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. 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 emcorgroup.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 turning it back to Tony to 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.

Thank you, Andy. Good morning and welcome to our second quarter 2025 earnings call. I will begin by discussing some of the financial highlights for the second quarter, followed by commentary on our performance in the first half of the year. Jason will provide detailed quarterly financials. We had an excellent second quarter and first half of 2025. In the second quarter, we achieved $6.72 in diluted earnings per share and generated $4.3 billion in revenue, marking a quarterly record and a 17.4% increase from the same period last year. Our operating margins were exceptional at 9.6%, with an operating cash flow of $194 million. As we exited the quarter, our Remaining Performance Obligations reached a record $11.9 billion, representing an increase of $2.9 billion year-over-year and $1.8 billion since December 2024. We remain disciplined in our capital allocation, spending over $430 million on share repurchases and utilizing $887 million for acquisitions in the first six months of 2025. Our liquid balance sheet supports our growth and capital allocation strategy. Our performance is particularly strong in our Electrical and Mechanical Construction segments, with both generating impressive operating margins and growth in their business bases, as evidenced by their RPOs. We have effectively managed our project mix and earned the confidence of our customers across various geographies and market sectors. We continue to execute effectively for our customers by utilizing VDC, BIM, and prefabrication, along with strong planning, labor sourcing, and disciplined contract negotiation. Our build leadership is top-notch, operating with focus, discipline, and determination. In the Electrical Construction segment, our integration of Miller Electric is on track. Our Mechanical Services business within our Building Services segment is performing well with good revenue growth and high single-digit operating margins. We also successfully restructured our site-based business in response to previous contract losses, which should lead to a more efficient cost structure as we aim for future growth. Despite a challenging first half for our Industrial Services segment, we anticipate improvements in both our shop and field businesses as the year progresses. Additionally, the U.K. has seen robust growth in revenue, operating margin, and operating income. Overall, we are confident that we had a strong quarter and a strong first half of 2025. Now, let’s discuss RPOs before I pass the call to Jason. As mentioned, we ended the quarter with strong, diverse RPOs of $11.9 billion. Thanks to growth across nearly all market sectors, RPOs increased by 32% year-over-year and 18% since December 2024. Excluding acquisitions, our organic RPOs grew by 22% year-over-year and nearly 9% since the end of 2024. Our growth is driven by long-term trends in key markets. RPOs in network and communications, which includes our data center business, reached a record $3.8 billion by the end of June. We are well-positioned to support our customers' data center build-outs. Healthcare RPOs stand at $1.4 billion, building on a solid foundation, with the acquisition of Miller Electric enhancing our opportunities in this sector, contributing to our RPO growth in 2025. Manufacturing and industrial RPOs have also reached $1 billion, driven by customer onshoring and reshoring initiatives, as well as growth from food processing and renewable energy projects in our Industrial Services segment, led by Mechanical Construction. Water and wastewater RPOs reached $725 million as we continue receiving project awards in Florida. Additionally, we experienced growth in the Institutional sector, where RPOs now total $1.4 billion, and the Hospitality and Entertainment sector, where we've seen a 72% year-over-year growth or 64% since December. While RPOs in high-tech manufacturing have decreased from last June, we maintain our belief in the sector's long-term fundamentals, recognizing the erratic nature of project awards. Sequentially, compared to the end of March, we saw a $126 million increase in high-tech manufacturing RPOs, nearly 15% growth, largely due to a Phase 2 mechanical construction project for our semiconductor customer. Now, 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 headcount 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 half of the 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 margins 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, healthcare, 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.

The first question comes from the line of Brent Thielman with D.A. Davidson.

In the context of the world, you'll see a balanced approach to capital allocation, and deals will occur as they arise. Lastly, I want to express my gratitude to my EMCOR teammates for their dedication to our customers and to the company, as well as for looking out for one another and ensuring everyone's safety. Now, Ranju, I'm ready to take questions.

Brent?

Mr. Thielman, if you have muted your phone, unmute yourself and go ahead with the question.

Okay, let's come back to Brent. Let's go to the next question.

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 who 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, network and communications, the commercial market for us is retrofit continues to chug along. Healthcare 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 non-residential 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 non-res 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 non-res 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 is still primarily focused downstream, and that has not changed. What's different is the timing, particularly when comparing the first half of this year to last year, which is influenced by turnaround schedules. We anticipate seeing strengthening later in the year and potentially more activity in midstream, which will affect our Electrical business within Industrial. Additionally, we are observing developments in other energy sectors, especially in LNG and similar areas as plans are put into action. These are the main factors you'll notice. Since approximately 70% of our focus is downstream, we remain reliant on refinery utilization and turnaround schedules.

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, the key factor is increased volume. We recently received one or two awards, and on the service front, there has been more project activity. This is what is driving revenue growth. When examining margins, it is essentially about leveraging overhead during this growth period.

And it's been a pretty steady performer. And it's known for technical excellence, and it wins those kinds 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 can still meet your criteria to be an attractive deal here. 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 hasn'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 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, I mean 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 in 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.

That's great information, Tony. I appreciate that. I wanted to ask about your impressive expansion and particularly the mechanical margins. Tony, could you clarify if the combination of operating leverage and achieving a higher rate is similar to what you've experienced before? It would be helpful to understand what exactly you're leveraging within that group.

Yes, it starts with us. When considering the customer base driving the current mix, we are dealing with some of the most sophisticated customers globally, and they have high expectations. They aren't willing to pay any more than necessary, which means it's our responsibility to deliver. The contract terms are also not easier than they need to be. From there, we recognize that the market is busy, and perhaps pricing is slightly better. However, I believe that the primary factors at play are our methods and capabilities, such as increasing productivity on job sites, utilizing tools like VDC and BIM that our customers find valuable, and creating prefabricated solutions while minimizing the amount of labor needed on-site, focusing instead on having highly skilled workers. It's also crucial to have excellent field supervision to enhance productivity and achieve the best results safely, thereby becoming a desirable workplace for labor. I think we've accomplished that. With strong job site supervision, thorough planning, well-negotiated contracts, efficient progress billings that maintain customer pricing, and innovative solutions for value engineering and productivity, we often find ourselves in a favorable position. Now, I will invite Jason to discuss the sustainability of margins, which we typically assess based on 12, 18, and 24-month averages. I believe we are currently in a solid place. Jason?

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 the 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; you lose 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. For the most part, our customers have started planning. You need to break it down into two parts. First, they are working on several new drugs that they are investing in domestically, such as GLP-1s and weight loss drugs. This has been a significant development in regions like Indiana, North Carolina, and to some extent, New Jersey. The second part, which they began planning around the middle of last year, relates to onshoring more manufacturing, an effort that was partly driven by COVID. This transition does not happen overnight, but it is ongoing and I expect it to pick up speed. I noticed an analyst recently comment that there hasn’t been much pharmaceutical activity in the U.S., but my observations tell a different story, as we are seeing considerable activity and are actively participating 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?

I believe this is a significant project. It's over $100 million and it's part of the second phase, building on what we accomplished in the first phase at the same site. So this is not a minor contract. The real question lies with what occurs at other sites. We will likely begin some initial work there, though it may be less visible because it will be on a smaller scale, and that could lead to larger awards like this in the future.

The next question comes from the line of Justin Hauke with Baird.

Great. I just wanted to ask about the strong performance in the first half, especially in the second quarter. I'm curious about the reasons behind the guidance increase and what it implies for the second half. While I understand you don't provide quarterly guidance, is the increase mainly due to the stronger-than-expected second quarter, with second-half expectations remaining stable? Or is it a combination of both? I notice you've raised the margin guidance, but it seems like the lower end still assumes performance stays at the first half level. I’m trying to get a clearer picture of how you characterize the guidance.

First of all, welcome. We appreciate you covering us, and we look forward to your conference this fall. Regarding the guidance, you have captured it correctly. The lower end reflects our current approach, while the higher end accounts for the upper range of revenue guidance and assumes a higher margin. Jason has a detailed analysis he can share with you, and I'm sure the rest of you will be interested in that as well, as it will save you from having to do the work.

No. I mean I think the only thing I would say is I think it is twofold, right? A piece of it is the performance in the second quarter and a piece of it is our expectations for margin in the back half of the year. And if you look now, as I stated, for the back half, we expect margins between 9% to 9.6%, which gives you full year margins of somewhere between 9% and 9.4%. And so if you just look at that midpoint, which is about 9.2%, and you take into consideration the intangible asset amortization impact from Miller, there's probably another 20 to 30 basis points on top of that if you're really comparing apples-to-apples to '24. But to answer your question, I think it's a 2-part raise. It's taking into consideration what we did in the second quarter and our expectations in the back half.

Which are good.

Yes. Okay. Fair enough. And I guess my second question, we talked a lot about pharma, bio stuff and the semis. You don't have a ton of exposure to renewables, but it is something that you guys have...

No. This allows me to make a broader point. First of all, we are contracted, so we look for two things when considering how to invest and grow in a resource. The first thing we assess are projects that we view as one-off or short-term. I initially thought of electric vehicles that way, based on historical context. We participated, especially in fire life safety, but that's not where we made our long-term durable investment. We focused more on high-tech manufacturing and data centers. I believe there will still be more batteries, and we will engage in that, but we didn't allocate a significant portion of our resources there, despite requests to do so. Secondly, regarding specifics around semiconductors or biopharmaceuticals, we are positioned well to participate. As for renewables, we have always been involved. We have built some renewable farms successfully, particularly solar farms, including smaller scale projects on-site. We've also engaged in combined heat and power initiatives. However, that typically happens when a customer asks us to get involved or when we have a team with relevant expertise. We have never pursued large-scale acquisitions in that area, nor have we invested the majority of the company's resources there. My guiding philosophy has been to focus on durable demand where our customers are investing their money rather than relying on external funding for project success. I have always believed that subsidies are secondary; if one entity is subsidizing something, it creates a risk for another entity that could lose that support. Therefore, we always aim for long-term durable demand, and that approach has served us well over time.

Yes. I think if you take the broadest definition of renewable and you threw everything in there, solar, even some of the EV plants, the battery manufacturing that we've done, it's less than 5% of our total revenue. So it's not a significant piece of what we do.

Next question comes from the line of Avi Jaroslawicz with UBS.

Congrats on a nice 2Q. I'm glad to be covering you guys. So just want to circle back to the margin conversation. And I know you guys touched on this to some extent. But just when we think of the margins moving in bands, we've now seen, I believe, 5 quarters where the margins in the combined Construction segment was north of 12%. But if we extend it back to the range back to 24 months, a decently wider range. So curious how you guys are thinking about the range within the Construction segment for the foreseeable future?

I think if you look at a rolling 24 months, rolling 24 months for Construction, it's going to get you somewhere between 12.5%, maybe 12.25% to 13%, 13.25%. I think that's a decent range on the Construction.

We might end up in core. We were looking at a rolling 12...

Okay. It makes sense. And in terms of the capacity for your prefabrication capabilities, do you still see opportunity to leverage that grow your volumes faster than your headcount? And are you working on continuing to expand your capacity there?

Yes, we are actively seeking opportunities to expand our prefabrication capabilities. Currently, about 95% of our fabrication is for our own projects, with only 5% coming from external requests due to our strong performance on previous jobs. Our capital expenditures as a percentage of sales have remained relatively stable but have more than doubled, primarily invested in prefabrication assets. In our construction business, particularly in fire life safety and sprinkler systems, we manage about 70% of our total volume while sourcing the remaining 30% for smaller local jobs, as it wouldn't be cost-effective to build fabrication capabilities for them. In electrical, we're expanding more aggressively than ever, particularly as we take on data center work and other large projects. We also have significant mechanical shops that continue to grow. Our fabrication efforts concentrate on large-scale electrical jobs, including major data centers and underground work, aiming to reduce labor needs on-site and enhance efficiency and safety. The demand in markets such as data centers, semiconductor plants, and healthcare is driving our prefabrication growth. Successful prefabrication necessitates advanced virtual design and construction (VDC) and building information modeling (BIM) abilities. We’re typically not the engineer of record, but we focus on enhancing design for constructability to improve value engineering and inform our prefabrication planning in coordination with fieldwork. This approach allows us to maintain a high percentage of in-house fabrication, which we refer to as prefabrication, rather than modular construction.

That’s helpful. Regarding your bookings this quarter, we know it can be quite variable from one quarter to another, and you try to keep it within a 90-day framework. As we consider your capacity and efforts to expand it, how much more do you believe you could have booked if you had additional capacity? There’s clearly significant momentum in your end markets, but you also need to be careful about the projects you take on. I’m interested in how you’re managing that balance.

We don't view it in that way. Instead, we evaluate the market, the job opportunities, and the long-term potential of a site. We have been able to attract the labor necessary for our projects. I’ve never suggested that work is simply being thrown at us and that we are choosing what to accept; that’s not accurate. Our approach begins with strategically identifying the markets we aim to serve and the capacity we will build over time to fulfill those needs. We will find the craft labor since people are eager to work for us. It’s important that we also develop our supervisory roles, including foremen, project managers, and project engineers, as well as enhance our VDC capabilities. We have experienced significant growth, and we can continue to expand that capacity. We assess our situation on a site-by-site and company-by-company basis. I wouldn’t say our team is limited by capacity; every contractor can face capacity constraints if they choose to pursue the entire market. What I will say is that we are effectively managing the right mix needed for long-term success.

Next question comes from the line of Sam Snyder with Northcoast Research.

Just wanted to know, maybe you could remind us, I'm looking at the growth rates between Mechanical and Electrical. Do you expect that to converge? And then maybe you could remind us for everybody on the call, how that sort of flows from the beginning to an end of a project, obviously, every project is different, but do you expect the mix to change as projects mature on average?

Yes. So you can almost think of every project has a cycle. Manpower usually starts to peak between 25% to 30% of the job to about 65% of the job. So that's obviously when you're earning the most revenue. And margins trail that typically because you start to figure out what you're actually going to make on the job. I mean everything we do is based on an estimate. And the estimate becomes more for better or worse as the job progresses. But will they converge? Probably not. I mean they'll have different growth rates in the quarter. Are they both serving the same end market? Yes, with a little different mix, electrically is a little more heavily weighted towards data centers, mechanically a little more diverse mix of projects. Some of that is just our heritage and where our footprint is, some of them more data center markets where our big mechanical contractors are, and some of them are just getting into that business now. But the markets they serve are relatively the same, more of an emphasis right now electrically on data centers. We'll continue to look to expand the mechanical capacity. But really, because there are so many projects going at any time, it's hard to say there's anything, Jason, right, driving overall on the timing.

The one thing I'd add on the data center growth for each, right, is if you look at Electrical, Construction dollar-wise, growing faster data centers or more growth from data centers dollar-wise, the Mechanical is growing at a faster growth rate and that's to the point that Tony made that historically, our Electrical business was our data center business. We are starting to see an uptick in demand in Mechanical.

Yes. And we have 3 or 4 companies that do it mechanically. Fire life safety everywhere we can do it. Electrically, that's upwards of 8 or 10 that really do it in a significant way.

The last question comes from the line of Adam Bubes with Goldman Sachs.

I just had a couple on the data center business. Based on last quarter's 10-Q and today's results, it looks like your data center business is growing in the very high double-digit growth range organically. And it appears that it's well above broader data center construction spending in the U.S., which is closer to call it, 25% up year-over-year. So just wondering what's driving your outsized data center growth versus industry data points in your view? And do you expect that spread is sustainable?

I don't know if that sizable spread is sustainable, but I think much like non-res market, I would expect us over time to outgrow whatever the data center market is growing. And that's for a number of reasons. We're in more markets than just about anybody. We have a lot of customers that really like us. We do great work for them. Some of our folks are the most innovative people, both mechanically and electrically and how a data center gets built. That's both fire life safety, Mechanical and Electrical. We do a great job of VDC and BIM and prefabrication in the data center world, which leads to really good outcomes for our customers. And we have a resume in a lot of ways that's second to none. And again, I always go back to, these are the most demanding smart customers that we work with. And so I take it as a real for source of pride, but not so much for me. Source of pride in our people that have become leaders in this market and build our capability. And they're good. And I think if you're growing like we are, both mechanically and electrically and outpacing the market by 1.5x to 2x, you have to be good. Because, again, you're working for some of the toughest customers known demand.

Great. And then I understand there's many different moving pieces underpinning margins, but I think all else equal, data center margins are relatively strong. If data centers continue to increase as a percent of your overall revenue, should we expect potential for further total company margin expansion, all else equal?

Well, I'd have to say you'd have to add other variable on top of that, and that's contract mix. Certain times, we're working GMP; we're working to a target fee and a target price. Other times, we're doing at fixed price. That mix of contract mix, and that can change quarter-to-quarter by customer. That can be whether one of the big people we all heard about this morning as they announced, whether it's one of the 7 or whether it's one of the colo people voting for the 7. The contract mix has a big part to that. And also for us is the timing when we're on a site; sometimes we'll start on a site and they're going to do a 3-year build, 4-year build on that data center site. We'll start on that site, and we'll work on that site initially, and we've started some new sites. We'll initially start at GMP and then we'll move to a fixed price. So that changes in mix are happening all the time, where they'll come up with a new design on a site and we thought we were going to be doing that fixed price and now that will go GMP for the next build because they've changed their design. They're managing their risk. But remember, we're always managing our risk, too. But the only reason data centers may look more profitable is because we spend a lot of time working with our customers on feed to market and we spend a lot of time working with our customers on what's the appropriate level of risk each of us should be taking.

Yes. And just to echo what Tony said, right, I never generalized by sector. I think we are in our margin on every job, and it's just speculation until you know the scope of the job, the contract structure, the geography, what that labor pool looks like, and how much we can prefab. And just as a point there, right, as you said, if you look at the growth rate we've seen for data centers this year, it's definitely high double digits, but our guidance for the full year implies the same margins we were in last year. So I wouldn't necessarily say that just because you have more of one sector, your margins are going up.

Because the contract mix is so much of that. And we're in a learning curve in some of these new sites, too, because of the labor.

This concludes our question-and-answer session. I would now like to turn the conference back over to Tony Guzzi for closing remarks.

Thank you all very much for being part of our call today. Welcome to our new cover analysts. And we look forward to a strong second half, and I hope you all stay safe and have a good remainder of the summer. Andy, back to you.

Great. Thanks, Tony, and thanks, Jason, and thank you all for joining us today. As always, if you should have any follow-up questions, please do not hesitate to reach out to me directly. Thank you all again and have a great day. Ranju, can you please close the call?

Thank you. Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.