strong revenue trend. The RPO is up 18% quarter-over-quarter. I think that's an organic record for you. But the revenue guidance only tweaked a little bit higher. You're looking for kind of 9% to 13% growth for the year and you just did [ 20% ]. So I guess I'm just trying to understand -- I know you've got some tough comps, but what's the conservatism in that outlook that would have the trends decelerate to kind of the more mid-single digits from what you put up at the start of the year bookings. .

I think you just said it in your last sentence, we just started the year. We're sitting here in the first quarter. We have 3 quarters in front of us. I think we'll know a heck of a lot more on the revenue trend as we exit second quarter and based on what we see at the end of the year. And it's still -- I mean even sitting here with these RPOs, Jason and I still think we have to book 40% of our work.

For the remainder of the year. If you're taking -- let's just use the midpoint of our revenue guidance range, if you take into consideration what's in RPO that we believe will burn through the rest of the year and what we earned in the first quarter, we still need to book about [ 30% ] of our work.

And we think we can do that and if we can book more of that and execute it within the year, that's how the revenue guidance will creep up, and we'll have much better visibility as going -- said simply, we feel good about the revenue trend in the business. We feel good about our RPO bookings. We feel good about the margin in those -- in the RPOs. But we're sitting here in first quarter, April and we'll have a much better view of that when we talk to you again in late July.

I think in the quarter, we made significant progress on a few jobs. Some of that accelerated maybe a little bit more than we expected. When we look at the rest of the year, I think where we land in that guidance is really going to depend on how quickly we mobilize on some of the new work we just booked, right? We had a lot -- we had strong bookings in the first quarter. So how quickly do those jobs mobilize, how quickly do we assemble a labor force and how quickly do they start burning. That's what's really going to dictate where we land.

All right. And just so previously, it was 40% to 45% of kind of new work you had to book and you're saying it's 30%. I just want to make sure...

you're right, Jason, given we have 1 quarter behind our belt and the strong bookings we had in the year. .

Yes. Okay. And then I guess going back to the GMP contracts versus fixed price, can you give us -- I just would be curious to know kind of what's the mix in the RPOs today of what your contracts look like today versus a year ago or maybe 5 years ago in terms of [indiscernible] more fixed price .

I don't think we could do that analysis from 5 years ago with any precision because things change halfway through a lot of times, and it ends up something different. I think versus a year ago, I think incrementally, it's moved a little more to GMP, and I would say this is not analytically for size. But I think that's mainly a mechanical and it's mainly driven by, I think, the larger scope of work which we're guessing, I mean, do we know that emphatically, we have a pretty good idea because of the power requirements and rack cooling we're doing, which is driven primarily, which we think by AI data centers. .

These are some of the large language model data centers. And we think that's the case because of where some of them are being built. And a lot of this -- we can tie all that together because of access to power and proximity and all that. So I think that's really the difference. Where that will and later, we'll see and not all GMP contracts are built the same way. But at the end of the day, there has been a little bit of a mix shift to there. And it only takes a couple of points to change 10 bps or 15 bps or 20 bps of margin. I would offer, though, that we wouldn't take these things if we weren't driving more margin dollars by doing it versus other opportunities. .

The next question comes from Avi Jaroslawicz from UBS.

So I just want to discuss this acceleration in organic growth that we saw here in Q1. It sounds like -- some of it was due to increased mix of prime contracting pass-through revenues that you called out. Just when we think of that relative to the high single-digit to low double-digit organic growth that you've discussed previously within the construction business, is that kind of upper single to low double-digit framing around your self-perform work? Or was that including the prime contracting...

It was all in -- I mean I think the preponderance of what we do is self-perform. But there's 2 places where it's more pass-through. One is, I think we don't even call it pass-through. We don't pass anything without a markup in the construction business. But it'd be primarily in our water and wastewater business, which we have a great team executing very well down in Florida. And it would be in our -- the 1 thing we do at EMCOR on an EPC basis at scale. Yes, we do chiller plants that way. We do other things. But the one place we do it at scale is in the food processing business.

It's a very good business. It's a multi-trade package. But we have more of that revenue passing through right now in our manufacturing and industrial market sector and comes at a little over margin. But if you look at it on a return on capital basis, it's very, very good work. And when we look at projects, Avi, we look at it both ways. We look at a project like that, almost the way we look at an acquisition. With the cash flows look on that project versus what we've invested to do it, what does it allow us to do from a further with the customer, both from an aftermarket basis and also follow-on work. We have customers that we've been on site doing large projects every 3 to 5 years, we made continuous presence at those sites, doing small fixed-price projects and maintenance projects.

I don't want to say for nothing's ever forever, but we've been there 20 years almost now. So that's a part of the business. Those are the 2 places where that pass-through revenue is the most significant. And that can affect margins 10 or 15 bps in a quarter to the negative. But again, I'll go back they generate really good margin dollars and a really good return on capital on those projects.

And in this quarter, it was the food processing, right? We still have the water and waste water in our backlog. I think that's what you could see as the year progresses, and this quarter was very much coming from food processing though.

Okay. Got it. Makes sense. Yes, I was in part, looking at the water and wastewater growth in the quarter. And so just trying to piece it all together.

I'll get ahead of one of the other questions and somebody can maybe drop out of the queue. We're not forgoing any data center work to do this work. It's either a different team that does this kind of work or a different market sector -- I mean different geography. We're not forego different skills and capabilities. We're not forgoing any projects in the data center or high-tech world because we're doing water and wastewater or food processing.

so Really Incremental growth at the end of the day. .

Okay. That makes sense. And then just also, when we last spoke, you framed productivity and pricing together contributing about 5 percentage points to construction revenue growth this year. What do you have embedded for that in the updated guidance? Is it still about 5%? Or has that picked up?

I think the way we termed it is less than half, right, at the lower end. So about 30% to 40% of our growth comes from pricing and productivity. But then now you have to tie that also into mix, right, Jason, to get to that answer. I don't think there's anything different than what we've done historically.

The next question comes from Sangita Jain of KeyBanc Capital Markets.

So if I can ask a follow-up on the mechanical margin discussion. Were these projects later on have incremental phases that you will then take on a fixed price? Or is the nature of these projects such that even the follow-on phases will be GMP?

Well, the margin headwind in mechanical, some of it's GMP, others mix because of the food processing work, we hope to have fall on phases over a number of years. They won't be as large.

I think it's true we determined what that contracting mechanism is, right? They could be fixed price in the future, on some of these jobs, if we get more comfortable with our labor force, we get more comfortable with the design. They may stay GMP because we do have a couple of customers who just prefer GMP work. So I think it's going to be dependent on the individual jobs, and I think we'll know more as the year progress. .

I think we're beating this a little too hard right now collectively on the phone. We contract lots of different ways. And sometimes, our fixed price work on something like food processing because we're servicing more as a prime is a fixed-price contract. It doesn't have the same market characteristics and margin opportunity, the fixed-price contract can be on a single trade contract doing a data center or a manufacturing plant or a hospital. .

Other parts, we're doing GMP work on data centers because a customer can't nail down a scope or a new geography or that's their preferred way of doing the business. And they do that, that way across their whole portfolio. I think we always think about operating in bands of margins. And as long as we're sort of within that 12- to 24-month look on bands of margins, we're performing pretty well. And then we take it a separate step further, At the part we're in a business, I think anybody that knows us, EMCOR is a return on invested capital type mentality.

And if we can generate more margin dollars and balance that against the margins, we're happy. I know we're all trying to nail down this number of whatever percent for the year. A, we're not that good. That's why you have a range. And b, we have 12,000 projects going on right now, all kind of different contract structures. Is it a little bit incremental towards GMP, I look at that as a positive because maybe [indiscernible] off the table where we shouldn't have been taking the risk on a fixed-price contract and allows us to penetrate a customer further. So I think we're trying to put too fine a point or something that you can't put a fine point on.

Yes. And I just go back to those 12 to 24 month averages to Tony's point, if you look at mechanical prior to this quarter and you look at those 8 quarters, margin for mechanical was as low as 10.6% and as high as 13.6%. So we're still right -- we're bouncing around those 8 quarter averages. And so I don't see anything here that's fundamentally different.

Yes. We grew mechanical operating income, 18.7% and we grew electrical operating income 28.2%. I'd say on any given day, sign me up for that. .

Understood. That's very helpful. Can I follow up on the 1.5 book-to-bill? And can you give us a little bit of a look as to -- are you being able to book the onward dated backlog? I know this space has traditionally been more of a book -- a short-term booking cadence business, but can you tell us at least some of these large projects give you a longer look into your performance maybe next year.

Don't think in a significant way. I mean, I think if you look at the end of last year, we would have said at the end of '25, 82% of that RPO is going to burn within 12 months. Where we sit today, we say 78% is going to burn within 12 months. So a little bit longer, a little bit more extending beyond the 12 months, but not in a significant way. If you look at our total RPO, I'd be surprised if $6 billion to $6.5 billion goes even into '27...

And that will [indiscernible]

Yes, of course.

The next question comes from Tim Mulrooney of William Blair.

Jason. Just a couple of quick ones here. So I heard you say that productivity and pricing is contributing, I don't know, which said like 30% to 40% of total growth this year and you're growing, call it, 10% to 12% organically, if you exclude contribution from acquisitions. So this implies pricing is maybe adding 3 to 4 points to growth, which I'm just wanting to confirm is directionally correct. And the reason I want to is because that surprises me a little bit, like we're hearing about pricing being very strong, particularly around AI infrastructure, EMCOR are critical to the whole process, but you're not the largest cost bucket for a long shot. So it seems to me that pricing would be a lot higher than 3 to 4 points, but maybe I'm missing something.

I think -- look, I think in general, when contractors talk about strong pricing, a lot of times, they got to execute the work. And so we're saying our expectation going into the year on pricing is we're working with really smart customers. We never assume our customers don't have alternatives. I've never assumed at any time in my career and that we want to be with these contractors, these customers long term.

I think when you look at our gross margins, and you look at our execution over a long period of time, and our ability to retain customers and at times we replace other contractors on site, but I don't remember us ever being replaced on a site. I think we get the price productivity execution just about right. I've never been the guy that's going to sit here. There's people throwing work at us, and we just get it in buckets. And some of my peers that say that I'm not sure they have the long-term view of the market that we have with pricing really means in contracting.

Price in our business comes in a lot of different ways. If the assumptions you're making on the productivity of your labor, especially as you move further down the labor curve and there's more of a mix of people who are less familiars or more untrained, pricing also can cover what you expect on unforeseen job conditions, you don't get an adversarial relationship with customers who are going to work with a long time. if there are small changes on a job. So maybe you're giving up some of that in the execution of the job to retain the customer.

I think the pricing environment is good, and I think we're almost getting paid for what we're worth. But I would take probably better contract terms, better change order administration and give up some price any day as we execute these large, fast-paced jobs for what are some of the most sophisticated customers in the world.

Jason, you have something to add on that?

No, I just think when you look at the number of jobs we're executing today versus the number of jobs a year ago, and you kind of back into the growth rate in jobs or even average contract values, I think it supports what we're saying, which is that really volume demand and productivity are the core drivers of our revenue growth.

Our next question comes from Manish Somaiya of Cantor.

Congrats again to the team. A couple of questions. Maybe, Tony, for you first. When I think about the contracts that you're being awarded, especially the mission-critical projects, are you seeing both electrical and mechanical scopes or is that...

I mean we don't -- I think underneath your question, are we combining electrical and mechanical scopes and bidding the jobs that way? Absolutely not. But are we on some sites, both electrically and mechanically, Yes. But do we make decisions contingent on that? Absolutely not. These are separate scopes of work. These are separate themes. Now if we're fortunate enough that we have 2 EMCOR companies on that site, or even 3 when you include fire life safety, does the job tend to go better for the owner in those cases? .

Probably, Yes. Our guys know each other how to work together. They work with the same VDC tools, the integration becomes better on the drawings. They can talk to each other and get coordination better on the job sites ot prevent [indiscernible] stacking. But do we specifically bundle the 2 things together and bid it as a package. No, we don't do that, almost never. I don't want to say never. Nothing's never, but we almost try not to do that.

But if you look at our bookings and you say, okay, there's a significant increase in data center bookings or networking communications RPOs. That's coming from both mechanical and electrical...

Electrical.

When you look at the revenue growth within each segment, let's just, again, look at Network & Communications, round numbers, electrical is up $240 million and mechanical is up $280 million. So we're seeing that growth in both, and we're seeing the bookings from both.

Okay. That's super helpful. And then, Jason, on the cash flow aspect, how should we think about the cash flow use reversing over the course of the year? Is that second half weighted typically or some of that comes...

Yes. I think if you look at the pattern we've had over the last 2 years or so, we think that pattern will hold true through the remainder of the year. Q4 tends to be the strongest for us from a cash flow generation perspective. Q1 tends to be the weakest. But if you look really over '24 and '25, we expect those patterns to be about the same. .

Okay. And then just, Tony, back to you. Maybe if you can just talk about the M&A pipeline, what you're seeing out there, what are still the missing pieces within EMCOR geographically or product-wise? And then maybe if you can also just give us a sense as to what you're seeing so far in the second quarter.

I won't answer that...

In terms of demand.

I won't answer that question. We're reporting on the first quarter today. Look, our acquisition pipeline is good. Deals happen when they happen. Our primary area of interest is electrical construction. We're a medium-voltage company or line voltage company. We're not really looking to grow our -- the high-voltage market or the T&D market, we do have a position there, but it's mainly in the Mountain West and it's a very good company, but we're not looking to become [ Quanta ] in the T&D business.

We're going to continue to do low to mid-voltage acquisitions in Electrical. We still have places where we can expand geography or strengthen geography in a lot of cases now. I think what we've had great success with is either buying an acquisition of scale, which is a Miller. That's a great example of that. But we also have many examples in EMCOR, which is, I think, where you create the most value is when we take an electrical contractor that was just a good industrial or health care contractor could do really sophisticated work.

We know that there's customers that want us to do data centers in that market. We were able to come in and take that group of folks and take their core business, to have them continue to do that through our peer learning and health. We can then have them expand into data centers. And that comes at a much better valuation than the folks that are doing 80% of their work in data centers that everybody is frothy over and want to spend 12x or 15x earnings. We're not going to do that for one market company and a one sector company.

Secondarily, we buy construction. We've tended to do that more buy and then take a larger platform like Batchelor & Kimball, and grow organically. And the reason that sets up they could do that well is because the amount of prefabrication on a mechanical job, they can take more labor hours off the job, and therefore, they feel much more comfortable. And then that's sort of the fire protection story too, which is the other part of mechanical that we would grow through acquisition inorganically. And with the fire protection, we're both growing the construction capability and the aftermarket capability.

The other area of interest for us is, of course, the mechanical service space. We do both. They're not large compared to the construction acquisitions, but we'll do larger acquisitions there. There, we're buying footprint. We're buying technician capability and sometimes those acquisitions are small as a couple of million dollar asset deal to open up a market or strengthen our market, whether it's a certain type of equipment, a certain kind of capability. And then we also love to continue to support our customers through building controls and automation and mechanical services acquisitions, where we're one of the more significant independent building controls, and we have a number of different brands we're dealer for, and we have good capability, and that's both on the front end of the business and the design, the development of the user interfaces and of course, the installation and the commissioning to make sure it works.

Those are our primary interests as we grow through acquisition. I would also argue that we also are not immune to doing the right kind of fabrication acquisition. We haven't done a lot of that to date, but we would do that if we thought we could add -- we have ongoing work that we could take some of that capacity and then also kit up some call it modular more than we're doing today. It's not something we've done, but it's something we look at all the time. Jason, I miss anything?

I think that's a good summary.

Our next question comes from Adam Bubes of Goldman Sachs.

This is Anuj on behalf of Adam. So wanted to understand what is your prefabrication capacity today? And how much capacity do you plan to add this year? And additionally, if you can discuss the puts and takes of internalizing fabrication versus leveraging fabrication for third-party sales?

Look, I think the best way to think about how we think about it is to look at our CapEx spending. We don't necessarily look at it as -- we're destined to add this much square footage and I think you got to take the fabrication that we do and break it into 2 or 3 pieces. One is the traditional fab we do just about every contract that we have, which they're doing some pipe fabrication, a little bit of fittings on the sheet metal side and they do that to support the aftermarket and the smaller projects in our market.

We do a lot of that. The second fabrication is more dedicated fabrication, especially in our larger mechanical and electrical contractors. And that breaks into 2 pieces, too. There's -- especially electrically, there's almost a catalog we can do. That said, we're taking all these different parts from distributors and OEMs, put them together, so it almost kits out to the site. And then there's job specific where we're making conduit racks and different bands that we're doing specific to that job.

It looks more like what we do on the mechanical side. Where there, we can have pretty significant pipe shops, pipe rack shops that do a variety of sizes from small board to large board. And then we also have sheet metal shops where we're hoping to generate off those coil lines, somewhere between 800,000 and 1.2 million pounds a year. Now again -- and then there's the third part of that is part of that fabrication if we can do on job site in a tent and bring equipment in and not have to move it as much, we do that, too.

So we're much more adaptable maybe than some others of fabrication. And I think that distinguishes us from other people is, for the most part, you never say everything is ever, but for the most part, EMCOR is fabricating for EMCOR and doing it as part of our job design. We do have cases where people want us to build than other people installed, but that's a small minority of our fabrication versus others. And I think part of that is because we tend to have our trades focus on it. We're not a multi-craft workforce, maybe like a nonunion workforce can be in some markets.

And my discussion about if we did fabrication and looked at it that way, that would be a fabricator would buy that we think we can bring more value to by looking at more multi-trade work. Jason?

I'd just say, if you look -- Tony made the point about our CapEx over the last several years, and we've said it before, if you take even just a 3-year look, our CapEx, if you look at a CAGR is growing twice what our revenue is, and that's those investments we're making in prefab. If you look at '26, I think we'll spend somewhere between $115 million and $125 million on CapEx. And I think a significant part of that will be fitting out fabrication facilities or upgrading the ones we have today.

That helps. And just 1 more follow-up. So demand remains particularly in your data center business. So what if anything, sets the ceiling on level of growth you can achieve from a capacity standpoint? Is it labor equipment procurement, et cetera?

Well, it's emphatically not equipment procurement because on data centers, most of the major equipment is being bought by the owners. For the owners through the GCs because they're deciding what size they want to do it. So we really have nothing to do with what they're doing on the major end product equipment in data centers. In small cases, we still do, but for the most part, the owners buying the equipment. I think I've addressed where the bottleneck could be. We've been great at producing leaders. Our bottleneck is fill leadership and it gets to the frontline leaders, foreman, general foreman and project manager project executives. .

No one can grow without that constraint. We feel pretty good about being our growth targets we have out there, we wouldn't have taken the work. And so therefore, we feel pretty good that in this quarter, that year-over-year, it's up plus 30%, up plus 17% sequentially. We feel we can fill the teams either through increased scope or the teams that we've built to service that demand. And law of large numbers eventually tells you that your growth rate is going to slow, but the dollars stay up. And I'd say the same thing about -- that's my whole margin point. We're in the search for margin dollars right now more than margin percentages.

All right. Thank you all. We'll see you again at the end of July, and thanks for your interest in EMCOR. Bye.

Good afternoon, everyone. We're just going to get started. So a quick introduction on my part. I'm Manish Somaiya. I cover Power, Tech, and Infrastructure for Cantor. Super excited to have Tony Guzzi and Jason Nalbandian, CFO. Tony, of course, as you probably know, is the CEO of EMCOR. We initiated on EMCOR yesterday, a price target of $848. So if you haven't had a chance, check out the piece. But of course, super excited to have the conversation with the team this afternoon. So maybe I'll kick it off with you, Tony. Obviously, you had a great 2025.

What is one aspect of your business that investors still underestimate in terms of the potential and in terms of market standing?

Yes. I think we've been at this a long time with a long record of success. And I think -- and look, we don't take that for granted either, right? In the kind of business we're in, you keep your humility over that period of time. But we've been, I think, a very good compounder, right? We -- I guess if you were comparing us, we don't chase fads. We execute well. We -- you can argue we're a very broadly diversified portfolio of projects and service base. With the data -- like everybody wants to talk about with the data center option today. We -- it's not like we turn away data center work to do other work.

I think part of it is if they actually looked at the numbers and realize our penetration in the data center space, they realize they're getting great exposure to data centers. But because of our size and breadth, you don't necessarily just see data centers, even though the business is up 100% in the mechanical and 70%, 80% electrical year-over-year and the RPOs have climbed.

So I think that's one aspect of it. I think the other aspect of it is we are very disciplined capital allocators. I've never been the kind of person that says, well, my multiple is here. And so anything that comes up to that multiple, I can just go buy. That's never been our schtick. We've been very disciplined about where we buy, which is mechanical and electrical construction for the most part, mechanical services, which is really HVAC services, building controls, and fire life safety within mechanical. And you have to be patient.

And the other thing -- just because a market is hot or you see concentration -- the old rules of investing still stand, right? Watch for concentration, watch for customer concentration on an acquisition target, watch for sector concentration, watch for geographic concentration, a little less relevant in our business because almost everything we buy is geographically concentrated because that's one of the reasons we're buying is to get into a market like we did Batchelor & Kimball years ago in 2019 and like we did with Miller this past year, a great franchise across the Southeast and that helps us fill out our portfolio.

And then we can learn from each other and build a business broader than that. And I think if you look at us over a long time -- and you looked at the last investor deck, I would say, go to Page 7. Our RPOs are about $13.2 billion at the end of the year. If you look at the end of '19, they were about $4.1 billion. Today, our RPOs are $4.4 billion in data centers today.

So -- and underlying that's been a lot of growth in institutional, industrial, hard industrial, manufacturing, institutional. And these are all compound annual growth, water and wastewater, north of 10% or 15%, some as high as 25% or 30% markets. In any other world, you'd say, you've done a heck of a job growing out those markets and we're going to continue doing all that. So the diversification, data center option, disciplined operators, pretty darn good capital allocators.

Maybe I'll go to Jason. You gave your margin guidance for '26. I'm sure everybody wants to know what kind of gets you to the upper end versus the lower end. Maybe if you can just talk about that.

Yes. So to me, a lot of it comes down to mix and execution. And so if you look at where we are or where we were rather for 2025, we finished the year with a record margin for EMCOR at 9.35%. Our guidance for 2026 is 9% to 9.4% on the operating margin side. And essentially, what we're saying there is if you look at that high end of that guidance, that 9.4%, we believe that we can continue to execute at the levels we're executing at today. Our mix should remain strong, and our market position and the mix we have in our RPOs should also remain strong.

And so when you consider all those factors, what we believe is we have the potential to execute just as well as we did in 2025 when we move into 2026. The lower end of that range, the 9% to 9.3%, let's say, really just reflects what we think could happen if there's a shift in mix. Not to say that any of the underlying factors or fundamentals of our business are changing. But if we have more GMP work or more T&M work or more work in some of the other sectors where the margin profiles are just inherently different because some of the jobs are -- carry a different risk profile. That just shows what margins could do if mix shifts a little bit. So for us, it really comes down to mix, timing, and execution.

Yes. And the way we think about guidance, I think if you listen to our call, we think of the low end of our range, which is where the 9% sort of encapsulates. We're pretty confident about that. And I think that's how you should give guidance. And the midpoint, fairly confident. And as you get to the higher end of the range, some mix needs to work our way. We got to execute well. You're always going to have some jobs that turn out less than you expected in contracting. So keep those to a minimum and maybe we'll get there to the top end.

So maybe just related to that, what do you think the sell-side investors get wrong about how your business works and how margins work? Maybe if you can just talk about it.

I'll do it sort of like at an operating level. I think just go macro level. This is not a manufacturing company. So I've been a manufacturer, right? You lock in standards at the beginning of the year, you know your market position. You have a pretty good idea of project pricing unless there's a dislocation, and you execute in the market you're in for that year. That's -- and if you have a new product, maybe get a little bit of organic from there, maybe get a little more price in markets because your commodity costs are up. In our business, we very rarely get to repeat something exactly. And even if we're doing the same kind of facility or building like we're building the next building on a data center campus, well, what might have changed? The project team might have changed on their side, probably not on our side, but on their side. The design might have been tweaked just a little bit.

The mechanical contractor on the job, if it's not us, maybe not as good, and therefore, we get held up electrically. There might be a stacking of trades. These are lots of people with lots of variables, right? And so you're running a portfolio approach to that. So we've always thought of our margins in bands quarter-to-quarter. And Jason will go through that in a minute. But the point is this is not a quarter-to-quarter business. And if you look backwards over 12 to 18 months, it gives you a pretty good idea on average how the business is operating.

And unless there's a big mix shift or you get some big volume upside that you didn't expect, you sort of know within relative -- and anybody thinks we're that accurate, like one investor asked me, we thought it would be 10 or 20 bps higher on the top end. I'm looking at him like, wow, if you've got that level of precision, then you should come and join us, and I'll go do what you're doing, because we absolutely don't have that level of precision.

Yes. I think Tony's point -- that we're not a quarter-to-quarter business -- is key. We always say take a look at a rolling 12- to 24-month average. And I'll just give an example. Our Electrical segment -- for them, that average would be 12% to 12.6%. But in those 8 quarters, margins have been as low as 11.1%, 11.3% and as high as 15.8%. So they'll vary quarter-to-quarter just based on mix, timing and execution, but you really have to look over a period of time. And I think that's the thing that maybe gets lost from time to time.

Or the same thing can happen with bookings, RPOs, book-to-bill ratio. Literally, a week could change a lot, book-to-bill. What I do know, if you think about today, whether it be margins, bookings or anything like that, that's quarter-to-quarter, the fundamentals of our business haven't changed over the last couple of years. In fact, they've gotten more positive. And as we gave our guidance for 2026, we didn't anticipate a big change in fundamentals. But with our revenue guidance that we have out there, we obviously believe we're still in a growth market in the most important sectors that we play in.

Interesting. And I just want to kind of stick to the topic of margins because obviously, it is prominent, and I want you to have the opportunity to explain yourselves -- the other question I have gotten is -- which is I think a fair one. Tony, as you are looking at all the different projects that are going on, what are some of the things that you look at to make sure that a program is on track versus, a, something is flaring up and it needs to be addressed.

Yes. So it starts back here when we actually decide that's something we really want to do. And these are things like our guys are running the sort of less than $5 million business every day. And unless there's a term or condition that's crazy in there. And even they will raise their hand and say, look, we don't like the terms here, and our lawyers will come in and try to negotiate that. But if you think macro level, right, how do you manage risk in a business like this? And then how does that manifest itself in the things we watch both numerically and on the soft side.

There's -- whether it's a data center project, a semiconductor project, a health care project or we're building a school, right? And on the aftermarket side, it's all about access and customer relationship and everything else because there we're just trying to stay out of the way and do a great job and get them the savings or get the facility back up and running. Let's focus on the new construction side for a minute. If you're thinking about the business, and this is sort of EMCOR Operating Discipline 101. The first part of it is -- what do we know about the owner? What do we know about the general contractor, CM we're going to be dealing with.

Ultimately, in most cases on the construction side, even if the owner is directing it, we're working for a general contractor or construction manager and in our case, to a lesser extent, an EPC. Do we know who's going to be on their team? Do we know the owner? Have we had good success with that combination? And if it's new, has someone else that does benefit EMCOR has, has someone else at EMCOR had success. A great example of that is it's happening every day in the data center world. But when Wynn was bringing their casino to Boston -- we had built quite a bit for Wynn in Las Vegas.

So actually, our Las Vegas team, we hadn't built a casino in a while, but we still had the people. We actually flew to Boston and sat down, went through the numbers, brought the Boston team out to Las Vegas. So let's think about how we did some of these things that are peculiar to Wynn, how they build, and how the owner behaves. And then we actually coached up the general contractor because, quite frankly, the Boston-based guys -- those East Coast guys weren't Vegas contractors. So okay, that's one thing.

Next thing we look at the engineer and the architect. Have we worked with them before? In most cases, we've worked with everybody in both those cases -- GC/CMs, engineer. What are their designs like? Are they good designs? Are they designs where we're going to have to do a lot of design-assist to get it the constructability. Are they responsive to request for information as we validate the design? Are they responsive to value engineering that we may recommend as time goes on? If there's a change in the job or they click on the turn with the drawings back to us, so we can get back to work and not have a lot of dead time.

Then we get to the simple question: Have we built one before? Take those first 2, try to get as much intelligence as we can. These are bigger jobs like $10 million plus. Have we built one before? And if we haven't built one in that geography or with that subsidiary, have we built one somewhere in EMCOR? And can we take that learning and bring it to bear? Or have we built something similar? So, is there similar lessons we can apply. A lot of the learning that comes today in the data center world came from our manufacturing jobs.

And in -- from our data center, we did, but that was only 2 or 3 subsidiaries versus 17, with manufacturing jobs or health care, hospitals. What are the economics of this project? If it's a big enough project, it almost looks like an acquisition to us. What's the cash flow going to look like on it? What are the terms and conditions? What are we actually signing up for on liquidated damages or consequential damages? Are we going to be able to cap them? So how do we frame that? Then it gets to the final stage of, okay, once we build this, if you're a construction guy, the first thing you want to do is get off the job, right? I mean you want to be gone.

And if we have an aftermarket team, they'll come in -- and they're very different people. How do you commission this building? How hard is it going to be commissioning? Did we -- if we're on the mechanical side, did we do the building controls as a part of our contract? Or did we hire the sub there? And then how we -- because these are the kinds of things. If you're doing a data center, what's the flushing look like? Are we going to be able to get the system flushed, especially on the AI data centers and get it up and running.

So we take a full-scale view of it, make sure we protect ourselves as best we can in the contract. And then we go into planning if we get the job. And if we're going to do all that work on a large job, we have an idea that we have a pretty good chance of winning the job. Nothing is 100% but we're not wasting our time on something significant to ask all those questions. And then Jason has some very hard metrics that tells them once this gets going, whether the job is going well versus the WIP and whether it's not.

Yes. And there's a number of ways you can do that. But I think the most simplistic is looking at the cash position of the projects, right? Jobs that are overbilled tend to be performing well. The jobs that are underbilled, we tend to say have risk. And sometimes the risk could just be on timing. Other times, it ends up being potential overruns in the estimates. But if you look at EMCOR overall, we are in a significant net overbilled position, and I think that is a testament to our execution.

So over the next year then, where do you see the greatest margin benefit potential? And where do you see margin dilution...

Yes. I think that's a hard question to answer -- everybody gets excited and says, data center work is driving the margin. I'd say that's fair because it's a big part of what people are doing. But it's only driving the margins in some ways because you're executing well and they're really demanding jobs. And you really have to know what you're doing to sign up and do it, and you really have to be able to scale up and get there. And you better have a great prefab. So, maybe there's margin opportunity there. But we do well in other sectors, right? We do well in basically replacing the chiller room, design-build. We do very well there. So it really does go back to answering those first 6 questions well, 7 questions well.

And then once you answer those questions -- well, the one I forgot that is: Who are we going to put on the job? And do we have the resources to be successful from a leadership and supervision standpoint. We start there. That's why I probably haven't mentioned it. That's a given. But if we get those right, it almost doesn't matter where we're working. We have a good chance. I always tell people, one of the ways you do well in our kind of business is the absence of badness. So it means we pegged the margin right with the right contingency, didn't have a lot of write-downs and didn't have a lost job that was significant. And Jason's point about the cash is important, right? Sometimes there's an image in people when we are net overbilled like that, a, we're collecting all the cash that could, a portion of it, we are.

But also, you just don't send someone a bill in our business. You've negotiated that you're going to send them the bill, and here's what the bill is going to say. And you've hit pre-arranged milestones. So, you don't get net overbilled unless you're performing well on the job in most cases. And that's why it's such an important one. I think the other thing they watch very carefully, like these guys have great analytics that they've developed and this is probably one of the areas that AI will be.

I think we're doing a fair amount of quasi-AI now on our WIP is the one thing we manage and control is labor. So, we spend a lot of time focusing on what the manpower loading looked like on a job versus what we expected, how do the hours track versus where we thought it would be, how we're doing against the labor contingency we built into the job. We don't miss materials very often, right, unless there's a big change in commodity prices. Even then we don't miss it very often.

So you talked about -- maybe just shifting to backlog. You talked about record backlog, RPOs which, of course, is very supportive for visibility. But then how do you assess quality of the backlog?

Yes. I think some of it goes to what Tony was talking about when we're assessing projects, right? It's asking ourselves those same questions about the nature of the job, our ability to execute on that job, and that will give us a sense of where we think those projects can perform. Then I think some of it is just looking at the margin and the backlog at bid, the amount of contingency in projects when we're beginning projects. And all of those things paint a picture for us about the potential of those jobs and how they compare to similar jobs that we started a year ago or 2 years ago. So it's very much a benchmarking exercise when we're looking at our backlog to see how does this stack up against historical periods. And I think what we believe right now is our backlog at the end of 2025 going into 2026, is just as good as our backlog was a year ago. So we still think we have some really good quality projects ahead of us, and I think it gives us an opportunity.

And it supports our guidance range with as much visibility as we've had in a long time. And we had pretty good visibility over the last 2 or 3 years. What I think people don't appreciate what's happening is how actively we're managing the mix, maybe less so on the upside, because go back to the way we think about qualifying things. That's agnostic, no matter what sector it is in. But then we, as a management team down through the segment level, we make sector calls sometimes and geography calls. Now, you don't see it, but there's -- we've done a fair amount of restructuring in our portfolio. Where you do see it -- if you look at Page 7 is we've taken transportation work down quite significantly.

Now some of that is because the work can be lumpy, but most of it is because we basically have got out of -- we have one more year to do in one place. We basically have exited the road transportation lighting market. And we were pretty good at it at one time. Dynamics change in local markets, contracts change, and we -- the risk change, it's not worth it anymore. And so we've moved away from that. And these are from the guys who did the Tappan Zee Bridge electrically and did quite well. The dynamics here, especially in New York and some other big cities, just not worth it anymore on some of that work.

And so we've decided to de-emphasize that part of our business. It's not that we weren't executing well is the -- it's that when you do an analysis of the mission and what you're going to do in the terrain and everything you're dealing with, you sit there and say, not where we should be putting our capital right now. So if you think about that, we probably over a couple of years, growing like we are organically, if you were to take snapshot, think of '21, and we've got out of some commercial markets in some of a place like San Francisco, we're no longer there in a significant way mechanically.

And if you snap that line and look at it today, we probably take $300 million, $400 million out of this business on a run rate that wasn't very profitable. And that's the other way you help build up margins. But also, it's not like we made a short-term decision when we did that. We took a 5-, 7-year look at the market and said, fundamentals aren't going to change here. The risk is -- the risk reward ratio for that line of work puts us in the wrong box, much like we look at acquisitions, right? We're very disciplined acquirers, and that hasn't changed because there's a couple of hot markets right now.

And I guess maybe just a last one on backlog. How should we think about shadow backlog that you might have? And what is one sector that you're most bullish about over the next 12, 18 months?

That's pretty straightforward. That's like making a 2-inch putt, right? Obviously, we're all excited about what's happening in the data center market and some of the re-shoring opportunities we see. And really, semiconductors is both a growth story and a re-shoring story. So -- and it's beyond semiconductor, anything high-tech manufacturing and data centers, I think you'd have to be excited about if you're a highly skilled specialty contractor right now.

Right. So we keep hearing about the power availability, which is a big gating factor for everybody. How do you sort of adjust the sequencing and timing in terms of the workflow because of that challenge? And geographically, how do you position yourselves?

That's very rarely a challenge for us because of where we are in the food chain. Most times, before we come on a job or they let us loose with a contract, we've -- they've already done all that. And it might be a little slower getting the substation hooked up, but they know they're going to happen within a very short period of time. We're not -- now, we may know they want to build in a year or 2 years, and they haven't figured all that out yet. But to be honest, we haven't committed any resources other than some pricing upfront to just get them in the ballpark. Fair statement...

I think that's fair. And the other thing for us, too, is by the time we're -- as Tony said, by the time we have a contract in hand, we know that contract is going to go. And for us, we're usually on-site within 1 to 3 months, and that work begins and the majority of our work is done in 12 months.

So go back to one of the things you asked earlier, I think what you just said that's important for people to understand. Our RPOs are -- the accounting definition of RPOs, Remaining Performance Obligations. Other people report backlog, which then piles a bunch of other stuff on top of that. So we may know that we're going to do other work on a site or we may know that it's going to happen. They haven't committed to us yet formally. You could look at our RPOs as there's a formal commitment, a contract that we're going to do the work.

And the only portion that's in that RPO is, if it's a service agreement, even if it's a 5-year service agreement is the non-cancelable portion, which could be anywhere from 90 to 120 days. And usually, on the service agreement, those go both ways. We can cancel them too. So I think that's a really distinct difference with us. And I think the reason I'm building off of that is that's the reason our work usually doesn't get canceled.

Yes. Our RPOs are firm and cancellations have historically not had an impact on us. The exact reason.

I can count on less than 2 hands over 15 years any project of size that's got canceled. And you could guess when they got canceled, 2008, '09, and 2020.

So just going back, maybe turning to capital allocation because we have about 5 minutes. You've said that you've been fairly balanced. What is your framework for allocating the next dollar between organic, inorganic or returning it to shareholders? How do you guys think about that?

So we have a dividend, right? $0.40 a quarter.

$0.60.

$0.60 a quarter, now screw that up $0.40.

It's $0.40, Tony...

So $0.40 a quarter, that's a given, right, put that aside. And then clearly, our priority is organic growth. And with the amount of cash we generate, we can't invest enough in organic growth because we're a capital-light business. Even though we doubled and Jason will go through these in a little bit, the amount of capital expenditure we have, mainly because we've increased our fabrication space and we've increased our software spend. We still can't spend enough, right? And we try to keep our cost structure as variable as we can. So we tend to lease buildings even when we build a fab shop. And outfitting them and we're pretty good buyers of equipment and products. So then you get to the next one, which given our druthers, right now, we would love to be able to repeat 2025 and 2026.

Are we going to be able to do that? Deals happen when they happen. We talk to people over long periods of time because the people that are selling us their business typically, even like last year, we did a bunch of small ones, Jason will go through that. The bigger ones, they're selling us their family's life work and their reputation. So these aren't simple decisions. These aren't people that are looking to multiple up with the private equity firm. Typically, if PEs involved. And then we go to share buyback. I don't think we're trying to be hedge fund managers, typically, although we've been pretty good buyers of our stock. But that is there where we end up with excess cash. And we don't try to buy when the thing is rapidly accelerating. The flip side is after that, it pretty much looks like dollar cost averaging, I think, unless there's a big dislocation like there was last year after DeepSeek panic.

We tend to do share repurchases, both programmatically and then opportunistically, depending on the market. But yes, when you look at -- to Tony's point, when you look at the organic growth, it's how do we make our existing operating companies as productive and efficient as possible. So for us in recent years, it's been looking at ways to expand our prefab capabilities or use of VDC and BIM. And I think Tony referenced some numbers before. And really, what we've seen is still a capital-light business for us. Our CapEx is like 0.6%, 0.7% of revenues.

But we've expanded our CapEx in recent years to the point that if revenue is growing, let's say, over a 3-year period at a 15% CAGR, CapEx is growing at a 30% CAGR. And that's those investments. And then you look to the acquisitions, and there's a number of different ways we look to acquire. Some of it is looking to buy a platform like we did with Miller in 2025. Some of it is looking to fill in a geography like we did with Danforth in 2025. And then we did 8 other acquisitions, which were all really bolt-ons or tuck-ins to existing operating companies to enhance their capabilities and further their position.

Maybe over to you, Tony, as to maybe recap everything that we've talked about. If you have to sum up EMCOR's strategy for the next 2, 3 years, how would you do that?

We're going to continue to grind it out, take it up, take advantage of great growth opportunities. Play the best team that I think is in the industry in the field because that is our core product, right? Our core product is the best field leadership in the industry. We just happen to be in this industry. We have the best field leaders. We spent a lot of time training. We spend a lot of time learning from each other, and we're committed to the things we talked about, disciplined capital allocation, Mission First, People Always. With our people, transparency, a lot of respect for each other. And that's been a long-term recipe for success. And we're not going to alter out of that one bit. We're not going to be someone we're not. We're not going to chase fads. Data centers are not a fad to us. It's a great sector to operate and build projects and do great things for our customers. So that's what it is for us.

Well, thank you so much. Just in time. Thank you, Tony. Thank you, Jason. We appreciate your participation and enjoy the conference. Thank you.

Good morning. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions].

At this time, I'd like to turn the floor over to Lucas Sullivan, Director, Financial Planning and Analysis. Mr. Sullivan, you may begin.

Thanks, Jamie. Good morning, everyone, and welcome to EMCORE's Fourth Quarter and Full Year 2025 Earnings Conference Call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at emcorgroup.com.

With me today are Tony Guzzi, our Chairman, President and Chief Executive Officer; Jason Nalbandian, Senior Vice President and EMCOR's Chief Financial Officer; and Maxine Mauricio, Executive Vice President, Chief Administrative Officer and General Counsel. For today's call, Tony will provide comments on our fourth quarter and full year and discuss our RPOs. Jason will then review the fourth quarter and full year numbers, then turn it back to Tony to discuss our guidance before we open it up for Q&A.

Before we begin, a quick reminder that this presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both the disclosures in conjunction with our discussion and accompanying slides.

And finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-K filed with the Securities and Exchange Commission.

And with that, let me turn the call over to Tony. Tony?

Yes. Thanks, Lucas. Good morning, and welcome to our fourth quarter 2025 earnings call. I'm going to speak briefly to the fourth quarter in my opening comments, but we'll focus my introductory remarks on what drove our continued success in 2025.

So I'm going to start on Pages 4 through 5 of our earnings presentation. We had an excellent close to the year with our fourth quarter results. In the fourth quarter, we generated revenues of $4.5 billion, which represents 19.7% growth. We earned adjusted earnings per share of $7.19 per diluted share, a 13.8% increase from 2024 and delivered adjusted operating income of $440 million, a 13.1% increase from 2024. We did this while achieving strong adjusted operating margins of 9.7%.

Our adjusted results for the fourth quarter exclude the gain on the sale of our U.K. business and the transaction costs related to sub sell. For the full year, our adjusted results exclude these items as well as the transaction costs incurred in the first quarter due to the acquisition of the Miller Electric Company.

By any measure, 2025 was a tremendous year for us. We had record revenues of nearly $17 billion and record adjusted full year operating margin of 9.4% and at the high end of our guidance range. We also had record adjusted diluted earnings per share of $25.87 per share, an increase of 20% from 2024. With operating cash flow of $1.3 billion, we continued our exceptional record of cash conversion.

Our success once again demonstrates our ability to execute with discipline across our business as we drive innovation and efficiency to achieve exceptional outcomes for our customers. We have delivered sustained strong results despite the fact that we are working on the most technically sophisticated fast-paced and demanding projects in our history. We had a great year, and we enjoyed delivering for our customers and our shareholders.

Notably, we earned full year mechanical and electrical construction operating margins of 12.8% and 12.1%, respectively, demonstrating excellent execution across a diverse range of projects by size, end market and geography. We did this while growing revenues of these segments by 10.1% and 51.8%, respectively. We achieved a 6% operating margin in our Building Services segment, driven by the underlying strength of our Mechanical Services business, which achieved high single-digit operating margins and 6% growth. Virtually all that growth was organic.

Demand for this business remains strong with a primary focus on aftermarket projects and retrofits. HVAC service and repair, building automation and controls upgrades and services and indoor air quality and energy efficiency projects. We remain well positioned with our Industrial Services segment to serve a rebounding oil and gas industry. We divested our U.K. business to focus on our U.S. operations.

We found EMCOR U.K. a great strategic home achieved a very strong result for our sell-in the sale for our shareholders. We acquired Miller Electric, which is the largest acquisition in EMCOR history. The integration is on track, our leadership and values are aligned, and Miller will serve as a great platform for growth in the Southeast and Texas.

In addition to Miller, we acquired 9 other companies across our Mechanical Construction and Building Services segments. Collectively, these platform-enhancing acquisitions will help us to better serve our customers. We repurchased almost $600 million in shares and increased our quarterly dividend to $0.40 per share. This return of cash to shareholders, coupled with our organic investment and acquisitions, affirms our successful balanced capital allocation strategy. We maintained our sterling balance sheet that allows for continued organic and acquisition growth.

We maintained our industry-leading safety record in this demanding and complex environment with a TRIR under 1 for the second year in a row, we earned inclusion into the S&P 500, and we were recognized by Fortune as the #1 most admired company in the engineering and construction industry. And we built our RPOs to $13.25 billion from $10.1 billion despite our record revenues. That's quite a year, right? Congratulations to our team, and thank you for a great 2025.

I'm now going to go to Page 6. These are PRs, which I will now highlight, [indiscernible] 1.2% year-over-year and 17.6% organically. On a sequential basis, RPOs have increased 5.1% since September or 3.6% organically, driven by demand in our data center business, RPOs within the network and communications totaled a record $4.46 billion, at the end of December, an increase of $1.65 billion or normally nearly 60% year-over-year. We see no change in the momentum of the CapEx plans from our customers in this sector, and we have good visibility for the next 2 to 3 years as we work to support their buildout.

Institutional RPOs have increased by just under $440 million or 40% to $1.55 billion, largely as we continue to see demand for our services within the education sector, including from a number of colleges and universities. Manufacturing and industrial RPOs have increased by $201 million or 23% and to $1.1 billion.

As I mentioned last quarter, in addition to project awards driven by customers onshoring or reshoring initiatives. Growth in this sector has also benefited from certain food processing projects within our Mechanical Construction segment as well as a renewable energy project in our Industrial Services segment. Led by our Mechanical Construction segment, water and wastewater RPOs have increased by $408.5 million or nearly 60% to $1.1 billion as we continue to win projects throughout Florida. And due to select project opportunities, RPOs within the hospitality and entertainment have more than doubled year-over-year.

I'm now going to turn to Page 7 because I think it's important to look at some of the longer-term trends and what's really growing -- driving our growth over a sustained period of time and also to highlight our diversity of demand. So now go to Page 7, let's take a minute. I want you to focus your eyes on the middle of this page. And in this middle of this page, you'll see where we were on the left-hand bar at 12/30/19, right before COVID. We were about $4.036 billion in RPOs, and I'll actually focus your eyes on that royal blue bar or dark blue bar, and that's our network and communications business. And I want you to look over at 12/31/25, those network and communications RPOs are about $4.4 billion today, which is greater than our total RPOs at the end of 12/31/19.

But let me look at the total number of $13.254 billion. And realize that we have grown everything else by over $8.5 billion. And now I want you to come over to the left side of the page, and I want you to look at some of these long-term growth trends. I'm going to spend a little bit of time, and we've already done that with the near-term commentary. High-tech manufacturing on a compound annual growth rate that's an in and out of a major project. But from where we started in 12/31/19, which had some semiconductor work in it and pharma work in it, to where we are today has grown by a compound annual growth rate of 48%, and we remain very bullish on this market with the demand for semiconductor chips, the reshoring of for pharma the growth in GLP-1 drugs and what's going to happen there.

And just in general, what has been reached short in high tech and what's going to continue to grow. 48% compound annual growth. Right above that is network and communications. We thought we had a great data business center business in 2019. We went from having a very strong data center business to a terrific data center business. Now I'm not going to say we're the only ones that can do data center work at scale. We're the only ones that can operate in about 17 markets electorally. And we're doing about 7 markets now mechanically and we're one of the only ones that could cover the whole country on fire life safety projects in the data center business.

Look at health care, 23%. That is a stable market for EMCOR. It's been one of our long-term markets, and it is complex to build a high-rise hospital as it is a data center, and that's why our electricians and our pipe fitters can move between those sectors so easily between high-tech manufacturing, network and communication and really industrial work, they can move between those, and we do that.

Institutional is up 20%. That was actually a surprise to us. When we went back and looked at the compound annual growth rate in institutional across that sector. Water and wastewater is a great market for us, mainly in Florida, 24% compound driven by consent decrees from the EPA, driven by just growth in Florida and driven by updating technology in these large wastewater plants.

Transportation, as you talk about mix management, we have decided to deemphasize the transportation market, especially the electrical roadway market. It takes a while to get out, but that will continue to drop unless a big airport or a project like that comes in, and that would be then balancing against these other markets. I love the bottom. And commercial was a GDP grower. It's pretty good considering the engine analysis happened over this period.

But look at the short duration projects. To me, that's a sign of what's going on across all the markets, especially in the built space. And that contains some commercial work that contains some institutional work that can save some manufacturing work. And these are projects that are going to last less than 5 months and typically have a ticket size of somewhere between $50,000 and $500,000. And that's -- and then put on top of that, the big service space we have in EMCOR across our fire-life safety projects across our mechanical service business and across even our day 2 electrical work.

So what allows you to have that kind of compound annual growth across that sustained period of time. And these are in no particular order. First of all, you got to be where your customers are. You have to be able to meet them where they are. You have to have national reach. You have to have the geographic footprint, but that's not enough. You can have a geographic footprint that can execute. You have to have opportunistically travel. You don't just travel to travel. We're not going to be the contractor that uses a labor broker and places labor around the country.

For the most part, when we travel, we're traveling in our construction business with very strong union journeymen and commercial environment and others that can move around the country and check into the union and we draw from that. And we're an employer of choice. And that is driven by the strong field leadership we have at the local level.

We've got the technical expertise -- we have great prefabrication capability, BDC capability that we use to work across these sectors. And really, the BDC we use today in our data center business and the BDC we use today in our high-tech manufacturing was really honed in the health care sector over 20 years ago. We have a great reputation and safety record. It's really a hallmark of who we are and why we continue to attract the best trade labor. Our customers want us to do the work for them.

One of the benefits of scale to us is we can train, we can share means and methods and we can share best practices across our country. And that allows us to have very strong acquisition pipelines over a sustained period of time. And allows us to make the right smart growth organic investments.

I think this page is something that really is a hallmark of our company. And I think this page is really what we have built together with that, our capital allocation strategy, which is on Page 14, coupled with what is on Page 7 is what we get paid for to do to build a company that has great diversity of demand to take advantage of the end markets, in many cases, and then build a sustainable compounding record of success.

With that, Jason, I'll turn it over to you.

Thank you, Tony, and good morning, everyone. Before we dive into our results for the fourth quarter, I thought it made sense to step back and take a look at how we performed for the full year, which is summarized on Slide 8.

In 2025, we earned revenues of $16.99 billion operating income of $1.71 billion and operating margin of 10.1% and diluted earnings per share of $28.19. When excluding the transaction costs incurred in connection with both the acquisition of Miller Electric and the sale of EMCOR U.K. as well as the gain on sale of EMCOR U.K., we are non-GAAP operating income of $1.59 billion operating margin of 9.4% and diluted earnings per share of $25.87. All of which were records for EMCOR.

We performed extremely well in 2025, benefiting from some of the best execution in our history and a favorable mix of work, both of which allowed us to deliver a full year operating margin at the high end of the guidance we previously provided and in excess of our expectations when we began the year.

If we turn to Slide 9, I will now review the operating performance for each of our segments during the quarter, starting with revenues. 4.5 billion represents a quarterly record for EMCOR, with revenues increasing 19.7% or 9.5% organically. Revenues of U.S. Electrical Construction were a quarterly record of $1.36 billion, increasing 45.8% due to a combination of strong organic growth and the acquisition of Miller.

Similar to recent quarters, the most significant growth in this segment was generated from our data center projects within the network and communications market sector, where revenues increased nearly 50% year-over-year. While this represents the greatest increase during the quarter, almost all other sectors experienced growth. Health care, institutional and hospitality and entertainment represent the next 3 largest increases in addition to greater small project volumes.

I think the best way to summarize this segment's performance in the quarter is that half of its growth came from data centers and half of its growth came from strength in the underlying or more traditional business. Once again, this highlights our diversity of demand.

Moving to U.S. Mechanical Construction revenues of $1.94 billion increased 17%, establishing a new quarterly record for this segment. Similar to electrical due to greater demand for data center construction projects, this segment saw the largest increase from the network and communications market sector, where quarterly revenues grew nearly 80% year-over-year.

Sticking with my earlier comment regarding broad-based demand, mechanical construction experienced quarterly revenue increases in 8 out of the 11 sectors that we track with the only meaningful decrease coming from high-tech manufacturing.

Notably, manufacturing and industrial, including food processing, was up just over 50%. Institutional was up 55% and commercial increased 17% as we are starting to see resumption in warehousing demand. As we've discussed throughout the year, although we are still executing on a higher base, the decrease in high-tech manufacturing is a result of the completion of certain semiconductor projects.

On a combined basis, our construction segments generated revenues of $3.3 billion, an increase of 27.4%. Looking next at U.S. Building Services, revenues of $772.5 million reflect a 2.2% increase, all of which was organic. This marks the third quarter of revenue growth since the loss of site-based contracts that we've previously referenced and this performance was driven by our Mechanical Services division, which increased revenues by nearly 5% due to strength across each of their service lines, including projects and retrofits, repair service service maintenance and building automation and controls.

Turning to our Industrial Services segment. Revenues of $341.1 million have increased 9.1%. In the quarter, we experienced a more robust turnaround schedule, including the execution of certain projects that were delayed from Q3 to Q4, which led to increased revenues from both our field and shop services operations. In addition, this segment benefited from progress made on a large solar project, which is currently in process.

And lastly, for the 2 months prior to the sale on December 1, and U.K. Building Services generated fourth quarter revenues of $95.3 million.

Let's turn to Slide 10 for operating income. For the fourth quarter, we generated operating income of $573.8 million or 12.7% of revenues. When adjusting for the transaction expenses and the gain on sale of EMCOR U.K. We are a non-GAAP operating income of $439.6 million, a quarterly record for EMCOR. This performance resulted in an exceptional 9.7% non-GAAP operating margin the highest we achieved in any quarter this year.

Looking at each of our segments, Electrical Construction had operating income of $173.1 million, a 17% increase. As a result of its revenue growth, the segment experienced greater gross profit across the majority of the market sectors in which we operate, resulting in an increase in operating income to a record level. While down from the record 15.8% earned in last year's fourth quarter, this segment's operating margin of 12.7% remained well above its historical average and was in line with our expectations particularly when compared against a rolling 12- to 24-month average, which would imply a range of 12% to 12.6% for the segment.

When adjusting for the impact of incremental intangible asset amortization, gross profit margin of the segment remained relatively consistent year-over-year, reflecting the overall strength of our execution and project portfolio. Contributing to the unfavorable comparison in operating margin was an unusually low SG&A margin in last year's fourth quarter due to the timing of recognition of certain expenses in the prior year.

Operating income for U.S. mechanical construction increased by 13.6% to a quarterly record of $250.5 million, while slightly below that of the prior year's quarter, operating margin of 12.9% was equivalent to the third quarter of this year as we continue to execute well.

From an end market standpoint, we saw greater gross profit across many of the sectors in which we operate with the largest increases generally tracking in line with the revenue fluctuations I previously mentioned.

Together, our construction segments grew operating income by nearly 15% and earned a combined operating margin of 12.8%. U.S. Building Services generated operating income of $41.3 million, a modest increase over the prior year, and operating margin was a consistent 5.4%.

Moving to Industrial Services. This segment's revenue growth coupled with 30 basis points of operating margin expansion due to better absorption resulted in a 21.1% increase in operating income.

And lastly, U.K. Building Services delivered breakeven performance during the quarter as $3.7 million of underlying operating income was entirely offset by transaction-related costs, which were expensed within the U.K.

Let's move to Slide 11, and I'll cover a few quarterly highlights that were not included on the previous pages. Gross profit of $891.2 million has increased by 17.7% and our gross profit margin for the quarter was an outstanding 19.7%. SG&A was $462.3 million or 10.2% of revenues. Included in SG&A for the quarter were $10.7 million of transaction expenses related to the sale of EMCOR U.K., which impacted SG&A margin by 20 basis points.

Accounting for half of the remaining increase in SG&A was $35.2 million of incremental expenses from acquired companies and $6.2 million of additional amortization expense. Excluding these items, SG&A grew by $41.8 million, almost entirely due to employment costs, given both greater headcount to support our organic growth as well as increased incentive compensation expense in certain of our segments given the higher annual operating results.

And finally, on this page, diluted earnings per share were $9.68 or $7.19 on an adjusted basis, which represents an increase of 13.8% and year-over-year.

If we quickly turn to Slide 12. With $1.1 billion of cash on hand, our balance sheet positions us well to continue to deliver on our philosophy of balanced capital allocation which includes organic investment, strategic acquisitions and returning cash to shareholders. Our commitment to this model is further demonstrated by the recent increase in our dividend of 60% and the incremental $500 million of authorization under our share repurchase program.

During the quarter, we repurchased approximately $155 million worth of our shares bringing our year-to-date repurchases to roughly $580 million. And we executed against our M&A pipeline, utilizing over $1 billion on acquisitions during the year, including an additional $122 million in Q4.

And finally, on this page, we had operating cash flow of $524.4 million during the quarter or $1.3 billion for the full year, representing conversion in excess of 80% of operating income when adjusting for the gain on sale of EMCOR U.K.

With that, I'll turn the call back over to Tony.

Thanks, Jason. And I'm going to close on Pages 13 and 14. As discussed, we are well positioned to continue to deliver excellent results in 2026. We expect to earn revenues of $17.75 billion to $18.5 billion and achieve diluted earnings per share from $27.25 to $29.25 with a full year operating margin of between 9% and 9.4%.

As we set guidance, and I have stated this many times over the years, we have always thought about it the following way. From the low end to the midpoint, we have a high degree of confidence that we will deliver that outcome absent a major economic event. From the midpoint to the high end of our range, we need to execute very well from a margin standpoint, and we need to book 40% to 45% of new work to allow us to hit the mid to high point of our revenue range. easily said, the better our margins, the higher revenue, the more we move to the higher end of our range.

As we look at the composition of our RPOs, we began the year with a strong mix of work, with estimated gross margins in line with those experienced over the last few years. We have a strong foundation across diverse geographies and sectors. At this time, we see no slowing of demand for most of our end markets and continue to see exceptional prospects in our data center markets.

As we move into 2026, we need to keep leveraging our training BDC, fabrication and project planning and delivery capabilities. We must not only continue to incrementally improve, but also innovate in our internal processes and delivery. We must also continue to protect ourselves through careful contract negotiation execution and compliance. We deliver for our customers, and we will continue to do so, but we also strive to protect our rights as we deliver these complex projects.

We will always face some macroeconomic challenge of some kind and some headwinds, but our team has excelled over the challenge -- overcoming these challenges over a very long period of time. I do believe that we are an employer of choice because of our excellence in field leadership. From our frontline foremen, superintendents, project managers and executives to our subsidiary and segment leadership.

We will continue to execute a balanced capital allocation strategy, focused on organic investment strategic acquisitions and returning cash to shareholders through share repurchases and dividends, which we show on Page 14. Our balanced capital allocation strategy has provided the foundation for our compounding record of success over the last 10 to 15 years.

As I close, I want to thank my teammates. I appreciate all you do for EMCOR every day and for our customers and appreciate the safe and productive way you execute our work.

With that, Jamie, I'll turn the call over to you for questions.

[Operator Instructions]. And our first question today comes from Brett Thielman from D.A. Davidson.

Tony or Jason, if you could comment just on some of the initiatives that compressed margins a bit last quarter, 3Q. I think you moved into some new territories that caused a little pressure there. Like what lingering impact that had in the fourth quarter, if any? And are you sort of beyond that at this stage here in 2026?

You always have to be careful to say we're beyond that because we're starting projects all the time and we execute really well, and we write projects up, we write them down. But on balance, I think the headwinds we've experienced in that particular market are behind us sell. And we had a little bit of that spillover into the fourth quarter. Some of it also is just mix of work.

We didn't finish as much fixed price work in our Electrical segment as we did the year before. And we started some work that was more target price or GMP, and hopefully, we'll convert some of that to fixed price, but we don't know that. But the underlying margins in the business, which you can see from our gross margins is pretty strong.

Yes. And I would echo what Tony said. The only thing I would add to that, right, is I tried to say this in my prepared remarks. If you look at the gross profit margin for electrical and you adjust for the amortization impact, it performed relatively consistent year-over-year. So any impacts that we did have from those project start-ups was offset by just execution within the segment.

Yes. Brent, and you could see it in our numbers, right? Are we a little disappointed we coughed up 50 or 60 basis points this year in electrical operationally? Sure, we are. Some of the headwind was from amortization. That's not a cash expense. But when you look over a 12- to 24-month period, that's a pretty good snapshot of our margins. We expect to operate somewhere mid- to low 12s to 14-or-so percent electrically. And mid- to low 12s. So a 13.5% or so mechanically, and it's going to bounce around there. But if we can operate this business between 12 and 5 and 13.5% on a sustained basis across our construction segments, I think we'd be pretty pleased with that.

Tony, maybe just to follow up, I mean, an interesting chart there on Slide 7. So on the network communications, data center side, you talked about good visibility here for the next 2 to 3 years. I think it would be hard to dispute that maybe one of the questions that oftentimes comes up is just like your regional exposure do you see yourself having to move into different regions to get more of this work? Or maybe you could just talk about what's happening, where you're already at, where you -- where you're positioned today that is going to continue to spend.

I don't have to [indiscernible] markets electrically. But the way I look at it is we have a strong -- we have a solid position in the Midwest. -- we'd like to make that a little bit stronger in some of the markets. We think we can do that either through acquisition investment or organic growth. Arizona, we continue to build that out.

We've just built a better position mechanically in Arizona that we look to take advantage of it. And electrically, we moved into that market 2 years ago, and we're starting to hit full ramp right now. Texas, we're pretty strong. Mechanically, we'll take some of our first significant jobs in Texas. And there's a mixed management decision, right? We had that capability there doing semiconductor work.

We'll continue to do some of that. But quite frankly, we think some of the rural data center work is better for us to do and it allows us to sort of get more productivity in our prefab shops also by doing that. And we've invested ahead of that. The semiconductor work we did there in a lot of ways with the beachhead to participate more broadly in the market and especially in the data center market. Mechanically, electrically, we have a very good position in the Dallas-Fort Worth area. We'll look to expand out of that. Atlanta, we have a very strong position mechanically and we have a secondary position electrically, and we'll look to continue to strengthen that.

The Carolinas were pretty strong, both mechanically and electrically, more so mechanically, but still pretty strong electrically. Northern Virginia, quite frankly, were terrific, both mechanically and electrically. And then as you get to Oregon, we're very strong electrically. So we will continue in Iowa very strong electrically. We will continue to round that capability. You can tell we're in more markets electrically than mechanically.

Some of that is -- we found it advantageous to be able to take our electricians that we're very skilled in our management teams and doing something that still don't work at one time, and they've proven to be very good data center builders also. And we've been able to take that scale from our -- some of our companies and move it to others. And it takes about 18 months to ramp them up to get to full production where they can hit the kind of margins, our traditional data center company then mechanically.

And there's no real reason some that we haven't expanded as much as just the footprint of where we are and what it takes mechanically to build the capability because of the prefab and all the other things are a little more extensive. And in fire life safety, we can cover the entire market, and we do.

Got it. I appreciate that, Tony. And just last one. I mean, your balance sheet, you sort of have a war chest here. How do you think about like total excess liquidity here, assuming you want to keep some level of cash on the balance sheet, also understand your revolvers untapped -- just thoughts there. It seems like you can do a lot.

I'll hit a macro level on that. And then Jason will get into some specifics about like cash we'd probably like to have on hand. I think in general, we're never going to have a highly leveraged balance sheet on a sustained basis to think of who we're working for.

One of our competitive differentiators, especially on this large project work is we're not a leverage company. And think about the hyperscalers, they're not looking to do business with leverage companies. And it's also when you look to the bonding line, it's a nice ability to be able to have a surety bond without question when you need it, and we've had that luxury. But we also would be willing to lever up for the right acquisitions or series of acquisitions to go to 1 to 1.5x, maybe 2x and the leverage back down to 1x.

What I wouldn't do is borrow a bunch of money to buy back stock. We like to do the buyback through excess liquidity. And if we're going to borrow money, it's because we're building a -- we're buying into an asset that's going to return cash to us over an extended period of time. That sort of macro levitation maybe get to the specifics.

I would say if you go to that Slide 14 that Tony referenced earlier and you look at what we've done this year, last year and even over the last 10 years, I think that's what our playbook looks like going forward, right? It continues to be a balanced approach towards capital allocation. We think we have a strong M&A pipeline as we move into next year. We'll continue to return capital to shareholders, and you saw that in the repurchases this year, and you saw that in the increase in dividend.

In terms of minimal cash balance for our balance sheet, it's probably somewhere in the neighborhood of $300 million to $400 million. So obviously, our balance sheet positions us to continue to deploy cash strategically as we move into 2026.

Yes. I think if you ask any of our management team down through the segment level, we would love to replicate 2025 here in '26 and '27. However, you've heard me say many times, deals happen when they happen. And what we are going to do is maintain discipline. We're not going to -- I think people on the line know me well enough to know this management team well enough that we don't buy in the hype and we don't buy into frenzy.

We have to believe there's a long sustained business case for why we would do something and we have to believe that we can add value. And our acquisition record is pretty darn good. I always say I never give anybody an A, but I'd give us a strong B+ over an extended period of time. And we're going to continue to do that. We're not private equity guys. We're not averaging multiples down.

We're looking to buy and build for the long term and build sustainable positions. And how we got from some of these places to serve 17 electrical data center markets is we bought companies who were in the business, we're able to strengthen it through peer learning, transferring people for short periods of time to help it and really doing a great job of taking our best practices and means and methods and sharing it across the company, especially as it comes to virtual design construct, VDC, BIM and prefabrication.

Our next question comes from Adam Thalhimer from Thompson, Davis.

Congrats on the strong quarter and the year. Tony, I wanted to ask you first about RPO the 33% in network and communications, obviously, some others in your space are even higher than that. And I'm just curious if that was a conscious decision on your part to stay more diversified? Or if that reflects something else like geographic mix?

It's funny. I'll go to the second thing. You said it's geographic and sector mix. we're not passing up great data center opportunities because we're doing the other work. However, we're not going to go away from our existing customers.

We have very strong companies in markets that have limited and no data center exposure. We have one of the best electrical contractors in the country in San Diego that generates great returns, serves our customers well, does it through a mix of pharma and high-tech manufacturing work some defense work and health care work.

There's not a data center opportunity there for them to do, but they earn returns that are as good or better than our segment averages. And we have a chunk of our business that exists just like that in places like California, some of the Intermountain states, some of the Midwestern towns. And as you go to like something as specific as water and wastewater, we're not walking away from opportunities in Florida to do data centers, although the first ones are going to get built, and we will participate in that. But the teams that do that water and wastewater work are very specialized. Could they do chiller plant work and things like that? Sure. But they're very specialized on that customer base and in that product offering.

So yes, some of it is intentional. It's been intentional, Adam, beyond the last 4 or 5 years. It's been intentional over a very long period of time to build diversity of demand. But that being said, I'll give you a great example. We had a very good industrial electrical contractor in the Midwest that are in middling returns for years, but very technically capable.

When the opportunity presented itself in Northwest Indiana to do data center work, we were able to take some of our skill base on the supervision side and our estimating side, train the people there to do the work, estimate the work, and now they're one of the best data center builders we have. And so we have the ability to do that when the opportunity and we create the opportunity presents ourselves and our customers need us to do that.

So I'd say, yes, part of it has been intentional as a long-term strategy. But are we shooting to say we're only going to do 33% data center work in RPOs, could be 40% for a part of a period of time, could be 45%, could go down to 30%. It's just the overall demand and the mix of work and margin we have out there.

Yes. The only other thing I would add, too, is just remember that for us, what we show as RPOs are the funded phases of a contract.

So we're working on a data center campus where there's multiple buildings and we have even a verbal for the Phase II. We're only showing that first phase in our RPO. So others may be doing it differently, which could skew percentages. But for us, this is funded, contracted work that we have in hand and 82% of this will burn over the next 12 months.

Yes.

Got it. Okay. So -- but you're saying if the outlook for data centers is strong, -- those don't be surprised if it goes to 40%, 45%.

Yes, it could. If you look at our Electrical segment, where we've been able to get into 17 markets, it's 40% to 50% on a -- I think it will stay there for a while. It may even go up a little bit. because we have found that that scale is the most -- we have the most ability to take that electrical skill and translate that into other markets from other work that they have done.

Okay. Last one for me. I was curious on semiconductors when the next wave of awards might be in that space.

We're seeing some of it now. They're just getting awarded into smaller chunks. We're very ingrained in for 1 of the customers, 2 of the customers in Arizona. And we're also there in Arizona and the Mountain States Fire life safety. I don't know if -- because you're already on site, I'm not sure you'll see the magnitude of the awards that we saw initially because they can leave it up to us some pieces.

And I think that's an important delineation with us. We have a pretty good idea of the work we're going to be doing there. which is some of that 40% to 45% we have to book a year. But Jason made a really important point, right? Everything we do goes back to GAAP, right? So our RPOs are funded contracts, signed purchase orders noncashable portion of a service agreement. I mean that is different than some of our peers do things. I mean we know that we may be at a data center site for 2 or 3 years. We're pretty sure the buildings we're going to get. But a, the work isn't contracted to us yet.

And so therefore, we'll plan for it. But we certainly -- and on a semiconductor site, we know that maybe 2 years ago, we might have got $150 million award and it's going to look like that $150 million award again, but they're letting it out to us to $30 million, $50 million at a time because they know that that's how their funding is going to work, and that's how they did the actual contract for that piece of the work. So we've been that way forever. It's a little different when you have these huge projects.

And we just have chosen to stay very consistent and not guess on what the future holds and keep it to that kind of convention. And as to say the same thing about our operating margin performance. The only thing to get added back here are hard things like transaction costs like the sale of the U.K. or a significant impairment. We have restructuring going on in the business all the time where we're restructuring subsidiaries. We don't do that. We don't try to add back amortization.

We figure our investors are smart enough to do that themselves. It's a noncash expense. We figure once we go down a rabbit hole, we become adjusted on adjusted, unadjusted. And we just chose to stay pure to the GAAP numbers. both for RPOs and operating income and revenue recognition, Jason.

Agreed.

Yes, I think it's just easier.

The numbers are very clean. We appreciate that.

You appreciate it sometimes because you salivate over other people that have 5%.

I can't speak for everybody else. I appreciate it.

Our next question comes from Brian Brophy from Stifel.

So your data center work has been growing a bit faster on the mechanical side than on the electrical side for a few quarters now. Can you talk about what are the drivers behind that? And do you expect that to sustain itself in the next year or this year?

It could. It could because we -- first was the basis right in comparison to the segment. And so we've opened up a couple of new markets on the data center side. And also, I think one of the growth areas in that is it's a little different than the scope we're benefiting more from the AI data center, even though we're building the AI data centers electrically, but the scope doesn't increase as much going from a 100-megawatt cloud storage data center to a 200-megawatt AI data center on the electrical side.

But on the mechanical side, it can be a 1.5 to 2x multiplier on the mechanical systems that will go in. And what's interesting about that, that in either cases that usually include the major end equipment.

Yes. I think Tony's point on the base is very important as well, right? Mechanical is up more on a percentage basis. But on a dollars basis, Electrical grew $1 billion this year mechanical grew $850 million. So Electrical is still growing more in terms of dollars. It's just off a larger base, gives you a smaller perceptive.

I think 1 way to look at it, too, electrically, we, about 2 years ago, established ourselves as more of a national player in data centers.

Mechanically, I would still would say we're still a super regional player in data centers. So you may see that growth because of the base and how we're continuing to penetrate new markets mechanically. And it takes a little longer to penetrate mechanically, and we're starting to see some of the investments return to us now from what we made 2 or 3 years ago mechanically.

That's helpful. And then related, I think you mentioned 17 electrical markets on the data center side, you're up to now 7 mechanical and it's grown nicely over time. Where can that go over time?

I actually don't know. I think we'll stop counting soon because they're now becoming you start counting the state of Ohio versus the 4 submarkets in Ohio and things like that, do you take the state of Indiana versus the 2 or 3 submarkets.

I think the way I think about it is we are now starting to build scale in some critical infrastructure places. So if you think about how this has happened and why it's happened, it's because it's been this quest for power as for stranded power. And -- that's how we -- that's how our great industrial electrical got into the data center business in Indiana because they went and chase the stranded power from the steel mills and auto plants that had been there before.

And so you think about that over time, there's still stranded power out there, and that should keep -- that's why we say 2- to 3-year pretty good outlook because our customers are telling us that, and they may even be a little bit beyond that. they feel pretty good, maybe a little longer that but we're contractors, we always discount that back a little bit.

And -- but I will say this, the markets are now dependent on where they can get power in place. My gut is there'll be a couple more markets added -- and then in the markets they're in, they're going to start to build even more density, just like they did in Northern Virginia right outside of Columbus, Ohio, what they've done in Chicago, what they've done in Arizona. They built in Atlanta, they're building density in those markets. And they do that for a reason in Dallas. They do that for a reason because they think there's a good view on power in the long term and also the connections there are really, really good. And the latency becomes important in some of those major metro areas for the knowledge workers long time.

Now do I understand how the latency works everything, not really, but that's how it all works when you put it all together. So it will go up, it's not going to grow like it did because now they're starting to build critical mass in those markets.

Our next question comes from Justin Hauke from Baird.

Yes. Great. I guess, first one, I mean you talked about the fire, life safety projects. being strong for a while. I think you made some comments here about kind of the uniqueness of what you're doing on the data center specifically. But can you just elaborate a little bit more on your capabilities there? And how you're different in that market?

Yes, are we different, yes, because I think we have some of the best fire -- we have critical mass on design. And we have a very strong position with the Road Local in the UA for sprinklitters. So if you take the business first and you take a step back and those that have been with us for, I'll be patient for a second, as I answer this question, it's one off the few trades that we do, that the actual implementation of that part of the specification is a design build product.

The way the specification is written, it says provide a fire-life safety system in accordance with the code at both the national standard and then their state and local standards. And our guys are experts at that. And what they do then is we design it. And then fire life safety has a fairly significant prefabrication component.

And we have some pretty at-scale fabrication shops. -- to support our fire life safety business. And then it's for the union other than 16 close lows, it's a road local that will travel. And so our people can travel across the country. And it also tends to get connected to think of in other word, like LEGOs or [indiscernible], it's a connected system, and we prefab most of it in the shops.

And then finally, it has a nice aftermarket component, and we have a nice aftermarket business. And that is one of the places where if we build it, we have a pretty good shot at getting the long-term service agreement post building. So it's a national business and scope. It's a design build business and scope on that specific trade.

We have a great workforce, and we're at scale in that business and probably as good as anybody else in the business never say we're the only ones, but 1 of the few that can operate on a national basis.

Okay. I appreciate more of the history lesson on that. I guess my second one is, I guess, for Jason here, and it's just more of a model question. But the Danforth acquisition, obviously much smaller than the Miller was, but I know it's going to have an intangible component with it as well. Now that it's closed, I think Miller, that was like $40 million for the year, that was kind of a drag. What's kind of the similar magnitude for Danforth, just so we can kind of think about what's running through.

So I'll hit a couple of things on amortization first. So if we look just at Danforth, in 2025, round numbers, it's about $2.7 million of amortization. In 2026, it's going to be around $14.2 million. So you got about $115 million of incremental amortization from Danforth in -- just a refresher on Miller, we said in year 1, so 2025, it'd be about $40.5 million of amortization.

In 2026, it's going to be about $33 million. So you should see about 7.5% drop off. So if you just look across EMCORE, while we may have a little bit of amortization benefit in electrical, it's going to be offset in mechanical. So if you really net the 2, it's near neutral.

And our next question comes from Avi Jaroslawicz from UBS.

So you've noted in the past how much more of your revenue has grown than your headcount. Is that something that you expect is going to be able to continue this year? Or are some of those productivity gains maybe slowing down and requiring some more headcount to support revenue.

I think we'll keep the trend going.

Yes. I think over time, we've said revenue is growing 2 to 3x faster than the headcount -- we saw that again for the full year of '25 or revenue outpaced headcount by 2x, and I think that model holds for the future.

Yes. And we'll continue to get the productivity gains, and we'll continue to due to the means and method sharing across the country allow more productivity gains.

Okay. That is helpful. And then just as we think about the margin guidance for this year, I appreciate that you give that color on the intangible amortization. But just without the U.K. business and with large projects continuing to grow and productivity continue to grow, would have expected maybe a starting point of around flat for the year for operating margins. So maybe if you could just help us think through that...

Yes, at the high end of our range, it is flat. And so then it becomes a revenue. If we do come in flat. So on the size business we have with 12,000 projects, we're giving you a 40 basis point range. It's pretty tight. And could we come in at the time that range sure. But if we don't hit the midpoint of the guidance, that allow us -- it's a revenue margin thing, and it's really -- contract mix is probably the biggest thing in there. We think will maybe pick up a little better on project write-downs year-over-year. And so all that comes together, that's how we get to the range. It's a pretty tight range.

And I think the bottom is pretty safe. Could there be upside on the top. A lot of things would go right, sure. But we gave you the 9.4, we think we have a probability of hitting the 9.4%.

Yes. The way I used the range is at the high end, we're essentially saying we could replicate the record margins that we achieved in 2024. That midpoint of that range somewhere around our rolling 12- to 24-month average, more or less, that is equivalent to that midpoint. And at the low end, we're saying, this is what margins could look like if we have a different mix.

So we talked about the water and wastewater work that we have ahead of us. It's great work. we're not turning down data center work to do it. It's a different margin profile. We're acting as a prime contractor. There's more subcontract component, there's more material and equipment component, so lower margins. So what we're saying is as we do some of that work and potentially revenue skews upward, it could have an impact on margins, but we still think in a fairly high band and a band that is at record levels for EMCOR over the last 2 years.

Our next question comes from Tim Mulrooney from William Blair.

I'm looking at the time here, I'm just going to ask one question. And I really just want to build on that last question, you guys because maybe the Tony, from like a more -- a higher level, a more conceptual standpoint. So bear with me. Because as I step back and I think about the situation that we're in, like this really is a renaissance for blue collar trade labor, American unionized labor in this country. So as I look at your guide for '26, I wonder what is the fair value? What is a fair burden for the critical services that you provide? Is it 12% to 13% margin in the Construction business? Like why can't that go higher?

I think it's a mixed question. And I think this whole thing is about risk and return for us, too, Tim. Clearly, where we make our most margin is where we take the most risk on a contracting basis, which is where we take fixed price risk.

And the more mixed use to that, especially on these large projects, and we do well, the more money we can make. However, there are certain operating conditions on the ground that doesn't allow us to do that. And a classic example would have been the job that happened last year, we went a new market. We felt pretty sure of ourselves on the fixed price. We reevaluate that now today.

We probably sort of went into that market on that project with that design -- and with the schedule they gave us, we probably should have pushed harder for a GMP contract, which would have maybe not taken some of the upside away from us if we've executed the way we thought we could, but would have protected us on the downside.

I think the other thing that -- I think you're right. But remember, part of that renaissance actually goes back to labor, too. I think they've been very good with us on labor increases. But the packages you put together on a job here puts pressure on the budgets of our end customers, and that's how you get into some of these target price GMP type projects because they're saying, okay, we're not exactly how you're going to put this labor force together in this remote market. in this section of IO or this section of Texas.

So there's some underlying things going on here. But generally, I agree with you. I don't think our customers pay us enough for what we do, and we're going to continue to ask us to pay more. I don't disagree. We have the best skilled labor in the country, I don't disagree with you.

Our next question comes from Adam Bubes from Goldman Sachs.

One more on the outlook, and sorry if I missed this, but can you help us break out the revenue growth outlook between organic and acquisition? I know there's a few moving pieces with divestitures, and the acquisitions you did last year?

Yes. I guess my first comment there, right, is you have to remember, the U.K. basically gives us a 3% headwind on the revenue growth. So if you look at our guidance, and let's say, at the low end, it's 4.5% and at the high end, it's 9%. It's really equivalent to 7.5% and 12%. When you consider the 1 month of incremental contribution we have from Miller and the the 10 months from Danforth, and you put that together, it really offsets the U.K. impact, the lost revenues from the U.K. So if you look at it and you say, what's the guidance? How much of that is organic? How much of that is acquisition. I would say really all of it is organic because the lost revenue from the U.K. is just offset by the acquisitions.

Got it. Understood. Helpful. And then can you update us on the M&A pipeline today? I know it's hard to predict timing of M&A. But can you talk about how active your M&A pipeline is maybe compared to this time last year? And any way to characterize the pipeline of opportunities in terms of size of businesses, region or technical exposure?

Sure. First of all, we have as good or better pipeline sitting here today. than we did at the end of 2020 because we knew we were already going to do Miller, right? We were in negotiation. So if you look at the pipeline beyond Miller, our pipeline today is broader and more diverse than it was at the end -- and the universe of them is where we like to buy, right? Mechanical and Electrical segments, building service, focus on mechanical service and building controls companies. That's where we're going to buy for the most part.

And there's some battering around mill right work and maybe some of the handling work we do in our mechanical business to supplement what else we do there. But that's what we'll do. Deals happen when they happen. I know we're landing -- here's who are landing site. We're landing site for someone that's selling their life's work or their family's life work. That's proven very good for us.

They typically it might be a broker, but it's not a brokered sale. Very much like Miller, very much like Quibi, very much like Batchelor & Kimball, very much a year ago. These are sort of landmark businesses that we're going to hopefully get to a deal. In other places, ESOP, that was Danforth. We're a great place for ESOPs long term, and part of Miller was a ESOP because we have an operational culture that's focused on the trades. And that's really how that ESOP started at one time when that family moved that business into an ESOP.

What we don't do particularly well in is auctions against private equity. We're not I don't have enough on my team with the vest that can go in and rip a company apart and tell me what it's worth. So we're not as good there, and we're not playing the average multiple game down. We're actually buying companies for the long term. And our deal size could be everything from $2 million, where we by some HVAC technicians, and it augments a smaller branch we have, all the way up to Miller at $865 million. We'll do anything along those lines.

Could we do a couple, $500 million acquisitions this year, $300 million to $500 million? Sure, we could. And we could do $400 million, $500 -- I mean, $100 million acquisitions -- just don't know sitting here today, but I feel as good about our pipeline today at this point in the year as I have at any time in the last 3 or 4 years.

And with that, everyone, we will be ending today's question-and-answer session. I would like to turn the floor back over to Tony for any closing remarks.

Thanks, Jamie. Thanks to all the analysts. I thought this was a great question-and-answer session today. I think you got to the heart of what we wrestle with every day. I want to thank my colleagues from EMCOR and my teammates for what was a great '25. Reality is most of us already forgot about 25%. We're here in the third week of February. We've all been focused on '26 really since probably the fourth quarter of '25. We have a great outlook. We're in all the right sectors. We're playing with the right team, and we have a terrific capital allocation strategy. Thanks for your interest in EMCOR. And thank you to all my teammates.

And with that, everyone, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good morning, everyone. Thank you for joining us on day 3 of Baird's 55th Industrial Conference. So today, we have the pleasure of hosting EMCOR. I'm Justin Hauke, I'm the senior associate covering specialty contractors and engineering construction companies along with Andrew Wittmann.

So from EMCOR today, we have Tony Guzzi, the company's CEO and Chairman. We have Jason Nalbandian, the company's CFO and many other roles, I guess. And then Lucas Sullivan, who's leading Investor Relations. So we'll do this as a fireside. I'll let Tony give his little commercial on it, and then we'll just run through some questions. And if you have anything that you want to e-mail, [email protected].

Okay. We're going to get going here. We're going to show you a little video. Wake everybody up.

[Presentation]

All right. How lucky are we, right, to be able to be in a company like EMCOR. So what is really EMCOR is we actually do real work, right? We're not a general contractor construction manager that manages a bunch of other contractors. We are a company of skilled trades people, plumbers, pipe fitters, electricians, welders, sprinkler fitters, millwrights, HVAC technicians. Venture to say, maybe other 1 or 2 other people, one other person here, we're the largest employer of trade labor in the country.

And these are highly skilled people. Most of them are great not only in building things, but they understand how systems work and a part of our business, we know how to make sure you fix it and keep the building running. If you take EMCOR at its highest level, we are a project-oriented company that also has a maintenance element to it. If you think just macro level, the projects we're doing anywhere from 12,000-plus projects a year. And they really fall into 3 buckets size-wise. Still 1/3 of our projects today are still less than $1 million. The next 1/3 falls somewhere between $1 million and $10 million and the third above that are $10 million plus. The ones that have grown most rapidly are those projects that have grown more than $10 million. And there's major trends driving that. The major trends that are driving that are the things most of you are here to talk about today. It's data centers, it's high-tech manufacturing. It's high-tech manufacturing, not only to semiconductors, but pharma bioLife. It's health care. is hospital construction. It's water and wastewater. EMCOR is a very diverse company, right? We have diversity of demand, which probably sets us apart from some of the people you've been talking to over the last couple of days. Yes, we are a major data center builder. I would venture to say we have more penetration, especially on the electrical side and the fire protection side than any contractor in the country. We also, though, do a lot more than just data centers, and you'll see that in our RPOs.

Our RPOs are up more than almost 30% year-over-year. And we also have great capital allocation. We're a company that acquires very well, as shown by our acquisition of Miller Electric. That would be the largest acquisition we've ever done. and we're very pleased with it. But also bread and butter acquisitions, which for us are somewhere between $50 million and $300-plus million, somewhere in that range. And we do a lot of bolt-in acquisitions that go into our existing subsidiaries where we're buying a small company that gives us either more technical capability, more technicians or it puts us in an adjacent geographic market that we weren't in before. And if -- so you think about EMCOR and you go by our segments, we basically are going to -- by the end of this year, we'll be going to market through 4 segments, but they all work together, especially the Mechanical and Electrical Construction segments, they're serving the same customer base. If you go to the Electrical segment of which we had, which has been growing mid-teens for a while organically, if you go to that Electrical segment, that is 100% union IBEW. And we go to work there through about 25 subsidiaries. Those 25 subsidiaries for the most part, are people that started their careers and they run our subsidiaries that started their careers as apprentice electricians. And some of them today are running a $0.5 billion business. Suffice it to say, they know the work.

The mechanical segment has plumbers, pipe fitters, HVAC technicians and millwrights. It's about an 80% union delivery. And on the construction side, especially the core piping is near 100%. Those are run by also people from the field, but also engineers, people that started their careers being project engineers and project managers. If you go to Building Services, 3/4 of the Building Services segment today is our Mechanical Services business. You ask what's the difference between the mechanical services company and the mechanical and construction. At the highest level, it's probably a distinction without a difference because they're skilled pipe fitters However, our mechanical service companies for the most part, are doing smaller projects. They work in the aftermarket for the most part, where the owner is either directing the general contractor uses or we're working directly for the owners.

And we have about 2,000 HVAC technicians in that business. That business is a high single-digit EBITDA or operating income business and has been growing GDP plus 200 or 300 points for a long time. It's mid-teens -- mid-single-digit growth rate. And I think it's probably the best representative of what's happening in the general economy outside of those major sectors that are going on.

And the balance of that segment is our site-based business, which we're doing route technicians are putting people in buildings, and we get some spillover effect into our mechanical service business. And then we have the Industrial Services segment, which is for us, mainly an oil and gas business. We do some intermittent energy work there/renewable work there. We do -- we can EPC and build solar farms at utility scale. That is generally EMCOR. With that, we'll flip it over to you to take questions.

Yes. No, that was a great overview. It kind of touches on a lot of things that I want to maybe elaborate on. But I guess maybe starting with one of the things that's really clear, I think, from this conference, but just in general, is one of the critical bottlenecks is people, right, particularly craft labor. And I guess how does EMCOR -- there's other companies that are in the market that are also contractors. How do you guys differentiate? How do you recruit people?

I think the biggest differentiation for us is the value system that our leadership works under. And EMCOR, at -- again, go at its core. I talked about that our product is not electrical and mechanical construction or even mechanical services. That's not the core product of this leadership team. I'd venture to say we build the best field leaders in the industry from forming them up. If you do that right and you're a values-driven company, which we are, people want to work there. And the people that are recruiting that trade labor to come and work for us are people that are like them. I talked about on the electrical side, how a lot of our companies are run by folks that came for the field and the 2 or 3 that aren't have been in the business their entire lives. And so you're getting recruited by somebody that knows the work, have deep respect for what we do. We're going to train you. And you think about why trades people would come to work for us, right, versus other people, whether it's union or nonunion, start with, I'm going to get paid every week.

That's not a given in a smaller contractor. Second thing, in no particular order, you're going to keep me safe. This is inherently dangerous work we do. We have industry-leading safety and recordables, right? We are Six Sigma, and I always think about it, I take a deep breath, right, because we're doing dangerous things today. We are Six Sigma versus the industry in safety. We have never turned on a safety investment. Our people know that. You're going to work for people that know the work, right? We've all worked, right? And there's nothing more frustrating than having someone you work for that has no idea what you actually do. At EMCOR, all the way up to me, people know that we know what they do. And at the field level, they are great contributors to means and methods. If you do a good job, you have a chance to be part of our core team. In contracting, in our contracting, we have those 35,000 depending on the day, skilled trades people, about 20,000, 25,000 of those always work for us. That's their career. The rest are coming in and out depending on the peaks in the business. They're either out of the union or where we're nonunion, they're in or out nonunion.

Again, most of the construction is done union. And so if you do a good job, I can build a career with you. If I want to, I can be the foreman, the general foreman. I can be the superintendent. And you're going to give me the training to do that. And again, go back to this building great field leaders. We have a stair-step training program that's pretty well known in the industry and that I think is fairly unique to us because by the time you get tough, we're not talking to you about project management. We're talking about how you should lead people in the field to do all those things I talked about so they can build a career.

Maybe one more on the labor side. You mentioned union a couple of times. And just because I get the question all the time, and I know we had the pleasure of having dinner last night, and it came up a lot. But maybe you could just talk a little bit because sometimes I don't think people don't really understand what union means. So maybe talk about the benefits, disadvantages, whatever of union versus nonunion, how you can move across the 2.

I think, again, go to the big project work we're doing, go to the most part for our core construction markets. We are a union contractor. I personally look at that on those large projects, and I think our whole team does as a real source of strength. You can always recruit somebody to go from nonunion to union. But unless it's a horrible recession, a union tradesperson isn't going union to nonunion. And the great thing about this expansion we're in right now is we're replenishing the union rates and building a whole new generation of leaders. And the other -- if you just think about economically, it makes all the sense in the world that most construction would be done union. The benefits are with the union. They can go back to the hall and be redeployed to a contractor that has work. It's a better working situation for the individual tradesperson. It's actually a much easier company to work in for the recruitment and development of labor than a nonunion contractor. We do both. On the mechanical side, we have some prime contractors in the Southeast and in our industrial service business. The other thing, union, you very rarely get stuck with excess labor. In the nonunion world, a lot of times, you can get stuck with excess supervision labor because you're always afraid to let them go.

They typically are better trained. And then there's this image that they're completely inflexible. Yes, there are markets, New York, San Francisco, that if you had to use that model and grow it across the country of working with the union, you probably wouldn't be very successful. But the IBEW, the UA, especially with respect to how we build out these mega projects have been fantastic partners. And it's allowed us to build a workforce. Jason, if any -- we look at this a lot.

Yes. I mean I think that flexibility aspect of -- to be able to release workers that get back to the union, all you almost like a stable that you can always kind of go to.

That's right, you could be -- look, I -- I see both, right? We have both. On average, a union journey and electrician is far better than his nonunion counterpart. And I feel very comfortable saying that in any crowd anywhere. The union foreman and superintendents are great athletes. They're great player coaches, and they really know means and methods.

Yes. Okay. Maybe the next thing to kind of go to. I mean, we can talk about the end markets. So I think it's really clear what's strong and everything else. But one thing financially, I guess, is your margins have really improved over the last several years. And when I think about contractors, typically, they have like mid-single-digit margins.

On a good day, sometimes.

On a good day, Fine. You guys are kind of doubled that, they've trended closer to 10. Maybe just talk about, is that a dynamic of how good demand has been, some of the things that you guys have done internally technology-wise that have changed that? I don't know if this is a good question for you...

I'll start and I'm going to kick it to Jason relatively quickly. I mean, clearly, if you're not in a durable demand market, you're not going to make the margin that we're making because you're not going to get the absorption on your overhead. And you're not going to be looking for ways to take labor out of the business and to be innovative. You go back to the search for labor. Because of that, it forces you to be innovative with prefabrication, VDC and BIM, which then enhances your margins. And then we do other things to enhance the margins. Go to safety. Safety is a big deal on margin.

And just [indiscernible] what is VDC and BIM?

Virtual design construct and Building Information Model. BIM fits underneath there, which then leads to prefabrication. A lot of people talk modular. We talk prefab same thing, maybe modular, there's -- they tend to sell to other people. For the most part, we only do fabrication for EMCOR. There are some exceptions, but you never say 100% the company is bigger. But Jason, you've done a lot of work on margins.

I think for us right now, when you look at margins, it's a combination of factors. So some of it is demand environment. A lot of it is execution and some of it is, as Tony just said, the investments we've made in prefabrication and virtual design construction and BIM.

If you just look over time, right, EMCOR is not a capital-intensive company. I think our CapEx is something like 0.5% or 0.6% of revenues. But if you look over the last three years, we've made several investments in CapEx. And so if you look kind of at a 3-year CAGR, revenue is growing 14%, 15%, CapEx has grown 28% to 30%, it's almost 2x that of revenue. And that's the investments we're making in the BIM, VDC, prefab, the things that are making us productive, the things that are making us more efficient, the things that are helping drive margins.

And so you say, what's the outcome of that, right? You look at revenue and you look at headcount, and you see a spread between the two, where we're actually we've been successful at growing revenue really 3x the rate we're growing our head count just because of these investments we're making which are making us more productive on the jobs.

And then you think about something, which BIM's has been around for a while. If you think about what we're doing now, especially on these larger jobs. The reality, engineers are taking jobs, engineering firms are taking jobs that may be 40%, 50% complete. We're actually completing it with our BIM -- our internal engineering. And that allows us to design for constructability. So we're finding the mistakes in 3D and even beyond before we ever go to the job. And if you go to a job site today, you see these monitors, a lot of gang boxes will have something a little smaller than this, where they're going to look at what they're going to build today. 10 years ago, that would have never happened. It was just starting to. And you think about -- I go back to when I talked about workforce development, that's part of the margins. Because we have a whole new generation of folks that are taking leadership roles, they're much more friendly and familiar with technology, which allows them to bring that to the job site and allows us to push more work back into our shops because they're not adverse to it. it's something they understand.

Yes. I mean -- and I guess -- and especially -- I mean, this probably doesn't apply as much to that 1/3 that's $1 million or less. But the bigger jobs, this is almost like table stakes. You're taking a lot of labor out by being able to kind of control the environment.

Jason, go through the numbers on revenue growth versus labor growth, and that's where you see it.

Yes. So if you -- as I said, we've been growing revenue like 3x -- the growth rate has been 3x our labor growth or our headcount growth rate. So if you just look, let's say, 5-year period CAGR on revenue is probably 10% and the headcount CAGR is probably 3%.

If we were trying to do what we're doing today with the same means and methods we were doing 10 or 15 years ago, our growth would be stunned because we wouldn't be able to find the labor we need to complete that job.

I've got a couple of questions that have come in here that I'm going to get to. I want to maybe do 2 more things to just orient everyone. But maybe the next question would just be on kind of portfolio allocations because you guys do a lot of different things and the building services is not construction, but it's more of the maintenance stuff. You recently exited the U.K. business. So maybe just talk about from a high level, how you think about the portfolio, where you want to do M&A because you guys have been an acquisitive company and just kind of where that focus is.

Yes. So if you take a 5-year look or actually a 6-year look, if you go back to 2019, it's almost perfect balance on capital allocation. High level, where Jason?

We're near 50-50. If you look at business reinvestment, so call it organic growth, M&A versus shareholder returns. So our share repurchases and dividends. We're near 50-50 balance on capital allocation.

And I think that's what the future looks like. To me, that's -- and we're a low leverage company, and we're going to stay a low leverage company. We actually compete on our balance sheet. It's -- because our customers, you think who they are, who's actually funding this growth right now, their balance sheets look a lot like ours. And that's an expectation. And then it allows us to have where bonding is needed to never have to go hustle for a bond like a lot of these PE-owned contractors do now. I think the U.K. exit, home run. home run, it will close by the end of the year. Great team. Most people in the room don't know our long history in the U.K. It was part of the original predecessor company at EMCOR. It used to be a big construction company that lost money, lots of money. We shugged down, reformatted. It had great management teams, and we got it to be a very successful facilities management company that was a highly desired asset to other people in the U.K. We weren't going to invest to the level we needed to. The next move is probably -- was to take it into Europe and it had -- that play has been out there for a while. We weren't going to do that.

We have other places we can spend our capital. People would ask, was it a distraction? Not with the management teams we had. It really wasn't a distraction. 10 -- 15 years ago, it was. So for me, it was the culmination of a 15-year effort. And I think the new owners will be served well. It's a great team. And I think it's a great outcome for EMCOR and its shareholders. If you look at the rest of the portfolio, we're looking at stuff all the time, right? Every day is a resource allocation game as a contractor if you run the business, right? You're thinking about how to maximize margin. Building Services, 2/3 of it is mechanical services. 1/3 of it is site-based services. Site services takes a little to no capital. Mechanical services is probably the most steady business we have at EMCOR. It's a high single-digit EBITDA ROS business, near 100% return on that asset business and we are a market leader. And the site-based business is an important part for some customers for us to know how to do. Industrial Services is challenged. Great team, by the way. You gotta do under the distraction point, no distraction, great team, very difficult customer base right now. They think 0 is a good number for people to earn sometimes.

And Justin, you asked about M&A. I think for us, it's really core markets. So definitely U.S.-based electrical construction, mechanical construction and mechanical services. Those are the areas where we want to invest in building automation and controls.

Yes. This is not a global business. It's emphatically not a global business. People have tried to get us to do that. Think about it. What is our advantage? It starts with great skilled labor, knowing the local market conditions, be able to deploy it and attract it. There's a whole swath of this world where they don't value skilled labor, they just throw more people at it and they don't do it necessarily in a safe and productive manner. So this is emphatically a U.S. business, and we've done very well. We have plenty of opportunity to grow it as a U.S. business.

You mentioned the return on assets being really good, and obviously, you're capital light. I mean I think one of the things if you just look at it from a high level, you're a GAAP reporter, your ROIC has been consistently 20% plus so can you just quickly run through kind of the growth algorithm that you see as -- obviously, there's puts and takes all that time, margins can move around. But just kind of where you see margins holding kind of top line growth, free cash flow consumption?

So I think -- and Jason jump in if I get over my skis here. I think our construction businesses for the foreseeable future organically can grow high single digits. And that will be driven by things like data centers, health care, high tech will come in and out on the semiconductor side. And in core markets like traditional manufacturing, water and wastewater and just small projects that still exists in our construction business. Again, that's our Electrical and Mechanical segment. I think our Building Services segment is a GDP-plus grower, so maybe 200 or 300 points above GDP. And our Industrial Services segment is going to bounce around depending on the turnaround schedule. Maybe go through some interesting stats when you think of -- and then margins, margins as a contractor are going to move in band. And Jason will give you how we look at the business here in a minute. They move in band. You're not going to be -- we don't get to keep -- we don't do the same thing twice. We do sort of the same thing sometimes. But...

The next turnover is just...

Yes. We get to keep our ideas, but this isn't a manufacturing plant where we did these productivity initiatives a year before. And then we get to lock it into our standard costs as we sort of know what our margins are going to be. We close out jobs. We start jobs. We invest in new markets. They have lower margins inherently initially. We have GMP contracts versus fixed price that we do [indiscernible]. We have target price contracts versus this. Sometimes we're doing more T&M. And the same thing with RPOs. Sometimes the contract gets little out, will be at $200 million -- and we are a GAAP reporter, not only on our numbers, we are a GAAP reporter on our RPOs. So it's real contracts, noncancelable portions. So sometimes we look a little different. we're pretty sure you're all smart enough to add back amortization and depreciation by segment where we give it to you.

But I think the key thing on the margins though, is that they will bounce around, right? It's a project-based business. And we've gotten a lot of questions on our Electrical segment margins in the quarter and for overall EMCOR and for each of our segments, what we've said is if you look at a rolling 12- to 24-month average, that's about where margin should be for each segment for consolidated EMCOR, but they'll bounce around quarter-to-quarter.

So if we just take electrical, for example, over that 8 quarters that make up that 24-month average, they've been as low as 10%, as high as 15.8%. So they'll bounce around. But on average, they'll come back to rolling 12 to month period.

.

And with the growth, we've done a lot of analysis on that.

If you look at growth, let's take our construction segments, for example, when you look at broader nonres. If you look over a 5-year period, we have a history of growing 500 to 600 basis points above the broader non-res market, and we think that ratio should hold true into the future. If you look at consolidated EMCOR, that's probably 200 to 300 points above the nonres market.

And these are over long periods of time. So the other thing that I think people get confused about, and I'll hear this, they talk about market share. That is the most meaningless -- first of all, define the market for me. I've been doing it combined in my time at carrier, and I grew up on it. People -- there is no definition that would allow you to get to a real market share number. define the market. That's not how we think, right? We think opportunity and we think about building out a business in a geographic or end market. And as contractors, we typically take a 2- to 5-year view of the world. We're not building products with IP in it that you have to have a 10- or 15-year view of the world. And we can move our resources between. So I'll give you a great example. So we've gone from servicing 3 or 4 data center markets in 2019 to today '17. How do you do that? Well, you take some of your existing assets, your companies that have great electricians and supervision that did a lot of either hospital work or industrial work.

And you take other people from other parts of the company that are willing to do it and you train them up how to do that. Great success doing that. How you acquire you take someone that maybe can't take the next step to do hyperscale work but only do a piece of it. And again, you have people that are expert at it. The 2 gentlemen that run our Electrical and Mechanical segments, venture to say, Brian and Dan are probably know more about how to build a data center or a high-tech manufacturing plant than anybody in the country mechanically and electrically. And so they know how to move our resources to get someone started into that business, whether through organic growth or acquisition or it's not our preferred method. We'll go start up an operation in a new market where our customer ask us to come in, and they want to write part of that risk with the right contracting mechanism when we go in. So we do all 3 ways. We've gone from 2 markets mechanically to over 7 today. Fire protection, we can serve every market in the country. which is sprinkler and fire alarm.

And just because we're getting close to the end of time, there will be a breakout down the hallway. But just because you mentioned the data center so much. One of the questions from the audience was just how do you manage if and when there is a downturn on that given how the projects have gotten so much bigger and -- I don't know, I guess your variable cost and...

Yes. I mean, clearly, what's it 25% of our business today?

24%, 25% of our revenue.

Yes. That gets cut half 12.5 of business has gone. It wouldn't be the first time we went through that. So what do you do? What's the playbook? First, we look for other opportunities. But my guess, the data center market takes a big correction. We got a lot of manufacturers in trouble. They've been to a site and see all the switchgear, chillers, air handlers, crack units and a lot of stuff on those sites, right? We know how to cut costs. We're really good at it. The real sort of underlying principle of EMCOR metrics-wise is return on net assets for -- that's how our people get paid.

When we go through that -- look, we have parts of our business in geographies that are in downturn today, right? We're a big company. What do they do? Again, we have a flexible workforce, especially on the union side or even the nonunion side, the trades people. There's little or no severance costs. We revert back to our core people. Some of our foreman become working foreman or a journeyman again, and we live to fight another day. That's why we don't make huge fixed cost investments as a contractor. We try to stay as flexible and as nimble as we can. It's why we don't buy all our lifts. It's why we don't buy all our vehicles and we lease them. It's why we're one of United Rentals' biggest customers for rental companies. It's why we carefully add prefabrication space. We're going to add 450,000 space this year. The way we look at that space is it has a 3-year payback. And we have pretty good 3-year visibility right now. I'll leave you with this one thought, and I did this on our earnings call. Some of you heard that. So we recently had 80 of our data center team, our team together at Miller Electric about a month ago, maybe 6 weeks ago. Great interaction of ideas, all that. [indiscernible] came, I won't give you their names, but 4 of the big hyperscalers, the owner.

They wanted to make sure we were on the journey. They showed us their building plan. until 2031, it looks like we're going to be pretty busy. And it also looks like they can't keep up with demand from the people that are building their product. And it also looks like they have power through that. But with the gas -- and the only way out of this is gas turbines in the short term, the next 5, 8 years. And the gas turbine companies are all sold out until 2031. So I think there's a lot of things that will be good. We can catch you in the breakout if you have more questions. Thank you all for your interest in EMCOR, and we're pretty proud of the company we've built over a long time.

Thank you very much.

All right. Good afternoon, everybody, and thanks for joining our fireside chat today with the executive management team of EMCOR, which includes CEO, Tony Guzzi; and CFO, Jason Nalbandian. We picked up coverage right after Labor Day this year and came out with an outperform rating, right around $600 per share, which was up sixfold from about $100 per share only 3 short years ago, driven by the incredible momentum that we've seen in the business. And shares continue to move higher with every incremental headline about industrial reshoring and AI infrastructure.

So with that as a backdrop, I'm excited to have the team with us today to talk more about the growth drivers and industry dynamics. So Tony and Jason, thanks for joining us today as well as sorry, Lucas, I should have you as well. Lucas Sullivan, IR. But yes, thanks for joining me, guys.

You bet. Thanks for having us.

You bet. So I want to start out with just a quick recap, state of the union. You reported your third quarter results last week. A few of the items that really stuck with us is, one, you're continuing to see broad-based revenue growth. I think 10 out of your 11 construction end markets grew this quarter almost at a double-digit clip, I'll add. The backlog is continuing to grow #2, strongly, and that's particularly true for data centers. I think the backlog there doubled from last year, which leads me to point number three. You shared that you believe you can maintain a high single-digit to low double-digit organic growth rate over the near term. So maybe with that, can you just spend a little time, share your perspective on the current state of affairs, how you're thinking about things stepping back, like how are things playing out this year relative to your initial expectations? Anything surprising you one way or another, just at a higher level?

Yes. So look, I think you captured a lot of the high points well, Tim. And thank you for setting this up today. And everybody on the line, thanks for joining us. It's an exciting time to be the CEO of EMCOR, and I've been the CEO for a long time. But I think you captured it fairly well. RPO is up 29% year-over-year, about to $12.61 billion. 80% of that growth has been organic. I think you captured it well. You see good diversity of demand because our -- it's not only our revenue growth, we also had RPO growth in almost all of our sectors. I think diversity of demand is something that's important. Yes, we are growing well in data centers and some of the other things focused on nearshoring and reshoring and all those things.

But we also have good diversity of demand at EMCOR, which I think sets us apart from some of our peers. We're growing our revenues. And Jason, when we hit this later, we'll hit this later when you ask about labor, but just to get it upfront, we're growing our revenues 2 to 3x the rate of our headcount growth in our Mechanical and Electrical Construction segments. And that's important because it ties into a point you make later. We are also seeing opportunities to grow, which to us is one of the key capacity increases is we're having the ability to -- because of our growth to grow more foremen, superintendents, project managers and other folks that help us expand and be able to do more projects and larger projects. We continue to see good aftermarket growth. That gets lost in all this, right? We continue to have good aftermarket growth, especially in our mechanical services business.

And we've had really, I think, we have a record of really good capital allocation, but we continue to have really good capital allocation. We're in the process of divesting our U.K. business, which we have built into a pretty good business. We'll be selling that this year, pending U.K. regulatory approval.

We've made over $900 million worth of acquisition, the latest being our John W. Danforth acquisition, which we actually signed -- will close here in the fourth quarter. We actually signed in the night before earnings when we want to announce it. And we also have done $400 million plus in share repurchases. And we've done all that by having cash flow generation that continues to be best-in-class. We expect to be at least equal to net income when we do that and we have a long track record of doing that or a little bit better. And we leave 2025 as we exit out of the year, feeling pretty good about as we go into 2026. And we're doing all that by earning the best margins we've ever earned between 9% and 9.5% on a consolidated basis, operating income.

Remember, we do operating income. A lot of people do this sort of EBITDA accounting and EBITDA accounting. We're operating income. We figure everybody on the phone smart enough to add back amortization. And we continue to invest for the future and development of our people. Jason, you got anything to add there on the highlights upfront?

I think Tim hit it, right? 10 out of 11 of our market sectors grew when you combine electrical and mechanical. I think the thing for me that's always interesting is if you look at the business overall, you strip out what we've seen as high-growth sectors over the last several years. So you strip out networking and communications, which for us is predominantly data centers, you strip out high-tech manufacturing and you look, how did we grow the rest of the business in '24 and for the year-to-date period of '25, and we're still growing it at mid- to high single digits. I think in '24, it was roughly 4% to 5%. And year-to-date, we've seen the rest of our business grow at roughly 7%. And so I think that's a testament to really the diversity of our business.

And Tim, you mentioned kind of our near-term growth rates, and we've said this before. I think for us, if you look at how we've grown historically against non-res, I think that's a good predictor to how we'll grow into the future. And for us, on a consolidated basis, we typically grow 200 to 250 basis points above non-res. And in our Construction segments or our Mechanical Services group, we're typically growing, let's say, 500 to 600 basis points above non-res.

And that's where we get to the 9%, high single digits, low double digits. in our Electrical and Mechanical segments that you mentioned when we kicked off the call, Tim.

Okay. That's a good level set. Thanks for providing that overview of the business. It sounds like you guys are largely thinking about it the way we are. Although I will say we raised our estimates on the most recent quarter for 2026. So although that's a good growth algorithm on how to think about it, you do kind of continue to surprise to the...

Yes, we continue to outpace it a little bit. [indiscernible] talking about, doesn't have any acquisitions in it, next year.

Good point. That's a good point that -- yes, that's right. Although my model doesn't include the most recent acquisition because you announced it, but you haven't closed it yet, correct?

Yes. And then we have the U.K. coming out. So, we have a month of Miller coming back. We've done some other small ones. We're pretty good about breaking that out when we give guidance in February.

Perfect. So I'll move on here because, Tony, I was laughing in a recent fireside chat, I think you made a joke that no one wants to talk about anything with you except data center these days, which I understand. But actually, I do actually want to start this off by talking about some of your other markets. Cool. So I mean we've seen strong growth in a lot of these areas and something we've all come to appreciate more and more is just how long and coming the push and need to reshore has been and the potential for this to be a multi-decade theme. So maybe I could start with these high-tech manufacturing opportunities, semiconductor fabs, a lot of MEP work goes into those, I think. But obviously, these are large projects. A ton. Okay. All right. That's what I thought. At the same time, it seems like the U.S. may be in just this initial push of what might be, I don't know, 10-plus, 10, 15-year surge in CapEx to get the critical mass of chips here in the U.S.

How much has your team already been involved in this area? Because I don't know. I'm new to the story. And I know you guys have talked about semi, but like how much have you already been involved in this area? And how do you think about the opportunity over the next few years? Is it less about as much? Or more than you have been? I just don't, I guess, have a good level set for.

Well, I'll give you some historical perspective. I've been at EMCOR 21 years. We've been working on semiconductor plants on and off for 21 years. Now what's different this time, that was for 1 or 2 particular customers, one in Arizona, one in Salt Lake City, a little bit in Boise, Idaho. That's the historical perspective prior to this recent expansion. The recent expansion, we picked up a couple of new customers, one in Arizona that's pretty well known. We're doing the mechanical work there. We've done some of the fire life safety work there. We've done some low-voltage electrical work there. We did a lot of work on the first fab mechanically, fire life safety. We're doing some of the work on the second fab, the same scope going forward on the mechanical side.

As you go to one of the other big fabs built in Texas, and we don't give customer name, they don't want us to give customer name. Another big fab built in Texas, we did the CUB, Central Utility Building. So just put -- is it a bigger mechanical project? It's a huge mechanical project. It's 70,000 tons of cooling. So just to put that in perspective for you, 70,000 tons of cooling, take a major medical center that may span 2 or 3 city blocks. 12.5x as much cooling power goes into that semiconductor fab at a place they're planning on building 5 that would be in that 1 location. So that just gives you an idea.

How many times?

12x of a major medical center. So go down to Northwestern Medical Center, you're in Chicago, looking at vast medical center, the cooling capacity that they will use at that one semiconductor fab that we built in Texas, just the central utility building, 12x the size of what they'll use at Northwestern Medical.

So 70x when it's all said and done, if this is...

70,000 tons is 12x. So it's about 5,000 to 6,000 tons at Northwestern Medical Center. This is 12x that. I'm just trying to size it for people. And there's other phases to that, right? We did that there. places, we'll do the tooling install, which is more of a unit price job. In other places, we'll do what's in between the tooling install, which actually moves the air and moves the liquids, and we do that. That's actually what we're doing out in the desert. You pick which part you're going to do, you really can't do it all, no contractor really. And they don't want one contractor to do it all.

And so we think that's a 5- to 10-year opportunity, too. We're well entrenched in Arizona. We'll have the opportunity to potentially do the Texas job when they do the next phase. And then we have to balance that against other opportunities we may see in the same geographic market in Texas because there might be something better to do that we'll go do there, maybe a more remote data center that's going to take 7 years to do, and there'll be more quick-term projects to do that. And you say, why don't you have the capacity to do both? Well, we could have the capacity to do both, but we'll see if that's what we want to do.

To the central question, though, do we believe this is a good long-term market for EMCOR? The answer to that is absolutely. Is it going to be a big drop into our RPOs like it was when we did started the first plant in Texas? It might not be. They might let it out in phases, and that's more what we're seeing in Arizona, and that's what we've seen through time as we became more entrenched with the customers. Jason, you had some good data on this, I'll flip it over to you to add.

Tim, I think the key here when you look at the data is the point you made about this being a little bit lumpy for us relative to some of the other sectors, right? You finish the first phase. There's an inherent lag before that second phase starts up as our customers try to get these facilities up and running. But if you just step back and you look at the work we're doing today in this space relative to what we were doing just a few years ago, let's say, 2021, for example, our revenue today is 5 to 6x in high-tech manufacturing, what it was just a couple of years ago. So we're down maybe year-to-date. But long term, we're certainly seeing elevated demand, and we think we can continue to grow off this space.

And it's really all trades. It will be everything from sprinkler fitters, fire alarm techs, low-voltage techs, traditional electrical, mechanical, and we won't get every job, every phase, every trade. And then millwright actually because one of the semiconductor equipment providers have actually hired one of our companies to be the national person that goes around and sets all the semiconductor equipment regardless of whose plant is going into. So this is a broad-based opportunity for us. It's something we will participate in. It can be a little lumpy or it will be steadily coming into things. We like the work. It's tough work. There's less people that can do this tough work.

But again, when you're working in a sector like this, you're working for some of the most sophisticated customers in the world. And some of these folks came over and either hadn't built a semiconductor plant in a long time in the U.S. and one of them had never built one in the U.S. So you go through those growing pains. But to be fair, we did quite well on that first one with a new entrant in the market for the U.S.

Got you. That was a lot of good color. And when you say it's tough work, not everyone can do it, Tony. Is it your technical capabilities? Or is it the fact that you have the manpower? Which one is the bigger one at the moment that...

I think it's the intersection of both. The manpower are pretty highly skilled. I mean this is a lot of high-end welding, high-end fitting, electrical, this is pretty high-end work, right? These are very experienced people. In our case, we try to have at least a percentage of that 20% to 30% of those people have done this work before. We're not like cycling.

The second thing that I think is the amount of interaction you have to do with the person building it. The amount of BIM, Building Information Modeling, virtual design construct, design assist we're doing here before we ever build anything, coupled with the amount of the precision on the prefabrication. And then if we move -- if we're doing the middle phase, the middle work or the tool installation, the middle phase is all clean room work. So we actually have basically the chambers to do clean room work like a pharmaceutical or anywhere else to do the welding and everything around that.

So it's very specialized. The further you go into the fab. Central Utility Building, maybe not as much, but as we're more into the fab, it becomes very specialized, very -- you need some facilities to do it. You need training around those facilities, that kind of welding. You're doing a lot of high alloy welding, a lot of stainless steel welding, the further you move away from the central utility building.

Got you. Okay. If I stick on the other one that everyone thinks of when they think of high-tech manufacturing is battery plants. Is that also -- I can't remember exactly what you said about them in the past, but I think that it's something that you've mentioned in the past as being you playing in the EV value chain in the battery plants as being a growth area. Is that something that you're seeing steady growth in? Or is it pulling back at this point like we're seeing in some areas of the EV value chain? Or where are we at?

Let me tell you how we thought about the EV value chain. So maybe the cynic of me was proven right. So like we're doing -- at the macro level, we're doing both capital allocation and resource allocation all the time. And one could argue the resource allocation is actually harder than the capital allocation right now. They both take a lot of thought. The capital allocation is about money. The resource allocation is about people and fabrication facilities. It's about our -- and it's people all the way from the BIM designers all the way through the tradesmen on the ground installing the installation.

So when the -- all these opportunities were coming out 3 years ago, data centers were starting to grow more, and we're going to talk more about that later. You had reshoring, you have our traditional markets like health care and institutional, you have EV chain. Now we were involved in some of the first electrical EV projects with Tesla in Reno, Nevada, especially on the millwright side and the fire life safety. And so we had some experience around that.

We also have a lot of experience with the auto companies. And they can be very difficult customers and they can change their mind in an instant. So as we were looking at all these opportunities, we said, okay, how do we want to think about how we're going to participate in the EV value chain? Well, first of all, we always are thinking about how do we maximize margin and how do we maximize the opportunity for our people to have long term. And then is that going to be a customer that we're going to have multiple opportunities. So quite frankly, we did make decisions in some case to not be the go-to contractor with some of the Big 3 and some of the locations where they were going to build them out from nothing, and they wanted a commitment on dedicated resources over a 3- to 5-year period.

Quite frankly, in some of those cases, we were not the guy, and that was by design. But we did participate broadly with fire life safety. We did participate probably on specific scopes. And we did okay in EV value chain of all the places that we're growing and continue to grow. This was the one we emphasized the least, but it's still a substantial part of what we did. What we see today is I personally believe there's going to be a lot of battery plants in the U.S. because I think a lot of people are going to follow the Toyota model.

I mean, remember, we're one of the biggest fleet operators, too. So we never understood sort of that we're going to be all electric, can't carry the way. We did a lot of work around that. But we do know hybrids work. And we know that, that could be the solution for the future. And so we think there will be a lot of batteries built, and we are participating in that. And especially both fire life safety, mechanical and electrically, we've been involved in quite a few of those projects, and we'll continue to be involved. Is there as much demand today in the EV space as there was 2 years ago? No. But is there a steady demand in the battery space? The answer to that. Jason, maybe give some numbers around that.

I think Tony hit it. We participated in a very select way. What we're starting to see now though is a shift away from full EVs and towards more battery. But when you look at it on a combined basis, there's still growth there. I think right now, battery is the demand driver, but we're still up 10% year-to-date in the EV and battery space overall.

Yes, it could be interesting in the future, too. And I actually want to ask you about the power infrastructure later on, but maybe batteries are going to be used for more than just EVs and...

Yes, we've done -- Tim, we get to talk about, we've done big battery, like not where they're producing them, but where they're using them for power infrastructure. I think that has a place, but that's not going to power -- with the amount of power we're talking about here. That's -- if you did a 1,000-piece jigsaw puzzle, that might be 3 of the pieces.

Got you. Got you. Well, maybe we could just move to that. I'm going to skip a few of these. Well, I did want to ask you about life sciences and if you think it's that whole thing. And if you think it's important, please skip back to that. But I'm going to skip that so that we have enough time.

Yes, I think I can answer that really quickly for you 2 seconds. Long-term market for EMCOR, actually a long-term player in the aftermarket for EMCOR. We have people at these facilities all the time, electricians, pipe fitters doing [indiscernible] moves and changes. We also are there when they put in major lines, and that's across all trains. Good long-term market has a lot of the same characteristics of other good long-term manufacturing markets. Sometimes they grow 1% or 2%, sometimes they grow 12%.

Got you. And this is like GLP-1 manufacturing stuff.

Yes, we're doing -- supporting that. Yes, in a couple of places. Yes. And also life sciences and some of the BioMed and we're you're supposed to be. We're in Southern California, we're in Indiana doing it. We're a Research Triangle Park, and we're in New Jersey doing it and some of the primary research we're doing supporting the facilities up in Boston.

Got you. Okay. That's helpful. And yes, so lastly, on the reshoring theme before we get to more of the AI infrastructure. Well, this kind of is AI infrastructure with the power because I've always wanted to ask you this, and I did it during my due diligence on your company, is that I really wanted to talk to you about was the power infrastructure build-out that needs to happen in the U.S. And there's 2 conversations to have here with you. And one is about the potential bottleneck that's coming to AI infrastructure from it. I'm going to set that aside for a second.

And I want to actually ask about do you play here? Like do you -- does EMCOR build power plants? Do you build export terminals? Is there an opportunity for you to participate in this "unleashing America's energy independence" that we see happening right now?

So some of the investors that are on the call now, I'm sure, have heard me cynically talk about over a period of time have heard me cynically talk about the way we were actually approaching this problem in the last 4 years, right? Because you're not going to do this with intermittent power. I mean this is -- it was a fallacy. All of the above was silly. I mean it's not -- yes, it could be part of the solution. Go to your battery point earlier, it's not the solution. But EMCOR does play. I mean we have built utility-scale solar farms. We're contractors, right? We're going to go to where we think we can mix the labor the best, get the best opportunity, build capability if we think it's a long-term market. We do have utility scale solar experience.

Secondarily, we also participate in the aftermarket in power plants. We have a business that's called PPM. It's part of our -- it's part of -- it's in the mechanical business. It's part of our industrial platform in the Southeast, not oil and gas platform, but industrial, that PPM stand for power plant maintenance. That's what they did. They can do coal plants, gas plant they used to do nuclear, we sort of moved away from that. But -- and so we do the aftermarket.

We also participate upstream. We are emphatically not an EPC power plant producer. We're not going to guarantee someone output. We're not going to design build a large-scale power plant. We may do a combined life cycle cogen plant at a hospital where they're going to take the waste heat off of a turbine and turn it into cooling through a chiller. We will be involved in that. But -- and we may design build that with a partner. So any large-scale utility scale power combined cycle plant, that's not us. However, we do participate in the balance of plant work, both mechanically and electrically. We will do some prefabrication around it if we're going to install it. When the last power with the IPPs happened in the sort of the '05 to '08 in California, we had some pretty good success on balance of plant work mechanically and electrically. We do substation work selectively around the country.

So we will be part of that. But is it going to be the major driver like some of these other things? Probably not. But we do participate. And it's like any other job a contractor thinks about, is this the best opportunity I have to execute in the next 12 to 24 months? And where that's the case, we will execute for our customers. Now, linking back to this AI infrastructure, we're going to have to build, right? Combined cycle plants are sold out from the big 3 to 2031. So a lot of gas plants are going to go into the next 5, 6 years. And so what they've done to fill that gap in between the time, and again, if you listen to me over a long period of time, I said 5, 4 years ago, we were going to go on a quest for stranded power. And they are now on their quest for stranded power. We could talk a lot more about that when we talk about data centers.

Yes, I would love to dig into that because that's been a big theme here with my partner, Jed Dorsheimer, who covers a lot of that stuff and talks about the power infrastructure bottleneck a lot and the mistake that we made going after intermittent power versus baseload power. I think you guys were friends actually. So yes, I would love to dig into that more. But now that we're kind of on the data center theme, maybe we could just dive in.

I think you've actually communicated really well about this market over the last few years. So we don't have to spend a ton of time here. But for those on the call that aren't as familiar, and that kind of includes me. Again, I'm newer to the story. Could you provide a brief history of EMCOR's footprint in the data center market, how you -- and I'm thinking about this like how your capabilities have evolved over time, but also how you've expanded geographically over time because you asked novice, right? And I'm like an electrician as an electrician, as an electrician. I know that's not true, but I don't know what the differences are. Can you pull someone up over here, put them in a data center. When you say I have a data center market or data center capabilities or we're establishing that, I don't know what that entails. I was curious to find out.

So we have a long history in data centers, going back to the first data centers that were built. I'm here 21 years. I was with Carrier before that. The first data centers that really mattered were built in the late '90s, early 2000s. We actually -- I helped sell the job as an air conditioning guy to an EMCOR company called Poole & Kent down in D.C. that did the original Equinix data centers and the original AOL data centers. So that's all. And then the electrical contractor on that job, I wasn't part of EMCOR was actually Dyna Electric DC. And they were sort of some of the first data centers that were at scale, and those data centers were between 5 and 10 megawatts. So today, a hyperscaler doing AI is doing 200 megawatts. They're 20x the power need to do an AI data center is the first AOL data centers and a cloud storage is about 5x that size.

So just we're sizing these right now, 200 megawatts, give or take, could run a 15,000 to 20,000 person city, depending on the city or 5,000 households, you figure 2 to 4 people per household. And it would take -- go back to the PowerPoint, it take about 1,500 acres to get the same output solar wise in 600,000 panels, unless it's the new ones, it will be about 400,000 to get what combined cycle plant can get at 250 megawatts, 1 turbine and usually put for.

So it just sort of sizes it for you. So EMCOR has got lots of capability here. So we went from there. Then we went to started building when I first got here, just the big data centers that people like the Bank One before it got acquired by JPMorgan built the 2 biggest financial institution data centers in Chicago and in New Jersey. We built those. And then sort of we were just building them for owners, right? Bank of America, we're building them, mainly financial institutions, some utilities, some REITs were building data centers. And that sort of happened for about 10 years, and we were building them then.

Things started to change around 2017 and '18. Cloud storage became a thing. Amazon started building data centers. Google started building data centers. They all started -- and they were mainly building them in either -- for us, they were building in Chicago, where we had the first data center builders, and they were building in Portland where we built capability, and it all started with our group in D.C., in New Jersey, and they taught these guys in Chicago and these guys in Portland how to do data centers. So we were maybe doing until about 2020, 2019, 4 data center markets, data center sites. [indiscernible] market as sort of a big city region or a state. And then we flip to now today, we're doing 17, Lucas, electrically?

Yes, 17.

We're servicing 17 different distinct data center markets today and versus 4 in 2020, 2019 and versus 2 or 3 mechanically, we're now servicing 7. And fire life safety, we can service every data center market. And so what does it take to go and get into a data center market if you're EMCOR.

Yes, what's it take?

So how did we do this? And I'm going to give you 3 distinct examples. okay? One is get bigger, right? You had great capability in D.C., you had it in Chicago. They're the founders of the EMCOR in New Jersey. They're the founders of the EMCOR data center business, take those people, teach other people in those places, just get bigger, get more capable, serve your customers better, attract more customers because these are big data center markets. The reason for that is they have great connectivity, they got power, right?

So just build scale, right? So the D.C. business is 4x the size it was 5 years ago. And they did that also by growing their traditional business and then growing their data center business quite more than our traditional business. And did those first 3 or 4 markets, did that in D.C., did that in Chicago, did that in Portland, Oregon, out through Southern Washington, okay? Then, [indiscernible] how are you going to serve more customers want you to do more, you want to do more. You're talking to your customers. So okay, now we got to figure out how to go to Columbus, Ohio. We have no capability in Columbus, Ohio mechanically and had no capability really electrically. We do an acquisition electrically of a traditional electrical contractor, bought a smaller one that had some day 2 work in data centers. Now we're in the data center business with great industrial electricians that maybe we can teach to do data center deforming versus just traditional electrical work. So now we're growing in Columbus, Ohio.

Mechanically, what we did is we took 2 of our best companies, one through acquisition, Bachelor and Kimball, who had big data center experience. That will be the second way we do it. And Poole & Kent, they formed an internal joint venture, went up and formed a company up the mechanical the service at the request of one of our customers on a GMP contract, which gave us both some protection to go up and do mechanical scope in Columbus, Ohio region, to Albany, Columbus all the way up.

The second way we do it is take one of our existing companies like we did with Portland at one time and teach them how to do it, right, is we take one of our existing companies in Indiana, 2 places in Indiana and say, you guys are great electrical companies. You've got great capability. You do automotive work, you do steel mill work. We're going to teach you how to do data center work. So how do you do that? Well, you bring some folks over from Chicago, you bring people from all over the country to help them estimate the job. You're going to be working for a customer you already know. You can bring the means and methods. You take them out to a site you built. We got like, okay, we can do that. This is what the prefab plan looks like. Here's what the learning curve looks like.

So instead of the learning curve being like this slow linear growth, the learning curve looks like this, right? Because we take some experienced people, intermix them with some of their just great foreman and superintendents and project managers after half of a build, they know what to do. And then, of course, this peer group we have is sharing all the time.

The third way we do it is acquisition. And it might be of a small company that's sort of in the data center business, mainly doing scope for somebody else and we say, "Hey, you have some resume, you now have our resume, and we're going to basically treat them just like we treat one of our other companies that we've owned for a long time and say, we're going to put you in a data center business in a major way." And it's going to take us a year or 2 to do that because now we got to know -- unlike our current company that we've owned, we know what their capabilities are. We bought this. We think we know what their capabilities are. We're going to be a little more careful when we do that and then to ramp them up.

How do you do that if they -- if you're not sure, is it just you make sure that there's protections for you and the customer in the contract?

Well, we're going to be sure because we're going to put the right supervision on the job.

That's how it is, yes.

But we're going to be sure. The customers buy -- no, the customer is not going to give us a pass. We're going to take the right contract structure, but the customer is not going to give us a pass because no, I hired EMCOR, an EMCOR company. You guys know what you're doing. And then you buy people that are the best in the business like Batchelor & Kimball and knew how to -- we bought in 2019. And they then helped our mechanical business grow quite a bit in the data center business because they were known in the Southeast and in Oklahoma as one of the best data center builders in the country.

And then on the wrap around all that, that's electrically and mechanically and fire life safety between the assets we have at Shambaugh and Comunale, they can service any data center market in the country, and we've built those through acquisition and mainly organic growth.

Got you. Okay. Sticking on this data center idea, sorry, I'm not distracted. I just -- there are people on the call that are e-mailing me left and right saying, "Hey, could you just squeeze this question in," and it was distracting me. They're all related to data center, by the way. But I'm assuming you don't comment on competitors. So I'm not going to ask half of them.

No, I don't comment on competitors.

So they all want to know how you think you compare relative to...

I saw in some of the notes or somebody's note that Comfort did X and we did Y and Comfort is a good company. Because they grew faster, doesn't mean they took share from us, right? These markets are growing in different markets. I don't -- like we've never thought of our business in terms of market share. It's just a general comment.

All the time in other markets as well, and it doesn't make -- especially when you're...

It's an irrelevant metric.

Yes. Yes, you guys both are performing at a high level on the data center front. I mean, I think people do think about you, too, as the leaders in the space with robust capabilities to serve these markets.

Yes. And we're very rarely in the same market, by the way.

Right. I mean the way I think about EMCOR, and please correct me if I'm wrong, is you guys are in a lot of Tier 1 cities and you have a unionized labor force and Comfort Systems thinks about themselves as in Tier 2 cities with a nonunionized labor force, you're not going to cross paths, but how would you correct with that?

I think for general work, that's true. But the more you go to some of these data center markets and the more you're in -- some of this manufacturing work that no longer holds true. But very rarely are we overlapping on a job. I mean we're competing for the same work. I think it just happens that way. I don't I think it's a big market. And different customers.

How about this liquid versus air? We have -- we've read that AI data centers with liquid cooling requires even more MEP content for data center for cloud. So that's true.

That's true.

Okay. I wasn't -- I mean it makes sense to...

Very much -- a lot more tonnage, more megawatts, drives more tonnage to cool, drives -- and the chips are more hot. So therefore, they're trying to -- they're still blowing air across the servers, Sure, right? That's where the Vertiv products and all those people come in, right? And there's custom air handlers, and that's all the chillers are lined up, and these are massive chiller plants, either air cooled or water cooled. And then what liquid cooling really means. So a guy like me thinks water cooled versus air cooled. Water cooled means that's just the loop that you're using to cool. What this actually means is you're taking the server, you're putting it in a jacket and you're doing heat exchange from either some liquid medium, you're going to either run a pipe assembly down and run it through there and cool that water that way that the server jackets in or you're going to do it through other medium.

I mean that's what liquid cooling means here. And it's usually a fabricated product that you're putting cool water through -- or some combination of cold water or glycol or something in to extract the heat transfer out of the liquid medium that the server jackets are in.

Oh, really. So it's [indiscernible] liquid.

Just think about like a tea bag. And think about the server being the tea bag. You're dipping the server in and maybe it's not just water all around it, but there's a jacket and then there is some kind of piping system around that jacket to extract the heat out and then take it out and expel it through the loop usually through a cooling tower outside. That's what it means.

That's what that means. So that's part A is, is it more content? And the answer is yes. And part B is, well, where are we on that journey? Because I think about it like probably inning 1 on the liquid cooled side. And please, again, I don't know if I'm talking about, Tony. Correct me when I'm wrong.

I think we're on inning 1 or 2 at best in building out the AI infrastructure based on the work I know we're doing. And the mix in our thing. I think we probably look at the same industry studies, you guys probably even created a couple of them. What we've seen is sort of cloud storage is going to grow CAGR over the next 5 years, 9% to 11% and AI is going to grow north of 20%, which gets you to a mid-teens growth rate, right? I still think the majority of our backlog today is still cloud storage. Jason, you got -- you have some facts and figures around that.

Part of the growth you're seeing, if you look at our Mechanical segment versus our Electrical segment. electrically, we're still doing more data center work. Our revenues are still greater on the data center side in our Electrical segment than it is mechanical. Even dollar-wise, electrical is still growing faster and some of that's just a larger base. But if you look at growth rate, you're seeing a stronger growth rate in mechanical. Just for example, year-to-date, electrical is up 80%, mechanical is up almost 120%. Some of that is this increased cooling content. Some of it's just a lower base in mechanical. But we're starting to see that in the numbers.

Okay. So it's starting to show up in the numbers. That's interesting. Do the AI-dedicated data centers require additional capabilities on your end? Like does it require more prefab, more EDC?

It will -- yes, there's more prefab. There's more fire life safety content. There's more voltage coming in, right? So there's more megawatts coming in, so there's going to be more electrical feeds, bigger switchgears. All those things are true. I think about it simply, an AI multiplier right now is about 1.2 on electrical versus traditional cloud storage and maybe 1.4 to 1.8 mechanically depending on design. But go back to your PowerPoint, I'm going to give you an interesting figure here. So we're doing a very large data center campus for somebody down in Georgia. And we'll probably do the whole campus mechanically. We're not there electrically.

But the data center campus will be 3 gigawatts. That's 3,000 megawatts. So think about the nuclear power plant they just built in Georgia. I think it was 3,500 to 4,000 megawatts or 3.5 to 4 gig. That one data center requires the power -- 75% of the power of that first nuclear plant we've built in the country in the last 25 years. So...

That's ridiculous.

In perspective, that's one data center campus in Georgia that's being built today.

Well, okay. So let's talk about this, the energy wall, as we call it, the energy bottleneck. We just don't have enough electrons for these things to run on. I'm curious about your thoughts on this dynamic and when something like that may occur. And people think about this. I actually don't think about a DeepSeek moment as being a risk to your data center backlog because if we look historically, there's this thing called Jevons Paradox, where if you increase like the miles per gallon of a car, it doesn't mean we're going to use less gasoline. We're actually going to use more gasoline because it's more efficient, right?

So like we just drive more when we get those efficiencies. And if we get efficiencies in data center, we'll probably just build out more data center stuff.

Here's all I know, right? I think you heard me talk about this on the earnings call.

Please.

Here's what I know, okay? About 7 weeks ago -- and look, we follow this closely, and I read everything I can. And I think these are some of the best planners, the best they can be. And they have some of the most technical people in the world on both sides, both on the utility side, thinking about how they're going to supply and on the data center, how they're going to use, right, and how this all works plays out and where they're going for it.

So the big picture, what I personally don't believe is data center operators are going to put on-site power to power their data centers as a major part of what they're going to do. You never say they're not going to do it. Is it going to be 10% of the market? Is it going to be 15% of the market? My view, and I could be deadly wrong on this, I don't think it's the majority of the market. I think because the minute you do that, you absolve the utility of any responsibility of supplying you power when you need it. So I think that's a leverage point. I think they will do it in some cases, in very remote areas. But in general, they'd much rather the utility be on the hook to supply them the electron from other places and guarantee them power.

So then you get to -- I also think that because they went to these stranded power places, there's no reason -- there's a reason why they're working up on in Indiana on the shore of Lake Michigan because what used to be there, steel mills, car plants, big industrial infrastructure. There was a lot of power there. And in places like Indiana and Ohio, they're going to extend the life of coal plants and they can build gas plants and they're going to extend the life of the nuclear plants that they have, right?

So they're going Iowa, right? Iowa has wind power, but they also have a big fossil infrastructure. Oklahoma, Texas. I mean, intermittents make more sense in Oklahoma and Texas than they do in most places because they got wind. And then they have to put the fossil with it, right? So all that stuff fits together. So what we've learned from our customers is they feel really good for the next 5 years, 2025 to 2031, 2030. Yes, is there interconnect problems? Can the utility keep up? All that's going to be true, but they're not putting these major projects ahead where they don't think they can get power.

I mean there'll be maybe little blips, but they -- if we don't have the ability to put the next round of power in with all these orders for the gas turbines, then we're going to have a problem. And as far as nuclear, I mean, again, I have the ability to talk to more utility executives than not, right? And I have a couple I know very well. That is a -- they're looking at it. And modular nuclear maybe is the future. But the reality is that's still 5 to 10 years out, and we're not putting one in your neighborhood. They're going to be built in centralized plants, maybe modular in nature, and they're still going to be going out over the same -- they're going to put -- it's going to be easier to put T&D lines along existing T&D lines than all the stuff we're doing with intermittent energy.

So we're going to have to figure out -- and all that's going to play a role. But I think most of what's going to get the next increment from 2030 to 2033 is going to be gas turbines, right? And that's a known technology that works and we have lots of natural gas. And people in states that aren't going to use natural gas are going to be left behind in this AI race because they're not going to have the latency in the data centers they need to be able to use the models where the knowledge workers are. And there are some major places that could have an issue with that.

So I think that, that is going to happen. Now I will tell you, though, a couple of -- about a month ago, we had our 80 or so top data center builders, ours, EMCOR together in one place, down actually Miller Electric, our new acquisition. We had us all together there. And we were talking about means and methods and projections. And our customers found out we were all going to be together. And they invited themselves or 4 of the big people that you would think would be there, can we come and present to you our plans because we want you to know how important you are. We are -- you are to us and our ability to get things done. So through the general contractor to us to make sure -- and their plans were quite remarkable of what they plan to build. And...

Does that ever happened before where you have the end customer like that asking to come in? Or is that quite rare?

Well, I've not seen it happen too often. I mean that's pretty rare. It happens all the time at the local level where they'll say, okay, we got this job. We're going to work on it. We want you to be our team. We want you guys to think about this. But to happen on a collective basis like that. And to me, the thing is to watch these major capital spenders and the person in charge of their capital spending, knowing 50 of my 80 guys in that room by their first name. That's a little bit rare.

So the next [indiscernible] well, then you guys should be able to get more margin. Well, that's not how it works either. I mean, because sometimes there's contracting mechanisms might not be fixed price initially. We may ask for a GMP contract. They may want to do everything GMP, which is a target type price we work to because it makes change orders easier and they do change or they want to have transparency of cost. And so when you think about this data center space, there's 3 or 4 different contracting mechanisms. There's 10 or 12 at least major customers, maybe more once you bring the colos in.

There's, at least in our case, 17 to 24 geographies mechanically and electrically are working in, even more than that. And so they're balancing risk reward, certainty, we've got a fixed price. We may not want to give them that in certain markets because the labor force is going to be. They may not want to give us in certain markets because they don't want to get in a contentious relationship on a new build as they get ready to build out the site because they want us to be part of the team. Other places, we've had to come in and finish someone else's job, and that has a whole other thing to it.

I mean -- so this is a very -- it's like 4D chess, but yes, it is very rare when they'll come in and share their plans with you. They may share the next 2 jobs with you, but for them to talk about, hey, this is what it looks like for the next 5 years, and we didn't have all in there together. We came one after another. But -- and it's respectful. I mean it's sort of like, hey, we're sort of in this together now folks and how are we going to build this infrastructure because we right now can't keep up with the demand from the people that are selling our product on the supply -- we're the factory. We can't build the factories fast enough to keep up with the supply side. I mean, with the demand side.

That's why they're doing it. They need to know that you're going to be there for them or they want to know that you're going to be there for them. That's why they're coming. They're breaking through the general contractor and they're coming direct to you. They just need to know it. It's too important. not to risk it. Yes. That's really interesting.

Look, we got 5 or so minutes left, and I got through about 10% of the things I wanted to talk to you about, but this was an awesome conversation. And I'm glad that we did this instead because I learned a ton just focusing on some of your main markets. But if I wasn't to spend the last 5 minutes, I'd probably move to labor because it's a question I often get.

And the reasoning it goes as follows. My question, the way I set it up here because I prewrote it, it says, where would you characterize labor shortages as being most acute? I've heard you say in the past that it's the leadership roles, the foreman and the superintendents and the project managers, and I get that, and there's a time component to developing that, that you can't rush.

But if you Google electrician shortage or plumber shortage or welder shortage. I mean you'll get a dozen articles from the trade associations representing those folks arguing that there is a major shortage. So are you really not seeing a shortage there across those skilled trades folks?

Of course, there's a shortage, right, if you take the macro level overall. I think it's purely a tribute to our teams in the field. So you think about EMCOR and our operating model, right? The people that run our companies know trade labor. In fact, over half of them are run by people that started as apprentice electricians or pipe fitters.

That's Right. It's like 60% of mechanical...

The other half of project engineers and spent their time around it. And that's both -- and if you think about on this big work we're talking about, for the most part, we're doing most of this big work union, which I look at as a real strength. The unions, the IBW and the UA have been partners with us in this and helping us develop our workforce. And that goes all the way from training, which we play a big role in, all the way through the workforce development. And we're usually one of the biggest employers in whatever geographic region we're in. So we're partners in the development of that workforce.

We also have -- because of who our people are and it's a trades-based company. It's not, for lack of a better word, it's not a bunch of suits running the companies at the local level. They're less like me and more like the highly skilled people that do the work instead of the overhead like me, right? And so they know where to find it. They know where to develop it. They know how to work with the union to get the different classifications to get their blended skill mix on a job. And in most of these fast-growth markets, we have that ability to work with the unions to get the right classification.

So we're not all just bringing in apprentices on the way to Journeyman. We have wiremen, we have CWs, we have CEs, we have all those things. And then we put capital to work to think about how, think about that 2.5 to 3:1 ratio of revenue growth versus labor, and Jason can talk about that in a minute. And we're attacking it with capital. This year, over an 18-month period, we're going to add more than 400,000 feet of fabrication space to get more work out of the field, prefab, modular, whatever you want to call it.

And if you think about -- if you just boil it down what a trade guy cares about, and people have heard me say this repetitively for 15, 20 years. First thing they care about is there no particular order. Am I going to get paid every week? And if I'm a union trade guy, is my benefit fund going to get funded, too? That's the health care, the pension, the annuity, whatever it is.

And with EMCOR, that's a check. The second thing is, are you going to keep me safe? And again, these aren't in any order. In the 21 years I've been either the President or CEO of this company, I've never turned down one request for safety equipment, safety capital spending, anything. Guys in it, we have the attitude, the folks in the field know best what they need to get productive and keep their work for. We're not trying to buy the cheapest helmets. We don't have Accenture coming in here and doing a supply chain management study on. You can have everybody wear the same helmet and look, you can buy them and they're cheaper. That is not where the leverage is in this organization. It's buying the best stuff for that region, what they need to be successful. That could be something as simple as the right gloves to do the task.

I think you have pretty low incidents.

We have a Six Sigma type safety record versus the industry. The third one is, am I working for people to know what the hell they're doing. And they know what I have to do to get that job done, and they're going to keep me productive. Fourth one is, if I do a good job, can I become part of your permanent team and continue to grow my career with you? And if I want to grow my career, can I become a foreman and maybe someday I can even be the CEO of this company at the local level. Because you know what, they have an example sitting right there that started with -- started the same place they did. Jason, maybe you can real quick before we end the capital spending we've done, it's different versus historically. Still tiny, but...

How do we attract labor and then what we're doing to become more productive, more efficient to help with that tight labor market. And so Tony said it, right? We're not a capital-intensive company. For us, CapEx is somewhere between 0.5% or 0.6% of revenues. But if you look over time, we've made a ton of investment in prefabrication and construction technologies. And if you just look at our CapEx, let's say, take a 3-year window, right? Our revenue CAGR over that 3-year window is something like 14%, but our CapEx CAGR is 2x that at roughly 28%. And those are those investments that we're making in prefab, BDC, BIM, things that make us more efficient, things that allow us to do more with less and the investments that have allowed us to grow revenue at 3x our headcount growth over time.

Yes. Okay. So maybe it was a little bit of a dumb question. Of course, there's a labor shortage. That's not the issue. It's -- these are the reasons that you guys aren't struggling to find labor because of the investments that you made, because of your union relationships, because of your safety record, because of the promotional opportunities, because of all the things is the reason where you're able to still grow your headcount, not nearly as fast as your revenue, but you're growing your headcount every...

And I'll leave the other point, right? No good specialty trade contractor in a good market chases every opportunity that's out there.

Right.

So the second point is we're pretty good about thinking on labor planning on what we need -- we're not going to outrun our headlights. We're not going to commit to a customer and say, we can do that unless we thought through what that labor plan looks like. So like they said, we've been growing revenue CAGR of 14% probably, what, 2/3 of that is organic or more, Jason? Yes.

Yes. Probably slightly more, Tony.

And so slightly more, right, maybe 75%. And then we're able to -- that's all organic headcount that comes with that and everything else. Our guys are thinking about workforce development every day. And then we reinforce that with our leadership training programs all the way from frontline supervision to CEO. And we've been doing that a long time.

I think that's probably a perfect place to end it. I wish that we had another hour to dig into more of these topics, but I can't thank you enough for the time today.

Thank you.

This was a great conversation. I'm very excited to be covering the company and excited to learn more along the way and look forward to talking to you guys when you report your fourth quarter here in a couple of months.

Yes. And we very much appreciate. We like that you guys are covering us. And anybody that's on the call, thanks for your interest in EMCOR today. We're pretty proud of the company and the folks we have working at it.

That's perfect. Thanks so much, Tony. Thanks, Jason. Thanks, Lucas, and everybody else. Have a good day.

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the EMCOR Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. At this time, I would like to turn the call over to Lucas Sullivan, Director of Financial Planning and Analysis. Mr. Sullivan, you may proceed.

Thank you, Chris. Good morning, everyone, and welcome to EMCOR's Third Quarter 2025 Earnings Conference Call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at emcorgroup.com.

With me today are Tony Guzzi, our Chairman, President and Chief Executive Officer; Jason Nalbandian, Senior Vice President and EMCOR's Chief Financial Officer; and Maxine Mauricio, Executive Vice President, Chief Administrative Officer and General Counsel.

For today's call, Tony will provide comments on our third quarter and discuss our RPOs. Jason will then review the third quarter in numbers, then turn it back to Tony to discuss our guidance before we open it up for Q&A.

Before we begin, a quick reminder that this presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these 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.

And finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-Q filed with the Securities and Exchange Commission. And with that, let me turn the call over to Tony. Tony? .

Thanks, Lucas, and welcome to the call. And I'm going to be on Pages 4 through 5 of our presentation. Good morning, and welcome to our third quarter 2025 earnings call. I'm going to cover the financial highlights for the third quarter and then provide commentary on what has gone well through the first 3 quarters of this year which has been a lot. Jason will cover the quarterly financial results in detail.

We had another strong quarter at EMCOR. We earned $6.57 in diluted earnings per share and generated revenues of $4.3 billion, which represents a 16.4% increase from the prior year period. We achieved an exceptional operating margin of 9.4% and had strong operating cash flow of $475.5 million.

For the third quarter, we had a book-to-bill of 1.16 with remaining performance obligations at a record $12.6 billion, which represents an increase of $2.8 billion year-over-year and $2.5 million from December of 2004. We continue to allocate capital with discipline. For the first 9 months of 2025, we allocated just over $430 million on share repurchases and utilized $900 million for acquisitions.

Our balance sheet remains strong and liquid providing the fuel to support our growth and capital allocation strategy. So what's driving this outstanding performance in the first 3 quarters of 2025. Our Electrical and Mechanical Construction segments continue to earn impressive operating margins and generate growth in the base of business as demonstrated by increases in both revenue and RPOs across a number of key sectors.

We execute well for our customers in these segments by using BDC BIM and prefabrication, coupled with strong planning, excellent labor sourcing and management and disciplined contract negotiation and oversight. We have managed our project mix well and continue to gain the confidence of our customers across geographies and diverse market sectors.

With respect to data centers, we continue to improve our capabilities to serve an increasing number of data center sites with multiple trades and across a diverse set of customers. As I've said before, we are known for having the best field leadership in the business and they operate with focus, discipline, humility and grit.

Our Mechanical Services business and our U.S. Building Services segment continues to execute well with revenue growth of nearly 6% in the quarter and 7% year-to-date and an operating margin in the high single digits. The impact of the successful restructuring in our site-based businesses is reflected in this segment's third quarter operating margin expansion.

Our Industrial Services segment had some demand headwinds during the year as some large turnarounds were moved into the fourth quarter or further into 2026. And lastly, we had a successful third quarter in our U.K. Building Services segment. In September, we announced the sale of our U.K. business and believe that we will complete this transaction by year-end as we await U.K. regulatory approval.

EMCOR U.K. has a very talented management team. and they will serve their new owners well, and we will miss them. Overall, we had another strong quarter and a robust performance year-to-date in 2025.

Now I'm going to turn to the RPO section. As I previously mentioned, we leave the quarter with a diverse and strong set of RPOs at $12.6 billion. Due to the growth in the majority of the sectors we serve, our RPOs have increased 29% year-over-year and 25% when compared to December of 2024. On a sequential basis, RPOs have increased 6% from June to September.

Long-term secular trends across key sectors continue to support this growth. Driven by robust data center demand, RPOs within network and communications totaled a record $4.3 billion at the end of September, almost double that of the year ago period. While acquisitions have added to our data center capabilities and allow us to serve our customers in additional geographies, over 80% of our RPO growth we have seen in this space during 2025 has been organic.

Health core RPOs totaled $1.3 billion. While the health care sector has always been core to EMCOR, the acquisition of Miller Electric has expanded our opportunities in this sector contributing to the nearly 7% RPO growth we experienced year-over-year.

Manufacturing and Industrial RPOs totaled $1.1 billion. In addition to demand driven by customers' onshoring and reshoring initiatives recent growth in this sector has also benefited from the award of certain food process projects within our Mechanical Construction segment as well as a renewable energy project within our Industrial Services segment and led by our Mechanical Construction segment, water and wastewater RPOs increased by over $300 million during the quarter and now total $1 billion as we continue to win projects throughout Florida.

Although RPOs within high-tech manufacturing have decreased from September of last year, we continue to believe in the long-term fundamentals of the sector while acknowledging that award of these projects can be episodic in nature or impacted by our resource allocation decisions as we seek to deploy our workforce in a manner that achieves optimal outcomes for EMCOR and our shareholders.

With that, I will gladly turn the presentation over to Jason to cover our financial results in detail.

Thank you, Tony, and good morning, everyone. As Tony mentioned, over the next several slides, I will review the operating performance for each of our segments as well as some of the key financial data for the third quarter of 2025 as compared to the third quarter of 2024.

I'll start on Slide 6, which is revenues. With growth of 16.4%, revenues of $4.3 billion set a new company record for a third quarter. Acquisitions contributed $306.6 million, with the largest incremental revenue coming from Miller Electric. On an organic basis, revenues grew by 8.1%. We experienced growth within all of our reportable segments and demand for our services continues to be strong across most of the sectors that we serve.

If we look at each of our segments, revenues of U.S. Electrical Construction were $1.29 billion, increasing 52.1% due to a combination of strong organic growth and the acquisition of Miller. Consistent with our commentary over the last several quarters, while we continue to experience greater data center demand, growth within this segment remains broad based as increased revenues were generated from nearly all market sectors.

In addition to networking communications, where revenues grew by nearly 70% year-over-year Electrical Construction saw notable growth in commercial, health care, institutional and transportation. This once again demonstrates the broad offerings of this segment.

Revenues in Electrical Construction also benefited from higher levels of short duration projects and service work due in part to the capabilities we've added through the Miller acquisition. Revenues of U.S. Mechanical Construction were a record $1.78 billion, up 7% almost entirely through organic growth. Due to greater demand for data center construction projects, this segment saw the largest increase from the network and communications market sector where quarterly revenues nearly doubled year-over-year.

Beyond data centers, greater revenues were generated from several other market sectors with the most notable increase within manufacturing and industrial, led by food processing construction projects. Partially offsetting the revenue growth of the mechanical construction were decreases within the high-tech manufacturing as we completed certain semiconductor construction projects and commercial due to less warehousing and distribution project revenue.

While we are starting to see some resumption in demand from our e-commerce customers, we are just beginning to ramp up on these projects. On a combined basis, our Construction segment generated revenues of $3.1 billion an increase of 22.2%. Looking next at U.S. Building Services revenues of $813.9 million reflect a 2.1% increase year-over-year. This marks the second quarter of revenue growth since the loss of site-based contracts that we've previously referenced.

Similar to the second quarter, the growth in Mechanical Services exceeded the revenue decline within site-based and driven by each of its service lines, our Mechanical Services division generated revenue growth of 5.8% in the quarter, all of which was organic.

Turning to our Industrial Services segment, revenues of $286.9 million are in line with that of the year ago period. Decreased field services revenues as a result of the completion of a large renewable fuel project were offset by an increase in shop service revenues primarily due to greater new build heat exchanger sales. And lastly, U.K. Building Services generated revenues of $136.2 million, which represents an increase of $29.8 million or 28.1%.

While favorable exchange rate movements did positively impact the segment's revenues by $4.8 million, growth was largely driven by the award of recent facilities maintenance contracts by new customers and increased project activity with existing customers.

If we turn to Slide 7 for operating income. We generated a record third quarter operating of $405.7 million and earned a very impressive 9.4% operating margin. Looking at each of our segments. U.S. Electrical Construction had operating income of $145.2 million, which represents a nearly 22% increase.

As a result of the revenue growth I referenced, this segment experienced greater gross profit across the majority of the market sectors in which we operate, resulting in the increase in operating income. While down from the unprecedented 14.1% earned in last year's third quarter, the segment's operating margin of 11.3% remains strong, reflecting the overall performance and execution by our companies.

In addition to incremental intangible asset amortization, which reduced operating margin by 90 basis points, operating margin in the quarter was impacted by lower profitability on certain projects in new geographies where we encountered reduced labor productivity while investing in the development of a workforce.

Operating income from U.S. mechanical construction of $229.3 million increased by 6.7%, in line with the growth in segment revenues, while operating margin of 12.9% is comparable year-over-year as we continue to execute well across our project portfolio. Together, our construction segments grew operating income by 12.1% and earned a combined operating margin of 12.2%.

U.S. Building Services generated operating income of $59.4 million an increase of 6.9% and expanded operating margin by 30 basis points to 7.3%. In addition to the increase in revenue, the operating performance of this segment benefited from a reduction in SG&A margin as we are beginning to see the impact of the restructuring we recently completed within our site-based business.

Moving to Industrial Services. Despite revenues which were relatively consistent year-over-year, operating income of this segment nearly doubled due in part to a more favorable mix, given a greater percentage of higher-margin shop services work.

And lastly, U.K. Building Services had operating income of $7.6 million or 5.6% of revenues. The increased profitability of the U.K. business was due to greater gross profit stemming from increased revenues, a more favorable project mix, and effective cost management, which resulted from the leveraging of their overhead during a period of growth.

If we move to Slide 8, I'll cover a few highlights not included on the previous slides. Gross profit of $835.3 million has increased by 13.7%, and our gross profit margin for the quarter was 19.4%. SG&A of $429.6 million increased by $58.4 million, while our SG&A margin remained consistent year-over-year at 10% of revenues, accounting for nearly 2/3 of the increase in SG&A was $32.2 million of incremental expenses from acquired companies and $5.7 million of incremental intangible asset amortization expense.

Excluding these items, SG&A grew by $2.5 million, largely due to employment costs as we continue to invest in headcount to support our organic growth and we experienced some increased incentive compensation within certain of our segments given higher projected operating results.

And finally, on this page, diluted earnings per share was $6.57 compared to $5.80, an increase of 13.3%. If we look briefly at Slide 9, this slide summarizes our results for the first 9 months of 2025. With year-to-date revenue growth of 15.5% and operating margin expansion of 20 basis points, or 30 basis points when you exclude the impact of the transaction costs incurred earlier this year, our performance for the first 3 quarters set a number of new company records.

In a later slide, Tony will outline our updated earnings guidance for 2025. As I've done in the past, I mentioned that now as this guidance reflects continued strength in our margins. Specifically, at the low end, we have assumed a full year operating margin, which is equal to what we have earned year-to-date. While the high end reflects what we could achieve if we produce an operating margin in the fourth quarter, equivalent to the record margin we earned in Q4 of last year.

Let's move to Slide 10, which is our balance sheet. With cash on hand of $655 million and working capital of $878 million, our balance sheet as of September 30 remains strong and liquid, positioning us well to continue to deliver for our customers and shareholders. Although not shown on the slide, during the quarter, we had operating cash flow of $475.5 million and have generated $778 million year-to-date.

For the full year, we continue to estimate that operating cash flow will be at least equal to net income and approximately up to 80% of operating income. Given our strong operating cash flow during the quarter, we repaid the $250 million that was previously outstanding under our revolving credit facility.

And before I turn the call back over to Tony, I just want to quickly look at Slide 11, which summarizes the pending divestiture of our U.K. business. As Tony mentioned and we previously announced, we have entered into an agreement to sell EMCOR U.K. for approximately $255 million. This transaction, which we anticipate will close prior to the end of the year, sharpens our focus on core end markets throughout the United States while supporting our balanced capital allocation strategy. Proceeds will be used to pursue further organic growth and strategic M&A with a focus on electrical and mechanical construction as well as mechanical services while also returning capital to our shareholders.

Due to the size of the U.K. business, this transaction will not be treated as discontinued operations and as a result, we will retain the revenue and earnings that have been generated by the business due to the close of the transaction. Therefore, while EMCOR U.K. currently provides us with approximately $500 million of annual revenue and $0.45 of diluted EPS the impact in the current year will be limited to the portion of 2025 that we no longer own the business. This has been reflected in the updated earnings guidance, which Tony will share with you. And when providing our Q4 results we will adjust for transaction expenses and any gain from sale as those items are excluded from our guidance.

With that, I will turn the call back over to Tony.

Thanks, Jason. We've been executing very well. And as a result, we will tighten our 2025 revenue and earnings per share guidance. Specifically, we're updating our full year 2025 revenue guidance to a range of $16.7 million to $16.8 billion from a previous range of $16.4 billion to $16.9 billion. This reflects the momentum we have seen in the business while adjusting for the anticipated sale of the U.K. segment.

We are also narrowing our guidance for non-GAAP diluted earnings per share to a rate of $25 to $25.75 reflecting an increase of $0.50 at the low end and $0.25 at the midpoint. In order to continue to earn strong operating margins, we will need to continue to execute with discipline and efficiency for our customers. I always remind our investors that this is not a quarter-to-quarter business with respect to operating margins and the past 4 to 8 quarters, on average, reflect the underlying margins in our business.

There remains momentum and demand in key sectors, especially in data centers, traditional and high-tech manufacturing, health care, water and wastewater, HVAC service, building controls and retrofit projects.

Macroeconomic uncertainty always exists, especially around tariffs, trade and now we have the government shutdown again. But we believe our guidance reflects the potential impact of such uncertainty as we view it today.

We will remain disciplined capital and resource allocators. Our strong balance sheet bolsters our ability to execute a healthy pipeline of acquisitions and also robust opportunities to invest in our organic growth and return of cash to shareholders through dividends and share repurchases.

When we talk about resource allocation, we work to maximize our opportunities across the right sectors, customers, contracts and geographies. Our resources, that is our supervision, our virtual design and construct or VDC capability, prefab, and as important as anything, our subsidiary and segment leaderships time, attention and focus as they are ultimately the quarterback to direct this allocation, we think about that across all those sectors customers, contracts and geographies.

Last night, we signed an agreement to acquire the John W. Danforth company based in Buffalo, New York, with operations across Upstate New York and Ohio. Danforth is a mechanical construction company with expertise in data centers, health care, industrial, manufacturing and commercial. They also have excellent BDC and prefab capabilities. Danforth should add about $350 million to $400 million in revenues with solid steady-state margins. However, in the first year, that those margins will be reduced to backlog amortization. The transaction is expected to close in the fourth quarter, subject to customary closing conditions. They are a great team. They have a great cultural fit with us, and we have worked together successfully in the past. We do look forward to much success together, and we look forward to soon welcoming the Danforth team to our EMCOR team.

And I'm going to close with what's probably the most important statement that I make at our recall. I want to thank my EMCOR teammates. Thank you for your dedication to EMCOR and our customers. Thank you for living our values every day. Thank you for taking care of one another and keeping each other safe, and thank you for the outstanding results we continue to produce for our shareholders. And with that, I will take questions.

[Operator Instructions]

And today's first question comes from Brent Thielman with D.A. Davidson.

Tony, maybe just to build upon some of your comments in the concluding statement there. Obviously, I think maybe somewhat -- folks somewhat surprised by the margin profile this quarter. I think to your point, this is -- it's a construction business. You have impacts from mix and other factors in any quarter. And maybe, Tony, if you could build on the margins that you're seeing on new work? Are they attractive relative to what we see reported here? Just an opportunity to address those concerns here?

This is some of the strongest overall operating margins we've had in a quarter. We knew we were going to have amortization headwind in the Electrical segment. And without the amortization headwind for the investment in new markets, reality is we're 14% plus in electrical, mechanical margins are very strong. Building Services margins are strong. .

Jason, I think year-to-date, these are the best margins we've ever had on a year-to-date basis.

And I think the thing that I go back to Tony, is we've said over time, right, a rolling 12- to 24-month average is where we expect our margins to be those margins would be somewhere between 9.1% and 9.4% and on a consolidated basis, we delivered 9.4% in the quarter. And when you look at where we were as we exited Q2, we said for full year, our margins would be between 9% and 9.4%, and we delivered at 9.25%.

So I think we're delivering the margins that we anticipated.

Yes, and what the business does. I mean yes, it bounces around a little bit but you don't buy something the size of Miller with the amount of backlog amortization. We're going to go through RPO or amortizati,n, we're going to go through and be able to keep margins at the levels they were. I mean it's just -- it's not and we did that when we gave our guidance for the year. So I'm a little befuddled about some of the margin reaction to be straight with you.

Yes. Understood. I guess, a separate question. Nearly double, if not more, in data center RPOs, I think folks understand that's a pretty good market. Maybe if you could just touch on maybe some of the other sectors and I mean what areas are surprising you in terms of relative strength or maybe even getting stronger that you'd point out outside of the data centers?

Yes. I think you hit on a really important question, Brent. I mean we have a broad base of business outside of data centers that's pretty successful. And I think a really good marker, and I always think about this in our business broadly, is what goes on in the mechanical service business, which grew mid-single digits as strong operating margins and almost has no data center exposure.

I think I have this right, 7 of our 10 mechanical segments had growth and 10 of our electrical market sectors and 10 of our 11 electrical market sectors had growth. We're seeing strong growth on the mechanical side in water and wastewater. We continue to see strong demand in health care in both sectors, really. And the addition of Miller really bolsters our health care exposure on the electrical side in some of the fastest-growing health care markets in the country, of which they're exposed to.

We continue to see good opportunities in traditional manufacturing, especially for us in food processing. It's one of the few things we do on a large scale and we do it very well, our Shaba subsidiary in Fort Wayne, Indiana. We continue to see pretty good demand in traditional retrofit commercial. It's a strong market for us, especially with an eye towards energy efficiency and the restacking of buildings that continues to go on.

I think high-tech manufacturing, that's a choice. We have very strong demand in parts of the country, and we're executing very well. And other parts of the country, it's a little lumpier or we may rededicate those resources, quite frankly, to more data center work versus slog through another a semiconductor plant in parts of the country.

We did very well on it. It's just a very difficult customer set and application in one particular case. So when you put it all together, demand is broad-based. It's strong, we like having diverse demand. We're going to continue to pursue diverse demand, and I think that's good news for our shareholders for the long term, and we're not giving up anything on the data center side by doing that, as you said, with the size and good .

Next question from Adam Thalhimer with Thompson Davis.

The organic expansion you talked about that impacted the Electrical segment, Tony, can you just talk about the investments you're making, how long that headwind might persist and what the benefit?

I think typically, Adam, it's a 1- or 2-quarter headwind as we start up the job and it's a margin investment is what it is. It's not really a capital investment upfront. It's a margin investment as we have to go through the learning curve of building a labor force and sometimes that takes a little longer. Sometimes we get it right at the beginning of a new market. And sometimes, it takes us further into the job to get it right. And we do that all the time. And we only call that out, I think, to make investors aware that it's not a linear line when you expand from what was 3 or 4 data center markets in 2019, serving to over 60 today electrically and from 1 or 2 mechanically to over 6 today mechanically. That's not a linear straight line.

We have yet to not do it successfully. And it's just more of a pointing out that, hey, that's part of how we grow the business and as part of what we almost look at it as R&D to go into a new market. .

Yes. And I think there's a combination of things that we expect to happen as we move forward, right? We'll build that labor force. We'll get that efficiency. We'll inherently become more productive as we do the next phases of these contracts, and we'll learn some lessons here, and we'll price our jobs to that market. So it's a number of things that we think kind of improve as you go from the first set of jobs to those next .

It's an ongoing headwind always in the numbers. This was a little more because it was a little bigger site. .

Okay. Well, I think -- I mean, you left the prospect of flat Q4 margins in the guidance, which I thought was interesting. Just curious how you might get to the high end of the Q4 margin guide.

I think it's just project timing I mean, at this point, I mean, there's really nothing new. And then we'll have -- depending on when Danforth is closed, it's not going to really add anything. But we'll have revenue coming in without a lot of margin because of the headwind of the backlog amortization. We're still running off the Miller backlog amortization. I think those are the kind of things. Operating-wise, we expect to operate pretty well in the field. .

And the next question comes from Brian Brophy with Stifel.

Just wanted to -- following up on the geographic investments. Just wanted to see if you could help us quantify, I guess, the impact. I think some of the numbers you gave, my back of envelope math suggests 200, maybe 250 basis point impact to margin in the quarter. Am I in the ballpark there? .

Yes. I think I'll give you dollars and we can work it into margins. I mean if we look at the jobs that drove it, it's probably about $13 million or so. .

Okay. Okay. That's helpful. And then appreciate all the commentary on the U.K. business. Curious how you guys are feeling about the business portfolio after this transaction closes, is there anything else you guys would consider noncore? Or how are you thinking about the portfolio at this point? .

We look at our portfolio all the time. and portfolio actions to the size of the U.K. -- look, we're making portfolio adjustments all the time in our Mechanical and Electrical Construction business and even mechanical services. One of those portfolio adjustments we just talked about. We invested in a series of projects in a geographic market or two to gain scale in that market as a $13 million investment. You all don't think about that as a portfolio action.

It was a little larger in this quarter, but it's major metro areas in this country, we have no interest participating on the electrical side in the traffic market anymore and we've been slowly winding that down across a number of markets. So those kind of things that we call routine course of business, the ins and outs, opening a new couple of new branch offices in the mechanical service business, either through a small asset purchase some guys tools and trucks which there's one move and one way that we announced, and there's 1 move in the other way, right?

The U.K. is out, John W. Danforth is in. The U.K. really, it's a success story. For people that are following us over a long period of time know that while we turn something into something very successful with a great team, and it was the right time to exit for our shareholders really for that team and for that business. It wasn't going to be a place that we, because of all the other opportunities we have it wasn't going to be a place that we were going to allocate a lot of capital to grow.

We like, for example, we weren't going to take the U.K. platform and grow through the rest of Europe to build a facility services business. That's not something we were going to do, it's probably something that needed to happen to continue the growth of that business.

John W. Danforth is another decision, right? Someone we knew, some of them we've known very well in a market that's steady, in a market where they have a leadership position with a group of people that we have worked with before. They got some interesting capabilities in BIM, VDC, prefabrication. And those capabilities have they work in the data center phase. They work in the heavy industrial space. They work in the health care space and execute those projects very well.

So not a one-for-one as far as exchange. But it's the kind of thing, midsized mechanical construction acquisition. And I think -- and we have balance sheet capability to do both without selling the U.K., but it was the right time. If you look at other parts of our portfolio, we've examined it all the time. And we are probably headed towards is how do we think about the rest of our site-based business, which is pretty integrated into our Building Services business. It's on the improvement trend.

And then we have industrial services business, which has had a tough couple of years. That being said, some of the things we do there, some of the prospects we have, we think we can improve it. And I always say these things this way. Deals happen both ways when they happen and there's a timing that's right. And right now, we think we have a good portfolio that we're executing on. It still has upside across all the businesses that we're operating in. .

The next question is from Justin Hauke with Baird. .

Great. Yes, I guess maybe I was going to build on that last question just on capital allocation. And obviously, you did the Danforth after the quarter on a good cash flow quarter, and you've got the proceeds coming in from the U.K. But should there be any read or do you want to make any comments about just the lack of buybacks in the quarter. Is that signaling that there's other kind of pending transactions that are out there that make you are closer to coming than not or anything about just -- usually, your buybacks are pretty predictable quarter to quarter.

Yes. We -- yes and no. We did a greater amount than we typically would do in the first part of the year, and most of that executed off of a 10b5-1, we're not really traders in our stock. There was a bit of a dislocation in the 10b51 picked it up in the second quarter. That being said, we're not capital constrained. We'll be balanced capital allocators over a long period of time.

If you go to the end of my remarks, we look at all uses of capital from organic investment. And it's interesting. We were thinking about what we've added this year or will add by the end of the year. We'll add about 400,000 square feet, give or take, of prefabrication space and our ability to prefabricate some call it modular construction, maybe it's the next step down, which for the most part, we do for our jobs. And we do that across our fire life safety business. We do that in our Electrical business, and we do that in our mechanical business and Danforth adds to that capability.

They have a very well-run, very modern shop, and it's 1 of the attractions they had with us in a pretty good labor market. So we don't have capital constraints. There's not a lot of timing going on unless there's a big dislocation. And I wouldn't consider today a big dislocation.

We ran up in a week and we came right back to where we were. And we think we're performing well. Our cash flow is good. We're going to keep a strong and liquid balance sheet. And I think what you see on the last page of our presentation, you take a 6-year trend. I think this next 6 years will look very similar to the last 6 years.

Thank you SP1 The next question comes from Avi Jaroslawicz with UBS. .

So I noticed that organic growth has been running around mid- to upper single digits the last few quarters. Are you thinking that should be picking up at all in the near term just based on some of the backlog growth that you're seeing? Or does this seem like a more comfortable rate for the foreseeable future? .

Look, I think high single digits, low double digits is probably a comfortable rate. I mean, the reality, right, we're a big company and the law of large numbers start to take over. If you think about what we have to add from an organic -- to say we're growing 10% organically you take our guidance. That means we added between $1.5 billion and $2 billion of revenue organically in a year, that's pretty darn good and still maintain the cash flow characteristics we have and the margin profile we have. And Jason, I think that's probably not a bad way to look at it. .

I agree with that, Tony, especially when you look -- I would look at the RPO growth sequentially, right, we're growing 5%, 6% sequentially. I think that gives you a little bit more of a tell for the future. The other thing, too, is if you look at our RPO and you look at how much of it will burn in excess of 12 months, right now I think it's about 20% or so will burn greater than a year. And if you look historically, that number was typically about 15. So some of the work we're booking now is a little bit longer term, which I think impacts just the turn of that RPO. .

Yes. And if you think about it, we had some really good growth markets. I think if you look at our data center business, I mean, that's going to grow high teens to mid-20s for a while. And if you look at any forecast out there, right, cloud storage, data centers are going to grow high single digits to low teens and AI growth dependent on who you look at and we've looked at many. And remember, we're actually connected all the way back through our customers and their capital spending plan.

AI data centers are going to grow 20% plus, and that's going to become an increasing part of our business and that will be by design, but we're not going to neglect our traditional business. And if you look long term, right, we've grown in excess of non-res construction businesses 500 basis points. .

Over a 5-year period. .

Over a 5-year period, that's probably a pretty good marker. And it may go a little more than that because of the data center concentration, but maybe that picks up another 100 basis points. I mean these are long-term projections. But I think high single digits organic, maybe pick a couple more points up through acquisition is how we think about the business over the long term and how we have thought about it over a long period of time in our planning. .

Okay. I appreciate that perspective. And then I could just ask a follow-up in terms of some of the cost of growth that you've been seeing, just with growth having been relatively steady just on the organic side. Can you share some more color as to what made this maybe more unique than past situations, you've been growing at a pretty nice clip over the last couple of years. And similarly, have we had any periods where there have been a similar type of level of these start-up efficiencies in the Mechanical Construction segment .

They show up, yes. And the only reason we called it out this quarter was a little more than usual. This happens just about every quarter, and you can see it in our 1 disclosure in the Q. That's where most of that rests, this was a little more, a little tougher market, a little tougher job building the labor force. And really, it's still a profitable job. I mean I don't want everybody to think that we invested into a wash job. That's not what happened here. This is classic revenue recognition thing, right?

The margin came down versus what we expected. And like Jason said, we probably were a little more optimistic than we needed to be as we entered that new market because quite frankly, if you looked at the customer and what we thought we were going to be doing and the speed which is going to happen, we'd work for other markets before, and we had a different experience and we had a more experienced workforce. .

Our next question is from Sam Casemen with William Blair. .

I guess to start, looking at your network and communications end market, it looks like revenue was flat sequentially for total U.S. construction just given the rapid sequential growth we've seen in the last few quarters, I think some investors may have found that surprising. Can you talk about what would cause that pacing to slow? I think you just mentioned that I think we're going to mark .

Can you repeat that question for me because we're not seeing that same data point. I just want to make sure I understand the question. You're saying revenue in network and communications is flat for construction. .

For total U.S. construction sequentially. Yes. Year-over-year was growing sequentially.

I think it's just project timing. I mean I think year-over-year, we're up tremendously, right? We're probably up almost 80%. I think electrical is up 70%. Mechanical is nearly double. I think it's up 90% or so. sequential, I wouldn't really look at this business 1 quarter to the next and look for .

RPOs are up almost double, right? .

In the quarter, at least 50% of our RPO growth came from network and communications.

Yes. So yes, we're not -- said simply, we're not seeing any slowing in the market. There's a lot of project timing. I mean you can tell by our surprise we think it's an area of great strength for us, and it's going to continue to grow. .

Got it. Okay. That's helpful. Maybe just sticking with the data center theme, though. Maybe you could just update us on the footprint of your mechanical business. I think last we spoke, you had been in about 5 markets today, but you were thinking of maybe taking that up to kind of the electrical business, 15 markets. How should we think about that as you think about the next year? .

We will add 1 to 2 mechanical markets over the next year. The difference between mechanical and electrical is the mechanical -- your -- I would say, it takes a little more to build the workforce that you're going to put into that market, and you really, really have to think about your prefab plan as you go into that mechanical market.

So there's a level of investment you have to make on prefabrication in BDC that's a little more mechanical to support the next market you move into. So I think we'll grow by another 2 markets or so over the next year. Maybe 1 more than that with the acquisition of Danforth then I think we'll -- electrically, we'll probably add 1 or 2 markets also at least, maybe more. .

When you talk about markets, it's also important to think about -- once you get on some of these sites, that can be a 5-year build. And so we're doing the first building on some of these places, to be a 5-year build. And a lot of times, you can have 1, 2 or 3 EMCOR companies on those sites. And the thing that gets lost in this, I'm not -- I can't count the number of fire protection sites on.

In our Fire life safety business, we're probably serving 70% of the data center sites in 1 way or another around the country.

The next question is from Sangita Jain with KeyBanc Capital Markets.

So I appreciate the color on the RPOs in communications. Can you just elaborate if you're seeing potentially larger individual bookings in this segment or if there's any change in terms of how these contracts are coming through? .

The answer is yes and yes, with a caveat. Some of the contracts also will be larger, but they'll be in a contract type called GMP, where we only book a portion of that work over time because they let out the next phase, even though we know we have the whole thing, which may distinguish us from other people, again, EMCOR, and RPOs is only contracted work. And that includes places where we may have $30 million in RPOs, but we know we're going to do $100 million of work. And so we've been relatively consistent with that.

But in general, they're getting larger. I think, is a fair comment. The project size is getting larger. And that's a combination of larger call storage sites and larger AI size for sure, with more content, especially mechanically.

And then are you booking further and further -- like earlier and earlier for projects that may not start, let's say, for a few quarters? .

No. We know we're probably going to get those projects. But again, which differentiates EMCOR from some other people in our sector, our space is even though we're pretty sure we're going to get the next 5 buildings until that next data center is let, it's not in our RPOs, even though it's like an 80%, 90% probability, we're going to get it. .

Yes. And if you're looking at the growth in greater than a year, not in a center that's driving that. It's some of the other work we do in the quarter.

That's helpful. And then is there anything in your guide,'25 guide for the acquisition that you just referenced .

No, that will be -- any impact they have for '25 will be immaterial, maybe a little bit on the revenue side, but we don't know exactly when we'll close. And then you have to offset that versus when the U.K. will close. We think we called it about right. If the U.K. closes later and this 1 closes earlier, maybe we go towards the higher -- the top end of that guide more comfortably. .

Yes. And on the bottom line, right, if you just think just because of the backlog amortization, and we typically say this, the impact is negligible in that first, let's say, 12 months or so just because of the backlog amortization. So certainly for the fourth quarter, impact on EPS of the acquisition should be minimal. .

De minimus yes. .

And the next question is from Adam Bubes with Goldman Sachs. .

I think your hours per employee has moved up steadily higher over the last few years. Can you just talk about how much more runway you have to increase utilization, both from an hour per employee basis and then in terms of just productivity? .

Well, I think we're going to continue to drive productivity. Again, because of project mix and like if we do -- with more water, wastewater coming in, that is even more different because of some of the subcontractor work we do. I think in general, right?

If you look at it, at a minimum, I think we're going to continue to drive at least 3% to 5% better because we got to a pretty good place productivity. But I think it will be higher than that. Go back to that discussion we just had about our shop investments. we're doing -- our manhours are growing less than our revenues, and we expect that manhours to continue to grow 1/3 to half as much as what revenues will grow.

And in most of our revenues, this is what's interesting, right? At one time, if you go back 5 or 6 years, we would have had much more equipment in those revenue numbers. And if you take most of this data center work or high-tech manufacturing work we're doing, even some health care work, we're not really buying the major components, and most of that was driven by supply chain.

The difficulties around supply chain post-COVID and extended lead times the owners or the owners through the CM's general contracts, but mainly the owners are buying that equipment now and then sending it to us for a handling fee. So the revenue growth would even be more and so the productivity we're getting and the ability to grow ours at 1/3 to half the rate of revenues is even more impressive if you look over the last 3 to 5 years versus if you took a 10-year view. Jason, do you have anything to add?

Yes. We've talked about it before. And if you look over a 5-year period, revenue is growing basically 3 times what our headcount is growing. I think Tony touched on the productivity tools and the investments in prefab. I think the other thing impacting that, too, is project sizes, right? As project sizes scale up, you inherently get more utilization and we're benefit.

Especially if you are indirect. Yes. Yes. .

Got it. And then your data center business has grown at a really impressive high double-digit rate. The backlog would support sort of continued double-digit growth. Can you just take us under the hood and help us think how you're able to allocate resources so efficiently and how quick quickly, you'll be able to move labor around from here? What's sort of the sustainable rate of growth that we should be underwriting in that business? .

Look, I think if you heard what I just said, right, earlier. And I think you're probably, Adam, looking at the same market forecast we are and compiling them all and trying to get a view. Cloud storage is going to go 9%, 10% is what most people think over the next 5 years and AI depending on which ones you look at or in excess of 20%, 25%.

So if you blend that out, we're doing both, there's no reason for us not to believe it's not a quarter-to-quarter business. We continue to look annually year-over-year. I don't know mid-teens, low 20s, depending on the year or the quarter. Eventually, you get into the law of large numbers there, too. But sustainably, I think the good news is we're penetrated with the right customer.

I don't share an anecdote with all of you because I think it's really constructive. We are a large data center builder that our customers value. And we just pulled together our 80 top people or so in the data center business, and we actually did it on at Miller and they hosted it.

And first of all, it's a really impressive group of people that really know the business and know the customers. And what we talked about on our side were means and methods on how to drive productivity and contract terms and the things we're seeing that can lead to better outcomes for not only EMCOR, our shareholders, but also the customer.

But what was different about this meeting, and I've been doing this for a little while, is I'm not going to get into names, 3 of the top 4 actual end use, the actual end resulting capital and the other 2 wanted to come in, but the schedules wouldn't allow, and they did -- they've since done conference calls on these, were the direct owners one that come in and make sure that we understood what they had planned, and how much they wanted us to be part of those plans going forward.

And so this is looking right through the general contractors and construction managers, who are ultimately who write our checks and are very important customers for ours and partners, but the end user the big hyperscalers wanted us to know how important and share their plans with us on a proprietary basis.

And I'm not going to share all those plans, obviously, because it was on a confidential and proprietary basis, but to be able to pull our team together like that, to be able to talk about how we get better to be able to talk very specifically around means and methods and labor productivity and couple that with our customers sharing their outlook of their capital spending, that led me obviously more positive than negative by long shot on what data center build looks like over the next 5 years of that data center build.

And at this time, we are showing no further questioners in the queue, and this does conclude today's question-and-answer session. I would now like to turn the conference back over to Tony Guzzi for any closing remarks.

So look, we'll see a couple of you and we'll see some of the more investors as we're out and about with conferences here in November and December. But for the rest of you, this will be the premature happy Thanksgiving and have a great end of the year and happy holidays and all those things. .

And for those of you that enjoy Halloween, enjoy Halloween tomorrow, mostly that should be people with little kids. After that, it's not that much fun. That's my view. But no, thank you all and to my EMCOR colleagues. Stay safe, and we look forward to seeing you.

Today's conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.

All right. Everybody wants to talk about the commercial market today, right?

Thanks, Tony. Well, with that, I'll maybe turn it to you, just give a brief state of the union. I got some more direct questions for you, Tony, but thoughts on the first half and where you see things going here.

I mean, look, things are happening over the last couple of years, mostly like we expected. I think we've been pretty thoughtful about how we've allocated capital to position ourselves where we are today. the things we've done to build the company over a very long period of time as far as the culture we have, we're a values-based company with a very, very specific operating model that we train on. We've had really good success with our labor management and the ability to attract labor and build supervision, which is absolutely critical for us. If you look at the markets we're serving today, clearly, I mean I made the joke about commercial, nobody wants to talk about that, right? But at the end of the day, we've built a very strong position in the data center market on a fire life safety, electrical and mechanical delivery. You see that in our numbers.

You see that in our RPO/backlog. We're serving the traditional manufacturing market pretty well. The high-tech manufacturing market can be a little lumpy, but we have very good positions on some key semiconductor sites, but also pharma, bio life sciences and even the EV chain. We continue to see strong demand, especially for fire life safety and the battery plants. I personally believe most of us will be driving the hybrids 10 years from now, maybe not EVs. And I think that we still have pretty good strength in our energy and sustainability, energy efficiency business. You see that in our Building Services business, which is really 70% mechanical services, earning high single-digit EBITDA margins to low double digit. And so -- and that's held its own, right?

That's grown mid-single digits to high single digits despite the commercial market being basically flattish to down. And that's a lot of the market it serves, that institutional health care. We still have good underlying demand in markets outside of data centers and high-tech manufacturing. And if you look big picture over a long period of time, we continue the growth trends we've had. In mechanical and electrical construction, we continue to outgrow nonres significantly, 400, 500 basis points versus any non-res print over time. And in EMCOR overall, that's 200 basis points. So it's a growing company. We've expanded margins. We have great cash conversions. And all those things that have made us who we are over a long period of time continue to play well in the market we're in, which is a market with more opportunity than we've seen in a long time.

Okay. Thanks, Tony. And a few questions...

Anything to add, Jason?

I think that's a good summary, Tony. I mean, right, everyone wants to talk about data centers and high-tech manufacturing. And yes, they've been a big player in our growth recently, but you have to look beyond that as well, look at the rest of the business and the core markets that Tony mentioned. And if you look at our core business, we're still very diverse. Data centers are only 20% to 25% of our total revenue, and those other markets are growing mid-single digits.

Just think of who we are before we kick off here. We're contractors, right, with great technical capability, pretty good application engineering capability, but we move to markets that earn margins, right? So we don't spend a lot of time saying, "Oh my God, we'll become an overweight data center in a local market." We look at a 2- or 3-year period, and we say, how can we maximize margin in that local market while still maintaining the relationships we need to with our core customers that we've had over a long period of time. That's how our guys think. That's how they're trained. That's how they're incentivized and that's how we want them to think.

Okay. I promise not to ask about data centers for my first question. What I want to talk about maybe -- and this comes up inbound to me, but one of the questions that comes up is how EMCOR's sort of scaled union workforce differentiates you from others? How do you respond to that?

I agree. I think having a union workforce right now in this market with the flexibility the unions have shown on how we recruit people, especially in the states that are growing, has been a real competitive advantage. People sometimes take unions and they immediately leap to New York City or they leap to industrial trade unions like the UAW, the United Mine Workers and the Steel Workers. God love them, my family members were members of those, right? They come from Western Pennsylvania. However, that's not most trade unions, right? Trade unions are very different than that in most of the country. Most of the country, the trade unions are our partners. We work through the associations like NECA and MCAA, and we work in partnership with them to develop a workforce. As you get south of the Mason-Dixon line and out towards the Midwest, they want to put a team on the field to win work. And so they allow us to have the classifications we need to do that. And that allows them to grow their membership for a long time with the right people that eventually become [indiscernible] We work with them to develop training, and we train on our own, too. So -- and it also allows people to come from other parts of the country where maybe there's not as much work to travel into the markets that -- and you know they come with a basic skill level that allow you to be successful. So I look at it as an advantage. It allows us to build supervision, a journeyman is who becomes a foreman, he or she becomes a foreman. And it allows us to have more standardized training across the country. So we run nonunion people in our industrial -- our oil and gas business and some of our industrial businesses in our mechanical segment in the Southeast. But by and large, our construction business, mechanical electrical is a union business, and it served us well, and it's especially served us well as we've gone and done these big jobs. And in markets that's really allowed us to grow well is fire life safety, our electrical, our low voltage and just our standard pipe fitting. And also our HVAC technicians are about 60% union in the Building Services business.

And I think that scale is what allows us to react to our customers' needs in different geographies and different markets.

With confidence.

And just to put it in perspective, let's use June 30 as a point in time. We had 46,500 employees, about 80% of those are out in the field.

And that ratio hasn't changed. So we're not adding a whole lot of overhead. And the other thing is, I think, is it's a productive workforce. So if you look -- and so you think about it, we're buying less equipment today on these major jobs than we ever have. The owners are buying that themselves for the most part. And that workforce, we're delivering revenue at 3x the rate of what we're growing our workforce over a 5- and 10-year period. Said another way, that 46,500 knowing that about 35,000 of them are tradespeople, that number would be well north of 45,000 tradespeople today had we not been getting the productivity we need to with that workforce through BIM and prefabrication and also that it's a trained workforce. And I think our union partners have a lot to do with that.

You've pretty consistently grown your workforce year-to-year as you reported in the 10-K. I guess the question I have is where are you still most constrained?

It's supervision, right? Our constraint -- someone asked me a really good question after first quarter earnings and we did the conferences in early June. And I had never really thought about it this way. They said, how do you make sure that you have the team on every job. Of course, you want to reflexively say, well, here's how we make sure we have the A team on every job. Well, you think about what we do, if we put the A team on every job, we never develop people. So what we try to do is make sure we have a good BB+ team on every job so we can develop people. I think our BB+ team is probably someone else's A+ team, be a little biased that way. But that's how we develop a workforce, right? You bring new foreman on jobs that have -- maybe there's 5 experienced foreman on that job and 3 that are just the first time out. Well, if they're learning for the right people, the right superintendent, the right project manager, now you've built 3 new foreman that they can go do that on another job at a project manager.

And then if you are really good at sharing best practices and really good at peer learning where you can send people to one of your other companies to see a job start up to help with the estimating, you can build that supervision that estimating that project management faster than you could -- and look, these large jobs have allowed us to do that. And some of the contract structure -- and the owners intentionally do this sometimes so that we can build capability when we go into a new market with us, they'll give us a GMP contract and say, look, we want you to do this. We want you to build the labor force. And maybe you'll take the next job's fixed price, but we can do this together.

And that's new. That really wasn't the case that people would do that 5, 6 years ago. So in a lot of ways, the more thoughtful owners, coupled with the unions, coupled with us and the training we do, we're all trying to build out a workforce that's sustained over a long period of time. But our constraint is actually not the individual tradespeople. Our constraint is actually supervision.

Okay. I mean a couple just around data centers, obviously topical. Tony, I think a year or 2 ago, you maybe made the comment that the new data centers are sort of 1.3 to 1.5 multiplier in terms of opportunity for you. These things keep getting reengineered, evolving. Is that still the right...

Yes. I think in some cases, it could even be more, especially mechanically.

Yes. And the thing I'd say about mechanically is if you look at our data center business, both electrical and mechanical had significant growth, let's use the first half of '25 as a point of reference. Electrical is growing more in dollars, but off of a larger base. So if you look at the growth rates, our mechanical segment is actually growing at a larger percentage. And some of that is just some organic expansion we've done into new geographies and the other piece of it is that content that you're referencing.

Right? You got to get the heat off the AI data center chips. I mean far not an expert on all that actually works. I know the system we're using to call it works and the power we're bringing to those racks. But do I know how that why those things are hot? I have no idea. I just know we have a load we have to control.

Presumably, that's showing in your RPO growth, but are you still revenueing sort of traditional cloud-based centers?

Oh yes. So we did some work around this, not only on our own numbers, but others. We believe that cloud-based applications will double in the next 5 years to 7 years. So that's about a 9% to 12% growth rate. we would have plenty of work to do and have a healthy company doing just cloud-based work. AI -- and it's more than AI. It's the applications you're using now within these data centers to do analytics. So when you buy a software tool even before AI and you put our enterprise systems up in the cloud, things that we were doing offline on our servers are now in those applications and those applications are using a lot of computing power within those data centers. It's hard for me to tell what the cloud, but I know we're building more.

There's more geographic sites because a lot of this was a quest for power, right? I think you heard me talk about that 5, 6 years ago, we're going to run out of power, especially with the energy policies we had here the last 4 or 5 years. Intermittent power is not going to power a data center. They can help, but you have to have baseload power. And there's been a quest for power, and that's why we've gone from serving 2 data center sites to 14. So you have this quest for power. I think they feel pretty good the major owners up to with the sites they're building on now up until about 2030. But new capacity has to start coming online in '28, '29, '30, '31.

And then there has to be a serious build-out '31 to '35 to keep this going. And I think there will be. You can't buy a gas turbine right now of any size, the 250-megawatt variety. They're sold out until 2030, 2031. But they'll build more capacity. So there will be more gas turbines. I think nuclear will restart or there'll be more nuclear plants, some of the small -- I don't know what that means, but they're going to be built at scale in centralized power plants. I don't think there'll be a lot of behind-the-meter power build. I don't think the operators would like to do that themselves because the utility has no responsibility to them than to provide power. And I think they like the redundancy of the utility. So there's all kind of things that are going to happen. I think that will keep this growing and a lot of smart people are thinking about it every day now.

I know I ask you this all the time, and I'm sure it still ways out, but the retrofit opportunities for data centers seems huge for you at some point. Is it happening yet?

Yes, not really. We do a lot of day 2 work in data centers. We don't necessarily operate data centers. What I mean by that is we're not taking -- in a lot of cases, we do -- we will do it for some financial institutions. But we're not saying, okay, we want to be operations and maintenance provider for the data centers. We haven't been able to get the risk aligned on that as far as contract structure.

However, we do a lot of trades work in those data centers. We do a lot of power to the rack. We help them restack with our low-voltage people. We run cable to those data centers. We help rebuild the structured cabling. We do a lot of mechanical work in those as far as taking care of the mechanical equipment, anything from change in the filters all the way up through servicing the chillers, right? And we'll continue to do that.

Now as far as the retrofit opportunity, we haven't seen that in any sizable way right now other than the day 2 work when they restack. I'm not sure how that's going to play out. The question is, are they going to try to bring more power into those? And is a retrofit really just a quasi-rebuild? -- versus a retrofit. What that means, I don't know. How big those jobs will be?

Are they going to actually strip it down and rebuild the whole thing because they have the land. I think that's to be played out yet, whether they're just new jobs and they look like a new construction job or you're actually just retrofitting that data center. The land is pretty valuable. The power to those data centers are pretty valuable. The water -- so how they're going to do that with the ones they built 10 years ago, I don't know, but I'm sure we'll be part of it when it happens.

But today, if you look at our RPO...

It's new build.

80% to 85% is new build.

And then the day 2 work we're doing for the most part isn't even in RPOs because it's a ticket.

What about facility services eventually for these centers? Is that a real opportunity for you?

No, I think I said we haven't been able to get the risk aligned. You got to really think through what's it mean to sign up for consequential damages in a data center. And what do you cap that at? Is it worth it for the 10% or 12% margin you can make or you just better off providing individual trade services into those data centers? But the mechanical service business and the service part of our electrical business, it's an opportunity. It's one today. That's the other 20% Jason is talking about in data centers.

Anything else you think is misunderstood about that opportunity for you in data center?

Yes. I think it's not a quarter-to-quarter business. These things can come in, in big contract orders or they can come in small contract orders because it's a GMP job and you only have this much of a contracted but you know it's going to be this big. And just to remind people, Jason, why don't you tell them the way our RPOs are actually what they are versus backlog that other contractors may report.

So for us, the simplest way to think about it is if something is in what we call RPOs, it's a signed contract with a set value. We're not putting in amounts that haven't been released to us and funding yet. So sometimes we'll have a contract that specifies multiple phases of work, but only the first phase has been released or funded. We're only putting what's in front of us today signed contract funded. Oftentimes, we're working on a campus where we believe there's a strong opportunity for follow-on phases or follow-on buildings. We're not putting those in or estimating those. It's just what sits in front of us today contractually.

So when the SEC or FASB...

FASB.

One of those guys, right? They came up with a way to talk about backlog with accounting -- we were pretty close to that. About 5 years ago, 10 years ago?

'17, '18.

Yes. We were so close to that definition anyway, we just went with that definition. So ours is actually the accounting standard for backlog, and we call it -- and it is the name for -- I don't know why they didn't backlog, but anyway, it was remaining performance obligations. And so like everything else we do, we report GAAP numbers. That also is a GAAP number also.

So for us, when you look at that number, it's a firm number. Cancellations typically don't occur and certainly haven't had a material impact on us.

So we're not making guesses off work we'll do at a site. We're not making guesses that we always did. Now we're doing that when we do business planning, right? That's different, right? Our guys will think, okay, this is what my annual plan is going to look like. But we're not doing that when we report to you RPO. That's a big deal because ours is more firm than most people.

That might lead into some of the semi-fab stuff, I imagine. I mean, what's your visibility beyond what's in RPOs for those types of Jobs?

It's pretty good.

Yes. It's good. And then some of those places will have a decision to make, right? Go back to the contract point. If that's in a market that has a big data center build going 2 counties over, maybe that fab customer is a little more difficult to deal with, more risks, we may just go over there with that crew and do something different. Again, we're maximizing margins to our best of our ability every day with an outlook to take care of our long-term customers in a local market. We have to balance both. But we're not in a local market and as a project place, we're maximizing project.

I would say we're also balancing contract terms, project timing, cash flows. So it's all of those factors together will dictate what we ultimately take. But if you look at the end of the second quarter, we did book a follow-on phase or Phase 2 semiconductor project. It was a large driver of the increase in our sequential RPOs from March to June.

I think pharma falls into the high-tech category. There's a lot of large capital dollars being talked about in the U.S. I feel like you're positioned.

We're positioned really well in RTP, Research Triangle Park, which is a big pharma center. We're positioned okay in New Jersey to do that work, especially electrically. Indiana is another big place for it. We're positioned fairly well there. And the other place we're positioned well in Southern California, which is more a biopharma market. So yes, we feel pretty good about where we're positioned. We can do fire life safety anywhere in the country, much like the data center business or the EV business or anyone Jason, maybe talk a little bit about. So we don't bet on fabs. So I thought data centers were more durable demand in semiconductors. Some of the big auto companies wanted us to dedicate abnormal amounts of our resources to them and go to the big sites, they were going to build out these massive sites, which most of them didn't materialize. We did do a fair amount of EV work. But that wasn't the one we sort of put our chips on. However, we've had durable demand in batteries, right?

Yes. So if you look at high tech for us, broader high tech, there's really 3 subsectors in there. And so the first, we talked about being semiconductor. And round numbers, maybe that's 40% or 45% of the revenues in high-tech. The next is biotech, pharma, life sciences, which we obviously just touched on and is probably about 20% to 25% of our high-tech revenues. And then you have what we call the EV value chain.

And so to Tony's point, that runs everything from EV manufacturing to battery technologies. And so right about now, it's maybe about 1/3 of the high-tech manufacturing revenues. What we've seen is, particularly for our fire protection company or companies, we've had tremendous opportunity over the last several years in that space. What we're starting to see now is maybe a shift away from traditional EV manufacturing to more of the battery technologies. And to Tony's earlier point, our hypothesis is that we're starting to see a shift towards maybe more hybrid technologies, but still a good opportunity for us in that space.

I want to skip to health care. Maybe some questions around that market. It's been a really good market.

Long-term durable market for us.

And I guess maybe that's the pointed question is you've got a lot going on Medicaid cuts, things like that.

We're still going to take care of that market. Go back to my point about taking care of our long-term customers in local markets, even though there's other opportunities. We have to still take care of them, especially in the health care market because that also leads to long-term service opportunities in most of those companies. Once we build something even outside of the mechanical service, we're probably leaving behind 15 to 20 guys to do ad moves and changes, they never leave.

So we're going to service that market, and we're going to do the best. We don't win everyone, but most major medical centers where we have capability, we get a chance to compete and win whatever major project they're doing. And typically, we have people at that site. And if we have a service either organization within that mechanical contractor or a service capability in electrical, which we almost do everywhere on the electrical side, mechanical mainly in the mechanical service, but that leads to a long-term service opportunity. So yes, we're going to continue to be a big hospital builder.

And I think if you look at health care outside of data centers, at least for the first half of '25, that's a sector where we've had the most significant growth. I think our revenues are up almost 40% in the health care market. I mean -- and for us, it's a good split between retrofit and new build. We're more balanced in that space.

And the other part of that market is it's very -- so people that are doing that work are the same people that can do bio pharma and the same people that can do data centers. The hospital is a very complex system. If you would ever go back down in the basement and look up, you'll see 7 different mechanical systems and the electrical, both from a low voltage and medium voltage is pretty complex. And we do also some creative things with hospitals around combined heat and power and the things they do to sort of minimize their energy bill and have good backup. They have to have backup power, right? And so there are different ways they think about doing that.

Okay. Maybe just one on the commercial side. I think you've always talked about that being more retrofit oriented. In the past, warehouse distribution has not been a bad market.

Fire life safety for us.

Is that picking back up?

Yes, cold storage, definitely on the fire life safety stuff. We are start seeing some build coming back up for fire life safety on the traditional warehousing. It's not been a big market for our traditional mechanical and electrical. We've done some really good jobs. But typically, if we're doing that, it's -- there are not a lot of air conditioning in those places, systems. But the electrical side, if they -- some of the big Amazon centers had -- basically were substations because they were charging the electric vehicles there. So when they're building those, we did that work in a lot of places. But again, that tends to be much like the battery space, that tends to be a fire life safety product for us, doing sprinkler work and alarms.

Okay. And then on building services, you -- you got back to growth, modest last quarter, but nonetheless back to growth. Can you talk about maybe the restructuring on the site-based side? And is there anything in terms of future considerations, financial targets that you have or objectives you have for that...

So I think it's important to understand the split in that business, right? 70-plus percent of it is mechanical service, operating at high single-digit EBITDA margins growing somewhere between 5% and 10% a year. And it's done that for many, many years regardless of what the commercial markets do.

If you look at the first half of this year, that mechanical services business is up 7%. And if you look over a 3- to 5-year period, that CAGR is probably 12.5%.

So then you have the site-based business, which lost a couple of big contracts. We -- there's people that will take them at cost, right, to hope that they can do projects work. We don't do that. So what you're seeing is those contracts came off and as a result, you see growth again because the compare gets easier. The mechanical service business continued to fun. site-based business for us is if we can serve somebody that values either our ability to deliver multisite services, there's some banking infrastructure and that or that values good technical resources on site. We have a pretty good manufacturing footprint there to do operations and maintenance.

We do well, but they have to value that. And when they don't or they decide to go a different direction or sometimes they bring it back in-house, we don't compete with that. It's always been a service that we hope to get a multiplier off of and do some mechanical construction work or mechanical project work. And the team that operates that knows how to scale up and down. We did do a significant restructuring. We took out -- when we lose large contracts, you don't need the infrastructure you had.

So we took -- they did a tough restructuring. And it was a tough thing for the team to do because they did a great job for those customers. But it's something we think about how we grow. It's not something we demand growth from. But mechanical service, mechanical construction, electrical construction is really what drives the company.

Just a couple of questions on industrial. On the last call, Tony, I think you mentioned an uptick in midstream activity could help the electrical piece of that. Can you talk about that?

Yes. So we do compressor stations. So anybody that's in the midstream, they're trying to do as many pipelines over the next 3 years as they can, so they don't get trapped again and not being able to do it, right? So therefore, they're trying to do compressor stations. And of course, there's demand from the power sector for natural gas. The 2 go together. That really industrial is a misnomer. I would tell, Jason, maybe we should call it what it is. It's an oil and gas business. It got named that because that was really the industrial. We did do the **** load of industrial business services, especially in our mechanical and our electrical business segments. It's been a tough market. We have a great management team in that sector segment. They know what they're doing. It's a tough customer base. They've traditionally had very planned turnarounds. I think those turnarounds are becoming more prevalent again, the larger ones.

They went through a 3-, 4year where they were doing smaller turnarounds and they would make that decision the 23rd hour after they had us gear up to do the large -- so it's a business that always generate cash. It's a good team, and it's not a capital-intensive business. Suffice to say, it was our highest margin business 10 years ago. Today, it's not.

Yes. Good segue because I want to talk about margins. We always ask you where margins can go. Maybe in a different direction. Could you talk about how your operations managers, kind of the folks down at the subsidiary level are incentivized from a margin perspective?

Our guys are incentivized on return on net assets. So what does that really mean? It's cash flow, right?

And balance sheet efficiency.

And balance sheet efficiency. That's what our folks get incentivized on. So obviously, higher margins help that. That's the numerator, right? The denominator is a 13-month average of net assets. And so why do we do that? It's where do contractors get in trouble. They take work where the scope is not clearly defined.

They can't get change orders approved. They build cost in excess, and they then spend 2 years after the job arguing about how they're going to collect. That's how contractors get in trouble, right? By focusing on return on net assets, our folks know that's not what we really want to do. We're not -- we've been growing great. We are not a revenue-driven company.

We are a cash-driven company. And the way our guys can make more money for their team is to generate a better return on net assets. And what we expect them to do is adapt to their local market. If it's a growth local market or if they have a growth -- bigger companies if they want to go to other markets, we think about how to invest in going out of the market, we do that together.

And if it works, right, they can drive the return on net assets up, they can create a bigger pool for their people. we want to do that all with an eye on cash efficiency because that is what's good in a great market and it makes you pick the right work. And that metric is what's good when the market turns, it forces us to focus on cost reduction to keep an eye on cash as we go forward.

That's a fair summary, Tony.

So they focus on margins because it creates more opportunity, but they always are thinking about return on net assets. That's a long-time durable metric for a contractor, especially specialty trade contractor.

And it helps balance risk.

Yes. Okay. And you've been pretty clear. I mean, part of the success in the margins the last few years has been your ability to get better utilization out in the field or good leverage. I mean, obviously, bigger projects, more complex projects allow you to do that. Can you help us understand what the mix picture looks like for you today versus, call it, 5, 10 years ago.

Jason, want to do that because we just hear these numbers top to the bottom.

If you look today, let's look at our construction business first, and then let's look at total EMCOR. So if you look at construction today, somewhere around 50% to 55% of our revenues are coming from jobs greater than $10 million. If you look at that same metric, let's say, 5 years ago, that number would have been about 30% to 35%. So we're seeing a scale up in terms of jobs.

You talked about the 2 construction.

That's construction. So for overall EMCOR, what does that mean? It means that overall EMCOR is generating only about 30% to 35% of our revenue from jobs greater than $10 million versus 5 years ago, that number would have been about 20% of our total revenue. So if you boil that all down and step back and say kind of what are project sizes look like, a good metric, round numbers is that today, 1/3 of our revenues are coming from jobs greater than $10 million, 1/3 is coming from jobs less than $1 million and 1/3 is coming from that in between spot between $1 million and $10 million.

Presumably, the RPOs reflect a similar mix.

Yes, except that I would say that jobs less than $1 million probably aren't even really in RPOs because they turn so fast.

Right. Okay. That's great. That's really helpful. And then the other question I had on margins, I mean, the investments you've made in technology, BIM, BDC, I think you could argue it structurally changed your margin profile. How do we differentiate sort of high demand for quality craft labor, which you have versus sort of other things like that, that are driving the margin?

It's hard to separate because that high demand for high-quality craft labor is what drove in some ways, those investments because you can't add enough people to do the work responsibly, right? So we were doing this before. And most of our fabrication lessons came from the health care sector. When we would do big hospitals, that's really if you go back 10 or 15 years, that's where we started really doing the big fabrication, whether we're doing a big patient tower, whether we -- in the casino work. So we learned those lessons. And of course, the manufacturing work and then quite frankly, the work we've done in some of our industrial businesses, even the oil and gas, they're around a lot of fabricated work.

So we've taken those lessons from the health care sector to others and applied them to the data center and high-tech world. And once you do that, once it gets there, it goes on steroids because the designs, you get integrated quicker up here in the design. They're usually releasing 40%, 50% drawings. They'll eventually get to 100%. We come in and actually we start looking at that and designing for constructability. And then once we can -- and then we think -- and then while we're doing that, we're thinking about our prefab plan we learn about all that in BDC. And who's doing that is our folks in the field, the foreman that I talked about the superintendent, the project managers. And we have now in our company, the bigger ones, we actually have BDC managers and we have prefab people. And usually, our better prefab people are people that came out of the field and they say, yes, that's how we're going to build that and we can bring that skid.

You got to think about the rig to get it in. You got to think about the connection points. Can you handle it on a job site. It's not as simple as that, let's build something as big as this room and figure out how to drop it into the job site. That's something that size is really -- we're not in that business. We fabricate for our jobs.

Okay. Two more I want to squeeze in before we have to close. But one, Tony, I'm sure you've been asked, but it would be good to get your thoughts. I mean there's been lots of higher profile consolidation activity in the sector, Quanta, Cupertino, DSI, Sterling, CEI. I mean, what CEC, what does it mean for you? Are there still ample opportunities out for you?

Yes, there's plenty of opportunities for us, right? We -- if you look at the 2 largest -- 3 largest deals we've done over the last 5 years, it was Batchelor & Kimball, Quebe Holdings and Miller. All of them have one consistent favor. They have owners that really, really cared about what happened to their people and them long term because they all work for us, right? We're all partners now. And there's plenty of opportunity out there, especially as these companies have gotten bigger, to have high-quality companies that really care about their people and who's made them successful. We're never going to be the guys that are going to be the private equity auction guys.

We're not particularly suited to that. So how do we really evaluate a company. And the smaller ones where we're doing just pure tuck-ins, if they can execute in the field, we'll figure everything else out. The bigger ones, when you're working with a Batchelor & Kimball or a Miller team or even Quebe, they can execute in the field. Now their culture and their values have to align with ours. And they typically have to have depth of management team. And that's where we together can create magic with those companies. And a lot of times, the only company a lot of these folks want to sell to is us. They made that decision.

They know our people. They've met our teammates out at the NECA or MCAA, they said, we like that EMCOR guy. They feel like they still own the company, right? They still -- so the way we treat those folks is they're our partners. They are subsidiary CEOs, they're my partners. I don't -- I'm not the Imperial CEO. I'm one of them, right? When Jason and I go do a review, nobody is standing up in the room, right? This isn't General Electric in the day or as a result, we've been able to build this over a long period of time, right?

I just happen to have this job. I have my job, and those guys are better at things than I am, and I'm better at things than they are other things. And together, that makes it all work. When we invest, we co-invest, right? They have to think about what return they're getting and we co-invest alongside them for building a new fab shop or something. We have a very transparent culture. This doesn't work.

So if we get a sense through a significant acquisition, we walked away, things aren't making sense to us. We're like, who are you kidding? We're going to figure it out. You might well tell us where your problems are because we're going to figure out where they are. Every company has problems, right? Everything has places they get better. And so when the Batchelor family or the owners of Batchelor & Kimball or Henry Brown and his brother, when they're making the decision to sell, they're worried a lot about what happens to their people. And by the way, they still want to work. You draw a straight line with the Batchelor & Kimball, Brian Batchelor runs our mechanical segment today, right?

He's a perfect guy to run it. Henry Brown, building Miller at an accelerated pace from where he was even before when he was doing a great job with it. And now he has more capital. Risk aperture changed a little bit. uses it as a platform. The Quebe team has been fantastic. And then we have smaller ones we've done around that over the last 5 years that tuck into our existing operations. And I think that all starts with knowing who you are, where you really add value. And do those people really share your values? Do they really care about their people, mission? Do they care about the customers to get the job done? Are they going to be transparent? Are they going to be able to fit into our culture of teamwork and safety and mutual respect and trust.

And they're not just words on a piece of paper. And those values then feed a very specific operating model. At the local level, we believe in operational autonomy with guide. But that only can work with transparency and that you have a very strong metrics-driven culture. And if someone doesn't want to be in a metrics-driven culture or we get the sense they're cowboys, they can't work here. That doesn't mean -- an entrepreneur doesn't mean you're an unabated risk taker, right? We have an entrepreneurial culture, but our folks are very aware of risk. And the companies we buy at scale, they have cultures that are very aware of risk. This is a risk -- at the end, this is a risk management business across projects and services.

That's a great stopping point. Tony, Jason, appreciate it.

Thank you, Brent.

Thanks for conference.

All right. I think we're ready. Great. Well, I'm [ Will Dotson ] from the Investment Banking division at Morgan Stanley, and I'm delighted to introduce a first-time participant in the conference, EMCOR. The management team is here. We've got Tony Guzzi, who's Chairman, President and CEO of the company; Jason Nalbandian, who's the Chief Financial Officer; and Andy Backman, Vice President of Investor Relations.

So welcome to Laguna. We are thrilled to have you guys here.

Thanks for having us.

Since it is your first time, Tony, maybe for you, why don't you start out and just give us a little perspective on the EMCOR story, talk a little bit about your businesses, acquaint the group with what's going on at EMCOR.

Yes. So if you just take it at the top level, EMCOR is a company where we actually do the work. right? So we're a company of plumbers, pipe fitters, electricians, sprinkler fitters, HVAC technicians and operating engineers. So said simply, we're a skilled trades company, highly trained people, sort of if you look at trades, we're up here at the top of the food chain.

So we're looking to either build something, fix something retrofit it and then do ongoing maintenance. If you look at the company today, we have a mechanical and electrical segment that give or take, makes up 70%, 75% of the company. We have a Building Services segment that the mechanical services business in that is about 3 -- 70%, 75% of the revenues of that business and the other stuff is site-based where we have people actually running buildings or doing route technician work.

We have an industrial business, which is a little bit of a misnomer. It's really our oil and gas business. Mostly focused downstream doing mechanical work and some electrical with some midstream and upstream. And then we have a business in the U.K. that's really a facility services business. The common theme across all of it is go back to my opening comment. The people that work in each one of those segments are, by and large, doing the same kinds of things, whether they're doing on a large construction project, a retrofit job or an ongoing maintenance contract.

Now if you think about overall, at our heart, we're contractors. So that by definition, we're flexible, we adapt and we don't really create demand a little bit in the aftermarket, we create demand. We react to demand. And we have to have our company positioned to be able to execute for our customers. In a lot of ways, we do control the mix of what we work on, but how we're going to apply our resources.

The other part about EMCOR that's core to who we are is this is a values-based company. We very much believe in a values of mission first people always. We believe on the mission first side, there's things like integrity, discipline, transparency. Think about what we do. We wake up today, Jason and I and our teammates have people working on at least 12,000 customer sites, doing fairly dangerous stuff in some cases. And these are guys that are at the tip of the -- you said it's screwdriver, they have welding torches their hand. They're working in dangerous facilities, lots of heavy equipment around them.

The other part of our thing is people always, right? We do operate in an environment in EMCOR mutual respect and trust. Secondarily, safety is a core value. We are Six Sigma in safety compared to the rest of the industry. We operate at a TRIR of less than 1. And then finally, we very much believe in teamwork. If you think about how we run the company, we have those segments, but how we actually run the company is a combination of how you would run 3 types of companies.

At the top of EMCOR, our top 150 to 200 people, give or take, feels very much like a professional services firm. And that might seem odd, but they are our partners. We operate through 100 subsidiary CEOs. We want them to feel empowered to make decisions at the local level and project level, and then we knitted it all together at segment and corporate level. But they are my partners. They're Jason's partners. They're Andy's partners. These are very sophisticated business people. About 60% of them grew up in the trades, and they're running businesses up to $1 billion right now. Great story, right? Great American story.

The next part is we very much -- and I think this is what distinguishes us from other people in our space is we run this like an industrial company. That's my background. 20 years ago, we run this like an industrial company. This is very metrics-driven company. And you see that through our cash conversions, up cycles, down cycles, no growth cycles. We typically generate cash at least equal to net income or a little bit above. And again, that's not common with all contractors or people in the services industry.

And then finally, in some ways, we look like a platform private equity investor because we have 4 or 5 places we relentlessly invest to grow our footprint geography-wise, capability-wise to be able to do what we need to do for a customer in both an end market and a geographic market. Now you think about what's driving our business today, we don't wake up one day and say, "Oh, we're going to be great data center builders." We had built the skills to do that over a long period of time, including we built some of the first data centers in the early 2000s.

There's a little bit of resurgence around 2012 or '13. But what we learned is -- and we knew this, is good industrial electricians and pipe fitters and HVAC people are flexible once they get the rhythm down on that job. And that's what's allowed us to go from serving 2019, 3 data center markets electrically and through their search for power to be able to expand, give or take, 15 today. And that's why mechanically, we went from servicing 1 or 2 to 4 or 5 today, a little different. And then fire life safety, we can serve every data center market in the country.

And so we also are pretty good at capital allocation. If you look at us over a very long period of time, about this much has to go in, maybe 10% goes into growing the business because we're not a capital-intensive business. 40% or 50%, we return to the shareholder, mostly through stock buyback, a little bit through dividend. And the other 40% or 50% has been through acquisition. So that's a little overview of who we are.

We run lean. We have a corporate office that maybe has 100 people in it. And we've been able to grow the company to where this year, we think we'll do somewhere between $16.3 billion, $16.4 billion and $16.8 billion, $16.9 billion in revenue.

So that's a super overview, and I definitely want to come back to the capital allocation piece. But why don't we start macro? One of the very interesting things about the story is the growth drivers that you sit in the middle of right now. Clearly, at the conference, we've talked a lot about data centers. We've talked a lot about reshoring. We've talked a lot about electrification. So I think those are probably -- I'll let you explain the nature of those drivers and then give you your perspective on where they're going.

Yes. Jason and I are going to sort of do this together. I'll talk here, and he'll tell you what that's meant in our business as a follow-up, okay, as far as growth. So we always thought that if you bought and expanded your company and did the right training and you built the best supervision and the best training programs with the union and outside of the union for your trade workers that you would win. That's been sort of one of the thesis of the company.

We're long-term investors in leadership development. But if you take those trends and you pull them apart, maybe just because of my bent on the world, I've sort of never been a big China bull. I sort of guess that there would be reshoring happening at some time for a lot of geopolitical reasons, right? I was sort of the guy that will have been in those meetings in another setting. People would say, "Oh, this is all going to happen." I said, yes, there's one part. It just doesn't make sense. Would you have invested in the Soviet Union in 1975. These are discontinuous political systems that will have a hell of a time working together.

And so our answer to that over a long period of time on the reshoring front was to invest like crazy and build a footprint where we didn't have one in the Southeast, Mid-South and Southwest. We had -- if you've been in EMCOR in 2007, we almost had no presence. We were California, the Northeast, a little bit the Midwest, but we didn't have any presence in the Southern United States. So our guess was that's where it was going to happen when it happened.

We started seeing it happen sort of 2015, '16, '17, you started to see it. And then, of course, COVID served an accelerant because I guess we figured single-source supply that used to be chapter and verse in 2000 to 2008, we sort of figured single-source supply out of one plant with a complicated supply chain really wasn't a good thing. And so it's going to come back. It is coming back with a lot more automation, and it is happening exactly where we thought it would happen. With the addition really of Ohio, Indiana, Iowa and some Midwestern states. That's the reshoring trend. And Jason, we see that in our backlog and our revenue growth, right?

Yes. If you look at our remaining performance obligations, which for us is really just a measure of backlog, if you look at our traditional manufacturing, you can see we're up almost 30% or a little over 30% year-over-year, and that's where we're seeing some of that manufacturing and reshoring.

And if you took it over a 5- or 6-year window, it's probably a high single-digit CAGR.

For sure. I think the thing about us, right, is data centers are definitely a big contributor to our growth, particularly if you just look at this year through the first half of '25, where we more than doubled our data center revenues, but our markets are more diverse than just data centers. I think if you look through the broader company, our health care revenues, for example, are up 40% year-to-date. We touched on manufacturing and industrial work. Our water and wastewater RPOs as well are up 20%. So fairly diverse.

And I think the thing that we often look at is if you boil down the rest of our business and you take out the high-growth market sectors and you strip away data centers and you strip away high-tech manufacturing, we're still growing mid-single digits, let's call it, 4%, 4.5% if you look over '24 or '25.

When you strip that out of nonres, you'll see that we're growing above non-res about twice, a couple of hundred basis points. And then you go to data centers, it's interesting because there's been this disconnection of thought, and I'm going to tie it to what I think is I would call it electrical expansion, not electrical. I has never been sort of the electrification guy. I've been more of the -- we need more power guy.

And maybe I had -- our team here had a unique seat at that because we knew what people were thinking about as far as data centers and semiconductors and manufacturing plants. And then you sort of put that against what people were talking about energy supply, especially from like '21 to '23 are like this doesn't work. You're going to need more baseload power, you're going to need more fossil power. Nuclear is at least 10 years away.

So when you go -- so let's just focus on data centers. We're pretty good at it. And we're only good at it because of all those things we talked about before, the training, the development, the execution in the field through our subsidiary companies, the way those 10 or 12 EMCOR companies that really service the data center market and how they work together, how they figure out how to take a customer from Virginia to Southern Washington and how they work together to make sure we get to the best answer for our customers. And I don't think a lot of companies can do that because it's our culture. You go back to that values culture that drives us to work together. We trust each other. And contracting in the end or a people business like ours is a lot about trust, right?

And so our teams have to trust each other that they can execute for the customer. And then you start thinking about the tools, whether it be for reshoring will, whether it be for data centers, whether it be for health care, the essential tools are essentially the same. To do these complex jobs, you have to be really good at virtual design construct. You have to be able to integrate yourself back earlier into the process. I wouldn't say we're doing design, but we're finishing the design for constructability and taking the lessons learned and helping our end customer, the owner, for the next build, be able to do value engineering.

And so we do a lot more design assist than we ever have. And you start thinking about the skills you need to do those big projects, those complicated projects are really the same. It's just what market you're going to apply them to. And so we went from having, give or take, a couple of hundred VDC people, virtual design construct people that actually working in rooms like this spread out designing things and then in trailers. So we have 1,500 today. If you look at our headcount growth, right, in our construction businesses, which is 70% of the company, give or take, our headcount is growing, our revenues are growing mid-teens to 20%. Our headcount is growing 1/3 of that.

So you take that virtual design construct and then you put it into fabrication, and that allows you to take hours out of the field. It allows speed to market to happen. You get less errors. You put a smattering on top of that of better contractual terms. Today, we're buying less equipment mainly because of COVID and supply chain. The owners are buying more themselves. and you see what the effect can be on our margins.

Talk, Tony, about the regulatory environment is clearly shifting and has been moving over the last -- not just the last 9 months, but certainly over the last several years. Lots of different legislative initiatives. Talk about what you're seeing today, how that affects execution today and where you think demand grows as a result of some of these things.

Again, I think by nature, because of who we are, we just call a different play depending on the regulatory environment. We react very quickly. The actual regulatory environment, you could argue they were pushing and pulling at each other over the last couple of years, right? People ask me, when do you do better? I mean you do better with Democrats and Republicans, and I struggle my shoulders and go, I have to do well with both.

And our construction workforce is mainly union. Service workforce is probably 50-50. And construction unions other than -- most of you are probably from New York or California or Chicago, that's a different world than most of the construction unions around the country. The way construction really work is we work with partners with them. We build the bench. We train people. We recruit people with them. We try to get to the right mix of workers on the job so we can be competitive. So you say under a Democratic administration because there's more Davis-Bacon work, when they wrote the CHIPS Act, they made it more favorable to union contractors, all those things. Okay, it's great. Those jobs are going to be done that way anyway.

70% of the labor on those kind of jobs are probably going to be union, mainly because of the upskilling, right, a lot of skill. And we can put together a workforce because the union guys from Michigan can come down to Texas to work and check into the book there. And I don't want to get into a whole force on that right now. So you say, okay, that's better. And some of the laws were more favorable. But then you get into, okay, what's favorable now?

Well, permitting is a little easier, probably. A lot of people want to build gas pipelines right now. So we're going to do some compressor stations. The power sector is more thoughtful, I would say, right now. The engineers are back in charge of that, the people that actually understand the energy industry and what it takes to baseload a grid, what latent power really means in a grid to keep it running, what it takes to power data -- think about a data center, think about regulation.

Data centers went from being 10, 20 megawatts when we were building for people like Morgan Stanley or JPMorgan 2005, 2006. Then we started building these cloud storage data centers, which are still growing high single digits. And they were 50, 40, 70 megawatts. Folks, that's a lot of power. That's 1/5 of a turbine output of a GM, a GE, LM-8000, right?

And now cloud storage is sort of getting up to 100 megawatts. AI is about 200 to 300 megawatts. So let's put that in perspective for you. 200 megawatts, how many houses? Household, about, let's say, 4 people in house. 200 megawatts probably power somewhere the power needed for 15,000 to 20,000 people. So midsized town, small town.

Let's talk about a data center cluster like they're building down in Georgia. It will be a mix of AI and cloud storage. I don't understand how all that works. We just build them and service them. But I know the one that's probably AI is 200 megawatt with liquid cooling. And I know the one that's doing the cloud storage is about 50 or 100 megawatts. That campus, that campus will be somewhere between 2,200 and 3,000 megawatts or if you're a power guy, they say 2 to 3 gigs. Think about that.

The nuclear plant they put in Georgia, I think that's somewhere around 3,200 to 3,500 megawatts. So that data center site, that one data center site is going to take the output of that entire nuclear plant that was built and took 10 years to build. So why are we servicing 14 or 15 data center markets now? Because they're looking for stranded power. That's why we're in South Bend, Indiana. That's why we're in Fort Wayne, Indiana. It's why we're on the Indiana side of Lake Michigan, where the steel plants used to be. That's why Columbus, Ohio can boom. Why? Because they got connectivity, probably the best connectivity outside of D.C., coupled with Ohio River Valley coal and gas.

To get that same 200 megawatts solar, which is intermittent power, to get that same 200 megawatts with the solar field. If you've ever been to an industrial solar field, I charge you to go. Anybody have a guess how many acres it takes? Guess. 1,500. So get the power to power that data center site, that one data center site in Georgia. And to do it with solar, by the way, you have to build gas backup. But to do it with solar, just do the math. 15,000 to 25,000 acres. So that's why you can't book a gas turbine right now through 2031.

I do think, though, when you go to electrification, it's interesting when you talk to utility executives, which we do, when you talk to people, I do think it's back to a density of power argument, which is sort of favors -- I think it's going to be gas and then nuclear some. And that's the electrification that's going to take place. And if you think about a data center, it's a great microcosm of how you think about battery power and everything else. A data center dedicates about 15% to 20% of its square footage to the battery room or the UPS. How long does that UPS typically run that data center until the diesel generators kick off? Anywhere from 7 to 15 minutes. That's about where battery technology really is as far as density. So a lot going to go on.

The good news is we're contractors. We're going to react to whatever demand is out there. We are pretty good solar field developers -- I mean, builders, not developers. And I think it is going to be all of the above, but you're going to have to gravitate more towards baseload power or else we can't power these AI data centers. And then if you start thinking about places like New York, they're going to have to figure out what they're going to do for power because you're going to need response AI data centers just outside the city because what you do, a lot of you, that split second is going to mean something just like it does in high-speed trading.

And when we talk to our customers and you think about demand, whether it be a chip manufacturer, whether it be a reshoring person and especially the data center people, what they have planned for the next 3 to 5 years to just keep up with demand, both cloud and AI is stunning as far as the power draw that's going to have to happen. So long-winded answer. But...

No, super helpful. I think one thing I wanted to shift and talk about was workforce strategy. Talk -- there are 2 questions in here. One is availability to support all the growth. And then second, related to the growth, as you scale, how do you keep standards high? Obviously, [ Hock ] talked about safety and the culture. How does that work as you're getting so much bigger?

Yes. So the only way we can keep the culture is through our supervision. So we spend a lot of time training supervision. So I'd sort of start with a macro view and then Jason will back me up with some numbers on how our workforce has grown versus revenue and all that on concrete terms. Someone asked me a really good question right after first quarter earnings, we were at an investor conference like this. And I had never thought of this question this way. And they said, "Yes, Tony, Jason, Andy, how do you ensure that you have the A team on every job."

And I think reflexively, I wanted to answer, oh, yes, here's how we get the A team on every job. But I took a step back, and I said, we can't do that. Otherwise, we can't build capacity, right? And our customers want us to build capacity, especially at the supervision level. And we typically try to average to a B to B+ on a job. And maybe our B or B+ looks like it's better than a lot because the way we're growing is probably better than a lot of other people's A. Sure, we have A guys on every job that matters, and girls. And then we have to expand our workforce. We do a lot of recruiting.

The diversity of our workforce really expands every year because we find the people. And if we can get a good mix on that job, we can create another team, right? So our foreman might be a C+ on that job or a couple of them, but they're working with a superintendent across multiple jobs and a project executive that are A players. Likewise, on other jobs, we may have a higher mix of foremen that are A players. And the whole magic with what we do from workforce development, Will, is to be able to build more foreman and more superintendents and project managers.

And you think about why we have been successful recruiting really skilled trades people or having people come from other careers into the trades. I think it comes down to 3 things -- 4 things. And if someone just initiated coverage on I mean, I think they copied what I've been saying for like 10 years, right? They must have listened to the call because I say it on every call. Why does somebody come to work for EMCOR?

Let's start at the trades level versus another company. I think the first reason they come is they're going to get paid every week. Sounds simple, right? And these are in no particular order. That sounds simple, right? I'm going to get paid. That's not true with all contractors. And if you're a union contractor, they're actually going to pay into my benefits fund, too, you're going to keep current. they're going to get paid with EMCOR companies, and we're going to pay the benefits to them.

The second thing is they do dangerous things. Go on any one of our job sites, you see things moving around all over the place, planning. These guys are expert planners. The foreman are planning that work with our superintendents, with our project managers to keep people safe. That's the first condition.

So I want to know that you're investing in the best safety equipment, something as simple as the right hard at as technology develops there. Are you going to give me the right safety gloves? I mean, everything, fall protection. And they always have that with us. I've never told people that let's go do a competitive bid on safety equipment. Whatever our guys think are right for that local condition, they buy.

The third thing is, if I want a career -- not everybody wants a career, right? But if I want to advance, am I in a company that offers me the chance to advance? And am I working for people that actually know what they're doing at the field level? Go back to my point that especially in the electrical business, a big -- 80% of our people that run our electrical company started in the trade. Mechanical is about 50%. If they weren't that, they were engineers or project managers. Our folks in the field know the work. And then finally, if I do a good job for you, am I going to be part of your ongoing crew? And are you going to have work going forward? And then maybe some hard numbers, Jason.

Yes. So Tony touched a little bit on the investments we made in our fabrication capabilities, our capacity, the construction tools we're using, VDC and BIM. And so over the last several years, we've really invested in those technologies to make us more productive and more efficient and allowing us to do more with less labor.

And so if you look over, let's say, a 5-year period, when our revenue is growing at a CAGR of 9.5% to 10%, our headcount growth is only 3% to 3.5%. So revenue is outpacing headcount growth almost 3:1. And I think that's telling to some of the efficiencies we've been able to gain on our projects.

And then if you think about retention because we can't retain all the trades people because work goes like this in a local market, but we're trying to retain a core. So what do we do? We train, right? In any given year, we're bringing somewhere between 125 and 150 EMCOR leaders out of the field of multiple levels in the organization.

We're training at the frontline level in a centralized way, anywhere from 20 to 40 foreman a year, 20 to 40 project managers where they actually learn how to lead, right? They know the means and methods. We can train that at the local level. We do that through peer groups. But they learn how to actually build a workforce, retain people, create the environment that people want to work in. Then we have a second course where we bring about 40 people out of the field a year. CFOs, project managers, a couple of superintendents, some people we think may be CEOs someday.

And we are senior executives in our subsidiaries. There we teach them about how you actually run this business economically. And Jason teaches part of that themselves. I do, and we do it through a case study, and we do that down at we were at [ BAs, ] now we're going to do at Georgia Tech. And that's on, okay, now you need to understand the language of our business. I think about contracts, all that.

Then we have our Capstone, which is up at West Point, at their leader development. We've been doing it about 12 years. We've trained about 550 people. And that is, okay, now you're the senior leader, what does that really mean? And if you look at retention through people that have been through our courses and like the middle -- the top 2 we've had for 10-plus years, our retention of our key leadership other than retirement is north of 85%.

So people aren't stealing people from us. They're trying, but our people want to stay. And I think they see the workforce development, they see the opportunity. They see that we have an operating -- and we also have an EMCOR operating model that basically says, if you don't have a better answer, you decentralize and you centralize where it makes sense and where you can get scale. And that creates this push and pull between entrepreneurship and discipline and process control that I think we've done extraordinarily well over a long period of time.

Great. I think I wanted to wrap up on the M&A piece of capital allocation. So you did a big deal earlier in the year. Why don't you give an update on the Miller Electric acquisition and then talk about M&A road map going forward, at least as you see it.

So Jason, maybe hit some of the top numbers, what our allocations look like over the last...

Yes. So for us, and Tony touched on this a little bit, right? Capital allocation for us is very balanced. We have a fairly disciplined approach. We're not prioritizing high leverage. We're seeking to maintain liquidity. And over a long period of time, if you look, let's say, 10 years, 8 years, we really are fairly balanced. We're almost 50-50 between business reinvestment, so the M&A and CapEx and shareholder return.

So Miller, Henry Brown and his team, I mean, they're known as one of the best electrical contractors in the country. We didn't have a big Southeast presence electrically. It's a third-generation family company that has grown really well. So when we think of acquisitions -- so big picture, we're going to invest what we know how to do.

Our preference would be electrical mechanical construction and mechanical service or building control. That's where we're going to invest, right? There'll be some stuff on the fringes like tuck-ins, but that's where we invest. The Miller is pretty much the perfect deal for us. We're not -- on a company like that, we're not looking to make a bargain, but we're not also looking to be in a heated battle with private equity that has no idea what they're buying. This is a complicated buy in our business.

So I started talking in 2019 to Henry about working together. And we hit the right moment when it made sense for both of us. He wanted to keep growing. It was getting a little bigger than what the family was maybe comfortable with and off we go. There was no other person on that deal. He was either selling to us or keep growing this company.

Batchelor & Kimball is very similar. We bought that in 2019, great mechanical contractor in Atlanta in parts of the Southeast. Brian Batchelor was running the company and his father, same kind of situation. And obviously, it went well because now Brian is the CEO of our Mechanical segment.

And so when we look at a company of size like that, any company we look at -- the first thing we look at is can they execute in the field. If they have a bad reputation in the field, we're not going to try to fix that. We would rather just move on because if they don't know basic means and methods that gets really complicated.

On the smaller ones, if they aren't disciplined in the back office and all that, I'm talking like $30 million purchase price and below, we can usually work with them to fix that or we just make them a branch of one of our bigger companies, we can figure that out. On the bigger ones, we actually go to a whole different level. If you and I don't share the same values and you're going to run a company for us, which they are going to run it for us, we're not buying you. I don't care how much money you make because it's not worth the reputational risk to our company.

So we start in the field, and we go to the leadership and then we get a mesh and we buy a company. Very rarely are we in an auction, almost never. They may have an intermediary to help them do the deal because that's the first one they've ever done. But very rarely in an auction. And quite frankly, we're pretty good buyers, and I'm a pretty tough grader. I'd say we're a good B+ student in M&A.

All right. Well, we're at time. We're delighted you guys joined us. So thank you for...

Thank you for having us.

For taking [indiscernible] time. And congratulations on the S&P 500.

Thank you.

Good morning. My name is Ranju, and I will be your conference operator today. At this time, I would like to welcome everyone to EMCOR Group Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

I will now turn the call over to Andy Backman, Vice President of Investor Relations. Mr. Backman, you may begin.

Thank you, Ranju, and good morning, everyone, and welcome to EMCOR's Second Quarter 2025 Earnings Conference Call. For those of you joining us by webcast, we are at the beginning of our slide presentation that will accompany our remarks today. This presentation will be archived in the Investor Relations section of our website at emcor.com.

With me today are Tony Guzzi, our Chairman, President and Chief Executive Officer; Jason Nalbandian, EMCOR's Chief Financial Officer; and Maxine Mauricio, Executive Vice President, Chief Administrative Officer and General Counsel. Today's call, Tony will provide comments on our second quarter and discuss our RPOs. Jason will then review the second quarter and our numbers. Before I turn it back to Tony to turn -- discuss our guidance before we open it up for Q&A.

Before we begin, as a reminder, this presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Slide 2 of our presentation describes in detail these 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. And finally, as a reminder, all financial information discussed during this morning's call is included in our consolidated financial statements within both our earnings press release issued this morning and in our Form 10-Q filed with the Securities and Exchange Commission.

And with that, let me turn the call over to Tony. Tony?

Yes. Thanks, Andy, and good morning, and welcome to our second quarter 2025 earnings call, and I'll be speaking to Page 4. What I'm going to cover up front here are some of the financial highlights for the second quarter, then I'm going to provide some commentary on what is going well through the first half of the year. Jason is going to cover the quarterly financials in detail.

We had an excellent second quarter and first half of 2025. In the second quarter, we earned $6.72 in diluted earnings per share, and we generated revenues of $4.3 billion. That represents a quarterly record and a 17.4% increase from the prior year period. We achieved exceptional operating margins of 9.6% and had operating cash flow of $194 million. We exited the second quarter with very strong RPO or remaining performance obligations, a record $11.9 billion, which represents an increase of $2.9 billion year-over-year and $1.8 billion from December of 2024. We continue to be disciplined capital allocators and for the first 6 months of 2025, we spent just over $430 million in share repurchases and utilize $887 million for acquisitions. We have a liquid balance sheet that will continue to support our growth and capital allocation strategy.

Our performance remains strong, especially in our Electrical and Mechanical Construction segments, both of which continue to earn impressive operating margins while generating growth in their base of business is demonstrated by their RPOs. We have managed our project mix and continue to gain the confidence of our customers across geographies and market sectors. We continue to execute well for our customers in these segments by using VDC, BIM and prefabrication, coupled with strong planning, excellent labor sourcing and management and disciplined contract negotiation and oversight. We have the best build leadership in the business and they operate with focus, discipline and grit.

In our Electrical Construction segment, our integration of Miller Electric remains on track. Our Mechanical Services business in our Building Services segment continues to execute well with good revenue growth and an operating margin in the high single digits. We also executed a successful restructuring in our site-based business in response to past contract losses. This should provide us with a more efficient cost structure as we look to resume growth in the future. Although we had a tough first half in our Industrial Services segment, we expect both our shop and field businesses to improve as the year progresses.

And lastly, the U.K. had a great start to the year with growth in revenue, operating margin and operating income. Overall, I think we can -- we are pretty sure that we had a very strong quarter and a very strong first half of 2025. Now I'll ask you to turn to Page 5 and I'm going to talk to RPOs before I turn the call over to Jason.

As I previously mentioned, we led the quarter with diverse strong RPOs of $11.9 billion. Due to growth in nearly all of the market sectors we serve, our RPOs have increased by 32% year-over-year and 18% when compared to December of 2024. Excluding acquisitions, organically, RPOs have increased 22% year-over-year and nearly 9% since the end of 2024. Our growth continues to be driven by long-term secular trends across key markets. RPOs within network and communications, which is where our data center business is totaled a record $3.8 billion at the end of June. We remain well positioned in this space, supporting our customers with their build-out of data centers.

Healthcare RPOs totaled $1.4 billion, and that builds on an already solid base and the acquisition of Miller Electric has expanded our opportunities in this sector that contributed to the RPO growth we've seen thus far in 2025. Manufacturing and industrial RPOs now total $1 billion and in addition to the demand driven by customers' onshoring and reshoring initiatives, recent growth in the sector has also benefited from the award of certain food processing projects as well as a renewable energy project within our Industrial Services segment and led by our Mechanical Construction segment, water and wastewater RPOs totaled $725 million as we continue to be awarded projects throughout Florida.

Additionally, due to a combination of new contract awards and the acquisition of Miller Electric, we saw growth within the Institutional sector, where RPOs now total $1.4 billion and the Hospitality and Entertainment sector, where our peers have grown 72% year-over-year or 64% from December. Although RPOs within high-tech manufacturing have decreased from June of last year, and I stated this many times before, we believe in the long-term fundamentals of this sector. We acknowledge and have talked about that the award of these projects can be esodic in nature. On a sequential basis though, when compared to the end of March, we did experience an increase in high-tech manufacturing RPOs of $126 million or nearly 15% due in large part to the award of Phase 2 mechanical construction project for our semiconductor customer.

And with that, I'll turn the call over to you, Jason.

Thank you, Tony, and good morning, everyone. Beginning on Slide 6, I'm going to discuss the operating performance for each of our segments as well as some of the key financial data for the second quarter of 2025 as compared to the second quarter of 2024. As Tony mentioned, consolidated revenues of $4.3 billion set a new quarterly record and represents an increase of $637.5 million or 17.4%. Revenue growth was led by our construction segments where we experienced greater demand across the majority of the market sectors we serve.

During the quarter, acquisitions generated incremental revenues of $330.3 million with the most significant contribution from Miller Electric. On an organic basis, revenues grew by 8.4%. If we look at each of our segments, revenues of U.S. Electrical Construction were a record $1.34 billion, increasing 67.5% due to a combination of strong organic growth and the acquisition of Miller. This segment generated greater revenues from nearly all market sectors with the most significant growth being derived from our data center projects within the network and communications sector.

Besides data centers, electrical experienced notable growth in Healthcare where our quarterly revenues more than doubled, Commercial, as we are starting to see some resumption in tenant fit-out demand and Institutional driven by increased activity for certain colleges and universities. Revenues in this sector also benefited from higher levels of short duration projects and service work in part due to the service capabilities we've added to the Miller acquisition.

U.S. Mechanical Construction quarterly revenues were a record $1.76 billion, up 6%, almost all of which was organic. Similar to Electrical Construction, while this segment did experience increased revenues across a number of market sectors, the largest growth during the quarter was generated from Network and Communications due to greater demand for data center construction projects. Other sectors with the largest incremental growth include Manufacturing and Industrial, primarily driven by food processing projects and Hospitality and Entertainment, given the recent award of certain contracts in the Western region of the United States. Partially offsetting the growth of the Mechanical Construction were revenue declines within high-tech manufacturing as we near completion of certain semiconductor construction projects and Commercial largely due to fewer active warehousing and distribution projects for some of our e-commerce customers.

With respect to high-tech manufacturing, and as Tony just mentioned, we did receive a Phase 2 award for one of our semiconductor customers, which is reflected in the sequential increase in our RPOs at the end of the quarter. On a combined basis, our Construction segment generated revenues of $3.1 billion, an increase of 26.1%.

Turning to U.S. Building Services. Revenues of $793.2 million reflect a 1.6% increase year-over-year. In line with our expectations as we exited the first quarter, growth in Mechanical Services has now exceeded the revenue decline within site-based and we are pleased to see that this segment has turned a corner after 4 consecutive quarters of organic revenue declines. With respect to the segment's Mechanical Services division, revenues increased by 6.5% as demand remained robust across each of its service lines. Moving to Industrial Services. Revenues were $281.1 million, a 13.3% decrease. Revenues were impacted by lower field services volumes when compared to the prior year, which had benefited from jobs of a larger size, scope growth on certain turnarounds and the performance of a renewable fuel project. This segment also experienced a reduction in shop services revenues due to fewer new build heat exchanger sales during the quarter.

And lastly, U.K. Building Services generated revenues of $134.6 million, an increase of $28 million or 26.3%. While favorable exchange rate movements did positively impact the segment's revenues by $7.4 million, the majority of its growth was due to greater service revenues, partially as a result of the recent award of the facilities maintenance contract and increased project activity with existing customers.

Let's turn to Slide 7. With operating income of $415.2 million or 9.6% of revenues, our performance established a quarterly record for operating income and a second quarter record for operating margin. This represents a year-over-year increase in operating income of $82.4 million or nearly 25% and a 50 basis point improvement in operating margin. If we look at each of our segments, U.S. Electrical Construction generated operating income of $157.7 million, which represents a 78% increase. In addition to greater revenues, operating income of this segment benefited from a 70 basis point expansion in operating margin and the segment earned an operating margin of 11.8%.

The segment experienced greater gross profit across the majority of the market sectors in which we operate with the largest increases generally in tracking with its revenue growth. Largely driven by Miller Electric, operating income of Electrical Construction included $9.8 million of incremental acquisition contribution, net of $11.4 million of intangible asset amortization.

Operating income for U.S. Mechanical Construction increased nearly 12% to $238.7 million and operating margin expanded by [ 70 ] basis points establishing a new quarterly record of 13.6%. Similar to Electrical Construction, this segment experienced greater profitability across a number of market sectors with the most significant increase in gross profit being generated from networking communications.

Together, our Construction segments reported operating margin of 12.8%, which is a 50 basis point improvement year-over-year. Excellent project execution, enhanced productivity and a more favorable mix continue to be significant contributors to our success. Operating income for U.S. Building Services of $50 million grew by 6.8% and operating margin of 6.3% increased by 30 basis points. Contributing to the improved profitability was a greater percentage of revenues from Mechanical Services, where we continue to perform well earning strong returns with notable margin expansion across HVAC projects and retrofit as well as repair service.

Turning to Industrial Services. An operating loss of $419,000 compared to operating income of $12.7 million or 3.9% of revenues a year ago. The decrease in this segment's profitability was primarily due to the reduction in revenues and the mix shift that I previously referenced. In addition to the direct impact of lower revenues, this volume decline also resulted in a greater amount of unabsorbed overhead within the segment.

And lastly, U.K. Building Services earned operating income of $8.4 million or 6.3% of revenues. The increased profitability of our U.K. business resulted from greater gross profit, stemming from increased segment revenues and a reduction in SG&A margin due to effective cost management, coupled with the leveraging of their overhead.

If we move to Slide 8, I'll cover a few quarterly highlights not included on the previous slides. Driven by our Electrical and Mechanical Construction segments as well as our U.S. Building Services segment, our gross profit margin has expanded by 70 basis points with gross profit increasing nearly 22%. Looking next to SG&A. Our second quarter expenses increased by $67.4 million and contributing to that variance was $28.9 million of incremental expenses from acquired companies and $5.5 million of additional amortization expense. Excluding these items, SG&A grew by $32.9 million largely due to employment costs, given both greater head count to support our organic growth as well as increased incentive compensation expense within certain of our segments given higher projected annual operating results.

SG&A margin for the quarter of 9.7% compares to 9.6% a year ago. And as expected, our SG&A margin did decrease from this year's first quarter and we continue to expect our full year SG&A margin to be relatively comparable to that of 2024 when adjusting for the $9.4 million of transaction expenses incurred earlier this year. And finally, on this page, diluted earnings per share was $6.72 compared to $5.25, an increase of 28%.

If we look briefly at Slide 9, this slide summarizes our results for the first 6 months of 2025 and has been included here for your reference. Rather than go through the page in detail, I want to again highlight that we have had a tremendous start to the year setting a number of company records as we continue to deliver for our customers and shareholders. In a later slide, Tony will outline our updated earnings guidance for 2025. I mentioned that now as this guidance assumes continued strength in our margins in line with what we've achieved through the first year.

Specifically, at the low end of our guidance, we have assumed a full year operating margin, which is equal to the 9% we have earned year-to-date, while the high end assumes operating margins in the back half of the year, which are essentially equivalent to the outstanding 9.6% we achieved this quarter. The implied full year margin is comparable to the margin we've delivered over the last 12 to 24 months.

With that, I'll turn to Slide 10 to close on our balance sheet. Our balance sheet remains strong and liquid. And as of June 30, we had cash on hand of $486 million and working capital of just over $782 million. Largely as a result of borrowings outstanding on our revolver, our debt balance was a modest $256.4 million. We had operating cash flow of $193.7 million during the quarter and generated $302.2 million year-to-date. For the full year, we estimate operating cash flow to be at least equivalent to net income and up to approximately 80% of operating income.

During the quarter, we utilized $207.3 million for the repurchase of our common stock, bringing our year-to-date repurchases to $432.2 million. When layering in second quarter acquisitions, we have spent $887.2 million year-to-date on M&A. As we've said before, our balance sheet, coupled with the cash expected to be generated by our operations as well as the nearly $980 million of capacity available under our credit facility leaves us well positioned to continue to deliver on our philosophy of balanced and disciplined capital allocation.

With that, I'll turn the call back over to Tony.

Thanks, Jason. And I'm going to be on Pages 11 and 12. Clearly, we've been executing well. And as a result, we will raise our 2025 revenue and our earnings guidance. We now expect to earn between $24.50 to $25.75 in diluted earnings per share, and we expect revenue of between $16.4 million and $16.9 billion. We expect to continue to earn strong operating margins and execute with discipline and efficiency for our customers. Our RPOs demonstrate the momentum and demand in our markets, especially in data centers, traditional and high-tech manufacturing, health care, HVAC service, building controls and retrofit projects. Macroeconomic uncertainty persists, especially around tariffs and trade, but we believe our guidance reflects the potential impact of such uncertainty as we view it today.

We will remain disciplined capital allocators bolstered by our strong balance sheet, a healthy pipeline of acquisitions and robust opportunities to support our organic growth. And if you look at Page 12 and you look at a 10-year view of the world, you'll see 50-50 balanced capital allocation and deals happen when they happen. And finally, I want to close with the most important statement of the call. I want to thank my EMCOR teammates, thank you for your dedication to our customers and to our company, and thank you for taking care of each other and keeping each other safe.

With that, Ranju, I'll take questions.

[Operator Instructions] The first question comes from the line of Brent Thielman with D.A. Davidson.

[Technical Difficulty]

Since there is no reply from the line or Mr. Thielman, we'll take the next. The next question comes from the line of Adam Thalhimer with Thompson, Davis.

Nice quarter. Tony, can you just talk a little bit about bidding at a high level, I'm curious what your expectations are for bookings at a high level in the back half of the year?

Yes. I'm not going to guess a bookings. We'll continue to win our fair share of the business, and we continue to have repeat business with customers to think we're doing a great job. We continue to expand our footprint to serve more markets. In our business, it's not a quarter-to-quarter bookings business. It never has been. But all the underlying strength we've seen through the first half of the year, we saw it through the back half of last year, there's no reason for us to believe that doesn't continue.

We're building the first building on a lot of sites that are multiyear build-outs and phases over time. We continue to see the strength in the markets that we've talked about extensively in the call, whether it be manufacturing, high-tech manufacturing, which is a little more episodic, networking communications, the commercial market for us is retrofit continues to chug along. Health care continues to be a strong market. So really, it's broad based. And if you think about our call, Jason go through some numbers, we have demonstrated over a long period of time that we will outpace nonres construction.

Maybe cover some of those numbers, Jason.

And I think we've covered some of this in the past, right? If you look at EMCOR over a period of time, let's say, 5 years, we've historically outpaced nonres by 200 basis points organically and probably 250 basis points when you include M&A. I think the more telling story though is when you look at our Construction segment, and even the Mechanical Services business within Building Services, over that same 5-year period, those segments outpaced nonres by 500 to 600 basis points. So we expect the markets to be good, especially where we operate, and we expect to outperform those markets, Adam.

Great. And then I wanted to ask about the Industrial business. With the change in administration, curious if you are seeing any signs of life?

The business -- again, think about a lot of the business is focused downstream. That really hasn't changed. It's more timing, which you see through the first half of this year versus last year, it's the timing of turnarounds. We do expect strengthening through the year. We do see more activity potentially midstream, which will impact our Electrical business within Industrial. And we also see some work around other energy build-out, especially in the LNG world and other things as the plans come to fruition. So I'd say that's the major parts, you'll see it. But being that we're 70% or so downstream focused, we're dependent on refinery utilization and the turnaround schedule.

Got it. And last one for me. In the U.K., what's caused the strength there? I'm curious if that's sustainable?

Yes. I think the biggest thing is increased volume, right? We got a recent award or 2. On the service side, we had more project activity. And when you really look that's what's driving the revenue growth. When you look at the margin side, it's really just leveraging their overhead in a period of growth.

And it's been a pretty steady performer. And it's known for technical excellence and it wins those kind of contracts. And it's had long-term customer relationships. We've grown it organically, and we've been pretty steady over time, and it's been a very good performer for us.

Yes. Nice to see the step-up in revenue there.

Next question comes from the line of Brent Thielman D.A.Davidson.

Tony, this seems to be becoming an even more active M&A environment with some larger public transactions out there lately in either electrical or mechanical. I wanted to get your take on the pipeline of potential targets as the market evolved a lot in the last 12 months where seller expectations or can still meet your criteria to be an attractive year. I'd just love to get your take there.

I think it's yes and yes. If you go back to sort of how we think about deals, right? That hasn't changed. We're looking to buy companies of any size that can execute in the field and execute very well. As they become larger or larger acquisitions, we worry then very much about, is there a cultural fit. And if you look at our 2 largest acquisitions we've done in the last 5 or 6 years, Batchelor & Kimball and Miller Electric, both met those criteria. And both were led by teams that were worried about the long-term sustainability of their organizations. Did we fit with their values as much as we worried about them fitting with our values and the ability to grow and have growth capital.

So how we look at deals haven't changed. We're always looking to make a fair deal, and that's got to be fair for our shareholders. But we also want the seller to feel that they've made a good deal with us because that's how you perform better together going forward. If you think about the current environment, I think you're referencing, we did Miller and Quanta did Cupertino and then in this morning, they just did DSI. Yes, some of the deals have gotten larger. And that's understandable, right? Some of these are closely held businesses. They're getting very large. The owners have all their eggs in one basket. And they also want growth capital because they see what we see in the future, right? They see a growing market. They want to be part of that. They want to continue to provide opportunities for their people while at the same time, taking some of the risk off the table but continuing to run their business.

So the competitive environment for those, for me, you wake up in the morning and you say, okay, one of your competitors or quasi competitors potentially bought somebody that is a good company. That's not a bad thing because they know how to run businesses, and we compete with those people today and nothing's really changed on the playing field today and how things are procured and how that moves. So I think it's a combination of, I think, optimism towards the future that drives these larger deals.

Yes. That's great color. Yes, I wanted to ask on the -- I mean, you continue to put up really impressive expansion in the mechanical margins, I guess, in particular here. And Jenny, just wanted to circle back. Is this sort of the same mix in terms of combination of operating leverage versus just getting higher rate, it'd be helpful to hear what exactly you're leveraging in that.

Yes. So I think it starts with us, right? So you think about the customer set that's driving that mix today. And you've heard me say this many times, these are the most sophisticated customers in the world, and they are very demanding. So they're not paying one more sent than they need to, and it's up to us to deliver. And they're not also having any easier contract terms than they need to. So start there. So then you have to get to, okay, it's a busy market, maybe pricing is a little bit better. But I believe most of it is being driven by our means and methods, our ability to gain productivity on a job site, our ability to leverage things like VDC and BIM, which our customers see real value to and then our ability to turn that into prefabricated solutions and our ability to have less labor on the job site and more highly skilled labor.

And then it really comes down to also do you have the best build supervision on the site to be able to drive the best productivity and get the best outcomes and do that in a safe manner to the point where you become a point -- a place where labor really wants to work. And I think we checked the box on all that. If you start with great supervision on a job site, you have a lot of great planning going on, you negotiated the contract the right way, you're really doing good progress billings and keeping your customer price and coming up with solutions how to drive value engineering and productivity. A lot of times, you end up in a good place. I'm going to asked Jason to go through this.

Sustainability of margins, we always look at 12, 18 and 24-month averages. And I think we're at a level where we think we're pretty good.

I think 2 things I'd add. One, first before we talk about margins is just also the project sizes, right? We've talked about it increasing of project sizes and you get better utilization, you get better leverage on your indirect. And all of that's certainly helping margins as well. When you look at each of our segments, and we say this repeatedly, it's not a quarter-to-quarter business, right? So Mechanical is a record quarterly margin here in the second quarter, but margins will bounce around, I think, on a consolidated basis, we've said, look at the trailing 12 to 24 months. I think that same logic holds true to the segment level. So if you look at Mechanical and you look at kind of a rolling 12- to 24-month, that's a good expectation for the margins there.

So that gets to the sustainability point. If you were seeing outsized and a big fall off, we don't expect to see that but that sort of 12- to 24-month average gives you sort of a picture into how we view sustainability of margins.

Understood. I take from your comments just on building services, it sort of feels like we're maybe at an inflection point here. When you think about just the financial outlook for the rest of the year? Or is that implying that back to kind of a growth business here?

I think we'll start growing again. The comps get easier and more fair, really as a large customer that you did very well with. And then the mix moves more towards mechanical services, which is good for the margins.

Next question comes from the line of Brian Brophy with Stifel.

Congrats on the nice quarter. Just curious what you're seeing from a pipeline perspective, project pipeline perspective on the pharma manufacturing side. Have you seen any change or acceleration in conversations with customers just given some of the changing outlook on the tariff discussion in that space?

Yes. I think for the most part, our customers started plants, you got to separate it into 2 things, right? The first part is they've got a bunch of new drugs they're going to build onshore that they've been investing. I'm not a medical expert. I think they're called GLP-1s and the weight loss drugs. That's been a big part of the story of the places we are, whether it be parts of Indiana or North Carolina and then somewhat New Jersey.

Now you're getting to the second part, which I think they start a plan in the middle of last year is, okay, we got -- and it really started as a result of COVID, too, onshoring more manufacturing. That doesn't happen overnight. But that has been ongoing, and I expect that to accelerate. I saw an analyst yesterday say that there hasn't been a lot of farm activity in the U.S. a stock analyst, and I'm watching TV and I go, I must be in a different world than they've been because we see a lot of activity, and we participated in it.

That's really helpful and good to hear. And then one follow-up on this Phase 2 award on the semi side that you guys mentioned in your opening comments. Is this a small portion of the overall award you're expecting as part of this Phase 2 project? Or should we be thinking about additional awards in subsequent quarters as it relates to this?