Good morning. My name is Keith, and I will be your conference operator today. I would like to welcome everyone to the EMCOR Group First Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I’d now like to turn the conference over to your host today, Mr. Blake Mueller with FTI Consulting. Please begin.

Thank you, Keith, and good morning, everyone. Welcome to the EMCOR Group conference call. We are here today to discuss the company's 2023 first quarter results, which were reported this morning. I would like to turn the call over to Kevin Matz, Executive Vice President of Shared Services, who will introduce management. Kevin, please go ahead.

Thank you, Blake, and good morning, everyone. And as always, thank you for your interest in EMCOR, and welcome to our earnings call for the first quarter 2023. For those of you who are accessing the call via the Internet and our website, welcome to you as well, and we hope you have arrived at the beginning of our slide presentation that will accompany our remarks today. We are on slide 2. This presentation and discussion contains certain forward-looking statements and may contain certain non-GAAP financial information. Page 2 describes in detail the forward-looking statements and the non-GAAP financial information disclosures. I encourage everyone to review both disclosures in conjunction with our discussion and accompanying slides. Slide 3, the executives who are with me to discuss the quarter results are Tony Guzzi, our Chairman, President and Chief Executive Officer; Mark Pompa, our Executive Vice President and Chief Financial Officer; and our Executive Vice President and General Counsel, Maxine Mauricio. For call participants not accessing the conference call via the Internet, this presentation, including the slides, will be archived in the Investor Relations section of our website under Presentations. You can find us at emcorgroup.com. With that said, please let me turn the call over to Tony. Tony?

Yeah. Thanks, Kevin, and good morning, and thank you for joining our call. I will cover pages four through six in my opening comments. The momentum in the past few quarters continued in our business as we had an exceptional first quarter 2023. Our team is executing well, and I appreciate the team's focus and dedication towards driving excellent outcomes for our customers. We earned diluted earnings per share of $2.32 on revenues of $2.89 billion and an operating margin up 5.4%. We had strong first quarter organic revenue growth of 10.1% versus the year-ago period. We also grew remaining performance obligations or RPOs from the year-ago period and from December 31, 2022, to a record $7.87 billion. During the first quarter of 2023, we executed very well across all segments, and the broad themes that drove our business in 2022 continued, including the underlying strength in the retrofit markets with a focus on energy efficiency and indoor air quality, which also leads to emissions reduction. Growth in the network communications and data center markets, strong demand in healthcare and high-tech manufacturing, including semiconductors and all things around the electric vehicle value chain and traditional manufacturing and industrial projects driven by the onshoring supply chains and domestic capacity expansion. We also continue to see an increase in demand for our downstream refinery and petrochemical services. I will discuss these trends in more detail in my later commentary. Further, we are executing well on a good mix of business as evidenced by our improved gross profit margin of 15.1%. We still face headwinds from inflation and supply chain disruption, but we continue to improve our planning and execution to mitigate such headwinds, which we expect to continue through the balance of 2023. As our results demonstrate, we had a great start to the year in our construction segments. This was due to the expertise and skill of our subsidiary and segment teams in estimating, winning, planning and executing complex projects across diverse market sectors, trades and geographies. Our Mechanical Construction segment continues to perform exceptionally well with an operating income margin of 8% and organic revenue growth of 8.7%. Driving this growth is strong penetration in high-tech manufacturing, especially in the areas of semiconductors and the electric vehicle value chain as well as continued demand for data centers. We are winning in the traditional piping trades, but also our ever-expanding fire and life safety trades. Our strong operating income margin is a result of exceptional job site planning and execution supported by excellence in building information modeling and prefabrication. Our Electrical Construction segment's performance continues to strengthen to historic levels. We earned an operating income margin of 6.3% in the quarter, representing a 250 basis point improvement versus the year-ago period, and we had organic revenue growth of 16.8%. We had robust performance across important sectors such as network communications, healthcare, manufacturing and industrial. We expect our results to continue to strengthen in the segment with improved project planning and execution, supported by the increased use of building information modeling and prefabrication. Our recent acquisitions in this segment are performing well and have opened new markets and opportunities for us. Our US Building Services segment had a strong first quarter. We had an operating margin of 5.2% with superior performance across the segment's Mechanical Services business as evidenced by organic revenue growth of 14.1%. We successfully executed project work and through improved planning, trade and job site coordination and estimating managed to address some of the supply chain challenges that negatively impacted such work last year. We often talk about the work we do to increase our customers' energy efficiency and improve air quality, which then results in emissions reductions and supports our customers' sustainability goals. Our building services companies work through a diverse set of channels to deliver these projects and services to commercial, institutional, healthcare and manufacturing customers. We serve these customers directly, but also through major real estate providers, utilities and energy service companies. We see our ability to serve our customers through such diverse channels as a competitive advantage, and we'll continue to seek out the broadest set of customers possible. The results of our Industrial Services segment continue to improve at a steady pace. Earning an operating margin up 4.5% in the first quarter of 2023. We executed a more normal turnaround season and saw improved demand and mix for our shop services. We continue to execute work supporting our customers' increased demand for energy and operating efficiency as well as the renewable fuel expansion. The segment's performance trajectory continues to improve, and we would be even more positive about this segment's outlook if solar panel supply chain issues were not delaying our execution of electrical work supporting these solar films. Our UK team continues to execute well despite a challenging market and foreign exchange headwinds. We continue to grow our customer base and are happy with our mix of facilities management contracts and owner-direct project work. We leave the quarter with an excellent mix of work in our record RPOs of $7.87 billion. We have a strong balance sheet to support our organic growth outlook and our capital allocation model. And with that, I will turn the presentation over to Mark.

Thank you, Tony, and good morning to everyone participating on the call today. For those accessing this presentation via the webcast, we are now on Slide 7. Over the next several slides, I will augment Tony's opening commentary and review each of our reportable segment's first quarter operating performance, as well as other chief financial data derived from our consolidated financial statements included in both our earnings release announcement and Form 10-Q filed with the Securities and Exchange Commission earlier this morning. So let's expand our review of EMCOR's first quarter performance. Consolidated revenues of $2.89 billion are up $297.9 million or 11.5% over quarter one, 2022. Our first quarter results include $35.2 million of revenues attributable to businesses acquired, pertaining to the period of time that such businesses were not owned by EMCOR in last year's first quarter. Excluding the impact of acquisitions, first quarter consolidated revenues increased approximately $262.7 million or 10.1% quarter-over-quarter. Before reviewing the operating results of our individual reporting segments, I would like to highlight that our consolidated revenues of $2.89 billion established a new first quarter record and represents our second-best ever quarter. With that being said, I will now cover the results of each of our reportable segments, starting with revenue. United States Electrical Construction segment quarter one revenues of $644.7 million increased $122.7 million or 23.5% in 2022's comparable quarter. Excluding incremental acquisition contribution, this segment's revenues grew a strong 16.8% organically quarter-over-quarter. Increased project activity within the network and communications, healthcare, manufacturing and hospitality and entertainment market sectors more than offset revenue declines in transportation and traditional commercial market sector activity. We continue to experience strong demand from our data center customers as evidenced by the growth in remaining performance obligations within the network and communications market sector, and we are executing against these contracts. Revenues of our United States Mechanical Construction segment of $1.1 billion increased approximately $86 million or 8.7% from the year ago period. Revenue growth during the quarter was predominantly derived from the high-tech and network and communications market sectors. Increased activity within the quarter included both Mechanical Construction as well as fire protection services for customer projects supporting the design and manufacture of semiconductors, electric vehicles and/or related battery technologies. Additionally, similar to our Electrical Construction segment, our Mechanical Construction businesses are experiencing strong demand resulting from the growth in data center development. Both our Electrical and Mechanical Construction segments established new first quarter revenue records in 2023, and consequently, our total US construction revenues of $1.72 billion represent a first quarter record as well. This performance surpassed that of the prior year period by $208.6 million or 13.8%. United States Building Services segment revenues of $725.4 million increased $89.8 million or 14.1%, representing an all-time quarterly record for this segment. Growth was primarily experienced within the segment's Mechanical Services division, which generated incremental revenues from each of its service lines. Notably, we saw an increase in HVAC project and retrofit work due to slightly improved equipment availability that facilitated greater project execution when compared to last year's first quarter, which was more severely impacted by the ongoing supply chain disruptions and delays. Additionally, this segment continues to experience strong demand for building automation and control solutions as our customers seek ways to improve the energy efficiency and/or indoor air quality of their facilities. With most companies focusing on their carbon footprint, we believe that this will be an area of continuing demand for us. Our United States Industrial Services segment generated revenues of $330.9 million, an increase of $20.1 million or 6.5% year-over-year. Despite the ongoing volatility in the broader oil and gas industry, we continue to see a steady resumption in demand for our field services offerings and as a result, we achieved a solid start to 2023. Additionally, we have experienced an increase in new build heat exchanger orders and pull-through cleaning and maintenance within this segment's shop services operations. United Kingdom Building Services segment revenues of $110.9 million represent a reduction of $20.6 million from last year's first quarter. Unfavorable exchange rate movements due to the weakening of the pound sterling negatively impacted this segment's quarter one 2023 revenues by $10.8 million. Excluding the impact of foreign exchange, EMCOR's UK revenues decreased due to the loss of certain facilities maintenance contracts not renewed pursuant to rebuild, as well as a reduction in project activity with certain customers period-over-period. Please turn to slide eight. Selling, general and administrative expenses of $281.2 million represent 9.7% of first quarter revenues and compared to $252.6 million and 9.7% of revenues in the year-ago period. SG&A for the current year's quarter includes approximately $5.2 million of incremental expenses from businesses acquired, inclusive of intangible asset amortization, resulting in an organic increase in SG&A of $23.3 million. With EMCOR's continued revenue growth, we have added personnel to support our back office and contract administration functions, resulting in increases in salaries and benefits from the corresponding 2022 period. Additionally, with the increase in both our quarter one operating income and diluted earnings per share, as well as the positive revision in our full year 2023 EPS outlook, which Tony will cover later in this morning's presentation, we have seen a resulting increase in incentive compensation expense to reflect the actual and anticipated improvement in year-over-year performance. Reported operating income for the quarter was $154.9 million or 5.4% of revenues, it favorably compares to approximately $100 million of operating income or 3.9% of revenues a year ago. Consistent with my revenue commentary, the current quarter's operating income and operating margin performance each represent new quarter one records for the company. Specific quarterly operating income performance by segment is as follows: Our US Electrical Construction segment earned operating income of $40.5 million, an increase of $20.5 million from the comparable 2022 period. Reported operating margin of 6.3% is significantly improved from last year's quarter, given a more favorable revenue mix as well as the negative impact in 2022 of supply chain disruptions, which resulted in job site sequencing challenges as well as reductions in labor productivity and efficiency. Although we are still experiencing various degrees of supply chain difficulties, the level of impact in the current year has been less severe than that experienced in the early part of 2022. This is due to both improved equipment availability and our subsidiary management team's ability to adapt to this less than optimal operating environment. First quarter operating income of our US Mechanical Construction segment of $86.2 million represents a $27.8 million increase from last year's quarter and an operating margin of 8% represents a substantial increase from the 5.9% earned a year ago. In addition to this segment's exceptional project execution, a better revenue mix when compared to the first quarter of 2022, as well as moderate improvements in both supply chain and commodity pricing environments were the primary factors driving this quarter-over-quarter improvement. Operating income for US Building Services is $37.7 million or 5.2% of revenues and compares to $24.2 million or 3.8% of revenues in 2022's first quarter. Consistent with the segment's revenue performance, these improvements were driven by the Mechanical Services division, which saw increases in both gross profit and gross margin due to better project execution as well as the favorable impact of negotiated price adjustments, which have been enacted in response to the inflationary pressures we've experienced. Compared to the year ago period, our US Industrial Services segment operating income of $15 million or 4.5% of revenues represents an increase of $1.8 million with a slight expansion in operating margin, better pricing and mix, coupled with more normalized demand are the primary reasons for these quarter-over-quarter improvements. UK Building Services operating income of $5.4 million represents a decrease of $5.2 million, while operating margin of 4.9% is reduced from 8.1% of margin a year ago. Exacerbating the impact of reduced quarterly revenues on operating income, this segment experienced a shift in the mix and size of project work, which resulted in a decrease in gross profit margin. Additionally, contributing to the unfavorable period-over-period comparison is the impact in 2022's first quarter of a successful project closeout, which enhanced reported operating margin in the prior year period. This segment's operating income was also negatively impacted in the quarter by $500,000 resulting from unfavorable exchange rate movements. We are now on slide nine. Additional financial items of significance for the quarter not addressed on the previous slides are as follows. Gross profit of $436.1 million is higher than the comparable prior year period, by $83.5 million or 23.7% and gross margin of 15.1% is up 150 basis points quarter-over-quarter. Diluted earnings per common share was $2.32 compared to $1.39 in 2022’s first quarter. The increase in quarterly net income, combined with a reduction in our weighted average shares outstanding has led to a $0.93 EPS improvement year-over-year. Our share repurchases in 2022 have positively impacted our first quarter 2023 diluted earnings per share by $0.25. Please turn to slide 10. EMCOR's balance sheet maintains its strength in liquidity, positioning us to fund organic growth, pursue strategic M&A opportunities and return capital to shareholders. Fluctuations of note within our balance sheet when compared to December of 2022 are as follows. Cash on hand of just over $420 million has decreased by $36.4 million. During the quarter, we utilized $84.6 million of cash to fund our operations, deployed $25.4 million for investing activities, including capital expenditures and acquisitions and returned $23.2 million to stockholders through share repurchases and dividends. These uses of cash were partially offset by borrowings during the period of $100 million under our revolving credit facility. Resulting primarily from our organic growth during the period, our working capital balance has increased by nearly $193 million. The slight increase in goodwill was entirely a result of the two asset acquisitions completed by us during quarter one of 2023, while identifiable intangible assets have decreased marginally as the assets recognized in connection with these acquisitions were more than offset by amortization expense during the period. Total debt has increased by just under $100 million, as a result of the additional borrowings under our revolving credit facility previously referenced. This increase in debt is the primary reason for the change in our debt-to-capitalization ratio, reflected on the bottom of slide 10. And lastly, our stockholders' equity balance has increased by just over $92 million, as our net income for the period exceeded our share repurchases and dividend payments. With my portion of this morning's slide presentation completed, I will now return the call back to Tony.

Thank you, Mark. I will reference page 11, which discusses Remaining Performance Obligations by segment and market. We saw strong demand for our services, continuing the trend from the last three quarters of 2022 into the first quarter of 2023. By the end of the first quarter, our total Remaining Performance Obligations were nearly $7.9 billion, an increase of over $1.9 billion or 32% compared to March 2022, with almost all of that increase being organic. Additionally, first-quarter project bookings were robust, with RPOs rising by $414 million or 5.5% from year-end 2022. The ongoing RPO growth signifies strong underlying demand in our most resilient sectors, with double-digit RPO growth observed across all domestic reporting segments compared to the same quarter last year. Our U.S. Mechanical Construction segment saw an increase of $934 million or 28%, while U.S. Electrical Construction increased by $754 million or 58%. Much of this growth is attributed to the ongoing demand for hyperscale data centers, semiconductor manufacturing, and healthcare facilities. We are also involved in the development of the Electric Vehicle value chain, which encompasses electric vehicle production, battery plants, and other manufacturing and industrial facilities to support this emerging industry. Furthermore, we are witnessing increased demand for on-shoring manufacturing and expansions from some customers. In this context, demand for our Fire and Life Safety services remains strong. Our U.S. Building Services RPO increased by $237 million or 23% year-over-year, reaching $1.25 billion, with a significant portion coming from small to midsized project and service work. The Mechanical Services division continues to receive project awards focused on energy efficiency and general retrofitting projects, along with repair service work, which is growing across all channels. U.S. Industrial Services saw a slight year-over-year RPO growth due to increased demand for our heat exchanger services. On the right side of the page, we provide RPOs categorized by market sector. We've expanded our sector segmentation to 10 markets. As mentioned in our February call, for greater transparency, we broke down our previously reported commercial RPOs into three distinct sectors. The traditional commercial projects, represented by the golden bar, which includes work in office buildings, warehouses, and retail, saw a year-over-year increase of $198 million or over 12%. We have also divided the commercial sector to include network and communication projects, which have grown RPOs by 86% year-over-year. We’ve now established a high-tech projects group within the high-tech manufacturing sector, illustrated by the green bar. RPOs in this sector increased by $481 million or over 100% year-over-year, indicating that many industries in high-tech manufacturing are just beginning their capacity expansions. We anticipate continued growth in this sector, with fluctuations due to the scale of the projects. To date, the impact of the government legislation supporting these sectors has been minimal, but we believe it will ultimately drive greater demand and extend its duration. As I previously mentioned, we are broadening our Fire & Life Safety services across all sectors. In terms of other market sectors, healthcare RPOs rose 55%, institutional grew 10%, and manufacturing and industrial saw a 35% increase. Short-duration projects, primarily HVAC and repair service work, remain flat or increased slightly. However, there has been a reduction in transportation and water and wastewater RPOs. It is noteworthy how balanced our market participation is, showcasing our ability to provide electrical and mechanical construction, retrofit, and repair services across diverse non-residential markets and geographies in the U.S. and UK. We have ample work lined up and continue to pursue new opportunities across various non-residential market sectors. Our project mix is solid, and we are managing project delivery effectively, despite ongoing operational challenges. I previously mentioned several robust sectors driving our growth, and while I won't delve into page 12 today, I believe it aligns with our earlier commentary on RPOs. Turning to pages 13 and 14, we expect our momentum to continue through 2023, even amidst market uncertainties. We will maintain our revenue guidance of $12 billion to $12.5 billion, while elevating our earnings per diluted share guidance from a range of $8.75 to $9.50 to $9.25 to $10. Our strong RPOs reflect continued demand in key areas such as commercial, remote semiconductors, healthcare, data centers, and life sciences. As I mentioned earlier, we are also experiencing strong demand for our fire and life safety services across most major markets. Although supply chain challenges persist, including long lead times and unreliable delivery schedules for systems like switchgear and HVAC equipment, we expect inflationary pressures on labor, materials, and fuel to continue. Nonetheless, we will adapt through better planning, estimating, and resource allocation. Where we end up in our guidance will be influenced by several factors, both within and outside our control. Key controllable factors include the need to enhance our use of building information modeling and prefabrication to drive efficiency and productivity, improve our pricing and estimating processes to address inflation and supply chain challenges, leverage our status as an employer of choice to staff projects effectively, provide training for our workforce, closely monitor our commercial customers' financial health, and seek SG&A leverage. Factors outside our control include ongoing challenges with material sourcing and lead times, potential impacts from rising interest rates and economic uncertainty on customer demand, and potential disruptions from energy market volatility, particularly due to the ongoing conflict in Ukraine. However, we expect to maintain strong operating cash flow and implement our capital allocation strategy effectively, balancing organic growth and acquisitions while returning cash to shareholders. I would like to express my gratitude to the EMCOR team, as our success relies on your discipline, teamwork, and commitment to delivering excellent results for our customers, which in turn benefits our shareholders. With that, Keith, I will take any questions.

Thank you. At this time, I will begin the question-and-answer session. And today's first question comes from Brent Thielman with D.A. Davidson.

Hi. Thanks. Good morning. Congrats on a great quarter.

Good morning, Brent. Thank you.

Tony, I was just wondering if you could comment on your traditional commercial verticals just in the context of these kind of heightened concerns around credit tightening. It seems like that would be an area you may have the most exposure risk. But I'd love to hear sort of how you'd pick that apart are there high levels of retrofit and upgrades within that vertical versus new construction? Any anecdotes there would be really helpful.

That's why we implemented the enhanced disclosure. You can see that traditional commercial, represented by the yellow bars, has increased year-over-year and remains fairly stable since year-end. This stability is partly due to our ongoing projects, which are typically designed for quicker results. Currently, EMCOR's commercial backlog consists of less than 1% to 1.5% of new commercial or high-rise residential projects, which is a significant shift from the past. Most of the business within the traditional yellow section, as well as the pink section, is made up of short-duration projects, including major retrofits, tenant build-outs, and energy retrofits. As we examine the maroon and green segments, these areas indicate where our growth is originating. This growth trend began prior to recent legislative enhancements, such as the CHIPS Act and IRA, and we anticipate it will continue. However, we are cautious in the commercial sector, particularly with developer-led projects, as we closely monitor collections and financing. I don't believe new commercial construction is currently a growth market, but there are opportunities with well-capitalized customers. The energy efficiency market has significant potential, and we effectively service it through various channels, including direct engagement with owners, partnerships with in-house general contractors, large real estate providers, utilities with supportive programs, and major ESCOs. Our salesforce is adept at navigating these channels, positioning us strongly in the market. This is a complex situation, which is why we felt the need for enhanced disclosure to clarify the dynamics of growth within our traditionally defined commercial sector.

Okay. I appreciate that. Just I guess staying on the topic of the RPOs, Tony, the healthcare piece also really sticks out to me just the continued expansion there. I guess my question is, would you consider that a fairly diverse group of customers and a broader trend, or is this aligned with some specific customers that just happen to be spending?

It's both, Brent. It's both, right? Specific customers drive that backlog because they can be large projects. But if you look over a two or three-year period, over time and the way we think about it is part of a broader trend. They got, quite frankly, disrupted a little bit with COVID because they weren't building new facilities in the middle of COVID. They were building emergency facilities rather than new facilities or retrofitting so you can do multiuse. So some of this is pent-up demand or what should have been capital planning, but it's a long-term trend. Hospitals and big healthcare facilities and outpatient facilities, they need to be cleaner. They need to have better ventilation; they need to have an ability to flex from positive pressure to negative pressure in our world. They have much more complex low-voltage needs. They have much more complex general electrical needs; they have to put backup power. And while they're doing all that, they have to think about their sustainability goals and how they're going to operate that facility more efficiently.

Thanks, Tony. Which of the two construction business groups are facing more significant challenges due to supply disruptions? Is it more in electrical or mechanical? It seems like the electrical margin has rebounded considerably from last year, but it might still be below the levels we've observed in the past. I'd appreciate some clarification on that.

I think I would say probably electrical more than mechanical, it's a more consolidated market for major end products, and it's more on the critical path. So we've had to rejigger our means and methods to work around that. Mechanically, we buy a lot of equipment, we do a lot of HVAC work. We also do a lot of district piping work supporting big process plants or where the owner bought the equipment. And so they do that in the electrical business, too, for major gear. But my experience has been when you look at things like generators and switchgears and smart panels, the delivery performance is not great yet. The mechanical has gotten a little better, at least what they say they're going to do, they do. But the electrical lead times haven't really moved much down at all. The mechanicals have started to move down a little bit. And I think, in general, the mechanical salesforces are more in tune with their factories. And I think they have better visibility to keep us up to date on what's happening than the electrical salesforce.

It's really helpful. Yeah, yeah. Okay. Thanks, guys.

Yeah.

Hey, good morning, guys. Great quarter.

Thanks, Adam.

On the industrial business, that was your best quarterly operating income in three years. I’m curious about your visibility there and whether you can build on the Q1 results.

Look, we think things have gotten better. We like where our shop backlog is at. We like what that portends for the future. We think we're in a more normalized operating environment, which is good. We expect to continue to operate normally. We have no reason to believe we don't have a normal fall turnaround season coming up. I think the long pull in the 10 is a new product we have, right? Or a new service, which is building these alternative energy, the renewables, especially around solar, and that's clogged up everywhere. But Mark, I mean…

Yes, Adam, I want to emphasize the seasonality of our business, which typically starts strong in the first quarter and wraps up in the fourth quarter. That said, as Tony noted several times in his earlier comments, we are approaching a more typical operating environment with our customer base. A lot of this is influenced by the mix of our offerings. We are utilizing our qualified workforce effectively, and if our customers stick to the schedules we’ve planned together, we are optimistic that 2023 will resemble a standard year for the Industrial Services segment.

And that's reflected in our guidance. And part of that is reflected in our guidance take-up.

Okay. What is the outlook for solar panels? I don't I have followed that closely.

There are certainly people more qualified to discuss that than us in our business. But based on what we see, it's not good. It's still congested. I don't anticipate a significant increase this year. However, there are others who know much more about this than I do. From my perspective, as someone who has followed it closely through our bidding and work, we are seeing a lot of delays.

Yes. Blake mentioned this earlier, but I wanted to address your macro comment. The question is how the macro environment might impact us. It seems that many of the large projects are ready to go, with government backing, so those might proceed. However, there is uncertainty surrounding the short-duration projects.

Yes, it's difficult to assess. Short-duration projects have been influenced by various factors for some time. There’s a balancing act at play due to energy pricing and the push for more sustainable facilities. On one side, one might choose not to pursue a project. However, delaying that project increases costs as energy prices fluctuate and rise. Most of our significant customers have set sustainability targets, which require equipment upgrades and modernization, such as refurbishing compressor lines in manufacturing facilities. This entails substantial work and new equipment. For instance, replacing an old chiller that operates at 0.68 kw per ton with a new model that runs at 0.32 kw per ton, incorporating variable speed technology, significantly alters operating costs. This realization compels action; failing to upgrade in triple-net leases can render a building uncompetitive. Many factors are at play, so if you’re heavily invested in new commercial builds, your perspective may differ from ours. Additionally, consider the ongoing major projects related to reshoring, the electric vehicle value chain, semiconductors, and data centers, which have their own supporting ecosystems. Much of this progress was occurring without government backing, so any support now is likely beneficial and can extend growth opportunities. Most of these customers aren't overly concerned about a 500 basis point increase in interest rates since they are largely self-funded and anticipate significant value from their initiatives. Moreover, factors such as national security and the repatriation of critical industries should positively influence long-term demand. We maintain strong remaining performance obligations and expect to continue seeing this strength. While there might be slight fluctuations quarter-to-quarter, we believe the overall trends in these major sectors will remain robust in the coming years, but we will monitor the situation.

Exactly. Good color. Thanks guys.

Hi, team. It's a great start here. I believe the key point from the first quarter is really the margins, which seem to be a record performance for us. However, you mentioned there are still some lingering supply chain challenges. Is there something about our first quarter results that might not be sustainable, or are we just not updating our outlook and simply benefiting from a strong start to the year?

I don't know, Sean. I think taking our outlook up to $9.25 to $10 from $8.75 to $9.50, a pretty big move. I think the revenue velocities in the businesses, and we said that in our initial guidance, and I think further, if you extrapolate that, I think that what we're really saying in the guidance is we expect strong margins through the year. Now, we are mix dependent and projects start, they finish. But we – there was nothing extraordinary in the first quarter, right, Mark?

Sean, the only thing I'd point out, if you recollect from quarter one last year, we did have some additional headwinds with regards to project write-downs, both in electrical and mechanical construction. The extent of write-down activity in the first quarter of 2023 was not at that same level. The other thing, which is extremely difficult to quantify relative to 2023’s quarter one, is with the fairly mild winter weather pattern we had in most of the geographies we operate, we didn't deal with the same level of job site difficulties with regards to weather. But like I said, that's difficult to quantify. It does not have an outsized impact on the quarter performance. And the only thing I might have done is pulled some activity forward in the year.

I believe that the first quarter operating income margins were enhanced by the seasonal strength in the industrial sector. We need to consider what the second and third quarters may bring, especially if we are unable to complete some of the solar projects we anticipate in the latter half of the year. Additionally, I want to express some general caution. There are significant macroeconomic factors outside our control, and it seems wise to remain mindful of those. Nevertheless, we have set strong guidance and have made updates to that guidance. We began the year with solid expectations and have further reinforced that outlook. We believe that our operational performance is strong, depending on the revenue range you are looking at.

Yes. Look, I don't want to take the wind out of the sails, great update. I guess what I was getting at is just that I have to go back to 2014 to find a year where the first quarter is not the low watermark operating margin for the year. And I feel like with that dynamic in mind, it seems like there's a lot of cushion in the guidance from a margin perspective over the balance of the year?

Yes, when we analyze this from a broader perspective, there are many factors that can influence each quarter. We believe that these opposing macro forces will affect the latter part of the year, and we've provided strong guidance that we believe we will meet. It's essential for us to execute effectively on the key areas that will help maintain our margins, which we consider to be four or five critical points.

And coming back to the credit tightening element being so topical, maybe approaching that from a different way. How do you see that potentially impacting your M&A pipeline?

I don't believe it affects our ability to execute our plans. However, we recognize that if the overall M&A environment isn't favorable, there may be fewer opportunities available. Many of our acquisitions are not part of the typical M&A market; most deals we've completed in the last three years involve individuals selling their life's work, which is where we excel. This approach allows us to create value not just for the sellers but also for our shareholders and opens up new avenues for growth. Currently, private equity activity is low due to interest rates, covenants, credit tightening, and difficulties in placing secondary debt. This means sellers who want a competitive bidding process are trying to sell their companies now. All of this contributes to the fact that M&A volumes are significantly down. That said, while I wouldn't say our pipeline is exceptionally robust, I do think we have a reasonable selection of opportunities that can help us expand our footprint, enhance our capabilities, and improve our service offerings across various geographies or product lines we aim to incorporate.

Got it. Got it. All right. Thanks for the perspective. Many compliments to the team.

Thank you very much all. We started well in 2023. We got a lot of work ahead of us. And I hope you all are well. Have a good summer and be safe.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.